Rite Aid 2011 Annual Report Download - page 33

subject to a 1% prepayment fee in the event it is refinanced within the first year after issuance with the
proceeds of a substantially concurrent issuance of new loans or other indebtedness incurred for the
primary purpose of repaying, refinancing or replacing the Tranche 5 Term Loan. We must make
mandatory prepayments of the Tranche 5 Term Loan with the proceeds of asset dispositions and
casualty events (subject to certain limitations), with a portion of any excess cash flow generated by us
(as defined in the senior secured credit facility) and with the proceeds of certain issuances of equity
and debt (subject to certain exceptions). If at any time there is a shortfall in our borrowing base under
our senior secured credit facility, prepayment of the Tranche 5 Term Loan may also be required.
The senior secured credit facility also restricts us and the subsidiary guarantors from accumulating
cash on hand in excess of $200.0 million at any time when revolving loans are outstanding (not
including cash located in our store deposit accounts, cash necessary to cover our current liabilities and
certain other exceptions) and from accumulating cash on hand with revolver borrowings in excess of
$100.0 million over three consecutive business days. The senior secured credit facility also states that if
at any time (other than following the exercise of remedies or acceleration of any senior obligations or
second priority debt and receipt of a triggering notice by the senior collateral agent from a
representative of the senior obligations or the second priority debt) either (a) an event of default exists
under our senior secured credit facility or (b) the sum of revolver availability under our senior secured
credit facility and certain amounts held on deposit with the senior collateral agent in a concentration
account is less than $100.0 million for three consecutive business days (a ‘‘cash sweep period’’), the
funds in our deposit accounts will be swept to a concentration account with the senior collateral agent
and will be applied first to repay outstanding revolving loans under the senior secured credit facility,
and then held as Collateral for the senior obligations until such cash sweep period is rescinded
pursuant to the terms of our senior secured credit facility.
The senior secured credit facility allows us to have outstanding, at any time, up to $1.5 billion in
secured second priority debt and unsecured debt in addition to borrowings under the senior secured
credit facility and existing indebtedness, provided that not in excess of $750.0 million of such secured
second priority debt and unsecured debt shall mature or require scheduled payments of principal prior
to three months after June 4, 2014. The senior secured credit facility allows us to incur an unlimited
amount of unsecured debt with a maturity beyond three months after June 4, 2014; however, other
outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest
coverage levels are not met at the time of incurrence of said debt. The senior secured facility also
allows, so long as the senior secured credit facility is not in default, for the repurchase of any debt with
a maturity on or before June 4, 2014, for the voluntary repurchase of debt with a maturity after June 4,
2014 and the mandatory repurchase of our 8.5% convertible notes due 2015 if we maintain availability
on the revolving credit facility of at least $100.0 million.
Our senior secured credit facility contains covenants, which place restrictions on the incurrence of
debt beyond the restrictions described above, the payment of dividends, sale of assets, mergers and
acquisitions and the granting of liens. Our credit facility has a financial covenant, which is the
maintenance of a fixed charge coverage ratio. The covenant requires that, if availability on the
revolving credit facility is less than $150.0 million, we maintain a minimum fixed charge coverage ratio
of 1.00 to 1.00 for the quarter ending February 26, 2011 and for the three subsequent quarters. This
ratio increases to 1.05 to 1.00 in the last quarter of Fiscal 2012 and remains at that level for the
remaining term of the facility. As of February 26, 2011, we were in compliance with this financial
covenant.
The senior secured credit facility provides for events of default including nonpayment,
misrepresentation, breach of covenants and bankruptcy. It is also an event of default if we fail to make
any required payment on debt having a principal amount in excess of $50.0 million or any event occurs
that enables, or which with the giving of notice or the lapse of time would enable, the holder of such
debt to accelerate the maturity or require the repurchase of such debt. The August 2010 amendments
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