EXHIBIT 10.26
Execution
AMENDMENT TO THE GNC/RITE AID RETAIL AGREEMENT
MAY 2004
THIS AMENDMENT (the "Amendment") to the GNC/Rite Aid Retail Agreement,
dated December 8, 1998, as amended November 20, 2000, by and between General
Nutrition Sales Corporation ("GNC") and RITE AID HDTQRS CORP. ("Rite Aid") as
assignee of Rite Aid Corporation (the "Agreement") is effective as of May 1,
2004. Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Retail Agreement and the Consignment Agreement.
WHEREAS, the parties hereto desire to amend the GNC/Rite Aid Retail
Agreement on the terms and conditions stated herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendment of Article ▇. ▇▇▇▇▇ Of License. A new Paragraph I. is added
after Paragraph H. as follows:
"I. Rite Aid hereby commits to open the Business in a minimum of
300 additional Locations by December 31, 2006 in accordance with
the following requirements:
The additional 300 minimum Businesses will be opened in Locations
in accordance with the development schedule set forth below. Each
Location must meet the Site Designation Criteria and the approved
GNC Plan-O-Gram for the Location. Each possible Business Location
approved by GNC shall thereafter be referred to as a "Designated
Location." Prior to the effective date of this Amendment, Rite
Aid has submitted approximately [*] possible Business Locations
to GNC for their review. Designated Locations on the schedule can
be exchanged consistent with current practices, but GNC shall not
approve more than the number of Locations committed on the
development schedule. If GNC has not approved the minimum
non-cumulative number of possible Business Locations shown below
by the dates set forth below and Rite Aid is not able to open the
number of Locations required by the Development Schedule, the
parties shall meet and agree on a revised Development Schedule
extending the performance dates and quarterly commitments as
appropriate.
Minimum Number of possible Business Locations to be approved by
GNC
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* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
Approved Total Approved Deadline for Approval
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[*] [*] [*]
In the event that following its approval, GNC desires to operate
or franchise a GNC store within the Protected Territory of a
Designated Location that is not yet opened or operating by Rite
Aid, GNC shall provide Rite Aid with a right of first refusal for
such Location and unless Rite Aid re-confirms the same as a
Designated Location within thirty (30) days thereafter, the
potential Location shall be deleted from the Agreement and GNC
shall not be restricted from operating or franchising a GNC in
such Location. If Rite Aid exercises it's Right of First Refusal
the site must be developed in the following 6 months. Failure to
develop the site will result in loss of approval and GNC may
proceed with their development.
- Initial Fees for each of the new Locations operating the
Business shall be Sixteen Thousand Dollars ($16,000) per
Location; payable to GNC on the last day of each quarter
the Businesses were opened. If during any quarter less
than the full number of new Locations required by the
Development Schedule (taking into account one time, any
Location openings in prior periods in excess of the
minimum new Location operating requirements) are opened
and operating the Business, then Rite Aid shall pay to
GNC on the last day of such quarter a forfeiture payment
of Sixteen Thousand Dollars ($16,000) multiplied by the
shortfall. Amounts paid to GNC under this section as
forfeiture payments shall reduce the outstanding balance
of the development fee and shall be Rite Aid's sole
liability and GNC's sole remedy for the shortfall. If
the number of new Businesses opened during a quarter
exceed the full number of new Locations required by the
Development Schedule then the excess number of Locations
operating the Business may be applied one time to the
following quarter's or quarters' Business development
commitment.
- Rite Aid shall adhere to the following development
schedule for new Locations operating the Business:
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* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
2
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Cumulative Total Number of
Quarterly Commitment For New Locations Operating the
New Locations Operating Business which Rite Aid Shall
By (Date) the Business Have Open and in Operation
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June 30, 2004 [*] [*]
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September 30, 2004 [*] [*]
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December 31, 2004 [*] [*]
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March 31, 2005 [*] [*]
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June 30, 2005 [*] [*]
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September 30, 2005 [*] [*]
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December 31, 2005 [*] [*]
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March 31, 2006 [*] [*]
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June 30, 2006 [*] [*]
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September 30, 2006 [*] [*]
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December 31, 2006 [*] [*]
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2. Amendment of Article ▇. ▇▇▇▇▇ of License. A new Paragraph J. is added
after new Paragraph I. above as follows:
"J. Exclusivity Fee. In consideration for the continuation of the
Non-Competition Clause of Article XI as previously amended and restated,
Rite Aid shall pay to GNC an exclusivity fee of $[*] annually beginning
on May 1, 2004 (which shall be paid within 10 days following full
execution hereof) and each May 1 hereafter through and including May 1,
2008.
3. Amendment of Article II. "Term and Renewal." Paragraph II A. is
amended and restated as follows:
"A. This Agreement and the license granted herein begin on
December 8, 1998 and shall expire April 30, 2009, unless extended
or terminated sooner in accordance with the terms and conditions
of this Agreement. This Agreement shall be subject to early
termination as described in new Paragraph IV.E. below."
4. Amendment of Article II. "Term and Renewal," A new Paragraph II B.(3)
is hereby added to the Agreement as follows:
"(3) All Initial Fees unpaid to date (as of April 1, 2004,
$619,937) shall be paid in a lump sum to GNC within 10 days
following the full execution of this Amendment."
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* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
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5. Amendment of Article II. "Term and Renewal," A new Paragraph II B.(4)
is hereby added to the Agreement as follows:
"(4) During the Term and any extension of this Agreement Rite Aid
shall pay to GNC license renewal fees of $[*] beginning March 17,
2009 for each Store payable in lump sums at the 10th year
anniversary date of each such Store's opening with the Business."
6. Amendment of Article IV. A new Paragraph IV. E. "Minimum Product
Purchases" is hereby added to the Agreement as follows:
"E. Minimum Product Purchases. As specified in the attached
Exhibit A each specified period or calendar year Rite Aid shall
have a minimum net GNC Brand Product (excluding Consignment
Product) wholesale purchase requirement based on wholesale
shipments of GNC Brand Product (the "Minimum Purchase
Requirement").
(1) If the aggregate shipments to Rite Aid of GNC Brand Product
during the specified period or calendar year exceed the Minimum
Purchase Requirement, for the applicable period, then Rite Aid
shall be entitled to a rebate credit of 5% on the amount of
shipments exceeding the Minimum Purchase Requirements during that
period. If Rite Aid meets 100% of the Minimum Purchase
Requirement on a full Contract Year or partial period, then Rite
Aid may carry forward up to the excess between the 100% and 105%
of that year's requirement to the next full Contract Year's
Minimum Purchase Requirement or applicable partial period. If
Rite Aid elects to carry over such portion, then the
corresponding credit will be adjusted. The rebate will be
determined and credited to Rite Aid within sixty (60) days of the
applicable period end.
(2) If the amount of shipments of GNC Brand Products to Rite Aid
during the specified period or calendar year are less than the
Minimum Purchase Requirement for GNC Brand Products for the
applicable period (taking into account any adjustments for
service level as provided in section 8 below), then Rite Aid
shall pay to GNC on account of such shortfall the amounts
calculated pursuant to the schedule for Minimum Requirements for
GNC Brand Products attached hereto as Exhibit A. Although total
Volume Requirements are identified on Exhibit A, the calculation
of the payment for a shortfall in GNC Brand purchases shall be
calculated separately from the calculation under the Amendment to
Consignment Agreement for the payment for a shortfall, if any, in
consignment volume. For illustration purposes only, if the amount
of shipments of GNC Brand Products for the period May 2004
through December 2004 are $[*] and
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* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
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assuming no service level adjustments, the shortfall in this
example is $[*] and the payment by Rite Aid to GNC would be
calculated by multiplying [*]% ($[*] represents a [*]% shortfall
of the $[*] requirement) times the Minimum Purchase Requirement
for this period of $[*] which equals $[*]. Such amounts shall be
invoiced by GNC and paid by Rite Aid to GNC within sixty (60)
days of invoice.
(3) Criteria for Minimum Purchase Requirement requirements.
Attached hereto as Exhibit A is a schedule containing the Minimum
Purchase Requirements for the initial period from May 1 to
December 31, 2004 and each calendar year from 2005 to 2008, and
January 1, 2009 to April 30, 2009. Prior to expiration of the
April 2009 period, the parties will negotiate the Minimum
Purchase Requirements for the subsequent year or period of years.
The yearly Minimum Purchase Requirement shall be agreed to in
writing by the parties.
(4) If actual shipments in the aggregate from May 1, 2004 through
December 31, 2006 are less than 75% of the aggregate Minimum
Purchase Requirements through the same period (taking into
account any adjustments for service level as provided in Section
8 below) then GNC may, as its sole remedy (other than the
shortfall payment provisions of subsection 2 above) immediately
terminate the Agreement and the Consignment Agreement by sending
a Notice of Early Termination to Rite Aid on or before February
28, 2007. Provided, however, if actual shipments to Rite Aid of
both categories of GNC Brand Product and Consignment Product
combined aggregate 75% of the aggregate Minimum Purchase
Requirements under this Amendment and the Minimum Volume
Requirements under the May 2004 Amendment to the Consignment
Agreement, then GNC will not have the above Early Termination
right."
7. Amendment of Paragraph IV.B. (1) "Product Purchases." Paragraph IV.
B.(1) is hereby amended and restated as follows:
"(1) For GNC Brand Products in the GNC Plan-O-Gram not on
consignment to Rite Aid the price to be paid by Rite Aid will be
the GNP Standard Cost (calculated and determined consistent with
past practices since December 8, 1998) in effect on the date the
order is shipped multiplied by 1.719 with payment due forty-five
(45) days from receipt of goods."
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* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
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8. Amendment of Article IV. Paragraph B. "Product Purchases." The second
to the last sentence of the first paragraph is amended and restated with the
following two sentences:
"GNC will use its best efforts to supply Rite Aid under this
Agreement at a ship rate service level of not less than [*]% on
purchase orders placed by Rite Aid for GNC Brand Product,
calculated on a dollar value (dollars ordered versus dollars
shipped). There will be no penalties to GNC, but on an annual
basis for every percentage point or points (including fractional
for less than full percentage points) the actual ship rate is
below the [*]% ship rate service level, then the Minimum Purchase
Requirements for that same period shall be reduced by the same
percentage point or points (including fractional for less than
full percentage points)."
9. Amendment of Article IV. B. (5). "Product Disposition." Paragraph IV.
B.(5) is hereby amended and restated as follows:
"(5) Product Disposition. Effective May 1, 2004 the Rite Aid
Returns Agreement for GNC Brand Products only is terminated,
however, it shall continue in effect for GNC Consigned Product.
In lieu thereof and commencing May 1, 2004, GNC shall provide
Rite Aid with a [*]% off invoice allowance on all invoices for
GNC Brand Products. Product shipment discrepancies shall be
handled pursuant to the General Nutrition Products, Inc. Shipment
Discrepancy Policy with Rite Aid HDTQRS Corp., attached to the
November 2000 Amendment. Product recalls shall not be subject to
these provisions. GNC shall continue to be responsible for GNC
Brand Products recalled by the government, including FDA or by
manufacturers. For recalls of GNC Brand Product initiated by GNC
as well as for GNC Brand Products discontinued as a result of
Plan-O-Gram changes, returns shall be limited to full unopened
case quantities."
10. Amendment of Article VI. "Duties of Rite Aid." A new Paragraph H. is
hereby added to the Agreement as follows:
"H. Rite Aid shall implement the following merchandising and
advertising criteria as follows:
1. POP requirements as agreed to by the parties;
2. End Caps requirements as agreed to by the
parties;
3. Prominent placement of GNC's Mega Man and
Women's Ultra Mega, or other leading GNC Brand
Product designated by GNC
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* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
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and agreed to by Rite Aid in very close
proximity to the pick-up or drop-off shelves at
the primary pharmacy customer counter;
4. GNC Brand Products in the weekly Rite Aid
circular and Consigned Products at least monthly
in the weekly Rite Aid circular."
11. Amendment of Article ▇. ▇▇▇▇▇ of License. Paragraph E. is amended
and restated in its entirety as follows:
"E. During the Term neither GNC nor any of its affiliates shall
operate a GNC or General Nutrition Center under the System or the Comprehensive
System or any part thereof or otherwise operate or grant any other person or
entity any franchise, right or license to operate a store kiosk or outlet within
a Protected Territory that distributes or sells GNC Brand Products; except that
GNC may relocate existing General Nutrition Center Stores within the perimeter
of a circle with a two (2) mile radius provided the relocated General Nutrition
Center Store is not within the perimeter of a circle that has a Location
operating the Business and a radius of one (1) mile. In addition, GNC will not
expand the protected territory of an existing GNC franchisee or licensee or
grant a larger protected territory to any GNC franchisee or licensee than that
provided to Rite Aid in this Agreement."
12. Miscellaneous.
(a) Upon termination of this Agreement other than for default by
Rite Aid or by GNC pursuant to its early termination rights in
section 6 above, then Rite Aid shall have a nine (9) month
transition period to fully cease operation of the Business.
During this transition period, Rite Aid may continue to operate
the Business pursuant to the Agreement, including use of the
proprietary marks "GNC" and "GENERAL NUTRITION CENTER" and all
other proprietary marks and distinctive forms, slogans, signs,
symbols or devices associated with the System. All GNC quality
and operating standards during this transition period must be
maintained by Rite Aid. These transition provisions shall be in
addition to the Product sell-thru rights granted to Rite Aid in
Paragraph H of Article XV.
(b) The requirement for a minimum of twenty (20) hours per week by a
staff of trained employees dedicated to promoting the Business
specified in Article VI, Paragraph G of the Agreement, shall not
apply to Business Locations contributing in the bottom twenty
five percent (25%) of retail sales for the previous calendar
year; provided however, that Rite Aid shall maintain in those
Locations, the standards or procedures prescribed in the
Agreement and pursuant to the System.
Except as amended by this Amendment, the GNC/Rite Aid Retail Agreement
remains in full force and effect.
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IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Amendment as of May 1, 2004.
GENERAL NUTRITION SALES CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Title: Senior Vice President
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RITE AID HDTQRS CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Title: Senior Executive Vice President
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Execution
EXHIBIT A TO THE RETAIL AGREEMENT MAY 2004 AMENDMENT
[*]
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* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
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PAYMENTS REQUIRED IF RITE AID DOES NOT MEET THE ABOVE MINIMUM REQUIREMENTS
[*]
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* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
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