EXECUTION COPY
MAIN AGREEMENT
This Main Agreement (this "Agreement"), dated as of June 17, 1999, is
between drugstore.com, inc., a Delaware corporation ("drugstore.com"), and Rite
Aid Corporation, a Delaware corporation ("Rite Aid").
RECITALS:
Rite Aid is a leading drugstore in the United States with over 3800 stores.
drugstore.com is a leading Web-based drugstore.
In consideration of the agreements, covenants and conditions set forth
herein, intending to be legally bound, the parties hereto agree as follows:
Section 1. Definitions
Whenever used in this Agreement with initial letters capitalized, the
following terms will have the following specified meanings:
"Above the Fold" means situated within the portion of a page that is
designed to be visible on a standard computer screen without requiring the user
to scroll horizontally or vertically through the page, currently a resolution of
800 pixels by 600 pixels (such resolution to be updated through the Term as the
drugstore.com default design resolution changes).
"Action Links" means the hypertext links that direct users to different
areas of a single site or to new sites entirely.
"Affiliate" means, with respect to a party, any Person that, directly or
indirectly, Controls, or is Controlled by, or is under common Control with, such
party.
"Confidential Information" means the existence and terms of this Agreement
and all trade secrets, know-how and nonpublic information that relates to
research, development, trade secrets, know-how, inventions, source codes,
technical data, software programming, concepts, designs, procedures,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
selling, business plans or strategies and other proprietary or confidential
information, protectable under the laws of the United States or any other
nation, state or jurisdiction (including, but not limited to, any foreign
equivalents thereto).
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"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether by contract or through the ownership of voting securities, including the
ownership of more than fifty percent (50%) of the equity, partnership or similar
interest in such Person.
"Competitor" (i) of Rite Aid means (a) a Pharmacy Competitor, (b) a Third
Party that is a supermarket and/or (c) a Third Party that is a mass retail
merchandiser (such as Walmart or Target), (ii) of PCS means a Third Party
engaged in the business of pharmacy benefit management that claims to cover more
than 6,000,000 members, and (iii) of drugstore.com means (a) a Pharmacy
Competitor, (b) a Third Party that sells products or offers services typically
found in an Offline Retail Drugstore via the Internet, (c) a Third Party that is
a supermarket and/or (d) a Third Party that is a mass retail merchandiser (such
as Walmart or Target).
"Derivative" means (a) any enhancement, improvement or modification or (b)
any "derivative work" (as such term is defined in the U.S. Copyright Act, as
amended from time to time).
"Drugstore Chain" means any Third Party that Controls 10 or more Offline
Retail Drugstores whether or not all such stores operate under the same name or
Trademark.
"drugstore.com IPR" means (i) any and all IPR owned or licensable without
cost to drugstore.com by drugstore.com or any entity that it Controls, and (ii)
all Rite Aid Technology Derivatives and Derivatives of Rite Aid Technology
Derivatives made by or at the direction of drugstore.com or any entity that it
Controls.
"drugstore.com Site" means the site currently located at www.drugstore.com
(and any successor site, Mirror site or sites of any entity Controlled by
drugstore.com).
"Effective Time" has the meaning given to it in Section 16.14.
"Home Page" means (i) with respect to the drugstore.com Site, the page that
is displayed to the user when the URL www.drugstore.com or any successor URL is
entered, (ii) with respect to the Rite Aid Site, the page that is displayed to
the user when the URL www.riteaid.com or any successor URL is entered, and (iii)
with respect to the PCS Site, the page that is displayed to the user when the
URL www.PCSRx.com or any successor URL is entered.
"including" or "included," when used herein, shall be deemed to be followed
by the words "without limitation."
"Internet" means the Internet or the World Wide Web (or any successor or
other online network including those using delivery over television, cable, set
top boxes,
intranets, extranets and personal digital assistants (but not including using
any personal digital assistant or other device as a telephone)).
"IPR" means any copyright, Trademark, patent, trade secret, moral right or
other intellectual property or proprietary right of any kind (including
applications therefor and, in the case of patents, any continuation or
divisional patent applications claiming priority thereto), whether arising under
the laws of the United States or any other nation, state or jurisdiction
(including any foreign equivalents thereto).
"Joint IPR" means (i) any Derivatives of (a) Rite Aid Technology or (b)
Rite Aid Technology Derivatives, or (ii) any new IPR, in each case that is
created jointly by, or at the direction of, the parties.
"Mirror site" means an Internet site that (i) contains the exact form and
content of a site, (ii) is located at a geographic location distinct from a site
and (iii) is created for the purpose of improving the performance of and
accessibility to a site.
"Offline Retail Drugstore" means any Third Party drugstore that allows
customers to pick up orders for products at that drugstore.
"PCS" means PCS Health Systems, Inc., a Delaware corporation.
"PCS Preferred Network" means any retail network of Offline Retail
Drugstores established by PCS to fill drugstore.com customer orders for local
prescription pickup.
"PCS Site" means the site currently located at www.PCSRx.com (and any
successor site, Mirror site or sites of any entity Controlled by PCS).
"Permitted Store" means a Rite Aid retail drugstore and an Offline Retail
Drugstore that is a member of the PCS Preferred Network.
"Person" means any individual, corporation, partnership, limited liability
company, trust, association or other entity or organization, including any
governmental or political subdivision or any agency or instrumentality thereof.
"Pharmaceutical Products" means any product that under law may not be
dispensed except pursuant to a prescription dispensed by a licensed
professional.
"Pharmacy Agreement" means the Pharmacy Supply and Services Agreement dated
the date hereof between drugstore.com and Rite Aid.
"Pharmacy Competitor" means any Third Party that is a Drugstore Chain or
whose business substantially consists of the sale of Pharmaceutical Products to
consumers.
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"Pharmacy Services Page" means the first page a user sees on the
drugstore.com Site after clicking on the pharmacy tab, currently located at
www.drugstore.com/pharmacy.
"Rite Aid Formulary" means Rite Aid's or PCS's list of approved
Pharmaceutical Products and vendors.
"Rite Aid IPR" means any and all IPR owned or licensable without cost to
Ride Aid by Rite Aid or any entity that it Controls, including the Rite Aid
Technology and the Rite Aid Technology Derivatives and Derivatives of Rite Aid
Technology Derivatives made by or at the direction of Rite Aid or any entity
that it Controls.
"Rite Aid Site" means the site currently located at www.riteaid.com (and
any successor site, Mirror site or sites of any entity Controlled by Rite Aid).
"Rite Aid Technology" means the software (in both source and object code
forms) set forth on Exhibit A, to the extent owned or licensable (without cost
to Rite Aid) by Rite Aid during the Term.
"Rite Aid Technology Derivative" means a Derivative of any Rite Aid
Technology.
"Rite Aid Trademarks" means the Trademarks owned by Rite Aid set forth on
Exhibit B.
"Rollover Bar" means the textual bar that is displayed below the tabs on a
page.
"Series E Preferred Stock Purchase Agreement" means the Series E Preferred
Stock Purchase Agreement of even date herewith by and among drugstore.com, Rite
Aid, General Nutrition Companies, Inc. and General Nutrition Investment Company.
"Stock" means the capital stock of drugstore.com purchased by Rite Aid
pursuant to the Series E Preferred Stock Purchase Agreement.
"Term" means the period commencing on the Effective Time and ending on the
tenth anniversary of such date, subject to extension in accordance with Section
15.5.
"Third Party" means any Person that is not a party hereto or a wholly owned
Affiliate of a party hereto.
"Trademark(s)" means all common law or registered trademarks, logos,
service marks, trade names, Internet domain names and trade dress rights and
similar or
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related rights arising under any of the laws of the United States or any other
country or jurisdiction, whether now existing or hereafter adopted or acquired.
Section 2. Payer Contracts
Rite Aid will use commercially reasonable efforts to assist drugstore.com
in obtaining provider numbers from payers engaged in the business of
establishing and administering networks of pharmacies at which prescriptions for
Pharmaceutical Products may be filled for individuals whose prescriptions are
paid for by insurers, health plans and other Third Parties.
Section 3. Pharmacy Information
3.1 Subject to customer and any other required consents, the parties will
(i) share customer insurance and drug profiles to pre-populate customer profiles
on the drugstore.com Site and (ii) systematically and promptly update each
other's shared customer profiles to reflect any new information acquired with
respect to any such profiles. Rite Aid will provide drugstore.com with its
privacy policy for inclusion on the drugstore.com Site. Rite Aid and
drugstore.com will, as between one and the other, own customer data related to
the sale of Pharmaceutical Products as follows: (a) Rite Aid will own all such
data relating to customers that fill their prescriptions at Rite Aid retail
stores which prescriptions are not ordered by the customer through the
drugstore.com Site; (b) Rite Aid and drugstore.com will co-own all such data
relating to (i) customers whose orders are filled by Rite Aid under the Pharmacy
Agreement and (ii) customers whose orders are processed by drugstore.com using
the Rite Aid Technology; and (c) drugstore.com will own all other customer data.
3.2 With respect to customers whose orders are filled by Rite Aid and
shipped by drugstore.com, Rite Aid shall neither transmit nor disclose such
customers' data to Third Parties nor shall it use such customers' data to market
to such customers.
Section 4. Exclusivity
4.1 Rite Aid will not, and will not permit any entity that it Controls to,
(i) directly or indirectly, sell to or take orders from consumers for products
over the Internet or (ii) promote any Person other than drugstore.com that is
engaged in any activity described in clause (i) above; provided, however, that
Rite Aid may (1) sell products over the Internet that drugstore.com elects not
to sell after having been provided the opportunity to sell such products in
accordance with the procedures set forth below, (2) advertise the Rite Aid Site
and the PCS Site without reference to the drugstore.com Site and (3) in its
stores and on the Rite Aid Site and PCS Site, permit advertisements and other
promotional materials from manufacturers, including a reference to such
manufacturers own URL's, provided that the site referenced includes only
information and products from that manufacturer. If Rite Aid or any entity that
it Controls desires to sell any product to consumers over the Internet pursuant
to clause
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(1) above, it shall first offer drugstore.com the opportunity to sell such
product on the drugstore.com Site. drugstore.com will have 10 days from the date
of receipt of such notification to determine whether to sell such product. In
the event drugstore.com opts to sell such product, it must commence such sale as
soon as reasonably practicable.
4.2 drugstore.com will not, and will not permit any entity that it
Controls to (i) promote any Offline Retail Drugstore, (ii) operate or contract
with any Person to operate or manage an Offline Retail Drugstore on behalf of
drugstore.com, (iii) operate or manage an Offline Retail Drugstore on behalf of
any Third Party, (iv) contract with any Third Party, other than Rite Aid or PCS
or their Affiliates, for the filling of orders for Pharmaceutical Products
placed on any drugstore.com Site(s), (v) promote a Pharmaceutical Product that
is not on the Rite Aid Formulary without first offering such promotional
opportunity to a manufacturer listed on the Rite Aid Formulary or (vi) operate
or establish directly or through any entity it Controls, a network of Offline
Retail Drugstores at which orders for Pharmaceutical Products can be filled;
provided, however, that the foregoing shall not prohibit drugstore.com or any
entity that it Controls from doing any or all of the following (1) with respect
to a customer whose Pharmaceutical Products are paid for, in whole or in part,
by an insurer, employer or other Third Party pursuant to a pharmacy benefit plan
administered by PCS, accepting orders for Pharmaceutical Products that are to be
available to the customer for pick-up at an Offline Retail Drugstore, provided,
that the Offline Retail Drugstore is either (A) a Permitted Store or (B) located
more than five (5) miles from a Permitted Store or (2) applying for, obtaining
and operating the drugstore.com mail order pharmacy under a provider number
assigned to drugstore.com by a pharmacy benefit manager or (3) no earlier than
nine months from the date Rite Aid is obligated to commence providing pharmacy
services at Rite Aid retail stores pursuant to the Pharmacy Agreement, with
respect to a customer whose Pharmaceutical Products are paid for, in whole or in
part, by an insurer, employer or other Third Party pursuant to a pharmacy
benefit plan administered by an entity other than PCS, accepting orders for
Pharmaceutical Products that are to be available to the customer for pick-up at
an Offline Retail Drugstore, provided that (x) any such Offline Retail Drugstore
is located more than five (5) miles from any Rite Aid retail store and (y) if
drugstore.com is contracting with any such Offline Retail Drugstore through a
pharmacy benefit plan administrator, Rite Aid has been offered the opportunity
to have Rite Aid retail stores fill orders for Pharmaceutical Products for such
customers on the same terms as such other Offline Retail Drugstore.
4.3 Notwithstanding any of the foregoing, drugstore.com is permitted to
indicate on the drugstore.com Site the availability of retail pickup at Offline
Retail Drugstores other than those owned or operated by Rite Aid, provided, that
in those areas in which Rite Aid has a retail presence, drugstore.com customers
will always be presented with Rite Aid Offline Retail Drugstores as their first
option, including by listing all Rite Aid Offline Retail Drugstores first in any
store locator feature on the drugstore.com Site.
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4.4 Rite Aid will not fill orders for Pharmaceutical Products for entities
other than drugstore.com that are engaged in the dispensing of Pharmaceutical
Products to customers who place orders via the Internet (an "Internet
Drugstore").
4.5 drugstore.com shall not (i) brand any area of the drugstore.com Site
with the Trademark of any Rite Aid Competitor, or (ii) offer for sale or promote
on the drugstore.com Site any private label product of any Rite Aid Competitor.
4.6 The provisions of this Section 4 will not be applicable to
drugstore.com's operations outside the United States and shall not limit
drugstore.com's ability to partner with and promote an Offline Retail Drugstore
that has no Offline Retail Drugstore in the United States. In the event any
such non-U.S. partner subsequently develops any presence in the United States,
including by purchasing an Offline Retail Drugstore in the United States,
drugstore.com shall forthwith take any actions that may be necessary to place it
in compliance with this Agreement.
4.7 On the date Rite Aid is first obligated to commence the provision of
pharmacy services at its retail stores pursuant to the Pharmacy Agreement, Rite
Aid shall: (i) cease accepting orders for or filling prescriptions through the
Rite Aid Site; (ii) redirect via a hypertext link all customers that visit the
Rite Aid Site to the Pharmacy Services Page; (iii) notify its customers of its
new relationship with drugstore.com by posting a notice on the Rite Aid Site;
and (iv) notify via e-mail those customers who have previously agreed to accept
e-mail messages from Rite Aid of its new relationship with drugstore.com.
Section 5. Brands and Advertising
The pharmacy at the drugstore.com Site shall be co-branded with a Rite Aid
Trademark. Where feasible, all advertising material primarily relating to
pharmacy shall refer to the pharmacy as "the Pharmacy from Rite Aid and
drugstore.com."
5.1 drugstore.com Home Page
5.1.1 One of the Rite Aid Trademarks designated by Rite Aid shall be
featured Above the Fold on the Home Page of the drugstore.com Site. This Rite
Aid Trademark shall not be smaller than a title of any module on the
drugstore.com Home Page with the exception of the showcase module, which shall
likely be larger. The word "Rite Aid" shall be included in the Rollover Bar for
the "pharmacy" tab so long as the "pharmacy" tab and Rollover Bar exist on the
drugstore.com Site.
A sample drugstore.com Home Page, indicating representative samples of what
drugstore.com considers a "title," a "module" and the "showcase module," is
attached hereto as Schedule 5.1. Rite Aid acknowledges that the format of the
drugstore.com Home Page may evolve over the Term. In the event drugstore.com
changes its format so that it does not use modules or titles, the parties shall
negotiate the placement of the
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Rite Aid Trademark on the reformatted drugstore.com Home Page with the intent
that the Rite Aid Trademark shall have substantially similar prominence on the
reformatted drugstore.com Home Page.
5.1.2 Rite Aid shall provide drugstore.com with samples of Rite Aid
Trademarks for use in advertising and on the drugstore.com Site. Without Rite
Aid's prior written approval, drugstore.com may not use Trademarks owned by Rite
Aid other than the Rite Aid Trademarks used on the drugstore.com Site or in
connection with its advertising of the drugstore.com Site.
5.1.3 Rite Aid shall provide drugstore.com with a set of pre-approved
statements to describe the Rite Aid pharmacy. Any one of such statements may be
featured with the Rite Aid Trademarks on the drugstore.com Home Page.
5.1.4 Subject to Section 5.4, the parties shall collaborate on the
content included in, and the presentation of, the Action Links, provided that
drugstore.com shall have the final right of approval with respect to such
content and presentation.
5.2 Rite Aid and PCS Home Pages
5.2.1 One of the drugstore.com Trademarks designated by drugstore.com
shall be featured prominently Above the Fold on the Home Pages of the Rite Aid
Site and the PCS Site together with clear reference to the pharmacy services
provided at the drugstore.com Site using statements mutually agreed upon by the
parties. With the exception of the Rite Aid Trademark, the drugstore.com
Trademark shall not be smaller than any other Trademarks placed on the Rite Aid
Site or the PCS Site.
5.2.2 drugstore.com shall provide Rite Aid and PCS with samples of
drugstore.com Trademarks for use in advertising and on the Rite Aid Site and the
PCS Site. Without drugstore.com's written approval, neither Rite Aid nor PCS
may use Trademarks owned by drugstore.com other than the drugstore.com
Trademarks used on the Rite Aid Site and the PCS Site or in connection with Rite
Aid's and PCS's advertising of the Rite Aid Site and the PCS Site, respectively.
5.2.3 Subject to Section 5.4, Rite Aid and drugstore.com and PCS,
respectively, shall collaborate on the content included in, and the presentation
of, the Action Links, provided that Rite Aid or PCS, as applicable, shall have
the final right of approval with respect to such content and presentation.
5.3 Pharmacy Services Page
5.3.1 At the commencement of the Term, and until changed as provided
herein, a Rite Aid Trademark designated by Rite Aid shall appear immediately
below the top navigation bar on the Pharmacy Services Page. Any change of the
location of any such Rite Aid Trademark must be pre-approved by Rite Aid. The
word "Rite Aid"
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shall be included in the Rollover Bar for the "pharmacy" tab so long as the
"pharmacy" tab and Rollover Bar exist on the drugstore.com Site.
5.3.2 At the request of drugstore.com, Rite Aid shall provide
drugstore.com with a set of Frequently Asked Questions ("FAQs") and answers
thereto to be used by drugstore.com at its option in conjunction with
drugstore.com's FAQs, provided that drugstore.com must incorporate any updates
provided by Rite Aid into any Rite Aid FAQs and answers it uses.
5.3.3 Subject to Section 5.4, the parties shall collaborate on the
content included on the Pharmacy Services Page and use of the Rite Aid
Trademarks on the Pharmacy Services Page, provided that drugstore.com shall have
the final right of approval with respect to such content and use.
5.4 Content
5.4.1. Rite Aid shall not knowingly publish on the Rite Aid Site, and
drugstore.com shall not knowingly publish on the drugstore.com Site, any
content, including Action Links, that is contrary to law or false or misleading
in any material respect. Any content that either party reasonably determines to
be contrary to law or false or misleading in any material respect shall be
removed, upon notice from the determining party, as soon as practicable by the
offending party. After such removal, the parties may bring the dispute to the
advertising liaisons for immediate resolution.
5.4.2. Rite Aid shall have final approval regarding any
representations made relating to the quality of Rite Aid pharmacy and Rite Aid
pharmacist services. drugstore.com shall have final approval regarding any
representations made relating to the quality of drugstore.com pharmacy and
drugstore.com pharmacist services.
5.5 drugstore.com Advertising Obligations
5.5.1 All drugstore.com advertising through a medium other than the
drugstore.com Site and primarily focused on the pharmacy services provided by
drugstore.com shall be co-branded with the drugstore.com and Rite Aid
Trademarks.
5.5.2 Unless made in close conjunction with a reference to a Rite Aid
Trademark or in e-mails from drugstore.com to its customers, statements
regarding the pharmacists in advertising and on the pages of the drugstore.com
Site shall identify the pharmacists as "the pharmacists from Rite Aid and
drugstore.com."
5.5.3 The parties shall collaborate on efforts related to the cross-
marketing of pharmacy services with nutritional supplements. drugstore.com
agrees to participate in an initial project whereby Rite Aid will provide
drugstore.com with a list of 6-10 items that drugstore.com shall use for such
cross-marketing purposes.
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drugstore.com shall have final approval with respect to any decisions relating
to any such cross-marketing.
5.5.4 If drugstore.com generally makes available to Third Parties
banner advertisements on the drugstore.com Site, drugstore.com will use some of
its house inventory to promote the co-branded drugstore.com/Rite Aid pharmacy.
Except as set forth in Section 4.2, drugstore.com will not accept advertising
from any of (i) a Rite Aid Competitor, (ii) a PCS Competitor or (iii) an entity
not on the Rite Aid Formulary.
5.6 Rite Aid Advertising Obligations
5.6.1 During each year of the Term, Rite Aid shall include
drugstore.com in its advertising efforts such that the drugstore.com Trademarks
or tagline are featured in an amount of media (measured by the actual dollar
cost to Rite Aid) equal to at least 25% of Rite Aid's actual annual marketing
expenditures as reflected in Rite Aid's books and records (based on Rite Aid's
fiscal year and pro rata for any portion thereof). In all media except audio-
only media, a drugstore.com Trademark shall be displayed and in audio media,
including television and radio, the drugstore.com name must be stated.
drugstore.com will be entitled to audit Rite Aid's applicable books and
records on an annual basis in order to monitor Rite Aid's compliance with the
foregoing obligations. Such audit shall take place at such location where Rite
Aid maintains its books and records and during reasonable business hours and may
be assisted by drugstore.com's accountants. In connection with any such audit,
Rite Aid shall provide drugstore.com and its accountants with access to the
applicable books and records and to appropriate employees of Rite Aid, and shall
otherwise cooperate with such audit in a reasonable manner. All audits shall be
at the expense of drugstore.com; provided, however, that if any annual audit
reveals non-compliance by Rite Aid of 5% or more, such audit shall be at the
expense of Rite Aid. In the event any annual audit reveals a shortfall in Rite
Aid's annual spending obligations under this Section 5.6.1, Rite Aid shall make
up such shortfall in the succeeding six months in addition to its spending
obligations during such succeeding period. Subject to seasonality, Rite Aid
agrees that its annual spending obligations under this Section 5.6.1 shall be
spread reasonably evenly throughout each year of the Term.
5.6.2 Rite Aid shall as soon as practicable implement the following
efforts in addition to its advertising obligations under Section 5.6.1: (i)
drugstore.com branding on Rite Aid shopping bags and Rx bags; (ii) drugstore.com
branding on in-store signage as appropriate; (iii) printing of the drugstore.com
URL, www.drugstore.com, on cash register receipts; (iv) co-branding vial caps
(with logos and a design to be mutually agreed upon) for use with all
prescriptions filled by Rite Aid; and (v) to the extent practicable, preprinting
of the drugstore.com URL on all prescription labels used on prescriptions filled
through the drugstore.com Site. The
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requirements of this Section 5.6.2 shall not preclude Rite Aid from using its
current inventory, if any, of any of the foregoing items.
5.6.3 The parties' obligations under this Section 5 shall begin as
soon as commercially reasonable following the initial promotion on
drugstore.com's Home Page of Rite Aid and its association with drugstore.com's
pharmacy services.
5.6.4 In the event of any dispute concerning Rite-Aid's advertising-
related obligations, the parties will follow the dispute resolution procedures
set forth in Section 14.
Section 6. Merchandising
6.1 Rite Aid Assistance
To assist drugstore.com in its merchandising efforts, Rite Aid will do the
following: (i) introduce drugstore.com to its vendors; (ii) use reasonable
efforts consistent with applicable laws to encourage vendors to provide
drugstore.com best pricing and cooperative marketing opportunities; (iii) invite
drugstore.com to its annual vendor meetings and provide drugstore.com a booth at
its annual tradeshow; (iv) conduct annual category management best practices
seminars; (v) collaborate in the development of unique marketing concepts to
jointly pursue with vendors; and (vi) provide drugstore.com the right to
purchase those nonpharmacy products that Rite Aid regularly stocks in its
distribution centers directly from Rite Aid at the prices and terms set forth in
Schedule 6.1.
6.2 Assortment
drugstore.com will determine in its sole discretion the assortment,
pricing, promotions and other marketing and merchandising activities associated
with the drugstore.com Site. Each party will present to the other party on a
quarterly basis their product assortment plans, although both parties
acknowledge that these plans may change in the sole discretion of the planning
party.
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Section 7. Technology Integration and License
7.1 Technology Integration
The integration of Rite Aid Technology with drugstore.com's pharmacy
systems shall take place in accordance with the specification and schedule
outlined in Schedule 7.1. Rite Aid and drugstore.com each agree to use their
best efforts to accomplish the technology integration described in Schedule 7.1
on the schedule set forth therein. Each party will pay its own costs associated
with the technology integration. Rite Aid and drugstore.com will each assign to
the projects described in Schedule 7.1 at least the minimum number of technology
personnel set forth in Schedule 7.1. As soon as practicable after the Effective
Time, the parties will agree on a procedure for resolving issues relating to
technology integration and technology support that will involve an escalation to
senior management such that all issues may be resolved as soon as possible.
7.2 License to IPR
7.2.1 Rite Aid hereby grants to drugstore.com, and its wholly owned
Affiliates, a royalty-free, worldwide, nonexclusive license (without any right
to transfer or sublicense) under the Rite Aid IPR, to use, copy, publicly
display, publicly perform, and create Derivatives of, the Rite Aid Technology
and Rite Aid Technology Derivatives made by Rite Aid, for use in connection with
the drugstore.com business. The foregoing license grant is worldwide, provided
that drugstore.com shall not use, publicly display or publicly perform the Rite
Aid Technology and/or Rite Aid Technology Derivatives in or at any Offline
Retail Drugstore owned or operated by drugstore.com or any entity that it
Controls anywhere in the world.
7.2.2 drugstore.com hereby grants to Rite Aid, and its wholly owned
Affiliates, a royalty-free, worldwide, nonexclusive license (without any right
to transfer or sublicense) under the drugstore.com IPR, to use, copy, publicly
display, publicly perform, and create Derivatives of, the Rite Aid Technology
Derivatives made by drugstore.com, for use in connection with the Rite Aid
business. The foregoing license grant is subject to any limitations imposed by
Third Parties on drugstore.com and the terms and conditions of this Agreement,
including the exclusivity provisions set forth in Section 4.
7.3 License to Trademarks
7.3.1 drugstore.com hereby grants to Rite Aid and any of its wholly
owned entities a non-exclusive, royalty-free, worldwide license in all
jurisdictions in which drugstore.com has any rights, to use, reproduce,
distribute and display the drugstore.com Trademarks in connection with the Rite
Aid pharmacy operations and the agreements among the parties with respect to
merchandising and advertising.
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7.3.2 Rite Aid hereby grants to drugstore.com and any of its wholly
owned entities a non-exclusive, royalty-free, worldwide license in all
jurisdictions in which Rite Aid has any rights, to use, reproduce, distribute
and display the Rite Aid Trademarks in connection with the drugstore.com
pharmacy operations and the agreements among the parties with respect to
merchandising and advertising.
7.3.3 Each party shall have the right to exercise quality control
over the use of its Trademarks by the other party to the degree necessary, in
the sole opinion of the owner of such Trademarks, to maintain the validity and
enforceability of such Trademarks and to protect the goodwill associated
therewith. Each party shall, in its use of the other's Trademarks, adhere to a
level of quality at least as high as that used by such party in connection with
its use of its own Trademarks. If the owner of a Trademark, in its reasonable
opinion, finds that use of such Trademark by the other party materially
threatens the goodwill of such Trademark, the user of such Trademark shall, upon
notice from the owner, immediately, and no later than ten (10) days after
receipt of such owner's notice, take all measures reasonably necessary to
correct the deviation(s) or misrepresentation(s) in, or misuse of, the
applicable Trademark.
7.3.4 Each party shall use the other's Trademarks in accordance with
sound trademark and trade name usage principles and in compliance with all
applicable laws and regulations of the United States (including all laws and
regulations relating to the maintenance of the validity and enforceability of
such Trademarks) and shall not use the Trademarks in any manner that might
tarnish, disparage, or reflect adversely on the Trademarks or the owner of such
Trademarks. Each party shall use, in connection with the other's Trademarks, all
legends, notices and markings required by law. No party may materially alter the
appearance of another's Trademarks in any advertising, marketing, distribution,
or sales materials, or any other publicly distributed materials without the
prior written consent of the other party.
7.4 Access to Rite Aid Technology
Rite Aid will provide drugstore.com with user identifications and passwords
on an as-needed basis for the purpose of filling prescriptions for
Pharmaceutical Products. All use of the user identifications, passwords and
Rite Aid Technology shall be subject to Rite Aid's then-current privacy, data
access, and other applicable policies.
7.5 Reservation of Rights
Rite Aid reserves ownership of the Rite Aid Technology. Except as
specifically authorized or granted hereunder, no right, title or interest in, to
or under any of the Rite Aid Technology is granted, created, assigned or
otherwise transferred to drugstore.com pursuant to or by virtue of this
Agreement.
7.6 Maintenance of drugstore.com Site
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drugstore.com shall use reasonable efforts to maintain the drugstore.com
Site such that up-time, scalability, back-up capability, security and response
time meet the then current generally accepted standards for E-commerce sites on
the World Wide Web.
7.7 Amazon Technology
Rite Aid and drugstore.com acknowledge that nothing in this Agreement will
constitute a license in, or otherwise transfer any rights relating to, any IPR
owned or Controlled by Amazon.com, Inc. or its corporate Affiliates.
drugstore.com agrees that it will not incorporate any Amazon.com, Inc.
technology or IPR into any Rite Aid Technology, Rite Aid Technology Derivative,
or any Derivative of the foregoing.
Section 8. IPR Ownership
8.1 Ownership by Rite Aid
As between Rite Aid and drugstore.com, Rite Aid shall own all Rite Aid IPR.
8.2 Ownership by drugstore.com
As between Rite Aid and drugstore.com, drugstore.com shall own all
drugstore.com IPR.
8.3 Underlying Work
Notwithstanding the provisions of Section 8.1 and 8.2, the ownership of a
Derivative shall not in itself convey any ownership or exploitation rights in
the underlying work from which the Derivative was created.
8.4 Joint Ownership
The parties shall jointly own any Joint IPR, without any obligation to
account to the other for any revenues earned from the exploitation of the Joint
IPR. These ownership rights are subject to the terms and conditions of this
Agreement, including the exclusivity provisions set forth in Section 4.
Notwithstanding each party's ownership interest, (i) Rite Aid shall not transfer
the Joint IPR to, or use the Joint IPR in connection with, any business that is
operated by, with or for, or branded by, with or for, a Pharmacy Competitor; and
(ii) drugstore.com shall not transfer the Joint IPR to, or use the Joint IPR in
connection with, any business operated by, with or for, or branded by, with or
for, a Pharmacy Competitor. The foregoing limitation on ownership interests
shall survive the expiration or termination of this Agreement for any reason.
8.5 Assistance in Perfecting Title
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During and after the Term, each party shall, at the other party's expense,
perform any actions and execute any documents necessary to perfect the other
party's title in its IPR.
Section 9. Technical and Advertising Communications
9.1 Advertising
The parties will:
(i) each appoint a liaison to oversee and address issues and disputes
regarding ongoing advertising activities; and
(ii) each appoint one senior marketing representative, that will meet on at
least a calendar quarterly basis to discuss opportunities and establish
advertising goals of the parties for the next calendar quarter, establish
general long term marketing strategies and review Rite Aid's marketing
expenditures for the prior quarter pursuant to Section 5.6.
Any advertising-related dispute not resolved by the liaisons shall be
subject to the dispute resolution procedures set forth in Section 14.
9.2 Joint Technology Support
9.2.1. As requested by drugstore.com, Rite Aid will provide to
drugstore.com copies of the Rite Aid Technology in such manner as mutually
agreed upon by the parties for use by drugstore.com in accordance with the terms
of this Agreement.
9.2.2. The parties will:
(a) each appoint a technical liaison to oversee and address
issues regarding the parties' ongoing efforts to integrate the Rite
Aid Technology with the drugstore.com systems; and
(b) provide to each other updated copies, if any, of the Rite
Aid Technology and the Rite Aid Technology Derivatives on a periodic
basis when available, in such manner and at such times as mutually
agreed upon by the parties, for use by the parties in accordance with
the terms of this Agreement.
9.2.3 Any technology-related dispute not resolved by the liaisons
shall be subject to the dispute resolution procedures set forth in Section 14.
9.3 Oversight
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Each party will appoint a senior executive officer to oversee and have
overall responsibility for the administration of this Agreement and the parties'
business relationship contemplated by this Agreement and the Pharmacy Agreement.
Such senior executive officers will meet, either in person or by telephone
conference, at least once each calendar quarter.
Section 10. Representations and Warranties
10.1 Representations and Warranties of drugstore.com
10.1.1 drugstore.com hereby represents and warrants to Rite Aid:
(a) Authorization. All corporate action on the part of
drugstore.com, its officers, directors and stockholders necessary for
the authorization, execution and delivery of this Agreement, the PCS
Provider Agreement by and between drugstore.com and PCS, the Eagle
Provider Agreement by and between drugstore.com and Eagle Managed Care
("Eagle"), the Addendum to Provider Agreements by and among
drugstore.com, Rite Aid, PCS and Eagle and the Pharmacy Agreement
(collectively, the "Agreements"), and the performance of all
obligations of drugstore.com hereunder and thereunder has been taken,
and the Agreements, when executed and delivered by drugstore.com, will
constitute valid and legally binding obligations of drugstore.com,
enforceable against drugstore.com in accordance with their terms
except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights
generally, as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
(b) Intellectual Property. To its knowledge, drugstore.com owns or
possesses sufficient legal rights to all IPR necessary for its
business as now conducted without any conflict with, or infringement
of, the rights of others. drugstore.com has not received any written
communications alleging that any drugstore.com technology or
drugstore.com Trademarks have violated or would violate any of the IPR
of any Third Party. drugstore.com is not aware that any of its
employees is obligated under any contract or other agreement, or
subject to any judgment, decree or order of any court or
administrative agency, that would interfere with such employee's
ability to promote the interests of drugstore.com or that would
conflict with drugstore.com's business. Neither the execution,
delivery or performance of the Agreements, nor the carrying on of
drugstore.com's business as now conducted by the employees of
drugstore.com, will, to drugstore.com's knowledge,
17
conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, any contract, covenant
or instrument under which any such employee is now obligated.
drugstore.com does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to
hire) made prior to their employment by drugstore.com
(c) Compliance with Other Instruments. The execution, delivery
and performance of the Agreements and the consummation of the
transactions contemplated thereby will not result in any violation of
or be in conflict with or constitute, with or without the passage of
time and giving of notice, a default under any provision of
drugstore.com's or any of its subsidiaries' charter or bylaws or any
instrument, judgment, order, writ, decree or contract to which
drugstore.com or any of its subsidiaries is a party or by which
drugstore.com or any of its subsidiaries is bound, or any provision of
any federal or state statute, rule or regulation applicable to
drugstore.com or any of its subsidiaries, the effect of which would
have a material adverse effect on the ability of drugstore.com or any
of its subsidiaries to perform its obligations under the Agreements or
result in the creation of any lien, charge or encumbrance upon any
assets of drugstore.com or any of its subsidiaries.
(d) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, DRUGSTORE.COM MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY
KIND WHATSOEVER, DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY GOODS OR
SERVICES TO BE PROVIDED UNDER THE AGREEMENTS, OTHER THAN THOSE
EXPRESSLY SET FORTH IN THE AGREEMENTS.
10.2 Representations and Warranties of Rite Aid
10.2.1 Rite Aid hereby represents and warrants to drugstore.com:
(a) Authorization. All corporate action on the part of Rite Aid,
its officers, directors and stockholders necessary for the
authorization, execution and delivery of the Agreements to which Rite
Aid is a party, and the performance of all obligations of Rite Aid
thereunder has been taken, and the Agreements to which Rite Aid is a
party, when executed and delivered by Rite Aid, will constitute valid
and legally binding obligations of Rite Aid, enforceable against Rite
Aid in accordance with their terms except as limited by applicable
bankruptcy, insolvency,
18
reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights
generally, as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
(b) Intellectual Property. To its knowledge, Rite Aid owns or
possesses sufficient legal rights to all IPR necessary for its
business as now conducted without any conflict with, or infringement
of, the rights of others. Rite Aid has not received any written
communications alleging that any Rite Aid Technology or Rite Aid
Trademarks have violated or would violate any of the IPR of any Third
Party. Rite Aid is not aware that any of its employees is obligated
under any contract or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would
interfere with such employee's ability to promote the interests of
Rite Aid or that would conflict with Rite Aid's business. Neither the
execution, delivery or performance of the Agreements to which Rite Aid
is a party, nor the carrying on of Rite Aid's business as now
conducted by the employees of Rite Aid, will, to Rite Aid's knowledge,
conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, any contract, covenant
or instrument under which any such employee is now obligated. Rite Aid
does not believe it is or will be necessary to use any inventions of
any of its employees (or persons it currently intends to hire) made
prior to their employment by Rite Aid.
(c) Compliance with Other Instruments. The execution, delivery and
performance of the Agreements to which Rite Aid is a party and the
consummation of the transactions contemplated thereby will not result
in any violation of or be in conflict with or constitute, with or
without the passage of time and giving of notice, a default under any
provision of Rite Aid's or any of its subsidiaries' charter or bylaws
or any instrument, judgment, order, writ, decree or contract to which
Rite Aid or any of its subsidiaries is a party or by which Rite Aid or
any of its subsidiaries is bound, or any provision of any federal or
state statute, rule or regulation applicable to Rite Aid or any of its
subsidiaries, the effect of which would have a material adverse effect
on the ability of Rite Aid or any of its subsidiaries to perform its
obligations under the Agreements to which Rite Aid is a party or
result in the creation of any lien, charge or encumbrance upon any
assets of Rite Aid or any of its subsidiaries.
(d) Internet Business. During the twelve (12) month period ended
May 31, 1999, Rite Aid customers ordered 353,844 refill prescriptions
using the Internet. For the 41 days ended May 11, 1999, Rite Aid's
revenues from such sales were $2,559,181 (or $22,782,952 on
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an annualized basis for the twelve (12) month period ended May 11,
1999).
(e) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, RITE AID MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND
WHATSOEVER, DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE, WITH RESPECT TO ANY GOODS OR SERVICES TO BE
PROVIDED UNDER THE AGREEMENTS TO WHICH RITE AID IS A PARTY, OTHER THAN
THOSE EXPRESSLY SET FORTH IN THE AGREEMENTS TO WHICH RITE AID IS A
PARTY.
10.3 Survival
The representations and warranties of drugstore.com and Rite Aid set forth
in 10.1 and 10.2 shall survive until the earlier of (i) the consummation by
drugstore.com of an underwritten public offering (an "IPO") of shares of
drugstore.com Common Stock pursuant to a registration statement filed under the
Securities Act of 1933 and (ii) ten (10) business days after the delivery by
drugstore.com to Rite Aid of drugstore.com's audited balance sheet as of
December 31, 1999 and audited statements of income and cash flows for the 12
months ended December 31, 1999.
Section 11. Indemnification
11.1 Indemnification
Rite Aid and drugstore.com each shall indemnify and hold harmless the other
and its divisions, its Affiliates and its officers, directors, employees,
representatives and agents (the "Indemnified Parties") from and against (i) any
and all liabilities, suits, costs, judgments, penalties, expenses, obligations,
losses and damages arising from or related to claims or actions made by a Third
Party, including any obligation or liability which may be imposed upon any of
the Indemnified Parties as a matter of law, and constituting, or in any way
based upon, resulting from or arising out of any breach or alleged breach by
Rite Aid or drugstore.com, as applicable, of any representation, warranty,
agreement or covenant made by such party in this Agreement, and (ii) any cost or
expense (including legal fees and out-of-pocket expenses) reasonably incurred by
any of the Indemnified Parties (and their counsel) in investigating, preparing
for, defending against or otherwise taking any action in connection with any of
the foregoing (collectively "Damages").
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11.2 Procedure
Subject to the provisions of Section 12, if any claim, demand, assessment
or liability or cost incidental thereto (collectively, an "Indemnified Claim"),
is asserted against an Indemnified Party in respect of which the Indemnified
Party proposes to demand indemnification from the other party (the "Indemnifying
Party") pursuant to Section 11.1, such Indemnified Party will promptly notify
the Indemnifying Party in writing. No failure of an Indemnified Party to so
notify the Indemnifying Party shall relieve the Indemnifying Party from the
obligation to indemnify the Indemnified Party unless and to the extent the
Indemnifying Party is actually prejudiced by such failure. Such Indemnified
Party will accord the Indemnifying Party the opportunity to assume entire
control for the defense, compromise or settlement of any such Indemnified Claim
through its own counsel and at its own expense; provided that no such compromise
or settlement shall include any non-monetary terms and conditions applicable to
such Indemnified Party without the consent of the Indemnified Party; and
provided further, that the Indemnified Party may retain its own counsel at its
own expense (the Indemnifying Party shall only be liable for the cost of one
such counsel for all Indemnified Parties) if (i) the Indemnifying Party, within
thirty (30) days after notice of any Indemnified Claim, fails to assume the
defense of such Indemnified Claim or (ii) the representation of both the
Indemnifying Party and the Indemnified Party would, in the reasonable judgment
of the parties, be inappropriate due to actual or potential conflicting
interests between them. If the Indemnifying Party does not assume entire
control of the defense, compromise or settlement of such Indemnified Claim, the
Indemnified Party may compromise or settle any such Indemnified Claim.
drugstore.com and Rite Aid each agrees to cooperate fully with respect to the
defense of any Indemnified Claim.
Section 12. Infringement Claims
12.1 Legal Action for Infringement of IPR
12.1.1 Rite Aid reserves any and all rights to commence, prosecute,
compromise and settle any claim, action or proceeding for infringement, unfair
competition, unauthorized use, misappropriation or violation of any of the Rite
Aid IPR by any Third Party. Rite Aid may commence, prosecute, compromise or
settle any such claim, action or proceeding, as well as any claim, action or
proceeding to defend any of the Rite Aid IPR, in its sole discretion, but shall
not have any obligation to do so. Rite Aid will keep drugstore.com apprised of
the status of any such claim, action or proceeding and notify drugstore.com if
Rite Aid elects to discontinue further prosecution or defense of the same.
12.1.2 drugstore.com reserves any and all rights to commence, prosecute,
compromise and settle any claim, action or proceeding for infringement, unfair
competition, unauthorized use, misappropriation or violation of any of the
drugstore.com IPR by any Third Party. drugstore.com may commence, prosecute,
21
compromise or settle any such claim, action or proceeding, as well as any claim,
action or proceeding to defend any of the drugstore.com IPR, in its sole
discretion, but shall not have any obligation to do so. drugstore.com will keep
Rite Aid apprised of the status of any such claim, action or proceeding and
notify Rite Aid if drugstore.com elects to discontinue further prosecution or
defense of the same.
12.1.3 No party shall have the right to commence or prosecute any legal
action with regard to the IPR of the other party, without such other party's
prior written consent in such other party's sole discretion.
12.1.4 Each party may, at its sole expense, commence and prosecute any
claim, action or proceeding for infringement, unfair competition, unauthorized
use, misappropriation, or violation of Joint IPR by any Third Party, and the
non-prosecuting Party shall fully cooperate with the prosecuting party in such
claim, action or proceeding at the prosecuting party's expense.
12.1.5 If either party becomes the subject of a claim, action or
proceeding for infringement, unfair competition, unauthorized use,
misappropriation or violation of any IPR of a Third Party as a result of its use
of the other party's IPR pursuant to this Agreement, then the party owning such
IPR shall upon the request of such other party defend the requesting party from
and against such claim, action or proceeding; provided that the requesting party
shall provide such assistance in defense of the claim, action or proceeding as
the owning party may request and shall comply with any settlement or court order
made in connection with the claim, action or proceeding (e.g., relating to the
future use of any infringing IPR); and provided further that, notwithstanding
the foregoing, the requesting party shall indemnify the owning party from and
shall pay any and all damages, liabilities, costs and expenses (including
reasonable attorneys fees) incurred by the owning party or otherwise arising out
of such claim, action or proceeding to the extent related to the requesting
party's use of the owning party's IPR. In any case, the requesting party shall
be entitled to participate in the defense of any such claim, action or
proceeding, at its own cost, with counsel of its choice.
12.1.6 In the event either party should have a claim against the other
party for infringement, unfair competition, unauthorized use, misappropriation
or violation of any of its IPR as a result of the use of its IPR by the other
party pursuant to this Agreement, the parties shall resort to the dispute
resolution provisions set forth in Section 14.
Section 13. Additional Obligations of the Parties
13.1 Nondisclosure
13.1.1 A party (the "Receiving party") receiving any Confidential
Information of the other party (the "Disclosing party") will exercise a
reasonable degree
22
of care, but in no event less than the same degree of care that it uses to
protect its own confidential information of a like nature, to keep confidential
and not disclose such Confidential Information. Without limiting the generality
of the foregoing, the Receiving party shall disclose the Confidential
Information of the other party only to those of its employees and contractors
(a) who have a need to know the Confidential Information in order to exercise
its license to such Confidential Information, and (b) who are contractually
obligated to comply with the disclosure and usage restrictions set forth in this
Agreement. In addition, each party may, with the prior written consent of the
other party (which consent shall not be unreasonably withheld), disclose the
existence and terms of this Agreement to potential sources of financing who are
contractually obligated to maintain the confidentiality of such information;
provided, however, that if, after receipt of a written request for consent, the
other party does not respond to the request within three (3) business days,
consent will be deemed to have been given so long as the requested disclosure is
not to a Competitor.
13.1.2 The obligations set forth in Section 13.1.1 above shall not apply
to any Confidential Information to the extent it: (a) is approved by prior
written authorization of the Disclosing party for release by the Receiving
party; (b) is disclosed in order to comply with a judicial order issued by a
court of competent jurisdiction, in which event the Receiving party shall give
prior written notice to the Disclosing party of such disclosure as soon as
practicable and shall cooperate with the Disclosing party in using all
reasonable efforts to obtain an appropriate protective order or equivalent,
provided that the information shall continue to be Confidential Information to
the extent it is covered by such protective order or equivalent; (c) becomes
generally available to the public through any means other than a breach by the
Receiving party of its obligations under this Agreement; (d) was in the
possession of the Receiving party without obligation of confidentiality prior to
receipt or disclosure under this Agreement as evidenced by written records made
prior to such receipt or disclosure; (e) is developed independently by the
Receiving party without the use of or benefit from any of the Confidential
Information of the other party or without breach of this Agreement, as evidenced
by written records of the Receiving party in existence as of disclosure by the
Disclosing party; or (f) is required to be disclosed by any national securities
exchange, by government rule or regulation (e.g., in connection with a
securities filing) or by any other provisions of applicable law, provided that
the Receiving party gives the Disclosing party advance written notice (to the
extent practicable) of the disclosure and cooperates with the Disclosing party
in any reasonable attempt to limit the scope of the required disclosure. In any
dispute over whether information is Confidential Information under this
Agreement, it will be the burden of the Receiving party to show that such
contested information falls within the exceptions set forth in this Section
13.1.2.
13.2 No Contest of Rite Aid IPR
drugstore.com shall not contest or otherwise challenge (e.g., in any legal
action or otherwise), or assist or encourage any other Person to contest or
challenge, the
23
validity of any Rite Aid IPR; provided that the foregoing shall not preclude
drugstore.com from claiming that the IPR in question is drugstore.com IPR.
13.3 No Contest of drugstore.com IPR
Rite Aid shall not contest or otherwise challenge (e.g., in any legal
action or otherwise), or assist or encourage any other Person to contest or
challenge, the validity of any drugstore.com IPR; provided that the foregoing
shall not preclude Rite Aid from claiming that the IPR in question is Rite Aid
IPR.
13.4 Accommodation of Patent Application Requirements
If either Party wishes to file a patent application with respect to
Derivatives or Joint IPR, it shall first notify the other Party and provide a
full disclosure of the intended filing thereto. Prior to the time such
application is filed, the notified Party shall take no actions that would result
in the loss of the right of the notifying Party to file such patent application,
other than contesting in good faith the notifying Party's ownership of the IPR
represented by such application pursuant to this Agreement.
Section 14. Resolution of Disputes
14.1 General
If any dispute arises between the parties relating to this Agreement or the
Pharmacy Agreement, each party will follow the dispute resolution procedures set
forth in this Section 14 prior to initiating any litigation or pursuing other
available remedies unless otherwise agreed in writing by the parties at the time
the dispute arises. Notwithstanding the foregoing, any party may commence
litigation without having first complied with the provisions of this Section 14
if such commencement occurs within thirty (30) days prior to the date after
which the commencement of litigation would be barred by any statute of
limitations, statute of repose or other law, rule, regulation, or order of
similar import or in order to request injunctive or other equitable relief
necessary to prevent irreparable harm. In such event, the parties will (except
as may be prohibited by judicial order) nevertheless continue thereafter to
follow the procedures set forth in this Section 14.
14.2 Initiation of Procedures
If a party seeks to initiate the procedures under this Section 14, such
party will give written notice thereof to the other party. Such notice will (i)
state that it is a notice initiating the procedures under this section, (ii)
describe briefly the nature of the dispute and the initiating party's claim or
position in connection with the dispute, and (iii) identify an individual with
authority to settle the dispute on such party's behalf. Within ten (10) days
after receipt of any notice under this Section 14.2, the receiving party will
give the initiating party written notice that describes briefly the receiving
24
party's claims and positions in connection with the dispute and identifies an
individual with the authority to settle the dispute on behalf of the receiving
party.
14.3 Pre-Litigation Discussion
The parties will cause the individuals identified in their respective
notices under Section 14.2 to promptly make such investigation of the dispute as
such individuals deem appropriate. Promptly and in no event later than ten (10)
days after the date of the initiating party's notice under Section 14.2, such
individuals will commence discussions concerning resolution of the dispute. If
the dispute has not been resolved within 30 days after commencement of such
discussions, then any party may request that the other party make its president
available to discuss resolution of such dispute. Each party will cause its
president to meet together with the other party's president to discuss such
dispute at a mutually agreed upon time within 15 days after a party makes such
request. If the dispute has not been resolved within 15 days after the
presidents of the parties have first met, then any party may request that the
other party make an independent director available to discuss resolution of such
dispute. "Independent Director" means any director that is neither an employee
of, nor an outside provider of services to, a party. Each party will cause its
Independent Director to meet together with the other party's Independent
Director to discuss such dispute at a mutually agreed upon time within ten (10)
days after a party makes such request. If the Independent Directors do not
resolve the dispute within five (5) days of their first meeting, the parties
shall submit the dispute for non-binding mediation to a mutually agreed upon
mediator or mediation firm. The parties will use their best efforts to cause
the mediator to resolve the dispute within 15 days of its submission thereto.
If the mediator is unable to resolve the dispute within such time period, any
party may submit the dispute to litigation.
Section 15. Breach; Termination; Extension
15.1 Breach by Rite Aid
15.1.1 In the event of a material breach by Rite Aid of any of its
material obligations under this Agreement or the Pharmacy Agreement (including
any material breach or inaccuracy of its representations or warranties that has
a material adverse effect on the ability of Rite Aid to perform its obligations
under this Agreement or the Pharmacy Agreement), which breach Rite Aid does not
cure within sixty (60) days after drugstore.com gives Rite Aid written notice
thereof, drugstore.com will have any and all of the following rights:
(i) the right to terminate this Agreement;
(ii) the right to seek indemnification pursuant to Section 11;
(iii) the right to sue for breach; and
25
(iv) subject to Section 15.3.4, the right to terminate the licenses
granted to Rite Aid in Sections 7.2.2 and 7.3.1.
15.1.2 All of the foregoing rights are subject to the provisions of
Section 16.6 and 16.7.
15.2 Breach by drugstore.com
15.2.1 In the event of a material breach by drugstore.com of any of
its material obligations under this Agreement or the Pharmacy Agreement
(including any material breach or inaccuracy of its representations or
warranties that has a material adverse effect on the ability of drugstore.com to
perform its obligations under this Agreement or the Pharmacy Agreement), which
breach drugstore.com does not cure within sixty (60) days after Rite Aid gives
drugstore.com written notice thereof, Rite Aid shall have any and all of the
following rights:
(i) the right to terminate this Agreement;
(ii) the right to seek indemnification pursuant to Section 11;
(iii) the right to sue for breach; and
(iv) subject to Section 15.3.4, the right to terminate the licenses
granted to drugstore.com in Sections 7.2.1 and 7.3.2.
15.2.2 All of the foregoing rights are subject to the provisions of
Section 16.6 and 16.7.
15.3 Termination
15.3.1 This Agreement will terminate upon the earliest of (i) a
termination pursuant to Section 16.14, (ii) expiration of the Term and (iii) a
termination pursuant to Section 15.1 or 15.2. Sections 8, 11 (with respect to
claims, damages or other losses related to or arising from events occurring
prior to termination), 12 (with respect to claims, damages or other losses
related to or arising from events occurring prior to termination), 13, 15 and 16
shall survive any termination of this Agreement except a termination pursuant to
Section 16.14. In addition, no termination (except a termination pursuant to
Section 16.14) of this Agreement shall release a party from liability for
breaches of this Agreement occurring prior to such termination.
15.3.2 Upon expiration of the Term, all licenses granted pursuant to
Section 7.2 shall continue in perpetuity, provided that: (a) each party shall
continue to provide for one year such technical support as was provided during
the Term pursuant to Section 7.1; (b) Rite Aid shall not use or otherwise
exploit the Rite Aid Technology Derivatives and Derivatives of the Rite Aid
Technology Derivatives, in each case made
26
by drugstore.com, in connection with any business that is operated by, with or
for, or branded by, with or for, a Pharmacy Competitor; and (c) drugstore.com
shall not use (x) the Rite Aid Technology and (y) Derivatives of the Rite Aid
Technology and of Derivatives of Rite Aid Technology Derivatives, in each case
made by Rite Aid, in connection with any business operated by, with or for, or
branded by, with or for, a Pharmacy Competitor.
15.3.3 Upon termination of this Agreement prior to the end of the
Term because of a material breach by Rite Aid: (a) the license granted to
drugstore.com pursuant to Section 7.2.1 shall terminate one year after the date
of termination in order to provide drugstore.com with a transition period; and
(b) each party shall continue to provide for one year such technical support as
was provided during the Term pursuant to Section 7.1.
15.3.4 Upon termination of this Agreement prior to the end of the
Term because of a material breach by drugstore.com: (a) the license granted to
Rite Aid pursuant to Section 7.2.2 shall terminate one year after the date of
termination in order to provide Rite Aid with a transition period; and (b) each
party shall continue to provide for one year such technical support as was
provided during the Term pursuant to Section 7.1.
15.4 Liquidated Damages; Consequential Damages
15.4.1 In the event drugstore.com terminates this Agreement in
accordance with Section 15.1, Rite Aid will, upon written notice from
drugstore.com, pay to drugstore.com as liquidated damages the sum of $5 million.
Such liquidated damages will constitute the minimum amount payable to
drugstore.com in connection with such termination. This Section 15.4.1 will not
in any way limit drugstore.com's right to seek recovery of any and all damages
actually incurred by drugstore.com and to which it is otherwise entitled under
this Agreement and applicable law. In the event drugstore.com seeks recovery of
additional damages, the sum paid or payable hereunder will be applied to reduce
any amounts payable by Rite Aid to drugstore.com as part of any settlement or
final, unappealable judgment entered in such proceeding.
15.4.2 In no event will either party have any liability, whether
based in contract, tort (including negligence), warranty or other legal or
equitable grounds, for any loss of interest, profit or revenue by the other
party or for any consequential, indirect, incidental, special, punitive or
exemplary damages suffered by the other party, arising from or related to this
Agreement, even if such party has been advised of the possibility of such losses
or damages.
27
15.5 Extension
Unless either party gives the other party written notice not later than one
year and thirty (30) days prior to the expiration of the initial ten year Term
that it does not wish to extend the Term, the Term will automatically be
extended for successive one year periods. Any additional one year term will
automatically be renewed unless either party gives the other party written
notice to the contrary not later than thirty (30) days prior to the expiration
of the then current term.
Section 16. Miscellaneous
16.1 Relationship
The parties are independent contractors under this Agreement. Each party
acknowledges and agrees that it is not and will not be during the Term an
employee or an agent of the other party. Nothing in this Agreement will be
deemed to constitute, create, give effect to or otherwise recognize a joint
venture, partnership, franchise or business entity of any kind. Nothing in this
Agreement will be construed as providing for the sharing of profits or losses
arising out of the efforts of the parties hereto.
16.2 Assignment; Sale of Assets or Capital Stock
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and the legal representatives, successors in interest and
permitted assigns, respectively, of each such party. This Agreement shall not
be assigned in whole or in part by any party without the prior written consent
of the other party, such consent not to be unreasonably withheld; provided,
however, that a party may, without consent of the other party, assign this
Agreement to an Affiliate of the assignor, or to an entity acquiring all or
substantially all the assets or capital stock of the assignor due to merger,
acquisition, consolidation or otherwise so long as (a) the assignor remains
liable for the full and faithful performance of its obligations hereunder, (b)
such Affiliate or successor in writing assumes all of the obligations of the
assignor under this Agreement and agrees to comply with the terms set forth in
this Agreement, and (c) a copy of the assignment is provided to the non-
assigning party. The parties' respective rights and obligations under this
Agreement shall survive any transaction pursuant to which a Third Party acquires
all or substantially all the assets or capital stock of either party, whether
due to merger, acquisition, consolidation or otherwise.
16.3 Notices
All notices, requests, demands, applications, services of process, and
other communications that are required to be or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given if
sent by telecopy or facsimile transmission, answer back requested, or delivered
by courier or mailed, certified first
28
class mail, postage prepaid, return receipt requested, to the parties to this
Agreement at the following addresses:
If to Rite Aid: Rite Aid Corporation
30 Hunter Lane
Camp Hill, PA 17011
Attn: General Counsel
Fax: 717-760-7867
If to drugstore.com: drugstore.com, inc
13920 SE Eastgate Way,
Suite 300
Bellevue, WA 98005
Attn: General Counsel
Fax: 425-372-3800
or to such other address as the party shall have furnished to the other party by
notice given in accordance with this Section 16.3. Such notice shall be
effective (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, or (ii) if sent by telecopy or facsimile transmission, on
the date of transmission unless transmitted after normal business hours, in
which case on the following date, or (iii) if mailed, upon the date of first
attempted delivery.
16.4 Waiver
No provision of this Agreement shall be deemed to be waived and no breach
excused unless such waiver or consent shall be in writing and signed by the
party that is claimed to have waived or consented. The failure of a party at
any time, or from time to time, to require performance by the other party of any
provision hereof shall in no way affect the rights of such party thereafter to
enforce the same nor shall the waiver by a party of any breach of any provision
hereof by the other party constitute a waiver of any succeeding breach of such
provision, or a waiver of any provision itself, or a waiver of any other
provisions hereof.
16.5 Severability
This Agreement will be enforced to the fullest extent permitted by
applicable law. If for any reason any provision of this Agreement is held to be
invalid or unenforceable to any extent, then: (a) such provision will be
interpreted, construed or reformed to the extent reasonably required to render
the same valid, enforceable and consistent with the original intent underlying
such provision; (b) such provision will be void to the extent it is held to be
invalid or unenforceable; (c) such provision will remain in effect to the extent
that it is not invalid or unenforceable; and (d) such invalidity or
unenforceability will not affect any other provision of this Agreement or any
other agreement between the parties.
29
16.6 Remedies
Except as otherwise expressly provided in this Agreement, each and all of
the rights and remedies provided in this Agreement, and each and all of the
remedies allowed at law and in equity, will be cumulative, and the exercise of
one right or remedy will not be exclusive of the right to exercise or resort to
any and all other rights or remedies provided in this Agreement or at law or in
equity.
16.7 Injunctive Relief
The parties acknowledge that a material breach of this Agreement would
cause irreparable harm, the extent of which would be difficult to ascertain.
Accordingly, they agree that, in addition to any other legal remedies to which
the non-breaching party may be entitled, such party will be entitled to obtain
immediate injunctive relief in the event of a material breach of this Agreement.
16.8 Governing Law
This Agreement will be governed by and construed according to the laws of
the State of Delaware without regard to its choice of law provisions. The
parties consent to the jurisdiction of such courts and waive any right to assert
that any such court constitutes an inconvenient or improper forum.
16.9 Publicity
Neither party shall, without the approval of the other, make any press
release or other public announcement concerning the transactions contemplated by
the Agreements, except as and to the extent that any such party shall be so
obligated by law or by the rules, regulations or policies of any national
securities exchange or association or governmental entity, in which case the
other party shall be advised and the parties shall use their best efforts to
cause a mutually agreeable release or announcement to be issued; provided,
however, that the parties hereby acknowledge and agree that communications among
employees of the parties and their attorneys, representatives and agents
necessary to consummate the transactions contemplated hereby shall not be deemed
a public announcement for purposes of this Section 16.9. Upon the execution and
delivery of this Agreement, the parties hereto will cooperate in respect of the
immediate issuance of a mutually acceptable press release relating to the
transactions contemplated by the Agreements.
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16.10 Entire Agreement
All Exhibits and Schedules to this Agreement are incorporated in and
constitute a part of this Agreement. This Agreement and the Pharmacy Agreement,
including the Exhibits and Schedules hereto and thereto, each as amended from
time to time, constitute the entire understanding between the parties in
relation to the subject matter hereof and supersede all prior discussions,
agreements and representations related to this subject matter, whether oral or
written and whether or not executed by a party. Unless otherwise provided in
this Agreement, no modification, amendment or other change may be made to this
Agreement or any part thereof unless reduced to writing and executed by
authorized representatives of all parties.
16.11 Counterparts
This Agreement may be executed in two or more counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.
16.12 Titles and Subtitles
The titles and subtitles used in this Agreement and in the Exhibits and
Schedules hereto are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
16.13 Force Majeure
Neither party shall be responsible for a failure to meet its obligations
under this Agreement to the extent caused by the following: (i) materially
inaccurate data submitted by the other party; (ii) any failure by the other
party to meet its obligations stated in this Agreement; (iii) any failure of
equipment, facilities or services not controlled or supplied by such party; or
(iv) failure(s) caused by acts of God, acts of nature, riots and other major
civil disturbances, strike by such party's personnel, sabotage, injunctions or
applicable laws or regulations, in each case without breach by such party of any
obligations under this Agreement with regard to either such event or such
failure. Rite Aid or drugstore.com, as applicable, agrees to use its
commercially reasonable efforts to restore performance of its obligations under
this Agreement as soon as reasonably practicable following any such event.
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16.14 Effective Time
This Agreement shall only become effective (the "Effective Time") upon the
consummation of the purchase by Rite Aid of Series E Preferred Stock of
drugstore.com pursuant to the Series E Preferred Stock Purchase Agreement. This
Agreement shall automatically terminate upon any termination of the Series E
Preferred Stock Purchase Agreement pursuant to Section 7.16 thereof. Upon such
termination, this Agreement shall become void and of no further effect.
[Signature Page Follows]
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In witness whereof, the parties have duly entered into this Main Agreement
as of the date first written above.
Rite Aid: drugstore.com:
RITE AID CORPORATION DRUGSTORE.COM, INC.
By: /s/ Elliot S. Gerson By: /s/ Peter Neupert
------------------------------ ------------------------------
Name: Elliot S. Gerson Name: Peter Neupert
Title: Executive Vice President Title: Chief Executive Officer
Address: 30 Hunter Lane Address: 13920 SE Eastgate Way
Camp Hill, PA 17011 Suite 300
Bellevue, WA 98005
EX-10.28
7
MAIN AGREEMENT WITH GENERAL NUTRITION COMPANIES
Exhibit 10.28
1
EXECUTION COPY
MAIN AGREEMENT
--------------
This Main Agreement (this "Agreement"), dated as of June 17, 1999, is
between drugstore.com, inc., a Delaware corporation ("drugstore.com"), and
General Nutrition Corporation, a Pennsylvania corporation ("GNC").
In consideration of the agreements, covenants and conditions set forth
herein, the parties hereto agree as follows:
Section 1. Definitions
Whenever used in this Agreement with initial letters capitalized, the
following terms will have the following specified meanings:
"Above the Fold" means situated within the portion of a page that is
--------------
designed to be visible on a standard computer screen without requiring the user
to scroll horizontally or vertically through the page, based on a resolution of
800 pixels by 600 pixels (such resolution to be updated through the Term as the
drugstore.com default design resolution changes).
"Action Links" means the hypertext links that direct users to different
------------
areas of a single site or to new sites entirely.
"Affiliate" means, with respect to a party, any Person that, directly or
---------
indirectly, Controls, or is Controlled by, or is under common Control with, such
party.
"Confidential Information" means the existence and terms of this Agreement
------------------------
and all trade secrets, know-how and nonpublic information that relates to
research, development, trade secrets, know-how, inventions, source codes,
technical data, software programming, concepts, designs, procedures,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
selling, business plans or strategies and other proprietary or confidential
information, protectable under the laws of the United States or any other
nation, state or jurisdiction (including, but not limited to, any foreign
equivalents thereto).
"Consignment Agreement" means the Consignment Agreement dated the date
---------------------
hereof between drugstore.com and GNC.
"Control" means the possession, directly or indirectly, of the power to
-------
direct or cause the direction of the management and policies of a Person,
whether by contract or through the ownership of voting securities, including,
without limitation, the ownership of more than fifty percent (50%) of the
equity, partnership or similar interest in such Person.
2
"drugstore.com Site" means the site currently located at www.drugstore.com
------------------
(and any successor site, Mirror site or sites of any wholly owned Affiliate).
"Effective Date" means the date of the consummation of the purchase by
--------------
General Nutrition Companies, Inc., through its wholly owned subsidiary General
Nutrition Investment Comany, of Series E Preferred Stock of drugstore.com
pursuant to the Series E Preferred Stock Purchase Agreement.
"GNC Brand Products" means the products offered for sale in the GNC
------------------
Livewell Store on the drugstore.com site that bear a GNC Trademark.
"GNC Gold Card Customers" shall mean those holders of Gold Cards who
-----------------------
purchased their Gold Card memberships from a Person other than drugstore.com and
whose memberships are active.
"GNC Livewell Store" shall mean the site within the drugstore.com Site
------------------
primarily branded GNC LiveWell as set forth in Section 4.4.
"GNC Site" means the site currently located at www.gnc.com (and any
--------
successor site, Mirror site or Affiliate's site.
"GNC Trademarks" means the Trademarks owned by GNC set forth on Exhibit B.
--------------
"Gold Card " means the Gold Card issued in connection with GNC's customer
---------
discount program as in effect at the time.
"Home Page" means (i) with respect to the drugstore.com Site, the page that
---------
is displayed to the user when the URL www.drugstore.com is entered, (ii) with
respect to the GNC Site, the page that is displayed to the user when the URL
www.gnc.com (or www.livewell.com if and once GNC has title) is entered.
"Internet" means the Internet or World Wide Web (or any successor or other
--------
online network including but not limited to those using delivery over
television, cable, set top boxes, Intranets extranets and personal digital
assistants).
"IPR" means any copyright, patent, trade secret, moral right or other
---
intellectual property or proprietary right of any kind (including, without
limitation, applications therefor and, in the case of patents, any continuation
or divisional patent applications claiming priority thereto), whether arising
under the laws of the United States or any other nation, state or jurisdiction
(including, but not limited to, any foreign equivalents thereto). IPR does not
include any Trademarks.
"Mirror site" means an Internet site that (i) contains the exact form and
-----------
content of a site, (ii) is located at a geographic location distinct from a site
and (iii) is created for the purpose of improving the performance of and
accessibility to a site.
3
"Nutrition Product" means (i) a dietary supplement as defined under the
-----------------
Dietary Supplement Health and Education Act of 1994, (ii) any sports nutrition
powder or drink, (iii) any food bar or (iv) any meal replacement product.
"Person" means any individual, corporation, partnership, limited liability
------
company, trust, association or other entity or organization, including any
governmental or political subdivision or any agency or instrumentality thereof.
"Pharmassure Brand Products" means the products sold under the Pharmassure
--------------------------
Trademark.
"Term" means the period commencing on the Effective Date of this Agreement
----
and ending on the tenth anniversary of such date, subject to extension in
accordance with Section 13.3.
"Third Party" means any Person that is not a party hereto or an Affiliate
-----------
of a party hereto.
"Trademarks" means all common law or registered trademarks, logos, service
----------
marks, trade names, Internet domain names and trade dress rights and similar or
related rights arising under any of the laws of the United States or any other
country or jurisdiction, whether now existing or hereafter adopted or acquired.
"Wellness Page" means the first page the user sees on drugstore.com Site
-------------
after clicking on the wellness tab, currently located at
www.drugstore.com/wellness.
Section 2. Gold Card Program and Customer Information
2.1 drugstore.com shall be able to sell Gold Cards to customers on the
drugstore.com Site on the same terms as the general Gold Card program, as
determined from time to time by GNC for all of its stores.
2.2 GNC will share with drugstore.com information about GNC's existing
Gold Card customers sufficient for drugstore.com to identify and permit such
Gold Card customers to purchase products in the GNC Livewell Store with their
Gold Card on the drugstore.com Site; drugstore.com will not use such information
provided by GNC for any other purpose. drugstore.com will notify each Gold Card
customer that information relating to the purchase of Products in the GNC
Livewell store by such customer in connection with the use of their Gold Card
will be made available to GNC as in any GNC store. drugstore.com will share
such information with GNC and will notify the customer that such information
will be shared with GNC and that the customer should not purchase products with
their Gold Card if they do not want this information shared with GNC.
2.3 drugstore.com agrees that it shall not mail (through electronic or
other means) any advertisements to Gold Card Customers that contain an
advertisement for any Nutrition Product that is not a GNC Brand Product;
provided, that drugstore.com may without restriction continue to engage in
standard communications with its
4
customers, such as direct email responses from drugstore.com customer service
personnel and automatically generated responses to customers in connection with
orders.
Section 3. Exclusivity
3.1 GNC will not and will not permit any entity it controls or licences
to sell, accept orders for or otherwise distribute any GNC Brand Products,
Pharmassure Brand Products, any other Nutrition Product or any other category of
product currently sold on the drugstore.com Site, via the Internet other than
via drugstore.com; provided, that GNC may advertise its gnc.com Site(s) without
reference to the drugstore.com Site.
3.2 In the event that on the third anniversary or fifth anniversary of
the Effective Date (a) drugstore.com is not one of the top two sites selling
nutrition products on the Internet in terms of visitor traffic for the prior 12
month period or (b) less than 15% of drugstore.com's total revenue from the sale
of Nutrition Products for the prior 12 month period was from the sale of GNC
Brand Products, GNC shall have the right to terminate its exclusivity
obligations under Section 3.1 of this Agreement. drugstore.com will provide the
information relating to (a) and (b) within 60 days of the third and fifth
anniversary. In each case, GNC must exercise its right to terminate exclusivity
under this Section 3.2 within 30 days of receiving the information from
drugstore.com, or it shall be deemed waived. All other rights and obligations
of the parties under this Agreement shall survive any such termination of
Section 3.1, except that drugstore.com's obligations under Sections 3.3, 4.1,
4.3, 4.4 and 4.6 shall terminate.
3.3 drugstore.com will not (i) promote any other retail health food store;
(ii) promote any retailer in connection with the retailer's Nutrition Products;
(iii) offer for sale or promote on the drugstore.com site any private label
nutrition or supplement product of any retailer or such retailer's Affiliate;
(iv) operate or contract with any person to operate or manage a retail health
food store offline on behalf of drugstore.com or any Third Party; and (v)
promote or offer for sale any multilevel marketing company's Nutrition Products
(such as Amway and Herbalife). However, drugstore.com may have a section of its
site that offers for sale Nutrition Products competitive with GNC Brand Products
and may post content concerning these products; provided, that drugstore.com
will give no other brand of Nutrition Product a permanent position on the Home
Page or the Wellness Page and will promote no other manufacturer of Nutrition
Product to a greater extent than GNC Brand Products in terms of interactivity,
depth of content, product representation, customization and other available
features and functionality.
3.4 The exclusivity provisions of this Section 3 are applicable only in the
United States and Canada. drugstore.com shall have the nonexclusive right to
market and sell GNC Brand Products under this Agreement on a worldwide basis,
unless it would cause GNC to be in breach of a written agreement entered into by
GNC prior to the date of this Agreement. GNC will use its best efforts to
prevent any party outside the United States from distributing GNC Brand Products
in the United States
5
or Canada, including requiring them to agree not to ship such products to any
address in the United States or Canada.
Section 4. Brands and Advertising
4.1 drugstore.com Home Page
4.1.1 A GNC Trademark designated by GNC shall be featured (i) on the Home
Page all the time and (ii) Above the Fold on the Home Page of the drugstore.com
Site at least 33% of the time each calendar year (the "Frequency"). This GNC
Trademark shall not be smaller than a title of any module on the sidebar of
drugstore.com Home Page. GNC acknowledges that the format of drugstore.com Home
Page may evolve over the Term. The words "GNC Livewell Store" will be included
in the rollover bar for the "Wellness" tab for so long as the rollover bar
exists. In the event that drugstore.com changes its format so that it does not
use modules or titles or a rollover bar, the parties agreed that the GNC
Trademark on the reformatted drugstore.com Home Page shall have the same
prominence and Frequency on the reformatted drugstore.com Home Page, and success
to the rollover bar.
4.1.2 GNC shall provide drugstore.com with samples of GNC Trademarks and
preapproved statements for use in advertising and on the drugstore.com Site.
drugstore.com may not use GNC Trademarks or statements concerning (i) the GNC
Trademarks or (ii) the GNC Brand Products either on the drugstore.com Site or in
connection with its advertising of the drugstore.com Site without GNC's prior
written approval. GNC shall advise drugstore.com whether the particular text is
approved or rejected within 24 hours of providing GNC with notice of its intent
to use a particular statement or GNC Trademark.
4.2 GNC Home Pages
4.2.1 A drugstore.com Trademark designated by drugstore.com shall be
featured prominently Above the Fold on the Home Pages of the GNC Site. With the
exception of the GNC Trademark, the drugstore.com Trademark shall not be smaller
than any other Trademarks placed on the GNC Site.
4.2.2 drugstore.com shall provide GNC with samples of drugstore.com
Trademarks for use in advertising and on the GNC Site. GNC may not use
drugstore.com Trademarks or statements concerning the drugstore.com Trademarks
either on the GNC Site or in connection with its advertising of the GNC Site or
the drugstore.com Site without drugstore.com's written approval.
4.2.3 drugstore.com shall provide GNC with a set of pre-approved
statements to describe the drugstore.com site. At least one of such statements
shall be featured with the drugstore.com Trademarks on the GNC Home Pages and
certain other advertising materials as may be agreed to between drugstore.com
and GNC from time to time.
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4.2.4 Subject to Section 4.5, GNC and drugstore.com, shall
collaborate on the content included in, and the presentation of, the Action
Links, provided that GNC shall have the final right of approval with respect to
such content and presentation.
4.3 Wellness Page
4.3.1 At the commencement of the Term, and until changed as provided
herein, the GNC Trademark designated by GNC shall appear Above the Fold on the
Wellness Page. Any change in location of such GNC Trademark from Above the Fold
must be preapproved by GNC. The actual placement Above the Fold shall be
determined by drugstore.com and is likely to change from time to time. The GNC
Trademark will be at the top of the left hand navigation bar below the
customer's name. The size of the GNC Trademark will be no smaller than a title
of any module on the sidebar of drugstore.com Wellness Page. GNC acknowledges
that the format of the drugstore.com Wellness Page may evolve over the Term. In
the event that drugstore.com changes its format so that it does not use modules
or titles, the parties agreed that the GNC Trademark shall have the same
prominence on the reformatted drugstore.com Wellness Page.
4.3.2 At the request of drugstore.com, GNC shall provide
drugstore.com with such content and other information as GNC has available about
nutrition and related products and supplements to be used by drugstore.com at
its option in the drugstore.com Resource Center or in the GNC Livewell Store.
drugstore.com will credit GNC for any content and information used by
drugstore.com in the drugstore.com Resource Center.
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4.4 GNC Livewell Store
4.4.1 As soon as practical after the commencement of the Term,
and drugstore.com will develop and implement the GNC Livewell Store at
drugstore.com. drugstore.com will use commercially reasonable efforts to have an
initial version of the GNC Livewell Store by September 30, 1999, provided, that
GNC promptly provides the digital data, images and other information necessary
to open the store based on drugstore.com's current specifications. GNC agrees
that the initial version of the GNC Livewell Store may be substantially similar
to the other portions of the drugstore.com Site except for the prominence of the
GNC Trademark, the color scheme and the products offered. The parties agree
that customers may not be able to use their GNC Gold Cards in the initial
version of the GNC Livewell Store but will be able to use them (subject to GNC
providing all necessary information) by January 15, 2000. The GNC Livewell
Store will be primarily branded the GNC Livewell Store and will also contain the
Trademarks of drugstore.com. In drugstore.com's discretion the GNC Livewell
Store may contain the same navigation bar and look and feel of the drugstore.com
Site, except that the GNC Livewell Trademark will be the most prominent
Trademark on the pages of the GNC Livewell Store. The GNC Livewell Store shall
be accessible through Action Links on the Home Page and Wellness Page of the
drugstore.com Site. drugstore.com will not offer in the GNC Livewell Store any
products that are not sold by GNC, its franchisees or Rite Aid (in its GNC
store) without GNC approval.
4.4.2 drugstore.com will be responsible for the technical,
software development and maintenance of the GNC Livewell Store and its ongoing
enhancement. All orders placed in the GNC Livewell Store will be processed,
serviced and handled by drugstore.com as if the orders were placed outside of
the GNC Livewell Store on the drugstore.com Site. drugstore.com shall be
responsible for all shipping, billing and collection for such orders.
4.4.3. The parties shall collaborate on the design of the GNC
Livewell Store, as well as certain cross-marketing efforts within the GNC
Livewell Store. drugstore.com shall have final approval with respect to any
decisions relating to the design, product selection, content and other aspects
of the GNC Livewell Store; provided, that GNC will have approval over the
general look of the initial version and any major redesign of the GNC Livewell
Site (as opposed to any day-to-day site changes).
4.5 Content
4.5.1. GNC shall retain ownership of any content provided by GNC.
drugstore.com shall retain ownership of all content provided by drugstore.com.
GNC shall not knowingly publish on the GNC Site or the GNC Livewell Store, and
drugstore.com shall not publish on the drugstore.com Site, any content that is
contrary to law or false or misleading. Any content that either party
reasonably determines to be contrary to law or false or misleading shall be
removed, upon notice from the determining party, as soon as practicable by the
offending party. After such removal, the parties may bring the dispute to the
advertising liaisons for immediate resolution.
8
4.5.2. GNC shall have sole and final approval regarding any
representations made relating to GNC or the quality of its products.
drugstore.com shall have sole and final approval regarding any representations
made relating to drugstore.com or the quality of its products or services. GNC
shall be solely responsible for any inaccurate, false or misleading
representations it makes relating to GNC or GNC Branded Products. drugstore.com
shall be solely responsible for any inaccurate, false or misleading
representations it makes relating to drugstore.com or the products or services
it sells on the drugstore.com Site (other than statements about the GNC Products
approved by GNC).
4.5.3. drugstore.com agrees not to compare a brand Nutrition Product
with a GNC Brand Product or Pharmassure Brand Product except where GNC approves
such comparison; provided, that GNC agrees that drugstore.com will not be
required to make (or request any manufacturer or vendor to make) changes to any
labelling or other information provided from the manufacturer or vendor of any
Nutrition Products.
4.6 drugstore.com Advertising Obligations
4.6.1 All drugstore.com advertising through a medium other than the
drugstore.com Site and primarily focused on the Wellness section of the
drugstore.com site shall include a reference to the GNC Livewell Store or the
GNC Brand Products sold in the GNC Livewell Store and shall comply with Section
4.1.2.
4.7 GNC Advertising and Other Marketing Obligations
4.7.1 GNC will use reasonable efforts to advertise the GNC
Livewell Store at drugstore.com, subject to its concerns about the impact on its
other channels of distribution.
4.7.2 The parties will agree upon a campaign promoting the GNC
Livewell Store at least once each quarter. Both parties will fund the campaign.
4.7.3 The parties obligations under this Section 4 shall begin as
soon as commercially reasonable following the initial promotion on
drugstore.com's Home Page of GNC.
4.7.4 In the event of any dispute concerning the parties'
advertising-related obligations, the parties will follow the dispute resolution
procedures set forth in Section 12.
Section 5. Products and Merchandising
5.1 GNC Assistance
GNC or its Affiliate will sell to drugstore.com all non-GNC Brand Products
that GNC purchases for sale in its stores or the stores of its franchisees on
terms no less favorable than those provided to any franchisee (including price,
shipping and handling charges).
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5.2 Assortment
drugstore.com will determine in its sole discretion the assortment,
pricing (excluding any product sold on consignment), promotions and other
marketing and merchandising activities associated with the drugstore.com Site
and the GNC Livewell Store. Each party will present to the other party their
relevant product assortment plans in accordance with the quarterly review
process outlined below, although both parties acknowledge that these plans may
change after the review process in the sole discretion of the planning party.
5.3 GNC Product Purchasing
All GNC Brand Products listed in Exhibit A to the Consignment Agreement
(except as otherwise indicated) shall be purchased pursuant to the terms of the
Consignment Agreement entered into as of the date of this Agreement.
drugstore.com will provide, for each month, total revenue of GNC products sold
by zip code.
5.4 Private Label Products
Within 30 days after the Effective Date, drugstore.com and GNC agree to
negotiate in good faith a supply Agreement whereby (i) GNC's Affiliate, General
Nutrition Products Inc., shall manufacture certain of drugstore.com's private
label Nutrition Products during the Term of this Agreement; and (ii)
drugstore.com will purchase for sale on the drugstore.com Site GNC's Basic
Nutrition Product Line from GNC or its Affiliates at a price that is no greater
than the cost to any GNC Franchisee.
Section 6. License to Trademarks
6.1 drugstore.com hereby grants to GNC a non-exclusive, royalty-free
license to use, reproduce, distribute and display the drugstore.com Trademarks
in connection with the terms of this Agreement.
6.2 GNC hereby grants to drugstore.com a non-exclusive, royalty-free
license to use, reproduce, distribute and display the GNC Trademarks in
connection with the terms of this Agreement.
6.3 Each party shall have the right to exercise quality control over the
use of its Trademarks by the other party to the degree necessary, in the sole
opinion of the owner of such Trademarks, to maintain the validity and
enforceability of such Trademarks and to protect the goodwill associated
therewith. Each party shall, in its use of the other's Trademarks, adhere to a
level of quality at least as high as that used by such party in connection with
its use of its own Trademarks. If the owner of a Trademark, in its reasonable
opinion, finds that use of the Trademark by the other party of such Trademark
threatens the goodwill of the Trademark, the user of such Trademark shall, upon
notice from such owner, immediately, and no later than ten (10) days after
receipt of such owner's notice, take all measures reasonably necessary to
correct the deviations or misrepresentation in, or misuse of, the respective
items.
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6.4 Each party shall use the other's Trademarks in accordance with sound
trademark and trade name usage principles and in compliance with all applicable
laws and regulations of the United States (including without limitation all laws
and regulations relating to the maintenance of the validity and enforceability
of such Trademarks) and shall not use the Trademarks in any manner that might
tarnish, disparage, or reflect adversely on the Trademarks or the owner of such
Trademarks. Each party shall use, in connection with the other's Trademarks,
all legends, notices and markings required by law. No party may alter the
appearance of another's Trademarks in any advertising, marketing, distribution,
or sales materials, or any other publicly distributed materials without the
prior written consent of the other party.
Section 7. Maintenance of drugstore.com Site
drugstore.com shall use reasonable efforts to maintain the drugstore.com
Site such that up-time, scalability, back-up capability, security and response
time meet the then current generally accepted standards for E-commerce sites on
the World Wide Web.
Section 8. Advertising Communications
8.1 Advertising
The parties will:
(a) each appoint a liaison to develop a long-term advertising
strategy and to oversee and address issues and disputes regarding ongoing
advertising activities; and
(b) each appoint one senior marketing representative, which will
meet on at least a calendar quarterly basis to discuss opportunities and
establish advertising goals of the parties for the next calendar quarter.
Any advertising-related dispute not resolved by the liaisons shall be
subject to the dispute resolution procedures set forth in Section 12.
8.2 Oversight
Each party will appoint a senior executive officer to oversee and have
overall responsibility for the administration of this Agreement and the parties'
business relationship contemplated by this Agreement. Such senior executive
officers will meet, either in person or by telephone conference, at least once
each calendar quarter.
Section 9. Representations and Warranties
9.1 Representations and Warranties of drugstore.com
9.1.1 drugstore.com hereby represents and warrants to GNC:
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(a) Authorization. All corporate action on the part of
drugstore.com, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the Consignment
Agreement of even date herewith (the "Consignment Agreement", and together with
this Agreement, the "Agreements"), and the performance of all obligations of
drugstore.com hereunder and thereunder has been taken, and the Agreements, when
executed and delivered by drugstore.com, will constitute valid and legally
binding obligations of drugstore.com, enforceable against drugstore.com in
accordance with their terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
(b) Compliance with Other Instruments. The execution, delivery and
performance of the Agreements and the consummation of the transactions
contemplated thereby will not result in any violation of or be in conflict with
or constitute, with or without the passage of time and giving of notice, a
default under any provision of drugstore.com's charter or bylaws or any
instrument, judgment, order, writ, decree or contract to which drugstore.com is
a party or by which it is bound, or any provision of any federal or state
statute, rule or regulation applicable to drugstore.com, the effect of which
would have a material adverse effect on the ability of drugstore.com to perform
its obligations under the Agreements.
(c) In connection with all advertisements for, or content contained
in, the GNC Livewell Store, drugstore.com will comply with the GNC Consent
Orders set forth in Exhibit A hereto for so long as they are in effect.
(d) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY,
DRUGSTORE.COM MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER,
DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO ANY GOODS OR SERVICES TO BE PROVIDED UNDER THE AGREEMENTS, OTHER THAN
THOSE EXPRESSLY SET FORTH IN THE AGREEMENTS.
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9.2 Representations and Warranties of GNC
9.2.1 GNC hereby represents and warrants to drugstore.com:
(a) Authorization. All corporate action on the part of GNC, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of the Agreements, and the performance of all obligations of GNC
thereunder has been taken, and the Agreements, when executed and delivered by
GNC, will constitute valid and legally binding obligations of GNC, enforceable
against GNC in accordance with their terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws of general application affecting enforcement of creditors' rights
generally, as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
(b) Compliance with Other Instruments. The execution, delivery and
performance of the Agreements and the consummation of the transactions
contemplated thereby will not result in any violation of or be in conflict with
or constitute, with or without the passage of time and giving of notice, a
default under any provision of GNC's charter or bylaws or any instrument,
judgment, order, writ, decree or contract to which GNC is a party or by which it
is bound, or any provision of any federal or state statute, rule or regulation
applicable to GNC, the effect of which would have a material adverse effect on
the ability of GNC to perform its obligations under the Agreements.
(c) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, GNC
MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, DIRECTLY OR
INDIRECTLY, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO ANY GOODS OR SERVICES TO BE PROVIDED UNDER THE AGREEMENTS, OTHER THAN THOSE
EXPRESSLY SET FORTH IN THE AGREEMENTS.
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Section 10. Indemnification
10.1 Indemnification
GNC and drugstore.com each shall indemnify and hold harmless the other
and its divisions, its Affiliates and its officers, directors, employees,
representatives and agents franchises and licensees (the "Indemnified Parties")
from and against any and all liabilities, suits, costs, judgments, penalties,
expenses, obligations, losses, damages, claims and actions made by a Third
Party, including, but not limited to, (a) any obligation or liability which may
be imposed upon any of the Indemnified Parties as a matter of law, constituting,
or in any way based upon, resulting from or arising out of any breach or alleged
breach by GNC or drugstore.com, as applicable, of any representation, warranty,
agreement or covenant made by such party in this Agreement, (b) any obligation
or liability which may be imposed on drugstore.com resulting from or arising out
of the GNC Brand Products or products manufactured by GNC, statements or
Trademarks of, or provided by GNC to drugstore.com (in which case GNC will
indemnify the drugstore.com Indemnified Parties unless the obligation or
liability was caused by drugstore.com's negligence or willful act), (c) any
obligation or liability which may be imposed on GNC resulting from or arising
out of the drugstore.com business (in which case drugstore.com will indemnify
the GNC Indemnified Parties unless the obligation or liability was caused by
GNC's negligence or willful acts), and (d) any cost or expense (including, but
not limited to, legal fees and out-of-pocket expenses) reasonably incurred by
any of the Indemnified Parties (and their counsel) in investigating, preparing
for, defending against or otherwise taking any action in connection with any of
the foregoing (collectively "Damages").
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10.2 Procedure
If any claim, demand, assessment or liability or cost incidental thereto
(collectively, an "Indemnified Claim"), is asserted against an Indemnified Party
in respect of which the Indemnified Party proposes to demand indemnification
from the other party (the "Indemnifying Party") pursuant to this Section 10,
such Indemnified Party will promptly notify the Indemnifying Party in writing.
No failure of an Indemnified Party to so notify the Indemnifying Party shall
relieve the Indemnifying Party from the obligation to indemnify the Indemnified
Party unless and to the extent the Indemnifying Party is actually prejudiced by
such failure. Such Indemnified Party will accord the Indemnifying Party the
opportunity to assume entire control for the defense, compromise or settlement
of any such Indemnified Claim through its own counsel and at its own expense;
provided that no such compromise or settlement shall include any non-monetary
terms and conditions applicable to such Indemnified Party without the consent of
the Indemnified Party; and provided further, that the Indemnified Party may
retain its own counsel at the Indemnifying Party's expense if (i) the
Indemnifying Party, within thirty (30) days after notice of any Indemnified
Claim, fails to assume the defense of such Indemnified Claim or (ii) the
representation of both the Indemnifying Party and the Indemnified Party would,
in the reasonable judgment of the parties, be inappropriate due to actual or
potential conflicting interests between them. If the Indemnifying Party does
not assume entire control of the defense, compromise or settlement of such
Indemnified Claim, the Indemnified Party may compromise or settle any such
Indemnified Claim. drugstore.com and GNC each agrees to cooperate fully with
respect to the defense of any Indemnified Claim.
Section 11. Additional Obligations of the parties
11.1 Nondisclosure
11.1.1 A party (the "Receiving party") receiving any Confidential
Information of the other party (the "Disclosing party") will exercise a
reasonable degree of care, but in no event less than the same degree of care
that it uses to protect its own confidential information of a like nature, to
keep confidential and not disclose such Confidential Information. Without
limiting the generality of the foregoing, the Receiving party shall disclose the
Confidential Information of the other party only to those of its employees and
contractors (a) who have a need to know the Confidential Information in order to
exercise its license to such Confidential Information, and (b) who are
contractually obligated to comply with the disclosure and usage restrictions set
forth in this Agreement. In addition, each party may, with the prior written
consent of the other party (which consent shall not be unreasonably withheld),
disclose the existence and terms of this Agreement to potential sources of
financing who are contractually obligated to maintain the confidentiality of
such information; provided, however, that if, after receipt of a written request
for consent, the other party does not respond to the request within three (3)
business days, consent will be deemed to have been given so long as the
requested disclosure is not to a person selling goods or services with those
that compete with the goods or services sold by the nondisclosing party.
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11.1.2 The obligations set forth in Section 11.1.1 above shall not
apply to any Confidential Information to the extent it: (a) is approved by
prior-written authorization of the Disclosing party for release by the Receiving
party; (b) is disclosed in order to comply with a judicial order issued by a
court of competent jurisdiction, in which event the Receiving party shall give
prior written notice to the Disclosing party of such disclosure as soon as
practicable and shall cooperate with the Disclosing party in using all
reasonable efforts to obtain an appropriate protective order or equivalent,
provided that the information shall continue to be Confidential Information to
the extent it is covered by such protective order or equivalent; (c) becomes
generally available to the public through any means other than a breach by the
Receiving party of its obligations under this Agreement; (d) was in the
possession of the Receiving party without obligation of confidentiality prior to
receipt or disclosure under this Agreement as evidenced by written records made
prior to such receipt or disclosure; (e) is developed independently by the
Receiving party without the use of or benefit from any of the Confidential
Information of the other party or without breach of this Agreement, as evidenced
by written records of the Receiving party in existence as of disclosure by the
Disclosing party; or (f) is required to be disclosed by government rule or
regulation (e.g., in connection with a securities filing) or any other
provisions of applicable law, provided that the Receiving party gives the
Disclosing party advance written notice of the disclosure and cooperates with
the Disclosing party in any attempt to limit the scope of the required
disclosure. In any dispute over whether information is Confidential Information
under this Agreement, it will be the burden of the Receiving party to show that
such contested information falls within the exceptions set forth in this Section
11.1.2.
11.2 No Contest of GNC Trademarks
drugstore.com shall not contest or otherwise challenge (e.g., in any legal
action or otherwise), or assist or encourage any other Person to contest or
challenge, the validity of any GNC Trademark; provided that the foregoing shall
not preclude drugstore.com from claiming that the Trademark in question is
drugstore.com Trademark.
11.3 No Contest of drugstore.com Trademarks
GNC shall not contest or otherwise challenge (e.g., in any legal action
or otherwise), or assist or encourage any other Person to contest or challenge,
the validity of any drugstore.com Trademarks; provided that the foregoing shall
not preclude GNC from claiming that the Trademark in question is GNC Trademark.
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11.4 Insurance
drugstore.com shall procure and maintain in full force and effect during
the term of this Agreement, at drugstore.com's expense, an insurance policy or
policies protecting (or shall self insure) the GNC Products that are consigned
to drugstore.com under the Consignment Agreement against any loss or damage or
any expense whatsoever arising out of or occurring upon or in connection with
the storage of such GNC Products at the distribution center or the delivery of
such GNC Products from the DC to the purchaser of such GNC Product up to the
full replacement value of the Product.
Section 12. Resolution of Disputes
12.1 General
If any dispute arises between the parties relating to this Agreement, each
party will follow the dispute resolution procedures set forth in this Section 12
prior to initiating any litigation or pursuing other available remedies unless
otherwise agreed in writing by the parties at the time the dispute arises.
Notwithstanding the foregoing, any party may commence litigation without having
first complied with the provisions of this Section 12 if such commencement
occurs within thirty (30) days prior to the date after which the commencement of
litigation would be barred by any statute of limitations, statute of repose or
other law, rule, regulation, or order of similar import or in order to request
injunctive or other equitable relief necessary to prevent irreparable harm. In
such event, the parties will (except as may be prohibited by judicial order)
nevertheless continue thereafter to follow the procedures set forth in this
Section 12.
12.2 Initiation of Procedures
If a party seeks to initiate the procedures under this Section 12, such
party will give written notice thereof to the other party. Such notice will (a)
state that it is a notice initiating the procedures under this section, (b)
describe briefly the nature of the dispute and the initiating party's claim or
position in connection with the dispute, and (c) identify an individual with
authority to settle the dispute on such party's behalf. Within ten (10) days
after receipt of any notice under this Section 12.2, the receiving party will
give the initiating party written notice that describes briefly the receiving
party's claims and positions in connection with the dispute and identifies an
individual with the authority to settle the dispute on behalf of the receiving
party.
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12.3 Pre-Litigation Discussion
The parties will cause the individuals identified in their respective
notices under Section 12.2 above to promptly make such investigation of the
dispute as such individuals deem appropriate. Promptly and in no event later
than ten days after the date of the initiating party's notice under Section
12.2, such individuals will commence discussions concerning resolution of the
dispute. If the dispute has not been resolved within 30 days after commencement
of such discussions, then any party may request that the other party make its
president available to discuss resolution of such dispute. Each party will cause
its president to meet together with the other party's president to discuss such
dispute at a mutually agreed upon time within 15 days after a party makes such
request. If the dispute has not been resolved within 15 days after the
presidents of the parties have first met, then any party may request that the
other party make an independent director available to discuss resolution of such
dispute. "Independent director" means any director that is neither an employee
of, nor an outsider provider of services to, a party. Each party will cause its
independent director to meet together with the other party's independent
director to discuss such dispute at a mutually agreed upon time within 10 days
after a party makes such request. If the independent directors do not resolve
the dispute within five days of their first meeting, the parties shall submit
the dispute for non-binding mediation to a mutually agreed upon mediator or
mediation firm. The parties will use their best efforts to cause the mediator to
resolve the dispute within 15 days of its submission thereto. If the mediator is
unable to resolve the dispute within such time period, any party may submit the
dispute to litigation.
Section 13. Breach; Termination; Extension
13.1 Breach by GNC
13.1.1 In the event of a material breach by GNC of any of its
material obligations under this Agreement, including any material breach or
inaccuracy of its representations and warranties, which breach (except for a
breach under Section 5.6) GNC does not cure within sixty (60) days after
drugstore.com gives GNC written notice thereof, drugstore.com will have any and
all of the following rights:
(a) the right to terminate this Agreement; and
(b) the right to sue for breach.
13.2 Breach by drugstore.com
13.2.1 In the event of a material breach by drugstore.com of any
of its material obligations under this Agreement, including any material breach
or inaccuracy of its representations and warranties, which breach drugstore.com
does not cure within sixty (60) days after GNC gives drugstore.com written
notice thereof, GNC shall have any and all of the following rights:
(a) the right to terminate this Agreement; and
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(b) the right to sue for breach.
13.3 Termination
13.3.1 This Agreement will terminate upon the earlier of (i)
expiration of the Term and (ii) a termination pursuant to Section 13.1 or 13.2.
13.3.2 Upon expiration of the Term or termination of this
Agreement pursuant to either Section 13.1 or 13.2, all rights and obligations of
the parties under this Agreement shall terminate, except for those rights and
obligations of the parties existing under Sections 10 and 11.1.
13.4 Extension
Unless either party gives the other party written notice not later than 180
days prior to the expiration of the initial ten year Term that it does not wish
to extend the Term, the Term will automatically be extended for successive one
year periods. Any additional one year term will automatically be renewed unless
either party gives the other party written notice to the contrary not later than
thirty (30) days prior to the expiration of the then current term.
Section 14. Miscellaneous
14.1 Relationship
The parties are independent contractors under this Agreement. Each party
acknowledges and agrees that it is not and will not be during the Term an
employee or an agent of any other party. Nothing in this Agreement will be
deemed to constitute, create, give effect to or otherwise recognize a joint
venture, partnership, franchise or business entity of any kind. Nothing in this
Agreement will be construed as providing for the sharing of profits or losses
arising out of the efforts of the parties hereto.
14.2 Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and the legal representatives, successors in interest and
permitted assigns, respectively, of each such party. This Agreement shall not be
assigned in whole or in part by any party without the prior written consent of
the other party, such consent not to be unreasonably withheld; provided,
however, that a party may, without consent of the other parties, assign this
Agreement to an Affiliate of the assignor, or to an entity acquiring
substantially all of the assets or capital stock of the assignor due to merger,
acquisition or consolidation so long as (a) the assignor remains liable for the
full and faithful performance of its obligations hereunder, (b) such Affiliate
or successor in writing assumes all of the obligations of the assignor under
this Agreement and agrees to comply with the terms set forth in this Agreement,
and (c) a copy of the assignment is provided to the non-assigning parties.
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14.3 Notices
All notices, requests, demands, applications, services of process, and
other communications that are required to be or may be given under this
Agreement shall be in writing and shall be deemed to have been duly given if
sent by telecopy or facsimile transmission, answer back requested, or delivered
by courier or mailed, certified first class mail, postage prepaid, return
receipt requested, to the parties to this Agreement at the following addresses:
If to GNC:
Attn:
If to drugstore.com: drugstore.com, inc
13920 SE Eastgate Way,
Suite 300
Bellevue, WA 98005
Attn: General Counsel
Fax: 425-372-3800
or to such other address as the party shall have furnished to the others by
notice given in accordance with this Section 14.3. Such notice shall be
effective (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, or (ii) if sent by telecopy or facsimile transmission, on
the date of transmission unless transmitted after normal business hours, in
which case on the following date, or (iii) if mailed, upon the date of first
attempted delivery.
14.4 Waiver
No provision of this Agreement shall be deemed to be waived and no breach
excused unless such waiver or consent shall be in writing and signed by the
party that is claimed to have waived or consented. The failure of a party at any
time, or from time to time, to require performance by the other parties of any
provision hereof shall in no way affect the rights of such party thereafter to
enforce the same nor shall the waiver by a party of any breach of any provision
hereof by the other parties constitute a waiver of any succeeding breach of such
provision, or a waiver of any provision itself, or a waiver of any other
provisions hereof.
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14.5 Severability
This Agreement will be enforced to the fullest extent permitted by
applicable law. If for any reason any provision of this Agreement is held to be
invalid or unenforceable to any extent, then such: (a) provision will be
interpreted, construed or reformed to the extent reasonably required to render
the same valid, enforceable and consistent with the original intent underlying
such provision; (b) provision will be void to the extent it is held to be
invalid or unenforceable; (c) provision will remain in effect to the extent that
it is not invalid or unenforceable; and (d) invalidity or unenforceability will
not affect any other provision of this Agreement or any other agreement between
the parties.
14.6 Remedies
Except as otherwise expressly provided in this Agreement, each and all of
the rights and remedies provided in this Agreement, and each and all of the
remedies allowed at law and in equity, will be cumulative, and the exercise of
one right or remedy will not be exclusive of the right to exercise or resort to
any and all other rights or remedies provided in this Agreement or at law or in
equity.
14.7 Injunctive Relief
The parties acknowledge that a material breach of this Agreement would
cause irreparable harm, the extent of which would be difficult to ascertain.
Accordingly, they agree that, in addition to any other legal remedies to which
the non-breaching party may be entitled, such party will be entitled to obtain
immediate injunctive relief in the event of a material breach of this Agreement.
14.8 Governing Law
This Agreement will be governed by and construed according to the laws of
the State of Delaware without regard to its choice of law provisions. The
parties consent to the jurisdiction of such courts and waive any right to assert
that any such court constitutes an inconvenient or improper forum.
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14.9 Publicity
Neither party shall, without the approval of the other, make any press
release or other public announcement concerning the transactions contemplated by
the Agreements, except as and to the extent that any such party shall be so
obligated by law or by the rules, regulations or policies of any national
securities exchange or association or governmental entity, in which case the
other party shall be advised and the parties shall use their best efforts to
cause a mutually agreeable release or announcement to be issued; provided,
however, that the parties hereby acknowledge and agree that communications among
employees of the parties and their attorneys, representatives and agents
necessary to consummate the transactions contemplated hereby shall not be deemed
a public announcement for purposes of this Section 14.9. Upon the execution and
deliver of this Agreement, the parties hereto will cooperate in respect of the
immediate issuance of a mutually acceptable press release relating to the
transactions contemplated by the Agreements.
14.10 Entire Agreement
All Exhibits and Schedules to this Agreement are incorporated in and
constitute a part of this Agreement. This Agreement, including the Exhibits and
Schedules hereto, each as amended from time to time, constitutes the entire
understanding between the parties in relation to the subject matter hereof and
supersede all prior discussions, agreements and representations related to this
subject matter, whether oral or written and whether or not executed by a party.
Unless otherwise provided in this Agreement, no modification, amendment or other
change may be made to this Agreement or any part thereof unless reduced to
writing and executed by authorized representatives of all parties.
14.11 Counterparts
This Agreement may be executed in two or more counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.
14.12 Titles and Subtitles
The titles and subtitles used in this Agreement and in the Exhibits and
Schedules hereto are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
[Signature Page Follows]
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In witness whereof, the parties have duly entered into this Main
Agreement as of the date first written above.
GNC: drugstore.com:
GENERAL NUTRITION CORPORATION DRUGSTORE.COM, INC.
By: /s/ James M. Sander By: /s/ Peter M. Neupert
Name: James M. Sander Name: Peter M. Neupert
Title: Vice President Title: President and CEO
Address: 300 Sixth Avenue Address: 13920 SE Eastgate Way
Pittsburgh, PA 15222 Suite 300
Bellevue, WA 98005
GOVERNANCE AGREEMENT WITH RITE AID CORPORATION
DRUGSTORE.COM, INC.
RITE AID GOVERNANCE AGREEMENT
-----------------------------
This Governance Agreement (this "Agreement") is made as of the 17th day of
---------
June, 1999 by and among drugstore.com, inc., a Delaware corporation (the
"Company"), and Rite Aid Corporation, a Delaware corporation ("Rite Aid").
-------- --------
RECITALS
--------
The Company and Rite Aid have entered into a Series E Preferred Stock
Purchase Agreement (the "Series E Purchase Agreement") dated as of June 17,
---------------------------
1999, pursuant to which the Company will sell to Rite Aid and Rite Aid will
purchase from the Company shares of the Company's Series E Preferred Stock. The
Company and Rite Aid wish to enter into this Agreement in order to set forth
certain rights and restrictions applicable to the Company and Rite Aid in
connection with the transactions contemplated by the Purchase Agreement.
AGREEMENT
---------
The parties hereby agree as follows:
1. Standstill Agreement.
--------------------
1.1 No Increase of Ownership Interest. (a) At any time during the
---------------------------------
Standstill Period (defined below), except with the prior written consent of a
majority of the Company's Board of Directors (the "Board") (excluding the vote
-----
of any director appointed by Rite Aid), none of Rite Aid, any Affiliate (defined
below) of Rite Aid or any 13D Group (defined below) of which Rite Aid or any of
its Affiliates is a member shall in any manner acquire, agree to acquire or make
any proposal to acquire, directly or indirectly, beneficial ownership (defined
below) of any securities of the Company entitled to vote with respect to the
election of any directors of the Company ("Voting Securities"), any security
-----------------
convertible into, exchangeable for, or exercisable for, or that may become any
Voting Securities or any other right to acquire Voting Securities (such Voting
Securities and rights to acquire Voting Securities are collectively referred to
herein as "Securities"), if after such acquisition, the Voting Securities then
----------
beneficially
2
owned by Rite Aid would represent more than the Threshold Percentage (defined
below) of the Company's then outstanding Voting Securities (assuming the
conversion, exchange and/or exercise of all convertible, exchangeable and
exercisable securities then beneficially owned by Rite Aid); provided, however,
-------- -------
that if at any time the Voting Securities beneficially owned by Rite Aid shall
represent less than or the same as the Threshold Percentage, and, subsequently
and solely as a result of the Company's repurchases of Voting Securities or a
recapitalization of all the Company's capital stock, the Voting Securities
beneficially owned by Rite Aid shall then represent more than the Threshold
Percentage, then Rite Aid shall not be deemed in violation of this Section 1.1
for so long as Rite Aid does not purchase or acquire beneficial ownership of
additional Voting Securities.
(b) The provisions of Section 1.1(a) shall not apply during the
pendency of a Standstill Suspension Period (defined below).
1.2 Definitions. For purposes of this Agreement, the following terms
-----------
shall be defined as set forth below:
"Acquisition Agreement" means a definitive agreement between the
---------------------
Company and any Existing Investor or any other Person in respect of a
merger, consolidation, recapitalization, sale of assets or other business
combination transaction which, if consummated, (i) in the case of such an
agreement with an Existing Investor, would result (A) in such Existing
Investor beneficially owning in excess of 40% of the then Total Current
Voting Power (excluding a merger effected exclusively for the purpose of
changing the domicile of the Company) or (B) in 50% or more of the assets
of the Company being transferred to or controlled by an Existing Investor
or (ii) in the case of such an agreement with any other Person, would
result in a Change of Control Transaction.
"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person.
"beneficial owner" has the meaning set forth in Rule 13d-3 under the
----------------
Exchange Act, and the terms "beneficially own" and "beneficial ownership"
---------------- --------------------
have meanings correlative to the foregoing.
"Board" is defined in Section 1.1(a).
-----
3
"Change of Control Transaction" means (A) any Tender Offer, merger,
-----------------------------
consolidation, recapitalization, sale of assets or other business
combination or transaction pursuant to which either (i) the holders of the
outstanding Voting Securities immediately prior to such transaction would
hold less than 50% of the Total Current Voting Power immediately after such
transaction or (ii) 50% or more of the assets of the Company would be
transferred to or controlled by a third party not Affiliated with the
Company, except in each case a merger effected exclusively for the purpose
of changing the domicile of the Company or (B) any action by the
stockholders of the Company that results in the directors, who as of the
Closing Date constitute the Board (the "Incumbent Board"), ceasing to
---------------
constitute at least a majority of the Board (provided, however, that any
individual becoming a director subsequent to the Closing Date whose
nomination for election by the stockholders of the Company was approved by
the vote of the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board).
"Closing Date" means the date of the closing of the purchase and sale
------------
under the Series E Purchase Agreement.
"Common Stock" means common stock, par value $0.001 per share, of the
------------
Company.
"control" when used with respect to any Person means the power to
-------
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract, or
otherwise; and the terms "controlling" and "controlled" have meanings
----------- ----------
correlative to the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Existing Investors" means Amazon.com, Inc., Kleiner Perkins Caufield
------------------
& Byers VIII, L.P. and Vulcan Ventures Incorporated, and their respective
Affiliates.
"Existing Investor Offer/Solicitation" means the commencement by an
------------------------------------
Existing Investor of (i) a Tender Offer to acquire, or as a result of which
such Existing Investor would beneficially own, in excess of 40% of the then
Total Current Voting Power or (ii) a Proxy Solicitation.
4
"Investors' Rights Agreement" means the Fourth Amended and Restated
---------------------------
Investors' Rights Agreement made as of May 18, 1999, as amended by the
Addendum thereto dated as of June 17, 1999, by and among the Company and
the investors listed on Exhibit A thereto.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, joint venture, or other entity.
"Proxy Solicitation" means a "solicitation" of "proxies" (as such
------------------
terms are used in Regulation 14A under the Exchange Act) by a Person or 13D
Group (which is not made and does not include any of the Company, Rite Aid
or any Affiliate of the Company or Rite Aid (it being agreed that for
purposes of this definition of Proxy Solicitation an Existing Investor
shall not be deemed an Affiliate of the Company)) to effect a Change of
Control Transaction.
"Qualified IPO" means an underwritten public offering by the Company
-------------
of shares of its Common Stock pursuant to a registration statement under
the Securities Act, which results in gross proceeds in excess of
$15,000,000 and the public offering price of which is at least $10.00 per
share (appropriately adjusted for any stock split, dividend, combination or
other recapitalization).
"Rite Aid Controlled Entity" means any Person which is controlled by
--------------------------
Rite Aid.
"Securities" is defined in Section 1.1(a).
----------
"Securities Act" means the Securities Act of 1933.
--------------
"Standstill Period" means the period from the date of this Agreement
-----------------
until the earlier of (i) the tenth anniversary of the Closing Date and (ii)
when the Company shall (A) sell, convey, or otherwise dispose of all or
substantially all of its property or business or merge or consolidate with
any other corporation (other than a wholly owned subsidiary corporation)
where the stockholders of the Company own less than fifty percent (50%) of
the voting power of the surviving entity after such merger or consolidation
or (B) effect any other transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Company is
disposed of, except in each case a merger
5
effected exclusively for the purpose of changing the domicile of the
Company.
"Standstill Suspension Period" means any of the following periods:
----------------------------
(i) the period from the eleventh business day after commencement of a
Third Party Offer/Solicitation until the withdrawal or termination thereof;
(ii) the period from commencement of an Existing Investor
Offer/Solicitation until the withdrawal or termination thereof;
(iii) the period of effectiveness of any material waiver by the Company
(including through a failure to enforce) of Section 3.1, 3.3 or 3.5 of the
Investors' Rights Agreement as and to the extent such sections apply to the
Existing Investors; and
(iv) the period from the execution by the Company of an Acquisition
Agreement until the termination thereof.
"Stock" is defined in Section 2.1.
-----
"Strategic Agreements" means this Agreement, the Rite Aid Main
--------------------
Agreement and the Pharmacy Supply and Services Agreement (each as defined
in the Series E Purchase Agreement).
"Tender Offer" means a bona fide public offer subject to the
------------
provisions of Regulation 14D when first commenced within the meaning of
Rule 14d-2(a) of the rules and regulations under the Exchange Act, by a
Person or 13D Group (which is not made and does not include any of the
Company, Rite Aid or any Affiliate of the Company or Rite Aid (it being
agreed that for purposes of this definition of Tender Offer an Existing
Investor shall not be deemed an Affiliate of the Company)) to purchase or
exchange for cash or other consideration any Voting Securities.
"Third Party Offer/Solicitation" means the commencement by any Person
------------------------------
other than an Existing Investor of (i) a Tender Offer to acquire, or as a
result of which such Person would beneficially own, 51% or more of the then
Total Current Voting Power or (ii) a Proxy Solicitation.
"13D Group" means any group of Persons formed for the purpose of
---------
acquiring, holding, voting or
6
disposing of Securities which would be required under Section 13(d) of the
Exchange Act, and the rules and regulations promulgated thereunder, to file
a statement on Schedule 13D pursuant to Rule 13d-1(a) or a Schedule 13G
pursuant to Rule 13d-1(c) as a "person" within the meaning of Section
13(d)(3) of the Exchange Act if such group beneficially owned Securities
representing more than 5% of any class of Securities then outstanding.
"Threshold Percentage" means 40.0%.
--------------------
"Total Current Voting Power" means, as of any date of determination,
--------------------------
the total number of votes which may be cast in the election of members of
the Board of Directors of the Company if all Voting Securities are present
and vote.
"Voting Agreement" means the Third Amended and Restated Voting
----------------
Agreement dated as of June 17, 1999.
"Voting Securities" is defined in Section 1.1(a).
-----------------
1.3 Notice of Voting Securities Purchases. Rite Aid shall notify the
-------------------------------------
Company as to any future acquisition of beneficial ownership of Voting
Securities, or rights thereto, within ten (10) business days after such action
in order for the Company to monitor compliance with the terms of this Agreement.
1.4 Other Restricted Activities. (a) At any time during the
---------------------------
Standstill Period, except for the acquisition of Voting Securities up to the
Threshold Percentage by means of a tender offer, open market purchases, private
purchases or any other legally available means, or with the prior written
consent of a majority of the Board (excluding the vote of any director appointed
by Rite Aid) neither Rite Aid nor any Affiliate of Rite Aid shall (i) propose to
enter into, directly or indirectly, any merger or other business combination
involving the Company or propose to purchase, directly or indirectly, a material
portion of the assets of the Company, (ii) make, or in any way participate,
directly or indirectly, in any "solicitation" of "proxies" (as such terms are
used in Regulation 14A under the Exchange Act) to vote or consent, or seek to
advise or influence any Person with respect to the voting of, or granting of a
consent with respect to, any Securities, (iii) deposit any Securities into a
voting trust or subject any Securities to any arrangement or agreement with any
third party with respect to the voting of such Securities (other than as
contemplated by the Voting Agreement), (iv) form, join or participate in any 13D
Group, (v)
7
otherwise act, alone or in concert with others, to seek to control or influence
the management or policies of the Company, (vi) disclose any intention, plan or
arrangement inconsistent with the foregoing or (vii) advise, assist (including
by knowingly providing or arranging financing for that purpose) or encourage any
other Person in connection with any of the foregoing. Rite Aid also agrees not
to (and to cause its Affiliates not to) (x) request the Company or any of its
agents or representatives, directly or indirectly, to amend or waive any
provision of this Section 1.4(a) (including this sentence) or (y) take any
action which might require the Company to make a public announcement regarding
the possibility of a transaction with the Company (excluding announcements
relating to the Strategic Agreements); provided that this clause (y) shall not
--------
be deemed to prohibit Rite Aid from communicating with the Board so long as such
communication is not intended to elicit a public response by such Board.
Nothing contained in this Section 1.4 shall be deemed to prevent Rite Aid from
taking actions permitted under the Voting Agreement or Section 3 of this
Agreement.
(b) The provisions of Section 1.4(a) shall not apply during the pendency
of a Standstill Suspension Period.
1.5 Voting Restrictions. During the Standstill Period, Rite Aid shall
-------------------
take all action as may be required such that all Voting Securities beneficially
owned by Rite Aid are voted at every meeting of the Company's stockholders and
in any solicitation of consents in lieu of any such meeting (a) in any election
of directors in favor of the nominees put forth and recommended by the Board,
(b) on any stockholder proposals made pursuant to Rule 14a-8 under the Exchange
Act, in accordance with the recommendation of a majority of the Board and (c) on
all proposed amendments to the Company's certificate of incorporation, other
than any amendment to the voting or other rights of the holders of the Common
Stock that is adverse to Rite Aid, in accordance with the recommendation of a
majority of the Board.
2. Sales by Rite Aid.
-----------------
8
2.1 Transfer Restrictions. Notwithstanding any other provisions of this
---------------------
Agreement, during the Standstill Period, Rite Aid shall not directly or
indirectly sell or otherwise transfer or dispose of any shares of the Company's
capital stock beneficially owned by Rite Aid ("Stock"), or any interest therein,
-----
except as follows:
(i) to the Company;
(ii) to any Rite Aid Controlled Entity which has agreed in writing
with the Company to be bound to the terms of this Agreement;
(iii) (x) in a private placement exempt from the registration
requirements of the Securities Act, provided that Rite Aid obtains an
--------
opinion of counsel stating that such sale, transfer or disposition is
exempt from the registration requirements of the Securities Act, or
(y) pursuant to a bona fide underwritten public offering or
shelf offering registered under the Securities Act;
provided, that in the case of each of clauses (x) and (y), to the knowledge
--------
of Rite Aid after due inquiry, no single Person or 13D Group would, as a
result of such transfer, beneficially own more than 5% of the Voting
Securities;
(iv) pursuant to Rule 144 under the Securities Act;
(v) at any time, pursuant to any tender offer or exchange offer subject
to Regulation 14D under the Exchange Act which (x) is not opposed by the
Board within the time the Board is required, pursuant to the rules and
regulations promulgated under the Exchange Act, to advise stockholders of
the Company of its position on such offer or (y) if successful would effect
a Change of Control Transaction; or
(vi) at any time, pursuant to, or in connection with the consummation
of, any definitive agreement between the Company and any other Person in
respect of a merger, consolidation, recapitalization, sale of assets or
other business combination transaction.
2.2 Prohibited Transfers. Any attempt by Rite Aid to sell, transfer or
--------------------
dispose of Stock or any interest therein in violation of this Section 2 shall be
void and
9
the Company agrees it will not effect such a sale, transfer or disposition nor
will it treat any alleged transferee as the holder of such Stock.
2.3 Legended Certificates. Each certificate representing shares of
---------------------
Stock now or hereafter owned by Rite Aid shall be endorsed with the following
legend unless the applicable restrictions referenced below shall have lapsed by
the terms of the agreements in which such restrictions are contained (in which
event the relevant legend shall be removed from such certificate):
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO TRANSFER RESTRICTIONS
SET FORTH IN A GOVERNANCE AGREEMENT DATED AS OF JUNE 17, 1999, BETWEEN
THE STOCKHOLDER AND THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
3. Board Representation.
--------------------
3.1 Designation of Director. On the first business day following the
-----------------------
termination of Rite Aid's rights under Section 1(d) of the Voting Agreement
pursuant to Section 3.1(b) thereof, the Company will cause the Board to
nominate, recommend and solicit proxies (if necessary) for election to the Board
of one person designated by Rite Aid; provided, that this obligation shall be
deemed fulfilled in the event a Rite Aid designated director is already sitting
on the Board at such time. Thereafter, in the event of a vacancy in such Rite
Aid Board seat, or in any Board election in which the Rite Aid designated
director is up for re-election, the Company will cause the vacancy to be filled
with a Rite Aid designated director or will cause such Rite Aid designated
director to be included on the slate of directors proposed by the Board at such
election and cause the Board to recommend and solicit proxies (if necessary) in
favor of such Rite Aid designated director. Notwithstanding any of the
foregoing, the Company's obligations under this Section 3 will terminate on the
earliest of:
(x) the date Rite Aid ceases to beneficially own at least 5% of the
then-outstanding shares of Common Stock;
(y) the date of termination of all of the Strategic Agreements; and
(z) when the Company shall sell, convey, or otherwise dispose of all
or substantially all of its
10
property or business or merge or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) where the stockholders
of the Company own less than fifty percent (50%) of the voting power of the
surviving entity after such merger or consolidation, provided that this
subsection (z) shall not apply to a merger effected exclusively for the
purpose of changing the domicile of the Company.
3.2 Designation of an Observer. At any time prior to the termination
--------------------------
of all of the Strategic Agreements or the occurrence of an event described in
clause (z) of Section 3.1, Rite Aid shall be entitled to designate a nonvoting
observer who shall be entitled to attend any meeting of the Board which a Rite
Aid designated director does not attend and who, at any time when there is not a
Rite Aid designated director on the Board, shall be provided (i) notice of all
meetings of the Board (concurrent with the delivery of such notice to
directors), (ii) notice of any action that the Board may take by written consent
(concurrent with the delivery of such notice to directors) and (iii) promptly
delivered copies of all minutes and other records of action by, and all written
information furnished to the Board.
3.3 Conflicts. Notwithstanding the foregoing, no Rite Aid Board
---------
observer shall be permitted to attend any Board meeting (or any portion thereof)
at which discussions relate to matters which the General Counsel of the Company
determines could be subject to the attorney/client privilege.
4. Pre-IPO Right.
-------------
4.1 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 4.1, the Company hereby grants to Rite Aid a right of
first offer with respect to future sales by the Company of its Shares (as
hereinafter defined).
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
------
Rite Aid in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail or overnight
courier ("Notice") to Rite Aid stating (i) its bona fide intention to offer such
------
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
11
(b) Within 15 calendar days after delivery of the Notice, Rite Aid may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the amount necessary for
Rite Aid to maintain its equity percentage in the Company (calculated as the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities held by Rite Aid as of the date of this Agreement (or if less, the
number then held by Rite Aid) bears to the total number of shares of Common
Stock then outstanding.
(c) The right of first offer in this Section 4.1 shall not be
applicable (i) to the issuance or sale of capital stock (or options therefor) to
employees, consultants, officers or directors of the Company pursuant to stock
purchase or stock option plans or agreements approved by the Board (including
options granted prior to the date hereof), (ii) to the issuance of securities in
connection with bona fide acquisitions, mergers or similar transactions, (iii)
to the issuance of securities to financial institutions or lessors in connection
with commercial credit arrangements, equipment financings or similar
transactions, (iv) to the issuance of securities in a public offering of
securities pursuant to a registration statement filed under the Securities Act,
(v) to the issuance of securities pursuant to the conversion or exercise of
options, warrants, notes, or other rights to acquire securities of the Company,
or (vi) to the issuance of securities pursuant to stock splits, stock dividends
or like transactions.
4.2 Termination of Covenants. The covenants set forth in Section 4.1
------------------------
shall terminate and be of no further force or effect (i) upon the consummation
of a Qualified IPO, or (ii) when the Company shall (A) sell, convey, or
otherwise dispose of all or substantially all of its property or business or
merge or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) where the stockholders of the Company own less than
fifty percent (50%) of the voting power of the surviving entity after such
merger or consolidation or (B) effect any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, provided that this subsection (ii) shall not apply to a
merger effected exclusively for the purpose of changing the domicile of the
Company.
12
5. Miscellaneous.
-------------
5.1 Successors and Assigns. This Agreement and each party's rights and
----------------------
obligations hereunder shall not be assigned without the prior written consent of
the other party; provided, that in connection with a transfer pursuant to
--------
Section 2.1(ii), no consent of the Company shall be required but Rite Aid shall
cause the transferee to agree in writing with the Company to be bound to (and
receive the benefit of) Rite Aid's rights and obligations under this Agreement.
Except as otherwise provided in this Agreement, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
5.2 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
or waived only with the written consent of the Company and Rite Aid, or that of
their respective permitted successors and assigns. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon the Company,
Rite Aid and any of their permitted successors and assigns.
5.3 Notices. Unless otherwise provided, any notice required or
-------
permitted by this Agreement shall be in writing and shall be deemed given upon
delivery, when delivered personally or by overnight courier or sent by telegram
or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address or fax number as set forth below or as
subsequently modified by written notice, and if to the Company, with a copy to
the General Counsel of the Company at the address of the Company set forth below
and, if to Rite Aid, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP,
New York, NY 10022-3897 (telephone: (212) 735-3000; telecopy: (212) 735-2000),
Attention: Nancy Lieberman.
5.4 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
13
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
5.5 Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto shall be governed, construed and interpreted in accordance with
the laws of the State of Delaware, without giving effect to principles of
conflicts of laws.
5.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.7 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.8 Enforcement. The parties agree that irreparable damage would occur in
-----------
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any New York or Delaware state
court or any Federal court located in the State of New York or the State of
Delaware, this being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any New York or Delaware state
court or any Federal court located in the State of New York or the State of
Delaware in the event any dispute arises out of this Agreement, (b) agrees that
it will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, (c) agrees that it will not bring
any action relating to this Agreement in any court other than any New York or
Delaware state court or any Federal court sitting in the State of New York or
the State of Delaware and (d) waives any right to trial by jury with respect to
any action related to or arising out of this Agreement.
5.9 Effectiveness. This Agreement shall become effective only
-------------
concurrently with the Closing (as defined in the Series E Purchase Agreement).
This Agreement shall automatically terminate concurrently with any termination
of the Series E Purchase Agreement pursuant to Section 7.16 thereof. Upon such
termination,
14
this Agreement shall become void and of no further effect.
[Signature Page Follows]
15
The parties have executed this Governance Agreement as of the date first
written above.
COMPANY:
DRUGSTORE.COM, INC.
By: /s/ Peter M. Neupert
--------------------------------
Name: Peter M. Neupert
Title: President and CEO
Address: 13920 SE Eastgate Way,
Suite 300
Bellevue, WA 98005
RITE AID:
RITE AID CORPORATION
By: /s/ Elliot S. Gerson
--------------------------------
Name: Elliot S. Gerson
Title:
Address: 30 Hunter Lane
Camp Hill, PA 17011
GOVERNANCE AGREEMENT WITH GENERAL NUTRITION COS.
DRUGSTORE.COM, INC.
GNC GOVERNANCE AGREEMENT
------------------------
This Governance Agreement (this "Agreement") is made as of the 17th day of
---------
June, 1999 by and among drugstore.com, inc., a Delaware corporation (the
"Company"), General Nutrition Companies, Inc., a Delaware corporation ("General
-------- -------
Nutrition"), and General Nutrition Investment Company, an Arizona corporation
---------
("GNI", and together with General Nutrition,"GNC").
----- ---
RECITALS
--------
The Company and GNC have entered into a Series E Preferred Stock Purchase
Agreement (the "Series E Purchase Agreement") dated as of June 17, 1999,
------------------
pursuant to which the Company will sell to GNI and GNI will purchase from the
Company shares of the Company's Series E Preferred Stock. The Company and GNC
wish to enter into this Agreement in order to set forth certain rights and
restrictions applicable to the Company and GNC in connection with the
transactions contemplated by the Purchase Agreement.
AGREEMENT
---------
The parties hereby agree as follows:
1. Standstill Agreement.
--------------------
1.1 No Increase of Ownership Interest. (a) At any time during the
---------------------------------
Standstill Period (defined below), except with the prior written consent of a
majority of the Company's Board of Directors (the "Board") (excluding the vote
-----
of any director appointed by GNC), none of GNC, any Affiliate (defined below) of
GNC or any 13D Group (defined below) of which GNC or any of its Affiliates is a
member shall in any manner acquire, agree to acquire or make any proposal to
acquire, directly or indirectly, beneficial ownership (defined below) of any
securities of the Company entitled to vote with respect to the election of any
directors of the Company ("Voting Securities"), any security convertible into,
-----------------
exchangeable for, or exercisable for, or that may become any Voting Securities
or any other right to acquire Voting Securities (such Voting Securities and
rights to acquire Voting Securities are collectively referred to herein as
"Securities"), if
-----------
2
after such acquisition, the Voting Securities then beneficially owned by GNC
would represent more than the Threshold Percentage (defined below) of the
Company's then outstanding Voting Securities (assuming the conversion, exchange
and/or exercise of all convertible, exchangeable and exercisable securities then
beneficially owned by GNC); provided, however, that if at any time the Voting
-------- -------
Securities beneficially owned by GNC shall represent less than or the same as
the Threshold Percentage, and, subsequently and solely as a result of the
Company's repurchases of Voting Securities or a recapitalization of all the
Company's capital stock, the Voting Securities beneficially owned by GNC shall
then represent more than the Threshold Percentage, then GNC shall not be deemed
in violation of this Section 1.1 for so long as GNC does not purchase or acquire
beneficial ownership of additional Voting Securities.
(b) The provisions of Section 1.1(a) shall not apply during the
pendency of a Standstill Suspension Period (defined below).
1.2 Definitions. For purposes of this Agreement, the following terms
-----------
shall be defined as set forth below:
"Acquisition Agreement" means a definitive agreement between the
---------------------
Company and any Existing Investor or any other Person in respect of a
merger, consolidation, recapitalization, sale of assets or other business
combination transaction which, if consummated, (i) in the case of such an
agreement with an Existing Investor, would result (A) in such Existing
Investor beneficially owning in excess of 40% of the then Total Current
Voting Power (excluding a merger effected exclusively for the purpose of
changing the domicile of the Company) or (B) in 50% or more of the assets
of the Company being transferred to or controlled by an Existing Investor
or (ii) in the case of such an agreement with any other Person, would
result in a Change of Control Transaction.
"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person.
"beneficial owner" has the meaning set forth in Rule 13d-3 under the
----------------
Exchange Act, and the terms "beneficially own" and "beneficial ownership"
---------------- --------------------
have meanings correlative to the foregoing.
"Board" is defined in Section 1.1(a).
-----
3
"Change of Control Transaction" means (A) any Tender Offer, merger,
-----------------------------
consolidation, recapitalization, sale of assets or other business combination or
transaction pursuant to which either (i) the holders of the outstanding Voting
Securities immediately prior to such transaction would hold less than 50% of the
Total Current Voting Power immediately after such transaction or (ii) 50% or
more of the assets of the Company would be transferred to or controlled by a
third party not Affiliated with the Company, except in each case a merger
effected exclusively for the purpose of changing the domicile of the Company or
(B) any action by the stockholders of the Company that results in the directors,
who as of the Closing Date constitute the Board (the "Incumbent Board"), ceasing
---------------
to constitute at least a majority of the Board (provided, however, that any
individual becoming a director subsequent to the Closing Date whose nomination
for election by the stockholders of the Company was approved by the vote of the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board).
"Closing Date" means the date of the closing of the purchase and sale under
------------
the Series E Purchase Agreement.
"Common Stock" means common stock, par value $0.001 per share, of the
------------
Company.
"control" when used with respect to any Person means the power to direct
-------
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract, or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
----------- ----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Existing Investors" means Amazon.com, Inc., Kleiner Perkins Caufield &
------------------
Byers VIII, L.P. and Vulcan Ventures Incorporated, and their respective
Affiliates.
"Existing Investor Offer/Solicitation" means the commencement by an
------------------------------------
Existing Investor of (i) a Tender Offer to acquire, or as a result of which such
Existing Investor would beneficially own, in excess of 40% of the then Total
Current Voting Power or (ii) a Proxy Solicitation.
4
"Investors' Rights Agreement" means the Fourth Amended and Restated
---------------------------
Investors' Rights Agreement made as of May 18, 1999, as amended by the Addendum
thereto dated as of June 17, 1999, by and among the Company and the investors
listed on Exhibit A thereto.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company, trust, joint venture, or other entity.
"Proxy Solicitation" means a "solicitation" of "proxies" (as such terms are
------------------
used in Regulation 14A under the Exchange Act) by a Person or 13D Group (which
is not made and does not include any of the Company, GNC or any Affiliate of the
Company or GNC (it being agreed that for purposes of this definition of Proxy
Solicitation an Existing Investor shall not be deemed an Affiliate of the
Company)) to effect a Change of Control Transaction.
"Qualified IPO" means an underwritten public offering by the Company of
-------------
shares of its Common Stock pursuant to a registration statement under the
Securities Act, which results in gross proceeds in excess of $15,000,000 and the
public offering price of which is at least $10.00 per share (appropriately
adjusted for any stock split, dividend, combination or other recapitalization).
"GNC Controlled Entity" means any Person which is controlled by GNC.
---------------------
"Securities" is defined in Section 1.1(a).
----------
"Securities Act" means the Securities Act of 1933.
--------------
"Standstill Period" means the period from the date of this Agreement until
-----------------
the earlier of (i) the tenth anniversary of the Closing Date and (ii) when the
Company shall (A) sell, convey, or otherwise dispose of all or substantially all
of its property or business or merge or consolidate with any other corporation
(other than a wholly owned subsidiary corporation) where the stockholders of the
Company own less than fifty percent (50%) of the voting power of the surviving
entity after such merger or consolidation or (B) effect any other transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of, except in each case a merger
effected exclusively for the purpose of changing the domicile of the Company.
5
"Standstill Suspension Period" means any of the following periods:
----------------------------
(i) the period from the eleventh business day after commencement of a
Third Party Offer/Solicitation until the withdrawal or termination thereof;
(ii) the period from commencement of an Existing Investor
Offer/Solicitation until the withdrawal or termination thereof;
(iii) the period of effectiveness of any material waiver by the Company
(including through a failure to enforce) of Section 3.1, 3.3 or 3.5 of the
Investors' Rights Agreement as and to the extent such sections apply to the
Existing Investors; and
(iv) the period from the execution by the Company of an Acquisition
Agreement until the termination thereof.
"Stock" is defined in Section 2.1.
-----
"Strategic Agreements" means the Main Agreement entered into as of June 17,
--------------------
1999 between the Company and General Nutrition, this Agreement, and the
Consignment Agreement entered into as of June 17, 1999 between the Company and
General Nutrition.
"Tender Offer" means a bona fide public offer subject to the provisions of
------------
Regulation 14D when first commenced within the meaning of Rule 14d-2(a) of the
rules and regulations under the Exchange Act, by a Person or 13D Group (which is
not made and does not include any of the Company, GNC or any Affiliate of the
Company or GNC (it being agreed that for purposes of this definition of Tender
Offer an Existing Investor shall not be deemed an Affiliate of the Company)) to
purchase or exchange for cash or other consideration any Voting Securities.
"Third Party Offer/Solicitation" means the commencement by any Person other
------------------------------
than an Existing Investor of (i) a Tender Offer to acquire, or as a result of
which such Person would beneficially own, 51% or more of the then Total Current
Voting Power or (ii) a Proxy Solicitation.
"13D Group" means any group of Persons formed for the purpose of acquiring,
---------
holding, voting or disposing of Securities which would be required under Section
13(d) of the Exchange Act, and the
6
rules and regulations promulgated thereunder, to file a statement on
Schedule 13D pursuant to Rule 13d-1(a) or a Schedule 13G pursuant to Rule
13d-1(c) as a "person" within the meaning of Section 13(d)(3) of the
Exchange Act if such group beneficially owned Securities representing more
than 5% of any class of Securities then outstanding.
"Threshold Percentage" means 40.0%.
--------------------
"Total Current Voting Power" means, as of any date of determination,
--------------------------
the total number of votes which may be cast in the election of members of
the Board of Directors of the Company if all Voting Securities are present
and vote.
"Voting Agreement" means the Third Amended and Restated Voting
----------------
Agreement dated as of June 17, 1999.
"Voting Securities" is defined in Section 1.1(a).
-----------------
1.3 Notice of Voting Securities Purchases. GNC shall notify the
-------------------------------------
Company as to any future acquisition of beneficial ownership of Voting
Securities, or rights thereto, within ten (10) business days after such action
in order for the Company to monitor compliance with the terms of this Agreement.
1.4 Other Restricted Activities. (a) At any time during the Standstill
---------------------------
Period, except for the acquisition of Voting Securities up to the Threshold
Percentage by means of a tender offer, open market purchases, private purchases
or any other legally available means, or with the prior written consent of a
majority of the Board (excluding the vote of any director appointed by GNC)
neither GNC nor any Affiliate of GNC shall (i) propose to enter into, directly
or indirectly, any merger or other business combination involving the Company or
propose to purchase, directly or indirectly, a material portion of the assets of
the Company, (ii) make, or in any way participate, directly or indirectly, in
any "solicitation" of "proxies" (as such terms are used in Regulation 14A under
the Exchange Act) to vote or consent, or seek to advise or influence any Person
with respect to the voting of, or granting of a consent with respect to, any
Securities, (iii) deposit any Securities into a voting trust or subject any
Securities to any arrangement or agreement with any third party with respect to
the voting of such Securities (other than as contemplated by the Voting
Agreement), (iv) form, join or participate in any 13D Group, (v) otherwise act,
alone or in concert with others, to seek to control or influence the management
or policies of the Company, (vi) disclose
7
any intention, plan or arrangement inconsistent with the foregoing or (vii)
advise, assist (including by knowingly providing or arranging financing for that
purpose) or encourage any other Person in connection with any of the foregoing.
GNC also agrees not to (and to cause its Affiliates not to) (x) request the
Company or any of its agents or representatives, directly or indirectly, to
amend or waive any provision of this Section 1.4(a) (including this sentence) or
(y) take any action which might require the Company to make a public
announcement regarding the possibility of a transaction with the Company
(excluding announcements relating to the Strategic Agreements); provided that
--------
this clause (y) shall not be deemed to prohibit GNC from communicating with the
Board so long as such communication is not intended to elicit a public response
by such Board. Nothing contained in this Section 1.4 shall be deemed to prevent
GNC from taking actions permitted under the Voting Agreement.
(b) The provisions of Section 1.4(a) shall not apply during the pendency
of a Standstill Suspension Period.
1.5 Voting Restrictions. During the Standstill Period, GNC shall take all
-------------------
action as may be required such that all Voting Securities beneficially owned by
GNC are voted at every meeting of the Company's stockholders and in any
solicitation of consents in lieu of any such meeting (a) in any election of
directors in favor of the nominees put forth and recommended by the Board, (b)
on any stockholder proposals made pursuant to Rule 14a-8 under the Exchange Act,
in accordance with the recommendation of a majority of the Board and (c) on all
proposed amendments to the Company's certificate of incorporation, other than
any amendment to the voting or other rights of the holders of the Common Stock
that is adverse to GNC, in accordance with the recommendation of a majority of
the Board.
2. Sales by GNC.
------------
2.1 Transfer Restrictions. Notwithstanding any other provisions of this
---------------------
Agreement, during the Standstill Period, GNC shall not directly or indirectly
sell or otherwise transfer or dispose of any shares of the Company's capital
stock beneficially owned by GNC ("Stock"), or any interest therein, except as
-----
follows:
(i) to the Company;
(ii) to any GNC Controlled Entity which has agreed in writing with the
Company to be bound to the terms of this Agreement;
8
(iii) (x) in a private placement exempt from the registration
requirements of the Securities Act, provided that GNC obtains an
--------
opinion of counsel stating that such sale, transfer or disposition is
exempt from the registration requirements of the Securities Act, or
(y) pursuant to a bona fide underwritten public offering or
shelf offering registered under the Securities Act;
provided, that in the case of each of clauses (x) and (y), to the
--------
knowledge of GNC after due inquiry, no single Person or 13D Group
would, as a result of such transfer, beneficially own more than 5% of
the Voting Securities;
(iv) pursuant to Rule 144 under the Securities Act;
(v) at any time, pursuant to any tender offer or exchange offer
subject to Regulation 14D under the Exchange Act which (x) is not opposed
by the Board within the time the Board is required, pursuant to the rules
and regulations promulgated under the Exchange Act, to advise stockholders
of the Company of its position on such offer or (y) if successful would
effect a Change of Control Transaction; or
(vi) at any time, pursuant to, or in connection with the
consummation of, any definitive agreement between the Company and any other
Person in respect of a merger, consolidation, recapitalization, sale of
assets or other business combination transaction.
2.2 Prohibited Transfers. Any attempt by GNC to sell, transfer or
--------------------
dispose of Stock or any interest therein in violation of this Section 2 shall be
void and the Company agrees it will not effect such a sale, transfer or
disposition nor will it treat any alleged transferee as the holder of such
Stock.
2.3 Legended Certificates. Each certificate representing shares of
---------------------
Stock now or hereafter owned by GNC shall be endorsed with the following legend
unless the applicable restrictions referenced below shall have lapsed by the
terms of the agreements in which such restrictions are contained (in which event
the relevant legend shall be removed from such certificate):
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE
9
IS SUBJECT TO TRANSFER RESTRICTIONS SET FORTH IN A GOVERNANCE AGREEMENT
DATED AS OF JUNE 17, 1999, BETWEEN THE STOCKHOLDER AND THE CORPORATION.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION."
3. [Intentionally Omitted.]
------------------------
4. Pre-IPO Right.
-------------
4.1 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 4.1, the Company hereby grants to GNC a right of first
offer with respect to future sales by the Company of its Shares (as hereinafter
defined).
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to GNC
------
in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail or overnight
courier ("Notice") to GNC stating (i) its bona fide intention to offer such
------
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) Within 15 calendar days after delivery of the Notice, GNC may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the amount necessary for
GNC to maintain its equity percentage in the Company (calculated as the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities held by GNC as of the date of this Agreement (or if less, the number
then held by GNC) bears to the total number of shares of Common Stock then
outstanding.
(c) The right of first offer in this Section 4.1 shall not be
applicable (i) to the issuance or sale of capital stock (or options therefor) to
employees, consultants, officers or directors of the Company pursuant to stock
purchase or stock option plans or agreements approved by the Board (including
options granted prior to the date hereof), (ii) to the issuance of securities in
connection with bona fide acquisitions, mergers or similar transactions, (iii)
to the issuance of securities to financial institutions or lessors in
10
connection with commercial credit arrangements, equipment financings or similar
transactions, (iv) to the issuance of securities in a public offering of
securities pursuant to a registration statement filed under the Securities Act,
(v) to the issuance of securities pursuant to the conversion or exercise of
options, warrants, notes, or other rights to acquire securities of the Company,
or (vi) to the issuance of securities pursuant to stock splits, stock dividends
or like transactions.
4.2 Termination of Covenants. The covenants set forth in Section 4.1
------------------------
shall terminate and be of no further force or effect (i) upon the consummation
of a Qualified IPO, or (ii) when the Company shall (A) sell, convey, or
otherwise dispose of all or substantially all of its property or business or
merge or consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) where the stockholders of the Company own less than
fifty percent (50%) of the voting power of the surviving entity after such
merger or consolidation or (B) effect any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, provided that this subsection (ii) shall not apply to a
merger effected exclusively for the purpose of changing the domicile of the
Company.
5. Miscellaneous.
-------------
5.1 Successors and Assigns. This Agreement and each party's rights
----------------------
and obligations hereunder shall not be assigned without the prior written
consent of the other party; provided, that in connection with a transfer
--------
pursuant to Section 2.1(ii), no consent of the Company shall be required but GNC
shall cause the transferee to agree in writing with the Company to be bound to
(and receive the benefit of) GNC's rights and obligations under this Agreement.
Except as otherwise provided in this Agreement, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
5.2 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
or waived only with the written consent of the Company and GNC, or that of their
respective permitted successors and assigns. Any amendment or waiver effected in
accordance with this
11
paragraph shall be binding upon the Company, GNC and any of their permitted
successors and assigns.
5.3 Notices. Unless otherwise provided, any notice required or permitted
-------
by this Agreement shall be in writing and shall be deemed given upon delivery,
when delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address or fax number as set forth below or as subsequently
modified by written notice, and if to the Company, with a copy to the General
Counsel of the Company at the address of the Company set forth below and, if to
GNC, with a copy to the General Counsel of GNC at the address of GNC set forth
below.
5.4 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
5.5 Governing Law. This Agreement and all acts and transactions pursuant
-------------
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Delaware, without giving effect to principles of conflicts of
laws.
5.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.7 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
12
5.8 Enforcement. The parties agree that irreparable damage would occur in
-----------
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any New York or Delaware state
court or any Federal court located in the State of New York or the State of
Delaware, this being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (a) consents to
submit itself to the personal jurisdiction of any New York or Delaware state
court or any Federal court located in the State of New York or the State of
Delaware in the event any dispute arises out of this Agreement, (b) agrees that
it will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, (c) agrees that it will not bring
any action relating to this Agreement in any court other than any New York or
Delaware state court or any Federal court sitting in the State of New York or
the State of Delaware and (d) waives any right to trial by jury with respect to
any action related to or arising out of this Agreement.
5.9 Effectiveness. This Agreement shall become effective only
-------------
concurrently with the Closing (as defined in the Series E Purchase Agreement).
This Agreement shall automatically terminate concurrently with any termination
of the Series E Purchase Agreement pursuant to Section 7.16 thereof. Upon such
termination, this Agreement shall become void and of no further effect.
[Signature Page Follows]
13
The parties have executed this Governance Agreement as of the date first
written above.
COMPANY:
DRUGSTORE.COM, INC.
By: /s/ Peter M. Neupert
-------------------------------------
Name: Peter M. Neupert
Title: President and CEO
Address: 13920 SE Eastgate Way,
Suite 300
Bellevue, WA 98005
GENERAL NUTRITION:
GENERAL NUTRITION COMPANIES, INC.
14
By: /s/ James M. Sander
-------------------------------------
Name: James M. Sander
Title: Vice President
Address:
GNI:
GENERAL NUTRITION
INVESTMENT COMPANY
By: /s/ James M. Sander
-------------------------------------
Name: James M. Sander
Title: Vice President