Document:

EXECUTION COPY

 

 

 

 

 

 

STOCK PURCHASE AGREEMENT

by and between

RITE AID CORPORATION

and

THE JEAN COUTU GROUP (PJC) INC.

	
             
 	
            ________________________________
 

Dated as of August 23, 2006

	
             
 	
            ________________________________
 

 

 

 

 

 

 

 

 

 

 

 

 

	
            TABLE OF CONTENTS
 
	
             
 	
             
 	
             
 
	
             
 	
             
 	
            Page
 
	
             
 	
            ARTICLE I
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            PURCHASE AND SALE
 	
             
 

 

 

	
            Section 1.1
 	
            Purchase and Sale of Shares or JCG LLC Interests
 	
            1
 
	
            Section 1.2
 	
            Purchase Price
 	
            2
 
	
            Section 1.3
 	
            Estimated Closing Working Capital Adjustment
 	
            2
 
	
            Section 1.4
 	
            Closing Working Capital Adjustment
 	
            2
 
	
            Section 1.5
 	
            Closing
 	
            4
 
	
            Section 1.6
 	
            Deliveries by Purchaser
 	
            5
 
	
            Section 1.7
 	
            Deliveries by Seller
 	
            5
 

 

	
             
 	
            ARTICLE II 
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            REPRESENTATIONS AND WARRANTIES
 	
             
 
	
             
 	
            OF SELLER
 	
             
 

 

	
            Section 2.1
 	
            Organization; Qualification
 	
            7
 
	
            Section 2.2
 	
            Authority; Validity of Agreements
 	
            8
 
	
            Section 2.3
 	
            Non-Contravention
 	
            9
 
	
            Section 2.4
 	
            Consents and Approvals
 	
            9
 
	
            Section 2.5
 	
            Capitalization; Subsidiaries
 	
            9
 
	
            Section 2.6
 	
            Title to Jean Coutu USA Shares and JCG LLC Interests
 	
            10
 
	
            Section 2.7
 	
            Seller Securities Filings
 	
            10
 
	
            Section 2.8
 	
            Financial Statements
 	
            11
 
	
            Section 2.9
 	
            Absence of Undisclosed Liabilities
 	
            12
 
	
            Section 2.10
 	
            Absence of Certain Changes
 	
            13
 
	
            Section 2.11
 	
            Compliance with Law; Permits.
 	
            13
 
	
            Section 2.12
 	
            Healthcare Regulatory Compliance
 	
            14
 
	
            Section 2.13
 	
            Litigation
 	
            15
 
	
            Section 2.14
 	
            Assets
 	
            15
 
	
            Section 2.15
 	
            Real Property
 	
            16
 
	
            Section 2.16
 	
            Material Contracts
 	
            17
 
	
            Section 2.17
 	
            Affiliate Arrangements
 	
            19
 
	
            Section 2.18
 	
            Taxes
 	
            19
 
	
            Section 2.19
 	
            Employee Benefit Plans; ERISA
 	
            22
 
	
            Section 2.20
 	
            Labor Matters
 	
            23
 
	
            Section 2.21
 	
            Intellectual Property
 	
            24
 
	
            Section 2.22
 	
            Insurance
 	
            25
 
	
            Section 2.23
 	
            Compliance with Environmental Laws
 	
            26
 

 

 

i

 

 

 

	
            Section 2.24
 	
            Receivables; Payables
 	
            27
 
	
            Section 2.25
 	
            Inventories
 	
            28
 
	
            Section 2.26
 	
            Suppliers
 	
            28
 
	
            Section 2.27
 	
            Acquisition for Own Account
 	
            28
 
	
            Section 2.28
 	
            Restricted Securities
 	
            28
 
	
            Section 2.29
 	
            Seller Indenture
 	
            28
 
	
            Section 2.30
 	
            Brokers and Finders
 	
            30
 
	
            Section 2.31
 	
            No Other Representations and Warranties
 	
            30
 

 

	
             
 	
            ARTICLE III 
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            REPRESENTATIONS AND WARRANTIES OF PURCHASER
 	
             
 

 

	
            Section 3.1
 	
            Organization; Qualification
 	
            30
 
	
            Section 3.2
 	
            Authority; Validity of Agreements
 	
            31
 
	
            Section 3.3
 	
            Non-Contravention
 	
            31
 
	
            Section 3.4
 	
            Capitalization
 	
            32
 
	
            Section 3.5
 	
            Consents and Approvals
 	
            33
 
	
            Section 3.6
 	
            Purchaser SEC Filings
 	
            33
 
	
            Section 3.7
 	
            Litigation
 	
            34
 
	
            Section 3.8
 	
            Purchaser Financing
 	
            34
 
	
            Section 3.9
 	
            Purchaser Indentures
 	
            35
 
	
            Section 3.10
 	
            Absence of Undisclosed Liabilities
 	
            35
 
	
            Section 3.11
 	
            Compliance with Laws
 	
            35
 
	
            Section 3.12
 	
            Absence of Certain Changes
 	
            35
 
	
            Section 3.13
 	
            Brokers and Finders
 	
            35
 
	
            Section 3.14
 	
            No Other Representations and Warranties
 	
            36
 

 

	
             
 	
            ARTICLE IV
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            COVENANTS OF THE PARTIES
 	
             
 

 

	
            Section 4.1
 	
            Conduct of Business by the Company
 	
            36
 
	
            Section 4.2
 	
            Conduct of Business by Purchaser
 	
            38
 
	
            Section 4.3
 	
            Certain Intercompany Matters
 	
            39
 
	
            Section 4.4
 	
            Prior Agreements
 	
            40
 
	
            Section 4.5
 	
            Non-Solicitation
 	
            42
 
	
            Section 4.6
 	
            Access to Information; Confidentiality
 	
            42
 
	
            Section 4.7
 	
            HSR Filings; Reasonable Best Efforts; Further Assurances
 	
            44
 
	
            Section 4.8
 	
            Delivery of Additional Financial Statements
 	
            46
 
	
            Section 4.9
 	
            Books and Records
 	
            46
 
	
            Section 4.10
 	
            Publicity
 	
            47
 
	
            Section 4.11
 	
            Notification of Certain Events
 	
            47
 
	
            Section 4.12
 	
            Employee Matters
 	
            48
 
	
            Section 4.13
 	
            WARN Act
 	
            51
 

 

 

ii

 

 

 

	
            Section 4.14
 	
            Non-Solicitation of Employees
 	
            51
 
	
            Section 4.15
 	
            Non-Competition
 	
            51
 
	
            Section 4.16
 	
            Stockholders Meeting; Proxy Statement; By-Laws
 	
            52
 
	
            Section 4.17
 	
            Listing
 	
            53
 
	
            Section 4.18
 	
            Environmental Inspections
 	
            53
 
	
            Section 4.19
 	
            Title and Survey Obligations
 	
            53
 
	
            Section 4.20
 	
            Expenses
 	
            53
 
	
            Section 4.21
 	
            Financing
 	
            53
 
	
            Section 4.22
 	
            Letters of Credit
 	
            54
 
	
            Section 4.23
 	
            Tax Powers of Attorney
 	
            54
 
	
            Section 4.24
 	
            Transition Services Agreement
 	
            54
 

 

	
             
 	
            ARTICLE V
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            CONDITIONS TO CLOSING
 	
             
 

 

	
            Section 5.1
 	
            Mutual Conditions
 	
            55
 
	
            Section 5.2
 	
            Conditions to Purchaser’s Obligations
 	
            55
 
	
            Section 5.3
 	
            Conditions to Seller’s Obligations
 	
            56
 

 

	
             
 	
            ARTICLE VI
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            SURVIVAL AND INDEMNIFICATION
 	
             
 

 

	
            Section 6.1
 	
            Survival of Representations, Warranties and Covenants
 	
            57
 
	
            Section 6.2
 	
            Indemnification by Seller
 	
            58
 
	
            Section 6.3
 	
            Indemnification by Purchaser
 	
            58
 
	
            Section 6.4
 	
            Indemnification Procedures
 	
            59
 
	
            Section 6.5
 	
            Calculation of Damages
 	
            60
 
	
            Section 6.6
 	
            No Duplications
 	
            61
 
	
            Section 6.7
 	
            Treatment of Indemnification Amounts
 	
            61
 

 

	
             
 	
            ARTICLE VII
 	
             
 
	
             
 	
             
 	
             
 
	
             
 	
            TAX MATTERS
 	
             
 

 

	
            Section 7.1
 	
            Tax Indemnity
 	
            61
 
	
            Section 7.2
 	
            Transfer Taxes
 	
            62
 
	
            Section 7.3
 	
            Preparation and Filing of Tax Returns and Payment of Taxes
 	
            62
 
	
            Section 7.4
 	
            Allocation of Taxes
 	
            63
 
	
            Section 7.5
 	
            Tax Refunds
 	
            64
 
	
            Section 7.6
 	
            Assistance and Cooperation
 	
            65
 
	
            Section 7.7
 	
            Tax Claims
 	
            65
 
	
            Section 7.8
 	
            Scope
 	
            66
 
	
            Section 7.9
 	
            Certain Tax Sharing Agreements
 	
            66
 

 

 

iii

 

 

 

	
            Section 7.10
 	
            Recognition of Net Tax Benefits
 	
            67
 

 

	
             
 	
            ARTICLE VIII
 	
             
 
	
             
 	
             
 	
             
 
	
            TERMINATION
 

 

	
            Section 8.1
 	
            Termination
 	
            67
 

 

	
            Section 8.2
 	
            Effect of Termination
 	
            68
 

 

	
             
 	
            ARTICLE IX
 	
             
 
	
             
 	
             
 	
             
 
	
            MISCELLANEOUS PROVISIONS
 

 

	
            Section 9.1
 	
            Amendment; Waiver
 	
            68
 
	
            Section 9.2
 	
            Entire Agreement
 	
            68
 
	
            Section 9.3
 	
            Interpretation
 	
            68
 
	
            Section 9.4
 	
            Severability
 	
            69
 
	
            Section 9.5
 	
            Notices
 	
            69
 
	
            Section 9.6
 	
            Binding Effect; Persons Benefiting; No Assignment
 	
            70
 
	
            Section 9.7
 	
            Counterparts
 	
            71
 
	
            Section 9.8
 	
            Specific Performance
 	
            71
 
	
            Section 9.9
 	
            Governing Law
 	
            71
 
	
            Section 9.10
 	
            Consent to Jurisdiction
 	
            71
 

 

Schedules:

 

Exhibits:

 

	
            Exhibit 1.4(a)
 	
            –
 	
            Working Capital 
 
	
            Exhibit 1.5
 	
            –
 	
            Current Monthly Fiscal Accounting Periods of the Company 
 
	
            Exhibit 3.4
 	
            –
 	
            Form of Certificate of Amendment to Restated Certificate of Incorporation of Purchaser
 
	
            Exhibit 3.8
 	
            –
 	
            Financing Commitment 
 
	
            Exhibit 4.1
 	
            –
 	
            Conduct of Business by Seller 
 
	
            Exhibit 4.2
 	
            –
 	
            Conduct of Business by Purchaser
 
	
            Exhibit 4.3(a)(i)
 	
            –
 	
            Reorganization 
 
	
            Exhibit 4.3(a)(ii)
 	
            –
 	
            Form of KPMG Tax Opinion 
 
	
            Exhibit 4.4(a)
 	
            –
 	
            Excluded Rights/Obligations 
 
	
            Exhibit 4.4(b)
 	
            –
 	
            Shared Rights/Obligations 
 
	
            Exhibit 4.7(d)
 	
            –
 	
            Adjusted EBITDA
 
	
            Exhibit 4.12(b)(i)
 	
            –
 	
            Company Bonus Plans and Target Bonus
 
	
            Exhibit 4.12(b)(ii)
 	
            –
 	
            Company Special Incentive Bonus and Terms 
 
	
            Exhibit 4.12(e)
 	
            –
 	
            Observers for Employment Discussions 
 
	
            Exhibit 4.16(a)
 	
            –
 	
            Matters for Stockholder Approval
 
	
            Exhibit 4.16(c)
 	
            –
 	
            Form of Amended and Restated By-laws of Purchaser 
 

 

 

iv

 

 

 

	
            Exhibit 4.22
 	
            –
 	
            Letters of Credit 
 
	
            Exhibit 4.24
 	
            –
 	
            Transition Services Agreement Principles
 
	
            Exhibit 9.3(f)
 	
            –
 	
            Knowledge of Seller 
 
	
            Exhibit 9.3(g)
 	
            –
 	
            Knowledge of Purchaser 
 

 

 

v

 

 

INDEX OF DEFINED TERMS

	
             
 	
            Page
 
	
             
 	
             
 
	
            $60 Million Adjusted EBITDA Threshold
 	
            46
 
	
            2006 Balance Sheet
 	
            11
 
	
            2006 Financial Statements
 	
            11
 
	
            7.625% Notes
 	
            40
 
	
            8.5% Notes
 	
            2
 
	
            8.5% Notes Indenture
 	
            28
 
	
            Accountants
 	
            3
 
	
            Adjusted EBITDA
 	
            46
 
	
            Affiliate
 	
            19
 
	
            Affiliate Arrangement
 	
            19
 
	
            Agreement
 	
            1
 
	
            Ancillary Agreements
 	
            8
 
	
            Antitrust Laws
 	
            45
 
	
            Applicable Rate
 	
            4
 
	
            Assets
 	
            15
 
	
            Assumption Agreement
 	
            40
 
	
            Benefit Plans
 	
            22
 
	
            Breaches of Law
 	
            13
 
	
            Business
 	
            1
 
	
            Business Day
 	
            2
 
	
            Business Employee
 	
            48
 
	
            Canadian Disclosure Documents
 	
            11
 
	
            Closing
 	
            4
 
	
            Closing Date
 	
            5
 
	
            Closing Date Balance Sheet
 	
            3
 
	
            Closing Working Capital
 	
            3
 
	
            Closing Working Capital Statement
 	
            3
 
	
            Code
 	
            20
 
	
            Company
 	
            1
 
	
            Company Financial Statements
 	
            11
 
	
            Company Intellectual Property
 	
            25
 
	
            Company Material Adverse Effect
 	
            13
 
	
            Company Subsidiary
 	
            8
 
	
            Continuing Employee
 	
            48
 
	
            Contract
 	
            19
 
	
            control
 	
            19
 
	
            Controlling Party
 	
            66
 
	
            Damages
 	
            58
 
	
            De Minimis Claim
 	
            58
 
	
            Due Date
 	
            63
 
	
            Environmental Laws
 	
            27
 

 

 

vi

 

 

 

	
            Environmental Permits
 	
            26
 
	
            ERISA
 	
            22
 
	
            ERISA Affiliate
 	
            22
 
	
            Estimated Cash Consideration
 	
            2
 
	
            Estimated Closing Working Capital
 	
            2
 
	
            Estimated Closing Working Capital Statement
 	
            2
 
	
            Exchange Act
 	
            7
 
	
            Excluded Rights/Obligations
 	
            40
 
	
            Final Cash Consideration
 	
            4
 
	
            Final Payment
 	
            4
 
	
            Final Purchase Price
 	
            2
 
	
            Financing
 	
            34
 
	
            Financing Commitment
 	
            34
 
	
            FLSA
 	
            24
 
	
            Framework Agreement
 	
            40
 
	
            GAAP
 	
            2
 
	
            Governmental Approval
 	
            9
 
	
            Governmental Authority
 	
            9
 
	
            Hazardous Materials
 	
            27
 
	
            HSR Act
 	
            9
 
	
            Indebtedness
 	
            40
 
	
            Indemnified Party
 	
            59
 
	
            Indemnifying Party
 	
            59
 
	
            Intellectual Property
 	
            25
 
	
            Interim Financial Statements
 	
            12
 
	
            Internal Controls
 	
            12
 
	
            JC Penney Agreement
 	
            41
 
	
            JC Penney Consent
 	
            41
 
	
            JCG LLC
 	
            1
 
	
            JCG LLC Interests
 	
            1
 
	
            Jean Coutu USA Common Shares
 	
            1
 
	
            Jean Coutu USA Preferred Shares
 	
            1
 
	
            Jean Coutu USA Shares
 	
            1
 
	
            knowledge
 	
            69
 
	
            Laws
 	
            9
 
	
            Lease
 	
            16
 
	
            Leased Real Property
 	
            16
 
	
            Letters of Credit
 	
            54
 
	
            Liability
 	
            13
 
	
            Liens
 	
            1
 
	
            Material Contract
 	
            19
 
	
            Organizational Documents
 	
            8
 
	
            Other Laws
 	
            13
 
	
            Outside Date
 	
            67
 
			

 

 

vii

 

 

 

	
            Owned Real Property
 	
            16
 
	
            Payment Period
 	
            62
 
	
            Permits
 	
            13
 
	
            Permitted Liens
 	
            15
 
	
            Person
 	
            8
 
	
            Pre-Closing Claims
 	
            41
 
	
            Pre-Closing Period
 	
            63
 
	
            Pre-Closing Portion
 	
            64
 
	
            Pre-Closing Proceeding
 	
            41
 
	
            Pre-Closing Tax Returns
 	
            63
 
	
            Proxy Statement
 	
            52
 
	
            Purchaser
 	
            1
 
	
            Purchaser Basket
 	
            59
 
	
            Purchaser Cap
 	
            59
 
	
            Purchaser Common Stock
 	
            2
 
	
            Purchaser Convertible Preferred Stock
 	
            32
 
	
            Purchaser Disclosure Schedule
 	
            30
 
	
            Purchaser Indemnitees
 	
            58
 
	
            Purchaser Material Adverse Effect
 	
            32
 
	
            Purchaser Options
 	
            33
 
	
            Purchaser Preferred Stock
 	
            32
 
	
            Purchaser SEC Documents
 	
            30
 
	
            Purchaser Stock Option Plans
 	
            33
 
	
            Purchaser Voting Preferred Stock
 	
            32
 
	
            Real Property
 	
            16
 
	
            Receivables
 	
            27
 
	
            Registration Rights Agreement
 	
            8
 
	
            Reorganization
 	
            39
 
	
            Sarbanes-Oxley Act
 	
            43
 
	
            SEC
 	
            7
 
	
            Securities Act
 	
            28
 
	
            Seller
 	
            1
 
	
            Seller Basket
 	
            58
 
	
            Seller Cap
 	
            58
 
	
            Seller Disclosure Schedule
 	
            7
 
	
            Seller Indemnitees
 	
            58
 
	
            Seller Objection
 	
            3
 
	
            Seller Objection Notice
 	
            3
 
	
            Seller Review Period
 	
            3
 
	
            Seller SEC Documents
 	
            7
 
	
            Series E Preferred Stock
 	
            32
 
	
            Series G Preferred Stock
 	
            32
 
	
            Series H Preferred Stock
 	
            32
 
	
            Special Bonus
 	
            49
 

 

 

viii

 

 

 

	
            Special Meeting
 	
            52
 
	
            Stock Consideration
 	
            2
 
	
            Stockholder Agreement
 	
            8
 
	
            Stockholder Vote Matters
 	
            52
 
	
            Straddle Period
 	
            63
 
	
            Straddle Tax Returns
 	
            63
 
	
            Subsidiary
 	
            8
 
	
            Tax
 	
            21
 
	
            Tax Authority
 	
            21
 
	
            Tax Benefit
 	
            61
 
	
            Tax Claim
 	
            65
 
	
            Tax Proceeding
 	
            22
 
	
            Tax Refund
 	
            64
 
	
            Tax Representations
 	
            62
 
	
            Tax Return
 	
            21
 
	
            Tax Sharing Agreements
 	
            66
 
	
            Tax Survival Period
 	
            66
 
	
            Termination Date
 	
            57
 
	
            Third-Party Claim
 	
            59
 
	
            Transfer Taxes
 	
            62
 
	
            Transition Services Agreement
 	
            8
 
	
            Treasury Regulations
 	
            22
 
	
            Umbrella Agreement
 	
            40
 
	
            Unadjusted Cash Consideration
 	
            2
 
	
            Violations of Permits
 	
            14
 
	
            WARN
 	
            24
 
	
            Working Capital
 	
            3
 

 

ix

 

 

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT, dated as of August 23, 2006 (this “Agreement”), is entered into by and between Rite Aid Corporation, a Delaware corporation (“Purchaser”), and The Jean Coutu Group (PJC) Inc., a Québec corporation (“Seller”).

WHEREAS, Seller owns all of the issued and outstanding shares of common stock, par value $1.00 per share (the “Jean Coutu USA Common Shares”), and all of the issued and outstanding shares of preferred stock, par value $1.00 per share (the «Jean Coutu USA Preferred Shares and, together with the Jean Coutu USA Common Shares, the “Jean Coutu USA Shares«), of The Jean Coutu Group (PJC) USA, Inc., a Delaware corporation and wholly-owned subsidiary of Seller (the “Company”); 

WHEREAS, the Company, together with the Company Subsidiaries (as defined in Section 2.1(c) below), is engaged in the business of owning and operating a network of retail drugstores conducting business under the Eckerd and Brooks banners (the “Business”); 

WHEREAS, JCG (PJC) USA, LLC is a Delaware limited liability company («JCG LLC«), the membership interests of which (the «JCG LLC Interests«) are 100% owned by Seller; 

WHEREAS, prior to the Closing (as defined in Section 1.5 below), Seller may effect the Reorganization (as defined in Section 4.3(a)), pursuant to which the Company would become a wholly-owned subsidiary of JCG LLC; and 

WHEREAS, upon the terms and subject to the conditions contained in this Agreement, Purchaser desires to purchase the Jean Coutu USA Shares (or, in the event the Reorganization is consummated prior to the Closing, the JCG LLC Interests) from Seller, and Seller desires to sell the Jean Coutu USA Shares (or, in the event the Reorganization is consummated prior to the Closing, the JCG LLC Interests) to Purchaser; 

NOW THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows:

ARTICLE I

 

PURCHASE AND SALE

Section 1.1         Purchase and Sale of Shares or JCG LLC Interests. Upon the terms and subject to the conditions set forth in this Agreement, Purchaser agrees to purchase from Seller at the Closing, and Seller agrees to sell, convey, assign, transfer and deliver to Purchaser at the Closing, the Jean Coutu USA Shares (or, in the event the Reorganization is consummated prior to the Closing, the JCG LLC Interests) free and clear of any lien, pledge, security interest, claim, charge, restriction or other encumbrance (“Liens”), other than Liens created by or in respect of 

 

 

Purchaser (including any Liens created pursuant to the Financing (as defined in Section 3.8(a) below) or imposed by applicable securities Laws (as defined in Section 2.3 below).

Section 1.2         Purchase Price. The aggregate purchase price for the Jean Coutu USA Shares (or, in the event the Reorganization is consummated prior to the Closing, the JCG LLC Interests) shall be: (i) $2,300,000,000 (the “Unadjusted Cash Consideration”), subject to adjustment as provided in this Article I, and which amount shall be reduced by the sum of (x) the aggregate principal amount of Seller’s 8.5% Senior Subordinated Notes due 2014 (the «8.5% Notes«), if any, assumed by Purchaser, which assumption shall require the mutual written consent of Purchaser and Seller, and (y) the amount of accrued and unpaid interest on the 8.5% Notes so assumed by Purchaser to and including the Closing Date (as defined
in Section 1.5 below) (it being agreed that if the 8.5% Notes are assumed by Purchaser, the Unadjusted Cash Consideration shall reflect the reduction in these clauses (x) and (y)); and (ii) 250 million shares of common stock of Purchaser (the “Purchaser Common Stock”), par value $1.00 per share (the “Stock Consideration”). The “Final Purchase Price” means the Final Cash Consideration (as defined in Section 1.4(e) below) together with the Stock Consideration.

	
            Section 1.3
 	
            Estimated Closing Working Capital Adjustment.
 

(a)          Not later than the fifth Business Day (as defined in Section 1.3(c) below) prior to the scheduled Closing Date, Seller shall deliver to Purchaser a statement (the “Estimated Closing Working Capital Statement”) setting forth Seller’s estimate (“Estimated Closing Working Capital”) of Closing Working Capital (as defined in Section 1.4(a) below) and Seller’s calculation thereof in reasonable detail. The Estimated Closing Working Capital Statement shall be prepared in good faith and in accordance with United States generally accepted accounting principles (“GAAP”) applied consistently with the application of GAAP in
the 2006 Financial Statements (as defined below in Section 2.8(a)), as modified in accordance with the illustration set forth in Exhibit 1.4(a); provided that such illustration shall use the same accounting principles, methodologies, policies and practices, applied consistently with those used in the 2006 Financial Statements. Estimated Closing Working Capital shall be determined as if it were the actual Closing Working Capital but shall be based upon Seller’s review of financial information then available to it.

(b)          The “Estimated Cash Consideration” means a cash amount equal to the Unadjusted Cash Consideration (i) plus the amount, if any, by which Estimated Closing Working Capital exceeds $1,212,000,000, or (ii) minus the amount, if any, by which $1,188,000,000 exceeds the Estimated Closing Working Capital or (iii) with no adjustment if Estimated Closing Working Capital is an amount between $1,188,000,000 and $1,212,000,000 (inclusive).

(c)          As used in this agreement, the term “Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close.

	
            Section 1.4
 	
            Closing Working Capital Adjustment.
 

(a)          Closing Date Balance Sheet. Within 90 calendar days after the Closing Date, Purchaser shall deliver to Seller (i) a consolidated balance sheet of the Company as of and 

 

2

 

 

including the Closing Date (the “Closing Date Balance Sheet”), prepared in accordance with GAAP, applied consistently with the application of GAAP in the 2006 Financial Statements, as modified in accordance with the illustration set forth in Exhibit 1.4(a), and (ii) a statement (the “Closing Working Capital Statement”) setting forth Purchaser’s calculation of Working Capital (as defined in the next sentence) as of and including the Closing Date (as determined in accordance with this Section 1.4, the “Closing Working Capital”). “Working Capital” means the current assets reflected on the Closing Date Balance Sheet less the current liabilities reflected on the Closing Date Balance
Sheet, as modified in accordance with the illustration set forth in Exhibit 1.4(a).  

(b)          Review by Seller. Seller shall have 45 calendar days after the delivery to Seller of the Closing Date Balance Sheet and the Closing Working Capital Statement (the “Seller Review Period”) in which to notify Purchaser in writing (the “Seller Objection Notice”) of any good faith disagreement with the Closing Date Balance Sheet and/or the Closing Working Capital Statement, setting forth in reasonable detail (i) the items or amounts with which Seller disagrees and the basis for such disagreement and (ii) Seller’s proposed adjustments to the Closing Date Balance Sheet and/or the Closing Working Capital Statement (collectively, the “Seller Objection”). The timely delivery of a Seller Objection Notice notwithstanding, Purchaser, on the one hand, or Seller on the other hand, as applicable, shall make any and all payments as to amounts not in dispute in accordance with Section 1.4(f) prior to the resolution of the Seller Objection pursuant to Section 1.4(c). If Seller does not deliver a Seller Objection Notice within the Seller Review Period, Seller shall be deemed to agree in all respects with the Closing Date Balance Sheet and the Closing Working Capital Statement and the items and amounts reflected thereon shall be final and binding upon Purchaser and Seller. 

(c)          Review by Accountants. If a Seller Objection Notice is properly and timely delivered, Purchaser and Seller shall use good faith efforts to resolve their differences with respect to the Seller Objection within 30 calendar days after Purchaser’s receipt of the Seller Objection Notice. If Purchaser and Seller resolve their differences with respect to the Closing Date Balance Sheet and/or the Closing Working Capital Statement within such 30-day period, the Closing Date Balance Sheet and/or the Closing Working Capital Statement shall be modified as necessary to reflect such agreement and, as so modified, shall be final and binding upon Purchaser and Seller. Any differences with respect to the Seller Objection not resolved by Purchaser and Seller within such 30-day
period shall be submitted for the purpose of resolving such dispute to such nationally recognized public accounting firm as shall be mutually agreed between Purchaser and Seller and, if not so mutually agreed within 5 calendar days, shall be PricewaterhouseCoopers LLP (United States) (such public accounting firm, the “Accountants”); provided that if PricewaterhouseCoopers LLP (United States) would not qualify as an independent registered public accounting firm with respect to Purchaser and Seller at such time, then the Accountants shall be Ernst & Young LLP (United States). The Accountants shall be instructed to render their decision in accordance with the terms of this Agreement and GAAP (as modified in accordance with the illustration set forth in Exhibit 1.4(a)) and shall consider only those items or amounts on the Closing Date Balance Sheet and/or in the Closing Working
Capital Statement as to which Seller has, in the Seller Objection Notice, disagreed and such other issues as may reasonably be affected by the items as to which Seller has so disagreed. The Accountants shall deliver to Purchaser and Seller, as promptly as practicable, but no later than 60 calendar days after the Accountants are engaged, a written report setting forth their resolution 

 

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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 Seller Objection Notice or less than that set forth in the Closing Working Capital Statement. The parties shall promptly comply with all reasonable requests by the Accountants for information, books, records and similar items. Upon delivery of the Accountants’ report to Purchaser and Seller, such report and the calculations set forth therein shall be final and binding upon Purchaser and Seller. The fees and expenses relating to such review and report from the Accountants shall be allocated between the parties in inverse proportion to the resolution of the disagreements by the Accountants such that the party whose determination of Closing Working Capital as first submitted to the Accountants is closer to
the Accountants’ determination of Closing Working Capital pays a smaller percentage of such fees and expenses.

(d)          Cooperation. Each of Purchaser, on the one hand, and Seller, on the other hand, shall provide reasonable cooperation and assistance to each other in the preparation of the Closing Date Balance Sheet and the Closing Working Capital Statement and in the conduct of the reviews referred to in this Section 1.4, including (i) Purchaser providing reasonable access to the books, records, work papers and personnel of JCG LLC, if applicable, the Company and the Company Subsidiaries and (ii) Seller providing reasonable access to the books, records, work papers and personnel of Seller.

(e)          Final Cash Consideration. The «Final Cash Consideration« means a cash amount equal to the Unadjusted Cash Consideration (i) plus the amount, if any, by which Closing Working Capital exceeds $1,212,000,000, or (ii) minus the amount, if any, by which $1,188,000,000 exceeds the Closing Working Capital, or (iii) with no adjustment if Closing Working Capital is an amount between $1,188,000,000 and $1,212,000,000 (inclusive).

(f)           Final Payment. Within three Business Days after the calculation of Closing Working Capital becomes final pursuant to Section 1.4(b) or Section 1.4(c), as applicable, (i) Purchaser shall pay to Seller, by wire transfer of immediately available funds to an account designated by Seller, an amount equal to the amount, if any, by which the Final Cash Consideration exceeds the Estimated Cash Consideration, or (ii) Seller shall pay to Purchaser, by wire transfer of immediately available funds to an account designated by Purchaser, an amount equal to the amount, if any, by which the Estimated Cash Consideration exceeds the Final Cash Consideration (the amount of the payment pursuant to clause (i) or clause (ii) of this Section 1.4(f) being referred to as the
“Final Payment”), in either case, (A) together with interest on the Final Payment at the Applicable Rate (as defined immediately below) from and including the Closing Date to, but excluding, the date of such payment and (B) giving effect to any amounts paid pursuant to Section 1.4(b). As used herein, “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.

Section 1.5         Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place at 10:00 a.m. local time, at the offices of Skadden, Arps, Slate, Meagher & Flom, LLP, Four Times Square, New York, New York 10036, on the Friday immediately prior to the close of the then current monthly fiscal accounting period of the Company as identified on Exhibit 1.5, in which all conditions to Closing set forth in Article V (other than those conditions that by their nature have to be satisfied at the Closing, but subject to 

 

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the satisfaction or waiver of those conditions) are satisfied or waived or at such other date, time and place as may be mutually agreed by Purchaser and Seller. The date on which the Closing will occur is referred to herein as the “Closing Date”.

	
            Section 1.6
 	
            Deliveries by Purchaser. At the Closing, Purchaser shall deliver to Seller:
 

(a)          The Estimated Cash Consideration, by wire transfer of immediately available funds to an account designated in writing by Seller at least three Business Days prior to the Closing Date;

	
             
 	
            (b)
 	
            One or more certificates representing the Stock Consideration;
 

(c)          A receipt for the Jean Coutu USA Shares (or, in the event the Reorganization is consummated prior to the Closing, the JCG LLC Interests);

(d)          A certificate of Purchaser, dated the Closing Date and signed by an authorized officer of Purchaser, certifying that the conditions set forth in Section 5.3(a) and Section 5.3(b) have been satisfied; 

(e)          A certificate of the Secretary or an Assistant Secretary of Purchaser, dated the Closing Date, setting forth the resolutions of the Board of Directors of Purchaser authorizing the execution and delivery of this Agreement and the Ancillary Agreements (as defined in Section 2.2 below) and the consummation of the transactions contemplated hereby and thereby, and certifying that such resolutions have not been amended or rescinded and are in full force and effect; and 

(f)           A counterpart of the Transition Services Agreement (as defined in Section 2.2), duly executed by Purchaser.

	
            Section 1.7
 	
            Deliveries by Seller. At the Closing, Seller shall deliver to Purchaser:
 

(a)          (i) One or more certificates representing the Jean Coutu USA Common Shares and one or more certificates representing the Jean Coutu USA Preferred Shares, each such certificate to be duly and validly endorsed in favor of Purchaser or accompanied by a separate stock power duly and validly executed by Seller and otherwise sufficient to vest in Purchaser good and marketable title to the Jean Coutu USA Common Shares and the Jean Coutu USA Preferred Shares; or (ii) in the event the Reorganization is consummated prior to the Closing, evidence of the JCG LLC Interests sufficient to vest in Purchaser good and marketable title to 100% of the JCG LLC Interests; 

(b)          A receipt for the Estimated Cash Consideration and the Stock Consideration; 

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

 

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(d)          A certificate of the Secretary or an Assistant Secretary of Seller, dated the Closing Date, setting forth the resolutions of the Board of Directors of Seller authorizing the execution and delivery of this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby, and certifying that such resolutions have not been amended or rescinded and are in full force and effect;

(e)          A copy of (i) the articles or certificates of incorporation, as amended (or comparable organizational documents), of JCG LLC, the Company and each Company Subsidiary, certified by the Secretary of State of the jurisdiction in which each such entity is incorporated or organized, as of a date reasonably close to the Closing Date, accompanied by a certificate of the Secretary or Assistant Secretary of each such entity, dated the Closing Date, stating that no amendments have been made to such articles or certificate of incorporation (or comparable organizational documents) since such date, and (ii) the bylaws, as amended (or comparable organizational documents), of JCG LLC, the Company and each Company Subsidiary, accompanied by a certificate of the Secretary or Assistant Secretary of each such
entity, dated the Closing Date, stating that such bylaws are currently in effect;

(f)           Certificates of good standing or existence for JCG LLC, the Company and each Company Subsidiary from the Secretary of State of the jurisdiction in which such entity is incorporated or organized, as of a date reasonably close to the Closing Date, and in the case of the Company (or, in the event the Reorganization is consummated prior to the Closing, JCG LLC), accompanied by a bring down certificate from the Secretary of State of the State of Delaware dated as of the Closing Date;

(g)          A statement described in Section 1.1445-2(c)(3)(i) of the Treasury Regulations (as defined in Section 2.18(m) below) certifying that the interests in the Company (or, in the event the Reorganization is consummated prior to the Closing, JCG LLC) are not U.S. real property interests; 

(h)          Copies of payoffs and other evidence of repayment or cancellation, termination or release of Indebtedness (as defined in Section 4.3(c)) as required by Section 4.3(c)) and, provided that Purchaser has assumed the 8.5% Notes, evidence of Seller having taken the actions described in Section 4.3(d); 

(i)           Written resignations, effective as of the Closing (or evidence of the prior resignation or removal), from all members, directors and officers of JCG LLC, the Company and each Company Subsidiary, other than individuals who are Continuing Employees (as defined in Section 4.12(a) below), from all of their respective positions as members, directors and/or officers of JCG LLC, the Company and/or any of the Company Subsidiaries; and

(j)           A counterpart of the Transition Services Agreement, duly executed by Seller. 

 

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ARTICLE II

 

REPRESENTATIONS AND WARRANTIES

OF SELLER

Seller hereby represents and warrants to Purchaser as of the date of this Agreement and as of the Closing Date (except for those representations and warranties made as of a specific date or time) that, except as set forth in the disclosure schedule delivered by Seller to Purchaser concurrently herewith (the «Seller Disclosure Schedule«) (with specific reference to the particular section or subsection of this Article II to which the information set forth in such section of the Seller Disclosure Schedule relates; provided that any information set forth in one section of such Seller Disclosure Schedule shall be deemed to apply to each other section or subsection of this Article II to which its relevance is readily apparent) and except as set forth in any forms, reports and documents filed or
furnished by Seller with the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934, as amended (the «Exchange Act«) (such documents, as supplemented and amended since the times of filing, collectively, the “Seller SEC Documents”) filed prior to the date of this Agreement (and without regard to any amendment thereto filed after the date of this Agreement) to the extent such information is readily apparent as pertaining to any section of this Article II:

	
            Section 2.1
 	
            Organization; Qualification.
 

(a)          Seller is a corporation duly organized, validly existing and in good standing under the laws of Québec, has all requisite power and authority to carry on its business as it is now being conducted and is duly qualified or licensed to do business and in good standing in each of the jurisdictions in which the conduct of its business or the ownership, operation or leasing of its assets and properties requires it to be so qualified, licensed or in good standing other than failures to be so qualified, licensed and in good standing that would not, individually or in the aggregate, be reasonably likely to have a material adverse effect on the ability of Seller to perform its obligations under this Agreement or to consummate the transactions contemplated hereby.

(b)          Each of JCG LLC, the Company and each Company Subsidiary is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has all requisite power and authority to carry on its business as it is now being conducted and is duly qualified or licensed to do business and in good standing in each of the jurisdictions in which the conduct of its business or the ownership, operation or leasing of its assets and properties requires it to be so qualified, licensed or in good standing, except for jurisdictions where the failure to be so qualified or licensed would not reasonably be expected to have a Company Material Adverse Effect (as defined in Section 2.10 below). Section 2.1 of the Seller
Disclosure Schedule sets forth the jurisdiction in which JCG LLC, the Company and each Company Subsidiary is organized, and each jurisdiction in which JCG LLC, the Company and each Company Subsidiary is qualified or licensed to do business. Seller has made available to Purchaser (i) the Organizational Documents (as defined in Section 2.1(d) below) of JCG LLC, the Company and each Company Subsidiary, each as in effect on the date hereof, and (ii) copies of the minutes of all meetings of the members, the stockholders, the boards of directors and each committee of the boards of directors (or, in 

 

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each case, the comparable bodies) of JCG LLC, the Company and each Company Subsidiary held since January 1, 2001. None of JCG LLC, the Company or any Company Subsidiary is or has been in violation of its Organizational Documents in any material respect. Since its formation, JCG LLC has conducted no business or other activities, is not a party to any Contract (as defined in Section 2.16(c) below) and has incurred no Liabilities (as defined in Section 2.9 below), except as expressly contemplated by this Agreement or required under the terms of the Indebtedness. 

(c)          As used in this Agreement, the term “Subsidiary” of any Person (as defined in Section 2.1(e) below) means another Person, an amount of voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body, or, if there are no such voting interests, more than 50% of the equity interests of which are owned directly or indirectly by such first Person, and the term “Company Subsidiary” means a Subsidiary of the Company or a Subsidiary of JCG LLC (other than the Company). 

(d)          As used herein, the term “Organizational Documents” means, with respect to any Person that is a corporation, its articles or certificate of incorporation and bylaws; with respect to any Person that is a partnership, its certificate of partnership and partnership agreement; with respect to any Person that is a limited liability company, its certificate of formation and limited liability company or operating agreement; with respect to any Person that is a trust or other entity, its declaration or agreement of trust or constituent document; and with respect to any other Person, its comparable organizational documents, in each case, as has been amended or restated.

(e)          As used herein, the term “Person” means any natural person or any firm, partnership, limited liability partnership, association, corporation, limited liability company, joint venture entity, trust, business trust, sole proprietorship, Governmental Authority (as defined in Section 2.4 below) or other entity or any division thereof.

Section 2.2                Authority; Validity of Agreements. Seller has all necessary corporate power and authority to execute and deliver (i) this Agreement, (ii) the Stockholder Agreement, of even date herewith, between Purchaser, Seller and certain individual Coutu family members (the “Stockholder Agreement”), (iii) the Registration Rights Agreement, of even date herewith, between Purchaser and Seller (the “Registration Rights Agreement”) and (iv) the Transition Services Agreement, to be entered into between Purchaser and Seller at the Closing (the «Transition Services Agreement« and together with the Stockholder
Agreement and the Registration Rights Agreement, the “Ancillary Agreements”), and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each of the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of Seller and all other requisite corporate action on the part of Seller and no other corporate proceedings on the part of Seller are necessary to authorize this Agreement and the Ancillary Agreements or to consummate the transactions contemplated hereby and thereby. No action by the stockholders of Seller is necessary to authorize this Agreement and the Ancillary Agreements or to consummate the transactions contemplated hereby and thereby. This Agreement, the Stockholder Agreement and the Registration Rights 

 

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Agreement have been, and the Transition Services Agreement will be, duly and validly executed and delivered by Seller and, assuming the due authorization, execution and delivery thereof by Purchaser, this Agreement, the Stockholder Agreement and the Registration Rights Agreement constitute, and the Transition Services Agreement will constitute, legally valid and binding obligations of Seller, enforceable against Seller in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or by general equitable principles. 

Section 2.3         Non-Contravention. Except as set forth in Section 2.3 of the Seller Disclosure Schedule, the execution and delivery of this Agreement and each of the Ancillary Agreements by Seller does not, and the consummation of the transactions contemplated hereby and thereby (including the Reorganization) will not:  (i) conflict with or result in any breach of any provision of the Organizational Documents of Seller, JCG LLC, the Company or any Company Subsidiary, (ii) result in a violation or breach of any provision of, constitute (with or without due notice or lapse of time or both) a default under, give rise to a right of termination, cancellation or acceleration of any obligation or the loss of any benefit under, or require any consent under, any Contract of any kind to which Seller, JCG LLC, the Company or
any Company Subsidiary is a party or by which any of them or any of their respective properties or assets may be bound or affected, (iii) result in the creation or imposition of any Lien upon any of the properties or assets of JCG LLC, the Company or any Company Subsidiary, or (iv) subject to the Governmental Approvals (defined in Section 2.4 below) referred to in Section 2.4, violate in any respect any statute, law, ordinance, rule, regulation, policy, standard, code, judgment, decree, order, injunction, writ, permit or license (collectively, “Laws”) which is applicable to Seller, JCG LLC, the Company or any Company Subsidiary or any of their respective properties or assets, in each case, excluding clause (i) of this Section 2.3, as would not reasonably be expected to have a Company Material Adverse Effect.

Section 2.4         Consents and Approvals. Except (i) as set forth in Section 2.4 of the Seller Disclosure Schedule, (ii) for compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (iii) for any reports required to be filed with the SEC under the Exchange Act, and (iv) for applicable approvals of the Food and Drug Administration, Drug Enforcement Administration, Medicare/Medicaid, state boards of pharmacy and governmental controlled substances, durable medical equipment and liquor authorities (each of (i) through (iv) a “Governmental Approval”), no declaration, filing or registration with, or notice to or authorization, consent or approval of, any court, federal,
state, local or foreign governmental or regulatory body (including a national securities exchange or other self-regulatory body) or authority, commission, board or department (each a “Governmental Authority”) is necessary for the execution and delivery of this Agreement and the Ancillary Agreements by Seller or the consummation by Seller of the transactions contemplated hereby and thereby, in each case, except (i) as would not reasonably be expected to have a Company Material Adverse Effect or (ii) as may be necessary as a result of any facts or circumstances relating solely to Purchaser or any of its Affiliates (as defined in Section 2.17).

	
            Section 2.5
 	
            Capitalization; Subsidiaries.
 

(a)          Section 2.5(a) of the Seller Disclosure Schedule sets forth the number of authorized, issued and outstanding shares of capital stock or other equity interests and the record 

 

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owner or owners thereof of JCG LLC, the Company and each of the Company Subsidiaries. All of the outstanding shares of capital stock or other equity interests of JCG LLC, the Company and each Company Subsidiary are validly issued, fully paid and nonassessable and were issued in conformity with applicable Laws, have not been issued in violation of any preemptive or similar rights, and are owned, in the case of the Jean Coutu USA Shares, by Seller (or, in the event the Reorganization is consummated prior to the Closing, JCG LLC), and in the case of the capital stock of each of the Company Subsidiaries, directly or indirectly by the Company (and, as a result of Purchaser’s acquisition of the Jean Coutu USA Shares (or, in the event the Reorganization is consummated prior to the Closing, the JCG LLC Interests), Purchaser is indirectly acquiring the capital stock and assets of each of the Company
Subsidiaries), in each case free and clear of any Liens. Except as set forth in Section 2.5(a) of the Seller Disclosure Schedule, there are no outstanding options, warrants, calls, rights or commitments or any other agreements of any kind relating to the sale, issuance or voting of, or the granting of rights to acquire, any shares of the capital stock or equity interests of JCG LLC, the Company or any Company Subsidiary, or any securities or other instruments convertible into, exchangeable or exercisable for, or evidencing the right to purchase any shares of capital stock or equity interests of JCG LLC, the Company or any Company Subsidiary. 

(b)          Other than the Company Subsidiaries listed in Section 2.1 of the Seller Disclosure Schedule and set forth in Section 2.5(b) of the Seller Disclosure Schedule, there are no other Persons in which the Company or any Company Subsidiary owns, of record or beneficially, any direct or indirect equity or other similar interest or any right (contingent or otherwise) to acquire any direct or indirect equity or similar interest. As of the date hereof, there is no Person in which JCG LLC owns, of record or beneficially, any direct or indirect equity or other similar interest or any right (contingent or otherwise) to acquire any direct or indirect equity or other similar interest. In the event the Reorganization is consummated prior to the Closing, JCG LLC will own all of the then outstanding equity
interests of the Company.

(c)          Except as set forth in Section 2.5(c) of the Seller Disclosure Schedule, neither Seller nor any of its Affiliates owns any capital stock or other securities of Purchaser.

Section 2.6        Title to Jean Coutu USA Shares and JCG LLC Interests. Except as set forth in Section 2.6 of the Seller Disclosure Schedule, the sale and delivery of the Jean Coutu USA Common Shares and the Jean Coutu USA Preferred Shares (or, in the event the Reorganization is consummated prior to the Closing, the JCG LLC Interests) as contemplated by this Agreement are not subject to any preemptive right, right of first refusal or other right or restriction. The consummation of the transactions contemplated by this Agreement will convey to Purchaser good and valid title to the Jean Coutu USA Common Shares and the Jean Coutu USA Preferred Shares (or, in the event the Reorganization is consummated prior to the Closing, the JCG LLC Interests), in each case, free and clear of any Liens other than Liens created by or in respect of
Purchaser (including any Liens created pursuant to the Financing) or imposed by applicable securities Laws.

	
            Section 2.7
 	
            Seller Securities Filings.
 

(a)          Since November 24, 2004, Seller has filed with the SEC all Seller SEC Documents required to be filed by it under the Exchange Act  and, since May 28, 2005, Seller 

 

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has filed all forms, reports and documents required to be filed by it with securities commissions or other applicable Canadian or provincial securities regulatory authorities and The Toronto Stock Exchange (such documents, as supplemented and amended since the times of filing, collectively, the “Canadian Disclosure Documents”).

(b)          As of the respective dates, or, if amended, as of the date of the last such amendment, the Seller SEC Documents and the Canadian Disclosure Documents, including any financial statements or schedules included therein, (i) in the case of the Seller SEC Documents, complied in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder applicable to such Seller SEC Documents, (ii) in the case of the Canadian Disclosure Documents, complied in all material respects with the applicable requirements of the Canadian securities Laws and the rules and regulations thereunder applicable to such Canadian Disclosure Documents and (iii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of Seller included in the Seller SEC Documents (i) were prepared in accordance with Canadian generally accepted accounting principles consistently applied during the periods involved (except as noted therein) and (ii) fairly present, in all material respects, the consolidated financial condition, results of the operations and cash flows of Seller and its Subsidiaries for the periods therein set forth. 

	
            Section 2.8
 	
            Financial Statements.
 

(a)          Section 2.8(a) of the Seller Disclosure Schedule contains (i) the audited consolidated balance sheet of the Company and the Company Subsidiaries as of May 27, 2006 (the “2006 Balance Sheet”), and the related audited consolidated statements of income, shareholders’ equity and cash flows for the fiscal year ended May 27, 2006 (collectively, the «2006 Financial Statements«) and (ii) the audited consolidated balance sheet of the Company and the Company Subsidiaries as of May 28, 2005 and the related audited consolidated statements of income, shareholders’ equity and cash flows for each of the two one-year periods ended May 28, 2005 and May 29, 2004 (collectively, together
with the 2006 Financial Statements, the «Company Financial Statements«). The Company Financial Statements (i) have been prepared from, are in accordance with, and accurately reflect the books and records of the Company and the Company Subsidiaries, (ii) have been prepared in accordance with GAAP applied on a consistent basis during the period involved (except as may be stated in the notes thereto) and (iii) fairly present, in all material respects, the consolidated financial position of the Company and the Company Subsidiaries as of the dates thereof and the consolidated results of operations and cash flows (and changes in financial position, if any) of the Company and the Company Subsidiaries for the periods referred to therein. Seller has made available to Purchaser copies of all material written communications delivered to Seller, the Company or any Company Subsidiary by independent public accountants in connection with the
Company Financial Statements or relating to any review by such accountants of the Internal Controls (as defined in Section 2.8(d) below) of the Company and the Company Subsidiaries during any of the three one-year periods ended May 27, 2006, May 28, 2005 and May 29, 2004 or thereafter, and have used reasonable efforts to make available for inspection all reports and work papers produced or developed by the auditors or management in connection with their examination of financial statements with respect to the Company or any Company Subsidiary, as well as all such reports 

 

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and work papers for prior periods for which any tax liability of the Company or any Company Subsidiary has not been finally determined or barred by applicable statutes of limitation.

(b)          Except as set forth in Section 2.8(b) of the Seller Disclosure Schedule, the unaudited consolidated balance sheets of the Company and the Company Subsidiaries as of each fiscal month-end and each fiscal quarter-end occurring after the date of this Agreement and prior to the Closing Date and the related unaudited monthly and quarterly consolidated statements of income (collectively, the «Interim Financial Statements«), in each case, when delivered by Seller to Purchaser pursuant to Section 4.8 of this Agreement (i) will have been prepared from, will be in accordance with, and will accurately reflect the books and records of the Company and the Company Subsidiaries, (ii) will have been prepared in accordance with GAAP applied on a
consistent basis during the period involved and (iii) will fairly present, in all material respects, the consolidated financial position of the Company and the Company Subsidiaries as of the dates thereof and the consolidated results of operations of the Company and the Company Subsidiaries for the periods referred to therein, in each case except for the absence of notes thereto and subject to normal and recurring year-end adjustments).

(c)          Except as set forth in Section 2.8(c)(i) of the Seller Disclosure Schedule, since May 28, 2005, there has been no change in any of the significant accounting policies, practices or procedures of the Company or any Company Subsidiary. Section 2.8(c)(ii) of the Seller Disclosure Schedule sets forth a list of all material special or non-recurring items of income or expense for the one year period covered by the 2006 Financial Statements.

(d)          Except as set forth in Section 2.8(d) of the Seller Disclosure Schedule, the Company maintains a system of internal accounting controls (“Internal Controls”) sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary (A) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (B) to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

(e)          Except as set forth in Section 2.8(e) of the Seller Disclosure Schedule, all leases are off balance sheet obligations of the Company or a Company Subsidiary, and no lease is a capitalized lease of the Company or any Company Subsidiary. Other than the leases referred to in the first sentence of this Section 2.8(e), the Company and the Company Subsidiaries have no “off balance sheet arrangements” (as defined by Item 303(a)(4) of Regulation S-K promulgated by the SEC). 

Section 2.9        Absence of Undisclosed Liabilities. Neither the Company nor any Company Subsidiary has any material Liabilities except for (i) Liabilities that are reflected, or for which reserves were established, on the 2006 Balance Sheet as of May 27, 2006, (ii) Liabilities incurred in the ordinary course of business and consistent with past practice since May 27, 2006, (iii) Liabilities disclosed in Section 2.9 of the Seller Disclosure Schedule, and (iv) Liabilities that are disclosed in the Seller SEC Documents. As used in this Agreement, the term “Liability” means 

 

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any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent or matured or unmatured including those arising under any Law and those arising under any Contract, including any letters of credit.

Section 2.10      Absence of Certain Changes. Except as expressly contemplated by this Agreement or as set forth in Section 2.10 of the Seller Disclosure Schedule, since May 27, 2006:  (i) the Company and Company Subsidiaries have operated only in the ordinary course of business consistent with past practice, (ii) none of the Company or any Company Subsidiary has taken any of the actions listed in Section 4.1(a) through Section 4.1(s) as if such sections had applied since May 27, 2006, and (iii) there has not occurred any Company Material Adverse Effect (as defined in the next sentence) or any fact, occurrence, condition, change, development, effect, circumstance or event that would, individually or in the aggregate, be reasonably likely to have or result in a Company Material Adverse Effect. As used in this Agreement, the term
“Company Material Adverse Effect” means any material adverse effect on the Business, financial condition, financial position, or results of operations of the Company and the Company Subsidiaries, taken as a whole, excluding any effects resulting from (x) events or circumstances adversely affecting any principal markets served by the Company and the Company Subsidiaries or the industry in which the Company operates, except any changes that affect the Business materially disproportionately to its competitors, (y) general economic conditions, or (z) changes or effects arising out of the execution, delivery, announcement or performance of this Agreement or the consummation of any transaction contemplated hereby.

	
            Section 2.11
 	
            Compliance with Law; Permits.
 

(a)          Except as set forth in Section 2.11(a) of the Seller Disclosure Schedule, since July 31, 2004, the Company and the Company Subsidiaries have been in compliance with all Laws applicable to them (collectively, except for Laws specified in clauses (i) through (v) of this Section 2.11(a), «Other Laws«) and neither Seller, the Company nor any of the Company Subsidiaries has received any written notice of any failure to comply with any such Laws, in each case, except for such breaches together with all other Breaches of Law (as defined immediately below), as would not reasonably be expected to have a Company Material Adverse Effect. As used in this Agreement, the term «Breaches of Law« means, collectively, breaches of: (i) any applicable healthcare Laws, (ii) any applicable Tax Laws, (iii) ERISA (as defined below in Section 2.19), (iv) WARN (as defined below in Section 2.20), (v) the National Labor Relations Act and any applicable labor and employment Laws, including FLSA (as defined below in Section 2.20) and wage and hour claims (as defined below in Section 2.20), (v) any Environmental Laws (as defined below in Section 2.23(c)), and (vi) Other Laws, including, in each case, any regulations issued pursuant thereto.

(b)          The Company and the Company Subsidiaries have obtained all permits, franchises, authorizations, licenses or other approvals issued or granted by any Governmental Authority (collectively, “Permits”) that are necessary to the conduct of their respective businesses as presently being conducted and all such Permits are in full force and effect, in each case, except as would not reasonably be expected to have a Company Material Adverse Effect. Except as set forth in Section 2.11(b) of the Seller Disclosure Schedule, none of the Company or any of the Company Subsidiaries is in violation or default of such Permits, and none of Seller, the Company or any of the Company Subsidiaries has received any written notification from any 

 

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Governmental Authority threatening to suspend, revoke, withdraw, modify or limit any of the Permits, in each case, except as such violation or default together with all other Violations of Permits (as defined immediately below) would not reasonably be expected to have a Company Material Adverse Effect. As used in this Agreement, «Violations of Permits« means, collectively, breaches of any other Permits referred to in any other Section of this Agreement. 

Except with respect to the inclusion of such Laws in the Company Material Adverse Effect qualifier, this Section 2.11 shall not apply to healthcare regulatory compliance matters (which are the subject of Section 2.12), Tax matters (which are the subject of Section 2.18), employee benefit plan and ERISA matters (which are the subject of Section 2.19), labor matters (which are the subject of Section 2.20) and Environmental Law matters (which are the subject of Section 2.23).

	
            Section 2.12
 	
            Healthcare Regulatory Compliance.
 

(a)          Except as set forth in Section 2.12(a) of the Seller Disclosure Schedule, the Company and the Company Subsidiaries are qualified for participation in the Medicare and Medicaid programs. Except as set forth in Section 2.12(a) of the Seller Disclosure Schedule, neither the Company nor any Company Subsidiary has received any notice indicating that such qualification may be terminated or withdrawn nor has any reason to believe that such qualification may be terminated or withdrawn. The Company and the Company Subsidiaries have timely filed, in all material respects, all claims or other reports required to be filed with respect to the purchase of products or services by third-party payors (including, without limitation, Medicare and Medicaid), and all such claims or reports are complete and
accurate in all material respects. The Company and the Company Subsidiaries have no Liability to any payor with respect thereto, except for Liabilities incurred in the ordinary course of business consistent with past practice.

(b)          Except as set forth in Section 2.12(b) of the Seller Disclosure Schedule, the Company and the Company Subsidiaries have complied with all applicable healthcare Laws (including, in each case, any regulations issued pursuant thereto), including (i) the Social Security Act, as amended, Sections 1128, 1128A and 1128B, including criminal penalties for acts involving Federal health care programs, commonly referred to as the “Federal Anti-Kickback Statute,” (ii) the Social Security Act, as amended, Section 1877 (Prohibition of Certain Referrals), commonly referred to as the “Stark Statute,” (iii) the Federal False Claims Act, as amended, (iv) the Health Insurance Portability and Accountability Act of 1996, and (v) all statutes and regulations relating to the possession,
distribution, maintenance and documentation of controlled substances, in each case, except as such breaches together with all other Breaches of Law would not reasonably be expected to have a Company Material Adverse Effect.

(c)          Except as set forth in Section 2.12(c) of the Seller Disclosure Schedule, to Seller’s knowledge, no personnel of the Company or any Company Subsidiary during such person’s employment with the Company or any Company Subsidiary have been convicted of, charged with or investigated for a Medicare, Medicaid or other Federal Health Care Program (as defined in 42 U.S.C. § 1320a-7b(f)) related offense, or convicted of, charged with or investigated for a violation of federal or state law relating to fraud, theft, embezzlement, breach of fiduciary responsibility, financial misconduct, obstruction of an investigation or controlled substances. 

 

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Except as set forth in Section 2.12(c) of the Seller Disclosure Schedule, to Seller’s knowledge, no personnel of the Company or any Company Subsidiary during such person’s employment with the Company or any Company Subsidiary have been excluded or suspended from participation in Medicare, Medicaid or any other Federal Health Care Program, or have been debarred, suspended or are otherwise ineligible to participate in federal programs. Except as set forth in Section 2.12(c) of the Seller Disclosure Schedule, to Seller’s knowledge, no personnel of the Company or any Company Subsidiary during such person’s employment with the Company or any Company Subsidiary has committed any offense which may reasonably serve as the basis for any such exclusion, suspension, debarment or other ineligibility. Except as set forth in Section 2.12(c) of the Seller Disclosure Schedule, neither the Company nor any
Company Subsidiary has arranged or contracted with any individual or entity that is suspended, excluded or debarred from participation in, or otherwise ineligible to participate in, a Federal Health Care Program or other federal program.

Section 2.13      Litigation. Except as set forth in Section 2.13 of the Seller Disclosure Schedule, as of the date hereof, (a) there are no claims, suits, actions, charges or proceedings before any Governmental Authority or any arbitration pending or, to Seller’s knowledge, threatened against the Company or any Company Subsidiary, (b) to Seller’s knowledge, there are no investigations or formal or informal inquiries by any Governmental Authority against or relating to the Company or any Company Subsidiary, (c) there are no material internal investigations or material and reasonably credible whistle-blower complaints pending or, to Seller’s knowledge, threatened against or relating to the Company or any Company Subsidiary and (d) there are no judgments, decrees, injunctions, rules or orders of any Governmental Authority
relating to the Company or any Company Subsidiary, except, in the case of clauses (a) and (d), as would not reasonably be expected to have a Company Material Adverse Effect.

	
            Section 2.14
 	
            Assets.
 

(a)          Except as would not reasonably be expected to have a Company Material Adverse Effect, the Company and each Company Subsidiary has (and immediately after giving effect to the transactions contemplated hereby will have) good, valid and marketable title to, or in the case of leased property good and valid leasehold interests in, or otherwise has full or sufficient and legally enforceable rights to use, all of the properties and assets (real, personal or mixed, tangible or intangible) used or held for use in connection with, necessary for the conduct of, or otherwise material to, the Business, including all such assets (other than assets disposed of (i) in the ordinary course of business, or (ii) as described in Section 2.14 of the Seller Disclosure Schedule) reflected in the 2006 Balance Sheet
or acquired since the date thereof (the “Assets”), in each case free and clear of any Lien other than Permitted Liens (as defined in Section 2.14(b) below). The Company and each Company Subsidiary has maintained all tangible Assets in good repair, working order and operating condition, subject only to ordinary wear and tear, except as would not reasonably be expected to have a Company Material Adverse Effect. 

(b)          As used in this Agreement, the term “Permitted Liens” means, collectively:  (i) Liens for current Taxes (as defined in Section 2.18(m) below) or governmental assessments not yet due and payable or which are being contested in good faith by appropriate proceedings or may thereafter be paid without penalty; (ii) builder, mechanic, warehousemen, materialmen, contractor, workmen, repairmen, carrier Liens, or other similar Liens arising and continuing in 

 

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the ordinary course of business for obligations which are not delinquent or which are being contested in good faith by appropriate legal proceedings; (iii) other similar common law or statutory Liens which do not materially affect the value of the property so subject or the usefulness thereof to the Business; (iv) liens, easements, rights of way, restrictions, encumbrances, covenants, conditions, encroachments, imperfections or any other matters affecting title to Real Property (as defined in Section 2.15(a)) which are not material in amount and do not materially impair the current use of such Real Property to which they relate; (v) local, county, state and Federal Laws, including buildings and zoning laws, ordinances and regulations now or hereinafter in effect; (vi) any usual and customary restrictions contained in Contracts affecting the Real Property (or any portion thereof); and (vii) Liens arising in
connection with indebtedness of Seller and to be released on or prior to the Closing; provided, in the case of clauses (ii) through (vii) above, that such Liens do not materially impair the current use, current value, transferability or marketability of such property. 

	
            Section 2.15
 	
            Real Property.
 

(a)          Section 2.15(a)(i) of the Seller Disclosure Schedule lists, as of the date of this Agreement, all real property owned in fee by the Company and the Company Subsidiaries (the “Owned Real Property”) and Section 2.15(a)(ii) of the Seller Disclosure Schedule lists all real property (whether by virtue of direct lease, ground lease or sublease, each a «Lease«) leased by the Company and the Company Subsidiaries as lessee (the “Leased Real Property” and, together with the Owned Real Property, the “Real Property”). Seller has made available to Purchaser all of the information
contained in the Company’s lease management database with respect to the Real Property. The Real Property constitutes all of the material land, buildings and structures used by the Company and the Company Subsidiaries in the conduct of their Business.

(b)          With respect to the Real Property, except as would not reasonably be expected to have a Company Material Adverse Effect: 

(i)        except as set forth in Section 2.15(b)(i) of the Seller Disclosure Schedule, there are no pending or, to Seller’s knowledge, threatened condemnation proceedings relating to such Real Property; 

(ii)      Seller has not granted and, to Seller’s knowledge, there are no currently outstanding options or rights of first refusal of any third party to purchase or lease such Real Property, or any portion thereof or interest therein, except to the extent set forth in Section 2.15(b)(ii) of the Seller Disclosure Schedule;

(c)          With respect to the Owned Real Property, except as would not reasonably be expected to have a Company Material Adverse Effect:

(i)        except as set forth in Section 2.15(c)(i) of the Seller Disclosure Schedule, there are no written leases, subleases, licenses or agreements granting to any party or parties (other than the Company or a Company Subsidiary) the right of use or occupancy of any portion of any Owned Real Property;

 

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(ii)      to Seller’s knowledge, such Owned Real Property is in compliance with the terms and provisions of any restrictive covenants, easements, or agreements affecting such Owned Real Property.

(d)          With respect to the Leased Real Property, except as would not reasonably be expected to have a Company Material Adverse Effect:

(i)        except as set forth in Section 2.15(d)(i) of the Seller Disclosure Schedule, each Lease is the legal, valid, binding, and enforceable obligation of the Company or the applicable Company Subsidiary that is lessee thereunder, and, to Seller’s knowledge, is in full force and effect and the binding obligation of the other parties thereto and will continue to be the legal, valid, binding, and enforceable obligation of the Company or the applicable Company Subsidiary following the consummation of the transactions contemplated by this Agreement;

(ii)      except as set forth in Section 2.15(d)(ii) of the Seller Disclosure Schedule, neither the Company nor any Company Subsidiary has received any written notice that it is in default under any Lease, nor is the Company nor any Company Subsidiary or, to Seller’s knowledge, any other party to such Lease in default under any such Lease, and no event has occurred, which, after the giving of notice, with lapse of time, or otherwise, would constitute a default by the Company or any Company Subsidiary or, to Seller’s knowledge, any other party under such Lease;

(iii)     except as set forth in Section 2.15(d)(iii) of the Seller Disclosure Schedule, neither the Company nor any Company Subsidiary has received written notice claiming any disputes and, to Seller’s knowledge, no disputes exist with respect to any Lease; and

(iv)     neither the Company nor any Company Subsidiary has assigned, subleased, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold created by such Lease, except as set forth in Section 2.15(d)(iv) of the Seller Disclosure Schedule.

	
            Section 2.16
 	
            Material Contracts.
 

(a)          Except as set forth in Section 2.16(a) of the Seller Disclosure Schedule (which shall reference the applicable clause of this subsection (a)) neither the Company nor any Company Subsidiary is a party to or bound by any:  

(i)        Contract for capital expenditures or the acquisition or construction of fixed assets which requires aggregate future payments in excess of $750,000 other than Contracts for which the payments to be made thereunder are currently accounted for in Seller’s capital budget; 

(ii)      Contract prohibiting or restricting the ability of the Company or any Company Subsidiary to conduct the Business, to compete in any line of business or to engage in any business or operate in any geographical area, in each case other than usual and customary restrictions contained in Leases; 

 

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(iii)     Contract containing any provision requiring the Company or any Company Subsidiary to purchase a minimum amount of product or allocate a minimum amount of shelf space to certain products;

(iv)    Contract (or group of Contracts relating to the same site) requiring aggregate future payments or expenditures in excess of $750,000 and relating to cleanup, abatement, remediation or similar actions in connection with environmental Liabilities; 

(v)      royalty Contract or other Contract with respect to Intellectual Property (as defined in Section 2.21(c) below) which, pursuant to the terms thereof, requires future payments by the Company or a Company Subsidiary in excess of $750,000 per annum; 

(vi)     Contract pursuant to which the Company or any Company Subsidiary has entered into a joint venture or similar arrangement with any other Person (other than the Company or another Company Subsidiary); 

(vii)    indenture, mortgage, loan or credit Contract under which the Company or a Company Subsidiary has outstanding indebtedness or any outstanding note, bond, indenture or other evidence of indebtedness for borrowed money, or guaranteed indebtedness for money borrowed by others, in an amount greater than $250,000 individually or $1,000,000 in the aggregate;

(viii)   Contract (including any so-called take or pay or keep well agreements) under which the Company or any Company Subsidiary has directly or indirectly guaranteed or otherwise agreed to be responsible for indebtedness, Liabilities or obligations of another Person (other than the Company or another Company Subsidiary);

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

(x)       Contract under which the Company or a Company Subsidiary is (A) a lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible personal property owned by a third Person, or (B) a lessor of any tangible personal property owned by the Company or the applicable Company Subsidiary, in any case which requires annual payments in excess of $750,000;

(xi)     Contract for pending acquisitions of capital stock or assets of another Person (whether by merger or stock or asset purchase);

(xii)    Contract relating to any pending purchase or sale by the Company or any Company Subsidiary of any customer prescription files; and 

(xiii)   any Contract (other than Contracts of the type described in subclauses (i) through (xiv) above) that involves aggregate future payments by or to 

 

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the Company or a Company Subsidiary in excess of $750,000 per annum, other than a purchase or sales order or other Contract entered into in the ordinary course of business consistent with past practice.

Each such Contract described in clauses (i) through (xiii) is referred to herein as a “Material Contract”.

(b)          Copies of all Material Contracts have been previously delivered to or made available for inspection by Purchaser, and such copies are complete and correct in all material respects. Except as set forth in Section 2.16(b) of the Seller Disclosure Schedule, (i) each of the Material Contracts is in full force and effect and is a valid and binding obligation of the Company or Company Subsidiary, as applicable, and enforceable against the Company or such Company Subsidiary, and, to Seller’s knowledge, a valid and binding obligation enforceable against each other party thereto; (ii) the Company or Company Subsidiary, as applicable, has duly performed all of its obligations required to be performed by it to date under each of the Material Contracts and is not (with or without the lapse of time
or the giving of notice, or both) in breach or default thereunder; (iii) to Seller’s knowledge, each of the other parties to such Material Contract has performed all obligations required to be performed by it to date under such Material Contract and is not (with or without the lapse of time or the giving of notice, or both) in breach or default thereunder; (iv) neither the Company nor any Company Subsidiary has received any written notice of any intention to terminate, not renew or challenge the validity or enforceability of any Material Contract; and (v) none of the Material Contracts requires the consent of any other party thereto in connection with the consummation of the transactions contemplated by this Agreement, in each case, except as would not reasonably be expected to have a Company Material Adverse Effect.

(c)          As used in this Agreement, the term “Contract” means any contract, agreement, lease, license, purchase order, indenture, note, bond, loan, instrument, commitment or other arrangement that is binding on any Person or any part of its property under applicable Law.

Section 2.17      Affiliate Arrangements. Except as set forth in Section 2.17 of the Seller Disclosure Schedule, there are no Contracts between the Company or a Company Subsidiary, on the one hand, and Seller or any of its Affiliates (other than the Company or any Company Subsidiary), on the other hand (any such Contract, an “Affiliate Arrangement”). As used in this Agreement, the term “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. For purposes of this definition, the term “control” as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause the direction of the management of such Person, whether through ownership of voting securities, as trustee or executor, by contract or any other means; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. 

	
            Section 2.18
 	
            Taxes. Except as set forth in Section 2.18 of the Seller Disclosure Schedule:
 

(a)          (i) Each of the Company and the Company Subsidiaries has timely filed, or has caused to be timely filed on its behalf, (taking into account any extension of time within which to file) all material Tax Returns (as defined in Section 2.18(m) below) required to be filed 

 

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by it and all such Tax Returns are true, correct and complete in all material respects and (ii) all material Taxes due and payable by each of the Company and the Company Subsidiaries have been timely paid.

(b)          There are no material Liens for Taxes upon any property or Assets of the Company or the Company Subsidiaries, except for Liens arising by operation of Law for Taxes not yet due and payable.

(c)          Each of the Company and the Company Subsidiaries has complied with all applicable Laws relating to the payment and withholding of Taxes and has, within the time and in the manner prescribed by Law, withheld and paid over to the proper Tax Authority (as defined in Section 2.18(m) below) all amounts required to be so withheld and paid over under applicable Law.

(d)          No Tax Proceeding (as defined in Section 2.18(m) below) is presently pending or threatened with regard to any Taxes or Tax Returns of the Company or any of the Company Subsidiaries.

(e)          Neither the Company nor any of the Company Subsidiaries has requested an extension of time within which to file any Tax Return that has not since been filed.

(f)           No agreement or other document waiving or extending the statute of limitations or the period of assessment for collection of any Taxes payable by the Company or any of the Company Subsidiaries has been filed or entered into with any Tax Authority by the Company or any of the Company Subsidiaries.

(g)          Neither the Company nor any of the Company Subsidiaries is a party to any contract or agreement (i) one of the principal purposes of which is to provide for the allocation, sharing or indemnification of Taxes or (ii) that otherwise provides for the allocation, sharing or indemnification of a material amount of Taxes (other than a Contract or agreement entered into in the ordinary course of business).

(h)          Neither the Company nor any of the Company Subsidiaries has been included in any “consolidated,” “unitary” or “combined” Tax Return (other than Tax Returns which include only the Company and any of the Company Subsidiaries) for U.S. federal Tax purposes or for any foreign, state or local Tax purposes with respect to Taxes for any taxable year.

(i)           Neither the Company nor any of the Company Subsidiaries has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the “Code”) in a distribution of stock qualifying for Tax-free treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement or (ii) in a distribution that could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the transactions contemplated by this Agreement.

(j)           Neither the Company nor any of the Company Subsidiaries will be required to include any amount in taxable income or exclude any item of deduction or loss from 

 

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taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of (A) any installment sale or open transaction disposition made on or prior to the Closing Date, (B) any prepaid amount received on or prior to the Closing Date, (C) any change in method of accounting for a taxable period ending on or prior to the Closing Date, (D) deferred gains arising prior to the Closing Date or (E) any «closing agreement" as described in Section 7121 of the Code or any similar provision of state, local or foreign Tax Law;

(k)          No claim has been made by any Governmental Authority in a jurisdiction where the Company or any Company Subsidiary does not file Tax Returns that it is, or may be, subject to taxation by that jurisdiction.

(l)           Neither the Company nor any of the Company Subsidiaries has engaged in any transaction that gives rise to any (A) (x) registration obligation under section 6111 of the Code and the Treasury Regulations thereunder; (y) list maintenance obligation under section 6112 of the Code and the Treasury Regulations thereunder; or (z) disclosure obligation as a “reportable transaction” under section 6011 of the Code and the Treasury Regulations thereunder or (B) similar obligation pursuant to any state, local or foreign Law.

	
             
 	
            (m)
 	
            As used in this Agreement:
 

(i)       “Tax Authority” means any Governmental Authority having jurisdiction over the assessment, determination, collection or imposition of any Tax.

(ii)      “Tax Return” means any return, report or similar statement (including any attachment or supplements thereto) supplied to or required to be supplied to any Tax Authority, including, any information return, claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, combined, consolidated or unitary returns for any group of entities that includes the Company, any of the Company Subsidiaries or any of their respective Affiliates.

(iii)     “Tax” or “Taxes” means (i) any and all federal, state, local, foreign or other taxes of any kind imposed by any Tax Authority, including, taxes, fees, duties, levies, customs, tariffs, imposts, assessments, obligations or other similar charges of any kind on or with respect to income, franchises, premiums, windfall or other profits, gross receipts, property, sales, use, transfer, capital stock, payroll, employment, social security, workers’ compensation, unemployment compensation or net worth, and taxes or other similar charges of any kind in the nature of excise, withholding, ad valorem or value added; (ii) all interest, penalties, fines, additions to tax or additional amounts
imposed by any Tax Authority in connection with any item described in clause (i); and (iii) any transferee liability in respect of any items described in clauses (i) or (ii) payable by reason of Contract, assumption, transferee liability, operation of Law or Treasury Regulation Section 1.1502-6 (or any predecessor or successor provisions thereof and any similar provision of state, local or foreign Law).

(iv)     “Treasury Regulations” means the regulations, including temporary regulations, promulgated under the Code, as the same may be 

 

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amended hereafter from time to time (including corresponding provisions of succeeding regulations).

(v)      “Tax Proceeding” means any pending or threatened audit or assessment, suit, proposed adjustment, deficiency, dispute, administrative or judicial proceeding or similar claim with respect to Taxes.

	
            Section 2.19
 	
            Employee Benefit Plans; ERISA.
 

(a)          Section 2.19(a) of the Seller Disclosure Schedule sets forth each material written employee benefit plan, arrangement, policy, practice, Contract or agreement (including, without limitation, employment agreements, consulting agreements, change of control agreements and severance agreements, deferred compensation, incentive compensation, bonus, stock option, equity-based and stock purchase plans) of any type (including but not limited to “employee benefit plans” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), maintained by the Company, any of the Company Subsidiaries or any trade or business, whether or not incorporated, that together with the Company would be
deemed to be a “single employer” within the meaning of section 4001(b)(1) of ERISA (an “ERISA Affiliate”) in each case (i) with respect to which the Company or any of the Company Subsidiaries has or may have a Liability, or (ii) which is maintained for the benefit of current or former employees of the Company or any of the Company Subsidiaries (collectively, the “Benefit Plans”). Section 2.19(a) of the Seller Disclosure Schedule separately lists or identifies each Benefit Plan (i) that is not sponsored or maintained by the Company or any of the Company Subsidiaries or (ii) which provides change in control benefits.

(b)          With respect to each Benefit Plan and to the extent applicable, Seller has delivered or made available to Purchaser true and complete copies of all plan documents, summary plan descriptions, summaries of material modifications, trust agreements and other related agreements including all amendments to the foregoing; the two most recent annual reports; the most recent annual and periodic accounting of plan assets; the most recent determination letter received from the United States Internal Revenue Service.

(c)          Except where failure to comply would not be reasonably likely to have a Company Material Adverse Effect, with respect to each Benefit Plan: (i) if intended to qualify under section 401(a) of the Code, such plan so qualifies, and its trust is exempt from taxation under section 501(a) of the Code; (ii) such plan has been administered in accordance with its terms and with all applicable Laws; (iii) all contributions have been made when due or have been accrued on the Company’s financial statements in accordance with GAAP; (iv) no breaches of fiduciary duty have occurred; (v) no claims are pending or, to Seller’s knowledge, threatened or anticipated by or on behalf of any Benefit Plan, by any employee or beneficiary under any such Plan or otherwise involving any such Benefit Plan
(other than routine claims for benefits); (vi) none of the Company, any of the Company Subsidiaries, any ERISA Affiliate, nor, to Seller’s knowledge, any trustee or administrator thereof, has engaged in a transaction or has taken or failed to take any action in connection with which the Company or any of the Company Subsidiaries could be subject to any Liability for either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a Tax imposed pursuant to Section 4975 or 4976 of the Code; (vii) no Lien imposed under the Code or ERISA exists or is reasonably likely to exist; and (viii) 

 

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all contributions and premiums due (including any extensions for such contributions and premiums) have been timely made in full.

(d)          Except as disclosed on Section 2.19(d) of the Seller Disclosure Schedule:  (i) neither the Company nor any ERISA Affiliate has incurred any material Liability under Title IV of ERISA that has not been satisfied in full (including pursuant to Sections 4063-4064 and 4069 of ERISA) and, to Seller’s knowledge, no basis for any such Liability exists; (ii) neither the Company nor any ERISA Affiliate maintains (or contributes to), or has maintained (or has contributed to) within the last six years, any employee benefit plan that is subject to Title IV of ERISA; and (iii) there is no pending dispute between the Company or any ERISA Affiliate concerning payment of contributions or payment of withdrawal liability payments.

(e)          With respect to each Benefit Plan that is an “employee welfare benefit plan” (as defined in Section 3(1) of ERISA), except as specifically disclosed in Section 2.19(e) of the Seller Disclosure Schedule, no such plan provides medical or death benefits with respect to current or former employees of the Company or any of the Company Subsidiaries beyond their termination of employment, other than on an employee-pay-all basis or except as required by applicable Law. Except where failure to comply would not be reasonably likely to result in a Company Material Adverse Effect, with respect to each Benefit Plan that is a “group health plan” (as defined in Section 5000(b) of the Code), each such Benefit Plan currently complies and has complied with the requirements of Part 6 of
Title I of ERISA and Sections 4980B and 5000 of the Code.

(f)           Except as set forth in Section 2.19(f) of the Seller Disclosure Schedule, the consummation of the transactions contemplated by this Agreement will not, either alone or in combination with any other event, (i) entitle any current or former employee, officer, director or consultant of the Company or any of the Company Subsidiaries to severance pay, unemployment compensation or any other termination payment or (ii) accelerate the time of payment or vesting, or increase the amount of, or otherwise enhance, any benefit due to any such employee, officer, director or consultant, including, without limitation, with respect to any equity-based awards held by them under the equity compensation plans maintained by Seller and its Affiliates, or (iii) result in any payment that would fail to be
deductible under Section 280G of the Code.

(g)          No Benefit Plan is a “multiemployer plan” (as defined in Section 3(37) of ERISA).

Section 2.20      Labor Matters. Except as set forth in Section 2.20 of the Seller Disclosure Schedule:  (i) the Company and the Company Subsidiaries are neither party to, nor bound by, any collective bargaining agreement or other Contract with any union or labor organization or association; (ii) there are no collective bargaining agreements or other Contract with any union or labor organization or association that pertain to any of the employees of the Company or the Company Subsidiaries; (iii) no employees of the Company or the Company Subsidiaries are represented by any labor organization with respect to their employment with the Company or the Company Subsidiaries; (iv) there are no pending or, to Seller’s knowledge, threatened organizational campaigns or activities, petitions, demands or other unionization activities seeking
recognition of a collective bargaining unit or representation with respect to or involving any employees of the Company or the Company Subsidiaries, and no current union representation 

 

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question exists involving any such employees; (v) from July 1, 2004 to the date of this Agreement, there has been no actual, or, to Seller’s knowledge, threatened strikes, lockouts, slowdowns, work stoppages or material grievances against or affecting the Company or the Company Subsidiaries; (vi) there are no pending, or, to Seller’s knowledge, threatened unfair labor practice charges or complaints against or affecting the Company or the Company Subsidiaries before any Governmental Authority, and none of the Company, the Company Subsidiaries nor any of their respective employees, agents or representatives has committed any material unfair labor practice as defined in the National Labor Relations Act or similar Law; (vii) the Company and the Company Subsidiaries are in compliance with all material applicable labor and employment Laws, including all material applicable Laws respecting employment and
employment practices, including, without limitation, the Workers’ Adjustment and Retraining Notification Act and any similar foreign, state or local Law relating to plant closings and layoffs (“WARN”), all material applicable Laws respecting terms and conditions of employment, health and safety, wages and hours (including the Fair Labor Standards Act of 1938, as amended («FLSA«) and any similar foreign, state or local Law), child labor, immigration, employment discrimination, disability rights or benefits, equal opportunity, affirmative action, workers’ compensation, labor relations, employee leave issues and unemployment insurance, and neither the Company nor the Company Subsidiaries have any Liabilities that are payable pursuant to WARN, the FLSA or any other material applicable Law respecting employment and employment practices; and (ix) neither the Company
nor the Company Subsidiaries is a party to, or otherwise bound by, any consent decree with, order of, judgment or citation by, any Governmental Authority relating to employees or employment practices.

	
            Section 2.21
 	
            Intellectual Property.
 

(a)          Section 2.21(a)(i) of the Seller Disclosure Schedule sets forth a complete and accurate list of all of the following Company Intellectual Property (as defined in Section 2.21(c) below) specifying which of the Company or the Company Subsidiaries is the owner or holder of such Company Intellectual Property, including the following: (i) patents and patent applications; (ii) trademark registrations, applications and material unregistered trademarks; (iii) Internet domain names; (iv) copyright registrations, applications and material unregistered copyrights; and (v) material computer software. Section 2.21(a)(ii) of the Seller Disclosure Schedule sets forth all (A) material licenses with a third party to which the Company or any Company Subsidiary is a party as either a licensee or licensor or
agreements pursuant to which it otherwise grants or receives rights to Company Intellectual Property, except for licenses for commercially available “off the shelf” software, (B) licenses with Seller to which the Company or any Company Subsidiary is a party, and (C) material licenses with a third party to which Seller is a party pursuant to which it licenses any Company Intellectual Property.

(b)          Except as set forth in Section 2.21(b) of the Seller Disclosure Schedule or as would not be reasonably likely to have a Company Material Adverse Effect:

(i)       the Company or a Company Subsidiary is the sole and exclusive owner of or has a valid license to use or otherwise possess, free and clear of all Liens other than Permitted Liens, all Company Intellectual Property;

 

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(ii)      all Company Intellectual Property is subsisting and in full force and effect, valid and enforceable, and has not been cancelled, expired, abandoned, allowed to lapse or dedicated to the public domain, in whole or in part;

(iii)     to Seller’s knowledge, the conduct of the Company’s Business does not infringe upon or otherwise violate any Intellectual Property right owned or controlled by a third party and no claim has been made, is pending or, to Seller’s knowledge, threatened that the conduct of the Company’s business violates the asserted rights of any third party; and 

(iv)     to Seller’s knowledge, no third party is infringing upon or otherwise violating any rights in any Company Intellectual Property, no such claim is currently pending and no such claim has been threatened or made by the Company or any Company Subsidiary against any third party during the past three years.

(c)          As used in this Agreement, the term “Intellectual Property” means all of the following in any jurisdiction throughout the world, including all tangible embodiments thereof (in whatever form or medium): (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice) and all improvements thereto, (ii) all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (iii) all trademarks, service marks, trade dress, logos, slogans, trade names, corporate names, Internet domain names, and rights in telephone numbers, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (iv) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (v) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (vi) all computer software (including source code, executable code, data, databases, and related documentation), (vii) all material advertising and promotional materials, and (viii) all other proprietary rights. “Company Intellectual Property” means all Intellectual Property that is used in
the operation of the Business as currently conducted including, but not limited to, all Intellectual Property that is (A) owned by the Company or a Company Subsidiary, (B) licensed by the Company or any Company Subsidiary from Seller or from a third party, or (C) owned by Seller and used by the Company or any Company Subsidiary. 

Section 2.22      Insurance. Except as would not reasonably be expected to have a Company Material Adverse Effect, all Assets of the Company and each Company Subsidiary are, and for the past two years have been, covered by valid insurance policies or binders of insurance issued in favor of Seller, the Company or a Company Subsidiary, as the case may be, in such types and amounts and covering such risks as are consistent with customary practices and standards of companies engaged in businesses and operations similar to the Company’s Business. Section 2.22 of the Seller Disclosure Schedule sets forth a list of the insurance coverage for the Company and Company Subsidiaries in effect as of the date of this Agreement. Except as would not reasonably be expected to have a Company Material Adverse Effect, all such policies are in full 

 

25

 

 

force and effect, all premiums due and payable have been paid, and since July 31, 2004 no written notice of default, cancellation or termination, coverage limitation or reduction or premium increase with respect to any such policy has been received by Seller, the Company or any Company Subsidiary with respect to any such policy. Except as would not reasonably be expected to have a Company Material Adverse Effect, the Company and the Company Subsidiaries, as applicable, have complied with the terms and provisions of such policies. There is no claim by the Company or any Company Subsidiary pending under any of such policies as to which coverage has been denied or disputed by the underwriters of such policies. Except as would not reasonably be expected to have a Company Material Adverse Effect, all insurance policies maintained by the Company and the Company Subsidiaries will remain in full force and effect
following consummation of the transactions contemplated by this Agreement.

	
            Section 2.23
 	
            Compliance with Environmental Laws.
 

(a)          Except as set forth in Section 2.23(a) of the Seller Disclosure Schedule and except as would not reasonably be expected to have a Company Material Adverse Effect, neither the Seller (with respect to the Company or any of the Company Subsidiaries) nor the Company or the Company Subsidiaries: (i) (A) have violated or are in noncompliance with, are engaged in proceedings with respect to violations or noncompliance, have received a notice of violation or noncompliance or information request, or, to Seller’s knowledge, are subject to an investigation, with respect to, any Environmental Laws, or (B) have received or expect to receive notification of, are engaged in proceedings with respect to or have entered into or expect to enter into an agreement with respect to, Liabilities under any
Environmental Laws; (ii) are aware of any Hazardous Material (as defined in Section 2.23(c) below) spills, releases, or contamination at any of the Real Property, or any property formerly owned, leased or operated by the Company or the Company Subsidiaries, that require investigation, reporting, or cleanup under any Environmental Laws; (iii) have entered into or are subject to any judicial or administrative orders, decrees or judgments or enforceable agreements with Governmental Authorities, with respect to Environmental Laws; (iv) have entered into any agreements requiring them to indemnify, reimburse, defend or hold harmless any other person from and against any Liabilities under Environmental Law;  and (v) have failed to provide or make available to Purchaser all reports, audits, studies, analyses and correspondence with Governmental Authorities relating to the Company’s or the Company Subsidiaries’ Liabilities under or compliance with Environmental Laws, or the
environmental condition of the Real Property or any property formerly owned, leased or operated by the Company or the Company Subsidiaries.

(b)          Except as set forth in Section 2.23(b) of the Seller Disclosure Schedule: (i) the Company and the Company Subsidiaries have obtained all material Permits required pursuant to applicable Environmental Laws («Environmental Permits«) that are necessary for the conduct of their respective businesses as presently being conducted and such Environmental Permits are in full force and effect; (ii) none of the Company or any of the Company Subsidiaries is in material violation or default of such Environmental Permits; and (iii) none of Seller, the Company or any of the Company Subsidiaries has received any written notification from any Governmental Authority threatening to suspend, revoke, withdraw, modify or limit any of the Environmental Permits.

 

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            (c)
 	
            As used in this Agreement:
 

(i)       “Environmental Laws” means all foreign, federal, state and local Laws relating to pollution or protection of the environment or human health and safety, including Laws relating to releases or threatened releases of Hazardous Materials into the indoor or outdoor environment (including ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, release, transport or handling of Hazardous Materials and all Laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials, and all Laws relating to endangered or threatened species of fish, wildlife and plants and the
management or use of natural resources; and

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

	
            Section 2.24
 	
            Receivables; Payables.
 

(a)          Section 2.24(a) of the Seller Disclosure Schedule sets forth a correct and complete aged list of the Receivables (as defined in Section 2.24(b) below) as of the date of the 2006 Balance Sheet showing those Receivables that as of such date had been outstanding for (i) 30 days or less, (ii) 31 to 60 days, (iii) 61 to 90 days, (iv) 91 to 120 days, (v) 121 to 150 days, (vi) 151 to 180 days and (vii) more than 180 days. Except to the extent, if any, reserved for on the 2006 Balance Sheet, all Receivables reflected on the 2006 Balance Sheet arose, and the Receivables existing on the Closing Date will have arisen, in the ordinary course of business consistent with past practice. The allowance for doubtful accounts as reflected on the 2006 Balance Sheet was calculated in accordance with GAAP,
consistent with the past practices of Seller, and as of the date of this Agreement no event has occurred which would require a material increase in the ratio of the allowance for doubtful accounts to the Receivables. 

(b)          As used in this Agreement, “Receivables” means (i) trade receivables arising from the sale of inventory in connection with the operation of the Company’s Business and (ii) non-trade receivables arising in connection with the operation of the Company’s Business other than from the sale of inventory. 

(c)          Since the date of the 2006 Balance Sheet, neither the Company nor any Company Subsidiary has, with respect to any material portion of its trade accounts payable, (i) failed to pay its trade accounts payable in the ordinary course or (ii) extended the terms of payment, whether by contract, amendment, act, deed or course of dealing, of any trade account payable.

 

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Section 2.25      Inventories. The values at which all inventories are carried on the 2006 Balance Sheet reflect the inventory valuation policy of the Company and the Company Subsidiaries of stating such inventories at the lower of cost (determined on the last-in, first-out method) or market value. Except as set forth in Section 2.25 of the Seller Disclosure Schedule, none of the Company or any Company Subsidiary is subject to any Liability with respect to accepting returns of items of inventory or merchandise in the possession of their customers other than in the ordinary course of business consistent with past practice. Except as set forth in Section 2.25 of the Seller Disclosure Schedule, all inventories are owned free and clear of all Liens other than Permitted Liens and purchase money liens. 

Section 2.26      Suppliers. Section 2.26 of the Seller Disclosure Schedule sets forth the names and addresses of each of the twenty suppliers to whom the Company and the Company Subsidiaries paid the highest aggregate amounts for the twelve-month period ended May 27, 2006 for supplies, merchandise and other goods. Since May 27, 2006, none of Seller, the Company nor any Company Subsidiary has received notice in writing that any such supplier will not sell supplies, merchandise and other goods to the Company or any Company Subsidiary at any time after the Closing Date on terms and conditions substantially similar to those used in its current sales to the Business, subject only to general and customary price increases. 

Section 2.27      Acquisition for Own Account. The shares of Purchaser Common Stock to be issued to Seller pursuant to this Agreement will be acquired for Seller’s own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and Seller represents that it has no present intention or agreement to sell, grant any participation in, or otherwise distribute any of the Purchaser Common Stock to be acquired by Seller hereunder.

Section 2.28      Restricted Securities. Seller understands that the shares of Purchaser Common Stock to be issued to Seller pursuant to this Agreement upon issuance will be characterized as “restricted securities” under the Securities Act, inasmuch as they are being acquired from Purchaser in a transaction not involving a public offering, and that under the Securities Act such securities may be resold without registration under the Securities Act only in certain limited circumstances. In this regard, Seller represents that Seller is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Seller further understands that the resale of shares of Purchaser Common Stock to be issued to Seller pursuant to this Agreement will
be subject to the terms and provisions of the Stockholder Agreement.

	
            Section 2.29
 	
            Seller Indenture.
 

(a)          The consummation of the transactions contemplated by this Agreement (i) will constitute a sale of all or substantially all of the assets of Seller for purposes of the Indenture governing the 8.5% Notes (the «8.5% Notes Indenture«), dated as of July 30, 2004, between Seller, the guarantors named therein and The Bank of New York, as trustee, and (ii) will not constitute a «Change of Control" as defined in Section 1.01 of the 8.5% Notes Indenture (assuming that at the time of such consummation there is not any «person" or «group" (as such terms are used in the definition of «Change of Control"), other than Permitted Holders (as defined in the 8.5% Notes Indenture), that is or becomes the «beneficial owner" (as such term is 

 

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used in the definition of «Change of Control"), directly or indirectly of Voting Stock (as defined in the 8.5% Notes Indenture) of Purchaser constituting more than 50% of the total voting power of all outstanding Voting Stock of Purchaser with respect to the election of directors). 

(b)          Except as set forth on Section 2.29(b) of the Seller Disclosure Schedule, neither Seller nor any of its Subsidiaries has or will have (i) consummated an Asset Sale (as defined in the 8.5% Notes Indenture) that has resulted in a reduction in the amount of Indebtedness that may be incurred pursuant to Section 1008(b)(1) of the 8.5% Notes Indenture, (ii) made any Restricted Payment (as defined in the 8.5% Notes Indenture) that would reduce the amount of Restricted Payments that may be made pursuant to Section 1009(a) of the 8.5% Notes Indenture, (iii) made any Restricted Payment pursuant to Section 1009(b)(11) of the 8.5% Notes Indenture, (iv) made any Permitted Investment pursuant to section 14 of the definition of Permitted Investment (as defined in the 8.5% Notes Indenture), (v) made any
Investment (as defined in the 8.5% Notes Indenture) in a Permitted Joint Venture (as defined in the 8.5% Notes Indenture), and (vi) received any Designated Non-cash Consideration (as defined in the 8.5% Notes Indenture) in connection with any Asset Sale (as defined in the 8.5% Notes Indenture), (vii) taken any action that will result in a Restricted Payment (as defined in the 8.5% Notes Indenture) as a result of the consummation of the transactions contemplated hereby. Except as set forth on Section 2.29(b) of the Seller Disclosure Schedule, as of the date hereof, neither Seller nor any of its Subsidiaries has made any Restricted Payment pursuant to Section 1009(b)(9) of the 8.5% Notes Indenture.

(c)          As of the date hereof and immediately prior to the Closing, no Default or Event of Default (as such terms are defined in the 8.5% Notes Indenture) will have occurred and be continuing.

(d)          Each of the reports that have been prepared and filed pursuant to Section 1020 of the 8.5% Notes Indenture have been prepared in accordance with generally accepted accounting principles in Canada that were in effect on July 30, 2004, and each report that will be prepared and filed pursuant to Section 1020 of the 8.5% Notes Indenture between the date hereof and the Closing Date will be prepared in accordance with the 8.5% Notes Indenture, as the same may be supplemented or amended after the date hereof.

(e)          Any supplements or amendments to the 8.5% Notes Indenture that are duly and validly executed and delivered by Seller and the guarantors named therein, assuming the due authorization, execution and delivery thereof by the trustee, will constitute a legally valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or by general equitable principles. 

(f)           There are no «Excess Proceeds" (as defined in the 8.5% Notes Indenture) currently existing under the 8.5% Notes Indenture and there are no Net Cash Proceeds (as defined in the 8.5% Notes Indenture) that would constitute Excess Proceeds following the passage of time. Seller will not take any actions that would result in the existence of Excess Proceeds with the passage of time or otherwise.

 

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(g)          The representations and warranties of Seller in this Section 2.29 shall be deemed made only in the event Purchaser assumes the 8.5% Notes. For the avoidance of doubt, in the event Purchaser does not assume the 8.5% Notes, the representations and warranties of Seller in this Section 2.29 shall be null and void and of no force or effect.

Section 2.30      Brokers and Finders. Other than J.P. Morgan Securities, Inc., the fees and expenses of which will be paid by Seller, no broker, finder or similar intermediary has acted for or on behalf of, or is entitled to any broker’s, finder’s or similar fee or other commission from, Seller, JCG LLC, the Company or any Company Subsidiary in connection with this Agreement or the Ancillary Agreements or transactions contemplated hereby or thereby.

Section 2.31      No Other Representations and Warranties. Seller and its representatives have been permitted full and complete access to the nonprivileged books and records, facilities, equipment, Contracts, and other properties, Assets and documents of Purchaser that it and its representatives have desired or requested to see or review, and Seller and its representatives have had a full opportunity to meet with the employees of Purchaser to discuss Purchaser’s business. None of Purchaser or any other Person has made any representation or warranty, expressed or implied, as to Purchaser or Purchaser’s business, or the accuracy or completeness of any information regarding Purchaser and Purchaser’s business furnished or made available to Seller and its representatives, except as expressly set forth in this Agreement, the
Purchaser Disclosure Schedule (as defined below in the introduction to Article III) or the exhibits hereto. Seller has not relied on any representation or warranty from Purchaser or any other Person in determining to enter into this Agreement or the Ancillary Agreements, except as expressly set forth in this Agreement, the Purchaser Disclosure Schedule or the exhibits hereto.

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller as of the date of this Agreement and as of the Closing Date (except for those representations and warranties made as of a specific date or time) that, except as set forth in the disclosure schedule delivered by Purchaser to Seller concurrently herewith (the «Purchaser Disclosure Schedule«) (with specific reference to the particular section or subsection of this Article III to which the information set forth in such section of the Purchaser Disclosure Schedule relates; provided that any information set forth in one section of such Purchaser Disclosure Schedule shall be deemed to apply to each other section or subsection of this Article III to which its relevance is readily apparent) and except as set forth in any forms, reports and
documents filed or furnished by Purchaser with the SEC under the Exchange Act (such documents, as supplemented and amended since the time of filings, collectively, the “Purchaser SEC Documents”) filed prior to the date of this Agreement (and without regard to any amendment thereto filed after the date of this Agreement) to the extent such information is readily apparent as pertaining to any section of this Article III:

Section 3.1         Organization; Qualification. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has all requisite power and authority to carry on its business as it is now being conducted and is duly qualified or licensed to do business and in good standing in each of the jurisdictions in which the conduct of 

 

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its business or the ownership, operation or leasing of its assets and properties requires it to be so qualified, licensed or in good standing other than failures to be so qualified, licensed and in good standing that would not, individually or in the aggregate, be reasonably likely to have a material adverse effect on the ability of Purchaser to perform its obligations under this Agreement or to consummate the transactions contemplated hereby. 

Section 3.2        Authority; Validity of Agreements. Purchaser has all necessary corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and each of the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by the Board of Directors of Purchaser and all other requisite corporate action on the part of Purchaser and, except for the approval by Purchaser’s stockholders of the issuance of Purchaser Common Stock pursuant to this Agreement, no other corporate proceedings on the part of Purchaser are necessary to authorize this Agreement and the Ancillary Agreements or to consummate the
transactions contemplated hereby and thereby (including the Financing). The Board of Directors of Purchaser has approved the amendment to Purchaser’s Restated Certificate of Incorporation, which amendment is attached hereto as Exhibit 3.4, subject to the approval by Purchaser’s stockholders at the Special Meeting (as defined in Section 4.16(a)). The affirmative vote of the holders of a majority of the total number of votes of Purchaser Common Stock and Purchaser Voting Preferred Stock (as defined in Section 3.4(a) below), voting together as a single class, present or represented by proxy at the Special Meeting is required for Purchaser’s stockholders to approve the issuance of Purchaser Common Stock pursuant to this Agreement. This Agreement, the Stockholder Agreement and the Registration Rights Agreement have been, and the Transition Services Agreement will be, duly and validly executed and delivered by Purchaser and, subject to the approval by Purchaser’s
stockholders of the issuance of Purchaser Common Stock pursuant to this Agreement, assuming the due authorization, execution and delivery thereof by Seller, this Agreement, the Stockholder Agreement and the Registration Rights Agreement constitute, and the Transition Services Agreement will constitute, legally valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or by general equitable principles. 

Section 3.3         Non-Contravention. Except as set forth in Section 3.3 of the Purchaser Disclosure Schedule, the execution and delivery of this Agreement and each of the Ancillary Agreements by Purchaser does not, and the consummation of the transactions contemplated hereby and thereby (including the Financing) will not:  (i) conflict with or result in any breach of any provision of the Organizational Documents of Purchaser, (ii) result in a violation or breach of any provision of, constitute (with or without due notice or lapse of time or both) a default under, give rise to a right of termination, cancellation or acceleration of any obligation or the loss of any benefit under, or require any consent under, any Contract of any kind to which Purchaser is a party or by which it or any of its properties or Assets may be bound
or affected, (iii) except as set forth in Section 3.3 of the Purchaser Disclosure Schedule and pursuant to the Financing, result in the creation or imposition of any Lien upon any of the properties or assets of Purchaser, or (iv) subject to approval by Purchaser’s stockholders of the issuance of Purchaser Common Stock pursuant to this Agreement and the Governmental Approvals referred to in Section 3.5, violate 

 

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any Laws applicable to Purchaser or any of its properties or assets, except, in each case, excluding clause (i) of this Section 3.3, as would not reasonably be expected to have a material adverse effect on the business, financial condition, financial position, or results of operations of Purchaser and its Subsidiaries, taken as a whole, excluding any effects resulting from (x) events or circumstances adversely affecting any principal markets served by the Purchaser and its Subsidiaries or the industry in which the Purchaser operates, except any changes that affect the business of Purchaser materially disproportionately to its competitors, (y) general economic conditions or (z) changes or effects arising out of the execution, delivery, announcement or performance of this Agreement or the consummation of any transaction contemplated hereby (a “Purchaser Material Adverse
Effect”).

	
            Section 3.4
 	
            Capitalization.
 

(a)          The authorized capital stock of Purchaser consists of (i) 1,000,000,000 shares of Purchaser Common Stock as of the date of this Agreement, of which 532,013,887 shares were issued and outstanding as of July 29, 2006, 2006 and (ii) 20,000,000 shares of preferred stock, par value $1.00 per share (“Purchaser Preferred Stock”) as of the date of this Agreement, consisting of:

(A)         2,500,000 shares of 7% Series E Mandatory Convertible Preferred Stock (the “Series E Preferred Stock”), of which 2,500,000 shares were issued and outstanding as of July 29, 2006;

(B)         2,000,000 shares of 7% Series G Cumulative Convertible Pay-in-Kind Preferred Stock (the “Series G Preferred Stock”), of which 1,254,865 shares were issued and outstanding as of July 29, 2006;

(C)         2,000,000 shares of 6% Series H Cumulative Convertible Pay-in-Kind Preferred Stock (the “Series H Preferred Stock” and, together with the Series G Preferred Stock, the “Purchaser Voting Preferred Stock”), of which 1,236,480 were issued and outstanding as of July 29, 2006; and

(D)         5,200,000 shares of 5.50% Series I Mandatory Convertible Preferred Stock (together with the Series E Preferred Stock, the Series G Preferred Stock and the Series H Preferred Stock, the “Purchaser Convertible Preferred Stock”), of which 4,820,000 shares were issued and outstanding as of July 29, 2006.

As of July 29, 2006, the shares of Purchaser Voting Preferred Stock outstanding, which vote together with Purchaser Common Stock as a single class, except for matters on which the shares of Purchaser Voting Preferred Stock are entitled to vote as a separate class, represented an aggregate of 45,297,163 votes. All of the outstanding shares of capital stock of Purchaser are validly issued, fully paid and nonassessable and were issued in conformity with applicable Laws, and have not been issued in violation of any preemptive or similar rights.

(b)          On or prior to the Closing Date, subject to the approval by Purchaser’s stockholders at the Special Meeting of an amendment to Purchaser’s Restated Certificate of Incorporation, which amendment is attached hereto as Exhibit 3.4, and the filing thereof with the Secretary of State for the State of Delaware, the authorized capital stock of Purchaser shall 

 

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consist of 1.5 billion shares of Purchaser Common Stock and 20 million shares of Purchaser Preferred Stock.

(c)          As of the close of business on July 29, 2006, (i) 60,496,084 shares of Purchaser Common Stock were issuable upon exercise of outstanding options (“Purchaser Options”) to purchase Purchaser Common Stock under stock option plans (“Purchaser Stock Option Plans”) disclosed in the Purchaser SEC Documents, (ii) 7,325,000 shares of Purchaser Common Stock were issuable upon exercise of Purchaser Options other than pursuant to the Purchaser Stock Option Plans, (iii) 101,531,636 shares of Purchaser Common Stock were issuable upon conversion of the Purchaser Convertible Preferred Stock and (iv) 38,461,538 shares of Purchaser Common Stock were issuable upon conversion of the Purchaser 4.75%
Convertible Notes due December 2006. Except as set forth above or as contemplated by this Agreement, as of the close of business on July 29, 2006, there were no outstanding options, warrants, calls, rights or commitments or any other agreements of any kind relating to the sale, issuance or voting of, or the granting of rights to acquire, any shares of the capital stock of Purchaser, or any securities or other instruments convertible into, exchangeable or exercisable for, or evidencing the right to purchase any shares of capital stock of Purchaser.

(d)          The shares of Purchaser Common Stock to be issued pursuant to this Agreement, when issued to Seller and paid for pursuant to the terms of this Agreement, will be duly authorized and validly issued, fully paid and non-assessable and free of any preemptive rights or Liens, other than Liens created by Seller or imposed by the Stockholder Agreement or applicable securities Laws.

(e)          Based in part on the representations made by Seller in Section 2.27 and Section 2.28, the offer and sale of the Purchaser Common Stock to Seller in accordance with this Agreement is exempt from the registration and prospectus delivery requirements of the Securities Act.

Section 3.5         Consents and Approvals. Except for the Governmental Approvals, no declaration, filing or registration with, or notice to or authorization, consent or approval of, any Governmental Authority is necessary for the execution and delivery of this Agreement and the Ancillary Agreements by Purchaser or the consummation by Purchaser of the transactions contemplated hereby and thereby, except as would not reasonably be expected to have a Purchaser Material Adverse Effect or as may be necessary as a result of any facts or circumstances relating solely to Seller or any of its Affiliates.

	
             
 	
            Section 3.6
 	
            Purchaser SEC Filings(a)
 	
            .
 

(a)          Since February 27, 2005, Purchaser has filed with the SEC all Purchaser SEC Documents required to be filed by it under the Exchange Act. As of the respective dates, or, if amended, as of the date of the last such amendment, the Purchaser SEC Documents, including any financial statements or schedules included therein, (i) complied in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder applicable to such Purchaser SEC Documents and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances 

 

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under which they were made, not misleading. The financial statements of Purchaser included in the Purchaser SEC Documents (i) were prepared in accordance with GAAP consistently applied during the periods involved (except as noted therein, and, in the case of such unaudited financial statements, for the absence of footnotes and recurring year-end audit adjustments normal in nature and amount) and (ii) fairly present, in all material respects, the financial condition, results of the operations and cash flows of Purchaser and the Subsidiaries of Purchaser for the periods therein set forth subject to, in the case of the unaudited financial statements, recurring year-end audit adjustments normal in nature and amount.

(b)          Purchaser maintains a system of internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Section 3.7        Litigation. Except as disclosed in the Purchaser SEC Documents, as of the date hereof, (a) there are no claims, suits, actions or proceedings before any Governmental Authority or any arbitration pending or, to Purchaser’s knowledge, threatened against Purchaser or any Subsidiary of Purchaser, (b) to Purchaser’s knowledge, there are no investigations or formal or informal inquiries by any Governmental Authority against or relating to Purchaser or any Subsidiary of Purchaser, (c) there are no material internal investigations or material and reasonably credible whistle-blower complaints pending or, to Purchaser’s knowledge, threatened against or relating to Purchaser and (d) there are no judgments, decrees, injunctions, rules or orders of any Governmental Authority relating to Purchaser, except
in the case of clauses (a) and (d), as would not reasonably be expected to have a Purchaser Material Adverse Effect.

	
            Section 3.8
 	
            Purchaser Financing.
 

(a)          Attached as Exhibit 3.8 hereto is a true and complete copy of the letter, dated August 23, 2006, from Citicorp North America, Inc. and Citigroup Global Markets Inc. to Purchaser (and together with the related fee letter, a true and complete copy of which has been provided to Seller, the “Financing Commitment”), pursuant to which the lenders that are parties thereto have agreed, subject to the terms and conditions set forth therein, to lend the amounts set forth therein for the purposes of, among other things, financing Purchaser’s acquisition of the Business (the “Financing”). The Financing Commitment has not been amended or modified prior to the date of this Agreement, and
the commitments contained in the Financing Commitment have not been withdrawn or rescinded in any respect. The Financing Commitment is in full force and effect. There are no conditions precedent or other contingencies related to the funding of the full amount of the Financing, other than as set forth in or contemplated by the Financing Commitment. The aggregate proceeds to be disbursed pursuant to the agreements contemplated by the Financing Commitment, together with Purchaser’s cash and cash equivalents on hand at the time of the Closing, will be sufficient for Purchaser to pay the Estimated Cash Consideration and to pay all related fees and expenses. Purchaser has no reason as of the date hereof to believe that any of the conditions to the Financing contemplated by the Financing Commitment within its control will not be satisfied or that the Financing will not be made available to Purchaser on the Closing Date.

(b)          None of the reports, financial statements, certificates or other information (i) in respect of Purchaser and its subsidiaries, (ii) in respect of the Transactions (as defined in 

 

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the Financing Commitment) other than in respect of the Company or the Business or (iii) to the knowledge of Purchaser, in respect of the Company or the Business, in each case furnished by Purchaser or on behalf of Purchaser or Purchaser’s Affiliates to Citigroup Global Markets Inc., Citicorp North America, Inc. or any of their Affiliates prior to the date of the Financing Commitment in connection with the structuring, arrangement or syndication of the Facilities (as defined in the Financing Commitment) or the arrangement of the Amendments (as defined in the Financing Commitment), taken as a whole, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not materially misleading; provided that with respect to Projections (as defined
in the Financing Commitment), Purchaser represents only that such Projections were prepared in good faith based upon assumptions believed to be reasonable at the time.

Section 3.9         Purchaser Indentures. The pledge of the capital stock or membership interests of JCG LLC, if applicable, the Company and the Company Subsidiaries as contemplated in the Financing Commitment or the granting of additional liens pursuant to the Financing will not result in a breach of the indentures governing Purchaser’s 9.5% Senior Secured Notes due 2011, 8.125% Senior Secured Notes due 2010, 7.5% Senior Secured Notes due 2015 and 9.25% Senior Notes due 2013.

Section 3.10      Absence of Undisclosed Liabilities. Neither Purchaser nor any Subsidiary of Purchaser has any material Liabilities, except (i) Liabilities set forth in Section 3.10 of the Purchaser Disclosure Schedule, (ii) Liabilities that are disclosed in the Purchaser SEC Documents, (iii) Liabilities that are reflected, or for which reserves were established, on the audited consolidated balance sheet of Purchaser as of March 4, 2006 included in the Purchaser SEC Documents, and (iv) Liabilities incurred in the ordinary course of business and consistent with past practice since March 4, 2006.

Section 3.11      Compliance with Laws. Since July 31, 2004, Purchaser and its Subsidiaries have been in compliance with all Laws applicable to them and neither Purchaser nor any of its Subsidiaries has received any written notice of any failure to comply with any such Laws, in each case, except for such breaches together with all other breaches of such Laws, as would not reasonably be expected to have a Purchaser Material Adverse Effect. 

Section 3.12      Absence of Certain Changes. Except as expressly contemplated by this Agreement, since March 4, 2006:  (i) Purchaser and its Subsidiaries have operated only in the ordinary course of business consistent with past practice and (ii) there has not occurred any Purchaser Material Adverse Effect or any fact, occurrence, condition, change, development, effect, circumstance or event that would, individually or in the aggregate, be reasonably likely to have or result in a Purchaser Material Adverse Effect.

Section 3.13      Brokers and Finders. Other than Citigroup Global Markets Inc. and Rothschild Inc., the fees and expenses of which will be paid by Purchaser, no broker, finder or similar intermediary has acted for or on behalf of, or is entitled to any broker’s, finder’s or similar fee or other commission from, Purchaser or any of its Affiliates in connection with this Agreement or the Ancillary Agreements or the transactions contemplated hereby or thereby.

 

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Section 3.14      No Other Representations and Warranties. Purchaser and its representatives have been permitted full and complete access to the nonprivileged books and records, facilities, equipment, Contracts, and other properties, Assets and documents of Seller, the Company and the Company Subsidiaries that it and its representatives have desired or requested to see or review, and Purchaser and its representatives have had a full opportunity to meet with the employees of Seller, the Company and the Company Subsidiaries to discuss the Business. None of Seller, the Company, any Company Subsidiary or any other Person has made any representation or warranty, expressed or implied, as to the Company, any Company Subsidiary or the Business, or the accuracy or completeness of any information regarding the Company, the Company Subsidiaries and
the Business furnished or made available to Purchaser and its representatives, except as expressly set forth in this Agreement, the Seller Disclosure Schedule or the exhibits hereto. Purchaser has not relied on any representation or warranty from Seller, the Company, any Company Subsidiary or any other Person in determining to enter into this Agreement or the Ancillary Agreements, except as expressly set forth in this Agreement, the Seller Disclosure Schedule or the exhibits hereto.

ARTICLE IV

 

COVENANTS OF THE PARTIES

Section 4.1         Conduct of Business by the Company. From and after the date hereof until the Closing Date, Seller shall cause the Company and the Company Subsidiaries to conduct the Business in the ordinary and usual course consistent with past practice and in compliance with all applicable Laws and to use their reasonable best efforts to:  (i) preserve intact their Assets and current business organizations, (ii) retain the services of current key officers and employees (including pharmacists and store managers), (iii) maintain Medicare and Medicaid provider status and other pharmacy licenses and permits, and (iv) preserve the goodwill of customers, suppliers and others with whom the Company and the Company Subsidiaries do business. Without limiting the generality of the foregoing, except as otherwise expressly provided
for by this Agreement (including Section 4.3 and Exhibit 4.3(a)(i)) or as set forth in Exhibit 4.1, from and after the date hereof until the Closing Date, Seller shall not, with respect to the Business, JCG LLC, the Company, and the Jean Coutu USA Shares, and shall cause JCG LLC, the Company and each Company Subsidiary not to, take any of the following actions without the prior written consent of Purchaser (which shall not be unreasonably withheld or delayed):

(a)          adopt any amendment to the Organizational Documents of JCG LLC, the Company or any Company Subsidiary; 

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

(c)          (i) issue, sell, pledge, dispose of or encumber the JCG LLC Interests, Jean Coutu USA Shares or any shares of capital stock of any Company Subsidiary or any other voting securities or securities convertible into or exercisable or exchangeable for, or any rights, warrants or options to acquire, any of the foregoing, (ii) split, combine, subdivide or reclassify the JCG LLC Interests, the Jean Coutu USA Shares or any shares of capital stock of any Company Subsidiary; (iii) declare, set aside or pay any dividend or distribution (whether in cash, stock or 

 

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other property) in respect of any capital stock or other equity interests (other than dividends or distributions from the Company or a Company Subsidiary payable to Seller, the Company and/or one or more Company Subsidiaries); or (iv) repurchase, redeem or otherwise acquire any shares of its capital stock or other equity interests or any securities convertible into or exchangeable or exercisable for any shares of its capital stock or other equity interests;

(d)          (i) transfer, sell, pledge, dispose of or encumber the JCG LLC Interests or  Jean Coutu USA Shares, (ii) incur or modify any material indebtedness or other Liability, (iii) mortgage, pledge or encumber any Assets (including capital stock of any Company Subsidiary), or (iv) other than in the ordinary and usual course of business, transfer, lease, sublease, license, guarantee, sell or dispose of, any Assets (including capital stock of any Company Subsidiary); 

	
             
 	
            (e)
 	
            amend or supplement the 8.5% Notes Indenture;
 

(f)           make any acquisition of, or investment in, or capital contribution to, any Person, other than a Company Subsidiary that is wholly owned, directly or indirectly, by the Company;

(g)          modify its advertising and promotional activities, and pricing and purchasing policies, other than in the ordinary course of business consistent with past practice;

(h)          manage working capital other than in the ordinary course of business, including not extending the payment of accounts payable, accelerating the collection accounts receivable or failing to maintain and manage inventory levels, in each case, other than in the ordinary course of business consistent with past practice;

(i)           other than in the ordinary course of business consistent with past practices, (i) exercise any option or first refusal rights or any rights of renewal relating to any Real Property, (ii) enter into any Lease or Lease commitment or (ii) enter into or materially modify any Contract relating to Real Property;

(j)           grant or agree to grant to any Business Employee (as defined in Section 4.12(a) below) who is an officer of the Company or a Company Subsidiary any increase in wages or bonus, severance, profit sharing, retirement, deferred compensation, insurance or other compensation or benefits, or establish any new Benefit Plans, or amend or agree to amend any existing compensation or Benefit Plans covering any Business Employee, except (i) as may be required by Law, (ii) pursuant to the normal severance policies or practices of the Company or a Company Subsidiary as in effect on the date of this Agreement and previously disclosed to Purchaser, (iii) increases in salary or wages payable or to become payable in the ordinary course of business consistent with past practice or (iv) pursuant to those
Benefit Plans maintained by Seller;

(k)          terminate the employment of any officer employed by the Company or any Company Subsidiary other than for willful misconduct or malfeasance;

(l)           enter into, amend in any material respect, breach, terminate or allow to lapse any Material Contract, other than in the ordinary course of business consistent in nature and amount with past practice;

 

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(m)         amend, breach, terminate or allow to lapse or become subject to default or termination any Permit, other than amendments required by applicable Law;

(n)          make or incur any capital expenditure or other financial commitment requiring payments between the date hereof and the Closing in excess of $1,000,000 individually or $25,000,000 in the aggregate;

(o)          make or change any material election in respect of Taxes, make any material change to any Tax accounting principles, methods or practices, adopt or change any accounting method in respect of Taxes, enter into any closing agreement, settle any material claim or material assessment in respect of Taxes or consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes;

(p)          enter into any compromise or settlement of, or take any material action with respect to, any litigation, action, suit, claim, proceeding or investigation in which the damages or fines to be paid or received are in excess of $750,000 individually or $5,000,000 in the aggregate, other than the prosecution, defense and settlement of litigation, actions, suits, claims, proceedings or investigations in the ordinary course of business consistent with past practice; 

(q)          enter into, modify, extend or cancel any third-party payor Contracts (which Contracts are for amounts in excess of $750,000 per annum), other than in the ordinary course of business consistent with past practice;

(r)           make any material change in accounting policies, except as required by any changes in GAAP or applicable Law and promptly disclosed to Purchaser; and

(s)           authorize, or commit or agree to do, whether in writing or otherwise, any of the foregoing. 

Section 4.2         Conduct of Business by Purchaser. Except as otherwise expressly provided for by this Agreement or as set forth in Exhibit 4.2, from and after the date hereof until the Closing Date, Purchaser shall not, and shall cause each of its Subsidiaries not to, take any of the following actions without the prior written consent of Seller (which shall not be unreasonably withheld or delayed):

	
             
 	
            (a)
 	
            adopt any amendment to the Organizational Documents of Purchaser;
 

(b)          adopt a plan or agreement of complete liquidation, dissolution, merger, consolidation, restructuring, recapitalization (which shall not be deemed to include a refinancing of indebtedness of Purchaser or Purchaser’s Subsidiaries existing as of the date hereof) or other reorganization; 

(c)          (i) issue or sell Purchaser Common Stock, Purchaser Preferred Stock or any other shares of capital stock of Purchaser or any other voting securities or securities convertible into or exercisable or exchangeable for, or any rights, warrants or options to acquire, any of the foregoing, other than shares issued pursuant to any Purchaser employee benefit plan or the exercise of options or other rights granted thereunder and other than shares issued pursuant to 

 

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the conversion of convertible securities which are convertible at the option of the holder thereof and outstanding as of the date of this Agreement; (ii) split, combine, subdivide or reclassify the Purchaser Common Stock, Purchaser Preferred Stock or any other shares of capital stock of Purchaser; or (iii) declare, set aside or pay any extraordinary dividend or distribution (whether in cash, stock or other property) in respect of any capital stock of Purchaser; and

(d)          authorize, or commit to agree to do, whether in writing or otherwise, any of the foregoing.

	
            Section 4.3
 	
            Certain Intercompany Matters.
 	
             

	
             
 	
            (a)
 	
            Seller covenants as follows:
 
				

(i)        Notwithstanding anything to the contrary in this Agreement, Seller, JCG LLC, the Company and certain of the Company Subsidiaries shall have the right, but not the obligation, to carry out a reorganization of the Company and its Affiliates prior to Closing, which Reorganization shall consist solely of the steps set forth in Exhibit 4.3(a)(i) (the «Reorganization«); provided, however, that such right to effect or cause to be effected the Reorganization shall expire 60 days after the date hereof unless Seller shall have notified Purchaser in writing, not later than 60 days after the date hereof, of Seller’s intention to effect the
Reorganization.

(ii)      Notwithstanding subsection (i) of this Section 4.3(a), Seller shall not effect or cause to be effected the Reorganization until Seller shall have provided to Purchaser an opinion of KPMG LLP upon which the Company and Purchaser can rely, in form and substance reasonably satisfactory to Purchaser, that reaches the conclusions set forth on Exhibit 4.3(a)(ii).

(iii)     Between the date of this Agreement and the Closing, JCG LLC shall not, and Seller shall cause JCG LLC to not, conduct any business or activities, enter into any Contract or incur or guarantee the payment or performance of any Liabilities, except as expressly contemplated by the terms of this Agreement or required under the terms of the Indebtedness.

(b)          Seller shall terminate, or cause to be terminated, as of the Closing, each Affiliate Arrangement.

(c)          Prior to the Closing, Seller shall cause (i) JCG LLC, the Company and the Company Subsidiaries to be fully and irrevocably released from all Indebtedness, any other guaranties of Liabilities or any other mutual Liabilities relating to Seller or any of its Affiliates (other than JCG LLC, the Company or any Company Subsidiary), except with respect to the obligations of the Company under Seller’s 8.5% Notes in the event that Purchaser assumes such obligations at Closing, (ii) all Indebtedness and any other amounts payable or receivable among JCG LLC, the Company or any Company Subsidiary, on the one hand, and Seller or any of its Affiliates (other than JCG LLC, the Company or any Company Subsidiary), on the other hand, shall be contributed to the capital of the respective entity or
otherwise cancelled and no adjustment shall be made to the Final Purchase Price as a result of any such contribution or cancellation, (iii) all Indebtedness of JCG LLC, the Company and any Company Subsidiary to be 

 

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paid in full and any and all Liens, other than Permitted Liens, securing any such Indebtedness to be terminated or released and (iv) any and all pledges of capital stock or other equity interests of JCG LLC, the Company and the Company Subsidiaries to be released from any Seller Indebtedness. As used in this Agreement, «Indebtedness« means (a) (x) the aggregate principal amount of the 8.5% Notes, and (y) the amount of accrued and unpaid interest on the 8.5% Notes to and including the Closing Date, (b) (x) the aggregate principal amount of Seller’s 7.625% Senior Notes due 2012 (the «7.625% Notes«), and (y) the amount of accrued and unpaid interest on the 7.625% Notes to and including the Closing Date, (c) all other indebtedness for borrowed money of JCG LLC, the Company or the Company
Subsidiaries pursuant to the Senior Credit Agreement, dated as of July 30, 2004, among Seller, the Company and the lender parties named therein (other than the Letters of Credit (as defined in Section 4.22) to be released in accordance with Section 4.22), (d) any obligations evidenced by bonds, debentures, notes or other similar instruments, (e) any obligations to pay the deferred purchase price of property or services and (f) any guaranty of any of the foregoing; other than, in each case, trade accounts payable and other current Liabilities (other than Liabilities for borrowed money) arising in the ordinary course of business.

(d)          In the event that Purchaser assumes the 8.5% Notes, prior to the Closing, Seller shall cause the Subsidiaries of Seller (other than JCG LLC, the Company or any Company Subsidiary) that are Subsidiary guarantors of the 8.5% Notes, to be dissolved or merged into Seller and such Subsidiaries shall be released from their guarantee of the 8.5% Notes and the 8.5% Notes Indenture. Seller will not designate any such Subsidiary guarantor as an Unrestricted Subsidiary (as defined in the 8.5% Notes Indenture). 

	
            Section 4.4
 	
            Prior Agreements.
 

(a)          Immediately prior to the Closing, Seller shall assign to the Company all of Seller’s rights and obligations under the (i) Framework Agreement, dated as of April 4, 2004, among CVS Pharmacy, Inc., CVS Corporation, Brooks Pharmacy, Inc. and Seller, as amended (the «Framework Agreement«), (ii) the Assumption Agreement, dated as of September 17, 2004, among Seller, J.C. Penney Company, Inc. and National Union Fire Insurance Company of Pittsburgh, PA, as amended (the “Assumption Agreement”) and (iii) the Umbrella Sharing Agreement, dated as of July 31, 2004, among Seller, J.C. Penney Company, Inc., Eckerd Corporation, CVS Pharmacy, Inc. and National Union Fire Insurance Company
of Pittsburgh, PA, as amended (the “Umbrella Agreement”), in each case other than those rights and obligations set forth in Exhibit 4.4(a) (the «Excluded Rights/Obligations«).  From and after the Closing, Purchaser shall cause the Company to indemnify, protect, defend and hold harmless the Seller Indemnitees (as defined in Section 6.3) from and against all Damages (as defined in Section 6.2) asserted against, resulting to, imposed upon or incurred by any Seller Indemnitee, directly or indirectly, resulting from or arising out of the Framework Agreement, the Assumption Agreement and the Umbrella Agreement with respect to Damages incurred by the Seller Indemnitees under the Framework Agreement, the Assumption Agreement and the Umbrella Agreement resulting from events or actions occurring after the Closing, in each case other than the Excluded Rights/Obligations.

(b)          From and after the Closing, Seller agrees to indemnify, protect, defend and hold harmless the Purchaser Indemnitees (as defined in Section 6.2) from and against all 

 

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Damages asserted against, resulting to, imposed upon or incurred by any Purchaser Indemnitee, directly or indirectly, for which Sellers or their Affiliates prior to the Closing were entitled to receive indemnification pursuant to the Stock Purchase Agreement, dated as of April 4, 2004, among Seller, J.C. Penney Company, Inc. and TDI Consolidated Corporation, as amended (the “JC Penney Agreement”), it being understood that Seller shall keep the JC Penney Agreement in effect and give Purchaser the benefit of such agreement to the same extent as if it had been assigned to Purchaser, and Purchaser shall take all such actions as necessary to monitor or otherwise administer the JC Penney Agreement on behalf of Seller, including the administration of any and all claims made on behalf of or against Seller, the Company or any of their respective Affiliates;
provided, however, that if, prior to the Closing, Seller shall have obtained the consent of J.C. Penney Company, Inc. to assign the rights and obligations under the JC Penney Agreement to Purchaser (the «JC Penney Consent«), Seller shall assign to Purchaser all of Seller’s rights and obligations under the JC Penney Agreement subject to those rights and obligations shared with Seller as set forth in Exhibit 4.4(b) and shall be relieved of any indemnification obligation under the JC Penney Agreement to Purchaser Indemnitees after the Closing.

(c)          Notwithstanding anything in this Agreement to the contrary, neither the Purchaser or the Company shall be required to assume any Liabilities resulting from or arising out of the Framework Agreement, the Assumption Agreement and the Umbrella Agreement and the Purchaser shall not be required to assume any liabilities resulting from or arising out of the JC Penney Agreement, in each case which result from, arose during, or are attributable to events, facts, circumstances or conditions in existence prior to the Closing or which occurred prior to the Closing («Pre-Closing Claims«) and Seller shall indemnify, protect, defend and hold harmless the Purchaser Indemnitees from and against all Damages incurred by any Purchaser Indemnitee,
directly or indirectly, resulting from or arising out of any Pre-Closing Claim. Purchaser shall control all legal proceedings relating to any Pre-Closing Claim («Pre-Closing Proceeding«) under (i) the Framework Agreement, the Assumption Agreement and the Umbrella Agreement and (ii) if Seller shall have obtained the JC Penney Consent prior to the Closing and Purchaser shall have assumed the rights and obligations under the JC Penney Agreement, under the JC Penney Agreement; provided, however, that (i) Seller shall be entitled to designate a representative to evaluate and receive information with respect to any Pre-Closing Proceeding, (ii) Purchaser shall not settle any Pre-Closing Claim without Seller’s written consent, which consent shall not be unreasonably withheld or delayed and (iii) Seller shall reimburse Purchaser for all
costs and expenses incurred by Purchaser in respect of any Pre-Closing Proceeding; provided, further that if the JC Penney Consent is not obtained prior to the Closing, Purchaser shall be entitled to designate a representative to evaluate and receive information with respect to any Pre-Closing Proceeding.

(d)          Notwithstanding anything in this Agreement to the contrary, this Section 4.4 shall survive the Closing and shall not be subject to the Seller Basket (as defined in Section 6.2 below) , the Seller Cap (as defined in Section 6.2 below), the Purchaser Basket (as defined in Section 6.3 below) or the Purchaser Cap (as defined in Section 6.3 below) set forth in Article VI of this Agreement.

Section 4.5         Non-Solicitation. From and after the date hereof and continuing through the Closing Date, Seller shall not, and shall cause JCG LLC, the Company and the Company 

 

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Subsidiaries not to, nor shall Seller, directly or indirectly, authorize or permit any of their respective officers, directors, employees, agents or representatives (including investment bankers, financial advisors, attorneys, consultants and accountants) to, directly or indirectly, encourage, initiate, solicit or engage in discussions or negotiations with, or provide any information to, any Person, other than Purchaser (and its Affiliates and representatives), with respect to a sale of all or any substantial portion of the Assets of JCG LLC, the Company or any Company Subsidiary, or a merger, recapitalization, consolidation, business combination, sale of all or any substantial portion of the capital stock or other equity interests of JCG LLC, the Company or any Company Subsidiary, or the liquidation, reorganization or similar extraordinary transaction with respect to JCG LLC, the Company or any Company
Subsidiary. Seller agrees not to, and to cause JCG LLC, the Company and the Company Subsidiaries not to, release any Person from, or waive any provision of, any confidentiality or standstill agreement that relates to JCG LLC, the Company or any Company Subsidiary.

	
            Section 4.6
 	
            Access to Information; Confidentiality.
 

(a)          From and after the date hereof and continuing through the Closing Date, Seller shall, and shall cause JCG LLC, the Company and Company Subsidiaries to, cooperate with Purchaser and its representatives during normal business hours and provide Purchaser and its employees, accountants, attorneys and other representatives acting on behalf of Purchaser with reasonable access during normal business hours to, and permit such Persons to review, the Company’s Assets, books, Contracts, Leases (including any amendments, modifications or supplements thereto), accounts and records (including all studies, Phase I assessments, analyses and test results in the possession, custody or control of or otherwise known to Seller, JCG LLC, the Company, any Company Subsidiary or any of their respective
Affiliates relating to the environmental conditions on, under or about any real property now or previously owned or operated by JCG LLC, the Company or any Company Subsidiary), and shall provide as promptly as practicable such other information to Purchaser and its representatives as they may reasonably request; provided that any such access and review shall be granted and conducted in such a manner so as not to interfere unreasonably with the conduct of the business of Seller, JCG LLC, the Company or any Company Subsidiaries. Seller is not required to provide Purchaser or its representatives any information, or access to any information, that Seller’s counsel believes, in good faith, to violate, or support an allegation of violation of, the Antitrust Laws (as defined in Section 4.7(b)). 

(b)          From and after the date hereof and continuing through the Closing Date, Purchaser shall cooperate with Seller and its representatives during normal business hours and provide Seller and its employees, accountants, attorneys and other representatives acting on behalf of Seller with reasonable access during normal business hours to, and permit such Persons to review, Purchaser’s assets, books, Contracts, accounts and records (including all studies, Phase I assessments, analyses and test results in the possession, custody or control of or otherwise known to Purchaser or any of its Affiliates relating to the environmental conditions on, under or about any real property now or previously owned or operated by Purchaser), and shall provide as promptly as practicable such other information to
Seller and its representatives as they may reasonably request; provided that any such access and review shall be granted and conducted in such a manner so as not to interfere unreasonably with the conduct of the business of Purchaser. Purchaser is not required to provide Seller or its representatives any information, or 

 

42

 

 

access to any information, that Purchaser’s counsel believes, in good faith, to violate, or support an allegation of violation of, the Antitrust Laws. 

(c)          From and after the date hereof and continuing through the Closing Date, Seller shall, and shall cause JCG LLC, the Company and Company Subsidiaries to, cooperate with Purchaser in its efforts to comply with the Laws affecting public companies in the United States, including the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), to the extent that such compliance involves JCG LLC, the Company or any Company Subsidiary. In furtherance (and not in limitation) of the foregoing, between the date hereof and the Closing Date, Seller shall, and Seller shall cause JCG LLC, the Company and Company Subsidiaries to, permit representatives of Purchaser acting on behalf of Purchaser to meet with employees of the Company and the
Company Subsidiaries responsible for the financial statements of JCG LLC, the Company and the Company Subsidiaries and the Internal Controls to discuss such matters as reasonably necessary for them to be able to satisfy applicable obligations under the Sarbanes-Oxley Act immediately following the Closing, including obligations under Sections 302, 404 and 906 of the Sarbanes-Oxley Act relating to establishing and maintaining adequate disclosure controls and procedures and internal control over financial reporting. Purchaser acknowledges that JCG LLC, the Company and the Company Subsidiaries are not currently, and have not historically been, subject to the requirements the Sarbanes-Oxley Act or the rules and regulations promulgated thereunder (including “rules of a self-regulatory organization” as defined in the Exchange Act).

(d)          Following the Closing, Purchaser shall provide reasonable cooperation and assistance to Seller for purposes of Seller’s periodic reporting requirements under the Exchange Act and other applicable Laws. In furtherance of the foregoing, for so long as Seller is required to use the equity method of accounting for its investment in Purchaser, Purchaser shall use commercially reasonable efforts to (i) afford Seller and its representatives access to the offices, properties and books and records of Purchaser and (ii) furnish to the representatives of Seller such additional financial and operating data and other information then available regarding Purchaser (or copies thereof) as Seller may from time to time reasonably request; provided,
however, that any such access to or furnishing of information shall be conducted or provided at Seller’s expense, during normal business hours upon reasonable advance notice to Purchaser, in such a manner as not to unreasonably interfere with the normal operations of Purchaser. In addition, for so long as Seller is required to use the equity method of accounting for its investment in Purchaser, Purchaser shall provide after the Closing (i) a balance sheet as of the end of each monthly fiscal accounting period for Purchaser and (ii) a statement of operations for each monthly fiscal accounting period of Purchaser, each prepared consistent with Purchaser’s normal closing process. In addition to the foregoing, following the Closing, Purchaser shall provide (i) a balance sheet as of the end of the monthly fiscal accounting period in which the Closing occurs for JCG LLC, if applicable, the Company, and the Company Subsidiaries; and
(ii) a statement of operations for the monthly fiscal accounting period during which the Closing occurs for JCG LLC, if applicable, the Company and the Company Subsidiaries, each prepared consistent with Seller’s normal quarterly closing process and not giving effect to the transactions contemplated by this Agreement. The balance sheet as of the end of the monthly fiscal accounting period in which the Closing occurs for JCG LLC, if applicable, the Company and the Company Subsidiaries provided to Seller pursuant to this Section 4.6(d) will be used by Seller to 

 

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comply with its public reporting requirements and will not be used for purposes of adjusting the Estimated Cash Consideration in accordance with Section 1.4.

(e)          Pursuant to the JC Penney Agreement, J.C. Penney Company, Inc. and TDI Consolidated Corporation agreed to retain certain books and records that relate to the business acquired by Seller and to provide Seller reasonable access thereto. Upon reasonable notice, for so long as Seller possesses such access rights and in the event that the JC Penney Agreement is not assigned to Purchaser immediately prior to Closing as contemplated by Section 4.4(b), Seller agrees to exercise such rights on behalf, and at the request, of Purchaser and Purchaser agrees to reimburse Seller for any reasonable, out-of-pocket expenses incurred by Seller in connection therewith.

(f)           Without limiting the terms thereof, the Confidentiality Agreement, dated as of February 28, 2006, between Purchaser and Seller shall govern the obligations of Purchaser and Seller and their respective representatives with respect to the non-public information furnished or made available to them pursuant to this Section 4.6 or otherwise.

	
            Section 4.7
 	
            HSR Filings; Reasonable Best Efforts; Further Assurances.
 

(a)          Each of Purchaser and Seller shall (i) submit their respective Notification and Report Form filing(s) in accord with the HSR Act and the rules and regulations implementing the HSR Act with respect to the transactions contemplated by this Agreement as promptly as practicable after the date of this Agreement; (ii) use reasonable best efforts to promptly respond to any oral or written request for information, documents or questions from the Federal Trade Commission or Department of Justice during the initial thirty-day HSR mandated waiting period; (iii) use reasonable best efforts to substantially comply with a Request for Additional Information issued in accord with the rules and regulations implementing the HSR Act upon receipt; and (iv) act in good faith and cooperate with the other party
in connection with any filing or submission to the Federal Trade Commission, Department of Justice or any other Governmental Authority as regards any filing or submission in connection with addressing or resolving any investigation or inquiry of the Federal Trade Commission or Department of Justice or other Governmental Authority under the Antitrust Laws with respect to this transaction. To the extent not prohibited by applicable Laws, each party to this Agreement shall use all reasonable best efforts to furnish to each other party all information required for any application,  filing or submission to be made pursuant or related  to the HSR Act, or any applicable Laws in connection with the transactions contemplated by this Agreement. However, either party may designate any non-public information as restricted to “Outside Antitrust Counsel” only; such information will not be shared with employees, officers or directors or their equivalents of the other party without approval
of the party providing the non-public information. Each party to this Agreement shall give the other party reasonable prior notice of any communication with, or any intention to enter into, any proposed understanding, undertaking, order or agreement with the Federal Trade Commission, Department of Justice or any other Governmental Authority. None of the parties to this Agreement, or the parties’ Counsel, shall independently participate in any meeting or engage in any substantive conversation with the Federal Trade Commission, Department of Justice or any other Governmental Authority with respect to any formal or informal investigation of, or inquiry into, the transactions contemplated by this Agreement, without giving the other party prior notice of the meeting or conversation and, unless prohibited 

 

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by such Governmental Authority, the opportunity to attend and  participate in any meeting or substantive conversation. The parties to this Agreement will consult and cooperate with one another in connection with any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party to this Agreement in connection with proceedings under or relating to the HSR Act or other Antitrust Laws. 

(b)          Subject to Section 4.7(d), each of Purchaser and Seller shall use its reasonable best efforts to resolve any objections as may be asserted by any Governmental Authority with respect to the transactions contemplated by this Agreement under the HSR Act, the Sherman Antitrust Act of 1890, as amended, the Clayton Act of 1914, as amended, the Federal Trade Commission Act, as amended, and any other United States federal or state or foreign Laws that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, “Antitrust Laws”). In connection therewith and subject to Section 4.7(d), if any administrative or judicial action or proceeding is instituted (or threatened
to be instituted) challenging any transaction contemplated by this Agreement as inconsistent with or violative of any Antitrust Law, each of Purchaser and Seller shall (by negotiation, litigation or otherwise) cooperate and use its reasonable best efforts to vigorously contest and resist any such action or proceeding, including any administrative or judicial action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents, delays or restricts consummation of the transactions contemplated by this Agreement, including by vigorously pursuing all available administrative and judicial appeals, unless, by mutual agreement, Purchaser and Seller decide that litigation is not in their respective best interests.  Notwithstanding the foregoing or any other provision of this Agreement, nothing in this Section 4.7 shall limit the right of a party to this Agreement
to terminate this Agreement pursuant to Section 8.1(c), so long as such party to this Agreement has until that time complied in all material respects with its obligations under this Section 4.7. Each of Purchaser and Seller shall use its reasonable best efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to such transactions as promptly as possible after the execution of this Agreement.

(c)          Subject to Section 4.7(d), each of the parties to this Agreement agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties to this Agreement in doing, all things necessary, sufficient, proper or advisable to consummate, in the most expeditious manner practicable, the transactions contemplated by this Agreement, including (i) the obtaining of all other necessary actions or nonactions, waivers, consents, licenses, permits, authorizations, orders and approvals from Governmental Authorities and the making of all other necessary registrations and filings (including filings with Governmental Authorities, if any), (ii) the preparation of the Proxy Statement (as defined in Section 4.16(a)
below), (iii) the execution and delivery of any additional instruments reasonably necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement, and (iv) the providing of all such information concerning such party, its Subsidiaries, its Affiliates and its Subsidiaries’ and Affiliates’ officers, directors, employees and partners as may be reasonably requested in connection with any of the matters set forth in Section 4.7(a), Section 4.7(b) or this Section 4.7(c). 

 

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(d)          Notwithstanding anything to the contrary in this Section 4.7, neither Purchaser nor the Company shall be required in order to resolve any objections asserted under Antitrust Laws by any Governmental Authority or Governmental Authorities with respect to the transactions contemplated by this Agreement to divest any of its businesses or assets, or take or agree to take any other action or agree to any limitation or restriction, that the Board of Directors of Purchaser reasonably determines in good faith, after considering the advice of its management and legal and financial advisors, (i) to be materially adverse to Purchaser and its Subsidiaries taken as a whole or (ii) would materially impair the overall benefits expected, as of the date hereof, to be realized from the acquisition of the
Business. Purchaser agrees that divestiture or release of assets (tangible or intangible) representing, or the imposition of conditions affecting, store-level Adjusted EBITDA (as defined immediately below) of up to an aggregate of $60 million before advertising and corporate administration expenses, for the most recently completed fiscal year (the «$60 Million Adjusted EBITDA Threshold«) is not materially adverse to Purchaser and its Subsidiaries taken as a whole nor would it materially impair the overall benefits expected to be realized from the acquisition of the Business; provided, however, that if the $60 Million Adjusted EBITDA Threshold is exceeded, it shall be deemed to materially impair the overall benefits expected to be realized by Purchaser with respect to the acquisition of the Business. As used in this Agreement,
«Adjusted EBITDA« means net earnings before interest expense, income tax expense, depreciation and amortization expense and other non-cash charges, or adjustments for non-operating items set forth on Exhibit 4.7(d).

Section 4.8        Delivery of Additional Financial Statements. Seller will deliver to Purchaser (i) Interim Financial Statements relating to a fiscal monthly period within 30 days of the end of such period and (ii) Interim Financial Statements relating to a fiscal quarterly period within 45 days of the end of such period.

	
            Section 4.9
 	
            Books and Records.
 

(a)          Seller will use reasonable best efforts to deliver or cause to be delivered to Purchaser or the Company at Closing all properties, books, records, Contracts, information and documents relating to the Business that are not then in the possession or control of the Company or the Company Subsidiaries. As soon as is reasonably practicable after the Closing, Seller will use reasonable best efforts to deliver or cause to be delivered to Purchaser or the Company any remaining properties, books, records, Contracts, information and documents relating to the Business that are not already in the possession or control of the Company or the Company Subsidiaries.

(b)          Subject to Section 7.6 (relating to Tax records), Seller and Purchaser agree that each of them will preserve and keep the records held by it relating to the Business for a period of ten years from the Closing Date in accordance with their respective corporate records retention policies; provided, however, that prior to disposing of any such records in accordance with such policies, the applicable party shall provide written notice to the other party of its intent to dispose of such records and shall provide such other party the opportunity to take ownership and possession of such records (at such other party’s sole expense) to the extent they relate to such other party’s business or
obligations within 30 days after such notice is delivered. If such other party does not confirm its intention in writing to take ownership and possession of such records within such 30-day period, the party who possesses the records may proceed with the 

 

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disposition of such records. Seller and Purchaser shall make such records available to the other as may be reasonably required by such party in connection with, among other things, any insurance claims by, legal proceedings against, or governmental investigations of Seller or Purchaser or any of their respective Affiliates or in order to enable Seller or Purchaser to comply with their respective obligations under this Agreement and each other agreement, document or instrument contemplated hereby or thereby.

Section 4.10      Publicity. Seller shall not, and shall not permit JCG LLC, the Company or the Company Subsidiaries to, and Purchaser shall not, issue any press release or public announcement concerning this Agreement, the Ancillary Agreements or the transactions contemplated hereby and thereby without obtaining the prior written approval of the other party hereto, which approval will not be unreasonably withheld, conditioned or delayed, unless, in the reasonable judgment of Seller or Purchaser, as applicable, disclosure is otherwise required by applicable Law or by the applicable rules of any stock exchange on which Seller or Purchaser lists its securities; provided that to the extent required by applicable Law or by the rules of any stock exchange, the party intending to make such release or
announcement shall use its reasonable best efforts consistent with such applicable Law to consult with the other party with respect to the text thereof.

Section 4.11      Notification of Certain Events. From and after the date hereof and continuing through the Closing Date:

(a)          Seller shall give prompt notice to Purchaser of (i) the occurrence or existence of (A) the breach in any material respect of a representation, warranty or covenant made by Seller in this Agreement, (B) any fact, circumstance or event that would reasonably be expected to prevent or materially delay any condition precedent to any party’s obligations from being satisfied, and/or (C) a Company Material Adverse Effect;  (ii) any notice or other communication (other than routine notices or communications in the ordinary course of business) from any Governmental Authority with respect to the transactions contemplated hereby; (iii) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated
hereby; and (iv) (A) the commencement or, to Seller’s knowledge, threatened commencement of any material claims, suits, actions, charges or proceedings before any Governmental Authority or any arbitration against JCG LLC, the Company or any Company Subsidiary, (B) to Seller’s knowledge, the commencement of any investigations or formal or informal inquiries by any Governmental Authority against or relating to JCG LLC, the Company or any Company Subsidiary, (C) the commencement of any material internal investigations or the receipt of any material and reasonably credible whistle-blower complaints relating to JCG LLC, the Company or any Company Subsidiary and (D) the entry of any material judgments, decrees, injunctions, rules or orders of any Governmental Authority relating to JCG LLC, the Company or any Company Subsidiary.

(b)          Purchaser shall give prompt notice to Seller of (i) the occurrence or existence of (A) the breach in any material respect of a representation, warranty or covenant made by Purchaser in this Agreement, (B) any fact, circumstance or event that would reasonably be expected to prevent or materially delay any condition precedent to any party’s obligations from being satisfied and/or (C) a Purchaser Material Adverse Effect; (ii) any notice or other 

 

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communication (other than routine notices or communications) from any Governmental Authority with respect to the transactions contemplated hereby; (iii) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the transactions contemplated hereby; and (iv) (A) the commencement or, to Purchaser’s knowledge, threatened commencement of any claims, suits, actions, charges or proceedings before any Governmental Authority or any arbitration against Purchaser, (B) to Purchaser’s knowledge, the commencement of any investigations or formal or informal inquiries by any Governmental Authority against or relating to Purchaser, (C) the commencement of any internal investigations or the receipt of any reasonably credible whistle-blower complaints relating to Purchaser and (D) the entry of any judgments, decrees, injunctions, rules or
orders of any Governmental Authority relating to Purchaser, except, in the case of this clause (iv), such events as would not reasonably be expected to have a Purchaser Material Adverse Effect.

	
            Section 4.12
 	
            Employee Matters.
 

(a)          Employees and Compensation. For a period of at least three months beginning on the Closing Date, Purchaser shall, or shall cause one of its Affiliates to, provide each individual who is an employee of the Company or a Company Subsidiary immediately prior to the Closing (a “Business Employee”) who remains employed by the Company or any of the Company Subsidiaries following the Closing (a “Continuing Employee”), with a position providing base pay that is at least equal to the base pay provided to each such Continuing Employee by the Company or the applicable Company Subsidiary immediately prior to the Closing Date. Notwithstanding the foregoing, nothing
contained in this Section 4.12 will limit the right of Purchaser or any of its Affiliates to terminate or suspend the employment of any Continuing Employee after the Closing or, except as expressly provided in Section 4.12, to discontinue or modify the benefits provided to any such employee.

	
             
 	
            (b)
 	
            Certain Bonus Payments.
 

(i)       Annual Bonus for Fiscal Year in which the Closing Occurs. Purchaser agrees that it shall cause the Company on or about the normal payment date of bonuses consistent with Purchaser’s past practice (but in any event not later than 70 days after the last day of the Company’s fiscal year in which the Closing occurs), to make bonus payments to the bonus eligible Business Employees (as determined by the Company under the annual bonus plans disclosed in Exhibit 4.12(b)(i)) who remain employed as of the bonus payment date or who are terminated by the Company or a Company Subsidiary after the Closing but prior to the bonus payment date, equal to such employee’s target bonus, pro-rated for the portion of the Company’s fiscal year that has elapsed
prior to the Closing Date, to the extent not previously paid. For this purpose, the bonus eligible Business Employee’s bonus shall equal 100% of such employee’s target bonus, as disclosed to Purchaser in Exhibit 4.12(b)(i) by employee classification and accrued on the Closing Date Balance Sheet, multiplied by a fraction, the numerator of which is the number of days from the beginning of the Company’s fiscal year in which the Closing occurs through the Closing Date, and the denominator of which is 365. In the event that any bonus eligible Business Employee is not paid such pro rata portion of such employee’s target bonus in compliance with the time limitations set forth above, the aggregate of all such unpaid amounts to the extent accrued for on the Closing Date 

 

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Balance Sheet shall be promptly paid by Purchaser to Seller. Each Continuing Employee’s bonus for periods following the Closing Date shall be determined by Purchaser in its sole discretion.

(ii)      Special Incentive Payment. The parties agree that the Company shall pay, on or about November 30, 2006, a special incentive bonus (the «Special Bonus«) to each bonus eligible associate (as determined by the Company under the annual incentive plan for fiscal year 2006) employed in the Warwick (Service Road and Post Road) and Largo offices, equal to 50% of the bonus incentive that would have been paid in respect of the 2006 fiscal year under the annual incentive plan if the Company and the individual had achieved target performance of 100% (personal and Company portions). Exhibit 4.12(b)(ii) sets forth the additional terms and conditions applicable to the payment of the Special Bonus, which is being paid in
light of job performance through the second quarter of the 2007 fiscal year. Seller agrees that it shall be solely responsible for the full amount of the Special Bonus and shall cause the targeted amount of the Special Bonus described above to be accrued on the Company’s balance sheet. In the event that the Closing occurs prior to the time that the Special Bonus is paid, Purchaser agrees that it shall cause the Company to pay the Special Bonus, to the extent of the accrual set forth on the Closing Date Balance Sheet.

(c)          Employee Benefits. For a period of at least six months beginning on the Closing Date, Purchaser shall, or shall cause one of its Affiliates to, continue to provide the Continuing Employees for so long as the Continuing Employee remains so employed, with employee benefits which are, in the aggregate, substantially similar to those provided under the Benefit Plans immediately prior to the Closing Date, or those provided by Purchaser to its similarly situated employees, except that Purchaser shall not be required to continue under any Benefit Plan any investment fund intended to invest primarily or exclusively in Jean Coutu USA Common Shares or Seller common stock, or any equity-based compensation plans. Notwithstanding the generality of the foregoing, for a period
of twelve months following the Closing Date, Purchaser shall cause the Company and the Company Subsidiaries to provide severance benefits pursuant to the Company Transition Pay Program, a true and complete copy of which has been provided to Purchaser, which shall be in lieu of any other severance benefits otherwise payable to the Business Employees under any Benefit Plan, and shall be reduced by (or provided co-extensively with) any payments required to be made under WARN. Purchaser agrees that for any employee benefit plan of Purchaser or any of its Affiliates made available to the Continuing Employees after the Closing, such employees will receive credit for the years of service credited to them prior to the Closing by Seller, the Company or a Company Subsidiary for the purpose of determining eligibility and vesting under such employee benefit plan and, with respect to any applicable vacation pay plan only, for the purpose of determining the amount of accrued benefits under such
plan; provided, however, that such recognition of service shall not result in a duplication of benefits for the same period of service. With respect to any welfare plan in which employees of the Company and the Company Subsidiaries are eligible to participate after the Closing Date, Purchaser shall, and shall cause its Affiliates to, (i) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to such employees to the extent such conditions were satisfied under the welfare plans of the Company and the Company Subsidiaries prior to the Closing Date, and (ii) provide each such employee with credit for any co-payments and deductibles paid prior 

 

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to the Closing Date in satisfying any analogous deductible or out-of-pocket requirements to the extent applicable under any such plan. 

(d)          Equity-Based Awards. Seller shall amend or cause to be amended the terms of the equity compensation plans maintained by it and its Affiliates to provide (to the extent not already provided thereunder) that any Business Employee shall have the maximum period of time permitted under Section 409A of the Code and the published guidance thereunder following such employee’s termination of employment to exercise any then vested equity based awards under such plans; provided that in no event shall Seller be required to extend the post-employment exercise period of any equity based awards by more than two years after the Closing, and provided, further, that Seller shall not be required to take any action to accelerate the vesting of any equity based awards under such plans held by Business Employees. Seller and Purchaser agree that any and all income tax deductions attributable to the exercise, in accordance with the terms of such plans (including as modified by this Section 4.12(d)), on or prior to the Closing Date, of any equity based award (whether or not such award was vested on or before the Closing) granted to a Business Employee thereunder, shall be claimed only by the Company or the appropriate Company Subsidiary in the Pre-Closing Period (as defined in Section 7.3 below), unless prohibited by applicable Laws.   

(e)          Employment Discussions. After the date hereof and prior to the Closing Date, Seller and the Company shall provide Purchaser with access, during reasonable business hours and upon reasonable notice, to (i) all field, corporate and distribution center management personnel for purposes of determining the staffing needs of the Business following the Closing Date and identifying additional personnel of the Business to be interviewed by Purchaser prior to the Closing Date and (ii) to additional groups of personnel identified by Purchaser. Purchaser and Seller agree to reasonably coordinate in connection with such interviews and further agree that a representative of Seller listed in Exhibit 4.12(e) may be present for such interviews if desired by Seller. Purchaser
agrees that it shall use its reasonable best efforts to conduct such interviews in a manner that causes minimum disruption to the Business.

(f)           No Third Party Beneficiaries. The provisions of this Section 4.12 shall not confer upon any person other than the parties to this Agreement any rights, benefits or remedies.

(g)          Cooperation. Seller agrees that it shall provide Purchaser with advance copies of all employee communications relating to the transactions contemplated by this Agreement (including, without limitation, severance and severance benefits) from and after the date hereof and through the Closing. Purchaser and Seller agree to cooperate in order to facilitate all provisions of Section 4.12 of this Agreement.

	
            Section 4.13
 	
            WARN Act.
 

(a)          On or before the Closing Date, Seller shall provide Purchaser with a list of the name and site of employment of any and all employees of the Company or the Company Subsidiaries who have experienced, or will experience, an employment loss or layoff, as defined by WARN requiring notice to employees in the event of a closing or layoff, within 90 days prior to the Closing Date. Seller shall update this list up to and including the Closing Date.

 

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(b)          Seller shall not, and shall cause the Company or any Company Subsidiary not to, at any time within 90 days before the Closing Date, without complying fully with the notice requirements and other requirements of WARN, effectuate (i) a plant closing as defined in WARN affecting any site of employment or one or more facilities or operating units within any site of employment of the Company; (ii) a mass layoff as defined in WARN affecting any site of employment of the Company; or (iii) any similar action under WARN requiring notice to employees in the event of an employment loss or layoff.

(c)          Seller shall be responsible for any Liability under WARN or any other applicable Law with respect to any employees of the Company or the Company Subsidiaries who are terminated before the Closing and Purchaser shall be responsible for any Liability under WARN or any other applicable Law with respect to any employees of the Company or the Company Subsidiaries who are terminated as of or after the Closing.

Section 4.14      Non-Solicitation of Employees. From and after the date hereof and through the second anniversary of the Closing Date, Seller shall not (and shall cause its Affiliates not to), without the prior written consent of Purchaser, directly or indirectly, solicit or hire any employee of JCG LLC, the Company or any Company Subsidiary (other than clerical or non-salaried employees); provided, however, the foregoing shall not prohibit Seller from (a) engaging in the general solicitation (whether by newspaper, trade publication or other periodical) of employees (or hiring any employees that respond to such general solicitation) so long as such solicitation is not targeted or focused at employees of JCG LLC, the Company or any Company
Subsidiary, or (b) soliciting or hiring any such employee (other than clerical or non-salaried employees) who is no longer employed by JCG LLC, the Company or a Company Subsidiary and has not been an employee of JCG LLC, the Company or a Company Subsidiary for at least six months prior to such solicitation or employment by Seller or its Affiliates.

	
            Section 4.15
 	
            Non-Competition.
 

(a)          For a period of five years after the Closing Date, Seller agrees that it will not, and will cause its Affiliates (except for Michel Coutu, for whom the applicable period will be for three years after the Closing Date and whose obligation is contained in a letter agreement between Michel Coutu and Purchaser, dated as of the date hereof) not to, directly or indirectly, whether as principal, agent, partner, officer, director, stockholder, employee, consultant or otherwise, alone or in association with any other Person (other than as a stockholder of Purchaser and through its designees on Purchaser’s Board of Directors), own, manage, operate, control, participate in, acquire more than three percent of (or the right to acquire more than three percent of) any class of voting securities of,
perform services for, or otherwise carry on, either a retail pharmacy business in the United States or a pharmacy benefits management business in the United States. Purchaser and Seller agree that $1 million of the cash portion of the Final Purchase Price will be allocated to the covenant not to compete set forth in this Section 4.15, and agree to act in accordance with such allocation for all purposes, including in any relevant Tax Returns or filings.

(b)          Seller acknowledges and agrees that the remedy at law for any breach, or threatened breach, of any of the provisions of this Section 4.15 will be inadequate and, accordingly, Seller covenants and agrees that Purchaser shall, in addition to any other rights and 

 

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remedies which Purchaser may have at Law, be entitled to equitable relief, including injunctive relief, and to the remedy of specific performance with respect to any breach or threatened breach of such covenant, as may be available from any court of competent jurisdiction. In addition, Seller and Purchaser agree that the terms of the covenant in this Section 4.15 are fair and reasonable in light of Purchaser’s plans for the Business and are necessary to accomplish the full transfer of the goodwill and other intangible assets contemplated hereby. In the event that any of the covenants contained in this Section 4.15 shall be determined by any court of competent jurisdiction to be unenforceable for any reason whatsoever, then any such provision or provisions shall not be deemed void, and the parties hereto agree that said limits may be modified by the court and that said covenant contained in this Section
4.15 shall be amended in accordance with said modification, it being specifically agreed by the parties that it is their continuing desire that this covenant be enforced to the full extent of its terms and conditions or if a court finds the scope of the covenant unenforceable, the court should redefine the covenant so as to comply with applicable Law.

	
            Section 4.16
 	
            Stockholders Meeting; Proxy Statement; By-Laws.
 

(a)          Purchaser shall, in accordance with applicable Law, Purchaser’s Restated Certificate of Incorporation and Purchaser’s Amended and Restated By-Laws:

(i)        cause a special meeting of its stockholders (the “Special Meeting”) to be duly called, noticed and held as promptly as practicable after the date of this Agreement for the purpose of voting on the approval and/or adoption of (A) the issuance of Purchaser Common Stock pursuant to this Agreement, (B) amendments to Purchaser’s Restated Certificate of Incorporation to increase the number of authorized shares of capital stock of Purchaser to 1.5 billion shares of Purchaser Common Stock and (C) the material amendments to and/or the adoption of new Purchaser equity compensation plans identified in Exhibit 4.16(a) (collectively, the «Stockholder Vote Matters«);

(ii)      prepare and file with the SEC, as promptly as practicable after the date of this Agreement, a preliminary proxy statement relating to the solicitation of proxies from the stockholders of Purchaser for approval of the Stockholder Vote Matters and use its reasonable best efforts (A) to respond promptly to any comments made by the SEC with respect to the preliminary proxy statement and cause a definitive proxy statement (the “Proxy Statement”) to be mailed to Purchaser’s stockholders and (B) to solicit proxies from its stockholders to obtain the requisite approval of the Stockholder Vote Matters; and

(iii)     include in the Proxy Statement the recommendation of the Board of Directors of Purchaser that stockholders vote in favor of the Stockholder Vote Matters.

(b)          Seller agrees that it will cooperate with and assist Purchaser, including providing Purchaser promptly upon request with the information concerning Seller and the Company required to be included in the Proxy Statement, which information, at the time the Proxy Statement is filed with the SEC, at the time the Proxy Statement is mailed to Purchaser 

 

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stockholders and at the time of the Special Meeting, as such information may be supplemented or amended as of such time, will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(c)          Purchaser shall amend its Restated By-Laws, effective upon the Closing, as set forth in Exhibit 4.16(c).

Section 4.17      Listing. Purchaser shall apply for, and shall use its reasonable best efforts to obtain prior to the Closing Date, approval to list on the NYSE the shares of Purchaser Common Stock to be issued to Seller at Closing, subject to official notice of issuance.

Section 4.18      Environmental Inspections. Prior to the Closing, Purchaser shall have the right to conduct non-invasive environmental inspections of the Real Property. Seller shall have the right to have a representative present during any inspections of the Real Property. Purchaser may request information about the Real Property from Governmental Authorities, but will not disclose to any Governmental Authority the results of any inspection conducted at any of the Real Property, whether performed by Seller, Purchaser, a consultant or agent thereof or otherwise, without Seller’s prior written consent, except to the extent required by Law. 

Section 4.19      Title and Survey Obligations. Seller will cause to be made available copies of any existing title policies or surveys for the Real Property in the possession of the Company for Purchaser’s review.

Section 4.20      Expenses. Except as otherwise expressly provided in this Agreement, Purchaser, on the one hand, and Seller, on the other hand, shall each bear its own direct and indirect expenses in connection with the transactions contemplated hereby, including all direct and indirect expenses and out-of-pocket costs incurred in connection with the procurement or attempted procurement of the consents required to be obtained pursuant to Section 4.7.

Section 4.21      Financing. Purchaser shall arrange the Financing on the terms and conditions described in the Financing Commitment, including (a) negotiating definitive agreements with respect thereto on terms and conditions contained therein and (b) satisfying all conditions applicable to Purchaser in such definitive agreements that are within its control. If all other conditions (including all conditions under the Financing Commitment that are required to be satisfied on the Closing Date) have been satisfied (other than those conditions that by their nature have to be satisfied at the Closing) and Seller and Purchaser are prepared to close, Purchaser agrees that if the Financing (other than the bridge facility) is not otherwise available, it will draw down from the bridge facility contemplated by the Financing Commitment an amount not
less than the amount needed to pay the Estimated Cash Consideration, and shall take such actions as are reasonably necessary to cause the Closing to occur no later than the Outside Date (as defined in Section 8.1(b) below). Seller agrees to provide, and shall cause JCG LLC, the Company and the Company Subsidiaries and its and their representatives, attorneys, independent auditors and advisors to provide, all reasonable cooperation in connection with the arrangement of the Financing as may be reasonably requested by Purchaser (provided that such requested cooperation does not unreasonably interfere with the ongoing operations of the Company and the Company Subsidiaries), including, without limitation, (i) participation in meetings, drafting 

 

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sessions and due diligence sessions, (ii) furnishing Purchaser and its financing sources and its and their attorneys, independent auditors and advisors with financial and other pertinent information regarding JCG LLC, the Company and the Company Subsidiaries as may be reasonably requested by Purchaser, (iii) assisting Purchaser and its financing sources in the preparation of (A) offering documents for any debt raised to complete the transactions contemplated hereby, (B) materials for rating agency presentations, and (C) business projections and financial statements (including historical financial statements of the Company and the Company Subsidiaries prepared in accordance with GAAP, pro forma financial statements and other financial information required pursuant to Regulation S-X of the Securities Act), (iv) reasonably cooperating with the marketing efforts of Purchaser and its financing sources for any debt
raised by Purchaser to complete the transactions contemplated hereby, (v) providing and executing such documents as may be reasonably requested by Purchaser, (vi) reasonably facilitating the pledge of collateral, and (vii) using reasonable best efforts to cause legal counsel to provide customary legal opinions and an independent auditor of the Company to provide any unqualified opinions, consents or customary comfort letters with respect to the financial statements of the Company and the Company Subsidiaries as may be reasonably requested by Purchaser; provided that Seller shall not be required to pay any commitment or other similar fee or incur any other Liability in connection with the Financing. 

Section 4.22      Letters of Credit. Set forth on Exhibit 4.22 is a list of all letters of credit of the Company and any Company Subsidiary outstanding as of the date hereof and Seller shall update such list from time to time hereafter and prior to Closing (such list as shall be updated from time to time by Seller, constituting the «Letters of Credit«). Purchaser shall obtain from each beneficiary of a Letter of Credit a binding written release of Seller under any Letter of Credit in effect as of the Closing by either (i) using its reasonable best efforts to provide substitute letters of credit with terms that are, as a whole, at least as favorable to the counterparty as the terms of the applicable Letter of Credit or (ii) furnishing cash, or making such other arrangements to which
the counterparty is entitled under the applicable Contract.

Section 4.23      Tax Powers of Attorney. Not later than the fifth Business Day prior to the scheduled Closing Date, Seller shall deliver to Purchaser a list of all written powers of attorney that the Company or a Company Subsidiary has granted and that will be in force after the Closing with respect to any Taxes or Tax Returns.

Section 4.24      Transition Services Agreement. Promptly following the date of this Agreement and prior to the Closing, Seller and Purchaser shall negotiate in good faith, and at the Closing execute and deliver, the Transition Services Agreement, which shall incorporate and be consistent with the principles set forth in Exhibit 4.24. 

 

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ARTICLE V

 

CONDITIONS TO CLOSING

Section 5.1        Mutual Conditions. The respective obligations of each party to this Agreement to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver, at or before the Closing, of each of the following conditions:

(a)          No Legal Prohibition, etc. There shall not be in effect any decree, judgment, preliminary or permanent injunction or other order or Law issued by any Governmental Authority of competent jurisdiction that prohibits, enjoins, materially delays or interferes with the consummation of the transactions contemplated hereby; provided that the parties shall use commercially reasonable efforts to cause any such decree, judgment, injunction or order to be vacated or lifted.

(b)          HSR Waiting Period. The waiting period, and any extensions thereof, applicable to the transactions contemplated by this Agreement pursuant to the HSR Act shall have expired or been terminated.

(c)          Purchaser Stockholder Approval. The issuance of shares of Purchaser Common Stock pursuant to this Agreement shall have been approved by the requisite vote of the stockholders of Purchaser under applicable Law and Purchaser’s Organizational Documents.

(d)          Listing. Purchaser shall have received approval to list on the NYSE the shares of Purchaser Common Stock to be issued to Seller at Closing, subject to official notice of issuance.

Section 5.2         Conditions to Purchaser’s Obligations. The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver, at or before the Closing, of each of the following conditions:

(a)          Truth of Representations and Warranties. The representations and warranties of Seller set forth in this Agreement (disregarding any Company Material Adverse Effect, materiality or other similar qualifiers therein) shall be true and correct in all respects, on and as of the date hereof and on and as of the Closing Date as though made on and as of the Closing Date (except to the extent any such representation and warranty speaks as of a specific date, in which event such representation and warranty shall be true and correct in all respects as of such specific date), except where the failure of such representations and warranties in the aggregate to be true and correct has not had or resulted in and would not reasonably be expected to have or result in a Company
Material Adverse Effect.

(b)          Performance of Agreements. Seller shall have performed and complied in all material respects with each agreement, covenant and obligation required by this Agreement to be performed or complied with by Seller on or prior to the Closing Date.

(c)          No Immediate Threatened or Pending Litigation. There shall not be threatened or pending any action (i) by any Governmental Authority seeking to prohibit or impose any material limitations on Purchaser’s ownership of JCG LLC or the Company or the 

 

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operation of all or a material portion of Purchaser’s or the Company’s or any of their respective Subsidiaries’ businesses or assets, or to compel Purchaser, JCG LLC or the Company or any of their respective Subsidiaries to dispose of or hold separate any material portion of the business or assets of Purchaser, JCG LLC or the Company or any of their respective Subsidiaries, or (ii) by any Governmental Authority which the Board of Directors of Purchaser reasonably determines in good faith, after considering the advice of its management and legal and financial advisors, (x) to be materially adverse to Purchaser and its Subsidiaries taken as a whole or (y) would materially impair the overall benefits expected, as of the date hereof, to be realized from the acquisition of the Business. Purchaser agrees that divestiture or release of assets (tangible or intangible) representing, or the imposition
of conditions affecting, up to the $60 Million Adjusted EBITDA Threshold is not materially adverse to Purchaser and its Subsidiaries taken as a whole nor would it materially impair the overall benefits expected to be realized from the acquisition of the Business; provided, however, that if the $60 Million Adjusted EBITDA Threshold is exceeded, it shall be deemed to materially impair the overall benefits expected to be realized by Purchaser with respect to the acquisition of the Business. 

(d)          Officer’s Certificate. Purchaser shall have received a certificate of an executive officer of Seller that the conditions set forth in Section 5.2(a) and Section 5.2(b) have been satisfied.

(e)          No Material Adverse Effect. Since the date hereof, no event, occurrence, fact, condition, change, development or effect shall have occurred or come to exist that, individually or in the aggregate, has had or resulted in or would reasonably be expected to have or result in a Company Material Adverse Effect.

(f)           Financing. Purchaser shall have received the proceeds of the Financing in an amount sufficient to consummate the transactions contemplated hereby.

(g)          Closing Deliveries. Seller shall have made the deliveries required to be made by it under Section 1.7.

Section 5.3         Conditions to Seller’s Obligations. The obligations of Seller to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver, at or before the Closing, of each of the following conditions:

(a)          Truth of Representations and Warranties. The representations and warranties of Purchaser set forth in this Agreement (disregarding any Purchaser Material Adverse Effect, materiality or other similar qualifiers therein) shall be true and correct in all respects, on and as of the date hereof and on and as of the Closing Date as though made on and as of the Closing Date (except to the extent any such representation and warranty speaks as of a specific date, in which event such representation and warranty shall be true and correct in all respects as of such specific date), except where the failure of such representations and warranties in the aggregate to be true and correct has not had or resulted in and would not reasonably be expected to have or result in a
Purchaser Material Adverse Effect.

 

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(b)          Performance of Agreements. Purchaser shall have performed and complied in all material respects with each agreement, covenant and obligation required by this Agreement to be performed or complied with by Purchaser on or prior to the Closing Date.

(c)          No Immediate Threatened or Pending Litigation. There shall not be threatened or pending any action by any Governmental Authority seeking to prohibit Purchaser’s ownership of JCG LLC or the Company or the operation of all or substantially all of Purchaser’s or the Company’s and any of their respective Subsidiaries’ businesses or assets.

(d)          No Material Adverse Effect. Since the date hereof, no event, occurrence, fact, condition, change, development or effect shall have occurred or come to exist that, individually or in the aggregate, has had or resulted in or would reasonably be expected to have or result in a Purchaser Material Adverse Effect.

(e)          Officer’s Certificate. Seller shall have received a certificate of an executive officer of Purchaser that the conditions set forth in Section 5.3(a) and Section 5.3(b) have been satisfied.

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

ARTICLE VI

 

SURVIVAL AND INDEMNIFICATION  

Section 6.1         Survival of Representations, Warranties and Covenants. Except as set forth in Article VII with respect to Tax matters, the representations and warranties of the parties contained in this Agreement shall survive the Closing solely for purposes of Article VI until the later of July 31, 2008 or 18 months following the Closing Date; provided, however, that notwithstanding the foregoing, (i) the representations and warranties of Seller set forth in Section 2.19 (Employee Benefit Plans; ERISA) and Section 2.23 (Compliance with Environmental Laws) shall survive the Closing until six months following the expiration of the applicable statute of limitations (including all periods of extension, whether automatic or
permissive) and (ii) (A) the representations and warranties of Seller set forth in Section 2.2 (Authority; Validity of Agreements), Section 2.5 (Capitalization; Subsidiaries), Section 2.6 (Title to Jean Coutu USA Shares) and Section 2.29 (Seller Indenture) and (B) the representations and warranties of Purchaser set forth in Section 3.2 (Authority; Validity of Agreements), Section 3.4(d) (relating to the Purchaser Common Stock to be issued pursuant to this Agreement) and Section 3.9 (Purchaser Indenture), shall survive the Closing indefinitely. All covenants and agreements contained in this Agreement which are to have effect or be performed after the Closing shall survive the Closing in accordance with their terms. Any right of indemnification pursuant to this Article VI with respect to a claimed breach of a representation, warranty or covenant shall expire at the date of termination of the survival period for such representation, warranty or covenant claimed to be breached (the
“Termination Date”), unless on or prior to the Termination Date a written claim for indemnification has been made to the party from whom indemnification is sought. Provided that an indemnification claim is timely made, it may continue to be asserted 

 

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beyond the Termination Date of the representation and warranty to which such claim relates until the final disposition of such claim. 

Section 6.2        Indemnification by Seller. From and after the Closing, except as set forth in Article VII with respect to Tax matters, Seller shall indemnify, protect, defend and hold harmless Purchaser and its Affiliates and their respective directors, officers, employees, agents and representatives and their successors and assigns (collectively, the “Purchaser Indemnitees”), as the case may be, from and against all Liabilities, demands, claims, actions or causes of action, assessments, losses, damages, costs and expenses (including, without limitation, interest, penalties and attorneys’ fees, disbursements and expenses) (collectively, “Damages”) asserted against, resulting to, imposed upon or incurred by any
Purchaser Indemnitee, directly or indirectly: (i) resulting from or arising out of a breach of any representation, warranty, covenant, agreement or other obligation of Seller contained in or made pursuant to this Agreement, each representation, warranty, covenant, agreement or obligation being read for this purpose without regard to any qualifications or limitations relating to materiality, including the terms «material," «materially," «Company Material Adverse Effect" or similar expressions; and (ii) arising from or relating to the conduct of the business of Seller and its Subsidiaries (other than JCG LLC, the Company or the Company Subsidiaries); provided, however, that in no event will the aggregate liability of Seller under clause (i) of this Section 6.2 exceed $450,000,000 (the «Seller Cap«); and provided, further, that no claims for indemnification can be made against Seller under clause (i) of this Section 6.2 with respect to breaches of representations and warranties unless and until the aggregate amount of such Damages for which the Purchaser Indemnitees are entitled to indemnity under clause (i) of this Section 6.2 with respect to breaches of representations and warranties exceeds $35,000,000 (the «Seller Basket«). No individual claim for Damages relating to breaches of representations and warranties of $10,000 or less (each, a «De Minimis Claim«) shall be aggregated for purposes of either (x) determining whether the Seller Basket has been met or (y) composing the portion of Damages that exceeds the Seller Basket, unless such De Minimis Claim constitutes or is part of a series
of two or more related claims, in which case, such De Minimis Claims shall be aggregated for purposes of determining whether the $10,000 threshold has been exceeded. In the event the aggregate amount of the Damages sustained by the Purchaser Indemnitees under clause (i) of this Section 6.2 with respect to breaches of representations and warranties exceeds the Seller Basket, the indemnification obligations of Seller shall apply only to those Damages sustained by the Purchaser Indemnitees in excess of the Seller Basket. Notwithstanding the foregoing, neither the Seller Basket nor the Seller Cap shall apply to Damages resulting from breaches by Seller with respect to the representations and warranties set forth in Section 2.2, Section 2.5, Section 2.6 and Section 2.29 of this Agreement, for all of which Damages Seller shall be liable whether or not the Seller Basket has been exceeded. For the avoidance of doubt, neither the Seller Basket nor the Seller Cap shall apply to Damages for
which Purchaser Indemnitees are entitled to indemnification under clause (ii) of this Section 6.2, under Section 4.4 or under Article VII.

Section 6.3        Indemnification by Purchaser. From and after the Closing, except as set forth in Article VII with respect to Tax Matters, Purchaser shall indemnify, protect, defend and hold harmless Seller and its Affiliates and their respective directors, officers, employees, agents and representatives and their successors and assigns (collectively, the “Seller Indemnitees”), as the case may be, from and against all Damages asserted against, resulting to, imposed upon or incurred by any Seller Indemnitee, directly or indirectly, resulting from or arising out of a breach 

 

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of any representation, warranty, covenant, agreement or other obligation of Purchaser contained in or made pursuant to this Agreement, each representation, warranty, covenant, agreement or obligation being read for this purpose without regard to any qualifications or limitations relating to materiality, including the terms «material," «materially," «Purchaser Material Adverse Effect" or similar expressions; provided, however, that in no event will the aggregate liability of Purchaser under this Section 6.3 exceed $450,000,000 (the «Purchaser Cap«); and provided, further, that no claims for indemnification can be made against Purchaser hereunder with
respect to breaches of representations and warranties unless and until the aggregate amount of such Damages for which the Seller Indemnitees are entitled to indemnity under the terms hereof with respect to breaches of representations and warranties exceeds $35,000,000 (the «Purchaser Basket«). No De Minimis Claim relating to breaches of representations and warranties shall be aggregated for purposes of either (x) determining whether the Purchaser Basket has been met or (y) composing the portion of Damages that exceeds the Purchaser Basket, unless such De Minimis Claim constitutes or is part of a series of two or more related claims, in which case, such De Minimis Claims shall be aggregated for purposes of determining whether the $10,000 threshold has been exceeded. In the event the aggregate amount of the Damages sustained by the Seller Indemnitees hereunder with respect to breaches of representations and warranties exceeds the
Purchaser Basket, the indemnification obligations of Purchaser shall apply only to those Damages sustained by the Seller Indemnitees in excess of the Purchaser Basket. Notwithstanding the foregoing, neither the Purchaser Basket nor the Purchaser Cap shall apply to Damages resulting from breaches by Purchaser with respect to the representations and warranties set forth in Section 3.2, Section 3.4(d) and Section 3.9 of this Agreement, for all of which Damages Purchaser shall be liable whether or not the Purchaser Basket has been exceeded. 

	
            Section 6.4
 	
            Indemnification Procedures.
 

(a)          In order for a party (the “Indemnified Party”) to be entitled to any indemnification provided for under this Article VI in respect of a claim made against the Indemnified Party by any Person who is not a party to this Agreement (a “Third-Party Claim”), such Indemnified Party must notify the indemnifying party hereunder (the “Indemnifying Party”) in writing of the Third-Party Claim promptly following receipt by such Indemnified Party of notice of the Third-Party Claim; provided, however, that failure to give such notification (or
to provide any of the notices or documents contemplated by the next sentence) shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually and materially prejudiced as a result of such failure. Thereafter, the Indemnified Party shall deliver to the Indemnifying Party, promptly following the Indemnified Party’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to the Third-Party Claim, other than those notices and documents separately addressed to the Indemnifying Party.

(b)          Subject to the provisions related to settlement of Third Party Claims set forth in Section 6.4(c) below, the Indemnifying Party will have the right to defend against, negotiate, settle or otherwise deal with any Third-Party Claim, other than a Third-Party Claim which seeks an order, injunction, or other equitable relief or relief for other than money damages against the Indemnified Party that the Indemnified Party reasonably determines, after conferring with its outside counsel, cannot be separated from any related claim for money damages (which Third-Party Claim shall be controlled at all times by the Company or Purchaser) which relates to 

 

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any Damages indemnified against hereunder and to select counsel of its choice. If the Indemnifying Party does not, within twenty-one days of its receipt of notice of a Third-Party Claim pursuant to Section 6.4(a), elect to defend against, negotiate, settle or otherwise deal with any Third-Party Claim which relates to any Damages indemnified against hereunder, the applicable Indemnified Party may defend against, negotiate, settle or otherwise deal with such Third-Party Claim. If the applicable Indemnified Party defends any Third-Party Claim, then the Indemnifying Party shall promptly reimburse the applicable Indemnified Party for the reasonable costs and expenses of defending such Third-Party Claim upon submission of periodic bills therefor. If the Indemnifying Party assumes the defense of any Third-Party Claim, the applicable Indemnified Party may participate, at its own expense, in the defense of such
Third-Party Claim; provided, however, that such applicable Indemnified Party will be entitled to participate in any such defense with separate counsel at the expense of the Indemnifying Party if (i) so requested by the Indemnifying Party to participate or (ii) in the reasonable opinion of counsel to the applicable Indemnified Party, a conflict or potential conflict exists between the applicable Indemnified Party and the Indemnifying Party that would make such separate representation advisable; provided, further, that the Indemnifying Party will not be required to pay for more than one such counsel for all Indemnified Parties in connection with any Third-Party Claim.

(c)          If the Indemnifying Party chooses to defend or prosecute a Third-Party Claim, the Indemnified Party shall (and shall cause the applicable Indemnified Parties to) cooperate in the defense or prosecution thereof. If the Indemnifying Party assumes the defense of a Third-Party Claim, the other party shall (and shall cause the applicable Indemnified Parties to) agree to any settlement, compromise or discharge of a Third-Party Claim that the Indemnifying Party may recommend and that (i) by its terms obligates the Indemnifying Party (or its Affiliates) to pay the full amount of the liability in connection with such Third-Party Claim, (ii) does not require any payment, admission or other action by, or limitation on, any Indemnified Party, and (iii) releases all Indemnified Parties in connection
with such Third-Party Claim. If the Indemnifying Party elects not to assume the defense of a Third-Party Claim or in the event of a Third Party Claim relating to or involving a supplier, the applicable Indemnified Parties shall not admit any liability with respect to, or settle, compromise or discharge, such Third-Party Claim without the Indemnifying Party’s prior written consent (which shall not be unreasonably withheld, delayed or conditioned).

(d)          In the event any Indemnified Party should have a claim against any Indemnifying Party under this Article VI that does not involve a Third-Party Claim, the Indemnified Party shall deliver notice of such claim to the Indemnifying Party promptly following the Indemnified Party becoming aware of the same. The failure by any Indemnified Party to so notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability that it may have to such Indemnified Party under this Article VI, except to the extent that the Indemnifying Party has been actually and materially prejudiced by such failure.

Section 6.5         Calculation of Damages. Notwithstanding any other provision of this Agreement, in no event shall Seller or Purchaser be liable for diminution of value or punitive, consequential, indirect, incidental or special damages of any kind or nature, regardless of the form of action through which such damages are sought unless such damages are actually recovered or recovered by a third party in a Third Party Claim. Notwithstanding the foregoing, the amount of any Damages for which indemnification is provided under this Article VI shall be net of any amounts 

 

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recovered or recoverable by the Indemnified Party under any Contracts or applicable insurance policies with respect to such Damages. To the extent an Indemnified Party recognizes any net Tax Benefits (as defined immediately below) as a result of any Damages for which indemnity is paid under this Article VI, the Indemnified Party shall pay the amount of such Tax Benefits (but not in excess of the indemnification payments received from the Indemnifying Party with respect to such Damages) to the Indemnifying Party within 60 days of such Tax Benefits being recognized by the Indemnified Party (to the extent such Tax Benefits are realized prior to the payment of the indemnity for the Damages, the amount of the indemnity for the Damages shall be reduced by the amount of Tax Benefits actually realized). For this purpose, the Indemnified Party shall be deemed to recognize a tax benefit (“Tax Benefit”) with respect to a taxable year only if, and to the extent that, the Indemnified Party’s liability for cash Taxes for such taxable year, calculated by excluding any Tax items attributed to the Damages, exceeds the Indemnified Party’s actual liability for cash Taxes for such taxable year, calculated by taking into account any Tax items attributed to (i) the Damages or (ii) the receipt of any indemnification payments.

Section 6.6         No Duplications. Any liability for indemnification hereunder shall be determined without duplication of recovery by reason of the state of facts giving rise to such liability constituting a breach of more than one representation, warranty, covenant or agreement.

Section 6.7        Treatment of Indemnification Amounts. Any amounts payable under this Article VI shall be, to the extent permitted by Law, an adjustment to the Final Purchase Price.

ARTICLE VII

 

TAX MATTERS

	
            Section 7.1
 	
            Tax Indemnity.
 

(a)          Subject to Purchaser’s compliance with the provisions of Section 7.3, Seller shall indemnify and hold Purchaser Indemnitees harmless from and against all Damages that Purchaser Indemnitees incur arising from, out of or related to (without duplication):

(i)        (A) Taxes of the Company and the Company Subsidiaries for all Pre-Closing Periods (as defined in Section 7.3 below) and, with respect to any Straddle Period (as defined in Section 7.3 below), the portion of such Taxes for such Straddle Period allocated to the Pre-Closing Portion (as defined in Section 7.4(b) below) pursuant to Section 7.4; (B) any Taxes for any Pre-Closing Periods, resulting from, arising out of, relating to or caused by any liability or obligation of the Company or any Company Subsidiary for Taxes of any person other than the Company or any Company Subsidiary (I) under Treasury Regulations Section 1.1502-6 (or any predecessor or successor provisions thereof and any similar provision of state, local or foreign Law) and (II) as a transferee or successor by
Contract, assumption transferee liability, operation of Law or otherwise; and (C) any Taxes resulting from, arising out of, relating to or caused by the Reorganization.

(ii)      any inaccuracy or breach of any representation or warranty of Seller contained in Section 2.8 (in so much as such Section relates to Taxes) 

 

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and Section 2.18 (collectively, the “Tax Representations”), disregarding, solely for purposes of measuring the Damages as a result of the breach of such representation or warranty under this Section 7.1(a)(ii), any “material” qualifier therein;

(iii)     Seller’s share of Transfer Taxes (as defined in Section 7.2 below), as determined under Section 7.2; and

(iv)     any breach of any covenant or agreement of Seller contained in Section 4.1(o), Section 4.3(a), and this Article VII; 

but only to the extent such Damages in the aggregate exceed the aggregate amount of current Taxes reflected in the Closing Working Capital. For the avoidance of doubt, the parties acknowledge that (x) no deferred Tax items (whether assets or liabilities) and (y) no income or franchise Taxes (whether current or deferred) shall be taken into account in calculating Working Capital or Closing Working Capital as defined in this Agreement. 

(b)          Payments pursuant to this Article VII that are not made on the date prescribed in this Article VII or, if no date is prescribed, the date that is within 15 days after demand for payment is made (the “Payment Period”), shall bear interest for the period from and including the date immediately following the last date of the Payment Period through and including the date of payment at the Applicable Rate. Such interest will be payable at the same time as the payment to which it relates and shall be calculated on the basis of a year of 365 days and the actual number of days for which due.

	
            Section 7.2
 	
            Transfer Taxes.
 

(a)          Notwithstanding anything to the contrary in this Agreement, all transfer, sales, use, stamp, registration and other similar Taxes resulting from the transactions contemplated by this Agreement plus any reasonable out-of-pocket costs associated with the preparing and filing of related Tax Returns (collectively, the “Transfer Taxes”) shall be borne fifty percent by Purchaser and fifty percent by Seller.

(b)          Seller and Purchaser (on its own behalf and with respect to the Company and the Company Subsidiaries) shall prepare and file (or cause to be prepared and filed), in consultation with Seller and its advisors, all Tax Returns required to be filed by it in respect of Transfer Taxes, and shall pay (or cause to be paid) to the applicable Tax Authorities the Transfer Taxes shown to be due and payable on such Tax Returns. Seller and Purchaser shall cooperate in the preparation and filing of such Tax Returns, and shall pay to the other their share of such Taxes consistent with Section 7.2(a).

Section 7.3         Preparation and Filing of Tax Returns and Payment of Taxes. To the extent not filed prior to the Closing Date, Purchaser shall prepare (or cause to be prepared) all Tax Returns of the Company and the Company Subsidiaries for any taxable period ending on or before the Closing Date (including the consolidated Federal income Tax of the affiliated group (within the meaning of Section 1504 of the Code) of which the Company is the common parent and any similar state or local Tax Returns) (each such period, a “Pre-Closing Period” and such Tax Returns, the “Pre-Closing Tax Returns”) and for any taxable period beginning on or before and ending after the Closing Date (each such period, a
“Straddle Period” and such Tax Returns, the 

 

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“Straddle Tax Returns”). All Pre-Closing Tax Returns shall be prepared in a manner that is consistent in all material respects with the prior practice of the Company and the Company Subsidiaries, except as required by applicable Law. With respect to any Tax Return to be filed by Purchaser pursuant to this Section 7.3, no later than 45 days prior to the due date (taking into account any valid extensions thereof) (“Due Date”) for the filing of such Tax Return, Purchaser shall submit, or cause to be submitted, a draft of such Tax Return to Seller for its review, including, in the case of any Straddle Tax Return, calculations of the Taxes allocated to Seller pursuant to Section 7.4. Within 20 days following Seller’s receipt of the draft of such Tax Return, Seller shall have the right reasonably
to object by written notice to Purchaser to the information contained in such Tax Return and calculations. If Seller does not so object within such time period, such Tax Return and calculations shall be deemed to have been accepted and agreed upon, and final and conclusive, for purposes of this Section 7.3. If Seller objects to such Tax Return and calculations, it shall notify Purchaser of such disputed item (or items) and the basis of its objection in reasonable detail (in such written notice), and Purchaser and Seller shall act in good faith to resolve any such dispute as promptly as practicable. If Purchaser and Seller cannot reach agreement regarding such dispute, the dispute shall be presented to the Accountants selected in accordance with the provisions set forth in Section 1.4(c), whose determination that Seller’s position is «more likely than not" to prevail shall bind both Purchaser and Seller (and Seller’s position shall be used if it «is more likely than
not" to prevail; provided, however, that Purchaser and Seller shall require the Accountants to make a determination that Seller’s position «is more likely than not" to prevail within 10 days but in no event later than 5 days prior to the Due Date for the filing of such Tax Return. No later than 3 days prior to the Due Date of any Tax Return to be filed by Purchaser pursuant to this Section 7.3, Seller shall pay to Purchaser, in immediately available funds, that amount of the total liability for Taxes shown to be due and payable on such Tax Return allocated to Seller pursuant to Section 7.4 as finally determined pursuant to this Section 7.3. Subject to the immediately preceding two sentences, Purchaser shall cause the Company or applicable Company Subsidiary (as the case may be) to timely and duly file such Pre-Closing or Straddle Tax Return and to timely pay to the applicable Tax
Authority an amount equal to the total liability for Taxes shown to be due and payable on such Tax Return. Seller shall be responsible for the reasonable out-of-pocket costs and expenses of Purchaser Indemnitees incurred in connection with the preparation and filing of all Pre-Closing or Straddle Tax Returns; provided, however, that all costs and expenses of the Accountants shall be paid fifty percent by Purchaser and fifty percent by Seller.

	
            Section 7.4
 	
            Allocation of Taxes.
 

(a)          The parties hereto shall, to the extent permitted under applicable Law, elect with the relevant Tax Authority for all Tax purposes to treat the Closing Date as the last day of the taxable period of the Company and the Company Subsidiaries. Where not so permitted, the portion of any Taxes that are allocable to the Pre-Closing Portion of the Straddle Period shall be either (x) in the case of Taxes that are imposed on a periodic basis (without regard to net income), deemed to be the amount of such Taxes of the entire period (or, in the case of such Taxes determined on an arrears basis, such as real property Taxes, 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 Pre-Closing Portion of the
Straddle Period and the denominator of which is the number or calendar days in the entire Straddle Period or (y) in all other cases, deemed equal to the amount that would be payable if the taxable period ended on and included the 

 

63

 

 

Closing Date. Any deferred items taken into income pursuant to Treasury Regulations Sections 1.1502-13 (or any predecessor or successor provisions thereof) and any excess loss accounts taken into income under Treasury Regulations Section 1.1502-19 (or any predecessor or successor provisions thereof) as a result of this transaction shall for these purposes be allocated to the Pre-Closing Period.

(b)          For purposes of this Agreement, “Pre-Closing Portion” means, with respect to any Straddle Period, the portion of such Straddle Period that begins on the first day of such Straddle Period and ends on, and includes, the Closing Date.

Section 7.5                          Tax Refunds. Purchaser shall use commercially reasonable efforts to apply for and obtain Tax Refunds (as defined below in this Section 7.5) to which the Company or any of the Company Subsidiaries may be entitled and to which Seller is entitled to payment of pursuant to this Section 7.5, unless Purchaser reasonably determines  that any of the Purchaser Indemnitees would be adversely affected by applying for or obtaining any such Tax Refund; provided that if Seller objects to such determination by Purchaser that any of the Purchaser Indemnitees would be adversely affected by applying for or obtaining any such Tax Refund, Seller may submit the disagreement
regarding whether any Purchaser Indemnitee would be adversely affected to the Accountants (as provided in Section 7.3) and such disagreement shall be deemed to be a dispute regarding the preparation of filing of a Tax Return, using the procedure set forth in Section 7.3 for the resolution of such dispute. Notwithstanding the foregoing, Purchaser shall not be obligated to pursue any Tax Refund pursuant to this Section 7.5 on behalf of Seller if Purchaser reasonably determines that the cost of applying for and obtaining such Tax Refund exceeds the amount of such Tax Refund, unless Seller pays to Purchaser in advance amounts sufficient to cover such shortfall. Subject to Section 7.6, Purchaser shall pay or cause to be paid to Seller all Tax Refunds that are actually received by the Company or the Company Subsidiaries after the Closing Date (within 10 days of the actual receipt of such refund) for (i) a Pre-Closing Period and (ii) a portion of all Tax Refunds paid by the Company or the
Company Subsidiaries for any Straddle Period (such portion to be allocated consistent with the principles set forth in Section 7.4), in each case, net of (x) any Taxes (or increase in Taxes) imposed upon or attributable to such Tax Refund and (y) all reasonable out-of-pocket costs and expenses of Purchaser Indemnitees incurred in connection with applying for and obtaining such Tax Refund and except to the extent such Tax Refund in (i) and (ii) are reflected on the Closing Working Capital Statement (in which case, such Tax Refund and the related out-of-pocket costs and expenses shall be for Purchaser’s account). Notwithstanding anything to the contrary contained in this Agreement, Seller shall not be entitled to any Tax Refund with respect to the Company or the Company Subsidiaries which relates to a carryback of a Tax attribute (including net operating losses and net capital losses) generated in any Taxable period beginning after the Closing Date. For this purpose, a
«Tax Refund« shall mean any refund, rebate, abatement, reduction or other recovery (whether directly or indirectly through a right of setoff or credit) of Taxes (including payments of estimated Taxes) of the Company, the Subsidiaries and their Affiliates and any interest received thereon with respect to any Pre-Closing Periods and the Pre-Closing Portion of any Straddle Period.

	
            Section 7.6
 	
            Assistance and Cooperation.
 

 

 

64

 

 

(a)          After the Closing, Purchaser and Seller shall (i) reasonably assist (and cause their respective Affiliates to reasonably assist) the other party in preparing and filing any Tax Returns that such other party is responsible for preparing, (ii) reasonably cooperate in preparing for any audits of, or disputes or other proceedings with any Tax Authority or with respect to any matters with respect to, Taxes of or relating to the Company or the Company Subsidiaries and (iii) make available to the other party and to any Tax Authority as reasonably requested all information, records, and documents relating to Tax matters of or relating to the Company or the Company Subsidiaries. In addition, Seller and Purchaser shall make themselves (and their respective employees) reasonably available, on a
mutually convenient basis, to provide explanations of any documents or information provided under this Section 7.6. Each party shall keep any information obtained under this Section 7.6 confidential except (x) as may be necessary in connection with the filing of Tax Returns or the conduct of any Tax Proceeding or (y) with the consent of the other party.

(b)          Seller and Purchaser will retain all Tax Returns, schedules and work papers and all material records (whether paper, electronic or other format) or other documents or electronic data in its possession (or in the possession of their respective Affiliates) relating to Tax matters relevant to the Company and the Company Subsidiaries for the Pre-Closing and Straddle Periods until the later of (i) the expiration of the statute of limitations of the taxable periods to which such Tax Returns and other documents relate, taking into account all extensions thereof, or (ii) six years following the Due Date for such Tax Returns. After such time, before Seller or Purchaser dispose of any such documents in its possession (or in the possession of its respective Affiliates), the other party shall be given
the opportunity, after 30 days’ prior written notice, to remove and retain all or any part of such documents as such other party may select (at such other party’s expense).

	
            Section 7.7
 	
            Tax Claims.
 

(a)          If any audit, assessment, suit, proposed adjustment, deficiency, dispute, administrative or judicial proceeding or similar claim is commenced, proposed or made by any Tax Authority that, if successful, would result in indemnification of Purchaser Indemnitees pursuant to Section 7.1 (a “Tax Claim”), then Purchaser shall promptly notify Seller and transmit to Seller a written notice describing in reasonable detail the nature of the Tax Claim and all related information in connection with such Tax Claim. Failure to promptly provide such notice shall not affect the right of Purchaser Indemnitees to indemnification hereunder, except and only to the extent Seller is materially prejudiced by such delay or omission. Seller shall notify
Purchaser that Seller elects to control the Tax Claim at its own cost and expense in all appropriate Tax Proceedings. Notwithstanding anything to the contrary contained in this Section 7.7, if either (i) Seller (A) fails to properly notify Purchaser that Seller elects to control the Tax Claim pursuant to the preceding sentence, or (B) after commencing or undertaking any such defense or settlement, fails reasonably to prosecute or withdraw from such defense or settlement or (ii) the Tax Claim involves a Straddle Period, then Purchaser shall have the right to control the Tax Claim in all appropriate Tax Proceedings and Purchaser Indemnitees shall have the right to be reimbursed by Seller for their reasonable out-of-pocket costs and expenses relating to the control of the Tax Claim; provided that with respect to any portion of a Tax Claim that relates to a Straddle Period, Seller shall be required to reimburse Purchaser Indemnitees only for
their pro 

 

65

 

 

rata share of such reasonable out-of-pocket costs and expenses. The party controlling the Tax Claim pursuant to this Section 7.7(a) is hereinafter referred to as the “Controlling Party.”

(b)          The Controlling Party shall defend the Tax Claim in good faith with counsel of its own choosing (who shall be reasonably satisfactory to the other party) and have full control of such defense and proceedings, including any compromise or settlement thereof; provided that the Controlling Party shall not enter into any settlement agreement or otherwise dispose of such Tax Claim without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned or delayed. The other party shall have the right with the prior written consent of the Controlling Party, not to be unreasonably withheld, to attend meetings, participate in hearings or proceedings and review and comment on any documents prior to their
submission that relate to any defense or settlement of any Tax Claim controlled by the Controlling Party and shall bear its own costs and expenses of such participation.

Section 7.8         Scope. Notwithstanding anything to the contrary contained in this Agreement, this Article VII shall be the exclusive remedy for any Damages relating or attributable to Taxes.

(a)          The Tax Representations shall survive until 15 days following the expiration of the applicable statute of limitations (taking into account all extensions thereof), if any. All covenants and agreements of the parties contained or referred to in Section 4.1(o) and this Article VII shall survive the Closing and continue in full force and effect in accordance with their terms. In the event of a conflict between this Article VII and any other provision of this Agreement (including Article VI), this Article VII shall govern and control.

(b)          The period of time that a representation, warranty, covenant or agreement survives the Closing pursuant to Section 7.8(a) shall be the “Tax Survival Period” with respect to such representation, warranty, covenant or agreement. In the event notice of any claim for indemnification shall have been given within the applicable Tax Survival Period and such claim has not been finally resolved by the expiration of such Tax Survival Period, the representations, warranties, covenants or agreements that are the subject of such claim shall survive, solely for purposes of such claim, until such claim is finally resolved. For purposes of any indemnification under Section 7.1(a)(ii), the Tax Representations shall be deemed to be made at signing and
at and as of the Closing.

(c)          Any amounts payable under this Article VII shall be, to the extent permitted by Law, an adjustment to the Unadjusted Cash Consideration.

Section 7.9         Certain Tax Sharing Agreements. As of the Closing, all agreements with respect to the sharing or allocation of, or indemnification for, Taxes or similar contract or arrangement, whether written or unwritten (“Tax Sharing Agreements”), to which the Company or any of the Company Subsidiaries is a party to or the subject of shall be terminated and, after the Closing, none of the Company or any of the Company Subsidiaries shall have further rights or obligations under such Tax Sharing Agreements.

Section 7.10      Recognition of Net Tax Benefits. To the extent an Indemnified Party recognizes any net Tax Benefits as a result of any Damages for which indemnity is paid under this Article VII, the Indemnified Party shall pay the amount of such Tax Benefits (but not in excess of the 

 

66

 

 

indemnification payments received from the Indemnifying Party with respect to such Damages) to the Indemnifying Party within 60 days of such Tax Benefits being recognized by the Indemnified Party (to the extent such Tax Benefits are realized prior to the payment of the indemnity for the Damages, the amount of the indemnity for the Damages shall be reduced by the amount of Tax Benefits actually realized). For this purpose, Tax Benefit shall have the meaning set forth in Section 6.5.

ARTICLE VIII

 

TERMINATION

Section 8.1        Termination. This Agreement may be terminated at any time prior to the Closing as follows:

	
             
 	
            (a)
 	
            by mutual written consent of Seller and Purchaser;
 

(b)          by Seller or Purchaser, if the Closing shall not have occurred on or before the date that is nine months following the date hereof; provided that if, as of such date, the waiting period, and any extensions thereof, applicable to the transactions contemplated by this Agreement pursuant to the HSR Act shall have not expired or been terminated or there is a pending action by any Governmental Authority seeking to prohibit Purchaser’s ownership of JCG LLC or the Company or the operation of all or substantially all of Purchaser’s or the Company’s and any of their respective Subsidiaries’ businesses or assets, then either Seller or Purchaser may, in its sole discretion, extend such date for an additional three months (such date, as
extended, the «Outside Date«); provided, further, that the right to terminate this Agreement under this Section 8.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur by such date;

(c)          by Seller or Purchaser, if any Governmental Authority of competent jurisdiction shall have issued an order, decree or ruling or taken other action restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby and such order, decree, ruling or other action shall have become final and nonappealable;

(d)          by Seller or Purchaser, if the approval of the issuance of the shares of Purchaser Common Stock by the stockholders of Purchaser shall not have been obtained by reason of the failure to obtain the required vote at the Special Meeting duly convened therefor or at any adjournment or postponement thereof;

(e)          by Purchaser, if there shall have been a breach in any material respect of any of the covenants or agreements on the part of Seller set forth in this Agreement or a breach of any of the representations and warranties of Seller that would cause the conditions precedent set forth in Section 5.2(a) not to be satisfied, in each case which has not been cured within 30 days after receipt of notice of such breach; and

(f)           by Seller, if there shall have been a breach in any material respect of any of the covenants or agreements on the part of Purchaser set forth in this Agreement or a breach of 

 

67

 

 

any of the representations and warranties of Purchaser that would cause the conditions precedent set forth in Section 5.3(a) not to be satisfied, in each case which has not been cured within 30 days after receipt of notice of such breach.

Section 8.2        Effect of Termination. In the event of termination of this Agreement pursuant to this Article VIII, this Agreement (other than Section 4.6(f), Section 4.20, this Section 8.2 and Article IX) shall become void and of no effect with no liability on the part of any party hereto (or any of its Affiliates or representatives); provided, however, that no such termination shall relieve any party hereto from any Liability for damages resulting from fraud or any willful and intentional breach of this Agreement.

ARTICLE IX

 

MISCELLANEOUS PROVISIONS

Section 9.1        Amendment; Waiver. This Agreement may not be amended, altered or modified except by written instrument executed by each of the parties. Each party may waive any of its rights under this Agreement; provided that any such waiver of rights hereunder must be set forth in writing. The failure by any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of or non-compliance with this Agreement shall be held to be a waiver of any other or subsequent breach or non-compliance. 

Section 9.2        Entire Agreement. This Agreement (including the Seller Disclosure Schedule, Purchaser Disclosure Schedule and  Exhibits), the Confidentiality Agreement and the Ancillary Agreements, together with the several agreements and other documents and instruments referred to herein or therein or annexed hereto or thereto or delivered in connection herewith or therewith, constitute the entire agreement of the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, written and oral, among the parties with respect to the subject matter hereof. 

Section 9.3        Interpretation. In this Agreement, unless otherwise expressly specified, the following rules of interpretation apply:

(a)          references to Articles, Sections, Seller Disclosure Schedules, Purchaser Disclosure Schedules and Exhibits are references to articles, sections or sub-sections, schedules and exhibits of this Agreement;

(b)          the section and other headings contained in this Agreement are for reference purposes only and do not affect the meaning or interpretation of this Agreement;

	
             
 	
            (c)
 	
            words importing the singular include the plural and vice versa;
 	
             

	
             
 	
            (d)
 	
            references to the word “including” do not imply any limitation;
 

 

 

68

 

 

(e)          the words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement;

(f)           the word “knowledge” when used with respect to Seller, the Company or any Company Subsidiary, shall mean the actual knowledge of the Persons set forth in Exhibit 9.3(f);

(g)          the word “knowledge” when used with respect to Purchaser or any of its Subsidiaries, shall mean the actual knowledge of the Persons set forth in Exhibit 9.3(g);

	
             
 	
            (h)
 	
            references to “$” or “dollars” refer to U.S. dollars; and
 

(i)           nothing in any representation, warranty, covenant or condition in this Agreement shall in any way limit or restrict the scope, applicability or meaning of any other representation, warranty, covenant or condition set forth in this Agreement, and each representation, warranty, covenant and condition in this Agreement shall be given full, separate and independent effect. 

Section 9.4         Severability. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

Section 9.5         Notices. All notices and other communications hereunder shall be in writing and shall be addressed as follows (or at such other address for a party as shall be specified by like notice):

If to Purchaser:

Rite Aid Corporation

30 Hunter Lane 

Camp Hill, PA 17011

Facsimile:  (717) 760-7867

	
             
 	
            Attention:  
 	
            Robert B. Sari
 

 

 

69

 

 

With copies (which shall not constitute notice) to:

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York  10036

	
             
 	
            Facsimile:
 	
            (212) 735-2000
 	
             

	
             
 	
            Attention:
 	
            Nancy A. Lieberman
 
	
             
 	
            Marc S. Gerber
 	
             

						

If to Seller:

The Jean Coutu Group (PJC) Inc.

530, Bériault Street

Longueuil QC

J4G 1S8 Canada

Facsimile:  (450) 646-6686

	
             
 	
            Attention:  
 	
            Kim Lachapelle
 

 

With copies (which shall not constitute notice) to:

O’Melveny & Myers LLP

Times Square Tower

Seven Times Square

New York, New York  10036

	
             
 	
            Facsimile:
 	
            (212) 326-2061
 	
             

	
             
 	
            Attention:
 	
            Spencer D. Klein
 
					

All such notices or communications shall be deemed to have been delivered and received:  (a) if delivered in person, on the day of such delivery, (b) if by facsimile, on the day on which such facsimile was sent, provided that an appropriate electronic confirmation or answerback is received, or (c) if by a recognized next day courier service, on the first Business Day following the date of dispatch. Each notice, written communication, certificate, instrument and other document required to be delivered under this Agreement shall be in the English language, except to the extent that such notice, written communication, certificate, instrument and other document is required by applicable Law to be in a language other than English.

Section 9.6        Binding Effect; Persons Benefiting; No Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Except as otherwise provided herein, nothing in this Agreement is intended or shall be construed to confer upon any entity or person other than the parties hereto and their respective successors and permitted assigns any right, remedy or claim under or by reason of their Agreement or any part hereof. This Agreement may not be assigned by any of the parties hereto without the prior written consent of the other parties hereto and any purported assignment or other transfer without such consent shall be void and unenforceable; provided, however, that without such prior consent, Purchaser shall have the right to assign all or any part of its right, title, interest or obligations hereunder to any wholly-owned Subsidiary of Purchaser or to any Person that may hereafter acquire all or any portion of the Business.

 

70

 

 

Section 9.7         Counterparts. This Agreement may be executed in two or more counterparts (including by facsimile or other electronic transmission), each of which shall be deemed an original, but all of which taken together shall constitute one and the same agreement, it being understood that all of the parties need not sign the same counterpart.

Section 9.8         Specific Performance. The parties to this Agreement each acknowledge that, in view of the uniqueness of the Business and the transactions contemplated hereby, each party would not have an adequate remedy at law for money damages in the event that the covenants to be performed after the Closing have not been performed in accordance with their terms, and therefore agree that the other parties shall be entitled to specific enforcement of the terms hereof and any other equitable remedy to which such parties may be entitled.

Section 9.9        Governing Law. THIS AGREEMENT, THE LEGAL RELATIONS BETWEEN THE PARTIES AND THE ADJUDICATION AND THE ENFORCEMENT THEREOF, SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WHOLLY WITHIN THAT JURISDICTION, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW RULES THEREOF. 

	
            Section 9.10
 	
            Consent to Jurisdiction.
 	
             

	
             
 	
            (a)
 	
            Each party to this Agreement, by its execution hereof, hereby:
 

(i)       irrevocably and unconditionally submits to the exclusive jurisdiction in the Court of Chancery of the State of Delaware or any court of the United States located in the State of Delaware, for the purpose of any and all actions, suits or proceedings arising in whole or in part out of, related to, based upon or in connection with this Agreement or the subject matter hereof;

(ii)      waives to the extent not prohibited by applicable Law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such action brought in one of the above-named courts should be dismissed on grounds of forum non conveniens, should be transferred to any court other than one of the above-named courts, or should be stayed by reason of the pendency of some other proceeding in any other court other than one of the above-named courts, or that this Agreement or the subject matter hereof may not be enforced in or by such court, and 

(iii)     agrees not to commence any such action other than before one of the above-named courts nor to make any motion or take any other action seeking or intending to cause the transfer or removal of any such action to any court other than one of the above-named courts whether on the grounds of forum non conveniens or otherwise. 

(b)          Seller hereby irrevocably and unconditionally designates, appoints, and empowers The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, 

 

71

 

 

Wilmington, Delaware 19801, as its designee, appointee and agent to receive, accept and acknowledge for and on its behalf service of any and all legal process, summons, notices and documents that may be served in any action, suit or proceeding brought against Seller in any such United States federal or state court with respect to its obligations, liabilities or any other matter arising out of or in connection with this Agreement and that may be made on such designee, appointee and agent in accordance with legal procedures prescribed for such courts. If for any reason such designee, appointee and agent hereunder shall cease to be available to act as such, Seller agrees to designate a new designee, appointee and agent in the State of Delaware on the terms and for the purposes of this Section 9.10 reasonably satisfactory to Purchaser. Seller further hereby irrevocably consents and agrees to the service of any
and all legal process, summons, notices and documents in any such action, suit or proceeding against Seller by serving a copy thereof upon the relevant agent for service of process referred to in this Section 9.10 (whether or not the appointment of such agent shall for any reason prove to be ineffective or such agent shall accept or acknowledge such service) or by sending copies thereof by a recognized next day courier service to Seller at its address specified in or designated pursuant to this Agreement. Seller agrees that the failure of any such designee, appointee and agent to give any notice of such service to them shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon.

[Remainder of page intentionally left blank.]

 

 

 

 

 

72

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

RITE AID CORPORATION

	
             
 	
            By:
 	
            /s/ Robert B. Sari
 	
             

	
             
 	
            Robert B. Sari
 	
             

	
             
 	
            Exec. VP & General Counsel
 
					

THE JEAN COUTU GROUP (PJC) INC.

	
             
 	
            By:
 	
            /s/ Jean Coutu
 
	
             
 	
            Jean Coutu
 	
             

Chairman of the Board, President and Chief Executive OfficerEXECUTION COPY

 

 

STOCKHOLDER AGREEMENT

between

RITE AID CORPORATION,

THE JEAN COUTU GROUP (PJC) INC.,

JEAN COUTU, 

MARCELLE COUTU,

FRANCOIS J. COUTU,

MICHEL COUTU,

LOUIS COUTU, 

SYLVIE COUTU

and

MARIE-JOSÉE COUTU

 

______________________________

Dated as of August 23, 2006

______________________________

 

 

 

 

 

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TABLE OF CONTENTS

	
             
 	
            Page
 

ARTICLE I  

 

SHARE OWNERSHIP

 

	
            Section 1.1
 	
            Acquisition of Additional Voting Securities
 	
            1
 
	
            Section 1.2
 	
            Prohibition of Certain Actions
 	
            4
 
	
            Section 1.3
 	
            Stock Purchase Rights in a Preemptive Issuance
 	
            6
 
	
            Section 1.4
 	
            Other Stock Purchase Rights.
 	
            8
 

 

ARTICLE II

 

TRANSFER RESTRICTIONS

 

	
            Section 2.1
 	
            General Transfer Restrictions
 	
            11
 
	
            Section 2.2
 	
            Specific Restrictions on Transfer
 	
            12
 
	
            Section 2.3
 	
            Legend on Securities
 	
            15
 
	
            Section 2.4
 	
            Other Voting Securities
 	
            15
 

 

ARTICLE III

 

CORPORATE GOVERNANCE

 

	
            Section 3.1
 	
            Board Representation
 	
            16
 
	
            Section 3.2
 	
            Board Chairs; Management
 	
            19
 
	
            Section 3.3
 	
            Board Committee Representation
 	
            20
 
	
            Section 3.4
 	
            Vote Required for Board Action; Board Quorum
 	
            21
 
	
            Section 3.5
 	
            Voting Arrangements
 	
            22
 

 

ARTICLE IV

 

MISCELLANEOUS

 

	
            Section 4.1
 	
            Conflicting Agreements
 	
            22
 
	
            Section 4.2
 	
            Termination
 	
            23
 
	
            Section 4.3
 	
            Representations of the Company
 	
            23
 
	
            Section 4.4
 	
            Representations of the Stockholder
 	
            23
 
	
            Section 4.5
 	
            Representations of the Family Members
 	
            23
 
	
            Section 4.6
 	
            Ownership Information
 	
            23
 
	
            Section 4.7
 	
            Adjustments to Prevent Dilution
 	
            23
 
	
            Section 4.8
 	
            Savings Clause
 	
            24
 
	
            Section 4.9
 	
            Amendment and Waiver
 	
            24
 
	
            Section 4.10
 	
            Severability
 	
            24
 
	
            Section 4.11
 	
            Entire Agreement
 	
            24
 

 

 

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642417.15-D.C. Server 2A - MSW

 

 

 

	
            Section 4.12
 	
            Successors and Assigns
 	
            24
 
	
            Section 4.13
 	
            Counterparts
 	
            25
 
	
            Section 4.14
 	
            Remedies
 	
            25
 
	
            Section 4.15
 	
            Notices
 	
            25
 
	
            Section 4.16
 	
            Governing Law
 	
            26
 
	
            Section 4.17
 	
            Consent to Jurisdiction
 	
            27
 
	
            Section 4.18
 	
            Interpretation
 	
            28
 
	
            Section 4.19
 	
            Methodology for Calculations
 	
            28
 
	
            Section 4.20
 	
            Effectiveness
 	
            28
 

 

 

	
            Exhibit 3.2
 	
            Form of Amended and Restated By-laws of Rite Aid Corporation  
 

 

 

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INDEX OF DEFINED TERMS

 

 

	
             
 	
            Page
 
	
             
 	
             
 
	
            5% Spinoff Coutu Stockholder
 	
            12
 
	
            5% Spinoff Stockholder
 	
            13
 
	
            Additional Preemptive Securities Purchase
 	
            7
 
	
            Affiliate
 	
            3
 
	
            Agreement
 	
            1
 
	
            Applicable Law
 	
            18
 
	
            Beneficial Ownership
 	
            3
 
	
            Beneficially Own
 	
            3
 
	
            Beneficially Owned
 	
            3
 
	
            Board
 	
            2
 
	
            Board Representation Percentage
 	
            18
 
	
            broad distribution
 	
            12
 
	
            Business Day
 	
            8
 
	
            By-laws
 	
            19
 
	
            Capital Stock
 	
            4
 
	
            Certificate of Incorporation
 	
            21
 
	
            Closing
 	
            1
 
	
            Commission
 	
            3
 
	
            Company
 	
            1
 
	
            control
 	
            3
 
	
            Coutu Family
 	
            14
 
	
            Coutu Stockholders
 	
            14
 
	
            Director
 	
            2
 
	
            Exchange Act
 	
            3
 
	
            Family Member
 	
            1
 
	
            Group
 	
            3
 
	
            Independent Director
 	
            16
 
	
            Lender
 	
            13
 
	
            Person
 	
            3
 
	
            Potential Total Voting Power
 	
            4
 
	
            Preemptive Issuance
 	
            6
 
	
            Preemptive Rights Closing Date
 	
            7
 
	
            Preemptive Securities
 	
            7
 
	
            Prohibited Actions
 	
            4
 
	
            Representative
 	
            13
 
	
            Rite Aid Common Stock
 	
            2
 
	
            Roll Over Shares
 	
            10
 
	
            Securities Act
 	
            12
 
	
            Standstill Period
 	
            2
 
	
            Stock Purchase Agreement
 	
            1
 
	
            Stockholder
 	
            1
 

 

 

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642417.15-D.C. Server 2A - MSW

 

 

 

	
            Stockholder Designee
 	
            16
 
	
            Stockholder Pro Rata Distribution
 	
            12
 
	
            Total Voting Power
 	
            4
 
	
            Transfer
 	
            11
 
	
            Transferee
 	
            12
 
	
            Transferred
 	
            12
 
	
            Transferring
 	
            12
 
	
            Voting Power Percentage Ceiling
 	
            9
 
	
            Voting Securities
 	
            3
 
	
            Voting-Enabled Securities
 	
            3
 
	
            Window Period
 	
            11
 
	
            Window Period Election Deadline
 	
            9
 
	
            Window Period Election Notice
 	
            9
 
	
            Window Period Purchase Amount
 	
            9
 

 

 

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STOCKHOLDER AGREEMENT

STOCKHOLDER AGREEMENT, dated as of August 23, 2006, between Rite Aid Corporation, a Delaware corporation (the “Company”), The Jean Coutu Group (PJC) Inc., a Québec corporation (the “Stockholder”), and Jean Coutu, an individual, Marcelle Coutu, an individual, Francois J. Coutu, an individual, Michel Coutu, an individual, Louis Coutu, an individual, Sylvie Coutu, an individual, and Marie-Josée Coutu, an individual (each a “Family Member” and, collectively, the “Family Members”). 

WHEREAS, the Company and the Stockholder are parties to a Stock Purchase Agreement, dated as of the date hereof (the “Stock Purchase Agreement”), pursuant to and subject to the terms and conditions of which, among other things, the Stockholder will sell to the Company (i) all of the issued and outstanding common stock, par value $1.00 per share, and all of the issued and outstanding preferred stock, par value $1.00 per share, of The Jean Coutu Group (PJC) USA, Inc., a Delaware corporation and wholly-owned subsidiary of the Stockholder, or (ii) if the Stockholder completes the Reorganization (as defined in the Stock Purchase Agreement) prior to the consummation of the transactions contemplated by the Stock Purchase Agreement, all of the membership interests in JCG (PJC) USA, LLC, a Delaware limited liability company and a wholly-owned
subsidiary of the Stockholder, as consideration for cash and shares of Rite Aid Common Stock (as defined in Section 1.1(c) below);

WHEREAS, upon the closing under the Stock Purchase Agreement (the “Closing”), the Stockholder will Beneficially Own (as defined in Section 1.1(g) below), directly, 250 million shares of the issued and outstanding Rite Aid Common Stock, representing approximately 30.4% of the Total Voting Power (as defined in Section 1.1(l) below) of the Company;

WHEREAS, the parties hereto desire to enter into this Stockholder Agreement (as it may be amended, supplemented, restated or modified from time to time, this “Agreement”) to establish certain arrangements with respect to the shares of Rite Aid Common Stock to be Beneficially Owned by the Stockholder following the Closing, as well as restrictions on certain activities in respect of the Voting Securities (as defined in Section 1.1(h) below) and certain agreements relating to corporate governance and other related corporate matters;

NOW, THEREFORE, in consideration of the premises and of the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows:

ARTICLE I

 

SHARE OWNERSHIP

	
            Section 1.1
 	
            Acquisition of Additional Voting Securities.
 

(a)       During the Standstill Period (as defined below in this Section 1.1(a)), except (i) by way of stock dividend, stock split, reorganization, recapitalization, merger, consolidation or other like distributions made available to holders of Rite Aid Common Stock generally, (ii) as specifically permitted pursuant to Section 1.3 of this Agreement, (iii) as specifically permitted 

 

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pursuant to Section 1.4 of this Agreement, or (iv) with the consent of a majority of the directors (each a “Director”) of the Board of Directors of the Company (the “Board”) not including the Stockholder Designees (as defined in Section 3.1(a) below), the Stockholder and the Family Members covenant and agree with the Company that they shall not, and shall not permit any of their respective Affiliates (as defined in Section 1.1(d) below) to, directly or indirectly, acquire, offer or propose to acquire or agree to acquire, whether by purchase, tender or exchange offer, through the acquisition of control of another Person (as defined in Section 1.1(e) below) (whether by way of merger, consolidation or otherwise), by joining a partnership, syndicate or other Group (as defined in Section 1.1(f)
below) (other than a Group that includes only Coutu Stockholders (as defined in Section 2.2(g) below) and their respective Affiliates) or otherwise, the Beneficial Ownership (as defined in Section 1.1(g) below) of any additional Voting Securities. Notwithstanding the foregoing sentence, the Stockholder may effect the acquisition of additional Voting Securities through the acquisition of control of another Person if (i) such other Person Beneficially Owns Voting Securities constituting no more than 2% of the Potential Total Voting Power (as defined in Section 1.1(k) below) and (ii) the Stockholder uses its reasonable best efforts to divest a sufficient number of Voting Securities as promptly as practicable following such acquisition such that the Stockholder Beneficially Owns no more Voting Securities than it would otherwise be permitted to Beneficially Own or acquire pursuant to this Section 1.1; provided that until consummation of
such divestiture, such Voting Securities shall be subject to Section 3.5 hereof). The term “Standstill Period” means the period beginning at the Closing and ending on the date that concludes a nine month period that begins on the latest of (x) the date when the Stockholder and its Affiliates Beneficially Own Voting-Enabled Securities (as defined in Section 1.1(i) below) constituting less than 5% of the Total Voting Power, (y) the date when no individual Family Member together with his or her Affiliates Beneficially Owns Voting-Enabled Securities constituting 5% or more of the Total Voting Power, and (z) the date when no Group containing two or more Family Members or their respective Affiliates, but only in the event that any such Group was formed or existed during the Standstill Period, Beneficially Owns Voting-Enabled Securities constituting 5% or more of the Total Voting Power; provided, however, that in the event the Standstill Period continues to be in effect due to clause (z) above, the restrictions contained in this Agreement shall not apply to Family Members who, together with their Affiliates (other than other Family Members and their Affiliates who comprise a Group described in clause (z) above), Beneficially Own Voting-Enabled Securities constituting less than 5% of the Total Voting Power and who are not, and whose Affiliates are not, part of a Group described in clause (z) above.

(b)       Any additional Voting Securities acquired and Beneficially Owned by the Stockholder, any Family Member or any of their respective Affiliates following the Closing shall be subject to the restrictions contained in this Agreement as fully as if such Voting Securities were acquired by the Stockholder, such Family Member or such Affiliates, as the case may be, at or prior to the Closing.

(c)       As used herein, “Rite Aid Common Stock” means the shares of common stock, par value $1.00 per share, of the Company and any securities issued in respect thereof, or in substitution therefor, in connection with any stock split, dividend or combination, or any reclassification, recapitalization, merger, consolidation, exchange or other similar reorganization. 

 

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(d)       As used herein, “Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such specified Person; “control” (including the terms “controlled by” and “under common control with”), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or any
other means; provided, however, that with respect to any Person who is an individual, the following Persons shall be deemed not to be controlled by such Person:  (i) a parent of such natural Person, (ii) a sibling of such natural Person, (iii) an adult child not sharing a home with such natural Person and (iv) an entity (x) for which such natural Person serves solely as a director and not as an officer or employee and (y) in which such natural Person Beneficially Owns less than 10% of any class of voting equity securities, except that, notwithstanding this clause (iv), directors and officers of the Stockholder, its subsidiaries and any parent entity of the Stockholder, such as a holding company, shall be deemed Affiliates of the Stockholder.

(e)       As used herein, “Person” means any individual, corporation, limited liability company, limited or general partnership, association, joint-stock company, trust, unincorporated organization, other entity, or government or any agency or political subdivision thereof.

(f)       As used herein, “Group” shall have the meaning assigned to it in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the U.S. Securities and Exchange Commission (the “Commission”) from time to time thereunder (the “Exchange Act”). 

(g)       As used herein, “Beneficial Ownership” by a Person of any securities includes ownership by any Person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares (i) voting power which includes the power to vote, or to direct the voting of, such security; and/or (ii) investment power which includes the power to dispose, or to direct the disposition, of such security; and shall otherwise be interpreted in accordance with the term «beneficial ownership" as defined in Rule 13d-3 adopted by the Commission under the Exchange Act, except that in no event will the Stockholder be deemed to Beneficially Own any securities which it has the right to acquire pursuant to Section 1.3 unless, and then only to the extent
that, it shall have actually exercised such right. For purposes of this Agreement, a Person shall be deemed to Beneficially Own any securities Beneficially Owned by its Affiliates (including as Affiliates for this purpose its officers and directors) or any Group of which such Person or any such Affiliate is or becomes a member. The terms “Beneficially Own” and “Beneficially Owned” shall have correlative meanings to “Beneficial Ownership.”  

(h)       As used herein, “Voting Securities” means the Voting-Enabled Securities (as defined in Section 1.1(i) below) of the Company and any securities convertible into or exercisable or exchangeable at the option of the holder thereof for such shares of Voting-Enabled Securities of the Company.

 

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(i)        As used herein, “Voting-Enabled Securities” means, at any time, shares of any class of Capital Stock (as defined in Section 1.1 (j) below) or other securities or interests of the Company, including the Rite Aid Common Stock, which are then entitled to vote generally, and not solely upon the occurrence and during the continuation of certain specified events, in the election of Directors.

(j)        As used herein, “Capital Stock” means, with respect to any Person at any time, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital stock, partnership interests (whether general or limited) or equivalent ownership interests in or issued by such Person.

(k)       As used herein, “Potential Total Voting Power” means, at any time, the total number of votes (i) entitled to vote generally, and not solely upon the occurrence and during the continuation of certain specified events, in the election of Directors by the holders of the outstanding Rite Aid Common Stock, (ii) attributable to any other Voting-Enabled Securities and (iii) assuming the conversion into, or exercise or exchange for, Voting-Enabled Securities, attributable to all other Voting Securities that are not Voting-Enabled Securities at such time. When determining the percentage of Potential Total Voting Power Beneficially Owned by the Stockholder solely for purposes of this Agreement, such percentage shall be determined (i) as if purchases to be made in the future
pursuant to one or more Window Period Election Notices (as defined in Section 1.4(b) below), and not waived pursuant to Section 1.4(e), had been made at the time of determination of such percentage and (ii) disregarding any Voting-Enabled Securities that would trigger the purchase rights under Section 1.4 issued during the then-current fiscal quarter and, if the applicable Window Period Election Deadline (as defined in Section 1.4(b) below) has not yet passed, issued during the immediately preceding fiscal quarter.

(l)        “Total Voting Power” means, at any time, the total number of votes (i) entitled to vote generally, and not solely upon the occurrence and during the continuation of certain specified events, in the election of Directors by the holders of the outstanding Rite Aid Common Stock and (ii) attributable to any other Voting-Enabled Securities. When determining the percentage of Total Voting Power Beneficially Owned by the Stockholder solely for purposes of this Agreement, such percentage shall be determined (i) as if purchases to be made in the future pursuant to one or more Window Period Election Notices, and not waived pursuant to Section 1.4(e), had been made at the time of determination of such percentage and (ii) disregarding any Voting-Enabled Securities that would
trigger the purchase rights under Section 1.4 issued during the then-current fiscal quarter and, if the applicable Window Period Election Deadline has not yet passed, issued during the immediately preceding fiscal quarter. 

	
            Section 1.2
 	
            Prohibition of Certain Actions.
 

(a)       During the Standstill Period, except as otherwise specifically permitted by this Agreement, the Stockholder and the Family Members will not, directly or indirectly, through one or more intermediaries or otherwise, and will cause each of their respective Affiliates not to, directly or indirectly, singly or as part of a partnership, limited partnership, syndicate (as those terms are used within the meaning of Section 13(d)(3) of the Exchange Act, which meanings shall apply for all purposes of this Agreement) or other Group (each of the actions referred to in the following provisions of this Section 1.2(a) being referred to as “Prohibited Actions”):

 

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(i)           make, or in any way participate in, any “solicitation” of “proxies” (as such terms are defined or used in Regulation 14A under the Exchange Act) with respect to any Voting-Enabled Securities (including by the execution of actions by written consent), become a “participant” in any “election contest” (as such terms are defined or used in Rule 14a-11 under the Exchange Act) with respect to the Company or seek to advise, encourage or influence any Person (other than an Affiliate of the Stockholder, including for this purpose its officers and directors, or of any Coutu Stockholder) with respect to the voting of any Voting-Enabled Securities; provided, however, that the
Stockholder shall not be prevented hereunder from being a “participant” in support of the management of the Company, by reason of the membership of the Stockholder Designees on the Board or the inclusion of the Stockholder Designees on the slate of nominees for election to the Board proposed by the Company;

(ii)         initiate, propose or otherwise solicit, or participate in the solicitation of, stockholders for the approval of one or more stockholder proposals with respect to the Company (as described in Rule 14a-8 under the Exchange Act) or knowingly induce any other individual or entity to initiate any stockholder proposal relating to the Company;

(iii)        form, join or in any way participate in a Group (other than a Group including only Coutu Stockholders and their respective Affiliates), act in concert with any other Person or entity or otherwise take any action or actions which would cause it to be deemed a “person” (for purposes of Section 13(d) of the Exchange Act) (other than to the extent it is a “person” at the time of consummation of the transactions contemplated by the Stock Purchase Agreement and this Agreement), with respect to any Voting Securities of the Company;

(iv)         participate in or encourage the formation of any Group which seeks or offers to acquire Beneficial Ownership of Voting Securities of the Company or rights to acquire Voting Securities or which seeks or offers to affect control of the Company or for the purpose of circumventing any provision of this Agreement;

(v)          solicit, seek or offer to effect, negotiate with or provide any information to any party with respect to, make any statement or proposal, whether written or oral, either alone or in concert with others, to the Board, to any Director or officer of the Company or to any other stockholder of the Company with respect to, or otherwise formulate any plan or proposal or make any public announcement, proposal, offer or filing under the Exchange Act, any similar or successor statute or otherwise, or take action to cause the Company to make any such filing, with respect to: (A) any form of business combination or transaction involving the Company (other than transactions specifically contemplated by this Agreement) or any Affiliate thereof (except for a Person who is deemed to be an Affiliate of the Company solely
because a Director or executive officer of the Company is also a director or executive officer of such Person), including, without limitation, a merger, exchange offer or liquidation of the Company’s assets, (B) any form of restructuring, recapitalization or similar transaction with respect to the Company or any Affiliate thereof (except for a Person who is deemed to be an Affiliate of the Company solely because a Director or executive officer of the Company is also a director or executive officer of such Person), including, without limitation, a merger, exchange offer or liquidation of the Company’s assets, (C) any acquisition or disposition of assets material to the Company, (D) any request to amend, waive or terminate the provisions of this Agreement, or (E) any proposal or other statement inconsistent with the terms of this Agreement; provided, 

 

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however, that the Stockholder, the Coutu Stockholders and their respective Affiliates may discuss the affairs and prospects of the Company, the status of the Stockholder’s investment in the Company and any of the matters described in clauses (A) through (E) of this paragraph at any time, and from time to time, with the Board, any Director or executive officer of the Company, the Stockholder and the Coutu Stockholders and their respective Affiliates; and the Stockholder, the Coutu Stockholders and their respective Affiliates may discuss any matter, including any of the foregoing, with its outside legal and financial advisors, if as a result of any such discussions the Stockholder, the Coutu Stockholders or their respective Affiliates are not required to make, and do not make, any public announcement or filing under the Exchange Act otherwise prohibited by this Agreement as a result thereof;

(vi)         otherwise act, alone or in concert with others (including by providing financing for another party), to seek or offer to control or influence, in any manner, the management, Board or policies of the Company; provided, however, that this provision shall not prevent the Stockholder Designees from participating in, or otherwise seeking to affect the outcome of, discussions and votes of the Board (or any committee thereof) with respect to matters coming before it; 

(vii)       instigate, encourage, have discussions with or enter into any arrangements, agreements or understandings (whether written or oral) with any third party (including acting as a joint or co-bidder with another party) to take any of the actions prohibited by this Section 1.2 (a); or

(viii)      publicly disclose any proposal regarding any of the actions prohibited by this Section 1.2 (a).

(b)       If at any time the Stockholder, the Family Members or any of their respective Affiliates is approached by any Person requesting the Stockholder, the Family Members or any of their respective Affiliates to instigate, encourage, join, act in concert with or assist any Person in a Prohibited Action, the Stockholder or the Family Members, as the case may be, will promptly inform the Company of the nature of such contact and the parties thereto. For purposes of determining whether the Stockholder or Family Members have materially breached any of their obligations or covenants under this Agreement, the failure to promptly inform the Company pursuant to the first sentence of this Section 1.1(b) shall not constitute a material breach.

(c)       Nothing in this Section 1.2 shall limit the ability of any Director, including any Stockholder Designee, to vote in his or her capacity as a Director in such manner as he or she may determine in his or her sole discretion.

(d)       The Stockholder agrees that it shall be liable for any breach of this Agreement by any of its Affiliates. 

	
            Section 1.3
 	
            Stock Purchase Rights in a Preemptive Issuance.
 

(a)       From and after the Closing, for so long as the Stockholder Beneficially Owns at least 20% of the Total Voting Power, at any time that the Company effects an issuance solely for cash (a “Preemptive Issuance”) of additional Voting Securities (the Voting Securities 

 

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that are the subject of a particular Preemptive Issuance being referred to herein as the “Preemptive Securities”) other than issuances (i) in connection with any stock split, subdivision, stock dividend (including dividends on existing or future preferred stock whether in the form of shares of preferred stock or common stock) or pro rata recapitalization (including any exchange of one or more series of preferred stock for another series of preferred stock) by the Company, (ii) upon conversion of shares of the Company’s convertible preferred stock (whether such convertible preferred stock is currently outstanding or is issued in the future and whether such conversion is mandatory or discretionary), (iii) in connection with any restricted stock, stock option, incentive or other award of Rite Aid Common Stock pursuant to the Company’s equity
compensation plans or other employee, consultant or director compensation arrangements approved by the Board or a duly authorized committee thereof (whether such award was made before, or is made on or after, the date of this Agreement), (iv) in connection with acquisitions by the Company whether by merger, asset purchase, stock purchase or other reorganization, including financings the proceeds of which are intended to be used to fund acquisitions, (v) in connection with the issuance of Rite Aid Common Stock in exchange for Company notes, debentures or other forms of indebtedness (whether such indebtedness is currently outstanding or becomes outstanding in the future) and (vi) in which the number of Preemptive Securities that otherwise would be issued to the Stockholder pursuant to this Section 1.3 would require the approval of the Company’s stockholders under the rules of the New York Stock Exchange (in which case only the excess amount of Preemptive Securities that would
trigger such stockholder approval requirement would be excluded from the Preemptive Securities that the Stockholder would have a right to purchase pursuant to this Section 1.3), the Stockholder shall have the right to purchase from the Company for cash additional Preemptive Securities (in each instance, an “Additional Preemptive Securities Purchase”), such that following such Preemptive Issuance and such purchase, the Stockholder and its Affiliates will Beneficially Own Voting Securities representing the same percentage of Potential Total Voting Power as the Stockholder Beneficially Owned immediately prior to such Preemptive Issuance.

(b)       Prior to any Preemptive Issuance, the Company shall provide the Stockholder with 15 Business Days’ (as defined below in this Section 1.3 (b)) prior written notice (or if such notice period is not reasonably practicable under the circumstances, the maximum prior written notice as is reasonably practicable) of the proposed Preemptive Issuance. The Stockholder may exercise the Stockholder’s right to effect an Additional Preemptive Securities Purchase by providing written notice to the Company within 10 Business Days after receipt of the Company’s notice (and, in any event, not later than the date of pricing in the case of an underwritten public offering (or a similar offering pursuant to Rule 144A under the Securities Act) and the date of signing or date of public announcement of the transaction, if earlier, in
all other Preemptive Issuances). The Stockholder’s notice must indicate the specific amount of Preemptive Securities that the Stockholder desires to purchase at specific prices and may not be conditioned in any other manner not also available to other potential purchasers of the Preemptive Issuance. The Stockholder shall effect the Additional Preemptive Securities Purchase that it has elected to purchase concurrently with the Preemptive Issuance of such Preemptive Securities (the date of consummation of such transactions is referred to as the “Preemptive Rights Closing Date”). If, in connection with any Preemptive Issuance, the Stockholder gives timely notice of its intent to exercise its right under this Section 1.3 but has not paid for and otherwise effected the Additional Preemptive Securities Purchase at the Preemptive Rights Closing Date, then the Stockholder shall be deemed to have waived its right to purchase

 

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such securities under this Section 1.3 with respect to such Preemptive Issuance; provided, however, that the Company shall be entitled to specifically enforce the exercise included in the Stockholder’s notice. As used herein, “Business Day” shall mean any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by law to be closed in New York, New York.

(c)       If the Stockholder exercises such right, the Stockholder shall pay an equal per security amount of cash consideration in the Additional Preemptive Securities Purchase as the purchaser or purchasers of Preemptive Securities in such Preemptive Issuance pays in cash (in the case of an underwritten public offering or a similar Rule 144A offering, net of any underwriting or initial purchaser’s discount (as disclosed in any prospectus or offering memorandum for such offering) paid in connection with such offering). 

(d)       In the event that a proposed Preemptive Issuance shall be terminated or abandoned by the Company without the issuance of any Preemptive Securities, then the purchase rights pursuant to this Section 1.3 shall also terminate as to such proposed Preemptive Issuance, and any funds in respect thereof paid to the Company by the Stockholder shall be refunded in full.

	
            Section 1.4
 	
            Other Stock Purchase Rights.
 

(a)       From and after the Closing, for so long as the Stockholder Beneficially Owns at least 20% of the Total Voting Power, at any time that the Company effects an issuance of Voting Securities and the Stockholder does not have the right to purchase from the Company additional Voting Securities pursuant to Section 1.3 of this Agreement because (i) the issuance is not solely for cash, (ii) the issuance relates to the conversion of shares of the Company’s convertible preferred stock issued after the date of this Agreement (other than issuances or the conversion of shares of the Company’s convertible preferred stock issued after the date of this Agreement as pay-in-kind stock dividends with respect to shares of convertible preferred stock issued prior to the date of this Agreement or issued as further pay-in-kind stock
dividends on such dividends), but only to the extent that the Stockholder’s right to purchase such convertible preferred stock under Section 1.3 was limited by the terms thereof, (iii) the issuance relates to items described in Section 1.3(a)(iii) awarded on or after the date of this Agreement, (iv) the issuance relates to items described in Section 1.3(a)(iv) or Section 1.3(a)(v), or (v) the issuance to the Stockholder under Section 1.3 of Voting Securities other than convertible preferred stock (which is addressed by clause (ii) above) was limited by operation of Section 1.3(a)(vi), the Stockholder shall have the right, notwithstanding Section 1.1 of this Agreement, to make open market purchases of Rite Aid Common Stock in accordance with the terms of this Section 1.4; provided, however, that to the extent any of the issuances described in this Section 1.4(a) involve issuances
of Voting Securities that are not Voting-Enabled Securities, the corresponding right to make open market purchases under this Section 1.4 shall not apply until such Voting Securities are converted into, or exercised or exchanged for, Voting-Enabled Securities. For the avoidance of doubt, the “right” provided by this Section 1.4 exists relative to and as an exception to the restrictions of Section 1.1 and does not create any “rights” vis-à-vis any other legal or contractual limitations on such open market purchases.

 

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(b)       Within 12 days following the end of each fiscal quarter, the Company shall provide to the Stockholder a written notice listing, for the most recently completed fiscal quarter, the issuances, if any, of Voting Securities described in clauses (i) through (v) of Section 1.4 (a) above and the Total Voting Power outstanding as of the beginning and as of the end of the fiscal quarter. In order to make open market purchases of Rite Aid Common Stock in accordance with this Section 1.4, within 10 Business Days after receipt of the Company’s notice described in the first sentence of this Section 1.4(b) (the “Window Period Election Deadline”), the Stockholder must provide written notice to the Company of its election to make such purchases (a “Window Period Election Notice”), which notice must set forth (i) the number of Voting-Enabled Securities Beneficially Owned by the Stockholder at the beginning of the Company’s most recently completed fiscal quarter, (ii) the number of Voting-Enabled Securities Transferred by the Stockholder during such fiscal quarter so that they are no longer Beneficially Owned by the Stockholder and (iii) the Stockholder’s calculation of the Window Period Purchase Amount (as defined in the next sentence). The “Window Period Purchase Amount” is the number of shares of Rite Aid Common Stock to be purchased in the open market in order to increase the Stockholder’s percentage of Total Voting Power (calculated as of the end of the particular fiscal quarter) to the Voting Power Percentage Ceiling (as defined in the next sentence). The “Voting Power Percentage
Ceiling” initially shall equal 30.4% of Total Voting Power and thereafter shall be adjusted downward from time to time (such adjustments to be cumulative) to reflect the effect of the following events on the numerator and/or denominator in the calculation of the percentage of Total Voting Power: (i) Transfers of Voting-Enabled Securities by the Stockholder such that it no longer Beneficially Owns such Transferred securities, (ii) the Stockholder’s waiver or failure to exercise its rights to purchase Voting Securities pursuant to Section 1.3, (iii) the Stockholder’s waiver or failure to exercise its rights to purchase Rite Aid Common Stock pursuant to this Section 1.4, (iv) the conversion of shares of the Company’s convertible preferred stock outstanding as of the date of this Agreement or issued as pay-in-kind stock dividends with respect to such shares of convertible preferred stock or as further pay-in-kind stock dividends on such
dividends and (v) the exercise of stock options and other compensatory arrangements referred to in Section 1.3(a)(iii) awarded prior to the date of this Agreement. 

(c)       In the event that the Company disagrees with the Stockholder’s calculation of the Window Period Purchase Amount (including any disagreement with respect to the determination of the Voting Power Percentage Ceiling) the Company shall provide the Stockholder with written notice of such disagreement within five Business Days of the Company’s receipt of the Window Period Election Notice. The Stockholder’s purchase rights under this Section 1.4 shall not apply to any amount in dispute until such dispute is resolved. The Company and the Stockholder shall use good faith efforts to resolve any dispute over the calculation of the Window Period Purchase Amount within 10 Business Days of the Stockholder’s receipt of the Company’s notice of disagreement. If the Company and the Stockholder cannot resolve their
dispute over the calculation of the Window Period Purchase Amount within such 10 Business Day period, the dispute shall be submitted to the Accountants (as defined in the Stock Purchase Agreement), whose determination shall be final and binding on the parties and the costs of which shall be shared equally between the Company and the Stockholder. The Accountants shall deliver to the Company and the Stockholder, as promptly as practicable, but no later than 10 Business Days after the Accountants are engaged, a written report setting forth their resolution and their calculation of the disputed items or amounts.

 

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(d)       The Stockholder may make open market purchases of the number of shares of Rite Aid Common Stock equal to the Window Period Purchase Amount (subject to the resolution of any disputed amount pursuant to Section 1.4(c) above and subject to Section 1.4 (f) below) pursuant to the following number of Window Periods (as defined in Section 1.4 (h) below):  

	
             
 	
            Number of Shares
 	
            Number of Window Periods
 
	
             
 	
            Up to 8 million
 	
            1
 	
             

	
             
 	
            More than 8 million but not more than 16 million
 	
            2
 	
             

	
             
 	
            More than 16 million but not more than 24 million
 	
            3
 	
             

	
             
 	
            More than 24 million
 	
            4
 	
             

					

commencing with the Window Period following the earnings release for the quarter to which the Window Period Election Notice relates (or such Window Period as immediately follows the date on which any pending dispute with respect to such Window Period Election Notice is resolved pursuant to Section 1.4(c)) and, in the event more than one Window Period is provided by this Section 1.4(d), those additional Window Periods immediately succeeding that first Window Period; provided, however, that in the event more than one Window Period is provided pursuant to the terms of this Section 1.4(d), subject to any roll over permitted pursuant to Section 1.4(f), such purchases must be allocated so that the first 8 million shares are purchased during the first Window Period, the second 8 million shares (or such lesser amount
in excess of the first 8 million shares) are purchased during the second Window Period and the third 8 million shares (or such lesser amount in excess of the first 16 million shares) are purchased during the third Window Period; and provided, further, that in the event that any of those Window Periods are already the subject of current or future purchases as a result of a Window Period Election Notice relating to a prior period, the purchases resulting from the most recent Window Period Election Notice shall commence in the next Window Period not fully subject to the prior Window Period Election Notice and any immediately succeeding Window Periods, if applicable.

(e)       In the event that the Stockholder fails to purchase a number of shares of Rite Aid Common Stock equal to or greater than 95% of the full number of shares of Rite Aid Common Stock to be purchased during a particular Window Period, the applicable Window Period Election Notice shall be deemed to have been withdrawn and the right to purchase the additional shares of Rite Aid Common Stock that were the subject of such Window Period Election Notice shall be deemed to have been waived. In addition, where one or more additional Window Period Election Notices were calculated on the basis that the shares to be purchased pursuant to a withdrawn Window Period Election Notice (whether withdrawn voluntarily or a deemed withdrawal) would have been purchased, the Window Period Purchase Amounts contained in such notices shall be recalculated to
account for the withdrawal.

(f)        In the event that the Stockholder purchases a number of shares of Rite Aid Common Stock equal to or greater than 95% but less than 100% of the full number of shares of Rite Aid Common Stock to be purchased during a particular Window Period (such number of shares of Rite Aid Common Stock equaling the difference between the full number of shares to be purchased during the Window Period and the amount actually purchased in such Window Period are referred to herein as the «Roll Over Shares«), the Stockholder shall be permitted to 

 

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roll over to the immediately succeeding Window Period the right to purchase the Roll Over Shares; provided, however, that if the number of shares of Rite Aid Common Stock to be purchased during the succeeding Window Period pursuant to one or more Window Period Election Notices together with the Roll Over Shares would exceed 8 million shares, the number of shares in excess of 8 million shall be rolled over to the next Window Period in which such total amount does not exceed 8 million.

(g)       The Stockholder agrees and acknowledges that the Company may make any public disclosure, whether by filing with the Commission, press release or otherwise, that the Company reasonably believes it is required to make in accordance with Applicable Law, with respect to the receipt of a Window Period Election Notice and any matters related thereto, including any deemed withdrawal of such Window Period Election Notice pursuant to Section 1.4 (e).

(h)       As used in this Agreement, “Window Period” means the period of time following the Company’s public release of quarterly earnings results that the Company’s directors and Section 16 officers are permitted to trade in the Company’s securities pursuant to the Company’s policies and procedures, as they may be amended from time to time, but shall exclude any such periods when the Company’s directors and Section 16 officers are subject to a lockup agreement or any other inability to purchase the Company’s securities due to the possession of material nonpublic information, Regulation M or any other rules or regulations of the Commission.

ARTICLE II

 

TRANSFER RESTRICTIONS

Section 2.1        General Transfer Restrictions. The right of the Stockholder and its Affiliates to Transfer (as defined below in this Section 2.1) any Voting Securities Beneficially Owned is subject to the restrictions set forth in this Article II, and no Transfer of Voting Securities by the Stockholder or any of its Affiliates may be effected except in compliance with this Article II. Any attempted Transfer in violation of this Agreement shall be of no effect and null and void, regardless of whether the purported transferee has any actual or constructive knowledge of the Transfer restrictions set forth in this Agreement, and shall not be recorded on the stock transfer books of the Company. “Transfer” means, directly or indirectly, to sell, transfer, assign, pledge, encumber, hypothecate or
similarly dispose of (by operation of law or otherwise), either voluntarily or involuntarily, or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or similar disposition of (by operation of law or otherwise), any Voting Securities or any interest in any Voting Securities. For purposes of this Agreement, the term Transfer shall include the transfer (including by way of sale, disposition or any other means) of an Affiliate of the Stockholder or the Stockholder’s interest in an Affiliate which Beneficially Owns Voting Securities. For purposes of clarity, it is agreed that if after any Transfer of Voting Securities an entity which is an Affiliate of the Stockholder would no longer be such an Affiliate, then prior to the consummation of such Transfer the Stockholder shall Transfer all Voting Securities owned by such Affiliate to another Affiliate that will remain an Affiliate of
the Stockholder after the 

 

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Transfer. “Transferring”, “Transferee”, “Transferred” or similar words shall have correlative meanings to “Transfer.”

	
            Section 2.2
 	
            Specific Restrictions on Transfer.
 

(a)       The Stockholder shall not, and shall not permit its Affiliates to, Transfer any Beneficially Owned Voting Securities; provided that the foregoing restriction shall not be applicable to Transfers:

(i)           pursuant to Rule 144 under the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission from time to time thereunder (the “Securities Act”) (regardless of whether the volume and manner of sale restrictions therein are otherwise applicable by law to the Stockholder or its applicable Affiliate);

(ii)          pursuant to (A) a firm commitment, underwritten distribution of Voting Securities to the public, registered under the Securities Act or (B) a privately negotiated offering of Voting Securities exempt from the registration requirements of the Securities Act; and with respect to either (A) or (B), in a manner calculated to achieve a “broad distribution” of such Voting Securities, which for purposes of this Section 2.2(a)(ii) means a distribution that, to the knowledge of the Stockholder after due inquiry, will not result in the acquisition of Voting Securities by any Person who after consummation of such offering would have Beneficial Ownership of Rite Aid Common Stock representing in the aggregate more than 5% of the outstanding shares of Rite Aid Common Stock and which distribution and the
related inquiry are reasonably acceptable to the Company;

(iii)        to any Person, or Persons acting in a Group, who after consummation of such Transfer, to the knowledge of the Stockholder after due inquiry, would not have Beneficial Ownership in the aggregate of more than 5% of the outstanding shares of Rite Aid Common Stock;

(iv)        to the stockholders of the Stockholder in a pro-rata dividend, spin-off, distribution or similar recapitalization (a “Stockholder Pro Rata Distribution”); provided (A) that the Stockholder shall provide at least 20 Business Days prior written notice to the Company of its intention to effect such a Transfer, (B) the manner of the distribution shall be reasonably acceptable to the Company, (C) that any Voting Securities Transferred to any Coutu Stockholder shall be subject to and bound by the terms and conditions of, and shall enjoy for so long as any such Coutu Stockholder, either individually, together with its Affiliates or as a member of a Group with one or more Coutu Stockholders or their respective Affiliates,
Beneficially Own Voting-Enabled Securities constituting 5% or more of the Total Voting Power (a “5% Spinoff Coutu Stockholder”) the governance and all other rights under, this Agreement as though such Person was the Stockholder (subject to Section 4.9 below) (but, for the avoidance of doubt, it being understood that the governance rights under this Agreement apply to each 5% Spinoff Coutu Stockholder that is a Group in the aggregate and to each 5% Spinoff Coutu Stockholder not part of such a Group individually and do not apply to each other individual Coutu Stockholder and, further, that the rights of all such 5% Spinoff Coutu Stockholders, in the aggregate, shall in no event exceed the rights that the Stockholder would have had if the Stockholder Pro Rata Distribution had not 

 

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occurred) and (D) that any Voting Securities Transferred to any other stockholder of the Stockholder which is a Transferee in a Stockholder Pro Rata Distribution, which shall Beneficially Own more than 5% of the Total Voting Power after the Stockholder Pro Rata Distribution (a “5% Spinoff Stockholder” which, for purposes of clarity, shall not include a 5% Spinoff Coutu Stockholder), shall be subject to and bound by the terms and conditions of this Agreement as though it were the Stockholder and such Person shall execute a counterpart signature page to this Agreement stating that it agrees to be bound by the terms and conditions of this Agreement as though it were the Stockholder, but shall not receive any of the rights granted to the Stockholder under this Agreement (for purposes of clarity, the 5% Spinoff Stockholder shall not have any rights under
Sections 1.3 (Stock Purchase Rights in a Preemptive Issuance), 1.4 (Other Stock Purchase Rights), 3.1 (Board Representation), 3.2 (Board Chairs; Management), 3.3 (Board Committee Representation) and 3.4 (Vote Required for Board Action) of this Agreement); provided, further, that each 5% Spinoff Coutu Stockholder shall notify the Company in writing of a single Person (the “Representative”) which shall be the authorized representative to receive notices and take actions on behalf of such 5% Spinoff Coutu Stockholder, and any rights under this Agreement may be exercised only by such Representative for the Group and not with respect to each individual Person comprising the Group; and provided, further, that any Group that would otherwise have
rights hereunder shall forfeit such rights in the event such Group fails to timely file a Schedule 13D (or any successor filing) with the Commission, to the extent required by the Exchange Act, disclosing the formation or existence of such Group; 

(v)          to a financial institution generally in the commercial lending business (a “Lender”) to which the Stockholder or any of its Affiliates pledges, encumbers or hypothecates any Voting Securities or any interest in any Voting Securities to secure bona fide recourse borrowings effected in good faith so long as: (A) the Stockholder or any such Affiliate notifies the Company of its intention to enter into such pledge, encumbrance or hypothecation at least ten Business Days prior thereto, (B) such Lender is not granted any voting rights with respect to the Voting Securities prior to any foreclosure, (C) the Lender agrees in writing with the Stockholder or any such Affiliate in an agreement that expressly provides that (x) the Company is a party to such
agreement, entitled to enforce such agreement directly against the Lender, (y) such agreement cannot be amended or modified in any manner which adversely affects the Company without the written consent of the Company, and (z) the Lender shall not receive any of the rights granted to the Stockholder or any such Affiliate under this Agreement (for purposes of clarity, the Lender shall not have any rights under Sections 1.3 (Stock Purchase Rights in a Preemptive Issuance), 1.4 (Other Stock Purchase Rights), 3.1 (Board Representation), 3.2 (Board Chairs; Management), 3.3 (Board Committee Representation) and 3.4 (Vote Required for Board Action) of this Agreement); or

(vi)        to one or more 100% (directly or indirectly) owned Affiliates of the Stockholder, or in the event of a Stockholder Pro Rata Distribution, to one or more 100% (directly or indirectly) owned Affiliates of a Coutu Stockholder.

(b)       If the Stockholder and/or any of its Affiliates wishes or is required to Transfer an amount of Voting Securities constituting more than 5% of the outstanding shares of Rite Aid Common Stock (other than Transfers pursuant to Section 2.2(a)(iv)), the Stockholder shall coordinate with the Company regarding optimizing the manner of distribution and sale of 

 

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such shares, including whether such sale should occur through an underwritten offering, and shall cooperate in the marketing of any such offering. 

(c)       In the event any shares of Rite Aid Common Stock are Transferred to one or more 100% (directly or indirectly) owned Affiliates of the Stockholder or a 5% Spinoff Coutu Stockholder, as applicable, in a manner permitted by this Agreement, the Stockholder or the 5% Spinoff Coutu Stockholder, as applicable, will notify the Company in writing of a Representative which shall be the authorized representative to receive notices and take all actions on behalf of the Stockholder or the 5% Spinoff Coutu Stockholder, as applicable, and/or its 100% owned (directly or indirectly) Affiliates which Beneficially Own Rite Aid Common Stock. 

(d)       The Stockholder shall not, and shall not permit its Affiliates to, directly or indirectly, loan or permit to be loaned any of the Beneficially Owned Voting Securities or any voting rights therein.

(e)       The Stockholder shall not, and shall not permit its Affiliates to, directly or indirectly, effect any Transfer of economic rights in Voting Securities without Transferring the voting rights associated with such Voting Securities or effect any Transfer of voting rights in Voting Securities without Transferring the economic rights associated with Voting Securities, except in connection with ordinary hedging transactions, including collars, caps, floors or other similar transactions intended to limit the risk of adverse price movement in the Voting Securities, entered into in good faith and not intended for the purpose of circumventing the provisions of this Section 2.2(e).

(f)        Prior to the Transfer of any Voting Securities to any Affiliate of the Stockholder, any Coutu Stockholders, any Affiliate of a Coutu Stockholder, or any 5% Spinoff Stockholder otherwise permitted by this Agreement, such Transferee shall execute a counterpart signature page to this Agreement stating that (A) with respect to an Affiliate of the Stockholder, any Coutu Stockholder or any Affiliate of a Coutu Stockholder, it agrees to be bound by the terms of, and in the case of a 5% Spinoff Coutu Stockholder enjoy for so long as it remains a 5% Spinoff Coutu Stockholder the governance and all other rights under, this Agreement as though it was the Stockholder (but, for the avoidance of doubt, it being understood that the governance rights under this Agreement apply to each 5% Spinoff Coutu Stockholder that is a Group in the
aggregate and to each such 5% Spinoff Coutu Stockholder not part of such a Group individually and do not apply to each other individual Coutu Stockholder and, further, that the rights of all such 5% Spinoff Coutu Stockholders, in the aggregate, shall in no event exceed the rights that the Stockholder would have had if the Stockholder Pro Rata Distribution had not occurred) and (B) with respect to the 5% Spinoff Stockholder, it agrees to be bound by the terms of this Agreement as though it was the Stockholder (except with respect to Sections 1.3, 1.4, 3.1, 3.2, 3.3 and 3.4 of this Agreement which shall be inapplicable to the 5% Spinoff Stockholder). 

(g)       As used herein, “Coutu Stockholders” means any of the Family Members, any lineal descendants of any of the Family Members (together with the Family Members, the “Coutu Family”), any estate planning vehicle that is controlled by a member or members of the Coutu Family and any other Person that is controlled by a member or members of the Coutu Family, that becomes a holder of record of Voting Securities, for so long as it is both a holder of record of any Voting Securities and a member of the Coutu Family.

 

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            Section 2.3
 	
            Legend on Securities.
 

(a)       Each certificate representing Voting Securities Beneficially Owned by the Stockholder or its Affiliates and subject to the terms of this Agreement shall bear the following legend on the face thereof:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND CERTAIN OTHER LIMITATIONS SET FORTH IN A STOCKHOLDER AGREEMENT DATED AS OF AUGUST 23, 2006, BETWEEN RITE AID CORPORATION (THE “COMPANY”), THE JEAN COUTU GROUP (PJC) INC. AND CERTAIN OTHER PERSONS, AS THE SAME MAY BE AMENDED FROM TIME TO TIME (THE “AGREEMENT”), COPIES OF WHICH AGREEMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.”

(b)       Upon any acquisition by the Stockholder or any of its Affiliates of additional Voting Securities, the Stockholder shall, or shall cause such Affiliate to, submit the certificates representing such Voting Securities to the Company so that the legend required by this Section 2.3 may be placed thereon (if not so endorsed upon issuance).

(c)       The Company shall make a notation on its records or give instructions to any transfer agents or registrars for the Voting Securities in order to implement the restrictions on Transfer set forth in this Agreement.

(d)       In connection with any Transfer of Voting Securities pursuant to this Agreement, the Transferring Person shall provide the Company with such customary certificates, opinions and other documents as the Company may reasonably request to assure that such Transfer complies fully with this Agreement and with applicable securities and other laws. In connection with a Transfer pursuant to Section 2.2(a), the Company shall remove such portion of the foregoing legend as is appropriate in the circumstances.

Section 2.4         Other Voting Securities. In the event the Company declares a dividend or other distribution payable in Voting Securities, any Transfer of such Voting Securities by the Stockholder or its Affiliates shall be governed by this Article II (including the definition of Transfer contained in Section 2.1 and the legend requirements of Section 2.3).

 

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ARTICLE III

 

CORPORATE GOVERNANCE

	
            Section 3.1
 	
            Board Representation.
 

(a)       Upon the Closing, the Company shall increase the size of the Board by two Directors and cause the resignation of two Directors so that upon such increase and such resignations, (i) the Board shall consist of fourteen Directors and (ii) the Board shall appoint as Directors to fill the four vacancies André Belzile, Francois J. Coutu, Dennis Wood and Michel Coutu (each a “Stockholder Designee” and, together with any Directors that may be designated by the Stockholder pursuant to this Section 3.1, the “Stockholder Designees”) to serve as Directors in the class of Directors whose terms expire in 2007, 2008, 2008 and 2009, respectively. Based on information provided as of the date hereof, the Board has determined
that André Belzile, Francois J. Coutu and Dennis Wood each qualify as an Independent Director. As used herein, “Independent Director” means any Director who is or would be an “independent director” with respect to the Company pursuant to Section 303A.02 of the New York Stock Exchange Listed Company Manual and Section l0A of the Exchange Act (or any successor provisions), in each case as amended from time to time.

(b)       From and after the Closing, provided that the Stockholder has not materially breached any of its obligations or covenants under this Agreement and subject to Section 3.1(d) below:  

(i)           for so long as the Stockholder Beneficially Owns at least 25% of the Total Voting Power at the time of a meeting of the Board the agenda for which includes nominating a slate of Directors, the Stockholder shall have the right to designate such number of Stockholder Designees for nomination by the Board that, together with the Stockholder Designees serving in a class or classes of Directors whose terms are not expiring at the upcoming annual meeting of stockholders, results in a total of four Stockholder Designees, at least two of whom must qualify as Independent Directors, and the Board shall nominate and recommend such Stockholder Designees for election as Directors of the Company; 

(ii)         for so long as the Stockholder holds at least 17.9% but less than 25% of the Total Voting Power at the time of a meeting of the Board the agenda for which includes nominating a slate of Directors, the Stockholder shall have the right to designate such number of Stockholder Designees for nomination by the Board that, together with the Stockholder Designees serving in a class or classes of Directors whose terms are not expiring at the upcoming annual meeting of stockholders, results in a total of three Stockholder Designees, at least one of whom must qualify as an Independent Director, and the Board shall nominate and recommend such Stockholder Designees for election as Directors of the Company; 

(iii)        for so long as the Stockholder holds at least 10.7% but less than 17.9% of the Total Voting Power at the time of a meeting of the Board the agenda for which includes nominating a slate of Directors, the Stockholder shall have the right to designate such number, if any, of Stockholder Designees for nomination by the Board that, together with the Stockholder Designees serving in a class or classes of Directors whose terms are not expiring at 

 

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the upcoming annual meeting of stockholders, results in a total of two Stockholder Designees (neither of whom must qualify as an Independent Director), and the Board shall nominate and recommend such Stockholder Designees for election as Directors of the Company; provided that if the Company would not otherwise be in compliance with Section 303A.01 of the New York Stock Exchange Listed Company Manual with respect to a majority of directors qualifying as Independent Directors, one of the Stockholder Designees must qualify as an Independent Director; and 

(iv)        for so long as the Stockholder holds at least 5% but less than 10.7% of the Total Voting Power at the time of a meeting of the Board the agenda for which includes nominating a slate of Directors, the Stockholder shall have the right to designate one Stockholder Designee (who need not qualify as an Independent Director) for nomination by the Board unless there is already one Stockholder Designee serving in a class of Directors whose term is not expiring at the upcoming annual meeting of stockholders, and, if applicable, the Board shall nominate and recommend such Stockholder Designee for election as a Director of the Company. 

In every case, (x) each of the Stockholder Designees being nominated must be reasonably acceptable to the Nominating and Governance Committee of the Board (it being understood and agreed that the four persons identified in Section 3.1(a) are acceptable to the Nominating and Governance Committee of the Board) and (y) the Company will use its reasonable best efforts to cause the election of such Stockholder Designees as Directors of the Company; provided that such efforts will not require the Company to postpone its annual meeting of stockholders or take extraordinary solicitation efforts not taken with regard to the other nominees to the Board, including that the Company will not be obligated to pay extraordinary costs with regard to the election of such Stockholder Designees as Directors.

	
             
 	
            (c)
 	
            From and after the Closing, subject to Section 3.1; (d) below:  
 

(i)           if at any time the Stockholder does not hold at least 25% of the Total Voting Power, then the Stockholder shall cause one Stockholder Designee to immediately resign from the Board so that three Stockholder Designees shall remain, at least one of whom must qualify as an Independent Director; 

(ii)         if at any time the Stockholder does not hold at least 17.9% of the Total Voting Power, then the Stockholder shall cause such number of Stockholder Designees to immediately resign from the Board so that two Stockholder Designees shall remain, neither of whom must qualify as an Independent Director; provided that if the resignation of such Stockholder Designees would cause the Company to not be in compliance with Section 303A.01 of the New York Stock Exchange Listed Company Manual with respect to a majority of directors qualifying as Independent Directors, one remaining Stockholder Designee must qualify as an Independent Director; 

(iii)        if at any time the Stockholder does not hold at least 10.7% of the Total Voting Power, then the Stockholder shall cause such number of Stockholder Designees to immediately resign from the Board so that one Stockholder Designee shall remain, which Stockholder Designee need not qualify as an Independent Director; and 

 

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(iv)        if at any time the Stockholder does not hold at least 5% of the Total Voting Power, then the Stockholder shall cause all of the remaining Stockholder Designees to immediately resign from the Board. 

In the event of a Stockholder Designee resignation pursuant to this Section 3.1(c), the resulting vacancy shall be filled by a Director appointed by the Nominating and Governance Committee of the Board to the extent the Board, in its discretion, determines to maintain the size of the Board and not reduce the Board size to the number of directors in office immediately following such a resignation. In the event that a Stockholder Designee fails to deliver his or her prompt resignation as required pursuant to this Section 3.1(c), the parties hereto shall take all necessary action (and the Stockholder agrees to cooperate with the Company in taking such action) permitted by Applicable Law (as defined below) to cause such Stockholder Designee to be removed from the Board, including seeking equitable relief such as an injunction; provided that the Company shall be
entitled to reimbursement by the Stockholder for all reasonable expenses incurred by the Company (legal or otherwise) in connection with the removal of such Stockholder Designee from the Board. For purposes of clarity, when and if the number of Stockholder Designees is reduced pursuant to this Section 3.1(c), such reduction shall be permanent and the number of Stockholder Designees thereafter shall not be increased up to any prior number of Stockholder Designees. As used herein, «Applicable Law« means any domestic or foreign federal or state statute, law, ordinance, rule, administrative code, administrative interpretation, regulation, order, writ, injunction, directive, judgment, decree, policy, ordinance, decision, guideline or other requirement (including those of the Commission) applicable to any of the parties to this Agreement or any of their respective Affiliates.

(d)       In the event that the Board determines, in its discretion, to increase or decrease the size of the Board from fourteen Directors during any period in which the Stockholder has the right to nominate at least one Director pursuant to this Section 3.1 and provided that the Stockholder has not materially breached any of its obligations or covenants under this Agreement, the Stockholder’s right to designate Stockholder Designees for nomination by the Board shall be adjusted such that the Stockholder shall be entitled to designate a number of Stockholder Designees equal to the Board Representation Percentage (as defined below in this Section 3.1(d)) multiplied by the new total number of Directors (including in this total any vacancies) on the Board (rounding to the nearest whole
number of Directors). “Board Representation Percentage” means the number, expressed as a percentage, determined by dividing the number of Stockholder Designees the Stockholder was entitled to designate prior to the change in the size of the Board by the total number of Directors that comprised the full Board (including in this total any vacancies) prior to the change in the size of the Board. Subject to Applicable Law, in the event that at any time after the Closing, the number of Stockholder Designees designated by the Stockholder exceeds such number of Stockholder Designees entitled to be designated by the Stockholder pursuant to this Section 3.1(d), the Stockholder shall cause to promptly resign, and take all other action reasonably necessary to cause the prompt removal of, that number of Stockholder Designees as required to make the remaining number of Stockholder Designees conform to the number of Stockholder Designees
that the Stockholder has the right to designate pursuant to this Section 3.1(d). In the event that a Stockholder Designee fails to deliver his or her prompt resignation, the parties hereto shall take all necessary action (and the Stockholder agrees to cooperate with the Company in taking such action) permitted by Applicable Law to cause such Stockholder 

 

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Designee to be removed from the Board, including seeking equitable relief such as an injunction; provided that the Company shall be entitled to reimbursement by the Stockholder for all reasonable expenses incurred by the Company (legal or otherwise) in connection with the removal of such Stockholder Designee from the Board. In the event that the number of Stockholder Designees is reduced by operation of this Section 3.1 (d), the number of those Stockholder Designees who must qualify as Independent Directors shall be determined as if the reduction in the number of Stockholder Designees was the result of a decrease in the number of Stockholder Designees pursuant to Section 3.1(c).

(e)       The Stockholder shall have the right to designate a replacement Stockholder Designee, who must be reasonably acceptable to the Nominating and Governance Committee of the Board, for a Stockholder Designee designated in accordance with this Section 3.1 at the expiration or termination of such Stockholder Designee’s term (provided, at such time, that the Stockholder retains the right to designate such a Stockholder Designee) or upon death, resignation, retirement, disqualification, removal from office or other cause; provided that such replacement Stockholder Designee satisfies the Independent Director requirements if the Stockholder Designee so replaced was required to satisfy such requirements. The Board shall appoint or nominate,
as the case may be, each Stockholder Designee so designated pursuant to this Section 3.1(e).

(f)        In the event any Stockholder Designee is required to submit his or her resignation to the Chairman of the Board for consideration by the Nominating and Governance Committee pursuant to the Board’s Policy on Majority Voting, the Nominating and Governance Committee makes a recommendation to the Board concerning the acceptance or rejection of such resignation and the Board decides to accept such Stockholder Designee’s resignation, then (i) the Board shall not reduce the size of the Board to eliminate the vacancy created thereby, (ii) the Stockholder shall have the right to designate a replacement Stockholder Designee and (iii) the Board and the Stockholder shall take such actions necessary to appoint such replacement Stockholder Designee as a Director to fill such vacancy; provided, however, that the replacement Stockholder Designee is reasonably acceptable to the Nominating and Governance Committee of the Board and the Stockholder Designee qualifies as an Independent Director if the Stockholder Designee so replaced was required to so qualify.

	
            Section 3.2
 	
            Board Chairs; Management.
 

(a)       The parties hereby agree that: (i) upon the Closing, the Stockholder Designees shall elect one of the Stockholder Designees to become the Non-Executive Co-Chairman of the Board, which individual (or his or her successor elected by the Stockholder Designees at any time from and after the Closing and prior to the second anniversary of the Closing) shall serve as Non-Executive Co-Chairman for a period commencing upon the Closing and ending upon the second anniversary of the Closing (provided that the Stockholder retains the right to designate one or more Stockholder Designees during such two year period), with the duties as Non-Executive Co-Chairman specified in the Amended and Restated By-laws of the Company (as in effect immediately following the Closing, the “By-laws”, the form of which is attached as Exhibit 3.2 hereto); (ii) upon the Closing, the Directors of the Company who were Directors immediately prior to the Closing, shall elect a Chairman of the Board, which individual (or his or her successor) shall serve as Chairman for a period commencing upon the Closing and 

 

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ending upon the second anniversary of the Closing, with the duties as Chairman specified in the By-laws; and (iii) from and after the second anniversary of the Closing, the full Board shall elect a Chairman of the Board as it determines in its discretion who shall have the duties and authority for the Chairman specified in the By-laws.

(b)       The parties hereby agree that upon the Closing, the Company shall take all actions reasonably necessary to cause Pierre Legault, the current Executive Vice President of the Stockholder, to become Senior Executive Vice President, Chief Administrative Officer of the Company, pursuant to the terms and conditions of such individual’s employment agreement with the Company with a term of not less than two years from the Closing.

(c)       The parties hereby agree that upon the Closing, Mary F. Sammons, the Company’s current Chief Executive Officer, shall remain as the Company’s Chief Executive Officer with any future successor to be named by the Board.

	
            Section 3.3
 	
            Board Committee Representation.
 

(a)       Upon the Closing, the Company shall increase the size of the Executive Committee of the Board by one member and the Board shall appoint the Non-Executive Co-Chairman of the Board to the Executive Committee and shall continue to appoint such Non-Executive Co-Chairman (or his or her successor) to the Executive Committee for the duration of his or her term. Following the expiration of the term of the Non-Executive Co-Chairman of the Board, for so long as the Stockholder Beneficially Owns at least 25% of the Total Voting Power the Stockholder shall be entitled to designate a Stockholder Designee to the Executive Committee and the Board shall appoint such Stockholder Designee to the Executive Committee.

(b)       Upon the Closing, the Company shall increase the size of each of the Audit, Compensation, and Nominating and Governance Committees of the Board by one member and the Board shall appoint as members to fill the vacancies on each such committee one of the Stockholder Designees designated by the Stockholder; provided that a Stockholder Designee shall not be appointed to one or more committees of the Board if (i) the Stockholder Designee, or membership of such Stockholder Designee on a particular committee, is not reasonably acceptable to the Nominating and Governance Committee of the Board or (ii) counsel to the Company advises the Stockholder and the Company that the appointment of such Stockholder Designee to a committee of the Board would violate Applicable Law, any rule or
regulation of a stock exchange on which the Rite Aid Common Stock is listed or the Company’s written “Corporate Governance Guidelines” and committee charters as in effect on the date hereof (with such amendments as are required by Applicable Law or approved by the affirmative vote of the Board); provided, further, that, subject to the foregoing, the Stockholder shall have the right to designate one of the other Stockholder Designees, if any, to be appointed to such committee. The obligation of the Board to appoint a Stockholder Designee to each such committee of the Board shall remain for so long as the Stockholder designates two Stockholder Designees pursuant to Section 3.1 who qualify as Independent Directors; provided that the Stockholder has not materially breached any of its obligations or covenants under this Agreement. In
the event that only one Stockholder Designee qualifies as an Independent Director, such Stockholder Designee shall be appointed by the Board as a member of one of the three committees and one or more Stockholder Designees shall be provided «observer status" to attend committee meetings 

 

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(subject to the committees meeting in executive session from time to time) of the two other committees on which the Stockholder Designee who qualifies as an Independent Director does not then serve; provided that the Stockholder has not materially breached any of its obligations or covenants under this Agreement.

	
            Section 3.4
 	
            Vote Required for Board Action; Board Quorum.
 

(a)       Except as otherwise provided in this Section 3.4, any determination or other action of or by the Board (other than action by unanimous written consent in lieu of a meeting) shall require the affirmative vote or consent, at a meeting at which a quorum is present, of a majority of Directors present at such meeting.

(b)       For so long as the Stockholder Beneficially Owns more than 25% of the Total Voting Power, the Company shall not enter into or effectuate any of the following actions without the prior approval of at least two-thirds of all of the Directors then in office, at a meeting with respect to which such transaction was specifically described in a written notice of meeting duly provided to the Directors in accordance with the By-Laws (as may be amended, supplemented, restated or otherwise modified from time to time):

(i)           any increase in the number of shares of Capital Stock of the Company authorized in the Amended and Restated Certificate of Incorporation of the Company (as in effect immediately following the Closing and as may be amended, supplemented, restated or otherwise modified from time to time thereafter, the “Certificate of Incorporation”);

(ii)          any issuance of equity securities of the Company in one transaction or a series of related transactions that would result in the issuance of Capital Stock of the Company constituting more than 20% of the Total Voting Power outstanding following such issuance;

(iii)        (x) any merger, reorganization, recapitalization requiring approval of the holders of Rite Aid Common Stock, consolidation or similar business combination involving the Company or (y) any merger, reorganization, recapitalization, consolidation or similar business combination involving any subsidiary of the Company and requiring approval of the holders of Rite Aid Common Stock;

(iv)        any sale of assets by the Company, in one or a series of related transactions in any twelve-month period, other than sales of inventory in the ordinary course of business, with a fair market value constituting in excess of 20% of the Company’s consolidated total assets as of the date of the Company’s most recent regularly prepared balance sheet or in excess of 20% of the Company’s annualized consolidated revenues for the Company’s immediately preceding fiscal year;

(v)          any filing by the Company of a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of its debts under Title 11 of the United States Code or any other Federal or state insolvency law, or the Company’s filing an answer consenting to or acquiescing in any such petition, or the making by the Company of any general assignment for the benefit of its creditors of all or substantially all of the Company’s assets; and

 

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(vi)        any amendment of the Company’s Certificate of Incorporation or By-laws that adversely affects the rights of the Stockholder.

	
            Section 3.5
 	
            Voting Arrangements.
 

(a)       The Stockholder shall, and shall cause any of its Affiliates to, vote or act by written consent with respect to, all of the shares of the Voting-Enabled Securities Beneficially Owned by the Stockholder and its Affiliates in favor of each matter required to effectuate any provision of this Agreement and against any matter the approval of which would be inconsistent with any provision of this Agreement.

(b)       For each election of Directors occurring after the Closing through and including the election of Directors at the annual stockholder meeting of the Company to be held in 2011, the Stockholder shall, and shall cause any of its Affiliates to, vote all Voting-Enabled Securities Beneficially Owned by the Stockholder and its Affiliates for each of the Director nominees recommended by the Board; provided that the Company is in material compliance with its obligations pursuant to Section 3.1.

(c)       For each election of Directors occurring after the annual stockholder meeting of the Company to be held in 2011, the Stockholder shall, and shall cause any of its Affiliates to, vote all Voting-Enabled Securities Beneficially Owned by the Stockholder and its Affiliates, in the sole discretion of the Stockholder, either (i) for each of the Director nominees recommended by the Board or, alternatively, (ii) for each of the Director nominees recommended by the Board and for the Director nominees recommended by other Persons in the same proportion as the votes cast by all other holders of Voting-Enabled Securities for such Director nominees (provided that the Company is in material compliance with its obligations pursuant to Section 3.1), and, in any case, for each Stockholder Designee.

(d)       The Stockholder shall be, and shall cause each of its Affiliates who hold Voting-Enabled Securities to be, present in person or represented by proxy at all meetings of securityholders of the Company at which Directors are to be elected to the extent necessary so that all Voting-Enabled Securities Beneficially Owned by the Stockholder and its Affiliates shall be counted as present for the purpose of determining the presence of a quorum at such meeting and to vote such shares in accordance with this Section 3.5.

(e)       Except as expressly set forth in this Agreement with respect to voting for the election of Directors, nothing in this Agreement shall limit the ability of the Stockholder or any of its Affiliates from voting any Voting Securities over which it has voting authority in such manner as it may determine in its sole discretion.

ARTICLE IV

 

MISCELLANEOUS

Section 4.1         Conflicting Agreements. Each party represents and warrants that it has not granted and is not a party to any proxy, voting trust or other agreement that is inconsistent with or conflicts with any provision of this Agreement.

 

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Section 4.2        Termination. Except as otherwise expressly provided in this Agreement, this Agreement shall terminate upon the conclusion of the Standstill Period. Nothing in this Section 4.2 shall be deemed to release any party from any liability for any willful and material breach of this Agreement occurring prior to the termination hereof or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement.

Section 4.3        Representations of the Company. The Company hereby represents and warrants to the Stockholder that (i) this Agreement has been duly and validly authorized by the Company and all necessary and appropriate action has been taken by the Company to execute and deliver this Agreement and to perform its obligations hereunder and (ii) this Agreement has been duly and validly executed and delivered by the Company and assuming the due authorization and valid execution and delivery by the other parties hereto, this Agreement is a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or by general equitable principles.

Section 4.4        Representations of the Stockholder. The Stockholder hereby represents and warrants to the Company that (i) this Agreement has been duly and validly authorized by the Stockholder and all necessary and appropriate action has been taken by the Stockholder to execute and deliver this Agreement and to perform its obligations hereunder and (ii) this Agreement has been duly and validly executed and delivered by the Stockholder and assuming the due authorization and valid execution and delivery by the other parties hereto, this Agreement is a valid and binding obligation of the Stockholder, enforceable against the Stockholder in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or by
general equitable principles.

Section 4.5        Representations of the Family Members. Each Family Member, individually and not jointly, hereby represents and warrants to the Company that (i) such Family Member has full legal capacity to execute and deliver this Agreement and to perform his or her obligations hereunder and (ii) assuming the due authorization and valid execution and delivery by the other parties hereto, this Agreement is a valid and binding obligation of such Family Member, enforceable against such Family Member in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally or by general equitable principles.

Section 4.6         Ownership Information. For purposes of this Agreement, all determinations of the amount of outstanding Rite Aid Common Stock, Voting-Enabled Securities or Voting Securities shall be based on information set forth in the most recent quarterly or annual report, and any current report subsequent thereto, filed by the Company with the Commission, unless the Company shall have updated such information by delivery of written notice to the Stockholder (including any written notice pursuant to Section 1.4(b)).

Section 4.7        Adjustments to Prevent Dilution. In the event of any reclassification, stock split (including a reverse split), stock dividend, reorganization,  recapitalization or similar event affecting Rite Aid Common Stock, the number of shares of Rite Aid Common Stock used in all 

 

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formulae herein will be adjusted appropriately to provide to the parties the same substantive effect as contemplated by this Agreement prior to such event.

Section 4.8         Savings Clause. No provision of this Agreement shall be construed to require any party or its Affiliates to take any action that would violate any Applicable Law.

Section 4.9        Amendment and Waiver. Except as otherwise provided herein, this Agreement may not be amended except by an instrument in writing signed on behalf of the Company and the Stockholder; provided, however, that, in the event of a Stockholder Pro Rata Distribution, at such time as Family Members and their Affiliates comprise a Group Beneficially Owning more than 5% of the Total Voting Power and having rights under this Agreement, any amendment to this Agreement shall be effective only if signed on behalf of such Group by its Representative. No modification, amendment or waiver of any provision of this Agreement, and no giving of any consent provided for hereunder, shall be effective unless such modification, amendment, waiver or consent is
approved by a majority of the Directors not including the Stockholder Designees. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

Section 4.10      Severability. If any provision of this Agreement shall be declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement shall not be affected and shall remain in full force and effect.

Section 4.11      Entire Agreement. Except as otherwise expressly set forth herein, this Agreement, the Stock Purchase Agreement and the Registration Rights Agreement (as defined in the Stock Purchase Agreement), together with the several agreements and other documents and instruments referred to herein or therein or annexed hereto or thereto or delivered in connection herewith or therewith, embody the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, that may have related to the subject matter hereof in any way. Without limiting the generality of the foregoing, to the extent that any of the terms hereof are inconsistent with the rights or obligations of the Stockholder under any other
agreement with the Company, the terms of this Agreement shall govern.

Section 4.12      Successors and Assigns. Except as expressly provided in and in accordance with Section 2.1 and Section 2.2, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto, in whole or in part (whether by operation of law or otherwise), without the prior written consent of the other parties (which, in the case of the Company’s consent, shall require approval of a majority of the Directors not including the Stockholder Designees), and any attempt to make any such assignment without such consent shall be null and void; provided that an assignment by the Company shall require the consent of the Stockholder only and not of the Family Members. Subject to the foregoing, this Agreement will be binding upon, inure to the benefit of
and be enforceable by, the parties and their respective successors (including any executor or administrator of a party’s estate) and permitted assigns.

 

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Section 4.13      Counterparts. This Agreement may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement.

	
            Section 4.14
 	
            Remedies.
 

(a)       Each party hereto acknowledges that monetary damages would not be an adequate remedy in the event that each and every one of the covenants or agreements in this Agreement are not performed in accordance with their terms, and it is therefore agreed that, in addition to and without limiting any other remedy or right it may have, the non-breaching party will have the right to an injunction, temporary restraining order or other equitable relief in any court of competent jurisdiction enjoining any such breach and enforcing specifically each and every one of the terms and provisions hereof. Each party hereto agrees not to oppose the granting of such relief in the event a court determines that such a breach has occurred, and to waive any requirement for the securing or posting of any bond in connection with such remedy.

(b)       All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party.

Section 4.15      Notices. All notices and other communications hereunder shall be in writing and shall be addressed as follows (or at such other address for a party as shall be specified by like notice):

If to the Company:

Rite Aid Corporation

30 Hunter Lane 

Camp Hill, PA 17011

Facsimile:  (717) 760-7867

	
             
 	
            Attention:  
 	
            Robert B. Sari
 

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

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, NY 10036

Facsimile:  (212) 735-2000

	
             
 	
            Attention:  
 	
            Nancy A. Lieberman
 
	
             
 	
            Marc S. Gerber
 	
             

 

 

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If to the Stockholder:

The Jean Coutu Group (PJC) Inc.

530, Bériault Street

Longueuil QC

J4G 1S8 Canada 

Facsimile:  (450) 646-6686

	
             
 	
            Attention:  
 	
            Kim Lachapelle
 

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

O’Melveny & Myers LLP

Times Square Tower

Seven Times Square

New York, New York 10036

Facsimile:  (212) 326-2061

	
             
 	
            Attention:  
 	
            Spencer D. Klein
 

If to any of the Family Members:

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

530, Bériault Street

Longueuil QC

J4G 1S8 Canada

Facsimile:  (450) 646-6686

	
             
 	
            Attention:  
 	
            Kim Lachapelle
 

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

O’Melveny & Myers LLP

Times Square Tower

Seven Times Square

New York, New York 10036

Facsimile:  (212) 326-2061

	
             
 	
            Attention:  
 	
            Spencer D. Klein
 

All such notices or communications shall be deemed to have been delivered and received:  (a) if delivered in person, on the day of such delivery, (b) if by facsimile, on the day on which such facsimile was sent, provided that an appropriate electronic confirmation or answerback is received, or (c) if by a recognized next day courier service, on the first Business Day following the date of dispatch. Each notice, written communication, certificate, instrument and other document required to be delivered under this Agreement shall be in the English language, except to the extent that such notice, written communication, certificate, instrument and other document is required by Applicable Law to be in a language other than English.

 

Section 4.16      Governing Law. THIS AGREEMENT, THE LEGAL RELATIONS BETWEEN THE PARTIES AND THE ADJUDICATION AND THE ENFORCEMENT THEREOF, 

 

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SHALL BE GOVERNED BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WHOLLY WITHIN THAT JURISDICTION, WITHOUT GIVING EFFECT  TO THE CONFLICTS OF LAW RULES THEREOF. 

	
            Section 4.17
 	
            Consent to Jurisdiction.
 	
             

	
             
 	
            (a)
 	
            Each party to this Agreement, by its execution hereof, hereby:
 
				

(i)         irrevocably and unconditionally submits to the exclusive jurisdiction in the Court of Chancery of the State of Delaware or any court of the United States located in the State of Delaware, for the purpose of any and all actions, suits or proceedings arising in whole or in part out of, related to, based upon or in connection with this Agreement or the subject matter hereof;

 (ii)        waives to the extent not prohibited by Applicable Law, and agrees not to assert, by way of motion, as a defense or otherwise, in any such action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such action brought in one of the above-named courts should be dismissed on grounds of forum non conveniens, should be transferred to any court other than one of the above-named courts, or should be stayed by reason of the pendency of some other proceeding in any other court other than one of the above-named courts, or that this Agreement or the subject matter hereof may not be enforced in or by such court, and 

 (iii)       agrees not to commence any such action other than before one of the above-named courts nor to make any motion or take any other action seeking or intending to cause the transfer or removal of any such action to any court other than one of the above-named courts whether on the grounds of forum non conveniens or otherwise. 

(b)          The Stockholder and the Family Members hereby irrevocably and unconditionally designate, appoint, and empower The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, as their respective designee, appointee and agent to receive, accept and acknowledge for and on their behalf service of any and all legal process, summons, notices and documents that may be served in any action, suit or proceeding brought against the Stockholder or the Family Members in any such United States federal or state court with respect to their obligations, liabilities or any other matter arising out of or in connection with this Agreement and that may be made on such designee, appointee and agent in accordance with legal procedures prescribed for such courts. If for any reason such
designee, appointee and agent hereunder shall cease to be available to act as such, the Stockholder and the Family Members agree to designate a new designee, appointee and agent in the State of Delaware on the terms and for the purposes of this Section 4.17 reasonably satisfactory to the Company. The Stockholder and Family Members further hereby irrevocably consent and agree to the service of any and all legal process, summons, notices and documents in any such action, suit or proceeding against the Stockholder or the Family Members by serving a 

 

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copy thereof upon the relevant agent for service of process referred to in this Section 4.17 (whether or not the appointment of such agent shall for any reason prove to be ineffective or such agent shall accept or acknowledge such service) or by sending copies thereof by a recognized next day courier service to the Stockholder or the Family Members, as applicable, at their address specified in or designated pursuant to this Agreement. The Stockholder and the Family Members agree that the failure of any such designee, appointee and agent to give any notice of such service to them shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon.

Section 4.18      Interpretation. The table of contents and headings contained in this Agreement are for 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”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article and Section references are to this Agreement unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 

Section 4.19      Methodology for Calculations. For purposes of calculating the number of outstanding shares of Rite Aid Common Stock, Voting-Enabled Securities or Voting Securities and the number of shares of Rite Aid Common Stock, Voting-Enabled Securities or Voting Securities Beneficially Owned by any Person as of any date, any shares of Rite Aid Common Stock, Voting-Enabled Securities or Voting Securities held in the Company’s treasury or belonging to any subsidiaries of the Company which are not entitled to be voted or counted for purposes of determining the presence of a quorum pursuant to Section 160(c) of the Delaware General Corporation Law (or any successor statute) shall be disregarded.

Section 4.20      Effectiveness. This Agreement shall become effective upon the Closing and prior thereto shall be of no force or effect. If the Stock Purchase Agreement shall be terminated in accordance with its terms prior to the Closing, this Agreement and any actions or agreements contemplated hereby shall automatically be terminated and of no force or effect.

 

[Remainder of page intentionally left blank.]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Stockholder Agreement as of the date first written above.

RITE AID CORPORATION

	
             
 	
            By:
 	
            /s/ Robert B. Sari
 	
             

	
             
 	
            Robert B. Sari
 	
             

	
             
 	
            Exec. VP & General Counsel
 
					

THE JEAN COUTU GROUP (PJC) INC.

	
             
 	
            By:
 	
            /s/ Jean Coutu
 

	
             
 	
            Jean Coutu
 

Chairman of the Board, President and Chief Executive Officer                                

JEAN COUTU

/s/ Jean Coutu

MARCELLE COUTU

/s/ Marcelle Coutu

FRANCOIS J. COUTU

/s/ François J. Coutu

MICHEL COUTU

/s/ Michel Coutu

LOUIS COUTU

/s/ Louis Coutu

 

 

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SYLVIE COUTU

/s/ Sylvie Coutu

MARIE-JOSÉE COUTU

/s/ Marie-Josée Coutu

 

 

 

642417.15-D.C. Server 2A - MSW

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