EXHIBIT 10(i)(f)

 

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STOCK PURCHASE AGREEMENT

 

among

 

THE JEAN COUTU GROUP (PJC) INC.,

 

J. C. PENNEY COMPANY, INC.

 

and

 

TDI CONSOLIDATED CORPORATION

 

dated as of April 4, 2004

 

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TABLE OF CONTENTS

 

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ARTICLE I

  

PURCHASE AND SALE OF THE SHARES

   1

Section 1.1

  

Purchase and Sale of the Shares

   1

Section 1.2

  

Unadjusted Purchase Price

   2

Section 1.3

  

Estimated Purchase Price

   2

Section 1.4

  

Closing Working Capital Adjustment

   2

Section 1.5

  

Closing

   4

Section 1.6

  

Deliveries at the Closing

   4

Section 1.7

  

Settlement of Intercompany Obligations

   6

Section 1.8

  

Adjustment for Settlement of Intercompany Obligations

   6

ARTICLE II

  

REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER

   7

Section 2.1

  

Representations and Warranties Regarding the Parent and the Seller

   7

Section 2.2

  

Representations and Warranties Regarding the TDI Companies and the TDI
Subsidiaries

   9

ARTICLE III

  

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

   22

Section 3.1

  

Organization, Standing and Corporate Power

   22

Section 3.2

  

Authority; Noncontravention

   22

Section 3.3

  

Consents and Approvals

   23

Section 3.4

  

Investment Intent

   23

Section 3.5

  

Sophistication of the Purchaser

   23

Section 3.6

  

Brokers

   23

Section 3.7

  

Financing

   24

ARTICLE IV

  

COVENANTS

   24

Section 4.1

  

Conduct of Business

   24

Section 4.2

  

Acquisition Proposals; Inconsistent Activities

   27

Section 4.3

  

Access to Information; Confidentiality

   28

Section 4.4

  

Reasonable Best Efforts; Regulatory Matters

   29

Section 4.5

  

Public Announcements

   31

Section 4.6

  

Tax Matters

   31

Section 4.7

  

Employee Benefit Matters

   37

Section 4.8

  

Internet-Related Matters

   40

Section 4.9

  

Guarantees

   40

Section 4.10

  

Use of Intellectual Property

   41

Section 4.11

  

Use of Penney Marks

   41

Section 4.12

  

Release of Indemnity Obligations

   41

Section 4.13

  

Further Action

   41

Section 4.14

  

Notice of Developments

   41

Section 4.15

  

Confidentiality

   42

Section 4.16

  

Asset Purchase Agreement

   42

Section 4.17

  

Title and Survey Obligations

   43

 

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TABLE OF CONTENTS

(continued)

 

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Section 4.18

  

Environmental Inspections

   43

Section 4.19

  

Framework Agreement

   43

Section 4.20

  

Transition Services Agreement

   44

Section 4.21

  

Delivery of Additional Financial Statements

   44

Section 4.22

  

Real Property Commitments

   44

Section 4.23

  

JEC Owned Real Property

   44

Section 4.24

  

Contractual Overpayments

   45

Section 4.25

  

Orphan Entities

   45

Section 4.26

  

IP Liens

   45

Section 4.27

  

JCP Owned Real Property

   45

Section 4.28

  

Intentional Breach of the Asset Purchase Agreement

   45

Section 4.29

  

JCP Leased Real Property

   45

Section 4.30

  

Trademarks

   46

Section 4.31

  

Domain Names

   46

ARTICLE V

  

CONDITIONS PRECEDENT

   46

Section 5.1

  

Conditions to Each Party’s Obligation

   46

Section 5.2

  

Conditions to Obligations of the Parent and the Seller

   47

Section 5.3

  

Conditions to Obligations of the Purchaser

   47

ARTICLE VI

  

TERMINATION, AMENDMENT AND WAIVER

   48

Section 6.1

  

Termination

   48

Section 6.2

  

Effect of Termination

   49

Section 6.3

  

Amendment

   49

Section 6.4

  

Extension; Waiver

   49

ARTICLE VII

  

INDEMNIFICATION

   49

Section 7.1

  

Indemnification by the Parent and the Seller

   49

Section 7.2

  

Indemnification by the Purchaser

   50

Section 7.3

  

Notice and Resolution of Claims

   50

Section 7.4

  

Limits on Indemnification

   51

Section 7.5

  

Indemnity Payments

   52

Section 7.6

  

Coordination With Tax Covenant

   52

ARTICLE VIII

  

MISCELLANEOUS

   52

Section 8.1

  

Reliance

   52

Section 8.2

  

Fees and Expenses

   53

Section 8.3

  

Certain Definitions

   53

Section 8.4

  

Notices

   58

Section 8.5

  

Interpretation

   60

Section 8.6

  

Entire Agreement; Third Party Beneficiaries

   60

Section 8.7

  

Governing Law; Venue

   60

Section 8.8

  

Assignment

   61

Section 8.9

  

Enforcement

   61

Section 8.10

  

Severability

   61

 

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TABLE OF CONTENTS

(continued)

 

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Section 8.11

  

Counterparts

   61

 

EXHIBITS

 

Exhibit A    TDI Companies Exhibit B    Asset Purchase Agreement Exhibit C   
Southern States Exhibit D-1    Transition Services Agreement - J. C. Penney
Corporation, Inc. and The Jean Coutu Group (PJC) Inc. Exhibit D-2    Transition
Services Agreement - CVS Pharmacy, Inc., Eckerd Corporation, Thrift Drug, Inc.
and Genovese Drug Stores, Inc. Exhibit D-3    Transition Services Agreement - J.
C. Penney Corporation, Inc. and CVS Pharmacy, Inc. Exhibit E-1    Form of
General Release and Discharge from each of the TDI Companies and TDI
Subsidiaries Exhibit E-2    Form of General Release and Discharge from the
Parent Exhibit F    Framework Agreement Exhibit G    Executed Financing
Commitment Letter Exhibit H    Subject Matter of Parent and Seller Legal Opinion
Exhibit I    Southern Entities Exhibit J    TDI Subsidiaries

 

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STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT, dated as of April 4, 2004 (this “Agreement”), is
made and entered into among The Jean Coutu Group (PJC) Inc., a Quebec
corporation (the “Purchaser”), J. C. Penney Company, Inc., a Delaware
corporation (the “Parent”), and TDI Consolidated Corporation, a Delaware
corporation (the “Seller”).

 

RECITALS:

 

A. The Seller owns all of the issued and outstanding shares (the “Shares”) of
the capital stock of the companies listed on Exhibit A hereto (the “TDI
Companies”).

 

B. The Seller, through the TDI Companies and their Subsidiaries, is engaged in
the business of owning and operating a chain of retail drugstores, pharmacy
benefit administration and management services, mail order pharmacy services,
specialty pharmacy and related businesses (the “Business”).

 

C. On the date of this Agreement, the Parent, certain of the TDI Companies and
certain of their Subsidiaries have entered into an Asset Purchase Agreement with
CVS Corporation, a Delaware corporation (“CVS”), and CVS Pharmacy, Inc., a Rhode
Island Corporation (the “Asset Purchaser”), in substantially the form attached
hereto as Exhibit B (the “Asset Purchase Agreement”), pursuant to which certain
assets related to the operation of retail drugstores conducted in the states
listed on Exhibit C hereto and the assets related to the operation of the
pharmacy benefit administration and management services, specialty biotech
pharmacy services and mail order pharmacy services businesses (as more
particularly described therein, the “Southern Business”) and the capital stock
of the Southern Entities will be transferred to, and certain liabilities will be
assumed by, the Asset Purchaser or one or more of its affiliates with the result
that the TDI Companies and TDI Subsidiaries will have only those assets and
liabilities that are not so transferred or assumed (the “Northern Business”).

 

D. The Purchaser desires to purchase from the Seller, and the Seller desires to
sell to the Purchaser, all of the Shares, immediately after and conditioned upon
the consummation of the transactions contemplated by the Asset Purchase
Agreement.

 

E. Concurrently with the execution and delivery of this Agreement, the Seller
has delivered to the Purchaser a Disclosure Schedule, dated as of the date of
this Agreement (the “Disclosure Schedule”).

 

NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained in this Agreement, the parties hereto hereby agree as
follows:

 

ARTICLE I

 

PURCHASE AND SALE OF THE SHARES

 

Section 1.1 Purchase and Sale of the Shares. Upon the terms and subject to the
conditions set forth in this Agreement, the Purchaser agrees to purchase from
the Seller at the Closing, and the Seller agrees to sell, assign, transfer and
deliver to the Purchaser at the Closing,

 

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the Shares, free and clear of any lien, pledge, claim, restriction or other
encumbrance (“Liens or Encumbrances”), other than any Liens or Encumbrances
created by the Purchaser and any restrictions on the Purchaser’s ability to
resell the Shares imposed by applicable securities Laws.

 

Section 1.2 Unadjusted Purchase Price. The unadjusted purchase price for the
Shares shall be $2,375,000,000.00 in cash (the “Unadjusted Purchase Price”).

 

Section 1.3 Estimated Purchase Price.

 

(a) Not later than the third business day prior to the Closing Date, the Parent
and the Seller shall deliver to the Purchaser a statement (the “Estimated
Closing Working Capital Statement”) setting forth the Parent’s and the Seller’s
estimate of Closing Working Capital (“Estimated Closing Working Capital”) and
the Parent’s and the Seller’s calculation thereof in reasonable detail. The
Estimated Closing Working Capital Statement shall be (i) prepared in good faith
and in accordance with United States generally accepted accounting principles
(“GAAP”) using the accounting principles, methodologies, policies and practices
set forth in Section 1.3(a) of the Disclosure Schedule (the “Accounting
Policies”) applied consistently with their application in the Carve-Out Special
Purpose Financial Statements - Northern Operations and (ii) determined in
accordance with Section 1.4(a) as if it were the actual Closing Working Capital
but shall be based upon the Parent’s and the Seller’s review of financial
information then available to them.

 

(b) “Estimated Purchase Price” shall mean a cash amount equal to the Unadjusted
Purchase Price plus or minus the amount by which Estimated Closing Working
Capital is greater or less, respectively, than $748,588,000.00.

 

Section 1.4 Closing Working Capital Adjustment.

 

(a) Closing Date Balance Sheet. As promptly as practicable, and in any event
within ninety (90) calendar days after the Closing Date, the Purchaser shall
deliver or cause to be delivered to the Seller (i) a balance sheet of the
Northern Business as of and including the Closing Date (the “Closing Date
Balance Sheet”), prepared using the Accounting Policies applied consistently
with their application in the Carve-Out Special Purpose Financial Statements -
Northern Operations and (ii) a statement setting forth the Purchaser’s
calculation of Closing Working Capital (the “Closing Working Capital
Statement”).

 

(b) Review of Closing Date Balance Sheet. Within forty-five (45) calendar days
after the delivery to the Seller of the Closing Date Balance Sheet and the
Closing Working Capital Statement (the “Seller Review Period”), the Seller shall
notify the Purchaser of its agreement or disagreement with the Closing Date
Balance Sheet and the Closing Working Capital Statement. If the Seller in good
faith disagrees with the Closing Date Balance Sheet and/or the Purchaser’s
determination of Closing Working Capital based solely upon an incorrect
mathematical calculation or the Purchaser’s failure to properly apply the
Accounting Policies, the Seller may deliver to the Purchaser, prior to the
expiration of the Seller Review Period, a notice (the “Seller Objection Notice”)
setting forth in reasonable detail (i) the items or amounts with which the
Seller disagrees and the basis for such disagreement and (ii) the Seller’s
proposed corrections to the Closing Date Balance Sheet and/or the Closing
Working Capital Statement (collectively, the

 

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“Seller Objection”). Despite the timely delivery of a Seller Objection Notice,
the Purchaser, on the one hand, and the Parent and the Seller on the other hand,
as applicable, shall make any and all payments as to amounts not in dispute
required by Section 1.4(e) prior to the resolution of the Seller Objection
pursuant to Section 1.4(c). If the Seller does not deliver a Seller Objection
Notice within the Seller Review Period, the Seller shall be deemed to agree in
all respects with the Closing Date Balance Sheet and the Closing Working Capital
Statement and the items and amounts reflected thereon shall be final and binding
upon the Purchaser, the Parent and the Seller.

 

(c) Review by Accountants. If a Seller Objection Notice is properly and timely
delivered and the Purchaser, the Parent and the Seller are unable to resolve any
disagreement between them with respect to the preparation of the Closing Date
Balance Sheet and/or the determination of Closing Working Capital within thirty
(30) days after delivery of a Seller Objection Notice, the Purchaser, the Parent
and the Seller shall cause PricewaterhouseCoopers LLP (or, if they are unable or
unwilling to serve, a firm of independent accountants of nationally recognized
standing reasonably satisfactory to the Purchaser, on the one hand and the
Parent and the Seller, on the other hand) (the “Accountants”), to promptly
review this Agreement and the disputed items or amounts in the Closing Date
Balance Sheet and/or the Closing Working Capital Statement for the purpose of
resolving such dispute. The Accountants shall consider only those items or
amounts in the Closing Date Balance Sheet and/or the Closing Working Capital
Statement as to which the Seller has, in the Seller Objection Notice, disagreed
and such other issues as may reasonably be affected by the items as to which the
Seller has so disagreed. The Accountants shall deliver to the Purchaser, the
Parent and the Seller, as promptly as practicable, but no later than sixty (60)
calendar days after the Accountants are engaged, a written report setting forth
their resolution and, if applicable, their calculation of the disputed items or
amounts. If the disputed items and amounts relate to the determination of
Closing Working Capital, in no event shall the Accountants’ determination result
in Closing Working Capital that is greater than that set forth in the Seller
Objection Notice or less than that set forth in the Closing Working Capital
Statement. The parties shall promptly comply with all reasonable requests by the
Accountants for information, books, records and similar items. Upon delivery of
the Accountants’ report, such report and the calculations set forth therein
shall be final and binding upon the Purchaser, the Parent and the Seller absent
manifest error. The cost of such review and report shall be allocated between
the parties in the same proportion that the aggregate amount of the disputed
items submitted to the Accountants that is unsuccessfully disputed by such party
(as finally determined by the Accountants) bears to the total amount of the
disputed items so submitted.

 

(d) Cooperation. Each of the Purchaser, on the one hand, and the Parent and the
Seller, on the other hand, shall cooperate and assist each other in the
preparation of the Closing Date Balance Sheet and the Closing Working Capital
Statement and in the conduct of the reviews referred to in this Section 1.4 and
the Purchaser shall cooperate and assist the Parent and the Seller in the review
of the Closing Date Balance Sheet and Closing Working Capital Statement
described in the Asset Purchase Agreement, including (i) the Purchaser making
reasonably available the books, records, work papers and personnel of the TDI
Companies and of the TDI Subsidiaries and (ii) the Parent and the Seller making
reasonably available the books and records of the Parent (as they relate to the
Business) and of the Seller.

 

3

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(e) Final Payment. Within three (3) business days after the calculation of
Closing Working Capital becoming final pursuant to Section 1.4(b) or Section
1.4(c), as applicable, (i) the Purchaser shall pay to the Seller, by wire
transfer of immediately available funds to an account designated by the Seller,
an amount equal to the amount, if any, by which Closing Working Capital (as
finally determined pursuant to Section 1.4(b) or Section 1.4(c), as applicable)
exceeds Estimated Closing Working Capital, together with interest thereon at the
Applicable Rate from and including the Closing Date to, but excluding, the date
of such payment, or (ii) the Seller shall pay to the Purchaser, by wire transfer
of immediately available funds to an account designated by the Purchaser, an
amount equal to the amount, if any, by which Estimated Closing Working Capital
exceeds Closing Working Capital (as finally determined pursuant to Section
1.4(b) or Section 1.4(c), as applicable), together with interest thereon at the
Applicable Rate from and including the Closing Date to, but excluding, the date
of such payment.

 

Section 1.5 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated hereby shall have been abandoned pursuant to Article
VI, and subject to the satisfaction or waiver of all of the conditions set forth
in Article V, the closing of the purchase and sale of the Shares hereunder (the
“Closing”) will take place as soon as practicable, but in no event later than
10:00 a.m., Dallas time, on the fifth business day (the “Closing Date”)
following satisfaction or waiver of all of the conditions set forth in Article
V, other than those conditions that by their nature are to be satisfied at the
Closing (which includes the condition set forth in Section 5.1(c)), but subject
to the fulfillment or waiver of those conditions, at the offices of Jones Day,
Dallas, Texas, unless another date, time or place is agreed to in writing by the
parties hereto.

 

Section 1.6 Deliveries at the Closing.

 

(a) Deliveries by the Purchaser. At the Closing, the Purchaser shall deliver to
the Seller:

 

(i) the Estimated Purchase Price, as adjusted pursuant to Section 1.8, by wire
transfer of immediately available funds to an account designated by the Seller;

 

(ii) a certificate of the Purchaser, dated the Closing Date and signed by an
authorized officer of the Purchaser, certifying that the conditions set forth in
Section 5.2(a) have been satisfied;

 

(iii) executed counterparts to (A) the Transition Services Agreement between J.
C. Penney Corporation, Inc., a Delaware corporation (“JCP”), and the Purchaser
in substantially the form attached hereto as Exhibit D-1 and (B) the Transition
Services Agreement between the TDI Companies and the Asset Purchaser in
substantially the form attached hereto as Exhibit D-2;

 

(iv) the general release and discharge from each of the TDI Companies and each
of the TDI Subsidiaries referred to in Section 4.12 in substantially the form
attached hereto as Exhibit E-1;

 

(v) a receipt for the Shares; and

 

4

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(vi) executed counterparts to the Framework Agreement between the Purchaser, the
Asset Purchaser, CVS as guarantor and Brooks Pharmacy, Inc., a Rhode Island
corporation (“Brooks”), as guarantor in substantially the form attached hereto
as Exhibit F.

 

(b) Deliveries by the Parent and the Seller. At the Closing, the Parent and the
Seller shall deliver to the Purchaser:

 

(i) certificates representing the Shares, duly endorsed in blank for transfer or
accompanied by stock powers duly endorsed in blank;

 

(ii) a certificate of the Parent and the Seller, dated the Closing Date and
signed by an authorized officer of the Parent and the Seller, respectively,
certifying that the conditions set forth in Section 5.3(a) have been satisfied;

 

(iii) a true and complete copy, certified by the Secretary or an Assistant
Secretary of each of the Parent and the Seller, of the resolutions duly and
validly adopted by the Boards of Directors of each of the Parent and the Seller
evidencing their respective authorization of the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein;

 

(iv) a copy of (i) the certificates of incorporation, as amended (or similar
organizational documents), of each TDI Company and of each TDI Subsidiary,
certified by the Secretary of State of the jurisdiction in which each such
entity is incorporated or organized, as of a date not earlier than fifteen (15)
business days prior to the Closing Date and accompanied by a certificate of the
Secretary or Assistant Secretary of each such entity, dated as of the Closing
Date, stating that no amendments have been made to such certificate of
incorporation (or similar organizational documents) since such date, and (ii)
the bylaws (or similar organizational documents) of each TDI Company and of each
TDI Subsidiary, certified by the Secretary or Assistant Secretary of each such
entity;

 

(v) certificates of existence for each TDI Company and for each TDI Subsidiary
from the Secretary of State of the jurisdiction in which such entity is
incorporated or organized as of a date not earlier than fifteen (15) business
days prior to the Closing Date and accompanied by bring down certificates from
the Secretary of State of Delaware for the TDI Companies dated as of the Closing
Date;

 

(vi) the general release and discharge from the Parent referred to in Section
4.12 in substantially the form attached hereto as Exhibit E-2;

 

(vii) a certificate from the Seller (which complies with Section 1445 of the
Internal Revenue Code of 1986, as amended (the “Code”)) of non-foreign status
executed in accordance with the provisions of the Foreign Investment in Real
Property Tax Act for the properties listed on Section 2.2(m)(i)(A) and
2.2(m)(i)(B) of the Disclosure Schedule;

 

(viii) executed counterparts to (A) the Transition Services Agreement between
JCP and the Purchaser in substantially the form attached hereto as Exhibit D-1
and (B) the Transition Services Agreement between JCP and the Asset Purchaser in
substantially the form

 

5

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attached hereto as Exhibit D-3 (together with the Transition Services Agreement
referenced in Section 1.6(a)(iii)(B), collectively, the “Transition Services
Agreements”);

 

(ix) a receipt for the Estimated Purchase Price;

 

(x) the opinion of Jones Day, counsel to the Parent and the Seller, addressed to
the Purchaser and dated the Closing Date, addressing the matters set forth in
Exhibit H and subject to customary assumptions and qualifications;

 

(xi) the opinion of Richards, Layton & Finger, P.A., Delaware counsel to the
Parent and the Seller, addressed to the Purchaser and dated the Closing Date, as
to certain matters of Delaware law in substantially the form agreed to prior to
the date of this Agreement by the Parent and the Purchaser; and

 

(xii) written resignations, effective as of the Closing, or evidence of the
prior resignation or removal, of the individuals listed in Section 1.6(b)(xiii)
of the Disclosure Schedule and any other Person who is not a TDI Employee from
all of their positions as directors and/or officers of the TDI Companies and/or
any of the TDI Subsidiaries.

 

Section 1.7 Settlement of Intercompany Obligations. Notwithstanding anything to
the contrary contained in this Agreement, to the extent the Intercompany
Obligations have not been paid prior to Closing, then (i) immediately prior to
the Closing the Parent and the Seller shall, and shall cause the TDI Companies
and the TDI Subsidiaries to, pay, cancel, contribute or forgive, or cause to be
paid, cancelled, contributed or forgiven, all Intercompany Obligations other
than outstanding principal and interest under the Intercompany Loan and (ii)
immediately following the Closing the Purchaser shall cause the TDI Companies
and the TDI Subsidiaries to pay all outstanding principal and interest under the
Intercompany Loan (as calculated two (2) business days prior to Closing), with
the result that immediately thereafter there shall be no Intercompany
Obligations. For purposes of this Agreement, the term “Intercompany Obligations”
means all intercompany loans, advances, payables and receivables (other than
trade payables and trade receivables) between the TDI Companies or any of the
TDI Subsidiaries, on the one hand, and the Parent, the Seller and any of their
affiliates (other than the TDI Companies or the TDI Subsidiaries), on the other
hand, which were made or arose out of transactions occurring on or prior to the
Closing; provided, however, that Intercompany Obligations shall not include any
intercompany loans, advances, payables and receivables in respect of combined,
consolidated or unitary Income Taxes.

 

Section 1.8 Adjustment for Settlement of Intercompany Obligations. The amount of
outstanding principal and interest under the Intercompany Loan paid following
the Closing under Section 1.7 shall be deducted from the amount of funds
required to be delivered by the Purchaser pursuant to Section 1.6(a)(i).

 

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ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SELLER

 

Each of the Parent and the Seller hereby jointly and severally represents and
warrants to the Purchaser as of the date of this Agreement and as of the Closing
Date (except for those representations and warranties made as of a specific time
or date) as follows:

 

Section 2.1 Representations and Warranties Regarding the Parent and the Seller.

 

(a) Organization, Standing and Corporate Power. Each of the Parent and the
Seller is duly organized, validly existing and in good standing as a corporation
under the laws of the State of Delaware and has the requisite corporate power
and authority to carry on its business as now being conducted. Each of the
Parent and the Seller is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.

 

(b) Authority of Seller; Noncontravention. The Seller has the requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Seller and the consummation by the Seller of the transactions
contemplated hereby have been duly authorized by all necessary corporate and
stockholder action on the part of the Seller. This Agreement has been duly
executed and delivered by the Seller and, assuming that this Agreement
constitutes a valid and binding obligation of the Purchaser, constitutes a valid
and binding obligation of the Seller, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws affecting creditors’ rights and
remedies generally and to general principles of equity. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, (i)
conflict with any of the provisions of the certificate of incorporation or
bylaws of the Seller, in each case as amended to the date of this Agreement or
the Closing Date, as applicable, (ii) subject to the governmental filings and
other matters referred to in Section 2.1(d) and except for matters arising
solely as a result of the consummation or anticipated consummation of the
transactions contemplated hereby, by the Asset Purchase Agreement or by the
Ancillary Agreements (as defined in the Asset Purchase Agreement) with respect
to leases and the Assigned Contracts (as defined in the Asset Purchase
Agreement), conflict with, result in a breach of or default under (with or
without notice or lapse of time, or both) any contract, agreement, indenture,
mortgage, deed of trust, lease or other instrument to which the Seller is a
party or by which the Seller or any of its assets is bound or subject, or (iii)
subject to the governmental filings and other matters referred to in Section
2.1(d), contravene any domestic or foreign Law, rule or regulation or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
which, in the case of clauses (ii) and (iii) above would reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect.

 

7

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(c) Authority of Parent; Noncontravention. The Parent has the requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Parent and the consummation by the Parent of the transactions
contemplated hereby have been duly authorized by all necessary corporate and
stockholder action on the part of the Parent. This Agreement has been duly
executed and delivered by the Parent and, assuming that this Agreement
constitutes a valid and binding obligation of the Purchaser, constitutes a valid
and binding obligation of the Parent, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws affecting creditors’ rights and
remedies generally and to general principles of equity. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, (i)
conflict with any of the provisions of the certificate of incorporation or
bylaws of the Parent, in each case as amended to the date of this Agreement or
the Closing Date, as applicable, (ii) subject to the governmental filings and
other matters referred to in Section 2.1(d) and except for matters arising
solely as a result of the consummation or anticipated consummation of the
transactions contemplated hereby, by the Asset Purchase Agreement or by the
Ancillary Agreements (as defined in the Asset Purchase Agreement) with respect
to leases and the Assumed Contracts (as defined in the Asset Purchase
Agreement), conflict with, result in a breach of or default under (with or
without notice or lapse of time, or both) any contract, agreement, indenture,
mortgage, deed of trust, lease or other instrument to which the Parent is a
party or by which the Parent or any of its assets is bound or subject, or (iii)
subject to the governmental filings and other matters referred to in Section
2.1(d), contravene any domestic or foreign Law or any order, writ, judgment,
injunction, decree, determination or award currently in effect, which, in the
case of clauses (ii) and (iii) above would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

 

(d) Consents and Approvals. No consent, approval or authorization of, or
declaration, registration or filing with, or notice to, any domestic (including
any federal, state or local) or foreign governmental agency or regulatory
authority (a “Governmental Entity”) which has not been received or made, is
required by or with respect to the Seller or the Parent in connection with the
execution and delivery of this Agreement by the Parent or the Seller or the
consummation by the Parent and the Seller of the transactions contemplated
hereby except for (i) compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the “HSR Act”), (ii) any reports required
to be filed with the Securities and Exchange Commission (the “SEC”) under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), (iii) any
required state “blue-sky” notices or filings, (iv) applicable Food and Drug
Administration, Drug Enforcement Administration (“DEA”), Medicare/Medicaid,
state boards of pharmacy and governmental controlled substances, durable medical
equipment and liquor authorities approvals (the “Pharmacy Approvals”), and (v)
any other consents, approvals, authorizations, filings or notices which, if not
made or obtained, would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.

 

(e) Title to Shares. The sale and delivery of the Shares as contemplated by this
Agreement are not subject to any preemptive right, right of first refusal or
other right or restriction. Upon the delivery of the Shares as provided in
Section 1.6(b)(i), the Purchaser will acquire record and beneficial ownership of
the Shares, free and clear of any Lien or

 

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Encumbrance (other than any Liens or Encumbrances created by the Purchaser and
restrictions on the Purchaser’s ability to resell the Shares imposed by
applicable securities Laws).

 

(f) SEC Documents. The Parent has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC since
January 26, 2002 (the “Parent SEC Documents”). As of its respective date, each
Parent SEC Document complied as to form in all material respects with the
requirements of the Exchange Act or the Securities Act of 1933, as amended (the
“Securities Act”), as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Document. As of its
respective date, no Parent SEC Documents contained any untrue statement of
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of the date of this
Agreement and as of the Closing, each of the principal executive officer of the
Parent and the principal financial officer of the Parent knows of no reason why
a certificate could not be delivered in respect of the Parent as to Sections 302
and 906 of the Sarbanes-Oxley Act of 2002 and the rules and regulations of the
SEC promulgated thereunder. For purposes of the preceding sentence, “principal
executive officer” and “principal financial officer” shall have the meanings
given to such terms under the Sarbanes-Oxley Act of 2002.

 

Section 2.2 Representations and Warranties Regarding the TDI Companies and the
TDI Subsidiaries.

 

(a) Organization, Standing and Corporate Power.

 

(i) Each of the TDI Companies and each of the TDI Subsidiaries is duly
organized, validly existing and in good standing as a corporation under the laws
of the jurisdiction in which it was incorporated and has the requisite corporate
power and authority to carry on its business as now being conducted. Each of the
TDI Companies and each of the TDI Subsidiaries is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary (each of which is set forth in Section
2.2(a)(i) of the Disclosure Schedule), other than in such jurisdictions where
the failure to be so qualified or licensed would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.

 

(ii) The Seller conducts its retail drugstore operations through the TDI
Companies and the TDI Subsidiaries and in the jurisdictions set forth in Section
2.2(a)(ii) of the Disclosure Schedule (collectively, the “Drugstore
Subsidiaries”). Each of the Drugstore Subsidiaries is duly licensed or
authorized to carry on its business as now being conducted in each jurisdiction
in which the nature of its business makes such licensing or authorization
necessary, other than in such jurisdictions where the failure to be so licensed
or authorized would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.

 

(b) Noncontravention. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, (i) conflict with any of the provisions of the
certificate of incorporation or bylaws (or similar governing documents) of any
of the TDI Companies or the TDI Subsidiaries,

 

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in each case as amended to the date of this Agreement, (ii) subject to the
governmental filings and other matters referred to in Section 2.2(c) and except
for matters arising solely as a result of the consummation or anticipated
consummation of the transactions contemplated hereby, by the Asset Purchase
Agreement or by the Ancillary Agreements (as defined in the Asset Purchase
Agreement) with respect to leases and the Assigned Contracts (as defined in the
Asset Purchase Agreement), conflict with, result in a breach of or default under
(with or without notice or lapse of time, or both) any contract, agreement,
indenture, mortgage, deed of trust, lease or other instrument to which any TDI
Company or TDI Subsidiary is a party or by which any TDI Company or TDI
Subsidiary or any of their respective assets is bound or subject, or (iii)
subject to the governmental filings and other matters referred to in Section
2.2(c), contravene any domestic or foreign Law or any order, writ, judgment,
injunction, decree, determination or award currently in effect, which, in the
case of clauses (ii) and (iii) above, would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

 

(c) Consents and Approvals. No consent, approval or authorization of, or
declaration, registration or filing with, or notice to, any Governmental Entity
which has not been received or made is required by or with respect to the TDI
Companies or the TDI Subsidiaries in connection with the execution and delivery
of this Agreement by the Parent or the Seller or the consummation by the Parent
and the Seller of the transactions contemplated hereby, except for (i)
compliance with the HSR Act, (ii) any required state “blue sky” notices or
filings, (iii) any reports required to be filed with the SEC under the Exchange
Act, (iv) applicable Pharmacy Approvals, and (v) any other consents, approvals,
authorizations, filings or notices which, if not made or obtained, would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

(d) Capitalization. Section 2.2(d)(i) of the Disclosure Schedule sets forth a
true and complete list of the designations and numbers of authorized and
outstanding shares of capital stock of each of the TDI Companies and each of the
TDI Subsidiaries, together with the name of the holder of record of such shares.
Except for the securities set forth in Section 2.2(d)(i) of the Disclosure
Schedule, none of the TDI Companies or TDI Subsidiaries has issued any capital
stock or other equity securities. All of the outstanding capital stock of each
of the TDI Companies and each of the TDI Subsidiaries was duly authorized and
validly issued and is fully paid and nonassessable. There are no subscriptions,
options, warrants, convertible securities, calls, preemptive rights or other
rights of any kind to issue, sell, purchase or otherwise receive (upon
conversion, exchange or otherwise) any capital stock or other equity securities
of the TDI Companies or the TDI Subsidiaries. Except as set forth in Section
2.2(d)(ii) of the Disclosure Schedule, there are no outstanding contractual
obligations of the TDI Companies or TDI Subsidiaries to make any investment (in
the form of a loan, capital contribution or otherwise) in any other Person other
than in another TDI Company or TDI Subsidiary. All of the outstanding capital
stock of the TDI Companies is owned, directly or indirectly, by the Seller, and
all of the outstanding capital stock of each TDI Subsidiary is owned by one of
the TDI Companies or another TDI Subsidiary, in each case free and clear of any
Lien or Encumbrance (other than any restrictions on the ability to sell the
Shares imposed by applicable securities Laws). There are no voting trusts,
stockholder agreements, proxies or other agreements or understandings in effect
with respect to the voting or transfer of any of the Shares.

 

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(e) Ownership of Other Entities. Except as set forth in Section 2.2(e) of the
Disclosure Schedule and except for the TDI Subsidiaries, none of the TDI
Companies nor any of the TDI Subsidiaries owns, directly or indirectly, any
capital stock or other equity securities of any corporation, partnership,
limited liability company or other organized business entity.

 

(f) Financial Statements. Section 2.2(f) of the Disclosure Schedule sets forth
the audited consolidated balance sheets of the Seller as of January 26, 2002,
January 25, 2003, and January 31, 2004, and the related audited consolidated
statements of operations and cash flows of the Seller for the periods then ended
(collectively, with the related notes, the “Financial Statements”). The
Financial Statements (i) present fairly in all material respects the
consolidated financial position of the Seller as of the dates thereof and the
consolidated results of operations and cash flows of the Seller for the periods
then ended, (ii) were prepared in accordance with the books of account and other
financial records of the Seller and its Subsidiaries, (iii) have been prepared
in accordance with GAAP applied on a basis consistent with the past practices of
the Seller and (iv) include all adjustments (consisting only of normal recurring
accruals) that are necessary for a fair presentation of the consolidated
financial condition and results of operations of the Seller as of the dates
thereof or for the periods covered thereby. The Carve-Out Special Purpose
Financial Statements—Northern Operations, when delivered by or on behalf of the
Parent, will (i) present fairly in all material respects the consolidated
financial position of the Northern Business as of the date thereof and the
consolidated results of operations and cash flows of the Northern Business for
the period then ended, (ii) have been prepared in accordance with the books of
account and other financial records of the Seller, the TDI Companies and the TDI
Subsidiaries, (iii) have been prepared in accordance with GAAP and the
accounting policies and practices used in the preparation of the Financial
Statements and (iv) include all adjustments (consisting only of normal recurring
accruals) that are necessary for a fair presentation of the financial condition
of the Northern Business and the results of the operations of the Northern
Business as of the date thereof or for the period covered thereby.

 

The books of account and other financial records of the Seller, the TDI
Companies and the TDI Subsidiaries: (i) reflect all material items of income and
expense and all material assets and Liabilities required to be reflected therein
in accordance with GAAP applied on a basis consistent with the past practices of
the Seller, the TDI Companies and the TDI Subsidiaries, respectively, (ii) are
in all material respects complete and correct, and do not contain or reflect any
material inaccuracies or discrepancies and (iii) have been maintained in
accordance with good business and accounting practices. “Liabilities” means any
and all debts, liabilities and obligations, whether accrued or fixed, absolute
or contingent or matured or unmatured including those arising under any Law and
those arising under any contract, agreement, arrangement, commitment or
undertaking.

 

The minute books of the Seller, the TDI Companies and the TDI Subsidiaries
contain accurate records of all meetings, accurately reflect all other actions
taken by the stockholders, Boards of Directors and all committees of the Boards
of Directors of the Seller, the TDI Companies and the TDI Subsidiaries, except
for inaccuracies which do not and would not reasonably be expected to have a
Material Adverse Effect and have been maintained in accordance with such
entity’s respective certificate of incorporation and bylaws (or similar

 

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organizational documents) except as would not reasonably be expected to have a
Material Adverse Effect.

 

(g) No Undisclosed Liabilities. Neither the Seller nor any TDI Company nor any
TDI Subsidiary has any Liabilities except for (i) Liabilities set forth in
Section 2.2(g) of the Disclosure Schedule, (ii) Liabilities that are reflected,
or for which reserves were established, on the unaudited consolidated balance
sheet of the Seller as of the Balance Sheet Date, (iii) Liabilities that would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, (iv) Liabilities arising under this Agreement, and (v)
Liabilities assumed by the Asset Purchaser pursuant to the Asset Purchase
Agreement.

 

(h) Conduct of the Business; No Material Adverse Change. Except as set forth in
Section 2.2(h) of the Disclosure Schedule and for matters arising out of or
relating to this Agreement and the Asset Purchase Agreement and the transactions
contemplated hereby and thereby, from the Balance Sheet Date to the date of this
Agreement, (i) each of the TDI Companies and the TDI Subsidiaries has conducted
its respective business in the ordinary course, (ii) none of the TDI Companies
or the TDI Subsidiaries has taken any action which would have constituted a
violation of Sections 4.1(a) - (c) or Sections 4.1(e) - 4.1(o), if such sections
had applied since the Balance Sheet Date, (iii) none of the TDI Companies or the
TDI Subsidiaries has acquired, made any investment in or made a capital
contribution to any Person, other than a TDI Company or a TDI Subsidiary, in an
amount in excess of $3,000,000.00, and (iv) there has not been any change, event
or occurrence which would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.

 

(i) Compliance with Laws; Permits. The TDI Companies and the TDI Subsidiaries
are in compliance with all applicable Laws of any Governmental Entity, except
for any non-compliance which would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. The TDI Companies
and the TDI Subsidiaries hold all approvals, authorizations, certificates,
licenses and permits of Governmental Entities (“Permits”) necessary for the TDI
Companies and the TDI Subsidiaries to own, lease and operate their respective
properties and assets and to carry on their respective businesses as currently
conducted, and no default exists under any such Permit, except where the failure
to hold any such Permit or the existence of any such default would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

(j) Litigation. Except as set forth in Section 2.2(j) to the Disclosure
Schedule, and for (i) claims under workers’ compensation laws, (ii) routine
claims for employee benefits, and (iii) claims that would not reasonably be
expected to result in a liability of more than $500,000.00 in money damages
alone in respect of any single claim or series of related claims arising out of
a single event or condition, there are no actions, orders, writs, charges of
discrimination, injunctions, judgments, decrees, lawsuits or administrative or
other legal proceedings before any court, arbitral forum, or Governmental Entity
(other than claims in respect of Taxes) (“Legal Proceedings”) pending or, to the
knowledge of the Seller, threatened against any of the Parent (with respect to
the Business), the TDI Companies or the TDI Subsidiaries. None of such matters
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect. None of the Seller, the TDI Companies, the TDI
Subsidiaries or any of their respective assets or properties is subject to any
Governmental Order

 

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(nor, to the knowledge of the Seller, are there any such Governmental Orders
threatened to be imposed by any Governmental Entity) which currently has or
would reasonably be expected to have a Material Adverse Effect. None of the TDI
Companies or TDI Subsidiaries is in default under the terms of any judgment,
order or decree of any Governmental Entity, except for any such defaults which
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.

 

(k) Collective Bargaining; Labor Matters. Except as set forth in Section
2.2(k)(i) of the Disclosure Schedule, as of the date of this Agreement, no TDI
Company or TDI Subsidiary is a party to any collective bargaining agreement or
other labor union contract, and to the knowledge of the Seller, there are no
organizational campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining unit with respect to the TDI Employees.
Except as set forth in Section 2.2(k)(ii) of the Disclosure Schedule or as would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, (i) there are no labor related controversies, strikes or work
stoppages pending or, to the knowledge of the Seller, threatened, between any
TDI Company or any TDI Subsidiary and any of the TDI Employees and no TDI
Company nor any TDI Subsidiary has experienced any such labor related
controversy, strike, slowdown or work stoppage within the past three years; (ii)
there are no unfair labor practice complaints pending against any TDI Company or
any TDI Subsidiary before any Governmental Entity or any current union
representation questions involving TDI Employees; and (iii) no TDI Company or
TDI Subsidiary is a party to, or otherwise bound by, any consent decree with, or
citation by, any Governmental Entity relating to employees or employment
practices.

 

Section 2.2(k)(iii) of the Disclosure Schedule lists the name, place of
employment, the current annual salary rates, bonuses, the date of employment and
a description of the position and job function of each current salaried
employee, officer, director, consultant or agent of the Seller, any TDI Company
or any TDI Subsidiary whose annual compensation exceeded in any of the past four
years (or, in 2004, is expected to exceed) $260,000.00, and any deferred or
contingent compensation, pension, accrued vacation, “golden parachute” and other
like benefits paid or payable (in cash or otherwise) for such persons, other
than any such benefits for which the Parent or one of its post-Closing
affiliates has retained or assumed Liability under Section 4.7.

 

(l) Tangible Personal Property. Except (i) with respect to the Owned Real
Property and the Leased Real Property (which are the subject of Section 2.2(m)),
(ii) for the Purchased Assets under the Asset Purchase Agreement (the “Purchased
Assets”) and (iii) for assets sold in the ordinary course of business consistent
with past practice since the Balance Sheet Date, either a TDI Company or a TDI
Subsidiary owns all material tangible assets reflected on the Balance Sheet as
being owned by the Seller or any of its Subsidiaries, and all material tangible
assets thereafter purchased or acquired by a TDI Company or a TDI Subsidiary,
free and clear of any Lien or Encumbrance, except for Liens or Encumbrances that
are listed or described in Section 2.2(l) of the Disclosure Schedule and
Permitted Liens. All such assets are in good operating condition and repair,
subject to ordinary wear and tear, and are adequate for the purposes for which
they are currently used.

 

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Immediately prior to the consummation of the transactions contemplated by the
Asset Purchase Agreement the Seller, a TDI Company or a TDI Subsidiary will own,
lease or have the legal right to use all the properties and assets and, with
respect to contract rights, will be a party to and enjoy the right to the
benefits of all contracts, agreements and other arrangements used by the Seller,
any TDI Company or any TDI Subsidiary necessary for the conduct of the Business
as currently conducted.

 

(m) Real Property. (i) Section 2.2(m)(i)(A) of the Disclosure Schedule lists as
of April 2, 2004, all real property (other than Purchased Assets) owned in fee
by any TDI Company or any TDI Subsidiary (the “Owned Real Property”) and Section
2.2(m)(i)(B) of the Disclosure Schedule lists all leased real property (whether
by virtue of direct lease, ground lease or sublease but other than real property
leased pursuant to a lease that is a Purchased Asset) by any TDI Company or any
TDI Subsidiary as lessee (the “Leased Real Property” and together with the Owned
Real Property, the “Real Property”). Other than properties or leaseholds sold,
transferred, leased, subleased, licensed, encumbered or disposed of (x) in the
ordinary course of business consistent with past practice between April 2, 2004,
and the date of this Agreement and (y) in accordance with Section 4.1(e) between
the date of this Agreement and the Closing Date, a TDI Company or a TDI
Subsidiary owns and has good and marketable title to the Owned Real Property and
title to the lease and the leasehold interests in the Leased Real Property
(subject to the terms of the applicable leases, subleases and related
instruments governing its interests therein), and, subsequent to the transfers
contemplated by Sections 4.23, 4.27 and 4.29, a TDI Company or a TDI Subsidiary
will have good and marketable title to the JEC Owned Real Property and the JCP
Owned Real Property and title to the lease and the leasehold interests in the
JCP Leased Real Property (subject to the terms of the applicable leases,
subleases and related instruments governing its interests therein), in each case
free and clear of all Liens or Encumbrances other than Liens or Encumbrances
listed or described in Section 2.2(m)(i)(C) of the Disclosure Schedule and
Permitted Liens.

 

(ii) Except as set forth in Section 2.2(m)(ii) of the Disclosure Schedule, as of
April 2, 2004, none of the Seller, any TDI Company or any TDI Subsidiary has
leased or subleased or granted any interest, option, first refusal or first
opportunity right with respect to any parcel or any portion of any parcel of
Real Property to any other Person (other than to any other TDI Company or TDI
Subsidiary) and no other Person has any rights to the use, occupancy or
enjoyment thereof pursuant to any lease, sublease, license, occupancy or other
agreement which would materially limit or impair the current use of the Owned
Real Property or, during the current term of the applicable lease, the Leased
Real Property, nor has the Seller, any TDI Company or any TDI Subsidiary
assigned its interest under any lease or sublease listed in Section 2.2(m)(i)(A)
or 2.2(m)(i)(B) of the Disclosure Schedule to any third party.

 

(iii) Except as set forth in Section 2.2(m)(iii) of the Disclosure Schedule,
there are no condemnation proceedings or eminent domain proceedings of any kind
pending or, to the knowledge of the Seller, threatened against the Owned Real
Property which would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.

 

(iv) Except as set forth in Section 2.2(m)(iv) of the Disclosure Schedule, no
TDI Company or TDI Subsidiary, or to the knowledge of the Seller any other party
to any lease, ground lease or sublease of the Leased Real Property, is in breach
of or default under any lease,

 

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ground lease or sublease of the Leased Real Property, other than breaches or
defaults that would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.

 

(v) Section 2.2(m)(i)(B) of the Disclosure Schedule sets forth the annualized
base rent being paid as of April 2, 2004, by the TDI Companies and/or the TDI
Subsidiaries pursuant to each lease, ground lease or sublease of the Leased Real
Property.

 

(vi) Except as set forth on Section 2.2(m)(vi) of the Disclosure Schedule (A)
each lease, ground lease or sublease reflected in Section 2.2(m)(i)(B) of the
Disclosure Schedule is legal, valid, binding, enforceable, and in full force and
effect and will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms following the consummation of the
transaction contemplated hereby, and (B) there are no disputes, oral agreements,
or forbearance programs in effect as to any lease or sublease reflected in
Section 2.2(m)(i)(B) of the Disclosure Schedule, in each case except as would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

(vii) Section 2.2(m)(vii) of the Disclosure Schedule contains a true and correct
electronic copy as of April 2, 2004, of the fields listed therein from the TDI
Companies’ and TDI Subsidiaries’ lease management database with respect to the
Real Property.

 

(n) Intellectual Property. Section 2.2(n)(i) of the Disclosure Schedule sets
forth a true and complete list of all material trade names, trademarks, service
marks, logos, copyright registrations and patents (including registrations and
applications to register or renew the registration of any of the foregoing) and
computer software (other than Intellectual Property Rights (as defined in the
Asset Purchase Agreement) to be transferred pursuant to the Asset Purchase
Agreement) used by the TDI Companies or the TDI Subsidiaries in connection with
the conduct of their businesses (excluding computer software commercially
available to the general public and readily replaceable at costs not material to
the TDI Companies and the TDI Subsidiaries taken as a whole) other than the
intellectual property that is the subject of the Transition Services Agreements.
The items specified in Section 2.2(n)(i) of the Disclosure Schedule shall be
defined collectively as “Intellectual Property”. A TDI Company or a TDI
Subsidiary, throughout the United States and in Canada, (i) exclusively owns, or
has valid rights to use, free and clear of any Lien or Encumbrance (other than
Liens and Encumbrances listed or described in Section 2.2(n)(ii) of the
Disclosure Schedule and Permitted Liens) the trade names, trademarks, service
marks, logos or domain names that are a part of the Intellectual Property,
except as otherwise provided in the Transition Services Agreements or the
Framework Agreement and (ii) owns, or has valid rights to use, free and clear of
any Lien or Encumbrance (other than Liens and Encumbrances listed or described
in Section 2.2(n)(ii) of the Disclosure Schedule and Permitted Liens and subject
to any right of any third party which would not materially interfere with the
use of such Intellectual Property by any TDI Company or any TDI Subsidiary in
the conduct of the business as currently conducted) any other Intellectual
Property, except as otherwise provided in the Transition Services Agreements or
the Framework Agreement. Except as set forth in Section 2.2(n)(iii) of the
Disclosure Schedule, as of the date of this Agreement, none of the Seller, any
TDI Company or any TDI Subsidiary has received written notice (other than
notices that have been resolved, withdrawn or abandoned) that, and to the
Seller’s knowledge, none of the Seller, any TDI Company or any TDI Subsidiary is
infringing or otherwise acting in conflict with the rights of any other Person
in respect of the

 

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Intellectual Property except for any such infringement or conflict that would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. Section 2.2(n)(iv) of the Disclosure Schedule also sets forth
all material agreements related to the trademarks and domain names and all
material license agreements with respect to software that is owned by the Seller
and licensed to third parties.

 

(o) Contracts. Section 2.2(o) of the Disclosure Schedule lists or describes each
agreement, lease or license (collectively, “Contracts”) to which a TDI Company
or a TDI Subsidiary is a party or by which it is bound as of the date of this
Agreement that is of a type described below (collectively, the “Material
Contracts”):

 

(i) Any employment, severance or consulting Contract with an employee or former
employee that is not terminable at will, at no cost, by the TDI Company or the
TDI Subsidiary party thereto (other than any Contract for the employment of any
such employee or former employee implied in Law), and which will require the
payment of amounts by the TDI Company or the TDI Subsidiary, as applicable,
after the date of this Agreement in excess of $100,000.00 in base pay per annum
and all Contracts providing for benefits under any Company Plan;

 

(ii) Any collective bargaining Contract with any labor union;

 

(iii) Except for Contracts for which the payments to be made thereunder are
currently accounted for in the Seller’s capital budget, any Contract for capital
expenditures or the acquisition or construction of fixed assets which requires
aggregate future payments in excess of $500,000.00;

 

(iv) Any Contract containing covenants of any TDI Company or any TDI Subsidiary
not to compete in any line of business with any Person in any geographic area;

 

(v) Any Contract (or group of Contracts relating to the same site) requiring
aggregate future payments or expenditures in excess of $750,000.00 and relating
to cleanup, abatement, remediation or similar actions in connection with
environmental Liabilities;

 

(vi) Any license, royalty Contract or other Contract with respect to
Intellectual Property which, pursuant to the terms thereof, requires future
payments by a TDI Company or a TDI Subsidiary in excess of $1,000,000.00 per
annum;

 

(vii) Any Contract pursuant to which any TDI Company or any TDI Subsidiary has
entered into a partnership or joint venture with any other Person (other than
another TDI Company or another TDI Subsidiary);

 

(viii) Any indenture, mortgage, loan or credit Contract under which a TDI
Company or a TDI Subsidiary has outstanding indebtedness or any outstanding
note, bond, indenture or other evidence of indebtedness for borrowed money, or
guaranteed indebtedness for money borrowed by others, in an amount greater than
$1,000,000.00;

 

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(ix) Any Contract or commitment providing for an interest rate, currency or
commodity swap, derivative, hedge, forward purchase or sale or other transaction
similar in nature or effect or any off-balance sheet financing;

 

(x) Any Contract under which a TDI Company or a TDI Subsidiary is (A) a lessee
of, or holds or uses, any machinery, equipment, vehicle or other tangible
personal property owned by a third person or entity, (B) a lessor of real
property, or (C) a lessor of any tangible personal property owned by the
applicable TDI Company or a TDI Subsidiary, in any case referred to in (A) or
(C) only which requires annual payments in excess of $1,500,000.00;

 

(xi) Any material Contract between any TDI Company or any TDI Subsidiary, on the
one hand, and the Parent or any of the Parent’s Subsidiaries (other than the TDI
Companies and the TDI Subsidiaries) on the other hand;

 

(xii) Any Contract (other than Contracts of the type described in subclauses (i)
through (xi) above) that involves aggregate future payments by or to a TDI
Company or a TDI Subsidiary in excess of $1,000,000.00 per annum, other than a
purchase or sales order or other Contract entered into in the ordinary course of
business consistent with past practice; and

 

(xiii) All other Contracts, whether or not made in the ordinary course of
business, the absence of which would reasonably be expected to have a Material
Adverse Effect.

 

The applicable TDI Company or the applicable TDI Subsidiary party thereto, has
performed in all material respects the obligations required to be performed by
it when due (x) under each of the Material Contracts and (y) as of the Closing
Date, under each Contract entered into by a TDI Company or TDI Subsidiary
subsequent to the date of this Agreement that has not expired or terminated in
accordance with its terms and which would qualify as a Material Contract if in
effect as of the date of this Agreement (collectively, the “Post-signing
Material Contracts”). The applicable TDI Company or the applicable TDI
Subsidiary party thereto is not (with or without the lapse of time or the giving
of notice or both) in breach or default thereunder and to the knowledge of the
Parent and the Seller, the counterparty or counterparties are not in material
breach of any Material Contract or, as of the Closing Date, any Post-signing
Material Contract, except in any such case for any breach or default which would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; provided, however, that no representation or warranty is made
with respect to any Material Contract or any Post-signing Material Contract that
constitutes an Assigned Contract as defined in the Asset Purchase Agreement.
Except as set forth in Section 2.2(o)(xiv) of the Disclosure Schedule, each
Material Contract is valid and binding on the parties thereto and is in full
force and effect, except for the failure of which would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(p) Benefit Plans. As used in this Agreement, the term “Benefit Plan” means each
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”)), and each other bonus, stock
option, stock purchase, restricted stock, deferred compensation, retiree medical
or life insurance, severance or other benefit or compensation plan, program,
agreement or arrangement, that is maintained or contributed to by the Parent,
the Seller, any TDI Company or any TDI Subsidiary (or to which a

 

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TDI Company or a TDI Subsidiary is obligated to contribute) for the benefit of
any current or former employee, officer or director of any TDI Company or any
TDI Subsidiary, other than (i) any plan, program, agreement or arrangement
mandated by applicable Laws with respect to Social Security, Medicare, workers’
compensation, unemployment compensation, state disability and similar benefits
required by Laws, or (ii) a multiemployer plan as defined in Section 3(3) of
ERISA (a “Multiemployer Plan”). Section 2.2(p) of the Disclosure Schedule
separately lists each Benefit Plan and each other employee benefit plan for
which any TDI Company or TDI Subsidiary could reasonably be expected to incur
any Liability, including any Liability under Title IV of ERISA. The Seller has
furnished or made available to the Purchaser a complete and accurate copy of the
plan document and summary plan description of each Benefit Plan. In addition,
with respect to any Benefit Plan that is sponsored solely by a TDI Company
and/or a TDI Subsidiary and that is identified in Section 2.2(p) of the
Disclosure Schedule under the heading “Benefit Plans that are Company Plans” (a
“Company Plan”), the Seller has furnished or made available to the Purchaser the
most recent annual report, financial statement and actuarial valuation, if any,
with respect to such Company Plan, and each summary of material modifications,
the most recently filed Form 5500 and the most recent determination letter
received from the Internal Revenue Service (“IRS”). None of the TDI Companies
and the TDI Subsidiaries has any express or implied commitment whether legally
enforceable or not to (i) create or incur Liability with respect to any other
employee benefit plan, program or arrangement, (ii) enter into any contract or
agreement to provide compensation or benefits to any individual except in the
ordinary course consistent with past practice or (iii) modify, change or
terminate any Company Plan other than to the extent required by ERISA or the
Code. Except as specified in Section 2.2(p) of the Disclosure Schedule or as
would not reasonably be expected to have a Material Adverse Effect:

 

(i) neither the Parent nor any member of the Parent’s “controlled group,” within
the meaning of Sections 414(b) and (c) of the Code, has incurred any direct or
indirect Liability under ERISA or the Code in connection with the termination
of, withdrawal from or failure to fund any Benefit Plan or Multiemployer Plan
that could result in Liability to a TDI Company or a TDI Subsidiary, and no
event has occurred that could reasonably be expected to give rise to such
Liability;

 

(ii) none of the Company Plans provides for the payment of a benefit, the
increase of a benefit amount, the payment of a contingent benefit or the
acceleration of the payment or vesting of a benefit by reason of the execution
of this Agreement or the consummation of the transactions contemplated by this
Agreement;

 

(iii) there are no pending, threatened, or to the knowledge of the Seller or the
Parent, anticipated claims relating to any Company Plan, other than routine
claims for benefits;

 

(iv) each of the Company Plans has been operated and maintained in all respects
in accordance with its terms and the requirements of applicable Law; and

 

(v) none of the Seller, the TDI Companies and the TDI Subsidiaries contributes,
or is obligated to contribute, to a Multiemployer Plan;

 

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(vi) each Company Plan which is intended to be qualified under Section 401(a) of
the Code or Section 401(k) of the Code has received a favorable determination
letter from the IRS that it is so qualified and each trust established in
connection with any Company Plan which is intended to be exempt from federal
income taxation under Section 501(a) of the Code has received a determination
letter from the IRS that it is so exempt, and no fact or event has occurred
since the date of such determination letter from the IRS that could reasonably
be expected to result in the disqualification of any such Plan or in the loss of
the exempt status of any such trust;

 

(vii) no complete or partial termination has occurred within the five years
preceding the date of this Agreement with respect to any Company Plan intended
to be qualified under Section 401(a) of the Code;

 

(viii) each trust maintained or contributed to by any TDI Company or TDI
Subsidiary which is intended to be qualified as a voluntary employees’
beneficiary association and exempt from federal income taxation under Section
501(c)(9) of the Code has received a favorable determination letter from the IRS
that it is so qualified and so exempt, and no fact or event has occurred since
the date of such determination by the IRS to adversely affect such qualified or
exempt status;

 

(ix) all contributions, premiums or payments required to be made with respect to
any Company Plan have been made on or before their due dates, and all unpaid
Liabilities of a TDI Company or a TDI Subsidiary with respect to a Company Plan
that are not yet due have been properly accrued in accordance with GAAP; all
such contributions have been fully deducted for income tax purposes; no such
deduction has been challenged or disallowed by the IRS; and to the knowledge of
the Seller or the Parent no fact or event exists which could give rise to any
such challenge or disallowance; and

 

(x) the TDI Companies and the TDI Subsidiaries are in compliance with the
requirements of the Workers Adjustment and Retraining Notification Act (“WARN”)
and have no outstanding Liabilities that are payable pursuant to WARN or any
similar state law.

 

(q) Taxes. Except as specified in Section 2.2(q) of the Disclosure Schedule and
for failures that would not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect, (i) the Seller, each TDI Company and
each TDI Subsidiary has filed (or the Parent has timely filed or caused to be
filed on behalf of the Seller, each TDI Company or each TDI Subsidiary) all
federal, state and foreign Tax Returns required to be filed by it for Tax years
ended prior to the date of this Agreement (taking into account for this purpose
any extensions), (ii) all such Tax Returns are correct and complete in all
respects, (iii) each TDI Company or TDI Subsidiary has timely paid, withheld or
accrued all Taxes owed by them (whether or not shown to be due and payable on
such Tax Returns), (iv) none of the Parent, the Seller, any TDI Company or any
TDI Subsidiary has received written notice of any threatened Tax audit,
examination, refund litigation or adjustment in controversy with respect to the
business or operations of any TDI Company or any TDI Subsidiary, (v) all Taxes
which the Seller, any TDI Company or any TDI Subsidiary has been required to
collect or withhold have been duly collected or withheld and, to the extent
required when due, have been or will be duly and timely paid to the proper
Taxing Authority, (vi) no TDI Company or TDI Subsidiary has

 

19

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given any currently effective written waiver of any statute of limitations with
respect to Taxes or agreed to any currently effective written extension of time
with respect to a Tax assessment or deficiency, (vii) no claim has been made by
a Taxing Authority in a jurisdiction where a TDI Company or TDI Subsidiary does
not file Tax Returns that such TDI Company or TDI Subsidiary is or may be
subject to taxation by that jurisdiction, (viii) no TDI Company or TDI
Subsidiary is or has been required to make any adjustment pursuant to Section
481(a) of the Code (or any predecessor provision) or any similar provision of
state, local or foreign Tax Law by reason of a change in any accounting methods,
or will be required to make any such adjustments by reason of any pending
requests for changes in accounting methods, (ix) no TDI Company or TDI
Subsidiary will be required to include any amount in taxable income or exclude
any item of deduction or loss from taxable income for any Post-Closing Tax
Period as a result of any “closing agreement” as described in Section 7121 of
the Code or any similar provision of state, local or foreign Tax Law, (x) no TDI
Company or TDI Subsidiary is a party to a Tax sharing or Tax allocation
agreement or arrangement, other than such agreements or arrangements between or
among any of the Parent, a TDI Company or TDI Subsidiary that are in effect at
the date of this Agreement and will be terminated on the part of such TDI
Company or TDI Subsidiary at Closing, (xi) no TDI Company or TDI Subsidiary (a)
has been a member of an “affiliated group,” as defined in Section 1504(a) of the
Code, filing a consolidated federal income Tax Return (other than a group the
common parent of which is the Parent) or (b) has any Liability for Taxes of any
Person (other than any member of the group the common parent of which is the
Parent) under Treasury Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign Tax Law) as a transferee or successor, by contract or
otherwise, and (xii) no TDI Company or TDI Subsidiary is a party to any
understanding or arrangement described in Section 6111(d) of the Code, nor has
any TDI Company or TDI Subsidiary participated in a reportable transaction as
defined in Treasury Regulation Section 1.6011-4(b) and (c)(3).

 

As used in this Agreement, (i) “Taxes” shall mean all taxes, fees, levies or
other assessments, imposed by the United States, or any state, country, local or
foreign government, possession, territory or subdivision or agency thereof (a
“Taxing Authority”) including income, gross receipts, excise, real and personal
property, municipal, capital, sales, use, transfer, license, payroll and
franchise taxes, and such term shall include any interest, penalties or
additions to tax attributable to such taxes, fees, levies or other assessments,
and (ii) “Tax Returns” shall mean any report, return or other information
required to be supplied to any Taxing Authority or any other Person in
connection with Taxes.

 

(r) Receivables. Section 2.2(r) of the Disclosure Schedule is an aged list of
the Receivables as of the Balance Sheet Date showing those Receivables that as
of such date had been outstanding for (a) 30 days or less, (b) 31 to 60 days,
(c) 61 to 90 days, (d) 91 to 120 days, (e) 121 to 150 days, (f) 151 to 180 days
and (g) more than 180 days. Except to the extent, if any, reserved for on the
Balance Sheet, all Receivables reflected on the Balance Sheet arose, and the
Receivables existing on the Closing Date will have arisen, in the ordinary
course of business consistent with past practice. The allowance for doubtful
accounts as reflected on the Balance Sheet was calculated in accordance with
GAAP, consistent with the past practices of the Seller and to the knowledge of
the Seller, as of the date of this Agreement, no event has occurred which would
require a material increase in the ratio of the allowance for doubtful accounts
to the Receivables. The allowance for doubtful accounts as reflected on the 2003
Carve-Out Special

 

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Purpose Financial Statements - Northern Operations will be calculated in
accordance with GAAP and the accounting policies and practices used in the
preparation of the Financial Statements.

 

(s) Inventories. Subject to amounts reserved therefor on the Balance Sheet, the
values at which all inventories are carried on the Balance Sheet reflect the
historical inventory valuation policy of the Seller and the TDI Companies and
the TDI Subsidiaries of stating such inventories at the lower of cost
(determined on the last-in, first-out method) or market value. Subject to
amounts reserved therefor on the 2003 Carve-Out Special Purpose Financial
Statements - Northern Operations, the values at which all inventories are
carried on the 2003 Carve-Out Special Purpose Financial Statements - Northern
Operations will reflect the historical inventory valuation policy of the Seller
and the TDI Companies and the TDI Subsidiaries of stating such inventories at
the lower of cost (determined on the last-in, first-out method) or market value.
Materially all of the inventories recorded on the Balance Sheet consist of, and
materially all inventories related to the Northern Business on the Closing Date
will consist of, items of a quality usable or saleable in the ordinary course of
the Northern Business consistent with past practices. None of the Seller, any
TDI Company or any TDI Subsidiary is under any Liability with respect to
accepting returns of items of inventory or merchandise in the possession of
their customers other than in the ordinary course of business consistent with
past practice. No representation or warranty is made hereby with respect to any
inventories included in the Purchased Assets pursuant to the Asset Purchase
Agreement.

 

(t) Suppliers. Listed in Section 2.2(t)(i) of the Disclosure Schedule are the
names and addresses of each of the twenty suppliers to whom the Seller and the
TDI Companies and the TDI Subsidiaries paid the highest aggregate amounts for
the twelve-month period ended January 31, 2004 for raw materials, supplies,
merchandise and other goods for the Business. Except as set forth on Section
2.2(t)(ii) of the Disclosure Schedule, as of the date of this Agreement none of
the Parent, the Seller, any TDI Company nor any TDI Subsidiary has received any
notice in writing that any such supplier will not sell supplies, merchandise and
other goods to any TDI Company or any TDI Subsidiary at any time after the
Closing Date on terms and conditions substantially similar to those used in its
current sales to the Business, subject only to general and customary price
increases.

 

(u) Insurance. All material assets and properties of each TDI Company and each
TDI Subsidiary are, and for the past five years have been, covered by valid and,
except for insurance policies that have expired under their terms in the
ordinary course, currently effective insurance policies or binders of insurance
(including general liability insurance, property insurance and workers’
compensation insurance) issued in favor of the Parent, the Seller, a TDI Company
or a TDI Subsidiary, as the case may be, in each case with responsible insurance
companies, in such types and amounts and covering such risks as are consistent
with customary practices and standards of companies engaged in businesses and
operations similar to the Business.

 

(v) Product Liability. Except as set forth on Section 2.2(v) of the Disclosure
Schedule, there are no claims pending or, to the knowledge of the Parent and the
Seller, threatened against the Seller, the TDI Companies or the TDI
Subsidiaries, and to the knowledge of the Seller, there is no reasonable basis
for any claim against the Seller, any TDI Company or any TDI Subsidiary, for
injury to person or property of any person suffered as a result of the sale of
any product or performance of any service by the Seller, any TDI Company or any
TDI

 

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Subsidiary, including claims arising out of the defective or unsafe nature of
such products or services, which would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

 

(w) Environmental Matters. Except as set forth in Section 2.2(w) of the
Disclosure Schedule, to the knowledge of the Seller: (i) neither the Seller nor
any of the TDI Companies or TDI Subsidiaries: (A) have violated or are in
noncompliance with, are engaged in proceedings with respect to violations or
noncompliance, or have received a notice of violation or noncompliance with
respect to, any Environmental Laws applicable to the Northern Business, (B) have
received or expect to receive notification of, are engaged in proceedings with
respect to or have entered into or expect to enter into an agreement with
respect to, liabilities under any Environmental Laws applicable to the Northern
Business, or (ii) are aware of any Hazardous Material spills, releases, or
contamination at any of the Real Property that require investigation, reporting,
or cleanup under any Environmental Laws, where the matters relating to clauses
(i) and (ii) hereof would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. Neither the Seller nor any of the TDI
Companies or TDI Subsidiaries have been engaged in any legal proceedings with
respect to alleged violations of or noncompliance with any Environmental Laws
requiring disclosure under 17 C.F.R. § 229.103.

 

(x) Brokers. No broker, finder or investment banker (other than Credit Suisse
First Boston LLC, whose fees and expenses will be paid by Parent or its
affiliates other than any TDI Company or TDI Subsidiary) is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Parent, the Seller or any TDI Company or TDI Subsidiary.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

 

The Purchaser hereby represents and warrants to the Parent and the Seller as of
the date of this Agreement and as of the Closing Date as follows:

 

Section 3.1 Organization, Standing and Corporate Power. The Purchaser is duly
organized, validly existing and in good standing as a corporation under the laws
of Quebec and has the requisite corporate power and authority to carry on its
business as now being conducted. The Purchaser is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed would not materially adversely affect the
Purchaser’s ability to timely perform its obligations under this Agreement or to
consummate the transactions contemplated hereby (a “Purchaser Effect”).

 

Section 3.2 Authority; Noncontravention. The Purchaser has the requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Purchaser and the consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all necessary corporate and
stockholder action on the part of the Purchaser. This

 

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Agreement has been duly executed and delivered by the Purchaser and assuming
that this Agreement constitutes a valid and binding obligation of the Parent and
the Seller, constitutes, a valid and binding obligation of the Purchaser,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors’ rights and remedies generally and to general
principles of equity. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, (a) conflict with any of the provisions of the
certificate or articles of incorporation or bylaws of the Purchaser, in each
case as amended to the date of this Agreement or the Closing Date, as
applicable, (b) subject to the governmental filings and other matters referred
to in Section 3.3, conflict with, result in a breach of or default under (with
or without notice or lapse of time, or both) any contract, agreement, indenture,
mortgage, deed of trust, lease or other instrument to which the Purchaser is a
party or by which the Purchaser or any of its assets is bound or subject, or (c)
subject to the governmental filings and other matters referred to in Section
3.3, contravene any domestic or foreign Law or any order, writ, judgment,
injunction, decree, determination or award currently in effect, which, in the
case of clauses (b) and (c) above would reasonably be expected to have,
individually or in the aggregate, a Purchaser Effect.

 

Section 3.3 Consents and Approvals. No consent, approval or authorization of, or
declaration, registration or filing with, or notice to, any Governmental Entity
which has not been received or made, is required by or with respect to the
Purchaser in connection with the execution and delivery of this Agreement by the
Purchaser or the consummation by the Purchaser of the transactions contemplated
hereby, except for (a) compliance with the HSR Act, (b) applicable Pharmacy
Approvals and (c) any other consents, approvals, authorizations, filings or
notices which, if not made or obtained, would not reasonably be expected to
have, individually or in the aggregate, a Purchaser Effect.

 

Section 3.4 Investment Intent. The Shares will be acquired by the Purchaser for
its own account without a view to a distribution or resale thereof. The Shares
will only be sold or otherwise disposed of by the Purchaser pursuant to a
registration or an exemption therefrom under the Securities Act and any other
applicable securities Laws.

 

Section 3.5 Sophistication of the Purchaser. The Purchaser is an “accredited
investor” within the meaning of Rule 501 under the Securities Act, has knowledge
and experience in financial and business matters and is capable of evaluating
the merits and risks of the transactions contemplated by this Agreement. The
Parent and the Seller have provided to the Purchaser the opportunity to ask
questions of the officers and management of the Parent, the Seller and the TDI
Companies with respect to the Business and the Seller’s consolidated financial
condition and results of operations, and the Purchaser has received all
information with respect to such matters as it has requested. In making its
decision to enter into this Agreement and to consummate the transactions
contemplated hereby, the Purchaser has relied solely on its own independent
investigation, analysis and evaluation of the TDI Companies and the TDI
Subsidiaries and the express representations and warranties of the Parent and
the Seller contained herein.

 

Section 3.6 Brokers. No broker, finder or investment banker (other than Merrill
Lynch & Co. and Deutsche Bank Securities Inc. whose fees and expenses will be
paid by the

 

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Purchaser or its affiliates) is or may be entitled to any brokerage, finder’s or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Purchaser.

 

Section 3.7 Financing. The Purchaser has cash on hand or executed commitment
letters from financially responsible third parties, or a combination thereof, in
an aggregate amount sufficient to enable it to timely perform its obligations
hereunder, including to pay in full the Purchase Price and all fees and expenses
payable by the Purchaser in connection with this Agreement and the transactions
contemplated hereby.

 

ARTICLE IV

 

COVENANTS

 

Section 4.1 Conduct of Business. Except as expressly provided for herein or in
the Asset Purchase Agreement, during the period from the date of this Agreement
to the Closing, the Parent and the Seller shall cause the TDI Companies and the
TDI Subsidiaries to conduct their respective businesses only in the ordinary
course and, to the extent consistent therewith, to use commercially reasonable
efforts to (i) preserve intact their current business organizations, (ii)
continue their advertising and promotional activities, and pricing and
purchasing policies, in accordance with past practice; (iii) not materially
shorten or lengthen the customary payment cycles for any of their payables or
receivables; (iv) preserve their current relationships with their customers,
suppliers, licensors, licensees, distributors and other persons with which they
have had material business relationships; (v) provided the Parent and the Seller
either (a) demonstrate that such lease activity is in the ordinary course of
business, on terms consistent with past practice, or (b) provide notice to the
Purchaser and obtain its prior written approval if such lease activity is not
within Seller’s ordinary course of business, consistent with past practice,
exercise any option rights or any rights of renewal pursuant to the terms of any
of the leases, subleases or option agreements related to drug store leases and
subleases set forth in Section 2.2(m)(i)(B) of the Disclosure Schedule which by
their terms would otherwise expire, provided, however, that the Parent and the
Seller need not comply with the notice and approval requirements of (b) above if
the lease activity relates to a store within ten (10) miles of any drug store
operated by the Purchaser; (vi) exercise, but only after notice to the Purchaser
and receipt of the Purchaser’s prior written approval, any option rights or any
rights of renewal pursuant to the terms of any of the leases, subleases or
option agreements not related to drug store leases and subleases and set forth
in Section 2.2(m)(i)(B) of the Disclosure Schedule which by their terms would
otherwise expire; and (vii) keep available the services of their current key
officers and employees (other than Southern Business Employees, who will be
offered employment with the Asset Purchaser or one of its affiliates). The
Purchaser acknowledges that officers and employees of the TDI Companies and TDI
Subsidiaries may voluntarily terminate employment with such entities and the TDI
Companies and the TDI Subsidiaries have no control over such voluntary
terminations.

 

Without limiting the generality of the foregoing, except as expressly provided
for in this Agreement or as set forth in Section 4.1 of the Disclosure Schedule,
during the period from the date of this Agreement to the Closing, the Parent and
the Seller shall not permit any of the TDI Companies or the TDI Subsidiaries,
without the prior consent of the Purchaser (solely with

 

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respect to Sections 4.1(k) and 4.1(p), such consent not to be unreasonably
withheld or delayed), to:

 

(a)    (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect of, any
of its outstanding capital stock (other than dividends or distributions of any
amounts received pursuant to the Asset Purchase Agreement and, in the case of a
TDI Subsidiary, to its corporate parent), (ii) split, combine or reclassify any
of its outstanding capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
outstanding capital stock, or (iii) purchase, redeem or otherwise acquire any
shares of outstanding capital stock or any rights, warrants or options to
acquire any such shares;

 

(b)    issue, sell, grant, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible into or
exchangeable for, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible or exchangeable securities;

 

(c)    amend its certificate of incorporation or bylaws (or comparable governing
documents);

 

(d)    acquire, make any investment in, or make any capital contributions to,
any Person, other than a TDI Company or a TDI Subsidiary, other than in the
ordinary course of business consistent with past practice;

 

(e)    sell, transfer, lease, sublease, license, encumber or otherwise dispose
of any of its properties, leasehold interests or assets that are material to the
Northern Business, except (i) in the ordinary course of business consistent with
past practice, (ii) as contemplated in this Agreement and in respect of the
assets to be transferred to the Asset Purchaser pursuant to the Asset Purchase
Agreement or (iii) pursuant to existing Contracts or commitments, provided,
however, that in no event will any of the TDI Companies or the TDI Subsidiaries
engage in any sale and leaseback or similar transaction or sell or enter into an
agreement to sell any Real Property, except in connection with the consummation
of the transaction contemplated by this Agreement or in respect of the assets to
be transferred to the Asset Purchaser pursuant to the Asset Purchase Agreement;

 

(f)    except as set forth in Section 4.1(f) of the Disclosure Schedule, (i)
incur any Indebtedness, other than (A) Indebtedness owing to another TDI Company
or TDI Subsidiary and Intercompany Obligations (whether or not owed to another
TDI Company or TDI Subsidiary), (B) short term accounts payable incurred in the
ordinary course of business consistent with past practice and (C) indebtedness
of the type described in clauses (a), (b) and (e) of Section 8.3(a)(xii)
incurred in connection with any matter disclosed pursuant to Section 4.22, (ii)
make any loans or advances to any other Person other than a TDI Company or a TDI
Subsidiary, other than routine advances to employees consistent with past
practice or (iii) enter into any Contract or commitment providing for an
interest rate, currency or commodity swap, derivative, hedge, forward purchase
or sale or other transaction similar in nature or effect or any off-balance
sheet financing;

 

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(g)    enter into any compromise or settlement of, or take any material action
with respect to, any litigation, action, suit, claim, proceeding or
investigation other than the prosecution, defense and settlement of litigation,
actions, suits, claims, proceedings or investigations in the ordinary course of
business consistent with past practice;

 

(h)    grant or agree to grant to any TDI Employee who is an officer of a TDI
Company or a TDI Subsidiary any increase in wages or bonus, severance, profit
sharing, retirement, deferred compensation, insurance or other compensation or
benefits, or establish any new compensation or benefit plans or arrangements, or
amend or agree to amend any existing Company Plans, except (i) as set forth in
Section 4.1(h) of the Disclosure Schedule, (ii) as may be required under
Contracts or by Law, (iii) pursuant to the normal severance policies or
practices of the applicable TDI Company or TDI Subsidiary as in effect on the
date of this Agreement, or (iv) increases in salary or wages payable or to
become payable in the ordinary course of business consistent with past practice;

 

(i)    enter into or amend any employment, consulting, severance or similar
agreement with any individual otherwise than in the ordinary course of business
consistent with past practice, except (i) as set forth in Section 4.1(i) of the
Disclosure Schedule or (ii) with respect to new hires of non-officer employees
in the ordinary course of business consistent with past practice;

 

(j)    make any material change in any method of accounting or accounting
practice or policy, except as required by any changes in GAAP or applicable Law;

 

(k)    make any material election or settle or compromise any material Liability
with respect to Taxes of the Parent, the Seller, any TDI Company or any TDI
Subsidiary, in each case solely as such action may adversely affect the Northern
Business;

 

(l)    enter into any agreement that materially restrains, limits or impedes any
TDI Company’s or TDI Subsidiary’s ability to compete with or conduct any
business or line of business or with any Person or in any geographic area;

 

(m)    adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other material reorganization;

 

(n)    make or commit to any individual capital expenditure in excess of
$5,000,000 that is not reflected in the Seller’s capital expenditures budget on
the date of this Agreement;

 

(o)    permit inventory purchases or commitments for the Northern Business after
January 31, 2004, to materially exceed or be below historical levels (taking
into account past practices and seasonal levels) of the Northern Business;

 

(p)    enter into or agree to enter into any Post-signing Material Contracts or
amend, modify or consent to the termination of any Material Contract or
Post-signing Material Contract that is material to the Northern Business or the
Seller’s, any TDI Company’s or any TDI Subsidiary’s rights thereunder, except
Material Contracts or Post-signing Material Contracts specified in Section
2.2(o)(x)(A); or

 

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(q)    authorize any of, or commit or agree to take any of, the foregoing
actions in respect of which it is restricted by the provisions of this Section.

 

Notice to the Purchaser of a request for consent required by this Section 4.1
shall be given to the Purchaser only by Charles Lotter through the Parent’s
legal counsel and only to Michel Coutu through the Purchaser’s legal counsel.
The Purchaser shall use its reasonable best efforts to either grant or deny a
request for consent required by this Section 4.1 within three (3) business days
of the Purchaser’s receipt of such request.

 

Section 4.2    Acquisition Proposals; Inconsistent Activities.

 

(a)    Acquisition Proposals. During the period from the date of this Agreement
to the Closing, neither the Parent nor the Seller shall, nor shall either the
Parent or the Seller authorize or permit any of their Subsidiaries, or any of
its or their respective officers, directors, employees, agents or
representatives (including any investment banker, financial advisor, attorney,
consultant or accountant retained by the Parent or the Seller or any of its
Subsidiaries), to, directly or indirectly, (i) initiate, encourage, accept or
solicit any Acquisition Proposal with respect to the Business, (ii) provide any
non-public information regarding the Seller, the TDI Companies or the TDI
Subsidiaries to, or enter into or maintain or continue any discussions,
conversations, negotiations, or communications with, any Person that has made an
Acquisition Proposal with respect to the Business, or (iii) enter into any
agreement providing for any Acquisition Proposal with respect to the Business.
The Parent and the Seller agree not to, and to cause the Seller and each
Subsidiary of the Seller not to, without the prior written consent of the
Purchaser, release any Person (other than the Asset Purchaser) from, or waive
any provision of, any confidentiality or standstill agreement to which the
Parent, the Seller or any Subsidiary of the Seller is a party that relates to an
Acquisition Proposal. The Parent and the Seller immediately shall and shall
cause their Representatives to cease and cause to be terminated all existing
discussions, conversations, negotiations and other communications with any
Persons conducted heretofore with respect to an Acquisition Proposal for the
Northern Business. Notwithstanding the foregoing, nothing contained herein shall
prohibit, limit or restrict any such person from engaging in any of the
foregoing activities with respect to any part of the Business other than the
Northern Business.

 

(b)    Definition of Acquisition Proposal. For purposes of this Agreement, the
term “Acquisition Proposal” means any inquiry, proposal or offer from any Person
(other than the Purchaser or any of its affiliates) relating to (i) any merger,
consolidation, recapitalization, liquidation or other direct or indirect
business combination involving the Seller or any Significant Subsidiary (as such
term is defined in Rule 1-02(w) of SEC Regulation S-X) of the Seller, (ii) any
acquisition of shares of capital stock or other equity securities of the Seller
or any Significant Subsidiary of the Seller (other than the Southern Entities),
or (iii) any acquisition, license, purchase or other disposition of a
substantial portion of the business or assets of the Seller or any Significant
Subsidiary of the Seller (other than the Southern Entities and the Purchased
Assets) outside the ordinary course of business consistent with past practice.

 

(c)    Inconsistent Activities. During the period from the date of this
Agreement to the Closing, the Purchaser shall not, and shall not authorize or
permit any of its Subsidiaries, or any of its or their respective officers,
directors, employees, agents or representatives, to, propose,

 

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announce or enter into any transaction that could reasonably be expected to have
a Purchaser Effect or to materially adversely affect the Purchaser’s ability to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Entities as are necessary for the
consummation of the transactions contemplated hereby and to fulfill the
conditions thereto.

 

Section 4.3    Access to Information; Confidentiality. (a) The Parent and the
Seller shall, and shall cause the TDI Companies and the TDI Subsidiaries to,
afford to the Purchaser and its officers, employees, counsel, financial
advisors, lenders and other representatives reasonable access during normal
business hours and upon reasonable notice during the period prior to the Closing
to all of the properties, books, contracts, commitments, Tax Returns, personnel
and records of the Seller, the TDI Companies, the TDI Subsidiaries and, as it
relates to the Business, the Parent and, during such period, the Parent and the
Seller shall, and shall cause the TDI Companies and the TDI Subsidiaries to,
furnish as promptly as practicable to the Purchaser such information concerning
the TDI Companies’ and the TDI Subsidiaries’ businesses, properties, operations
and personnel as the Purchaser may from time to time reasonably request, it
being understood that a request for access or information hereunder the
provision of which would constitute a violation of Law, including Antitrust
Laws, will be deemed unreasonable. To the extent that the Parent, the Seller or
any TDI Company or TDI Subsidiary incurs any incremental out-of-pocket costs in
processing, retrieving or transmitting any such information pursuant to this
Section 4.3, the Purchaser shall reimburse the Parent, the Seller, the TDI
Company or the TDI Subsidiary, as applicable, for such costs promptly upon the
submission to the Purchaser of an invoice therefor accompanied by supporting
documentation in reasonable detail. Until the Closing Date, the Purchaser will
hold, and will cause its directors, officers, employees, accountants, counsel,
financial advisors and other representatives and affiliates to hold, any
non-public information obtained from the Parent, the Seller, any TDI Company or
any TDI Subsidiary in confidence to the extent required by, and in accordance
with the provisions of, the agreement, dated October 9, 2003, between the
Purchaser and the Parent (the “Confidentiality Agreement”) with respect to
confidentiality and other matters.

 

(b)    After the Closing, in order to facilitate the resolution of any claims
made against or incurred by the Parent or the Seller or for any other reasonable
purpose, for a period of seven years, the Purchaser shall (i) retain the books
and records relating to the Business, the Seller, the TDI Companies and the TDI
Subsidiaries relating to periods prior to the Closing and (ii) upon reasonable
notice, afford the officers, employees, agents and representatives of the Parent
or the Seller reasonable access (including the right to make, at the Parent’s
expense, photocopies), during normal business hours, to such books and records.

 

(c)    After the Closing, in order to facilitate the resolution of any claims
made by or against or incurred by the Purchaser, any TDI Company or any TDI
Subsidiary or for any other reasonable purpose, for a period of seven years, the
Parent and the Seller shall (i) retain the books and records of the Parent and
the Seller which relate to the Business, the Seller, the TDI Companies and the
TDI Subsidiaries and their operations relating to the periods prior to the
Closing and which shall not otherwise have been delivered to the Asset
Purchaser, the Purchaser, any TDI Company or any TDI Subsidiary and (ii) upon
reasonable notice, afford the officers, employees, agents and representatives of
the Purchaser, any TDI Company or any TDI Subsidiary reasonable access
(including the right to make photocopies, at the expense of the

 

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Purchaser, such TDI Company or such TDI Subsidiary), during normal business
hours, to such books and records, which relate to the Northern Business.

 

Section 4.4    Reasonable Best Efforts; Regulatory Matters. (a) On the terms and
subject to the conditions set forth in this Agreement, each of the parties shall
use its reasonable best efforts to take, or cause to be taken, all actions, and
do, or cause to be done, and assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate, in the most
expeditious manner practicable, the transactions contemplated hereby, including
the satisfaction of the conditions set forth in Article V. Without limiting the
generality or effect of the foregoing, each of the parties hereto shall (i) make
promptly its respective filings (which in any event shall be made by no later
than the 14th day following the date of this Agreement and the timing of which
shall be coordinated with one another’s filings and with the filing of the Asset
Purchaser to the extent practicable) and thereafter make any other required
submissions, with respect to the transactions contemplated hereby under the HSR
Act and (ii) use its reasonable best efforts to take, or cause to be taken, all
other appropriate actions, and to do, or cause to be done, all other things
necessary, proper or advisable under applicable Laws to consummate and make
effective the transactions contemplated by this Agreement, including using its
reasonable best efforts to obtain all Pharmacy Approvals and all other licenses,
permits, consents, approvals, authorizations, qualifications and orders of
Governmental Entities as are necessary for the consummation of the transactions
contemplated hereby and to fulfill the conditions thereto. The Parent and the
Seller will reasonably cooperate with the Purchaser to (i) provide any necessary
financial statements, any audits in connection therewith and any necessary
representation letters addressed to the auditors in connection therewith; (ii)
cause the TDI Companies and TDI Subsidiaries to provide any customary affidavits
required by title insurers; (iii) provide the banks and other institutions
arranging or providing the Purchaser’s financing all material information
(financial and other) with respect to the Seller and the transactions
contemplated by this Agreement reasonably requested by the Purchaser, it being
understood that a request for the provision of such information which would
constitute a violation of Law, including Antitrust Laws, will be deemed
unreasonable; (iv) provide reasonable access to the Purchaser and/or its
representatives to all material information needed for legal and financial due
diligence, it being understood that a request for such access the provision of
which would constitute a violation of Law, including Antitrust Laws, will be
deemed unreasonable; (v) cause the Seller’s senior officers and other Seller
representatives to be reasonably available to the Purchaser and the banks and
other institutions arranging or providing the Purchaser’s financing to
participate in due diligence sessions and to participate in presentations
related to any transaction comprising the Purchaser’s financing; (vi) assist in
the preparation of one or more appropriate offering documents, including MD&A
and business description and assisting the Purchaser and the banks and other
institutions arranging or providing the Purchaser’s financing in preparing other
appropriate marketing materials, in each case to be used in connection with such
financing; and (vii) request the Seller’s independent auditors to prepare and
deliver “comfort letters”, dated the date of each offering document used in
connection with any transaction comprising the Purchaser’s financing (with
appropriate bring down comfort letters delivered on the closing date for each
financing), in compliance with professional standards, in each of the foregoing
cases as may be necessary for the Purchaser to obtain the financing described in
Exhibit G, provided however, that the Parent and the Seller shall be reimbursed
by the Purchaser for any and all out-of-pocket expenses incurred in connection
with the foregoing.

 

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(b)    In performing the parties’ obligations under Section 4.4(a) relating to
Antitrust Laws, each of the parties shall use its reasonable best efforts to (i)
cooperate with each other in connection with any filing or submission and in
connection with any investigation or other inquiry, (ii) keep the other parties
informed in all material respects of any material communication received by such
party from or given by such party to, the Federal Trade Commission (the “FTC”),
the Antitrust Division of the Department of Justice (the “DOJ”), or any other
Governmental Entity and of any material communication received or given in
connection with any investigation, suit, action or proceeding (whether
threatened or instituted) by any other Person, in each case regarding the
transactions contemplated by this Agreement, and (iii) permit the other parties
to review any material communication (subject to redaction as reasonably
necessary to protect competitively sensitive confidential business information)
given by it to, and to consult with each other in advance of any meeting or
conference with, the FTC, the DOJ or any such other Governmental Entity or, in
connection with any suit, action or proceeding by any other Person, and to the
extent permitted by the FTC, the DOJ or such other applicable Governmental
Entity or Person, give the other party the opportunity to attend and participate
in such meetings and conferences. For purposes of this Agreement, “Antitrust
Law” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR
Act, the Federal Trade Commission Act, as amended, and all other applicable Laws
that are designed or intended to prohibit, restrict or regulate actions having
the purpose or effect of monopolization or restraint of trade or lessening of
competition through merger or acquisition.

 

(c)    In performing the parties’ obligations under Section 4.4(a), each of the
parties shall use its reasonable best efforts to resolve such objections, if
any, as may be asserted with respect to the transactions contemplated by this
Agreement under any Antitrust Law. In connection with the foregoing, if any
suit, action or proceeding, including any suit, action or proceeding by any
Person, is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust Law,
each of the parties shall cooperate in all respects with each other and use its
reasonable best efforts to contest and resist any such suit, action or
proceeding and to have vacated, lifted, reversed or overturned any judgment or
order, whether temporary, preliminary or permanent, that is in effect and that
prohibits, prevents or restricts consummation of the transactions contemplated
by this Agreement.

 

(d)    If any objections are asserted with respect to the transactions
contemplated by this Agreement under any Antitrust Law (an “Antitrust
Objection”) or if any suit, action or proceeding is instituted (or threatened to
be instituted) by any Governmental Entity or other Person challenging any of the
transactions contemplated by this Agreement as violative of any Antitrust Law
(an “Antitrust Challenge”), each of the parties shall use its reasonable best
efforts to resolve any such objections or challenges so as to permit
consummation of the transactions contemplated by this Agreement. For purposes of
this Section 4.4(d), “reasonable best efforts” shall include the Purchaser (and,
to the extent required by any Governmental Entity, its Subsidiaries and
affiliates) entering into a settlement, undertaking, consent decree, stipulation
or other agreement (a “Settlement”) with a Governmental Entity regarding
antitrust matters in connection with the transactions contemplated by this
Agreement, including entering into a Settlement that requires the Purchaser to
hold separate (including by establishing a trust or otherwise) or to sell or
otherwise dispose of particular assets and/or withdraw from doing

 

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business in particular geographic areas, to satisfy any Antitrust Objections or
to settle any Antitrust Challenges.

 

Section 4.5    Public Announcements. Through the Closing Date, the Purchaser,
the Parent and the Seller shall consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press
release, SEC filing or other public statements with respect to the transactions
contemplated hereby and shall not issue any such press release or make any such
public statement prior to such consultation, except as may be required by
applicable Law, by court process or by obligations pursuant to any listing
agreement with any national securities exchange.

 

Section 4.6    Tax Matters.

 

(a)    Tax Sharing Agreements. Effective as of the Closing, any Tax sharing or
Tax allocation agreement or arrangement between the Parent or any of its
Subsidiaries (other than a TDI Company or a TDI Subsidiary) and any TDI Company
or TDI Subsidiary shall be terminated and shall have no further effect
thereafter. All rights and obligations of the Parent and the Seller, on the one
hand, and any TDI Company or TDI Subsidiary, on the other hand, with respect to
Taxes shall be provided in this Section 4.6.

 

(b)    The Seller’s Tax Returns for Periods Through the Closing Date.

 

(i)    The Seller or its designee shall prepare and timely file or shall cause
to be prepared and timely filed all necessary foreign, federal, state and local
Tax Returns of or which include the TDI Companies or the TDI Subsidiaries for
Pre-Closing Tax Periods that are required to be filed (including extensions) on
or prior to the Closing Date, and shall pay or shall cause to be paid any and
all Taxes due with respect to such Tax Returns.

 

(ii)    The Seller or its designee shall prepare and timely file or shall cause
to be prepared and, if required to do so by applicable Tax Law, shall deliver,
within 30 days prior to the deadline for the filing of such Tax Returns, to the
Purchaser for signing and filing all (A) consolidated, combined or unitary Tax
Returns for Taxes that are based upon or related to net income (“Income Taxes”)
of the Parent or the Seller which include the TDI Companies or the TDI
Subsidiaries with respect to any Pre-Closing Tax Period (including any short
period) that are not required to be filed on or prior to the Closing Date and
(B) other Income Tax Returns of the TDI Companies or the TDI Subsidiaries with
respect to a Pre-Closing Tax Period that ends on the Closing Date. The Seller
shall pay or shall cause to be paid any and all Taxes shown as due with respect
to such Tax Returns described in the preceding sentence.

 

(iii)    The Purchaser shall prepare and deliver, or shall cause to be prepared
and delivered (at no cost to the Seller), within 75 days of receipt of the
Seller’s request therefor, to the Seller, the Seller’s standard international,
federal, state and local Tax Return data gathering packages (and/or information
requested therein) relating to the TDI Companies and the TDI Subsidiaries. Such
information shall be prepared on a basis consistent with the prior year’s Tax
Returns. In addition to providing such information to the Seller, the Purchaser
shall promptly provide or cause to be provided to the Seller (at no cost to the
Seller) such other information as

 

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the Seller may reasonably request in order for the operations of the TDI
Companies and the TDI Subsidiaries to be properly reported in such Tax Returns.

 

(iv)    The Seller or the Parent shall have the exclusive authority and
obligation to prepare or cause to be prepared all Tax Returns of the Seller and
the TDI Companies subject to Section 4.6(b)(i) and Section 4.6(b)(ii) that are
due with respect to any Pre-Closing Tax Period. Such authority shall include the
determination of the manner in which any items of income, gain, deduction, loss
or credit arising out of the income, properties and operations of the TDI
Companies shall be reported or disclosed in such Tax Returns; provided, however,
that such Tax Returns shall be prepared by treating items on such Tax Returns in
a manner consistent with past practice with respect to such items, unless
otherwise required by Law. The Purchaser shall have the right to review and
comment on Income Tax Returns subject to Section 4.6(b)(ii)(B) and shall not be
required to sign or file any such Income Tax Return if such Income Tax Return
has been prepared in a manner contrary to the preceding sentence.

 

(v)    With respect to any taxable period for Tax Returns that would otherwise
include but not end on the Closing Date, to the extent permissible, but not
required, pursuant to applicable Tax Law, the Seller may and the Purchaser or
its affiliates shall, at the Seller’s direction, cause any TDI Company or TDI
Subsidiary to (A) take all steps as are or may be reasonably necessary,
including the filing of elections or returns with applicable Taxing authorities,
to cause such period to end on the Closing Date or (B) if clause (A) is
inapplicable, report the operations of the TDI Company or TDI Subsidiary only
for that portion of such period ending on the Closing Date in a combined,
consolidated, or unitary Tax Return filed by the Parent, the Seller or an
affiliate, notwithstanding that such taxable period does not end on the Closing
Date.

 

For purposes of this Agreement, (x) the term “Pre-Closing Tax Period” means a
taxable period or portion thereof that ends on or prior to the Closing Date; if
a taxable period begins on or prior to the Closing Date and ends after the
Closing Date, then the portion of the taxable period that ends on and includes
the Closing Date shall constitute a Pre-Closing Tax Period; (y) the term
“Post-Closing Tax Period” means any taxable period that begins after the Closing
Date; if a taxable period begins on or prior to the Closing Date and ends after
the Closing Date, then the portion of the taxable period that begins immediately
after the Closing Date shall constitute a Post-Closing Tax Period; and (z) the
term “Straddle Tax Period” means any taxable period that begins before the
Closing Date and ends after the Closing Date.

 

(c)    The Purchaser’s Tax Returns for Periods Through the Closing Date. The
Purchaser shall prepare and file or cause one or more TDI Companies to prepare
and file all Tax Returns of or which include the TDI Companies or the TDI
Subsidiaries for Tax periods for which the Seller is not responsible pursuant to
Section 4.6(b). Subject to Section 4.6(g)(i), the Purchaser shall pay or cause
to be paid any and all Taxes due with respect to such Tax Returns. The Purchaser
shall provide to the Seller drafts of all Pre-Closing Tax Period Tax Returns
described in the second preceding sentence required to be prepared and filed by
any TDI Company or TDI Subsidiary and a statement certifying the amount of Taxes
shown on such Tax Return that is allocable to the Seller pursuant to Section
4.6(d) or Section 4.6(g)(i), together with appropriate supporting information
and schedules, at least 30 days prior to the due date for the filing of such Tax
Returns (including extensions). Within 15 days after the receipt of the draft

 

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Tax Returns, the Seller shall notify the Purchaser of the existence of any
objection (specifying in reasonable detail the nature and basis of such
objection) the Seller may have to any items set forth on such draft Tax Returns
(a “Dispute Notice”). The Purchaser and the Seller agree to consult and resolve
in good faith any such objection. However, if the Purchaser and the Seller
cannot resolve any such objection, the objection shall be referred to the
Accountants for prompt resolution. The Purchaser and the Seller shall share
equally all costs of hiring the Accountants. The Purchaser shall not file any
Tax Return subject to this Section 4.6(c) without the prior written consent of
the Seller, which consent shall not be unreasonably withheld or delayed;
provided, however, that no such consent shall be required if the Seller shall
not have timely delivered a Dispute Notice or the objections contained in such
Dispute Notice shall have been finally resolved.

 

(d)    Apportionment of Taxes. All Taxes and Tax liabilities with respect to the
income, property or operations of the TDI Companies and the TDI Subsidiaries
that relate to a Straddle Tax Period shall be apportioned between the
Pre-Closing Tax Period and the Post-Closing Tax Period as follows: (A) in the
case of Taxes that are either (1) based upon or related to income, receipts,
capital or net worth (but not including sales and compensating use Taxes), or
(2) imposed in connection with any sale or other transfer or assignment of
property (real or personal, tangible or intangible) (other than conveyances
pursuant to this Agreement, as provided under Section 4.6(h)), such Taxes shall
be deemed equal to the amount which would be payable if the Tax year ended with
the Closing Date; and (B) in the case of Taxes imposed on a periodic basis with
respect to the TDI Companies and TDI Subsidiaries, or otherwise measured by the
level of any item, such Taxes shall be deemed to be the amount of such Taxes for
the entire period (or, in the case of such Taxes determined on an arrears basis,
the amount of such Taxes for the immediately preceding period), multiplied by a
fraction the numerator of which is the number of calendar days in the period
ending on the Closing Date and the denominator of which is the number of
calendar days in the entire period. Subject to Section 4.6(g)(ii), the Parent
and the Seller shall be liable for all Taxes attributable to a Pre-Closing Tax
Period. Subject to Section 4.6(g)(i), the Purchaser, the TDI Companies and the
TDI Subsidiaries shall be liable for all Taxes attributable to a Post-Closing
Tax Period. Any deferred items taken into income pursuant to Treasury Regulation
Sections 1.1502-13 and 1.1502-14, any excess loss accounts taken into income
under Treasury Regulation Section 1.1502-19 as a result of this transaction and
any items of income, gain, deduction or loss arising out of or relating to the
Asset Purchase Agreement or the transactions contemplated thereby shall for
these purposes be apportioned to a Pre-Closing Tax Period. All transactions not
in the ordinary course of business occurring on the Closing Date after the
Purchaser’s purchase of the Shares shall be reported on the Purchaser’s federal
Income Tax Return to the extent permitted by Treasury Regulation Section
1.1502-76(b)(1)(ii)(B).

 

(e)    Cooperation; Audits. In connection with the preparation of Tax Returns,
audit examinations, and any administrative or judicial proceedings relating to
the Tax liabilities imposed on the Seller, the Purchaser, the TDI Companies or
the TDI Subsidiaries for all Pre-Closing Tax Periods, the Purchaser, the TDI
Companies and the TDI Subsidiaries, on the one hand, and the Parent and the
Seller, on the other hand, shall cooperate fully with each other, including
during normal business hours, the furnishing or making available of records,
personnel (as reasonably required and at no cost to the other party), books of
account, powers of attorney or other materials necessary or helpful for the
preparation of such Tax Returns, the conduct of audit

 

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examinations or the defense of claims by Taxing authorities as to the imposition
of Taxes. The Parent, the Seller, the Purchaser, the TDI Companies and the TDI
Subsidiaries shall retain all Tax Returns, schedules and work papers and all
material records or other documents relating to all Taxes of the Seller, the TDI
Companies and the TDI Subsidiaries for the Tax period first ending after the
Closing Date and for all prior Tax periods until the later of (i) the expiration
of the statute of limitations of the Tax periods to which such Tax Returns and
other documents relate, without regard to extension, except to the extent
notified by another party in writing of such extensions for the respective Tax
periods, or (ii) seven years following the due date (without extension) for such
Tax Returns, and each of the Seller and the Purchaser shall maintain such Tax
Returns, schedules, work papers, records and documents in the same manner and
with the same care it uses in maintaining its Tax Returns, schedules, work
papers, records and documents. The Seller, on the one hand, and each of the
Purchaser, the TDI Companies and the TDI Subsidiaries, on the other hand, shall
give the other party reasonable written notice prior to destroying or discarding
any such books or records and, if the other party so requests, the other party
shall take possession of such books and records. Any information obtained under
this Section 4.6(e) shall be kept confidential, except as may be otherwise
necessary in connection with the filing of Tax Returns or claims for refund or
in conducting an audit or other proceeding.

 

(f)    Controversies. The Purchaser shall notify the Seller in writing within 30
days of the receipt by the Purchaser or any affiliate of the Purchaser
(including a TDI Company or a TDI Subsidiary after the Closing Date) of written
notice of any inquiries, claims, assessments, audits or similar events with
respect to Taxes relating to a Pre-Closing Tax Period for which the Seller may
be liable under Section 4.6(g)(i) (any such inquiry, claim, assessment, audit or
similar event, a “Tax Matter”). For Tax Matters relating solely to a Pre-Closing
Tax Period for which the Seller acknowledges in writing its liability under
Section 4.6(d), the Seller, at its own expense, shall have the exclusive
authority to represent the interests of the TDI Companies and the TDI
Subsidiaries with respect to any Tax Matter before the IRS, any other Taxing
Authority, any other governmental agency or authority or any court and shall
have the sole right to extend or waive the statute of limitations with respect
to such Tax Matter, including responding to inquiries, filing Tax Returns and
settling audits or lawsuits; provided, however, that the Seller shall not enter
into any settlement of or otherwise compromise any such Tax Matter that
adversely affects or may adversely affect the Tax liability of the Purchaser,
any TDI Company or any TDI Subsidiary for any Post-Closing Tax Period, including
any Straddle Tax Period, without the prior written consent of the Purchaser,
which consent shall not be unreasonably withheld. The Seller shall keep the
Purchaser fully and timely informed with respect to the commencement, status and
nature of any Tax Matter. The Seller shall, in good faith, allow the Purchaser
or the Purchaser’s counsel to consult with it regarding the conduct of or
positions taken in any such proceeding. For Tax Matters relating to Straddle Tax
Periods, each of the Seller and the Purchaser may participate, at its own
expense, in representing the interests of the TDI Companies and the TDI
Subsidiaries; provided, however, that the representation shall be controlled by
that party which would bear the burden of the greater portion of the sum of the
adjustments that may reasonably be anticipated. Unless otherwise provided by the
Seller in writing to the Purchaser, all notices required by this Section 4.6(f)
shall be sent to: J. C. Penney Company, Inc., 6501 Legacy Drive, Plano, Texas
75024, Attention: Vice President and Director of Taxes.

 

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(g)    Tax Indemnification.

 

        (i)    The Parent and the Seller shall jointly and severally indemnify
the Purchaser from and against (A) any Income Taxes and Damages for any
Pre-Closing Tax Period resulting from, arising out of, relating to or caused by
any liability or obligation of any TDI Company or any TDI Subsidiary for Income
Taxes of any person other than a TDI Company or a TDI Subsidiary (w) under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law), (x) as a transferee or successor, (y) by contract, or (z)
otherwise, (B) any Income Taxes imposed on any TDI Company or TDI Subsidiary for
any Pre-Closing Tax Period, (C) any Taxes (other than Income Taxes) imposed on
any TDI Company or TDI Subsidiary for any Pre-Closing Tax Period but only to the
extent such Taxes in the aggregate exceed $3,200,000.00, (D) any Taxes arising
out of or relating to the Asset Purchase Agreement and the transactions
contemplated thereby, and (E) any breach of any covenant in this Section 4.6.
The Parent’s and the Seller’s obligation to indemnify the Purchaser with respect
to any Tax resulting from a Tax Matter shall be discharged to the extent that
the Parent’s and the Seller’s defense of such Tax Matter is prejudiced by the
Purchaser’s failure to comply with Section 4.6(f) of this Agreement. The Parent
and the Seller shall discharge their obligation to indemnify the Purchaser
against such Pre-Closing Tax Period Tax by paying to the Purchaser an amount
equal to the amount of such Tax; provided, however, that if the Purchaser
provides the Parent or the Seller with written notice of a Pre-Closing Tax
Period Tax at least 30 days prior to the date on which the relevant Tax is
required to be paid by the Purchaser or the applicable TDI Company, the Parent
and the Seller shall, if and to the extent that it is liable for such Tax
hereunder, discharge their obligation to indemnify the Purchaser against such
Tax by paying an amount equal to the amount of such Tax to the relevant Taxing
Authority. The Parent or the Seller shall provide the Purchaser evidence of such
payment to the relevant Taxing Authority.

 

        (ii)    The Purchaser shall indemnify the Parent and the Seller from and
against (A) any Taxes (other than Income Taxes) and Damages imposed on the
Purchaser, any TDI Company, any TDI Subsidiary or any affiliate of the Purchaser
for any Tax Period provided that, with respect to Taxes (other than Income
Taxes) attributable to a Pre-Closing Tax Period, only to the extent such Taxes
in the aggregate do not exceed $3,200,000.00, (B) any Income Taxes and Damages
for any Post-Closing Tax Period imposed on (x) the Parent or the Seller
attributable to any TDI Company or TDI Subsidiary or (y) any TDI Company or TDI
Subsidiary, (C) Taxes and Damages arising from a transaction not in the ordinary
course of business occurring on the Closing Date after the Purchaser’s purchase
of the Shares, (D) any Taxes and Damages resulting from a Section 338(g)
election, and (E) any breach of any covenant in this Section 4.6. The Purchaser
shall discharge its obligation to indemnify the Parent and the Seller against
such Tax under this Section 4.6(g)(ii) by paying to the Parent or the Seller an
amount equal to the amount of such Tax; provided, however, that if the Parent or
the Seller provides the Purchaser with written notice of a Tax under this
Section 4.6(g)(ii) at least 30 days prior to the date on which the relevant Tax
is required to be paid by the Parent or the Seller, the Purchaser shall, if and
to the extent that it is liable for such Tax hereunder, discharge its obligation
to indemnify the Parent and the Seller against such Tax by paying an amount
equal to the amount of such Tax to the relevant Taxing Authority. The Purchaser
shall provide the Parent or the Seller evidence of such payment to the relevant
Taxing Authority. Any payment required to be made under this paragraph shall be
made not later than 30 days after the receipt of written notice that any such
Tax has been incurred.

 

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(h) Conveyance Taxes. The Seller and the Purchaser shall assume equal liability
for and pay any and all sales, use, value added, transfer, stamp, registration,
real property transfer or gains and similar Taxes (including any penalties and
interest) incurred as a result of the transactions contemplated by this
Agreement when due, and the Purchaser, at its own expense, shall file or cause
to be filed all necessary Tax Returns and other documentation with respect to
all such Taxes and fees. The Seller and the Purchaser shall provide reasonable
assistance in connection with such filings. To the extent that any Taxes
described in the second preceding sentence are required to be collected by one
party, the other party shall pay its share of such Taxes to the first party and
the first party shall remit such Taxes to the Taxing Authority.

 

(i) Refunds; Carrybacks. The Purchaser shall cause any TDI Company or TDI
Subsidiary to elect, where permitted by applicable Law, to carry forward any Tax
attribute carryover that would, absent such election, be carried back to a
Pre-Closing Tax Period. The Purchaser shall promptly pay or cause to be paid to
the Seller any Tax refunds or credits attributable to any Pre-Closing Tax Period
received or credited to the Purchaser, a TDI Company or any TDI Subsidiary, net
of any direct costs attributable to receipt of such refund or credit, including
Taxes payable with respect to such refund, within 10 days after the receipt of
such refund or credit. At the Seller’s request, the Purchaser shall cooperate
with the Seller in obtaining such refunds, including through the filing of
amended Tax Returns or refund claims as prepared by the Seller, at its own
expense. Without the Parent’s written consent, which consent may be withheld for
any reason or no reason, the Purchaser shall not carry back any net operating or
capital loss arising in a Post-Closing Tax Period to a Pre-Closing Tax Period.
All Tax refunds or credits attributable to any Post-Closing Tax Period shall be
for the benefit of the Purchaser and any such Tax refunds or credits received by
the Parent or the Seller shall promptly be paid to the Purchaser.

 

(j) Allocation of Purchase Price. Not less than 30 days prior to the Closing,
the Purchaser shall deliver to the Seller a draft statement (the “Allocation
Statement”) proposing to allocate the Estimated Purchase Price among the Shares.
The Allocation Statement shall be adjusted to reflect any revisions to the
Purchase Price made pursuant to Section 1.4. Within 30 days after the Purchaser
delivers the draft Allocation Statement to the Seller, the Seller shall notify
the Purchaser of the existence of any objection (specifying in reasonable detail
the nature and basis of such objection) the Seller may have to the draft
Allocation Statement. The Purchaser and the Seller shall promptly endeavor in
good faith to resolve any such objection. If the Seller and the Purchaser fail
to resolve such objection within 30 days, the Accountants shall determine
whether the allocation was reasonable and, if not reasonable, shall
appropriately revise the draft Allocation Statement. If the Seller does not
respond within 30 days, or upon resolution of any disputed items, the allocation
reflected on the Allocation Statement (as revised, if applicable, by the mutual
agreement of the Purchaser and the Seller or by the Accountants) shall be the
final Allocation Statement. Each of the Seller and the Purchaser shall adhere
to, and be bound by, the final Allocation Statement for U.S. federal Income Tax
purposes and shall take no position contrary to the final Allocation Statement
unless required to do so by applicable Tax Law.

 

(k) True-Up Payments for Taxes Other than Income Taxes. Upon the later of (i)
the expiration of the statue of limitations of the Pre-Closing Tax Periods to
which such Taxes relate (without regard to extension, except to the extent
notified by the Purchaser in writing), or (ii)

 

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four years following the due date (without extension) for such Taxes, the
Purchaser shall pay to the Seller, by wire transfer of immediately available
funds to an account designed by the Parent, an amount equal to the excess, if
any, of $3,200,000.00 over the aggregate amount of Taxes (other than Income
Taxes) attributable to Pre-Closing Tax Periods actually paid by the Purchaser or
any of its affiliates (including any TDI Company or TDI Subsidiary) following
the Closing.

 

Section 4.7 Employee Benefit Matters.

 

(a) Employees and Compensation. Each individual who is an employee of the
Northern Business both immediately prior to the Closing and after the closing of
the transactions under the Asset Purchase Agreement (a “TDI Employee”) will
continue as an employee of such TDI Company or TDI Subsidiary on and after the
Closing Date. For purposes of this Section 4.7, the term TDI Employee will
include an individual who on the Closing Date is on a medical or disability
leave of absence or any other approved leave of absence from the TDI Company or
TDI Subsidiary. For a period of at least six (6) months beginning on the Closing
Date, the Purchaser will, or will cause one of its affiliates to, provide each
TDI Employee, for so long as each such employee remains employed by the
Purchaser or one of its affiliates, with a position providing (i) base pay that
is at least equal to the base pay provided to each such TDI Employee by the TDI
Companies and the TDI Subsidiaries on the Closing Date and (ii) a target annual
incentive compensation opportunity (expressed as a percentage of the TDI
Employee’s annual base salary) that is at least equal to such TDI Employee’s
target annual incentive compensation opportunity immediately prior to the
Closing Date (expressed in the same manner), but based on such performance goals
and other criteria as the Purchaser deems to be appropriate. Except as set forth
in Section 4.7(b), nothing contained in this Section 4.7 will limit the right of
the Purchaser or any of its affiliates to terminate or suspend the employment of
any TDI Employee after the Closing or to discontinue or modify the benefits
provided to any such employee.

 

(b) Employee Benefits. For a period of at least six (6) months beginning on the
Closing Date, the Purchaser will, or will cause one of its affiliates to,
maintain without adverse change each Company Plan in effect and providing
accrued benefits as of the Closing Date, except that the Purchaser will not be
required to continue under any Company Plan any investment fund intended to
invest primarily or exclusively in Parent stock or continue any employer
contributions made or invested in Parent stock or any Company Plan retained by
Seller under this Section 4.7. In addition, if any TDI Employee other than a
Headquarters Employee (as hereinafter defined) terminates employment during the
12-month period beginning on the Closing Date, the Purchaser will, or will cause
one of its post-Closing affiliates to, provide such employee with severance
benefits pursuant to a severance benefits plan adopted by the Purchaser or one
of its post-Closing affiliates, in an amount at least equal to the benefits
provided (i) under Eckerd HR Policy 1.43, if the TDI Employee is employed at a
store, and (ii) under the Eckerd Separation Benefits Program Non-Exempt (Hourly)
Associates or the Eckerd Separation Benefits Program Exempt (Salaried)
Associates, as applicable, if the TDI Employee is a member of the region or
district staff or is employed at a service support center, intervention center
or the Puerto Rico repack center (if, in either case, the TDI Employee would
have been eligible for benefits under such HR Policy or Separation Benefits
Program). The Purchaser agrees that for any employee benefit plan of the
Purchaser or any of its affiliates made available after the Closing to TDI
Employees, such employees will receive credit for the years of service credited
to them prior to the Closing by the Parent, the Seller, the TDI Companies or the
TDI Subsidiaries in

 

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determining eligibility and vesting under such employee benefit plan and in
determining the amount of benefits under any applicable sick leave, vacation,
severance or other welfare plan. The Parent and the Seller will cause the TDI
Employees to be fully vested in any awards under the J. C. Penney Company, Inc.
2001 Equity Compensation Plan and 1997 Equity Compensation Plan.

 

(c) Eckerd Pension Plan. Prior to the Closing Date, the Parent will, or will
cause one of its post-Closing affiliates to, adopt and assume the sponsorship of
the Eckerd Corporation Pension Plan and related trust (the “Eckerd Pension”),
and the Parent and the Seller will cause all right, title, interest, duties and
authorities of the TDI Companies and TDI Subsidiaries with respect to the Eckerd
Pension to be transferred to the Parent or a post-Closing affiliate in
accordance with applicable Law. At the Closing, the parties will execute and
deliver such documents and instruments as may be required to effect such
assumption. Neither the Purchaser nor any of its post-Closing affiliates will
have any responsibility for, or any Liability with respect to, the Eckerd
Pension.

 

(d) Eckerd Supplemental Benefits. Prior to the Closing, the Parent and the
Seller will take all action necessary to cause Eckerd Corporation either (i) to
terminate the nonqualified employee benefit plans and trusts listed in Section
4.7(d) of the Disclosure Schedule as of a date no later than the Closing Date or
(ii) to transfer sponsorship of such plans and trusts to the Parent or an
affiliate of the Parent as of a date no later than the Closing Date. The Parent
will, or will cause one of its post-Closing affiliates to, assume all benefit
obligations under such terminated or transferred plans. As soon as practicable
after the termination of such plans, but not earlier than the Closing Date, the
Parent will, or will cause one of its post-Closing affiliates to, pay all
accrued benefit obligations under such plans in a single lump sum payment,
provided that each Person entitled to payment under any such plan furnishes to
the Parent a release of claims, in a form satisfactory to the Parent, in favor
of the Parent and its post-Closing affiliates. To the extent that any TDI
Company or TDI Subsidiary owns life insurance policies insuring the lives of TDI
Employees that are intended to fund benefits under one or more of the
nonqualified plans listed in Section 4.7(d) of the Disclosure Schedule, the
Parent will, or will cause one of its affiliates, prior to the Closing Date, to
(x) surrender such polices to the insurance company for their cash value and
transfer such cash to the Parent or (y) transfer ownership of such policies to
the Parent or a post-Closing affiliate.

 

(e) Retained Supplemental Benefit Liabilities. The Parent will retain and be
solely responsible for the payment of the accrued benefit obligation of each TDI
Employee and any former employee of the TDI Companies or the TDI Subsidiaries
under the J. C. Penney Corporation, Inc. Mirror Savings Plans I and II, the J.
C. Penney Corporation, Inc. Mirror Savings Plan III, the Supplemental Retirement
Program for Management Profit-Sharing Associates of J. C. Penney Corporation,
Inc., and the J. C. Penney Corporation Benefit Restoration Plan. Neither the
Purchaser nor any of its post-Closing affiliates will have any responsibility
for, or any Liability for benefits under, any Benefit Plan that is not a Company
Plan.

 

(f) Headquarters Employee Separation and Incentive Liabilities. Effective as of
the Closing, the Parent will assume sponsorship of, and be solely responsible
for, the Eckerd Contingent Separation Pay Program, the Eckerd Contingent
Critical Pay Program and the Eckerd

 

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Contingent Retention Incentive Pay Program and will assume and be solely
responsible for all separation, severance or retention incentive payments and
benefits under any other plan, arrangement or agreement in effect immediately
prior to the Closing Date for which the TDI Companies or TDI Subsidiaries are
otherwise obligated with respect to current or former Headquarters Employees (as
defined below); provided, however, that the amount of payments and benefits
under any such Program or other plan, arrangement or agreement will not exceed
the amount of payments and benefits calculated on the basis of each such
Headquarters Employee’s salary or base pay and incentive compensation level in
effect immediately prior to the Closing Date. As used in this Section 4.7, the
term “Headquarters Employee” means any TDI Employee, other than a member of the
region or district staff, who is employed (i) at the headquarters of the TDI
Companies in Largo, Florida, (ii) at the airport fixed base of operations in
Clearwater, Florida, or (iii) at the repackaging facility in Largo, Florida. The
Parent will cause all benefits under the Eckerd Contingent Separation Pay
Program, the Eckerd Contingent Critical Pay Program and the Eckerd Contingent
Retention Incentive Pay Program to be paid to TDI Employees entitled to payments
under such Programs not later than six months after the Closing Date (without
regard to whether such employee remains employed by the Purchaser or one of its
post-Closing affiliates after such six-month date). Except for Liabilities
arising under an employment or similar agreement, neither the Parent nor any
post-Closing affiliate of the Parent will have any responsibility or Liability
(x) for any separation or severance payments or benefits with respect to any
Headquarters Employee who terminates employment from the Purchaser or any of its
post-Closing affiliates more than six months after the Closing Date or (y) for
any separation or severance payments or benefits under any other plan,
arrangement or agreement (whether in effect on the Closing Date or adopted by
the Purchaser or any of its post-Closing affiliates after the Closing Date) with
respect to any TDI Employee other than a Headquarters Employee who terminates
employment on or after the Closing Date.

 

(g) Other Retained Benefit Plan Liabilities. The Parent will assume and be
solely responsible for all liabilities and obligations of the TDI Companies and
TDI Subsidiaries with respect to: (i) the Genovese Drug Stores, Inc. 1984
Employee Stock Option and Stock Appreciation Rights Plan, and (ii) any
obligation to provide post-retirement medical, prescription drug or insurance
benefits to current and former employees of the TDI Companies and TDI
Subsidiaries, including Headquarters Employees, other than COBRA continuation
coverage required by Section 4980B of the Code.

 

(h) WARN Liabilities. The Purchaser will be responsible for complying with all
requirements under WARN or any similar state law with respect to TDI Employees
who terminate employment on or after the Closing Date, and neither the Parent
nor any of its post-Closing affiliates will have any Liability under WARN or any
similar state law with respect to such terminated TDI Employees. Prior to the
Closing, the Parent will, or will cause one of its affiliates to, take all
action necessary to amend the Eckerd Contingent Separation Pay Program, the
Eckerd Separation Benefits Program Non-Exempt (Hourly) Associates and the Eckerd
Separation Benefits Program Exempt (Salaried) Associates to provide that
benefits payable to eligible TDI Employees under such Programs will be reduced
by any payments required to be made to the TDI Employees under WARN or any
similar state law. The Parent and the Purchaser will, and will cause their
affiliates to, cooperate in furnishing any notices to TDI Employees prior to the
Closing that may be required to reduce or avoid Liability under WARN or any
similar state law.

 

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(i) Cooperation by the Purchaser. To facilitate the payment to TDI Employees of
any amounts for which the Parent or an affiliate of the Parent has assumed
Liability under this Section 4.7, the Purchaser will, or will cause one of its
affiliates to, permit such payments to be made through the payroll of a TDI
Company or a TDI Subsidiary. Neither the Purchaser nor any of its affiliates
will cause excise taxes under Section 4999 of the Code to be withheld with
respect to any such payment unless directed to do so by the Parent or an
affiliate of the Parent. If the Purchaser or any of its affiliates receives
written notice from any Taxing Authority of any inquiry, claim, assessment,
audit or similar event relating to such excise taxes or a failure to withhold
such excise taxes, the Purchaser will notify the Parent within 30 days of
receipt of such written notice. The Parent, at its own expense, will have the
exclusive authority to defend against any claim or assessment by a Taxing
Authority relating to such excise taxes or a failure to withhold such excise
taxes. In the event that the Purchaser or any of its affiliates incurs any
taxes, penalties, interest or other Liability as a result of any failure to
withhold the proper amount of such excise taxes, the Parent will promptly
reimburse the Purchaser and its affiliates the amount of any such taxes,
penalties, interest or other Liability.

 

Section 4.8 Internet-Related Matters.

 

(a) Websites. The Seller and the Purchaser will cooperate and work diligently
(i) so that, promptly following the Closing, all text, images and other content
contained in all web sites relating to the TDI Companies or the TDI Subsidiaries
maintained by the Seller or the Parent are provided to the Purchaser for
inclusion in its web site and (ii) to remove the name “J. C. Penney,”
“JCPenney,” “Penney,” or “JCP” or any reference thereto or variation thereof or
any other trade name, brand name, trademark, service mark or other mark listed
in Section 4.8(a) of the Disclosure Schedule or any variation thereof from any
such text, image or other content (collectively, the “Penney Marks”).

 

(b) Ownership of Domain Names. The Parent shall retain ownership of all domain
names employing the name “J. C. Penney,” “JCPenney,” “Penney” or “JCP” and
neither the Purchaser, any TDI Company nor any TDI Subsidiary nor any of their
respective affiliates shall have any right or license to any such domain name.

 

(c) Internet Protocol Address. To the extent that the Seller, a TDI Company or a
TDI Subsidiary utilizes any internet protocol address space allocated to the
Parent, such internet protocol address space shall remain the property of the
Parent, and no rights or licenses are granted to the Purchaser, the TDI
Companies or the TDI Subsidiaries with respect thereto, except to the extent
permitted by the Transition Services Agreements.

 

(d) Phone Network. None of the Purchaser, any TDI Company or any TDI Subsidiary
shall have any right to continued access to the Parent’s phone network, the
Parent’s internet mail or the Parent’s computer network, except to the extent
permitted by the Transition Services Agreements.

 

Section 4.9 Guarantees. The Purchaser shall promptly use its reasonable best
efforts to fully release the Seller, the Parent or any of their affiliates
(other than the TDI Companies or the TDI Subsidiaries) from any guarantees or
similar agreements or arrangements with respect to obligations of any TDI
Company or TDI Subsidiary, including entering into any agreement or

 

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instrument necessary to fully assume such guarantee or other obligation, without
recourse to the Seller, the Parent or any of their affiliates (other than the
TDI Companies or the TDI Subsidiaries).

 

Section 4.10 Use of Intellectual Property. The Parent and the Seller acknowledge
that from and after the Closing, all right, title and interest in the
Intellectual Property, including the names “Eckerd”, “Thrift Drug” and
“Genovese” but excluding software subject to a license as set forth on Section
2.2(n)(i) and 2.2(n)(iv) of the Disclosure Schedule, shall be owned exclusively
by a TDI Company or a TDI Subsidiary (except as otherwise provided in the
Framework Agreement or the Transition Services Agreements), that neither the
Parent nor any of its affiliates shall have any rights or interest in the
Intellectual Property and that neither the Parent nor any of its affiliates will
contest the exclusive ownership or validity of any rights of the Purchaser, any
TDI Company or any TDI Subsidiary in or to the Intellectual Property. From and
after the Closing, neither the Parent nor any of its affiliates shall use any of
the Intellectual Property, except in accordance with the Transition Services
Agreements.

 

Section 4.11 Use of Penney Marks. The Purchaser acknowledges that from and after
the Closing, the Penney Marks shall be owned by the Parent or an affiliate of
the Parent (other than the TDI Companies or the TDI Subsidiaries), that none of
the Purchaser nor any of its affiliates, including the TDI Companies and the TDI
Subsidiaries, shall have any rights in the Penney Marks and that none of the
Purchaser nor any of its affiliates, including the TDI Companies and the TDI
Subsidiaries, will contest the ownership or validity of any rights of the Parent
or any affiliate of the Parent (other than the TDI Companies and the TDI
Subsidiaries) in or to the Penney Marks. From and after the Closing, none of the
Purchaser nor any of its affiliates, including the TDI Companies and the TDI
Subsidiaries, shall use any of the Penney Marks, domain names or otherwise,
except in accordance with the Transition Services Agreements.

 

Section 4.12 Release of Indemnity Obligations. The Parent covenants and agrees,
on or prior to the Closing, to execute and deliver to the Purchaser, for the
benefit of each TDI Company and each TDI Subsidiary, a general release and
discharge, in substantially the form attached hereto as Exhibit E-2, and the
Purchaser acknowledges and agrees that on or prior to the Closing, each TDI
Company and each TDI Subsidiary will execute and deliver to the Parent, for the
benefit of the Parent and each of its affiliates (other than the TDI Companies
and the TDI Subsidiaries), a general release and discharge in substantially the
form attached hereto as Exhibit E-1.

 

Section 4.13 Further Action. Each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all appropriate action, do or cause to be
done all things necessary, proper or advisable under applicable Law, and to
execute and deliver such documents and other papers, as may be required to carry
out the provisions of this Agreement and consummate and make effective the
transactions contemplated by this Agreement.

 

Section 4.14 Notice of Developments. Prior to the Closing, (a) the Parent shall
promptly (i) notify the Purchaser in writing of any event, circumstance, fact or
occurrence which is a material breach of a representation or warranty or
covenant of the Parent or the Seller in this Agreement or which has the effect
of making any representation or warranty of the Parent or the

 

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Seller in this Agreement untrue or incorrect in any material respect; and (ii)
deliver to the Purchaser copies of (A) the monthly unaudited balance sheet of
the Seller as of each month and the related unaudited statement of operations
and cash flows of the Seller for such months with respect to the Business and
(B) the monthly FRC reports, each as prepared by or for the Seller in the
ordinary course of business consistent with past practices; and (b) the
Purchaser shall promptly notify the Parent in writing of any event,
circumstance, fact or occurrence which is a material breach of a representation
or warranty or covenant of the Purchaser in this Agreement or which has the
effect of making any representation or warranty of the Purchaser in this
Agreement untrue or incorrect in any material respect.

 

Section 4.15 Confidentiality. The Parent and the Seller agree to, and shall
cause their agents, representatives, affiliates, employees, officers and
directors to: (a) treat and hold as confidential (and not disclose or provide
access to any other Person to) all information relating to trade secrets,
processes, patent and trademark applications, product development, price,
customer and supplier lists, pricing and marketing plans, policies and
strategies, details of client and consultant contracts, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and all other confidential or proprietary information with
respect to the Northern Business, the TDI Companies and the TDI Subsidiaries,
(b) in the event that the Parent, the Seller or any such agent, representative,
affiliate, employee, officer or director becomes legally compelled to disclose
any such information, provide the Purchaser with prompt written notice of such
requirement so that the Purchaser, any TDI Company or any TDI Subsidiary may
seek a protective order or other remedy or waive compliance with this Section
4.15 and (c) in the event that such protective order or other remedy is not
obtained, or the Purchaser waives compliance with this Section 4.15, furnish
only that portion of such confidential information which is legally required to
be provided and reasonably cooperate with the Purchaser to obtain assurances
that confidential treatment will be accorded such information, provided,
however, that this sentence shall not apply to any information that, at the time
of disclosure, is available publicly and was not disclosed in breach of this
Agreement by the Parent, the Seller, or their respective agents,
representatives, affiliates, employees, officers or directors; and provided
further that, with respect to Intellectual Property, specific information shall
not be deemed to be within the foregoing exception merely because it is embraced
in general disclosures in the public domain. Notwithstanding anything set forth
above in this Section 4.15, the Purchaser understands and acknowledges that
certain of the confidential and proprietary information referred to in this
Section 4.15 is associated with or part of the information Parent and Seller
will share with others pursuant to the Asset Purchase Agreement in connection
with the sale of certain assets by the Seller on the Closing Date and pursuant
to the Transition Services Agreements. The Purchaser agrees that such sharing
shall not constitute a breach of this Section 4.15. The Parent and the Seller
agree and acknowledge that remedies at law for any breach of its obligations
under this Section 4.15 are inadequate and that in addition thereto the
Purchaser shall be entitled to seek equitable relief, including injunction and
specific performance, in the event of any such breach.

 

Section 4.16 Asset Purchase Agreement. (a) At or prior to the Closing, the
Parent will cause the Seller or its affiliates to transfer each of the assets
and liabilities specified in the Asset Purchase Agreement as Purchased Assets
and Assumed Liabilities, respectively, to the Asset Purchaser or another Person
other than a TDI Company or a TDI Subsidiary, all in accordance with the terms
and conditions specified in the Asset Purchase Agreement.

 

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(b) None of the entry into of the Asset Purchase Agreement, compliance with the
provisions thereof or the consummation of the transactions contemplated thereby
will constitute a breach of any representation or warranty made by the Parent or
the Seller in or pursuant to this Agreement or the violation or breach of any
covenant of the Parent or the Seller contained in this Agreement.

 

Section 4.17 Title and Survey Obligations. The Seller will make available copies
of any existing title policies or surveys for the Real Property in the
possession of the Seller, the TDI Companies or the TDI Subsidiaries for the
Purchaser’s review. Any updates to title and/or surveys for the Real Property
shall be the sole responsibility of the Purchaser, and the Seller shall have no
obligation to incur any cost or expense, including attorneys’ fees, in
connection with the Purchaser’s acquisition of updated title and surveys for the
Real Property, including any obligation to cure any title defects or objections
raised by the Purchaser and/or its lender upon their review of the updated title
and/or surveys for the Real Property to the extent such defects or obligations
arise from or are related to Permitted Liens or the leases and subleases listed
or described in Section 2.2(m)(i)(C) of the Disclosure Schedule.

 

Section 4.18 Environmental Inspections.

 

(a) Prior to the Closing, the Purchaser shall not conduct any environmental
inspections, investigations or testing on the Real Property without the Seller’s
prior written consent, which shall not be unreasonably withheld or delayed but
which shall be subject to the receipt by the Seller of any required landlord
consent pursuant to the leases or subleases of the Leased Real Property. The
Seller shall have the right to have a representative present during any
inspections of the Real Property. The Purchaser may request information about
the Real Property from Governmental Entities, but will not disclose to any
Governmental Entity the results of any inspection, sampling or testing conducted
at any of the Real Property, whether performed by the Seller, the Purchaser, a
consultant or agent thereof or otherwise, without the Seller’s prior written
consent, except to the extent required by Law.

 

(b) Prior to the Closing, the Purchaser will, or will cause its consultants or
agents to, promptly pay when due the costs of all entry and inspections and
examinations done with regard to the Real Property and promptly restore the Real
Property to the condition in which such Real Property existed prior to any
entry, inspection or examination.

 

(c) Prior to the Closing, the Purchaser shall keep all of the Real Property free
and clear of all Liens or Encumbrances caused by the Purchaser or any of its
consultants or agents. The Purchaser hereby agrees to indemnify, defend and hold
harmless the Seller Indemnitees (and to the extent applicable, any third party
landlord of the Leased Real Property) from and against any Damages suffered by
any Seller Indemnitee arising out of (i) any entry upon the Real Property and
any inspections or examinations conducted by the Purchaser, its consultants or
agents, on the Real Property, or (ii) any breach of the provisions in this
Section 4.18 by the Purchaser, its consultants or agents. The provisions of this
Section 4.18 shall not be subject to any limitation of Liability set forth in
this Agreement.

 

Section 4.19 Framework Agreement. At or prior to the Closing, the Purchaser, the
Asset Purchaser, CVS as guarantor and Brooks as guarantor shall enter into the
Framework

 

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Agreement in substantially the form attached hereto as Exhibit F and the TDI
Companies and the Asset Purchaser shall enter into a Transition Services
Agreement in substantially the form attached hereto as Exhibit D-2. The Parent
shall not have any liability for the failure of any party thereto to comply with
the provisions of such Framework Agreement or Transition Services Agreement.

 

Section 4.20 Transition Services Agreement. Following the Closing Date, the
Parent shall cause to be provided, to the Northern Business and the Purchaser,
on a cost reimbursement basis, certain services which are currently provided by
the Parent and its affiliates to the Business, all as more fully set forth in
the Transition Services Agreement to be agreed between JCP and the Purchaser
prior to the Closing and to be entered into by JCP and the Purchaser as of the
Closing Date in substantially the form specified in Exhibit D-1 attached hereto.

 

Section 4.21 Delivery of Additional Financial Statements. The Parent will
deliver, or cause to be delivered, to the Purchaser, (i) the audited statement
of assets acquired and liabilities assumed of the Northern Business as of
January 31, 2004 (including the notes thereto) and the related audited
statements of revenues and cash flows of the Northern Business for the period
then ended and the unqualified opinion of the auditor thereon (collectively, the
“2003 Carve-Out Special Purpose Financial Statements - Northern Operations”) and
(ii) the audited statement of assets acquired and liabilities assumed of the
Northern Business as of January 26, 2002 and January 25, 2003 (including the
notes thereto) and the related audited statements of revenues and cash flows of
the Northern Business for the periods then ended and the unqualified opinion of
the auditor thereon (collectively, together with the 2003 Carve-Out Special
Purpose Northern Financial Statements, the “Carve-Out Special Purpose Financial
Statements - Northern Operations”) on or before the date that is five (5)
business days prior to the Closing Date. Notwithstanding the foregoing, the
Parent will use commercially reasonable efforts to deliver the Carve-Out Special
Purpose Financial Statements - Northern Operations on or before May 15, 2004,
provided however, that the Purchaser shall reimburse the Parent for any and all
incremental out-of-pocket expenses incurred in connection with the expedited
preparation of the foregoing financial statements.

 

Section 4.22 Real Property Commitments. The Parent and the Seller shall deliver
to the Purchaser, promptly following the execution and delivery of a mutually
agreeable letter agreement (the “Letter Agreement”) by each of the parties
hereto, a list of all commitments of any TDI Company or any TDI Subsidiary to
purchase or lease real property. The Letter Agreement shall contain, among other
things, (i) a prohibition against the Purchaser’s distribution of such list or
in any way the conveyance of the information on such list to any employee,
agent, division or subsidiary of the Purchaser that has any material authority
or influence in the decision to open new stores or relocate or close existing
stores, (ii) a prohibition against the use of the information on such list for
any purpose other than for the transactions contemplated by this Agreement, and
(iii) an acknowledgement that, notwithstanding anything to the contrary in this
Agreement or the Letter Agreement, the Purchaser has no right to approve,
disapprove or influence the purchase or lease of any real property or the
opening, relocating or closing of any store by any TDI Company or any TDI
Subsidiary.

 

Section 4.23 JEC Owned Real Property. Prior to the Closing Date, the Parent
shall cause JEC Funding, Inc. to sell, convey, assign, transfer and deliver fee
title to the locations

 

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listed or described on Section 4.23 of the Disclosure Schedule (the “JEC Owned
Real Property”) to a TDI Company or TDI Subsidiary. In addition, the Parent
agrees to provide the Purchaser with reasonable evidence of such transfer prior
to the Closing.

 

Section 4.24 Contractual Overpayments. If at any time in the eighteen (18) month
period following the Closing Date, the Purchaser or any of its affiliates
receives a refund amount or a reduction in an amount payable from a vendor that
relates to a contractual overpayment made by any TDI Company or TDI Subsidiary
in the period prior to the Closing Date, the Purchaser shall use reasonable best
efforts to turn over an amount equal to fifty percent of such refunded amount or
an amount equal to the reduction, as the case may be, to the Parent. The Parent
and the Purchaser shall (and the Purchaser shall cause the TDI Companies and TDI
Subsidiaries to) cooperate in good faith to identify and obtain a refund of any
such overpayment.

 

Section 4.25 Orphan Entities. Prior to the Closing Date the Parent and the
Seller shall cause the applicable TDI Company to either (i) dissolve each of the
Orphan Entities or (ii) transfer all the capital stock of each of the Orphan
Entities to the Parent or an affiliate of the Parent (other than a TDI Company
or TDI Subsidiary). In connection with such dissolution or transfer, all assets
of the Orphan Entities shall be transferred to a TDI Company or a TDI
Subsidiary.

 

Section 4.26 IP Liens. The Parent and the Seller shall use commercially
reasonable efforts to have released on or before the Closing Date any security
interests on all federally registered trademarks that are a part of the
Intellectual Property.

 

Section 4.27 JCP Owned Real Property. Prior to the Closing Date, the Parent
shall or shall cause its applicable affiliate to sell, convey, assign, transfer
and deliver fee title to the locations listed or described on Section 4.27 of
the Disclosure Schedule (the “JCP Owned Real Property”) to a TDI Company or TDI
Subsidiary.

 

Section 4.28 Intentional Breach of the Asset Purchase Agreement. If (i) the
Parent or any Seller under the Asset Purchase Agreement willfully breaches the
Asset Purchase Agreement, (ii) such breach is the cause of the termination of
the Asset Purchase Agreement by the Asset Purchaser, (iii) on the date of such
termination the Parent does not have the right to terminate this Agreement
pursuant to either Section 6.1(d)(x) or Section 6.1(d)(y) and (iv) on the date
of such termination the Purchaser’s financing pursuant to the executed
commitment letter attached as Exhibit G shall not have been revoked or
withdrawn, except solely due to the termination of the Asset Purchase Agreement
as described above, then the Parent shall reimburse the Purchaser an amount, not
in excess of $20,000,000.00, for its documented reasonable out-of-pocket
expenses incurred in connection with the transactions contemplated by this
Agreement.

 

Section 4.29 JCP Leased Real Property. Subject to obtaining any applicable
landlord consents, prior to the Closing Date, the Parent shall or shall cause
its applicable affiliate to assign its entire leasehold interest in the leased
real property listed or described on Section 4.29 of the Disclosure Schedule
(the “JCP Leased Real Property”) to a TDI Company or TDI Subsidiary. If any
necessary landlord consent to assign the leasehold interest in any JCP Leased
Real Property is not obtained prior to the Closing, (i) neither this Agreement
nor any other document related to the consummation of the transaction
contemplated herein will constitute a sale,

 

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assignment, assumption, transfer, conveyance or delivery, or an attempted sale,
assignment, assumption, transfer conveyance or delivery, of any applicable JCP
Leased Real Property or the lease pursuant to which such property is held (a
“JCP Lease”) and (ii) following the Closing, the Parent and the Purchaser will
use commercially reasonable efforts, and reasonably cooperate with one another,
to obtain the consent(s) as quickly as practicable. Pending the obtaining of
such consent(s), the Parent and the Purchaser will cooperate with each other in
any reasonable and lawful arrangements designed to provide to the Purchaser the
benefits of use of the applicable JCP Leased Real Property for the term of the
JCP Lease. Once a necessary consent for the assignment of a JCP Lease is
obtained, the Parent will promptly assign such JCP Lease to a TDI Company or TDI
Subsidiary, and the applicable TDI Company or TDI Subsidiary will assume any and
all liabilities and obligations under such JCP Lease.

 

Section 4.30 Trademarks. Prior to the Closing Date, (i) EDC Licensing, Inc., a
Delaware corporation and one of the TDI Subsidiaries (“EDC”), shall assign,
transfer and convey all its right, title and interest in and to the trademarks,
trade names, service marks and logos set forth in Section 4.30(a) of the
Disclosure Schedule (the “PBM Marks”) and all goodwill of the business
associated with the PBM Marks to the PBM Entity and (ii) the Parent shall, or
shall cause its applicable affiliate to, assign, transfer and convey all its
right, title and interest in and to the trademarks, trade names, service marks
and logos set forth in Section 4.30(b) of the Disclosure Schedule (the “North
Mark”) and all goodwill of the business associated with the North Mark to EDC.

 

Section 4.31 Domain Names. Prior to the Closing Date, the Parent shall, or shall
cause its applicable affiliate to, assign, transfer and convey all its right,
title and interest in and to the domain names set forth in Section 4.31 of the
Disclosure Schedule to a TDI Company or a TDI Subsidiary.

 

ARTICLE V

 

CONDITIONS PRECEDENT

 

Section 5.1 Conditions to Each Party’s Obligation. The respective obligation of
each party to consummate the transactions contemplated hereby is subject to the
satisfaction or written waiver on or prior to the Closing Date of each of the
following conditions:

 

(a) No Injunction or Illegality. No injunction, order, decree, temporary
restraining order or judgment shall have been issued by any Governmental Entity
of competent jurisdiction and be in effect, and no statute, rule or regulation
shall have been enacted or promulgated by any Governmental Entity and be in
effect, which in either case restrains or prohibits or materially restricts the
consummation of the transactions contemplated hereby; provided, however, that
the party invoking this condition shall use its reasonable best efforts to have
any such restraint removed.

 

(b) HSR Act; Governmental Approvals. The required waiting period under the HSR
Act applicable to the purchase and sale of the Shares shall have expired or been
earlier terminated, and all notices, reports and other filings required to be
made prior to the Closing by any TDI Company or any TDI Subsidiary or by the
Purchaser with, and all material consents,

 

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registrations, approvals, permits and authorizations required to be obtained
prior to the Closing from, any Governmental Entity in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby shall have been made or obtained; provided
however, that the failure to obtain any or all Pharmacy Approvals by any party
hereto shall not be a condition to Closing.

 

(c) Asset Purchase. The closing of the transactions contemplated by the Asset
Purchase Agreement shall have occurred.

 

Section 5.2 Conditions to Obligations of the Parent and the Seller. The
obligations of the Parent and the Seller to consummate the transactions
contemplated hereby are subject to the satisfaction or written waiver on or
prior to the Closing Date of the following conditions:

 

(a) Representations, Warranties and Covenants. The representations and
warranties of the Purchaser contained in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and those that are not so
qualified shall be true and correct in all material respects, as of the date of
this Agreement and, except for any such representations and warranties that
speak as of an earlier specified date, as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. The Purchaser
shall have performed and complied in all material respects with all covenants
and agreements required to be performed or complied with by it hereunder on or
prior to the Closing Date.

 

(b) Closing Deliveries. The Purchaser shall have made the deliveries required to
be made by it under Section 1.6(a).

 

Section 5.3 Conditions to Obligations of the Purchaser. The obligation of the
Purchaser to consummate the transactions contemplated hereby is subject to the
satisfaction or written waiver on or prior to the Closing Date of the following
conditions:

 

(a) Representations, Warranties and Covenants. The representations and
warranties of the Parent and the Seller contained in this Agreement that are
qualified as to materiality shall be true and correct in all respects, and those
that are not so qualified shall be true and correct in all material respects, as
of the date of this Agreement and, except for any such representations and
warranties that speak as of an earlier specified date, as of the Closing Date
with the same force and effect as though made on and as of the Closing Date. The
Parent and the Seller shall have performed and complied in all material respects
with all covenants and agreements required to be performed or complied with by
it hereunder on or prior to the Closing Date.

 

(b) Closing Deliveries. The Parent and the Seller shall have made the deliveries
required to be made by them under Section 1.6(b).

 

(c) Financing. The Purchaser shall have obtained financing sufficient to
consummate the transactions contemplated hereby pursuant to the executed
commitment letter attached as Exhibit G.

 

(d) No Material Adverse Effect. No event or events shall have occurred after the
date of this Agreement which have had, individually or in the aggregate, a
Material Adverse Effect.

 

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(e) Delivery of Additional Financial Statements. The Parent shall have
delivered, or caused to be delivered, the Carve-Out Special Purpose Financial
Statements - Northern Operations in accordance with Section 4.21.

 

ARTICLE VI

 

TERMINATION, AMENDMENT AND WAIVER

 

Section 6.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing as
follows:

 

(a) by the mutual written consent of the Parent and the Purchaser;

 

(b) by the Parent or the Purchaser, if the Closing shall not have occurred on or
before August 31, 2004, otherwise than as a result of any breach of any
provision of this Agreement by the party seeking to terminate this Agreement;

 

(c) by the Parent or the Purchaser, if any court of competent jurisdiction or
other Governmental Entity shall have permanently enjoined, restrained or
otherwise prohibited the consummation of the transactions contemplated hereby
and such injunction, restraint or prohibition shall have become final and
nonappealable, provided that the party seeking to terminate this Agreement shall
have used its reasonable best efforts to prevent and remove such injunction,
restraint or prohibition;

 

(d) by the Parent, if the Purchaser shall have (x) breached any of its
representations or warranties contained in this Agreement that are qualified as
to materiality or (y) breached in any material respect any of its
representations or warranties that are not so qualified or not complied with any
of its covenants contained in this Agreement, in each case which breach cannot
be or has not been cured within 30 days after the giving of written notice to
the Purchaser, or (z) made a general assignment for the benefit of creditors, or
any proceeding shall have been instituted by or against the Purchaser seeking to
adjudicate the Purchaser as bankrupt or insolvent, or seeking liquidation,
winding up or reorganization, arrangement, adjustment, relief or composition of
its debts under any Law relating to bankruptcy, insolvency or reorganization;

 

(e) by the Purchaser, if the Parent or the Seller shall have (i) breached any of
its representations or warranties contained in this Agreement that are qualified
as to materiality, (ii) breached in any material respect any of its
representations or warranties that are not so qualified or not complied with any
of its covenants contained in this Agreement, in each case which breach cannot
be or has not been cured within 30 days after the giving of written notice to
the Parent and the Seller, or (iii) made a general assignment for the benefit of
creditors, or any proceeding shall have been instituted by or against the
Parent, the Seller, any TDI Company, or any TDI Subsidiary seeking to adjudicate
the Parent, the Seller, any TDI Company or any TDI Subsidiary as bankrupt or
insolvent, or seeking liquidation, winding up or reorganization, arrangement,
adjustment, relief or composition of the debts of the Parent, the Seller, any
TDI Company or any TDI Subsidiary under any Law relating to bankruptcy,
insolvency or reorganization; or

 

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(f) by the Purchaser if an event or events shall have occurred after the date of
this Agreement which have had, individually or in the aggregate, a Material
Adverse Effect.

 

Section 6.2 Effect of Termination. In the event of the termination of this
Agreement and the abandonment of the transactions contemplated hereby pursuant
to Section 6.1, this Agreement shall forthwith become void and have no effect,
without any Liability on the part of any party hereto or its directors,
officers, agents or representatives, and all rights and obligations of any party
hereto shall cease; provided, however, that (a) the second and third sentences
of Section 4.3(a) (but disregarding the time limitation of “Until the Closing
Date” in the third sentence), and the entirety of Section 4.18, Section 4.28,
this Section 6.2 and Article VIII shall survive any such termination and
abandonment and (b) nothing contained in this Section shall relieve any party
from Liability for any intentional breach of this Agreement.

 

Section 6.3 Amendment. This Agreement may not be modified or amended except by
(a) written agreement executed and delivered by duly authorized officers of each
of the respective parties or (b) waiver in accordance with Section 6.4, provided
however, that no such modification or amendment shall be effective to the extent
that it has a materially detrimental effect on the transactions contemplated by
the Asset Purchase Agreement, unless consented to by the Asset Purchaser.

 

Section 6.4 Extension; Waiver. At any time prior to the Closing, the parties may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties, (b) waive any inaccuracies in the representations and
warranties of the other parties contained in this Agreement or in any document
delivered pursuant to this Agreement, or (c) waive compliance with any of the
agreements or conditions of the other parties contained in this Agreement,
provided however, that no such extension or waiver shall be effective to the
extent that it has a materially detrimental effect on the transactions
contemplated by the Asset Purchase Agreement, unless consented to by the Asset
Purchaser. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in a written instrument executed and delivered
by a duly authorized officer on behalf of such party. The failure of any party
to this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.

 

ARTICLE VII

 

INDEMNIFICATION

 

Section 7.1 Indemnification by the Parent and the Seller. Subject to the other
provisions of this Article VII, from and after the Closing the Parent and the
Seller shall jointly and severally indemnify and hold the Purchaser and its
directors, officers, controlling stockholders, agents and representatives (the
“Purchaser Indemnitees”) harmless from and against any and all Damages suffered
by any Purchaser Indemnitee arising out of:

 

(a) any breach of any representation or warranty of the Parent or the Seller
contained in Article II of this Agreement;

 

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(b) any breach of any covenant of the Parent or the Seller contained in this
Agreement; and

 

(c) any of the specified items listed on Section 7.1(c) of the Disclosure
Schedule.

 

Section 7.2 Indemnification by the Purchaser. Subject to the other provisions of
this Article VII, from and after the Closing, the Purchaser shall indemnify and
hold the Seller, the Parent and their respective directors, officers, agents and
representatives (the “Seller Indemnitees”) harmless from and against any Damages
suffered by any Seller Indemnitee arising out of:

 

(a) any breach of any representation or warranty of the Purchaser contained in
Article III of this Agreement;

 

(b) any breach of any covenant of the Purchaser contained in this Agreement; and

 

(c) any failure after the Closing by the Purchaser, any TDI Company, any TDI
Subsidiary or any affiliate thereof to perform and discharge any of their
respective Liabilities arising under each lease and each Contract listed or
described in Section 7.2(c) of the Disclosure Schedule, except to the extent
that such Liabilities arise from events or conditions that entitle any Purchaser
Indemnitee to indemnification by the Seller pursuant to Section 7.1(a).

 

Section 7.3 Notice and Resolution of Claims.

 

(a) Notice. Each Person entitled to indemnification pursuant to Section 7.1 or
Section 7.2 (an “Indemnitee”) shall give written notice to the Parent or the
Purchaser, respectively, promptly after obtaining knowledge of any claim that it
may have under Section 7.1 or Section 7.2, as applicable. Such notice shall set
forth in reasonable detail the claim and the basis for indemnification. Failure
to give such written notice in a timely manner shall not release the party from
whom such indemnification is sought (the “Indemnifying Party”) from its
obligations under Section 7.1 or Section 7.2, as applicable, except to the
extent that the Indemnifying Party is prejudiced by such failure.

 

(b) Defense of Third Party Claims. If a claim for indemnification pursuant to
Section 7.1 or Section 7.2 shall arise from any claim, demand, action, suit or
proceeding made or brought by a third party (a “Third Party Claim”), the
Indemnifying Party may assume the defense of such Third Party Claim. If the
Indemnifying Party assumes the defense of such Third Party Claim, such defense
shall be conducted by counsel chosen by the Indemnifying Party (who shall be
reasonably acceptable to the Indemnitee), provided that the Indemnitee shall
retain the right to employ its own counsel and participate in the defense of
such Third Party Claim at its own expense (which will not be recoverable from
the Indemnifying Party under this Article VII or otherwise). Notwithstanding the
foregoing provisions of this Section 7.3(b), (i) no Indemnifying Party shall be
entitled to settle any Third Party Claim for which indemnification is sought
under Section 7.1 or Section 7.2 without the Indemnitee’s prior written consent
unless as part of such settlement the Indemnitee is fully and unconditionally
released from all Liability with respect to such Third Party Claim and (ii) no
Indemnitee shall be entitled to settle any Third Party Claim for which
indemnification is sought under Section 7.1 or Section 7.2 without the
Indemnifying Party’s prior written consent unless as part of such settlement the
Indemnifying Party is fully and

 

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unconditionally released from all Liability (for indemnification pursuant to
this Article VII and otherwise) with respect to such Third Party Claim.

 

Section 7.4 Limits on Indemnification.

 

(a) Exclusion of Certain De Minimis Matters. None of the Parent, the Seller or
the Purchaser shall have any Liability to any Indemnitee pursuant to Section
7.1(a) or Section 7.2(a), respectively, with respect to any individual event or
condition from which the Damages suffered by the Indemnitee shall not have
exceeded $250,000.00 (any such event or condition being hereinafter referred to
as a “De Minimis Matter”).

 

(b) Deductible. (i) Neither the Parent nor the Seller shall have any Liability
to any Purchaser Indemnitee under Section 7.1(a) unless and until the aggregate
amount of Damages suffered by the Purchaser Indemnitees arising out of the
matters referred to in Section 7.1(a), exclusive of any and all Damages arising
out of De Minimis Matters, shall have exceeded $25,500,000.00, in which case the
Parent and the Seller shall be obligated and liable under Section 7.1(a) only
with respect to such excess; and (ii) the Purchaser shall not have any Liability
to any Seller Indemnitee under Section 7.2(a) unless and until the aggregate
amount of Damages suffered by the Seller Indemnitees arising out of the matters
referred to in Section 7.2(a), exclusive of any and all Damages arising out of
De Minimis Matters, shall have exceeded $25,500,000.00, in which case the
Purchaser shall be obligated and liable under Section 7.2(a) only with respect
to such excess.

 

(c) Limit of Liability. The aggregate Liability of the Parent and the Seller, on
the one hand, and the Purchaser, on the other hand, under Section 7.1(a) or
Section 7.2(a), respectively, other than for a breach of the representations and
warranties set forth in the first three sentences of Section 2.1(b), the first
three sentences of Section 2.1(c), Section 2.1(e), the first, second, third,
fourth and sixth sentences of Section 2.2(d), and the first three sentences of
Section 3.2, for which the limitations set forth in this Section 7.4 do not
apply, shall not exceed $350,000,000.00. For purposes of the amounts specified
under Section 7.4(a) and Section 7.4(b), indemnifiable items pursuant to Section
7.1(a) shall be determined without giving effect to any limitations or
qualifications as to “materiality” (including the word “material”), “Material
Adverse Effect” or similar expressions set forth therein.

 

(d) Survival. The representations and warranties contained in Articles II and
III of this Agreement shall survive the Closing until April 30, 2006, except
that the representations and warranties set forth in (i) Section 2.2(q) shall
survive until the expiration of the applicable statute of limitations, (ii) the
first three sentences of Section 2.1(b), the first three sentences of Section
2.1(c), Section 2.1(e), the first, second, third, fourth and sixth sentences of
Section 2.2(d) and the first three sentences of Section 3.2 shall survive
indefinitely and (iii) Section 2.2(w) shall survive for five (5) years. Neither
the Seller nor the Purchaser shall have any Liability pursuant to Section 7.1(a)
or Section 7.2(a), respectively, for any breach of any representation or
warranty unless notice of a claim asserting such breach shall have been given in
accordance with Section 7.3(a) prior to the termination of such representation
or warranty.

 

(e) Consequential Damages; Mitigation. None of the Parent and the Seller or the
Purchaser shall have any Liability under Section 7.1 or Section 7.2,
respectively, with respect to

 

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any Consequential Damages and/or under Section 7.1 or Section 7.2, respectively,
with respect to any Damages that are (i) recovered by any Indemnitee from any
third party (including insurers), or (ii) offset by tax savings actually
realized on account of such Damages by any Indemnitee. Any exclusion, recovery
or offset contemplated by the immediately preceding sentence shall reduce the
amount of Damages suffered by any Indemnitee for all purposes of this Agreement,
including Section 7.4(a) and Section 7.4(b) by the amount of such exclusion,
recovery or offset and only the reduced amount of Damages shall be applied to
the amount specified in Section 7.4(c). If the amount of any Damages suffered by
any Indemnitee is reduced, at any time subsequent to any payment in respect
thereof by an Indemnifying Party pursuant to Section 7.1 or Section 7.2, as
applicable, by recovery from any other third party (including any insurer) or
upon the realization of any tax savings on account of such Damages, an amount
equal to the amount of such reduction (not to exceed, in any event, the amount
so previously paid in respect thereof by the Indemnifying Party) shall promptly
be repaid by the Indemnitee to the Indemnifying Party.

 

(f) Exclusive Remedy. Except for claims based on fraud or intentional
misrepresentation, and except for any non-monetary, equitable relief to which
any Indemnitee may be entitled, after the Closing the rights and remedies set
forth in this Article VII shall constitute the sole and exclusive rights and
remedies of the parties hereto under or with respect to the subject matter of
this Agreement. Each of the parties hereto hereby waives any and all claims and
any cause of action for monetary damages under or with respect to the subject
matter of this Agreement (other than any claims or causes of action arising out
of the express provisions of this Article VII) that it might otherwise be
entitled to assert against the other party hereto under any law, rule or
regulation of any Governmental Entity, under the common law of any jurisdiction
or otherwise.

 

Section 7.5 Indemnity Payments. All payments made pursuant to this Article VII
and Section 4.6 (other than interest payments) shall be treated by the parties
hereto on all Tax Returns as an adjustment to the Purchase Price.

 

Section 7.6 Coordination With Tax Covenant. In the event any provision of this
Article VII is inconsistent with any provision of Section 4.6, the provisions of
Section 4.6 shall control.

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1 Reliance. The representations and warranties of the Parent and the
Seller contained in this Agreement constitute the sole and exclusive
representations and warranties of the Parent and the Seller to the Purchaser in
connection with this Agreement and the transactions contemplated hereby, and the
Purchaser acknowledges that all other representations and warranties are
specifically disclaimed and may not be relied upon or serve as a basis for the
claim against the Parent or the Seller. THE PURCHASER ACKNOWLEDGES THAT THE
PARENT AND THE SELLER DISCLAIM ALL WARRANTIES OTHER THAN THOSE EXPRESSLY
CONTAINED IN THIS AGREEMENT AS TO THE TDI COMPANIES AND THE TDI SUBSIDIARIES AND
THEIR RESPECTIVE BUSINESSES, ASSETS,

 

52

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LIABILITIES, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS, EITHER
EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE.

 

Section 8.2 Fees and Expenses. All recording or filing fees or similar costs,
including the filing fee to be paid pursuant to the HSR Act and any fees
incurred in connection with obtaining any and all consents, approvals or
authorizations of, or declarations or filings with, or notices to any
Governmental Entity referred to in Section 2.1(d), Section 2.2(c) and Section
3.3, imposed or levied by reason of, in connection with or attributable to this
Agreement and the transactions contemplated hereby shall be borne by the
Purchaser. Whether or not the transactions contemplated hereby shall be
consummated, except as set forth in the immediately preceding sentence, each
party hereto shall pay its own expenses incident to preparing for, entering into
and carrying out this Agreement and the consummation of the transactions
contemplated hereby.

 

Section 8.3 Certain Definitions. (a) For purposes of this Agreement the
following terms have the meanings set forth below:

 

(i) an “affiliate” of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person;

 

(ii) “Applicable Rate” means a rate per annum equal to the “prime rate” as set
forth from time to time in The Wall Street Journal “Money Rates” column;

 

(iii) “Balance Sheet” means the consolidated balance sheet of the Seller and its
Subsidiaries as of the Balance Sheet Date;

 

(iv) “Balance Sheet Date” means January 31, 2004;

 

(v) “business day” means any day other than Saturday, Sunday or any other day on
which banks in the City of New York are required or permitted to close;

 

(vi) “Closing Working Capital” means Working Capital as of and including the
Closing Date, as determined in accordance with Section 1.4;

 

(vii) “Consequential Damages” means Damages arising out of any interruption of
business, loss of profits, loss of use of facilities, claims of customers, loss
of goodwill or other indirect Damages;

 

(viii) “Damages” means all losses, liabilities, costs and expenses (including
reasonable attorneys’ fees);

 

(ix) “Environmental Law” means any environmental or health and safety related
law, regulation, rule or ordinance at the federal, state or local level;

 

(x) “Governmental Order” means any order, writ, judgment, injunction, decree,
stipulation, determination or award entered by or with any Governmental Entity;

 

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(xi) “Hazardous Material” means any pollutant, contaminant, toxic substance,
hazardous waste, hazardous material, or hazardous substance, or any oil,
petroleum, or petroleum product, as defined in or pursuant to the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation, and Liability Act, as amended, the Federal Clean Water
Act, as amended, the Federal Clean Air Act, or any other Environmental Law;

 

(xii) “Indebtedness” means, with respect to any Person, (a) all indebtedness of
such Person, whether or not contingent, for borrowed money, (b) all obligations
of such Person for the deferred purchase price of property or services, (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all obligations of such Person as lessee under
leases that have been or should be, in accordance with GAAP, recorded as capital
leases, (f) all obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (g) all obligations of such
Person to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of redeemable preferred stock, at the greater
of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Indebtedness of others referred to in clauses (a) through (g)
above guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to or in any
other manner invest in the debtor (including any agreement to pay for property
or services irrespective of whether such property is received or such services
are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all
Indebtedness referred to in clauses (a) through (g) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness;

 

(xiii) “Intercompany Loan” means the loan under the Eckerd Corporation Loan
Agreement, dated as of January 25, 2003, by and between J. C. Penney Company,
Inc., a Delaware corporation, as the lender, and Eckerd Corporation, a Delaware
corporation, as the borrower.

 

(xiv) “knowledge of the Seller” means the actual knowledge of any Person listed
on Section 8.3(a)(xiv) of the Disclosure Schedule;

 

(xv) “Laws” means all applicable domestic (including any federal, state or
local) and foreign statutes, laws, ordinances, rules, orders and regulations;

 

(xvi) a “Material Adverse Effect” means any change in or effect on the Business,
the Northern Business, the Seller, the TDI Companies and the TDI Subsidiaries
taken

 

54

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as a whole that has a material adverse effect on (i) the ability of the Parent
or the Seller to perform its obligations under this Agreement or to consummate
the transactions contemplated hereby, or (ii) the financial condition or results
of operations or business of the TDI Companies and the TDI Subsidiaries (solely
with respect to the Northern Business) taken as a whole, excluding any effects
resulting from (x) events or circumstances adversely affecting any principal
markets served by the TDI Companies and the TDI Subsidiaries or the industries
in which they operate, except any changes that affect the Business materially
disproportionately to its competitors (y) general economic conditions, or (z)
changes or effects reasonably demonstrated to arise out of the execution,
delivery, announcement or performance of this Agreement or the Asset Purchase
Agreement or the consummation of any transaction contemplated hereby and
thereby;

 

(xvii) “Non-Trade Receivables” means those receivables arising in connection
with the operation of the Business other than from the sale of inventory (but
excluding any receivables included in the Purchased Assets), including the
categories of non-trade receivables listed in Section 2.2(r) of the Disclosure
Schedule;

 

(xviii) “Orphan Entities” means ECR Receivables, Inc., a Delaware corporation,
Eckerd Tobacco Company, Inc., a Florida corporation, Genovese MedCare, Inc., a
Delaware corporation, and The Paper Cutter Stores, Inc., a New York corporation.

 

(xix) “Permitted Lien” means (i) mechanics’, carriers’, workers’, repairmen’s
liens or other similar Liens or Encumbrances arising or incurred in the ordinary
course of business consistent with past practices, (ii) Liens or Encumbrances
for Taxes which are not due and payable, which may thereafter be paid without
penalty or which are being contested in good faith, (iii) Liens or Encumbrances
that arise under zoning, land use and other similar laws and other imperfections
of title or encumbrances, if any, which do not materially affect the
marketability of the property subject thereto and do not materially impair the
use of the property subject thereto as presently used, (iv) other Liens or
Encumbrances arising as a matter of Law which do not materially impair the
marketability or the use of the property subject thereto as presently used, (v)
easements, covenants, rights-of-way and other encumbrances or restrictions,
whether recorded or referred to in an applicable lease or unrecorded, which do
not materially impair the use or marketability of the property subject thereto
as currently used, and (vi) any Liens or Encumbrances affecting any Real
Property caused by the Purchaser, its consultants or agents;

 

(xx) a “Person” means an individual, corporation, partnership, limited liability
company, joint venture, association, trust, unincorporated organization or other
entity;

 

(xxi) “Purchase Price” means an amount equal to the Estimated Purchase Price
plus or minus any amount payable by or to, respectively, the Purchaser pursuant
to Section 1.4(e), other than any portion of any such additional amount that
constitutes interest;

 

(xxii) “Receivables” means Trade Receivables and Non-Trade Receivables;

 

(xxiii) “Southern Business Employees” has the meaning set forth in the Asset
Purchase Agreement;

 

55

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(xxiv) “Southern Entities” means those companies so designated and listed in
Exhibit I, attached hereto;

 

(xxv) a “Subsidiary” of any Person means any other Person of which (i) the first
mentioned Person or any subsidiary thereof is a general partner, (ii) voting
power to elect a majority of the board of directors or others performing similar
functions with respect to such other Person is held by the first mentioned
Person and/or by any one or more of its subsidiaries, or (iii) at least 50% of
the equity interests of such other Person is, directly or indirectly, owned or
controlled by such first mentioned Person and/or by any one or more of its
subsidiaries;

 

(xxvi) “TDI Subsidiaries” means those companies so designated and listed on
Exhibit J, attached hereto;

 

(xxvii) “Trade Receivables” means those receivables arising from the sale of
inventory in connection with the operation of the Business (but excluding any
receivables included in the Purchased Assets), including the categories of trade
receivables listed in Section 2.2(r) of the Disclosure Schedule; and

 

(xxviii) “Working Capital” means for the Northern Business, the sum of (a) Cash
and Short-Term Investments, (b) Receivables (Net of Allowance), (c) Merchandise
Inventories—FIFO, and (d) Other Current Assets net of Taxes minus the sum of (x)
Accounts Payable, (y) Accrued Liabilities net of Taxes or any amounts that
relate to tax withholding, and (z) Bank Debit Balances, in each case to the
extent held by the TDI Companies and/or the TDI Subsidiaries and as determined
using the same Accounting Policies.

 

(b) For purposes of this Agreement the following terms have the meanings set
forth in the sections noted below:

 

2003 Carve-Out Special Purpose Financial Statements - Northern Operations

   Section 4.21

Accountants

   Section 1.4(c)

Accounting Policies

   Section 1.3(a)

Acquisition Proposal

   Section 4.2(b)

Agreement

   Introductory Paragraph

Allocation Statement

   Section 4.6(j)

Antitrust Challenge

   Section 4.4(d)

Antitrust Law

   Section 4.4(b)

Antitrust Objection

   Section 4.4(d)

Asset Purchase Agreement

   Recital C

Asset Purchaser

   Recital C

Benefit Plan

   Section 2.2(p)

Brooks

   Section 1.6(a)(vi)

Business

   Recital B

Carve-Out Special Purpose Financial Statements - Northern Operations

   Section 4.21

Closing

   Section 1.5

Closing Date

   Section 1.5

 

56

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Closing Date Balance Sheet

   Section 1.4(a)

Closing Working Capital Statement

   Section 1.4(a)

Code

   Section 1.6(b)(viii)

Company Plan

   Section 2.2(p)

Confidentiality Agreement

   Section 4.3(a)

Contracts

   Section 2.2(o)

CVS

   Recital C

De Minimis Matter

   Section 7.4(a)

DEA

   Section 2.1(d)

Disclosure Schedule

   Recital E

Dispute Notice

   Section 4.6(c)

DOJ

   Section 4.4(b)

Drugstore Subsidiaries

   Section 2.2(a)(ii)

Eckerd Pension

   Section 4.7(c)

EDC

   Section 4.30

ERISA

   Section 2.2(p)

Estimated Closing Working Capital

   Section 1.3(a)

Estimated Closing Working Capital Statement

   Section 1.3(a)

Estimated Purchase Price

   Section 1.3(b)

Exchange Act

   Section 2.1(d)

Financial Statements

   Section 2.2(f)

FTC

   Section 4.4(b)

GAAP

   Section 1.3(a)

Governmental Entity

   Section 2.1(d)

Headquarters Employees

   Section 4.7(f)

HSR Act

   Section 2.1(d)

Income Taxes

   Section 4.6(b)(ii)

Indemnifying Party

   Section 7.3(a)

Indemnitee

   Section 7.3(a)

Intellectual Property

   Section 2.2(n)

Intercompany Obligations

   Section 1.7

IRS

   Section 2.2(p)

JCP

   Section 1.6(a)(iii)

JCP Lease

   Section 4.29

JCP Leased Real Property

   Section 4.29

JCP Owned Real Property

   Section 4.27

JEC Owned Real Property

   Section 4.23

Leased Real Property

   Section 2.2(m)

Legal Proceedings

   Section 2.2(j)

Letter Agreement

   Section 4.22

Liabilities

   Section 2.2(f)

Liens or Encumbrances

   Section 1.1

Material Contracts

   Section 2.2(o)

Multiemployer Plan

   Section 2.2(p)

North Mark

   Section 4.30

Northern Business

   Recital C

 

57

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Owned Real Property

   Section 2.2(m)

Parent

   Introductory Paragraph

Parent SEC Documents

   Section 2.1(f)

PBM Marks

   Section 4.30

Penney Marks

   Section 4.8(a)

Permits

   Section 2.2(i)

Pharmacy Approvals

   Section 2.1(d)

Post-Closing Tax Period

   Section 4.6(b)

Post-signing Material Contracts

   Section 2.2(o)

Pre-Closing Tax Period

   Section 4.6(b)

Purchased Assets

   Section 2.2(l)

Purchaser

   Introductory Paragraph

Purchaser Effect

   Section 3.1

Purchaser Indemnitees

   Section 7.1

Real Property

   Section 2.2(m)

SEC

   Section 2.1(d)

Securities Act

   Section 2.1(f)

Seller

   Introductory Paragraph

Seller Indemnitees

   Section 7.2

Seller Objection

   Section 1.4(b)

Seller Objection Notice

   Section 1.4(b)

Seller Review Period

   Section 1.4(b)

Settlement

   Section 4.4(d)

Shares

   Recital A

Southern Business

   Recital C

Straddle Tax Period

   Section 4.6(b)

Tax Matter

   Section 4.6(f)

Tax Returns

   Section 2.2(q)

Taxes

   Section 2.2(q)

Taxing Authority

   Section 2.2(q)

TDI Companies

   Recitals A

TDI Employee

   Section 4.7(a)

Third Party Claim

   Section 7.3(b)

Transition Services Agreements

   Section 1.6(b)(ix)

Unadjusted Purchase Price

   Section 1.2

WARN

   Section 2.2(p)(x)

 

Section 8.4 Notices. All notices, requests, claims, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given (a) when received if delivered in person, (b)
five days after being sent by registered or certified mail, return receipt
requested, postage prepaid, (c) when dispatched by facsimile (with confirmation
of receipt) or (d) one business day after being sent by a nationally recognized
delivery service, to the appropriate party at the address or facsimile number
specified below (or at such other address for a party as shall be specified by
like notice):

 

(i) if to the Purchaser, to

 

The Jean Coutu Group (PJC) Inc.

50 Service Road

Warwick, Rhode Island 02886

Attention: Michel Coutu

Telecopy: (401) 825-3997

 

58

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and

 

Fasken Martineau DuMoulin LLP

800 Square Victoria, Suite 3400

Montreal, Canada H4Z 1E9

Attention: Yvon Martineau

Telecopy: (514) 397-7600

 

with a copy (which shall not constitute notice) to:

 

McDermott, Will & Emery

28 State Street, 34th Floor

Boston, Massachusetts 02109

Attention: Dennis J. White

Telecopy: (617) 535-3800

 

and

 

McDermott, Will & Emery

50 Rockefeller Plaza, 14th Floor

New York, New York 10020

Attention: Spencer D. Klein and Gregory D. Puff

Telecopy: (212) 547-5444

 

(ii) if to the Parent or to the Seller, to

 

J. C. Penney Company, Inc.

6501 Legacy Drive

Plano, Texas 75024

Attention: General Counsel

Telecopy: (972) 431-1977

 

with a copy (which shall not constitute notice) to:

 

J. C. Penney Company, Inc.

6501 Legacy Drive

Plano, Texas 75024

Attention: Chief Financial Officer

Telecopy: (972) 431-1977

 

59

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and

 

Jones Day

2727 North Harwood Street

Dallas, Texas 75201

Attention: Robert L. Estep and Lisa K. Durham

Telecopy: (214) 969-5100

 

Section 8.5 Interpretation. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rule of strict construction will be applied against any party. When a reference
is made in this Agreement to a Section, such reference shall be to a Section of
this Agreement unless otherwise indicated. The table of contents, list of
exhibits and headings contained in this Agreement are for convenience of
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by
the words “without limitation.” For purposes of this Agreement, with respect to
any matter that is clearly disclosed in any portion of the Disclosure Schedule
in such a way as to make its relevance to the information called for by another
Section of this Agreement readily apparent, such matter shall be deemed to have
been included in the Disclosure Schedule in response to such other Section,
notwithstanding the omission of any appropriate cross-reference thereto. Any
interest payable under any provision of this Agreement shall be calculated on
the basis of a 360-day year consisting of 12 30-day months. All references to
“$” or dollar amounts are to lawful currency of the United States of America.
ALL RELEASES, DISCLAIMERS AND LIMITATIONS ON LIABILITY SET FORTH IN THIS
AGREEMENT SHALL APPLY AND OPERATE IN ACCORDANCE WITH THEIR RESPECTIVE TERMS
NOTWITHSTANDING ANY SOLE, JOINT, AND/OR CONCURRENT NEGLIGENCE, STRICT LIABILITY,
OR OTHER FAULT OR BASIS FOR LIABILITY OF THE PARTY WHOSE LIABILITY IS RELEASED,
DISCLAIMED OR LIMITED.

 

Section 8.6 Entire Agreement; Third Party Beneficiaries. This Agreement, the
Letter Agreement and the Confidentiality Agreement constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this
Agreement. This Agreement is not intended to confer upon any person (including
any employees or former employees of the TDI Companies or the TDI Subsidiaries),
other than the parties hereto, any rights or remedies, except that (i) the Asset
Purchaser shall be a third party beneficiary with respect to Sections 6.3 and
6.4 solely to the extent set forth therein and shall be entitled to the rights
and benefits of, and to enforce the provisions thereof and (ii) each Indemnitee
shall be a third party beneficiary with respect to Article VII and shall be
entitled to the rights and benefits of, and to enforce, the provisions thereof.

 

Section 8.7 Governing Law; Venue. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of New York applicable to
agreements made and to be performed entirely within such state. Each of the
parties hereto (i) hereby submits itself to the personal jurisdiction of any
appropriate state or federal court in the Borough of Manhattan of the City of
New York in the State of New York in the event any dispute arises out of this
Agreement or any of the transactions contemplated hereby, (ii) shall not attempt
to deny

 

60

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or defeat such personal jurisdiction by motion or other request for leave from
any such court, and (iii) shall not bring any action relating to this Agreement
or any of the transactions contemplated hereby in any other court.

 

Section 8.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement may be assigned or delegated, in whole or in
part, by operation of Law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment without such prior
written consent shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns. Notwithstanding the
foregoing, the Purchaser shall be permitted to assign this Agreement to any of
its affiliates, provided that, (i) such affiliate assignee is not a Texas
corporation and (ii) notwithstanding such assignment, the Purchaser shall remain
liable for the performance of all of its obligations and all of the obligations
of its permitted assigns hereunder.

 

Section 8.9 Enforcement.

 

(a) Injunctive Relief. Irreparable damage would occur in the event that any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the provisions of this Agreement, this being in
addition to any other remedy to which they are entitled at Law or in equity.

 

(b) Right to Jury Trial. EACH PARTY HERETO WAIVES ITS RIGHTS TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

Section 8.10 Severability. Whenever possible, each provision or portion of any
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable Law, but if any provision of this Agreement
is held to be invalid, illegal or unenforceable in any respect under any
applicable Law in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision or portion of any provision
had never been contained herein and there had been contained herein instead such
valid, legal and enforceable provisions as would most nearly accomplish the
intent and purpose of such invalid, illegal or unenforceable provision.

 

Section 8.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.

 

[signature page follows]

 

61

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IN WITNESS WHEREOF, the Purchaser, the Parent and the Seller have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.

 

THE JEAN COUTU GROUP (PJC) INC.

     

THE JEAN COUTU GROUP (PJC) INC.

By:  

/s/    Francois J. Coutu

     

By:

 

/s/    Michel Coutu

   

--------------------------------------------------------------------------------

         

--------------------------------------------------------------------------------

Name: Francois J. Coutu

     

Name: Michel Coutu

Title: President and Chief Executive Officer

     

Title: Director and President and CEO of

The Jean Coutu Group (PJC) U.S.A. Inc.

 

 

J. C. PENNEY COMPANY, INC.

     

TDI CONSOLIDATED CORPORATION

By:  

/s/    Charles R. Lotter

     

By:

 

/s/    Delmer Threadgill

   

--------------------------------------------------------------------------------

         

--------------------------------------------------------------------------------

Name: Charles R. Lotter

     

Name: Delmer Threadgill

Title: Executive Vice President,

Secretary and General Counsel

     

Title: Senior Vice President

 

62