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CONFIDENTIAL TREATMENT
Exhibit 10.3
AMENDMENT NO. 1 TO AGREEMENT
This Amendment No. 1 to Agreement (this "Amendment") dated as of July 29,
2000, is made and entered into by and between Amazon.com Commerce Services, Inc.
("ACI"), an indirect wholly owned subsidiary of Amazon.com, Inc. ("Amazon.com")
and drugstore.com, Inc. ("drugstore.com") with respect to that certain Agreement
between the Parties dated as of January 24, 2000 (the "Agreement"). All
capitalized terms used in this Amendment and not otherwise defined shall have
the meaning attributed to them in the Agreement. References to section numbers
below are references to sections of the Agreement.
ACI and drugstore.com agree as follows:
1. A new definition of "Qualifying New Customer" is hereby added Section
1, reading as follows:
"Qualifying New Customer" means, with respect to any Year after Year 1, any
person or entity who becomes a New Customer after the [Confidential Treatment]
New Customer in such Year (i.e., New Customers [Confidential Treatment] in any
Year after Year 1).
2. A new definition of "New Customer" is hereby added to Section 1,
reading as follows:
"New Customer" means a person or entity who at any time during the Term
purchases a product through the Amazon.com Health and Beauty Section; provided,
that such person or entity had not previously purchased a product from
drugstore.com.
3. A new definition of "Specified Amazon.com Site Functionalities" is
hereby added to Section 1, reading as follows:
"Specified Amazon.com Site Functionalities" means the following specific
Amazon.com Site Functionalities: (a) payment and transaction functionality
available to users of the Amazon.com Site for purchasing products (including
without limitation, Shared Cart Functionality and Shared Checkout
Functionality); (b) Amazon.com Site-wide search functionality; and (c) only with
respect to the Home Page of the Amazon.com Health and Beauty Section (and no
other page of the Amazon.com Health and Beauty Section), the Amazon.com Site
Functionality associated with the "tab" structure (or any successor top-level
global site navigation tool) as it appears on the Amazon.com Site generally.
4. A new definition of "Shared Cart Functionality" is hereby added to
Section 1, reading as follows:
"Shared Cart Functionality" means the Amazon.com Site Functionality
available to users of the Amazon.com Site and its Product Sections that
incorporates item or promotional displays (e.g., discounts, tax, shipping,
hazardous materials shipping restrictions and other order-related displays that
are used by drugstore.com and other third parties who sell products through
Amazon.com Site Product Sections) relating to products that a user has selected
for possible purchase.
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CONFIDENITAL TREATMENT
5. A new definition of "Shared Checkout Functionality" is hereby added
to Section 1, reading as follows:
"Shared Checkout Functionality" means the Amazon.com Site Functionality
available to users of the Amazon.com Site and its Products Sections that allows
the user in a single transaction to purchase all items in the user's shopping
cart.
6. Section 2.2 is hereby amended in its entirety to read as follows:
"2.2 Phase Two - Catalog Integration and Single Checkout.
2.2.1 Following the implementation of Phase One, ACI in consultation
with drugstore.com will, as set forth below in this Section 2.2, determine the
design and development schedule for implementation of certain of the Amazon.com
Site Functionalities to enable Amazon.com customers to shop and pay for non-
prescription products available on the drugstore.com Site (along with shopping
and paying for all other products available on the Amazon.com Site) while
shopping on the Amazon.com Site and otherwise to further integrate aspects or
portions of the drugstore.com Site into the Amazon.com Site and Amazon.com Site
Functionality (such further integration, "Phase Two").
2.2.2 The implementation of the Specified Amazon.com Site
Functionalities within the Amazon.com Health and Beauty Section in Phase Two
will be determined by Amazon.com in consultation with drugstore.com (including,
without limitation, as to the appearance and positioning of Amazon.com Site
features that implement the Specified Amazon.com Site Functionalities). Subject
to the foregoing sentence, the general shopping experience within the Amazon.com
Health and Beauty Section will be generally the same as the shopping experience
on the drugstore.com Site and the coloring, graphics, logos, editorial,
merchandising, features and services and other "look and feel" aspects of the
Amazon.com Health and Beauty Section will remain generally the same as on the
drugstore.com Site (except with respect to the implementation of the Specified
Amazon.com Site Functionalities) or as otherwise agreed to by drugstore.com,
given the technical and production issues associated with the implementation of
Phase Two. drugstore.com acknowledges that in Phase Two, it will be one
participant in an e-commerce "platform" being developed by Amazon.com, and that
therefore, the nature, timing and scope of integration efforts to be undertaken
as part of Phase Two will be determined by Amazon.com (in consultation with
drugstore.com), subject to the specific requirements as to appearance and
functionality set forth in this Section 2.2.2; provided, however, that: (a)
Amazon.com acknowledges that the primary intent of Phase Two is to maximize user
conversion rates and enhance the shopping experience on the Amazon.com Health
and Beauty Section and the rest of Amazon.com's e-commerce platform; (b) with
respect to any functionalities other than the Specified Amazon.com Site
Functionalities, if drugstore.com and Amazon.com cannot agree upon the
appropriate implementation of such functionalities, such functionalities shall
not be implemented for the Amazon.com Health and Beauty Section; provided
further that with respect to any Shared Checkout Functionality, drugstore.com
will use reasonable best efforts to implement the same. To the extent that
Phase Two involves the integration of portions or aspects of the drugstore.com
Site into the Amazon.com Site, drugstore.com shall not be required to comply
with those requirements of Section 2.4 relating to the maintenance and
appearance of the drugstore.com Site that are obviated by reason of Amazon.com's
integration of such portions or aspects of the drugstore.com Site into the
Amazon.com Site (drugstore.com agreeing, however, it shall nonetheless continue
to comply, without limitation, with the provisions of Section 2.4 (b), (c) and
(d)).
2.2.3 Amazon.com shall notify drugstore.com in advance of the date
of commencement of Phase Two. Amazon.com shall not unduly delay the commencement
of Phase Two
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CONFIDENTIAL TREATMENT
relative to similar integration efforts for other Amazon.com Product Sections
through which third parties offer products, it being understood, however, that
Amazon.com shall not be required to necessarily give the implementation of all
aspects of Phase Two first priority among all such integration efforts). In
furtherance of Phase Two, after Amazon.com gives drugstore.com notice of the
general nature, scope and scheduling of any content, functionality or other
items to be implemented as part of Phase Two: (a) drugstore.com will perform any
activities necessary to implement any Specified Amazon.com Site Functionalities
for the Amazon.com Health and Beauty Section within a commercially reasonable
time frame after Amazon.com makes the same available (provided, however, that
with respect to any Shared Checkout Functionality, drugstore.com shall only be
required to use its reasonable best efforts to implement the same); (b)
drugstore.com will use its commercially reasonable efforts to assist Amazon.com
in implementing any other content, functionality and other items required in
connection with the implementation of Phase Two within thirty (30) days after
Amazon.com makes the same available; and (c) Amazon.com will cooperate with
drugstore.com to implement any Specified Amazon.com Site Functionalities in such
manner and on such schedules as Amazon.com may specify, and to implement any
other content, functionality and other items that the Parties agree will be
implemented in Phase Two in such manner and on such schedules as the Parties may
agree upon. drugstore.com agrees, for the avoidance of doubt, that any Specified
Amazon.com Site Functionalities and related Technology are developed for use
across the Amazon.com Site and the e-commerce platform to be used generally with
respect to Amazon.com Product Sections through which third parties may offer
products, and not specifically for the purpose of linking to or communicating
between the Amazon.com Site and drugstore.com Site.
2.2.4 Customers who purchase products through the Amazon.com Health
and Beauty Section are customers of ACI, Amazon.com and drugstore.com.
drugstore.com will be solely responsible for all order fulfillment and customer
service for orders of products purchased from drugstore.com through the
Amazon.com Health and Beauty Section. The Parties will agree upon a means, that
complies with all applicable laws, regulations and orders of any governmental
authority of competent jurisdiction, whereby drugstore.com will be provided with
or otherwise enabled to receive all order-related and customer-related data
necessary for drugstore.com to fulfill its order fulfillment and customer
service responsibilities as well as to recognize and transact with an Amazon.com
Heath and Beauty Section customer as a repeat customer on the drugstore.com
Site. Such information may include products ordered, name, address, email
address and credit card information of the purchaser and other necessary
information. drugstore.com shall be free to use such data and communicate with
such customers as it uses such data for, and as it communicates with, its other
customers, subject to Section 2.7. All revenues from sales of products or
services in the Amazon.com Health and Beauty Section, other than cross-promoted
products from other Amazon.com Product Sections, shall be drugstore.com revenues
and Amazon.com and ACI shall have no right to any revenue share or other fees,
except as set forth in Section 5.3. The Parties shall implement Phase Two in a
manner that does not subject ACI, Amazon.com and their Affiliates to federal,
state or local regulations involving pharmacists, over the counter drugs or
homeopathic drugs and does not subject drugstore.com to any additional
regulation of such kind, and further does not create any jurisdiction or
authority for any governmental authority to impose material additional
obligations to collect sales tax, use tax or similar tax in connection with any
sales of products by ACI, Amazon.com, drugstore.com or their Affiliates. The
Parties will agree to pursue in good faith ways to permit customers to order
prescription products through the Amazon.com Health and Beauty Section in Phase
Two, and cross-promote products from other Amazon.com Product Sections."
7. Section 2.7 is hereby amended in its entirety to read as follows:
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CONFIDENTIAL TREATMENT
"2.7 Customer Contacts and Referral Information. drugstore.com will not
disclose any personally identifying information regarding New Customers to any
third party, or use any such information for any purpose other than as provided
below in this Section 2.7. Without limiting the generality of the foregoing,
drugstore.com shall not during the Term solicit, contact or communicate in any
manner with any New Customer except to the extent necessary in connection with
the fulfillment of sale transactions conducted on the Amazon.com Health and
Beauty Section or to the extent that a communication is requested or expected by
the New Customer. "Requested or expected" includes ordinary course newsletters,
refill and replenishment reminders, EmedAlert and other similar communications
that drugstore.com provides to its customers as part of its services that the
New Customer has reason to expect will be delivered; provided, however, that
drugstore.com may deliver one (1) promotional communication per calendar quarter
during the Term to each New Customer, so long as no such promotional
communication contains any link or reference to, or otherwise seeks to direct
any person to, any page of any Web Site other than a page of the Amazon.com
Health and Beauty Section (including the drugstore.com Site). No promotional
communication by drugstore.com with any New Customer shall contain any offer
from or reference to any competitor of ACI, Amazon.com or their Affiliates
(including, without limitation, in the packaging of any shipment or other
communication made in connection with the fulfillment of a sale transaction).
Subject to the foregoing, drugstore.com may use non-personal statistical
information regarding New Customers in the aggregate for any purpose, so long as
no New Customer can be specifically identified from such information.
drugstore.com acknowledges that Amazon.com may from time to time send
questionnaires or other inquiries ("Surveys") to persons who have purchased
products through the Amazon.com Health and Beauty Section asking for feedback
regarding their experience on the Amazon.com Health and Beauty Section. To the
extent Amazon.com does not possess e-mail addresses or other contact information
necessary for the dissemination of such Surveys, drugstore.com shall assist in
disseminating the materials, which may include providing Amazon.com with the e-
mail addresses or other contact information, but is subject to compliance with
all parties' privacy polices. To the extent that significant numbers of
customer responses are critical or negative in regard to their experience on the
Amazon.com Health and Beauty Section, drugstore.com will upon Amazon.com's
request use commercially reasonable efforts to address the issues raised in such
responses as promptly as possible."
8. A new Section 2.8 is hereby added to the Agreement, reading as
follows:
"2.8 No Vendor Discrimination. Neither Party will encourage, request or
require any third party not to, or enter into any agreement encouraging or
requiring any third party not to, provide or license any products (including
intangibles) or services to the other Party or its Affiliates; provided,
however, that the foregoing shall not prohibit either Party from entering into
exclusive licensing or distribution agreements with any third parties, so long
as such agreements do not specifically reference the other Party or its
Affiliates or subject the other Party or its Affiliates to prohibitions or
restrictions as to such products to which similarly-situated third parties are
not generally subjected."
9. Section 4.4 is hereby amended in its entirety to read as follows:
"4.4 Traffic Data. Throughout the Term as is reasonably available, on a
monthly basis, each Party will provide the other Party all relevant data
requested from time to time by the such Party concerning behavior on the
drugstore.com Site and the Amazon.com Health and Beauty Section, as the case may
be; provided, however, that notwithstanding any other provision of this
Agreement, neither Party shall be required to deliver to the other Party any
purchase-level data (i.e., data uniquely identified with a user that is provided
or generated in the course of a purchase transaction), except for delivery of e-
mail addresses as required to deliver Surveys pursuant to Section 4.4 (each
Party acknowledging, however, that the foregoing does not alter the Parties'
intent as set forth in Section 2.2
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CONFIDENTIAL TREATMENT
and 4.2 to cooperate in good faith and use commercially reasonable efforts to
maximize conversion rates and sales from or through the Amazon.com Health and
Beauty Section, and does not affect drugstore.com's right to retain New
Customers after the Term). The Parties will hold such data in confidence and
will not use it except in connection with their marketing efforts, or otherwise
in accordance with such reasonable guidelines as the Parties may agree upon.
Notwithstanding anything contained in this Section 4.4 or any other provision of
this Agreement: (a) neither Party will be required to deliver to the other Party
any user data in violation of its then-existing, generally applicable policies
regarding the protection of user information with respect to the drugstore.com
Site or the Amazon.com Site or in contravention of any applicable law,
regulation, judgment or order of any governmental authority of competent
jurisdiction; and (b) Amazon.com shall have the right from time to time to
review drugstore.com's policies and practices relating to the protection of user
data (and drugstore.com shall provide to Amazon.com reasonable cooperation as
requested by Amazon.com in connection therewith), and, if Amazon.com reasonably
determines that such policies and practices do not provide at least the same
level of protection for such data as Amazon.com itself provides with respect to
such data, Amazon.com shall notify drugstore.com of its concerns in reasonable
detail (and provide drugstore.com with such evidence as drugstore.com may
reasonably request to verify Amazon.com's provision of such level of protection
itself), and shall thereafter not be required to provide any such data to
drugstore.com unless and until drugstore.com addresses such concerns to
Amazon.com's reasonable satisfaction. Amazon.com will upon drugstore.com's
reasonable request provide drugstore.com with reasonable evidence regarding its
policies and practices relating to the protection of user data to permit
drugstore.com to substantiate that the same are commercially reasonable (and, if
the same are not commercially reasonable, Amazon.com will provide reasonable
cooperation to institute policies and practices that are commercially
reasonable)."
10. Section 5.3 is hereby amended in its entirety to read as follows:
"5.3 Annual Fees and New Customer Bounties; Payments Processing Fees.
5.3.1 During the Term, drugstore.com will pay ACI annual fees in the
amounts set forth below ("Annual Fees"):
Year 1: $27,000,000.00
Year 2: $15,000,000.00
Year 3: $15,000,000.00
Subject to Section 10.5.2, drugstore.com will pay each of the Annual
Fees set forth above in four (4) equal installments due at the end of each
consecutive three month period of the Term following the Launch Date ("Quarterly
Payments")."
5.3.2 In addition to the Annual Fees, drugstore.com will pay ACI a
bounty of [Confidential Treatment] for each Qualifying New Customer delivered in
each Year other than Year 1 (each, a "Qualifying New Customer Bounty").
Qualifying New Customer Bounties shall be paid in arrears on a quarterly basis
after drugstore.com begins receiving Qualifying New Customers, as follows:
within thirty (30) days after the end of any consecutive three month period of
the Term following the end of Year 1 (each a "Quarter"), drugstore.com shall
remit to Amazon.com the aggregate Qualifying New Customer Bounties payable for
Qualifying New Customers delivered in the preceding Quarter, together with a
report specifying in reasonable detail the number of Qualifying New Customers
delivered during the preceding Quarter and in the aggregate during the Year and
drugstore.com's calculation of the Qualifying New Customers delivered for the
preceding Quarter.
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CONFIDENTIAL TREATMENT
5.3.3 In addition to the Annual Fees and Qualifying New Customer
Bounties called for by this Section 5.3, drugstore.com shall pay or reimburse
Amazon.com for any reasonable costs, fees and expenses incurred by Amazon.com or
its Affiliates in connection with processing payments for products purchased
through the Amazon.com Health and Beauty Section during Phase Two. Unless the
Parties agree upon another means of payment, Amazon.com shall invoice
drugstore.com for such costs on a monthly basis, and drugstore.com shall pay
properly invoiced amounts within thirty (30) days after its receipt of any such
invoice.
11. Section 5.7 is hereby amended in its entirety to read as follows:
"5.7 Allocation of Payments. The Parties acknowledge and agree that the
Annual Fees and Qualifying New Customer Bounties shall be allocated as
consideration for advertising services and intangible rights granted by ACI to
drugstore.com hereunder, including the proprietary rights granted to
drugstore.com under Section 6, as set forth on Exhibit C."
12. Section 9.1.1 is hereby amended in its entirety to read as follows:
"9.1.1 ACI and Amazon.com New Product Sections. During the Term,
neither ACI nor Amazon.com will create or maintain a new Amazon.com Product
Section that offers, markets and sells Drugstore Products or Beauty Products,
provided, however that ACI or Amazon.com may offer and permit third parties to
offer other Beauty Products and Drugstore Products (excluding, with respect to
any third party, prescription products) in existing or new ACI Product Sections
as long as the annual gross revenue derived from such products does not exceed
15% of the combined annual gross revenue derived from sales of all products and
services offered by the ACI Product Sections offering such products (excluding
the Amazon.com Health and Beauty Section)."
13. Section 9.4 is hereby amended in its entirety to read as follows:
"9.4 Records; Audit. Each Party will, during the Term and for a period
of one (1) year thereafter, maintain complete and accurate books and records
sufficient to verify its compliance or non-compliance with the provisions of
this Section 9 (and, in the case of drugstore.com, Section 5.3.2). Each Party
(the "Audited Party") will, upon at least thirty (30) days' prior written
request by the other Party (the "Auditing Party"), allow an independent
certified public accounting firm selected by the Auditing Party and reasonably
acceptable to the Audited Party to audit such books and records at the Audited
Party's premises to the extent necessary to verify the Audited Party's
compliance or non-compliance with the provisions of this Section 9 (or, in the
case of drugstore.com, Section 5.3.2); provided, that: (a) any such audit is
conducted during normal business hours and in a manner designed to not
unreasonably interfere with the Audited Party's ordinary business operations;
(b) audits may not occur more frequently than once every twelve (12) months; and
(c) each such audit may only cover the period commencing after the period
covered by the last audit conducted pursuant to this Section, if any. The
Auditing Party agrees that any information learned or disclosed by its auditor
in connection with such audit is Confidential Information of the Audited Party.
If any such audit reveals any material non-compliance with the provisions of
this Section 9 by the Audited Party (or, in the case of drugstore.com, Section
5.3.2), the Audited Party shall, within ten (10) days of its receipt of an
invoice therefor, reimburse the Auditing Party for all reasonable out-of-pocket
fees and expenses incurred by the Auditing Party in connection with the
applicable audit."
14. Exhibit C is hereby amended in its entirety to read as Exhibit C
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attached hereto.
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CONFIDENTIAL TREATMENT
15. This Amendment supersedes any previous or contemporaneous oral or
written agreements regarding the subject matter set forth above. For the
avoidance of doubt, the Parties acknowledge and agree that the provisions of
Section 3.1 and Section 11.2 of the Agreement shall apply to this Amendment and
the transactions contemplated hereby. Except as expressly amended by this
Amendment, the Agreement remains in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date
first written above.
ACI drugstore.com:
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Amazon.com Commerce Services, Inc. drugstore.com, inc.
By: /s/ Mark Britto By: /s/ Peter M. Neupert
-------------------------------- --------------------------------
Title: Sr. V.P. Title: CEO
----------------------------- -----------------------------
Notice Address: Notice Address:
ACI drugstore.com, inc.
1200 12th Avenue South, Suite 1200 13920 S.E. Eastgate Way, Suite 300
Seattle, WA 98144 Bellevue, WA 98005
Facsimile: 206-266-7010 Facsimile: 425.372.3808
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CONFIDENTIAL TREATMENT
EXHIBIT C
ALLOCATION OF PAYMENTS
<TABLE>
<CAPTION>
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Year Advertising Services Intangible Assets
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<S> <C> <C>
1 3% 97%
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2 3% 97%
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3 3% 97%
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</TABLE>
