Document:

Exhibit 4.36

 

EXECUTION COPY

 

SECOND
PRIORITY SUBSIDIARY GUARANTEE AGREEMENT dated as of June 27, 2001, as
amended and restated as of May 28, 2003 (as amended, supplemented or
otherwise modified from time to time, this “Agreement”), among each of the
subsidiaries listed on Schedule I hereto (each such subsidiary individually, a “Subsidiary
Guarantor” and collectively, the “Subsidiary Guarantors”) of RITE AID
CORPORATION, a Delaware corporation (the “Borrower”), and WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as collateral agent (the “Second
Priority Collateral Trustee”) for the Second Priority Debt Parties.

 

Reference is made to the Second Priority Subsidiary Guarantee Agreement
dated as of June 27, 2001 (as amended, supplemented or otherwise modified
from time to time prior to the Restatement Effective Date, the “Original Second Priority Subsidiary Guarantee”) among each
of the subsidiaries of the Borrower listed on Schedule I thereto and the
subsidiaries of the Borrower that became parties thereto as provided in Section 21
thereof (collectively, the “Original Subsidiary
Guarantors”) and the Second Priority Collateral Trustee, pursuant to
which the Original Subsidiary Guarantors agreed to guarantee the payment of the
Second Priority Debt Obligations (as defined in the Original Second Priority
Subsidiary Guarantee). The Original Subsidiary Guarantors and the Second
Priority Collateral Trustee now wish to amend and restate the Original Second
Priority Subsidiary Guarantee Agreement in its entirety as set forth herein to
guarantee the obligations under the Second Priority Debt Documents. Capitalized
terms used herein and not defined herein shall have the meanings assigned to
such terms in the Definitions Annex annexed hereto (as amended, supplemented or
otherwise modified from time to time) and by this reference incorporated
herein.

 

Each of the Subsidiary Guarantors is a wholly owned subsidiary of the
Borrower and acknowledges that it has derived and will continue to derive
substantial benefit from the credit extended under the Second Priority Debt
Documents. It is a condition precedent, among other conditions, to the
effectiveness of the Senior Credit Agreement that the Subsidiary Guarantors
execute and deliver a Second Priority Subsidiary Guarantee Agreement in the
form hereof. As consideration therefor, the Subsidiary Guarantors are willing
to execute this Agreement.

 

Accordingly, the parties hereto agree as follows:

 

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SECTION 1.   Guarantee. Each
Subsidiary Guarantor unconditionally guarantees, jointly with the other
Subsidiary Guarantors and severally, as a primary obligor and not merely as a
surety, the due and punctual payment of, and the due and punctual performance
of, the Second Priority Debt Obligations from time to time outstanding. Each
Subsidiary Guarantor agrees that the Second Priority Debt Obligations may be
extended or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee under this Agreement
notwithstanding any extension or renewal of any Second Priority Debt
Obligation.

 

Anything contained in this Agreement to the contrary notwithstanding,
the obligations of each Subsidiary Guarantor hereunder shall be limited to a maximum
aggregate amount equal to the greatest amount that would not render such
Subsidiary Guarantor’s obligations hereunder subject to avoidance under Section 548
of Title 11 of the United States Code or any comparable provisions of any
applicable state law, after giving effect to all other liabilities of such
Subsidiary Guarantor, contingent or otherwise, that are relevant under such
laws (specifically excluding, however, any liabilities of such Subsidiary
Guarantor (a) in respect of intercompany Indebtedness to the Borrower or
Affiliates of the Borrower to the extent that such Indebtedness would be
discharged in an amount equal to the amount paid by such Subsidiary Guarantor
hereunder and (b) under any guarantee of the Second Priority Debt
Obligations) and after giving effect as assets to the value of any rights to
subrogation, contribution, reimbursement, indemnity or similar rights of such
Subsidiary Guarantor pursuant to (i) applicable law or (ii) any
agreement providing for an equitable allocation among such Subsidiary Guarantor
and other Affiliates of the Borrower of obligations arising under guarantees by
such parties (including the Second Priority Indemnity, Subrogation and
Contribution Agreement). To the extent the provisions of this paragraph are applicable,
any such reduction shall be applied to the obligations of such Subsidiary
Guarantor hereunder before any reduction in the obligation of such Subsidiary
Guarantor under the Senior Subsidiary Guarantee Agreement.

 

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SECTION 2.   Obligations Not Waived.  To the fullest extent permitted by applicable
law, each Subsidiary Guarantor waives presentment to, demand of payment from
and protest to the Borrower of any of the Second Priority Debt Obligations, and
also waives notice of acceptance of its guarantee and notice of protest for
nonpayment. To the fullest extent permitted by applicable law, the obligations
of each Subsidiary Guarantor hereunder shall not be affected by (a) the
failure of the Second Priority Collateral Trustee or any other Second Priority
Debt Party to assert any claim or demand or to enforce or exercise any right or
remedy against the Borrower or any other Subsidiary Guarantor under the
provisions of the Second Priority Debt Documents or otherwise, (b) any
rescission, waiver, amendment or modification of, or any release from any of
the terms or provisions of this Agreement, any other Second Priority Debt
Document, any guarantee or any other agreement, including with respect to any
other Subsidiary Guarantor under this Agreement or (c) the failure to
perfect any security interest in, or the release of, any of the security held
by or on behalf of the Second Priority Collateral Trustee or any other Second
Priority Debt Party.

 

SECTION 3.   Security.  Each of the Subsidiary Guarantors authorizes
the Second Priority Collateral Trustee and each of the other Second Priority
Debt Parties to (a) take and hold security for the payment of its
guarantee under this Agreement and the Second Priority Debt Obligations and
exchange, enforce, waive and release any such security, (b) apply such
security and direct the order or manner of sale thereof as they in their sole
discretion may determine and (c) release or substitute any one or more
endorsees, other Subsidiary Guarantors or other Obligors.

 

SECTION 4.   Guarantee of Payment.  Each Subsidiary Guarantor agrees that its
guarantee under this Agreement constitutes a guarantee of payment when due and
not of collection, and waives any right to require that any resort be had by
the Second Priority Collateral Trustee or any other Second Priority Debt Party
to any of the security held for payment of the Second Priority Debt Obligations
or to any balance of any deposit account or credit on the books of the Second Priority
Collateral Trustee or any other Second Priority Debt Party in favor of the
Borrower, any other Obligor or any other Person.

 

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SECTION 5.   No Discharge or
Diminishment of Guarantee. 
The obligations of each Subsidiary Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason
(other than the indefeasible payment in full in cash of the Second Priority
Debt Obligations), including any claim of waiver, release, surrender,
alteration or compromise of any of the Senior Obligations, and shall not be
subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Second Priority Debt Obligations or otherwise. Without limiting the generality
of the foregoing, the obligations of each Subsidiary Guarantor hereunder shall
not be discharged or impaired or otherwise affected by the failure of the
Second Priority Collateral Trustee or any other Second Priority Debt Party to
assert any claim or demand or to enforce any remedy under any Second Priority
Debt Document or any other agreement, by any waiver or modification of any
provision of any thereof, by any default, failure or delay, wilful or
otherwise, in the performance of any of the Second Priority Debt Obligations,
or by any other act or omission that may or might in any manner or to any
extent vary the risk of any Subsidiary Guarantor or that would otherwise
operate as a discharge of each Subsidiary Guarantor as a matter of law or
equity (other than the indefeasible payment in full in cash of all the Second
Priority Debt Obligations).

 

SECTION 6.   Defenses of Borrower
Waived.  To the fullest extent
permitted by applicable law, each of the Subsidiary Guarantors waives any
defense based on or arising out of any defense of the Borrower or the
unenforceability of the Second Priority Debt Obligations or any part thereof
from any cause, or the cessation from any cause of the liability of the
Borrower, other than the final and indefeasible payment in full in cash of the
Second Priority Debt Obligations. The Second Priority Collateral Trustee and
the other Second Priority Debt Parties may, at their election, foreclose on any
security held by one or more of them by one or more judicial or nonjudicial
sales, accept an assignment of any such security in lieu of foreclosure,
compromise or adjust any part of the Second Priority Debt Obligations, make any
other accommodation with the Borrower or any other guarantor or exercise any
other right or remedy available to them against the Borrower or any other
guarantor, without affecting or impairing in any way the liability of any
Subsidiary Guarantor hereunder except to the extent that the Second Priority
Debt Obligations have been fully, finally and indefeasibly paid in cash.
Pursuant to applicable law, each of the Subsidiary Guarantors waives any
defense arising out of any such election even though such election operates,
pursuant to applicable law, to impair or to extinguish any right of
reimbursement or subrogation or other right or remedy of such Subsidiary
Guarantor against the Borrower or any other Subsidiary Guarantor or guarantor,
as the case may be, or any security.

 

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SECTION 7.   Agreement to Pay;
Subordination.  In furtherance
of the foregoing and not in limitation of any other right that the Second
Priority Collateral Trustee or any other Second Priority Debt Party has at law
or in equity against any Subsidiary Guarantor by virtue hereof, upon the
failure of the Borrower or any other Obligor to pay any Second Priority Debt
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Subsidiary
Guarantor hereby promises to and will forthwith pay, or cause to be paid, to
the Second Priority Collateral Trustee or such other Second Priority Debt Party
as designated thereby in cash the amount of such unpaid Second Priority Debt
Obligation. Upon payment by any Subsidiary Guarantor of any sums to the Second
Priority Collateral Trustee or any Second Priority Debt Party as provided
above, all rights of such Subsidiary Guarantor against the Borrower arising as
a result thereof by way of right of subrogation, contribution, reimbursement,
indemnity or otherwise, including pursuant to the Second Priority Indemnity,
Subrogation and Contribution Agreement, shall in all respects be subordinate
and junior in right of payment to the prior indefeasible payment in full in
cash of all the Second Priority Debt Obligations. In addition, any Indebtedness
and any other obligation of the Borrower now or hereafter held by any
Subsidiary Guarantor is hereby subordinated in right of payment to the prior
payment in full of the Second Priority Debt Obligations. If any amount shall
erroneously be paid to any Subsidiary Guarantor on account of (i) such
subrogation, contribution, reimbursement, indemnity or similar right or (ii) any
such Indebtedness or any such other obligation of the Borrower, such amount
shall be held in trust for the benefit of the Second Priority Debt Parties and
shall forthwith be paid to the Second Priority Collateral Trustee to be
credited against the payment of the Second Priority Debt Obligations, whether
matured or unmatured, in accordance with the terms of the Second Priority Debt
Documents and the Collateral Trust and Intercreditor Agreement.

 

SECTION 8.   Subordination.  (a)  Second Priority Guarantee
Obligations Subordinated to Senior Guarantee Obligations. The obligations of
each Subsidiary Guarantor under this Agreement (the “Second Priority Guarantee
Obligations” of such Subsidiary Guarantor) shall be subordinated, to the extent
and in the manner provided in this Section 8, to the prior payment by such
Subsidiary Guarantor of its obligations under the Senior Subsidiary Guarantee
Agreement (the “Senior Guarantee Obligations” of such Subsidiary Guarantor:
This Section 8 will constitute a continuing offer to all Persons who, in reliance
upon its provisions, become holders of, or continue to hold, Senior
Obligations, and such holders made obligees under this Section and they
and/or each of them may enforce its provisions.

 

(b)           No Payment
of Second Priority Guarantee Obligations in Certain Circumstances.

 

(i)            No payment will be made on account
of the Second Priority Guarantee Obligations of any Subsidiary Guarantor until
the Senior Obligation Payment Date.

 

(ii)           If any payment or distribution of
assets of any Subsidiary Guarantor is received by any Second Priority Debt
Party in respect of the Second Priority Guarantee Obligations of such
Subsidiary Guarantor at a time when that payment of distribution should not
have been made as a result of clause (i) above, such payment or distribution
will be received and held in trust for and will be paid

 

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over to the Senior Secured Parties
in respect of Senior Guarantee Obligations of such Subsidiary Guarantor which
are due and payable and remain unpaid or unprovided for in cash or cash
equivalents until all such Senior Guarantee Obligations have been paid in full
or provided for in cash or cash equivalents (as allocated by the Senior
Collateral Agent), after giving effect to any concurrent payment or
distribution or provision therefor to the Senior Secured Parties.

 

(c)           Second Priority Guarantee Obligations Subordinated to Prior Payment of
all Senior Guarantee Obligations on Dissolution, Liquidation or Reorganization.  Upon any distribution of assets of any
Subsidiary Guarantor upon the dissolution, winding up, liquidation or
reorganization of such Subsidiary Guarantor (whether in bankruptcy, insolvency,
receivership of similar proceeding related to such Subsidiary Guarantor or its
property or upon an assignment for the benefit of creditors or otherwise):

 

(i)            the Senior Secured Parties shall be
entitled to receive payment in full in cash or cash equivalents of all amounts
then due in respect of the Senior Guarantee Obligations of such Subsidiary Guarantor
(including all such obligations in respect of interest accruing subsequent to
the commencement of a bankruptcy proceeding in respect of either the Borrower
or such Subsidiary Guarantor, whether or not allowed or allowable as a claim in
such bankruptcy proceeding) before the Second Priority Debt Parties are
entitled to receive any direct or indirect payment or distribution on account
of the Second Priority Guarantee Obligations of such Subsidiary Guarantor;

 

(ii)           any payment or distribution of cash, properties
or securities of any kind or character to which the Second Priority Debt
Parties would be entitled in respect of the Second Priority Guarantee
Obligations of such Subsidiary Guarantor except for the provisions of this Section 8
will be paid by the liquidating trustee or agent or other Person making such a
payment or distribution directly to the Senior Secured Parties or their
representatives to the extent necessary to make payment in full in or provision
for payment in full in cash or cash equivalents of all Senior Guarantee
Obligations of such Subsidiary Guarantor remaining unpaid, after giving effect
to any concurrent payment or distribution to the Senior Secured Parties; and

 

(iii)          if, notwithstanding the foregoing, any
payment setoff or distribution of any kind or character, whether in cash,
property or securities is received by the Second Priority Debt Parties on
account of the Second Priority Guarantee Obligations of any Subsidiary
Guarantor before all Senior Guarantee Obligations of such Subsidiary Guarantor
are paid in full in cash or cash equivalents, such payment or distribution will
be received in trust and held for and will be paid over to the Senior Secured
Parties or their representatives for application to the payment of such Senior
Guarantee Obligations of such Subsidiary Guarantor until all such Senior
Guarantee Obligations of such Subsidiary Guarantor have been paid in full or
provided for in cash or cash equivalents after giving effect to any concurrent
payment or distribution to the Senior Secured Parties.

 

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(d)           For
purposes of this Section 8, the words “cash, property or securities” shall
(so long as the effect of this paragraph (d) is not to cause the Second
Priority Guarantee Obligations of any Subsidiary Guarantor to be treated in any
bankruptcy proceedings as part of the same class of claims as the Senior
Guarantee Obligations of such Subsidiary Guarantor or any class of claims on a
parity with or senior to the Senior Guarantee Obligations of any Subsidiary
Guarantor for any payment or distribution) not be deemed to include any payment
or distribution of securities (subordinated at least to the same extent as the
Second Priority Guarantee Obligations of such Subsidiary Guarantor to the
payment of all Senior Guarantee Obligations of such Subsidiary Guarantor then
outstanding) of such Subsidiary Guarantor or any other Person authorized by an
order or decree giving effect, and stating in such order or decree that effect
has been given, to subordination provided for in this Section 8 and made
by a court of competent jurisdiction in a bankruptcy proceeding; provided that (i) the
Senior Guarantee Obligations of such Subsidiary Guarantor are assumed by the
new Person, if any, resulting from any such reorganization or readjustment, and
(ii) the rights of the Senior Secured Parties are not, without their
consent, altered by such bankruptcy proceeding.

 

(e)           Second Priority Debt Parties to be Subrogated to Rights of Senior
Secured Parties. Following the payment in full in cash or cash
equivalents or provision for payment in full in cash or cash equivalents of all
Senior Guarantee Obligations of any Subsidiary Guarantor, the Second Priority
Debt Parties will be subrogated to the rights of the Senior Secured Parties to
receive payments or distributions of assets in respect of the Senior Subsidiary
Guarantee Obligations of such Subsidiary Guarantor until all amounts owing in
respect of the Second Priority Guarantee Obligations of such Subsidiary Guarantor
have been paid in full, and for the purpose of such subrogation no such
payments or distributions to the Senior Secured Parties by or on behalf of such
Subsidiary Guarantor or by or on behalf of the Second Priority Debt Parties by
virtue of this Section which otherwise would have been made to the Second
Priority Debt Parties will, as between such Subsidiary Guarantor and the Second
Priority Debt Parties, be deemed to be payment by such Subsidiary Guarantor to
or on account of its Senior Guarantee Obligations, it being understood that the
provisions of this Section are and are intended solely for the purpose of
defining the relative rights of the Second Priority Debt Parties, on the one
hand, and the Senior Secured Parties, on the other hand.

 

(f)            Obligations of the Subsidiary Guarantors Unconditional.
Nothing contained in this Section 8 or elsewhere in this Agreement is
intended to or will impair, as between the Subsidiary Guarantors and the Second
Priority Debt Parties, the obligations of the Subsidiary Guarantors, which are
absolute and unconditional, to pay to the Second Priority Debt Parties the
Second Priority Guarantee Obligations as and when they become due and payable
in accordance with their terms, or is intended to or will affect the relative
rights of the Second Priority Debt Parties and creditors of the Subsidiary
Guarantors other than the Senior Secured Parties, nor will anything herein or
therein prevent any Second Priority Debt Party from exercising all remedies
otherwise permitted by applicable law upon default under the Second Priority
Debt Documents, subject to the rights of the Senior Secured Parties, if any,
under this Section, and under the Collateral Trust and Intercreditor Agreement.

 

(g)           Subordination Rights not Impaired by Acts or Omissions of the
Subsidiary Guarantors or Senior Secured Parties. No right of any
present or future Senior Secured Party to enforce subordination as provided
herein will at any time in any way be prejudiced or impaired

 

7

 

by any act
or failure to act on the part of any Subsidiary Guarantor or by any act or
failure to act by any such Senior Secured Party, or by any noncompliance by any
Subsidiary Guarantor with the terms of this Agreement, regardless of any knowledge
thereof which any such holder may have or otherwise be charged with.

 

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SECTION 9.   Information.
Each of the Subsidiary Guarantors assumes all responsibility for being and
keeping itself informed of the Borrower’s financial condition and assets and of
all other circumstances bearing upon the risk of nonpayment of the Senior
Obligations and the nature, scope and extent of the risks that such Subsidiary
Guarantor assumes and incurs hereunder, and agrees that none of the Second
Priority Collateral Trustee or the other Second Priority Debt Parties will have
any duty to advise any of the Subsidiary Guarantors of information known to it
or any of them regarding such circumstances or risks.

 

SECTION 10.   Representations and
Warranties. Each of the Subsidiary Guarantors represents and
warrants as to itself that all representations and warranties relating to it
contained in the Second Priority Debt Documents are true and correct.

 

SECTION 11.   Termination. The
guarantees made hereunder (a) shall terminate when all the Second Priority
Debt Obligations have been indefeasibly paid in full and (b) shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any Second Priority Debt Obligations is
rescinded or must otherwise be restored by any Second Priority Debt Party or
any Subsidiary Guarantor upon the bankruptcy or reorganization of the Borrower,
any Subsidiary Guarantor or otherwise.

 

SECTION 12.   Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party, and all
covenants, promises and agreements by or on behalf of the Subsidiary Guarantors
that are contained in this Agreement shall bind and inure to the benefit of
each party hereto and their respective successors and assigns. This Agreement
shall become effective as to any Subsidiary Guarantor when a counterpart hereof
executed on behalf of such Subsidiary Guarantor shall have been delivered to
the Second Priority Collateral Trustee, and a counterpart hereof shall have
been executed on behalf of the Second Priority Collateral Trustee, and
thereafter shall be binding upon’ such Subsidiary Guarantor and the Second
Priority Collateral Trustee and their respective successors and assigns, and
shall inure to the benefit of such Subsidiary Guarantor, the Second Priority
Collateral Trustee and the other Second Priority Debt Parties, and their
respective successors and assigns, except that no Subsidiary Guarantor shall
have the right to assign its rights or obligations hereunder or any interest
herein (and any such attempted assignment shall be void). If all of the Equity Interests
in a Subsidiary Guarantor are sold, transferred or otherwise disposed of
pursuant to a transaction permitted by the Second Priority Debt Documents, such
Subsidiary Guarantor shall be released from its obligations under this
Agreement without further action. This Agreement shall be construed as a
separate agreement with respect to each Subsidiary Guarantor and may be
amended, modified, supplemented, waived or released with respect to any
Subsidiary Guarantor without the approval of any other Subsidiary Guarantor and
without affecting the obligations of any other Subsidiary Guarantor hereunder.

 

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SECTION 13.   Waivers; Amendment.  (a)  No failure or delay of the Second
Priority Collateral Trustee in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the Second
Priority Collateral Trustee hereunder and of the other Second Priority Debt
Parties under the other Second Priority Debt Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of this Agreement or consent to any departure by any
Subsidiary Guarantor therefrom shall in any event be effective unless the same
shall be permitted by clause (b), and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any Subsidiary Guarantor in any case shall entitle such
Subsidiary Guarantor to any other or further notice or demand in similar or
other circumstances.

 

(b)           Except as
otherwise provided in the Collateral Trust and Intercreditor Agreement, none of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by each
Subsidiary Guarantor affected thereby and by the Second Priority Collateral
Trustee with the written consent of the Second Priority Instructing Group;
provided that (i) any provision of this Agreement may be waived by the Second
Priority Instructing Group pursuant to a letter or agreement executed by the
Second Priority Collateral Trustee or by telecopy transmission from the Second
Priority Collateral Trustee, in either case with the prior written consent of
the Second Priority Instructing Group and (ii) any amendment, waiver,
supplement or other modification which by its terms adversely affects the
rights of the Second Priority Debt Parties under a particular Second Priority
Debt Facility in a manner materially different from its effect on the other
Second Priority Debt Facilities shall only be effective with the consent of the
Second Priority Representative for each Second Priority Debt Facility so
adversely affected.

 

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SECTION 14.  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 15. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, facsimile
transmission or similar writing) and shall be given to such party: (x) in
the case of the Second Priority Collateral Trustee, at its address or facsimile
number set forth on the signature pages hereof, (y) in the case of
each Subsidiary Guarantor, in care of the Borrower, at the address of the
Borrower or facsimile number set forth on the signature pages of the
Collateral Trust and Intercreditor Agreement or (z) in the case of any
other party hereto, at such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the Second Priority Collateral
Trustee and the Borrower. Each such notice, request or other communication
shall be deemed to be effective upon receipt thereof.

 

SECTION 16. Survival of Agreement; Severability. 
(a) All covenants, agreements, representations and warranties made
by the Subsidiary Guarantors herein and in the certificates or other
instruments prepared or delivered in connection with or pursuant to this
Agreement or any other Second Priority Debt Document shall be considered to
have been relied upon by the Second Priority Collateral Trustee and the other
Second Priority Debt Parties and shall survive the effectiveness of the Second
Priority Debt Documents regardless of any investigation made by the Second
Priority Debt Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any loan under
any Second Priority Debt Documents or any other fee or amount payable under
this Agreement or any other Second Priority Debt Document is outstanding and
unpaid.

 

(b)           In the event any one or more of the
provisions contained in this Agreement or in any other Second Priority Debt
Document should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby (it
being understood that the invalidity of a particular provision in a particular
jurisdiction shall not in and of itself affect the validity of such provision
in any other jurisdiction). The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.

 

11

 

SECTION 17. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which when taken
together shall constitute a single contract, and shall become effective as
provided in Section 12. Delivery of an executed signature page to
this Agreement by facsimile transmission shall be as effective as delivery of a
manually executed counterpart of this Agreement.

 

SECTION 18. Rules of Interpretation. References in this Agreement to
“Articles”, “Sections”, “Schedules” or “Exhibits” shall be to Articles,
Sections, Schedules or Exhibits of or to this Agreement unless otherwise
specifically provided. Any defined terms may, unless the context otherwise
requires, be used in the singular or plural depending on the reference.
“Include” or “includes” shall be deemed to be followed by “without limitation”
whether or not they are in fact followed by such words or words of like import.
“Writing”, “written” and comparable terms refer to printing, typing and other
means of reproducing words in a visible form. References to any agreement or
contract are to such agreement or contract as amended, modified or supplemented
from time to time in accordance with the terms hereof and thereof. References
to any Person include the successors and assigns of such Person.  References “from” or “through” any date mean,
unless otherwise specified, “from and including” or “through and including”,
respectively.

 

SECTION 19. Jurisdiction; Consent to Service of Process. 
(a)  Each Subsidiary Guarantor hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York County, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Second Priority Debt Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement shall affect any right that
the Second Priority Collateral Trustee or any other Second Priority Debt Party
may otherwise have to bring any action or proceeding relating to this Agreement
or the other Second Priority Debt Documents against any Subsidiary Guarantor or
its properties in the courts of any jurisdiction.

 

(b)           Each Subsidiary Guarantor hereby
irrevocably and unconditionally waives, to the fullest extent it may legally
and effectively do so, any objection that it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement or the other Second Priority Debt Documents in any New York
State or Federal court. Each of the parties hereto hereby irrevocably waives,
to the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.

 

(c)           Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 15. Nothing in this Agreement will affect the right of any
party to this Agreement to serve process in any other manner permitted by law.

 

12

 

SECTION 20. Waiver of Jury Trial. 
EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION, ACTION OR OTHER PROCEEDING DIRECTLY
OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE
OTHER SECOND PRIORITY DEBT DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY
LITIGATION, ACTION OR OTHER PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER
AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER SECOND PRIORITY DEBT
DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 20.

 

SECTION 21. Additional Subsidiary Guarantors. 
Pursuant to the Second Priority Debt Documents, certain Domestic
Subsidiaries of the Borrower that were not in existence on the Restatement
Effective Date are required to enter into this Agreement as a Subsidiary
Guarantor upon becoming a wholly owned Domestic Subsidiary. Upon execution and
delivery after the Restatement Effective Date by the Second Priority Collateral
Trustee and such a Subsidiary of an instrument in the form of Annex 1, such
Subsidiary shall become a Subsidiary Guarantor hereunder with the same force
and effect as if originally named as a Subsidiary Guarantor herein. The
execution and delivery of any instrument adding an additional Subsidiary
Guarantor as a party to this Agreement shall not require the consent of any
other Subsidiary Guarantor hereunder. The rights and obligations of each
Subsidiary Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Subsidiary Guarantor as a party to this
Agreement.

 

SECTION 22. Right of Setoff.  If an Event of Default shall have occurred and
be continuing, each Second Priority Debt Party is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other Indebtedness and other obligations at any
time owing by such Second Priority Debt Party to or for the credit or the
account of any Subsidiary Guarantor against any or all the Indebtedness and
other obligations of such Subsidiary Guarantor now or hereafter existing under
this Agreement and the other Second Priority Debt Documents held by such Second
Priority Debt Party, irrespective of whether or not such Second Priority Debt
Party shall have made any demand under this Agreement or any other Second
Priority Debt Document and although such Indebtedness and other obligations may
be unmatured and regardless of the adequacy of any Collateral. The rights of
each Second Priority Debt Party under this Section 22 are in addition to
other rights and remedies (including other rights of setoff) which such Second
Priority Debt Party may have.

 

13

 

SECTION 23. Collateral Trust and Intercreditor Agreement.  Each of the parties to this Agreement
acknowledges and agrees, for the benefit of each other party to the Collateral
Trust and Intercreditor Agreement, that notwithstanding anything herein to the
contrary, the terms of this Agreement, and the rights and remedies of the
parties hereto, are subordinate to the interests of the Senior Secured Parties
and subject to the Collateral Trust and Intercreditor Agreement.

 

14

 

IN WITNESS WHEREOF, the parties hereto have duly
executed this Second Priority Subsidiary Guarantee Agreement as of the day and
year first above written.

 

 

	
   

  	
   

  	
  WILMINGTON
  TRUST COMPANY, as Second Priority Collateral Trustee,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By
  

  	
  /s/ Bruce L. Bisson 

  
	
   

  	
   

  	
  Name:

  	
  Bruce
  L. Bisson 

  
	
   

  	
   

  	
  Title:
  

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EACH
  OF THE SUBSIDIARIES LISTED ON SCHEDULE I HERETO, as Subsidiary Guarantors,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/
  Robert B. Sari

  
	
   

  	
   

  	
  Name:

  	
  Robert
  B. Sari

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  

 

15

 

Annex 1
to the

Second
Priority Guarantee Agreement

 

SUPPLEMENT
NO. dated as of
                    ,
to the Second Priority Guarantee Agreement dated as of June 27, 2001, as
amended and restated as of May 28, 2003 (as amended, supplemented or
otherwise modified from time to time, the “Second
Priority Guarantee Agreement”), among each of the subsidiaries
listed on Schedule I thereto (each such subsidiary individually, a “Subsidiary Guarantor” and collectively,
the “Subsidiary Guarantors”) of
RITE AID CORPORATION, a Delaware corporation (the “Borrower”), and WILMINGTON TRUST COMPANY, a Delaware banking
corporation, as collateral trustee (the “Second
Priority Collateral Trustee”) for the Second Priority Debt Parties.

 

A. 
Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Second Priority Guarantee
Agreement.

 

B.  In
accordance with Section 21 of the Second Priority Subsidiary Guarantee
Agreement, the Domestic Subsidiary by its signature below becomes a Subsidiary
Guarantor (the “New Subsidiary Guarantor”)
under the Second Priority Subsidiary Guarantee Agreement with the same force
and effect as if originally named therein as a Subsidiary Guarantor and the New
Subsidiary Guarantor hereby (a) agrees to all the terms and provisions of
the Second Priority Subsidiary Guarantee Agreement applicable to it as a
Subsidiary Guarantor thereunder and (b) represents and warrants that the
representations and warranties made by it as a Subsidiary Guarantor thereunder
are true and correct on and as of the Restatement Effective Date. Each
reference to a “Subsidiary Guarantor” in the Second Priority Subsidiary
Guarantee Agreement shall be deemed to include the New Subsidiary Guarantor.
The Second Priority Subsidiary Guarantee Agreement is hereby incorporated
herein by reference.

 

Accordingly, the Second Priority Collateral Trustee
and the New Subsidiary Guarantor agree as follows:

 

SECTION 1. 
In accordance with Section 21 of the Second Priority Guarantee
Agreement, the New Subsidiary Guarantor by its signature below becomes a
Subsidiary Guarantor under the Second Priority Guarantee Agreement with the
same force and effect as if originally named therein as a Subsidiary Guarantor
and the New Subsidiary Guarantor hereby (a) agrees to all the terms and
provisions of the Second Priority Guarantee Agreement applicable to it as a
Subsidiary Guarantor thereunder and (b) represents and warrants that the
representations and warranties made by it as a Subsidiary Guarantor thereunder
are true and correct on and as of the Restatement Effective Date. Each
reference to a “Subsidiary Guarantor” in the Second Priority Guarantee
Agreement shall be deemed to include the New Subsidiary Guarantor. The Second
Priority Guarantee Agreement is hereby incorporated herein by reference.

 

16

 

SECTION 2. 
The New Subsidiary Guarantor represents and warrants to the Second
Priority Collateral Trustee and the other Second Priority Debt Parties that
this Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.

 

SECTION 3. 
This Supplement may be executed in counterparts, each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Second
Priority Collateral Trustee shall have received counterparts of this Supplement
that, when taken together, bear the signatures of the New Subsidiary Guarantor
and the Second Priority Collateral Trustee. Delivery of an executed signature page to
this Supplement by facsimile transmission shall be as effective as delivery of
a manually executed counterpart of this Supplement.

 

SECTION 4. 
Except as expressly supplemented hereby, the Second Priority Guarantee
Agreement shall remain in full force and effect.

 

SECTION 5.  THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 6. 
In case any one or more of the provisions contained in this Supplement
should be held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein and in
the Second Priority Guarantee Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision hereof in a particular jurisdiction shall not in and of itself affect
the validity of such provision in any other jurisdiction). The parties hereto
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.

 

SECTION 7. 
All communications and notices hereunder shall be in writing and given
as provided in Section 15 of the Second Priority Guarantee Agreement. All
communications and notices hereunder to the New Subsidiary Guarantor shall be
given to it at the address set forth under its signature below, with a copy to
the Borrower.

 

SECTION 8. 
The New Subsidiary Guarantor agrees to reimburse the Second Priority
Collateral Trustee for its out-of-pocket expenses in connection with this
Supplement, including the fees, disbursements and other charges of counsel for
the Second Priority Collateral Trustee.

 

IN WITNESS WHEREOF, the New Subsidiary Guarantor
and the Second Priority Collateral Trustee have duly executed this Supplement
to the Second Priority Guarantee Agreement as of the day and year first above
written.

 

17

 

 

	
   

  	
   

  	
  [NAME
  OF NEW SUBSIDIARY GUARANTOR],

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WILMINGTON
  TRUST COMPANY, as Second Priority Collateral Trustee,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

18Exhibit
4.37

 

EXECUTION COPY

 

SECOND
PRIORITY SUBSIDIARY SECURITY AGREEMENT

 

SECOND
PRIORITY SUBSIDIARY SECURITY AGREEMENT, dated as of June 27, 2001, as
amended and restated as of May 28, 2003 (as amended, supplemented or
otherwise modified from time to time, this “Agreement”), made by the SUBSIDIARY
GUARANTORS identified on the signature pages hereto and any other Person
that becomes a Subsidiary Guarantor pursuant to the Senior Credit Agreement (as
such term is defined below) (collectively, the “Grantors”), in favor of
WILMINGTON TRUST COMPANY, a Delaware banking corporation, as collateral trustee
(in such capacity, the “Second Priority Collateral Trustee”) for the Second
Priority Debt Parties.

 

Reference is made to (a) the
Senior Credit Agreement, dated as of June 27, 2001, as amended and
restated as of May 28, 2003 (as amended, supplemented or otherwise
modified from time to time, the “Senior
Credit Agreement”), among Rite Aid Corporation, a Delaware
corporation (the “Borrower”), the
lenders from time to time party thereto (the
“Senior Lenders”), Citicorp North America, Inc., a Delaware
corporation, as administrative agent for the Senior Lenders, and JPMorgan Chase
Bank, a New York banking corporation, as syndication agent for the Senior
Lenders, and (b) the Second Priority Debt Documents (as defined in the
Definitions Annex attached as Annex 2 hereto). Reference is also made to the
Second Priority Subsidiary Security Agreement dated as of June 27, 2001
(as amended, supplemented or otherwise modified from time to time prior to the
Restatement Effective Date, the “Original
Second Priority Subsidiary Security Agreement”) among the Subsidiary
Guarantors identified on the signature pages thereto and each other Person that
became a Subsidiary Guarantor pursuant to the Senior Credit Agreement prior to
the Restatement Effective Date (collectively, the “Original Grantors”) and the Second Priority Collateral
Trustee (in such capacity, the “Original
Second Priority Collateral Trustee”),” pursuant to which the
Original Grantors agreed to secure the Second Priority Debt Obligations (as
defined in the Defmitions Annex). The Original Grantors now wish to amend and
restate the Original Second Priority Subsidiary Security Agreement in its
entirety as set forth herein to secure the obligations of the Borrower under
the Second Priority Debt Documents.

 

Each of the Subsidiary
Guarantors has agreed to guarantee, among other things, all the obligations of
the Borrower under the Second Priority Debt Documents. It is a condition precedent,
among other conditions, to the effectiveness of the Second Priority Debt
Documents that the Grantors execute and deliver an agreement in the form hereof
to secure the Second Priority Debt Obligations.

 

1

 

Accordingly, the Grantors
and the Second Priority Collateral Trustee, on behalf of itself and each Second
Priority Debt Party (and each of their respective successors and assigns),
hereby agree as follows:

 

SECTION 1. Defined
Terms.

 

SECTION 1.01. Definitions. (a) Unless otherwise
defined herein, capitalized tee ins used herein shall have the meanings given
in the Definitions Annex attached as Annex 2 hereto (as amended, supplemented
or otherwise modified from time to time), or if not defined therein as defined
in the Second Priority Debt Documents. All terms defined in the New York UCC
(as defined herein) and not defined in this Agreement shall have the meanings
specified therein.

 

(b) The following terms
shall have the following meanings:

 

“Accounts Receivable” means, with respect to each
Grantor, all right, title and interest of such Grantor to Accounts and all of
its right, title and interest in any returned goods, together with all rights,
titles, securities and guaranties with respect thereto, including any rights to
stoppage in transit, replevin, reclamation and resales, and all related
security interests, liens and pledges, whether voluntary or involuntary in each
case whether due or become due, whether now or hereafter arising in the future.

 

“Contracts” means, with respect to each
Grantor, all rights of such Grantor under all contracts and agreements to which
such Grantor is a party or under which such Grantor has any right, title
or interest or to which such Grantor or any property of such Grantor is
subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (a) all rights of such
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (b) all rights of such Grantor to damages arising
out of, or for, breach or default in respect thereof and (c) all rights of
such Grantor to exercise all remedies thereunder.

 

“Copyright License” means any written agreement,
now or hereafter in effect, granting any right to any third party under any
copyright now or hereafter owned by any Grantor or that such Grantor otherwise
has the right to license, or granting any right to any Grantor under any
copyright now or hereafter owned by any third party, and all rights of such
Grantor under any such agreement.

 

“Copyrights” means all of the following now owned or
hereafter acquired by any Grantor: (a) all copyright rights in any work
subject to the copyright laws of the United States or any other country,
whether as author, assignee, transferee or otherwise, and (b) all
registrations and applications for registration of any such copyright in the
United States or any other country, including registrations, recordings,
supplemental registrations and pending applications for registration in the
United States Copyright Office.

 

“Deposit Account” means, collectively, (a) the
Lockbox Account and (b) the Government Lockbox Account, as well as any
demand, time, savings, passbook, or similar 

 

2

 

account maintained with a bank or other
financial institution. The term “Deposit Account” shall not include investment
property or accounts evidenced by an instrument.

 

“Event of Default” means an “Event of Default”
as defined in any Second Priority Debt Document.

 

“Government Lockbox Account” means the deposit account
and corresponding lockbox established and maintained with Mellon Bank, N.A.,
Account No.1037294 or another Government Lockbox Account Bank.

 

“Indemnitee” means the Second Priority Debt
Parties and their respective officers, directors, trustees, affiliates and
controlling Persons.

 

“Intellectual Property” means all inventions,
designs, Patents, Copyrights, Licenses, Trademarks, trade secrets, confidential
or proprietary technical and business information, know-how, show-how or other
data or information, software and databases and all embodiments or fixations
thereof and related documentation, registrations and franchises, and all
additions, improvements and accessions to, and books and records describing or
used in connection with, any of the foregoing.

 

“Intercompany Advances” means any advances or open
accounts owing by the Borrower or any Subsidiary to any Grantor.

 

“License” means any Patent License,
Trademark License, Copyright License or other license or sublicense agreement
to which any Grantor is a party.

 

“New York UCC” means the Uniform Commercial
Code as in effect from time to time in the State of New York.

 

“Patent License” means any written agreement,
now or hereafter in effect, granting to any third party any right to make, use
or sell any invention on which a patent, now or hereafter owned by any Grantor
or that any Grantor otherwise has the right to license, is in existence, or
granting to any Grantor any right to make, use or sell any invention on which a
patent, now or hereafter owned by any third party, is in existence, and all
rights of any Grantor under any such agreement.

 

“Patents” means all of the following
now owned or hereafter acquired by any Grantor: (a) all letters patent of
the United States or any other country, all registrations and recordings
thereof, and all applications for letters patent of the United States or the
equivalent thereof in any other country, including registrations, recordings
and pending applications in the United States Patent and Trademark Office or
the equivalent thereof in any similar offices in any other country, and (b) all
reissues, continuations, divisions, continuations-in-part, renewals or
extensions thereof, and the inventions disclosed or claimed therein, including
the right to make, use and/or sell the inventions disclosed or claimed therein.

 

3

 

“Prescription Files” means, as to any Grantor, all right,
title and interest of such Grantor in and to all prescription files maintained
by it or on its behalf, including without limitation all patient profiles,
customer lists, customer
information and other records of prescriptions filled by it, in whatever form
and wherever maintained by it or on its behalf, and all goodwill and other
intangible assets arising from the maintenance of such records and the
possession of information contained therein.

 

“Proceeds” means all “proceeds” as such
term is defined in Section 9-102 of the New York UCC, and shall include (a) all
cash and negotiable instruments received by or held on behalf of the Second
Priority Collateral Trustee, (b) any claim of any Grantor against any
third party for (and the right to sue and recover for and the rights to damages
or profits due or accrued arising out of or in connection with) (i) past,
present or future infringement of any Patent now or hereafter owned by any
Grantor, or licensed under a Patent License, (ii) past, present or future
infringement or dilution of any Trademark now or hereafter owned by any Grantor
or licensed under a Trademark License or injury to the goodwill associated with
or symbolized by any Trademark now or hereafter owned by any Grantor, (‘iii)
past, present or future breach of any License and (iv) past, present or
future infringement of any Copyright now or hereafter owned by any Grantor or
licensed under a Copyright License and (c) any and all other amounts from
time to time paid or payable under or in connection with any of the Second
Priority Collateral.

 

“Second Priority Collateral” is defined in Section 2
of this Agreement.

 

“Second Priority Collateral Account” means any collateral
account established by the Second Priority Collateral
Trustee as provided in Section 5.03 or Section 7.02.

 

“Trademark License” means any written agreement,
now or hereafter in effect, granting to any third party any right to use any
trademark now or hereafter owned by any Grantor or that any Grantor otherwise
has the right to license, or granting to any Grantor any right to use any
trademark now or hereafter owned by any third party, and all rights of any
Grantor under any such agreement.

 

“Trademarks” means all of the following
now owned or hereafter acquired by any Grantor: (a) all trademarks,
service marks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, trade dress, logos, other source or
business identifiers, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all registration and recording applications filed in connection
therewith, including registrations and registration applications in the United
States Patent and Trademark Office or any similar offices in any State of the
United States or any other country or any political subdivision thereof, and
all extensions or renewals thereof, (b) all goodwill associated therewith
or symbolized thereby and (c) all other assets, rights and interests that
uniquely reflect or embody such goodwill.

 

SECTION 1.02. Other Definitional Provisions. (a) The
words “hereof,” “herein” and “hereunder” and words of similar import when used
in this Agreement shall refer to 

 

4

 

this Agreement as a whole and not to any
particular provision of this Agreement, and Section references are to this
Agreement unless otherwise specified. The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.

 

(b) The meanings given
to teams defined herein shall be equally applicable to both the singular and
plural forms of such terms.

 

SECTION 2. Grant of Security Interest. As security for
the payment or performance, as the case may be, in full of the obligations
under the Second Priority Debt Documents, each Grantor hereby assigns and
pledges to the Second Priority Collateral Trustee, its successors and assigns,
for the ratable benefit of the Second Priority Debt Parties, and hereby grants
to the Second Priority Collateral Trustee, its successors and assigns, for the
ratable benefit of the Second Priority Debt Parties, a security interest, in
all right, title or interest now owned or at any time hereafter acquired by
such Grantor or in which such Grantor now has or at any time in the future may
acquire any right, title or interest (collectively, the “Second Priority
Collateral”):

 

(a)     all Accounts Receivable and Chattel Paper;

 

(b)     all Deposit Accounts;

 

(c)     the Cash Management Accounts and the funds
on deposit therein;

 

(d)     all Contracts;

 

(e)     all Documents;

 

(f)      all General Intangibles;

 

(g)     all Instruments;

 

(h)     all Intellectual Property;

 

(i)      all Inventory;

 

(j)      all Prescription Files;

 

(k)     all books and records pertaining to any and
all of the foregoing; and

 

(1) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing.

 

Nothing contained in this Section 2 is
intended to limit any Grantor’s rights to create Permitted Liens (as defined
below). Second Priority Collateral shall not include any property specified in Section 2(h) above
if the granting of a security interest therein would 

 

5

 

jeopardize the Grantor’s rights in any
pending intent-to-use applications for Federal Trademark registration.
Furthermore, notwithstanding anything herein to the contrary, in no event shall
the security interest granted under this Section 2 attach to any lease,
license, contract, property rights or agreement to which each Grantor is a
party or any of its rights or interests thereunder if and for so long as the
grant of such security interest shall constitute or result in (i) the
abandonment, invalidation or unenforceability of any right, title or interest
of any Grantor therein or (ii) in a breach or termination pursuant to the
terms of, or a default under, any such lease, license, contract, property
rights or agreement (other than to the extent that any such term would
be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of
the Uniform Commercial Code (or any successor provision or provisions) of any
relevant jurisdiction or any other applicable law or principles of equity); provided however
that such security interest shall attach immediately at such time as the
condition causing such abandonment, invalidation or unenforceability shall be
remedied and, to the extent severable, shall attach immediately to any portion
of such lease, license, contract, property rights or agreement that does not
result in any of the consequences specified in clause (i) or (ii) of
this sentence.

 

Each Grantor hereby
irrevocably authorizes the Second Priority Collateral Trustee at any time and
from time to time to file in any Uniform Commercial Code jurisdiction any
initial financing statements (including fixture filings) and amendments thereto
without the signature of such Grantor in such form and in such filing offices
as the Second Priority Collateral Trustee reasonably determines, that contain
the information required by Article 9 of the Uniform Commercial Code of
each applicable jurisdiction for the filing of any financing statement or
amendment, including (a) whether the Grantor is an organization, the type
of organization and any organizational identification number issued to the
Grantor and (b) in the case of a financing statement filed as a fixture
filing, a sufficient description of the real property to which such Second
Priority Collateral relates. The Grantor agrees to provide such information to
the Second Priority Collateral Trustee promptly upon request. In addition, each
Grantor hereby authorizes and agrees that such financing statements may
describe the Second Priority Collateral Trustee in the same manner as described
herein or may contain an indication or description of collateral that describes
such property in any other manner as the Second Priority Collateral Trustee may
determine, in its sole discretion, is necessary, advisable or prudent to ensure
the perfection of the security interest in the Second Priority Collateral
granted to the Second Priority Collateral Trustee herein, including, without
limitation, describing such property as “all assets now owned or hereafter
acquired” or “all personal property now owned or hereafter acquired.”

 

Each Grantor also ratifies
its authorization for the Second Priority Collateral Trustee to file in any
Uniform Commercial Code jurisdiction any initial financing statements or
amendments thereto if filed prior to the Restatement Effective Date.

 

The Second Priority
Collateral Trustee is further authorized to file filings with the United States
Patent and Trademark Office or United States Copyright Office (or any successor
office or any similar office in any other country) or other documents for the
purpose of perfecting, confirming, continuing, enforcing or protecting the
second priority 

 

6

 

security interest in the Second Priority
Collateral granted by each Grantor hereunder, without the signature of any
Grantor, and naming any Grantor or the Grantors as debtors and the Second
Priority Collateral Trustee as secured party.

 

Upon the request of the
Second Priority Collateral Trustee, the Grantors shall make such filings
contemplated herein as the Second Priority Collateral Trustee reasonably
requests.

 

Such security interests are
granted as security only and shall not subject the Second Priority Collateral
Trustee nor any Second Priority Debt Party to, or in any way alter or modify,
any obligation or liability of any Grantor with respect to or arising out of the
Second Priority Collateral.

 

SECTION 3. Representations and Warranties. Each
Grantor hereby represents and warrants, as to itself and the Second Priority
Collateral in which the security interest is created hereunder, that:

 

SECTION 3.01. Title; No Other Liens. Except for the
security interest granted to the Second Priority Collateral Trustee for the
ratable benefit of the Second Priority Debt Parties pursuant to this Agreement
and the other Liens permitted to exist pursuant to the Second Priority Debt
Documents (the “Permitted Liens”), each
Grantor owns each item of the Second Priority Collateral free and clear of any
and all Liens or claims of others (or arrangements reasonably satisfactory to
the Second Priority Collateral Trustee have been made for the timely release or
discharge of such Liens). No security agreement, financing statement or other
public notice with respect to all or any part of such Second Priority
Collateral is on file or of record in any public office, except such as have
been filed or will be filed, pursuant to this Agreement, in favor of the
Second Priority Collateral Trustee, for the ratable benefit of the Second
Priority Debt Parties, or in respect of Permitted Liens (or arrangements
reasonably satisfactory to the Second Priority Collateral Trustee have been
made for the timely termination of such agreement or financing statement).
Further, no Grantor has intentionally entered into any contract, lease or
license in anticipation of this Agreement, which by its terms, validly prohibits
the granting of a security interest in the Second Priority Collateral herein.

 

SECTION 3.02.
Enforceable Obligation; Perfected, First Priority Security Interests. This
Agreement constitutes a legal, valid and binding obligation of each Grantor,
enforceable against such Grantor in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting creditors’ rights generally and
except as enforceability may be limited by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), and the security interests granted pursuant to this
Agreement (a) upon completion of the filings and other actions
contemplated by or specified in this Agreement (or in the case of Instruments,
delivery to the Second Priority Collateral Trustee or its designee) shall
constitute fully perfected security interests in the Second Priority Collateral
in favor of the Second Priority Collateral Trustee for the ratable benefit of
the Second Priority Debt Parties, and (b) are prior and superior in right
to all 

 

7

 

other Liens (other than Permitted Liens, to
the extent that such Permitted Liens are expressly permitted by the Second
Priority Debt Documents to have priority) on the Second Priority Collateral in
existence on the Restatement Effective Date.

 

SECTION 3.03.
Chief Executive Office, Jurisdiction of Incorporation. As of the
Restatement Effective Date, each Grantor’s chief executive office, principal
place of business and jurisdiction of incorporation is located at the locations
listed in Schedule 4 hereto.

 

SECTION 3.04. Farm Products. None of the Second Priority
Collateral constitutes, or is the Proceeds of, Farm Products (as such term is
defined in the Uniform Commercial Code).

 

SECTION 3.05. Intellectual Property. (a) Schedule 2 lists all
Intellectual Property owned (and registered with the U.S. Copyright Office or
the U.S. Patent and Trademark Office) or licensed by such Grantor in its own
name on the Restatement Effective Date.

 

(b)      On the date hereof, based on information
known, or reasonably available to such Grantor, all Intellectual Property
material to the conduct of such Grantor’s business is valid, subsisting,
unexpired and enforceable, has not been abandoned and does not infringe the
intellectual property rights of any other Person.

 

(c)       Except as set forth in Schedule 2, on the
Restatement Effective Date, none of the Intellectual Property is the subject of
any licensing or franchise agreement pursuant to which such Grantor is the
licensor or franchisor.

 

(d)      On the Restatement Effective Date, based
on information known, or reasonably available to such Grantor, no holding
decision or judgment has been rendered by any Governmental Authority which
would materially limit, cancel or question the validity of, or such Grantor’s
rights in, any Intellectual Property in any respect that could reasonably be
expected to have a Material Adverse Effect.

 

(e)       Except as set forth on Schedule 2, on the
Restatement Effective Date, no action or proceeding is pending, or, to the
knowledge of such Grantor, threatened (i) seeking to materially limit,
cancel or question the validity of any Intellectual Property material to the
conduct of such Grantor’s business or
such Grantor’s ownership interest therein, or (ii) which, if adversely
determined, would have a material adverse effect on the value of any
Intellectual Property.

 

SECTION 4. Covenants. Each Grantor covenants and
agrees with the Second Priority Debt Parties that, from and after the
Restatement Effective Date until this Agreement is terminated and the security
interests created hereby are released:

 

SECTION 4.01.
Maintenance of Insurance. Each Grantor shall maintain
insurance policies in accordance with the requirements of the Second Priority
Debt Documents.

 

8

 

SECTION 4.02. Maintenance of Perfected Security Interest; Further
Documentation. (a) Each Grantor shall maintain the security
interests created by this Agreement as first priority perfected security
interests subject only to Permitted Liens, to the extent such Permitted Liens
are expressly permitted by the Second Priority Debt Documents to have priority,
and shall defend such security interests against all claims and demands of all
Persons whomsoever (other than those pursuant to Permitted Liens).

 

(b)     At any time and from time to time, upon the
written request of the Second Priority Collateral Trustee, and at the sole
expense of a Grantor, such Grantor shall promptly and duly execute and deliver
such further instruments and documents and take such further action as the
Second Priority Collateral Trustee may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests created
hereby.

 

(c)     No Grantor shall intentionally enter into
any contract, lease or license which by its terms would validly prohibit the
grant of a security interest in the Second Priority Collateral under this
Agreement.

 

SECTION 4.03. Changes in Locations,
Name, etc. Each Grantor agrees promptly to notify the Second
Priority Collateral Trustee in writing of any change (i) in its corporate
name, (ii) in the location of its chief executive office or its principal
place of business, (iii) in its identity or type of organization, (iv) in
its Federal Taxpayer Identification Number or organizational identification
number or (v) in its jurisdiction of organization. Each Grantor agrees to
promptly provide the Second Priority Collateral Trustee with certified
organizational documents reflecting any of the changes described in the
preceding sentence. Each Grantor agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under the
Uniform Commercial Code or otherwise that are required in order for the Second
Priority Collateral Trustee to continue at all times following such change to
have a valid, legal and perfected first priority security interest in all the
Second Priority Collateral.

 

SECTION 4.04. Further Identification of Second Priority Collateral.
Each Grantor shall furnish to the Second Priority Collateral Trustee
from time to time statements and schedules further identifying and describing
the Second Priority Collateral and such other reports in connection with such
Second Priority Collateral as the Second Priority Collateral Trustee may
reasonably request, all in reasonable detail.

 

SECTION 4.05.
Notices. A Grantor shall advise the Second Priority
Collateral Trustee promptly, in reasonable detail, in accordance with Section 1
I hereof, of:

 

(a)   any Lien (other than
security interests created hereby or Permitted Liens) on any material portion
of the Second Priority Collateral; and

 

9

 

(b)   the occurrence of any other
event which could reasonably be expected to have a material adverse effect on
the security interests created hereby or on the aggregate value of the Second
Priority Collateral.

 

SECTION 4.06. Second Priority Collateral Trustee’s Liabilities and
Expenses; Indemnification. (a) Notwithstanding
anything to the contrary provided herein, neither the Second Priority
Collateral Trustee nor any other Second Priority Debt Party assumes any
liabilities with respect to any claims regarding each Grantor’s ownership (or
purported ownership) of, or rights or obligations (or purported rights or
obligations) arising from, the Second Priority Collateral or any use (or actual
or alleged misuse) whether arising out of any past, current or future event, circumstance, act or
omission or otherwise, or any claim, suit, loss, damage, expense or liability
of any kind or nature arising out of or in connection with the Second Priority
Collateral or the production, marketing, delivery, sale or provision of goods
or services under or in connection with any of the Second Priority Collateral.
All of such liabilities shall, as between the Second Priority Collateral
Trustee, the Second Priority Debt Parties and the Grantors, be borne
exclusively by the Grantors unless such liability arises from the gross
negligence or willful misconduct of the Second Priority Collateral Trustee or
any Second Priority Debt Party.

 

(b) Each Grantor hereby
agrees to pay all reasonable expenses of the Second Priority Collateral Trustee
and the other Second Priority Debt Parties and to indemnify the Second Priority
Collateral Trustee and the other Second Priority Debt Parties with respect to
any and all losses, claims, damages, liabilities and related expenses in
respect of this Agreement or the Second Priority Collateral in each case to the
extent and under the circumstances the Borrower is required to do so pursuant
to the Second Priority Debt Documents.

 

(c) Any amounts payable
as provided hereunder shall be additional Second Priority Debt Obligations
secured hereby and by the other Second Priority Debt Documents. Without
prejudice to the survival of any other agreements contained herein, all
indemnification and reimbursement obligations contained herein shall survive
the payment in full of the principal and interest and other amounts due under
the Second Priority Debt Documents and the termination of this Agreement.

 

SECTION 4.07. Intellectual
Property. (a) Each relevant Grantor (either itself or
through licensees) will (i) continue to use each Trademark material to the
conduct of such Grantor’s business, to the extent that such Grantor’s business
operations continue as to the said goods and/or services (subject to such
Grantor’s reasonable business judgment), sufficient to avoid unintentional
abandonment of any rights in such Trademarks, (ii) maintain as in the past
the quality of products and services offered under such Trademark, (iii) use
such Trademark with the appropriate notice of registration and all other
notices and legends required by applicable law, (iv) not knowingly adopt
or use any mark which is confusingly similar or a colorable imitation of such
Trademark unless the Second Priority Collateral Trustee, for the ratable
benefit of the Second Priority Debt Parties, shall obtain a perfected security
interest in such mark pursuant to this Agreement, and (v) not knowingly
(and not permit any licensee or sublicensee thereof to) do any act or knowingly
omit to do 

 

10

 

any act whereby such Trademark material to
the conduct of Grantor’s business may become invalidated or impaired in any
way.

 

(b)      Such Grantor (either itself or through
licensees) will not do any act, or omit to do any act, whereby any Patent
material to the conduct of Grantor’s business may become forfeited, abandoned
or dedicated to the public.

 

(c)      Such Grantor (either itself or through
licensees) will not knowingly (and will not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby any portion of
the Copyrights material to the conduct of Grantor’s business may become
invalidated or otherwise impaired or fall into the public domain.

 

(d)      Such Grantor (either itself or through
licensees) will not do any act that knowingly uses any material Intellectual
Property to infringe the intellectual property rights of any other Person.

 

(e)      In a status report provided to the Second
Priority Collateral Trustee on a quarterly basis (“Quarterly Status Report”), such
Grantor will indicate whether any application or registration relating
to any material Intellectual Property has been forfeited, abandoned or
dedicated to the public, or of any such determination or development
(including, without limitation, the institution of, or any such determination
or development in, any proceeding in the United States Patent and Trademark
Office, the United States Copyright Office or any court or tribunal in any
country) regarding such Grantor’s ownership of, or the validity of, any
material Intellectual Property or such Grantor’s right to register the same or
to own and maintain the same.

 

(f)       In the Quarterly Status Report provided
to the Second Priority Collateral Trustee pursuant to Section 4.07(e),
such Grantor will report whenever such Grantor, either by itself or through any
agent, employee, licensee or designee, has filed an application for the
registration of any Intellectual Property with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency in any other country or any political subdivision thereof. Upon request
of the Second Priority Collateral Trustee, such Grantor shall execute and
deliver, and have recorded, any and all agreements, instruments, documents and
papers as the Second Priority Collateral Trustee may request to evidence the
Second Priority Collateral Trustee’s and Second Priority Debt Parties’ security interest in any Copyright, Patent or
Trademark and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby.

 

(g)      Such Grantor will take all reasonable and
necessary steps, including, without limitation, in any proceeding before the
United States Patent and Trademark Office, the United States Copyright Office
or any similar office or agency in any other country or any political
subdivision thereof, to maintain and pursue each application (and to obtain the
relevant registration) and to maintain each registration of the Intellectual
Property material to the conduct of Grantor’s business, including, without
limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.

 

11

 

(h)     In the event that any
Intellectual Property material to the conduct of Grantor’s business is
infringed, misappropriated or diluted by a third party, such Grantor shall (i) take
such actions as such Grantor shall reasonably deem appropriate under the circumstances
to protect such Intellectual Property and (ii) if such Intellectual
Property is of material economic value, promptly notify the Second Priority
Collateral Trustee after it learns thereof and take all reasonable steps to
protect its interests, which may include bringing suit for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and
to recover any and all damages for such infringement, misappropriation or
dilution.

 

SECTION 5.
Provisions Relating to Accounts.

 

SECTION 5.01. Grantors Remain Liable under Accounts. Anything herein
to the contrary notwithstanding, a Grantor shall remain liable under each of
the Accounts to observe and perform  all the material conditions and
material obligations to be observed and performed by it thereunder, all in
accordance with the terms of any agreement giving rise to each such Account. No
Second Priority Debt Party shall have any obligation or liability under any
Account (or any agreement giving rise thereto) by reason of or arising out of
this Agreement or the receipt by the Second Priority Collateral Trustee or any
Second Priority Debt Party of any payment relating to such Account pursuant
hereto, nor shall any Second Priority Debt Party be obligated in any manner to perform any  of the obligations of a Grantor under or pursuant to
any Account (or any agreement giving rise thereto), to make any payment, to
make any inquiry as to the nature or the sufficiency of any payment received by
it or as to the sufficiency of any performance by any party under any Account
(or any agreement giving rise thereto), to present or file any claim, to take
any action to enforce any performance or to collect the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time
or times.

 

SECTION 5.02. Analysis of Accounts. In addition to its rights under the
Second Priority Debt Documents, the Second Priority Collateral Trustee shall
have the right upon the occurrence and during the continuance of an Event of
Default to make test verifications of the Accounts in any manner and through
any medium that it considers reasonably advisable, and each Grantor shall
furnish all such assistance and information as the Second Priority Collateral
Trustee may reasonably require in connection with such test verifications. At
any time and from time to time upon the occurrence and during the continuance
of an Event of Default, upon the Second Priority Collateral Trustee’s
reasonable request and at the expense of each Grantor, each Grantor shall
immediately request and use commercially reasonable efforts to cause
independent public accountants or others reasonably satisfactory to the Second
Priority Collateral Trustee to furnish to the Second Priority Collateral
Trustee reports showing reconciliations, aging and test verifications of, and
trial balances for, the Accounts. Upon the occurrence and during the
continuance of an Event of Default, the Second Priority Collateral Trustee in
its own name or in the name of others may communicate with Account Debtors on
the Accounts to verify with them to the Second Priority Collateral Trustee’s
reasonable satisfaction the existence, amount and terns of any Accounts and to
direct all payments to the Second Priority 

 

12

 

Collateral Trustee. To the extent reasonably practicable the Second
Priority Collateral Trustee will seek to take such actions through third
parties.

 

SECTION 5.03. Collections on Accounts. (a) The Second Priority Collateral Trustee hereby
authorizes each Grantor to collect the Accounts, and the Second Priority
Collateral Trustee may curtail or terminate said authority at any time after
the occurrence and during the continuance of an Event of Default. If required
by the Second Priority Collateral Trustee at any time after the occurrence and
during the continuance of an Event of Default, any payments of Accounts, when
collected by a Grantor during the continuance of such an Event of Default, (i) shall
be forthwith (and, in any event, within two Business Days) deposited by such
Grantor in the exact form received, duly indorsed by such Grantor to the Second
Priority Collateral Trustee if required, in a Second Priority Collateral
Account maintained under the sole dominion and control of and on terms and
conditions reasonably satisfactory to the Second Priority Collateral Trustee,
subject to withdrawal by the Second Priority Collateral Trustee as provided in Section 7.03,
and (ii) until so turned over, shall be held by such Grantor in trust for
the Second Priority Debt Parties, segregated from other funds of such Grantor.

 

(b) At the Second Priority Collateral
Trustee’s request after the occurrence and during the continuance of an Event
of Default, each Grantor shall deliver to the Second Priority Collateral
Trustee all original and other documents evidencing, and relating to, the
agreements and transactions which gave rise to the Accounts, including, without
limitation, all original orders, invoices and shipping receipts.

 

SECTION 5.04. Representations and Warranties. As of the Restatement
Effective Date, the place where each Grantor keeps its records concerning the
Accounts is at the location listed in Schedule 1 hereto.

 

SECTION 5.05. Covenants. (a) The
amount represented by each Grantor to the Second Priority Debt Parties from
time to time as owing by each account debtor or by all Account Debtors in
respect of the Accounts shall at such time be in all material respects the
correct amount actually owing by such Account Debtor or debtors thereunder.

 

(b) Upon the occurrence and during the
continuance of an Event of Default, a Grantor shall not grant any extension of
the time of payment of any of the Accounts Receivable, compromise, compound or
settle the same for less than the full amount thereof, release, wholly or
partly, any Person liable for the payment thereof, or allow any credit or
discount whatsoever thereon other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business.

 

(c) Unless a Grantor shall deliver prior
written notice, identifying the change of location for its books and records,
such Grantor shall not remove its books and records from the location specified
in Schedule 1.

 

SECTION 6. Provisions Relating to
Contracts.

 

13

 

SECTION 6.01. Grantors Remain Liable under
Contracts. Anything herein to the contrary notwithstanding,
each Grantor shall remain liable under each Contract to observe and perform all
the conditions and obligations to be observed and performed by it thereunder,
all in accordance with and pursuant to the terms and provisions of such
Contract. No Second Priority Debt Party shall have any obligation or liability
under any Contract by reason of or arising out of this Agreement or the receipt
by any such Second Priority Debt Party of any payment relating to such Contract
pursuant hereto, nor shall any Second Priority Debt Party be obligated in any
manner to perform any of the obligations of a Grantor under or pursuant to any
Contract, to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Contract, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to it or to which it may be entitled at
any time or times.

 

SECTION 6.02. Communication With Contracting
Parties. Upon the occurrence and during the continuance of an
Event of Default, the Second Priority Collateral Trustee in its own name or in
the name of its nominee may communicate with parties to the Contracts to verify
with them to the Second Priority Collateral Trustee’s reasonable satisfaction
the existence, amount and terms of any Contracts. To the extent reasonably
practicable the Second Priority Collateral Trustee will seek to take such
actions through third parties.

 

SECTION 7. Remedies.

 

SECTION 7.01. Notice to Account Debtors and Contract Parties. Upon the
request of the Second Priority Collateral Trustee at any time after the
occurrence and during the continuance of an Event of Default, a Grantor shall
notify Account Debtors on the Accounts and parties to the Contracts that the
Accounts and the Contracts have been assigned to the Second Priority Collateral
Trustee for the ratable benefit of the Second Priority Debt Parties and that
payments in respect thereof during the continuance of such an Event of Default
shall be made directly to the Second Priority Collateral Trustee.

 

SECTION 7.02. Proceeds to be Turned Over To Second Priority Collateral Trustee. In addition
to the rights of the Second Priority Collateral Trustee and the Second Priority
Debt Parties specified in Section 5.03 with respect to payments of
Accounts, if an Event of Default shall occur and be continuing all Proceeds
received by a Grantor consisting of cash, checks and other near-cash items
shall upon the Second Priority Collateral Trustee’s request be held by such
Grantor in trust for the Second Priority Debt Parties, segregated from other
funds of such Grantor, and shall, upon the Second Priority Collateral Trustee’s
request (it being understood that the exercise of remedies by the Second
Priority Debt Parties in connection with an Event of Default under the Second
Priority Debt Documents shall be deemed to constitute a request by the Second
Priority Collateral Trustee for the purposes of this sentence) forthwith upon
receipt by such Grantor, be turned over to the Second Priority Collateral
Trustee in the exact form received by such Grantor (duly indorsed by such
Grantor to the Second Priority Collateral Trustee, if required) and held by the
Second Priority Collateral Trustee in a Second Priority Collateral Account
maintained 

 

14

 

under the sole dominion and control of the Second Priority Collateral
Trustee and on terms and conditions reasonably satisfactory to the Second
Priority Collateral Trustee. All Proceeds while held by the Second Priority
Collateral Trustee in a Second Priority Collateral Account (or by such Grantor
in trust for the Second Priority Collateral Trustee and the Second Priority
Debt Parties) shall subject to Section 7.03 continue to be held as
collateral security for all the Second Priority Debt Obligations, and shall not
constitute payment thereof until applied as provided in Section 7.03.

 

SECTION 7.03. Application of Proceeds. (a) So long as the Collateral
Trust and Intercreditor Agreement is in effect, following a Triggering Event
(as defined therein), the proceeds of any sale or other realization upon any
Collateral will be applied as set forth in the Collateral Trust and
Intercreditor Agreement.

 

(b) At all times when
the Collateral Trust and Intercreditor Agreement is not in effect, the proceeds
of any sale or other realization upon any Collateral following an Event of
Default will be applied as soon as practicable after receipt as follows:

 

FIRST: to the Second
Priority Collateral Trustee in an amount equal to the fees and expenses of the
Second Priority Collateral Trustee pursuant to this Agreement and the Second
Priority Debt Documents that are unpaid as of the applicable date of receipt of
such proceeds, and to any Second Priority Debt Party which has theretofore advanced
or paid any such fees and expenses of the Second Priority Collateral Trustee in
an amount equal to the amount thereof so advanced or paid by such Second
Priority Debt Party pro rata based on the amount of such fees and expenses (or
such advances or payment);

 

SECOND: to the Second
Priority Collateral Trustee to reimburse any amounts owing to the Second
Priority Collateral Trustee pursuant to Section 8.03;

 

THIRD: to the trustee,
administrative agent, security agent, or similar agent under each Second Priority
Debt Facility, if any, in an amount equal to the fees thereof which are unpaid
as of the applicable Distribution Date and to any Second Priority Debt Party
which has theretofore advanced or paid any such fees in an amount equal to the
amount thereof so advanced or paid, pro rata based on the amounts of such fees
(or such advance or payment);

 

FOURTH: to the trustee,
administrative agent, security agent or similar agent under each Second
Priority Debt Facility and to any Second Priority Debt Party to reimburse such
Second Priority Representative or such Second Priority Debt Party for the
amount of any advance made pursuant to Section 2.04 of the Collateral
Trust and Intercreditor Agreement (with interest thereon at the Default Rate),
pro rata based on the amounts so advanced;

 

FIFTH: to the trustee,
administrative agent, security agent or similar agent under each Second
Priority Debt Facility for distribution to the Second Priority 

 

15

 

Debt Parties to be applied to the payment of
the Second Priority Debt Obligations, pro rata based on the amount of the
Second Priority Debt Obligations then due and owing, until all the Second
Priority Debt Obligations have been paid in full; and

 

SIXTH: after payment in full
of all Secured Obligations, to Rite Aid and the Subsidiary Guarantors or their
successors or assigns, as their interests may appear, or to whosoever may be
lawfully entitled to receive the same or as a court of competent jurisdiction
may direct.

 

SECTION 7.04.
Uniform Commercial Code Remedies. If
an Event of Default shall have occurred and be continuing, the Second
Priority Collateral Trustee, on behalf of the Second Priority Debt Parties may
exercise, in addition to all other rights and remedies granted to them in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Second Priority Debt Obligations, all rights and remedies of a
senior secured party under the Uniform Commercial Code. Without limiting the
generality of the foregoing, the Second Priority Collateral Trustee, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon a Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Second Priority
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the Second
Priority Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker’s board or office of any Second Priority Debt Party or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. Any Second Priority Debt Party shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Second Priority Collateral so sold, free of (to the extent permitted by
law) any right or equity of redemption in a Grantor, which right or equity is
hereby, to the extent permitted by law, waived or released. Each Grantor
further agrees, at the Second Priority Collateral Trustee’s request, to
assemble the Second Priority Collateral and make it available to the Second
Priority Collateral Trustee at places which the Second Priority Collateral
Trustee shall reasonably select, whether at such Grantor’s premises or elsewhere. The
Second Priority Collateral Trustee shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses incurred therein or incidental to
the care or safekeeping of any of such Second Priority Collateral or reasonably
relating to such Second Priority Collateral or the rights of the Second
Priority Collateral Trustee and the Second Priority Debt Parties hereunder,
including, without limitation, reasonable attorneys’ fees and disbursements, to
the payment in whole or in part of the Second Priority Debt Obligations, in
accordance with Section 7.03, and only after such application and after
the payment by the Second Priority Collateral Trustee of any other amount
required by any provision of law, including, without limitation, Section 9-615(a)(3) of
the Uniform Commercial Code, need the Second Priority Collateral Trustee
account for the surplus, if any, to such Grantor. If any notice of a proposed
sale or other disposition of such Second Priority Collateral shall 

 

16

 

be required by law, such notice shall be in writing and deemed
reasonable and proper if given at least 10 days before such sale or other
disposition.

 

The Second Priority Collateral Trustee shall
have absolute discretion as to the time of application of any such proceeds,
moneys or balances in accordance with this Agreement. Upon any sale of the
Second Priority Collateral by the Second Priority Collateral Trustee (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Second Priority Collateral Trustee or of the officer making
the sale shall be a sufficient discharge to the purchaser or purchasers of the
Second Priority Collateral so sold and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Second Priority Collateral Trustee or such officer or be answerable
in any way for the misapplication thereof.

 

SECTION 7.05. Grant of License to Use
Intellectual Property. For the purpose of enabling the Second
Priority Collateral Trustee to exercise rights and remedies under this Article at
such time as the Second Priority Collateral Trustee shall be lawfully entitled
to exercise such rights and remedies, each Grantor hereby grants to the Second
Priority Collateral Trustee an irrevocable, non-exclusive license (exercisable
without payment of royalty or other compensation to the Grantors) to use,
license or sub-license any of the Second Priority Collateral consisting of
Intellectual Property now owned or hereafter acquired by such Grantor, and
wherever the same may be located, and including in such license reasonable
access to all media in which any of the licensed items may be recorded or
stored and to all computer software and programs used for the compilation or
printout thereof. The use of such license by the Second Priority Collateral
Trustee shall be exercised, at the option of the Second Priority Collateral
Trustee, solely upon the occurrence and during the continuation of an Event of
Default; provided that any
license, sub-license or other transaction entered into by the Second Priority
Collateral Trustee in accordance herewith shall be binding upon the Grantors
notwithstanding any subsequent cure of an Event of Default.

 

SECTION 7.06. Waiver; Deficiency. Each Grantor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Second
Priority Collateral are insufficient to pay the Second Priority Debt
Obligations and the reasonable fees and disbursements of any attorneys employed
by any Second Priority Debt Party to collect such deficiency.

 

SECTION 8. Second Priority Collateral Trustee’s Appointment as Attorney-in-Fact;
Second Priority Collateral Trustee’s Performance of Grantors’ Obligations.

 

SECTION 8.01. Powers. Each Grantor hereby irrevocably constitutes and
appoints the Second Priority Collateral Trustee and any officer or agent
thereof, with full power of substitution, during the continuance of an Event of
Default, as its true and lawful attorney-in-fact, with full irrevocable power
and authority in the place and stead of such Grantor and in the name of such
Grantor or in its own name from time to time in the 

 

17

 

Second Priority Collateral Trustee’s discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, such Grantor hereby gives the
Second Priority Collateral Trustee the power and right, on behalf of such
Grantor, without notice to or assent by such Grantor, to do the following upon
the occurrence and during the continuance of an Event of Default:

 

(a)     in the name of such Grantor
or its own name, or otherwise, to take possession of and indorse and collect
any checks, drafts, notes, acceptances or other instruments for the payment of
moneys due under any Account, Instrument, General Intangible or Contract or
with respect to any other Second Priority Collateral and to file any claim or
to take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Second Priority Collateral Trustee for the
purpose of collecting any and all such moneys due under any Account,
Instrument, General Intangible or Contract or with respect to any other Second
Priority Collateral whenever payable;

 

(b)      in the case of any
Intellectual Property, execute and deliver, and have recorded, any and all
agreements, instruments, documents and papers as the Second Priority Collateral
Trustee may request to evidence the Second Priority Collateral Trustee’s and
the Second Priority Debt Parties’ security interest in such Intellectual
Property and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby;

 

(c)      to pay or discharge taxes
and Liens levied or placed on or threatened against the Second Priority
Collateral (other than Permitted Liens), to effect any repairs or any insurance
called for by the terms of this Agreement and to pay all or any part of the
premiums therefor and the costs thereof;

 

(d)      to execute, in connection
with any sale provided for in Section 7.04 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Second Priority Collateral;

 

(e)      (i) to direct any party
liable for any payment under any of the Second Priority Collateral to make
payment of any and all moneys due or to become due thereunder directly to the
Second Priority Collateral Trustee or as the Second Priority Collateral Trustee
shall direct; (ii) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become due
at any time in respect of or arising out of any Second Priority Collateral; (iii) to
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the Second
Priority Collateral; (iv) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Second Priority Collateral or any thereof and to enforce any other
right in respect of any Second Priority Collateral; (v) to defend any
suit, action or proceeding brought against any Grantor with respect to any Second
Priority Collateral Trustee; (vi) to settle, compromise or adjust 

 

18

 

any such suit, action or proceeding and, in
connection therewith, to give such discharges or releases as the Second
Priority Collateral Trustee may deem appropriate; (vii) to the extent
permitted by applicable law, assign any Copyright, Patent or Trademark (along
with the goodwill of the business to which any such Copyright, Patent or
Trademark pertains); and (viii) generally, to use, sell, transfer, pledge
and make any agreement with respect to or otherwise deal with any of the Second
Priority Collateral Trustee as fully and completely
as though the Second Priority Collateral Trustee were the absolute owner
thereof for all purposes, and to do, at the Second Priority Collateral Trustee’s
option and at the expense of such Grantor, at any time, or from time to time,
all acts and things which the Second Priority Collateral Trustee reasonably
deems necessary to protect, preserve or realize upon such Second Priority
Collateral and the Second Priority Collateral Trustee’s and the Second Priority
Debt Parties’ security interests therein and to effect the intent of this
Agreement, all as fully and effectively as such Grantor might do; and

 

(f)     to file any Uniform
Commercial Code financing statement, or to take such other steps, required to
perfect or confirm the perfection of any security interest described herein.

 

SECTION 8.02. Performance by Second Priority Collateral Trustee of Grantor’s Obligations.
If any Grantor fails to perform or comply with any of its agreements
contained herein, the Second Priority Collateral Trustee, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement.

 

SECTION 8.03. Grantor’s Reimbursement Obligation. The expenses of
the Second Priority Collateral Trustee and any other Second Priority Debt
Party, as applicable, reasonably incurred in connection with actions undertaken
as provided in this Section 8, together with interest thereon at a rate
per annum equal to the Default Rate, from the date payment is demanded by the
Second Priority Collateral Trustee to the date reimbursed by such Grantor,
shall be payable by the Borrower to the Second Priority Collateral Trustee on
demand.

 

SECTION 8.04. Ratification; Power Coupled With An Interest. Each Grantor
hereby ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof. All powers, authorizations and agencies contained in this
Agreement are coupled with an interest and are irrevocable until this Agreement
is terminated and the security interests created hereby are released.

 

SECTION 9. Duty of Second Priority Collateral Trustee. The Second
Priority Collateral Trustee’s sole duty with respect to the custody,
safekeeping and physical preservation of the Second Priority Collateral in its
possession, under Section 9-207 of the Uniform Commercial Code or
otherwise, shall be to deal with it in the same manner as the Second Priority
Collateral Trustee deals with similar property for its own account. No Second
Priority Debt Party nor any of its respective directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon any of
the Second Priority Collateral or for any delay in doing so or shall be under
any obligation to sell or otherwise 

 

19

 

dispose of any Second Priority Collateral upon the request of a Grantor
or any other Person or to take any other action whatsoever with regard to the
Second Priority Collateral or any part thereof. The powers conferred on the
Second Priority Debt Parties hereunder are solely to protect the Second
Priority Debt Parties’ interests in the Second Priority Collateral and shall
not impose any duty upon any Second Priority Debt Party to exercise any such
powers. The Second Priority Debt Parties shall be accountable only for amounts
that they actually receive as a result of the exercise of such powers, and neither
they nor any of their officers, directors, employees or agents shall be
responsible to any Grantor for any act or failure to act hereunder, except for
their own gross negligence or wilful misconduct.

 

SECTION 10. Authority of Second Priority Collateral Trustee. Each Grantor
acknowledges that the rights and responsibilities of the Second Priority
Collateral Trustee under this Agreement with respect to any action taken by the
Second Priority Collateral Trustee or the exercise or non-exercise by the
Second Priority Collateral Trustee of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Second Priority Collateral Trustee
and the other Second Priority Debt Parties, be governed by the Second Priority
Debt Documents and by such other agreements with respect thereto as may exist
from time to time among them but, as between the Second Priority Collateral
Trustee and the Grantors, the Second Priority Collateral Trustee shall be
conclusively presumed to be acting as agent for the other Second Priority Debt
Parties with full and valid authority so to act or refrain from acting.

 

SECTION 11. Notices. All notices, requests
and demands to or upon the Second Priority Debt Parties or the Grantors under
this Agreement shall be given or made in accordance with Section 15 of the
Second Priority Subsidiary Guarantee Agreement and addressed as follows:

 

(a)     if to the Second Priority
Collateral Trustee, in accordance with Section 8.02 of the Collateral
Trust and Intercreditor Agreement;

 

(b)     if to any Grantor, c/o the
Borrower at the address of the Borrower specified in Section 8.02 of the
Collateral Trust and Intercreditor Agreement;

 

SECTION 12..
Security Interest Absolute. Subject to Section 18 hereof, all
rights of the Second Priority Collateral Trustee hereunder, the security
interest and all obligations of the Grantors hereunder shall be absolute and
unconditional.

 

SECTION 13. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Second Priority Debt Document shall be
considered to have been relied upon by the Second Priority Debt Parties and
shall survive the execution and delivery to the Second Priority Debt Parties of
the Second Priority Debt Documents, regardless of any investigation made by the
Second Priority Debt Parties or on their behalf, and shall continue in full
force and effect as long as the principal of or any accrued interest on any 

 

20

 

Second Priority Obligation, or any fee or any other amount payable
under or in respect of this Agreement or any other Second Priority Debt
Document is outstanding and unpaid.

 

SECTION 14.
WAIVER OF JURY TRIAL. EACH PARTY
HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION,
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF ANY LITIGATION, ACTION OR OTHER PROCEEDING SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER
SENIOR LOAN DOCUMENTS, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 14.

 

SECTION 15. Jurisdiction; Consent to Service of Process. (a) Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Second Priority Debt Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall affect
any right that any Obligor or any Second Priority Debt Party may otherwise have
to bring any action or proceeding relating to this Agreement or the other Second
Priority Debt Documents against any Grantor or any Second Priority Debt Party
or its properties in the courts of any jurisdiction.

 

(b)     Each Grantor and each Second
Priority Debt Party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Second Priority Debt
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance
of such action or proceeding in any such court.

 

(c)     Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices
in Section 11. Nothing in this Agreement will affect the right of any
party to this Agreement to serve process in any other manner permitted by law.

 

21

 

SECTION 16. Release. (a) This
Agreement and the security interest created hereunder shall
terminate when all Second Priority Debt Obligations have been fully and
indefeasibly paid, at which time the Second Priority Collateral Trustee shall
execute and deliver to each Grantor, or to such Person or Persons as such
Grantor shall reasonably designate, all Uniform Commercial Code termination
statements and similar documents prepared by such Grantor at its expense which
such Grantor shall reasonably request to evidence such termination. Moreover,
the security interest hereunder shall terminate with respect to an individual
Second Priority Debt Obligation when that individual Second Priority Debt Obligation has been fully and
indefeasibly paid. Any execution and delivery of termination statements or
documents pursuant to this Section 16(a) shall be without recourse to
or warranty by the Second Priority Collateral Trustee.

 

(b) All Second Priority
Collateral used, sold, transferred or otherwise disposed of in accordance with
the terms of the Second Priority Debt Documents (including pursuant to a waiver
or amendment of the terms thereof) shall be used, sold, transferred or
otherwise disposed of free and clear of the Lien and the security interest
created hereunder. In connection with the foregoing, (i) the Second
Priority Collateral Trustee shall execute and deliver to each Grantor, or to
such Person or Persons as such Grantor shall reasonably designate, all Uniform
Commercial Code termination statements and similar documents prepared by such
Grantor at its expense which such Grantor shall reasonably request to evidence
the release of the Lien and security interest created hereunder with respect to
such Second Priority Collateral and (ii) any representation, warranty or
covenant contained herein relating to such Second Priority Collateral shall no
longer be deemed to be made with respect to such used, sold, transferred or
otherwise disposed Second Priority Collateral.

 

SECTION 17. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. The parties
hereunder shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

 

SECTION 18. Collateral Trust and Intercreditor Agreement. Notwithstanding
any provision to the contrary contained herein, the terms of this Agreement,
the Liens created hereby, and the rights and remedies of the Second Priority
Collateral Trustee and the Second Priority Debt Parties hereunder, are subject
to the Collateral Trust and Intercreditor Agreement and subordinated as provided
therein.

 

SECTION 19.
Amendments in Writing; No Waiver. (a) None of the terns
or provisions of this Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Grantors and
the Second Priority Collateral Trustee, provided
that (i) any provision of this Agreement may be waived by the 

 

22

 

Second Priority Instructing Group pursuant to
a letter or agreement executed by the Second Priority Collateral Trustee or by
telecopy transmission from the Second Priority Collateral Trustee, in either
case with the prior written consent of the Second Priority Instructing Group
and (ii) any amendment or waiver or other modification which by its terms
materially adversely affects the rights of the Second Priority Debt Parties
under a particular Second Priority Facility in a manner materially different
from its effect on the other Second Priority Facilities shall only be effective
with the consent of the Second Priority Representative for each Second Priority
Facility so adversely affected.

 

(b) No Second Priority
Debt Party shall by any act (except by a written instrument pursuant to Section 19(a) hereof)
or delay be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of any Second Priority Debt Party, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. A waiver by any Second Priority Debt Party of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which such Second Priority Debt Party would otherwise have on any future
occasion.

 

SECTION 20.
Remedies Cumulative. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive
of any other rights or remedies provided by law.

 

SECTION 21. Section Headings. The section
headings used in this Agreement are for convenience of reference only and are
not to affect the construction hereof or be taken into consideration in the
interpretation hereof.

 

SECTION 22. Successors and Assigns. This Agreement
shall be binding upon the successors and assigns of each Grantor and shall
inure to the benefit of each Grantor and the Second Priority Debt Parties and
their successors and assigns, provided that
this Agreement may not be assigned by any Grantor without the prior written
consent of the Second Priority Collateral Trustee.

 

SECTION 23.
GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

SECTION 24. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall constitute an
original but all of which when taken together shall constitute but one
contract. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.

 

23

 

SECTION 25. Additional Grantors. Pursuant to the
Second Priority Debt Documents, certain Domestic Subsidiaries that were not in
existence or not a Second Priority Collateral Trustee on the date thereof are
required to enter into this Agreement as a Grantor upon becoming a
Domestic Subsidiary. Upon execution and delivery, after the date hereof, by the
Second Priority Collateral Trustee and such Domestic Subsidiary of an
instrument in the form of Annex 1, such Domestic Subsidiary shall become a
Grantor hereunder with the same force and effect as if originally named as a
Grantor hereunder. The execution and delivery of any such instrument shall not
require the consent of any Grantor hereunder. The rights and obligations of
each Grantor hereunder shall remain in full force and effect notwithstanding
the addition of any new Grantor as a party to this Agreement.

 

SECTION 26. Patient Confidentiality. The Second
Priority Collateral Trustee hereby agrees on behalf of itself and each Second
Priority Debt Party and any of their designees and assigns to, and shall take
all reasonable steps to, comply with all applicable state or federal laws or
administrative regulations regarding the confidentiality of patient records and
patient medical information it receives in connection with the transactions
described in this Agreement.

 

24

 

IN WITNESS WHEREOF, the
undersigned has caused this Second Priority Subsidiary Security Agreement to be
duly executed and delivered as of the date first above written.

 

	
   

  	
  EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE
  A HERETO, as Grantors,

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ Robert B. Sari

  
	
   

  	
  Name:

  	
  Robert B. Sari

  
	
   

  	
  Title:

  	
  Authorized Representative

  
	
   

  	
   

  
	
   

  	
  WILMINGTON TRUST COMPANY, as Second
  Priority Collateral Trustee,

  
	
   

  	
   

  
	
   

  	
  By 

  	
  /s/ Bruce L. Bisson

  
	
   

  	
  Name:

  	
  Bruce L. Bisson

  
	
   

  	
  Title:

  	
  Vice President

  
				

 

25

 

Schedules:

 

	
  Annex 1

  	
   

  	
  Supplement

  
	
  Annex 2

  	
   

  	
  Definitions Annex

  
	
  Schedule A

  	
   

  	
  Subsidiary Guarantors

  
	
  Schedule 1

  	
   

  	
  Records of Accounts

  
	
  Schedule 2

  	
   

  	
  Copyrights and Copyright Licenses; Patents
  and Patent Licenses; and Trademarks and Trademark Licenses

  
	
  Schedule 3

  	
   

  	
  Perfection Certificate

  
	
  Schedule 4

  	
   

  	
  Chief Executive Offices, Principal Places
  of Business and Jurisdictions of Incorporation or Organization

  

 

26

 

Annex 1

to the Second Priority

Subsidiary Security Agreement

 

SUPPLEMENT NO. dated as of [                  ]
(this “Supplement”) to the Second
Priority Subsidiary Security Agreement dated as of June 27, 2001 and
amended and restated as of May 28, 2003 (as amended, supplemented or
otherwise modified from time to time, the “Second
Priority Subsidiary Security Agreement”), between
the SUBSIDIARIES GUARANTORS identified on the signature pages thereto and
any other Person that becomes a Subsidiary Guarantor (collectively, the “Grantors”) and WILMINGTON TRUST
COMPANY, a Delaware banking corporation, as collateral trustee (in such
capacity, the “Second Priority Collateral
Trustee”) for the Second Priority Debt Parties.

 

A.     Reference is made to the (a) the
Second Priority Debt Documents and (b) the Second Priority Subsidiary
Security Agreement dated as of June 27, 2001 and amended and restated as
of May 28, 2003, among the Subsidiary Guarantors and the Second Priority
Collateral Trustee.

 

B.      Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Second
Priority Subsidiary Security Agreement, including the Definitions Annex.

 

C.      The Grantors have entered into the Second
Priority Subsidiary Security Agreement in order to induce the Second Priority
Debt Parties to enter into the Second Priority Debt Documents. Pursuant to the
Second Priority Debt Documents, certain Domestic Subsidiaries that were not in
existence or not a Domestic Subsidiary on the date thereof are required to
enter into the Second Priority Subsidiary Security Agreement as a Grantor upon
becoming a Domestic Subsidiary. Section 25 of the Second Priority
Subsidiary Security Agreement provides that additional Domestic Subsidiaries
may become Grantors under the Second Priority Subsidiary Security Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned (the “New Grantor”) is
a Domestic Subsidiary and is executing this Supplement in accordance with the
requirements of the Second Priority Debt Documents to become a Grantor under
the Second Priority Subsidiary Security Agreement as consideration for credit
previously extended to the Borrower.

 

Accordingly, the Second
Priority Collateral Trustee and the New Grantor agree as follows:

 

 

SECTION 1. In accordance
with Section 25 of the Second Priority Subsidiary Security Agreement, the
New Grantor by its signature below becomes a Grantor under the Second Priority
Subsidiary Security Agreement with the same force and effect as if originally
named therein as a Grantor and the New Grantor hereby agrees to all the terms
and provisions of the Second Priority Subsidiary Security Agreement applicable
to it as a Grantor thereunder. Each reference to a “Grantor” in the Second
Priority Subsidiary Security Agreement shall be deemed to include the New
Grantor. The Second Priority Subsidiary Security Agreement is hereby
incorporated herein by reference.

 

SECTION 2. The New Grantor
represents and warrants to the Second Priority Debt Parties that this
Supplement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, subject to the effects of applicable bankruptcy,
insolvency or similar laws affecting creditors’ rights generally and equitable
principles of general applicability.

 

SECTION 3. This Supplement
may be executed in two or more counterparts, each of which shall constitute an
original, but all of which, when taken together, shall constitute but one
instrument. This Supplement shall become effective when the Second Priority
Collateral Trustee shall have received counterparts of this Supplement that,
when taken together, bear the signatures of the New Grantor and the Second
Priority Collateral Trustee.

 

SECTION 4. Except as
expressly supplemented hereby, the Second Priority Subsidiary Security
Agreement shall remain in full force and effect.

 

SECTION 5.
THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.

 

SECTION 6. In case any one
or more of the provisions contained in this Supplement should be held invalid,
illegal or unenforceable in any respect, neither party hereto shall be required
to comply with such provision for so long as such provision is held to be
invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein and in the Second
Priority Subsidiary Security Agreement shall not in any way be affected or
impaired. The parties hereto shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.

 

SECTION 7. All
communications and notices hereunder shall be in writing and given as provided
in the Collateral Trust and Intercreditor Agreement. All communications and
notices hereunder to the New Grantor shall be given to it c/o the Borrower as
set forth in Section 8.02 of the Collateral Trust and Intercreditor
Agreement.

 

2

 

IN WITNESS WHEREOF, the New
Grantor and the Second Priority Collateral Trustee have duly executed this
Supplement to the Second Priority Subsidiary Security Agreement as of the day
and year first above written.

 

	
   

  	
  [NAME OF NEW GRANTOR],

  
	
   

  	
   

  
	
   

  	
  by

  
	
   

  	
   

  
	
   

  	
  Name: Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WILMINGTON TRUST COMPANY, as Second
  Priority Collateral Trustee,

  
	
   

  	
   

  
	
   

  	
  by

  
	
   

  	
   

  
	
   

  	
  Name: Title:

  

 

3

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