drugstore.com, inc. logo]

[xxxxxxxxx.xxx, inc. logo]

000 000xx Xxx XX " Xxxxx 0000 " Xxxxxxxx, Xxxxxxxxxx 00000 " Telephone 000.000.0000 " Facsimile 425.372.3800

January 30, 2007

Xx. Xxxxxx X. Xxxxxx

c/o xxxxxxxxx.xxx

000 000xx Xxx. NE, Suite 1400

Bellevue, WA 98004

Re. Transition and Separation Agreement

Dear Bob:

This letter agreement (this "Agreement") will confirm our understanding with regard to your decision to transition out of your current role as an employee and Chief Financial Officer ("CFO") of xxxxxxxxx.xxx and its subsidiaries (the "Company").

1. Transition. Subject to the terms set forth herein, you will remain a full time employee of the Company and serve as its CFO through the earlier of (a) April 30, 2007, (b) the date on which your successor commences his or her employment with the Company as its CFO, or (c) such other date as may be mutually agreed upon in writing by you and the Company (the "Transition Date"). The Company will endeavor to identify and hire a qualified successor before April 30, 2007.
2. Role through the Transition Date. From the date hereof until the Transition Date, you will continue to conscientiously and diligently perform the duties of CFO of the Company on a full-time basis. The Company may allocate some of your job responsibilities to others. However, subject to the foregoing, the Company will rely upon you to continue to function as its CFO until a successor is available to assume that role.
3. Role through the Separation Date. Subject to the terms set forth herein, following the Transition Date and through the Separation Date (defined below) you will remain available to assist the Company, as it may request, in transitioning your current duties to your successor(s) or in serving in an advisory capacity to me, the Company's CEO. As used above "Separation Date" means the earlier of (a) September 30, 2007, (b) the date on which you begin providing substantial, compensated services to any individual or entity other than the Company, whether as an employee or independent contractor, or (c) such other date as may be mutually agreed upon in writing by you and the Company.
4. Salary and benefits. From the date hereof through your Separation Date, subject to the terms set forth herein, the Company will continue to pay your regular base salary and you will continue to be eligible for all benefits and perquisites that you currently enjoy; provided, however, that you will not be eligible for any new equity grants or other new incentive bonus opportunities.
5. Bonus. You are entitled to receive your bonus for the Company's fiscal year ending December 31, 2006. Further, with respect to the fiscal year ending December 31, 2007, subject to (i) your compliance with the terms of this Agreement and any other agreement with the Company by which you are bound, and (ii) the discretion of the Company's CEO, the Company will pay you in 2008 an amount equal to the bonus you would have been eligible to receive for the fiscal year based on your current, regular base salary and on full year results, prorated for period through your Separation Date. Any payment of such bonus will be made to you at the same time in 2008 as bonuses are paid to other senior executives of the Company for the fiscal year ending December 31, 2007.
6. Equity compensation. As long as you remain employed by xxxxxxxxx.xxx, stock options of the Company that have been granted to you as of the date hereof will continue to vest through your Separation Date. Assuming successful discharge of your duties through the Separation Date, the Company will extend to December 31, 2007 the time period for exercising any vested stock options.
7. Accrued obligations. You will be paid for accrued, unused vacation dates, if any, and any other accrued obligations of the Company (e.g., unpaid base salary, unreimbursed business expenses, etc.) after your Separation Date in a manner consistent with the Company's then applicable policies for such payments to terminating employees.
8. Severance and Release Agreement. As a condition of receiving the above benefits, you agree to execute on or near the Separation Date, a Severance and Release Agreement substantially in the form attached.
9. Integration. While we will honor our commitments to you under this Agreement in good faith, nothing in this Transition and Separation Agreement is intended to alter your at-will employment status at xxxxxxxxx.xxx. This Transition and Separation Agreement represents the entire understanding between you and the Company concerning the matters described herein, and supersedes all prior communications. It can only be modified expressly in a writing signed by both parties.

On behalf of the Company, I wish to thank you for the many contributions you have made to xxxxxxxxx.xxx over the years. I also appreciate your willingness to enable the Company to effect an orderly transition. I look forward to continuing to work with you through the transition and wish you good luck in your future endeavors.

Sincerely,

xxxxxxxxx.xxx, inc.

/s/ Xxxx X. Xxxxxx

By: Xxxx X. Xxxxxx

Title: President and CEO; Chairman of the Board

Agreed to and accepted:

/s/ Xxxxxx X. Xxxxxx

By: Xxxxxx X. Xxxxxx

Date: January 31, 2007

Attachment to Letter to Xxxxxx X. Xxxxxx dated January 30, 2007

SEVERANCE AND RELEASE AGREEMENT

THIS SEVERANCE AND RELEASE AGREEMENT (the "Agreement") is entered into by Xxxxxx X. Xxxxxx (hereinafter referred to as "Employee") and xxxxxxxxx.xxx, its parent, affiliates, subsidiaries, officers, directors, and managers (hereinafter referred to as "xxxxxxxxx.xxx" or "Employer"). The effective date of this Agreement is .

RECITALS

WHEREAS, Employee has been employed by the Company as Vice President, Finance & Operations, Chief Financial Officer and Treasurer; and

WHEREAS, the Employee wishes to terminate his employment with the Company, effective ; and

WHEREAS, the Employee is xxxxxx advised of his right to consult an attorney prior to signing this Agreement. Employee has either consulted an attorney of his choice or voluntarily elected not to consult legal counsel, and understands that he is waiving all potential claims against the Company arising prior to the effective date of this Agreement and relating to his employment in any way; and

WHEREAS, Employee acknowledges that he enters into this Agreement knowingly and voluntarily without coercion or duress from any source. Employee has had a reasonable time in which to consider whether he wished to sign this Agreement.

AGREEMENTS

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises contained below, it is agreed as follows:

EMPLOYMENT AND OFFICES: ENDING DATE AND RESPONSIBILITIES

The Company and Employee acknowledge and agree that Employee's employment with the Company and its affiliates, and his status as an officer, will terminate effective (the "Separation Date"). Employee understands and agrees that this termination is effective with respect to all offices and positions he holds with the Company and any of its affiliates.

BENEFITS FROM EMPLOYER

As consideration for the release of claims set forth below and other obligations under this Agreement:

The Company will allow Employee to exercise vested option grants until December 31, 2007. In addition, the Company will pay Employee an amount equivalent to up to two weeks salary (up to 80 hours) to compensate employee for accrued but unused vacation. Finally, the Company will facilitate the transfer of the cell phone number that employee uses ((XXX) XXX-XXXX) to a personal account in the name of the Employee or to a corporate account for the benefit of Employee.

VALID CONSIDERATION

Employee and xxxxxxxxx.xxx agree that the offer by xxxxxxxxx.xxx to Employee to extend the option exercise period described in the preceding paragraph is not required by xxxxxxxxx.xxx's policies or procedures or by any pre-existing contractual obligation of xxxxxxxxx.xxx or by any statute, regulation or ordinance, and is offered by xxxxxxxxx.xxx solely as consideration for this Agreement. In the event Employee fails to abide by the terms of this Agreement, xxxxxxxxx.xxx may elect, at its option and without waiver of other rights or remedies it may have, not to pay or provide any unpaid severance payments or benefits, and to seek to recover previously paid severance pay.

STOCK OPTIONS

Employee acknowledges and agrees that no shares will vest after his Separation Date.

REAFFIRMATION OF CONFIDENTIALITY AND INVENTIONS AGREEMENT

Employee expressly reaffirms and incorporates herein as part of this Agreement the Confidentiality and Inventions Agreement dated August 30, 1998, which Employee signed as part of his employment with xxxxxxxxx.xxx, a copy of which is attached hereto as Exhibit A, which shall remain in full effect.

RELEASE OF CLAIMS

Employee expressly waives any claims against xxxxxxxxx.xxx (including, for purposes of this paragraph 6, all parents, affiliates, subsidiaries, officers, directors, stockholders, managers, employees, former employees, agents, investors, and representatives, predecessors and successors) and further releases xxxxxxxxx.xxx (including its parents, affiliates, subsidiaries, officers, directors, stockholders, managers, employees, former employees, agents, investors, and representatives, predecessors and successors) from any claims, whether known or unknown, which existed or may have existed at any time up to the date of this Agreement, including claims related in any way to Employee's employment with xxxxxxxxx.xxx or the ending of that relationship. This release includes, but is not limited to, any claims for wages, bonuses, employment benefits, stock options, or damages of any kind whatsoever, claims arising out of any common law torts, arising out of any contracts, express or implied, any covenant of good faith and fair dealing, express or implied, any theory of wrongful discharge, any theory of negligence, any theory of retaliation, any theory of discrimination or harassment in any form, any legal restriction on xxxxxxxxx.xxx's right to terminate employees, or any federal, state, or other governmental statute, executive order, or ordinance, including, without limitation, Title VII of the Civil Rights Act of 1964 as amended, the Civil Rights Act of 1991, the Civil Rights Act of 1866, 42 U.S.C. Section 1981, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Older Workers Benefit Protection Act, the Family and Medical Leave Act, the Employee Retirement Income Security Act, the Washington Law Against Discrimination, or any other legal limitation on or regulation of the employment relationship. Employee agrees to indemnify and hold xxxxxxxxx.xxx harmless from and against any and all loss, costs, damages, or expenses, including, without limitation, reasonable attorneys' fees incurred by xxxxxxxxx.xxx arising out of any breach of this Agreement by Employee or resulting from any representation made herein by Employee that was false when made. Notwithstanding any other provision of this Agreement to the contrary, this waiver and release shall not apply to any claims by either party arising under that certain Indemnification Agreement between Employee and xxxxxxxxx.xxx, and which is reaffirmed and incorporated herein as part of this Agreement.

Employee represents that Employee has not filed any complaints, charges or lawsuits against xxxxxxxxx.xxx with any governmental agency or any court, and agrees that Employee will not initiate, assist or encourage any such actions, except as required by law. Employee further agrees that if a commission, agency, or court assumes jurisdiction of such claim, complaint or charge against xxxxxxxxx.xxx on behalf of Employee, Employee will request the commission, agency or court to withdraw from the matter. This clause does not prohibit employee from enforcing the terms of this Agreement.

Employee represents and warrants that he is the sole owner of the actual or alleged claims, rights, causes of action, and other matters which are released herein, that the same have not been assigned, transferred, or disposed of in fact, by operation of law, or in any manner and that he has the full right and power to grant, execute and deliver the releases, undertakings, and agreements contained herein.

NO ADMISSION OF WRONGDOING

This Agreement shall not be construed as an admission by either party of any wrongful act, unlawful discrimination, or breach of contract. Employer specifically disclaims any liability to or discrimination against Employee or any other person.

NONDISPARAGEMENT

Employee agrees to refrain from making any derogatory or disparaging comments to the press or any individual or entity regarding xxxxxxxxx.xxx's business or related activities or the relationship between the parties.

RETURN OF PROPERTY

Employee confirms that Employee has returned to Employer all files, memoranda, records, credit cards, pagers, computers, computer files, passwords and passkeys, Card Keys, or related physical or electronic access devices, and any and all other property received from Employer or any of its current or former employees or generated by Employee in the course of employment.

BREACH OR DEFAULT

Any party's failure to enforce this Agreement in the event of one or more events that violate this Agreement shall not constitute a waiver of any right to enforce this Agreement against subsequent violations.

SEVERABILITY

The provisions of this Agreement are severable, and if any part of it is found to be unlawful or unenforceable, the other provisions of this Agreement shall remain fully valid and enforceable to the maximum extent consistent with applicable law. If any one or more of the provisions of this Agreement is for any reason held to be excessively broad as to duration, geographical scope, activity, subject or for any other reason, it will be construed by limiting it and reducing it, so as to be enforceable to the extent compatible with the applicable law as it then appears in order to carry out the intent of the provision to the greatest extent possible.

ENTIRE AGREEMENT

This Agreement sets forth the entire understanding between Employee and xxxxxxxxx.xxx and supersedes any prior agreements or understandings, express or implied, pertaining to the terms of Employee's employment with xxxxxxxxx.xxx and the employment relationship. Employee acknowledges that in executing this Agreement, Employee does not rely upon any representation or statement by any representative of xxxxxxxxx.xxx concerning the subject matter of this Agreement, except as expressly set forth in the text of the Agreement. No modification or waiver of this Agreement will be effective unless evidenced in a writing signed by both parties.

GOVERNING LAW

This Agreement will be governed by and construed exclusively in accordance with the laws of the State of Washington without reference to its choice of law principles. Any disputes arising under this Agreement shall be brought in a court of competent jurisdiction in the State of Washington.

KNOWING AND VOLUNTARY AGREEMENT

Employee represents and agrees that Employee has read this Agreement, understands its terms and the fact that this Agreement releases any claims that Employee might have against Employer. Further, Employee understands that Employee has the right to consult counsel of choice and has either done so or knowingly waived the right to do so, and enters into this Agreement without duress or coercion from any source.

OPPORTUNITY TO CONSIDER AND REVOKE AGREEMENT

Employee agrees that he has been encouraged to seek legal counsel to review this Agreement, has been provided the opportunity to consider for twenty-one (21) days whether to enter this Agreement, and has voluntarily chosen to enter the Agreement on this date. Employee may revoke this Agreement for a period of seven (7) days following the execution of this Agreement; this Agreement shall become effective following expiration of this seven (7) day period (the "Effective Date"). Employee acknowledges that he is voluntarily executing this Agreement, that he has carefully read and fully understands all aspects of this Agreement, that he has not relied upon any representations or statements not set forth herein or made by Employer's agents or representatives.

IN WITNESS WHEREOF, the parties have executed this Agreement.

xxxxxxxxx.xxx, inc.


By:
Its:

Xxxxxx X. Xxxxxx


_______________________________