Document:

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

 

1

 

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***]

  	
   

  

 

2

 

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

 

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***]

  
						

 

4

 

[***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

 

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.

  	
   

  

 

6

 

	
  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, 

 

7

 

“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 

 

8

 

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.

 

9

 

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®,
SunmarkTM, etc.); and

 

10

 

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;

 

·                                              ScanPakTM
Unit Dose and ScanPakTM 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;

 

11

 

·                                              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

 

**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.

 

13

 

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***]

  

 

14

 

(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 

 

15

 

                                                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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
							

 

16Exhibit 10.27

 

MANAGEMENT SERVICES AGREEMENT

 

This
MANAGEMENT SERVICES AGREEMENT (this “Management Agreement”), dated as of
January 1, 2003 is made by and between Rite Aid Corporation, a Delaware
corporation (the “Company”), and Leonard Green & Partners, L.P. (“LGP”).

 

WHEREAS, the
Company desires to obtain from LGP, and LGP desires to provide, certain
investment banking, management, consulting and financial planning services on
an ongoing basis and certain financial advisory and investment banking services
in connection with major financial transactions that may be undertaken from
time to time in the future;

 

NOW,
THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto hereby agree as follows:

 

1.         Retention of Services.

 

1.1      General
Services. Subject to the terms and conditions hereof, the Company hereby
retains LGP, and LGP hereby agrees to be retained by the Company, to provide
management, consulting and financial planning services to the Company on an ongoing
basis in connection with the operation and growth of the Company and its
subsidiaries and affiliates during the term set forth in section 3.1 of this
agreement (the “General Services”).

 

1.2      Major
Transaction Services. Subject to the terms and conditions hereof, the
Company may retain LGP, and if requested LGP hereby agrees to be retained by
the Company, to provide financial advisory and investment banking services  to the Company, its subsidiaries and
affiliates in connection with major financial transactions that may be
undertaken from time to time in the future (“Major Transaction Services” and,
together with the General Services, the “Services”).

 

2.         Compensation.

 

2.1      General
Services Fee. In consideration of the General Services, the Company shall
pay LGP an annual fee payable in cash equal to One Million Dollars
($1,000,000.00) payable monthly in advance in equal monthly installments.

 

2.2      Major
Transaction Services Fee. In consideration of any Major Transaction
Services provided by LGP from time to time, and subject to the provisions of
the immediately following sentence, the Company shall pay LGP normal and
customary fees for services of like kind, taking into consideration all
relevant factors, including but not limited to the complexity of the subject
transaction, the time devoted to providing such services and the value of LGP’s
investment banking expertise and relationships within the business and
financial community. The amount of such fees shall be approved in accordance
with any applicable procedures set forth in the charter documents or

 

 

financing
agreements of the Company and shall be subject to the prior approval of the
Board of Directors of the Company.

 

2.3      Expenses.
In addition to the fees to be paid to LGP under sections 2.1 and 2.2 hereof,
the Company shall pay to, or on behalf of, LGP, promptly as billed, all
reasonable and documented out-of-pocket expenses incurred by LGP in connection
with the Services rendered hereunder. Such expenses shall include, among other
things, reasonable fees and disbursements of counsel, travel (including
aircraft) expenses, word processing charges, messenger and duplicating
services, facsimile expenses and other customary expenditures.

 

3.         Term.

 

3.1      Termination.
This Management Agreement shall terminate immediately following the payment of
the Company’s obligation under Section 2.1 hereof on the second (2nd)
anniversary of the date hereof (the “Termination Date”); unless otherwise
mutually agreed in writing by the Company and LGP.

 

3.2      Survival
of Certain Obligations. Notwithstanding any other provision hereof, the
obligations of the Company to pay amounts due with respect to periods prior to
the termination hereof pursuant to Section 2 hereof and the provisions of
Section 5 hereof shall survive any termination of this Management Agreement.

 

4.         Decisions/Authority
of Advisor.

 

4.1      Limitation
on LGP Liability. The Company reserves the right to make all decisions with
regard to any matter upon which LGP has rendered its advice and consultation,
and there shall be no liability to LGP for any such advice accepted by the
Company pursuant to the provisions of this Management Agreement.

 

4.2      Independent
Contractor. LGP shall act solely as an independent contractor and shall
have complete charge of its personnel engaged in the performance of the
Services. As an independent contractor, LGP shall have authority only to act as
an advisor to the Company and shall have no authority to enter into any
agreement or to make any representation, commitment or warranty binding upon
the Company or to obtain or incur any right, obligation or liability on behalf
of the Company,

 

5.         Indemnification.

 

5.1      Indemnification/
Reimbursement of Expenses. The Company shall (i) indemnify LGP and its
respective affiliates, and the partners, directors, officers, employees, agents
and controlling persons of LGP and its respective affiliates (collectively, the
“Indemnified Parties”), to the fullest extent permitted by law, from and
against any and all losses, claims, damages and liabilities, joint or several,
to which any Indemnified Party may become subject, caused by, related to or
arising out of the Services or any other advice or services contemplated by
this Management Agreement or the engagement of LGP pursuant to, and the
performance by LGP of the Services contemplated by, this Management Agreement,
and (ii) promptly reimburse each

 

2

 

Indemnified
Party for all reasonable costs and expenses (including reasonable and
documented attorneys’ fees and expenses), as incurred, in connection with the
investigation of, preparation for or defense of any pending or threatened claim
or any action or proceeding arising therefrom, whether or not such Indemnified
Party is a party and whether or not such claim, action or proceeding is
initiated or brought by or on behalf of the Company and whether or not
resulting in any liability.

 

5.2  Limited
Liability. The Company shall not be liable under the
indemnification contained in Section 5.1 hereof to the extent that such loss,
claim, damage, liability, cost or expense is found in a final non-appealable
judgment by a court of competent jurisdiction to have resulted from LGP’s bad
faith or gross negligence. The Company further agrees that no Indemnified Party
shall have any liability (whether direct or indirect in contract, tort or
otherwise) to the Company, holders of its securities or its creditors related
to or arising out of the engagement of LGP pursuant to, or the performance by LGP
of the Services contemplated by, this Management Agreement, except to the
extent that any loss, claim damage, liability, cost or expense is found in a
final non-appealable judgment by a court of competent jurisdiction to have
resulted from LGP’s bad faith or gross negligence.

 

6.         Miscellaneous.

 

6.1      Assignment.
None of the parties hereto shall assign this Management Agreement or the rights
and obligations hereunder, in whole or part, without the prior written consent
of the other party, which consent shall not be unreasonably withheld. Subject
to the foregoing, this Management Agreement will be binding upon and inure
solely to the benefit of the parties hereto and their respective successors and
assigns, and no other person shall acquire or have any right hereunder or by
virtue hereof.

 

6.2      Governing
Law. This Management Agreement shall be governed by and construed in
accordance with the laws of the State of New York as applied to contracts made
and performed within the State of New York without regard to principles of
conflict of laws.

 

6.3      Severability.
If any term, provision, covenant or restriction of this Management Agreement is
held by a court of competent jurisdiction to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions
set forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, illegal, void or unenforceable.

 

6.4      Entire
Agreement. This Management Agreement contains the entire agreement between
the parties with respect to the subject matter of this Management

 

3

 

Agreement and
supersedes all written or verbal representations, warranties, commitments and
other understandings prior to the date of this Management Agreement.

 

6.5      Further
Assurances. Each party hereto agrees to use all reasonable efforts to
obtain all consents and approvals and to do all other things necessary to
consummate the transactions contemplated by this Management Agreement. The
parties agree to take such further action and to deliver or cause to be
delivered any additional agreements or instruments as any of them may
reasonably request for the purpose of carrying out this Management Agreement
and the agreements and transactions contemplated hereby.

 

6.6      Attorney’s
Fees. In any action or proceeding brought to enforce any provision of this
Management Agreement, or in which any provision hereof is validly asserted as a
defense, the prevailing party, as  determined by a court of competent
jurisdiction, shall be entitled to recover reasonable and documented attorneys’
fees in addition to any other available remedy.

 

6.7      Headings.
The headings in this Management Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof.

 

6.8      Amendment
and Waiver. This Management Agreement may be amended, modified or
supplemented, and the waivers or consents to departures from the provisions
hereof may be given, provided that the same are in writing and signed by each
of the parties hereto.

 

6.9      Counterparts.
This Management Agreement may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall he deemed to be an original and all of which taken together shall constitute
one and the same agreement.

 

IN WITNESS
WHEREOF, the parties have executed this Management Services Agreement on the
date first appearing above.

 

	
   

  	
  RITE AID CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John T. Standley

  
	
   

  	
  Name:
  

  	
  John
  T. Standley

  
	
   

  	
  Title:
  

  	
  Senior Executive Vice
  President

  
	
   

  	
   

  
	
   

  	
  LEONARD GREEN & PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  LGP
  Management, Inc.

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Jonathan
  Sokoloff

  
	
   

  	
   

  	
  Jonathan
  Sokoloff

  
					

 

4

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