Pharmacy Supply and Services Agreement - Rite Aid Corp. and Drugstore.com Inc.


                                                                                

                     PHARMACY SUPPLY AND SERVICES AGREEMENT

     This PHARMACY SUPPLY AND SERVICES AGREEMENT (together with the schedules
hereto, this "Agreement"), dated as of  June 17, 1999, is entered into by and
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between Rite Aid Corporation, a Delaware corporation ("Rite Aid") and
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drugstore.com, inc., a Delaware corporation ("drugstore.com").  Certain terms
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capitalized herein and not defined herein shall have the meanings given to such
terms in the Main Agreement of even date herewith (the "Main Agreement") entered
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into by and between Rite Aid and drugstore.com.

     In consideration of the agreements and covenants set forth herein, and
intending to be legally bound thereby. the parties hereto agree as follows:

 
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    SECTION 1.  EFFECTIVE TIME; TERMINATION    This Agreement shall only become
                ---------------------------                                    
effective upon the consummation of the purchase of Series E Preferred Stock of
drugstore.com by Rite Aid and General Nutrition Companies, Inc., through its
wholly owned subsidiary General Nutrition Investment Company ("GNC") pursuant to
the Series E Preferred Stock Purchase Agreement of even date herewith entered
into by and among Rite Aid, drugstore.com and GNC  (such time, the "Effective
                                                                    ---------
Time"); provided, however, that (x) drugstore.com shall have no obligation to
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purchase, and Rite Aid shall have no obligation to supply, drugstore.com's
requirements of Pharmaceutical Products pursuant to Section 2 hereof and (y)
Rite Aid shall have no obligation to provide Pharmacy Services (as defined in
Section 3 hereof) to drugstore.com through the Rite Aid Mail-Order Pharmacy (as
defined in Section 3 hereof), if performance of such obligations by
drugstore.com or Rite Aid, as applicable, would violate or otherwise conflict
with any agreement to which drugstore.com is a party, until such time as the
performance of such obligations would no longer violate or otherwise conflict
with any such agreement.  This Agreement shall automatically terminate, and
become void and of no further effect, concurrently with the termination of the
Purchase Agreement pursuant to Section 7.16 thereof.  This Agreement shall
continue in effect after the Effective Time until such time as the Main
Agreement is terminated for any reason, at which time this Agreement shall also
be terminated, subject to Section 10.7 hereof.

    SECTION 2.  PHARMACY SUPPLY    From and after the Effective Time, and except
                ---------------                                                 
as provided in Section 2.1 hereof, Rite Aid agrees to sell, and drugstore.com
agrees to buy, all of drugstore.com's requirements of Pharmaceutical Products
necessary to fill orders of Pharmaceutical Products placed by customers of
drugstore.com on the drugstore.com Site, subject to and in accordance with the
following terms of this Section 2:

 
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                      2.1   Alternative Sourcing.
                            --------------------       

          (a)  In the event drugstore.com requires a Pharmaceutical Product that
is not regularly stocked by Rite Aid in its distribution centers or made
available through its wholesaler, Rite Aid shall not be required to supply such
Pharmaceutical Product and drugstore.com shall have the right to obtain such
Pharmaceutical Product from any other source; provided, however, that if Rite
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Aid subsequently commences to stock such Pharmaceutical Product in its
distribution centers, drugstore.com may, but shall not be obligated to,
thereafter obtain such Pharmaceutical Product from Rite Aid in accordance with
this Section 2.

          (b)  In the event Rite Aid (or its wholesaler) consistently fails to
deliver substantial portions of orders for Pharmaceutical Products to
drugstore.com in a timely manner, pursuant to Section 2.3 hereof, drugstore.com
shall be relieved of its obligations to obtain its requirements for
Pharmaceutical Products from Rite Aid.
 
          (c)  In the event drugstore.com receives a written offer (solicited or
unsolicited), subject only to acceptance by drugstore.com or its designee, from
a Third Party generally engaged in the business of wholesaling Pharmaceutical
Products throughout the United States or in a significant region of the United
States, to provide it with substantially all of its requirements for
Pharmaceutical Products containing terms with respect to price, timing of
delivery, timing and terms of payment and product availability which, in the
aggregate, are more favorable to drugstore.com than the terms provided by Rite
Aid hereunder (an "Offer"), drugstore.com shall notify Rite Aid in writing of
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its receipt of such Offer (such notice, the "Notice").  The Notice shall be
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accompanied by the Offer and a written designation of Rite Aid as an authorized
party to accept such Offer.  If Rite Aid does not, within 14 business days of
its receipt of the Notice, (i)  agree to match, for the term proposed in the
Offer (the "Offer Period"), the terms of the Offer, (ii) enter into an agreement
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with the Third Party making the Offer to purchase Pharmaceutical Products from
such Third Party on the terms specified in such Offer, including, without
limitation, the Offer Period or (iii) agree to modify, for the Offer Period, the
terms of this Section 2 so that they are at least as favorable to drugstore.com,
in the aggregate, as those in the Offer, then drugstore.com shall be relieved of
its obligations to obtain its requirements for Pharmaceutical Products from Rite
Aid; provided, however, that the failure by Rite Aid 
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to take any of such actions shall in no event be deemed to constitute a breach
by Rite Aid of this Agreement. If Rite Aid takes any of the actions specified in
clauses (i)-(iii) of the preceding sentence, then drugstore.com shall remain
obligated to purchase all of its requirements for Pharmaceutical Products from
Rite Aid on the terms of the Offer or, if applicable, of this Section 2 as
modified, for the Offer Period and, after the expiration of the Offer Period,
upon the terms of this Section 2.



          (d)  drugstore.com will not in any event be deemed to be in violation
of this Agreement if it obtains Pharmaceutical Products for a specific order
from an alternate source as a result of Rite Aid's failure to fill such order in
accordance with the terms of this Section 2.

    2.2   Pricing and Other Terms.        Rite Aid will sell branded and generic
          -----------------------                                               
Pharmaceutical Products to drugstore.com at the prices set forth on Schedule
                                                                    --------
2.2.  Except as set forth on Schedule 2.2, drugstore.com will also be afforded
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the same non-price terms as those received from time to time by Rite Aid from
its suppliers with respect to Rite Aid's purchase of  branded Pharmaceutical
Products.

               2.3   Placement and Delivery of Orders.
                     --------------------------------       

          (a)  With respect to branded Pharmaceutical Products, Rite Aid will
accept purchase orders from drugstore.com and transmit such orders to its
wholesaler. Rite Aid will instruct the wholesaler to deliver such Pharmaceutical
Products to drugstore.com at the place designated for delivery by drugstore.com.
Such orders will be processed by Rite Aid in the normal course and without
discrimination as between drugstore.com and Rite Aid.

          (b)  With respect to generic Pharmaceutical Products,  Rite Aid will
accept purchase orders from drugstore.com and deliver the Pharmaceutical
Products ordered to drugstore.com at the place designated for delivery by
drugstore.com.  At drugstore.com's option, it may elect to designate a Rite Aid
distribution center as the delivery point for such generic Pharmaceutical
Products, in which case Rite Aid shall have no delivery obligation other than to
make such products available for pick up at the Rite Aid distribution center
during normal business hours.  Such orders will be processed by Rite Aid in the
normal course and without discrimination as between drugstore.com and Rite Aid
stores and will be delivered without discrimination as between drugstore.com and

 
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Rite Aid stores of comparable volume, or if Rite Aid at any time has no stores
of comparable volume, on a schedule sufficient for drugstore.com to operate its
business at the volume at which it is then operating.

          (c)  If any Rite Aid wholesaler fails to meet the product supply and
delivery requirements of its agreement with Rite Aid, Rite Aid will use
commercially reasonable efforts to correct or require such wholesaler to correct
such wholesaler's performance failures as soon as practicable, including by
enforcing against such wholesaler all available penalties, fees, discounts or
other charges or benefits (the "Wholesaler Penalties") as set forth in such
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agreement and agreed to by the wholesaler and Rite Aid.  Upon collection of any
such Wholesaler Penalties, Rite Aid shall immediately pass to drugstore.com its
pro rata share thereof without deducting any amounts.

                  2.4   Billing and Payment for Orders.
                        ------------------------------       

          (a)  With respect to orders placed by drugstore.com for branded
Pharmaceutical Products, Rite Aid shall invoice drugstore.com at the time of
shipment.  Invoices shall be due and payable by drugstore.com to Rite Aid on the
fifth day of the month following the month in which such shipment was made.  If
such payment date falls on a weekend or on any weekday on which banks are
closed, payment shall be due on the business day immediately following such
payment date.

          (b)  With respect to orders placed by drugstore.com for generic
Pharmaceutical Products, Rite Aid shall invoice drugstore.com at the time of
shipment. Invoices shall be due and payable by drugstore.com to Rite Aid on the
fifteenth day of the month following the month in which such shipment was made.
If such payment date falls on a weekend or on any weekday on which banks are
closed, payment shall be due on the business day immediately following such
payment date.

          (c)  All payments made by drugstore.com pursuant to this Section 2.4
shall be made, in immediately available funds, by electronic fund transfer or
such other means reasonably acceptable to both parties.  drugstore.com shall pay
interest on the amount of any payments not made within the times specified in
Sections 2.4(a) and 2.4(b) hereof in the amount of one percent for each whole
month after the payment was due, prorated for any partial month.

 
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     2.5  Rebates.        drugstore.com shall be entitled to share in any
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rebates and other allowances not taken in account in the Adjusted WAC or the
Adjusted Rite Aid Cost each as set forth on Schedule 2.2 (collectively,
"Rebates"), however calculated, received by Rite Aid in respect of Rite Aid's
purchase of Pharmaceutical Products.  Such share shall be based upon the ratio
of drugstore.com's purchases and drugstore.com's performance that resulted in
such Rebates to Rite Aid's total purchases and to total performance that
resulted in such Rebates.  Rite Aid shall remit drugstore.com's share for
Rebates received in each fiscal quarter within 30 days of the end of such fiscal
quarter.  Such payments shall be made, in immediately available funds, by
electronic fund transfer or other means reasonably acceptable to the parties.
At the time of each such payment, Rite Aid shall deliver, in a form reasonably
acceptable to the parties, a statement showing in  reasonable detail the sources
of the Rebates and the method of allocation of such Rebates.

     2.6  Operations.        The parties will cooperate in developing
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operational standards with respect to ordering, shipment and delivery pursuant
to this Section 2.

            SECTION 3.   PHARMACY SERVICES
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                   3.1   Description of  Pharmacy Services.
                         ---------------------------------       

          (a)  Rite Aid shall, as requested by drugstore.com, provide dispensing
and related services (collectively, the "Pharmacy Services") with respect to
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orders of Pharmaceutical Products received by drugstore.com on the drugstore.com
Site from customers who are participants in an insurance or prescription benefit
plan in which Rite Aid is a participating pharmacy (such orders, the "Serviced
                                                                      --------
Orders").  The Pharmacy Services will be performed, at the direction of
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drugstore.com, either by a Rite Aid retail pharmacy, or, if mailing or a similar
form of delivery is permitted by applicable law, by a Rite Aid mail-order
pharmacy (the "Rite Aid Mail-Order Pharmacy") to be located within a facility
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owned or leased by drugstore.com (the "drugstore.com Facility"), from and after
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the time such facility becomes operational.  drugstore.com will be responsible
for filling or contracting for the filling of all other orders for
Pharmaceutical Products placed on the drugstore.com Site, subject to the
provisions of Section 4 of the Main Agreement. The Rite Aid Mail-Order Pharmacy
shall be staffed by licensed pharmacists and technicians employed by Rite Aid;
provided, however, that at the election of drugstore.com, the Rite Aid Mail-
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Order Pharmacy may instead be staffed in part by licensed 

 
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pharmacists and technicians employed by drugstore.com, so long as such staffing
does not (i) impair Rite Aid's ability to lawfully perform the Pharmacy
Services, (ii) affect the validity of any licenses held by Rite Aid; (iii)
increase Rite Aid's insurance costs, or (iv) affect Rite Aid's insurance
coverage in any other way. The performance of the Pharmacy Services will
commence in accordance with Schedule 7.1(a) to the Main Agreement (the
"Technology Integration Schedule").
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          (b)  The Pharmacy Services to be performed with respect to Serviced
Orders shall consist of :
 
               (i)    the filling of the Serviced Orders, including the
dispensing of Pharmaceutical Products, and the delivery thereof (x) in the case
of orders filled by the Rite Aid Mail-Order Pharmacy, to drugstore.com employees
at the drugstore.com Facility for further delivery to the drugstore.com customer
or (y) in the case of orders to be filled by a Rite Aid retail pharmacy, to the
customer for pickup at such Rite Aid retail pharmacy;

               (ii)   the performance of necessary and appropriate drug
utilization review, including, as necessary, direct communication with the
drugstore.com customer or the prescribing physician;

               (iii)  communication with Third Parties, including pharmacy
benefit managers and insurers, as necessary for adjudication of a Serviced Order
and the transmission, within 24 hours, to drugstore.com of the results of such
adjudication for its billing purposes and, where required, for transmission to
its customer;

               (iv)   the collection and transmission, in accordance with
Section 3.4, to drugstore.com of monies received from Third Parties in payment
of any portion of the price of a particular Pharmaceutical Product, which, with
respect to orders to be filled by a Rite Aid retail pharmacy will initially
include, in accordance with the Technology Integration Schedule, the collection
at the Rite Aid retail pharmacy of the co-payment and other cash payments, if
any, from the customer and transmission of such monies to drugstore.com; and

               (v)    any additional services, functions or responsibilities
that are required for

 
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     the lawful performance and provision of the services described in Section
     3.1(b)(i)-(iv) inclusive.

     In the process of performing the Pharmacy Services, Rite Aid shall have the
right, consistent with its normal business practices and in order to achieve
cost-savings or otherwise in connection with the health and welfare of the
customer, to communicate with the prescribing physician in order to suggest the
use of generic Pharmaceutical Products or other Pharmaceutical Products in the
same therapeutic class as that prescribed by such physician.

                  3.2   drugstore.com Obligations.
                        -------------------------       

          (a)  In order to enable Rite Aid to lawfully provide the Pharmacy
Services, drugstore.com agrees to:  (i) obtain and/or maintain all licenses
necessary to allow it to accept orders from customers for Pharmaceutical
Products; (ii) perform all actions necessary to authenticate the prescription
for such Pharmaceutical Products, (iii) transmit to Rite Aid  all information
with respect to a Serviced Order necessary to enable Rite Aid lawfully to fill
such Serviced Order; (iv) employ duly licensed pharmacists as necessary to
effect the transfer of prescriptions to a Rite Aid pharmacy for filling; (v)
disclose to customers placing orders on the drugstore.com Site that the
prescription will be filled by Rite Aid and (vi) take such other actions as may
be reasonably requested by Rite Aid in order to facilitate the servicing of
customer orders and compliance with applicable law.  Rite Aid shall not be
obligated to provide Pharmacy Services with respect to any Serviced Order to the
extent that drugstore.com has failed to comply with its obligations pursuant to
this Section 3.2(a).
 
          (b)  drugstore.com shall be solely responsible for (i) the charging
and collection of the payment from the customer for the Serviced Order (except
as set forth in Section 3.1(b)(iv) hereof) and of any and all fees for shipping
of Pharmaceutical Products to its customers, and (ii) with the exception of
necessary customer service to be performed by Rite Aid in connection with the
filling of Serviced Orders, all customer service functions with respect to
drugstore.com customers, including, without limitation, communication with the
customer as necessary in the event that the adjudication performed by Rite Aid
results in Rite Aid being unable to fill the Serviced Order.

          (c)  drugstore.com will provide, at no cost to Rite Aid, space within
the drugstore.com Facility as necessary for the operation of the Rite Aid

 
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Mail-Order Pharmacy. drugstore.com shall also, at no cost to Rite Aid, supply
the Rite Aid Mail-Order Pharmacy with Pharmaceutical Products from the inventory
of drugstore.com to fill Serviced Orders and, as necessary for the performance
of Pharmacy Services by the Rite Aid Mail-Order Pharmacy, access to and use of
pharmacy equipment, pharmacy supplies and communications equipment.

    3.3   Changes to Services.  Each of drugstore.com and Rite Aid
          -------------------                                           
acknowledge that the ordering and filling of orders for Pharmaceutical Products
via the Internet is a new and emerging form of commerce and that changes in the
mechanics of the performance by Rite Aid of the Pharmacy Services and the
obligations of drugstore.com set forth in Section 3.2 hereof may be necessary in
order to comply with regulatory changes that occur in response to that method of
commerce.  drugstore.com and Rite Aid each agree to use commercially reasonable
efforts to make such changes to the Pharmacy Services or to other provisions of
this Agreement as may be necessary or appropriate, in light of applicable laws
or regulations, as now in effect or as hereafter amended, in order to preserve
to each party the material benefits of this Agreement.

     3.4  Transmission of Payments.   Rite Aid shall use commercially
          ------------------------                                         
reasonable efforts to collect monies payable to Rite Aid on behalf of drugstore.
com pursuant to Section 3.1(b)(iv) hereof.  Rite Aid shall, twice per calendar
week, transmit to drugstore.com all such monies collected by Rite Aid since the
previous transmission of payments pursuant to this section, so long as Rite Aid
is able by such time to specifically identify the Serviced Order with respect to
which such monies were collected.  In the event that Rite Aid is not able to
specifically identify the Serviced Order by such time, it shall specifically
identify such Serviced Order as soon as practicable and will transmit such
monies to drugstore.com as part of the next transmission of monies occurring
after it has done so.  On a monthly basis, the parties will conduct a
reconciliation of their respective records regarding placement of Serviced
Orders and transmission of payments to drugstore.com by Rite Aid pursuant to
this section.  For any payment not made in accordance with the timing set forth
in this Section 3.4, a late fee shall be applicable in the amount of one percent
for each whole month after the payment was due, prorated for any partial month.
All payments made by Rite Aid pursuant to this Section 3.4 shall be made, in
immediately available funds, by electronic fund transfer or such other means
reasonably acceptable to both parties. At the time of each such payment, Rite
Aid will deliver, in a form reasonably acceptable to both parties, 

 
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a schedule setting forth the Serviced Orders covered by such payment.

    3.5   Service Standards.        Rite Aid will use its commercially
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reasonable efforts to perform the Pharmacy Services in accordance with the
following standards:

          (a)  The Rite Aid Mail-Order Pharmacy will be available to fill
Serviced Orders, 24 hours a day, 7 days a week; and

          (b)  Rite Aid will fill all Serviced Orders which it may lawfully fill
with commercially reasonable speed, subject to delays caused by interaction with
insurers, pharmacy benefit managers, physicians and customers as reasonably
necessary to fill a Serviced Order. Such Serviced Orders filled by Rite Aid
retail pharmacies will receive equal priority with other orders for
Pharmaceutical Products filled by Rite Aid retail pharmacies, and drugstore.com
customers will receive customer service at such Rite Aid retail pharmacies at
the same level provided to Rite Aid customers.

            SECTION 4.   PAYMENT FOR SERVICES.
                         --------------------   
                   4.1   Payments.
                         --------       

          (a)  In consideration for the Pharmacy Services to be provided by the
Rite Aid Mail-Order Pharmacy, drugstore.com will pay Rite Aid fees equal to the
actual costs incurred by Rite Aid in providing such Pharmacy Services,
including, but not limited to, the cost of salaries and benefits for the Rite
Aid pharmacists and technicians employed in the Rite Aid Mail-Order Pharmacy.

          (b)  In consideration for the Pharmacy Services to be provided by Rite
Aid retail pharmacies, drugstore.com will pay Rite Aid a fee with respect to
each Serviced Order in accordance with the prices and upon the terms set forth
on Schedule 4.1(b).
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    4.2   Payment Obligations of drugstore.com.        Fees for the provision of
          ------------------------------------                                  
Pharmacy Services by Rite Aid retail stores will become due and payable to Rite
Aid,  will be invoiced by Rite Aid pursuant to the provisions of this Agreement
and title to the Pharmaceutical Products contained in the Serviced Order will
pass to drugstore.com,  once the Pharmaceutical Products are available for pick
up by the drugstore.com customer at a Rite Aid retail store.  Such payment will
be due and payable to Rite Aid in accordance with the procedures set forth in
Section 7 hereof regardless of whether 

 
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drugstore.com, for any reason, has not at the time of dispensing or does not
thereafter receive payment for such Pharmaceutical Product from the
drugstore.com customer who placed the order and/or any Third Party payor and
regardless of whether the drugstore.com customer actually receives or picks up
the Pharmaceutical Product ordered.

          4.3   Sales Tax.  As between the parties, drugstore.com shall be
                ---------                                                 
responsible for any sales tax imposed on any Serviced Order.

   SECTION 5.   MUTUAL COVENANTS
                ----------------

          5.1   Insurance.    Each party shall maintain at all times and at its
                ---------  
own expense insurance in such amounts, and with such coverage and terms, as are
commercially reasonable in light of the business conducted by such party.

          5.2   Regulatory Compliance.  Each party shall abide by all applicable
                --------------------- 
statutes, laws, regulations, rules, policies, standards, guidelines and
procedures now in effect or hereinafter enacted, including without limitation:
(i) laws regarding the provision of insurance, third party administration and
primary health care services, including Medicare and Medicaid; (ii) the
Prescription Drug Marketing Act; (iii) the Federal Controlled Substances Act;
(iv) the Federal Food, Drug and Cosmetics Act; (v) any state laws relating to
the dispensing of Pharmaceutical Products  and (vi) laws relating to billing or
sales practices.  Each party shall comply with all governmental regulations,
including all reporting and disclosure requirements, with respect to provision
of the Pharmacy Services.  In addition, each party shall promptly inform the
other of any regulatory issues that come to its attention affecting its business
activities as they relate to this Agreement or the Pharmacy Services.

 
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     SECTION 6.   AUDIT PROCEDURES
                  ----------------
            6.1   drugstore.com Audit Procedures.
                  ------------------------------       

          (a)  drugstore.com shall be entitled, twice per year, to audit Rite
Aid's billings to drugstore.com for the Pharmacy Services for the six months
prior to such audit to ensure that such billings are accurate. Such audit shall
only be conducted upon reasonable advance written notice and subject to Rite
Aid's reasonable security and confidentiality provisions (including but not
limited to the requirement that individuals involved in conducting the audit
enter into confidentiality agreements in form and substance acceptable to Rite
Aid), and may be assisted by drugstore.com's accountants. Rite Aid agrees to
cooperate in these reviews (so long as such reviews do not directly and
materially cause Rite Aid to impair the performance of the Pharmacy Services,
unless drugstore.com specifically requests such cooperation regardless of its
impairment of the performance of the Pharmacy Services), furnish drugstore.com
with reasonably requested information in a timely manner, and provide
drugstore.com with reasonably timely access to personnel during normal business
hours for audit purposes at no charge to drugstore.com; provided, however, that
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Rite Aid shall charge drugstore.com (via Rite Aid's bills as described in
Section 7.1) for its reasonable costs for any technical resources or
extraordinary personnel time used by Rite Aid and necessary for such audit or
verification report, so long as Rite Aid, before incurring such costs, notifies
drugstore.com that such verification requests will result in costs to Rite Aid
that drugstore.com will need to reimburse. drugstore.com agrees to provide Rite
Aid with a copy of any audit or verification report upon its completion.

          (b)  A "Material Discrepancy" in billing shall be deemed to occur if
                  -------------------- 
the total amount actually billed by Rite Aid during the time period covered by
drugstore.com's audit exceeds the amount due based on the audit report by five
percent (5%) or more. If drugstore.com discovers a Material Discrepancy, Rite
Aid shall review drugstore.com's support documentation for such Material
Discrepancy, and the parties shall promptly attempt to agree on such analysis.
If it is agreed that a Material Discrepancy occurred, Rite Aid shall reimburse
drugstore.com for the cost to drugstore.com of the audit, including costs of
reimbursing drugstore.com for reasonable costs, technical resources and
extraordinary personnel time as provided in Section 6.1(a). In all other
circumstances,

 
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drugstore.com agrees to bear the costs of audits performed by drugstore.com or
at its direction.

          (c)  Rite Aid shall credit drugstore.com for any differences in
invoicing amounts as described in Section 7.1, as determined by drugstore.com
during the course of its audit and agreed to by Rite Aid.

   SECTION 7.   PHARMACY SERVICES BILLING
                -------------------------

          7.1   Timing of Billings. Rite Aid shall invoice drugstore.com for the
                ------------------
Pharmacy Services on a monthly basis, using mutually agreed upon media and
according to the terms of Section 4 hereof. Such invoices shall be accompanied
by a reasonably detailed monthly schedule of the Serviced Orders for which
payment is due. Credits and adjustments that became effective during the period
covered by the invoice shall be applied on the first invoice following
drugstore.com's eligibility therefor.

          7.2   Billing Procedures, Details and Data. There shall be no
                ------------------------------------
additional charge to drugstore.com for the invoicing services or for non-
material changes in billing procedures reasonably requested by drugstore.com.
Rite Aid may amend the billing procedures at any time by providing written
notice thereof to drugstore.com, and such changes shall be reflected in the next
invoicing cycle or as soon as possible thereafter.

          7.3   Payment for Services.
                --------------------       

          (a)  drugstore.com shall pay each invoice, in immediately available
funds, by electronic fund transfer or such other means reasonably acceptable to
both parties. Such payment shall be due and payable by drugstore.com to Rite Aid
on the tenth day of the month following the month in which the Serviced Orders
listed in the schedule provided by Rite Aid pursuant to Section 7.1 were filled.
If such payment date falls on a weekend or a weekday on which banks are closed,
the payment shall be due and payable on the following business day. If not so
paid, drugstore.com shall pay interest on such amount at the rate set forth in
Section 7.4. In no event shall any payment made by or before such date
constitute a breach of this Agreement. Rite Aid shall give drugstore.com at
least 30 days' notice of any changes to the format or medium of its invoices.

          (b)  If drugstore.com believes that it is entitled to an adjustment to
the amount invoiced, drugstore.com shall promptly notify Rite Aid of such claim
for an adjustment and provide to Rite Aid reasonable support for any such claim.
Rite Aid and

 
                                                                              14

drugstore.com will promptly address and attempt to resolve in good faith any
claims as to charges, credits or other aspects of the invoices. Interest shall
accrue according to Section 7.4, payable to drugstore.com by Rite Aid for any
amount paid by drugstore.com which was subject to a subsequent adjustment in
favor of drugstore.com from the date of such payment. Rite Aid shall promptly
reflect any such adjustments and interest in its bills (as described in Section
7.1). Rite Aid shall not deny or restrict service during the pendency of a
dispute as a result thereof, provided that drugstore.com has paid all undisputed
                             --------
amounts when due.

          7.4   Late Payments.  For any late payment or adjustment pursuant to 
                -------------
Section 7.3(a) or (b), a late fee shall be applicable in the amount of one
percent  for each whole month after the payment was due (or in the case
described in Section 7.3(b), made), prorated for any partial month.

    SECTION 8.  CONFIDENTIALITY
                ---------------

          8.1   Confidential Information. "Confidential Information" means,
                ------------------------   ------------------------
subject to Section 8.2, the terms of this Agreement, information protected by
the intellectual property laws of the United States, information regarding
customers disclosed by either party in connection with the provision of the
Pharmacy Services, information relating to drugstore.com's or Rite Aid's
business practices (including account information, information regarding
business planning and operations, and information regarding administrative,
financial or marketing activities), or information marked as "Confidential."
Each of Rite Aid and drugstore.com shall not, and shall cause its affiliates,
employees, representatives and consultants (including any accountants used by
drugstore.com in connection with audits under Section 6) not to, disclose,
publish or disseminate any Confidential Information of the other party and its
customers to Third Parties, or use such information for any use not required
pursuant to this Agreement or the Main Agreement. All Confidential Information
of one party shall be held and protected by the other party in strict
confidence, shall be used by the other party only as required to render
performance under this Agreement or the Main Agreement, and the other party
shall use commercially reasonable efforts to prevent any unauthorized use or
disclosure thereof by the personnel and other persons to whom such Confidential
Information is disclosed by such other party in accordance with the foregoing.

          8.2   Exceptions.  Notwithstanding the foregoing, the terms of this
                ----------
Section 8 shall not apply to 

 
                                                                              15

any information that (a) is publicly available or is in the public domain at the
time disclosed, (b) is or becomes publicly available or enters the public domain
through no fault of the recipient, (c) is rightfully communicated to the
recipient by persons not bound by confidentiality obligations with respect
thereto, (d) is already in the recipient's possession free of any
confidentiality obligations with respect thereto at the time of disclosure, (e)
is independently developed by the recipient, (f) is approved for release or
disclosure by the disclosing party without restriction, (g) is disclosed in
response to an order of a court or a requirement of any other governmental
agency, provided that the party making the disclosure pursuant to the order
        --------
shall first have given notice to the other party and made a reasonable effort to
obtain a protective order, (h) is otherwise required by any national securities
exchange, or by law or regulation to be disclosed or (i) is disclosed in any
legal proceeding or otherwise to establish a party's rights and obligations
under this Agreement, provided that the party so disclosing has requested,
pursuant to any procedures available in such proceeding, that such information
be designated as confidential information.

          8.3   Irreparable Harm.  drugstore.com and Rite Aid acknowledge that
                ----------------
any disclosure or misappropriation of Confidential Information in violation of
this Agreement would cause irreparable harm, the amount of which may be
extremely difficult to estimate, thus making any remedy at law or in damages
inadequate. Each party therefore agrees that the other party shall have the
right to apply to any court of competent jurisdiction for an order restraining
any breach or threatened breach of this Section 8 and for any other relief as
such other party deems appropriate. This right shall be in addition to any other
remedy available in law or equity.

          8.4   Return of Confidential Information.  Upon the expiration or 
                ----------------------------------
termination of this Agreement, each of drugstore.com and Rite Aid shall return
or deliver to the other party, or shall destroy, all Confidential Information of
the other party that is in its possession in tangible form.  Each party shall
further provide written confirmation that nothing required to be returned,
delivered or destroyed has been retained, and that no unauthorized disclosure
has occurred.

    SECTION 9.   LIABILITIES; INDEMNIFICATION
                 ----------------------------
 
          9.1    Liabilities.
                 ----------- 

 
                                                                              16

            (a)  Rite Aid shall be responsible for any errors or omissions
made by its own employees in connection with its performance of its obligations
pursuant to this Agreement. drugstore.com shall be responsible for any errors or
omissions made by its own employees in connection with its performance of its
obligations pursuant to this Agreement, including, without limitation, any
errors or omissions made by any of its employees which it elects to have staff
the Rite Aid Mail-Order Pharmacy in accordance with Section 3.1.

            (b)  Each party shall be responsible for liabilities arising from
errors or omissions made by it in the transmission of information to the other
party, and each party shall be entitled to assume the accuracy of all
information transmitted to it by the other party, and to rely on such
information, for all purposes under this Agreement.

            (c)  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
hereunder as soon as reasonably practicable following any such event.

            (d)  In no event will either party have any liability, whether based
in contract, tort (including, without limitation, negligence) warranty or any
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.

      9.2   Indemnified Parties.  Rite Aid and drugstore.com each shall
indemnify and hold harmless the other and its divisions, its Affiliates (as
defined below), and its officers, directors, employees, representatives and
agents (the "Indemnified Parties") from and against (a) any and all liabilities,
             -------------------
suits,

 
                                                                              17

costs, judgments, penalties, expenses, obligations, losses, or damages arising
from or related to claims and actions made by a Third Party, including, but not
limited to, 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 drugstore.com
or Rite Aid, as applicable, of any agreement or covenant made by such party in
this Agreement, and (b) 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"). "Affiliate" means with respect to a party
                         -------                                              
any entity at a time controlling, controlled by or under common control with
such party (with "control" meaning the legal, beneficial or equitable ownership,
directly or indirectly, of more than fifty percent (50%) of the aggregate of all
voting interests in such entity).

        9.3   Indemnified Claims.  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 Indemnifying Party pursuant to
Section 9.2, such Indemnified Party will promptly notify Rite Aid or
drugstore.com, as the case may be (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 of 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 Parties may
                           -------- -------
retain their own counsel at the Indemnifying Party's 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

 
                                                                              18

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 10.   MISCELLANEOUS
                -------------

         10.1   Binding Effects; No Assignment; Sale of Assets or Capital
                ---------------------------------------------------------
Stock. This Agreement shall be binding on 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 party 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 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 assumes in writing 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
respective rights and obligations of the parties under this Agreement shall
survive any transaction pursuant to which a Third Party acquires all or
substantially all of the assets or capital stock of either party, whether due to
merger, acquisition, consolidation or otherwise.

         10.2   Severability.  If any term or condition of this Agreement shall
                ------------
be held invalid in any respect by any court or governmental agency of competent
jurisdiction and all appeals have been exhausted, the parties shall use
commercially reasonable efforts to agree on either (a) an amendment which would
restore the validity of the term or condition or (b) a comparable, valid term or
condition. If no such Agreement can be reached, the other provisions of this
Agreement that are valid are severable and remain in effect.

         10.3   Notices.  All notices, requests, demands, waivers and other
                -------
communications required or permitted to be given under this Agreement shall be
in writing and may be given by any of the following methods:  (a) personal
delivery by hand; (b) facsimile transmission, followed within one business day
by overnight delivery or (c) overnight delivery service.  

 
                                                                              19

Notices shall be sent to the appropriate party at its address or facsimile
number given below (or at such other address or facsimile number for such party
as shall be specified by notice given hereunder):

          If to Rite Aid, to:

          Rite Aid Corporation
          30 Hunter Lane
          Camp Hill, PA  17011
          Attention: General Counsel
          Facsimile: (717) 760-7867
          Telephone: (717) 761-2633

          with a copy to:

          Skadden, Arps, Slate, Meagher & Flom LLP
          919 Third Avenue
          New York, NY  10022
          Attention: Nancy A. Lieberman, Esq.
          Facsimile: (212) 735-2000
          Telephone: (212) 735-3000

          If to drugstore.com, to:

          drugstore.com, inc.
          13920 S.E. Eastgate Way, Suite 300
          Bellevue, WA 98005
          Attention: General Counsel
          Facsimile: (425) 372-3800
          Telephone: (425) 372-3200

All such notices, requests, demands, waivers and communications shall be deemed
received upon (x) actual receipt thereof by the addressee, (y) actual delivery
thereof to the appropriate address or (z) in the case of a facsimile
transmission, upon transmission thereof by the sender and issuance by the
transmitting machine of a confirmation slip that the number of pages
constituting the notice has been transmitted without error.

         10.4   No Waiver.  No delay or omission by either party hereto to 
                ---------
exercise any right or power hereunder shall impair such right or power or be
construed to be a waiver thereof. A waiver by any of the parties hereto of any
of the covenants to be performed by any other party or any breach thereof shall
not be construed to be a waiver of any succeeding breach thereof or of any other
covenant herein contained.

         10.5   Written Amendments.  No modification, amendment, supplement to,
                ------------------
or waiver of this Agreement or any of its provisions shall be binding upon the
parties

 
                                                                              20

hereto unless made in writing and duly signed by the party against whom
enforcement thereof is sought.

         10.6   No Third Party Beneficiaries.  This Agreement is intended to
                ----------------------------
benefit the parties hereto and their respective successors and permitted
assigns, and shall not confer upon any other person or entity any rights or
remedies.

         10.7   Survival.  The terms of Sections 2.4, 4, 6, 7, 8, 9 and 10 shall
                --------
survive any termination of this Agreement. Except with respect to such sections,
upon the termination of this Agreement, neither party shall have any liability
to the other, except for (a) any breach or default of any provision of this
Agreement and (b) any Damages (including, but not limited to, past due amounts
as specified in Sections 2.4 and 7) incurred prior to the termination.

         10.8   Governing Law.  This Agreement shall be governed by and
                -------------
construed in accordance with the laws of the State of Delaware as to all
matters, including but not limited to, matters of validity, construction,
effect, performance and remedies, but without regard to conflicts of laws
principles applicable therein; provided, however, that to the extent legally
                               --------  -------
required, the provision of Pharmacy Services will be governed by the law of the
situs in which the Pharmacy Services are provided and/or the law of the situs in
which the Serviced Order is delivered to drugstore.com by Rite Aid.

         10.9   Relationship of Parties.  Each of Rite Aid and drugstore.com and
                -----------------------
their respective employees and agents are independent contractors in relation to
the other party to this Agreement with respect to all matters arising hereunder.
Nothing herein shall be deemed to establish a partnership, joint venture,
association, agency or employment relationship between Rite Aid and
drugstore.com.  Each of Rite Aid and drugstore.com shall remain responsible for,
and shall indemnify and hold harmless the other party against, any and all
Federal, state and local personal income, sickness and disability insurance
taxes, payroll levies or employee benefit obligations now existing or
hereinafter incurred by Rite Aid or drugstore.com, as applicable, with respect
to its employees and agents.

         10.10  Headings.  All headings herein are not to be considered in the
                --------
construction or interpretation of any provision of this Agreement.

         10.11  Entire Agreement.  This Agreement, the Main Agreement and the
                ----------------
schedules hereto and thereto form a part hereof and set forth the entire
agreement of 

 
                                                                              21

the parties hereto in respect of the subject matter contained herein and
supersede all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by an
officer, director, employee, agent or representative of any party hereto.

        10.12   Dispute Resolution.  The provisions of Section 14 of the Main
                ------------------                                           
Agreement shall be applicable to any dispute between the parties relating to
this Agreement.



                            [Signature Page Follows]

 
                                                                              22


     IN WITNESS WHEREOF, the parties hereto have caused this Pharmacy Supply and
Services Agreement to be duly executed as of the date set forth above.  This
Agreement may be executed in several counterparts, each of which shall be an
original and all of which when taken together shall constitute but one and the
same agreement.

                                       RITE AID CORPORATION



                                       By: /s/ Elliot S. Gerson
                                          -------------------------------
                                          Name: Elliot S. Gerson
                                          Title: Executive Vice President



                                       DRUGSTORE.COM, INC.



                                       By: /s/ Peter Neupert
                                          ------------------------------
                                          Name: Peter Neupert
                                          Title: Chief Executive Officer