Document:

Settlement Agreement and Mutual Release, dated October 7, 2004

 Exhibit 4.4 
  

SETTLEMENT AGREEMENT & MUTUAL RELEASE 
  
 This Settlement Agreement & Mutual Release (the “Settlement Agreement”) dated as of October 7, 2004 is made and entered into by and among
Arlington Contact Lens Service, Inc. (“AC Lens”) and drugstore.com, inc. (“drugstore.com”) (Hereinafter, the aforementioned parties shall sometimes be referred to collectively as “Parties.”) 
  
 WHEREAS, AC Lens is the plaintiff and counterclaim defendant and
drugstore.com is the defendant and counterclaim plaintiff in the action captioned Arlington Contact Lens Service, Inc. v. drugstore.com, inc., Case No. 03CVH-11-12581, pending in the Court of Common Pleas in Franklin County, Ohio (the
“Litigation”); and 
  
 WHEREAS, the Parties desire to
fully, finally and forever compromise, resolve, discharge and settle all claims between them, including those brought in the Litigation. 
  
 NOW, THEREFORE, in consideration of the representations and mutual promises contained herein, the Parties hereby agree as follows: 
  
 1. Issuance of Settlement Shares 
  
 1.1 Issuance of Settlement Shares. As set forth below, drugstore.com shall issue to
AC Lens up to that number of whole shares (the “Settlement Shares”) of drugstore.com’s common stock, par value $0.0001 per share (the “Common Stock”) as is determined by dividing the amount of $475,000 by $3.79 (the
“Base Price”), which was the closing sale price per share of the Common Stock on October 7, 2004 as quoted on The Nasdaq National Market (the “Nasdaq”), rounded up to the nearest whole share. AC Lens and drugstore.com agree that
an aggregate of up to 125,330 Settlement Shares are to be issued to AC Lens pursuant to this Settlement Agreement, as follows: 
  

	 	(a)	as soon as reasonably practicable after the effective date of this Settlement Agreement, drugstore.com shall issue to AC Lens 72,560 of the Settlement Shares (the “Mandatory
Shares”); and 

  

	 	(b)	within three (3) Trading Days (as defined in Section 3.1) after the end of the Guaranteed Trading Period (as defined in Section 3.1), drugstore.com shall issue to AC Lens the
remaining 52,770 of the Settlement Shares (the “Piggy-Back Shares”), subject to any downward adjustment pursuant to Section 3.3 in the number of Piggy-Back Shares to be issued. 

  
 1.2 Restricted Shares. The Settlement Shares have not been registered under the
Securities Act of 1933, as amended (the “Securities Act”) and will be issued in a transaction that is exempt from registration under the Securities Act. The Settlement Shares will be “restricted securities” under the federal
securities laws and cannot be offered or resold except pursuant to registration under the Securities Act or an applicable exemption from registration. All certificates representing Settlement Shares shall bear, in addition to any other legends
required under applicable securities laws, the following legend: 
  
 “The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or transferred except pursuant to an effective registration
statement under the Securities Act or pursuant to an available exemption from registration and, in each case, in accordance with the securities laws of any State in which such offering is made.” 

 2. Registration Rights Associated with Settlement Shares 
  
 2.1 Mandatory Registration. As soon as reasonably practicable after the date of this
Settlement Agreement, drugstore.com shall use its reasonable efforts to, at drugstore.com’s option, either: 
  

	 	(a)	include the Mandatory Shares in its current registration statement on Form S-3 (file number 333-118667) (the “Current Registration Statement”) on file with the Unites
States Securities and Exchange Commission (the “SEC”); or 

  

	 	(b)	in the event the Mandatory Shares are not included in the Current Registration Statement as of the date such registration statement becomes effective, the Company shall as promptly
as reasonably practicable after such date file a registration statement, on a Form S-3 or any successor thereto, or a similar registration form available to drugstore.com, under the Securities Act, with the SEC to register the Mandatory Shares.

  
 In any event, drugstore.com shall use its
reasonable efforts to cause the registration statement covering the Mandatory Shares to become effective as soon as practicable. It is agreed and understood that AC Lens shall not be permitted to effect an underwritten offering pursuant to a
registration effected under this Section 2.1 without the prior consent of drugstore.com. 
  
 2.2 Incidental Registration. If (but without any obligation to do so) drugstore.com proposes to file a registration statement covering (including for this purpose a registration effected by drugstore.com for
stockholders other than AC Lens) any of its equity securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration on Form S-4, Form S-8 or any successors thereto, or a
registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), drugstore.com shall, at such time, promptly give AC Lens written notice of such registration. Upon
the written request of AC Lens given within fifteen (15) days after receipt of such notice by the Holder in accordance with Section 8, drugstore.com shall, subject to the provisions of Section 2.3, cause to be included in such registration and
offering and any underwriting of such offering registered under the Securities Act the Piggy-Back Shares that AC Lens has requested to be registered. 
  
 2.3 Underwriting Requirements. In connection with any offering involving an underwriting of shares of drugstore.com’s capital stock, drugstore.com shall not
be required under Section 2.2 to include any of AC Lens’ securities in such underwriting unless AC Lens accepts the terms of the underwriting as agreed upon between drugstore.com and the underwriters selected by it, and then only in such
quantity as the underwriters determine in their sole discretion will not impair 
  

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 the success of the offering by drugstore.com. If the total amount of securities, including Settlement Shares requested by
AC Lens to be included in such offering, exceeds the amount of securities that the underwriters determine in their sole discretion is compatible with the success of the offering, then drugstore.com shall be required to include in the offering only
that number of such securities, including Settlement Shares, which the underwriters determine in their sole discretion will not impair the success of the offering. For purposes of such apportionment, in the case of registration pursuant to Section
2.2, drugstore.com shall include in such registration (i) first, the securities drugstore.com proposes to sell and (ii) second, the Settlement Shares requested to be included in such registration by AC Lens. 
  
 2.4 Expenses of Registration. 
  

	 	(a)	Company Registration. All expenses (other than underwriting discounts and commissions, stock transfer taxes and fees and disbursements of counsel to AC Lens) incurred in
connection with registrations, filings or qualifications of Settlement Shares pursuant to Section 2, including (without limitation) all registration, filing, and qualification fees, printers’ and accounting fees, fees and disbursements of
counsel for drugstore.com, shall be borne by drugstore.com. 

  

	 	(b)	Underwriting Discounts and Commissions. All underwriting discounts and commissions incurred in connection with each registration statement under Section 2 shall be borne by
the participating sellers (and by drugstore.com, if drugstore.com is a seller) in proportion to the number of shares sold by each, or as they otherwise may agree. 

  
 2.5 Delay of Registration. AC Lens shall have no right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to the interpretation or implementation of Section 2. 
  
 2.6 Termination of Registration Rights. AC Lens shall not be entitled to exercise any right provided for in Section 2 if, pursuant to Rule 144 promulgated by the
SEC under the Securities Act, or another similar exemption under the Securities Act, AC Lens may sell Settlement Shares without registration. 
  
 2.7 Suspension of Registration Statement and Prospectus. drugstore.com may suspend any registration statement filed pursuant to Section 2 that has become
effective, and may suspend the use of any prospectus included in such registration statement (and any amendment or supplement thereto), for a period not to exceed 45 days in any 90-day period or an aggregate of 90 days in any 365-day period, if the
board of directors, the chief executive officer or chief financial officer of drugstore.com, shall have determined in good faith that because of valid business reasons (not including avoidance of drugstore.com’s obligations hereunder),
including, without limitation, the acquisition or divestiture of assets, pending corporate developments, public filings with the SEC or similar events, it is in the interests of drugstore.com to suspend such use and, prior to suspending such use,
drugstore.com provides AC Lens with written notice of such suspension, which notice need not specify the nature of the event giving rise to such suspension. 
  

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 3. Minimum Value of Mandatory Shares; Reduction in Number of Piggy-Back Shares 
  
 3.1 Defined Terms. As used in this Section 3, the terms listed in this Section 3.1
shall have the respective meanings set forth in this Section 3.1: 
  
 “Average Share Price” means the average of the closing prices per share of Common Stock, as quoted on the Nasdaq, on each of the last five (5) Trading Days in the Trading Period. 
  
 “Guaranteed Sold Shares” means Mandatory Shares sold by AC Lens
during the Guaranteed Trading Period on the Nasdaq at the prevailing fair market price (as quoted on the Nasdaq) at the time of sale. 
  
 “Guaranteed Trading Period” means the period of the twenty (20) trading days following the effectiveness of the registration statement pursuant
to which the Mandatory Shares are registered pursuant to Section 2.1. 
  
 “Trading Day” means any day during which the Nasdaq shall be open for business. 
  
 3.2 Minimum Value of Mandatory Shares. To the extent AC Lens realizes aggregate value less than $275,000 as a result of fair market sales of Mandatory Shares during the Guaranteed Trading Period, or the pro
rata portion thereof depending on the number of Mandatory Shares sold during the Guaranteed Trading Period, drugstore.com will issue to AC Lens a specified number of additional shares of Common Stock, in accordance with the following provisions:

  

	 	(a)	If at the end of the Guaranteed Trading Period AC Lens has received aggregate consideration (prior to the deduction of any underwriting discounts, commissions or other expenses) in
respect of Guaranteed Sold Shares such that the aggregate consideration received by AC Lens in respect of such shares divided by the aggregate number of Guaranteed Sold Shares results in a per share amount that is less than the Base Price, then
drugstore.com shall, within three (3) Trading Days after the end of the Guaranteed Trading Period, issue to AC Lens a specified number of additional shares of Common Stock (the “Additional Settlement Shares”) calculated as follows. The
number of Additional Settlement Shares to be issued by drugstore.com to AC Lens in such circumstances shall be equal to: 

  
 (i) (x) the total number of Guaranteed Sold Shares multiplied by the Base Price; minus (y) the aggregate consideration received by AC Lens in respect of
the Guaranteed Sold Shares (prior to the deduction of any underwriting discounts, commissions or other expenses); divided by 
  
 (ii) the Average Share Price, 
  
 rounded up to the nearest whole share. 
  

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	 	(b)	Any Additional Settlement Shares issued to AC Lens pursuant to Section 3.2(a) shall be entitled to incidental registration in accordance with Section 2.2. 

 

	 	(c)	At drugstore.com’s option, in lieu of issuing any Additional Settlement Shares to AC Lens, pursuant to Section 3.2(a), drugstore.com shall be entitled to pay AC Lens an amount
in cash equal to the difference between (x) the total number of Guaranteed Sold Shares multiplied by the Base Price, and (y) the aggregate consideration received by AC Lens in respect of the Guaranteed Sold Shares (prior to the deduction of any
underwriting discounts, commissions or other expenses), which amount shall be payable by drugstore.com on the third Trading Day after the end of the Guaranteed Trading Period. 

  
 3.3 Reduction in Number of Piggy-Back Shares. To the extent AC Lens realizes aggregate
value in excess of $275,000 as a result of fair market sales of Mandatory Shares during the Guaranteed Trading Period, or the pro rata portion thereof depending on the number of Mandatory Shares sold during the Guaranteed Trading Period, the number
of Piggy-Back Shares required to be issued to AC Lens by drugstore.com shall be reduced, in accordance with the following provisions: 
  

	 	(a)	If at the end of the Guaranteed Trading Period AC Lens has received aggregate consideration (prior to the deduction of any underwriting discounts, commissions or other expenses) in
respect of Guaranteed Sold Shares such that the aggregate consideration received by AC Lens for such shares divided by the aggregate number of Guaranteed Sold Shares results in a per share amount that is greater than the Base Price, then the number
of Piggy-Back Shares required to be issued to AC Lens by drugstore.com pursuant to this Settlement Agreement shall be reduced by that number of shares of Common Stock (the “Credited Shares”) which is obtained by dividing:

  
 (i) (x) the aggregate consideration received
by AC Lens in respect of the Guaranteed Sold Shares (prior to the deduction of any underwriting discounts, commissions or other expenses); minus (y) the total number of Guaranteed Sold Shares multiplied by the Base Price; by 
  
 (ii) the Average Share Price, 
  
 rounded up to the nearest whole share; provided that, in no event,
shall the number of Credited Shares exceed 52,770 shares of Common Stock. 
  
 4. Termination of Order Processing and Fulfillment Agreement 
  
 4.1 The Order Processing and Fulfillment Agreement executed by the Parties on or about December 17, 2002 shall be terminated and cease to have any force or effect. The Parties accordingly waive any rights arising from or in connection with
the Order Processing and Fulfillment Agreement, including any that were or could have been asserted in litigation. 
  

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 5. Dismissal of the Action 
  
 5.1 The Parties by and through their respective counsel shall execute a Stipulated Notice of Dismissal (“Dismissal”), pursuant to
Rule 41(A)(1)(b) of the Ohio Rules of Civil Procedure, in the form attached hereto as Exhibit A, dismissing with prejudice all claims asserted in the Litigation. The Parties shall cause the Dismissal to be filed in the Litigation promptly following
the issuance of Settlement Shares as provided in Section 1 above. 
  
 6.
Mutual Release 
  
 6.1 In consideration of the performance of the
promises and mutual covenants set forth herein, the receipt and sufficiency of which are hereby acknowledged, AC Lens, for itself and for its present and former directors, officers, stockholders, agents, advisors, administrators, attorneys,
employees, parent entities, affiliate entities, divisions, subsidiaries, representatives, predecessors, successors and assigns, hereby releases and forever discharges drugstore.com, its present and former directors, officers, stockholders, agents,
advisors, attorneys, employees, parent entities, affiliate entities, divisions, subsidiaries, representatives, predecessors, successors and assigns, from any and all claims, rights, controversies, actions, demands, causes of action, debts,
obligations, damages or liabilities of every kind and description, including any claim for attorney fees, which AC Lens now has or has had, or hereafter may have, against such entities and persons arising out of any matter or thing whatsoever
occurring prior to and including the date hereof, whether relating to the litigation, to its subject matter, or otherwise, whether based on common law or on any federal or state statute, rule, regulation, or other law or right of action, foreseen or
unforeseen, matured or unmatured, known or unknown, accrued or not accrued, suspected or unsuspected, fixed or contingent, and whether or not concealed or hidden, that any Party has, had or may have, individually, representatively, or derivatively
or in any other capacity, against any Party. The releases contained in this Settlement Agreement specifically exclude any and all claims to enforce the terms and conditions of this Settlement Agreement. 
  
 6.2 In consideration of the performance of the promises and mutual covenants set forth
herein, the receipt and sufficiency of which are hereby acknowledged, drugstore.com, for itself and for its present and former directors, officers, stockholders, agents, advisors, administrators, attorneys, employees, parent entities, affiliate
entities, divisions, subsidiaries, representatives, predecessors, successors and assigns, hereby releases and forever discharges AC Lens, its present and former directors, officers, stockholders, agents, advisors, attorneys, employees, parent
entities, affiliate entities, divisions, subsidiaries, representatives, predecessors, successors and assigns, from any and all claims, rights, controversies, actions, demands, causes of action, debts, obligations, damages or liabilities of every
kind and description, including any claim for attorney fees, which drugstore.com now has or has had, or hereafter may have, against such entities and persons arising out of any matter or thing whatsoever occurring prior to and including the date
hereof, whether relating to the litigation, to its subject matter, or otherwise, whether based on common law or on any federal or state statute, rule, regulation, or other law or right of action, foreseen or unforeseen, matured or unmatured, known
or unknown, accrued or not accrued, suspected or unsuspected, fixed or 
  

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 contingent, and whether or not concealed or hidden, that any Party has, had or may have, individually, representatively,
or derivatively or in any other capacity, against any Party. The releases contained in this Settlement Agreement specifically exclude any and all claims to enforce the terms and conditions of this Settlement Agreement. 
  
 6.3 The releases contained in this Settlement Agreement are given voluntarily after
consultation with counsel and shall not be subject to any claim of mistake of fact. The Parties have read the Settlement Agreement, and agree that there is no agreement or reservation not clearly expressed herein, that the execution hereof is not
induced by any representations or promises, except as stated herein, and that the execution hereof is with full knowledge that this Settlement Agreement covers all possible claims. 
  
 7. Effective Date 
  
 7.1 The effective date of this Settlement Agreement is the date that it becomes signed and executed by all the Parties. 
  
 8. Notices 
  
 8.1 Unless otherwise provided, any notice required or permitted by this Settlement Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier or sent by telegram, fax, confirmed electronic mail, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid,
and addressed to the party to be notified at such party’s address or fax number as set forth below or as subsequently modified by written notice. 
  

	 	(a)	If to AC Lens, to it at: 

  
 Arlington Contact Lens Service, Inc. 
 4691
NW Parkway 
 Hilliard, OH 43026 
 Attention: Peter Clarkson, President 
 Facsimile: (614) 921-9866 
  
 with copies to: 
  
 Roetzel & Andress 
 222 S. Main Street,
Suite 400 
 Akron, Ohio 44308 
 Attention: Ronald S. Kopp, Esq. 
 Facsimile: (330) 376-4577 
  

	 	(b)	If to AC Lens, to it at: If to drugstore.com, to it at: 

  
 13920 Southeast Eastgate Way, Suite 300 
 Bellevue, WA 98005 
 Attention: General Counsel 
 Facsimile: (425) 372-3801 
  

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 with copies to: 
  
 Calfee, Halter & Griswold LLP 
 1100 Fifth Third Center 
 21 East State Street 
 Columbus, Ohio 43215-4243 
 Attention: Peter
A. Rosato 
 Facsimile: (614) 621-0010 
  
 Simpson Thacher & Bartlett LLP 
 3330
Hillview Avenue 
 Palo Alto, CA 94304 
 Attention: Jeffrey Ostrow, Esq. 
 Facsimile: (650) 251-5002 
  
 9. Miscellaneous Provisions 
  
 9.1 All claims asserted, or which could have been asserted in the Litigation, are disputed, and this Settlement Agreement shall not be treated as an admission of
liability or responsibility at any time or in any manner whatsoever. 
  
 9.2 (a)
AC Lens and drugstore.com warrant and represent that they have taken all legal and corporate steps necessary to enter into this Settlement Agreement and to bind themselves, respectively, to all of the provisions herein and to take the actions
required to be performed in fulfillment of the undertakings contained herein. 
  
 (b) AC Lens further acknowledges, represents and warrants to and agrees with drugstore.com that: 
  
 (i) AC Lens is acquiring the Settlement Shares for its own account as principal, for investment purposes only, and not with a view to, or
for, resale, distribution or fractionalization thereof, in whole or in part; 
  
 (ii) AC Lens acknowledges its understanding that the issuance of the Settlement Shares to it by drugstore.com, pursuant to this Settlement Agreement, is intended to be exempt from registration under the Securities
Act, by virtue of Section 4(2) of the Securities Act; and 
  
 (iii) AC Lens will not sell or otherwise transfer the Settlement Shares without registration under the Securities Act or an exemption therefrom, and fully understands and agrees that it must bear the economic risk of
its acquisition of the Settlement Shares for an indefinite period of time because, among other things, the Settlement Shares have not been registered under the Securities Act or under 
  

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 the securities laws of certain states and, therefore cannot be resold, pledged, assigned or otherwise
disposed of unless they are subsequently registered under the Securities Act and under the applicable securities laws of such states or an exemption from registration is available. AC Lens also understand that drugstore.com is under no obligation to
register the Settlement Shares on its behalf, other than as set forth in Section 2, or to assist AC Lens in complying with any exemption from registration under the Securities Act. 
  
 9.3 The provisions of this Settlement Agreement will inure to the benefit of and bind the successors, assigns, shareholders, affiliates,
parents, subsidiaries, partners, past and present, and creditors of the Parties hereto. 
  
 9.4 Except as otherwise provided in this Settlement Agreement, any period of time prescribed by this Settlement Agreement or any other document related to the settlement set forth herein shall be computed in accordance with Rule 6 of the
Federal Rules of Civil Procedure. 
  
 9.5 The Parties acknowledge that it is their
intent to consummate this Settlement Agreement and conditions of this Settlement Agreement and agree to cooperate to the extent reasonably necessary to effectuate and implement all terms and conditions of this Settlement Agreement. 
  
 9.6 Within thirty (30) days following the effective date of this Settlement Agreement, each
Party shall destroy or return (at his, her or its own expense) all materials produced or otherwise transmitted by any other Party or any third party during the course of the Litigation, including all copies of such materials and including all
materials provided to both consulting and testifying experts retained by any Party during the course of the Litigation. Each Party also shall destroy any indices or like materials and copies of any such materials derived therefrom. Each Party shall
inform all other Parties in writing immediately upon complying with this Section 9.6. 
  
 9.7 No Party shall make any written public statement regarding the terms of this Settlement Agreement or any settlement contained herein unless that Party has the prior approval of all Parties; provided, however, that this Section 9.7 shall
not apply to any statement made in a document required to be filed with any governmental body, including but not limited to the Securities Exchange Commission, or any national securities exchange; provided further that any oral public statement
regarding the terms of this Settlement Agreement or any settlement contained herein shall be consistent with any previously-approved written public statements or this Settlement Agreement. No Party shall make any public statement regarding the terms
of this Settlement Agreement or any settlement contained herein that is critical of or discredits the terms of this Settlement Agreement or any settlement contained herein. 
  
 9.8 This Settlement Agreement may not be amended or modified, nor may any of its provisions be waived, except by writing signed by the
Parties or their successors-in-interest. 
  
 9.9 Neither this Settlement Agreement
nor any act performed or document executed pursuant to or in furtherance of this Settlement Agreement: (a) is or may be deemed to be or may be used as an admission or evidence of the validity of any released claim or any wrongdoing or liability of
any Party; or (b) is or may be deemed to be or may be used as an admission or evidence of any 
  

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 fault or omission of any Party in any civil, criminal or administrative proceeding in any court, administrative agency or
other tribunal, other than in such proceedings as may be necessary to consummate or enforce this Settlement Agreement, 
  
 9.10 Any Party may file this Settlement Agreement and/or any Judgment that has become final in any action that may be brought against it in order to support a defense or
counterclaims based on principles of res judicata, collateral estoppel, release, good faith settlement, judgment bar or reduction or any other theory of claim preclusion or issue preclusion or similar defense or counterclaim. 
  
 9.11 The Parties intend the Settlement Agreement to be a final and complete resolution of all
disputes asserted or that could be asserted against the Parties with respect to the released claims. Accordingly, the Defendants agree not to assert any claim under Ohio Civil Rule 11, or any similar law, rule or regulation, that the Litigation was
brought in bad faith or without a reasonable basis. 
  
 9.12 The Parties agree
that all of the terms of this Settlement Agreement were negotiated at arm’s length and in good faith by the Parties, and the Settlement Agreement reflects a settlement that was reached voluntarily based upon adequate information and sufficient
discovery and after consultation with experienced legal counsel. 
  
 9.13 The
headings used in this Settlement Agreement are used for the purpose of convenience only and are not meant to have any legal effect. 
  
 9.14 To the extent permitted by law, all agreements made and orders entered during the course of the Litigation relating to the confidentiality of information shall
survive this Stipulation. 
  
 9.15 The waiver by any Party of any breach of this
Settlement Agreement by any other Party shall not be deemed a waiver of any other prior or subsequent breach of this Settlement Agreement. 
  
 9.16 This Settlement Agreement constitutes the entire agreement among the Parties concerning the settlement of the Litigation, and no representations, warranties or
inducements have been made to any Party concerning this Settlement Agreement, other than the representations, warranties and covenants contained and memorialized herein. Except as otherwise provided herein, each Party shall bear his, her or its own
costs. 
  
 9.17 In the event that there exists a conflict or inconsistency between
the terms of this Settlement Agreement and the terms of any other document related to the settlement set forth herein, the terms of this Settlement Agreement shall prevail. 
  
 9.18 This Settlement Agreement may be executed by facsimile and in one or more counterparts. All executed counterparts shall be deemed to be
one and the same instrument provided that counsel for the Parties shall exchange among themselves original signed counterparts and a completed set of executed counterparts shall be filed with the Court. 
  
 9.19 The Parties and their counsel of record agree that they will use their best efforts to
obtain all necessary court approvals required by this Settlement Agreement. 
  

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 9.20 All terms of this Settlement Agreement and any other document related to the settlement set forth herein shall be
governed by and interpreted according to the substantive laws of the State of Ohio and without regard to its choice of law rules. 
  
 IN WITNESS WHEREOF, the Parties have signed this Settlement Agreement on the dates indicated below. 
  

					
	10/12/04	  	Arlington Contact Lens Service, Inc.
	
 Date
	  	 	 	 
			
	 	  	 By:
	 	 /s/ Peter Clarkson

	 	  	 Name:
	 	 Peter Clarkson

	 	  	 Title:
	 	 President

		
	10/12/04	  	drugstore.com, inc.
	
 Date
	  	 	 	 
			
	 	  	 By:
	 	 /s/ Alesia Pinney

	 	  	 Name:
	 	 Alesia Pinney

	 	  	 Title:
	 	 Vice President and General Counsel

  

 11Indemnification Agreement

 Exhibit 10.5 
  
 INDEMNIFICATION AGREEMENT 
  
 THIS INDEMNIFICATION AGREEMENT is made and entered into this          day of
                , 2004 (“Agreement”), by and between Aames Investment Corporation, a Maryland corporation (the “Company”), and
                                        
         (“Indemnitee”). 
  
 RECITALS 
  
 A. The Company
and Indemnitee recognize the increasing difficulty in obtaining directors’ and officers’ liability insurance, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. 

 
 B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting officers and directors to expensive litigation risk at the same time that the availability and coverage of liability insurance has been severely limited. 
  
 C. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and other officers and directors of the Company may not be willing to continue to serve as officers and directors without the protection provided by this Agreement. 
  
 D. The Company desires to attract and retain the services of highly qualified
individuals, such as Indemnitee, to serve as officers and directors of the Company and to indemnify its officers and directors so as to provide them with the maximum protection permitted by law. 
  
 AGREEMENT 
  
 The Company and Indemnitee hereby agree as follows: 
  
 1. Definitions. For purposes of this Agreement: 
  
 1.1 “Change in Control” means a change in control of the Company that occurs after the Effective
Date, that must be reported under Item 6(e) of Schedule 14A of Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Act”), or in response to any similar item on any similar schedule or form, whether or not the Company
is then subject to such reporting requirement. A Change in Control will be deemed to have occurred if after the Effective Date any of the following events occur: 
  
 A. any “person” (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of the Company’s securities representing [    ] or more of the combined voting power of the Company’s then
outstanding securities without the prior approval of at least two- 

 
thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; 
  
 B. a proxy contest occurs, or the Company is a party to a
merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office
immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or 
  
 C. during any consecutive two-year period, other than as a result of an event described in Section 1.1(B), individuals who at the
beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. 
  
 1.2 “Corporate Status” means with respect to the Indemnitee the status of such person as a director, trustee, officer, employee
or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise for which such person is or was serving at the request of the Company. 
  
 1.3 “Disinterested Director” means a director of
the Company who is not and was not a party to the Proceeding for which indemnification is sought by Indemnitee 
  
 1.4 “Effective Date” means the date of this Agreement. 
  
 1.5 “Expenses” includes all reasonable attorneys’ fees, retainers, court costs, transcript
costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred, and actually
incurred, in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. 
  
 1.6 “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and has
not, nor in the past five years has been, retained to represent the Company or Indemnitee in any matter material to either such party, or any other party to or witness in the Proceeding giving rise to a claim for indemnification under this
Agreement. “Independent Counsel” does not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to
determine Indemnitee’s rights under this Agreement. If a Change of Control has not occurred, the Board of Directors will select the Independent Counsel, with the approval of Indemnitee, which approval will not be unreasonably withheld. If a
Change of Control has occurred, the Indemnitee will select Independent Counsel, with the approval of the Board of Directors, which approval will not be unreasonably withheld. 
  
 1.7 “Proceeding” includes any threatened, pending or completed action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or any 

  

 2 

 other proceeding, whether civil, criminal, administrative or investigative (including on appeal), including any such
proceeding (i) pending or completed on or before the Effective Date, or (ii) with respect to any act or omission of the Company or any members of the Company’s board of directors committed prior to the Effective Date, unless otherwise
specifically agreed in writing by the Company and Indemnitee. 
  
 2. Services by Indemnitee. Indemnitee will serve as a [director][officer] of the Company. However, this Agreement does not impose any obligation on Indemnitee or the Company to continue Indemnitee’s service to the
Company beyond any period otherwise required by law or by other agreements or commitments of the parties, if any. 
  
 3. Indemnification—General. The Company will indemnify, and advance Expenses to, Indemnitee as provided in this Agreement and otherwise to the
maximum extent permitted by Maryland law in effect on the date hereof and as amended from time to time. However, no change in Maryland law will have the effect of reducing the benefits available to Indemnitee based on Maryland law as in effect on
the date of this Agreement. The rights of Indemnitee provided in this Section 3 include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g)
of the Maryland General Corporation Law (the “MGCL”). 
  
 4. Third Party Proceedings. Indemnitee is entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any
threatened, pending, or completed Proceeding, other than a Proceeding by or in the right of the Company. Under this Section 4, Indemnitee will be indemnified against all judgments, penalties, fines and amounts paid in settlement and all
Expenses actually and reasonably incurred by him or on his behalf in connection with a Proceeding by reason of his Corporate Status unless one of the following is established: 
  
 A. The act or omission of Indemnitee was material to the matter giving rise to the Proceeding, and

  
 1. was committed in bad faith, or 

 
 2. was the result of active and deliberate dishonesty;

  
 B. Indemnitee actually received an improper
personal benefit in money, property or services; or 
  
 C. In the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that his conduct was unlawful. 
  
 5. Proceedings by or in the Right of the Company. Indemnitee is entitled to the rights of indemnification provided in this 
Section 5 if,
by reason of his Corporate Status, he is, or is threatened to be, made a party to or a witness in any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Under this Section
5, Indemnitee will be indemnified against all amounts paid in settlement and all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding, unless one of the following is established: 
  

 3 

 A. The act or omission of Indemnitee was material to the matter giving rise to such a
Proceeding, and 
  
 (1) was committed in bad
faith, or 
  
 (2) was the result of active and
deliberate dishonesty; or 
  
 B. Indemnitee
actually received an improper personal benefit in money, property or services. 
  
 6. Court-Ordered Indemnification. Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court requires, may order
indemnification in certain circumstances. However, indemnification for any Proceeding by or in the right of the Company, or in which liability has been adjudged in the circumstances described in Section 2-418(c) of the MGCL, will be limited to
Expenses actually and reasonably incurred by Indemnitee or on his behalf in connection with a Proceeding. The circumstances under which a court may order such indemnification as it deems proper are: 
  
 6.1 If it determines that Indemnitee is entitled to
reimbursement under Section 2-418(d)(1) of the MGCL, the court will order indemnification, in which case Indemnitee will be entitled to recover the expenses of securing such reimbursement; or 
  
 6.2 If it determines that Indemnitee is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether or not Indemnitee has: 
  
 A. met the standards of conduct set forth in Section 2-418(b) of the MGCL; or 
  
 B. been adjudged liable for receipt of an improper personal
benefit under Section 2-418(c) of the MGCL. 
  
 7.
Indemnification for Expenses of a Party Who is Wholly or Partly Successful. If Indemnitee is, by reason of his Corporate Status, made a party to and is successful, on the merits or otherwise, in the defense of any Proceeding, he will be
indemnified for all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company will indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue
or matter, allocated on a reasonable and proportionate basis. For purposes of this Section 7 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, will be deemed to
be a successful result as to such claim, issue or matter. 
  
 8.
Advance of Expenses. The Company will advance all reasonable Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection with any Proceeding (other than a Proceeding brought to enforce indemnification under this
Agreement, applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the 
  

 4 

 stockholders entitled to vote generally in the election of directors or of the Board of Directors), to which Indemnitee
is, or is threatened to be, made a party or a witness, within 10 days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements must reasonably evidence the Expenses incurred by Indemnitee. The statement or statements must include a written affirmation by Indemnitee of Indemnitee’s good faith belief that the standard of
conduct necessary for indemnification by the Company, as authorized by law and by this Agreement, has been met. The statement or statements must also include a written undertaking by or on behalf of Indemnitee, in substantially the form attached
hereto as Exhibit A, or in such form as may be required under applicable law as in effect at the time the undertaking is signed. The undertaking requires Indemnitee to reimburse the portion of any Expenses advanced to him relating to claims,
issues or matters in the Proceeding for which it is ultimately established that the standard of conduct was not met and which have not been successfully resolved as described in Section 7. To the extent that Expenses advanced to Indemnitee do
not relate to a specific claim, issue or matter in the Proceeding, such Expenses will be allocated on a reasonable and proportionate basis. The undertaking required by this Section 8 will be an unlimited general obligation by or on behalf of
Indemnitee and will be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor. 
  
 9. Procedure for Determination of Entitlement to Indemnification. 
  
 9.1 To obtain indemnification under this Agreement,
Indemnitee must submit to the Company a written request, including such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Company will, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. 
  
 9.2 Upon proper written request for indemnification by
Indemnitee, a determination, if required by applicable law, with respect to Indemnitee’s entitlement to indemnification will promptly be made in the following manner: 
  
 A If a Change in Control has occurred, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which will be delivered to Indemnitee; or 
  
 B. If a Change of Control has not occurred, 
  
 (1) by the Board of Directors (or a duly authorized committee thereof) by a majority vote of a quorum consisting of Disinterested Directors, or 
  
 (2) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even
if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which will be delivered to Indemnitee, or 
  
 (3) if so directed by a majority of the members of the Board
of Directors, by the stockholders of the Company. 
  

 5 

 9.3 If it is determined that Indemnitee is entitled to indemnification, payment to Indemnitee will be
made within 10 days after such determination. Indemnitee will cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or
entity, upon reasonable advance request, any documentation or information that is not privileged or otherwise protected from disclosure, and that is reasonably available to Indemnitee and reasonably necessary to such determination in the discretion
of the Board of Directors or Independent Counsel if retained pursuant to Section 9.2(B). Any Expenses actually and reasonably incurred by Indemnitee in cooperating with the person, persons or entity making such determination will be borne by
the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company will indemnify and hold Indemnitee harmless therefrom. 
  
 9.4 Indemnitee will select the Independent Counsel. The Company may, within 10 days after written notice of such selection,
deliver to Indemnitee a written objection to such selection, but such objection may be asserted only on the grounds that the selected Independent Counsel does not meet the requirements of “Independent Counsel” as defined in this Agreement.
Absent a proper and timely objection, the person so selected will act as Independent Counsel. If written objection is made and substantiated, the selected Independent Counsel may not serve unless and until the objection is withdrawn or a court
determines that the objection is without merit. If no Independent Counsel has been selected and not objected to within 20 days after the later of submission by Indemnitee of a written request for indemnification and the final disposition of the
Proceeding, Indemnitee may petition a court of competent jurisdiction for resolution of any objection that has been made by the Company to the selection of Independent Counsel, or for the appointment as Independent Counsel of a person selected by
the court or by such other person that the court may designate. The person with respect to whom all objections are so resolved or the person so appointed will act as Independent Counsel. Upon the due commencement of any judicial proceeding or
arbitration under Section 11.1, Independent Counsel will be discharged and relieved of any further responsibility in such capacity – subject to the then-prevailing applicable standards of professional conduct. 
  
 10. Presumptions and Effect of Certain Proceedings. 
  
 10.1 In making a determination with respect to entitlement to indemnification
hereunder, the person or persons or entity making such determination must presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9.1.
The Company will have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption. 
  
 10.2 The termination of any Proceeding by judgment, order, settlement, conviction, a plea of nolo contendere or its equivalent, or an entry
of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification. 
  

 6 

 11. Remedies of Indemnitee. 
  
 11.1 Indemnitee will be entitled to an adjudication in an appropriate court located in the State of
Maryland, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advance of Expenses if any of the following occur: 
  
 A. A determination is made pursuant to Section 9 of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement; 
  
 B. Advance of Expenses is not
timely made pursuant to Section 8 of this Agreement; 
  
 C. No determination of entitlement to indemnification has been made pursuant to Section 9.2 of this Agreement within [            ] days after
receipt by the Company of the request for indemnification; 
  
 D. Payment of indemnification is not made pursuant to Section 7 of this Agreement within 10 days after receipt by the Company of a written request therefor; or 
  
 E. Payment of indemnification is not made within 10 days
after a determination has been made that Indemnitee is entitled to indemnification. 
  
 11.2 As an alternative to the remedy described in Section 11.1, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial Arbitration Rules of
the American Arbitration Association. Indemnitee must commence such proceeding for adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding under Section
11.1. However, the remedies under Section 11.1 and Section 11.2 do not apply to a proceeding brought by Indemnitee to enforce his rights under Section 7. 
  
 11.3 In any judicial proceeding or arbitration commenced pursuant to this Section 11 the Company has the burden of
proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be. 
  
 11.4 If a determination has been made under Section 9.2 of this Agreement that Indemnitee is entitled to indemnification, the Company will be bound
by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 11, unless Indemnitee makes a misstatement of a material fact, or omits a material fact necessary to make Indemnitee’s statement not
materially misleading, in connection with the request for indemnification. 
  
 11.5 If Indemnitee seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, under this Section 11, then Indemnitee will be
entitled to recover from the Company, and will be indemnified by the Company for, any and all Expenses actually and reasonably incurred by him in such judicial adjudication or arbitration. If it is determined in such judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration will be appropriately
prorated. 
  

 7 

 12. Defense of the Underlying Proceeding. 
  
 12.1 Indemnitee must notify the Company promptly upon being
served with or receiving any summons, citation, subpoena, complaint, indictment, information, notice, request or other document relating to any Proceeding that may result in the right to indemnification or the advance of Expenses hereunder. However,
the failure to give any such notice will not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to
defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is actually so prejudiced. 
  
 12.2 Subject to the provisions of the last sentence of this
Section and of Section 12.3, the Company will have the right to defend Indemnitee in any Proceeding that may give rise to indemnification hereunder. However, the Company must notify Indemnitee of any such decision to defend within 15 calendar
days following receipt of notice of any such Proceeding under Section 12.1. The Company may not, without the prior written consent of Indemnitee, which may not be unreasonably withheld or delayed, consent to the entry of any judgment against
Indemnitee, or enter into any settlement or compromise that (A) includes an admission of Indemnitee’s fault or (B) does not include, as an unconditional term, the full release of Indemnitee from all liability in respect of such Proceeding. Such
release must be in form and substance reasonably satisfactory to Indemnitee. This Section 12.2 does not apply to a Proceeding brought by Indemnitee under Section 11 or Section 18. 
  
 12.3 Indemnitee will be entitled to representation by
separate legal counsel of Indemnitee’s choice, subject to the Company’s prior approval, which may not be unreasonably withheld, at the expense of the Company, in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s
Corporate Status, in the following circumstances: 
  
 A. Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval may not be unreasonably withheld, that he may have separate defenses or counterclaims to assert with respect to any issue that may
not be consistent with other defendants in such Proceeding; 
  
 B. Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval may not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of
interest exists between Indemnitee and the Company; 
  
 C. If the Company fails to assume the defense of such Proceeding in a timely manner; or 
  
 D. If the Company fails to comply with any of its obligations under this Agreement or the Company or any other person takes any action to
declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee under this Agreement. 
  

 8 

 13. Non-Exclusivity; Survival of Rights; Subrogation; Insurance. 
  
 13.1 The rights of indemnification and advance of Expenses
provided by this Agreement will not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to
vote generally in the election of directors or of the Board of Directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof may limit or restrict any right of Indemnitee under this Agreement in respect of
any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. 
  
 13.2 If any payment is made under this Agreement, the Company will be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who will execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. 
  
 13.3 The Company will not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

  
 14. Insurance. The Company will use its reasonable best
efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors of the Company, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee for service as a
director or officer of the Company and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee for service as a director or officer of the Company. Without limiting
any other obligation under this Agreement, the Company will indemnify Indemnitee for any payment by Indemnitee arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines,
settlements and reasonable Expenses actually and reasonably incurred by Indemnitee in connection with a Proceeding over the coverage of any insurance referred to in the previous sentence. 
  
 15. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, if Indemnitee
is or may be, by reason of his Corporate Status, a witness in any Proceeding, whether instituted by the Company or any other party, and to which Indemnitee is not a party but in which the Indemnitee receives a subpoena to testify, he will be
advanced all reasonable Expenses and indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. 
  
 16. Duration of Agreement; Binding Effect. 
  
 16.1 This Agreement will terminate 10 years after the date that Indemnitee’s Corporate Status ceases. However, the rights of
Indemnitee hereunder will continue until the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights 

  

 9 

 
of indemnification or advance of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 11 of this Agreement relating
thereto. 
  
 16.2 The indemnification and advance
of Expenses provided by, or granted under, this Agreement will be binding upon and enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially all of the business or assets of the Company). The indemnification and advance of Expenses will continue as to an Indemnitee who has ceased to be a director, trustee, officer, employee or agent of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the written request of the Company, and will inure to the benefit of Indemnitee and his spouse, assigns, heirs,
devisees, executors and administrators and other legal representatives. 
  
 16.3 The Company will require and cause any successor to all, substantially all or a substantial part, of the business and/or assets of the Company – whether direct or indirect by purchase, merger, consolidation
or otherwise – to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Such assumption by any successor must be in
writing in form and substance satisfactory to Indemnitee. 
  
 17. Severability. If any provision or provisions of this Agreement are held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) will not in
any way be affected or impaired thereby. To the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) will be construed so as to give effect to the intent manifested thereby. 
  
 18. Exception to Right of Indemnification or Advance of Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
will not be entitled to indemnification or advance of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, unless: 
  
 A. The Proceeding is brought to enforce indemnification under this Agreement, and then only to the extent in accordance with and as
authorized by Sections 8 and 11 of this Agreement; or 
  
 B. The Company’s Bylaws, the Charter, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to
which the Company is a party expressly provide otherwise. 
  
 19.
Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will 

  

 10 

 
constitute one and the same Agreement. One such counterpart signed by the party against whom enforceability is sought will be sufficient to evidence the
existence of this Agreement. 
  
 20. Headings. The headings
of the paragraphs of this Agreement are inserted for convenience only and will not be deemed to constitute part of this Agreement or to affect the construction thereof. 
  
 21. Modification and Waiver. No supplement, modification or amendment of this Agreement will be binding unless
executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement will be deemed or constitute a waiver of any other provisions hereof (whether or not similar), nor will such waiver constitute a continuing
waiver. 
  
 22. Notices. Addresses for notice to either
party are as shown on the signature pages of this Agreement, or as later modified by written notice. All notices, requests, demands and other communications hereunder must be in writing and will be deemed to have been duly given if: 
  
 A. Delivered by hand and receipted for by the party to whom
said notice or other communication has been directed; or 
  
 B. Mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed. 
  
 23. Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules. 
  
 24. Miscellaneous. Use of the masculine pronoun will be deemed to include usage of the feminine pronoun where appropriate. 
  
 [SIGNATURE PAGE FOLLOWS] 
  

 11 

 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above
written. 
  

							
	ATTEST:	  	AAMES INVESTMENT CORPORATION,	  	 
	 	  	a Maryland corporation	  	 
	 	  	 	 	 	  	 
	 	  	 	 	 	  	 
	 	  	By:	 	 	  	(SEAL)
	 	  	Name:	  	 
	 	  	Title:	  	 
	 	  	 	 	 	  	 
	 	  	 	 	 	  	 
	 WITNESS:
	  	INDEMNITEE:	  	 
	 	  	 	 	 	  	 
	 	  	 	 	 	  	 
	 	  	 	 	 	  	 
	 	  	Name:	  	 
	 	  	Address:	  	 

  

 12 

 EXHIBIT A 
  

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED 
  
 The Board of Directors of Aames Investment Corporation 
 Re: Undertaking to Repay Expenses Advanced 
  
 Ladies and Gentlemen: 
  
 This undertaking is being provided pursuant to that certain Indemnification Agreement dated the      day of
                        , 2004, by and between Aames Investment Corporation (the “Company”) and the undersigned
Indemnitee (the “Indemnification Agreement”), pursuant to which I am entitled to advance of expenses in connection with [Description of Proceeding] (the “Proceeding”). 
  
 Terms used herein and not otherwise defined have the meanings specified in
the Indemnification Agreement. 
  
 I am subject to the Proceeding
by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity. I hereby affirm that at all times, insofar as I was involved as [a director] [an officer] of the Company, in any of the facts or
events giving rise to the Proceeding, I (1) acted in good faith and honestly, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that
any act or omission by me was unlawful. 
  
 In consideration of
the advance of Expenses by the Company for reasonable attorneys’ fees and related expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is
established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal
benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I must promptly reimburse the portion of the Advanced Expenses relating to the
claims, issues or matters in the Proceeding as to which the foregoing findings have been established and which have not been successfully resolved as described in Section 7 of the Indemnification Agreement. To the extent that Advanced
Expenses do not relate to a specific claim, issue or matter in the Proceeding, I agree that such Expenses will be allocated on a reasonable and proportionate basis. 
  
 IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this      day of
                        , 200  . 
  
  

			
	 WITNESS:
  
                                       
                          
	  	                                      
                                  (SEAL)

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