<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Confidential, for Use of the
[X] Preliminary Proxy Statement Commission Only (as Permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
drugstore.com, inc.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LOGO OF DRUGSTORE.COM]
, 2000
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
drugstore.com, inc., a Delaware corporation, to be held on ,
, 2000 at 9:00 AM Pacific time, at .
At the special meeting, you will be asked to consider and vote upon a
proposal to approve the conversion by the holders of shares of our outstanding
Series 1 preferred stock into shares of our common stock.
The attached Proxy Statement presents the details of this proposal.
Our board of directors has unanimously approved this proposal and recommends
that you vote FOR the proposal's approval and adoption.
Your participation and vote is important. The adoption of the proposal to
approve the conversion of our Series 1 preferred stock to common stock will
not be effected without the affirmative vote of at least a majority of the
outstanding common stock present, in person or by proxy, and voting at the
special meeting.
For further information regarding the matters to be voted on at the special
meeting, I urge you to carefully read the accompanying Proxy Statement, dated
, 2000. If you have more questions about these proposals or would
like additional copies of the Proxy Statement, you should contact David E.
Rostov, Chief Financial Officer of drugstore.com, inc., 13920 Southeast
Eastgate Way, Suite 300, Bellevue, Washington 98005; telephone: (425) 372-
3200. Even if you plan to attend the special meeting in person, please
complete, sign, date, and promptly return the enclosed proxy card in the
enclosed postage-prepaid envelope. This will not limit your right to attend or
vote at the special meeting.
Sincerely,
/s/ Peter M. Neupert
Peter M. Neupert
Chairman of the Board, President and
Chief Executive Officer
The accompanying Proxy Statement is dated , 2000 and is first
being mailed to stockholders on or about , 2000.
<PAGE>
[LOGO OF DRUGSTORE.COM]
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
, 2000
----------------
To the Stockholders of
DRUGSTORE.COM, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of
drugstore.com, inc., a Delaware corporation, will be held on ,
, 2000 at 9:00 AM Pacific time, at for the
following purposes:
1. To consider and act upon a proposal for the conversion by the holders of
shares of our outstanding Series 1 preferred stock into shares of our
common stock.
2. To transact such other business as may properly come before the special
meeting and any adjournment(s) thereof.
Our board of directors has no knowledge of any other business to be
transacted at the special meeting.
Only stockholders of record at the close of business on , 2000
are entitled to notice of and to vote at the special meeting and at any
adjournments thereof.
All stockholders are cordially invited to attend the special meeting in
person. However, to ensure your representation at the special meeting, you are
urged to complete, sign, date and return the enclosed proxy card as promptly
as possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the special meeting may vote in person, even though the
stockholder has previously returned a proxy.
By Order of the Board of Directors
of drugstore.com, inc.
/s/ Mark L. Silverman
Mark L. Silverman
Vice President, Business Development
and Secretary
Bellevue, Washington
, 2000
YOUR VOTE IS IMPORTANT
In order to ensure your representation at the special meeting, you are
requested to complete, sign and date the enclosed proxy as promptly as
possible and return it in the enclosed envelope.
<PAGE>
[LOGO OF DRUGSTORE.COM]
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
To be held on , , 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
General
This Proxy Statement is being furnished by our board of directors to holders
of our common stock, par value $0.0001 per share, in connection with the
solicitation of proxies by our board of directors for use at a special meeting
of our stockholders to be held on , , 2000 at 9:00 AM
Pacific time, at and at any adjournment or postponement
of the special meeting. The purposes of the special meeting are set forth in
this Proxy Statement and in the accompanying Notice of Special Meeting of
Stockholders.
At the special meeting, the holders of our common stock will consider and
vote upon the conversion by holders of shares of our outstanding Series 1
preferred stock, par value $.0001 per share, into shares of our common stock.
The proposal is referred to in this Proxy Statement as the "Proposal." In
addition, at the special meeting, the holders of our common stock will be
asked to consider and to vote upon such other business as may properly come
before the special meeting or any postponement or adjournment thereof.
Our complete mailing address is drugstore.com, inc., 13920 Southeast
Eastgate Way, Suite 300, Bellevue, Washington 98005, and our telephone number
is (425) 372-3200.
This Proxy Statement and the accompanying form of proxy are first being
mailed to our stockholders on or about , 2000.
Stockholders Entitled to Vote; Vote Required
Our board of directors has fixed the close of business on , 2000
as the record date for the determination of the stockholders entitled to
notice of and to vote at the special meeting. Accordingly, only holders of
record on the record date will be entitled to notice of, and to vote at, the
special meeting. As of the record date, there were outstanding and entitled to
vote shares of our common stock, constituting all of our voting
stock. As of the record date, there were approximately holders of
record of our common stock. Each holder of record of our common stock on the
record date is entitled to one vote per share, which may be cast either in
person or by properly executed proxy, at the special meeting. The Proposal
requires the affirmative vote of a majority of the outstanding shares present
at the meeting and entitled to vote for approval. A complete list of
stockholders entitled to vote at the special meeting will be available for
inspection by any stockholder for any purpose germane to the special meeting
for 10 days prior to the special meeting during ordinary business hours at our
headquarters located at 13920 Southeast Eastgate Way, Suite 300, Bellevue,
Washington 98005. The presence, in person or by properly executed proxy, of
the holders of a majority of the outstanding shares of our common stock
entitled to vote at the special meeting is necessary to constitute a quorum at
the special meeting.
Shares of our common stock represented in person or by proxy will be counted
for the purpose of determining whether a quorum is present at the special
meeting. Shares that abstain from voting, and shares held in a street name by
a broker nominee who indicates on a proxy that it does not have discretionary
authority to vote as to a particular matter ("Broker Non-Votes"), will be
treated as shares that are present and entitled to vote at the special meeting
for purposes of determining whether a quorum exists. Abstentions will be
treated as votes AGAINST the Proposal. Broker Non-Votes will not be considered
as shares entitled to vote on a particular matter and, accordingly, will have
no effect on the outcome of the vote with respect to the Proposal.
<PAGE>
Proxies
This Proxy Statement is being furnished to you in connection with the
solicitation of proxies by, and on behalf of, our board of directors for use
at the special meeting, and is accompanied by a form of proxy. Proxies may be
submitted by U.S. mail.
All shares of our common stock that are entitled to vote and are represented
at the special meeting by properly executed proxies received prior to or at
the special meeting, and not revoked, will be voted at the special meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated (other than in the case of Broker Non-Votes), such proxies will
be voted as recommended by our board of directors.
If any other matters are properly presented at the special meeting for
consideration, including, among other things, consideration of a motion to
adjourn such special meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies), the persons
named in the enclosed form of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with our Secretary, at or before the taking of the vote at the special
meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a letter and delivering it to us before the taking of the
vote at the special meeting or (iii) attending the special meeting and voting
in person (although attendance at the special meeting will not in and of
itself constitute a revocation of the proxy). Any written notice of revocation
or subsequent proxy should be sent to drugstore.com, inc., 13920 Southeast
Eastgate Way, Suite 300, Bellevue, Washington 98005, Attention: Secretary, or
hand delivered to our Secretary at or before the taking of the vote at the
special meeting.
We will pay the cost of soliciting proxies. In addition to solicitation by
use of the mails, proxies may be solicited from our stockholders by our
directors, officers and employees in person or by telephone, telegram or other
means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation. Arrangements will be made with
brokerage houses, custodians, nominees and fiduciaries for forwarding of proxy
materials to beneficial owners of shares held of record by such brokerage
houses, custodians, nominees and fiduciaries and for reimbursement of their
reasonable expenses incurred in connection therewith. We estimate that the
total amount to be spent in connection with solicitation of proxies will be
$ of which approximately $ has been spent as of the date of
this Proxy Statement.
PROPOSAL
We are seeking the approval of holders of our common stock for the
conversion by the holders (including one of our directors and certain entities
that are affiliates of our directors) of our outstanding Series 1 preferred
stock into shares of our common stock.
Background
Private Placement of Series I Preferred Stock.
On August 4, 2000, we consummated a private placement of our Series 1
preferred stock. This transaction consisted of the sale of an aggregate of
$22,682,825 of our Series 1 preferred stock to Kleiner Perkins Caufield &
Byers VIII, L.P., KPCB Founders Fund VIII, L.P., L. John Doerr and Vulcan
Ventures Incorporated. The sale of 45,939.89 shares of newly-issued Series 1
preferred stock was made under a preferred stock purchase agreement dated July
30, 2000 with these investors and was exempted from registration by using
Section 4(2) of the Securities Act of 1933. A copy of the preferred stock
purchase agreement is attached as Appendix A to this Proxy Statement.
The purchase price for each share of Series 1 preferred stock sold under the
preferred stock purchase agreement was $493.75 per share, which was equal to
100 times the closing price on The Nasdaq Stock Market
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<PAGE>
for our common stock on the last business day prior to July 30, 2000. The
preferred stock purchase agreement and the certificate of designation for the
Series 1 preferred stock provide that the Series 1 preferred stock will
automatically convert into 100 shares of our common stock (as adjusted for
stock splits, stock dividends, recapitalization or other similar events
occurring after August 4, 2000) upon the receipt of the approval of our
stockholders that is being sought by this Proxy Statement. If the required
approval of holders of our common stock is not received by May 1, 2001, we
will be required to make a cash repurchase of all shares of our Series 1
preferred stock from its holders. The terms of our Series 1 preferred stock
are summarized in detail in "Proposal--Terms of Series 1 Preferred Stock" in
this Proxy Statement, and a copy of the certificate of designation for the
Series 1 preferred stock is attached as Appendix B to this Proxy Statement.
The section of this Proxy Statement entitled "Security Ownership of Certain
Beneficial Owners and Management Stock Ownership of Directors and Executive
Officers" details the total number of shares of our common stock held by each
purchaser of our Series 1 preferred stock as of September 5, 2000. Each of
these investors, except L. John Doerr, directly held shares of our common
stock prior to their acquisition of our Series 1 preferred stock. L. John
Doerr is one of our directors, and is affiliated with both Kleiner Perkins
Caufield & Byers VIII and KPCB Founders Fund VIII. Our director William D.
Savoy is president of Vulcan Ventures.
Private Placement of Common Stock.
In addition to the private placement of our Series 1 preferred stock
described above, we also executed a private placement of $39,999,990.98 of our
common stock on August 4, 2000. This private placement was made to four
entities affiliated with Integral Capital Partners, three entities affiliated
with Baron Funds, Hearst Communications, Inc., Amazon.com, Inc. and Maveron
Equity Partners, L.P. As provided in the common stock purchase agreement that
we entered into on July 30, 2000, these investors purchased an aggregate of
8,101,264 newly-issued shares of our common stock. The purchase price was
$4.9375 per share of common stock, which was the closing price on The Nasdaq
Stock Market for our common stock on the last business day prior to the date
of the common stock purchase agreement. A copy of the common stock purchase
agreement is attached as Appendix C to this Proxy Statement. The transaction
was not registered because it was within the scope of the exemption from
registration contained in Section 4(2) of the Securities Act of 1933. The
total number of shares of our capital stock held by each investor as of
September 5, 2000 is set out in "Security Ownership of Certain Beneficial
Owners and Management Stock Ownership of Directors and Executive Officers" in
this Proxy Statement.
Principal Reasons for Private Placements; Use of Proceeds.
We entered into the preferred stock purchase agreement and common stock
purchase agreement as part of our normal activities to finance our operations.
We are an early stage company in a new market and expect continuing losses for
the foreseeable future. We believe that the net proceeds from the sale of our
capital stock under the preferred stock purchase agreement and the common
stock purchase agreement, together with existing cash, cash equivalents and
marketable securities will be sufficient to meet our anticipated needs for
working capital and capital expenditures into the fourth quarter of 2001.
However, any projections of future cash needs and cash flows are subject to
substantial uncertainty. If current cash, cash equivalents and marketable
securities are insufficient to satisfy our liquidity requirements, we may seek
to sell additional equity or debt securities, or to obtain credit facilities
from lenders. We intend to use the proceeds received from the August 4, 2000
capital stock issuance for general corporate purposes.
Reason for the Proposal
The terms of the common stock purchase agreement and the preferred stock
purchase agreement require us to seek the approval of our stockholders for the
conversion of our outstanding Series 1 preferred stock into shares of our
common stock.
Our board of directors has the authority, without action by our
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. Under the
Delaware general corporation law, and our certificate of incorporation and
bylaws, no action or authorization by our stockholders is necessary for the
conversion of the Series 1 preferred stock as described in the Proposal.
However, because our common stock is
3
<PAGE>
quoted on The Nasdaq Stock Market, we are subject to the rules of the National
Association of Securities Dealers, Inc., which is referred to in this Proxy
Statement as the "NASD".
NASD rule 4460(i) requires us to obtain stockholder approval before issuing
twenty percent or more of our voting common stock in a private placement
transaction at below the greater of its market value or book value without
first obtaining stockholder approval. The common stock issued upon conversion
of the Series 1 preferred stock, together with the 8,101,264 shares of common
stock issued and sold in the August 4, 2000 private placement of our common
stock, represents approximately 24% of our outstanding common stock, based on
the 53,081,644 shares of common stock outstanding as of August 3, 2000. These
shares of common stock were sold for market value, which was the last closing
price on The Nasdaq Stock Market prior to the date the contract was entered
into, and the price paid for the shares of Series 1 preferred stock was the
same as market value on an as-converted to common stock basis. However, the
book value of our common stock as of August 4, 2000 was $7.72 per share. Thus,
stockholder approval is required by this NASD rule.
Potential Dilution to Existing Stockholders; Impact on Market Value of Common
Stock
The conversion of the Series 1 preferred stock, taken together with the
issuance of the common stock sold under the common stock purchase agreement,
would cause dilution to the voting power, earnings per share and interests of
current stockholders. In addition, the sale of a significant number of shares
of this common stock could cause a decline in the market value of the common
stock
Consequences if the Proposal is not approved
In the event the Proposal is not approved by a majority of the outstanding
common stock present, in person or by proxy, and voting at the special
meeting, or any adjournment or postponement of the special meeting, prior to
May 1, 2001, we will be required to repurchase all the outstanding shares of
Series 1 preferred stock. The purchase price for the Series 1 preferred stock
must be paid in cash and will be the then-current market price of our common
stock, treating the Series 1 preferred stock on an as-converted to common
stock basis. (See "Proposal--Terms of Series 1 Preferred Stock"). In light of
the repurchase obligation, failure to obtain stockholder approval of the
Proposal would adversely affect our financial position, and could cause us to
forego opportunities for expansion.
The market price of our common stock has been and is likely to continue to
be extremely volatile. Our stock price could be subject to wide fluctuations
in response to a number of factors, some of which are beyond our control. We
are unable to determine what the market price of our common stock will be at
the time of our repurchase of the Series 1 preferred stock in the event our
stockholders do not approval the Proposal.
Terms of Series 1 Preferred Stock
The following is a summary of certain material terms of the certificate of
designation for the Series 1 preferred stock and the preferred stock purchase
agreement. This summary does not purport to be complete and is qualified in
its entirety by reference to the preferred stock purchase agreement which is
attached as Appendix A to this Proxy Statement and the certificate of
designation which is attached as Appendix B to this Proxy Statement.
Purchase Price.
Under the preferred stock purchase agreement, an aggregate of 45,939.89
shares of Series 1 preferred stock were sold to a total of four investors at a
purchase price of $493.75 per share. This price was determined using the last
closing price on The Nasdaq Stock Market for our common stock prior to the
date of the preferred stock purchase agreement, treating the Series 1
preferred stock on an as-converted to common stock basis.
Conversion Rights.
As provided in the preferred stock purchase agreement and the certificate of
designation for the Series 1 preferred stock, if the holders of our common
stock approve the Proposal and the conversion of the Series 1 preferred stock
by May 1, 2001, each share of the Series 1 preferred stock will immediately be
converted into
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<PAGE>
100 shares of our common stock, subject to adjustment for stock splits, stock
dividends, recapitalization or other similar events occurring after August 4,
2000.
Mandatory Repurchase of Series 1 Preferred Stock.
In the event our stockholders have not approved the Proposal and the
conversion of the Series 1 preferred stock into common stock by May 1, 2001,
we will be required under the certificate of designation to repurchase all the
outstanding shares of Series 1 preferred stock. The purchase price for each
share of the Series 1 preferred stock will be the then-current market price of
our common stock, with the Series 1 preferred stock treated on an as-converted
to common stock basis. The conversion rate shall be 100 shares of common stock
per share of Series 1 preferred stock, subject to adjustment for stock splits,
stock dividends, recapitalization or other similar events occurring after
August 4, 2000. The purchase price must be paid by us in cash. If we do not
have enough cash legally available to purchase all of the Series 1 preferred
stock, we must repurchase as many shares as possible at that time. The
remaining shares of Series 1 preferred stock will remain outstanding until the
first date that we have funds available to purchase the still-outstanding
Series 1 preferred stock.
Voting rights.
The holders of our Series 1 preferred stock have no voting rights except as
may be required by law.
Distributions, Reorganization and Liquidation.
Holders of our Series 1 preferred stock are not entitled to receive
dividends unless dividends are declared on our common stock. If dividends are
declared on our common stock, each share of our Series 1 preferred stock will
receive the same amount of dividends, on an as-converted basis, as is received
by each share of our common stock. In the event of our liquidation,
dissolution or winding up, the holders of our Series 1 preferred stock,
subject to the rights of any holders of any other preferred stock we may have
outstanding, are entitled to receive a liquidation preference of $5.00 per
share, and following payment of the liquidation preference, are entitled to
share ratably on an as-converted to common stock basis in all of our remaining
assets. Any sale of all or substantially all of our assets will be treated as
a liquidation, unless the sale is approved by holders of 67% of the Series 1
preferred stock. In the event of certain mergers or reorganizations involving
a change of control of us, holders of our Series 1 preferred stock shall
receive the same consideration from such transaction as is received by holders
of our common stock, on an as-converted to common stock basis.
Preemptive and Other Rights.
Our Series 1 preferred stock has no preemptive or other subscription rights.
There are no redemption or sinking fund provisions applicable to our Series 1
preferred stock.
Registration Rights.
In the common stock purchase agreement and the preferred stock purchase
agreement, we agreed to file a shelf registration statement covering the
resale of our common stock sold under the common stock purchase agreement and
the common stock issuable if the outstanding Series 1 preferred stock is
converted. We must keep the registration statement effective until 18 months
after the effective date of the registration statement, or, if earlier, the
date that all of the common stock covered by the registration statement has
been sold.
Voting Agreements
The purchasers of our Series 1 preferred stock under the preferred stock
purchase agreement, and the purchasers of our common stock under the common
stock purchase agreement, entered into voting agreements with 24 parties
identified on Appendix D-1 as of August 4, 2000. Each of these holders has
agreed to vote at the special meeting all of the shares of our common stock
they hold for approval and adoption of the Proposal. As of the date hereof,
the shares subject to the voting agreement represent approximately 74% of our
outstanding common stock as of September 5, 2000.
A form of the voting agreements is attached as Appendix D-2 to this Proxy
Statement. The summary of the voting agreements set forth in this Proxy
Statement does not purport to be complete and is subject to, and qualified in
its entirety by, the text of the actual voting agreements.
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<PAGE>
No Appraisal Rights
Under Delaware law, objecting stockholders will have no appraisal,
dissenters' or similar rights (i.e., the right to seek a judicial
determination of the "fair value" of our common stock and to compel us to
purchase their common stock for cash in that amount) with respect to the
Proposal. Thus, approval by the requisite number of shares of the matters
presented at the special meeting will bind all stockholders and objecting
stockholders will be able to liquidate their common stock only by selling it
in the market.
Board of Directors Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL.
ABSTENTIONS AND BROKER NON-VOTES WILL HAVE NO EFFECT ON THE OUTCOME OF THE
PROPOSAL. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED "FOR" THE PROPOSAL. THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES PRESENT AT THE
SPECIAL MEETING AND ENTITLED TO VOTE IS REQUIRED FOR APPROVAL OF THE PROPOSAL.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 5, 2000 by:
. each stockholder known by us to own beneficially more than 5% of our
common stock;
. each director;
. the Chief Executive Officer and the three other highest paid executive
officers; and
. all directors and executive officers as a group.
As of September 5, 2000, we had 61,169,207 shares of common stock
outstanding and 272 stockholders of record. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are currently exercisable or will become
exercisable within 60 days after September 5, 2000 are deemed outstanding,
while such shares are not deemed outstanding for purposes of computing the
ownership percentage of any other person. Unless otherwise indicated in the
footnotes below, the persons and entities named in the table have sole voting
and investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. The address for individuals that
beneficially own 5% or more of our common stock is the same as the address of
the entity affiliated with such individual indicated in the applicable
footnote.
<TABLE>
<CAPTION>
Percentage of Percentage of
Number of Shares of Common Stock Number of Shares of Common Stock
Common Stock Beneficially Owned Common Stock Beneficially Owned
(excludes common stock (excludes common stock (includes common stock (includes common stock
issuable upon issuable upon issuable upon issuable upon
conversion of Series 1 conversion of Series 1 conversion of Series 1 conversion of Series 1
Name and Address of preferred stock) preferred stock) preferred stock) preferred stock)
Beneficial Owner (a) (a) (b) (b)
------------------- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Amazon.com, Inc.(1)..... 15,463,339 24.3% 15,463,339 22.7%
1516 2nd Avenue
Seattle, WA 98101
Rite Aid
Corporation(2)......... 9,334,746 15.3% 9,334,746 14.2%
30 Hunter Lane
Camp Hill, PA 17011
Kleiner Perkins Caufield
& Byers(3)............. 7,033,271 11.5% 10,071,245 15.3%
2750 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
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<TABLE>
<CAPTION>
Percentage of Percentage of
Number of Shares of Common Stock Number of Shares of Common Stock
Common Stock Beneficially Owned Common Stock Beneficially Owned
(excludes common stock (excludes common stock (includes common stock (includes common stock
issuable upon issuable upon issuable upon issuable upon
conversion of Series 1 conversion of Series 1 conversion of Series 1 conversion of Series 1
Name and Address of preferred stock) preferred stock) preferred stock) preferred stock)
Beneficial Owner (a) (a) (b) (b)
------------------- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Peter M. Neupert(4).... 2,185,650 3.6% 2,185,650 3.3%
13920 Southeast
Eastgate Way, Suite
300
Bellevue, WA 98005
Jeffrey P. Bezos(1).... 15,463,339 24.3% 15,463,339 22.7%
Brook H. Byers(3)...... 7,033,271 11.5% 10,071,245 15.3%
L. John Doerr(3)....... 7,033,271 11.5% 11,083,903 16.9%
Melinda French
Gates(5).............. 12,500 * 12,500 *
Mary Sammons (6)....... 9,334,746 15.3% 9,334,746 14.2%
William Savoy(7)....... 2,276,289 3.7% 2,819,646 4.3%
Howard Schultz(8)...... 1,592,246 2.6% 1,592,246 2.4%
Kal Raman(9)........... 161,570 * 161,570 *
David E. Rostov(10).... 101,489 * 101,489 *
Mark L. Silverman(11).. 105,753 * 105,753 *
All directors and
executive officers as
a group (12
persons)(12).......... 38,331,442 59.6% 42,925,431 62.3%
</TABLE>
-------
* Less than 1%
(a) Does not include as outstanding any shares of common stock issuable upon
conversion of our Series 1 preferred stock upon the receipt of the
approval of our stockholders that is being sought by this Proxy
Statement.
(b) Includes as outstanding all shares of common stock issuable upon
conversion of our Series 1 preferred stock upon the receipt of the
approval of our stockholders that is being sought by this Proxy
Statement.
(1) Includes 1,066,667 shares of common stock issued and sold to Amazon.com,
Inc. on January 24, 2000, 2,500,000 shares of common stock subject to a
warrant exercisable within 60 days of August 8, 2000 issued to
Amazon.com, Inc. on July 30, 2000 and 607,594 shares of common stock
issued and sold to Amazon.com, Inc. on August 4, 2000, in private
placement transactions. Amazon.com, Inc. subsequently transferred 607,594
shares of its common stock to its wholly owned subsidiary Amazon.com NV
Investment Holdings, Inc. Jeffrey P. Bezos is a director of drugstore.com
and is the Chairman of the Board and Chief Executive Officer of
Amazon.com, Inc.
(2) Consists of shares held by Rite Investments Corp., a wholly-owned
subsidiary of Rite Aid Corporation. Under the terms of the Third Amended
and Restated Voting Agreement dated June 17, 1999, Rite Aid has the right
to nominate one member to our board of directors.
(3) Consists of 6,313,633 shares of common stock held by Kleiner Perkins
Caufield & Byers VIII, L.P. ("KPCB VIII"), 365,600 shares of common stock
held by KPCB VIII Founders Fund, L.P., 351,538 shares of common stock
held by KPCB Life Sciences Zaibatsu Fund II, L.P. and 2,500 shares of
common stock held by KPCB IX Associates, L.P. KPCB VIII and KPCB VIII
Founders Fund, L.P. are wholly controlled by KPCB VIII Associates, L.P.
KPCB Life Sciences Zaibatsu Fund II, L.P. is wholly controlled by KPCB
VII Associates, L.P. Also includes shares of Series 1 preferred stock
issued and sold in a private placement on August 4, 2000 as follows:
28,715.70 shares were issued to KPCB VIII and 1,664.04 shares were issued
to KPCB VIII Founders Fund, L.P. Mr. Doerr's shares also include
10,126.58 shares of Series 1 preferred stock issued and sold to him in a
private placement on August 4, 2000. Brook H. Byers and L. John Doerr,
each a general partner of KPCB VIII Associates and KPCB VII Associates,
L.P., are both directors of drugstore.com. Mr. Byers and Mr. Doerr each
disclaim beneficial ownership of shares held by these entities except to
the extent of his pecuniary interest in those shares.
(4) As of September 5, 2000, 577,500 of such shares are subject to a right of
repurchase at cost in the event Peter M. Neupert ceases to be an employee
of drugstore.com. Mr. Neupert's shares of common stock are held jointly
by Mr. Neupert and Sheryl Neupert. Includes 312,504 shares subject to
options exercisable within 60 days of September 5, 2000.
(5) Consists of 12,500 shares subject to options exercisable within 60 days
of September 5, 2000.
(6) Consists of shares held by Rite Investments Corp., a wholly-owned
subsidiary of Rite Aid Corporation. Mary Sammons is the President and
Chief Operating Officer of Rite Aid Corporation.
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(7) Includes 2,266,289 shares of common stock held by Vulcan Ventures
Incorporated ("Vulcan Ventures"). Also includes 5,433.57 shares of Series
1 preferred stock issued and sole to Vulcan Ventures on August 4, 2000.
William D. Savoy is a director of drugstore.com and is the president of
Vulcan Ventures, a venture capital firm wholly-owned by Paul Allen. Mr.
Savoy disclaims beneficial ownership of shares held by Vulcan Ventures
except to the extent of his pecuniary interest in those shares.
(8) Includes 405,063 shares of common stock issued and sold to Maveron Equity
Partners, L.P. on August 4, 2000 in a private placement. Howard Schultz
is a director of drugstore.com and one of two founding members of Maveron
LLC and is one of two members of a limited liability company that serves
as a general partner of its affiliated venture capital fund, Maveron
Equity Partners, L.P. Mr. Schultz disclaims beneficial ownership of
shares held by these entities except to the extent of his pecuniary
interest in those shares.
(9) Includes 161,570 shares subject to options exercisable within 60 days of
September 5, 2000.
(10) Includes 1,000 shares held by Mr. Rostov as custodian for his two
children and 72,501 shares subject to options exercisable within 60 days
of September 5, 2000.
(11) Includes 70,501 shares subject to options exercisable within 60 days of
September 5, 2000.
(12) Includes 685,828 shares subject to options and 2,500,000 shares subject
to a warrant held by the directors and officers exercisable within 60
days of September 5, 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to our initial public offering, we issued and sold shares of our
capital stock as follows: a total of 2,265,000 shares of common stock at a
price of $.04 per share in June, July and August 1998, a total of 10,000,000
shares of Series A preferred stock at a price of $.80 per share in June and
August 1998, a total of 5,446,268 shares of Series B preferred stock at a
price of $3.35 per share in October, November and December 1998, a total of
4,472,844 shares of Series C preferred stock at a price of $7.825 per share in
January and March 1999, a total of 2,266,289 shares of Series D preferred
stock at a price of $17.65 per share in June 1999, a total of 12,282,599
shares of Series E preferred stock in July 1999. All shares of our preferred
stock were converted into common stock on a 1-for-1 basis upon the closing of
our initial public offering. In addition, concurrently with our initial public
offering, we issued and sold 555,555 shares of our common stock to Amazon.com,
Inc. in a private placement transaction at the initial public offering price
of $18 per share, and on January 24, 2000, we issued and sold 1,066,667 shares
of our common stock to Amazon.com in a private placement transaction at a
price of $28.125 per share. After our initial public offering, on August 4,
2000, we sold a total of 8,101,264 shares of our common stock in a private
placement at $4.9375 per share, the closing price for our common stock on The
Nasdaq Stock Market on the last business day prior to July 30, 2000. We also
issued and sold on August 4, 2000, a total of 45,939.89 shares of our Series 1
preferred stock for a purchase price of $493.75 per share, or, on an as-
converted to common stock basis, $4.9375 per share of common stock. The
following table summarizes the shares of capital stock purchased by executive
officers, directors and five-percent stockholders and their affiliates in
these transactions:
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E Series 1
Common Preferred Preferred Preferred Preferred Preferred Preferred
Investor Stock Stock Stock Stock Stock Stock Stock
-------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Kleiner Perkins Caufield
& Byers(2)(3).......... -- 4,937,500 1,582,089 511,182 -- -- 30,379.74
L. John Doerr........... -- 4,937,500 1,582,089 511,182 -- -- 10,126.58
Amazon.com,Inc.(2)(4)... 2,229,816 5,000,000 3,177,612 2,555,911 -- -- --
Maveron Equity Partners,
L.P.(5)................ 405,063 -- 417,910 766,773 -- -- --
Peter M. Neupert(2)(6).. 1,260,000 -- 268,657 319,489 -- -- --
Vulcan Ventures
Incorporated(7)........ -- -- -- -- 2,266,289 -- 5,433.57
Rite Aid
Corporation(2)(8)...... -- -- -- -- -- 9,334,746 --
General Nutrition
Investment Company(9).. -- -- -- -- -- 2,947,853 --
</TABLE>
--------
(1) Shares held by affiliated persons and entities have been added together
for the purposes of this chart.
(2) Holder of 5% or more of a class of our capital stock.
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(3) Includes shares held by Kleiner Perkins Caufield & Byers VIII, L.P. (KPCB
VIII), KPCB VIII Founders Fund, L.P., and KPCB Life Sciences Zaibatsu Fund
II, L.P. KPCB VIII and KPCB VIII Founders Fund, L.P. are wholly controlled
by KPCB VIII Associates, L.P. KPCB Life Sciences Zaibatsu Fund II, L.P. is
wholly controlled by KPCB VII Associates, L.P., Brook H. Byers and L. John
Doerr, each a general partner of KPCB VIII Associates and KPCB VII
Associates, L.P., are both directors of drugstore.com. Mr. Byers and Mr.
Doerr each disclaim beneficial ownership of shares held by these entities
except to the extent of their pecuniary interest therein. In November
1998, drugstore.com and Kleiner Perkins Caufield & Byers agreed to rescind
the purchase of 89,552 of such shares and refund the $299,999 purchase
price. As a result, after November 1998, Kleiner Perkins Caufield & Byers
held 1,582,089 shares of Series B preferred stock.
(4) In consideration of Amazon.com's obligations under a technology license
and advertising agreement, we issued Amazon.com 5,000,000 shares of our
Series A preferred stock. We issued these shares primarily in exchange for
Amazon.com's early marketing and support efforts in connection with and
after our launch. Jeffrey P. Bezos, Chairman of the Board and Chief
Executive Officer of Amazon.com, became a director of drugstore.com upon
completion of the issuance.
(5) Howard Schultz, a director of drugstore.com, is one of the two founding
members of Maveron LLC, and is one of two members of a limited liability
company that serves as a general partner of its affiliated venture capital
fund, Maveron Equity Partners, L.P.
(6) Mr. Neupert's shares of preferred stock are held jointly by Mr. Neupert
and Sheryl Neupert.
(7) In May 1999, we issued a convertible promissory note convertible into
2,266,289 shares of Series D preferred stock to Vulcan Ventures in
exchange for $40 million in cash and an obligation to provide cable
television advertising valued at $5 million. The note was converted into
2,266,289 shares of Series D preferred stock in June 1999. William D.
Savoy, president of Vulcan Ventures, became a director of drugstore.com in
July 1999.
(8) In July 1999, we issued Rite Aid 9,334,746 shares of Series E preferred
stock for $7.6 million in cash and additional consideration. Mary Sammons,
one of our directors, is the president and chief operating officer of Rite
Aid.
(9) In July 1999, we issued General Nutrition Investment Company, a wholly-
owned subsidiary of General Nutrition Companies, Inc., 2,947,853 shares of
Series E preferred stock for $2.4 million in cash and additional
consideration.
We have entered into the transactions described below with our executive
officers, directors and five-percent stockholders and their affiliates.
Investor Rights Agreement
A provision of the investors' rights agreement dated May 19, 1999 between
drugstore.com and some of our stockholders precludes Kleiner Perkins Caufield
& Byers, Amazon.com and Maveron Equity Partners L.P. from purchasing
additional shares of our common stock without our prior approval if the
purchase would cause any of them to hold individually more than 40% of our
outstanding common stock (calculated on a fully diluted basis to include
outstanding options and shares reserved under our stock plans). This
restriction lasts until August 2002. In a June 17, 1999 addendum, Rite Aid
Corporation and General Nutrition Companies, Inc. ("GNC") were made parties to
this agreement and are subject to its provisions.
Agreement With Vulcan Ventures
In May 1999, we issued a convertible promissory note convertible into
2,266,289 shares of Series D preferred stock to Vulcan Ventures in exchange
for $40 million in cash and an obligation by Vulcan Ventures to provide cable
television advertising valued at $5 million based on comparable transactions
with unaffiliated third parties. The advertising is expected to be aired over
a three-year period and will be expensed in the period in which the airtime is
used. The note was converted into 2,266,289 shares of Series D preferred stock
in June 1999. William D. Savoy, president of Vulcan Ventures, became a
director of drugstore.com in July 1999.
Agreement with Rite Aid
In June 1999, we entered into a strategic relationship with Rite Aid whereby
customers are able to refill prescriptions at our Web site and either use our
standard delivery options or pick up the prescriptions at Rite Aid stores. In
addition, Rite Aid and drugstore.com will promote each other's services both
online and offline,
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including a link from Rite Aid's Web site to our Web site. In addition, we
will participate in substantially all of the retail pharmacy networks managed
by PCS Health Systems, Inc., a wholly-owned subsidiary of Rite Aid. Rite Aid
recently entered into a definitive agreement to sell PCS to Advanced Paradigm.
PCS claims to provide pharmacy benefit management services for more than 50
million individuals in the United States. We have a separate ten-year
agreement with PCS. As part of the relationship, both Rite Aid and
drugstore.com agreed to certain exclusivity provisions that limit our ability
to promote or affiliate with any other physical retail drugstore and from
operating a traditional physical drugstore, and will preclude Rite Aid from
offering or selling products or services on the Internet other than through
our Web site. In addition, the agreement provides that if we establish our own
distribution center, we will purchase all of our pharmaceutical requirements
from Rite Aid. The agreement contains additional provisions providing for the
licensing by Rite Aid to drugstore.com of information technology systems and
the integration of the information technology and pharmacy systems of the two
companies. This agreement extends for ten years, but can be terminated for
breach prior to such time. In connection with this relationship, Rite Aid
acquired 9,334,746 shares of Series E preferred stock (all of which was
converted into common stock at the time of our initial public offering) for
$7.6 million in cash and additional consideration. Under the terms of the
Third Amended and Restated Voting Agreement dated June 17, 1999, Rite Aid has
the right to nominate one member to our board of directors, and Mary Sammons,
Rite Aid's President and Chief Operating Officer, is currently a member of our
board of directors.
Agreement with General Nutrition Companies
In June 1999, we entered into a relationship with GNC whereby we are the
exclusive online provider of GNC-branded products. We have the exclusive right
to sell GNC's nutrition products over the Internet, including the PharmAssure
brand of pharmacist recommended vitamins and nutritional supplements, subject
to our meeting performance parameters based on traffic to our Web site and
sales of GNC's products over the Internet in the third and fifth year of the
relationship. As long as we have the exclusive right to distribute GNC's
products over the Internet, we will not promote any other retail health food
store or operate a physical retail health food store. If the exclusivity
provisions of the agreement terminate, we have the non-exclusive right to sell
these products for the remaining term of the agreement. As part of this
relationship, we have created a separate part of our Web site called the GNC
LiveWell Store, which is dedicated to selling on consignment basis GNC
products. In connection with this relationship, GNC acquired 2,947,853 shares
of our Series E preferred stock (all of which was converted into common stock
at the time of our initial public offering). As part of our relationship with
GNC, GNC and drugstore.com agreed to co-promote each other's products and
services in both their traditional and online marketing efforts, including GNC
putting a link to our Web site on their Web site. The agreement extends for
ten years, but can be terminated for breach prior to such time.
Agreement with Amazon.com
On January 24, 2000, we entered into an agreement with Amazon.com to
integrate various shopping features of our Web sites and create a persistent
drugstore.com shopping presence on Amazon.com's Web site. The agreement also
covers various advertising and cross-promotion initiatives and obligates the
parties to undertake the development of additional features designed to
further integrate their Web sites, including with respect to search and browse
capabilities and a shared shopping basket. We agreed to pay Amazon.com a total
of $105 million over the three-year term of the agreement, of which $30
million was paid at the time the agreement was executed. In July 2000, we and
Amazon.com agreed to reduce the minimum cash payments due over the three-year
term of the agreement from $75.0 million to $30.0 million. Additionally, we
agreed to pay additional amounts in cash if the advertising services exceed
certain performance thresholds in the second and third year of the agreement.
We also issued to Amazon.com a fully vested, nonforfeitable and exercisable
warrant to purchase 2.5 million shares of our common stock at $4.9375 per
share.
Executive Offer Agreements
We have entered into offer letters with several of our executive officers,
including Peter M. Neupert, Judith H. McGarry, Kal Raman and Mark L.
Silverman.
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Loan to Mr. Raman
On December 3, 1998, we loaned $250,000 to Kal Raman, our Senior Vice
President and Chief Operating Officer. In our offer letter to Mr. Raman, we
agreed to guarantee a loan for $250,000, and, in connection with this
obligation, chose to provide the loan directly to Mr. Raman. The loan is with
full recourse and bears interest at 7% and is further secured by the shares
issuable upon exercise of Mr. Raman's stock option. All principal and accrued
interest under the loan remains outstanding and is due and payable on the
earlier of December 3, 1999, or within 15 days after ceasing to provide
substantial services to drugstore.com. Our board of directors has approved the
extension of the term of this loan, and all principal and interest under the
loan remains outstanding and is due and payable on the earlier of December 31,
2000, or within 15 days after Mr. Raman ceases to provide substantial services
to drugstore.com. The highest aggregate amount of principal and interest
outstanding under this loan since December 3, 1998 and through July 2, 2000
was approximately $277,664.
Agreements with Peter Neupert
In the event that drugstore.com merges or is acquired by another company and
Peter M. Neupert is not offered a similar position with similar
responsibilities by the surviving entity, or if the surviving entity's
principal office is located more than 50 miles from his residence, all of Mr.
Neupert's unvested shares will be released from our option to repurchase these
shares.
Common Stock Purchase Agreement and Preferred Stock Purchase Agreement
On July 30, 2000, we entered into the common stock purchase agreement with
four entities affiliated with Integral Capital Partners, three entities
affiliated with Baron Funds, Hearst Communications, Inc., Amazon.com, Inc. and
Maveron Equity Partners, as described under "Proposal--Background--Private
Placement of Common Stock" in this Proxy Statement. On the same date, we also
entered into the preferred stock purchase agreement described under
"Proposal--Background--Private Placement of Series 1 Preferred Stock" in this
Proxy Statement with Kleiner Perkins Caufield & Byers, KPCB Founders Fund
VIII, L. John Doerr and Vulcan Ventures. L. John Doerr is one of our directors
and is affiliated with Kleiner Perkins Caufield & Byers. Our director William
D. Savoy is president of Vulcan Ventures. This sale of 45,939.89 shares of
Series 1 preferred stock was made under a preferred stock purchase agreement
dated July 30, 2000 with these investors and was similarly exempt from
registration by reason of Section 4(2) of the Securities Act. A copy of the
preferred stock purchase agreement is attached as Appendix A to this Proxy
Statement and a copy of the common stock purchase agreement is attached as
Appendix C to this Proxy Statement. The summaries of the preferred stock
purchase agreement and common stock purchase agreement contained in this Proxy
Statement do not purport to be complete and are qualified in their entirety by
reference to Appendices A and C to this Proxy Statement.
Lock-up Agreements
Effective July 30, 2000, we entered into lock-up agreements with most of our
directors and some of our officers who hold common stock, as well as some of
our other stockholders, at the time the common stock purchase agreement and
the preferred stock purchase agreement were signed. Except as set forth below,
these lock-up agreements are in the form attached as Appendix E-1 to this
Proxy Statement. The summary of these lock-up agreements set forth in this
Proxy Statement does not purport to be complete and is subject to, and
qualified in its entirety by, the text of the lock-up agreements. The lock-up
agreements generally provide that commencing July 30, 2000 these stockholders
will not sell or otherwise dispose of any of our common stock (or other
securities convertible into our common stock) that they own. This restriction
will last until 180 days after the effective date of the registration
statement described above under "Proposal--Terms of Series 1 Preferred Stock--
Registration Rights". There are various exclusions to the lock-up including
certain transfers to related entities, affiliates or immediate family members
and transactions involving shares acquired in the open market and certain
exceptions for 1,066,667 shares held by Amazon.com, 40,000 shares held by
David E. Rostov and 40,000 shares held by Judith H. McGarry. Copies of these
lock-up agreements are attached as Appendix E-2, E-3, and E-4 to this
Proxy Statement, respectively. In the common stock purchase agreement, we
agreed not to
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waive enforcement of any lock-up agreements we have with any holders of our
common stock unless we have the consent of the holders of 67% of our common
stock sold under the common stock purchase agreement. We also agreed not to
waive any lock-up agreement with respect to a particular person without
waiving the lock-up agreements with respect to all covered persons.
Voting Agreements
The purchasers of our Series 1 preferred stock under the preferred stock
purchase agreement, and the purchasers of our common stock under the common
stock purchase agreement, entered into voting agreements with 24 parties
identified on Appendix D-1 as of August 4, 2000, including Amazon.com, Maveron
Equity Partners, Peter M. Neupert, Vulcan Ventures, Rite Aid, GNC, L. John
Doerr, three entities affiliated with Kleiner Perkins Caufield & Byers, two
entities affiliated with Baron Funds and four entities affiliated with
Integral Capital Partners. Copies of each of these voting agreements are
attached as Appendix D-2 to this Proxy Statement and this summary is qualified
in all respects by the text of the voting agreements. Each of these holders
has agreed to vote all of the shares of our common stock he or it holds in
favor of the Proposal. These stockholders represent an aggregate of
approximately 74% of our outstanding common stock as of September 5, 2000.
Approval of Future Transactions
All future transactions, including any loans from us to our officers,
directors, principal stockholders or affiliates, will be approved by a
majority of our board of directors, including a majority of the independent
and disinterested members of the board, and if required by law, a majority of
disinterested stockholders.
OTHER MATTERS
We know of no other matters that are likely to be brought before the special
meeting. If, however, other matters not now known or determined properly come
before the special meeting, the persons named as proxies in the enclosed proxy
card or their substitutes will vote such proxy in accordance with their
discretion with respect to such matters.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR
2001 ANNUAL MEETING
If you want us to consider including a proposal in the proxy statement for
next year's annual meeting, you must deliver it in writing to us at
drugstore.com, inc., 13920 Southeast Eastgate Way, Suite 300, Bellevue,
Washington 98005, Attention: Secretary, no later than January 3, 2001. All
proposals must comply with the requirements of Rule 14a-8 under the Securities
Exchange Act of 1934, as amended.
In addition, our bylaws include advance notice provisions that require
stockholders desiring to bring nominations or other business before an annual
stockholders meeting to do so in accordance with the terms of the advance
notice provisions. These advance notice provisions require that, among other
things, stockholders give timely written notice to our Secretary not more than
120, or less than 90, days prior to the date of the annual meeting as
determined under our bylaws. We reserve the right to reject, rule out of order
or take other appropriate action with respect to any proposal that does not
comply with these and other applicable requirements.
INDEPENDENT AUDITORS
Ernst & Young LLP, independent auditors, have served as our independent
auditors since 1998 and audited our consolidated financial statements included
in our Annual Report on Form 10-K for the year ended January 2, 2000
incorporated by reference in this Proxy Statement. Representatives of Ernst &
Young LLP are expected to be present at the meeting and will be given the
opportunity to make a statement should they desire to do so, and are expected
to be available to respond to appropriate questions from the stockholders.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports, proxy statements and other
information with the Securities and Exchange Commission. We have filed with
the Securities and Exchange Commission a registration statement on Form S-3 to
register the common stock sold under the common stock purchase agreement and
the common stock to be issued in exchange for our Series 1 preferred stock
upon the receipt of the approval of our stockholders that is being sought by
this Proxy Statement. The Form S-3 and such reports, proxy statements and
other information contain additional information about us. You may read and
copy any materials on file with the Securities and Exchange Commission at its
Public Reference Room at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, as well as at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, IL 60661 and 7 World Trade Center, Suite 1300, New York,
NY 10048. Our filings are available to the public over the Internet at the
Securities and Exchange Commission's website at http://www.sec.gov. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the Public Reference Room.
You should rely only on the information contained or incorporated by
reference in this Proxy Statement. We have not authorized anyone else to
provide you with information that is different from what is contained or
incorporated in this Proxy Statement. This document is dated , 2000.
You should not assume that the information in this Proxy Statement is accurate
as of any later date, and the mailing of this Proxy Statement to stockholders
shall not create any implication to the contrary.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this Proxy
Statement, and information that we file later with the Securities and Exchange
Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings
made with the Securities and Exchange Commission under Sections 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934 until the date of the
special meeting or any adjournment or postponement of the special meeting:
. Our Annual Report on Form 10-K for the fiscal year ended January 2,
2000, as amended;
. Our Quarterly Reports on Form 10-Q for the quarters ended April 2, 2000
and July 2, 2000; and
. Our Report on Form 8-K filed on August 7, 2000.
. Our Registration Statement on Form S-3 filed on September 6, 2000.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Proxy Statement shall be deemed to be
modified or superseded for purposes of this Proxy Statement to the extent that
a statement contained in this Proxy Statement or in any other document
subsequently filed with the Securities and Exchange Commission which also is
deemed to be incorporated by reference in this Proxy Statement modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Proxy Statement.
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We will provide without charge to each person to whom a copy of this Proxy
Statement is delivered, upon the written or oral request of such person, a copy
of any or all documents incorporated by reference in this Proxy Statement.
Requests for such copies should be directed to: David E. Rostov, Chief
Financial Officer of drugstore.com, inc., 13920 Southeast Eastgate Way, Suite
300, Bellevue, Washington 98005 or upon calling (425) 372-3200.
By order of the board of directors,
/s/ Mark L. Silverman
Mark L. Silverman
Vice President, Business Development
and Secretary
Bellevue, Washington
, 2000
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APPENDIX A
DRUGSTORE.COM, INC.
PREFERRED STOCK PURCHASE AGREEMENT
This Preferred Stock Purchase Agreement (this "Agreement") is made as of
July 30, 2000 by and among drugstore.com, inc., a Delaware corporation (the
"Company"), and the investors listed on Schedule I attached hereto (each a
"Purchaser" and together the "Purchasers").
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock.
1.1 Sale and Issuance of Preferred Stock.
(a) Subject to the terms and conditions of this Agreement, each of
the Purchasers agrees to purchase and the Company agrees to sell and issue to
such Purchaser that number of shares of Series 1 Preferred Stock, par value
$0.0001, of the Company (the "Preferred Stock"), determined by dividing the
Purchase Commitment listed opposite such Purchaser's name on Schedule 1 by
$493.75. The Company shall have the right to amend Schedule I hereto to add
additional Purchasers at any time prior to the Closing, and any such
Purchasers shall become parties to this Agreement.
(b) The Preferred Stock shall have the rights and restrictions as
set forth in the Certificate of Designation of Series 1 Preferred Stock of
drugstore.com, inc. (the "Certificate of Designation") attached hereto as
Exhibit A.
(c) The parties hereto acknowledge that, concurrently herewith, the
Company is entering into a Common Stock Purchase Agreement with the several
purchasers listed on Schedule I thereto (the "Common Stock Purchase
Agreement"), pursuant to which such purchasers have agreed to purchase,
subject to the terms and conditions of the Common Stock Purchase Agreement, at
least 8,101,265 shares of Common Stock, par value $0.0001 per share, of the
Company (the "Common Stock"), having the rights and restrictions set forth in
the Amended and Restated Certificate of Incorporation of drugstore.com, inc.
attached hereto as Exhibit B (the "Restated Certificate."). The Common Stock
to be issued pursuant to the Common Stock Purchase Agreement shall hereinafter
be referred to as the "Stock".
1.2 Closing; Delivery.
(a) The purchase and sale of the Preferred Stock shall take place at
the offices of Simpson Thacher & Bartlett (or such other location mutually
agreeable to the parties hereto) no later than 5 business days after the
satisfaction or (subject to applicable law) waiver of the conditions set forth
in Sections 4 and 5 (excluding conditions that, by their terms, cannot be
satisfied until the Closing) (which time and place are designated as the
"Closing").
(b) At the Closing, the Company shall deliver to each Purchaser a
certificate or certificates for the number of shares of the Preferred Stock to
be purchased by such Purchaser pursuant to this Agreement against delivery of
the consideration therefor, by wire transfer of immediately available funds to
the Company's bank account.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser that:
2.1 Good Standing. Each of Company and its Subsidiaries (i) is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation; (ii) has the power and authority to own,
lease and operate its properties and carry on its business as now conducted;
and (iii) is duly qualified, licensed to do business and in good standing as a
foreign corporation in each jurisdiction where the failure to be so qualified
could reasonably be expected to have a material adverse effect on the
business, assets, operations or financial condition of the Company ("Material
Adverse Effect").
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2.2 Capitalization.
(a) The authorized capital of the Company consists of 250,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock, $0.0001 per
share (the "Preferred Stock"). The Common Stock has the rights, preferences
and privileges set forth in the Company's Restated Certificate, and the
Preferred Stock has the rights, preferences and privileges set forth in the
Certificate of Designations
(b) As of the date of this Agreement, 52,962,714 shares of Common
Stock and no shares of Preferred Stock are issued and outstanding. All of the
outstanding shares of Common Stock have been, and when issued and paid for in
accordance with the terms of the Common Stock Purchase Agreement the Stock
will be, validly issued, duly authorized, fully paid and nonassessable, and
issued in compliance with all applicable federal and state securities laws
(based in part upon the representations of the purchasers thereof contained in
the Common Stock Purchase Agreement). All of the shares of Series 1 Preferred
Stock, when issued and paid for in accordance with the terms of this
Agreement, will be validly issued, duly authorized, fully paid and
nonassessable, and issued in compliance with all applicable federal and state
securities laws (based in part upon the representations of the Purchasers
contained in Sections 3.4, 3.5, 3.6, 3.7 and 3.8).
(c) As of the date of this Agreement (i) 17,509,148 shares of Common
Stock are reserved for issuance under the Company's 1998 Stock Plan (of which
8,000 shares have been issued pursuant to restricted stock agreements, 890,839
shares are issuable under outstanding options that are currently exercisable,
10,367,423 shares are issuable under other outstanding options that are not
currently exercisable and 6,250,886 shares remain available for future
grants), (ii) 32,404 shares of Common Stock are reserved for issuance under
the Company's Beauty.com Inc. Stock Plan (of which 9,606 shares are issuable
under outstanding options, all of which are currently exercisable and 22,798
remain available for future grants) and (iii) 1,000,000 shares of Common Stock
are reserved for issuance under the Company's 1999 Employee Stock Purchase
Plan (of which 87,719 have been issued to date).
(d) Except for the conversion privileges of the Preferred Stock and
except as set forth in (i) the warrant to purchase 500,000 shares of Common
Stock issued on June 26, 2000 to Tel-Drug, Inc. (the "Tel-Drug Warrant") and
(ii) the warrant to purchase 2,500,000 shares of Common Stock issued on July
30, 2000 to Amazon.com, Inc. (the "Amazon Warrant"), as of the date of this
Agreement there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, oral or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock.
(e) The Company's only subsidiaries are DS Pharmacy, Inc., DS Non-
Pharmaceutical Sales, Inc., DS Distribution, Inc., DSGC Idaho, Inc.,
Beauty.com, Inc. and Beauty.com Sales, Inc. (each a "Subsidiary" and together,
the "Subsidiaries").
2.3 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Common Stock Purchase
Agreement (collectively, the "Agreements") and the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Stock and the Preferred Stock has been taken or
will be taken prior to the Closing (subject, in the case of the conversion of
the Preferred Stock into Common Stock, to the receipt of the Stockholder
Approval (as defined herein)), and the Agreements, when executed and delivered
by the Company, will constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, and except as may be limited by Section 6.2(c).
2.4 Valid Issuance of Preferred Stock. The Preferred Stock that will be
issued to the Purchasers at Closing will have been duly and validly reserved
for issuance and, when issued and delivered in accordance with the terms
hereof, will be duly authorized, validly issued, fully paid and nonassessable
and free of restrictions on transfer other than restrictions on transfer under
this Agreement and applicable state and federal securities laws.
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Based in part upon the representations of the Purchasers in this Agreement,
the Preferred Stock will be issued in compliance with all applicable federal
and state securities laws. The Common Stock issuable upon conversion of the
Preferred Stock has been duly and validly reserved for issuance, and upon
issuance in accordance with the terms of the Certificate of Designations, will
be duly authorized, validly issued, fully paid and nonassessable and free of
restrictions on transfer other than restrictions on transfer under this
Agreement and applicable federal and state securities laws and will be issued
in compliance with all applicable federal and state securities laws.
2.5 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the
Company or any of its subsidiaries that (i) questions the validity of the
Agreements or the right of the Company or any of its subsidiaries, as
applicable, to enter into them, or to consummate the transactions contemplated
hereby or thereby nor is the Company aware that there is any basis for the
foregoing or (ii) if adversely determined would have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries is a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality that (i) challenges the validity
of the Agreements or the right of the Company or any of its subsidiaries, as
applicable, to enter into this Agreement, or to consummate the transactions
contemplated hereby and thereby or (ii) would have a Material Adverse Effect.
2.6 Liabilities. The Company and its subsidiaries, on a consolidated
basis, have no liabilities and there are no contingent liabilities, required
by generally accepted accounting principles to be disclosed on a balance sheet
but that are not disclosed on the Company's audited balance sheet as of
January 2, 2000 and/or on the Company's unaudited balance sheet as of July 2,
2000 except liabilities that would not have a Material Adverse Effect.
Subsequent to July 2, 2000, the Company and its subsidiaries, on a
consolidated basis, have not incurred any liabilities or any contingent
liabilities required by generally accepted accounting principles to be
disclosed on the Company's balance sheet except liabilities that would not
have a Material Adverse Effect.
2.7 Compliance with Other Instruments. The execution, delivery and
performance of the Agreements and the consummation of the transactions
contemplated hereby and thereby will not result in any violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under or cause acceleration under any provision of
the Restated Certificate or the bylaws of the Company or any instrument,
judgment, order, writ, decree or contract to which the Company or any of its
Subsidiaries is a party or by which it is bound, or any provision of any
federal or state statute, rule or regulation applicable to the Company or any
of its Subsidiaries, the effect of which would (i) have a Material Adverse
Effect, (ii) materially and adversely affect the ability of the Company and
its Subsidiaries to perform their respective obligations under the Agreements
or (iii) result in the creation of any material lien, charge or encumbrance
upon any assets of the Company or any of its Subsidiaries.
2.8 Material Agreements. The Company has filed with the SEC all
agreements in existence as of the date of this Agreement that (a) define or
affect the rights of security holders of the Company in their capacity as
security holders including, but not limited to, such security holders' voting
rights, registration rights or standstill rights or obligations, other than
(i) the Agreement dated June 23, 2000 between the Company and WellPoint Health
Networks Inc., (ii) the Tel-Drug Warrant and (iii) the Amazon Warrant or (b)
are required to be filed under Item 601 of Regulation S-K.
2.9. Financial Statements. The financial statements of Company that
have been delivered to the Investors (including those for the period ended
July 2, 2000), (i) are in accordance with the books and records of Company and
its Subsidiaries, which have been maintained in accordance with good business
practice; (ii) have been prepared in conformity with GAAP (except as discussed
therein, the absence of footnotes for all unaudited periods and, in the case
of audited financial statements, as approved by the relevant firm of
accountants); and (iii) fairly present the consolidated financial position of
Company as of the dates presented therein and the results of operations,
changes in financial positions or cash flows, as the case may be, for the
periods presented therein (except, in the case of financial statements for the
period ended July 2, 2000, for normal year-end audit adjustments). None of the
Company or any of the Company's Subsidiaries has any contingent obligations,
liability for taxes or other outstanding obligations that are material in the
aggregate, except as disclosed in the
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unaudited financial statements for the period ended July 2, 2000 (except for
normal year-end audit adjustments). None of the Company or its Subsidiaries
has any contingent obligations or liability for taxes that are material in the
aggregate and that would be required to be reflected or reserved against in
the latest balance sheet of the Company, except as disclosed in the unaudited
financial statements for the period ended July 2, 2000 (except for normal
year-end audit adjustments).
2.10. Investment Company. None of Company or its Subsidiaries is
subject to regulation under the Investment Company Act of 1940, or to any
federal or state statute or regulation limiting its ability to incur
indebtedness.
2.11. SEC Reporting; Information Provided. As of the date each was
filed, none of the Company's registration statements, reports or other filings
made with the Securities and Exchange Commission, contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Neither this agreement nor any document,
certificate or instrument furnished to any of the Purchasers by or on behalf
of the Company when taken in conjunction with any supplemental or revised
information furnished to any of the Purchasers in writing prior to the date
hereof contains any untrue statement of a material fact or omits, or will
omit, to state a material fact necessary to make the statements in such
documents, certificates, instruments or other information provided, in light
of the circumstances in which they were made, not misleading, except that with
respect to any projected financial information, the Company only represents
that it was prepared in good faith and the Company reasonably believes that
the assumptions made in preparing such projections were reasonable as of the
date of such projections.
2.12. Absence of Certain Changes. Since July 2, 2000, no event has
occurred and no condition exists which would have a Material Adverse Effect,
other than (i) any change in the price of the Common Stock or (ii) changes in
general economic conditions or conditions affecting the Company's industry
generally.
2.13. Real Property Holding Company. The Company is not, and has not
been, a "United States real property holding corporation" within the meaning
of Section 897(c)(2) of the Internal Revenue Code of 1986, as amended (the
"Code"), during the applicable period described in Section 897(c)(1)(A)(ii) of
the Code.
2.14 Form S-3 Eligibility. The Company and the transactions
contemplated by Section 6.2 of this Agreement meet the requirements for using
Form S-3 under the Securities Act for resale.
3. Representations and Warranties of the Purchasers. Each Purchaser hereby
represents and warrants to the Company with respect to itself that:
3.1 Authorization. Such Purchaser has full power and authority to enter
into and deliver this Agreement, and this Agreement, when executed and
delivered by the Purchaser, will constitute a valid and legally binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors' rights generally, as limited
by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and except as may be limited by Section
6.2(c).
3.2 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Purchaser's knowledge, currently threatened against the
Purchaser or any of its subsidiaries that questions the validity of this
Agreement or the right of the Purchaser or any of its subsidiaries, as
applicable, to enter into this Agreement, or to consummate the transactions
contemplated hereby nor is the Purchaser aware that there is any basis for the
foregoing. Neither the Purchaser nor any of its subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality that challenges the
validity of this Agreement or the right of the Purchaser or any of its
subsidiaries, as applicable, to enter into this Agreement, or to consummate
the transactions contemplated hereby.
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3.3 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any provision of the governing documents of the Purchaser or any
instrument, judgment, order, writ, decree or contract to which the Purchaser
or any of its subsidiaries is a party or by which it is bound, or any
provision of any federal or state statute, rule or regulation applicable to
the Purchaser or any of its subsidiaries, the effect of which would have a
material adverse effect on the ability of the Purchaser and its subsidiaries
to perform their respective obligations under this Agreement or result in the
creation of any lien, charge or encumbrance upon any assets of the Purchaser
or any of its subsidiaries.
3.4 Purchase Entirely for Own Account. This Agreement is made with the
Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Preferred Stock to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or public distribution of any part
thereof in violation of any requirements of the Securities Act of 1933, as
amended (the "Securities Act") or applicable state securities laws. The
Purchaser has no present intention of selling, granting any participation in,
or otherwise distributing any Preferred Stock purchased hereunder, including,
without limitation, entering into any arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of the
Stock, whether any such transaction is to be settled by delivery of Preferred
Stock, Common Stock or other securities, in cash or otherwise. By executing
this Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to any of the Preferred Stock or the Common Stock
issuable upon conversion thereof.
3.5 Disclosure of Information. The Purchaser (i) has had an opportunity
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Preferred Stock with the Company's
management and (ii) has had an opportunity to review the Company's facilities.
The Purchaser understands that such discussions and reviews, as well as any
written information delivered by the Company to the Purchaser, were intended
to describe the aspects of the Company's business that it believes to be
material.
3.6 Restricted Securities. The Purchaser understands that the Preferred
Stock has not been, and will not be, registered under the Securities Act, by
reason of a specific exemption from the registration provisions of the
Securities Act that depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the shares of Preferred Stock
are "restricted securities" under applicable U.S. federal and state securities
laws and that, pursuant to these laws, the Purchaser must hold the shares of
Preferred Stock indefinitely unless they are registered with the Securities
and Exchange Commission and qualified by state authorities, or an exemption
from such registration and qualification requirements is available. The
Purchaser acknowledges that the Company has no obligation to register or
qualify the Preferred Stock for resale except with regards to the Common Stock
issuable upon conversion of the Preferred Stock as set forth in Section 6.2
hereof. The Purchaser further acknowledges that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Preferred Stock, and on requirements relating to the
Company that are outside of the Purchaser's control, and that the Company is
under no obligation, and may not be able, to satisfy.
3.7 Legends. The Purchaser understands that the Preferred Stock, and
any securities issued in respect thereof, may bear one or all of the following
legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
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FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend required by the "Blue Sky" laws of any state to the
extent such laws are applicable to the shares represented by the certificate
so legended.
3.8 Accredited Investor. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
4. Conditions of the Purchasers' Obligations at Closing. The obligations of
the Purchasers to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived by each Purchaser:
4.1 Representations and Warranties. The representations and warranties
of the Company shall be true and correct on and as of the date of the Closing
with the same effect as though such representations and warranties had been
made on and as of the date of the Closing (except with respect to the
representations and warranties contained in Section 2.2(b), 2.2(c) and the
first sentence of Section 2.2(e), which shall be true and correct in all
material respects as of the date of the Closing).
4.2 Performance. The Company shall have performed and complied with all
covenants, agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing and the Company shall have obtained any and all consents, permits and
waivers necessary or appropriate for consummation of the transactions
contemplated by the Agreements.
4.3 Reservation of Shares. The Preferred Stock issuable pursuant to
this Agreement shall have been duly authorized and reserved for issuance at
the Closing. The Common Stock issuable upon conversion of the Preferred Stock
pursuant to the Certificate of Designations shall have been duly authorized
and reserved for issuance at the Closing.
4.4 Compliance Certificate. The President of the Company shall deliver
to the Purchasers at the Closing a certificate certifying that the conditions
specified in Sections 4.1, 4.2 and 4.3 have been fulfilled.
4.5 Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Preferred Stock pursuant to this Agreement shall be obtained and effective
as of the Closing including, without limitation, the expiration or termination
of all waiting periods under the Hart-Scott-Rodino Antitrust Improvement Act
of 1976, as amended (the "HSR Act").
4.6 Opinion of Company Counsel. The Purchasers at the Closing shall
have received from Simpson Thacher & Bartlett, counsel for the Company, an
opinion dated as of the Closing covering the matters set forth on Exhibit C.
4.7 Common Stock Purchase Agreement. The Company and the purchasers
parties thereto shall have executed and delivered the Common Stock Purchase
Agreement covering the purchase of at least 8,101,265 shares of Common Stock.
4.8 Delivery of Voting Agreements. Each person listed on Exhibit D
hereto shall have executed and delivered to the Purchasers a voting agreement
in the form attached hereto an Exhibit E (each, a "Voting Agreement") to the
effect that such person will vote its shares of Common Stock at the
Stockholder Meeting (as defined) in favor of the approval of the issuance of
the Common Stock issuable upon conversion of the Preferred Stock. The persons
delivering Voting Agreements shall represent a majority of the Common Stock.
4.9 Minimum Investment at Closing. At the Closing, Purchasers investing
at least $62,682,825 in the aggregate in the Company under the Agreements
shall have wired their respective investments in the Company into an escrow
account maintained by Brobeck, Phleger & Harrison or an escrow agent mutually
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agreeable to the Company and purchasers of the majority of the Preferred Stock
for delivery to the Company, or shall be otherwise legally obligated to wire
such amounts to the Company, before any Purchaser is obligated to close.
4.10. Opinion of General Counsel to the Company. The Purchasers at the
Closing shall have received from the General Counsel of the Company an opinion
dated as of the Closing covering the matters set forth on Exhibit F.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company to the Purchasers under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and warranties
of the Purchasers contained in Section 3 shall be true and correct in all
material respects on and as of the date of the Closing with the same effect as
though such representations and warranties had been made on and as of the date
of the Closing (except to the extent such representations and warranties speak
as of the date of this Agreement, in which case they shall be true and correct
in all material respects on and as of the date of this Agreement).
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 Compliance Certificate. A senior executive officer of each of the
Purchasers shall deliver to the Company at the Closing a certificate
certifying that the conditions specified in Sections 5.1 and 5.2 have been
fulfilled.
5.4 Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Preferred Stock pursuant to this Agreement shall be obtained and effective
as of the Closing including, without limitation, the expiration or termination
of all waiting periods under the HSR Act.
5.5 Common Stock Purchase Agreement. The Company and the purchasers
parties thereto shall have executed and delivered the Common Stock Purchase
Agreement covering the purchase of at least 8,101,265 shares of Common Stock.
5.6 Delivery of Voting Agreements. Each person listed on Exhibit D
hereto shall have executed and delivered to the Purchasers a Voting Agreement.
The persons delivering Voting Agreements shall represent a majority of the
Common Stock.
6. Covenants.
6.1 HSR Act Filings. As soon as practicable after the execution of this
Agreement, the Company and each relevant Purchaser will separately file with
the Antitrust Division of the United States Department of Justice and the
United States Federal Trade Commission pursuant to the HSR Act all requisite
documents and notifications in order to provide for the issuance and sale of
the Preferred Stock pursuant to this Agreement. The parties will cooperate and
coordinate with one another in exchanging information and providing reasonable
assistance as the other party may request in connection with the foregoing.
6.2 Registration Rights. (a) The Company hereby agrees: (i) to use its
best efforts to file a resale shelf registration statement (the "Registration
Statement") under the Securities Act as soon as reasonably practicable
covering resales of the Common Stock to be issued upon conversion of the
Preferred Stock (such shares of Common Stock, the "Conversion Stock") by the
Purchasers and the Stock to be issued pursuant to the Common Stock Purchase
Agreement, (ii) to use its best efforts to cause the Registration Statement to
be declared effective as soon as reasonably practicable but in any event
within 60 days of Closing and (iii) to maintain the
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effectiveness of the Registration Statement until the earlier of (x) the
eighteen month anniversary of the effective date of the Registration Statement
and (y) the date on which all shares of Conversion Stock have been resold by
the Purchasers. At any time when the Registration Statement is effective, the
Board of Directors of the Company may determine, as indicated in a certificate
signed by any Director of the Company, the Chief Financial Officer of the
Company or the Secretary of the Company, to suspend offers and sales by
Purchasers under the Registration Statement if an event has occurred or is
reasonably likely to occur that would require additional disclosure by the
Company and that the Company has a bona fide business purpose for keeping
confidential, and the nondisclosure of which would reasonably be expected to
cause the Registration Statement to fail to comply with applicable disclosure
requirements. The Company shall give the Purchasers written notice of the
Board of Directors' determination and the Purchasers agree to suspend offers
and sales under the Registration Statement until the Company has delivered a
subsequent notice to the Purchasers revoking its prior notice; provided,
however, that the eighteen month period during which the Registration
Statement is required to be effective shall be extended by the number of days
of such suspensions. The Company may not revoke the ability of Purchasers to
make offers and sales under the Registration Statement more than three times
or for more than 90 days in the aggregate.
(b) For the period during which the Registration Statement is effective, the
Company shall:
(i) furnish to the Purchaser with respect to the Conversion Stock
registered under the Registration Statement (and to each underwriter, if
any, of such Conversion Stock) such reasonable number of copies of
prospectuses in order to facilitate the public sale or other disposition of
all or any of the Conversion Stock by the Purchaser; provided, however,
that the obligation of the Company to deliver copies of prospectuses to the
Purchaser shall be subject to the receipt by the Company of reasonable
assurances from the Purchaser that the Purchaser will comply with the
applicable provisions of the Securities Act and of such other securities or
blue sky laws as may be applicable in connection with any use of such
prospectuses;
(ii) during the period when such prospectuses are required to be
delivered under the Securities Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), file all documents required to be filed
with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act
within the time periods required by the Exchange Act and the rules and
regulations promulgated thereunder;
(iii) file documents required of the Company for normal blue sky
clearance in states specified in writing by the Purchaser; provided,
however, that the Company shall not be required to qualify to do business
or consent to service of process in any jurisdiction in which it is not now
so qualified or has not so consented;
(iv) authorize for listing on the Nasdaq National Market the shares of
Conversion Stock by filing with the Nasdaq National Market a Notification
of Listing of Additional Shares (or such other form, if any, as may be
required by the Nasdaq National Market) as soon as reasonably practicable
after the filing of the Registration Statement or otherwise in accordance
with the rules and regulations of the Nasdaq National Market; and
(v) bear all expenses in connection with the procedures in this Section
6.2 and the registration of the Conversion Stock pursuant to the
Registration Statement, other than fees and expenses, if any, of counsel or
other advisers to the Purchaser or underwriting discounts, brokerage fees
and commissions incurred by the Purchaser, if any.
(c) For purposes of this Section 6.2(c), the term "Registration Statement"
shall include any preliminary or final prospectus, exhibit, supplement or
amendment included in or relating to the Registration Statement referred to in
Section 6.2(a).
(i) The Company agrees to indemnify and hold harmless each of the
Purchasers and each of their respective directors, officers, members and
partners, and each person, if any, who controls any Purchaser within the
meaning of the Securities Act, against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Purchasers and
each of their respective directors, officers, members and partners, or such
controlling person may become subject, under the Securities Act, the
Exchange Act, or any other
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federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of the Company), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in or incorporated
by reference in the Registration Statement, including the prospectus,
financial statements and schedules, and all other documents filed as a part
thereof, as amended at the time of effectiveness of the Registration
Statement, including the preliminary or final prospectus any information
deemed to be a part thereof as of the time of effectiveness pursuant to
paragraph (b) of Rule 430A, or pursuant to Rule 434, of the rules and
regulations of the Commission under the Securities Act (the "Regulations"),
or the prospectus, in the form first filed with the Commission pursuant to
Rule 424(b) of the Regulations, or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) filing is required
(the "Prospectus"), or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state in any of them
a material fact required to be stated therein or necessary to make the
statements in any of them, in light of the circumstances under which they
were made, not misleading, or arise out of or are based in whole or in part
on any failure of the Company to perform its obligations under or a
violation of the Securities Act, the Exchange Act or any state securities
law, and will reimburse each Purchaser and each of their respective
directors, officers, members and partners, and each such controlling person
for any legal and other expenses as such expenses are reasonably incurred
by such Purchaser or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon
(i) an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the
Purchaser expressly for use therein, or (ii) the failure of such Purchaser
to comply with the covenants and agreements contained in this Section 6.2
respecting the sale of the Stock, or (iii) any statement or omission in any
Prospectus that is corrected in any subsequent Prospectus that was
delivered to the Purchaser prior to the pertinent sale or sales by the
Purchaser.
(ii) Each Purchaser will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Securities Act, against any losses, claims,
damages, liabilities or expenses to which the Company, each of its
directors, each of its officers who signed the Registration Statement or
controlling person may become subject, under the Securities Act, the
Exchange Act, or any other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of such Purchaser)
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained
in the Registration Statement, including the prospectus, financial
statements and schedules, and all other documents filed as a part thereof,
as amended at the time of effectiveness of the Registration Statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule
434, of the Regulations, or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements in any of them, in light of the circumstances under
which they were made, not misleading, or arise out of or are based in whole
or in part on any failure of such Purchaser to perform its obligations
under the Securities Act, the Exchange Act or any state securities law, and
will reimburse the Company, each of its directors, each of its officers who
signed the Registration Statement and each such controlling person for any
legal and other expenses as such expenses are reasonably incurred by such
Purchaser or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, the Prospectus,
or any
A-9
<PAGE>
amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any
Purchaser expressly for use therein.
(iii) Promptly after receipt by an indemnified party under this Section
6.2(c) of notice of the threat or commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party under this Section 6.2(c) promptly notify the
indemnifying party in writing thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party for contribution or otherwise than under the
indemnity agreement contained in this Section 6.2(c) or to the extent it is
not prejudiced as a result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may
wish, jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a
conflict between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right
to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section
6.2(c) for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel, approved by such indemnifying party, representing all of the
indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of action, in each of which
cases the reasonable fees and expenses of counsel shall be at the expense
of the indemnifying party.
(iv) If the indemnification provided for in this Section 6.2 is required
by its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (i),
(ii) or (iii) of this Section 6.2(c) in respect to any losses, claims,
damages, liabilities or expenses referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities
or expenses referred to herein in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and
the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, claim, damage, liability or expense
as well as any other relevant equitable considerations. The relative fault
of the Company and such Purchaser shall be determined by reference to,
among other things, whether the untrue or alleged statement of a material
fact or the omission or alleged omission to state a material fact relates
to information supplied by the Company or by such Purchaser and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in paragraph (iii) of this Section 6.2(c), any legal
or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set
forth in paragraph (iii) of this Section 6.2(c) with respect to the notice
of the threat or commencement of any threat or action shall apply if a
claim for contribution is to be made under this paragraph (iv); provided,
however, that no additional notice shall be required with respect to any
threat or action for which notice has been given under paragraph (iii) for
purposes of indemnification. Notwithstanding the provisions of this Section
6.2(c)(iv), no Purchaser shall be required to contribute any amount in
excess of the net proceeds of the offering received by such Purchaser,
except in the case of willful fraud by such Purchaser. No person guilty of
fraudulent
A-10
<PAGE>
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Purchasers' obligations to
contribute pursuant to this Section 6.2(c)(iv) are several and not joint.
6.3 Stockholder Meeting. The Company shall cause (i) a special meeting
of its common stockholders (the "Stockholder Meeting") to be held as soon as
practicable but in no event later than three months from the Closing, for the
purpose of approving the conversion of the Preferred Stock issued pursuant to
this Agreement into Common Stock or (ii) the holders of the requisite number
of shares of Common Stock to deliver written consents approving the conversion
of the Preferred Stock into Common Stock (the action called for in (i) and
(ii), the "Stockholder Approval").
7. Miscellaneous.
7.1 Survival of Warranties. The warranties and representations of the
Company and the Purchasers contained herein shall terminate on the second
anniversary of the Closing.
7.2 Transfer; No Third Party Beneficiaries. This Agreement and each
party's rights and obligations hereunder shall not be assigned without the
prior written consent of the other party; provided, that a Purchaser may
transfer its rights hereunder to an affiliate, so long as such affiliate
agrees in writing to be bound by all obligations under this Agreement. Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement.
7.3 Governing Law. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed by and construed in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of laws.
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page hereto, or as subsequently
modified by written notice, and if to the Company, with copies to the General
Counsel of the Company at the address of the Company set forth below and
Simpson Thacher & Bartlett, 3373 Hillview Avenue, Suite 250, Palo Alto, CA
94304, Attention: William H. Hinman, telecopy no: (650)-251-5002).
7.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of
a finder's fee (and the costs and expenses of defending against such liability
or asserted liability) for which such Purchaser or any of its officers,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Purchaser from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company
or any of its officers, employees or representatives is responsible.
7.8 Fees and Expenses. Except as otherwise specifically provided
herein, the Company and the Purchasers shall pay their respective fees and
other expenses in connection with the negotiation, execution, delivery and
performance of the Agreements.
A-11
<PAGE>
7.9 Attorney's Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to
which such party may be entitled.
7.10 Amendments and Waivers. Any term of this Agreement may be amended
or waived only with the written consent of the Company and each of the
Purchasers. Any amendment or waiver effected in accordance with this Section
7.10 shall be binding upon each Purchaser and each transferee of the Preferred
Stock, each future holder of all such Preferred Stock, each transferee and
future holder of Common Stock issued upon conversion of Preferred Stock and
the Company.
7.11 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a)
such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c)
the balance of the Agreement shall be enforceable in accordance with its
terms.
7.12 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any party
of any breach or default under this Agreement, or any waiver on the part of
any party of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party, shall be cumulative and not alternative.
7.13 Entire Agreement. This Agreement, and the documents referred to
herein, constitute the entire agreement between the parties hereto pertaining
to the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
7.14 Confidentiality. Except as provided below, each party hereto
agrees that, except with the prior written permission of the other party, it
shall at all times keep confidential and not divulge, furnish or make
accessible to anyone any confidential information, knowledge or data
concerning or relating to the business or financial affairs of the other party
to which such party has been or shall become privy by reason of the
Agreements, discussions or negotiations relating to the Agreements, the
performance of its obligations thereunder or the ownership of Stock purchased
hereunder. The provisions of this Section 7.14 shall be in addition to, and
not in substitution for, the provisions of any separate nondisclosure
agreement executed by the parties hereto with respect to the transactions
contemplated by the Agreements. Notwithstanding the foregoing, nothing herein
shall prevent any party from disclosing (i) such information that has been
publicly disclosed, (ii) such information that becomes available to the party
on a non-confidential basis from a source other than the other party hereto,
provided that such source is not bound by a confidentiality agreement with
such other party, (iii) information required to be disclosed pursuant to
subpoena or other court process or otherwise required to be disclosed by law
or the regulations of any securities exchange (provided that, to the extent
practicable, advance notice is given to the party whose confidential
information is to be disclosed so that such party can attempt to obtain a
protective order) and (iv) such information that was known to the party prior
to its first receipt from the other party.
7.15 Publicity. After the execution of this Agreement, any of the
parties may issue a press release disclosing that the Purchasers have agreed
to invest in the Company and the terms of the future relationship between the
parties in a form approved by the other party, which approval will not be
unreasonably withheld, conditioned or delayed. In addition, any party may
disclose such information regarding the Purchasers' investment and the
relationship between the parties as required by law or the regulations of any
securities exchange.
A-12
<PAGE>
7.16 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:
(i) at any time by mutual written consent of the Company and each of the
Purchasers; or
(ii) by any party hereto if the Closing does not occur on or prior to
October 31, 2000; (provided, that if on October 31, 2000 any authorization,
approval or permit of any governmental authority or regulatory body of the
United States or of any state that is required in connection with the
lawful issuance and sale of the Stock pursuant to this Agreement has not
been obtained, then no party shall be entitled to terminate this Agreement
pursuant to this clause (ii) until December 15, 2000 and then only if the
Closing has not occurred on or prior to such date).
Upon any such termination, this Agreement shall become void and of no
further effect, except for Sections 7.3, 7.7, 7.8, 7.9, 7.14 and this Section
7.16 which shall survive such termination.
[Signature Pages Follow]
A-13
<PAGE>
The parties have executed this Preferred Stock Purchase Agreement as of the
date first written above.
COMPANY:
DRUGSTORE.COM, INC.
By: /s/ David Rostov
-------------------------------------
Name: David Rostov
-----------------------------------
Title: Chief Financial Officer
----------------------------------
Address: 13920 SE Eastgate Way, Suite 300
--------------------------------
Bellevue, WA 98005
-----------------------------------------
Signature Page to the Preferred Stock Purchase Agreement
A-14
<PAGE>
KLEINER PERKINS CAUFIELD & BYERS VIII, L.P.
By: KPCB VIII Associates, L.P.
-------------------------------------
General Partner
By: /s/ Brook H. Byers
-------------------------------------
Name: Brook H. Byers
-----------------------------------
Title: General Partner
----------------------------------
Address: 2750 Sand Hill Rd.
--------------------------------
Menlo Park, CA 94025
----------------------------------------
Signature Page to the Preferred Stock Purchase Agreement
A-15
<PAGE>
KPCB VIII FOUNDERS FUND, L.P.
By: KPCB VIII Associates, L.P.
General Partner
By: /s/ Brook H. Byers
----------------------------------
Name: Brook H. Byers
--------------------------------
Title: General Partner
-------------------------------
Address: 2750 Sand Hill Rd.
-----------------------------
Menlo Park, CA 94025
-------------------------------------
Signature Page to the Preferred Stock Purchase Agreement
A-16
<PAGE>
VULCAN VENTURES INCORPORATED
By: /s/ William D. Savoy
-----------------------------------
Name: William D. Savoy
---------------------------------
Title: President
--------------------------------
Address: 110-100th Avenue, NE, Ste. 550
------------------------------
Bellevue, WA 98004
---------------------------------------
Signature Page to the Preferred Stock Purchase Agreement
A-17
<PAGE>
[other Purchasers].
By: L. John Doerr by
----------------------------------
Name: Barbara S. Hager
--------------------------------
Title: His attorney in fact
-------------------------------
Address: 2995 Woodside Road
-----------------------------
Woodside, CA 94052
-------------------------------------
Signature Page to the Preferred Stock Purchase Agreement
A-18
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Purchase
Purchaser Commitment
--------- -------------
<S> <C>
Kleiner Perkins Caufield & Byers VIII L.P. ................. $ 14,178,000
KPCB Founders Fund, L.P. ................................... $ 822,000
L. John Doerr............................................... $ 5,000,000
Vulcan Ventures Incorporated................................ $2,682,825.00
-------------
Total.....................................................
=============
</TABLE>
A-19
<PAGE>
EXHIBITS
Exhibit A-- Certificate of Designation of Series 1 Preferred Stock
Exhibit B-- Amended and Restated Certificate of Incorporation of the Company
Exhibit C-- Matters to be covered in legal opinion of Simpson Thacher & Bartlett
Exhibit D-- Persons to deliver Voting Agreements
Exhibit E-- Form of Voting Agreement
Exhibit F-- Matters to be covered in legal opinion of the General Counsel of
the Company
A-20
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS OF SERIES 1 PREFERRED STOCK
A-21
<PAGE>
EXHIBIT B
AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION OF THE COMPANY
A-22
<PAGE>
EXHIBIT C
MATTERS TO BE COVERED BY LEGAL OPINION OF
SIMPSON THACHER & BARTLETT
A-23
<PAGE>
EXHIBIT D
PERSONS TO DELIVER VOTING AGREEMENTS
Kleiner Perkins Caufield & Byers VIII, L.P.
KPCB Life Sciences Zaibatsu Fund II, L.P.
KPCB VIII Founders Fund, L.P.
Amazon.com, Inc.
Maveron Equity Partners, L.P.
Vulcan Ventures Incorporated
Rite Investments Corp.
General Nutrition Investment Company
Peter Neupert
Peter Neupert and Sheryl Neupert, Tenants in Common
Kal Raman
Mark L. Silverman
David Rostov
David Rostov, as custodian
Judith H. McGarry
Drugstore.com Foundation
Hearst Communications, Inc.
Integral Capital Partners IV, L.P.
Integral Capital Partners IV MS Side Fund, L.P.
Integral Capital Partners V, L.P.
Integral Capital Partners V Side Fund, L.P.
Baron Asset Fund
Baron Capital Funds Trust
L. John Doerr
A-24
<PAGE>
EXHIBIT E
FORM OF VOTING AGREEMENT
A-25
<PAGE>
EXHIBIT F
MATTERS TO BE COVERED BY LEGAL OPINION OF
GENERAL COUNSEL OF THE COMPANY
A-26
<PAGE>
APPENDIX B
CERTIFICATE OF DESIGNATION
of
SERIES 1
PREFERRED STOCK
of
DRUGSTORE.COM, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
drugstore.com, Inc., a Delaware corporation (the "Corporation"), certifies
that pursuant to the authority contained in its Amended and Restated
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors (the "Board of Directors") has adopted the following resolution
creating a series of its Preferred Stock, par value $0.0001 per share,
designated as Series 1 Preferred Stock:
RESOLVED, that a series of authorized Preferred Stock, par value $0.0001 per
share, of the Corporation be hereby created, and that the designation and
amount thereof and the powers, preferences and other rights of the shares of
such series, and the qualifications, limitations or restrictions thereof are
as follows:
Section 1. Designation and Amount.
The shares of such series shall be designated as the "Series 1 Preferred
Stock" (the "Series 1 Preferred Stock") and the number of shares constituting
such series shall be 100,000 shares of Series 1 Preferred Stock. Section 11
below contains the definitions of certain defined terms used herein.
Section 2. Dividends and Distributions.
(a) The holders of shares of Series 1 Preferred Stock shall not be
entitled to any dividends or distributions except as provided in Section 2(b).
(b) In case the Corporation or any Subsidiary of the Corporation shall
at any time or from time to time declare, order, pay or make a dividend or
other distribution (including, without limitation, any distribution of stock
or other securities or property or rights or warrants to subscribe for
securities of the Corporation or any of its Subsidiaries by way of dividend or
spin off) on the Common Stock, the holders of shares of Series 1 Preferred
Stock shall be entitled to receive from the Corporation, with respect to each
share of Series 1 Preferred Stock held, the same dividend or distribution
received by a holder of the number of shares of Common Stock equal to one
share multiplied by the Conversion Rate.
Section 3. No Voting Rights.
The holders of shares of Series 1 Preferred Stock shall not be entitled to
vote on any matters involving the Corporation, except as may be required by
law.
Section 4. Mandatory Repurchase by the Corporation.
(a) If the Stockholder Approval shall not have been received by May 1,
2001, then the Corporation shall repurchase from each holder of Series 1
Preferred Stock the number of shares of Series 1 Preferred Stock held by such
holder on such date. Repurchases made pursuant to this Section 4(a) shall be
effected on such date (or such other day upon which the holder and the
Corporation may agree) and shall be an amount per share of Series 1 Preferred
Stock equal to the Common Equivalent Amount in cash. The place of payment
shall be at an office or agency fixed therefor by the Corporation or, if not
fixed, at the principal executive office of the Corporation.
B-1
<PAGE>
(b) (i) On the date fixed for repurchase, each holder of shares of
Series 1 Preferred Stock shall surrender the certificate representing such
shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment in cash therefor provided in this
Section 4. Such shares shall no longer be deemed outstanding after such date
and the holders thereof shall cease to be holders of Series 1 Preferred Stock
of the Corporation and all rights whatsoever with respect to the shares so
purchased shall terminate. As promptly as practicable, and in any event within
three Business Days after the surrender of such certificate or certificates,
the Corporation shall deliver or cause to be delivered cash in the amounts
specified above to the holders of the Series 1 Preferred Stock. The repurchase
shall be deemed to have been made at the close of business on the date of
surrender of the certificate or certificates representing the shares of Series
1 Preferred Stock to be repurchased so that the rights of the holders as to
the shares being repurchased shall cease except for the right to receive cash.
(ii) If the cash legally available for such purchase is not
sufficient to purchase all the shares of Series 1 Preferred Stock tendered to
the Corporation for purchase pursuant to paragraph (a) of this Section 4, the
Corporation shall purchase the greatest number of whole shares for which such
funds are so available on a pro rata basis among all holders based on the
ratio of the number of shares held by each of them to the aggregate amount of
all shares so held, and the certificates representing the unpurchased shares
shall be deemed not to be surrendered for repurchase, such unpurchased shares
shall remain outstanding and the rights of the holders of shares of Series 1
Preferred Stock thereafter shall continue to be those of a holder of shares of
the Series 1 Preferred Stock; provided, however, the Corporation shall
thereafter be required to repurchase all such remaining shares at the first
date it has sufficient funds legally available for such purpose at the price
it would have paid at the date such shares were actually tendered and the
Corporation shall give notice as aforesaid to each holder whose shares were
not repurchased for such reason and such holder shall thereafter have the
right to elect to have such shares repurchased, such election to be made
within 30 days of receipt of such notice. For purposes of this Section, the
Corporation shall be deemed not to have sufficient funds legally available for
any such purchase if the Board of Directors reasonably determines that
immediately after such repurchase the Corporation would be insolvent or if
such repurchase would conflict with the terms or conditions of, or result in a
default under, any instrument or agreement applicable to or binding upon the
Corporation involving an amount in excess of twenty-five thousand dollars
($25,000).
(c) Whenever the Corporation shall not have redeemed the shares of
Series 1 Preferred Stock within five (5) Business Days of the date such
redemption is required by Section 4(a), thereafter and until all redemption
payments shall have been made, if and so long as any shares of Series 1
Preferred Stock remain outstanding, the Corporation shall not, nor shall it
permit any of its Subsidiaries to: (i) declare or pay dividends, or make any
other distributions, on any shares of Common Stock or other capital stock of
the Corporation ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series 1 Preferred Stock ("Junior Stock"),
other than dividends or distributions payable in Junior Stock; (ii) redeem or
purchase or otherwise acquire for consideration (other than Junior Stock) any
shares of Junior Stock; or (iii) purchase or otherwise acquire for
consideration any shares of Series 1 Preferred Stock, other than purchases
ratably among all holders of the Series 1 Preferred Stock.
(d) The Corporation shall not permit any Subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of capital stock
of the Corporation unless the Corporation could, pursuant to paragraph (c) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Conversion.
(a) Upon receipt by the Corporation of the Stockholder Approval, all of
the shares of Series 1 Preferred Stock shall be converted into shares of
Common Stock as set forth in this Section 5. The Corporation shall send notice
of mandatory conversion to each of the holders of the Series 1 Preferred Stock
at such holder's address as it appears on the transfer books of the
Corporation. Each share of Series 1 Preferred Stock shall be converted into a
number of fully paid and nonassessable shares of Common Stock equal to the
Conversion Rate then in effect.
B-2
<PAGE>
(b) On the date fixed for conversion, each holder of shares of Series 1
Preferred Stock shall surrender the certificate representing such shares to
the Corporation at the place designated in such notice and shall thereupon be
entitled to receive the number of shares of Common Stock provided in this
Section 5. Such shares of Series 1 Preferred Stock shall no longer be deemed
outstanding after such date and the holders thereof shall cease to be holders
of Series 1 Preferred Stock of the Corporation and all rights whatsoever with
respect to such shares so purchased shall terminate. The conversion shall be
deemed to have been made at the close of business on the date of surrender of
the certificate or certificates representing the shares of Series 1 Preferred
Stock to be converted so that the rights of the holders as to the shares being
converted shall cease except for the right to receive Common Stock as set
forth in this Section 5.
Section 6. Reacquired Shares.
Any shares of Series 1 Preferred Stock purchased, converted or otherwise
acquired by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof, and, if necessary to provide
for the lawful purchase of such shares, the capital represented by such shares
shall be reduced in accordance with the General Corporation Law of the State
of Delaware. All such shares shall upon their cancellation become authorized
but unissued shares of Preferred Stock, par value $0.0001 per share, of the
Corporation and may be reissued as part of another series of Preferred Stock,
par value $0.0001 per share, of the Corporation.
Section 7. Liquidation, Dissolution or Winding Up; Reorganizations.
(a) If the Corporation shall adopt a plan of liquidation or of
dissolution, or commence a voluntary case under the Federal bankruptcy laws or
any other applicable state or Federal bankruptcy, insolvency or similar law,
or consent to the entry of an order for relief in any involuntary case under
any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee or sequestrator (or similar official) of the Corporation or
of any substantial part of its property, or make an assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts generally
as they become due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in the premises in
an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and any
such decree or order shall be unstayed and in effect for a period of ninety
(90) consecutive days and on account of such event the Corporation shall
liquidate, dissolve or wind up, or upon any other liquidation, dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of Junior Stock, unless prior thereto, the holders of shares of Series
1 Preferred Stock shall have received in cash the Liquidation Preference.
After the payment of the Liquidation Preference, holders of the Series 1
Preferred Stock shall participate on an as-converted basis in the distribution
of the entire remaining assets and funds of the Corporation legally available
for distribution, if any. A sale or other disposition of all or substantially
all of the assets of the Corporation in one transaction or series of related
transactions shall be deemed to be a "liquidation" within the meaning of this
Section 7 unless approved by the Requisite Holders.
(b) Upon the occurrence of a consolidation, merger, corporate
reorganization, recapitalization or other similar transaction as a result of
which the beneficial holders of the Corporation's Common Stock immediately
prior to such transaction do not hold, directly or indirectly, in excess of
50% of the combined voting securities entitled to vote generally in the
election of the directors of the surviving or resulting corporation
immediately after such transaction (such occurrence, a "Change of Control
Event"), then, as part of such Change of Control Event, provision shall be
made so that the holders of the Series 1 Preferred Stock shall receive the
same consideration from such Change of Control Event as is received by the
holders of Common Stock of the Corporation (based upon the number of shares of
Common Stock deliverable to the holders of the Series 1 Preferred Stock at the
then-applicable Conversion Rate).
Section 8. Rank.
The Series 1 Preferred Stock shall rank, with respect to dividend
rights and rights upon liquidation, winding up and dissolution, junior to all
classes and series of the Corporation's preferred stock authorized or
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outstanding on the date of initial issuance of the Series 1 Preferred Stock.
Other than in respect of the Liquidation Preference, as to which it shall rank
senior to the Common Stock, the Series 1 Preferred Stock shall rank pari passu
with all classes of Common Stock.
Section 9. Other Covenants.
(a) Transfer Taxes. The Corporation shall pay any and all issue or other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of the Series 1 Preferred Stock and other
securities. The Corporation shall not, however, be required to pay any income
tax or tax that may be payable in respect of any transfer involved in the
issue or delivery of Series 1 Preferred Stock (or other securities or assets)
in a name other than that in which the shares of Series 1 Preferred Stock so
exchanged were registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Corporation the
amount of such tax or has established, to the satisfaction of the Corporation,
that such tax has been paid.
(b) Prior Notice of Certain Events. In case:
(i) the Corporation shall authorize the granting to all holders of
Common Stock of rights or warrants to subscribe for or purchase any shares of
stock of any class or of any other rights or warrants; or
(ii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change in par
value, or from par value to no par value, or from no par value to par value),
or of any consolidation or merger to which the Corporation is a party and for
which approval of any stockholders of the Corporation shall be required, or of
the sale or transfer of all or substantially all of the assets of the
Corporation or of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or other property; or
(iii) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed with the transfer agent for the
Series 1 Preferred Stock, and shall cause to be mailed to the holders of
record of the Series 1 Preferred Stock, at their last addresses as they shall
appear upon the stock transfer books of the Corporation, at least fifteen days
prior to the applicable record date hereinafter specified, a notice stating,
as the case may be, (x) the record date (if any) for the purpose of such
dividend, distribution, redemption, repurchase or granting of rights or
warrants or, if no record date is to be set, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up is expected to become effective, and
the date, if any, as of which it is expected that holders of shares of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution,
liquidation or winding up (but no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of the corporate
action required to be specified in such notice).
Section 10. Severability of Provisions.
Whenever possible, each provision hereof shall be interpreted in a manner as
to be effective and valid under applicable law, but if any provision hereof is
held to be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating or otherwise adversely affecting the remaining provisions hereof.
If a court of competent jurisdiction should determine that a provision hereof
would be valid or enforceable if a period of time were extended or shortened
or a particular percentage were increased or decreased, then such court may
make such change as shall be necessary to render the provision in question
effective and valid under applicable law.
Section 11. Definitions.
For the purposes of the Certificate of Designation of Series 1 Preferred
Stock that embodies this resolution:
(a) "Business Day" shall mean any day other than a Saturday, Sunday, or
a day on which commercial banks in the City of New York are authorized or
obligated by law or executive order to close.
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(b) "Capital Stock" shall mean (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any
and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock, (iii) in the case of a partnership or
limited liability company, partnership or membership interests (whether
general or limited) and (iv) any other interest or participation that confers
on a person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing person.
(c) "Closing Price" per share of Common Stock on any date shall mean the
last sale price, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, in either case as reported on the Nasdaq
National Market or, if the Common Stock is not listed on the Nasdaq National
Market, the last quoted sale price or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotations
System or such other system then in use, or, if on any such date the Common
Stock is not quoted by any such organization, the average of the Closing bid
and asked prices as furnished by a professional market maker making a market
in the Common Stock selected by the Board of Directors.
(d) "Common Equivalent Amount" shall mean the product of the Current
Market Price and the Conversion Rate.
(e) "Common Stock" shall mean the common stock, par value $0.0001 per
share, of the Corporation.
(f) "Conversion Rate" shall mean 100; provided, however, that in case
the Corporation shall at any time or from time to time after the original
issuance of the Series 1 Preferred Stock declare a dividend, or make a
distribution, on the outstanding shares of Common Stock in either case, in
shares of Common Stock, or effect a subdivision, combination, consolidation or
reclassification of the outstanding shares of Common Stock into a greater or
lesser number of shares of Common Stock, then, and in each such case, the
Conversion Rate in effect immediately prior to such event or the record date
therefor, whichever is earlier, shall be adjusted by multiplying the
Conversion Rate by a fraction, the numerator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event and the
denominator of which is the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this definition
shall become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the
determination of holders of shares of Common Stock entitled to receive such
dividend or distribution, or (y) in the case of any such subdivision,
reclassification, consolidation or combination, at the close of business on
the day upon which such corporate action becomes effective.
(g) "Current Market Price" per share of Common Stock on any date shall
mean the average of the Closing Prices of a share of Common Stock for the five
(5) consecutive Trading Days ending on the date in question. If on any such
Trading Day the Common Stock is not quoted by any organization referred to in
the definition of Closing Price, the fair value of the Common Stock on such
day, as reasonably determined in good faith by the Board of Directors of the
Corporation, shall be used.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Liquidation Preference" shall mean an amount per share of Series 1
Preferred Stock equal to $5.00; provided, however, that in case the
Corporation shall at any time or from time to time declare a dividend, or make
a distribution, on the outstanding shares of Series 1 Preferred Stock in
either case, in shares of Series 1 Preferred Stock, or effect a subdivision,
combination, consolidation or reclassification of the outstanding shares of
Series 1 Preferred Stock into a greater or lesser number of shares of Series 1
Preferred Stock, then, and in each such case, the Liquidation Preference in
effect immediately prior to such event or the record date therefor, whichever
is earlier, shall be adjusted by multiplying the Liquidation Preference by a
fraction, the numerator of which is the number of shares of Series 1 Preferred
Stock that were outstanding immediately prior to such event and the
denominator of which is the number of shares of Series 1 Preferred Stock
outstanding immediately after such event. An adjustment made pursuant to this
definition shall become effective (x) in the case of any such dividend or
distribution, immediately after the close of business on the record date for
the determination of holders of shares of Series 1 Preferred Stock entitled to
receive such dividend or distribution, or (y) in the case of any such
subdivision, reclassification, consolidation or combination, at the close of
business on the day upon which such corporate action becomes effective.
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(j) "Person" shall mean an individual, partnership, corporation,
limited liability company or partnership, unincorporated organization, trust
or joint venture, or a governmental agency or political subdivision thereof,
or other entity of any kind.
(k) "Requisite Holders" shall mean the holders of sixty-seven percent
(67%) of the then-outstanding shares of Series 1 Preferred Stock.
(l) "Stock Purchase Agreement" shall mean that certain Series 1 Stock
Purchase Agreement dated as of July 30, 2000 by and among the Corporation and
the purchasers of the Series 1 Preferred Stock parties thereto.
(m) "Stockholder Approval" shall mean the approval of the stockholders
of the Corporation to convert the shares of Series 1 Preferred Stock issued
pursuant to the Stock Purchase Agreement into Common Stock.
(n) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(o) "Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Stock is quoted, listed or admitted to
trading is open for the transaction of business or, if the Common Stock is not
quoted, listed or admitted to trading on any national securities exchange
(including the Nasdaq Stock Market), any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series 1 Preferred Stock to be duly executed by its President
this 2nd day of August, 2000.
/s/ David E. Rostov
-------------------------------------
David E. Rostov,
Vice President, Chief Financial
Officer and Treasurer
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APPENDIX C
DRUGSTORE.COM, INC.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of July 30, 2000
by and among drugstore.com, inc., a Delaware corporation (the "Company"), and
the investors listed on Schedule I attached hereto (each a "Purchaser" and
together the "Purchasers").
The parties hereby agree as follows:
1. Purchase and Sale of Common Stock.
1.1 Sale and Issuance of Common Stock.
1.2 Subject to the terms and conditions of this Agreement, each of the
Purchasers agrees to purchase and the Company agrees to sell and issue to such
Purchaser that number of shares of Common Stock, par value $0.0001, of the
Company (the "Common Stock"), determined by dividing the Purchase Commitment
listed opposite such Purchaser's name on Schedule I by $4.9375. The Company
shall have the right to amend Schedule I hereto to add additional Purchasers
at any time prior to the Closing, and any such Purchasers shall become parties
to this Agreement. The shares of Common Stock issued to the Purchasers
pursuant to this Agreement are hereinafter referred to as the "Stock."
(a) The Common Stock shall have the rights and restrictions as set
forth in the Amended and Restated Certificate of Incorporation of
drugstore.com, inc. (the "Restated Certificate") attached hereto as Exhibit A.
(b) The parties hereto acknowledge that, concurrently herewith, the
Company is entering into a Series 1 Preferred Stock Purchase Agreement with
the several purchasers listed on Schedule I thereto (the "Preferred Stock
Purchase Agreement"), pursuant to which such purchasers have agreed to
purchase, subject to the terms and conditions of the Preferred Stock Purchase
Agreement, at least 45,939 shares of Series 1 Preferred Stock, par value
$0.0001 per share, of the Company (the "Series 1 Preferred Stock"), having the
rights, privileges, preferences and restrictions set forth in the Certificate
of Designations of the Series 1 Preferred Stock attached hereto as Exhibit B
(the "Certificate of Designations.") Upon the receipt of the approval of the
stockholders of the Company, the shares of Series 1 Preferred Stock shall be
converted into shares of Common Stock.
1.3 Closing; Delivery.
(a) The purchase and sale of the Stock shall take place at the
offices of Simpson Thacher & Bartlett (or such other location mutually
agreeable to the parties hereto) no later than 5 business days after the
satisfaction or (subject to applicable law) waiver of the conditions set forth
in Sections 4 and 5 (excluding conditions that, by their terms, cannot be
satisfied until the Closing) (which time and place are designated as the
"Closing").
(b) At the Closing, the Company shall deliver to each Purchaser a
certificate or certificates for the number of shares of the Stock to be
purchased by such Purchaser pursuant to this Agreement against delivery of the
consideration therefor, by wire transfer of immediately available funds to the
Company's bank account.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser that:
2.1 Good Standing. Each of Company and its Subsidiaries (i) is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation; (ii) has the power and authority to own,
lease and operate its properties and carry on its business as now conducted;
and (iii) is duly qualified, licensed to do business and in good standing as a
foreign corporation in each jurisdiction where the failure to be so qualified
could reasonably be expected to have a material adverse effect on the
business, assets, operations or financial condition of the Company ("Material
Adverse Effect").
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2.2 Capitalization.
(a) The authorized capital of the Company consists of 250,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock, $0.0001 per
share (the "Preferred Stock"). The Common Stock has the rights, preferences
and privileges set forth in the Company's Restated Certificate, and the
Preferred Stock has the rights, preferences and privileges set forth in the
Certificate of Designations.
(b) As of the date of this Agreement, 52,962,714 shares of Common
Stock and no shares of Preferred Stock are issued and outstanding. All of the
outstanding shares of Common Stock have been, and when issued and paid for in
accordance with the terms of this Agreement the Stock will be, validly issued,
duly authorized, fully paid and nonassessable, and issued in compliance with
all applicable federal and state securities laws (in the case of the issuance
of the Stock, based in part upon the representations of the Purchasers in
Sections 3.4, 3.5, 3.6, 3.7 and 3.8). All of the shares of Series 1 Preferred
Stock, when issued and paid for in accordance with the terms of the Preferred
Stock Purchase Agreement, will be validly issued, duly authorized, fully paid
and nonassessable, and issued in compliance with all applicable federal and
state securities laws (based in part upon the representations of the
purchasers thereof contained in the Preferred Stock Purchase Agreement).
(c) As of the date of this Agreement (i) 17,509,148 shares of Common
Stock are reserved for issuance under the Company's 1998 Stock Plan (of which
8,000 shares have been issued pursuant to restricted stock agreements, 890,839
shares are issuable under outstanding options that are currently exercisable,
10,367,423 shares are issuable under other outstanding options that are not
currently exercisable and 6,250,886 shares remain available for future
grants), (ii) 32,404 shares of Common Stock are reserved for issuance under
the Company's Beauty.com Inc. Stock Plan (of which 9,606 shares are issuable
under outstanding options, all of which are currently exercisable and 22,798
remain available for future grants) and (iii) 1,000,000 shares of Common Stock
are reserved for issuance under the Company's 1999 Employee Stock Purchase
Plan (of which 87,719 have been issued to date).
(d) Except for the conversion privileges of the Series 1 Preferred
Stock and except as set forth in (i) the warrant to purchase 500,000 shares of
Common Stock issued on June 26, 2000 to Tel-Drug, Inc. (the "Tel-Drug
Warrant") and (ii) the warrant to purchase 2,500,000 shares of Common Stock
issued on July 30, 2000 to Amazon.com, Inc. (the "Amazon Warrant"), as of the
date of this Agreement there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal or
similar rights) or agreements, oral or in writing, for the purchase or
acquisition from the Company of any shares of its capital stock.
(e) The Stock shall constitute 14.25% of the Common Stock
outstanding as of the date of this Agreement, assuming (i) all warrants for
Common Stock outstanding as of the date of this Agreement have been exercised
for Common Stock, (ii) all options to purchase Common Stock outstanding as of
the date of this Agreement that are exercisable as of the date of this
Agreement have been exercised for Common Stock and (iii) all other rights
outstanding as of the date of this Agreement to acquire Common Stock or
securities convertible into Common Stock have been exercised for or converted
into Common Stock. The Company's only subsidiaries are DS Pharmacy, Inc., DS
Non-Pharmaceutical Sales, Inc., DS Distribution, Inc., DSGC Idaho, Inc.,
Beauty.com, Inc. and Beauty.com Sales, Inc. (each a "Subsidiary" and together,
the "Subsidiaries").
2.3 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Preferred Stock Purchase
Agreement (collectively, the "Agreements") and the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Stock and the Series 1 Preferred Stock has been
taken or will be taken prior to the Closing (subject, in the case of the
conversion of the Series 1 Preferred Stock into Common Stock, to the receipt
of the Stockholder Approval (as defined herein)), and the Agreements, when
executed and delivered by the Company, will constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws
of general application affecting enforcement of creditors' rights generally,
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and except as may be limited
by Section 6.2(c).
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2.4 Valid Issuance of Stock. The Stock that will be issued to the
Purchaser at Closing will have been duly and validly reserved for issuance
and, when issued and delivered in accordance with the terms hereof, will be
duly authorized, validly issued, fully paid and nonassessable, and free of
restrictions on transfer other than restrictions on transfer under this
Agreement and applicable state and federal securities laws. Based in part upon
the representations of the Purchasers in this Agreement, the Stock will be
issued in compliance with all applicable federal and state securities laws.
The Common Stock issuable upon conversion of the Series 1 Preferred Stock has
been duly and validly reserved for issuance, and upon issuance in accordance
with the terms of the Certificate of Designations, will be duly authorized,
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under the Preferred Stock
Purchase Agreement and applicable federal and state securities laws and will
be issued in compliance with all applicable federal and state securities laws.
2.5 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the
Company or any of its subsidiaries that (i) questions the validity of the
Agreements or the right of the Company or any of its subsidiaries, as
applicable, to enter into them, or to consummate the transactions contemplated
hereby or thereby nor is the Company aware that there is any basis for the
foregoing or (ii) if adversely determined, would have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries is a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality that (i) challenges the validity
of the Agreements or the right of the Company or any of its subsidiaries, as
applicable, to enter into this Agreement, or to consummate the transactions
contemplated hereby and thereby or (ii) would have a Material Adverse Effect.
2.6 Liabilities. The Company and its subsidiaries, on a consolidated
basis, have no liabilities and there are no contingent liabilities, required
by generally accepted accounting principles to be disclosed on a balance sheet
but that are not disclosed on the Company's audited balance sheet as of
January 2, 2000 and/or on the Company's unaudited balance sheet as of July 2,
2000 except liabilities that would not have a Material Adverse Effect.
Subsequent to July 2, 2000, the Company and its subsidiaries, on a
consolidated basis, have not incurred any liabilities or any contingent
liabilities required by generally accepted accounting principles to be
disclosed on the Company's balance sheet except liabilities that would not
have a Material Adverse Effect.
2.7 Compliance with Other Instruments. The execution, delivery and
performance of the Agreements and the consummation of the transactions
contemplated hereby and thereby will not result in any violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under or cause acceleration under any provision of
the Restated Certificate or the bylaws of the Company or any instrument,
judgment, order, writ, decree or contract to which the Company or any of its
Subsidiaries is a party or by which it is bound, or any provision of any
federal or state statute, rule or regulation applicable to the Company or any
of its Subsidiaries, the effect of which would (i) have a Material Adverse
Effect, (ii) materially and adversely affect the ability of the Company and
its Subsidiaries to perform their respective obligations under the Agreements
or (iii) result in the creation of any material lien, charge or encumbrance
upon any assets of the Company or any of its Subsidiaries.
2.8 Material Agreements. The Company has filed with the SEC all
agreements in existence as of the date of this Agreement that (a) define or
affect the rights of security holders of the Company in their capacity as
security holders including, but not limited to, such security holders' voting
rights, registration rights or standstill rights or obligations, other than
(i) the Agreement dated June 23, 2000 between the Company and WellPoint Health
Networks Inc., (ii) the Tel-Drug Warrant and (iii) the Amazon Warrant or (b)
are required to be filed under Item 601 of Regulation S-K.
2.9. Financial Statements. The financial statements of Company that
have been delivered to the Investors (including those for the period ended
July 2, 2000), (i) are in accordance with the books and records of Company and
its Subsidiaries, which have been maintained in accordance with good business
practice; (ii) have been prepared in conformity with GAAP (except as discussed
therein, the absence of footnotes for all unaudited periods and, in the case
of audited financial statements, as approved by the relevant firm of
accountants); and
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(iii) fairly present the consolidated financial position of Company as of the
dates presented therein and the results of operations, changes in financial
positions or cash flows, as the case may be, for the periods presented therein
(except, in the case of financial statements for the period ended July 2,
2000, for normal year-end audit adjustments). None of the Company or any of
the Company's Subsidiaries has any contingent obligations, liability for taxes
or other outstanding obligations that are material in the aggregate, except as
disclosed in the unaudited financial statements for the period ended July 2,
2000 (except for normal year-end audit adjustments). None of the Company or
its Subsidiaries has any contingent obligations or liability for taxes that
are material in the aggregate and that would be required to be reflected or
reserved against in the latest balance sheet of the Company, except as
disclosed in the unaudited financial statements for the period ended July 2,
2000 (except for normal year-end audit adjustments).
2.10. Investment Company. None of Company or its Subsidiaries is
subject to regulation under the Investment Company Act of 1940, or to any
federal or state statute or regulation limiting its ability to incur
indebtedness.
2.11. SEC Reporting; Information Provided. As of the date each was
filed, none of the Company's registration statements, reports or other filings
made with the Securities and Exchange Commission, contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Neither this agreement nor any document,
certificate or instrument furnished to any of the Purchasers by or on behalf
of the Company when taken in conjunction with any supplemental or revised
information furnished to any of the Purchasers in writing prior to the date
hereof contains any untrue statement of a material fact or omits, or will
omit, to state a material fact necessary to make the statements in such
documents, certificates, instruments or other information provided, in light
of the circumstances in which they were made, not misleading, except that with
respect to any projected financial information, the Company only represents
that it was prepared in good faith and the Company reasonably believes that
the assumptions made in preparing such projections were reasonable as of the
date of such projections.
2.12. Absence of Certain Changes. Since July 2, 2000, no event has
occurred and no condition exists which would have a Material Adverse Effect,
other than (i) any change in the price of the Common Stock or (ii) changes in
general economic conditions or conditions affecting the Company's industry
generally.
2.13. Real Property Holding Company. The Company is not, and has not
been, a "United States real property holding corporation" within the meaning
of Section 897(c)(2) of the Internal Revenue Code of 1986, as amended (the
"Code"), during the applicable period described in Section 897(c)(1)(A)(ii) of
the Code.
2.14 Form S-3 Eligibility. The Company and the transactions
contemplated by Section 6.2 of this Agreement meet the requirements for using
Form S-3 under the Securities Act for resale.
3. Representations and Warranties of the Purchasers. Each Purchaser hereby
represents and warrants to the Company with respect to itself that:
3.1 Authorization. Such Purchaser has full power and authority to enter
into and deliver this Agreement, and this Agreement, when executed and
delivered by the Purchaser, will constitute a valid and legally binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors' rights generally, as limited
by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and except as may be limited by Section
6.2(c)..
3.2 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Purchaser's knowledge, currently threatened against the
Purchaser or any of its subsidiaries that questions the validity of this
Agreement or the right of the Purchaser or any of its subsidiaries, as
applicable, to enter into this Agreement, or to consummate the transactions
contemplated hereby nor is the Purchaser aware that there is any basis for the
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foregoing. Neither the Purchaser nor any of its subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality that challenges the
validity of this Agreement or the right of the Purchaser or any of its
subsidiaries, as applicable, to enter into this Agreement, or to consummate
the transactions contemplated hereby.
3.3 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any provision of the governing documents of the Purchaser or any
instrument, judgment, order, writ, decree or contract to which the Purchaser
or any of its subsidiaries is a party or by which it is bound, or any
provision of any federal or state statute, rule or regulation applicable to
the Purchaser or any of its subsidiaries, the effect of which would have a
material adverse effect on the ability of the Purchaser and its subsidiaries
to perform their respective obligations under this Agreement or result in the
creation of any lien, charge or encumbrance upon any assets of the Purchaser
or any of its subsidiaries.
3.4 Purchase Entirely for Own Account. This Agreement is made with the
Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Stock to be acquired by the Purchaser will be acquired for
investment for the Purchaser's own account, not as a nominee or agent, and not
with a view to the resale or public distribution of any part thereof in
violation of any requirements of the Securities Act of 1933, as amended (the
"Securities Act") or applicable state securities laws. The Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing any Stock purchased hereunder, including, without limitation,
entering into any arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Stock, whether any such
transaction is to be settled by delivery of Common Stock or other securities,
in cash or otherwise. By executing this Agreement, the Purchaser further
represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participation to such person or to any third person, with respect to any
of the Stock.
3.5 Disclosure of Information. The Purchaser (i) has had an opportunity
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock with the Company's management and
(ii) has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions and reviews, as well as any written
information delivered by the Company to the Purchaser, were intended to
describe the aspects of the Company's business that it believes to be
material.
3.6 Restricted Securities. The Purchaser understands that the Stock has
not been, and will not be, registered under the Securities Act, by reason of a
specific exemption from the registration provisions of the Securities Act that
depends upon, among other things, the bona fide nature of the investment
intent and the accuracy of the Purchaser's representations as expressed
herein. The Purchaser understands that the shares of Stock are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the shares of Stock
indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available. The Purchaser
acknowledges that the Company has no obligation to register or qualify the
Stock for resale except as set forth in Section 6.2 hereof. The Purchaser
further acknowledges that if an exemption from registration or qualification
is available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Stock, and
on requirements relating to the Company that are outside of the Purchaser's
control, and that the Company is under no obligation, and may not be able, to
satisfy.
3.7 Legends. The Purchaser understands that the Stock, and any
securities issued in respect thereof, may bear one or all of the following
legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
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INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend required by the "Blue Sky" laws of any state to the
extent such laws are applicable to the shares represented by the certificate
so legended.
3.8 Accredited Investor. The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
4. Conditions of the Purchasers' Obligations at Closing. The obligations of
the Purchasers to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived by each Purchaser:
4.1 Representations and Warranties. The representations and warranties
of the Company shall be true and correct on and as of the date of the Closing
with the same effect as though such representations and warranties had been
made on and as of the date of the Closing (except with respect to the
representations and warranties contained in Section 2.2(b), 2.2(c) and the
first sentence of Section 2.2(e), which shall be true and correct in all
material respects as of the date of the Closing).
4.2 Performance. The Company shall have performed and complied with all
covenants, agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing and the Company shall have obtained any and all consents, permits and
waivers necessary or appropriate for consummation of the transactions
contemplated by the Agreements.
4.3 Reservation of Shares. The Stock issuable pursuant to this
Agreement shall have been duly authorized and reserved for issuance at the
Closing.
4.4 Compliance Certificate. The President of the Company shall deliver
to the Purchasers at the Closing a certificate certifying that the conditions
specified in Sections 4.1, 4.2 and 4.3 have been fulfilled.
4.5 Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing including, without limitation, the expiration or termination of all
waiting periods under the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended (the "HSR Act").
4.6 Opinion of Company Counsel. The Purchasers at the Closing shall
have received from Simpson Thacher & Bartlett, counsel for the Company, an
opinion dated as of the Closing covering the matters set forth on Exhibit C.
4.7 Preferred Stock Purchase Agreement. The Company and the purchasers
parties thereto shall have executed and delivered the Preferred Stock Purchase
Agreement covering the purchase of at least 45,939 shares of Series 1
Preferred Stock.
4.8 Delivery of Lockup Agreements. Each person listed on Exhibit D
hereto shall have executed and delivered to the Company a lockup agreement in
the form attached hereto as Exhibit F (each, a "Lockup Agreement.")
4.9 Delivery of Voting Agreements. Each person listed on Exhibit E
hereto shall have executed and delivered to the Purchasers a voting agreement
in the form attached hereto an Exhibit G (each, a "Voting Agreement") to the
effect that such person will vote its shares of Common Stock at the
Stockholder Meeting (as defined) in favor of the approval of the issuance of
the Common Stock issuable upon conversion of the Series A Preferred Stock. The
persons delivering Voting Agreements shall represent a majority of the Common
Stock.
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4.10. Minimum Investment at Closing. At the Closing, Purchasers
investing at least $62,682,825 in the aggregate in the Company under the
Agreements shall have wired their respective investments in the Company into
an escrow account maintained by Brobeck, Phleger & Harrison or an escrow agent
mutually agreeable to the Company and purchasers of a majority of the Stock
for delivery to the Company (or with respect to amounts to be wired by Hearst
Communications Corp., as may be mutually agreed between Hearst Communications
Corp. and the Purchasers), before any Purchaser is obligated to close.
4.11 Opinion of General Counsel to the Company. The Purchasers at the
Closing shall have received from the General Counsel of the Company an opinion
dated as of the Closing covering the matters set forth on Exhibit H.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company to the Purchasers under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and warranties
of the Purchasers contained in Section 3 shall be true and correct in all
material respects on and as of the date of the Closing with the same effect as
though such representations and warranties had been made on and as of the date
of the Closing (except to the extent such representations and warranties speak
as of the date of this Agreement, in which case they shall be true and correct
in all material respects on and as of the date of this Agreement).
5.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.
5.3 Compliance Certificate. A senior executive officer of each of the
Purchasers shall deliver to the Company at the Closing a certificate
certifying that the conditions specified in Sections 5.1 and 5.2 have been
fulfilled.
5.4 Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing including, without limitation, the expiration or termination of all
waiting periods under the HSR Act.
5.5 Preferred Stock Purchase Agreement. The Company and the purchasers
parties thereto shall have executed and delivered the Preferred Stock Purchase
Agreement covering the purchase of at least 45,939 shares of Series 1
Preferred Stock.
5.6 Delivery of Lockup Agreements. Each person listed on Exhibit D
hereto shall have executed and delivered to the Company a Lockup Agreement.
5.7 Delivery of Voting Agreements. Each person listed on Exhibit D
hereto shall have executed and delivered to the Purchasers a Voting Agreement.
The persons delivering Voting Agreements shall represent a majority of the
Common Stock.
6. Covenants.
6.1 HSR Act Filings. As soon as practicable after the execution of this
Agreement, the Company and each relevant Purchaser will separately file with
the Antitrust Division of the United States Department of Justice and the
United States Federal Trade Commission pursuant to the HSR Act all requisite
documents and notifications in order to provide for the issuance and sale of
the Stock pursuant to this Agreement. The parties will cooperate and
coordinate with one another in exchanging information and providing reasonable
assistance as the other party may request in connection with the foregoing.
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6.2 Registration Rights. (a) The Company hereby agrees: (i) to use its
best efforts to file a resale shelf registration statement (the "Registration
Statement") under the Securities Act as soon as reasonably practicable
covering resales of the Stock by the Purchasers and resales of the Common
Stock issuable upon conversion of the Series 1 Preferred Stock pursuant to the
Preferred Stock Purchase Agreement, (ii) to use its best efforts to cause the
Registration Statement to be declared effective as soon as reasonably
practicable but in any event within 60 days of the Closing and (iii) to
maintain the effectiveness of the Registration Statement until the earlier of
(x) the eighteen month anniversary of the effective date of the Registration
Statement and (y) the date on which all shares of Stock have been resold by
the Purchasers. At any time when the Registration Statement is effective, the
Board of Directors of the Company may determine, as indicated in a certificate
signed by any Director of the Company, the Chief Financial Officer of the
Company or the Secretary of the Company, to suspend offers and sales by
Purchasers under the Registration Statement if an event has occurred or is
reasonably likely to occur that would require additional disclosure by the
Company and that the Company has a bona fide business purpose for keeping
confidential, and the nondisclosure of which would reasonably be expected to
cause the Registration Statement to fail to comply with applicable disclosure
requirements. The Company shall give the Purchasers written notice of the
Board of Directors' determination and the Purchasers agree to suspend offers
and sales under the Registration Statement until the Company has delivered a
subsequent notice to the Purchasers revoking its prior notice; provided,
however, that the eighteen month period during which the Registration
Statement is required to be effective shall be extended by the number of days
of such suspensions. The Company may not revoke the ability of Purchasers to
make offers and sales under the Registration Statement more than three times
or for more than 90 days in the aggregate.
(b) For the period during which the Registration Statement is effective, the
Company shall:
(i) furnish to the Purchaser with respect to the Stock registered under
the Registration Statement (and to each underwriter, if any, of such Stock)
such reasonable number of copies of prospectuses in order to facilitate the
public sale or other disposition of all or any of the Stock by the
Purchaser; provided, however, that the obligation of the Company to deliver
copies of prospectuses to the Purchaser shall be subject to the receipt by
the Company of reasonable assurances from the Purchaser that the Purchaser
will comply with the applicable provisions of the Securities Act and of
such other securities or blue sky laws as may be applicable in connection
with any use of such prospectuses;
(ii) during the period when such prospectuses are required to be
delivered under the Securities Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), file all documents required to be filed
with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act
within the time periods required by the Exchange Act and the rules and
regulations promulgated thereunder;
(iii) file documents required of the Company for normal blue sky
clearance in states specified in writing by the Purchaser; provided,
however, that the Company shall not be required to qualify to do business
or consent to service of process in any jurisdiction in which it is not now
so qualified or has not so consented;
(iv) authorize for listing on the Nasdaq National Market the shares of
Stock by filing with the Nasdaq National Market a Notification of Listing
of Additional Shares (or such other form, if any, as may be required by the
Nasdaq National Market) as soon as reasonably practicable after the filing
of the Registration Statement or otherwise in accordance with the rules and
regulations of the Nasdaq National Market; and
(v) bear all expenses in connection with the procedures in this Section
6.2 and the registration of the Stock pursuant to the Registration
Statement, other than fees and expenses, if any, of counsel or other
advisers to the Purchaser or underwriting discounts, brokerage fees and
commissions incurred by the Purchaser, if any.
(c) For purposes of this Section 6.2(c), the term "Registration Statement"
shall include any preliminary or final prospectus, exhibit, supplement or
amendment included in or relating to the Registration Statement referred to in
Section 6.2(a).
(i) The Company agrees to indemnify and hold harmless each of the
Purchasers and each of their respective directors, officers, members and
partners, and each person, if any, who controls any Purchaser
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within the meaning of the Securities Act, against any losses, claims,
damages, liabilities or expenses, joint or several, to which such
Purchasers and each of their respective directors, officers, members and
partners, or such controlling person may become subject, under the
Securities Act, the Exchange Act, or any other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement
of any litigation, if such settlement is effected with the written consent
of the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in or incorporated by reference in the Registration
Statement, including the prospectus, financial statements and schedules,
and all other documents filed as a part thereof, as amended at the time of
effectiveness of the Registration Statement, including the preliminary or
final prospectus any information deemed to be a part thereof as of the time
of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to
Rule 434, of the rules and regulations of the Commission under the
Securities Act (the "Regulations"), or the prospectus, in the form first
filed with the Commission pursuant to Rule 424(b) of the Regulations, or
filed as part of the Registration Statement at the time of effectiveness if
no Rule 424(b) filing is required (the "Prospectus"), or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them, in light
of the circumstances under which they were made, not misleading, or arise
out of or are based in whole or in part on any failure of the Company to
perform its obligations under or a violation of the Securities Act, the
Exchange Act or any state securities law, and will reimburse each Purchaser
and each of their respective directors, officers, members and partners, and
each such controlling person for any legal and other expenses as such
expenses are reasonably incurred by such Purchaser or such controlling
person in connection with investigating, defending, settling, compromising
or paying any such loss, claim, damage, liability, expense or action;
provided, however, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage, liability or expense arises
out of or is based upon (i) an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of the Purchaser expressly for use therein, or (ii) the failure of
such Purchaser to comply with the covenants and agreements contained in
this Section 6.2 respecting the sale of the Stock, or (iii) any statement
or omission in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Purchaser prior to the pertinent sale
or sales by the Purchaser.
(ii) Each Purchaser will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of the Securities Act, against any losses, claims,
damages, liabilities or expenses to which the Company, each of its
directors, each of its officers who signed the Registration Statement or
controlling person may become subject, under the Securities Act, the
Exchange Act, or any other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of such Purchaser)
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained
in the Registration Statement, including the prospectus, financial
statements and schedules, and all other documents filed as a part thereof,
as amended at the time of effectiveness of the Registration Statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule
434 of the Regulations, or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements in any of them, in light of the circumstances under
which they were made, not misleading, or arise out of or are based in whole
or in part on any failure of such Purchaser to perform its obligations
under the Securities Act, the Exchange Act or any state securities law, and
will reimburse the Company, each of its directors, each of its officers who
signed the Registration Statement and each such controlling person for any
legal and other expenses as such expenses are reasonably incurred by such
Purchaser or such controlling person in connection with
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investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Purchaser expressly for use therein.
(iii) Promptly after receipt by an indemnified party under this Section
6.2(c) of notice of the threat or commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party under this Section 6.2(c) promptly notify the
indemnifying party in writing thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party for contribution or otherwise than under the
indemnity agreement contained in this Section 6.2(c) or to the extent it is
not prejudiced as a result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may
wish, jointly with all other indemnifying parties similarly notified, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a
conflict between the positions of the indemnifying party and the
indemnified party in conducting the defense of any such action or that
there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right
to select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section
6.2(c) for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel, approved by such indemnifying party, representing all of the
indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of action, in each of which
cases the reasonable fees and expenses of counsel shall be at the expense
of the indemnifying party.
(iv) If the indemnification provided for in this Section 6.2 is required
by its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (i),
(ii) or (iii) of this Section 6.2(c) in respect to any losses, claims,
damages, liabilities or expenses referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities
or expenses referred to herein in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and
the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, claim, damage, liability or expense
as well as any other relevant equitable considerations. The relative fault
of the Company and such Purchaser shall be determined by reference to,
among other things, whether the untrue or alleged statement of a material
fact or the omission or alleged omission to state a material fact relates
to information supplied by the Company or by such Purchaser and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in paragraph (iii) of this Section 6.2(c), any legal
or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set
forth in paragraph (iii) of this Section 6.2(c) with respect to the notice
of the threat or commencement of any threat or action shall apply if a
claim for contribution is to be made under this paragraph (iv); provided,
however, that no additional notice shall be required with respect to any
threat or action for which notice has been given under paragraph (iii) for
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purposes of indemnification. Notwithstanding the provisions of this Section
6.2(c)(iv), no Purchaser shall be required to contribute any amount in
excess of the net proceeds of the offering received by such Purchaser,
except in the case of willful fraud by such Purchaser. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Purchasers'
obligations to contribute pursuant to this Section 6.2(c)(iv) are several
and not joint.
6.3 Stockholder Meeting. The Company shall cause (i) a special meeting
of its common stockholders (the "Stockholder Meeting") to be held as soon as
practicable but in no event later than three months from the Closing, for the
purpose of approving the conversion of the Series 1 Preferred Stock issued
pursuant to the Preferred Stock Purchase Agreement into Common Stock or (ii)
holders of the requisite number of shares of Common Stock to deliver written
consents approving the conversion of the Series 1 Preferred Stock issued
pursuant to the Preferred Stock Purchase Agreement into Common Stock (the
action called for in (i) and (ii), the "Stockholder Approval").
6.4 No Waiver of Lockup Agreement. The Company shall not waive any
provision of any Lockup Agreement without having obtained the prior consent of
the holders of at least sixty-seven percent (67%) of the shares of Stock
purchased hereunder; provided, that any Stock purchased hereunder by persons
who have signed a Lockup Agreement shall not be deemed to be shares of Stock
for purposes of this Section 6.4; and provided, further, that the Company
shall not in any event waive any provision of any Lockup Agreement with
respect to any person listed on Exhibit D without concurrently waiving the
Lockup Agreement with respect to all persons listed on Exhibit D.
7. Miscellaneous.
7.1 Survival of Warranties. The warranties and representations of the
Company and the Purchasers contained herein shall terminate on the second
anniversary of the Closing.
7.2 Transfer; No Third Party Beneficiaries. This Agreement and each
party's rights and obligations hereunder shall not be assigned without the
prior written consent of the other party; provided, that a Purchaser may
transfer its rights hereunder to an affiliate, so long as such affiliate
agrees in writing to be bound by all obligations under this Agreement. Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement.
7.3 Governing Law. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed by and construed in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of laws.
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page hereto, or as subsequently
modified by written notice, and if to the Company, with copies to the General
Counsel of the Company at the address of the Company set forth below and
Simpson Thacher & Bartlett, 3373 Hillview Avenue, Suite 250, Palo Alto, CA
94304, Attention: William H. Hinman, telecopy no: (650)-251-5002), and if to
any of Integral Capital Partners IV, L.P., Integral Capital Partners IV MS
Side Fund, L.P., Integral Capital Partners V, L.P. and Integral Capital
Partners V Side Fund, L.P. with a copy to Brobeck, Phleger & Harrison, Spear
Street
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Tower, One Market, San Francisco, CA 94105, Attention: Ronald Moskovitz,
telecopy no: (415-442-1010), and if to the Baron Asset Fund or Baron Capital
Funds Trust, with a copy to the Baron Asset Fund, 767 Fifth Avenue, 49th
Floor, New York, NY 10153, Attention: Linda S. Martinson, Esq.
7.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of
a finder's fee (and the costs and expenses of defending against such liability
or asserted liability) for which such Purchaser or any of its officers,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Purchaser from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company
or any of its officers, employees or representatives is responsible.
7.8 Fees and Expenses. The Company and the Purchasers shall pay their
respective fees and other expenses in connection with the negotiation,
execution, delivery and performance of the Agreements, provided that if the
Closing occurs the Company will pay the reasonable fees and expenses of
counsel for the Purchasers up to $20,000 in the aggregate.
7.9 Attorney's Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to
which such party may be entitled.
7.10 Amendments and Waivers. Any term of this Agreement may be amended
or waived only with the written consent of the Company and each of the
Purchasers. Any amendment or waiver effected in accordance with this Section
7.10 shall be binding upon each Purchaser and each transferee of the Stock,
each future holder of all such Stock, and the Company.
7.11 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a)
such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c)
the balance of the Agreement shall be enforceable in accordance with its
terms.
7.12 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any party
of any breach or default under this Agreement, or any waiver on the part of
any party of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party, shall be cumulative and not alternative.
7.13 Entire Agreement. This Agreement, and the documents referred to
herein, constitute the entire agreement between the parties hereto pertaining
to the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.
7.14 Confidentiality. Except as provided below, each party hereto
agrees that, except with the prior written permission of the other party, it
shall at all times keep confidential and not divulge, furnish or make
accessible to anyone any confidential information, knowledge or data
concerning or relating to the business or financial affairs of the other party
to which such party has been or shall become privy by reason of the
Agreements, discussions or negotiations relating to the Agreements, the
performance of its obligations thereunder
C-12
<PAGE>
or the ownership of Stock purchased hereunder. Notwithstanding the foregoing,
nothing herein shall prevent any party from disclosing (i) such information
that has been publicly disclosed, (ii) such information that becomes available
to the party on a non-confidential basis from a source other than the other
party hereto, provided that such source is not bound by a confidentiality
agreement with such other party, (iii) information required to be disclosed
pursuant to subpoena or other court process or otherwise required to be
disclosed by law or the regulations of any securities exchange (provided that,
to the extent practicable, advance notice is given to the party whose
confidential information is to be disclosed so that such party can attempt to
obtain a protective order) and (iv) such information that was known to the
party prior to its first receipt from the other party. Notwithstanding the
foregoing, the provisions of this Section 7.14 shall not be applicable to any
Purchaser that has executed a separate Non-Disclosure Agreement with the
Company (such agreement, a "Separate Agreement"), in which case the
obligations of such Purchaser shall continue in accordance with the provisions
of such Separate Agreement; provided, that the definition of "Confidential
Information" in such Separate Agreement shall be deemed to include all non-
public information received by the Purchaser to which such Purchaser shall
become privy by reason of its ownership of Stock purchased hereunder. In the
event of an express inconsistency between a Separate Agreement and this
Agreement, then this Agreement shall govern.
7.15 Publicity. After the execution of this Agreement, any of the
parties may issue a press release disclosing that the Purchasers have agreed
to invest in the Company and the terms of the future relationship between the
parties in a form approved by the other party, which approval will not be
unreasonably withheld, conditioned or delayed. In addition, any party may
disclose such information regarding the Purchasers' investment and the
relationship between the parties as required by law or the regulations of any
securities exchange.
7.16 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:
(i) at any time by mutual written consent of the Company and each of the
Purchasers; or
(ii) by any party hereto if the Closing does not occur on or prior to
October 31, 2000; (provided, that if on October 31, 2000 any authorization,
approval or permit of any governmental authority or regulatory body of the
United States or of any state that is required in connection with the
lawful issuance and sale of the Stock pursuant to this Agreement has not
been obtained, then no party shall be entitled to terminate this Agreement
pursuant to this clause (ii) until December 15, 2000 and then only if the
Closing has not occurred on or prior to such date).
Upon any such termination, this Agreement shall become void and of no
further effect, except for Sections 7.3, 7.7, 7.8, 7.9, 7.14 and this Section
7.16 which shall survive such termination.
[Signature Pages Follow]
C-13
<PAGE>
The parties have executed this Stock Purchase Agreement as of the date first
written above.
COMPANY:
DRUGSTORE.COM, INC.
By: /s/ David Rostov
-------------------------------------
Name: David Rostov
-----------------------------------
Title: Chief Financial Officer
----------------------------------
Address: 13920 SE Eastgate Way, Suite 300
--------------------------------
Bellevue, WA 98005
-----------------------------------------
Signature Page to the Common Stock Purchase Agreement
C-14
<PAGE>
PURCHASERS:
Integral Capital Partners IV, L.P.
By: Integral Capital Management IV,
LLC, its General Partner
By: /s/ Pamela K. Hagenah
---------------------------------
Name: Pamela K. Hagenah
-------------------------------
Title: Manager
------------------------------
Address: 2750 Sand Hill Road
----------------------------
Menlo Park, CA 94025
-------------------------------------
Integral Capital Partners IV MS Side
Fund, L.P.
By: Integral Capital Management NBT,
LLC, its General Partner
By: /s/ Pamela K. Hagenah
---------------------------------
Name: Pamela K. Hagenah
-------------------------------
Title: Manager
------------------------------
Address: 2750 Sand Hill Road
----------------------------
Menlo Park, CA 94025
-------------------------------------
Integral Capital Partners V, L.P.
By: Integral Capital Management V,
LLC, its General Partner
By: /s/ Pamela K. Hagenah
---------------------------------
Name: Pamela K. Hagenah
-------------------------------
Title: Manager
------------------------------
Address: 2750 Sand Hill Road
----------------------------
Menlo Park, CA 94025
-------------------------------------
Integral Capital Partners V Side
Fund, L.P.
By: ICP Management V, LLC, its
General Partner
By: /s/ Pamela K. Hagenah
---------------------------------
Name: Pamela K. Hagenah
-------------------------------
Title: Manager
------------------------------
Address: 2750 Sand Hill Road
----------------------------
Menlo Park, CA 94025
-------------------------------------
Signature Page to the Common Stock Purchase Agreement
C-15
<PAGE>
HEARST COMMUNICATIONS, INC.
By: /s/ Alfred C. Sikes
---------------------------------
Name: Alfred C. Sikes
-------------------------------
Title: Vice President
------------------------------
Address: 959 Eighth Avenue
----------------------------
New York, NY 10019
-------------------------------------
Signature Page to the Common Stock Purchase Agreement
C-16
<PAGE>
BARON ASSET FUND, on behalf of the
Baron iOpportunity Fund series
/s/ Mork Schaja
By: _________________________________
Mork Schaja
Name: _______________________________
President
Title: ______________________________
Address: 767 Fifth Avenue, 49th Floor
----------------------------
New York, NY 10153
-------------------------------------
BARON ASSET FUND, on behalf of the
Baron Growth Fund series
/s/ Mork Schaja
By: _________________________________
Mork Schaja
Name: _______________________________
President
Title: ______________________________
Address: 767 Fifth Avenue, 49th Floor
----------------------------
New York, NY 10153
-------------------------------------
BARON CAPITAL FUNDS TRUST, on behalf
of the Baron Capital Asset Fund
series
By: /s/ Linda S. Martinson
---------------------------------
Name: Linda S. Martinson
-------------------------------
Title: V.P. & General Counsel
------------------------------
Address: 767 Fifth Avenue, 49th Floor
----------------------------
New York, NY 10153
-------------------------------------
Signature Page to the Common Stock Purchase Agreement
C-17
<PAGE>
MAVERON EQUITY PARTNERS, L.P., a
Delaware Limited Partnership
By: MAVERON GENERAL PARTNERS LLC, a
Delaware Limited Liability Company
By: /s/ Dan Levitan
----------------------------------
Name: Dan Levitan
--------------------------------
Title: Manager
-------------------------------
Address: 800 Fifty Avenue, Suite 4100,
-----------------------------
Seattle, WA 98104
--------------------------------------
Signature Page to the Common Stock Purchase Agreement
C-18
<PAGE>
AMAZON.COM, INC.
By: /s/ Mark Britto
----------------------------------
Name: Mark Britto
--------------------------------
Title: VP
-------------------------------
Address: P.O. Box 81226
-----------------------------
Seattle, WA 98108-1226
--------------------------------------
Signature Page to the Common Stock Purchase Agreement
C-19
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Purchase
Purchaser Commitment
--------- --------------
<S> <C>
Integral Capital Partners IV, L.P. ....................... $10,620,700.75
Integral Capital Partners IV MS Side Fund, L.P. .......... $ 50,165.00
Integral Capital Partners V, L.P. ........................ $ 4,278,067.25
Integral Capital Partners V Side Fund, L.P. .............. $ 51,068.57
Hearst Communications, Inc. .............................. $ 5,000,000
Baron Asset Fund, on behalf of the Baron iOpportunity Fund
series................................................... $ 2,000,000
Baron Asset Fund, on behalf of the Baron Growth Fund
series................................................... $ 11,000,000
Baron Capital Funds Trust, on behalf of the Baron Capital
Asset Fund Series........................................ $ 2,000,000
Maveron Equity Partners, L.P. ............................ $ 2,000,000
Amazon.com, Inc. ......................................... $ 3,000,000
--------------
Total...................................................
==============
</TABLE>
C-20
<PAGE>
EXHIBITS
Exhibit A-- Amended and Restated Certificate of Incorporation of the Company
Exhibit B-- Certificate of Designation of Series 1 Preferred Stock
Exhibit C-- Matters to be covered in legal opinion of Simpson Thacher & Bartlett
Exhibit D-- Persons that will deliver Lockup Agreements
Exhibit E-- Persons that will deliver Voting Agreements
Exhibit F-- Form of Lockup Agreement
Exhibit G-- Form of Voting Agreement
Exhibit H-- Matters to be covered in opinion of General Counsel to the Company
C-21
<PAGE>
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION OF THE COMPANY
C-22
<PAGE>
EXHIBIT B
CERTIFICATE OF DESIGNATIONS OF SERIES 1 PREFERRED STOCK
C-23
<PAGE>
EXHIBIT C
MATTERS TO BE COVERED BY LEGAL OPINION OF
SIMPSON THACHER & BARTLETT
C-24
<PAGE>
EXHIBIT D
PERSONS THAT WILL SIGN LOCKUP AGREEMENTS
Kleiner Perkins Caufield & Byers VIII, L.P.
KPCB Life Sciences Zaibatsu Fund II, L.P.
KPCB VIII Founders Fund, L.P.
Amazon.com, Inc. (except in respect of 1,066,667 shares of Common Stock)
Maveron Equity Partners, L.P.
Vulcan Ventures Incorporated
Rite Investments Corp.
General Nutrition Investment Company
Peter Neupert
Peter Neupert and Sheryl Neupert, Tenants in Common
Kal Raman
David Rostov (other than in respect of 40,000 shares)
David Rostov, as custodian
Judith H. McGarry (other than in respect of 40,000 shares)
Drugstore.com Foundation
L. John Doerr
C-25
<PAGE>
EXHIBIT E
PERSONS THAT WILL SIGN VOTING AGREEMENTS
Kleiner Perkins Caufield & Byers VIII, L.P.
KPCB Life Sciences Zaibatsu Fund II, L.P.
KPCB VIII Founders Fund, L.P.
Amazon.com, Inc.
Maveron Equity Partners, L.P.
Vulcan Ventures Incorporated
Rite Investments Corp.
General Nutrition Investment Company
Peter Neupert
Peter Neupert and Sheryl Neupert, Tenants in Common
Kal Raman
Mark L. Silverman
David Rostov
David Rostov, as custodian
Judith H. McGarry
Drugstore.com Foundation
Hearst Communications, Inc.
Integral Capital Partners IV, L.P.
Integral Capital Partners IV MS Side Fund, L.P.
Integral Capital Partners V, L.P.
Integral Capital Partners V Side Fund, L.P.
Baron Asset Fund
Baron Capital Funds Trust
L. John Doerr
C-26
<PAGE>
EXHIBIT F
FORM OF LOCKUP AGREEMENT
C-27
<PAGE>
EXHIBIT G
FORM OF VOTING AGREEMENT
C-28
<PAGE>
EXHIBIT H
MATTERS TO BE COVERED BY THE OPINION OF GENERAL COUNSEL
TO THE COMPANY
C-29
<PAGE>
APPENDIX D-1
PERSONS THAT WILL SIGN VOTING AGREEMENTS
Kleiner Perkins Caufield & Byers VIII, L.P.
KPCB Life Sciences Zaibatsu Fund II, L.P.
KPCB VIII Founders Fund, L.P.
Amazon.com, Inc.
Maveron Equity Partners, L.P.
Vulcan Ventures Incorporated
Rite Investments Corp.
General Nutrition Investment Company
Peter Neupert
Peter Neupert and Sheryl Neupert, Tenants in Common
Kal Raman
David Rostov
David Rostov, as custodian
Judith H. McGarry
Drugstore.com Foundation
Hearst Communications, Inc.
Integral Capital Partners IV, L.P.
Integral Capital Partners IV MS Side Fund, L.P.
Integral Capital Partners V, L.P.
Integral Capital Partners V Side Fund, L.P.
Baron Asset Fund, on behalf of the Baron iOpportunity Fund series
Baron Asset Fund, on behalf of the Baron Growth Fund series
Baron Capital Funds Trust
L. John Doerr
D-1
<PAGE>
APPENDIX D-2
FORM OF VOTING AGREEMENT
July 30, 2000
The Purchasers listed on Schedule I
(the "Purchasers") to the Stock Purchase
Agreement, dated as of July 30, 2000, among
The Purchasers and drugstore.com, inc.
(the "Purchase Agreement")
The Purchasers listed on Schedule I
(the "Purchasers") to the Series A Preferred
Stock Purchase Agreement, dated as of July 30, 2000,
among the Purchasers and drugstore.com, inc.
(the "Purchase Agreement")
Dear Sirs and Mesdames:
The undersigned is a holder of common stock, par value $0.0001 per share
(the "Common Stock"), of drugstore.com, inc. (the "Company").
The undersigned hereby agrees that it shall vote all of its shares of Common
Stock at the Stockholder Meeting (as defined in the Purchase Agreement) in
favor of the conversion of the Company's Series A Preferred Stock, par value
$0.0001 per share, into Common Stock as contemplated by the Purchase Agreement
and in accordance with the provisions of the Certificate of Designations of
the Series A Preferred Stock attached to the Purchase Agreement as Exhibit B.
The obligations of the undersigned pursuant to this letter agreement shall
terminate immediately upon the termination of the Purchase Agreement in
accordance with its terms.
Very truly yours,
-------------------------------------
(Signature)
Print Name:
-------------------------
-------------------------------------
(Address)
D-2
<PAGE>
APPENDIX E-1
FORM OF LOCKUP AGREEMENT
July 30, 2000
drugstore.com, inc.
13920 SE Eastgate Way, Suite 300
Bellevue, WA 98005
Dear Sirs and Mesdames:
The undersigned understands that drugstore.com, inc., a Delaware corporation
(the "Company") and the Purchasers listed on Schedule I thereto (the
"Purchasers") have entered into a Stock Purchase Agreement, dated as of July
30, 2000 (the "Purchase Agreement") providing for the purchase (the
"Purchase") by the Purchasers of shares (the "Shares") of Common Stock,
$0.0001 par value per share, of the Company (the "Common Stock").
To induce the Purchasers to enter into the Purchase Agreement, the
undersigned hereby agrees that, without the prior written consent of the
Company, it will not, during the period commencing upon the date of this
agreement and ending 180 days after the date of the effectiveness of the
Registration Statement (as defined in the Purchase Agreement), (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) transactions relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the Purchase; (b) a bona fide gift or gifts to the undersigned's
immediate family, provided that the donee or donees thereof agree in writing
to be bound by the terms of this agreement; (c) a distribution to the limited
partners or stockholders of the undersigned after the date of the Purchase
Agreement, provided that the distributees thereof agree in writing to be bound
by the terms of this agreement; (d) a transfer to any trust for the benefit of
the undersigned or the undersigned's immediate family, provided that the
trustee of the trust agrees in writing, on behalf of the trust, to be bound by
the terms of this agreement or (e) a transfer to an affiliate of the
undersigned, provided that such affiliate agrees in writing to be bound by the
terms of this agreement. If the donor or transferor in (b), (c) or (d) above
is a reporting person subject to Section 16(a) of the Securities Exchange Act
of 1934 (the "Exchange Act"), any gifts or transfers made in accordance with
this paragraph shall not require such person to, and such person shall not
voluntarily, file a report of such transaction on Form 4 under the Exchange
Act. As used herein, the term "immediate family" shall mean the undersigned's
spouse or lineal descendants or ancestors. The obligations of the undersigned
pursuant to this letter agreement shall terminate immediately upon the
termination of the Purchase Agreement in accordance with its terms.
Very truly yours,
-------------------------------------
(Signature)
Print Name:
-------------------------
-------------------------------------
(Address)
E-1
<PAGE>
APPENDIX E-2
LOCKUP AGREEMENT
July 30, 2000
drugstore.com, inc.
13920 SE Eastgate Way, Suite 300
Bellevue, WA 98005
Dear Sirs and Mesdames:
The undersigned understands that drugstore.com, inc., a Delaware corporation
(the "Company") and the Purchasers listed on Schedule I thereto (the
"Purchasers") have entered into a Stock Purchase Agreement, dated as of July
30, 2000 (the "Purchase Agreement") providing for the purchase (the
"Purchase") by the Purchasers of shares (the "Shares") of Common Stock,
$0.0001 par value per share, of the Company (the "Common Stock").
To induce the Purchasers to enter into the Purchase Agreement, the
undersigned hereby agrees that, without the prior written consent of the
Company, it will not, during the period commencing upon the date of this
agreement and ending 180 days after the date of the effectiveness of the
Registration Statement (as defined in the Purchase Agreement), (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) transactions relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the Purchase; (b) a bona fide gift or gifts to the undersigned's
immediate family, provided that the donee or donees thereof agree in writing
to be bound by the terms of this agreement; (c) a distribution to the limited
partners or stockholders of the undersigned after the date of the Purchase
Agreement, provided that the distributees thereof agree in writing to be bound
by the terms of this agreement; (d) a transfer to any trust for the benefit of
the undersigned or the undersigned's immediate family, provided that the
trustee of the trust agrees in writing, on behalf of the trust, to be bound by
the terms of this agreement; (e) a transfer to an affiliate of the
undersigned, provided that such affiliate agrees in writing to be bound by the
terms of this agreement or (f) the transfer of an aggregate of 1,066,667
shares of Common Stock owned by the undersigned. If the donor or transferor in
(b), (c) or (d) above is a reporting person subject to Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act"), any gifts or transfers
made in accordance with this paragraph shall not require such person to, and
such person shall not voluntarily, file a report of such transaction on Form 4
under the Exchange Act. As used herein, the term "immediate family" shall mean
the undersigned's spouse or lineal descendants or ancestors. The obligations
of the undersigned pursuant to this letter agreement shall terminate
immediately upon the termination of the Purchase Agreement in accordance with
its terms.
Very truly yours,
AMAZON.COM, INC
/s/ Mark Britto
---------------------------------------
(Signature)
Print Name: Mark Britto, Vice President
---------------------------
P.O. Box 81226
---------------------------------------
(Address)
Seattle, WA 98108-1226
E-2
<PAGE>
APPENDIX E-3
LOCKUP AGREEMENT
July 30, 2000
drugstore.com, inc.
13920 SE Eastgate Way, Suite 300
Bellevue, WA 98005
Dear Sirs and Mesdames:
The undersigned understands that drugstore.com, inc., a Delaware corporation
(the "Company") and the Purchasers listed on Schedule I thereto (the
"Purchasers") have entered into a Stock Purchase Agreement, dated as of July
30, 2000 (the "Purchase Agreement") providing for the purchase (the
"Purchase") by the Purchasers of shares (the "Shares") of Common Stock,
$0.0001 par value per share, of the Company (the "Common Stock").
To induce the Purchasers to enter into the Purchase Agreement, the
undersigned hereby agrees that, without the prior written consent of the
Company, it will not, during the period commencing upon the date of this
agreement and ending 180 days after the date of the effectiveness of the
Registration Statement (as defined in the Purchase Agreement), (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) transactions relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the Purchase; (b) a bona fide gift or gifts to the undersigned's
immediate family, provided that the donee or donees thereof agree in writing
to be bound by the terms of this agreement; (c) a distribution to the limited
partners or stockholders of the undersigned after the date of the Purchase
Agreement, provided that the distributees thereof agree in writing to be bound
by the terms of this agreement; (d) a transfer to any trust for the benefit of
the undersigned or the undersigned's immediate family, provided that the
trustee of the trust agrees in writing, on behalf of the trust, to be bound by
the terms of this agreement; (e) a transfer to an affiliate of the
undersigned, provided that such affiliate agrees in writing to be bound by the
terms of this agreement; or (f) an aggregate of 40,000 shares held by the
undersigned. If the donor or transferor in (b), (c) or (d) above is a
reporting person subject to Section 16(a) of the Securities Exchange Act of
1934 (the "Exchange Act"), any gifts or transfers made in accordance with this
paragraph shall not require such person to, and such person shall not
voluntarily, file a report of such transaction on Form 4 under the Exchange
Act. As used herein, the term "immediate family" shall mean the undersigned's
spouse or lineal descendants or ancestors. The obligations of the undersigned
pursuant to this letter agreement shall terminate immediately upon the
termination of the Purchase Agreement in accordance with its terms.
Very truly yours,
/s/ David Rostov
-------------------------------------
(Signature)
Print Name: David Rostov
-------------------------
4320 NE 44th St., Seattle, WA 98105
-------------------------------------
(Address)
E-3
<PAGE>
APPENDIX E-4
LOCKUP AGREEMENT
July 30, 2000
drugstore.com, inc.
13920 SE Eastgate Way, Suite 300
Bellevue, WA 98005
Dear Sirs and Mesdames:
The undersigned understands that drugstore.com, inc., a Delaware corporation
(the "Company") and the Purchasers listed on Schedule I thereto (the
"Purchasers") have entered into a Stock Purchase Agreement, dated as of July
30, 2000 (the "Purchase Agreement") providing for the purchase (the
"Purchase") by the Purchasers of shares (the "Shares") of Common Stock,
$0.0001 par value per share, of the Company (the "Common Stock").
To induce the Purchasers to enter into the Purchase Agreement, the
undersigned hereby agrees that, without the prior written consent of the
Company, it will not, during the period commencing upon the date of this
agreement and ending 180 days after the date of the effectiveness of the
Registration Statement (as defined in the Purchase Agreement), (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (a) transactions relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the Purchase; (b) a bona fide gift or gifts to the undersigned's
immediate family, provided that the donee or donees thereof agree in writing
to be bound by the terms of this agreement; (c) a distribution to the limited
partners or stockholders of the undersigned after the date of the Purchase
Agreement, provided that the distributees thereof agree in writing to be bound
by the terms of this agreement; (d) a transfer to any trust for the benefit of
the undersigned or the undersigned's immediate family, provided that the
trustee of the trust agrees in writing, on behalf of the trust, to be bound by
the terms of this agreement; (e) a transfer to an affiliate of the
undersigned, provided that such affiliate agrees in writing to be bound by the
terms of this agreement; or (f) an aggregate of 40,000 shares held by the
undersigned. If the donor or transferor in (b), (c) or (d) above is a
reporting person subject to Section 16(a) of the Securities Exchange Act of
1934 (the "Exchange Act"), any gifts or transfers made in accordance with this
paragraph shall not require such person to, and such person shall not
voluntarily, file a report of such transaction on Form 4 under the Exchange
Act. As used herein, the term "immediate family" shall mean the undersigned's
spouse or lineal descendants or ancestors. The obligations of the undersigned
pursuant to this letter agreement shall terminate immediately upon the
termination of the Purchase Agreement in accordance with its terms.
Very truly yours,
/s/ Judith McGarry
-------------------------------------
(Signature)
Print Name: Judith McGarry
-------------------------
-------------------------------------
(Address)
E-4
<PAGE>
PROXY
drugstore.com, inc.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
DRUGSTORE.COM, INC.
The undersigned stockholder of drugstore.com, inc., a Delaware corporation,
hereby appoints Peter M. Neupert and Mark L. Silverman as proxies for the
undersigned, with full power of substitution, to attend the special meeting of
stockholders of drugstore.com, inc. to be held on ____, ___________, 2000 at
9:00 AM Pacific Time, at _____________________, and at any adjournment(s) or
postponement(s) thereof, to cast on behalf of the undersigned all votes that the
undersigned is entitled to cast at such meeting and otherwise to represent the
undersigned at the meeting, with the same effect as if the undersigned were
present. The undersigned hereby revokes any proxy previously given with respect
to such shares.
Shares represented by this proxy will be voted as directed by the
stockholder. If no such directions are indicated, the proxies will have
authority to vote FOR the proposals.
The undersigned acknowledges receipt of the Notice of the Special Meeting
of Stockholders and the accompanying Proxy Statement.
SEE REVERSE SIDE
---------------------------------------------------------
FOLD AND DETACH HERE.
<PAGE>
________________________________________________________________________________
Please mark votes as [X]
in this example.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF THIS PROXY IS EXECUTED BUT NO SPECIFICATION IS MADE,
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR THE PROPOSAL AND
OTHERWISE IN THE DISCRETION OF THE PROXIES AT THE MEETING OR ANY ADJUSTMENT(S)
OR POSTPONEMENT(S) THEREOF.
The board of directors recommends a vote FOR the Proposal.
Proposal to approve the conversion by holders of outstanding shares of our
Series 1 preferred stock, par value $.0001 per share, into shares of our common
stock, par value $.0001 per share.
FOR AGAINST ABSTAIN
[_] [_] [_]
Proposal to transact such other business as may properly come before the special
meeting or any postponement or adjustment thereof.
[_] [_] [_]
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [_]
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [_]
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY
IN THE ENCLOSED ENVELOPE.
Signature: ______________________________________ Date: _____________________
Please sign exactly as name appears hereon and date. If the shares are held
jointly, each holder should sign. When signing as an attorney, executor,
administrator, trustee, guardian or as an officer signing for a corporation,
please sign name and title.
---------------------------------------------------------
FOLD AND DETACH HERE.
