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EXHIBIT 3.1a
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
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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) (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
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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) 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.
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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).
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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 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
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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.
(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.
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(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.
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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 Vice
President this 2nd day of August, 2000.
/s/ David E. Rostov
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David E. Rostov,
Vice President, Chief Financial Officer and
Treasurer
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