EXHIBIT 10.26

 

Portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission.  The
omissions have been indicated by “[***Redacted***]”, and the omitted text has
been filed separately with the Securities and Exchange Commission.

 

FIRST AMENDMENT TO SUPPLY AGREEMENT

 

This First Amendment to the Supply Agreement (the “First Amendment”) is entered
into December 8, 2007, by and between Rite Aid Corporation (Rite Aid”) and
McKesson Corporation (“McKesson”).

 

INTRODUCTION

 

Pursuant to the terms of the Supply Agreement dated December 22, 2003 (the “Rite
Aid Agreement”), McKesson and Rite Aid entered into an agreement to establish a
program for McKesson’s supply of pharmaceutical and OTC products to Rite Aid.

 

The Jean Coutu Group (PJC) USA, Inc. (“JCG (PJC) USA, Inc.”), Eckerd Corporation
(“Eckerd”) and Maxi Drug, Inc. dba Brooks Pharmacy (“Brooks”) [collectively,
“JCG (PJC) USA, Inc.”, “Eckerd” and “Brooks” shall herein be referred to as
“Eckerd/Brooks”] and McKesson entered into a Supply Agreement dated April 1,
2005, as amended by the First Amendment to Supply Agreement dated May 24, 2005,
the Second Amendment to Supply Agreement dated June 12 2005, the Third Amendment
to Supply Agreement on January 3, 2006 and the Fourth Amendment to the Supply
Agreement dated February 1, 2006 (collectively, the “Eckerd/Brooks Agreement”)
McKesson and Eckerd/Brooks intend contemporaneously with the execution of this
First Amendment to enter into a Termination of Supply Agreement with respect to
the Eckerd/Brooks Agreement.

 

Rite Aid and Eckerd/Brooks have entered into, or are entering into, a series of
transactions pursuant to which the Eckerd/Brooks stores and other facilities
subject to the Eckerd/Brooks Agreement are being sold or transferred directly or
indirectly to Rite Aid (“Rite Aid Acquisition of Eckerd/Brooks”).

 

Rite Aid and McKesson now desire to amend the Rite Aid Agreement as set forth
below.

 

AGREEMENT

 

For good and valuable consideration, McKesson and Rite Aid hereby agree as
follows:

 

1.                                       As of the First Amendment Effective
Date (as hereinafter defined), all Eckerd/Brooks Entities (as defined below)
shall be subject to all terms and conditions of the Rite Aid Agreement as
amended herein.  For purposes hereof, the Eckerd/Brooks Entities shall include
the following subsidiaries and affiliates

 

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in the United States in which The Jean Coutu Group (PJC) Inc. owned, directly or
indirectly, fifty percent (50%) or more of the outstanding voting securities of
such company immediately prior to the close of the Rite Aid Acquisition of
Eckerd/Brooks, including without limitation, all of the Eckerd/Brooks’ retail
stores and warehouse facilities owned and operated by such Eckerd/Brooks
Entities: Eckerd Corporation; Genovese Drug Stores, Inc.; Thrift Drug, Inc.; EDC
Drug Stores, Inc.; Maxi Drug, Inc.; Maxi Green, Inc.; Maxi Drug North, Inc.; and
Maxi Drug South, L.P.  Additionally, each of the Eckerd/Brooks Entities shall be
considered a Control Affiliate as defined in Section 4.7(d) of the Rite Aid
Agreement.

 

2.                                       The Initial Term of the Rite Aid
Agreement as set forth in Section 1.1 thereof is hereby extended to end on
April 1, 2010, unless earlier terminated in accordance with Section 13 of the
Rite Aid Agreement.  With the exception of Section 11.1 of the Rite Aid
Agreement and Section 18.9(d) of the Rite Aid Agreement, as added pursuant to
Section 24 of this First Amendment, any reference in the Rite Aid Agreement to
“March 31, 2009” shall be changed to “April 1, 2010.”

 

3.                                       Section 1.2 of the Rite Aid Agreement
is hereby deleted in its entirety.

 

4.                                       The pricing, payment terms and other
obligations of the parties as set forth in this First Amendment shall become
effective as of the date of execution of this First Amendment by both parties
(“First Amendment Effective Date”).

 

5.                                       Section 3.1 of the Rite Aid Agreement
is hereby deleted and replaced with the following:

 

Warehouse.  The Cost of Goods for Warehouse purchases of Products, other than
Warehouse Repackaged Products and OneStop Generics, shall be the lower of:
[***Redacted***].

 

6.                                       The DSD cast of goods matrix set forth
in Section 3.2 of the Rite Aid Agreement is hereby deleted in its entirety and
replaced with the following:

 

DSD Cost of Goods Matrix

 

Chain Wide Average Product Purchases
Per Location/Month (less Returns)

 

From

 

To

 

Rx

 

OTC

 

Rite Aid
Contract items

 

Schedule II
Narcotics

 

Eckerd/Brooks
Cross Dock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[***Redacted***]

 

 

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An illustration of the calculation in Section 3.2 is as follows using total
Product purchases, as defined in Exhibit A-1 being [***Redacted***] and returns
being [***Redacted***]:

 

Store count at beginning of Quarter

[***Redacted***]

Store count at end of Quarter

[***Redacted***]

Average store count used

[***Redacted***]

Product Purchases

[***Redacted***]

Less Returns

[***Redacted***]

Purchases used for calculation

[***Redacted***]

 

Purchases [***Redacted***] divided by average store count [***Redacted***]
divided by no. of months in Quarter 3 = [***Redacted***]).

 

7.                                       Section 3.4 of the Rite Aid Agreement
is hereby deleted in its entirety and replaced with the following:

 

DSD Returns Adjustment.  As an incentive for Rite Aid to continue to maintain
its chain-wide average DSD return volume at or below [***Redacted***] of total
DSD purchases (“DSD Acceptable Returns Volume Percentage”), Rite Aid’s DSD Cost
of Goods shall only be subject to an adjustment, as determined pursuant to the
matrix below, based on Rite Aid’s performance for each quarter effective for the
following quarter, exclusive of product returned under Section 8.4, in the event
that Rite Aid does not achieve the DSD Acceptable Returns Volume Percentage. 
Any applicable adjustment will take place [***Redacted***] after the end of each
quarter, and continue for [***Redacted***].

 

% of Chain-Wide DSD Returns to Total
DSD Purchases

 

Adjustments to Cost of Goods
Markup on All DSD Purchases

 

 

 

[***Redacted***]

 

[***Redacted***]

[***Redacted***]

 

[***Redacted***]

 

An illustration of the calculation in Section 3.4 using the McKesson Returns
Analysis Report with, in this example total DSD purchases being [***Redacted***]
and the other adjustments being as follows:

 

[***Redacted***]

 

In the above example, McKesson would not adjust the Cost of Goods Markup on All
DSD Purchases for the following quarter.

 

3

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8.                                       Section 3.6 of the Rite Aid Agreement
is hereby deleted in its entirety and replaced with the following:

 

Warehouse Repackaged Merchandise.  Rite Aid’s Cost of Goods for Warehouse
purchases of Warehouse Repackaged Merchandise will be the [***Redacted***] for
Manufacturers Bulk Cost for such product [***Redacted***].  The term
“Manufacturers Bulk Cost” is [***Redacted***].

 

9.                                       Section 3.9(a) of the Rite Aid
Agreement is hereby deleted in its entirety and any reference in the Agreement
to the Buy Profit Rebate is hereby deleted.

 

10.                                 The following is hereby added as the fourth
paragraph of Section 3.9(b) of the Rite Aid Agreement:

 

(b)                                 Additional Rebates on Branded Rx Warehouse
Purchases.  For the current Contract Year ending November 30, 2007 (“Current
Contract Year”), the Annual Market Basket rebate shall be paid on
[***Redacted***] of Branded Rx Products purchases (net of Branded Warehouse
returns as provided in Section 8.1 and rebates or other incentives hereunder and
excluding Warehouse Repackaged Merchandise) by the three original Rite Aid
warehouses designated as Perryman, Tuscaloosa and Woodland.

 

For subsequent Contract Years following the Current Contract Year, all Rite Aid
warehouses shall be included in the calculation of the Market Basket Rebate.

 

For the subsequent Contract Years following the Current Contract Year, the
Annual Market Basket Index Adjustment chart found in Section 3.9(b) shall be
replaced by the chart below.

 

Annual Market Basket Index Adjustment

 

Rite Aid’s Achieved Annual Market
Basket Price Increase Rate

 

Rebate on Annual Brand Rx Warehouse
purchases

 

From

 

To

 

 

 

 

 

 

 

[***Redacted***]

 

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[***Redacted***]

 

In this example, McKesson would pay Rite Aid a [***Redacted***] on purchases of
Branded Rx Warehouse purchases during this Contract Year no later than
[***Redacted***].

 

$1,000,000.00 X [***Redacted***]

 

11.                                The first paragraph of Section 3.10 of the
Rite Aid Agreement is hereby deleted in its entirety and replaced with the
following:

 

Landed Costs.  For shipments in accordance with Section 5 of this Agreement, all
Warehouse and DSD Product is shipped F.O.B. destination [***Redacted***] are
applicable.  For non-standard shipments, such as drop shipments or emergency
deliveries from manufacturers, delivery fees may apply.  For special product
distributions conducted by McKesson at the request of Rite Aid, a fee in the sum
of [***Redacted***] for such delivery to up to [***Redacted***] Rite Aid Stores
may apply.  Risk of loss with respect to the Product shall pass to Rite Aid upon
delivery.

 

12.                                The following is hereby added as Section 3.11
to the Rite Aid Agreement:

 

Courier Cross Dock Purchases.  Provided that Rite Aid and its Affiliates adhere
to an [***Redacted***] local time order entry cut-off and [***Redacted***] local
time for those pharmacies located in North Carolina and Tennessee, McKesson will
fulfill store orders under the same conditions stated for DSD purchases except
that deliveries will be made utilizing existing courier services employed by
Rite Aid for pharmaceutical deliveries at a time mutually agreed upon by the
parties (Cross Dock Purchases”).  McKesson shall be responsible for monitoring
the safe delivery of controlled substances by the courier to the Rite Aid store
pharmacies pursuant to state and federal regulations.  McKesson shall
investigate all in-transit losses or thefts of controlled substances and shall
file any required state and federal reports.  McKesson shall be financially
responsible for the costs of transporting the Cross Dock Purchases of Products
from the McKesson distribution center to the courier cross dock facility and
Rite Aid shall be financially responsible for the costs of transporting such
Products from the courier cross dock facility to the Rite Aid Pharmacy
locations.

 

McKesson agrees to continue the current DSD cross dock incentive as set forth in
this Section 3.11 to the extent that it can do so without incurring any further

 

5

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expense or economic disadvantage.  McKesson reserves the right to limit cross
dock pricing to only the Eckerd/Brooks Entities receiving cross dock service at
the time of the First Amendment Effective Date.  The applicable pricing for the
cross dock Eckerd/Brooks Entities is set forth in Section 6 of this First
Amendment.

 

13.                                 The chart titled ‘Warehouse Order and
Delivery Schedule” in Section 5.1 of the Rite Aid Agreement is hereby deleted in
its entirety and replaced with the following:

 

WAREHOUSE ORDER AND DELIVERY SCHEDULE

 

Rite Aid
Warehouse

 

McKesson
Distribution
Center

 

Order Day

 

Order Time

 

Delivery Day

 

Delivery Time

 

Perryman, MD

 

RDC

 

Monday

 

8:30 a.m. ET

 

Wednesday

 

7:00 a.m.

 

Perryman, MD

 

RDC

 

Tuesday

 

8:30 a.m. ET

 

Thursday

 

7:00 a.m.

 

Perryman, MD

 

RDC

 

Wednesday

 

8:30 a.m. ET

 

Friday

 

7:00 a.m.

 

Perryman, MD

 

RDC

 

Thursday

 

8:30 a.m. ET

 

Monday

 

7:00 a.m.

 

Perryman, MD

 

RDC

 

Friday

 

8:30 a.m. ET

 

Tuesday

 

7:00 a.m.

 

Woodland, CA

 

RDC

 

Monday

 

8:30 a.m. ET

 

Wednesday

 

5:00 a.m.

 

Woodland, CA

 

RDC

 

Tuesday

 

8:30 a.m. ET

 

Thursday

 

5:00 a.m.

 

Woodland, CA*

 

RDC

 

Wednesday

 

8:30 a.m. ET

 

Friday

 

5:00 a.m.

 

Woodland, CA

 

RDC

 

Thursday

 

8:30 a.m. ET

 

Monday

 

5:00 a.m.

 

Woodland, CA*

 

RDC

 

Friday

 

8:30 a.m. ET

 

Tuesday

 

5:00 a.m.

 

Tuscaloosa, AL*

 

RDC

 

Monday

 

8:30 a.m. ET

 

Tuesday

 

6:30 a.m.

 

Tuscaloosa, AL

 

RDC

 

Tuesday

 

8:30 a.m. ET

 

Wednesday

 

6:30 a.m.

 

Tuscaloosa, AL

 

RDC

 

Wednesday

 

8:30 a.m. ET

 

Thursday

 

6:30 a.m.

 

Tuscaloosa, AL

 

RDC

 

Thursday

 

8:30 a.m. ET

 

Friday

 

6:30 a.m.

 

Tuscaloosa, AL*

 

RDC

 

Friday

 

8:30 a.m. ET

 

Monday

 

6:30 a.m.

 

Langhorne, PA

 

RDC

 

Monday

 

8:30 a.m. ET

 

Tuesday

 

11:00 p.m.

 

Langhorne, PA

 

RDC

 

Tuesday

 

8:30 a.m. ET

 

Wednesday

 

11:00 p.m.

 

Langhorne, PA

 

RDC

 

Wednesday

 

8:30 a.m. ET

 

Thursday

 

11:00 p.m.

 

Langhorne, PA

 

RDC

 

Friday

 

8:30 a.m. ET

 

Sunday

 

11:00 p.m.

 

Liverpool, NY

 

RDC

 

Monday

 

8:30 a.m. ET

 

Wednesday

 

6:00 a.m.

 

Liverpool, NY

 

RDC

 

Tuesday

 

8:30 a.m. ET

 

Thursday

 

6:00 a.m.

 

Liverpool, NY

 

RDC

 

Wednesday

 

8:30 a.m. ET

 

Friday

 

6:00 a.m.

 

Liverpool, NY

 

RDC

 

Friday

 

8:30 a.m. ET

 

Monday

 

6:00 a.m.

 

Charlotte, NC

 

RDC

 

Monday

 

8:30 a.m. ET

 

Tuesday

 

11:00 p.m.

 

Charlotte, NC

 

RDC

 

Tuesday

 

8:30 a.m. ET

 

Wednesday

 

11:00 p.m.

 

Charlotte, NC

 

RDC

 

Wednesday

 

8:30 a.m. ET

 

Thursday

 

11:00 p.m.

 

Charlotte, NC

 

RDC

 

Friday

 

8:30 a.m. ET

 

Sunday

 

11:00 p.m.

 

Shenandoah, GA

 

RDC

 

Monday

 

8:30 a.m. ET

 

Wednesday

 

7:00 a.m.

 

Shenandoah, GA

 

RDC

 

Tuesday

 

8:30 a.m. ET

 

Thursday

 

7:00 a.m.

 

Shenandoah, GA

 

RDC

 

Wednesday

 

8:30 a.m. ET

 

Friday

 

7:00 a.m.

 

Shenandoah, GA

 

RDC

 

Friday

 

8:30 a.m. ET

 

Monday

 

7:00 a.m.

 

Dayville, CT

 

RDC

 

Monday

 

8:30 a.m. ET

 

Thursday

 

2:00 p.m.

 

Dayville, CT

 

RDC

 

Tuesday

 

8:30 a.m. ET

 

Friday

 

6:30 a.m.

 

Dayville, CT

 

RDC

 

Wednesday

 

8:30 a.m. ET

 

Monday

 

6:30 a.m.

 

Dayville, CT

 

RDC

 

Thursday

 

8:30 a.m. ET

 

Monday

 

6:30 a.m.

 

Dayville, CT

 

RDC

 

Friday

 

8:30 a.m. ET

 

Wednesday

 

6:30 a.m.

 

 

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Note: Actual ordering patterns may vary as some deliveries are deemed
unnecessary at this time. Any changes to this schedule will be mutually agreed
upon by both parties.

*Rite Aid does not currently order or receive deliveries on these dates.

 

14.                                 Section 7.1(a) of the Rite Aid Agreement is
hereby deleted in its entirety and replaced by the following:

 

(a)                                  Warehouse Payment Terms.  EDI Invoices for
deliveries of Products for Warehouse (except for Generic Products) to Rite Aid
distribution centers shall be due and payable [***Redacted***] after the Invoice
Date determined as provided in Section 6.1; provided, however, in the event the
Products are not delivered on the Delivery Day corresponding to applicable
Warehouse, the due date for such invoice shall be extended [***Redacted***] for
each day of delay.  EDI Invoices for deliveries of Generic Products for
Warehouse to Rite Aid distribution centers shall be due and payable
[***Redacted***] after the Invoice Date determined as provided in Section 6.1;
provided, however, in the event the Products are not delivered on the Delivery
Day corresponding to the applicable Warehouse, the due date for such invoice
shall be extended [***Redacted***] for each day of delay.

 

15.                                 Section 7.1(b) of the Rite Aid Agreement is
hereby deleted in its entirety and replaced by the following:

 

(b)                                 DSD Payment Terms.  EDI Invoices for store
deliveries of Products for DSD shall be due and payable [***Redacted***] after
the Invoice Date determined as provided in Section 6.1.

 

16.                                 Section 7.1(c) of the Rite Aid Agreement is
hereby deleted in its entirety.

 

17.                                 Section 7 of the Rite Aid Agreement is
amended by the addition of a new Section 7.12 as follows:

 

Change in Payment Terms.  McKesson reserves the right, in its reasonable
discretion and upon prior written notice, to change a payment term (including
imposing the requirement of cash payment upon delivery (“C.O.D.”) or limit total
credit, if McKesson concludes there has been an unsatisfactory payment
performance and such unsatisfactory payment performance remains uncured for a
period of [***Redacted***] following Rite Aid’s receipt of written notice (the
“Unsatisfactory Payment Notice”, which shall set forth in reasonable detail the
grounds or basis for such determination) thereof.  For purposes hereof,

 

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“unsatisfactory payment performance” shall be defined as failure by Rite Aid to
pay at least [***Redacted***] of the full amount owed to McKesson on the
applicable due date; provided however, nothing in this Section 7.12 shall limit
any of Rite Aids rights pursuant to Section 7.3 of this Agreement.  If McKesson
has changed Rite Aid’s payment terms to C.O.D. and Rite Aid fails to make such
C.O.D. payment, McKesson further shall be entitled to suspend or discontinue the
shipment of any additional orders to Rite Aid’s Pharmacies and Warehouses.

 

In the event that McKesson exercises its right to change payment terms pursuant
to this Section 7.12 as specified above, McKesson will offer Rite Aid an
additional [***Redacted***] for each day Days Sales Outstanding (“DSO”) is
reduced beyond the then current payment terms and any such pricing adjustment
will be reflected in the invoiced Cost of Goods (“DSO Cost of Goods
Adjustment”).  With the exception of the DSO Cost of Goods Adjustment, McKesson
shall have no right to alter any pricing terms under this Agreement in
conjunction with its right to change payment terms pursuant to this
Section 7.12.  Notwithstanding anything in the foregoing, in the event that
McKesson changes Rite Aid’s payment terms hereunder pursuant to Section 7.12
above, Rite Aid shall have the right [***Redacted***].

 

If following any change in Rite Aid’s payment terms by McKesson, Rite Aid
becomes and remains for [***Redacted***] consecutive business days current with
respect to all outstanding amounts due and owing to McKesson, McKesson agrees
that it will immediately following such [***Redacted***] period restore Rite Aid
to [***Redacted***].  Upon such restoration of [***Redacted***], any previously
applicable DSO Cost of Goods Adjustment will no longer be in effect. 
Additionally, in the event that Rite Aid’s payment terms are restored as
discussed above and a subsequent unsatisfactory payment performance occurs,
McKesson shall retain all of its rights to again change Rite Aid’s payment terms
in accordance with this Section 7.12.

 

18.                                 Section 8.2 of the Rite Aid Agreement is
hereby deleted in its entirety and replaced with the following:

 

Regular DSD Returns (AU States Except Florida)

 

Subject to any separate policy and/or terms and conditions for returned goods
adopted by McKesson for purposes of complying with any applicable federal or
state law, rule or regulation, McKesson will process returned goods for items
purchased by Rite Aid from McKesson, in accordance with McKesson’s Returned
Goods Policy (which is subject to change by mutual agreement which shall not be
unreasonably withheld; provided, however, Rite Aid’s consent shall not be

 

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required for changes required to comply with laws, regulations or manufacturer
return policies), effective upon thirty (30) days’ prior notice to Rite Aid), as
follows:

 

1)                                      Definitions

 

a)                                      Saleable Merchandise

 

·                                      Merchandise is determined saleable by
McKesson based upon the ability to resell the item without special handling,
refurbishing or other expense; or

 

·                                      Saleable Merchandise must have dating of
[***Redacted***] remaining until expiration.  Exceptions to this dating policy
are:

 

i)                                         Refrigerated and other
temperature-controlled Merchandise; or

 

ii)                                      Merchandise deemed permanently
short-dated by McKesson and manufacturers/suppliers.

 

·                                      In the above-specified instance as set
forth in Subsection 8.2(1)(a)(i), Rite Aid shall be permitted to return the
Merchandise with [***Redacted***] remaining until expiration.  Such merchandise
requires special handling (i.e. biological or other temperature-controlled
items) and must include the returning Rite Aid representative’s signature to
assure that the Merchandise has been stored and protected under proper
conditions specified by the manufacturer/supplier until received at the McKesson
facility.  In the above-specified instance as set forth in Subsection
8.2(1)(a)(ii), Rite Aid shall be permitted to return the Merchandise with
[***Redacted***] remaining until expiration.

 

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b)                                     Unsaleable Merchandise

 

·                                      Merchandise with less than
[***Redacted***] remaining until expiration (except as otherwise provided in
Subsection 8.2(1)(a));

 

·                                      Torn or damaged packaging;

 

·                                      Labels attached (prescription or price
sticker);

 

·                                      Soiled, stained or worn;

 

·                                      Safety or security seals not intact; or

 

·                                      Merchandise requiring special handling
(i.e. biological or other temperature-controlled items) that does not include
Rite Aid’s signature to assure that the Merchandise has been stored and
protected under proper conditions specified by the manufacturer/supplier.

 

McKesson reserves the right to determine whether Merchandise is saleable or
unsaleable upon inspection of the returned item.

 

2)                                      Merchandise Authorized For Return to
McKesson

 

a)                                      Saleable and Unsaleable Merchandise that
was purchased from McKesson unless otherwise blocked for return (determined by
manufacturer/supplier or McKesson);

 

b)                                     Unsaleable Merchandise purchased from
McKesson which can be returned by McKesson to the manufacturer/supplier
according to their policy;

 

c)                                      McKesson Private Label Merchandise
(Valu-Rite®, Health Mart®, Sunmark™, etc.); and

 

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d)                                     Manufacturer/supplier recall or market
withdrawal in original manufacturer containers.  Authorized returns of partials
require Rite Aid to include pill counts, NDC and lot number for any Merchandise
not returned in its original manufacturer container.

 

Rite Aid must provide signed verification certifying that proper conditions for
storage, handling and shipping have been maintained for all Merchandise returned
to McKesson.

 

Excluded Merchandise:

 

·                                              Merchandise not purchased from
McKesson;

 

·                                              Merchandise not physically
carried by McKesson;

 

·                                              Merchandise not eligible for
return to the manufacturer/supplier or deemed collectible by McKesson;

 

·                                              Saleable Merchandise returned
that does not meet proper storage conditions;

 

·                                              Unsaleable returns on Rite Aid
private label Merchandise;

 

·                                              Merchandise not in its original
container,

 

·                                              Overbagged or “robot-ready”
Merchandise;

 

·                                              Repackaged Merchandise that has
less than [***Redacted***] dating or is defined as Unsaleable Merchandise;

 

·                                              ScanPak™ Unit Dose and ScanPak™
Multi Dose Merchandise that have less than [***Redacted***] dating or are
defined as Unsaleable Merchandise;

 

·                                              Merchandise discontinued by
manufacturer/supplier and no longer stocked by McKesson;

 

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·                                              Partial bottles, liquids and
other containers except for recalls of Merchandise other than Controlled
Substances:

 

·                                              Schedule II Controlled Substances
will be evaluated on individual return requests; or

 

·                                              Merchandise damaged or defaced at
the Pharmacy location or on the shelf.

 

3)                                      Credit Issued

 

McKesson will provide the following credit based on the pricing rules outlined
below in Subsection 8.2(5) as calculated from invoice date to credit request
date:

 

Saleable*

 

[***Redacted***]

 

[***Redacted***]

 

 

[***Redacted***]

 

[***Redacted***]

Received Damaged

 

[***Redacted***]

 

[***Redacted***]

or Short-dated

 

[***Redacted***]

 

[***Redacted***]

 

Such claims must be called into McKesson ServiceFirst within three (3) business
days

 

Recall**

 

[***Redacted***], if and to the extent McKesson recovers an equal percent from
the manufacturer/supplier.

 

 

 

Unsaleable**

 

[***Redacted***], if and to the extent McKesson recovers an equal percent from
the manufacturer/supplier.

 

*All saleable Home Healthcare Hub Merchandise is eligible for a [***Redacted***]
value based on pricing rules outlined below in Subsection 8.2(5).

 

12

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**Notwithstanding anything in this Agreement to the contrary, with regard to
unsaleable products, recalls, market withdrawals and any other
manufacturer/supplier initiated returns (collectively, “Unsaleable and Recalled
Products”), in the event a pharmaceutical manufacturer/supplier fails for any
reason to pay McKesson for the cost of or any amounts due with respect to any
Unsaleable or Recalled Products returned to McKesson by Rite Aid or Rite Aid’s
agent, Rite Aid agrees that Rite Aid will be responsible for the collection of
any unpaid monies due from the manufacturer/supplier, and shall fully reimburse
McKesson for any credits or other forms of advance, including deductions, that
have already been paid to or received by Rite Aid for such Unsaleable or
Recalled Products.

 

4)                                      Rite Aid Eligibility

 

McKesson reserves the right to designate if the Merchandise returned by Rite Aid
is eligible for return, and to determine the appropriate percentage of credit to
be provided.

 

5)                                      Pricing on Recalled and Returned Goods

 

McKesson will use the invoice price when Rite Aid provides a valid invoice
number.

 

If no invoice number is provided, the following pricing rules will apply:

 

·                                              Rite Aid will be credited the
contract price for Merchandise which is a Contract Product on the date that
return authorization is created.

 

·                                              Rite Aid will be credited a
[***Redacted***].

 

·                                              Rite Aid will be credited the
lowest price paid by Rite Aid over the [***Redacted***] for Non-Contract
Generics Merchandise.

 

·                                              Rite Aid will be credited the
manufacturer’s/supplier’s published acquisition cost (exclusive of cash
discounts) on the date of the return authorization for Non-Contract Merchandise
purchased more than [***Redacted***] prior to the date the return authorization
is created.

 

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Any handling charges will apply where appropriate to the determined price.

 

Final credit will be issued based upon the condition and timing of the returned
goods to McKesson.

 

19.                                 Subsections (a) and (b) in Section 10.1 of
the Rite Aid Agreement are hereby deleted and replaced with the following:

 

(a)                                  Rite Aid agrees to maintain its existing
generic purchasing practices with McKesson and the combined Eckerd/Brooks and
Rite Aid historical generic dollar purchase levels (net of returns, rebates,
allowances and all credits and adjustments issued) which are currently
approximately [***Redacted***] per year (the “Generics Purchase Commitment”, as
adjusted as provided herein).  Every [***Redacted***] day period following the
First Amendment Effective Date, McKesson will review Rite Aid’s generic purchase
levels for the immediately preceding [***Redacted***] period, and if Rite Aid
falls to comply with the Generics Purchase Commitment, McKesson may provide Rite
Aid with written notice thereof and Rite Aid will have a period of
[***Redacted***] days after receiving the notice to cure such noncompliance.  If
Rite Aid does not remedy such noncompliance by the end of such above specified
cure period, McKesson has the right [***Redacted***] to adjust pricing as set
forth in Subsection 10.1(b) below.  [***Redacted***]  Any such event and the
period(s) affected by such event must be mutually agreed to by both Rite Aid and
McKesson to have met such criteria as defined in this Subsection 10.1(a) in
order to be treated hereunder as a Generic Purchasing Event.

 

(b)                                 Except as provided in Subsection
10.1(a)above, in the event that Rite Aid fails to maintain the annual Generics
Purchase Commitment and does not correct this failure within [***Redacted***]
days after receiving written notice from McKesson, McKesson has the right to
adjust its pricing to Rite Aid as set forth in the table below.  This new rate
shall be effective for at least [***Redacted***] days following such cure period
for future purchases of Products by Rite Aid from McKesson or until Rite Aid
subsequently cures such shortfall in its annual Generics Purchase Commitment,
whichever period is longer.

 

Total Annualized Rite Aid combined DSD 
and Warehouse Generic Purchases
[***Redacted***] (net of any returns, rebates, allowances and all credits and
adjustments issued).

 

Monthly COG adjustment or 
upcharge(1)

 

 

 

[***Redacted***]

 

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(1)To be applied across all Cost of Goods for Products delivered by DSD,
Warehouse, RxPak and Cross-Dock

 

20.                                 The third sentence in Section 11.1 of the
Rite Aid Agreement is hereby amended to read as follows:

 

In the event of termination (other than a termination by Rite Aid pursuant to
Section 13.A or Exhibit D or a termination by McKesson pursuant to Section 19)
of this Agreement prior to March 31, 2009 or upon the occurrence of a Repayment
Event set forth in Section 11.3, Rite Aid will, three (3) days before the
effective date of such termination or Repayment Event, pay to McKesson, in
immediately available funds, an amount equal to the product of
(i) [***Redacted***] multiplied by (ii) a fraction whose numerator
[***Redacted***] and whose denominator is [***Redacted***].

 

21.                                 Section 11.2 of the Rite Aid Agreement is
hereby deleted in its entirety.

 

22.                                 Subsection (a) in Section 12.2 of the
Agreement is hereby deleted and replaced in its entirety by the following:

 

(a)                                  [***Redacted***], McKesson will assign a
vice president and an Administrator to manage any transitions and operations
found in this Agreement.  Both such persons will be experienced and fully
trained, and supplied with personal computers by McKesson.  The McKesson
vice-president will work closely with Rite Aid personnel (including home office
personnel) to coordinate inventory procurement activities, support Rite Aid
reporting systems, assist in daily/weekly/month-end financial reconciliation
activities, interface with Rite Aid and McKesson field operations to resolve
service issues, schedule and facilitate unique events (e.g., one time annual
returns clean up).  The McKesson vice-president shall have the ability to access
information regarding the Deal Information List, inventory levels for specific
Products, purchase order status, return receipts and other similar information
for purposes of determining the prices and Composite Performance Measures under
this Agreement and to provide such information to Rite Aid upon Rite Aid’s
request.  Additionally, Rite Aid will have the right to install a full-time
employee at McKesson Headquarters and/or the McKesson Customer Care Service
Center in Carrollton, Texas.  Each party recognizes that personnel at the

 

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                                                other party’s site shall be
subject to the confidentiality restrictions set forth in Section 14 and any
other confidentiality or information access limitations that the hosting party
may request.

 

23.                                 The first sentence of Section 13.A of the
Rite Aid Agreement is hereby deleted in its entirety and replaced with the
following:

 

If Rite Aid has received [***Redacted***] Unsatisfactory Payment Notices (as
defined above in Section 7.12) relating to separate and distinct payment
obligations to McKesson within any consecutive [***Redacted***] period during
the remainder of the Initial Term following execution of this First Amendment,
regardless of whether or not such unsatisfactory payment performances have been
cured, a default by Rite Aid will be deemed to have occurred.

 

24.                                 Section 18.19 of the Rite Aid Agreement is
amended by the addition of a fourth subsection, as follows:

 

(d)                                 [***Redacted***]

 

25.                                 This First Amendment shall only become
enforceable on the date when both Rite Aid and McKesson have executed said First
Amendment.

 

26.                                 In all respects not expressly amended
hereby, the Rite Aid Agreement is hereby ratified and confirmed and shall remain
in full force and effect.

 

IN WITNESS WHEREOF the parties have caused this First Amendment to be duly
executed as of the date and year written below and the persons signing warrant
that they are duly authorized to sign for and on behalf of the respective
parties.  This First Amendment shall be deemed accepted by McKesson only upon
execution by a duly authorized representative of McKesson.

 

RITE AID CORPORATION

 

McKESSON CORPORATION

 

 

 

 

 

 

By:

/s/ Robert B. Sari

 

By:

/s/ John H. Hammergren

Name:

Robert B. Sari

 

Name:

John H. Hammergren

Title:

Exec. Vice Pres., Gen. Counsel and

 

Title:

Chairman and Chief Executive

 

Secretary

 

 

Officer

Date:

November 28, 2007

 

Date:

12/8/07

 

 

 

 

 

 

 

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