EXHIBIT 10(i)(e)

 

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ASSET PURCHASE AGREEMENT

 

among

 

CVS PHARMACY, INC.

 

CVS CORPORATION

 

J.C. PENNEY COMPANY, INC.

 

and

 

SELLERS LISTED ON EXHIBIT A ATTACHED HERETO

 

dated as of April 4, 2004

 

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TABLE OF CONTENTS

 

     PAGE

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ARTICLE 1      PURCHASE AND SALE     

Section 1.01. Purchase and Sale of Purchased Assets

   2

Section 1.02. Excluded Assets

   5

Section 1.03. Assumed Liabilities

   6

Section 1.04. Excluded Liabilities

   7

Section 1.05. Purchase of Southern Entity Shares

   8

Section 1.06. Financial Statements

   8

Section 1.07. Unadjusted Purchase Price

   9

Section 1.08. Conditional Purchase Price Adjustment

   9

Section 1.09. Estimated Purchase Price

   9

Section 1.10. Physical Inventory

   10

Section 1.11. Closing Working Capital Adjustment

   10

Section 1.12. Intercompany Obligations

   12

Section 1.13. Failed Landlord Consents

   13

Section 1.14. Closing

   15

Section 1.15. Deliveries At The Closing

   15

Section 1.16. Nonassignable Leases and Contracts

   18

Section 1.17. Obligation of the Purchaser to Perform

   18 ARTICLE 2      REPRESENTATIONS AND WARRANTIES OF THE PARENT     

Section 2.01. Representations and Warranties Regarding the Parent and the
Sellers

   19

Section 2.02. Representations and Warranties Regarding the Southern Business

   21 ARTICLE 3      REPRESENTATIONS AND WARRANTIES OF CVS AND THE PURCHASER   
 

Section 3.01. Organization, Standing and Corporate Power

   36

Section 3.02. Authority of Purchaser; Noncontravention

   36

Section 3.03. Authority of CVS; Noncontravention

   37

Section 3.04. Governmental Consents and Approvals

   37

Section 3.05. Brokers

   38

Section 3.06. Financing

   38

Section 3.07. Investment Intent

   38

Section 3.08. Sophistication of the Purchaser

   38

 

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ARTICLE 4      COVENANTS     

Section 4.01. Conduct of Business

   39

Section 4.02. Casualty; Condemnation

   44

Section 4.03. Acquisition Proposals; Inconsistent Activities

   44

Section 4.04. Access To Information; Confidentiality; Data Bridge Development

   45

Section 4.05. Reasonable Best Efforts; Regulatory Matters

   46

Section 4.06. Public Announcements

   50

Section 4.07. Further Assurances; No Hindrances

   50

Section 4.08. Notices of Certain Events

   50

Section 4.09. Notice of Possible Breach

   50

Section 4.10. Prescription Files

   51

Section 4.11. Tax Matters

   51

Section 4.12. Tax Matters Relating To The Southern Entities

   55

Section 4.13. Employee Matters

   62

Section 4.14. Guarantee Releases under Certain Contracts

   66

Section 4.15. Contractual Overpayments

   66

Section 4.16. Framework Agreement

   66

Section 4.17. Parent PBM Agreement

   67

Section 4.18. Title and Survey

   67

Section 4.19. Environmental Inspections

   68

Section 4.20. Prorations

   69

Section 4.21. Medicare And Medicaid Provider Numbers

   69

Section 4.22. Non-solicitation

   69

Section 4.23. Monthly Financial Reports

   70

Section 4.24. Texas Certifications

   70

Section 4.25. Northern Sites

   70

Section 4.26. Insurance Claims Administration

   70

Section 4.27. Controlled Substances Inventory

   70

Section 4.28. JCP Telemarketing Agreement

   71

Section 4.29. Sharing of Net Real Estate Costs in CN States

   71

Section 4.30. EDC Licensing, Inc

   71 ARTICLE 5      CONDITIONS PRECEDENT     

Section 5.01. Conditions to Each Party’s Obligation

   71

Section 5.02. Conditions to Obligations of the Parent and the Sellers

   72

Section 5.03. Conditions to Obligations of the Purchaser

   73

 

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ARTICLE 6      TERMINATION, AMENDMENT AND WAIVER     

Section 6.01. Termination

   73

Section 6.02. Effect of Termination

   74

Section 6.03. Amendment

   74

Section 6.04. Extension; Waiver

   75 ARTICLE 7      INDEMNIFICATION     

Section 7.01. Indemnification By The Parent

   75

Section 7.02. Indemnification by CVS

   76

Section 7.03. Notice And Resolution of Claims

   77

Section 7.04. Limits on Indemnification

   79

Section 7.05. Indemnity Payments

   80

Section 7.06. Coordination With Tax Covenant

   80

Section 7.07. Knowledge

   80 ARTICLE 8      MISCELLANEOUS     

Section 8.01. Reliance

   81

Section 8.02. Fees and Expenses

   81

Section 8.03. Certain Definitions

   81

Section 8.04. Notices

   93

Section 8.05. Interpretation

   95

Section 8.06. Entire Agreement; Third Party Beneficiaries

   96

Section 8.07. Governing Law; Venue

   96

Section 8.08. Assignment

   96

Section 8.09. Alternative Structure

   97

Section 8.10. Enforcement

   98

Section 8.11. Severability

   98

Section 8.12. Counterparts

   99

Section 8.13. Bulk Sales Laws

   99

 

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LIST OF SCHEDULE(S) AND EXHIBITS

 

Schedule A

   Working Capital Schedule

Exhibit A

   Names and Jurisdictions of Incorporation of Sellers

Exhibit B

   TDI Companies

Exhibit C1

   Form of Penney Transition Services Agreement

Exhibit C2

   Terms of Penney Information Technology Services Agreement

Exhibit C3

   Form of Eckerd Transition Services Agreement

Exhibit D

   [Reserved]

Exhibit E

   Form of Assignment and Assumption Agreement

Exhibit F

   Form of Lease Assignment and Assumption Agreements

Exhibit G

   Form of Management Agreement

Exhibit H

   Form of DEA Power of Attorney

Exhibit I

   Balance Sheet

Exhibit J

   Form of Framework Agreement

Exhibit K

   Related Financials

 

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ASSET PURCHASE AGREEMENT

 

This ASSET PURCHASE AGREEMENT, dated as of April 4, 2004 (this “Agreement”), is
made and entered into among CVS Pharmacy, Inc., a Rhode Island corporation (the
“Purchaser”), CVS Corporation, a Delaware corporation (“CVS”), J.C. Penney
Company, Inc., a Delaware corporation (the “Parent”), and the Sellers listed on
Exhibit A attached hereto (including, Eckerd Corporation, a Delaware corporation
(“Eckerd”), Thrift Drug, Inc., a Delaware corporation (“Thrift”) and Genovese
Drug Stores, Inc., a Delaware corporation (“Genovese”) collectively, the
“Sellers”).

 

RECITALS:

 

A. TDI Consolidated Corporation, a Delaware corporation and an indirect wholly
owned subsidiary of the Parent, owns all of the issued and outstanding shares
(the “TDI Shares”) of the capital stock of the companies listed on Exhibit B
hereto (the “TDI Companies”).

 

B. The TDI Companies and TDI Subsidiaries are 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. Upon the terms and subject to the conditions contained herein, the Purchaser
desires to purchase from the Sellers, and the Sellers desire to sell to the
Purchaser, the Purchased Assets (as defined in Section 1.01) and the Southern
Entity Shares (as defined in Section 1.05).

 

D. On the terms and subject to the conditions contained herein, the Sellers
desire to assign to the Purchaser, and the Purchaser is willing to assume, the
Assumed Liabilities.

 

E. Immediately following the consummation of the sale of the Purchased Assets
and the Southern Entity Shares, the TDI Shares will be sold to The Jean Coutu
Group (PJC) Inc. (the “Stock Purchaser”) pursuant to a stock purchase agreement
dated as of the date hereof (the “Stock Purchase Agreement”).

 

F. Concurrently with the execution and delivery of this Agreement, the Sellers
have delivered to the Purchaser a Disclosure Schedule, dated as of the date
hereof (the “Disclosure Schedule”).

 

G. Capitalized terms used but not defined have the meanings assigned to such
terms in Section 8.03.

 

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

 

ARTICLE 1

PURCHASE AND SALE

 

Section 1.01. Purchase and Sale of Purchased Assets. Except as otherwise
provided below, upon the terms and subject to the conditions set forth in this
Agreement, the Purchaser agrees to purchase from the Sellers at the Closing, and
the Sellers agree to sell, convey, assign, transfer and deliver (“Transfer”), or
cause to be Transferred to the Purchaser at the Closing (as defined in Section
1.14), free and clear of any mortgage, lien, pledge, charge, security interest,
claim, preemptive right, covenant, right of way, easement, restriction,
encumbrance or other adverse claim of any kind (“Liens or Encumbrances”), other
than Permitted Liens, all of the Sellers’ right, title and interest in, to and
under all assets and properties relating primarily to the Southern Business, as
the same shall exist on the Closing Date (as defined in Section 1.14), including
all assets shown on the Balance Sheet and all assets relating primarily to the
Southern Business acquired by the Sellers between the date of the Balance Sheet
and the Closing Date (and not disposed of in the ordinary course of business as
permitted by this Agreement) (the “Purchased Assets”), including, without
limitation, the following:

 

(a) Inventory. All pharmaceutical and non-pharmaceutical inventories at the
Southern Sites and owned by a Seller (including private label inventory),
including inventory ordered and earmarked for, but not yet delivered to, the
Southern Sites (collectively, the “Inventory”);

 

(b) Fixed Assets; Personal Property. All of the fixed assets and tangible
personal property (other than the Inventory) located at the Southern Sites and
owned by the Sellers;

 

(c) Prescription Files. All of the prescription files owned and used primarily
in connection with the operation of the Southern Business and all of the patient
profiles, customer lists, transferable licenses, phone numbers, goodwill and
other intangible assets owned and used primarily in connection with the Southern
Sites (the “Prescription Files”);

 

(d) Southern Site Leases. The Southern Site Leases set forth on Section 1.01(d)
of the Disclosure Schedule (the real property leased pursuant to the Southern
Site Leases is referred to collectively as the “Leased Real Property”) and
buildings and other improvements owned by the Sellers located on Leased Real
Property subject to ground lease, and all commitments to lease stores in any

 

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of the Southern States (x) binding as of the date of this Agreement and
disclosed in writing to the Purchaser’s counsel prior to the date hereof or (y)
consented to in writing by Purchaser in accordance with Section 4.01 (and all
Leased Real Property documents, related construction plans and documents and
related real estate files);

 

(e) Owned Real Property. The real property owned by the Sellers and set forth on
Section 1.01(e) of the Disclosure Schedule (the “Owned Real Property” and
together with the Leased Real Property, the “Real Property”), together with all
buildings, fixtures, and improvements erected thereon and buildings and other
improvements owned by the Sellers and located on the Owned Real Property (and
all title documents, surveys, related construction plans and documents and
related real estate files with respect to the Owned Real Property);

 

(f) Deposits. All of the Sellers’ security deposits relating to the Southern
Site Leases where the landlord thereunder has consented in writing to the
transfer of the deposits to the Purchaser and, to the extent transferable, all
utility deposits relating to the Southern Sites;

 

(g) Permits. All Permits (as defined in Section 2.02(f)(ii)) relating primarily
to the operation of the Southern Business, to the extent such Permits are
transferable;

 

(h) Telephone and Fax Numbers. The right to use the telephone and fax machine
numbers assigned to each of the Southern Sites;

 

(i) Claims Relating to Purchased Assets. All claims, credits, causes of action,
rights of recovery and rights of setoff of every type and kind relating solely
to the Purchased Assets, including suppliers’ and manufacturer’s warranties with
respect to the Purchased Assets, in each case, whether accruing before or after
the Closing;

 

(j) Shared Claims. An amount of any recoveries received by the Sellers after the
Closing and allocable to the Southern Business based upon the Agreed Sharing
Proportion from any claims, causes of action, rights of recovery and rights of
set off relating to both the Southern Business and the Northern Business, except
as otherwise set forth in the Framework Agreement;

 

(k) Other Tangible Property. All other tangible property, real, personal or
mixed, located at the Southern Sites that the Sellers own and utilize primarily
in connection with the operation of the Southern Business;

 

(l) Goodwill. All goodwill associated with the Purchased Assets;

 

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(m) Assigned Contracts. All Contracts (as defined in Section 2.02(n)) relating
primarily to the Southern Business (the “Assigned Contracts”);

 

(n) Split Contracts. The benefits of the Contracts which are apportioned to the
Purchaser pursuant to the Framework Agreement;

 

(o) Scanning and Computer Equipment. Any of the point-of-sale scanning systems,
computer equipment and pharmacy and hardware systems owned by the Sellers and
located at any of the Southern Sites;

 

(p) Petty Cash. Petty cash in an aggregate amount equal to $2,500 per Southern
Store (“Petty Cash”);

 

(q) Repair and Replacement Equipment. A share of all repair or replacement
equipment and tools of the Business, which will be allocable to the Southern
Business for this purpose based upon the Agreed Sharing Proportion, except as
otherwise set forth in the Framework Agreement;

 

(r) Certain Intellectual Property Rights. All Intellectual Property Rights owned
by the Sellers (or a Subsidiary of a Seller) and associated solely with the
Southern Drugstore Business, PBM Business, Specialty Pharmacy Business or the
Mail Order Business, except as otherwise set forth in the Framework Agreement;

 

(s) Shared Intellectual Property Rights. Intellectual Property Rights allocated
to the Southern Business pursuant to the Framework Agreement;

 

(t) Receivables. Receivables attributable to the Southern Business (to be
delivered to the Purchaser in the manner contemplated in the Framework
Agreement);

 

(u) Shared Receivables. Receivables apportioned to the Purchaser pursuant to the
Framework Agreement.

 

(v) Books and Records. All books, records, files and papers, whether in hard
copy or computer format, located at the Southern Sites or relating primarily to
the Purchased Assets and/or the Southern Business (and copies of other books,
records, files and papers relating to the Southern Business), including
engineering information, sales and promotional literature, manuals and data,
sales and purchase correspondence, lists of present and former suppliers, lists
of present and former customers, personnel and employment records and any
information relating to any Taxes imposed on the Purchased Assets or the
Southern Business;

 

(w) Vehicles. The vehicles, trucks and other rolling stock used primarily in
connection with the Southern Sites;

 

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(x) Largo Mail Order Site. The right to rent the Largo Mail Order Site for a
lease period of thirty-six (36) months after the Closing Date at a rate of $3.00
with such rights of ingress and egress (including parking spaces) as are
currently used by the Largo Mail Order Site; and

 

(y) CN Real Estate Interests. If the CN Trigger occurs prior to Closing, the CN
Real Estate Interests.

 

provided, however, that the definition of Purchased Assets shall not include any
items defined as Excluded Assets in Section 1.02.

 

Section 1.02. Excluded Assets. The Purchaser expressly understands and agrees
that all other assets and property of the Sellers, the Parent and of the
Business, other than the assets owned by any of the Southern Entities (all such
other assets except the assets of any of the Southern Entities hereafter
referred to as the “Excluded Assets”), shall be excluded from the Purchased
Assets. Excluded Assets include, without limitation, the following:

 

(a) Cash and Cash Equivalents. All of the Sellers’ cash and cash equivalents on
hand and in banks, other than Petty Cash;

 

(b) Northern Receivables. All receivables not attributable to the Southern
Business and those receivables apportioned to the Stock Purchaser pursuant to
the Framework Agreement;

 

(c) Intellectual Property Rights. The Sellers’ and the Parent’s Intellectual
Property Rights owned or used in connection with the operation of the Business
(other than the Intellectual Property Rights referred to in Section 1.01(r) or
Section 1.01(s)), including the names “Eckerd,” “Thrift Drug”, “Genovese” and
“JCPenney” and all similar or related names, marks and logos;

 

(d) Insurance Policies. Any insurance policies relating to the Southern Sites or
the Purchased Assets but not insurance proceeds, condemnation awards and other
compensation or reimbursement under Section 4.02;

 

(e) Tax Refunds. Any refund of Taxes attributable to any Pre-Closing Tax Period,
however generated, including, to the extent provided in Section 4.12(i), any
refund received as a result of the carry back of a net operating or capital loss
arising in a Post-Closing Tax Period;

 

(f) Leased Equipment. All leased equipment located at or used in the Southern
Sites (for the avoidance of doubt, all leased equipment will be dealt with as
described in the Framework Agreement);

 

(g) Contracts. All rights under contracts except the contracts referenced in
Section 1.01(d), Section 1.01(m) or Section 1.01(n);

 

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(h) Disposed Assets. Any Purchased Assets sold or otherwise disposed of in the
ordinary course and not in violation of any provision of this Agreement during
the period from the date hereof until the Closing Date;

 

(i) Equity Interests. The TDI Shares or other equity interests in the Sellers or
any of their affiliates (other than the Southern Entity Shares);

 

(j) Books and Records. All books, records, files and papers, whether in hard
copy or computer format, relating to any Excluded Asset or primarily to the
Northern Business;

 

(k) Airplanes. All Airplanes owned by the Sellers;

 

(l) Domain Names. All domain names listed on Section 1.02(l) of the Disclosure
Schedule including those employing the name “J. C. Penney,” “JCPenney,” “Penney”
or “JCP,” “Eckerd,” “Thrift Drug” or “Genovese”;

 

(m) Internet Protocol Address. All internet protocol address spaces;

 

(n) Phone Network. The Parent’s and the Sellers’ phone networks, the Parent’s
and the Sellers’ internet mail and the Parent’s and the Sellers’ computer
networks except as referenced in Section 1.01(h);

 

(o) Medicare and Medicaid Numbers. All Medicare and Medicaid provider numbers;

 

(p) Excluded Items. Any item which is excluded pursuant to Section 4.01(C); and

 

(q) CN State Assets. All assets and properties of the Sellers in or with respect
to the CN States except, if the CN Trigger occurs prior to Closing, the CN Real
Estate Interests.

 

Section 1.03. Assumed Liabilities. Upon the terms and subject to the conditions
contained in this Agreement, the Purchaser agrees, effective at the Closing, to
assume, and to pay, perform or otherwise discharge when due, all liabilities and
obligations arising out of the Southern Business or the Purchased Assets but
excluding any Excluded Liabilities (as defined in Section 1.04) (the “Assumed
Liabilities”), and the Assumed Liabilities for the purposes of this Agreement
include, without limitation:

 

(a) all liabilities and obligations set forth or reserved on the Balance Sheet
(other than any liabilities excluded under Section 4.11, Section 4.12 or Section
4.13);

 

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(b) all liabilities and obligations incurred after the Balance Sheet Date
arising out of the Purchased Assets or the Southern Business (other than
Excluded Liabilities);

 

(c) all liabilities and obligations of the Sellers under the Assigned Contracts
or the Southern Site Leases or liabilities and obligations under Split Contracts
apportioned to the Purchaser under the Framework Agreement;

 

(d) all liabilities and obligations assumed by the Purchaser under Section 4.11,
Section 4.12 and Section 4.13 hereof; and

 

(e) if the CN Trigger has occurred prior to Closing, 50% of the Aggregate CN Net
Real Estate Liability (as defined in Section 4.29).

 

Any liabilities or obligations (other than Excluded Liabilities) that relate to
both the Northern Business and the Southern Business (including the Split
Contracts) shall be apportioned between the Purchaser and the Stock Purchaser
based upon the Agreed Sharing Proportion or as otherwise provided for in the
Framework Agreement.

 

Section 1.04. Excluded Liabilities. Notwithstanding any provision in this
Agreement or any other writing to the contrary, the Purchaser is assuming only
the Assumed Liabilities and is not assuming any other liability or obligation of
the Parent, the Sellers or any of their affiliates (or any predecessor of the
Parent, the Sellers or any prior owner of all or part of their businesses and
assets) of whatever nature, whether presently in existence or arising hereafter.
All such other liabilities and obligations shall be retained by and remain
obligations and liabilities of the Parent or the Sellers, as applicable (all
such liabilities, claims and obligations not being assumed and for which the
Purchaser and Southern Entities will not be responsible being herein referred to
as the “Excluded Liabilities”), and, notwithstanding anything to the contrary in
this Agreement, the Excluded Liabilities for the purposes of this Agreement
include, without limitation:

 

(a) any liability or obligation of the Sellers or any Southern Entity, or any
member of any consolidated, affiliated, combined or unitary group of which any
Seller or any of the Southern Entities is or has been a member, for Taxes except
to the extent provided in Section 4.11(d) and Section 4.12 hereof;

 

(b) any liability for which the Parent is responsible under Section 4.11,
Section 4.12 or Section 4.13 hereof; and

 

(c) any Environmental Liability (including any contract relating to the
investigation, cleanup, abatement, remediation or similar actions in connection
with Environmental Liabilities);

 

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(d) any liability for or arising out of Actions under the Fair Labor Standards
Act (or any comparable state law) pending as of the Closing Date, including
those listed on Section 1.04(d) of the Disclosure Schedule;

 

(e) any liability or obligation excluded pursuant to Section 4.01(C);

 

(f) any liability or obligation relating to an Excluded Asset;

 

(g) any liability or obligation (other than liabilities or obligations for which
the Purchaser or any of the Southern Entities is responsible under Section 4.11,
Section 4.12 or Section 4.13) (i) that is imposed on the Southern Business or
any Southern Entity based on a consolidated group liability or a similar
principle of liability where such liabilities are primarily attributable to the
Parent or (ii) that does not arise out of the Business or the Purchased Assets;
and

 

(h) any liability relating to the CN States including the Aggregate CN Net Real
Estate Liability, other than, if the CN Trigger has occurred prior to Closing,
50% of the Aggregate CN Net Real Estate Liability.

 

For the avoidance of doubt, the occurrence of an Excluded Liability item (for
example taxes) on the Balance Sheet, the Related Financials, the Audited
Financial Statements or the Unaudited Quarterly Financial Statements does not
mean that such item is not an Excluded Liability.

 

Section 1.05. Purchase of Southern Entity Shares. Upon the terms and subject to
the conditions of this Agreement, at the Closing, the Stock Sellers shall sell
and deliver to the Purchaser, and the Purchaser shall purchase and acquire from
the Stock Sellers, all of the issued and outstanding shares of capital stock of
each Southern Entity (collectively, “Southern Entity Shares”) free and clear of
all Liens or Encumbrances, other than any Liens or Encumbrances created by the
Purchaser and any restrictions on transferability under applicable securities
Laws.

 

Section 1.06. Financial Statements. (a) Prior to the Closing Parent will deliver
to the Purchaser true and complete copies of the financial statements of the
Southern Business as of and for the fiscal year ended on the Balance Sheet Date,
together with the notes relating thereto prepared and audited in accordance with
Regulation S-X (the “Audited Financial Statements”). The Audited Financial
Statements will be prepared on a basis consistent with the Balance Sheet and
Related Financials and in accordance with United States Generally Accepted
Accounting Principles (“GAAP”) and adhering to the Balance Sheet Principles.

 

(b) Promptly after the applicable Quarter Date (but in no event later than 45
calendar days after the Closing Date), Parent will deliver to the Purchaser true
and complete copies of the financial statements of the Southern Business as of
and for the last day of any fiscal quarter of the Southern Business ended after

 

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the Balance Sheet Date but prior to the Closing Date (“Quarter Date”), together
with the notes relating thereto, which may be condensed in accordance with the
rules of the Securities and Exchange Commission (the “Unaudited Quarterly
Financial Statements”) prepared on a basis consistent with the Balance Sheet and
Related Financials and in accordance with GAAP and adhering to the Balance Sheet
Principles. The Parent will require its independent auditors to review the
Unaudited Quarterly Financial Statements in accordance with guidance provided in
Statement on Auditing Standards No. 100.

 

(c) The Audited Financial Statements and the Unaudited Quarterly Financial
Statements shall comply with all of the requirements of Regulation S-X
promulgated under the Securities Act of 1933, as amended (“Securities Act”) and
as applicable to the Purchaser.

 

Section 1.07. Unadjusted Purchase Price. The unadjusted purchase price for the
Purchased Assets and the Southern Entity Shares shall be $2,150,000,000 (Two
Billion One Hundred Fifty Million Dollars) in cash (the “Unadjusted Purchase
Price”).

 

Section 1.08. Conditional Purchase Price Adjustment. If the Stock Purchase
Agreement contains, or is amended after the date of this Agreement to contain, a
provision adjusting the payment of the “purchase price” set forth in the Stock
Purchase Agreement as of the date hereof based upon a multiple of EBITDA or
similar earnings or other financial measure, or if there is any similar
agreement or arrangement between the Parent or its affiliates or agents on the
one hand or the Stock Purchaser or its affiliates or agents on the other, then a
substantially similar provision shall be deemed to be a part of this Agreement
and the Estimated Purchase Price and Purchase Price hereunder shall be adjusted
by using a substantially similar principle modified as necessary to be
applicable to the Southern Business. In the event of a dispute between the
parties with respect to the adjustment, the Purchaser shall wire transfer the
Estimated Purchase Price, and the amount of any adjustment shall be determined
in accordance with the provisions of Section 1.11(b) and Section 1.11(c), and
any payments following such determination shall be in accordance with Section
1.11(e), and such provisions shall apply mutatis mutandis to matters covered by
this Section 1.08.

 

Section 1.09. Estimated Purchase Price.

 

(a) Not later than the third business day prior to the Closing Date, the Parent
shall deliver to the Purchaser a statement (the “Estimated Closing Working
Capital Statement”) setting forth the Parent’s estimate of Closing Working
Capital (“Estimated Closing Working Capital”) and the Parent’s calculation
thereof in reasonable detail. The Estimated Closing Working Capital Statement
shall be prepared in good faith in accordance with GAAP using the same
accounting principles, methodologies, policies and practices used in the

 

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preparation of the Balance Sheet (including the Balance Sheet Principles) and
shall be based upon Parent’s review of the financial information then available
to it.

 

(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 the Baseline Number. The Baseline
Number was calculated by the Parent (as described on Schedule A) and represents
the Working Capital as of January 31, 2004.

 

Section 1.10. Physical Inventory. In the period between the date of this
Agreement and the Closing Date, Parent will cause RGIS Inventory Specialists
(the “Inventory Firm”) to undertake a UPC item-level physical inventory in (i)
each of the two hundred (200) Southern Stores listed on Section 1.10 of the
Disclosure Schedule and (ii) Southern Distribution Centers. These physical
inventories will be in addition to Parent’s normal recurring physical
inventories taken by the Inventory Firm which will include approximately ten
percent (10%) of the Southern Stores per month and in addition include normal
recurring physical inventories of the PBM Business, the Mail Order Business and
the Specialty Pharmacy Business. Parent will provide Purchaser ten (10) calendar
days prior notice of the date on which the physical inventory will be taken at
the applicable Southern Site and each party will have an employee and/or agent
present during each physical inventory at each Southern Site taken by the
Inventory Firm. Purchaser will be entitled to receive a copy of the electronic
UPC item-level physical inventory file for each inventory taken by the Inventory
Firm. The results of the physical inventory will be recorded in the Closing Date
Balance Sheet (as defined in Section 1.11) and the Closing Working Capital
Statement (as defined in Section 1.11) on all relevant items including
“Merchandise Inventory-FIFO” and “Inventory Reserves”. In addition, Parent and
Purchaser will use the aggregate shrink rate trend calculated from physical
inventories taken in all of the two hundred (200) Southern Stores listed on
Section 1.10 of the Disclosure Schedule to adjust the shrink reserves for the
remaining Southern Stores and reflect the projected physical inventory number
for such Southern Stores in the Closing Date Balance Sheet and the Closing
Working Capital Statement on all relevant items including “Merchandise
Inventory-FIFO” and “Inventory Reserves”. The Purchaser and the Parent agree
that, absent manifest error, the physical inventory counts of the Inventory Firm
shall be final and binding on each of the parties.

 

Section 1.11. Closing Working Capital Adjustment.

 

(a) Closing Working Capital Statement. As promptly as practicable, and in any
event within 90 calendar days after the Closing Date, the Purchaser shall
deliver or cause to be delivered to the Parent (i) a statement of assets
acquired and liabilities assumed of the Southern Business as of and including
the

 

10

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Closing Date (the “Closing Date Balance Sheet”), prepared using the same
accounting principles, methodologies, policies and practices used in the
preparation of the Balance Sheet (including the Balance Sheet Principles), and
(ii) a statement setting forth the Purchaser’s calculation of Closing Working
Capital (the “Closing Working Capital Statement”). Each of the Closing Date
Balance Sheet and the Closing Working Capital Statement shall include items that
are updated in accordance with Section 1.10.

 

(b) Review of Closing Working Capital Statement. Within 45 calendar days after
the delivery to the Parent of the Closing Date Balance Sheet and the Closing
Working Capital Statement (the “Parent Review Period”), the Parent shall notify
the Purchaser of its agreement or disagreement with the Closing Working Capital
Statement. If the Parent in good faith disagrees with the Purchaser’s
determination of Closing Working Capital, the Parent may deliver to the
Purchaser, prior to the expiration of the Parent Review Period, a notice (the
“Parent Objection Notice”) setting forth in reasonable detail (i) the items or
amounts with which the Parent disagrees and the basis for such disagreement and
(ii) the Parent’s proposed corrections to the Closing Working Capital Statement
(collectively, the “Parent Objection”). If the Parent does not deliver a Parent
Objection Notice within the Parent Review Period, the Parent shall be deemed to
agree in all respects with the Closing Working Capital Statement and the items
and amounts reflected thereon shall be final and binding upon the Purchaser and
the Parent.

 

(c) Review by Accountants. If a Parent Objection Notice is properly and timely
delivered and the Purchaser and the Parent are unable to resolve any
disagreement between them with respect to the determination of Closing Working
Capital within 30 calendar days after delivery of a Parent Objection Notice, the
Purchaser and the Parent shall cause PriceWaterhouseCoopers (or, if they are
unable or unwilling to serve, a firm of accountants of nationally recognized
standing reasonably satisfactory to the Purchaser and the Parent) (the
“Accountants”) to promptly review this Agreement and the disputed items or
amounts in the Closing Working Capital Statement for the purpose of resolving
such dispute. The Accountants shall consider only those items or amounts in the
Closing Working Capital Statement as to which the Parent has, in the Parent
Objection Notice, disagreed and such other issues as may reasonably be affected
by the items to which the Parent has so disagreed. The Accountants shall be
required to deliver to the Purchaser and the Parent, as promptly as practicable,
but no later than 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. In no event shall the Accountants’ determination
result in Closing Working Capital that is greater than that set forth in the
Parent 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’

 

11

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report, such report and the calculations set forth therein shall be final and
binding upon the Purchaser and the Parent absent manifest error. The cost of
such review and report shall be split equally by the Purchaser and the Parent.

 

(d) Cooperation. Each of the Purchaser, the Sellers and the Parent 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 1.11, and the Purchaser and the Sellers
shall cooperate and assist the Parent and the Stock Purchaser in the review of
the Closing Date Balance Sheet and Closing Working Capital Statement described
in the Stock Purchase Agreement, including without limitation (i) the Purchaser
making available to the extent necessary or helpful books, records, workpapers
and personnel of the Southern Business, (ii) the Parent making available to the
extent necessary or helpful books and records of the Parent (as they relate to
the Business), and (iii) the Sellers making available to the extent necessary or
helpful books, records, workpapers and personnel of the Northern Business (and
any books, records and workpapers relating to the Southern Business in their
possession).

 

(e) Final Payment. Within three business days after the calculation of Closing
Working Capital becoming final pursuant to Section 1.11(b) or Section 1.11(c),
as applicable, (i) the Purchaser shall pay to the Parent, by wire transfer of
immediately available funds to an account designated by the Parent, an amount
equal to the amount, if any, by which Closing Working Capital (as finally
determined pursuant to Section 1.11(b) or Section 1.11(c), as applicable) minus
$44,000,000 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 Parent 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 plus $44,000,000 exceeds Closing Working
Capital (as finally determined pursuant to Section 1.11(b) or Section 1.11(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 1.12. Intercompany Obligations. Prior to the Closing, the Parent and the
Sellers shall, and shall cause their affiliates to, eliminate all intercompany
obligations of the Southern Entities other than trade payables and trade
receivables. Notwithstanding anything to the contrary contained in this
Agreement, and regardless of their being reflected on the Balance Sheet,
intercompany obligations attributable to the Southern Business (if any) other
than trade receivables and payables shall not be included in any of the
Purchased Assets, Assumed Liabilities, Working Capital, Estimated Closing
Working Capital Statement or Closing Working Capital Statement.

 

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Section 1.13. Failed Landlord Consents.

 

(a) From and after the date of this Agreement, Parent and Sellers will seek to
obtain the consents of all landlords whose consent is required to assign an
applicable Southern Site Lease to Purchaser and will provide notices to all
landlords whose Southern Site Leases require notice in connection with an
assignment. As part of such effort, Parent and Sellers shall make its lease
files available to Purchaser at Sellers’ offices or at such other location as
the parties may agree for such purpose. Purchaser shall cooperate in such
efforts and shall provide Parent and Sellers with any required documents or
deliveries required under the applicable Southern Site Leases to effect such
lease assignments. If within a nine month period following the Closing Date (the
“Landlord Consent Period”), a Landlord Objection is received with respect to any
Southern Site Lease (any such Southern Site, a “Problem Site”), and such
Landlord Objection is not withdrawn despite the Purchaser or its affiliates
making all good faith efforts, other than agreeing to pay increased rent or
agreeing to vacate the Problem Site or agreeing to any other restriction on use
of such Problem Site, then the Purchaser may at its reasonable option:

 

(i) vacate such Problem Site and close the business and operations at such
Problem Site (the aggregate costs associated with all such vacations and
closures of all such Problem Sites, the “Closure Costs”);

 

(ii) vacate such Problem Site and lease an alternative site on at-market terms
(“New Site”) (the aggregate amount by which the rent for all New Sites (for the
same term as the remainder of the term for the applicable Problem Site) and
vacation and relocation costs exceed the aggregate rent for the remaining term
of all applicable Problem Sites, the “Replacement Site Costs”); or

 

(iii) negotiate with the applicable landlord and agree to modified lease terms
for the applicable Problem Site, which reflect fair market terms and conditions,
subject to providing notice to Parent and Sellers of such modified terms (the
aggregate amounts by which the new rent/occupancy costs for all Problem Sites
(for the same term as the remainder of the term for the applicable Problem Site)
exceed the aggregate rent for the remaining term of all applicable Problem
Sites, the “Increased Occupancy Costs”, and together with the Replacement Site
Costs and Closure Costs, on a pre-tax basis, the “Increased Costs”).

 

provided that in the first instance, Purchaser shall make commercially
reasonable efforts to negotiate with the applicable landlord and agree to
modified lease terms for the applicable Problem Site pursuant to clause (iii)
above and only upon failing to reach agreement with the applicable landlord on
commercially

 

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reasonable terms, the Purchaser will use its rights under clauses (i) or (ii) at
its sole option; and provided further that “commercially reasonable efforts” and
“commercially reasonable terms” shall not require the Purchaser, in its
reasonable judgment, to accept other than a “de minimis” restriction on the use,
access, signage, visibility or parking associated with the applicable Problem
Site. For the avoidance of doubt, references to “de minimis” under this Section
1.13 shall not be construed by reference to the definition of a “De Minimis
Matter” in Section 7.04(a).

 

(b) If the net present value (using the Applicable Rate as of the Closing Date
as the discount rate) of the Increased Costs exceeds $1,000,000 (such amount,
the “Excess Amount”), the Purchaser shall, within 60 calendar days of the end of
the Landlord Consent Period, deliver to the Parent a statement of the
Purchaser’s calculation of the Excess Amount. The Parent shall have 45 calendar
days to dispute such Excess Amount (“Dispute”), and in the event of a Dispute,
the provisions of Section 1.11(b) and Section 1.11(c) shall apply mutatis
mutandis.

 

(c) Within three business days after the calculation of Excess Amount becoming
final after resolution of the dispute in accordance with Section 1.13(b), the
Parent shall pay to the Purchaser, by wire transfer of immediately available
funds to an account designated by the Purchaser, an amount equal to one-half of
the Excess Amount (if any, as finally determined pursuant to Section 1.13(b))
together with interest thereon at the Applicable Rate from and including the
date of delivery of the statement of Excess Amount by the Purchaser to, but
excluding, the date of such payment.

 

(d) Any party receiving a Landlord Objection shall notify all other parties in
accordance with Section 8.04.

 

(e) Purchaser will keep Parent reasonably informed of developments and
circumstances regarding the foregoing matters in Section 1.13 and will act in
good faith with respect to such matters.

 

(f) Notwithstanding the provisions of this Section 1.13, if the Parent or the
Sellers and the Purchaser are able to mutually agree upon any reasonable and
lawful arrangement pursuant to Section 1.16 which would provide Purchaser with
the benefits under any applicable Southern Site Lease, without any increased
rent or material inconvenience or other than a “de minimis” restriction referred
to in Section 1.13(a), and which does not cause the affected Southern Site Lease
to be terminated or to be declared in default by the applicable landlord,
Purchaser shall not have the right to exercise any of the remedies set forth in
Section 1.13 and such Southern Site will not be considered a Problem Site.

 

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Section 1.14. Closing. Unless this Agreement shall have been terminated and the
transactions contemplated hereby shall have been abandoned pursuant to Article
6, and subject to the satisfaction or waiver of all of the conditions set forth
in Article 5, the closing of the purchase and sale of the Purchased Assets and
the Southern Entity Shares and the assumption of the Assumed Liabilities
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 following
satisfaction or waiver of all of the conditions set forth in Article 5, other
than those conditions that by their nature are to be satisfied at the Closing
(which includes the condition set forth in Section 5.01(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 (the date on which the Closing occurs, the “Closing Date”).

 

Section 1.15. Deliveries At The Closing.

 

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

 

(i) the Estimated Purchase Price by wire transfer of immediately available funds
to one or more accounts designated by the Sellers provided that the wiring of
funds to two or more separate accounts will not be for the purpose of, and shall
not have the effect of, allocating the Purchase Price amongst the Purchased
Assets and the Southern Entity Shares, which allocation shall be in accordance
with Section 4.11(e), or otherwise have an adverse economic effect on the
Purchaser;

 

(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 5.02(a) have been satisfied;

 

(iii) executed counterparts to the “Penney Transition Services Agreement”
substantially in the form attached hereto as Exhibit C1;

 

(iv) executed counterparts to the “Penney Information Technology Services
Agreement” substantially on the terms specified on Exhibit C2 of this Agreement
and in form and substance reasonably satisfactory to the Parent and the
Purchaser;

 

(v) executed counterparts to the “Eckerd Transition Services Agreement”
substantially in the form attached hereto as Exhibit C3;

 

(vi) executed counterparts to an insurance instrument relating to the Parent’s
general liability insurance programs referred to in Section

 

15

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4.26 in form, substance and obligation amount reasonably satisfactory to the
Parent and the Purchaser (the “Insurance Assignment Agreement”);]

 

(vii) executed counterparts to an assignment and assumption agreement
substantially in the form attached hereto as Exhibit E (the “Assignment and
Assumption Agreement”);

 

(viii) subject to Section 1.16, executed counterparts to instruments of
assignment and assumption (the “Lease Assignment and Assumption Agreements”),
pursuant to which the Sellers shall assign the Southern Site Leases and the
Purchaser shall assume all obligations thereunder (which shall be substantially
in the form of Exhibit F hereto); and

 

(ix) executed counterparts to a Management Agreement pursuant to which the
Purchaser will manage the Southern Business under the DEA Powers of Attorney,
substantially in the form attached hereto as Exhibit G (the “Management
Agreement”).

 

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

 

(i) certificates representing all of the issued and outstanding Southern Entity
Shares, duly endorsed in blank for transfer or accompanied by stock powers duly
endorsed in blank, together with requisite transfer tax stamps, if any required
by Law, attached;

 

(ii) a certificate of the Parent, dated the Closing Date and signed by an
authorized officer of the Parent, certifying that the conditions set forth in
Section 5.03(a) have been satisfied;

 

(iii) all minute books, stock record books (or similar registries) and corporate
records and seals of the Southern Entities;

 

(iv) written resignations, effective as of Closing, or other evidence of removal
of those individuals listed on Section 1.15(b)(iv) of the Disclosure Schedule
identified by the Purchaser no later than 10 days before the Closing Date from
all of their positions as directors and/or officers of the Southern Entities;

 

(v) executed counterparts to the Assignment and Assumption Agreement;

 

(vi) one or more deeds, bills of sale, endorsements, assignments and other
instruments of conveyance and assignment (the “Conveyance Documents”) as the
parties and their respective counsel shall deem

 

16

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reasonably necessary or appropriate to vest in the Purchaser all right, title
and interest in, to and under the Purchased Assets in form and substance
reasonably satisfactory to the Purchaser and the Parent;

 

(vii) executed counterparts to the Lease Assignment and Assumption Agreements;

 

(viii) executed counterparts to the Management Agreement;

 

(ix) DEA Powers of Attorney in substantially the forms attached hereto as
Exhibit H;

 

(x) with respect to the Owned Real Property: (A) a limited or special warranty
deed conveying the Owned Real Property to the Purchaser in fee simple title free
and clear of all Liens or Encumbrances, except Permitted Liens, (B) marked
Commitments (as defined in Section 4.18) (or pro forma title policies)
obligating the title company to issue to the Purchaser an owner policy of title
insurance for each parcel of Owned Real Property (the “Owner Title Policies”),
each of which shall provide coverage in the amount of the Purchase Price
allocated to each parcel of Owned Real Property, effective as of the date of the
recording of the limited or special warranty deeds, subject only to the
Permitted Liens and those matters set forth in the “Exclusions from Coverage”
and “Conditions and Stipulations” sections of the Owner Title Policy jackets,
with such endorsements and modifications to the promulgated policy form as have
been requested and paid for by the Purchaser, and (C) New Surveys (as defined in
Section 4.18) for the Owned Real Property;

 

(xi) with respect to Designated Leased Properties: marked Commitments (as
defined in Section 4.18) (or pro forma title policies) obligating the title
company to issue to the Purchaser a leasehold policy of title insurance for each
parcel of Designated Leased Properties (the “Leasehold Title Policies”), each of
which shall provide coverage in the amount of the Purchase Price allocated to
each parcel of Designated Leased Properties;

 

(xii) a certificate signed by each Seller that such Seller is not a “foreign
person” as defined in Section 1445 of the Code (as defined in Section 2.02(q));

 

(xiii) executed counterparts to the Transition Services Agreements to which the
Parent or the Sellers are a party;

 

(xiv) completed and signed Oklahoma Tax Commission disclosure certificates for
each Southern Site in Oklahoma;

 

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(xv) executed counterparts to the Insurance Assignment Agreement; and

 

(xvi) a receipt acknowledging payment of the Estimated Purchase Price by the
Purchaser.

 

Section 1.16. Nonassignable Leases and Contracts. Notwithstanding anything to
the contrary contained in this Agreement, to the extent that the Transfer, or
attempted Transfer, of any Southern Site Lease or Assigned Contract would
constitute a breach thereof, nothing in this Agreement or in any document,
agreement or instrument delivered pursuant to this Agreement will constitute a
Transfer or attempted Transfer thereof prior to the time at which all consents,
waivers, approvals or authorizations (“Consents”) necessary for such Transfer
have been obtained. Notwithstanding anything to the contrary contained in this
Agreement, Assumed Liabilities with respect to Contracts shall consist only of
Contracts that are either Transferred pursuant to this Agreement or whose
benefit is provided to the Purchaser either under this Section 1.16 or under
Section 1.13(a) or under the Framework Agreement. To the extent such Consents
are not obtained by the Closing, the Sellers will, from and after the Closing
and until such Consents are obtained, use commercially reasonable efforts during
the term of the affected Southern Site Lease or Assigned Contract, to (a)
provide to the Purchaser the benefits under any such Southern Site Lease or
Assigned Contract, (b) cooperate in any reasonable and lawful arrangement
designed to provide such benefits to the Purchaser, including subcontracting,
sublicensing or subleasing to the Purchaser, and (c) enforce, at the written
request of the Purchaser, for the account of the Purchaser, any rights of the
Sellers under the affected Southern Site Lease or Assigned Contract. The
Purchaser will cooperate with the Sellers in order to enable the Sellers to
provide to the Purchaser the benefits contemplated by this Section 1.16 and
shall pay reasonable administrative expenses associated with provision of
benefits under the Assigned Contracts through the arrangements contemplated in
this Section 1.16. The obligations of the Sellers in this Section 1.16 are
complementary to the obligations of the Sellers under the Framework Agreement.
The Parent shall use its commercially reasonable efforts to cooperate with the
Sellers and the Purchaser in obtaining Consents and facilitating the matters
contemplated by this Section 1.16.

 

Section 1.17. Obligation of the Purchaser to Perform. From and after the
Closing, the Purchaser will perform the obligations of the Sellers under the
Assigned Contracts and the Southern Site Leases, and the obligations with
respect to Split Contracts (to the extent the Split Contracts constitute
Purchased Assets) provided for under the Framework Agreement including such
obligations arising under the affected Southern Site Leases, Assigned Contracts
and Split Contracts referred to in Section 1.16 whose benefit is provided to the
Purchaser under Section 1.16 or under the Framework Agreement.

 

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ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF THE PARENT

 

The Parent hereby represents and warrants to the Purchaser and to CVS as
follows:

 

Section 2.01. Representations and Warranties Regarding the Parent and the
Sellers.

 

(a) Organization, Standing and Corporate Power. Each of the Parent, the Sellers
and each of the Southern Entities is duly organized, validly existing and in
good standing as a corporation under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of the Parent, the Sellers and the
Southern Entities 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 effect on the ability of either the Parent or the Sellers
to perform their obligations under this Agreement or Ancillary Agreements or to
consummate the transactions contemplated hereby or thereby.

 

(b) Authority of Sellers; Noncontravention. Each Seller has the requisite
corporate power and authority to enter into this Agreement and the Ancillary
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by each
Seller of this Agreement and the Ancillary Agreements to which it is a party and
the consummation by each Seller of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of such Seller. This Agreement has been duly executed and delivered by each
Seller and, assuming that this Agreement constitutes a valid and binding
obligation of the Purchaser, constitutes a valid and binding obligation of each
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. When the Ancillary Agreements to which a
Seller is a party have been duly executed and delivered by such Seller and,
assuming that such Ancillary Agreement constitutes a valid and binding
obligation of the Purchaser, such Ancillary Agreement will constitute a valid
and binding obligation of such 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, delivery
and performance of this Agreement and the Ancillary Agreements do not, and the
consummation of the transactions

 

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contemplated hereby and thereby and compliance with the provisions hereof and
thereof will not, (i) conflict with any of the provisions of the certificates of
incorporation or bylaws of the Sellers or the Southern Entities, (ii) result in
the creation or imposition of any Lien or Encumbrance on the Southern Entity
Shares or any Purchased Assets or assets of the Southern Entities except for
Liens or Encumbrances created by this Agreement, (iii) subject to the
governmental filings and other matters referred to in Section 2.01(d) and except
for Consents required under Southern Site Leases, Split Contracts and Assigned
Contracts, conflict with, result in a breach of or default under (with or
without notice or lapse of time, or both) in any material respect any material
contract, agreement, indenture, mortgage, deed of trust, lease or other
instrument to which any Seller is a party or by which any Seller or any of its
assets is bound or subject, or (iv) subject to the governmental filings and
other matters referred to in Section 2.01(d), contravene any Law or Order
currently in effect.

 

(c) Authority of Parent; Noncontravention. The Parent has the requisite
corporate power and authority to enter into this Agreement and each Ancillary
Agreement to which it is a party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by the Parent of
this Agreement and each Ancillary Agreement to which it is a party and the
consummation by the Parent of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate 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. When the Ancillary Agreements to which the Parent is a party have been
duly executed and delivered by the Parent and, assuming that such Ancillary
Agreements constitute valid and binding obligations of the Purchaser and any
affiliates of the Purchaser, such Ancillary Agreements will constitute valid and
binding obligations 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, delivery
and performance of this Agreement and the Ancillary Agreements to which the
Parent is a party do not, and the consummation of the transactions contemplated
hereby and thereby and compliance with the provisions hereof and thereof will
not, (i) conflict with any of the provisions of the certificate of incorporation
or bylaws of the Parent, (ii) subject to the governmental filings and other
matters referred to in Section 2.01(d), and except for Consents required under
Southern Site Leases, Split Contracts and Assigned Contracts, conflict with,
result in a breach of or default under (with or without notice or lapse of time,
or both) in any

 

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material respect 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 2.01(d), contravene any Law or
Order currently in effect, which, in the case of clauses (ii) or (iii) above
would reasonably be expected to have, individually or in the aggregate, a
material effect on the Parent’s ability to perform its obligations under this
Agreement or Ancillary Agreements or to consummate the transactions contemplated
hereby or thereby.

 

(d) Consents and Approvals. No Approval of any domestic (including without
limitation, any federal, state or local) or foreign governmental agency,
quasi-governmental agency or regulatory authority (a “Governmental Entity”)
which has not been received or made is required by or with respect to any Seller
or the Parent or any of the Southern Entities in connection with the execution,
delivery and performance of this Agreement or the Ancillary Agreements by the
Parent or any Seller or the consummation by the Parent or any Seller of the
transactions contemplated hereby or thereby 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,
Medicare/Medicaid, state boards of pharmacy and governmental controlled
substances, durable medical equipment, third party administrator and liquor
authorities approvals (the “Pharmacy Approvals”), and (v) any other Approvals
which, if not made or obtained, would not reasonably be expected to have,
individually or in the aggregate, a material effect on the Southern Business or
otherwise materially adversely affect the ability of either the Parent or the
Sellers to perform their obligations under this Agreement or Ancillary
Agreements or to consummate the transactions contemplated hereby or thereby.

 

Section 2.02. Representations and Warranties Regarding the Southern Business.

 

(a) Title to and Sufficiency of Purchased Assets. The Purchaser recognizes that
none of the Parent or the Sellers have conducted the Southern Business as a
separate business and the following in (ii)-(v) are qualified by knowledge of
the persons listed on Section 2.02(a) of the Disclosure Schedule:

 

(i) Except as set forth on Section 2.02(a)(i) of the Disclosure Schedule, the
Sellers hereunder own, have valid and enforceable leasehold interests in or (in
the case of assets that are not susceptible to title ownership) have the valid
right to use all of the assets primarily used or held for use in the Southern
Business;

 

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(ii) Except as set forth on Section 2.02(a)(ii) of the Disclosure Schedule, and
subject to the Transition Services Agreements and the Framework Agreement, the
Purchaser, by acquiring the shares of the PBM Entity, Genplus Managed Care,
Inc., and Eckerd Corporation Of Florida, Inc. and the Purchased Assets will
acquire all assets necessary to carry on the PBM Business as presently
conducted;

 

(iii) Except as set forth on Section 2.02(a)(iii) of the Disclosure Schedule,
and subject to the Transition Services Agreements and the Framework Agreement,
the Purchaser, by acquiring the Purchased Assets will acquire all assets
necessary to carry on the Specialty Pharmacy Business as presently conducted;

 

(iv) Except as set forth on Section 2.02(a)(iv) of the Disclosure Schedule, and
subject to the Transition Services Agreements and the Framework Agreement, the
Purchaser, by acquiring the Purchased Assets will acquire all assets necessary
to carry on the Mail Order Business as presently conducted; and

 

(v) Except as set forth on Section 2.02(a)(v) of the Disclosure Schedule, and
subject to the Transition Services Agreements and the Framework Agreement, the
Purchaser, by acquiring the Purchased Assets and the shares of the Southern
Entities will acquire all assets necessary to carry on the Southern Drugstore
Business as presently conducted.

 

(b) Title to Purchased Assets. Subject to obtaining all necessary Consents and
Approvals, upon consummation of the transactions contemplated hereby, the
Purchaser will acquire (i) good and marketable title in or to the Purchased
Assets in which the Sellers currently hold title, (ii) a valid leasehold
interest in or to the Purchased Assets that are currently leased to the Sellers,
and (iii) the valid right to use Intellectual Property Rights that form part of
the Purchased Assets, in each case free and clear of any Lien or Encumbrance,
except for Permitted Liens.

 

(c) Financial Statements. The Balance Sheet fairly presents, in conformity with
GAAP applied on a consistent basis (as modified by the Balance Sheet
Principles), the financial position of the Southern Business as of the Balance
Sheet Date. The Related Financials fairly present, in conformity with GAAP
applied on a consistent basis (as modified by the Balance Sheet Principles), the
results of operations of the Southern Business for the period ended the Balance
Sheet Date. The Audited Financial Statements, when delivered, shall fairly
present in accordance with GAAP (as modified by the Balance Sheet Principles)
the financial position of the Southern Business as of the Balance Sheet Date and
the Southern Business’s results of operations and cash flows for the period then
ended. The Unaudited Quarterly Financial Statements, when

 

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delivered, shall fairly present in accordance with GAAP (as modified by the
Balance Sheet Principles) the financial position of the Southern Business as of
the Quarter Date and the Southern Business’s results of operations and cash
flows for the period then ended.

 

(d) No Undisclosed Liabilities. Except for (i) liabilities set forth in Section
2.02(d) of the Disclosure Schedule, (ii) liabilities that are reflected on the
Balance Sheet or for which adequate reserves were established on the Balance
Sheet, (iii) liabilities incurred in the ordinary course of business consistent
with past practice (and not resulting from breaches thereof) since the Balance
Sheet Date under Assigned Contracts, Split Contracts or Southern Site Leases,
and (iv) liabilities arising under this Agreement, there are no liabilities,
debts, or obligations of any nature (whether accrued, asserted, unasserted,
absolute, contingent, known or unknown or otherwise, whether or not of a type
required to be reflected on a balance sheet prepared in accordance with GAAP)
relating to any Southern Entity or the Southern Business, other than
liabilities, debts or obligations which would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.

 

(e) Conduct of the Business; No Material Adverse Change. Except as set forth in
Section 2.02(e) of the Disclosure Schedule and for matters arising out of or
relating to this Agreement and the transactions contemplated hereby, from the
Balance Sheet Date to the date of this Agreement, (i) the Sellers and the
Southern Entities have conducted the Southern Business in the ordinary course
consistent with past practice, (ii) none of the Parent, the Sellers or the
Southern Entities has taken any action which would have constituted a violation
of the provisions of Section 4.01 that apply to it if Section 4.01 had applied
since the Balance Sheet Date, and (iii) there has not been any change, event or
occurrence which has had or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect.

 

(f) Compliance with Laws; Permits.

 

(i) Except as set forth in Section 2.02(f)(i) of the Disclosure Schedule, the
Sellers and the Southern Entities are in compliance with all Laws applicable to
them in the case of the Southern Entities or applicable to the Southern Business
in the case of the Sellers, and to the knowledge of Parent, none of the Sellers
or the Southern Entities are under any investigation with respect to, have been
questioned regarding, or have been threatened to be charged with or given notice
of any violation of, any Law or Order applicable to the Purchased Assets or to
the assets of the Southern Entities, or the conduct of the Southern Business,
except for any non-compliance or violations which would not reasonably be
expected to have, individually or in the aggregate, a material effect on the
Southern Entities or the Southern Business.

 

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(ii) Except as set forth in Section 2.02(f)(ii) of the Disclosure Schedule, the
Sellers and the Southern Entities hold all approvals, authorizations,
certificates, licenses and permits of Governmental Entities (“Permits”)
necessary for the Sellers and the Southern Entities to own, lease and operate
their respective properties and assets with respect to the Southern Business and
to carry on the Southern Business as currently conducted, the Permits are valid
and in full force and effect, and no default exists under any such Permit,
except where the failure to hold any such Permit, the invalidity of such Permit
or the existence of any such default would not reasonably be expected to have,
individually or in the aggregate, a material effect on the Southern Entities or
the Southern Business.

 

(iii) Except as set forth in Section 2.02(f)(iii) of the Disclosure Schedule, to
Parent’s knowledge, no action has been taken or recommended by any Governmental
Entity either to revoke, withdraw or suspend any Permit and there is no
investigation or proceeding, threatened or pending, that could result in
termination, revocation, suspension or impairment of any of the Permits or the
imposition of any fine, penalty or other sanctions for violation of any legal or
regulatory requirements relating to any of the Permits other than actions that
would not reasonably be expected to have, individually or in the aggregate, a
material effect on the Southern Entities or the Southern Business.

 

(g) Regulatory Compliance. Without limiting the generality of Section 2.02(f),
except as set forth in Section 2.02(g) of the Disclosure Schedule:

 

(i) There is no pending or, to Parent’s knowledge, threatened, Legal Proceeding
relating to the Sellers’ or the Southern Entities’ participation in any payment
program, including without limitation Medicare, TRICARE, Medicaid, worker’s
compensation, Blue Cross/Blue Shield programs, and all other health maintenance
organizations, preferred provider organizations, health benefit plans, health
insurance plans, and other third party reimbursement and payment programs (the
“Payment Programs”); to Parent’s knowledge, no Payment Program has requested or
threatened any recoupment, refund, or set-off from Sellers or the Southern
Entities except in the ordinary course of business; since January 1, 2001, no
Payment Program has imposed a fine, penalty or other sanction on Sellers or the
Southern Entities and none of the Sellers has been excluded or suspended from
participation in any Payment Program, other than in each case under this
subsection (i) such as would not be reasonably expected to have, individually or
in the aggregate, a material effect on the Sellers, the Southern Entities or the
Southern Business.

 

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(ii) Since January 1, 2001, none of the Sellers or the Southern Entities, nor
any director, officer, employee, or agent thereof, with respect to actions taken
on behalf of the Sellers or the Southern Entities, (A) has been assessed a civil
money penalty under Section 1128A of the Social Security Act or any regulations
promulgated thereunder, (B) has been excluded from participation in any federal
health care program or state health care program (as such terms are defined by
the Social Security Act), (C) has been convicted of any criminal offense
relating to the delivery of any item or service under a federal health care
program relating to the unlawful manufacture, distribution, prescription, or
dispensing of a prescription drug or a controlled substance or (D) has been a
party to or subject to any Legal Proceedings concerning any of the matters
described above in clauses (A) through (C) other than in each case such as would
not be reasonably expected to have, individually or in the aggregate, a material
effect on the Southern Entities or the Southern Business.

 

(iii) To the Parent’s knowledge, the Sellers and the Southern Entities (A) are
in compliance in all material respects with all Laws relating to the operation
of pharmacies, the repackaging of drug products, the wholesale distribution of
prescription drugs or controlled substances, and the dispensing of prescription
drugs or controlled substances, (B) are in compliance in all material respects
with all Laws relating to the labeling, packaging, advertising, or adulteration
of prescription drugs or controlled substances and (C) are not subject to any
sanction, Order or other adverse Action by any Governmental Entity for the
matters described above in clauses (A) and (B) other than in each case such as
would not be reasonably expected to have, individually or in the aggregate, a
material effect on the Southern Entities or the Southern Business.

 

(h) Required Consents. Section 2.02(h) of the Disclosure Schedule sets forth
each material Contract and material Permit requiring a consent or other action
by any Person as a result of the execution, delivery and performance of this
Agreement or the Ancillary Agreements, except such consents or actions as would
not be material to the Southern Business if not received or taken by the Closing
Date (the “Required Consents”).

 

(i) Litigation. Except as set forth in Section 2.02(i) of the Disclosure
Schedule, there are no claims, actions, lawsuits, investigations or
administrative or other legal proceedings or arbitrations pending before any
Governmental Entity or arbitrators (other than any claims in respect of Taxes)
(“Legal Proceedings”) or, to the knowledge of the Parent, threatened against any
of the Sellers or any Southern Entity or in any way relating to or affecting the
Southern Business other than Legal Proceedings that would not reasonably be
expected to have,

 

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individually or in the aggregate, a material effect on the Southern Entities or
the Southern Business. None of the Sellers or the Southern Entities is in
default under the terms of any Order of any Governmental Entity related to the
Southern Business. Except as set forth in Section 2.02(i)(ii) of the Disclosure
Schedule, none of the Sellers, the Southern Entities or the Southern Business is
bound by any Order of any Governmental Entity that would materially restrict the
ability of the Purchaser to conduct the Southern Business in the ordinary course
consistent with past practices.

 

(j) Collective Bargaining; or Labor Matters. Except as set forth in Section
2.02(j)(i) of the Disclosure Schedule, no Seller or Seller’s Subsidiary nor any
of the Southern Entities is a party to any collective bargaining agreement or
other labor union contract, and to the knowledge of the Parent, there are no
organizational campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining unit with respect to any of the Southern
Business Employees. Except as set forth in Section 2.02(j)(ii) of the Disclosure
Schedule or as would not be reasonably be expected to have, individually or in
the aggregate, a material effect on the Southern Business, (i) there are no
labor related controversies, strikes or work stoppages pending or, to the
knowledge of Parent, threatened, between any Seller or Seller’s Subsidiary or
the Southern Entities and any of the Southern Business Employees, and no Seller
or Seller’s Subsidiary or the Southern Entities 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
Seller or any Seller’s Subsidiary before any Governmental Entity or any current
union representation questions involving Southern Business Employees, (iii) each
of Sellers and the Southern Entities is in compliance in all material respects
with all applicable Laws, and the applicable Southern Entity’s policies,
practices, agreements, plans and programs relating to employment, employment
practices, wages, hours, terms and conditions of employment relating to Southern
Business Employees, (iv) no Seller or Seller’s Subsidiary or any of the Southern
Entities is a party to, or otherwise bound by, any consent decree with, or
citation by, any Governmental Entity relating to the Southern Business Employees
or employment practices and (v) none of the Sellers or the Sellers’ Subsidiaries
has closed any plant or facility, effectuated any layoffs of employees or
implemented any early retirement, separation or window program within the past
90 days except for store closings or store sales, none of which, together with
any Southern Site, would constitute the same single site of employment or part
of the same single site of employment within the meaning of the Workers
Adjustment Retraining and Notification Act (“WARN”), nor has any of the Sellers
or the Sellers’ Subsidiaries planned or announced any such action or program for
the future.

 

(k) Tangible Personal Property. Except (i) as set forth on Section 2.02(k) of
the Disclosure Schedule, (ii) with respect to the Owned Real Property and the
Leased Real Property (which are the subject of Section 2.02(l)) and (iii)

 

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for assets sold in the ordinary course of business consistent with past
practices since the Balance Sheet Date, the Sellers or the Southern Entities own
(x) all material tangible assets that constitute Purchased Assets or the assets
of the Southern Entities, as applicable, and that are reflected on the Balance
Sheet as being owned by the Sellers or the Southern Entities, as applicable and
(y) all material tangible assets purchased or acquired by a Seller or the
Southern Entities since the Balance Sheet Date and that constitute the Purchased
Assets or the assets of the Southern Entities, as applicable; and all such
assets are free and clear of any Lien or Encumbrance, except for Permitted
Liens.

 

(l) Real Property. Except as disclosed in Section 2.02(l)(i) of the Disclosure
Schedule, each Seller has good and indefeasible, fee simple title to the Owned
Real Property and valid leasehold interests in the Leased Real Property (subject
to the terms of the applicable leases, subleases and related instruments
governing its interests therein), free and clear of all Liens or Encumbrances
other than Permitted Liens. Except as disclosed in Section 2.02(l)(ii) of the
Disclosure Schedule or as would not reasonably be expected to have a material
effect on the applicable Southern Site Lease, no Seller is in default under any
Southern Site Lease and, to the knowledge of the Parent, no landlord is in
default under any Southern Site Lease. Prior to the Closing Date the Sellers
will have delivered or made available to the Purchaser true and complete copies
of all applicable lease and title documents relating to the Real Property
included in the Purchased Assets and all Existing Surveys (as defined in Section
4.18) of the Real Property included in the Purchased Assets and in the Sellers’
possession or control. Except as disclosed in Section 2.02(l)(iii) of the
Disclosure Schedule, no Southern Entity owns or leases any Real Property.

 

(m) Environmental Matters. Except as disclosed in Section 2.02(m) of the
Disclosure Schedule and except for any matters that would not reasonably be
expected to result, individually or in the aggregate, in a Material Adverse
Effect, to Parent’s knowledge (i) neither the Parent nor any of its Subsidiaries
has violated any Environmental Laws at or affecting the Purchased Assets or
assets of the Southern Entities, the Southern Business, the Southern Sites or
the Real Property; (ii) neither Parent nor any of its Subsidiaries has received
any notices, citations, demands, directives, requests for information, summons
or orders, and no penalty has been assessed, and no investigation, claim,
action, suit, writ, injunction, decree, order, judgment, proceeding or review is
pending or threatened by any Governmental Entity or Person, in each case, in
connection with the Purchased Assets or assets of the Southern Entities, the
Southern Business, the Southern Sites or the Real Property and relating to any
matter arising out of or in respect of any Environmental Law; and (iii) there
are no liabilities or obligations arising in connection with or in any way
relating to the Purchased Assets or assets of the Southern Entities, the
Southern Business, the Southern Sites or the Real Property (including, without
limitation, those relating to releases of Hazardous Materials or off-site
disposal) of any kind whatsoever, whether accrued,

 

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contingent, absolute, determined, determinable or otherwise, arising under or
relating to any Environmental Law or contract with any Governmental Entity or
Person with respect to environmental matters, and there are no facts, events,
conditions, situations or set of circumstances which could reasonably be
expected to result in or be the basis for any such liability or obligation. As
of Closing, the only real property in New Jersey owned, leased or operated by a
Southern Entity is an office property leased by a Southern Entity and used
solely for administrative purposes located at One Maynard Drive, Suite #158,
Park Ridge, New Jersey. As of the Closing, none of the Owned Real Property or
Leased Real Property will be located in New Jersey except as disclosed in the
immediately preceding sentence. For purposes of this Section, the terms
“Parent”, or “Subsidiaries” shall include any entity which is, in whole or in
part, a predecessor of such entities.

 

(n) Contracts. (A) Section 2.02(n) of the Disclosure Schedule lists or describes
as of the date of this Agreement each legally binding agreement, lease or
license (collectively, “Contracts”) (but excluding purchase orders) relating to
the Southern Business, including those that would be Southern Site Leases or
Assigned Contracts or Split Contracts, that are of a type described below:

 

(i) Any employment, severance or consulting Contract with an employee or former
employee that is not terminable at will by the Sellers or any Southern Entity,
as the case may be (other than any Contract for the employment of any such
employee or former employee implied in Law), and which would require the payment
of amounts by any Seller or the Southern Entity or the Purchaser, as applicable,
after the date hereof in excess of $100,000 per annum in base pay;

 

(ii) Any lease for any Real Property.

 

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

 

(iv) Any Contract for capital expenditures or the acquisition or construction of
fixed assets which requires aggregate future payments in excess of $500,000;

 

(v) Any Contract containing covenants of a Seller or a Subsidiary of a Seller
(including the Southern Entities) not to compete with any person, or otherwise
restrict its operations (including, without limitation, in connection with
settlement of actions or Legal Proceedings) in any line of business in any of
the Southern States or with respect to any portion of the Southern Business
(including the PBM Business);

 

(vi) Any Contract (or group of Contracts related to the same site) requiring
aggregate future payments or expenditures in excess of

 

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$250,000 and relating to investigation, cleanup, abatement, remediation or
similar actions in connection with Environmental Liabilities;

 

(vii) Any license, royalty Contract or other Contract with respect to
Intellectual Property Rights which, pursuant to the terms thereof, requires
future payments in excess of $100,000 per annum;

 

(viii) Any Contract pursuant to which any of the Southern Entities has entered
into or formed, or has committed to enter into or form, a partnership, joint
venture or limited liability company or similar arrangement with any other
Person;

 

(ix) Any indenture, mortgage, loan or credit Contract under which a Seller or
any Southern Entity 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 $100,000;

 

(x) Any Contract relating to the acquisition of goods and services, other than
any Contract that is cancelable upon 90 days notice or less without penalty, in
connection with any commitment to open new stores in the Southern States which
requires payments in an aggregate amount exceeding $100,000;

 

(xi) Any Contract under which a Seller or any of the Southern Entities 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 or (B) a lessor of any real
property owned by a Seller or the Southern Entities, in either case which
requires annual payments in excess of $100,000;

 

(xii) Any Contract for supply of goods and services which requires annual
payments by or for the account of the Southern Business in excess of $500,000;

 

(xiii) Third Party Payor Contracts involving amounts in excess of $100,000 per
annum;

 

(xiv) Network Contracts involving amounts in excess of $100,000 per annum;

 

(xv) Any sponsor Contract or rebate Contract;

 

(xvi) Any Contracts (other than Contracts of the type described in subclauses
(i) - (xv) above) relating to the provision of services or purchase of
pharmaceutical or other supplies by or to the Southern

 

29

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Entities, including without limitation any service Contracts, management
Contracts or any other Contracts with any entity in each case requiring annual
payments in excess of $500,000; and

 

(xvii) Any Contract (other than Contracts of the type described in subclauses
(i) through (xvi) above) that requires aggregate future payments by or to any of
the Sellers or any Southern Entity in excess of $500,000 per annum or is
otherwise material to the Sellers or the Southern Entities or the Southern
Business, other than (under this clause (xvii)) a purchase or sales order or
other Contract entered into in the ordinary course of business consistent with
past practice.

 

(B) The applicable Seller and each applicable Southern Entity, as the case may
be, has performed in all material respects the obligations required to be
performed by it under each Assigned Contract, Split Contract or Southern Site
Lease to which it is a party or by which it is bound. Neither the applicable
Seller nor any of the Southern Entities is in breach or default (with or without
the lapse of time or the giving of notice or both) in any material respect of or
under any Assigned Contract, Split Contract or Southern Site Lease.

 

(o) [Reserved]

 

(p) Top 25 PBM Contracts. Each Contract listed on Section 2.02(p) of the
Disclosure Schedule (the “PBM Contracts”) is in effect as of the date of this
Agreement. To the Parent’s knowledge, as of the date of this Agreement, no
termination notice has been received from any counterparty under any PBM
Contract. To the Parent’s knowledge, as of the date of this Agreement, no
counterparty to any PBM Contract has invited any competing bids from any third
party pharmacy benefits providers. During the period from the date of this
Agreement to the Closing, the Parent will deliver or cause to be delivered to
the Purchaser any notice it receives that the counterparty thereto intends to
terminate, or invite competing bids for, any PBM Contract.

 

(q) 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 material
benefit or compensation plan, program, agreement or arrangement, that is
maintained, administered or contributed to by the Parent or a Seller or the
Southern Entities (or to which a Seller or any of the Southern Entities is
obligated to contribute) for the benefit of any current or former Southern
Business Employee, other than (i) any plan, program, agreement or arrangement
mandated by applicable Laws and (ii) a multiemployer plan as defined in Section
3(37) of ERISA (a “Multiemployer Plan”). Section 2.02(q) of the Disclosure
Schedule separately lists each Benefit Plan and each other employee benefit plan
for which a Seller or Seller’s Subsidiary could reasonably be expected to incur
any liability,

 

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including any liability under Title IV of ERISA. The Parent 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 Seller or a Seller’s
Subsidiary or the Southern Entities (a “Company Plan”), the Parent 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 from the Internal Revenue Service
(“IRS”). No Seller or Subsidiary of a Seller or any of the Southern Entities has
any express or implied commitment whether legally enforceable or not to (x)
create or incur liability with respect to any other employee benefit plan,
program or arrangement, (y) enter into any contract or agreement to provide
compensation or benefits to any individual except in the ordinary course or (z)
modify, change or terminate any Company Plan other than as required by ERISA or
the Internal Revenue Code of 1986, as amended (the “Code”). Except as specified
in Section 2.02(q) of the Disclosure Schedule or as would not reasonably be
expected to be material:

 

(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 Seller or a Seller’s Subsidiary or the
Southern Entities, 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 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 material
respects in accordance with its terms and with the requirements of applicable
Law;

 

(v) none of the Company Plans is a Multiemployer Plan;

 

(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

 

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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 to the
knowledge of the Parent, no fact or event has occurred since the date of such
determination letter from the IRS to adversely affect the qualified status of
any such Plan or the exempt status of any such trust;

 

(vii) each trust maintained or contributed to by a Seller or a Seller’s
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 to the knowledge of the Parent, no
fact or event has occurred since the date of such determination by the IRS to
adversely affect such qualified or exempt status;

 

(viii) 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 Seller or a Seller’s 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 and no such
deduction has been challenged or disallowed by the IRS; and to the knowledge of
the Parent no fact or event exists which could give rise to any such challenge
or disallowance;

 

(ix) the Sellers and the Southern Entities are in compliance with the
requirements of WARN and have no outstanding liabilities that are payable
pursuant to WARN or any similar state law;

 

(x) there is no current or projected liability in respect of post-employment or
post-retirement health or medical or life insurance benefits for current or
former Southern Business Employees, except as required to avoid excise tax under
Section 4980B of the Code, that could become a liability of the Purchaser or of
any of its affiliates;

 

(xi) no Transferred Employee (as defined in Section 4.13(a)(ii)) will become
entitled to any bonus, retirement, severance, job security or similar benefit,
or the enhancement of any such benefit, as a result of the transactions
contemplated hereby; and

 

(xii) there is no contract, plan or arrangement (written or otherwise) covering
any Southern Business Employee that, individually or collectively, could give
rise to the payment by Purchaser or any of its

 

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affiliates of any amount that would not be deductible pursuant to the terms of
Sections 280G or 162(m) of the Code.

 

(r) Insurance. The Purchased Assets and assets and business of the Southern
Entities are insured pursuant to insurance policies and fidelity bonds (the
“Insurance Policies”) that are commercially reasonable and cover the reasonably
expected risks and contingencies and are on such terms and conditions as are
consistent with industry practice. There is no claim material to the Southern
Business by any of the Parent or any of its Subsidiaries pending under any
Insurance Policy as to which coverage has been questioned, denied or disputed by
the underwriters of such policies or bonds or in respect of which such
underwriters have reserved their rights. To the Parent’s knowledge there has not
been any threatened termination of, material premium increase with respect to,
or material alteration of coverage under, any Insurance Policy. The properties,
assets, business, operations and employees of the PBM Business are covered by
Insurance Policies that are commercially reasonable and cover the reasonably
expected risks and contingencies and are on such terms and conditions as are
consistent with industry practice. Except as set forth in Section 2.02(r) of the
Disclosure Schedule, each Insurance Policy relating to the PBM Business is
valid, enforceable, existing and binding, and the premiums due thereon have been
timely paid and there will be coverage thereunder after Closing in respect of
acts and events occurring prior to Closing.

 

(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 Sellers of stating such inventories
at the lower of cost (determined on the last-in, first-out method) or market
value determined in accordance with GAAP consistently maintained and applied by
the Sellers. Since the Balance Sheet Date, the Inventory related to the Southern
Business has been maintained in the ordinary course of business consistent with
past practices. All such Inventories are owned free and clear of all Liens or
Encumbrances other than Permitted Liens and purchase money liens. Substantially
all of the Inventories recorded on the Balance Sheet consist of, and
substantially all Inventories related to the Southern Business on the Closing
Date will consist of, items of a quality usable or saleable in the normal course
of the Southern Business consistent with past practices and are and will be in
quantities substantially sufficient for the normal operation of the Southern
Business in accordance with past practice.

 

(t) Books and Records. The Parent, the Sellers and the Southern Entities have
maintained adequate business records including, without limitation, prescription
records, with respect to the operation of the Southern Business, and to the
knowledge of the Parent, there are no material deficiencies in such business
records.

 

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(u) Accounts Receivable; Accounts Payable. (i) All accounts and notes receivable
on the Balance Sheet have arisen in the ordinary course of business, and the
accounts receivable reserves reflected on the Balance Sheet arose from the sale
of Inventory or other activities in the ordinary course of business consistent
with past practice.

 

(ii) Except as set forth in Section 2.02(u)(ii) of the Disclosure Schedule,
since the Balance Sheet Date, none of the Southern Entities has, with respect to
any material portion of its trade accounts payable, (A) failed to pay its trade
accounts payable in the ordinary course or (B) extended the terms of payment,
whether by contract, amendment, act, deed, or course of dealing, of any trade
account payable.

 

(v) Affiliate Transactions. Except as set forth in Section 2.02(v) of the
Disclosure Schedule, (i) all of the Southern Site Leases are with Persons who
are not affiliates of the Sellers or the Parent and (ii) none of the Southern
Site Leases, Assigned Contracts or Split Contracts will, after Closing, be with
Parent or any of its affiliates.

 

(w) Title to Southern Entity Shares. The sale and delivery of the Southern
Entity Shares as contemplated by this Agreement is not subject to any preemptive
right, right of first refusal or similar right or restriction. Each Stock Seller
is the record and beneficial owner of all of the Southern Entity Shares being
sold by it hereunder, free and clear of any Lien or Encumbrance (other than
restrictions on transferability under applicable securities Laws). Upon the
delivery of the Southern Entity Shares as provided in Section 1.15(b)(i), the
Purchaser will acquire record and beneficial ownership of the Southern Entity
Shares, free and clear of any Lien or Encumbrance (other than any Liens or
Encumbrances created by the Purchaser and any restrictions on the
transferability by the Purchaser of the Southern Entity Shares under applicable
securities Laws).

 

(x) Southern Entities: Capitalization; Subsidiaries.

 

(i) Each Southern Entity is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization and has the
requisite corporate power and authority to own, lease or operate its properties
and assets and to carry on its business as now being conducted. Each Southern
Entity is duly qualified to do business and is in good standing and is duly
licensed, authorized or qualified to transact business in each jurisdiction in
which the property owned, leased or operated by it or the nature of the business
conducted by it 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
effect on such Southern Entity or the Southern Business.

 

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(ii) The authorized and outstanding capital stock of each Southern Entity is set
forth on Section 2.02(x)(ii) of the Disclosure Schedule. The Southern Entity
Shares with respect to the Southern Entity constitute all the outstanding shares
of capital stock of such Southern Entity, and there are no shares of capital
stock of any Southern Entity reserved for issuance upon exercise of outstanding
stock options or otherwise. All of the Southern Entity Shares have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. No Southern Entity has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock of such Southern Entity
or any other equity security of such Southern Entity or any securities
representing the right to purchase or otherwise receive any shares of capital
stock of such Southern Entity or any other equity security of such Southern
Entity.

 

(iii) No Southern Entity has any Subsidiaries.

 

(iv) The Parent has made available to the Purchaser true and complete copies of
the certificate of incorporation and bylaws of each of the Southern Entities as
currently in effect.

 

(y) Brokers. No broker, finder or investment banker (other than Credit Suisse
First Boston LLC, the fees and expenses of which will be paid by the Parent) 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 Sellers or the Southern Entities.

 

(z) No Side Letters. There is no side letter, agreement or other arrangement
between the Parent, the Sellers, their affiliates or their agents on the one
hand, and the Stock Purchaser, its affiliates or its agents on the other hand,
relating to any matter connected with matters contemplated by the Stock Purchase
Agreement (other than those that have been disclosed and provided to the
Purchaser), and as of the date of this Agreement, no such side letter, agreement
or arrangement is contemplated to be entered into.

 

(aa) Working Capital. The Baseline Number stated in Section 1.09(b) represents
the Working Capital as of January 31, 2004.

 

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF CVS AND THE PURCHASER

 

CVS and the Purchaser hereby represent and warrant to the Parent as follows:

 

Section 3.01. Organization, Standing and Corporate Power. Each of CVS and the
Purchaser is duly organized, validly existing and in good standing as a
corporation under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted. Each of CVS and 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 reasonably be expected to materially
adversely affect the ability of CVS and the Purchaser to timely perform their
respective obligations under this Agreement or to consummate the transactions
contemplated hereby (a “Purchaser Effect”).

 

Section 3.02. Authority of Purchaser; Noncontravention. The Purchaser has the
requisite corporate power and authority to enter into this Agreement and each
Ancillary Agreement to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Purchaser of this Agreement and the Ancillary Agreements to which it is a party
and the consummation by the Purchaser of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of the Purchaser. This 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 Sellers, constitutes a valid and binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, subject, as to enforceability, to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar Laws affecting
creditors’ rights and remedies generally and to general principles of equity.
When the Ancillary Agreements to which the Purchaser is a party have been duly
executed and delivered by the Purchaser and, assuming that such Ancillary
Agreements constitute valid and binding obligations of the Sellers and any other
party thereto, such Ancillary Agreements will constitute valid and binding
obligations of the Purchaser, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws affecting creditor’s rights and
remedies generally and to general principles of equity. The execution, delivery
and performance of this Agreement and the Ancillary Agreements do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, (i) conflict with any of the
provisions of the certificate of incorporation or bylaws of the Purchaser, in

 

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each case as amended, (ii) conflict with, result in a breach of or default
under, require any consent or other action by any Person under, or give rise to
any penalty or right of termination, cancellation or acceleration of any right
or obligation of the Purchaser or to a loss of any benefit to which the
Purchaser is entitled under (in each case, with or without notice or lapse of
time, or both) in any material respect any contract to which the Purchaser is a
party or by which the Purchaser or any of its assets is bound or subject or
(iii) contravene any Law or Order currently in effect.

 

Section 3.03. Authority of CVS; Noncontravention. CVS has the requisite
corporate power and authority to enter into this Agreement and each Ancillary
Agreement to which it is a party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by CVS of this
Agreement and each Ancillary Agreement to which it is a party and the
consummation by CVS of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of CVS. This
Agreement has been duly executed and delivered by CVS and, assuming that this
Agreement constitutes a valid and binding obligation of the Parent and the
Sellers, constitutes a valid and binding obligation of CVS, 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.
When the Ancillary Agreements to which CVS is a party have been duly executed
and delivered by CVS and, assuming that such Ancillary Agreements constitute
valid and binding obligations of the Sellers and any other party thereto, such
Ancillary Agreements will constitute valid and binding obligations of CVS,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar Laws affecting creditor’s rights and remedies generally and to general
principles of equity. The execution, delivery and performance of this Agreement
and the Ancillary Agreements do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions hereof and
thereof will not, (i) conflict with any of the provisions of the certificate of
incorporation or bylaws of CVS, in each case as amended to the date of this
Agreement, (ii) conflict with, result in a breach of or default under (with or
without notice or lapse of time, or both) in any material respect any contract,
agreement, indenture, mortgage, deed of trust, lease or other instrument to
which CVS is a party or by which CVS or any of its assets is bound or subject,
or (iii) contravene any Law or Order 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 Purchaser Effect.

 

Section 3.04. Governmental Consents and Approvals. No Approval of any
Governmental Entity is required by or with respect to CVS or the Purchaser in
connection with the execution, delivery and performance of this Agreement and

 

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all other agreements and instruments executed in connection herewith or
delivered pursuant hereto by CVS or the Purchaser or the consummation by CVS or
the Purchaser of the transactions contemplated hereby or thereby, except for (a)
compliance with the HSR Act, (b) any reports required to be filed with the SEC
under the Exchange Act, (c) applicable Food and Drug Administration, Drug
Enforcement Administration, Medicare/Medicaid, state boards of pharmacy and
governmental liquor authorities approvals, and (d) any other Approvals which, if
not made or obtained, would reasonably be expected to have, individually or in
the aggregate, a Purchaser Effect.

 

Section 3.05. Brokers. No broker, finder or investment banker or other
intermediary (other than Goldman, Sachs & Co. and Evercore Partners, the fees
and expenses of which will be paid by CVS, the Purchaser or their 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 CVS and the Purchaser.

 

Section 3.06. Financing. CVS or the Purchaser will have on or prior to the
Closing Date, cash on hand or credit facilities with available borrowings with
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
CVS or the Purchaser in connection with this Agreement and the transactions
contemplated hereby.

 

Section 3.07. Investment Intent. The Southern Entity Shares will be acquired by
the Purchaser for its own account without a view to a distribution or resale
thereof. The Purchaser understands that the Southern Entity Shares may 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 3.08. 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 Sellers have provided to CVS and the Purchaser the opportunity to
ask questions of the officers and management of the Parent, the Sellers and the
TDI Companies with respect to the business conducted by the Southern Entities.
In making their decision to enter into this Agreement and to consummate the
transactions contemplated hereby, CVS and the Purchaser have relied solely on
their own independent investigation, analysis and evaluation of the Southern
Entities and the Southern Business and the express representations, warranties
and other undertakings of the Parent and the Sellers contained herein.

 

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ARTICLE 4

COVENANTS

 

Section 4.01. Conduct of Business. (A) Except as expressly provided for herein,
during the period from the date of this Agreement to the Closing, the Sellers
and the Southern Entities shall, and the Parent shall cause the Sellers and
Southern Entities to, conduct the Southern Business only in the ordinary course
consistent with past practices for such business and to use commercially
reasonable efforts to (i) preserve intact their current business organizations
(ii) keep available the services of their current key officers and employees
(provided that the Purchaser acknowledges that officers and employees of the
Southern Business may voluntarily terminate their employment with such entities
and the Parent or the Seller have no control over such voluntary terminations),
(iii) preserve the goodwill of those engaged in material business relationships
with the Southern Business, (iv) collect the receivables of the Southern
Business and pay the payables of the Southern Business in the ordinary course of
business consistent with past practices and in the same manner as previously
collected or paid, (v) maintain their respective books and records in accordance
with past practices, (vi) maintain in full force and effect until the Closing
substantially the same levels of coverage of insurance with respect to the
assets, operations and activities of the Southern Business as are in effect as
of the date of this Agreement, and (vii) discharge liabilities of the Southern
Business in the ordinary course of business consistent with past practices.
Without limiting the generality of the foregoing, except as expressly provided
for in this Agreement or as set forth in Section 4.01 of the Disclosure
Schedule, during the period from the date of this Agreement to the Closing, the
Sellers and the Southern Entities shall not, and the Parent shall not permit the
Sellers or the Southern Entities, without the prior written consent of the
Purchaser, to take, or agree to or commit to take, any of the following actions
with respect to the Southern Business:

 

(a) acquire (including by merger, consolidation or acquisition of stock or
assets or by any other manner) any asset, business or entity or stores from any
Person or make capital expenditures (including for store remodelings, openings
and relocations, store signage and information systems) in an aggregate amount
in excess of $1,000,000 except (i) the acquisition of Inventory in the ordinary
course consistent with past practices and consistent with seasonal levels, (ii)
as set forth in Section 4.01(A)(a) of the Disclosure Schedule, (iii)
expenditures deemed in good faith to be of an emergency nature to repair assets
in an aggregate amount not in excess of $1,000,000 and accompanied or followed
by a prompt notice to the Purchaser, (iv) expenditures for the acquisition of
prescription files in an amount not exceeding $250,000 for any individual
acquisition, (v) supplies purchased in the ordinary course of business, (vi)
expenditures to repair assets in the ordinary course of business, (vii)
expenditures for the acquisition of inventory in conjunction with the
acquisition of prescription files in an amount not exceeding $200,000 for any
individual acquisition or (viii) assets acquired

 

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pursuant to purchase orders issued prior to the date hereof in the ordinary
course of business consistent with past practice;

 

(b) other than commitments disclosed in writing prior to the date hereof to
Purchaser’s counsel (and denoted in such disclosure as signed), enter into any
real estate lease or lease commitment (or change the status of any commitment
(including items denoted as signed) from the status thereof disclosed to
Purchaser’s counsel) or modify, renew, extend or terminate any existing real
estate lease or purchase or acquire or enter into any agreement to purchase or
acquire any real estate in any Southern State;

 

(c) acquire, make any investment in, or make any loan, advance or capital
contributions (including any “keep well” or other contract to maintain any
financial statement condition of another Person) to, any Person, in an aggregate
amount in excess of $250,000, other than routine advances to employees in the
ordinary course of business consistent with past practices;

 

(d) sell, assign, lease, license, transfer, close, shut down or otherwise
dispose (in whole or in part) of any material Purchased Assets or material
assets of any Southern Entity except (i) Inventory in the ordinary course of
business consistent with past practices or (ii) pursuant to existing contracts
and commitments as set forth in Section 4.01(A)(d) of the Disclosure Schedule;

 

(e) permit Inventory purchases or commitments to materially exceed or be below
historical seasonal levels;

 

(f) transfer management level employees or pharmacists of the Southern Sites to
stores or regions outside the Southern States, except in the ordinary course of
business consistent with past practices;

 

(g) enter into, modify, extend or cancel any third-party payor contracts (which
contracts are for amounts in excess of $250,000 per annum), except in the
ordinary course of business consistent with past practices;

 

(h) mortgage or pledge any Purchased Assets or assets of the Southern Entities
or create or suffer to exist any Lien or Encumbrance other than Permitted Liens
on any Purchased Assets or assets of the Southern Entities;

 

(i) allow the board of directors of any Seller or any of the Southern Entities
to declare or deem that a “change of control”, as defined in any Benefit Plan,
has occurred with respect to any benefit plan;

 

(j) grant or agree to grant to any Southern Business Employee who is an officer
of a Seller or of any of the Southern Entities or a key employee of a Seller or
of any of the Southern Entities any material increase in wages or bonus,

 

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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 Benefit Plans with respect
to any Southern Business Employees, except (i) as set forth in Section
4.01(A)(j) of the Disclosure Schedule, (ii) as may be required under existing
agreements, Benefit Plans or by applicable Law, (iii) pursuant to the normal
severance policies of the applicable Seller as in effect on the date of this
Agreement (and disclosed to the Purchaser in writing prior to the date hereof)
consistent with past practices or (iv) increases in annual rates of base salary
or wages payable or to become payable as a result of normal performance reviews
performed in the ordinary course of business consistent with past practices;

 

(k) enter into or amend any employment, consulting, severance or similar
agreement with any Southern Business Employee or adopt or enter into any
collective bargaining agreement, except (i) as set forth in Section 4.01(A)(k)
of the Disclosure Schedule or (ii) with respect to new hires of non-officer
employees in the ordinary course of business;

 

(l) materially change workforce levels from those in effect as of the Balance
Sheet Date (other than with the prior written consent of the Purchaser, which
shall not be unreasonably withheld);

 

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

 

(n) enter into any waiver, release, assignment, compromise or settlement of, or
take any material action with respect to, any pending or threatened action or
Legal Proceeding which is material or which relates to the transactions
contemplated hereby, other than the prosecution, defense or settlement (for
monetary damages only) of actions or Legal Proceedings not material to the
Southern Business in the ordinary course of business consistent with past
practices or actions to be taken by Parent or Sellers in accordance with Section
4.05;

 

(o) (i) enter into any material Assigned Contract or material Split Contract;
(ii) amend, waive, modify, supplement, extend, terminate, allow to lapse,
assign, encumber or otherwise transfer, in whole or in part, its rights and
interests in or under any material Assigned Contracts or material Split
Contracts; or (iii) enter into any Assigned Contracts or Split Contracts that
are not at arms length;

 

(p) enter into any Contract (that would bind the Purchaser, any Southern Entity
or the Southern Business after the date of Closing, including, without
limitation, those that would be Assigned Contracts or Split Contracts)
containing

 

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covenants of any of the Sellers or Southern Entities not to, or otherwise
restraining, limiting or impeding any of the Sellers’ or Southern Entities’
ability to, compete with or conduct any business or line of business with
respect to the Southern States or to hire any individual or group of individuals
with respect to the Southern Business;

 

(q) change, or agree to change, any business policies which relate to sales,
returns or product acquisitions, in each case in any material respect;

 

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

 

(s) make, change or rescind any Tax election, change any annual Tax accounting
period, change any method of Tax accounting or file for any change in accounting
method, settle any Tax claim or assessment or surrender any right to claim for a
Tax refund, in each case solely if such action may have a materially adverse
effect on the Southern Business in a tax period that ends after the Closing
Date, provided that in the case of this Section 4.01(A)(s), Purchaser’s consent
shall not be unreasonably withheld or delayed;

 

(t) (i) fail to file any material Tax Return which includes or relates to the
Southern Business, Purchased Assets or the Southern Entities for any Pre-Closing
Tax period on the due date therefor, including extensions, (ii) file a Tax
Return which includes or relates to the Southern Business, Purchased Assets or
the Southern Entities that is not true and complete in all material respects or
(iii) fail to pay any Taxes which includes or relates to the Southern Business,
Purchased Assets or the Southern Entities that are shown to be due and payable
on any Tax Return;

 

(B) During the period from the date of this Agreement to the Closing, except as
disclosed on Section 4.01(B) of the Disclosure Schedule, the Parent and the
Stock Sellers shall not permit any of the Southern Entities, without the prior
written consent of the Purchaser, to take, or agree to or commit to take, any of
the following actions:

 

(a) (i) declare, set aside, make or pay any dividends or distributions on, or
make any other distributions (whether in cash, securities or other property) in
respect of, any Southern Entity Shares, (ii) split, combine or reclassify any of
the outstanding Southern Entity Shares or issue or authorize the issuance of any
Southern Entity Shares, or (iii) purchase, redeem or otherwise acquire any
securities of any of the Southern Entities, including the Southern Entity
Shares;

 

(b) issue, sell, transfer, grant or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise) pledge, dispose of or otherwise encumber any securities of any

 

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Southern Entity, including the Southern Entity Shares, or any securities
convertible into, or exchangeable for, any such shares or amend the terms of any
such securities outstanding on the date hereof;

 

(c) amend the certificate of incorporation or bylaws (or other similar
organizational documents) or alter through merger, liquidation, reorganization,
restructuring or in any other fashion, the corporate structure or ownership of
any Southern Entity or amend the terms of the Southern Entity Shares;

 

(d) except as required by existing commitments disclosed on Section 4.01(B)(d)
of the Disclosure Schedule, repurchase, repay, incur, assume, endorse, guarantee
or otherwise become liable for (whether directly, contingently or otherwise) any
indebtedness for borrowed money;

 

(e) issue or sell any debt securities or rights to acquire any debt securities;

 

(f) pay, discharge, cancel or satisfy any material claims, liabilities or
obligations (accrued, asserted, unasserted, absolute, contingent or otherwise,
known or unknown, matured or unmatured) other than intercompany obligations or
the payment, discharge or satisfaction when due or otherwise in the ordinary
course of business consistent with past practices of liabilities reflected or
reserved against in the Balance Sheet or incurred in the ordinary course of
business after the Balance Sheet Date consistent with past practices;

 

(g) cancel any material debts or waive any claims or rights of substantial value
(including the cancellation or waiver of any indebtedness owed by, or claims
against, any of the Sellers or their Subsidiaries), except for cancellations
made or waivers granted in the ordinary course of business consistent with past
practices which, in the aggregate, are not material;

 

(h) (1) amend, assign or terminate any PBM Contract; or (2) enter into, amend,
assign or terminate any Contract covering more than 35,000 lives; or

 

(i) amend, assign or terminate any PBM Network Arrangement or change the
coverage of, or reimbursement rates under, any PBM Network Arrangement;

 

(j) materially change any Southern Entity’s practices with respect to the timing
of payments or collections.

 

(C) Notwithstanding anything to the contrary contained in Section 4.01(A), the
Parent, the Sellers or any Southern Entity may, without the Purchaser’s written
consent, prior to Closing, take any action or commit to take any action
specified in Section 4.01(A)(a), (b) and (h) in the ordinary course consistent
with

 

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past practices provided that the Parent shall retain all assets so acquired
pursuant to, and be responsible for all liabilities and obligations for or
arising from, such actions or commitments taken, made or entered into without
the Purchaser’s written consent and for which Purchaser’s consent would have
been required under Section 4.01(A) but for this Section 4.01(C) (and which
assets and liabilities shall be Excluded Assets and Excluded Liabilities under
this Agreement).

 

(D) Notice to Purchaser of a request for consent required by this Section 4.01
shall be given to Purchaser through its legal counsel.

 

Section 4.02. Casualty; Condemnation. In the event that, after the execution of
this Agreement, but prior to the Closing Date, any Southern Site is subject to
(i) loss, destruction or damage to the building or other improvements thereon (a
“Casualty”) or (ii) condemnation by a Governmental Entity (a “Condemnation”), at
the Closing the Parent and the Sellers shall transfer to the Purchaser all
proceeds received from any insurance claims, condemnation awards, compensation
or other reimbursements relating to such Casualty or Condemnation occurring
after the execution of this Agreement but prior to the Closing Date to the
extent that such proceeds have not already been used by the Parent or a Seller
to repair any such loss, destruction or damage, and shall transfer the right to
receive any future proceeds of such Casualty and Condemnation to the Purchaser
following the Closing Date. Any party receiving a notice of Casualty or
Condemnation shall notify all other parties in accordance with Section 8.04.
Notwithstanding anything to the contrary contained in this Agreement, in no
event will any Casualty or Condemnation constitute the breach of any
representation or warranty of the Parent contained in this Agreement if Parent
and the Sellers comply with this Section 4.02.

 

Section 4.03. Acquisition Proposals; Inconsistent Activities.

 

(a) Acquisition Proposals. Following the execution of this Agreement, the
Sellers and the Parent shall, and shall cause their respective officers,
directors, employees, agents and representatives, including any investment
banker, financial advisor, attorney or accountant retained by any of the
foregoing Persons (collectively, “Representatives”) to, immediately cease any
existing discussions or negotiations with any Persons conducted heretofore with
respect to any Acquisition Proposal (as defined in Section 4.03(b)) with respect
to the Southern Business, and shall not, and shall cause their Representatives
to not, directly or indirectly, (i) initiate, facilitate, encourage or solicit,
directly or indirectly, the making of any Acquisition Proposal with respect to
the Southern Business, (ii) provide any non-public information regarding the
Sellers or any of the Southern Entities to, or enter into or maintain or
continue any discussions or negotiations with, any Person that has made an
Acquisition Proposal with respect to the Southern Business or any of the
Southern Entities, or (iii) enter into any

 

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agreement providing for any Acquisition Proposal with respect to the Southern
Business. Nothing contained herein shall prohibit, limit or restrict, the
Parent, the Sellers and the Representatives from (A) engaging in any of the
foregoing activities with respect to any part of the Business other than the
Southern Business or (B) providing any non-public information to, or entering
into or maintaining or continuing any discussions or negotiations with the Stock
Purchaser with respect to 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 with respect to the Southern
Business or the Stock Purchaser or any of its affiliates with respect to the
Northern Business) relating to (i) any merger, consolidation, recapitalization,
tender offer, liquidation or other direct or indirect business combination
involving the Sellers, (ii) any acquisition of shares of capital stock or other
equity securities of any of the Sellers or any of the Southern Entities, or
(iii) any acquisition, license, purchase or other disposition of a substantial
portion of the business or assets of the Sellers outside the ordinary course of
business.

 

(c) Inconsistent Activities. During the period from the date of this Agreement
to the Closing, CVS and the Purchaser shall not, and shall not authorize or
permit any of their Subsidiaries, or any of their respective officers,
directors, employees, agents or representatives to, propose, 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 4.04. Access To Information; Confidentiality; Data Bridge Development.

 

(a) The Parent and the Sellers shall afford to CVS, the Purchaser and their
Representatives reasonable access (with an opportunity to make copies) (subject,
however, to existing confidentiality and similar non-disclosure obligations)
during normal business hours and upon reasonable notice during the period prior
to the Closing to all of the Parent’s, the Sellers’ and the Southern Entities’
properties, books, records (whether in hard copy or computer format),
workpapers, contracts, commitments, Tax Returns, personnel and records relating
to the Southern Business or the Purchased Assets and, during such period, the
Parent and the Sellers shall furnish, or cause to be furnished, as promptly as
practicable to the Purchaser such information (subject, however, to existing
confidentiality and similar non-disclosure obligations) concerning the Southern
Entities, the Southern Business and the Purchased Assets as the Purchaser may
from time to time reasonably request. To the extent that the Parent or any
Seller

 

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incurs any incremental out-of-pocket costs in processing, retrieving or
transmitting any such information pursuant to this Section 4.04(a), the
Purchaser shall reimburse the Parent or the appropriate Seller for the
reasonable out-of-pocket costs thereof promptly upon the submission to the
Purchaser of an invoice therefor accompanied by supporting documentation in
reasonable detail provided however that de minimis expenses in the individual
amount of $1,000 or less shall be excluded from the reimbursement obligation
under this Section 4.04(a). CVS and 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 or any Seller, in confidence to the extent required by,
and in accordance with the provisions of, the agreement, dated October 7, 2003,
between CVS and the Parent (the “Confidentiality Agreement”) with respect to
confidentiality and other matters.

 

(b) After the Closing, the Parent, the Sellers and the Purchaser shall each
afford to each other and their Representatives reasonable access (with an
opportunity to make copies) (subject, however, to confidentiality and similar
non-disclosure obligations) during normal business hours and upon reasonable
notice, to each other’s properties, books, records (whether in hard copy or
computer format), workpapers, contracts, commitments, Tax Returns, personnel and
records relating to the Southern Business or the Purchased Assets as the other
party shall reasonably request.

 

(c) After the date hereof and until the Closing, as reasonably necessary and
available, taking into account the reasonable needs of the Stock Purchaser, the
Sellers and their affiliates shall provide the Purchaser and its affiliates with
the use of office space as the Purchaser reasonably requests at such locations
as reasonably necessary and available, taking into account the reasonable needs
of the Stock Purchaser, for the Purchaser and its affiliates to prepare for
transition of the Southern Business into its own business.

 

(d) Parent shall, and shall cause the Sellers to, reasonably cooperate with the
Purchaser and allocate necessary resources in good faith to construct a data
bridge during the period between the date of this Agreement and the Closing Date
that will provide services to the Purchaser after the Closing Date as described
on the item “Information Technology – Data Bridge Support” in the Eckerd
Transition Services Agreement. In no event will Parent or Sellers be required to
provide any assistance or cooperation that would affect their ability to operate
their business in an efficient manner or preclude them from affording to the
Stock Purchaser an equivalent amount of access to personnel and resources of the
Parent or any Seller.

 

Section 4.05. 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

 

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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 5. 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 hereof, the timing of which shall be
coordinated with one another’s filings and with the filing of the Stock
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 Approvals
of Governmental Entities as are necessary for the consummation of the
transactions contemplated hereby and to fulfill the conditions thereto.

 

(b) In performing the parties’ obligations under Section 4.05 relating to
Antitrust Laws (as defined below), 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 Action (whether
threatened or instituted) by any other Person, in each case regarding the
transactions contemplated by this Agreement and (iii) permit the other party 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 4.05, 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

 

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Agreement under any Antitrust Law. In connection with the foregoing, if any
Action, including any Action 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
4.05(d), “reasonable best efforts” by CVS shall include without limitation, CVS
and/or the Purchaser (and, to the extent required by any Governmental Entity,
their 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 without limitation,
entering into a Settlement that requires CVS or 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 business in particular
geographic areas, to satisfy any Antitrust Objections or to settle any Antitrust
Challenges, but, notwithstanding anything else contained in this Agreement, CVS
or the Purchaser shall not be required to enter into any Settlement (i) that
requires CVS or the Purchaser to hold separate (including by establishing a
trust or otherwise) or to sell or otherwise dispose of or withdraw from stores
of CVS or the Purchaser (and their Subsidiaries) or Southern Stores the
aggregate revenues of which (for the most recent fiscal year) exceeded $500
million (“Antitrust Store Limit”) or (ii) as a result of which the aggregate
gross margin attributable to business of Pharmacare or PBM Business to be
terminated or otherwise lost pursuant to such Settlement would be greater than
35% of the total gross margin attributable to such business for the most
recently ended fiscal year (“Antitrust PBM Limit”).

 

(e) In the event that the Settlement pursuant to this Section 4.05 requires CVS
or the Purchaser to hold separate (including by establishing a trust or
otherwise) or to sell or otherwise dispose of or withdraw from stores of CVS or
the Purchaser (and their Subsidiaries) or Southern Stores the aggregate revenues
of which (for the most recent fiscal year) exceeded $200 million but were below
$500 million (the applicable excess of such aggregate revenues above $200

 

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million, the “Band Number”), (i) the Estimated Purchase Price and the Purchase
Price payable hereunder shall be reduced by an amount that is 0.25 times the
Band Number and (ii) upon the sale or other disposition of any stores that CVS
or the Purchaser is required to hold separate, sell or otherwise dispose of
pursuant to such settlement, the Parent shall be entitled to receive a portion
of such proceeds equal to fifty percent of: (x) the amount of all proceeds (less
the reasonable costs incurred in connection with the sale or disposition)
multiplied by (y) a fraction, the numerator of which is the Band Number and the
denominator of which is the aggregate revenues (for the most recent fiscal year)
of such stores divested.

 

(f) Notwithstanding anything to the contrary in this Agreement, in the event
that a Settlement proposed by a Governmental Entity pursuant to this Section
4.05 would have required CVS or the Purchaser to hold separate (including by
establishing a trust or otherwise) or to sell or otherwise dispose of or
withdraw from assets or business of the Pharmacare or PBM Business in excess of
the Antitrust PBM Limit, and if CVS refuses to enter into such Settlement, then
the sale and purchase of the PBM Business (through the sale and purchase of the
shares of the PBM Entity, Genplus Managed Care, Inc., and Eckerd Corporation Of
Florida, Inc. and Purchased Assets of the PBM Business and assumption of Assumed
Liabilities of the PBM Business) shall be excluded from this Agreement, the
Baseline Number shall be recalculated to exclude the assets and liabilities of
the PBM Business, and the assets and liabilities of the PBM Business shall be
excluded from the calculation of Working Capital, Estimated Closing Working
Capital and Closing Working Capital Statement. On the Closing Date,
notwithstanding anything else contained herein, the Purchaser will wire transfer
to the Sellers, the Estimated Purchase Price reduced by an amount equal to
$750,000,000 (such reduced portion of the Estimated Purchase Price, the
“Estimated PBM Price”). The amount of Purchase Price actually allocable to the
PBM Business shall be determined pursuant to Section 4.11(e) (such price, the
“Final PBM Price”). Within three business days of the Final PBM Price becoming
final pursuant to Section 4.11(e), (i) the Purchaser shall pay to the Parent, by
wire transfer of immediately available funds to an account designated by the
Parent, an amount equal to the amount, if any, by which the Final PBM Price (as
finally determined pursuant to Section 4.11(e)) exceeds the Estimated PBM Price,
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 Parent
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 the Estimated PBM Price exceeds the Final PBM Price (as finally
determined pursuant to Section 4.11(e)), together with interest thereon at the
Applicable Rate from and including the Closing Date to, but excluding, the date
of such payment. For the avoidance of doubt, notwithstanding anything else
contained herein, in the circumstances contemplated in this Section 4.05(f), the
Purchase Price hereunder will be reduced by the Final PBM Price.

 

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Section 4.06. Public Announcements. Purchaser and CVS, on the one hand, and the
Parent and Sellers on the other hand will use their best efforts to coordinate
and simultaneously release their first public announcement or press release
relating to the transactions contemplated by this Agreement. In addition, prior
to the Closing Date, the Purchaser and CVS, on the one hand, and the Parent and
Sellers on the other hand 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 written public statements with respect to the
transactions contemplated hereby (including the first public announcement or
press release) and shall not issue any such press release or written 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 4.07. Further Assurances; No Hindrances. From time to time after the
Closing, without additional consideration, each of the Parent, the Sellers, CVS
and the Purchaser will execute and deliver such further instruments and take
such other action as may be necessary, or as may be reasonably requested by the
other party, to make effective the transactions contemplated by this Agreement
including to give the Purchaser the title or benefit of the Purchased Assets or
assets of the Southern Entities as contemplated hereunder.

 

Section 4.08. Notices of Certain Events. After the execution of this Agreement
but prior to the Closing, the Sellers and the Parent shall, and shall cause
their Representatives to promptly notify the Purchaser in writing in reasonable
detail of:

 

(a) any written notice or other written communication from any Person alleging
that the Approval of such Person is or may be required in connection with the
transactions contemplated by this Agreement; or

 

(b) the damage or destruction by fire or other casualty of any material asset of
the Southern Business or any material part thereof or in the event that any
material asset of the Southern Business or material part thereof becomes the
subject of any proceeding or, to the knowledge of the Parent, threatened
proceeding for the taking thereof or any part thereof or of any right relating
thereto by condemnation, eminent domain or other similar governmental action.

 

Section 4.09. Notice of Possible Breach. Prior to the Closing, if any party to
this Agreement shall become aware of any fact, event or circumstance that would
constitute a breach of this Agreement by the other party or that would result in
the failure to satisfy any condition set forth in Article 5, such party shall
promptly notify the other party thereof in writing. The parties shall thereupon
provide reasonable cooperation to cure or remedy such breaches or satisfy such
closing conditions.

 

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Section 4.10. Prescription Files. On the Closing Date, the Sellers will deliver
the Prescription Files to the Purchaser by printing hard copy printouts of the
Prescription Files at the applicable Southern Site.

 

Section 4.11. Tax Matters.

 

(a) Tax Definitions. The following terms, as used in this Agreement, have the
following meanings:

 

“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.

 

“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.

 

“Straddle Tax Period” means any taxable period that begins before the Closing
Date and ends after the Closing Date.

 

“Tax” means all taxes, fees, levies or other assessments, imposed by the United
States, or any state, country, local or foreign government or subdivision or
agency thereof (a “Taxing Authority”) including without limitation, 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.

 

“Tax Returns” means any return, report or other information required to be
supplied to any Taxing Authority in connection with Taxes.

 

(b) Representations and Warranties of the Parent Relating to the Purchased
Assets. Except as specified in Section 4.11(b) of the Disclosure Schedule, the
Parent hereby represents and warrants to the Purchaser, as of the date hereof
and as of the Closing Date, that the Parent, each of the Sellers and each other
affiliate of Parent has timely paid, or made provision to pay, all Taxes that
include or relate to the Purchased Assets that will have been required to be
paid on or prior to the date hereof, the nonpayment of which would result in a
Lien on any Purchased Asset, would have an adverse effect on the Purchaser’s
ability to conduct the Southern Business or would result in the Purchaser
becoming liable or responsible therefor.

 

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(c) Cooperation; Audits. In connection with the preparation and filing of Tax
Returns, audit examinations, obtaining tax clearance certificates in connection
with transactions contemplated by this Agreement, and any administrative or
judicial proceedings relating to any Tax liabilities imposed on the Parent, the
Sellers, the Purchaser, the Purchased Assets or the Southern Entities, (A) the
Purchaser, (B) the Southern Entities, (C) the Parent, and (D) the Sellers agree
to furnish or cause to be furnished to each other, upon request, as promptly as
practicable, such information and assistance relating to the Purchased Assets or
the Southern Entities including, but not limited to, during normal business
hours, the furnishing or making available of books and records, personnel (as
reasonably required and at no cost to the other party), powers of attorney (with
respect to Pre-Closing Tax Periods and reasonably requested by the other party)
or other materials necessary or helpful for the preparation of such Tax Returns,
the conduct of audit examinations, the obtaining of tax clearance certificates
or the defense of claims by Taxing Authorities as to the imposition of Taxes.
The Parent, the Sellers, the Purchaser and the Southern Entities shall retain
all Tax Returns, schedules and workpapers and all material records or other
documents relating to all Taxes of the Purchased Assets, the Stock Sellers and
the Southern Entities 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 Parent, the Sellers and the Purchaser shall maintain such Tax
Returns, schedules, workpapers, records and documents in the same manner and
with the same care it uses in maintaining its Tax Returns, schedules,
workpapers, records and documents. Each of (A) the Purchaser, (B) the Southern
Entities, (C) the Parent, and (D) the Sellers shall give the other parties
reasonable written notice prior to destroying or discarding any such books or
records and, if another party so requests, the other party shall take possession
of such books and records. Any information obtained under this Section 4.11(c)
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.

 

(d) Allocation of Certain Taxes.

 

(i) All real property taxes (other than real estate Taxes referred to in Section
4.20), personal property taxes and similar ad valorem obligations levied with
respect to the Purchased Assets for a Straddle Tax Period (collectively, the
“Apportioned Obligations”) shall be apportioned between the Parent and the
Purchaser based on the number of days of such taxable period included in the
Pre-Closing Tax Period and the number of days of such taxable period included in
the Post-Closing Tax Period. The Parent shall be liable for the proportionate
amount of such

 

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taxes that is attributable to the Pre-Closing Tax Period, and the Purchaser
shall be liable for the proportionate amount of such taxes that is attributable
to the Post-Closing Tax Period.

 

(ii) All excise, sales, use, value added, registration stamp, recording,
documentary, conveyancing, franchise, property, transfer and similar Taxes,
levies, charges and fees (collectively, “Transfer Taxes”) incurred in connection
with the transactions contemplated by this Agreement shall be borne equally by
the Parent and the Purchaser. The Purchaser, the Parent and the Sellers shall
cooperate in providing each other with any appropriate resale exemption
certifications and other similar documentation.

 

(iii) Apportioned Obligations and Transfer Taxes described in this Section
4.11(d) shall be timely paid, and all applicable Tax Returns shall be filed, as
provided by applicable Law. The paying party shall provide to the non-paying
party drafts of all Tax Returns described in the preceding sentence and a
statement setting forth the amount of reimbursement to which the paying party is
entitled under Section 4.11(d)(i) and Section 4.11(d)(ii), as the case may be,
together with appropriate supporting information and schedules at least 30
calendar days prior to the due date for the filing of such Tax Return (including
extensions), or such shorter period as is necessary to allow for the timely
filing of any such Tax Return. Any such Transfer Tax Returns shall reflect any
valuations available from the Independent Valuation Expert or, if a valuation is
not available, the practices and methodologies expected to be employed by the
Independent Valuation Expert. If no such information is available from the
Independent Valuation Expert, the parties will agree upon a reasonable
methodology for determining the valuations necessary for preparing such Tax
Returns. At least 15 calendar days prior to the due date for the filing of such
Tax Returns (including extensions), or such shorter period as is necessary to
allow for the timely filing of such Tax Return, the non-paying party shall
notify the paying party of the existence of any objection (specifying in
reasonable detail the nature and basis of such objection) the non-paying party
may have to any items set forth on such draft Tax Return. The paying party and
the non-paying party agree to consult and resolve in good faith any such
objection. Upon earlier of the resolution of such objection, if any, or the
expiration of the fifteen days without objection from the non-paying party, the
paying party may file the Tax Return. The paying party shall be entitled to
reimbursement from the non-paying party in accordance with Section 4.11(d)(i)
and Section 4.11(d)(ii), as the case may be. The non-paying party shall make
such reimbursement promptly but in no event later than 30 calendar days after
the filing of such Tax Return. Any payment not made within such time shall bear
interest at the Applicable Rate for each day after the

 

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expiration of the 30 calendar days described in the preceding sentence until
paid.

 

(e) Allocation of Purchase Price. (i) Within 6 months of the finalization of the
Closing Date Balance Sheet and the Closing Working Capital Statement, the
Purchaser shall deliver to the Parent a GAAP-based valuation performed by a
nationally recognized independent valuation firm mutually agreed by the Parent
and the Purchaser (the “Independent Valuation Expert”) ascribing values, as of
the Closing Date, on a location-by-location basis, to the Purchased Assets, the
Assumed Liabilities and the assets and liabilities of the Southern Entities.
Within 30 calendar days after the Purchaser delivers the valuation, the Parent
shall notify the Purchaser of any objection to the valuation (specifying in
reasonable detail the nature and basis of such objection), provided that no such
objection shall be made unless it is based on a manifest error in the valuation.
If the Independent Valuation Expert concurs that a manifest error has been made,
the Independent Valuation Expert shall cause the valuation to be corrected. If
the Independent Valuation Expert does not so concur, or the Seller does not make
any objection within such 30 calendar day period, the original valuation shall
be the final valuation. The Purchaser, the Southern Entities, the Parent, the
Sellers and their affiliates agree to act in accordance with the final valuation
of the Independent Valuation Expert in the preparation and filing of any Income
Tax Return and in the making of any Section 338(h)(10) Election. The costs, fees
and expenses of the Independent Valuation Expert shall be borne by the
Purchaser.

 

(ii) No later than 60 calendar days after the finalization of the valuation of
the Independent Valuation Expert, the Purchaser shall deliver to the Parent pro
forma Forms 8594 and the supporting documentation. The pro forma Forms 8594
shall set forth an allocation of the Purchase Price (plus Assumed Liabilities,
to the extent properly taken into account under Section 1060 of the Code, but
without regard to either party’s transaction costs) among the Purchased Assets
in accordance with Section 1060 of the Code. The Parent shall have the right to
review such forms solely for the purpose of determining whether the allocation
has been made in accordance with the final valuation of the Independent
Valuation Expert delivered pursuant to Section 4.11(e). If, within 15 calendar
days after the receipt of the pro forma forms, the Parent notifies the Purchaser
that the Parent objects to the pro forma forms on the basis that they do not
reflect the valuation of the Independent Valuation Expert, then the Parent and
the Purchaser shall attempt in good faith to resolve their disagreement within
the 15 calendar days following the Parent’s notification of Purchaser of such
disagreement and the pro forma forms shall be amended before filing to reflect
any such resolution. Within 15 calendar days after the later of (A) the date on
which the Purchaser and the Parent shall have resolved any objections or (B) the
failure of the Parent to notify the

 

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Purchaser of an objection within 15 calendar days, each party shall deliver to
the other party a copy of its final Forms 8594.

 

(f) Information. Within 60 days after the finalization of the Closing Date
Balance Sheet, the Purchaser shall deliver, or shall cause to be delivered to
the Parent (at no cost to the Parent) copies of books, records, workpapers, and
any other supporting documents used to prepare such final Closing Date Balance
Sheet to the extent such documentation is in the possession of the Purchaser or
its affiliates and is reasonably required by the Parent to properly report the
operations of the Purchased Assets and the Southern Entities in its Tax Returns.
To the extent such documentation is not in the possession of the Purchaser or
its affiliates, the Purchaser shall use reasonable efforts to assist the Parent
in obtaining any further information that may be required for the Parent to
properly report the operations of the Purchased Assets and the Southern Entities
in its Tax Returns.

 

(g) Tax Matters Relating to the Oklahoma Sites. With respect to each Southern
Site in Oklahoma, the Parent will use its reasonable efforts to pay or cause to
be paid, prior to the Closing Date, all Taxes attributable to a Pre-Closing Tax
Period required to be paid by the Parent, the Sellers or any of their affiliates
to the Oklahoma Tax Commission, the nonpayment of which could result in any
Governmental Entity denying Purchaser or any of the Purchaser’s affiliates any
license or permit relating to any Southern Site in Oklahoma. The Parent, each of
the Sellers and each other affiliate of the Parent further agree to furnish or
cause to be furnished to the Purchaser, upon Purchaser’s reasonable request, as
promptly as practicable, proof of payment of any Tax that the Parent, the
Sellers or any of their affiliates has paid to the Oklahoma Tax Commission for
any Pre-Closing Tax Period. In the event any provision of this Section 4.11(g)
is inconsistent with any other provision of this Agreement, the provisions of
this 4.11(g) shall control.

 

Section 4.12. Tax Matters Relating To The Southern Entities.

 

(a) Representations and Warranties. Except as specified in Section 4.12(a) of
the Disclosure Schedule, the Parent hereby represents and warrants to the
Purchaser as of the date hereof and as of the Closing Date that, (i) each of the
Southern Entities has filed (or the Parent or any of its affiliates has timely
filed or caused to be filed on behalf of the Southern Entities) all material
federal, state and foreign Tax Returns required to be filed by it on or 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 material
respects, (iii) each of the Southern Entities has timely paid, withheld or
accrued all Taxes shown to be due and payable on such Tax Returns, (iv) none of
the Parent, any of its affiliates, the Stock Sellers or the Southern Entities
has received written notice of any threatened Tax audit, examination, refund
litigation or adjustment in controversy

 

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with respect to the business or operations of the Southern Entities, and no such
Tax audit, examination, refund litigation or adjustment in controversy is
pending, (v) all material Taxes which the Southern Entities have 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) neither any of the Southern Entities nor any member of an
affiliated, consolidated, combined or unitary group of which any of the Southern
Entities is or has been a member has 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) with respect to each Southern Entity, no claim has been
made by a Taxing Authority in a jurisdiction where such Southern Entity does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction,
(viii) none of the Southern Entities will be required to include in a taxable
period after the Closing Date taxable income attributable to income that
economically accrued in a taxable period ending on or before the Closing Date,
including as a result of (A) the installment method of accounting, the completed
contract method of accounting or the cash method of accounting or (B) any
prepaid amount received on or prior to the Closing, (ix) none of the Southern
Entities is a party to a Tax sharing or Tax allocation agreement or arrangement,
other than such agreements or arrangements between the Parent and the Southern
Entities that are in effect at the date of this Agreement and will be terminated
on the part of the Southern Entities at Closing, (x) none of the Southern
Entities 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 of any affiliated,
consolidated, combined or unitary group, as defined under applicable state,
local or foreign law (other than a group the common parent of which is the
Parent or any of its Subsidiaries); (xi) none of the Southern Entities has
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) none of the Southern Entities is
a party to any understanding or arrangement described in Section 6111(d) of the
Code, nor has any of the Southern Entities participated in a reportable
transaction as defined in Treasury Regulation Section 1.6011-4(b) and (c)(3).

 

(b) 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 the Southern Entities) and any of the Southern Entities
shall be terminated and shall have no further effect thereafter. All rights and
obligations of the Parent and the Stock Sellers, on the one hand, and the
Southern Entities, on the other hand, with respect to Taxes shall be provided in
this Section 4.12.

 

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(c) The Parent’s Tax Returns for Periods Through the Closing Date.

 

(i) The Parent 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 with respect to each of the Southern Entities 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 Parent or its designee shall prepare and timely file or shall cause to
be prepared and, if required to be signed by Purchaser, any of its affiliates or
any of the Southern Entities, shall deliver, within 15 calendar days prior to
the deadline for the filing of such Tax Returns, to the Purchaser for signing
and filing (A) all consolidated, combined or unitary Tax Returns for Taxes any
component of which may be based in whole, or in part, on net income or a taxable
base in the nature of net income of the Parent or any of its affiliates which
include any of the Southern Entities with respect to any Pre-Closing Tax Period,
and (B) all other Tax Returns for Taxes any component of which may be based in
whole, or in part, on net income or a taxable base in the nature of net income
of the Southern Entities with respect to a Pre-Closing Tax Period that ends on
the Closing Date, provided that the Purchaser shall have the right to review in
accordance with the principles of Sections 4.11(e) and 4.12(d) any such Tax
Returns which it or the Southern Entities are required to sign. The Parent shall
pay or shall cause to be paid any and all Taxes shown as due with respect to Tax
Returns described in the preceding sentence.

 

(iii) The Parent shall have the exclusive authority and obligation to prepare or
cause to be prepared all Tax Returns of the Southern Entities subject to Section
4.12(c)(i) and Section 4.12(c)(ii) that are due with respect to any Pre-Closing
Tax Period. Such authority shall include, but not be limited to, 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 Southern
Entities 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.

 

(iv) With respect to any taxable period of the Southern Entities that would
otherwise include but not end on the Closing Date, to the extent permissible,
but not required, pursuant to applicable Tax Law, the Parent and the Purchaser
or its affiliates shall cause the Southern Entities to (A) take all steps as are
or may be reasonably necessary, including without

 

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limitation 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 Southern Entities 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 Stock Sellers or an
affiliate, notwithstanding that such taxable period does not end on the Closing
Date.

 

(d) The Purchaser’s Tax Returns for Periods After the Closing Date. The
Purchaser shall prepare and file or cause the Southern Entities to prepare and
file all Tax Returns with respect to the Southern Entities for which the Parent
is not responsible pursuant to Section 4.12(c). Subject to Section 4.12(g)(i),
the Purchaser shall pay or cause to be paid any and all Taxes due with respect
to such Tax Returns that are attributable to a Post-Closing Tax Period. The
Purchaser shall provide to the Parent drafts of all Tax Returns described in the
second preceding sentence required to be prepared and filed with respect to any
Pre-Closing Tax Period and a statement certifying the amount of Tax shown on
such Tax Return that is allocable to the Parent pursuant to Section 4.12(e) or
Section 4.12(g)(i), together with appropriate supporting information and
schedules, at least 30 calendar days prior to the due date for the filing of
such Tax Returns (including extensions) or such shorter period as is necessary
to allow for the timely filing of any such Tax Return. At least 15 calendar days
prior to the due date for the filing of such Tax Returns (including extensions),
or such shorter period as is necessary to allow for the timely filing of such
Tax Return, the Parent shall notify the Purchaser of the existence of any
objection (specifying in reasonable detail the nature and basis of such
objection) the Parent may have to any items set forth on such draft Tax Returns
(a “Dispute Notice”). The Purchaser and the Parent agree to consult and resolve
in good faith any such objection. If Tax Returns are not prepared and provided
in accordance with this Section 4.12(d), the Parent shall not be liable for the
subject Taxes to the extent that the Parent has been materially prejudiced by
the Purchaser’s breach. The Purchaser shall not file any Tax Return subject to
this Section 4.12(d) without the prior written consent of the Parent, which
consent shall not be unreasonably withheld or delayed; provided, however, that
no such consent shall be required if the Parent shall not have timely delivered
a Dispute Notice or the objections contained in such Dispute Notice shall have
been finally resolved.

 

(e) Apportionment of Taxes. All Taxes and Tax liabilities with respect to the
income, property or operations of the Southern Entities that relate to a
Straddle Tax Period shall be apportioned to the Pre-Closing Tax Period as
follows: (i) in the case of Taxes that are either (A) based upon or related to
income, receipts, capital or net worth, or (B) 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, which shall be
governed by Section 4.11(d)(ii) and Section 4.12(h)), such Taxes apportioned to

 

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the Pre-Closing Tax Period shall be deemed equal to the amount which would be
payable if the Tax year ended with the Closing Date; and (ii) in the case of
Taxes imposed on a periodic basis other than those described in clause (i),
including but not limited to property taxes and similar ad valorem obligations,
such Taxes shall be deemed to be the amount of such Taxes for the entire
Straddle Tax 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. Any deferred items taken into
income by Treasury Regulation Sections 1.1502-13 and 1.1502-14 and any excess
loss accounts taken into income under Treasury Regulation Section 1.1502-19 as a
result of this transaction shall for these purposes be apportioned to a
Pre-Closing Tax Period. Section 4.12(h) shall control the allocation of the
Taxes thereunder. The Parent and its affiliates shall be liable for the payment
of all Taxes of the Southern Entities which are attributable to any Pre-Closing
Tax Period, whether shown on any original Tax Return or amended Tax Return for
the period referred to therein. The Purchaser shall be liable for the payment of
all Taxes which are attributable to any Post-Closing Tax Period. All
transactions not in the ordinary course of business occurring on the Closing
Date after the Purchaser’s purchase of the Southern Entity Shares (other than
the Section 338(h)(10) Elections) shall be reported on the Purchaser’s federal
Tax Return to the extent permitted by Treasury Regulation Section
1.1502-76(b)(1)(ii)(B) or as required by Treasury Regulation Section 1.338-1(d).

 

(f) Controversies. The Purchaser shall notify the Parent in writing within 30
calendar days of the receipt by the Purchaser or any affiliate of the Purchaser
(including the Southern Entities after the Closing Date) of written notice of
any inquiries, claims, assessments, audits or similar events with respect to
Taxes for which the Parent may be liable under Section 4.12(g)(i) (any such
inquiry, claim, assessment, audit or similar event, a “Tax Matter”). The Parent,
at its own expense, shall have the exclusive authority to represent the
interests of the Southern Entities with respect to any Tax Matter before the
Internal Revenue Service, 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 a Tax Matter, including
responding to inquiries, filing Tax Returns and settling audits or lawsuits;
provided, however, that the Parent shall not enter into any settlement of or
otherwise compromise any Tax Matter that affects or may affect the Tax liability
of the Purchaser or the Southern Entities 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 Parent shall
keep the Purchaser fully and timely informed with respect to the commencement,
status and nature of any Tax Matter. The Parent shall, in good faith, allow the
Purchaser or the Purchaser’s counsel to

 

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consult with it regarding the conduct of or positions taken in any such
proceeding. If the proceeding affects or may affect the Tax liability of the
Purchaser or the Southern Entities for any Post-Closing Tax Period including any
Straddle Tax Period, the Parent shall further allow the Purchaser and the
Purchaser’s counsel to participate in the proceeding. Unless otherwise provided
by the Parent in writing to the Purchaser, all notices required by this Section
4.12(f) shall be sent to: J. C. Penney Company, Inc., 6501 Legacy Drive, Plano,
Texas 75024, Attention: Vice President and Director of Taxes.

 

(g) Tax Indemnification.

 

(i) The Parent shall indemnify the Purchaser, CVS and their affiliates and,
after the Closing, each of the Southern Entities from and against (A) any Taxes
and Damages resulting from, arising out of, relating to or caused by any
liability or obligation of the Purchaser or any Southern Entity for Taxes of any
person other than the Purchaser or the Southern Entities (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 increase in foreign, federal, state or local Taxes attributable to the
deemed sale of assets resulting from the Section 338(h)(10) Elections or as a
consequence of Section 338 of the Code as applied by any state, local or foreign
jurisdiction, (C) any breach of any covenant in this Section 4.12, (D) any Taxes
imposed on any Southern Entity for any Pre-Closing Tax Period and (E) any breach
of representation contained in Section 2.02(q)(xii). The Parent’s obligation to
indemnify the Purchaser with respect to any Taxes resulting from a Tax Matter
shall be discharged to the extent that the Parent’s defense of such Tax Matter
has been materially prejudiced by the Purchaser’s failure to comply with Section
4.12(f) of this Agreement. The Parent shall discharge its obligation to
indemnify the Purchaser against such Pre-Closing Tax Period Taxes by paying to
the Purchaser an amount equal to the amount of such Taxes; provided, however,
that if the Purchaser provides the Parent with written notice of Pre-Closing Tax
Period Taxes at least 30 calendar days prior to the date on which the relevant
Taxes are required to be paid by the Purchaser or the applicable Southern
Entities, the Parent shall, if and to the extent that it is liable for such
Taxes hereunder, discharge its obligation to indemnify the Purchaser against
such Taxes by paying an amount equal to the amount of such Taxes to the relevant
Taxing Authority. The Parent shall provide the Purchaser 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 calendar days after the receipt
of written notice that any such Tax has been incurred.

 

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(ii) The Purchaser shall indemnify the Parent from and against (A) any Taxes and
Damages imposed on the Purchaser, the Southern Entities or any affiliate of the
Purchaser for any Post-Closing Tax Period, (B) any Taxes and Damages for any
Post-Closing Tax Period imposed on (x) the Parent attributable to the Southern
Entities or (y) the Southern Entities, (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 other than the Section 338(h)(10)
Election, and (D) any breach of any covenant in this Section 4.12. The Purchaser
shall discharge its obligation to indemnify the Parent against such Tax under
this Section 4.12(g)(ii) by paying to the Parent an amount equal to the amount
of such Tax; provided, however, that if the Parent provides the Purchaser with
written notice of a Tax under this Section 4.12(g)(ii) at least 30 calendar days
prior to the date on which the relevant Tax is required to be paid by the
Parent, the Purchaser shall, if and to the extent that it is liable for such
Taxes hereunder, discharge its obligation to indemnify the Parent 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 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 calendar days after the receipt of
written notice that any such Tax has been incurred.

 

(h) Transfer Taxes. The Parent and the Purchaser shall equally share liability
for all Transfer Taxes incurred as a result of the purchase of the Southern
Entity Shares as set forth in Section 4.11(d).

 

(i) Refunds; Carrybacks. The Purchaser may, at its option, cause the Southern
Entities 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 pay or cause to be paid to the
Parent any Tax refunds or credits, including those received as a result of the
carry back of a net operating or capital loss arising in a Post-Closing Tax
Period, attributable to any Pre-Closing Tax Period received or credited to the
Purchaser or the Southern Entities, net of any direct costs attributable to
receipt of such refund or credit, including Taxes payable with respect to such
refund, within 30 calendar days after the receipt of such refund or credit. At
the Parent’s request, the Purchaser shall cooperate with the Parent in obtaining
such refunds, including through the filing of amended Tax Returns or refund
claims as prepared by the Parent, at the Parent’s expense, provided that there
is no adverse impact on the Purchaser or the Southern Entities in any
Post-Closing Tax Period. All refunds or credits of Taxes attributable to any
Post-Closing Tax Period received by the Purchaser or the Southern Entities shall
be for the benefit of the Purchaser.

 

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(j) Section 338(h)(10) Elections. The Purchaser and the Parent shall join with
each other in making a timely, irrevocable and effective election provided by
Section 338(h)(10) of the Code, in accordance with Treasury Regulation Section
1.338(h)(10)-1(c) (the “Federal Section 338(h)(10) Election”), and, if
permissible, similar elections under applicable state and local Tax Laws with
respect to the Purchaser’s purchase of the Southern Entity Shares (collectively
with the Federal Section 338(h)(10) Election, the “Section 338(h)(10)
Elections”).

 

(k) Allocation of Aggregate Deemed Sales Price. No later than 60 calendar days
after the finalization of the valuation of the Independent Valuation Expert, the
Purchaser shall deliver to the Parent pro forma Forms 8883 and the supporting
documentation. The pro forma Forms 8883 shall set forth an allocation of the
aggregate deemed sales price, as defined in Treasury Regulations Section 1.338-4
(but without regard to either party’s transaction costs). The Parent shall have
the right to review such forms solely for the purpose of determining whether the
allocation has been made in accordance with the final valuation of the
Independent Valuation Expert delivered pursuant to Section 4.11(e). If, within
15 calendar days after the receipt of the pro forma forms, the Parent notifies
the Purchaser that the Parent objects to the pro forma forms on the basis that
they do not reflect the valuation of the Independent Valuation Expert, then the
Parent and the Purchaser shall attempt in good faith to resolve their
disagreement within the 15 calendar days following the Parent’s notification of
Purchaser of such disagreement and the pro forma forms shall be amended before
filing to reflect any such resolution. Within 15 calendar days after the later
of (i) the date on which the Purchaser and the Parent shall have resolved any
objections or (ii) the failure of the Parent to notify the Purchaser of an
objection within 15 calendar days each party shall deliver to the other party a
copy of its final Forms 8883.

 

Section 4.13. Employee Matters.

 

(a) Employees and Offers of Employment.

 

(i) Prior to the date hereof, the Parent has caused the Sellers and the Southern
Entities to have provided to the Purchaser a schedule that sets forth the names,
as of March 5, 2004, of all Southern Business Employees, organized by Southern
Site. Such schedule shall be updated as necessary to reflect new hires or other
personnel changes occurring between the date hereof and the Closing Date. In
addition, prior to the date hereof, the Parent has caused the Sellers and the
Southern Entities to have provided to the Purchaser a schedule of all Southern
Business Employees, organized by Southern Site, including the following
information for each Southern Business Employee (to the extent such information
is contained in the HR Data Records maintained by Hewitt

 

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Associates for the Sellers): home address, home telephone number, birth date,
social security number, job title or position pay rate and full-time/part-time
status. The foregoing information will be updated as necessary to reflect new
hires or other personnel changes occurring between the date hereof and the
Closing Date. In addition, Parent will cause the Sellers to provide to the
Purchaser, on or before the Closing Date, the following additional information
with respect to each Southern Business Employee to the extent such information
is contained in the HR Data Records maintained by Hewitt Associates for the
Sellers: birth date, job title or position effective date, race, gender, last
pay increase date, continuous service date, all paid time off eligibility and
balances, status under the Fair Labor Standards Act, benefit eligibility and
enrollment status (including defined contribution plan information), federal and
state tax information, credit union information, and all miscellaneous deduction
information.

 

(ii) On the Closing Date, Purchaser or one of its affiliates shall offer
employment to all Southern Business Employees (set forth on the schedule
described in the first sentence of Section 4.13(a)(i) as the same has been
updated from time to time prior to the Closing Date); provided, that the
Purchaser or its affiliates may terminate at any time after the Closing Date the
employment of any employee who accepts such offer. For purposes of this Section
4.13(a), the term “Southern Business Employee” shall include any Person who, on
the Closing Date, is on short-term disability leave, authorized leave of
absence, military service or lay-off with recall rights as of the Closing Date;
provided, that such inactive employees shall be offered employment by the
Purchaser or its affiliates as of the date they return to active employment but
only if such employee returns to active service within 26 weeks after the
Closing Date or such later time as their reemployment rights are protected by
applicable Laws. Any such offers of employment shall be at such salary or wage
and benefit levels that are comparable to the salary or wage and benefit levels
offered to similarly situated employees of the Purchaser and its affiliates;
provided, however, that during any post-Closing transition services period
during which Transferred Employees (as defined below) continue to participate in
any Benefit Plans, the Purchaser or its affiliates may provide that Transferred
Employees (as defined below) shall continue to be covered at the benefit levels
provided to such employees under such Benefit Plans immediately prior to the
Closing Date. The employees who accept and commence employment with the
Purchaser or its affiliates are hereinafter collectively referred to as the
“Transferred Employees”. The Parent will not take any action which would impede,
hinder, interfere or otherwise compete with the Purchaser’s or its affiliates’
effort to hire any Southern Business Employees. Neither the Purchaser nor its
affiliates shall

 

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assume responsibility for any Transferred Employee until such employee commences
employment with the Purchaser or its affiliates. In addition, if any Southern
Business Employee suffers a termination of employment without cause during the
12 month period beginning on the Closing Date, the Purchaser will, or will cause
one of its affiliates to, provide such employee with severance benefits, in an
amount at least equal to the benefits provided under any severance or separation
pay plan, program, agreement, arrangement or policy maintained by the Sellers or
any TDI Company or TDI Subsidiary and disclosed on Section 2.02(q) of the
Disclosure Schedule (calculated based on such Southern Business Employee’s
salary or wage and benefit level immediately preceding his or her termination of
employment).

 

(iii) With respect to whole and partial vacation days that have been earned but
unused by Transferred Employees as of the Closing Date (the “Unused Vacation”),
to the extent not paid at Closing, the Purchaser will, or will cause one of its
affiliates to, either (A) permit each Transferred Employee to use the Unused
Vacation after the Closing Date over the same period that the Transferred
Employee could have used the Unused Vacation under the vacation policy of the
TDI Companies or the TDI Subsidiaries, as applicable, in effect immediately
prior to the Closing Date or (B) pay the Unused Vacation to the Transferred
Employee. In addition, in the event any Transferred Employee terminates
employment with the Purchaser and its affiliates prior to either using the
Unused Vacation or receiving pay in lieu of the Unused Vacation, the Purchaser
will, or will cause one of its affiliates to, pay any remaining Unused Vacation
to the Transferred Employee upon termination of employment.

 

(b) Employee and Benefit Liabilities.

 

(i) Except for benefits accrued under funded or fully insured Company Plans, and
except as provided in Section 4.13(b)(ii), Section 4.13(b)(iii) and Section
4.13(b)(iv), the Purchaser or its affiliates shall assume and be solely
responsible for all obligations and liabilities of each Seller and each Seller’s
Subsidiary in respect of any current Southern Business Employee (and their
beneficiaries), including, without limitation incentives, retention and vacation
benefit liabilities, that arise or are incurred before (to the extent set forth
on the Balance Sheet), on or after the Closing Date, other than any obligations,
liabilities or responsibilities under any employment agreement with any such
Southern Business Employee. It is not intended that a Southern Business Employee
who rejects an offer of employment from Purchaser or one of its affiliates made
in accordance with Section 4.13(a)(ii) shall be entitled to any severance
benefits. However, if any such Southern Business Employee is entitled to any
severance benefits, the Parent shall be solely responsible for such

 

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benefits. The Parent will retain and be solely responsible for all obligations
and liabilities with respect to any former Southern Business Employee and any
Southern Business Employee who rejects an offer of employment from Purchaser.

 

(ii) Prior to Closing, the Parent shall assume sponsorship of the Eckerd
Corporation Pension Plan. Neither Purchaser nor any of its affiliates shall have
any obligation or liability under (A) the Eckerd Corporation Pension Plan or (B)
any other defined benefit plan maintained by the Parent or its affiliates.

 

(iii) The Parent will retain and be solely responsible for the payment of the
accrued benefit obligation of each Southern Business Employee under each
nonqualified employee benefit plan listed in Section 4.13(b)(iii) of the
Disclosure Schedule and 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.

 

(c) Purchaser Benefit Plans.

 

(i) Purchaser or one of its affiliates shall recognize all service of the
Transferred Employees with the Sellers or any of their affiliates, only for
purposes of eligibility to participate and vesting in those employee benefit
plans, within the meaning of Section 3(3) of ERISA, in which the Transferred
Employees are enrolled by Purchaser or one of its affiliates after the Closing
Date and in determining the amount of benefits under any applicable sick leave,
vacation, severance or other welfare plan. Purchaser will, or will cause one of
its affiliates to, cover as of the Closing each Transferred Employee, enrolled
in a Seller group health plan or a Southern Entities group health plan
immediately prior to the Closing Date, under a group health plan and waive any
preexisting condition limitations applicable to such Transferred Employees under
any group health plan made available to them, and Purchaser will, or will cause
one of its affiliates to, take all action necessary to ensure that such
Transferred Employees are given full credit for all co-payments and deductibles
incurred under any group health plan of a Seller or a Seller’s Subsidiary for
the plan year that includes the Closing Date.

 

(ii) With respect to each Transferred Employee who participates in the Eckerd
401(k) Savings Plan and who, pursuant to an elective transfer within the meaning
of Treasury Regulation Section 1.411(d)-4, Q&A 3(b), elects to transfer his or
her vested account balance

 

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in such Plan to a defined contribution plan of Purchaser or one of its
affiliates, Eckerd will cause the trustee of the Eckerd 401(k) Savings Plan to
transfer to the trustee of the defined contribution plan of Purchaser or its
affiliate the account balance of such Transferred Employee, and Purchaser will
cause the trustee of such defined contribution plan to accept such transfer;
provided that this sub-paragraph (ii) shall not apply to (A) any account balance
to which Code Sections 401(a)(11) or 417 apply or (B) any account balance that,
at the time of transfer, is invested in Parent’s company stock fund.

 

(d) No Third Party Beneficiaries. No provision of this Section 4.13 shall create
any third party beneficiary or other rights in any employee or former employee
(including any beneficiary or dependent thereof) of the Sellers or of any of its
Subsidiaries in respect of continued employment (or resumed employment) with
either the Purchaser or any of its affiliates and no provision of this Section
4.13 shall create any such rights in any such Persons in respect of any benefits
that may be provided, directly or indirectly, under any employee benefit plan or
any plan or arrangement which may be established by the Purchaser or any of its
affiliates. No provision of this Agreement shall constitute a limitation on
rights to amend, modify or terminate after the Closing Date any such plans or
arrangements of CVS or any of its affiliates.

 

Section 4.14. Guarantee Releases under Certain Contracts. The Purchaser will
make good faith efforts to procure the release by the applicable counterparty of
any guarantee of the Parent or its affiliates in place with respect to any third
party vendor or supplier contract by offering a replacement guarantee of CVS or
its affiliates, but Purchaser will have no further obligation to procure such
release.

 

Section 4.15. 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 under any of the Assigned Contracts, the
Split Contracts or the Southern Site Leases by the Sellers in the period prior
to the Closing Date, the Purchaser shall turn over such refunded amount or an
amount equal to the reduction, as the case may be, to the Parent.

 

Section 4.16. Framework Agreement. At or prior to the Closing, the Purchaser and
the Stock Purchaser shall enter into the Framework Agreement pursuant to which
the Purchaser and the Stock Purchaser shall determine which assets and
liabilities of the Sellers and the Business that relate to both the Northern
Business and the Southern Business will be transferred to or assumed by the
Purchaser and the Stock Purchaser, and the Parent shall not have any liability
for the Stock Purchaser’s or the Purchaser’s failure to comply with the
provisions of the Framework Agreement.

 

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Section 4.17. Parent PBM Agreement. Until the Closing, Parent shall not, and
shall cause its affiliates not to, terminate or amend or shorten the present
term of the TDI Managed Care Services, Inc. Sponsor Agreement dated January 31,
1997 between TDI Managed Care Services, Inc. and Parent Voluntary Employees’
Beneficiary Association (the “VEBA Agreement”) as amended by Addendum No. 1
effective as of January 1, 2002. In addition, after the Closing Date, the Parent
shall not, and shall cause its affiliates (at the time of such change of
control) not to, exercise any right to terminate the VEBA Agreement by virtue of
a change of control of the PBM Entity unless a third party or group (other than
Purchaser, its affiliates or investors in a public offering or public
distribution) acquire control of the PBM Entity.

 

Section 4.18. Title and Survey. Promptly after the execution of this Agreement,
the Parent shall (a) provide or make available to the Purchaser copies of the
existing as-built surveys (the “Existing Surveys”) of the Owned Real Property
and of such of the Leased Real Property as are used for distribution centers in
any Southern State (the “Designated Leased Property”), and which are, in any
such instance, in Parent’s or Sellers’ possession, (b) request an update or
recertification of the Existing Surveys in favor of Purchaser and in accordance
with Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys, as
adopted by the American Land Title Association and the American Congress on
Surveying and Mapping or the local equivalent (the “New Surveys”), and (c) cause
Parent’s or Sellers’ title insurance company to provide to the Purchaser a
commitment for Owner’s Title Policies or Leasehold Title Policies, as applicable
(collectively, the “Title Policies”), covering each parcel of Owned Real
Property or Designated Leased Property (collectively, the “Commitments”),
together with the documents evidencing all exceptions and restrictions shown on
the Commitments (the “Title Documents”). The updates or recertifications of the
Existing Surveys and the cost of the base premiums for the Title Policies shall
be at the Parent’s or Sellers’ sole cost and expense. The cost of any
modifications and endorsements to the Title Policies and/or the cost of any
mortgagee policies of title insurance that may be required by any lender of the
Purchaser, including any modifications and endorsements to such mortgagee
policies of title insurance, shall be at the Purchaser’s sole cost and expense.
Within twenty (20) calendar days after the date Purchaser receives the last of
the Title Documents and New Survey for each parcel of Owned Real Property and
Designated Leased Property, Purchaser may deliver to Seller a statement in
writing of any objections Purchaser may have to Sellers’ fee title to a parcel
of Owned Real Property or leasehold title to Designated Leased Property, as the
case may be, other than Permitted Liens and the standard printed exclusions from
coverage contained in the Title Policies (collectively, “Title Objections”). Any
Title Objections shall be deemed waived if Parent or the Sellers are not
notified of such Title Objections within twenty (20) calendar days after
Purchaser receives the last of the Title Documents and New Survey for the
applicable parcel of

 

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Owned Real Property or Designated Leased Property or within ten (10) calendar
days after Seller receives any subsequent amendment or endorsement to the Title
Documents or New Survey for the applicable parcel of Owned Real Property or
Designated Leased Property. Sellers shall not be required to bring any action or
proceeding or otherwise incur any cost or expense to cure any Title Objections
raised by Purchaser in accordance with the provisions of this Agreement, except
that Sellers shall be required to (i) satisfy any mortgages placed upon any
parcel of Owned Real Property as a lien to secure indebtedness incurred by
Parent or Sellers, (ii) satisfy any mortgages placed upon any parcel of
Designated Leased Property as a lien to secure indebtedness incurred by Parent
or Sellers, (iii) cause the release of or bond over any mechanic’s liens placed
upon any parcel of Owned Real Property or Designated Leased Property by a third
party in connection with work performed or alleged to have been performed on
such parcel of Owned Real Property or Designated Leased Property on behalf of
Parent or Sellers (unless placed upon the Owned Real Property or Designated
Leased Property on behalf of Purchaser), and (iv) cause the release of any
judgment or tax lien.

 

Section 4.19. Environmental Inspections. (a) Prior to the Closing Date, the
Purchaser shall not conduct any environmental inspections, investigations or
testing on the Real Property without the Sellers’ prior written consent (which
shall not be unreasonably withheld but which shall be subject to the receipt by
the Sellers of any required landlord consents, if required pursuant to the
applicable Southern Site Leases). Any inspections, investigations or testing
shall be conducted at the sole expense of the Purchaser and in accordance with
all applicable laws. The Sellers shall have the right to have a representative
present during any inspections of the Real Property. The Purchaser may request
any and all publicly available information about the Real Property from
Governmental Entities but will not disclose prior to the Closing Date to any
Governmental Entity the results of any pre-Closing inspection, sampling or
testing conducted at any of the Real Property, whether performed by a Seller,
the Purchaser, a consultant or agent thereof or otherwise, without the Sellers’
prior written consent (not to be unreasonably withheld), except to the extent
required by Law.

 

(b) Purchaser will, or will cause its consultants or agents to, promptly pay
when due the costs of all 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 inspection or examination.

 

(c) Purchaser shall keep all of the Real Property free and clear of all Liens or
Encumbrances caused by Purchaser or any of its consultants or any agents prior
to the Closing Date in connection with such environmental inspection or
examination and hereby agrees to indemnify, defend and hold harmless the Sellers
and/or the Parent Indemnitees (as defined in Section 7.02) from and against any
Damages suffered by Sellers and/or the Parent Indemnitees arising out

 

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of any entry upon the Real Property and any inspections or examinations
conducted by Purchaser, its consultants or agents, on the Real Property prior to
Closing. The indemnity provisions of this Section 4.19(c) shall survive Closing
and any termination of this Agreement and shall not be subject to any limitation
of liability set forth in this Agreement.

 

Section 4.20. Prorations. At the Closing, with respect to the Southern Site
Leases (and, as applicable, with respect to the Owned Real Property), all rent
(including without limitation percentage rent), common area charges, utility
charges, real estate taxes, and other obligations shall be prorated as of the
Closing Date (collectively the “Prorated Charges”). Whenever possible, such
prorations shall be based on actual, current payments by the Sellers and to the
extent such actual amounts are not available, such prorations shall be estimated
as of the Closing Date based on actual amounts for the most recent comparable
billing period. When the actual amounts become known, such prorations shall be
recalculated by the Purchaser and the Parent and the Purchaser or the Parent
shall make any additional payment or refund, as the case may be, so that the
correct prorated amount is paid by each of the Purchaser and the Parent. The
foregoing shall include an estimate of a pro rata amount of percentage rent
payable under a Southern Site Lease based upon the prior year’s sales with an
appropriate adjustment to be made not later than the date that the Purchaser is
obligated to pay such percentage rent, based on actual sales. The Seller’s
actual prorated share of rent based on actual sales shall be determined by
multiplying (a) a fraction, the numerator of which is the amount of the
applicable Seller’s gross annual sales at such Southern Site from the first day
of such lease year to (but not including) the Closing Date, and the denominator
of which is the sum of the Purchaser’s and the applicable Seller’s gross annual
sales at such Southern Site for the entire lease year, times (b) the amount of
percentage rent actually due under the Southern Site Lease for such lease year.
The applicable Seller, upon the request of the Purchaser, shall promptly provide
the Purchaser such information as the Purchaser shall be required to submit to
landlords under the Southern Site Lease in connection with the payment of
percentage rent with respect to the Southern Site.

 

Section 4.21. Medicare And Medicaid Provider Numbers. The Purchaser shall
promptly make (and thereafter diligently pursue) all filings, notifications and
applications required for participating as a provider in Medicare and Medicaid
reimbursement programs with respect to the Southern Business. If the Purchaser
has not obtained the required Medicaid and/or Medicare provider numbers
(“Provider Numbers”) by Closing, then the use of such numbers by the Purchaser,
to the extent permitted by applicable Law, shall be as provided in the
Management Agreement.

 

Section 4.22. Non-solicitation. The Parent agrees that, until the second
anniversary of the Closing Date, it shall not, and shall cause its affiliates
not to,

 

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without the prior written consent of the Purchaser, directly or indirectly
through another Person, (a) solicit to hire or hire, or (b) encourage, entice or
induce to terminate an employment relationship of or with (i) any employee of
the Southern Business at the district manager level or above or (ii) any person
who was at the district manager level or above in the Southern Business within
the six months preceding such solicitation or hiring. The foregoing restrictions
are not intended to preclude general solicitations in newspapers or similar mass
media not targeted toward employees of the Southern Business.

 

Section 4.23. Monthly Financial Reports. As promptly as practicable and in any
event no later than thirty (30) calendar days after the end of each fiscal month
ending after the date hereof and before the Closing Date, the Parent and the
Sellers will deliver to the Purchaser copies of monthly profit and loss
statements with respect to each individual Southern Store, the PBM Business, the
Mail Order Business and the Specialty Pharmacy Business and a consolidated
balance sheet and statement of cash flows for the Business that are prepared by
the Sellers and delivered to its executive officers in the ordinary course of
business consistent with past practices.

 

Section 4.24. Texas Certifications. Parent and Sellers will use their reasonable
best efforts to require all pharmacy technicians (“Pharmacy Technicians”)
employed in Southern Sites in the State of Texas to register for and qualify the
National Pharmacy Technician Certification Exam on or before June 1, 2004. In
addition, all Pharmacy Technicians will be required by the Parent to register
with the State Board of Pharmacy in Texas.

 

Section 4.25. Northern Sites. Notwithstanding anything to the contrary in
Section 4.01, any Real Property that is owned or leased by any of the Southern
Entities and that primarily relates to the Northern Business shall be
transferred prior to Closing to one of the entities that the Stock Purchaser is
acquiring pursuant to the Stock Purchase Agreement.

 

Section 4.26. Insurance Claims Administration. After the Closing Date, the
Purchaser shall be responsible for claims administration under general liability
policies for occurrences arising in or from the Southern Business prior to
Closing, to the extent such policies continue after Closing to provide coverage
for such pre-Closing occurrences. The Parent and the Purchaser shall negotiate
the Insurance Assignment Agreement in good faith and shall use their reasonable
efforts to agree on the form, substance and obligation amount thereof prior to
the Closing. If the Sellers receive any insurance proceeds with respect to an
Assumed Liability, the Sellers shall turn over such proceeds (or the allocable
portion of such proceeds) to the Purchaser.

 

Section 4.27. Controlled Substances Inventory. To the extent required by
applicable Law or DEA regulations in context of the transactions contemplated by

 

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this Agreement, the Sellers will undertake and deliver to the Purchaser at each
Southern Site, an inventory of “controlled substances” located at such Southern
Site, as close as practicable prior to the Closing.

 

Section 4.28. JCP Telemarketing Agreement. On or prior to the Closing Date,
Thrift Drug, Inc. will assign its rights, and delegate its obligations under,
the Inbound/Outbound Services Agreement dated effective January 1, 1992 between
J.C. Penney Telemarketing, Inc. and Thrift Drug, Inc. to the PBM Entity, and the
termination notice period therein shall be amended to be 90 days. All other
terms of that agreement shall remain the same as in the copy of the contract
provided to the Purchaser prior to the date of this Agreement.

 

Section 4.29. Sharing of Net Real Estate Costs in CN States. If the CN Trigger
has occurred prior to Closing, Purchaser shall, after Closing, be responsible
for terminating and/or disposing of all the CN Real Estate Interests existing
after the Closing. The net aggregate cash cost (after giving effect to lease
termination/breakage costs; legal, brokerage and other transaction fees and
expenses; any Tax imposed with respect to the termination or disposition of any
CN Real Estate Interest; proceeds from the sale of fee interests; costs
reimbursable to developers etc.) (A) incurred or paid by Parent or the Sellers
(in the case of any such transaction, with the written consent of Purchaser) and
(B) incurred or paid by the Purchaser after the Closing (the sum of (A) and (B),
the “Aggregate CN Net Real Estate Liability”)) of such terminations and
dispositions (disregarding the effect of Section 1.13) will be borne 50% by each
of Parent and Purchaser. Purchaser will keep Parent reasonably informed of the
status and terms of such terminations and dispositions. Each party will seek in
good faith to mitigate the Aggregate CN Net Real Estate Liability. Section 1.13
shall not apply to CN Real Estate Interests.

 

Section 4.30. EDC Licensing, Inc. Except as otherwise provided in the Framework
Agreement or the Eckerd Transition Services Agreement, the Parent shall cause
EDC Licensing, Inc., a Delaware corporation, to transfer the Intellectual
Property Rights it holds that are associated solely with the Southern Business
to a Southern Entity.

 

ARTICLE 5

CONDITIONS PRECEDENT

 

Section 5.01. 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.

 

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(b) HSR Act; Governmental Approvals. The required waiting period under the HSR
Act applicable to the purchase and sale of the Purchased Assets and the Southern
Entity Shares shall have expired or been earlier terminated, and all notices,
reports and other filings required to be made prior to the Closing by the Parent
or the Sellers or by CVS or the Purchaser with, and all material consents,
registrations, approvals, permits and authorizations required to be obtained
prior to the Closing from, any Governmental Entity in connection with the
execution, delivery and performance 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) Share Purchase. Subject to Section 8.09, all conditions precedent to the
closing of the purchase of the TDI Shares by the Stock Purchaser under the Stock
Purchase Agreement (other than the Closing under this Agreement) shall have been
satisfied.

 

Section 5.02. Conditions to Obligations of the Parent and the Sellers. The
obligations of the Parent and the Sellers to consummate the transactions
contemplated hereby are subject to the satisfaction or written waiver by the
Parent and the Sellers on or prior to the Closing Date of each of the following
conditions:

 

(a) Representations, Warranties and Covenants. The representations and
warranties of CVS and the Purchaser contained in this Agreement shall be true
and correct, 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, except for inaccuracies therein, that individually or in the
aggregate, have not had and would not reasonably be expected to have a Purchaser
Effect. CVS and the Purchaser shall have performed and complied in all material
respects with all covenants and agreements required to be performed or complied
with by each of them 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 1.15(a).

 

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Section 5.03. 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 by the Purchaser on or prior to the Closing Date
of each of the following conditions:

 

(a) Representations, Warranties and Covenants. The representations and
warranties of the Parent and the Sellers contained in this Agreement shall be
true and correct, 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, except for inaccuracies therein, that individually or in the
aggregate, have not had and would not reasonably be expected to have a Material
Adverse Effect. The Parent and the Sellers 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) Material Adverse Effect. There has not been any change, event or occurrence
which has had or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.

 

(c) Section 338(h)(10) Election. Parent shall execute an effective, irrevocable
election under Section 338(h)(10) of the Code with respect to each of the
Southern Entities in form and substance satisfactory to the Purchaser, and
Parent shall deliver such elections, at Closing, to Davis Polk & Wardwell. Such
elections shall be held by Davis Polk & Wardwell in escrow, and shall not be
delivered to the Purchaser until such time as the forms described in Section
4.12(k) have been finalized.

 

(d) Closing Deliveries. The Parent and the Sellers shall have made the
deliveries required to be made by them under Section 1.15(b).

 

ARTICLE 6

TERMINATION, AMENDMENT AND WAIVER

 

Section 6.01. 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 CVS, if the Closing shall not have occurred on or before
August 31, 2004 (the “End Date”), otherwise than as a result of any material
breach of any provision of this Agreement by the party, or such party’s
affiliates who are parties to this Agreement, seeking to terminate this
Agreement;

 

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(c) by the Parent or CVS, 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, (i) if CVS or the Purchaser shall have breached any of their
respective representations or warranties contained in this Agreement if such
breaches, individually or in the aggregate, have had and would reasonably be
expected to have a Purchaser Effect, or (ii) if CVS or the Purchaser shall have
materially breached any of their respective covenants contained in this
Agreement, in each case which breach cannot be or has not been cured within 30
calendar days after the giving of written notice to CVS and the Purchaser; or

 

(e) by CVS or the Purchaser, (i) if the Parent or the Sellers shall have
breached any of their respective representations or warranties contained in this
Agreement if such breaches, individually or in the aggregate, have had and would
reasonably be expected to have a Material Adverse Effect, or (ii) if the Parent
or the Sellers shall have materially breached any of their respective covenants
contained in this Agreement, in each case which breach cannot be or has not been
cured within 30 calendar days after the giving of written notice to the Parent
and the Sellers.

 

The party desiring to terminate this Agreement pursuant to this Section 6.01
shall give notice of such termination to the other party.

 

Section 6.02. Effect of Termination. In the event of the termination of this
Agreement and the abandonment of the transactions contemplated hereby pursuant
to Section 6.01, 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) Section 2.02(y), Section 3.05,
the second and third sentences of Section 4.04(a), Section 4.19(c), this Section
6.02, Section 6.03, Section 6.04, Article 8 (other than Section 8.09) and the
Confidentiality Agreement 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 or fraud.

 

Section 6.03. Amendment. This Agreement (including the Exhibits and the
Disclosure Schedule hereto) 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 6.04, provided
however, that (so long as the Stock Purchase Agreement has not been terminated)

 

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no such modification or amendment shall be effective to the extent that it has a
materially detrimental effect on the Stock Purchaser, unless consented to in
writing by the Stock Purchaser.

 

Section 6.04. 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 it has a materially detrimental effect on the Stock Purchaser unless
consented to in writing by the Stock 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 or delay of any party to this Agreement to assert any
of its rights, remedies, powers or privileges under this Agreement or otherwise
shall not constitute a waiver of such rights nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. No waiver of any provision of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar) or shall constitute a continuing
waiver unless otherwise expressly provided.

 

ARTICLE 7

INDEMNIFICATION

 

Section 7.01. Indemnification By The Parent. Subject to the other provisions of
this Article 7, from and after the Closing the Parent shall indemnify, defend
and hold the Purchaser, CVS and their affiliates and, after the Closing, each of
the Southern Entities (the “Purchaser Indemnitees”) harmless from and against
any and all Damages incurred or suffered by any Purchaser Indemnitee arising out
of or relating to:

 

(a) any breach of any representation or warranty of the Parent contained in
Article 2 (other than Parent Foundational Reps) of this Agreement, provided that
(i) each such representation and warranty shall be determined or read (except in
the case of Section 2.02(e)(iii)) disregarding any Material Adverse Effect,
materiality or similar qualification or exception contained therein and (ii) any
item or matter disclosed expressly or by cross-reference in Section 2.02(d) of
the Disclosure Schedule or Section 2.02(i) of the Disclosure Schedule (each, a
“Deemed Undisclosed Item”) shall be deemed not disclosed (i.e., for the
avoidance of doubt, only the $550,000 amount per De Minimis Matter set forth in
Section 7.04(a)(ii) will apply with respect to each such Deemed Undisclosed

 

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Item; but if the Damages from any such item exceed $550,000, then none of such
Damages from such item will be excluded under Section 7.04(a));

 

(b) any breach of any representation or warranty of the Parent contained in
Article 2 (other than Parent Foundational Reps) of this Agreement as if such
representation or warranty were made on and as of the Closing Date, provided
that (i) each such representation and warranty shall be determined or read
(except in the case of Section 2.02(e)(iii)) disregarding any Material Adverse
Effect, materiality or similar qualification or exception contained therein and
(ii) any Deemed Undisclosed Item shall be deemed not disclosed (i.e., for the
avoidance of doubt, only the $550,000 amount per De Minimis Matter set forth in
Section 7.04(a)(ii) will apply with respect to each such Deemed Undisclosed
Item; but if the Damages from any such item exceed $550,000, then none of such
Damages from such item will be excluded under Section 7.04(a));

 

(c) any breach of any Parent Foundational Reps as if such representation or
warranty were made as of the date of this Agreement and on and as of the Closing
Date;

 

(d) any breach of any covenant of the Parent contained in this Agreement;

 

(e) any breach of any covenant of the Sellers contained in this Agreement
provided that the breach occurred prior to the Closing Date;

 

(f) any Excluded Liabilities (except to the extent of those Excluded Liabilities
that arise from the Northern Business);

 

(g) the Purchaser’s obligation to indemnify the Stock Purchaser pursuant to the
Framework Agreement (i) with respect to Excluded Liabilities to the extent such
Excluded Liabilities relate to the Southern Business or (ii) with respect to a
matter for which Purchaser would be entitled to indemnification from Parent
under Section 7.01(a) – (f) if the Purchaser itself suffered the applicable
Damages; or

 

(h) any Governmental Entity’s denial or revocation of any license or permit or
delay in granting any license or permit to the Purchaser or any of Purchaser’s
affiliates relating to any Southern Site in Oklahoma due solely to the failure
of the Parent, the Seller or any affiliate of Parent to timely pay any Tax
attributable to a Pre-Closing Tax Period.

 

Section 7.02. Indemnification by CVS. Subject to the other provisions of this
Article 7, from and after the Closing, CVS shall indemnify, defend and hold the
Parent and its affiliates (other than TDI Companies or TDI Subsidiaries sold to
a purchaser of the Northern Business) (the “Parent Indemnitees”) harmless

 

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from and against any Damages incurred or suffered by any Parent Indemnitee
arising out of or relating to:

 

(a) any breach of any representation or warranty of CVS or the Purchaser
contained in Article 3 (other than Purchaser Foundational Reps) of this
Agreement (determined or read disregarding any Purchaser Effect, materiality or
similar qualification or exception contained therein);

 

(b) any breach of any representation or warranty of CVS or the Purchaser
contained in Article 3 (other than Purchaser Foundational Reps) of this
Agreement as if such representation or warranty were made on and as of the
Closing Date (determined or read disregarding any Purchaser Effect, materiality
or similar qualification or exception contained therein);

 

(c) any breach of Purchaser Foundational Reps as if such representation or
warranties were made as of the date of this Agreement and on and as of the
Closing Date;

 

(d) any breach of any covenant of CVS or the Purchaser contained in this
Agreement;

 

(e) any Assumed Liabilities (subject to Parent’s indemnity obligations
hereunder);

 

(f) the Purchaser’s conduct of the Southern Business from and after the Closing;
and

 

(g) Liabilities under Southern Site Leases or Assigned Contracts under which the
Parent or any its affiliates is an obligor or guarantor and any guarantee or
similar agreements or arrangements by Parent relating to any Purchased Assets
other than a guarantee with respect to an Excluded Liability.

 

Section 7.03. Notice And Resolution of Claims.

 

(a) Notice. Each Person entitled to indemnification pursuant to Section 7.01 or
Section 7.02 (an “Indemnitee”) shall give written notice to the Parent or CVS,
respectively, promptly after obtaining knowledge of any claim that it may have
under Section 7.01 or Section 7.02, 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 7.01 or Section 7.02, as applicable, except to the
extent that the Indemnifying Party is materially prejudiced by such failure.

 

(b) Defense of Third Party Claims. If a claim for indemnification pursuant to
Section 7.01 or Section 7.02 shall arise from any Action, made or

 

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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 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 7 or otherwise except if (i) the Third Party Claim relates to or arises
in connection with any criminal proceeding, action, indictment, allegation or
investigation, (ii) the Indemnitee reasonably believes an adverse determination
with respect to the Third Party Claim would be materially detrimental to the
Indemnitee’s reputation or future business prospects, (iii) if the Indemnitee
reasonably believes an adverse determination would be materially detrimental to
the Indemnitee’s healthcare provider status (including its Medicare and Medicaid
provider status), (iv) the Third Party Claim seeks an injunction or equitable
relief against the Indemnitee, (v) outside counsel advises the Indemnitee that
there are actual and potential conflicting interests between the Indemnifying
Party and the Indemnitee or (vi) the Indemnifying Party has failed or is failing
to prosecute or defend vigorously the Third Party Claim, in which case the
reasonable expenses of counsel to the Indemnitee shall be reimbursed by the
Indemnifying Party). Notwithstanding the foregoing provisions of this Section
7.03(b), (i) no Indemnifying Party shall be entitled to settle any Third Party
Claim for which indemnification is sought under Section 7.01 or Section 7.02
without the Indemnitee’s prior written consent, which shall not be unreasonably
withheld, conditioned or delayed, unless it has assumed the defense of such
Third Party Claim and as part of such settlement the Indemnitee is
unconditionally released from all liability with respect to such Third Party
Claim, the Third Party Claim is for money damages only and such settlement does
not include a statement as to, or an admission of fault, culpability or a
failure to act by or on behalf of any Indemnitee and (ii) no Indemnitee shall be
entitled to settle any Third Party Claim for which indemnification is sought
under Section 7.01 or Section 7.02 without the Indemnifying Party’s prior
written consent, which shall not be unreasonably withheld, conditioned or
delayed, unless the Third Party Claim is for money damages only and such
settlement does not include a statement as to, or an admission of fault,
culpability or a failure to act by or on behalf of the Indemnifying Party and as
part of such settlement the Indemnifying Party is released from all liability
(for indemnification pursuant to this Article 7 and otherwise) with respect to
such Third Party Claim. If the Indemnifying Party does not notify the Indemnitee
within 20 business days after receipt of the Indemnitee’s notice of a Third
Party Claim of indemnity hereunder that it elects to assume the control of the
defense of any Third Party Claim, the Indemnitee shall have the right to contest
the Third Party Claim but shall not thereby waive any right to indemnity
therefor pursuant to this Agreement and the costs of such actions by the
Indemnitee shall be paid by the Indemnifying Party.

 

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Section 7.04. Limits on Indemnification.

 

(a) Exclusion of Certain De Minimis Matters. None of the Parent or CVS shall
have any obligation or liability to any Indemnitee pursuant to Section 7.01(a)
or (b) or Section 7.02(a) or (b), respectively, with respect to any single event
or condition, or series of related events, conditions or items arising out of
substantially the same facts, from which the Damages incurred or suffered by the
Indemnitee shall not have exceeded (i) $400,000 in the case of claims for which
no disclosure has been made with respect to Section 2.02(d) or Section 2.02(i),
(ii) $550,000 in the case of any Deemed Undisclosed Item or (iii) otherwise
$250,000 with respect to Section 7.01(a) or (b) or Section 7.02(a) or (b),
respectively (any such event or condition or series of related events,
conditions or items being hereinafter referred to as a “De Minimis Matter”).

 

(b) Deductible. (i) The Parent shall not have any obligation or liability to any
Purchaser Indemnitee under Section 7.01(a) or (b) unless and until the aggregate
amount of Damages incurred or suffered by the Purchaser Indemnitees arising out
of the matters referred to in Section 7.01(a) or (b), exclusive of any and all
Damages arising out of De Minimis Matters, shall have exceeded $36,000,000, in
which case the Parent shall be obligated and liable under Section 7.01(a) or (b)
only with respect to such excess, and (ii) CVS shall not have any obligation or
liability to any Parent Indemnitee under Section 7.02(a) or (b) unless and until
the aggregate amount of Damages suffered by the Parent Indemnitees arising out
of the matters referred to in Section 7.02(a) or (b), exclusive of any and all
Damages arising out of De Minimis Matters, shall have exceeded $36,000,000, in
which case CVS shall be obligated and liable under Section 7.02(a) or (b) only
with respect to such excess.

 

(c) Limit of Liability. The aggregate liability of the Parent and the Sellers,
on the one hand, and CVS, on the other hand, under Section 7.01(a) or (b) or
Section 7.02(a) or (b), respectively, shall not exceed $250,000,000.

 

(d) Survival. The representations and warranties contained in Articles 2 and 3
of this Agreement or deemed to be made pursuant to Section 7.01(b) or Section
7.02(b) shall survive the Closing for eighteen (18) months following the Closing
Date, except that the Foundational Reps shall survive indefinitely and the
representations and warranties contained in Section 2.02(q), Section 4.11(b) and
Section 4.12(a) shall survive until the expiration of the statute of limitations
applicable to matters covered thereby. Neither the Parent nor CVS shall have any
obligation or liability pursuant to Section 7.01(a) or (b) or Section 7.02(a) or
(b), 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 7.03(a) prior to the termination of the survival period applicable to
such representation or warranty.

 

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(e) Other Matters. Neither the Parent nor CVS shall have any obligation or
liability under Section 7.01 or Section 7.02, as applicable, with respect to any
Damages that are (i) caused by the actions of any Indemnitee, (ii) exacerbated
(in the case of any Damages relating to Environmental Liabilities, knowingly
exacerbated) by any Indemnitee to the extent of the exacerbation or (iii)
recovered by any Indemnitee from any third party (including insurers). 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 7.01 or Section 7.02, as applicable, by recovery from any other third
party (including any insurer), 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. After the Closing, except for any non-monetary, equitable
relief to which any Indemnitee may be entitled and except for claims based on
fraud, the rights and remedies set forth in this Article 7 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
7) 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 7.05. Indemnity Payments. All indemnification payments made pursuant to
this Article 7 and Sections 4.11 and 4.12 (other than interest payments) shall
be treated by the parties hereto on all Tax Returns as an adjustment to the
Purchase Price.

 

Section 7.06. Coordination With Tax Covenant. In the event any provision of this
Article 7 is inconsistent with any provision of Section 4.11 or Section 4.12,
the provisions of Section 4.11 or Section 4.12 shall control.

 

Section 7.07. Knowledge. No right of indemnification hereunder shall be limited
in any respect by any investigation by any Person, whether pre-claim or
post-claim, or the knowledge of any Person of any breach hereunder, or giving of
a notice of breach hereunder to the other party pre-Closing or post-Closing or
the decision by any Person to complete the Closing with any such knowledge.

 

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ARTICLE 8

MISCELLANEOUS

 

Section 8.01. Reliance. The representations and warranties of the Parent
contained in this Agreement constitute the sole and exclusive representations
and warranties of the Parent 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 a claim against the Parent. THE PURCHASER
ACKNOWLEDGES THAT THE PARENT DISCLAIMS ALL WARRANTIES OTHER THAN THOSE EXPRESSLY
CONTAINED IN THIS AGREEMENT AS TO THE TDI COMPANIES AND THE TDI SUBSIDIARIES AND
THEIR RESPECTIVE BUSINESSES, ASSETS, 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 8.02. Fees and Expenses. All recording or filing fees or similar costs,
including without limitation 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 2.01(d) and Section 3.04, imposed
or levied by reason of, in connection with or attributable to this Agreement and
the transactions contemplated hereby (but for the avoidance of doubt, not for
transfer taxes) shall be borne by the Purchaser. The Purchaser shall reimburse
the Parent for all fees and expenses associated with any audit of any financial
statements required to be delivered to Purchaser pursuant to Section 1.06 of
this Agreement and the inventory count referred to the first sentence of Section
1.10 of this Agreement. 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 8.03. Certain Definitions. (a) For purposes of this Agreement the
following terms have the meanings set forth below:

 

(i) “Action” means any action, suit, claim, administrative or other proceeding,
charge, grievance, dispute, assertion, arbitration or investigation by any
Person.

 

(ii) 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.

 

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(iii) “Agreed Sharing Proportion” has the meaning set forth in the Framework
Agreement.

 

(iv) “Ancillary Agreements” means the Transition Services Agreements, the
Assignment and Assumption Agreement, the Lease Assignment Agreements and the
Management Agreement.

 

(v) “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.

 

(vi) “Approvals” means any of approvals, consents, authorizations, declarations,
registrations or notices of any Person.

 

(vii) “Balance Sheet” means the unaudited carve-out statement of assets acquired
and liabilities assumed attached hereto as Exhibit I relating to the Southern
Business as of the Balance Sheet Date prepared in accordance with GAAP and as
modified by the Balance Sheet Principles.

 

(viii) “Balance Sheet Date” means January 31, 2004.

 

(ix) “Balance Sheet Principles” mean the principles identified in the Framework
Agreement or if no specific principle thereunder applies, then according to the
following general principles consistently applied: with respect to each balance
sheet item (including reserves) on the Consolidated Balance Sheet, any items
clearly identifiable as primarily relating to the Northern Business will be
allocated to the balance sheet as of January 31, 2004 for the Northern Business
required to be attached to the Stock Purchase Agreement and any items clearly
identifiable as primarily relating to the Southern Business will be allocated to
the Balance Sheet. Any items that cannot be so identified or that relate to the
Business generally will be split between the balance sheets in the Agreed
Sharing Proportion. Assets and liabilities relating to the CN States will be
shown as Net Assets Held for Sale on the Balance Sheet.

 

(x) “Baseline Number” means $784,000,000.

 

(xi) “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.

 

(xii) “Closing Working Capital” means Working Capital as of and including the
Closing Date, as determined in accordance with Section 1.11.

 

(xiii) “CN States” means Colorado and New Mexico.

 

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(xiv) “CN Real Estate List” means a list of all open drugstores (whether owned
or leased), commitments made in connection with the acquisition of new
drugstores (whether owned or leased) and other sites approved by Eckerd’s real
estate committee that are in the CN States and are listed on Section
8.03(a)(xiv) of the Disclosure Schedule.

 

(xv) “CN Trigger” means the Parent having announced the closure of all stores in
the CN States and having caused the Sellers to (a) close all open stores in the
CN States and (b) remove all inventory, equipment, fixtures and other assets
from the stores in the CN States.

 

(xvi) “CN Real Estate Interests” means real property leases, lease commitments,
fee interests and commitments to acquire fee interests listed on the CN Real
Estate List.

 

(xvii) “Consolidated Balance Sheet” means the consolidated balance sheet of the
Business as of the Balance Sheet Date.

 

(xviii) “Damages” means all losses, liabilities, costs, damages (other than
indirect damages or consequential damages that are remote or not reasonably
foreseeable) and expenses (including the cost of investigation and defense and
reasonable attorneys’ fees), whether involving a Third Party Claim or claim
solely between the parties hereto.

 

(xix) “DEA” means Drug Enforcement Administration.

 

(xx) “Eckerd Transition Services Agreement” means the Transition Services
Agreement among Eckerd, Thrift, Genovese and the Purchaser to be entered into in
connection with the consummation of the transactions contemplated by this
Agreement.

 

(xxi) “Environment” means soil, surface waters, ground waters, land, stream
sediments, surface (whether indoor or outdoor) or subsurface strata, ambient air
(whether indoor or outdoor) and any environmental medium.

 

(xxii) “Environmental Law” means any Law concerning the protection of the
Environment, human health and safety or hazardous or toxic materials, substances
or wastes.

 

(xxiii) “Environmental Liabilities” means any and all liabilities, costs or
obligations arising in connection with or in any way relating to Parent or any
of its Subsidiaries (or any of their respective predecessors or prior owner of
all or part of the Business or Purchased Assets or assets of the Southern
Entities), any property now or previously owned, leased or

 

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operated by Parent or any of its Subsidiaries, the Business (as currently or
previously conducted), the Purchased Assets or assets of the Southern Entities
or any activities or operations occurring or conducted at the Southern Sites or
the Real Property (including offsite disposal), whether accrued, contingent,
absolute, determined, determinable or otherwise, which (A) arise under or relate
to any Environmental Law and (B) relate to actions occurring or conditions
existing on or prior to the Closing Date (including any matter disclosed or
required to be disclosed in Section 2.02(m) of the Disclosure Schedule or any
other environmental disclosure on any section of the Disclosure Schedule).

 

(xxiv) A “former Southern Business Employee” means any individual who as of his
or her last termination of employment with a Seller or a Seller’s Subsidiary or
a Southern Entity was actively and primarily employed solely in connection with
the Southern Business.

 

(xxv) “Foundational Reps” mean the Parent Foundational Reps and the Purchaser
Foundational Reps, as applicable.

 

(xxvi) “Framework Agreement” means the Agreement between the Purchaser and the
Stock Purchaser in the form attached hereto as Exhibit J.

 

(xxvii) “Hazardous Material” means any pollutant, contaminant, hazardous, toxic,
radioactive or infectious material, substance or waste, mold, or any oil,
petroleum, or petroleum product, which is regulated or could reasonably be
expected to result in a liability or obligation under 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.

 

(xxviii) “Intellectual Property Rights” means (A) inventions, whether or not
patentable, reduced to practice or made the subject of one or more pending
patent applications, (B) national and multinational statutory invention
registrations, patents and patent applications (including all reissues,
divisions, continuations, continuations-in-part, extensions and reexaminations
thereof) registered or applied for in the United States and all other nations
throughout the world, all improvements to the inventions disclosed in each such
registration, patent or patent application, (C) trademarks, service marks, trade
dress, logos, domain names, trade names and corporate names (whether or not
registered) in the United States and all other nations throughout the world,
including all variations, derivations, combinations, registrations and
applications for registration of the foregoing and all goodwill associated
therewith, (D) copyrights

 

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(whether or not registered) and registrations and applications for registration
thereof in the United States and all other nations throughout the world,
including all derivative works, moral rights, renewals, extensions, reversions
or restorations associated with such copyrights, now or hereafter provided by
Law, regardless of the medium of fixation or means of expression (E) computer
software (including source code, object code, firmware, operating systems and
specifications), (F) industrial designs (whether or not registered), (G) copies
and tangible embodiments of any of the foregoing, in whatever form or medium,
(H) all rights to obtain and rights to apply for patents, or to register
trademarks and copyrights, (I) all rights in all of the foregoing provided by
treaties, conventions and common law and (J) all rights to sue or recover and
retain damages and costs and attorney’s fees for past, present and future
infringement or misappropriation of any of the foregoing. Notwithstanding
anything contained herein “Intellectual Property Rights” shall not include
Prescription Files.

 

(xxix) “knowledge of the Parent” means the knowledge of those individuals listed
on Section 8.03(a)(xxix) of the Disclosure Schedule.

 

(xxx) “Landlord Objection” means: (i) the receipt by any of the Purchaser, the
Sellers or the Parent of (x) an objection from a lessor or sublessor to the
Purchasers’ or its affiliates’ use or occupation of any applicable Southern
Site; or (y) a notice from a lessor or sublessor of any applicable Southern Site
exercising a right to terminate a lease or sublease or recapture the applicable
Southern Site; and/or (ii) the commencement of any legal proceedings by such
lessor or sublessor against the Purchaser, Sellers and/or the Parent or any of
their affiliates for eviction of the Purchaser or any of its affiliates from
such Southern Site.

 

(xxxi) “Largo Mail Order Site” means the space occupied by the Mail-Order
Business (in the 12 month period preceding the date of this Agreement) in the
Largo, Florida headquarters of the Business.

 

(xxxii) “Laws” means all applicable domestic (including without limitation, any
federal, state or local) and foreign statutes, laws, ordinances, rules, orders
and regulations.

 

(xxxiii) “Mail-Order Business” means the mail order pharmacy services and
related services owned or operated by Thrift and Eckerd.

 

(xxxiv) a “Material Adverse Effect” means a material adverse effect on (i) the
ability of the Parent or the Sellers to perform their obligations under this
Agreement or to consummate the transactions contemplated hereby, or (ii) the
financial condition, results of operations

 

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or business of the Southern Business taken as a whole, excluding any effects
resulting from (x) events or circumstances adversely affecting the principal
markets served by the Southern Business or the industries in which the Southern
Business operates, (y) general economic conditions, or (z) the execution,
delivery, announcement or performance of this Agreement or the consummation of
any transaction contemplated hereby.

 

(xxxv) “Network Contract” means any Contract pursuant to which a provider of
medical and/or health related services participates in the PBM Business’s
pharmacy provider network.

 

(xxxvi) “Northern Business” means the Business other than the Southern Business
that is being acquired by the Stock Purchaser pursuant to the Stock Purchase
Agreement.

 

(xxxvii) “Northern Stores” mean the drugstores of the Business acquired by the
Stock Purchaser pursuant to the Stock Purchase Agreement.

 

(xxxviii) “Order” means judgment, order, decree, writ, injunction,
determination, or award.

 

(xxxix) “Parent Foundational Reps” mean the representations and warranties set
forth in the first sentence of Section 2.01(a), the first four sentences of
Section 2.01(b), the first four sentences of Section 2.01(c), Section 2.02(w),
the first sentence of Section 2.02(x)(i), Section 2.02(x)(ii), Section 2.02(y)
and Section 2.02(z).

 

(xl) “PBM Business” means the pharmacy benefit administration and management
services business owned or operated by Sellers and the PBM Entity, Genplus
Managed Care, Inc., and Eckerd Corporation Of Florida, Inc.

 

(xli) “PBM Entity” means TDI Managed Care Services, Inc.

 

(xlii) “PBM Network Arrangements” means the contracts, agreements and
arrangements between Sellers and their affiliates on the one hand, and the PBM
Entity on the other hand, pursuant to which the drugstores of the Business are
“providers” in the PBM Entity’s network of pharmacies and are reimbursed by the
PBM Entity at specified rates for services provided to the covered members.

 

(xliii) “PBM Seller” means Thrift.

 

(xliv) “Penney Information Technology Services Agreement” means the Information
Technology and Transition Services Agreement

 

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between the Parent and the Purchaser relating to information technology to be
entered into in connection with the consummation of the transactions
contemplated by this Agreement.

 

(xlv) “Penney Transition Services Agreement” means the Transition Services
Agreement between the Parent and the Purchaser to be entered into in connection
with the consummation of the transactions contemplated by this Agreement.

 

(xlvi) “Permitted Liens” means (A) Liens or Encumbrances that are listed or
described in Section 8.03(a)(xlvi) of the Disclosure Schedule, (B) 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, (C) Liens or Encumbrances for Taxes which are not yet due and
payable, which may thereafter be paid without penalty or which are being
contested in good faith (and for which adequate reserves are established on the
Balance Sheet), (D) 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, (E) other Liens or Encumbrances arising as a matter of law which
do not materially impair the use of the property subject thereto as presently
used, (F) any Liens or Encumbrances affecting any of the Purchased Assets caused
by the Purchaser, its consultants or agents, (G) all matters shown on or in the
Commitments, New Surveys, updates to any of the foregoing and Title Documents to
which the Purchaser does not timely object in accordance with the terms of this
Agreement or with respect to which the Purchaser ultimately waives any Title
Objection and (H) easements, covenants, rights-of-way and other encumbrances or
restrictions, whether unrecorded or recorded or referred to in an applicable
lease or on an Existing Survey previously made available to the Purchaser, which
do not materially impair the continued use of the Real Property subject thereto
as currently used.

 

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

 

(xlviii) “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 1.11(e), other than any portion of any such additional amount that
constitutes interest.

 

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(xlix) “Purchaser Foundational Reps” means the representations and warranties
set forth in the first sentence of Section 3.01, the first four sentences of
Section 3.02, the first four sentences of Section 3.03 and Section 3.05.

 

(l) “Related Financials” mean the unaudited carve-out statement of revenues and
expenses relating to the Southern Business for the periods ended the Balance
Sheet Date prepared in accordance with GAAP and the Balance Sheet Principles and
attached hereto as Exhibit K.

 

(li) “Southern Business” means (i) the PBM Business, (ii) the Mail-Order
Business, (iii) the Specialty Pharmacy Business and (iv) the Southern Drugstore
Business.

 

(lii) “Southern Business Employee” means any employee who, as of any designated
date, is actively and primarily employed by a Seller or a Seller’s Subsidiary or
a Southern Entity primarily in connection with the Southern Business, but does
not include (i) any employees employed at the corporate headquarters in Largo,
Florida (other than employees listed on Section 8.03(a)(lii) of the Disclosure
Schedule, who are all the employees at such corporate headquarter who are
actively and primarily engaged in the Mail-Order Business or the Specialty
Pharmacy Business), (ii) employees at the airport fixed base of operations in
Clearwater, Florida or (iii) employees employed at the repackaging facilities in
Largo, Florida and Puerto Rico.

 

(liii) “Southern Drugstore Business” means the retail drugstore businesses of
the Sellers conducted from the Southern Stores.

 

(liv) “Southern Entities” mean the PBM Entity, Genplus Managed Care, Inc.,
E.T.B., Inc., Eckerd Corporation of Florida, Inc., JEC Facilities Funding II,
Inc. and JEC Funding, Inc. and “Southern Entity” means each and any of the
foregoing entities.

 

(lv) “Southern Sites” means Southern Stores, Southern Distribution Centers and
any sites associated primarily with the Southern Drugstore Business, PBM
Business, Specialty Pharmacy Business or the Mail-Order Business but does not
include (i) the Sellers’ headquarters located at Largo, Florida, (ii) the
airport fixed base of operations in Clearwater, Florida or (iii) the two
condominiums located across from the headquarters at Largo, Florida.

 

(lvi) “Southern Site Leases” means real property leases for the leased Southern
Sites.

 

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(lvii) “Southern Distribution Centers” means each of the distribution centers of
the Sellers located in Texas and Florida and the Sellers’ trucking center in
Louisiana described on Section 8.03(a)(lvii) of the Disclosure Schedule.

 

(lviii) “Southern States” means Arizona, Alabama, Kansas, Missouri, Mississippi,
Oklahoma, Louisiana, Texas and Florida.

 

(lix) “Southern Stores” means each of the stores of the Sellers located in
Southern States described on Section 8.03(a)(lix) of the Disclosure Schedule.

 

(lx) “Specialty Pharmacy Business” means the specialty pharmacy business and
related services owned or operated by Eckerd (not including the repackaging
business).

 

(lxi) “Split Contracts” means those contracts which relate to both the Northern
Business and the Southern Business, the benefits and liabilities of which shall
be apportioned between the Purchaser and the Stock Purchaser pursuant to the
Framework Agreement.

 

(lxii) “Stock Seller” means the PBM Seller and each other Seller that is an
owner of the outstanding shares of any Southern Entity.

 

(lxiii) 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.

 

(lxiv) “TDI Subsidiary” means a Subsidiary of a TDI Company.

 

(lxv) “Third Party Payor Contracts” means Contracts with Payment Programs
pursuant to which a Seller or any Southern Entity provides pharmacy services to
beneficiaries covered by the applicable Payment Program.

 

(lxvi) “Transition Services Agreements” means the Penney Transition Services
Agreement, the Penney Information Technology Transition Services Agreement and
the Eckerd Transition Services Agreement.

 

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(lxvii) “Working Capital” means the sum of the following current assets (a) Cash
and Short Term Investments (Including Store Cash), (b) Receivables (Net of
Allowances), (c) Merchandise Inventories-FIFO (Net of Reserves), (d) Other
Current Assets, in each case excluding Taxes Receivable and Deferred Tax Assets,
minus the sum of the following current liabilities: (x) Accounts Payable, (y)
Accrued Liabilities, (z) Bank Debit Balances (i.e., Outstanding Check
Reclassification), in each case excluding Taxes Payable and Deferred Tax
Liabilities and amounts incurred that relate to any tax withholding, to the
extent such items are included in the Purchased Assets or Assumed Liabilities
(including the assets and liabilities of the Southern Entities) in accordance
with GAAP and Balance Sheet Principles applied on a consistent basis. The
calculation of Working Capital shall exclude all assets and liabilities related
to the CN States.

 

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

 

Accountants    Section 1.11(c) Acquisition Proposal    Section 4.03(b) Agreement
   Introductory Paragraph Aggregate CN Net Real Estate Liability    Section 4.29
Antitrust Challenge    Section 4.05(d) Antitrust Law    Section 4.05(b)
Antitrust Objection    Section 4.05(d) Antitrust PBM Limit    Section 4.05(d)
Antitrust Store Limit    Section 4.05(d) Apportioned Obligations    Section
4.11(d)(i) Assigned Contracts    Section 1.01(m) Assignment and Assumption
Agreement    Section 1.15(a)(v) Assumed Liabilities    Section 1.03 Audited
Financial Statements    Section 1.06(a) Balance Sheet Date    Section 2.02(a)
Band Number    Section 4.05(e) Benefit Plan    Section 2.02(q) Business   
Recital B Casualty    Section 4.02 Closing    Section 1.14 Closing Date   
Section 1.14 Closing Date Balance Sheet    Section 1.11(a) Closing Working
Capital Statement    Section 1.11(a) Closure Costs    Section 1.13(a)(i) Code   
Section 2.02(q) Commitments    Section 4.18

 

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Company Plan    Section 2.02(q) Condemnation    Section 4.02 Confidentiality
Agreement    Section 4.04(a) Consents    Section 1.16 Contracts    Section
2.02(n) Conveyance Documents    Section 1.15(b)(vi) CVS    Introductory
Paragraph De Minimis Matter    Section 7.04(a) Deemed Undisclosed Item   
Section 7.01(a) Designated Leased Property    Section 4.18 Disclosure Schedule
   Recital F Dispute    Section 1.13(b) Dispute Notice    Section 4.12(d) DOJ   
Section 4.05(b) Eckerd    Introductory Paragraph Eckerd Transition Services
Agreement    Section 1.15(a)(iii) End Date    Section 6.01(b) ERISA    Section
2.02(q) Estimated Closing Working Capital    Section 1.09(a) Estimated Closing
Working Capital Statement    Section 1.09(a) Estimated PBM Price    Section
4.05(f) Estimated Purchase Price    Section 1.09(a) Excess Amount    Section
1.13(b) Exchange Act    Section 2.01(d) Excluded Assets    Section 1.02 Excluded
Liabilities    Section 1.04 Existing Surveys    Section 4.18 Federal Section
338(h)(10) Election    Section 4.12(j) Final PBM Price    Section 4.05(f) FTC   
Section 4.05(b) GAAP    Section 1.06 Genovese    Introductory Paragraph
Governmental Entity    Section 2.01(d) HSR Act    Section 2.01(d) Increased
Costs    Section 1.13(a)(iii) Increased Occupancy Costs    Section 1.13(a)(iii)
Indemnifying Party    Section 7.03(a) Indemnitee    Section 7.03(a) Independent
Valuation Expert    Section 4.11(e) Insurance Assignment Agreement    Section
1.15(a)(v) Insurance Policies    Section 2.02(r) Inventory    Section 1.01(a)
Inventory Firm    Section 1.10

 

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IRS    Section 2.02(q) Landlord Consent Period    Section 1.13(a) Lease
Assignment and Assumption Agreements    Section 1.15(a)(viii) Leased Real
Property    Section 1.01(d) Leasehold Title Policies    Section 1.15(b)(xi)
Legal Proceedings    Section 2.02(i) Liens or Encumbrances    Section 1.01
Management Agreement    Section 1.15(a)(ix) Multiemployer Plan    Section
2.02(q) New Site    Section 1.13(a)(ii) New Surveys    Section 4.18 Owned Real
Property    Section 1.01(e) Owner Title Policies    Section 1.15(b)(x) Parent   
Introductory Paragraph Parent Indemnitees    Section 7.02 Parent Objection   
Section 1.11(b) Parent Objection Notice    Section 1.11(b) Parent Review Period
   Section 1.11(b) Payment Programs    Section 2.02(g)(i) Penney Transition
Services Agreements    Section 1.15(a)(iii) Permits    Section 2.02(f)(ii) Petty
Cash    Section 1.01(p) Pharmacy Approvals    Section 2.01(d) Pharmacy
Technicians    Section 4.24 Post-Closing Tax Period    Section 4.11(a)
Pre-Closing Tax Period    Section 4.11(a) Prescription Files    Section 1.01(c)
Problem Site    Section 1.13(a) Prorated Charges    Section 4.20 Provider
Numbers    Section 4.21 Purchased Assets    Section 1.01 Purchaser   
Introductory Paragraph Purchaser Effect    Section 3.01 Purchaser Indemnitees   
Section 7.01 Quarter Date    Section 1.06(b) Real Property    Section 1.01(e)
Replacement Site Costs    Section 1.13(a)(ii) Representatives    Section 4.03(a)
Required Consents    Section 2.02(h) SEC    Section 2.01(d) Section 338(h)(10)
Elections    Section 4.12(j) Securities Act    Section 1.06(c) Sellers   
Introductory Paragraph

 

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Settlement    Section 4.05(d) Southern Entity Shares    Section 1.05 Stock
Purchase Agreement    Recital E Stock Purchaser    Recital E Straddle Tax Period
   Section 4.11(a) Tax    Section 4.11(a) Tax Matter    Section 4.12(f) Tax
Returns    Section 4.11(a) Taxing Authority    Section 4.11(a) TDI Companies   
Recital A TDI Shares    Recital A Third Party Claim    Section 7.03(b) Thrift   
Introductory Paragraph Title Documents    Section 4.18 Title Objections   
Section 4.18 Title Policies    Section 4.18 Transfer    Section 1.01 Transfer
Taxes    Section 4.11(d)(ii) Transferred Employees    Section 4.13(a)(ii)
Transition Services Agreement(s)    Section 1.15(a)(iii) Unadjusted Purchase
Price    Section 1.07 Unaudited Quarterly Financial Statements    Section
1.06(b) Unused Vacation    Section 4.13(a)(iii) WARN    Section 2.02(j)

 

Section 8.04. 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 calendar 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 overnight 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 or CVS, to

 

CVS Corporation

One CVS Drive

Woonsocket, RI 02895

Attention: Douglas A. Sgarro

Fax: 401-770-3663

 

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

 

CVS Pharmacy, Inc.

One CVS Drive

Woonsocket, RI 02895

Attention: Douglas A. Sgarro

Fax: 401-770-3663

 

and

 

Davis Polk & Wardwell

450 Lexington Avenue

New York, New York 10017

Attention: Louis Goldberg

Fax: (212) 450-3800

 

  (ii) if to the Parent or if prior to the Closing to the Sellers, to

 

J. C. Penney Company, Inc.

6501 Legacy Drive

Plano, Texas 75024

Attention: General Counsel

Fax: (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

Fax: (972) 431-1977

 

and

 

Jones Day

2727 North Harwood Street

Dallas, Texas 75201

Attention: Robert L. Estep and Lisa K. Durham

Fax: (214) 969-5100

 

  (iii) if to the Sellers following the Closing:

 

c/o The Jean Coutu Group (PJC) Inc.

50 Service Road

Warwick, Rhode Island 02886

Attention: Michel Coutu

Telecopy: (401) 825-3997

 

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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

 

Section 8.05. 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 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 RELEASES, DISCLAIMERS AND LIMITATIONS
ON LIABILITY SET FORTH IN THIS AGREEMENT SHALL

 

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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 8.06. Entire Agreement; Third Party Beneficiaries. This Agreement, the
Framework Agreement, the Transition Services Agreements 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 without limitation 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 Stock Purchaser shall be a third party
beneficiary with respect to Section 6.03 and Section 6.04 solely to the extent
set forth therein and shall be entitled to the rights and benefits of, and to
enforce, the provisions thereof (so long as the Stock Purchase Agreement has not
been terminated), and (ii) each Indemnitee shall be a third party beneficiary
with respect to Article 7 and shall be entitled to the rights and benefits of,
and to enforce, the provisions thereof.

 

Section 8.07. 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 (a) 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, (b) shall not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (c) shall not bring any action relating to this
Agreement or any of the transactions contemplated hereby in any other court.
Each party agrees that service of process on such party as provided in Section
8.04 shall be deemed effective service of process on such party.

 

Section 8.08. 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 anything to the contrary in this Section 8.08, the Purchaser may
assign its rights and obligations hereunder or under any Ancillary Agreement, in
whole or from time to time in part, to one or more designated affiliates of the
Purchaser that is not organized or incorporated in the State of Texas, but no
such

 

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assignment shall relieve the Purchaser of its obligations hereunder or
thereunder if an assignee does not perform such obligations.

 

Section 8.09. Alternative Structure. If the Stock Purchase Agreement is
terminated as a result of the Stock Purchaser not obtaining financing sufficient
to consummate the transactions contemplated by the Stock Purchase Agreement (or
the End Date occurs due to the Stock Purchaser’s inability to obtain financing),
then the following will apply:

 

(a) The condition to Closing under Section 5.01(c) shall be deemed to be
satisfied;

 

(b) The End Date specified in Section 6.01(b) shall be deemed to be
automatically extended by 30 days;

 

(c) All rights of the Stock Purchaser provided herein will be deemed deleted;

 

(d) All references to the Framework Agreement shall be deemed to be deleted and
replaced with a reference to this Section 8.09 and the following provisions of
the Framework Agreement (together with associated defined terms) shall be deemed
to be automatically incorporated in this Agreement with the references to the
Stock Purchaser deemed replaced for the purposes hereof by references to the
“Sellers”: Section 2.01 (Largo HQ; Largo Mail Order Site; Other Sites); Section
2.02 ( “Eckerd” Name and Names Used In The Eckerd Business); Section 2.03
(E-Commerce Business); Section 2.04 (Private Label Inventory); Section 2.05
(Vendor Contracts) except that the Purchaser shall indemnify the Parent and the
Sellers for any breakage costs associated with the bifurcation of Vendor
Contracts (as defined in the Framework Agreement); Section 2.06 (Equipment
Leases) except that the Purchaser shall indemnify the Parent and the Sellers for
any breakage costs associated with the bifurcation of Equipment Leases (as
defined in the Framework Agreement); Section 2.07 (Region Specific Contracts);
Section 2.08 (Region Specific Real Estate Leases); Section 2.09 (Region Specific
Assets); Section 2.11 (PBM Network Arrangements); Section 2.13 (Third Party
Payments); Section 2.14 (Corporate Integrity Agreement); Second and third
sentences of Section 2.16 (Access to Information); Section 2.18 (Further
Assurances) and Section 2.21 (Pipeline Inventory);

 

(e) Section 4.04(a) (Access to Information; Confidentiality) of this Agreement
shall be deemed automatically amended to be converted into a reciprocal
obligation between Parent and Sellers on the one hand and Purchaser on the other
hand and to expand its application to periods both prior to and following the
Closing and Section 4.04(b) shall be deemed deleted;

 

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(f) Section 4.16 (Framework Agreement) of this Agreement shall be deemed to be
deleted;

 

(g) Section 4.22 (Non-Solicitation) of this Agreement shall be deemed
automatically amended to be converted into a reciprocal obligation between
Parent and Sellers on the one hand and Purchaser on the other hand;

 

(h) The applicable Sellers shall perform (and shall cause their affiliates to
perform) the obligations under the Eckerd Transition Services Agreement; and

 

(i) The last sentence of Section 1.03, the parenthetical in Section 7.01(f),
Section 7.01(g) and Section 8.04(iii) of this Agreement shall be deemed to be
deleted; Section 1.04(g)(ii) shall be deemed amended to read in its entirety
“that does not arise out of the Southern Business or the Purchased Assets”; and
the words “if prior to the Closing” will be deemed to be deleted from Section
8.04(ii).

 

Section 8.10. 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 IRREVOCABLY 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 8.11. 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.

 

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Section 8.12. 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. Until and unless each party has
received a counterpart hereof signed by the other parties hereto, this Agreement
shall have no effect and no party shall have any right or obligation hereunder.

 

Section 8.13. Bulk Sales Laws. The Purchaser, the Parent and the Sellers each
hereby waive compliance by the Sellers with the provisions of the “bulk sales,”
“bulk transfer” or similar laws of any state.

 

[signature page follows]

 

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

 

CVS CORPORATION By:  

/s/    Thomas M. Ryan

   

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

   

Name: Thomas M. Ryan

   

Title: Chairman, President and

Chief Executive Officer

CVS PHARMACY, INC. By:  

/s/    Thomas M. Ryan

   

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

   

Name: Thomas M. Ryan

   

Title: Chairman, President and

Chief Executive Officer

J.C. PENNEY COMPANY, INC. By:  

/s/    Charles R. Lotter

   

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

   

Name: Charles R. Lotter

   

Title: Executive Vice President, Secretary

and General Counsel

      ECKERD CORPORATION By:  

/s/    Dennis P. Miller

   

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

   

Name: Dennis P. Miller

   

Title: Senior Vice President

and Chief Financial Officer

THRIFT DRUG, INC. By:  

/s/    Dennis P. Miller

   

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

   

Name: Dennis P. Miller

   

Title: Senior Vice President

and Chief Financial Officer

 

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GENOVESE DRUG STORES, INC. By:  

/s/    Dennis P. Miller

   

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

   

Name: Dennis P. Miller

   

Title: Senior Vice President

and Chief Financial Officer

ECKERD FLEET, INC. By:  

/s/    Dennis P. Miller

   

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

   

Name: Dennis P. Miller

   

Title: Senior Vice President

and Chief Financial Officer

 

101