<PAGE>
As filed with the Securities and Exchange Commission on July 8, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PLANETRX.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5912 94-3227733
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
349 Oyster Point Blvd., Suite 201
South San Francisco, CA 94080
(650) 616-1500
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
William J. Razzouk, Chairman and Chief Executive Officer
PlanetRx.com, Inc.
349 Oyster Point Blvd., Suite 201
South San Francisco, CA 94080
(650) 616-1500
(Name, Address Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------
COPIES TO:
<TABLE>
<S> <C>
Robert V. Gunderson, Jr. Larry W. Sonsini
Jeffrey P. Higgins John T. Sheridan
Jonathan J. Noble Elizabeth A. Blomberg
David B. Davis Richard S. Au
GUNDERSON DETTMER STOUGH WILSON SONSINI GOODRICH & ROSATI
VILLENEUVE FRANKLIN & HACHIGIAN, LLP PROFESSIONAL CORPORATION
155 Constitution Drive 650 Page Mill Road
Menlo Park, CA 94025 Palo Alto, CA 94304
(650) 321-2400 (650) 493-9300
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Title of Each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $0.0001 par
value........................ $69,000,000 $19,182
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated July 8, 1999.
[Company Logo]
Shares
PlanetRx.com, Inc.
Common Stock
------------
This is an initial public offering of shares of common stock of
PlanetRx.com, Inc. PlanetRx.com is offering all of the shares to be sold in the
offering.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . Application has been made for
quotation of the common stock on the Nasdaq National Market under the symbol
"PLRX".
See "Risk Factors" beginning on page 7 to read about certain factors you
should consider before buying shares of the common stock.
------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
------------
<TABLE>
<CAPTION>
Per Share Total
--------- ---------
<S> <C> <C>
Initial public offering price........................... $ $
Underwriting discounts.................................. $ $
Proceeds, before expenses, to PlanetRx.com.............. $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional shares from PlanetRx.com at the initial price to public less
the underwriting discount.
------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Goldman, Sachs & Co.
BancBoston Robertson Stephens
Hambrecht & Quist
William Blair & Company
------------
Prospectus dated , 1999.
<PAGE>
INSIDE FRONT COVER
GATEFOLD PICTURE. Computer screen shot of our Women's Health eCenter web
page on left-hand side of gatefold. Computer screen shot of PlanetRx.com
homepage on right-hand side of gatefold with arrows highlighting key features
of the homepage.
PlanetRx.com has applied for trademarks for PlanetRx, PlanetRx.com,
eCenter, Healthy Reward and QuickClick Shopping. All other brand names or
trademarks appearing in this prospectus are the property of their respective
holders.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding PlanetRx.com and the financial statements appearing
elsewhere in this prospectus. Unless otherwise indicated, this prospectus
assumes:
. the automatic conversion of PlanetRx.com's outstanding preferred stock
into 23,433,045 shares of common stock upon closing of the offering;
. the exercise and conversion of all outstanding warrants to purchase
100,000 shares of our series A preferred stock, warrants to purchase
16,000 shares of our series B preferred stock and the purchase option for
700,000 shares of our series B preferred stock; and
. no exercise of the underwriters' over-allotment option.
References in this prospectus to "we", "us" or "our" refer to PlanetRx.com
unless otherwise noted. Our fiscal year ends on December 31st of each year. All
references to our fiscal year refer to the twelve-month period ending on
December 31st of that year.
PlanetRx.com
PlanetRx.com is a leading online healthcare destination for commerce,
content and community. Our e-commerce website, www.PlanetRx.com, launched on
March 18, 1999, provides a convenient, private and informative shopping
experience. We offer products in six categories: prescription drugs; non-
prescription drugs; personal care; beauty and spa; vitamins, herbs and
nutrition; and medical supplies.
As individuals increasingly turn to the Internet to address their
healthcare needs, we believe that up-to-date information in an easy-to-
understand format is essential in making healthcare decisions. We provide in-
depth information on symptoms, treatments and alternative care for over 100
disease categories, enabling consumers to find answers to their critical
healthcare questions.
In addition, we own and operate a network of satellite websites that
provide both content and an extended community where people interested in
chronic health conditions can interact. These websites include diabetes.com,
depression.com, obesity.com and alzheimers.com. The satellite websites have the
same look and feel as our PlanetRx.com website.
The PlanetRx.com Market
Our market consists of prescription drugs, non-prescription drugs, personal
care products, beauty and spa products, vitamins, herbs and nutrition products
and medical supplies. Based on estimates from the National Association of Chain
Drugstores (NACDS), we believe that the U.S. market for health and personal
care products was approximately $175 billion in 1998.
To date, products within our market segments have been sold primarily
through chain drugstores, mass market retailers and supermarkets, warehouse
clubs, mail-order companies and independent drugstores and pharmacies. However,
consumers are beginning to use the Internet to fulfill their healthcare needs.
Consumers are using the Internet not only for online shopping, but also
increasingly as a source for health and medical information and as a means to
interact with other individuals with similar healthcare concerns. We believe
that this trend is a result of the limitations of traditional distribution
channels which are inconvenient, have limited selection, provide insufficient
information and lack a forum for community.
The PlanetRx.com Healthcare Destination
Our websites offer a convenient shopping experience, extensive product
selection, professionally-created content and online
3
<PAGE>
communities developed around specific health-related topics. We believe that we
offer one of the largest selections of health and personal care products
available on the Internet, with over 27,000 stock keeping units (SKUs). Our
other key advantages include:
. access 24 hours a day, seven days a week from anywhere Internet access is
available;
. direct shipping to the customer;
. online search capabilities for products and information;
. excellent customer service;
. order-tracking information;
. reliable and accessible healthcare information; and
. online forums for consumer interaction.
We operate our own distribution center and pharmacy in Memphis, Tennessee.
Our pharmacy is staffed 24 hours a day, seven days a week with experienced
pharmacists who are members of the American Pharmaceutical Association. We are
licensed to ship prescription products in all U.S. states and territories.
To enhance the customer shopping experience, we strive to provide
personalized and confidential information, including:
. e-mail reminders to customers for prescription or non-prescription
product refills;
. answers to consumers' e-mailed questions within 24 hours of receipt;
. newsletters to notify customers of special offers and new product
announcements;
. a level of privacy that is difficult to achieve in traditional stores;
. a secure environment for the storage of a customer's medical, purchasing
and payment information; and
. the ability to store product preferences, allowing customers to quickly
purchase or reorder these items.
The PlanetRx.com Strategy
Our strategy is to attract new customers, develop customer loyalty and
promote repeat purchases by:
. continuing to build our brand in order to be recognized as a premier
healthcare destination on the Internet;
. continuing to build premier content and community websites to enhance
commerce and other revenue opportunities;
. maintaining an independent distribution center and pharmacy to retain
strict control over logistics and to provide excellent customer service;
. utilizing technology to improve the customer shopping experience;
. continuing to expand our product offerings; and
. developing strategic relationships to further e-commerce opportunities.
To further our business strategy, we have entered into and will continue to
pursue key strategic relationships, such as:
. marketing relationships with online partners including AOL, Yahoo!,
iVillage, Women.com, XOOM.com and Netcentives;
. advertising relationships, such as our agreement with News Corporation
for television and other traditional media advertising; and
. disease state management sponsorships on our websites.
Corporate Information
We were incorporated in Delaware in March 1995. Our corporate offices are
located at 349 Oyster Point Blvd., Suite 201, South San Francisco, CA 94080.
Our telephone number is (650) 616-1500. Information contained on our website
does not constitute a part of this prospectus.
4
<PAGE>
The Offering
The following information assumes (1) the automatic conversion of
PlanetRx.com's outstanding preferred stock into 23,433,045 shares of common
stock upon closing of the offering, (2) the issuance of 849,150 shares of
common stock upon the exercise and conversion of all outstanding warrants to
purchase 100,000 shares of our series A preferred stock, warrants to purchase
16,000 shares of our series B preferred stock and the purchase option for
700,000 shares of our series B preferred stock and (3) no exercise of the
underwriters' over-allotment option. See "Underwriting".
<TABLE>
<C> <S>
Shares offered.................................. shares
Shares to be outstanding after the offering(1).. shares
Use of proceeds................................. For general corporate
purposes, principally working
capital and capital
expenditures.
Proposed Nasdaq National Market symbol.......... "PLRX"
</TABLE>
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, 1995 Six Months Ended
(inception) to Year Ended December 31, June 30,
December 31, ---------------------------- ------------------
1995 1996 1997 1998 1998 1999
-------------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenue:
e-commerce............. $ -- $ -- $ -- $ -- $ -- $ 622
Sponsorship............ -- -- -- -- -- 195
-------- -------- -------- -------- -------- --------
-- -- -- -- -- 817
-------- -------- -------- -------- -------- --------
Cost of net revenue:
e-commerce............. -- -- -- -- -- 694
Sponsorship............ -- -- -- -- -- 35
-------- -------- -------- -------- -------- --------
-- -- -- -- -- 729
-------- -------- -------- -------- -------- --------
Gross profit............ -- -- -- -- -- 88
-------- -------- -------- -------- -------- --------
Operating expenses:
Marketing and sales.... -- -- -- 907 3 9,614
Product development.... 22 7 113 1,025 106 3,254
General and
administrative........ -- -- 23 541 2 2,366
Stock-based
compensation.......... -- -- -- 1,650 -- 4,308
-------- -------- -------- -------- -------- --------
Total operating
expenses............. (22) (7) (136) (4,123) (111) (19,542)
-------- -------- -------- -------- -------- --------
Operating loss.......... (22) (7) (136) (4,123) (111) (19,454)
Interest income......... -- -- -- 38 -- 399
Interest expense........ -- -- (1) (2) -- (1,046)
-------- -------- -------- -------- -------- --------
Net loss................ $ (22) $ (7) $ (137) $ (4,087) $ (111) $(20,101)
======== ======== ======== ======== ======== ========
Basic and diluted net
loss per share(2)...... $ (9.12) $ (8.35)
======== ========
Basic and diluted pro
forma net loss per
share (unaudited)(2)... $ (1.00) $ (1.04)
======== ========
Weighted average shares
used to compute basic
and diluted net loss
per share(2)........... 448 2,528
======== ========
Weighted average shares
used to compute
pro forma basic and
diluted net loss per
share (unaudited)(2)... 4,102 20,210
======== ========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
June 30, 1999
------------------
As
Actual Adjusted(3)
------- ----------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................................. $62,688 $
Working capital............................................ 71,712
Total assets............................................... 85,236
Borrowings and capital lease obligations, long-term........ 1,600
Total stockholders' equity................................. 78,995
</TABLE>
- --------
(1) Based on shares outstanding as of June 30, 1999. Includes an aggregate of
849,150 shares of common stock issuable upon the exercise and conversion of
all outstanding warrants to purchase 100,000 shares of our series A
preferred stock, warrants to purchase 16,000 shares of our series B
preferred stock and the purchase option for 700,000 shares of our series B
preferred stock as of June 30, 1999, substantially all of which are
expected to be issued upon the completion of this offering. Also assumes
the conversion of all outstanding preferred stock and such issuable
preferred stock. Assumes no exercise of the underwriters' over-allotment
option and excludes 1,882,750 shares of common stock reserved for issuance
under our 1998 Stock Plan of which 1,326,050 shares were subject to
outstanding options as of June 30, 1999 with a weighted average exercise
price of $1.46 per share. See "Management -- Stock Plans", "Underwriting"
and Notes 6 and 7 of Notes to the Financial Statements.
(2) See Note 1 of Notes to the Financial Statements for an explanation of the
determination of the number of shares and share equivalents used in
computing per share and pro forma per share amounts.
(3) "As adjusted" reflects the application of the net proceeds from the sale of
shares of common stock offered by us at an assumed initial
public offering price of $ per share, after deducting the underwriting
discount and estimated offering expenses and excludes the exercise of the
underwriters' over-allotment option. It also reflects the exercise and
conversion of all outstanding warrants to purchase 100,000 shares of our
series A preferred stock, warrants to purchase 16,000 shares of our series
B preferred stock and the purchase option for 700,000 shares of our series
B preferred stock. See "Use of Proceeds" and "Capitalization".
6
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations.
If any of the following risks actually occur, our business, financial
condition or operating results could be materially adversely affected. In such
case, the trading price of our common stock could decline and you may lose
part or all of your investment.
Risks Related to Our Business
Our limited operating history makes forecasting future results difficult
We were incorporated on March 31, 1995 and only began substantial
operations in September 1998. Our PlanetRx.com website was launched on March
18, 1999. As a result of our limited operating history, it is difficult to
accurately forecast our revenues and we have limited meaningful historical
financial data upon which to base planned operating expenses. We base our
current and future expense levels on our operating plans and estimates of
future revenues and our expenses are to a large extent fixed. Our revenues and
operating results are difficult for us to forecast because we operate with
substantially no backlog. As a result, we may be unable to adjust our spending
in a timely manner to compensate for any unexpected revenue shortfall. This
inability could cause our net losses in a given quarter to be greater than
expected.
We have a history of losses and we anticipate future losses and negative cash
flow
Since our inception, we have incurred significant losses and negative cash
flow, and we expect operating losses and negative cash flow to continue for
the foreseeable future. As of June 30, 1999, we had an accumulated deficit of
$25.4 million. We anticipate that our losses will increase significantly from
current levels because we expect to incur additional costs and expenses
related to:
. the development of the PlanetRx.com brand, marketing and other
promotional activities;
. the expansion of our inventory management and distribution operations at
our facilities in Memphis, Tennessee or in new facilities established
elsewhere;
. the continued development of the PlanetRx.com website, our computer
network and the systems that we use to process customers' orders and
payments;
. the expansion of our product offerings and the categories of the
products that we offer;
. the continued development of relevant, healthcare-related content on the
PlanetRx.com website;
. the development of marketing and distribution relationships with
strategic business partners;
. increases in our general and administrative functions to support our
growing operations; and
. the establishment and development of relationships in the healthcare
industry, particularly in the areas of reimbursement and managed care
with insurance companies and pharmacy benefit management companies, or
PBMs.
Our ability to become profitable depends on our ability to generate and
sustain substantially higher revenues while maintaining reasonable expense
levels. If we do achieve profitability, we cannot be certain that we would be
able to sustain or increase profitability on a quarterly or annual basis in
the future. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
7
<PAGE>
Online sales of prescription drugs, non-prescription drugs, personal care
products and medical supplies may not achieve market acceptance
If we do not attract and retain a high volume of online customers to our
website at a reasonable cost, our business and operating results will be
adversely affected. The online market for our products is in its infancy. We
may not be able to convert a large number of consumers from traditional
shopping methods to online shopping for prescription drugs, non-prescription
drugs, personal care products and medical supplies. Specific factors that
could prevent widespread consumer acceptance of the online sales of our
products, include:
. shipping charges and delivery times associated with online purchases;
. delays and other inefficiencies associated with processing orders for
prescription products covered by insurance;
. lack of reimbursement of customer prescriptions by some healthcare
payors;
. inability to serve the acute care needs of customers, including
emergency prescription drugs and other urgently needed products;
. pricing that does not meet customer expectations;
. customer concerns about the security of online transactions and the
privacy of their personal health information;
. product damage from shipping or shipments of wrong or expired products
from our suppliers, resulting in a failure to establish customers' trust
in buying our products online;
. delays in responses to customer inquiries; and
. difficulties in returning or exchanging products.
Our business will be adversely affected if we fail to establish the
PlanetRx.com brand or attract repeat customers
We believe that we must continue to strengthen the PlanetRx.com brand,
particularly because of the early stage and competitive nature of the online
market for our products. If we fail to establish our brand quickly, we will be
at a competitive disadvantage and may lose the opportunity to build a critical
mass of customers. The development of our brand will depend largely on the
success of our marketing efforts and our ability to provide consistent, high
quality customer experiences. We cannot be certain that our brand promotion
activities will be successful, or will result in increased revenues. If we
achieve increased revenues, there can be no assurance that these revenues will
be sufficient to offset the expenditures incurred in building our brand.
In addition, due to our limited operating history, we have not established
a material amount of repeat business from regular customers. While our
websites are designed to encourage repeat business, we do not yet have
sufficient historical data on how successful this strategy will be. Therefore,
it is difficult to forecast what our revenues from repeat customers will be or
our overall revenue trends.
We expect our quarterly financial results to fluctuate
We expect our revenues and operating results to vary significantly from
quarter to quarter due to a number of factors, including:
. our ability to attract visitors to the PlanetRx.com website and to
convert those visitors into customers;
. our ability to satisfy customer demand, retain existing customers and
attract new customers at a reasonable cost;
. the frequency and size of any repeat customer orders;
. the nature and amount of publicity for us or our competitors;
. changes in the growth rate of Internet usage and online purchasing;
8
<PAGE>
. the mix of products sold by us;
. our ability to maintain adequate inventory levels;
. changes in our pricing policies or the pricing policies of our online
and traditional competitors;
. purchasing patterns, including holiday purchasing patterns and the
purchasing of seasonal products such as sunscreen and allergy
medications; and
. costs related to potential acquisitions of technologies or businesses.
We currently expect that a majority of our revenues for the foreseeable
future will come from orders of prescription drugs, non-prescription drugs,
personal care products and medical supplies on our PlanetRx.com website as well
as from sponsors on our satellite websites. The volume and timing of orders are
difficult to predict because the online market for these products is in its
infancy. Our operating expenses are largely based on anticipated revenue trends
and a high percentage of our expenses are fixed in the short term. As a result,
a delay in generating or recognizing revenue for any reason could cause
significant variations in our operating results from quarter to quarter and
could result in greater than expected operating losses.
Because our operating results fluctuate and are difficult to predict, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. In some future quarter, our
operating results may fall below the expectations of public market analysts and
investors. In this event, the price of our common stock may fall.
Our business is substantially dependent on cash purchases because of limited
insurance reimbursement coverage for prescription drugs
We currently have limited access to insurance reimbursement coverage for
our prescription products. The majority of prescription drug purchases are paid
for by third-party payors. Additionally, the inclusion of prescription drugs in
certain aspects of Medicare coverage as is being considered in legislation
before the U.S. Congress also may decrease the number of customers required to
make cash payments for prescription products, which could harm our business. A
disproportionate dependence on purchases of prescriptions without reimbursement
may limit our penetration of the prescription drug market, and may thus have an
adverse impact on our business.
If we are unable to obtain additional contracts with insurance companies and
PBMs or are unable to retain existing contracts, our business may be harmed
To obtain reimbursement on behalf of our customers for the prescription
products that they purchase on our website, we need to obtain contracts with
numerous insurance companies and PBMs. Although we currently have contracts
with a limited number of insurance companies and PBMs, most of these contracts
are short-term and may be terminated with less than 30 days' prior notice.
Additionally, we do not currently have contracts with any of the four largest
PBMs, which represent a significant portion of the reimbursed payments for
prescription drugs.
Our ability to obtain additional contracts with other insurance companies
and PBMs, or retain our existing contracts for an extended period of time, is
uncertain. Many of these companies are in the early stages of evaluating the
impact of the Internet and online pharmacies on their businesses. Many of these
companies may delay their decisions to contract with online pharmacies or may
decide to develop their own Internet capabilities that may compete with us. In
addition, many insurance companies have existing contracts with chain
drugstores and PBMs that have announced their intentions to establish online
pharmacies.
In addition, it is likely that some insurance companies and PBMs will
contract with only one or a limited number of online pharmacies. If our online
competitors obtain these contracts and we do not, we would be at a competitive
disadvantage.
9
<PAGE>
Even if we are successful in gaining widespread access to insurance
reimbursement, each insurance application must be processed individually, which
will raise the costs of processing prescription orders and may delay our order
processing time, which may be harmful to our business. In addition, if
customers do not initially embrace our online insurance coverage procedure, we
may remain dependent on that portion of the market that is willing to pay cash
for their prescriptions.
We may not be able to compete successfully against current and future
competitors
We do business in a market that is highly competitive, and we expect
competition to intensify in the future. Increased competition is likely to
result in price reductions, reduced gross margins and loss of market share, any
of which could harm our net revenue and results of operations. We currently or
potentially compete with a variety of companies, many of which have
significantly greater financial, technical, marketing and other resources. Our
competitors include:
. various online stores that sell prescription drugs as well as over-the-
counter drug and health, wellness, beauty and personal care items;
. chain drugstores;
. independent drugstores and pharmacies;
. mass-market retailers;
. warehouse clubs; and
. PBMs that sell prescription drugs directly.
Most traditional drugstores have operated for a longer period of time, have
greater financial resources, have established marketing relationships with
leading manufacturers and advertisers and have secured greater presence in
distribution channels. Some of these companies may also commence or expand
their presence on the Internet. We also compete with hospitals, HMOs and mail
order prescription drug providers, all of whom are or may begin offering
products and services, as well as healthcare related information similar to our
content, over the Internet. Finally, we are aware of numerous other smaller
entrepreneurial companies that are focusing significant resources on developing
and marketing products and services that will compete directly with those
offered at PlanetRx.com.
We may face a significant competitive challenge from alliances entered into
by our competitors. For instance, one of our direct online competitors,
drugstore.com, has recently entered into a relationship that gives them access
to a major PBM. Our competitors may continue to gain access to major PBMs,
major HMOs or chain drugstores. The combined resources of these partnerships
could pose a significant competitive challenge to PlanetRx.com and could
prevent such PBMs, HMOs or chain drugstores from also entering into
relationships with us and could limit our ability to penetrate the prescription
drug market.
We believe the principal factors on which we will compete include:
. recognition of the PlanetRx.com brand;
. product selection;
. personalized services;
. convenience and ease of use;
. price;
. accessibility;
. customer service;
. quality of interactive tools;
. quality of content; and
. reliability and speed of fulfillment for products ordered.
We will have no control over how successful our competitors are in
addressing these factors. In addition, our online competitors can duplicate
many of the products or services and much of the content that we offer, with
little difficulty.
10
<PAGE>
We face uncertainty related to pharmaceutical costs and pricing
Third-party payors are increasingly challenging the price and cost-
effectiveness of medical products and services. While we may be successful in
gaining widespread access to insurance reimbursement, the efforts of third-
party payors to contain costs will place downward pressures on gross margins
from sales of prescription drugs. We cannot be certain that our products or
services will be considered cost effective or that adequate third-party
reimbursement will be available to enable us to maintain price levels
sufficient to realize adequate profit margins on prescription drugs. Any such
event would harm our business.
We depend on a limited number of suppliers and third-party carriers; if they do
not perform, we will not be able to effectively ship orders
To generate the significant customer traffic, volume of purchases and
repeat purchases that we believe are crucial to obtaining sufficient revenues,
we must develop and maintain customer trust in the timing and accuracy of our
product deliveries. We purchase a substantial majority of our prescription and
over-the-counter products from one vendor, McKesson. We have a multi-year
agreement with McKesson that requires us to purchase a substantial majority of
prescription drugs and non-prescription drugs from McKesson. However, if
McKesson were unwilling or unable to supply products to us in sufficient
quantities and in a timely manner, we may not be able to secure alternative
suppliers on acceptable terms in a timely manner, or at all.
In addition to McKesson, we use other suppliers, particularly with respect
to our other product categories. These suppliers may not continue to sell
products to us on existing terms and we may not be able to establish new or
extend current fulfillment terms on a timely or acceptable basis or at all.
Negotiating and implementing relationships with additional vendors or
distributors may take substantial time and resources. If we cannot develop and
maintain relationships with vendors that allow us to obtain sufficient
quantities of products on acceptable commercial terms, our business may be
harmed.
We also rely on third-party carriers for product shipments, including
shipments to and from our distribution facilities. We are therefore subject to
the risks, including employee strikes and inclement weather, associated with
our carriers' ability to provide delivery services to meet our fulfillment and
shipping needs. Failure to deliver products to our customers in a timely and
accurate manner would harm our reputation and our business and results of
operations.
If our healthcare content, interactive tools and other features fail to attract
or retain customers, our business will be harmed
If we fail to update and improve our healthcare content and interactive
tools in a timely and efficient manner, we may not be able to attract or retain
customers. We must continue to provide professionally created healthcare
content, interactive tools and other features that consumers demand. This will
require the expenditure of significant funds and demand a material amount of
time of senior management. In addition, we must also anticipate and respond
quickly to consumer preferences and demands regarding healthcare information.
Pharmacy or prescription processing errors could produce liability and
significant negative publicity
Mistakes relating to the dispensation of prescription drugs could produce
liability and negative publicity that would be adverse to our business.
Pharmacies occasionally make mistakes relating to prescriptions, dosage and
other aspects of the medication dispensing process. We expect that sales of
pharmaceutical products will account for a significant percentage of our
revenues. Because we distribute these products directly to the customer, we are
the most visible participant in the medication distribution chain. While we do
carry product liability insurance, it may be insufficient to cover potential
claims.
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Information provided by our pharmacists or on our PlanetRx.com website or
satellite websites may result in liability or negative publicity
In the event that our websites or our pharmacists provide erroneous or
misleading information to our customers, we may be subject to liability or
negative publicity that could have an adverse impact on our business. Our
pharmacists are required by law to offer counseling to our customers about
medication, dosage, delivery systems, common side effects and other information
deemed to be significant by the pharmacists. Our pharmacists may have a duty to
warn customers regarding any potential adverse effects of a prescription drug
if the warning could reduce or negate such effects. This counseling is in part
accomplished through e-mail, our toll-free telephone service and inserts
included with the prescription, which may increase the risk of miscommunication
because the customer is not personally present or may not have provided all
relevant information to the pharmacist. In addition, information we provide
through our Ask the Pharmacist service on our websites may subject us to
liability to the extent that it contains any inaccuracies.
The practice of medicine requires licensing under applicable state law. It
is not our intent to practice medicine and we have tried to structure our
websites and our business to avoid violation of state licensing requirements.
However, a state regulatory authority could at some time allege that some
portion of our business violates these statutes. Any such allegation could harm
our business. Further, any liability based on a determination that we engaged
in the unlawful practice of medicine may be excluded from coverage under the
terms of our general liability insurance policy.
We also post product and health-related information on our PlanetRx.com
website and related satellite websites. Moreover, because visitors to our
satellite sites post content unedited by us, such content could give rise to
liability for us. This creates the potential for claims to be made against us
for negligence, personal injury, wrongful death, product liability,
malpractice, invasion of privacy or other legal theories based on our product
or service offerings. To the extent that our content is perceived as promoting
one product over another, our reputation could be harmed. Because online
pharmacies are in an early stage of development, the amount of negative
publicity that we or the online pharmacy industry receive could be
disproportionate in relation to the negative publicity received by traditional
pharmacies.
Although we carry general liability, product liability and professional
liability insurance, our insurance may not cover potential claims of this type
or may not be adequate to protect us from all liability that may be imposed. In
addition, we could face severe negative publicity if we are sued on these or
other grounds, which could hurt the PlanetRx.com brand and prevent us from
attracting and retaining customers. We cannot be certain that we will be able
to maintain general liability, product liability and professional liability
insurance in the future on acceptable terms or with adequate coverage against
potential liabilities.
Failure to accommodate increased traffic on our website may harm our business
If we fail to accommodate increased traffic on our website, our business
may be seriously harmed. Our commerce revenues depend on the number of
customers who use our website to purchase products. We depend on the
satisfactory performance, reliability and availability of our websites,
transaction processing systems, network infrastructure, customer support
center, distribution and shipping systems.
We will be required to add additional software and hardware and further
develop and upgrade our existing technology, transaction-processing systems,
network infrastructure and distribution facilities to accommodate increased
traffic on our websites and increased sales volume. Our inability to scale our
systems may cause unanticipated system disruptions, slower response times,
degradation in levels of customer service or impaired quality and speed of
order fulfillment. We may be unable to effectively upgrade and expand our
transaction-processing systems to accommodate increases in the use of our
websites.
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We may suffer systems failures on our websites which could result in negative
publicity and reduce the volume of products sold
Any system failure that results in the unavailability of our websites or
reduced order fulfillment performance could result in negative publicity and
reduce the volume of products sold, which would negatively affect our business.
The satisfactory performance, reliability and availability of our websites,
transaction processing systems and network infrastructure are critical to our
reputation and our ability to attract and retain customers and to maintain
adequate customer service levels. From time to time, we have experienced
temporary system interruptions for a variety of reasons, including power
failures, software bugs and an overwhelming number of visitors.
In addition, because we outsource certain aspects of our system, the cause
of system interruptions may be outside of our control, and therefore we may not
be able to correct any problem in a timely manner or at all. For example, we
rely substantially on Exodus Communications to maintain our servers, and
Cybercash to handle certain elements of our transaction processing.
If we are unable to manage our growth and changing operations, our business may
be harmed
We have expanded our operations rapidly since our inception and the launch
of our PlanetRx.com website in March 1999. The number of our employees
increased from three on June 30, 1998 to 154 on June 30, 1999. Additionally,
many of our senior management have joined us within the last twelve months. We
intend to hire additional personnel in order to pursue existing and potential
market opportunities. Our growth has placed, and our anticipated future
operations will continue to place, a significant strain on our management
systems and resources. Our ability to successfully offer products and services
and implement our business strategy in a rapidly evolving market requires an
effective planning and management process. We also expect that we will need to
continue to improve our transaction-processing, operational, financial and
managerial controls and reporting systems and procedures as we grow.
Many of our senior management have no prior management experience at public
companies, and many of our executive officers have no prior management
experience in the healthcare industry. We cannot be certain that our current
and planned personnel, systems, procedures and controls will be adequate to
support our future operations, that management will be able to hire, train,
retain, motivate and manage required personnel or that our management will be
able to successfully identify, manage and exploit existing and potential market
opportunities.
We may be unable to attract and train adequate numbers of customer service
personnel
Our business depends in part on our ability to maintain superior customer
service. If we are unable to attract and train adequate numbers of customer
service personnel, our efforts to establish our brand may be harmed and our
business results may be impaired. We will need to commit significant additional
financial resources to attract and train customer service personnel in order to
provide our customers with high quality customer service.
We face risks in expanding the breadth and depth of our product offerings
It is important to our future success to expand the breadth and depth of
our product offerings. For example, we recently introduced the sale of branded
cosmetics and salon hair care products on our PlanetRx.com website. Expansion
of our product categories and product offerings in this manner will require
significant additional expenditures and could strain our management, financial
and operational resources. For example, we may need to incur significant
marketing expenses, develop relationships with new suppliers or manufacturers,
or comply with new regulations. We cannot be certain that we will be able to
expand our product categories or offerings in a cost-effective or timely
manner, or that we will
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be able to offer certain products in demand by our customers. Furthermore, any
new product offering that is not favorably received by consumers could damage
our reputation. The lack of market acceptance of new products or our inability
to generate satisfactory revenues from expanded product offerings to offset
their costs could harm our business.
If we do not successfully expand our distribution operations, our revenues may
fall below expectations
If we do not successfully expand our distribution operations on an ongoing
basis to accommodate increases in demand, we will not be able to fulfill our
customers' orders in a timely manner, which would harm our business. All of our
distribution operations are handled at our facilities in Memphis, Tennessee.
Any future expansion may cause disruptions in our business and may be
insufficient to meet our ongoing distribution requirements.
We may be unable to meet our future capital requirements
We require substantial working capital to fund our operations. We expect
that funds from operations and the proceeds of this offering will be sufficient
to fund our operations for the next twelve months, but we cannot assure you
that we will be able generate sufficient funds from our operations after that
time. In such an event, we will need to raise additional funds. However, we
cannot be sure that additional financing would be available to us on favorable
terms or at all.
If we raise funds by issuing equity, equity-related or debt securities,
these securities may have rights, preferences and privileges that are senior to
our existing common stock. In addition, the issuance of these securities may
cause immediate and substantial dilution to our existing stockholders.
We face the risk of inventory theft and diversion
Many of our products are valuable, and their small size and packaging
render them particularly susceptible to theft and diversion in the course of
fulfillment and distribution. If the security measures we use at our
distribution center and during the distribution process do not prevent
significant inventory theft and diversion, our gross profit margins and results
of operations may be harmed.
Our business would be harmed if our online security measures fail
If third parties were able to penetrate our network security or otherwise
misappropriate our users' personal information, such as prescription or health
condition information, we could be subject to liability, including lawsuits.
Any such liability would be costly, divert the attention of our management and
cause significant harm to our reputation.
Our business would be harmed if we experience significant credit card fraud
If we fail to adequately control fraudulent credit card transactions, our
revenues and results of operations would be harmed because we do not carry
insurance against this risk. Under current credit card practices, we are liable
for fraudulent credit card transactions because we do not obtain a cardholder's
signature.
Our business would be harmed if one or more of our pharmacy licenses is not
renewed
We currently hold pharmacy licenses that allow us to ship into all U.S.
states and territories, and these licenses generally must be renewed on an
annual basis. If one or more of these licenses is not renewed, for whatever
reason, our business and reputation would be significantly harmed.
Government regulation of the health care and pharmacy industries could affect
our business
Our business is subject to extensive federal, state and local regulations,
many of which are specific to pharmacies and the sale of over-the-counter
drugs. For example, pursuant to the Omnibus Budget Reconciliation Act of 1990
and related state and local regulations, our pharmacists are required to
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offer counseling to our customers about medication, dosage, delivery systems,
common side effects, adverse effects or interactions and therapeutic
contraindications, proper storage, prescription refill and other information
deemed significant by the pharmacists. We may face lawsuits or claims asserting
that we have a duty to warn customers regarding any potential adverse effects
of a prescription drug if the warning would have reduced or negated such
effects, and seeking compensatory and punitive damages for violation of such a
duty. We are also subject to federal, state and local licensing and
registration regulations with respect to, among other things, our pharmacy
operations. Regulations in this area often require subjective interpretation,
and we cannot be certain that our attempts to comply with these regulations
will be deemed sufficient by the appropriate regulatory agencies. Violations of
any regulations could result in various civil and criminal penalties, including
suspension or revocation of our licenses or registrations, seizure of our
inventory, or monetary fines, which could adversely effect our operations.
We are subject to requirements under the Controlled Substances Act and
federal Drug Enforcement Agency regulations, as well as related state and local
laws and regulations. These laws and regulations relate to our pharmacy
operations, including registration, security, record-keeping, and reporting
requirements related to the purchase, storage and dispensing of controlled
substances, prescription drugs, and certain over-the-counter drugs. Failure to
comply with these laws and regulations could result in civil liability and
criminal penalties, including suspension or revocation of our licenses or
registrations, seizure of our inventory, or monetary fines, which could
adversely affect our operations. We are also subject to laws and regulations
regarding homeopathic drugs. Under the Food, Drug & Cosmetic Act of 1938 (the
FDCA), a drug recognized in Homeopathic Pharmacopeia of the United States must
meet all compendial standards, or it will be considered misbranded or
adulterated. Because we sell homeopathic remedies, we may face enforcement
actions, lawsuits or claims asserting that we have not complied with the FDCA.
We are also required to comply with the Dietary Supplement Health and Education
Act when selling dietary supplements and vitamins.
The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are currently investigating online pharmacies and online
prescribing. The committee requested that the General Accounting Office
undertake a formal review of several issues pertaining to online pharmacies,
including an assessment of mechanisms to ensure that online pharmacies are
obeying the various state and federal regulations for the industry. We believe
that any regulations resulting from the investigations will likely result in
increased reporting and monitoring requirements.
The National Association of Boards of Pharmacy (NABP), a coalition of state
pharmacy boards, developed a program, the Verified Internet Pharmacy Practice
Sites (VIPPS), as a model for self-regulation for online pharmacies. We have
assisted the NABP with the development of the VIPPS program and intend to
comply with its criteria for certification, although we cannot be certain that
compliance with VIPPS requirements will not require substantial expenses, which
could affect our business.
Currently, the state of Tennessee does not permit the electronic
transmission of prescriptions. Regulations permitting this are pending. When
they become final, we intend to accept electronic prescriptions if they are
also permitted by the law of the states where our customers reside.
Legislation and regulations currently being considered at the federal and
state level could affect our business, including legislation or regulations
relating to confidentiality of patient records, electronic access and storage.
In addition, various state legislatures are considering new legislation related
to the regulation of nonresident pharmacies. The Health Insurance Portability
and Accountability Act of 1996 mandates the use of standard transactions,
standard identifiers, security and other provisions by the year 2000.
Regulations
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have been proposed to implement these requirements, and we are designing our
applications to comply with the proposed regulations. However, until these
regulations become final, they could change, which could cause us to use
additional resources and lead to delays in order to revise our websites and
operations. In addition, our success depends on other healthcare industry
participants complying with these regulations.
Although the FDA does not regulate the practice of pharmacy, other than
pharmacy compounding, which we currently do not engage in, FDA regulations
impact some of our product and service offerings. The FDA regulates drug
advertising and promotion, including direct-to-consumer advertising, done by or
on behalf of drug manufacturers and marketers. As we expand our product and
service offerings, more of our products and services will likely be subject to
FDA regulation. We have no experience in complying with FDA regulations as they
pertain to the regulation of medical products and services. Complying with FDA
regulations is time consuming, burdensome and expensive, and could delay our
introduction of new products or services.
The federal antikickback law prohibits the knowing and willful
solicitation, offer, payment, or receipt of "any remuneration (including any
kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash
or in kind" in return for referring an individual for healthcare services or
supplies for which payment may be made in whole or in part under any federally-
funded health care program. The statute extends both to physicians and non-
physicians alike. At the state level, laws and regulations that prohibit the
offer, payment, solicitation, or receipt of kickbacks in exchange for patient
referral may use terms such as "bribes", "rebates", "commissions", or "fee-
splitting" to describe the same prohibited conduct. Similarly, federal and
state self-referral laws exist which are aimed at curtailing over-utilization
of health care services and supplies by generally prohibiting a physician who
(or whose family) has a financial relationship with a facility or entity for
health care services or supplies from referring a patient to such a facility or
entity for healthcare services or supplies. Ensuring compliance with these laws
and regulations may be costly.
Until recently, Health Care Financing Administration guidelines prohibited
transmission of Medicare eligibility information over the Internet. We are also
subject to extensive regulation relating to the confidentiality and release of
patient records. Additional legislation governing the distribution of medical
records exists or has been proposed at both the state and federal level. It may
be expensive to implement security or other measures designed to comply with
any new legislation. Moreover, we may be restricted or prevented from
delivering patient records electronically.
Our facilities, systems and operations are vulnerable to natural disasters and
other unexpected problems
Fire, flood, power loss, telecommunica-tions failure, break-ins,
earthquakes, tornadoes and similar events could damage our communications
hardware and other computer hardware operations, which are located in South San
Francisco, California and our distribution center and pharmacy, which are
located in Memphis, Tennessee. This could cause interruptions or delays in our
business, loss of data or render us unable to accept and fulfill customer
orders. In addition, computer viruses, electronic break-ins or other similar
disruptions could harm our websites. We have no formal disaster recovery plan
and our insurance may not adequately compensate us for losses that may occur
due to failures or interruptions in our systems.
The loss of the services of one or more of our key personnel, or our failure to
attract, assimilate and retain other highly qualified personnel in the future,
could disrupt our operations and harm our business
The loss of the services of one or more of our key personnel could
seriously disrupt our business. We depend on the continued services and
performance of our senior management and other key personnel, particularly
William J. Razzouk, Chief Executive Officer and Chairman
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of the Board. Our future success also depends upon the continued service of our
executive officers and on our ability to attract and retain key sales,
marketing and support personnel, as well as pharmacists and software
developers. Competition for these individuals is intense, and we may not be
able to attract, assimilate or retain additional highly qualified personnel in
the future. Many of our senior management joined us within the last twelve
months, including Mr. Razzouk and Steve Valenzuela, our Chief Financial
Officer. Our future success depends on the ability of these officers to
effectively work together with our original management team. Except for Mr.
Razzouk, none of our officers or key employees is bound by an employment
agreement. Our relationships with these officers and key employees are at will.
We do not have "key person" life insurance policies covering any of our
employees.
If the protection of our trademarks and proprietary rights is inadequate, the
PlanetRx.com brand and our reputation could be impaired and we could lose
customers
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success. We rely
on trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, customers, partners and others to
protect our proprietary rights. These legal protections afford only limited
protection for our intellectual property and trade secrets. We have filed
applications for United States trademark registrations for, among others,
"PlanetRx.com." We may be unable to secure this registration. It is also
possible that our competitors or others will adopt service names similar to
ours, thereby impeding our ability to build brand identity and possibly leading
to customer confusion. In addition, there could be potential trade name or
trademark infringement claims brought by owners of other registered trademarks
or trademarks that incorporate variations of the term PlanetRx.com. Any claims
or customer confusion related to our trademark, or our failure to obtain
trademark registration, would negatively affect our business.
Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which we will sell our products and
services online. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of our trademarks and other proprietary rights.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets and domain names and to determine
the validity and scope of the proprietary rights of others. If third parties
prepare and file applications in the United States that claim trademarks used
or registered by us, we may oppose those applications and be required to
participate in proceedings before the United States Patent and Trademark Office
to determine priority of rights to the trademark, which could result in
substantial costs to us. Any litigation or adverse priority proceeding could
result in substantial costs and diversion of resources and could seriously harm
our business and operating results. Our means of protecting our proprietary
rights may not be adequate, and our competitors could independently develop
similar technology.
We need to leverage our domain names to be successful
Our strategy is dependent, in part, on our ability to leverage our
satellite websites and domain names to increase revenues. We currently hold the
Internet domain name "PlanetRx.com," as well as various other related names,
including arthritis.com, diabetes.com and cancer.com. Domain names generally
are regulated by Internet regulatory bodies. The regulation of domain names in
the U.S. and in foreign countries is subject to change. Regulatory bodies could
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may be unable to acquire or maintain the "PlanetRx.com" domain name or our
other domain names in all of the countries in which we conduct business.
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The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
could be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our trademarks and other
proprietary rights.
We may face costly product liability claims by consumers
The products we carry, such as prescription drugs, non-prescription drugs
and dietary supplements, are particularly susceptible to product liability
claims. Any claim of product liability by a consumer against us, regardless of
merit, could be costly financially and could divert the attention of our
management. It could also create negative publicity, which would harm our
business. Although we maintain product liability insurance, it may not be
sufficient to cover a claim if one is made.
We may be found to infringe proprietary rights of others
Third parties may claim infringement by us with respect to past, current or
future proprietary rights. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, whether meritorious
or not, could be time-consuming, result in costly litigation or require us to
enter into royalty or licensing agreements. Such royalty or licensing
agreements might not be available on terms acceptable to us or at all.
If we engage in any acquisitions, we will incur a variety of costs, and the
anticipated benefits of the acquisition may never be realized
If appropriate opportunities present themselves, we may attempt to acquire
businesses, technologies, services or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions and no material acquisition is currently
being pursued. If we do undertake any transaction of this sort, the process of
integrating an acquired business, technology, service or product may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention that would otherwise be available for ongoing development
of our business. Moreover, the anticipated benefits of any acquisition may fail
to be realized. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt, contingent liabilities
and/or amortization expenses related to goodwill and other intangible assets,
which could adversely affect our business, results of operations and financial
condition.
In addition, recent proposed changes in the Financial Accounting Standards
Board rules for merger accounting may affect our ability to make acquisitions
or be acquired. For example, elimination of the "pooling" method of accounting
for mergers could increase the amount of goodwill that we would be required to
account for if we merge with another company, which would have an adverse
financial impact on our future operating results. Further, accounting rule
changes that reduce the availability of write-offs for in-process research and
development costs in connection with an acquisition could result in the
capitalization and amortization of such costs and negatively impact results of
operations in future periods.
Year 2000 issues could affect our business
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year
2000 phenomenon. For example, we are dependent on the financial institutions
involved in processing our customers' credit card payments and a third party
that hosts our servers. We are also dependent on telecommunications vendors to
maintain our network and the United States Postal Service and other third-party
carriers to deliver orders to customers.
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We are in the process of reviewing the year 2000 compliance of our
internally developed proprietary software. This review has included testing to
determine how our systems will function at and beyond the year 2000. We expect
to complete these tests during the summer of 1999. Since inception, we have
internally developed substantially all of the systems for the operation of our
websites. These systems include the software used to provide our websites'
search, customer interaction and transaction-processing and distribution
functions, as well as monitoring and back-up capabilities. Based upon our
assessment to date, we believe that our internally developed proprietary
software is year 2000 compliant.
We are currently assessing the year 2000 readiness of our third-party
supplied software, computer technology and other services, which include
software for use in our accounting, database and security systems. The failure
of such software or systems to be year 2000 compliant could have a material
negative impact on our corporate accounting functions and the operation of our
website. As part of the assessment of the year 2000 compliance of these
systems, we have sought assurances from these vendors that their software,
computer technology and other services are year 2000 compliant. We expect this
assessment process to be completed during the summer of 1999. Based upon the
results of this assessment, we will develop and implement, if necessary, a
remediation plan with respect to third-party software, third-party vendors and
computer technology and services that may fail to be year 2000 compliant. We
expect to complete any required remediation during the summer of 1999. At this
time, the expenses associated with this assessment and potential remediation
plan that may be incurred in the future cannot be determined. Therefore, we
have not developed a budget for these expenses. The failure of our software and
computer systems and of our third-party suppliers, carriers and other service
providers to be year 2000 complaint would have a material adverse effect on us.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
year 2000 compliance of the computer systems and financial services used by
consumers. Thus, the infrastructure necessary to support our operations
consists of a network of computers and telecommunications systems located
throughout the world and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the potential
year 2000 issues that may impact the entire infrastructure. Our ability to
assess the reliability of this infrastructure is limited and relies solely on
generally available news reports, surveys and comparable industry data. Based
on these sources, we believe most entities and individuals that rely
significantly on the Internet are carefully reviewing and attempting to
remediate issues relating to year 2000 compliance, but it is not possible to
predict whether these efforts will be successful in reducing or eliminating the
potential negative impact of year 2000 issues. A significant disruption in the
ability of consumers to reliably access the Internet or portions of it or to
use their credit cards would have an adverse effect on demand for our services
and would have a material adverse effect on us.
At this time, we have not yet developed a contingency plan to address
situations that may result if we or our suppliers, carriers and other service
providers are unable to achieve year 2000 compliance because we currently do
not believe that such a plan is necessary. The cost of developing and
implementing such a plan, if necessary, could be material. Any failure of our
systems, our vendors' systems or the Internet to be year 2000 compliant could
have material adverse consequences for us. These consequences could include
difficulties in operating our websites effectively, taking product orders,
making product deliveries or conducting other fundamental parts of our
business.
We are controlled by officers, directors and existing stockholders
Executive officers, directors and entities affiliated with them will, in
the aggregate, beneficially own approximately % of our
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outstanding common stock following the completion of this offering. These
stockholders, if acting together, would be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions.
Certain antitakeover provisions could preclude an acquisition
Provisions of our certificate of incorporation, bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. See "Description of Capital Stock".
Risks Related to Internet Commerce
We depend on continued use of the Internet and growth of Internet commerce
Our future revenues and profits, if any, substantially depend upon the
widespread acceptance and use of the Internet as an effective medium of
business and communication by our target customers. Rapid growth in the use of
and interest in the Internet has occurred only recently. As a result,
acceptance and use may not continue to develop at historical rates, and a
sufficiently broad base of consumers may not adopt, and continue to use, the
Internet and other online services as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and there exist few proven services and
products.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. Our success
will depend, in large part, upon third parties maintaining the Internet
infrastructure to provide a reliable network backbone with the speed, data
capacity, security and hardware necessary for reliable Internet access and
services.
Our revenues could be negatively affected if we are required to charge taxes on
purchases
We do not collect sales or other similar taxes in respect of goods sold by
PlanetRx.com, except from purchasers located in California and Tennessee.
However, one or more additional states may seek to impose sales tax collection
obligations on out-of-state companies which engage in or facilitate online
commerce, and a number of proposals have been made at the state and local level
that would impose additional taxes on the sale of goods and services through
the Internet. Such proposals, if adopted, could substantially impair the growth
of e-commerce, and could adversely affect our ability to derive financial
benefit from such activities. Additionally, the imposition of these taxes would
force online retailers to manage a more complex transaction processing system.
If we do not respond to rapid technological changes, our services could become
obsolete and our business would be seriously harmed
If we are unable, for technical, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions or customer
requirements, our ability to build the PlanetRx.com brand and to attract and
retain customers could be adversely affected. The development of a website and
other proprietary technology entails significant technical, financial and
business risks. We may not be able to successfully implement new technologies
or adapt our websites, proprietary technology and transaction-processing
systems to customer requirements or emerging industry standards.
The Internet and the online commerce industry are characterized by rapid
technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices that
could render our existing websites, proprietary technology and systems
obsolete. To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online store. Our success
will
20
<PAGE>
depend, in part, on our ability to license leading technologies useful in our
business, enhance our existing services, develop new services and technology
that address the increasingly sophisticated and varied needs of our prospective
customers and respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
Government regulation of the Internet and data transmission over the Internet
could affect our business
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. A recent session of the United States
Congress resulted in legislation governing children's privacy, copyrights,
taxation and the transmission of sexually explicit material. The European Union
recently enacted its own privacy regulations. Laws governing the Internet,
however, remain largely unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel and taxation
apply to the Internet. In addition, the growth and development of the market
for online commerce may prompt calls for more stringent consumer protection
laws, both in the United States and abroad, that may impose additional burdens
on companies conducting business online. The adoption or modification of laws
or regulations relating to the Internet could adversely affect our business.
Risks Related to this Offering
Our stock price may be volatile which could result in losses for investors
The market price for our common stock is likely to be highly volatile,
particularly as the market for Internet-related stocks has experienced extreme
price and volume fluctuations in recent months. We expect our stock price to be
subject to wide fluctuations as a result of a variety of factors, including
factors beyond our control. These include:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new products or services
by us or our competitors;
. publicity about our company, our products and services, our competitors,
or e-commerce in general;
. changes in our financial estimates by securities analysts;
. conditions or trends in the Internet and online commerce industries;
. changes in the economic performance and/or market valuations of other
Internet, online commerce or retail companies;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
. additions or departures of key personnel;
. release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock;
and
. potential litigation.
Because of this volatility, it is likely that we will fail to meet the
expectations of our stockholders or of securities analysts at some time in the
future, and our stock price may decline as a result.
Future sales of shares could affect our stock price
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Based on shares outstanding as of June 30, 1999, upon completion
of this offering, we will have outstanding shares of common stock,
assuming no exercise of the underwriters' over-allotment option. Other than the
shares of common stock sold in this
21
<PAGE>
offering, 17,500 shares will be eligible for sale in the public market
immediately. Substantially all of our stockholders will be subject to
agreements with the underwriters or us that restrict their ability to transfer
their stock for 180 days from the date of this prospectus. After these
agreements expire, an additional 34,069,945 shares will be eligible for sale in
the public market assuming no exercise of options. See "Shares Eligible for
Future Sale" for a further description regarding shares that will become
eligible for sale at future dates after this offering.
New stockholders will incur immediate dilution as a result of this offering
The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding common stock. As a result,
investors purchasing common stock in this offering will incur immediate
substantial dilution. In addition, we have issued options to acquire common
stock at prices significantly below the initial public offering price. To the
extent such outstanding options are ultimately exercised, there will be further
dilution to investors in this offering. See "Dilution" for a more detailed
description of how new stockholders will incur dilution.
We have broad discretion to use the proceeds from this offering
Our management can use the proceeds from this offering in ways with which
the stockholders may not agree. We cannot predict that the proceeds will be
invested to yield a favorable return. See "Use of Proceeds" for how we
generally intend to use the proceeds from this offering.
We do not intend to pay any dividends
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy".
22
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates", "believes", "plans",
"expects", "future", "intends" and similar expressions to identify forward-
looking statements. This prospectus also contains forward-looking statements
attributed to third parties relating to their estimates regarding the growth of
Internet use. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described in
the preceding pages and elsewhere in this prospectus.
USE OF PROCEEDS
The net proceeds to us from the sale of the shares being offered by us
hereby at an assumed public offering price of $ per share are estimated to
be $ , after deducting the underwriting discount and estimated
offering expenses payable by us, ($ if the underwriters' over-
allotment option is exercised in full). We expect to use the net proceeds of
this offering for working capital and general corporate purposes. In addition,
we may use a portion of the net proceeds to acquire complementary technologies
or businesses. However, we currently have no commitments or agreements and are
not involved in any negotiations with respect to any such transactions. Pending
use of the net proceeds of this offering, we intend to invest the net proceeds
in interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
23
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 (1)
on an actual basis, (2) on a pro forma basis to reflect the automatic
conversion of all outstanding shares of preferred stock into 23,433,045 shares
of common stock and the issuance of 849,150 shares of common stock upon the
exercise and conversion of all outstanding warrants to purchase 100,000 shares
of our series A preferred stock, warrants to purchase 16,000 shares of our
series B preferred stock and the purchase option for 700,000 shares of our
series B preferred stock upon the closing of this offering and (3) on an as
adjusted basis as to give effect to the receipt and application of the net
proceeds from the sale by us of shares of common stock at an assumed
initial public offering price of $ and assumes no exercise of the
underwriters' over-allotment option. See "Underwriting".
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Borrowings and capital lease obligations, long-
term.......................................... $ 1,600 $ 1,600
-------- --------
Stockholders' equity:
Preferred stock: $0.0001 par value, 28,000,000
shares authorized, 23,135,364 shares issued
and outstanding, actual; shares
authorized, pro forma and as adjusted, none
issued and outstanding....................... 2 --
Common stock: $0.0001 par value, 42,000,000
shares authorized, 9,840,250 shares issued
and outstanding actual; shares
authorized, 34,122,445 issued and
outstanding, pro forma(1); shares
issued and outstanding as adjusted(1)........ 1 3
Additional paid-in capital..................... 121,682 125,312
Notes receivable from stockholders............. (35) (35)
Deferred stock-based compensation.............. (17,292) (17,292)
Accumulated deficit............................ (25,363) (25,363)
-------- --------
Total stockholders' equity.................... 78,995 82,625
-------- --------
Total capitalization.......................... $ 80,595 $ 84,225
======== ========
</TABLE>
- --------
(1) Includes an aggregate of 849,150 shares of common stock issuable upon the
exercise and conversion of all outstanding warrants to purchase 100,000
shares of our series A preferred stock, warrants to purchase 16,000 shares
of our series B preferred stock and the purchase option for 700,000 shares
of our series B preferred stock as of June 30, 1999, substantially all of
which are expected to be issued upon the completion of this offering.
Excludes 1,882,750 shares reserved for issuance under our 1998 stock
option plan, of which 1,326,050 were subject to outstanding options as of
June 30, 1999 at a weighted average exercise price of $1.46 per share.
Reflects the filing of an amended and restated certificate of incorporation
to provide for authorized capital stock of 100,000,000 common shares and
5,000,000 shares of undesignated preferred stock. See "Management -- Stock
Plans", "Certain Transactions" and Note 7 of Notes to Financial Statements.
24
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$78,403,000 or $2.30 per share of common stock. Pro forma data in this section
assumes the automatic conversion of all outstanding shares of preferred stock
into 23,433,045 shares of common stock, and the issuance of 849,150 shares of
common stock upon the exercise and conversion of all outstanding warrants and
the purchase option for preferred stock as of June 30, 1999. Pro forma data
excludes 1,882,750 shares reserved for issuance under our 1998 stock plan, of
which 1,326,050 shares were subject to outstanding options at a weighted-
average exercise price of $1.46 per share. To the extent outstanding options
are exercised, there will be further dilution to new investors. See "Management
- -- Stock Plans", "Certain Transactions" and Notes 1 and 7 of Notes to Financial
Statements. "Net tangible book value" per share represents the amount of our
total tangible assets reduced by the amount of our total liabilities and
divided by the total number of shares of common stock outstanding. Dilution in
net tangible book value per share represents the difference between the amount
per share paid by purchasers of shares of common stock in this offering and the
net tangible book value per share of common stock immediately after the
completion of this offering. After giving effect to the sale of the shares
of common stock offered by us at an assumed initial public offering price of $
per share, and after deducting the underwriting discount and estimated offering
expenses payable by us, our pro forma net tangible book value at June 30, 1999
would have been $ or approximately $ per share of common stock. This
represents an immediate increase in net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors of common stock. The following table illustrates this dilution on a
per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $
Pro forma net tangible book value per share before the offering...... $
Increase per share attributable to new investors.....................
----
Pro forma net tangible book value per share after the offering.........
----
Dilution per share to new investors.................................... $
====
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1999,
the differences between the existing stockholders and new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid, before deduction
of estimated discounts and commissions and estimated offering expenses payable
by us:
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration
----------------- ----------------- Average Price
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... % $ % $
New investors.............
----- -----
Totals.................. 100.0% $ 100.0% $
=== ===== =====
</TABLE>
25
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, the Financial Statements and related Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. The statement of
operations data set forth below for each of the three years in the period ended
December 31, 1998 and the balance sheet data as of December 31, 1997 and 1998
have been derived from our audited financial statements appearing elsewhere in
this prospectus. The statement of operations data for the period from March 31,
1995 (inception) to December 31, 1995 and the balance sheet data as of December
31, 1995 and 1996 are derived from audited financial statements not included in
this prospectus. The statement of operations data for the six months ended
June 30, 1998 and 1999 and the balance sheet data as of June 30, 1999 have been
derived from unaudited financial statements included elsewhere in this
prospectus. The unaudited statements have been prepared on substantially the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of the financial position and results of operations for the
period. The historical results are not necessarily indicative of results that
may be expected for any future period.
<TABLE>
<CAPTION>
March 31, 1995 Year Ended Six Months
(inception) to December 31, Ended June 30,
December 31, ------------------------- -----------------
1995 1996 1997 1998 1998 1999
-------------- ------- ------- ------- ------ ---------
(unaudited)
Statement of Operations
Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
e-commerce............. $ -- $ -- $ -- $ -- $ -- $ 622
Sponsorship............ -- -- -- -- -- 195
------- ------- ------- ------- ------ ---------
-- -- -- -- -- 817
------- ------- ------- ------- ------ ---------
Cost of net revenue:
e-commerce............. -- -- -- -- -- 694
Sponsorship............ -- -- -- -- -- 35
------- ------- ------- ------- ------ ---------
-- -- -- -- -- 729
------- ------- ------- ------- ------ ---------
Gross profit............ -- -- -- -- -- 88
------- ------- ------- ------- ------ ---------
Operating expenses:
Marketing and sales.... -- -- -- 907 3 9,614
Product development.... 22 7 113 1,025 106 3,254
General and
administrative........ -- -- 23 541 2 2,366
Stock-based
compensation.......... -- -- -- 1,650 -- 4,308
------- ------- ------- ------- ------ ---------
Total operating
expenses.............. (22) (7) (136) (4,123) (111) (19,542)
------- ------- ------- ------- ------ ---------
Operating loss.......... (22) (7) (136) (4,123) (111) (19,454)
Interest income......... -- -- -- 38 -- 399
Interest expense........ -- -- (1) (2) -- (1,046)
------- ------- ------- ------- ------ ---------
Net loss................ $ (22) $ (7) $ (137) $(4,087) $ (111) $(20,101)
======= ======= ======= ======= ====== =========
Basic and diluted net
loss per share(1)...... $ -- $ -- $ -- $ (9.12) $ -- $ (8.35)
======= ======= ======= ======= ====== =========
Basic and diluted pro
forma net loss per
share (unaudited)(1)... $ (1.00) $ (1.04)
======= =========
Weighted average shares
used to compute basic
and diluted net loss
per share(1)........... -- -- -- 448 2,528
======= ======= ======= ======= =========
Weighted average shares
used to compute pro
forma basic and diluted
net loss per share
(unaudited)(1)......... 4,102 20,210
======= =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------- June 30,
1995 1996 1997 1998 1999
---- ---- ---- ------ -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................. $ 5 $ 5 $ 15 $ 935 $62,688
Working capital (deficit).................. 3 1 (19) 581 71,712
Total assets............................... 7 7 36 5,707 85,236
Borrowings and capital lease obligations,
long-term................................. -- -- 10 2 1,600
Total stockholders' equity (deficit)....... 5 3 (8) 3,469 78,995
</TABLE>
- -------
(1) See Note 1 of Notes to the Financial Statements for an explanation of the
determination of the number of shares and share equivalents used in
computing per share and pro forma per share amounts.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion in this prospectus contains forward-looking statements that
involve risks and uncertainties. These statements refer to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "expects", "anticipates", "intends", "plans" and
similar expressions. Our actual results could differ materially from those
anticipated in such forward-looking statements. Factors that could contribute
to these differences include, but are not limited to, the risks discussed in
the section titled "Risk Factors" in this prospectus.
Overview
PlanetRx.com
PlanetRx.com is a leading online healthcare destination for commerce,
content and community. Our e-commerce website, www.PlanetRx.com, which we
launched on March 18, 1999, provides a convenient, private and informative
shopping experience for health and personal care products. We offer products in
six categories: prescription drugs; non- prescription drugs; personal care;
beauty and spa; vitamins, herbs and nutrition; and medical supplies. Our
eCenters, located within the PlanetRx.com website, incorporate content that
addresses a variety of health-related topics. In addition, we own and operate a
network of satellite websites targeting specific healthcare conditions by
providing relevant content and a destination for online communities. These
condition-specific websites, which include diabetes.com, depression.com,
obesity.com and alzheimers.com, are linked to the PlanetRx.com website.
From our inception through the launch of our PlanetRx.com website, we did
not generate any sales and our operating activities consisted mainly of
developing our business model, constructing our websites and transaction
processing system, researching and developing health-related content,
recruiting and training employees, gaining necessary funding, negotiating
advertising contracts with several of the major Internet portals, building our
pharmacy and distribution center and establishing the PlanetRx.com brand name.
Since launching our PlanetRx.com website, we have continued these
activities and, in addition, increased the breadth of our product offerings,
expanded our online information resources, developed new services such as
online communities, community message boards and support groups and identified
and executed strategic partnerships.
To date, we have entered into a number of intellectual property
acquisitions and strategic agreements and have focused on increasing the number
of visitors to our websites and increasing our sales volume. In December 1998,
we issued approximately 198,000 shares of common stock to an employee for
services rendered in connection with the acquisition and transfer of certain
domain names. We recorded the estimated fair value of the stock of $614,000 as
a prepaid asset, and reclassified such amount to intangible assets upon the
transfer of such names in January 1999. The fair value of the stock will be
amortized as stock-based compensation expense over the estimated useful life,
which is deemed to be two years. In June 1999, we issued approximately 342,000
shares of common stock to a company affiliated with an employee for additional
domain names. We recorded the estimated fair value of the stock of $3.8 million
as an intangible asset. The fair value of the stock will be amortized as stock-
based compensation expense over the estimated useful life, which is deemed to
be two years. We are currently incorporating these domain names into the
PlanetRx.com community.
In May 1999, we entered into a strategic alliance with a major
pharmaceutical company. Under the terms of the agreement, this pharmaceutical
company is the exclusive therapeutic disease state management sponsor within
our diabetes.com community. We plan to enter into similar agreements with other
third parties in connection with the expansion of other PlanetRx.com
communities.
In December 1998, we entered into a three-year marketing agreement with
AOL.
27
<PAGE>
Under the terms of the agreement, AOL will provide us with advertising
featuring us as an online pharmacy in exchange for $15.0 million over the three
year term. We paid $1.2 million and $3.0 million during the year ended
December 31, 1998 and the six months ended June 30, 1999, respectively. We
recognized $1.5 million in advertising expense during the six months ended June
30, 1999 under this agreement.
Net Revenue
e-commerce. e-commerce net revenue consists of product sales and charges to
customers for outbound shipping and is net of allowances for product returns
and promotional discounts. We recognize e-commerce revenue when products are
shipped.
Sponsorship. Sponsorship net revenue includes payments from third parties
in exchange for our identification of those parties within the sponsored
website areas. Sponsorship revenue is recognized ratably over the related
period.
Cost of Net Revenue
e-commerce. Cost of e-commerce net revenue consists primarily of the costs
of products sold to customers and costs of outbound and inbound shipping. Our
e-commerce gross margins will fluctuate in the future and will be affected by
promotional discounts, mix of products sold and sales allowances.
Sponsorship. Cost of sponsorship net revenue consists primarily of amounts
paid to the former owners of Internet domain names that have been incorporated
into certain PlanetRx.com communities. These amounts are typically a percentage
of sponsorship revenue generated in connection with the corresponding community
and are generally capped at a specific dollar amount. Cost of sponsorship net
revenue also includes certain Internet access fees and certain online hosting
charges.
Operating Expenses
Marketing and Sales. Marketing and sales expenses consist primarily of
advertising and promotional expenditures, costs of product distribution,
including order processing, credit card commission fees, equipment and
supplies, as well as payroll related expenses.
Product Development. Product development expenses consist primarily of
payroll-related expenses for website development and information technology
personnel, certain Internet access fees, certain online hosting charges and
costs associated with creating and purchasing editorial and licensed content.
General and Administrative. General and administrative expenses consist
primarily of payroll-related expenses for executive and administrative
personnel, corporate facility expenses, professional services expenses, travel
and other general corporate expenses.
Stock-Based Compensation. We recorded total deferred stock-based
compensation of $4.6 million for the year ended December 31, 1998 and $16.6
million for the six months ended June 30, 1999 in connection with stock options
granted during these periods. Our resulting amortization of deferred stock-
based compensation totaled $888,000 for the year ended December 31, 1998 and
$3.0 million for the six months ended June 30, 1999. The amortization expense
relates to options awarded in all operating expense categories. We will
continue to amortize the remaining balance of deferred compensation of $17.3
million until the fiscal year ending December 31, 2004.
Income Taxes. At December 31, 1998, we had a fully reserved tax asset of
$1.1 million. We have incurred losses from inception through June 30, 1999 and
believe, based upon the history of such losses and other factors, that the
weight of available evidence indicates that it is more likely than not that we
will not be able to realize our deferred tax assets and thus a full valuation
reserve has been recorded through June 30, 1999. See Note 3 of Notes to
Financial Statements.
28
<PAGE>
Results of Operations
Six Months Ended June 30, 1998 and 1999
Net Revenue
We commercially launched our PlanetRx.com website on March 18, 1999. Prior
to our launch, we generated no net revenue. Net revenue for the period ended
June 30, 1999 was $817,000. Of this amount, $622,000, or 76%, was e-commerce
revenue and $195,000, or 24%, was sponsorship revenue.
Cost of Net Revenue
Our cost of net revenue for the period ended June 30, 1999 was $729,000.
Our gross margin for the six months ended June 30, 1999 was 11%. Prior to our
commercial launch of our PlanetRx.com website on March 18, 1999, we generated
no costs of net revenue.
e-commerce. Our cost of net revenue resulting from e-commerce for the six
months ended June 30, 1999 was $694,000 resulting in a negative gross margin
for the period. The negative gross margin is primarily a result of promotional
sales discounts. We intend to continue to offer various discounts as part of
our strategy to attract customers. As such, we may continue to experience
negative gross margins resulting from e-commerce in the future. We expect the
cost of e-commerce revenues to increase in absolute dollars to the extent that
our sales volume increases.
Sponsorship. Our cost of net revenue resulting from sponsorship for the
period ended June 30, 1999 was $35,000. Our gross margin for sponsorship
revenue was 82% during the six months ended June 30, 1999. We expect that the
cost of sponsorship revenue will increase in absolute dollars to the extent
that our sponsorship revenue increases.
Operating Expenses
Marketing and Sales. Marketing and sales expenses increased from $3,000
during the six months ended June 30, 1998 to $9.6 million during the six months
ended June 30, 1999. This increase is related to costs experienced after the
launch of our PlanetRx.com website relating to marketing and promotional
campaigns as well as costs related to order processing and distribution and
growth in head count. We expect that as our commerce revenue increases and as
we continue to focus on aggressively marketing the PlanetRx.com brand, our
marketing and sales expenses will increase in both absolute dollars and as a
percentage of net revenue.
Product Development. Product development expenses increased from $106,000
during the six months ended June 30, 1998 to $3.3 million during the six months
ended June 30, 1999. This increase is related to the expansion of our websites
and system development and increased headcount related thereto. We believe that
continued investment in product development is critical to attaining our
strategic objectives and, as a result, we expect product development expenses
to increase in absolute dollars.
General and Administrative. General and administrative expenses increased
from $2,000 during the six months ended June 30, 1998 to $2.4 million during
the six months ended June 30, 1999. This increase is related to increased
headcount, professional services and facilities expenses. We expect general and
administrative expenses to increase in absolute dollars as we expand our staff
and incur additional costs related to the anticipated growth of our business.
Interest Income and Expense
Interest income consists of earnings on our cash and cash equivalents and
interest expense consists of interest associated with our borrowings and
capital lease obligations. As of June 30, 1999 the balance outstanding under
the borrowings was $1.6 million. We had no substantial interest bearing assets
or liabilities during the six months ended June 30, 1998.
Interest expense includes prepaid debt issuance costs associated with a
warrant and purchase option issued during 1999 in connection with certain
financing arrangements. The warrant and purchase option provide for the
purchase of up to 716,000 shares of our series B preferred stock for $5.00 per
share.
29
<PAGE>
During the six months ended June 30, 1999, we recorded $1.8 million as the fair
value of the warrant and purchase option and recognized non-cash interest
expense of $906,000 for the six months ended June 30, 1999. See Note 6 of Notes
to Financial Statements.
Fiscal Years Ended December 31, 1997 and 1998
Net Revenue and Cost of Net Revenue
Prior to the launch of our PlanetRx.com website on March 18, 1999, we did
not generate any net revenue, nor did we incur any related cost of net revenue.
Operating Expenses
Marketing and Sales. Marketing and sales expenses increased from $0 during
the year ended December 31, 1997 to $907,000 during the year ended December 31,
1998. These expenses consisted primarily of the costs of recruiting marketing
and sales personnel which were incurred after July 1, 1998.
Product Development. Product development expenses increased from $113,000
during the year ended December 31, 1997 to $1.0 million during the year ended
December 31, 1998. The increase is related to increased development activities
and increased headcount to develop content and technology for our websites.
General and Administrative. General and administrative expenses increased
from $23,000 during the year ended December 31, 1997 to $541,000 during the
year ended December 31, 1998. Prior to July 1, 1998, general and administrative
expenses primarily consisted of facilities expenses and professional services
to support the development staff. During the remainder of the year ended
December 31, 1998, we began to build our administrative staff and incurred
increased general business expenses in connection with our company-wide
expansion.
Interest Income and Expense
As of December 31, 1998, the balance outstanding under our note payable was
$600,000. We had no substantial interest bearing assets and only minor interest
bearing liabilities during the year ended December 31, 1997.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of convertible preferred stock and common stock which through June 30,
1999, totaled $83.8 million, net of issuance costs of $141,000.
Net cash used in operating activities was $15.2 million during the six
months ended June 30, 1999 and $2.0 million during the year ended December 31,
1998. Net cash used in operating activities for each of these periods primarily
consisted of net losses as well as increases in prepaid expenses, partially
offset by increases in accounts payable, accrued expenses and depreciation and
amortization.
Net cash used in investing activities was $2.4 million during the six
months ended June 30, 1999 and $2.9 million during the year ended December 31,
1998. Net cash used in investing activities for each of these periods primarily
consisted of purchases of equipment and systems, including computer equipment
and fixtures and furniture.
Net cash provided by financing activities was $79.4 million during the six
months ended June 30, 1999 and $5.9 million during the year ended December 31,
1998. Net cash provided by financing activities during the six months ended
June 30, 1999 primarily consisted of net proceeds of $77.8 million from the
issuance of convertible preferred stock. Net cash provided by financing
activities for the year ended December 31, 1998 primarily consisted of proceeds
of $5.2 million from the issuance of convertible preferred stock. As of June
30, 1999 and December 31, 1998, we had $8.0 million and $1.0 million,
respectively, available under various financing instruments that expire through
January 2000.
As of June 30, 1999, we had $62.7 million of cash and cash equivalents. As
of that date, our principal commitments consisted of
30
<PAGE>
obligations outstanding under operating leases, a line of credit and marketing
and advertising agreements. Although we have no material commitments for
capital expenditures, we anticipate a substantial increase in our capital
expenditures and lease commitments consistent with anticipated growth in
operations, infrastructure and personnel.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least the next twelve
months. We may need to raise additional funds prior to the expiration of such
period. If we raise additional funds through the issuance of equity, equity-
related or debt securities, such securities may have rights, preferences or
privileges senior to those of the rights of our common stock and our
stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all.
Year 2000
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the
year 2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year
2000 phenomenon. For example, we are dependent on the financial institutions
involved in processing our customers' credit card payments and a third party
that hosts our servers. We are also dependent on telecommunications vendors to
maintain our network and the United States Postal Service and other third-party
carriers to deliver orders to customers.
We are in the process of reviewing the year 2000 compliance of our
internally developed proprietary software. This review has included testing to
determine how our systems will function at and beyond the year 2000. We expect
to complete these tests during the summer of 1999. Since inception, we have
internally developed substantially all of the systems for the operation of our
websites. These systems include the software used to provide our websites'
search, customer interaction, and transaction-processing and distribution
functions, as well as monitoring and back-up capabilities. Based upon our
assessment to date, we believe that our internally developed proprietary
software is year 2000 compliant.
We are currently assessing the year 2000 readiness of our third-party
supplied software, computer technology and other services, which include
software for use in our accounting, database and security systems. The failure
of such software or systems to be year 2000 compliant could have a material
negative impact on our corporate accounting functions and the operation of our
websites. As part of the assessment of the year 2000 compliance of these
systems, we have sought assurances from these vendors that their software,
computer technology and other services are year 2000 compliant. We expect this
assessment process to be completed during the summer of 1999. Based upon the
results of this assessment, we will develop and implement, if necessary, a
remediation plan with respect to third-party software, third-party vendors and
computer technology and services that may fail to be year 2000 compliant. We
expect to complete any required remediation during the summer of 1999. At this
time, the expenses associated with this assessment and potential remediation
plan that may be incurred in the future cannot be determined. Therefore, we
have not developed a budget for these expenses. The failure of our software and
computer systems and of our third-party suppliers, carriers and other service
providers to be year 2000 complaint would have a material adverse effect on us.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the
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Internet to provide our services. We also depend on the year 2000 compliance of
the computer systems and financial services used by consumers. Thus, the
infrastructure necessary to support our operations consists of a network of
computers and telecommunications systems located throughout the world and
operated by numerous unrelated entities and individuals, none of which has the
ability to control or manage the potential year 2000 issues that may impact the
entire infrastructure. Our ability to assess the reliability of this
infrastructure is limited and relies solely on generally available news
reports, surveys and comparable industry data. Based on these sources, we
believe most entities and individuals that rely significantly on the Internet
are carefully reviewing and attempting to remediate issues relating to
year 2000 compliance, but it is not possible to predict whether these efforts
will be successful in reducing or eliminating the potential negative impact of
year 2000 issues. A significant disruption in the ability of consumers to
reliably access the Internet or portions of it or to use their credit cards
would have an adverse effect on demand for our services and would have a
material adverse effect on us.
At this time, we have not yet developed a contingency plan to address
situations that may result if we or our suppliers, carriers and other service
providers are unable to achieve year 2000 compliance because we currently do
not believe that such a plan is necessary. The cost of developing and
implementing such a plan, if necessary, could be material. Any failure of our
systems, our vendors' systems or the Internet to be year 2000 compliant could
have material adverse consequences for us. These consequences could include
difficulties in operating our websites effectively, taking product orders,
making product deliveries or conducting other fundamental parts of our
business.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance over accounting for computer software developed or
obtained for internal use including the requirements to capitalize specified
costs and amortization of such costs. We adopted SOP 98-1 effective January 1,
1999 and do not expect the adoption to have a material effect on our results of
operations, financial position and cash flows.
In April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-
Up Activities". Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, commencing some new operation or organizing a new entity. Under SOP
98-5, the cost of start-up activities should be expensed as incurred. We
adopted SOP 98-5 effective January 1, 1999 and we do not expect the adoption to
have a material effect on our results of operations, financial position and
cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" (SFAS 133). SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes
accounting and reporting standards of derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
We will adopt SFAS 133 in our quarter ending June 30, 2000 and do not expect
such adoption to have an impact on our results of operations, financial
position and cash flows.
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BUSINESS
PlanetRx.com
PlanetRx.com is a leading online healthcare destination for commerce,
content and community. Our e-commerce website, www.PlanetRx.com, which we
launched on March 18, 1999, provides a convenient, private and informative
shopping experience for health and personal care products. We offer products in
six categories: prescription drugs; non-prescription drugs; personal care;
beauty and spa; vitamins, herbs and nutrition; and medical supplies. Our
eCenters, located within the PlanetRx.com website, incorporate content that
addresses a variety of health-related topics. In addition, we own and operate a
network of satellite websites targeting specific healthcare conditions by
providing relevant content and a destination for online communities. These
condition-specific websites, which include diabetes.com, depression.com,
obesity.com and alzheimers.com, are linked to the PlanetRx.com website.
Industry Background
The Growth of the Internet and Online Commerce
The Internet is a significant medium for communication and commerce,
enabling millions of people to share information and conduct business
electronically. International Data Corporation estimates the following:
. 142 million users worldwide accessed the Internet at the end of 1998,
and this number is expected to increase to approximately 502 million
users by the end of 2002; and
. worldwide business-to-consumer sales over the Internet will increase
from approximately $15 billion in 1998 to approximately $115 billion by
2002.
The unique characteristics of the Internet provide a number of advantages
for online retailers. Without the physical constraints faced by traditional
retailers, online retailers are able to carry a larger number of products at a
lower cost and with greater merchandising flexibility. Additionally, they can
assist the consumer's purchase decision by providing relevant information and
enabling consumers to shop at their convenience by remaining open 24 hours a
day, seven days a week. Online retailers can also provide personalized services
and use direct marketing efforts based on information provided by customers.
While the Internet provides the ability to display professionally-created
content, it can also be used to create forums where Internet users with similar
interests and concerns can interact with each other. Often the most relevant
information to Internet users is generated by other users. However, most
websites, including those of most online retailers, do not provide a forum for
users to interact in a community environment and to access content created by
others. As a result, we believe that there is a significant unfulfilled demand
for these online communities, especially in connection with health and
wellness.
The PlanetRx.com Market
Our market consists of prescription drugs, non-prescription drugs, personal
care products, beauty and spa, vitamins, herbs and nutrition and medical
supplies. Based on estimates from the National Association of Chain Drugstores
(NACDS), we believe the U.S. market for health and personal care products was
approximately $175 billion in 1998 of which prescription drugs comprised
approximately $103 billion. We believe that the aging of the U.S. population
will continue to drive increased demand for these products.
To date, these products have been sold primarily through chain drugstores
such as CVS, Eckerd, RiteAid and Walgreen's, mass market retailers such as
Kmart, Target and Wal-Mart, supermarkets, warehouse clubs, mail-order companies
and independent drugstores and pharmacies. However, a significant number of
consumers are beginning to use the Internet to shop for healthcare products.
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In addition to online shopping for healthcare products, people are
increasingly using the Internet as a source for health and medical information.
Cyber Dialogue estimates that the number of adults in the United States
searching online for health and medical information will grow from
approximately 17.1 million during the twelve month period ended July 1998 to
approximately 33.5 million during the twelve month period ending July 2000.
Prescription Drugs. This segment includes prescription medication for
chronic illnesses, such as diabetes, depression and arthritis. We believe that
online demand for these chronic illness products will increase as the Internet-
enabled baby boomer generation ages and as new and improved drugs are
introduced to the market.
Non-Prescription Drugs. This segment includes over-the-counter remedies
(such as cough, cold, allergy and pain relief medications), first aid and other
products related to the body's health needs.
Personal Care. This segment includes products related to hair, body and eye
care, shaving, oral hygiene and feminine needs.
Beauty and Spa. This segment includes cosmetics, fragrances and a variety
of skin care products. Some of the factors driving consumer demand for beauty
and spa products include regular and seasonal new product introductions, as
well as changing fashion trends.
Vitamins, Herbs and Nutrition. This segment includes vitamins, herbs,
nutritional supplements, homeopathy and other natural products. We believe that
consumers are increasingly interested in nutrition, wellness and alternative
medicines and that supplemental product information is important to these
consumers in making purchasing decisions.
Medical Supplies. This segment includes medical diagnostic kits, such as
home pregnancy and AIDS tests, and medical supplies, such as glucose strips for
diabetics, that are complementary to prescriptions. Many people with chronic
conditions who take regular prescriptions also use medical supply products.
Limitations on Traditional Channels of Distribution
We believe that the use of the Internet to research and purchase
healthcare-related products is growing as a result of the limitations of
traditional channels for prescription drugs, non-prescription drugs, personal
care products and medical supplies. These limitations include the following:
Inconvenience. We believe that many consumers find the experience of
shopping at traditional drugstores and pharmacies to be time-consuming and
inconvenient due to factors such as store location and layout, as well as hours
of operation, lack of privacy and level of customer service.
Limited Selection. Consumers appreciate the opportunity to select from a
variety of products to meet their particular needs. At most traditional stores,
though, the number of SKUs and the amount of product inventory is limited.
Traditional store-based retailers are constrained by the physical space
available in the store, inventory carrying costs and the need to allocate
inventory dollars to popular products, thereby limiting selection for
consumers.
Insufficient Information. Traditional drugstores and pharmacies often lack
readily available and detailed information useful to consumers in making their
purchase decisions. Moreover, consumers' access to physicians and pharmacists
to meet these information needs is increasingly limited.
Lack of Community. We believe that consumers of healthcare products desire
to share their experiences with, and to learn from the experiences of, others.
The traditional retail store does not provide a forum for this type of
interaction.
Due to these limitations, we believe there is a significant market
opportunity for an online store that offers convenient access to prescription
drugs, non-prescription drugs, personal care products and medical supplies and
that provides relevant information and the ability to interact with others in a
community environment.
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The PlanetRx.com Solution
PlanetRx.com is a leading online healthcare destination for commerce,
content and community. We address the limitations of traditional drugstores and
pharmacies through a combination of an extensive product selection, excellent
customer service, professionally-created content and the development of online
communities focused on health-related topics. The key components of our
solution include:
Convenient Shopping Experience. We provide consumers with an intuitive,
easy-to-use shopping interface that is available 24 hours a day, seven days a
week. We allow consumers to shop quickly and conveniently from anywhere
Internet access is available. For example, a customer can store his or her
prescription history and other relevant medical information, as well as create
personalized shopping lists for quick and easy reordering.
Extensive Selection. We offer an extensive selection of healthcare-related
products that would be impractical to stock in most traditional stores. We
offer both traditional drugstore items as well as a broad selection of health,
beauty and wellness products, including alternative-care products. We believe
that we offer one of the largest selections of drugstore products available on
the Internet, offering over 27,000 SKUs.
Reliable and Accessible Source of Information. We provide a broad array of
reliable healthcare resources that helps consumers find answers to their
critical healthcare questions and make informed purchasing decisions. Consumers
can either access our information through our PlanetRx.com or satellite
websites or can contact us directly by phone or e-mail. Our content is
maintained and updated by our in-house editorial team and periodically reviewed
by a Healthcare Advisory Board comprised of medical and pharmacy experts.
Online Communities. We believe that the ability of people to share their
experiences and to support one another is increasingly important to the
management of their medical conditions. To meet this need, we provide
interactive forums hosted on our satellite websites organized around specific
chronic health conditions. Our satellite websites have the same look and feel
as the PlanetRx.com website and can be accessed directly or through the
PlanetRx.com website. These websites include diabetes.com, depression.com,
obesity.com and alzheimers.com. We provide professionally-created content,
including links to experts and articles about each of these conditions, and
forums where users can interact. Our websites allow consumers to quickly link
to the relevant product and purchase it on PlanetRx.com.
In addition, eCenters on the PlanetRx.com website are one-stop guides for
specific healthcare conditions and demographic groups. For example, our Women's
Health eCenter provides information on menopause, breast cancer, osteoporosis
and pregnancy, as well as related information on prescriptions and alternative
care for these conditions.
The PlanetRx.com Strategy
Our objective is to become the leading Internet healthcare destination for
commerce, content and community. We intend to attract new customers, develop
customer loyalty and promote repeat purchases by implementing the following
strategies:
Continue to Build Our Brand. Through our advertising and promotional
activities, we are developing PlanetRx.com as a pervasive brand that targets
purchasers of health and personal care products and identifies us as a premier
healthcare destination on the Internet. To date, in addition to having used a
range of traditional media such as print and radio, we have promoted our site
on a variety of major Internet destinations including AOL, Yahoo!, iVillage,
HealthCentral.com, Women.com and XOOM.com. We plan to complement these efforts
with appropriate levels of television advertising and additional online
promotional activities.
Continue to Build Premier Content and Community Websites. As part of our
commitment to consumers, we endeavor to provide a secure and private forum in
which to communicate and share ideas. We will continue
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to develop our network of satellite destination sites, such as diabetes.com,
and eCenters, such as our Weight Loss eCenter, all of which provide a wealth of
information to, and a forum for, consumers with similar health concerns. We
believe that this combination of content and community will attract repeat
users.
Maintain an Independent Distribution Center and Pharmacy. We maintain our
own distribution center, which is only minutes away from our primary supplier,
McKesson, and our primary shipping agents, FedEx and the USPS Priority Air
center. Moreover, we operate our own pharmacy with licensed pharmacists and are
licensed to ship prescription products in all U.S. states and territories. By
operating our own distribution center and pharmacy, we are able to maintain
strict control over logistics, provide excellent customer service and offer
reliable and prompt delivery.
Utilize Technology to Improve the Customer Shopping Experience. We intend
to use technology to continuously enhance our product and service offerings and
take advantage of the unique characteristics of online retailing. Among other
technology objectives, we intend to develop features that enhance the look and
feel of our websites and further customize the shopping experience.
Additionally, we intend to strengthen our Internet infrastructure by building
our own data center and leasing additional capacity to maintain speed and
reliability.
Continue to Expand Product Offerings. We intend to focus on providing
consumers with a wide product selection to meet their health-related needs. We
expect to increase the breadth and differentiation of our product selection,
including both mass market and prestige products. For example, we have recently
introduced branded cosmetics and salon hair care products for sale on our
website.
Develop Strategic Relationships to Further Revenue Opportunities. We will
continue to target strategic partners in order to increase our revenue
opportunities and build our reputation as a leading online healthcare
destination. For example, we will seek to develop relationships or partner
with:
. pharmacy benefit managers and managed care organizations to increase
payment alternatives for our prescription drug customers;
. pharmaceutical manufacturers to sponsor our various satellite sites
focused on chronic conditions;
. hospital organizations in order to market directly to their patient and
doctor populations;
. companies that are working on providing direct links between doctors'
offices and pharmacies to facilitate the delivery of electronic
prescriptions; and
. content and commerce portals and online service providers to drive
traffic to our website, such as our current agreements with AOL, Yahoo!
and iVillage.
The PlanetRx.com Healthcare Destination
Consumers visiting our website can purchase a wide variety of healthcare-
related products; receive relevant, personalized information addressing their
healthcare concerns; and interact with other consumers on a broad range of
health issues.
Commerce
Convenience and Personalization. We strive to offer a personalized and
convenient shopping experience for our customers. Advantages of our online
store include:
. access 24 hours a day, seven days a week from anywhere Internet access is
available;
. direct shipping to the customer;
. online search capabilities for products and information;
. the ability to store product preferences in the My Planet area of the
PlanetRx.com website, which allows customers to quickly purchase or
reorder these products;
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. the ability to store a customer's prescription history, as well as those
of family members, in a secure and confidential environment; and
. the ability to view order-tracking information on our website.
Selection. Because we do not have the same inventory and shelf-space
limitations as traditional retail stores, we are able to offer a significantly
greater number of SKUs than are generally available in a traditional drugstore.
We believe that we offer one of the largest selections of traditional and
alternative healthcare-related products available on the Internet, offering
over 27,000 SKUs in the following market segments:
. prescription drugs;
. non-prescription drugs;
. personal care;
. beauty and spa;
. vitamins, herbs and nutrition; and
. medical supplies.
Customer Communication and Privacy. We provide personalized information to
our customers on a confidential basis through:
. e-mail reminders to our customers when their supply of a prescription or
non-prescription product is about to run out, allowing them to order a
replacement product or a prescription refill;
. useful newsletters and notices of special offers and new product
announcements;
. timely and high-quality customer service through our customer service
department;
. a high level of privacy when purchasing products that reveal personally-
sensitive aspects of their health, and features such as Ask the
Pharmacist where consumers can ask questions that they would otherwise be
uncomfortable asking in a traditional drugstore or pharmacy; and
. a secure environment for the storage of a customer's medical, purchasing
and payment information.
Content
As individuals increasingly turn to the Internet to address their
healthcare needs, we believe that up-to-date, unbiased content in an easy-to-
understand format is essential to informed healthcare decisions. Our websites
provide in-depth information on over 100 disease categories helping consumers
find answers to critical healthcare questions. We provide information on
symptoms, diagnosis, treatments and alternative care for many conditions. Our
content includes material developed internally as well as material licensed
from outside sources, such as Reuters News and drkoop.com. The information is
maintained and updated by our in-house editorial team and periodically reviewed
by our Healthcare Advisory Board comprised of medical and pharmacy experts.
Package Information. We are developing the capability to allow consumers to
view almost every product on our website in an expanded format where all
package information, including ingredients, directions and warnings, can be
read next to an enlarged photograph of the product.
Drug and Interaction Information. We provide information to help consumers
understand generic drug alternatives and dangerous drug interactions. Consumers
can access our extensive drug information library directly at the PlanetRx.com
website.
Ask the Pharmacist. Our Ask the Pharmacist service provides personalized
responses by e-mail to help ensure that each customer understands the correct
usage, possible side effects and expected beneficial outcomes of a prescription
or non-prescription medication. We strive to answer consumers' inquiries within
24 hours of receipt.
Health Answers. Through our Health Answers feature, users can search for
information on common healthcare conditions and can link to products for their
well being, including drug therapies, alternative treatments and self care and
prevention.
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Community
As usage of the Internet continues to grow, users seek from the Internet
the same opportunity for expression, interaction, sharing, support and
recognition they seek in the everyday world. This is especially true in the
healthcare context. We provide forums, such as bulletin boards, chat rooms and
moderated discussion groups, where users can discuss a variety of health-
related topics.
We currently have 16 eCenters on the PlanetRx.com website organized around
specific chronic health conditions and targeted demographic groups, such as
women, seniors and children. This enables us to focus on the needs of a
particular group, combining the content and commerce relevant to each group's
health needs. For example, our Women's Health eCenter provides information on
menopause, breast cancer, osteoporosis and pregnancy, as well as additional
information related to prescriptions and alternative care for these conditions.
In addition to our eCenters, we have a network of satellite websites
designed to provide an extended community for people interested in chronic
healthcare conditions. These sites are built around intuitive domain names for
chronic healthcare conditions and have the same look and feel as the
PlanetRx.com website. Today, diabetes.com, depression.com, obesity.com,
alzheimers.com and weightloss2000.com are operational, and we expect to launch
an additional six satellite websites in calendar year 1999. These sites have
in-depth content and clinical information and provide links to experts and
articles about each of these conditions. They also contain product links to
both traditional and alternative medicines so that consumers can quickly link
to the relevant product and purchase it on the PlanetRx.com website.
We will continue to enter into strategic relationships with pharmaceutical
manufacturers to sponsor our various satellite sites focused on chronic
conditions. For example, a major pharmaceutical company is the exclusive
therapeutic disease state management sponsor for diabetes.com. Under the terms
of a multi-year agreement, we will receive guaranteed minimum payments and
content for the website. Disease state management programs are designed to
improve patient outcomes through education and drug compliance.
Listed below are our domain names:
<TABLE>
<S> <C>
acne.com infertility.com
aids.com nursing.com
alzheimers.com obesity.com
anorexia.com osteopathy.com
arthritis.com parkinsons.com
birth.com pharmacist.com
cancer.com physicians.com
cholesterol.com podiatry.com
depression.com pollenwatch.com
diabetes.com prenatal.com
epilepsy.com rxnet.com
fertility.com sportsdoc.com
hepatitis.com stroke.com
hypertension.com weightloss2000.com
impotence.com
</TABLE>
Our Pharmacy
The PlanetRx.com pharmacy is staffed 24 hours a day, seven days a week with
experienced pharmacists. The pharmacists' goal is to provide our customers with
the best personal care supplemented by a high degree of support. In addition to
being licensed, each of our pharmacists is trained to provide excellent
personal service for our customers. All of our pharmacists are members of the
American Pharmaceutical Association. Our pharmacy is licensed to ship
prescription products in all U.S. states and territories. In addition, we are
involved with the National Association of Boards of Pharmacy's Verified
Internet Pharmacy Practice Sites program. This program aims to set the
standards for Internet pharmacies as well as to inform the public of those
websites that have agreed to comply with such standards. Our pharmacy is
located within our distribution facility in Memphis, Tennessee, enabling each
customer's prescription to be shipped the same day it is filled.
Filling Prescriptions
We only accept prescriptions that we can verify as being written by
licensed healthcare providers. We do not prescribe medications or give medical
advice. Our focus is on dispensing
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medications and providing information to our customers.
Accepting Prescriptions. Our customers can initiate the prescription
process by ordering online from our pharmacy. The customer can direct their
physicians to call or fax their prescriptions to us or we can contact their
physician directly to obtain prescription information. Additionally, our
customers can easily transfer an existing prescription from their current
pharmacy to PlanetRx.com.
Verifying Prescriptions. Our pharmacists are required to verify the
validity and completeness of prescription drug orders utilizing the same
methodology as traditional drugstore pharmacists. This may include contacting
the physician or another retail pharmacist. Once the prescription is verified,
the order generally is filled and shipped the same day.
Drug Utilization Review. To use our prescription drug services, all
customers are asked to provide our pharmacists with information regarding drug
allergies, current medical conditions and other medications they are taking.
Our pharmacists use an extensive database to crosscheck every prescription
received against the information we receive from the customer for any drug
allergies, therapeutic overlap, overuse/underuse, and drug/food or drug/drug
interactions.
Consultation. Our pharmacists are available to answer questions by phone
24 hours a day, seven days a week. As required by law, we make follow-up phone
calls to customers to offer them consultation on new prescriptions. In
addition, our pharmacy provides a package insert with a toll-free number that
gives the customer information as to dosage instructions, potential drug
interactions and storage.
Payment
Customers may pay for their prescriptions either by credit card or
electronic check or by entering insurance information that shows that they are
covered by a managed care organization, insurance plan or PBM with whom we have
a contract. To date, most of the prescriptions filled have been for customers
who pay for the entire amount of the prescription.
Marketing and Promotion
Our marketing and promotion strategy is designed to build brand
recognition, drive customer traffic to our online store, add new customers,
build strong customer loyalty, encourage repeat purchases and develop
additional revenue opportunities.
Our advertising and promotion campaigns target both online and offline
audiences. To date, our online advertising efforts have been concentrated on
leading Internet portals, health-related websites, and other high traffic
websites.
We have used traditional off-line marketing and promotion efforts,
including national radio advertising, special product promotions and
promotional press releases. We intend to further intensify our advertising
efforts through traditional media channels to continue building our brand
recognition.
In December 1998, we entered into a three-year agreement with AOL. Users
searching for health-related information who click on specific content areas
and health-related keywords within AOL are directly linked to our PlanetRx.com
website. In February 1999, we entered into an agreement with Yahoo! to
advertise in their health directory.
In June 1999, as part of our branding effort, we entered into an agreement
with News America Incorporated, one of the world's largest media companies and
operator of the Fox Entertainment Group. This agreement provides that in
exchange for an equity position, News America Incorporated provides us with a
combination of cash and future television and other traditional media
advertising.
We are also the preferred pharmacy partner for the Women.com store and the
Netcentives ClickReward program. In addition, we currently advertise on
XOOM.com, iVillage and HealthCentral.com. We have also created an affiliate
program, which encourages website
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owners to become part of our registered affiliate network and earn a fee on
non-prescription products, based on the volume of customers and related revenue
generated via their link to our website. We intend to continue to use these
types of programs to drive traffic to our website and to increase the growth
rate of repeat customer purchases.
To create value for our customers, and to encourage initial and repeat
purchases, we utilize aggressive online promotions. Using our technology, we
have the ability to create and change web pages frequently to highlight product
specials and special promotions. We notify our customer base via e-mail of
upcoming promotions and encourage them to Tell A Friend, which is a promotion
that rewards customers for referrals. We also target othere-mail lists with our
promotions. We believe this provides us with an excellent opportunity to
increase traffic on our websites and promote repeat purchases while adding new
customers.
Merchandising
We believe that the breadth and depth of our product selection, combined
with the flexibility of our online store and our range of helpful and useful
shopping services, enables us to pursue an effective merchandising strategy.
Key elements of this strategy include:
Convenient and Fast Access to a Wide Variety of Products. Our easy-to-use
online store and advanced search capabilities allow our customers to browse our
extensive product selections by brand, product type, product categories and
price, as well as by any combination of these attributes. For example, our
customers can easily search for all pain relievers or for specific products,
such as Tylenol for Children, without having to consult with store personnel or
to search through traditional store aisles and shelves.
Extensive Product Information. A key part of our merchandising strategy is
to provide our customers with extensive information to help them make informed
purchase decisions. In addition, we combine product manufacturer information
with editorial information to assist our customers in their product selection
and purchase decision.
Product Promotions. We feature multiple promotions on our store and
continually update and rotate our promotions. We also notify our customers of
product promotions via e-mail.
Product Samples. From time to time we provide free non-prescription product
samples to our customers, and often do so with new products to introduce our
customers to them. We intend to offer manufacturers the opportunity to provide
free non-prescription samples to our customers as a means of introducing new
products.
Distribution and Order Fulfillment
We believe that operating our own distribution center and pharmacy is
critical to our strategy of providing quality customer service. Our
distribution center and pharmacy is located in Memphis, Tennessee.
Our primary supplier, McKesson, is also located in Memphis, allowing us to
maintain reasonable inventory levels based on just-in-time deliveries.
The location of our distribution center allows us to take advantage of
FedEx's major hub operations and the USPS Priority Mail Air Center, which are
also located near our distribution center. This allows us to take orders and
make same day shipments for orders received up to 11pm Central Standard Time
(CST) for FedEx, and 7pm CST for USPS. We believe the majority of our orders
can reach 95% of the United States in two to three days.
We offer a variety of shipping options, including next-day delivery for
orders received during the business week. We ship to anywhere in the United
States served by FedEx or the USPS. Priority orders are flagged and expedited
through our fulfillment processes. For prescription products, our goal is to
ship the product as soon as the prescription has been verified and our
pharmacists have completed a drug utilization review.
Customer Service
We strive to provide excellent customer service and support for our
customers. Our Customer Care Associates are trained on-site
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in our call-center training facility and are available 24 hours a day, seven
days a week, to answer customer phone calls or respond to customer e-mails. We
have an easy to use Help Desk area on the PlanetRx.com website, providing
detailed pages on frequently asked questions, how to find information, how to
order, how to pay, and our policies on privacy and security.
Operations and Technology
We have implemented a wide range of secure, scalable services and systems
for the PlanetRx.com website and our satellite websites, as well as for our
distribution center. These services and systems include: website management,
advanced searching tools, customer account management, transaction processing,
order management, pharmacy services and operations, store and catalog,
inventory control, purchasing, community message boards, OnLine Analytical
Processing, payment services and a variety of marketing applications. A subset
of these systems form the core set of software applications that we use for
accepting and validating our customer orders, organizing, placing and managing
orders with our vendors, receiving product and assigning it to customer orders,
and managing shipment of products to customers.
We have developed proprietary technologies to augment those that we have
licensed from vendors, such as Microsoft, IBM and Sun Microsystems. To date, we
have focused our internal development efforts on creating and enhancing our
proprietary software. Our core merchandise catalog, customer interaction, order
collection, fulfillment and back-end systems are all proprietary to
PlanetRx.com. Our software platform and architecture are integrated with
relational database servers such as IBM UDB as well as Microsoft SQL server.
Our system is designed to include an open application-programming interface
that provides real-time connectivity to our distribution center systems for
both pharmacy and non-pharmacy products. These systems include a perpetual
inventory system, real-time order tracking system, executive information system
and inventory replenishment system. The employment of multiple web servers,
application servers, and database servers, allows our systems to be resilient
and redundant. Our Internet servers use SSL to help conduct secure
communications and transactions.
Our systems infrastructure is hosted at Exodus Communications in Santa
Clara, California, which utilizes communication infrastructure from multiple
providers and provides 24 hour monitoring and engineering support. To further
enhance our systems reliability, we have recently begun to establish our own
data center in our Memphis distribution facility.
We incurred $1.0 million in product development expenses for the year ended
December 31, 1998 and $3.3 million during the six month period ended June 30,
1999. We anticipate that we will continue to devote significant resources to
product development in the future as we add new features and functionality to
our websites and enhance our distribution system.
Competition
The online commerce market is new, rapidly evolving and intensely
competitive. In particular, the health and personal care categories are
intensely competitive and are also highly fragmented, with no clear dominant
leader in any of our market segments. Our competitors can be divided into
several groups:
. chain drugstores, such as Walgreen's, RiteAid, CVS and Eckerd;
. mass market retailers such as Wal-Mart, Kmart and Target;
. supermarkets, such as Safeway, Albertson's and Kroger;
. warehouse clubs;
. online retailers of health, beauty, wellness, personal care and/or
pharmaceutical products, such as drugstore.com and CVS/Soma.com;
. mail order pharmacies, such as Express Scripts and Merck-Medco;
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. Internet-portals and online service providers that feature shopping
services such as AOL, Yahoo!, Excite@Home and Lycos; and
. cosmetics departments at major department stores, such as Nordstrom,
Macy's and Bloomingdale's and hair salons.
Most of these competitors operate within one or more of our market
segments.
We believe that the following are principal competitive factors in our
market:
. recognition of the PlanetRx.com brand;
. product selection;
. personalized services;
. convenience and ease of use;
. price;
. accessibility;
. customer service;
. quality of search tools;
. quality of content; and
. reliability and speed of fulfillment for products ordered.
Many of our current and potential traditional store-based and online
competitors have longer operating histories, larger customer or user bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we do. Many of these current and potential competitors can
devote substantially more resources to their website and systems development
than we can. In addition, larger, well-established and well-financed entities
may acquire, invest in or form joint ventures with online competitors or
drugstore retailers as the use of the Internet and other online services
increases. Some of our competitors may be able to secure products from vendors
on more favorable terms, fulfill customer orders more efficiently and adopt
more aggressive pricing or inventory availability policies than we can. These
retailers also enable customers to see and feel products in a manner that is
not possible over the Internet. Traditional store-based retailers can also sell
products to address immediate, acute care needs, which we and other online
sites cannot address.
Government Regulation
Our business is subject to extensive federal, state and local regulations,
many of which are specific to pharmacies and the sale of over-the-counter
drugs. For example, pursuant to the Omnibus Budget Reconciliation Act of 1990
and related state and local regulations, our pharmacists are required to offer
counseling to our customers about medication, dosage, delivery systems, common
side effects, adverse effects or interactions and therapeutic
contraindications, proper storage, prescription refill, and other information
deemed significant by the pharmacists. We are also subject to federal, state
and local licensing and registration regulations with respect to, among other
things, our pharmacy operations and the pharmacists we employ.
The practice of medicine requires licensing under applicable state law. It
is not our intent to practice medicine and we have tried to structure our
website and our business to avoid violation of state licensing requirements.
For example, we have included notices, where we have deemed appropriate,
advising our users that the data we provide on our website is not a substitute
for consultation with their personal physician. However, the application of
this area of the law to Internet services such as ours is novel and,
accordingly, a state regulatory authority could at some time allege that some
portion of our business violates these statutes. Any such allegation could harm
our business. Further, any liability based on a determination that we engaged
in the unlawful practice of medicine may be excluded from coverage under the
terms of our general liability insurance policy.
We are subject to requirements under the Controlled Substances Act and
federal Drug Enforcement Agency regulations, as well as related state and local
laws and regulations, relating to our pharmacy operations, including
registration, security, recordkeeping, and
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reporting requirements related to the purchase, storage and dispensing of
controlled substances, prescription drugs, and certain over-the-counter drugs.
Under the Food, Drug & Cosmetic Act of 1938 (the FDCA), a drug recognized in
Homeopathic Pharmacopeia of the United States must meet all compendial
standards and labeling requirements, or it will be considered misbranded or
adulterated. To sell homeopathic remedies we are required to comply with the
FDCA. We also are required to comply with the Dietary Supplement Health and
Education Act when selling dietary supplements and vitamins.
The U.S. House of Representatives Committee on Commerce and the General
Accounting Office are currently investigating online pharmacies and online
prescribing, especially focused on those who prescribe drugs online and on
pharmacies that fill invalid prescriptions, including those that are written
online. The committee requested that the General Accounting Office undertake a
formal review of a number of issues pertaining to online pharmacies, including
an assessment of mechanisms to ensure that online pharmacies are obeying the
various state and federal regulations for the industry. Because we make every
effort only to fulfill valid prescriptions and we do not prescribe drugs, we
believe that our business will not be negatively affected by any regulations
that result from the investigations. However, we believe that any regulations
resulting from the investigations will likely result in increased reporting and
monitoring requirements.
The National Association of Boards of Pharmacy (NABP), a coalition of state
pharmacy boards, has developed a program, the Verified Internet Pharmacy
Practice Sites (VIPPS), as a model for self-regulation for online pharmacies.
We have assisted the NABP with the development of the VIPPS program and intend
to comply with its criteria for certification.
Legislation and regulations currently being considered at the federal and
state level could affect our business, including legislation or regulations
relating to confidentiality of patient records, electronic access and storage.
In addition, various state legislatures are considering new legislation related
to the regulation of nonresident pharmacies. The Health Insurance Portability
and Accountability Act of 1996 mandates the use of standard transactions,
standard identifiers, security and other provisions by the year 2000.
Regulations have been proposed to implement these requirements, and we are
designing our applications to comply with the proposed regulations.
Although the FDA does not regulate the practice of pharmacy, other than
pharmacy compounding, which we do not currently engage in, FDA regulations
impact some of our product and service offerings because the FDA regulates drug
advertising and promotion, including direct-to-consumer advertising, done by or
on behalf of drug manufacturers and marketers. As we expand our product and
service offerings, more of our products and services will likely be subject to
FDA regulation.
The federal antikickback law prohibits the knowing and willful
solicitation, offer, payment, or receipt of "any remuneration (including any
kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash
or in kind" in return for referring an individual for healthcare services or
supplies for which payment may be made in whole or in part under any federally-
funded health care program. The statute extends both to physicians and non-
physicians alike. At the state level, laws and regulations that prohibit the
offer, payment, solicitation, or receipt of kickbacks in exchange for patient
referral may use terms such as "bribes", "rebates", "commissions" or "fee-
splitting" to describe the same prohibited conduct. Similarly, federal and
state self-referral laws exist, which are aimed at curtailing over-utilization
of health care services and supplies by generally prohibiting a physician who
(or whose family) has a financial relationship with a facility or entity for
health care services or supplies from referring patients to such a facility or
entity for healthcare services or supplies.
Until recently, Health Care Financing Administration guidelines prohibited
transmission of Medicare eligibility information over the Internet. We are also
subject to
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extensive regulation relating to the confidentiality and release of patient
records. Additional legislation governing the distribution of medical records
exists or has been proposed at both the state and federal level.
Intellectual Property
We rely on a combination of copyright, trademark, and trade secret laws and
our contractual obligations with employees and third parties to protect our
proprietary rights. We do not currently own any issued patents, and other
protection of our intellectual property is limited. Despite our efforts to
protect our proprietary rights, it may be possible for a third party to copy or
obtain and use our intellectual property without our authorization. In
addition, other parties may breach confidentiality agreements or other
protective contracts we have entered into, and we may not be able to enforce
our rights in the event of these breaches.
We have entered into confidentiality and invention assignment agreements
with our employees and consultants, and nondisclosure agreements with our
vendors and strategic partners to limit access to and disclosure of our
proprietary information. We cannot be certain that these contractual
arrangements or the other steps taken by us to protect our intellectual
property will prevent misappropriation of our technology. We have licensed in
the past, and expect that we may license in the future, certain of our
proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that the quality of the PlanetRx.com
products brand is maintained by such licensees, we cannot assure that such
licensees will not take actions that might hurt the value of our proprietary
rights or reputation.
We also rely on technologies that we license from third parties, such as
IBM and Microsoft, the suppliers of key database technology, the operating
system and specific hardware components for our service. We cannot be certain
that these third-party technology licenses will continue to be available to us
on commercially reasonable terms. The loss of such technology could require us
to obtain substitute technology of lower quality or performance standards or at
greater cost, which could harm our business.
We have filed applications for the registration of some of our trademarks
and service marks in the U.S., including PlanetRx, PlanetRx.com, eCenter,
HealthyReward and QuickClick Shopping. In addition, we are seeking patents for:
Tell-A-Friend, PlanetWhisper, DynamicStore and FloatingShoppingCart. We may be
unable to secure these registered marks or patents. It is also possible that
our competitors or others will use marks similar to ours, which could impede
our ability to build brand identity and lead to customer confusion. In
addition, there could be potential trade name or trademark infringement claims
brought by owners of other registered trademarks or trademarks that incorporate
variations of the term PlanetRx.com or of the other terms above. Any claims or
customer confusion related to our trademarks, or our failure to obtain
trademark registration, would negatively affect our business.
Our efforts to protect our intellectual property rights may not prevent
misappropriation of our content. Our failure or inability to protect our
proprietary rights could substantially harm our business.
Charitable Contributions
Prior to completion of this offering, we plan to donate 200,000 shares of
our common stock to a foundation to be established by us. This foundation will
make grants to charitable organizations. We intend to involve our employees in
determining the organizations to which proceeds from the sale of these shares
will be devoted.
Employees
As of June 30, 1999, we had 154 full-time employees, 84 of whom were in
marketing and sales, 50 of whom were in product development and 20 of whom were
in general and administrative. None of our employees is represented by a labor
union. We have not experienced any work stoppages and consider our employee
relations to be good.
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Facilities
Our principal executive offices are located in South San Francisco,
California, where we lease approximately 30,000 square feet under a lease that
expires in June 2002. We also lease an aggregate of approximately 35,000 square
feet for our distribution facilities in Memphis, Tennessee, under two leases
that expire in September and December 2003.
Legal Proceedings
We are not aware of any pending legal proceedings against us that,
individually or in the aggregate, would have a material adverse effect on our
business, results of operations or financial condition. We may in the future be
party to litigation arising in the course of our business, including claims
that we allegedly infringe third-party trademarks and other intellectual
property rights. These claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, their ages and the positions held by
them, as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
William J. Razzouk................ 51 Chairman and Chief Executive Officer
Steve Valenzuela.................. 42 Vice President of Finance, Chief
Financial Officer and Secretary
James Chong....................... 42 Chief Technology Officer
Allan Goldman..................... 45 Vice President of Merchandising
John McAlpin...................... 40 Vice President of Distribution
Services
Matthew Naythons, M.D. ........... 53 Vice President of Editorial and
Publisher
Jay O'Connor...................... 37 Vice President of Marketing
Stephanie Schear.................. 32 Vice President of Sales and Business
Development
David Beirne(2)................... 35 Director
Terrence C. Burke(1).............. 58 Director
Christos M. Cotsakos(2)........... 50 Director
Michael Moritz(1)(2).............. 44 Director
</TABLE>
- --------
(1) Audit Committee Member
(2) Compensation Committee Member
William J. Razzouk has served as our Chairman and CEO since September 1998.
From August 1997 to May 1998, Mr. Razzouk was President and Chief Operating
Officer of Storage USA, a real estate investment trust. Mr. Razzouk was a
consultant to Advanta Corporation from October 1996 to April 1997. From
February 1996 to June 1996, Mr. Razzouk served as President and Chief Operating
Officer of America Online, Inc. From August 1983 to February 1996, Mr. Razzouk
worked at FedEx Corporation most recently as Executive Vice President of
Worldwide Customer Operations. Mr. Razzouk serves as a Director of Fritz
Companies, Inc. and Waste Connections, Inc. Mr. Razzouk received a B.A. in
Journalism and Marketing from the University of Georgia.
Steve Valenzuela has served as our Vice President of Finance, Chief
Financial Officer since March 1999 and was appointed Secretary in July 1999.
From August 1998 to April 1999, Mr. Valenzuela served as Vice President of
Finance and Chief Financial Officer at MSN-LinkExchange, an Internet company,
where he negotiated the sale of the company to Microsoft in November 1998. From
December 1993 to June 1998, Mr. Valenzuela was employed by Coherent, Inc., a
designer and manufacturer of laser products, most recently as Vice President of
Finance. From May 1987 to December 1993, Mr. Valenzuela worked at Tandem
Computers, Inc., a computer hardware and software company, most recently as
Controller. Mr. Valenzuela received a B.S. in Accounting from San Jose State
University and an M.B.A. from Santa Clara University.
James Chong has served as our Chief Technology Officer since January 1999.
From January 1988 to January 1999, Mr. Chong had various positions at Charles
Schwab and Co., a financial services company, most recently as Vice President,
Architecture and Planning. Mr. Chong studied Electrical Engineering at the
University of Southern California.
Allan Goldman has served as our Vice President of Merchandising since
December 1998. From March 1995 to July 1998, Mr. Goldman served as Senior Vice
President of Marketing and Merchandising for The Cosmetic Center, a retail
cosmetic company. From June 1988 to February 1995, Mr. Goldman served as Vice
President of Merchandising for Rite Aid
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Corporation. Mr. Goldman holds a B.S. in Health Science from James Madison
University.
John McAlpin has served as our Vice President of Distribution Services
since September 1998, and is responsible for managing the distribution center
located in Memphis, Tennessee, as well as our customer service operations.
From May 1997 to May 1998, Mr. McAlpin was Vice President of Technical
Operations at Skywire, Inc., a networking company. From May 1996 to May 1997,
Mr. McAlpin served as a Vice President at First Union Corporation. From
September 1989 to May 1996, Mr. McAlpin was a Managing Director of FedEx
Corporation's Logistics Services Division. Mr. McAlpin holds a B.S. in
Mechanical Engineering from the University of Memphis.
Matthew Naythons, M.D. has served as our Vice President of Editorial and
Publisher since January 1999. Dr. Naythons is the founder of Epicenter
Communications (1991), and its two online health subsidiaries, NetHealth and
NetMed (1996). After receiving his M.D. in 1972, Dr. Naythons served as an
emergency room physician in California. He also was a photojournalist for
Time, Newsweek, and National Geographic covering, among other stories, the
fall of Saigon, the Jonestown massacre and the Centers for Disease Control. In
1979, Dr. Naythons formed international medical teams which brought medical
care to refugees on the Thai-Cambodian border. Dr. Naythons holds a B.S. from
Muhlenberg College and an M.D. from Hahnemann University.
Jay O'Connor has served as our Vice President of Marketing since January
1999. From June 1992 to October 1998, Mr. O'Connor worked at Intuit, Inc., a
software company, where his roles included Director of Product Marketing for
Quicken.com and Group Product Manager for QuickBooks. From June 1988 to July
1990, he was a Project Manager at Kettler & Scott, Inc. Mr. O'Connor holds a
B.A. in History from Stanford University and an M.B.A. from the Harvard
Business School.
Stephanie Schear, a founder of PlanetRx.com, has served as our Vice
President of Business Development and Sales since September 1998. From June
1997 to September 1998, Ms. Schear was a Manager at Intel Corporation, where
she managed the eCommerce and Healthcare venture investments for Intel's
Corporate Business Development Group. From September 1995 to May 1997,
Ms. Schear was at Firefly, an Internet company, most recently as Vice
President of Business Development. From September 1991 to July 1994, Ms.
Schear was an Associate at Alex. Brown & Sons. Ms. Schear received a B.A. in
Economics and an M.A. in Economics from Brandeis University and an M.B.A. from
the Harvard Business School.
David Beirne has served as a director of PlanetRx.com since September
1998. He became a Managing Member of Benchmark Capital Management Company
L.L.C., which is the General Partner of Benchmark Capital Partners II, L.P., a
venture capital firm, in June 1997. Prior to joining Benchmark, Mr. Beirne
founded Ramsey/Beirne Associates, an executive search firm, and served as its
Chief Executive Officer from October 1987 to June 1997. Mr. Beirne is a
director of 1-800-Flowers and Scient as well as several private companies. Mr.
Beirne holds a B.A. in Management from Bryant College.
Terrence C. Burke has served as a director of PlanetRx.com since October
1998. Currently retired, Mr. Burke was most recently Senior Executive Vice
President of Metra Health Inc., a healthcare company, from January 1995 until
October 1996. From October 1994 until January 1995, Mr. Burke was Senior Vice
President for Travelers Health Plans. From September 1992 until October 1994,
Mr. Burke served as Senior Vice President of Aetna Health Plans, Aetna
Corporation. Mr. Burke currently serves as a member of the Board of Directors
on several private companies. Mr. Burke holds a B.A. from the University of
Washington.
Christos M. Cotsakos has served as a director of PlanetRx.com, Inc. since
October 1998. Mr. Cotsakos is Chairman, Chief Executive Officer, and a
Director of E*TRADE Group, Inc. He joined E*TRADE in March 1996 as President
and Chief Executive Officer. From March 1992 to January 1996, he served as
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President, Chief Operating Officer, Co-Chief Executive Officer, and a Director
of AC Nielsen Inc. From December 1973 to March 1992, he held a number of senior
executive positions at FedEx Corporation. Mr. Cotsakos serves on the Board of
Directors of Critical Path, Digital Island, Fox Entertainment Group and
National Processing, as well as several private companies. Mr. Cotsakos holds a
B.A. from William Paterson College, an M.B.A. from Pepperdine University, and
is currently a fifth year Ph.D. candidate in economics at the University of
London.
Michael Moritz has served as a director of PlanetRx.com, Inc. since
September 1998. He has been a general partner of Sequoia Capital, a venture
capital firm, since 1986. Mr. Moritz serves as a director of Yahoo!, eToys, and
Flextronics International, as well as several private companies. Mr. Moritz
holds an M.A. from Oxford University and an M.B.A. from the Wharton School at
the University of Pennsylvania.
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed. There are no family
relationships among any of our directors or executive officers.
Board Committees
The board of directors has a compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding all forms of
compensation provided to our executive officers and directors, including stock
compensation and loans. In addition, the compensation committee reviews and
makes recommendations on bonus and stock compensation arrangements for all of
our employees. As part of the foregoing, the compensation committee also
administers our 1999 Equity Incentive Plan, Employee Stock Purchase Plan and
1999 Director Stock Option Plan. The current members of the compensation
committee are Messrs. Beirne, Cotsakos and Moritz.
Audit Committee. The audit committee of the board of directors reviews and
monitors our corporate financial reporting and our internal and external
audits, including, among other things, our internal audit and control
functions, the results and scope of the annual audit and other services
provided by our independent auditors and our compliance with legal matters that
have a significant impact on our financial reports. The audit committee also
consults with our management and our independent auditors prior to the
presentation of financial statements to stockholders and, as appropriate,
initiates inquiries into aspects of our financial affairs. In addition, the
audit committee has the responsibility to consider and recommend the
appointment of, and to review fee arrangements with, our independent auditors.
The current members of the audit committee are Messrs. Burke and Moritz.
Advisory Board
The advisory board provides guidance on specific healthcare-related issues,
including content and editorial review. The members of the advisory board
include:
J. Lyle Bootman, Ph.D. -- Dean, University of Arizona College of Pharmacy.
Michael Castleman -- Former Adjunct Professor, University of California,
Berkeley Graduate School of Journalism, and currently a writer for a
number of online health sites.
Walter Fitzgerald -- Associate Professor of Pharmacy Practice and
Pharmacoeconomics, University of Tennessee.
Dick Gourley -- Dean, University of Tennessee College of Pharmacy.
David Heber, M.D., Ph.D. -- Director, UCLA Center for Human Nutrition.
Mary Anne Koda-Kimble, PharmD. -- Dean, School of Pharmacy, University of
California, San Francisco.
Dean Ornish, M.D. -- President, Preventative Medicine Research Institute.
Swaid N. Swaid, M.D. -- Medical Director of HealthSouth Medical Center in
Birmingham, Alabama.
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Bruce U. Weintraub, M.D. -- Associate Dean, Schools of Medicine,
University of California, San Francisco.
Director Compensation
Directors do not receive any cash fees for their service on the board of
directors or any board committee, but they are entitled to reimbursement for
all reasonable out-of-pocket expenses incurred in connection with their
attendance at board of directors and board committee meetings. From time to
time, certain directors who are not employees of PlanetRx.com have received
grants of options to purchase shares of our common stock. Following this
offering, directors will receive automatic option grants under our 1999
Director Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the board of directors currently consists of
Messrs. Beirne, Cotsakos and Moritz. No interlocking relationship exists
between any member of our board of directors or our compensation committee and
any member of the board of directors or compensation committee of any other
company, and no such interlocking relationship has existed in the past.
Limitations on Directors' Liability and Indemnification
In July 1999, the board of directors authorized us to enter into
indemnification agreements with each of our directors and executive officers.
The form of indemnification agreement provides that we will indemnify our
directors and executive officers against any and all of their expenses incurred
by reason of their status as a director or executive officer to the fullest
extent permitted by Delaware law, our certificate of incorporation and our
bylaws.
Our certificate of incorporation and bylaws each contain certain provisions
relating to the limitation of liability and indemnification of our directors
and officers. Our certificate of incorporation provides that our directors will
not be personally liable to us or our stockholders for monetary damages for any
breach of fiduciary duty as a director, except liability for:
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended after the approval by our stockholders of our
certificate of incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of our
directors will be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law. The foregoing provisions of our certificate
of incorporation are not intended to limit the liability of our directors or
officers for any violation of applicable federal securities laws.
In addition, as permitted by Section 145 of the Delaware General
Corporation Law, our bylaws provide that
. we must indemnify our directors and officers to the fullest extent
permitted by the Delaware General Corporation Law;
. we may, in our discretion, indemnify other of our officers, employees
and agents as provided by the Delaware General Corporation Law;
. to the fullest extent permitted by the Delaware General Corporation Law,
we are required to advance all expenses incurred by our directors and
officers in connection with legal proceedings (subject to certain
exceptions);
. the rights conferred in the bylaws are not exclusive;
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<PAGE>
. we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents; and
. we may not retroactively amend our bylaw provisions relating to
indemnification.
Our bylaws provide that we must indemnify our directors to the fullest
extent permitted by Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware General Corporation Law.
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<PAGE>
Executive Compensation
The following table sets forth information concerning compensation that we
paid during the fiscal year ended December 31, 1998 to our Chief Executive
Officer and each of our other most highly compensated officers, collectively
referred to below as the Named Executive Officers:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation Securities
------------------ Underlying
Name and Principal Position Salary($) Bonus($) Options(#)
- --------------------------- --------- -------- ------------
<S> <C> <C> <C>
William J. Razzouk(1)........................... $54,545 $47,879 1,809,000
Chief Executive Officer and Chairman
John McAlpin(1)................................. 33,750 0 200,000
Vice President of Distribution Services
Allan Goldman(1)................................ 4,688 0 100,000
Vice President of Merchandising
</TABLE>
- --------
(1) Represents the total amount of compensation Messrs. Razzouk, McAlpin and
Goldman earned in 1998 for the portions of the year they were our executive
officers. Mr. Razzouk and Mr. McAlpin joined us in September 1998. Mr.
Goldman joined us in December 1998. See "Management -- Directors and
Officers".
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1998 to each of the Named Executive Officers. No
stock appreciation rights were granted to these individuals during such year.
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
--------------------------------------------- Annual Rates of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term(4)
Options Employees Price Expiration ---------------------
Name Granted(#)(1) in 1998(2) ($/Sh)(3) Date 5%($) 10%($)
- ---- ------------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William J. Razzouk...... 1,809,000 52.5% $0.025 10/05/08 $ 28,442 $ 72,077
John McAlpin............ 200,000 5.8 0.05 11/17/08 6,289 15,937
Allan Goldman........... 100,000 2.9 0.05 12/20/08 3,144 7,969
</TABLE>
- --------
(1) Each of the options listed in the table is immediately exercisable. The
shares purchasable under the options may be repurchased by PlanetRx.com at
the original exercise price paid per share if the optionee ceases service
before vesting in such shares. The repurchase right generally lapses and
the optionee vests as to 25% of the option shares upon completion of 12
months of service from the vesting start date and the balance in a series
of equal monthly installments over the next three years of service
thereafter. The option shares will vest upon an acquisition of PlanetRx.com
by merger or asset sale, unless our repurchase right with respect to the
unvested option shares is transferred to the acquiring entity.
(2) Based on a total of 3,447,100 options and common shares granted to our
employees under our 1998 Stock Plan during the 12 months ended December 31,
1998.
(3) The exercise price was equal to the fair market value of our common stock
as valued by our board of directors on the date of grant. In determining
this fair market value, the board of directors took into account the
purchase price paid by investors for shares of our preferred stock (taking
into account the liquidation preferences and other rights, privileges and
preferences associated with such preferred stock) and an evaluation by the
board of directors of our revenues, operating history and prospects. The
exercise price may be paid in cash, in shares of our common stock valued at
fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. We may also
finance the option exercise by lending the optionee sufficient funds to pay
the exercise price for the
51
<PAGE>
purchased shares, together with any federal and state income tax liability
incurred by the optionee in connection with such exercise.
(4) The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the estimated fair market value on the date of
grant appreciates at the indicated rate for the entire term of the option
and that the option is exercised at the exercise price and sold on the last
day of its term at the appreciated price. See footnote 3 for information on
how the fair market value of our common stock was estimated. The initial
public offering price is higher than the estimated fair market value on the
date of grant, and the potential realizable value of the option grants
would be significantly higher than the numbers shown in the table if future
stock prices were projected to the end of the option term by applying the
same annual rates of stock price appreciation to the initial public
offering price.
In addition to the options listed in the table, stock options were granted
in 1999 to certain of the Named Executive Officers and to other executive
officers under our 1998 Stock Plan for the following number of shares; and at
the exercise prices indicated: Mr. Goldman received an option to purchase
50,000 shares at an exercise price of $0.05 and an option to purchase 75,000
shares at an exercise price of $2.00; Mr. McAlpin received an option to
purchase 100,000 shares at an exercise price of $2.00; Mr. Chong received an
option to purchase 335,000 shares at an exercise price of $0.05 and an option
to purchase 65,000 shares at an exercise price of $2.00; Mr. O'Connor received
an option to purchase 325,000 shares at an exercise price of $0.05; and Mr.
Valenzuela received options to purchase 400,000 shares at an exercise price of
$0.50. Each of the options is immediately exercisable. The shares purchasable
thereunder are subject to repurchase by us at the original exercise price paid
per share upon the optionee's cessation of service prior to vesting in such
shares. The repurchase right generally lapses as to 25% of the shares upon
completion of one year of service from the grant date and the balance in a
series of 36 monthly installments thereafter.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth for each of the Named Executive Officers the
number of options exercised during the fiscal year ended December 31, 1998 and
the number and value of securities underlying unexercised options that are held
by the Named Executive Officers as of December 31, 1998. No stock appreciation
rights were exercised by the Named Executive Officers in fiscal year 1998, and
no stock appreciation rights were outstanding at the end of that year.
<TABLE>
<CAPTION>
Value of
Unexercised
Number of Securities in-the-Money
Underlying Unexercised Options at
Options at December 31, December 31,
Shares 1998(#)(2) 1998($)(3)
Acquired on Value ------------------------ ---------------
Name Exercise(#) Realized($)(1) Vested Unvested Vested Unvested
- ---- ----------- -------------- ---------- ------------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
William J. Razzouk...... 1,809,000 $ 0 0 0 $0 $0
John McAlpin............ 0 0 0 200,000 0 0
Allan Goldman........... 0 0 0 100,000 0 0
</TABLE>
- --------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
(2) The options are immediately exercisable for all of the option shares, but
any shares purchased under those options will be subject to repurchase by
PlanetRx.com, at the original exercise price paid per share, if the
optionee ceases service with PlanetRx.com before vesting in such shares.
The heading "Vested" refers to shares that are no longer subject to
repurchase; the heading "Unvested" refers to shares subject to repurchase
as of December 31, 1998.
(3) Based on the fair market value of our common stock as determined by our
board of directors at the end of 1998 of $0.05 per share, less the exercise
price payable or paid for such shares. The fair market value of our common
stock at the end of 1998 was estimated by the board of directors on the
basis of the purchase price paid by investors for shares of our preferred
stock (taking into account the liquidation preferences and other rights,
privileges and preferences associated with the preferred stock) and an
evaluation by the board of our revenues, operating history and prospects.
The initial public offering price is higher than the estimated fair market
value at fiscal year-end, and the value of unexercised options would be
higher than the numbers shown in the table if the value were calculated by
subtracting the exercise price from the initial public offering price.
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<PAGE>
Stock Plans
1999 Equity Incentive Plan
Share Reserve. Our board of directors adopted our 1999 Equity Incentive
Plan on July 7, 1999. Our stockholders also approved this plan. We have
reserved 6,000,000 shares of our common stock for issuance under the
1999 Equity Incentive Plan. Any shares not yet issued under our 1998 Stock Plan
on the date of this offering will also be available under the 1999 Equity
Incentive Plan. On January 1 of each year, starting with the year 2000, the
number of shares in the reserve will automatically increase by the lesser of 5%
of the total number of shares of common stock that are outstanding at that time
or 2,000,000 shares. In general, if options or shares awarded under the 1999
Equity Incentive Plan or the 1998 Stock Plan are forfeited, then those options
or shares will again become available for awards under the 1999 Equity
Incentive Plan. We have not yet granted any options under the 1999 Equity
Incentive Plan.
Administration. The compensation committee of our board of directors
administers the 1999 Equity Incentive Plan. The committee has the complete
discretion to make all decisions relating to the interpretation and operation
of our 1999 Equity Incentive Plan. The committee has the discretion to
determine who will receive an award, what type of award it will be, how many
shares will be covered by the award, what the vesting requirements will be (if
any), and what the other features and conditions of each award will be. The
compensation committee may also reprice outstanding options and modify
outstanding awards in other ways.
Eligibility. The following groups of individuals are eligible to
participate in the 1999 Equity Incentive Plan:
. employees;
. members of our board of directors who are not employees; and
. consultants.
Types of Award. The 1999 Equity Incentive Plan provides for the following
types of award:
. incentive stock options to purchase shares of our common stock;
. nonstatutory stock options to purchase shares of our common stock;
. restricted shares of our common stock;
. stock units; and
. stock appreciation rights.
Options. An optionee who exercises an incentive stock option may qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code of
1986. On the other hand, nonstatutory stock options do not qualify for such
favorable tax treatment. The exercise price for incentive stock options granted
under the 1999 Equity Incentive Plan may not be less than 100% of the fair
market value of our common stock on the option grant date. In the case of
nonstatutory stock options, the minimum exercise price is 85% of the fair
market value of our common stock on the option grant date. Optionees may pay
the exercise price by using:
. cash;
. shares of common stock that the optionee already owns;
. a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
. an immediate sale of the option shares through a broker designated by
us; or
. a loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee.
In most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
1999 Equity Incentive Plan provides that no participant may receive options
covering more than 2,000,000 shares in the same year, except that a newly hired
employee may receive options covering up to 2,500,000 shares in the first year
of employment.
Restricted Shares. Restricted shares may be awarded under the 1999 Equity
Incentive Plan in return for:
. cash;
53
<PAGE>
. a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
. services already provided to us; and
. in the case of treasury shares only, services to be provided to us in
the future.
Change in Control. Restricted shares vest at the time or times determined
by the compensation committee.
If a change in control of PlanetRx.com occurs, an option or restricted
stock award under the 1999 Equity Incentive Plan will generally become fully
vested. However, if the surviving corporation assumes the option or award or
replaces it with a comparable award, then vesting accelerates only to the
extent determined by the compensation committee. In the event of an involuntary
termination of the optionee or participant within twelve months following a
change in control, the vesting of an option or restricted stock award will
accelerate in full. A change in control includes:
. a merger of PlanetRx.com after which our own stockholders own 50% or
less of the surviving corporation (or its parent company);
. a sale of all or substantially all of our assets;
. a proxy contest that results in the replacement of more than one-half of
our directors over a 24-month period; or
. an acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to PlanetRx.com (such as a holding
company owned by our stockholders).
Amendments or Termination. Our board may amend or terminate the 1999 Equity
Incentive Plan at any time. If our board amends the plan, it does not need to
ask for stockholder approval of the amendment unless applicable law requires
it. The 1999 Equity Incentive Plan will continue in effect indefinitely, unless
the board decides to terminate the plan earlier.
Employee Stock Purchase Plan
Share Reserve and Administration. Our board of directors adopted our
Employee Stock Purchase Plan on July 7, 1999. Our stockholders also approved
this plan. Our Employee Stock Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code. We have reserved 1,000,000 shares of
our common stock for issuance under the plan. On January 31 of each year,
starting with the year 2000, the number of shares in the reserve will
automatically be increased by the lesser of 2% of the total number of shares of
our common stock outstanding or 250,000 shares. The plan will be administered
by the compensation committee of our board of directors.
Eligibility. All of our employees are eligible to participate if they are
employed by us for more than 20 hours per week and for more than five months
per year. Eligible employees may begin participating in the Employee Stock
Purchase Plan at the start of any offering period. Each offering period lasts
six months. Offering periods start on March 1 and September 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on February 28, 2000.
Amount of Contributions. Our Employee Stock Purchase Plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's cash
compensation. Purchases of our common stock will occur on February 28 and
August 31 of each year. Each participant may purchase up to 2,500 shares on any
purchase date (5,000 shares per year), but the value of the shares purchased in
any calendar year (measured as of the beginning of the applicable offering
period) may not exceed $25,000.
Purchase Price. The price of each share of common stock purchased under our
Employee Stock Purchase Plan will be 85% of the lower of:
. the fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
54
<PAGE>
. the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
. the price per share to the public in this offering, or
. the fair market value per share of common stock on the purchase date.
Other Provisions. Employees may end their participation in the Employee
Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with PlanetRx.com. If a change in control of
PlanetRx.com occurs, our Employee Stock Purchase Plan will end and shares will
be purchased with the payroll deductions accumulated to date by participating
employees, unless the plan is assumed by the surviving corporation or its
parent. Our board of directors may amend or terminate the Employee Stock
Purchase Plan at any time. If our board increases the number of shares of
common stock reserved for issuance under the plan (except for the automatic
increases described above), it must seek the approval of our stockholders.
1999 Director Stock Option Plan
Share Reserve. Our board of directors adopted our 1999 Director Stock
Option Plan on July 7, 1999. Our stockholders also approved this plan. We have
reserved 400,000 shares of our common stock for issuance under the plan. In
general, if options granted under the 1999 Director Stock Option Plan are
forfeited, then those options will again become available for grants under the
plan. The 1999 Director Stock Option Plan will be administered by the
compensation committee of our board of directors, although all grants under the
plan are automatic and non-discretionary.
Initial Grants. Only the non-employee members of our board of directors
will be eligible for option grants under the 1999 Director Stock Option Plan.
Each non-employee director who first joins our board after the effective date
of this offering will receive an initial option for 25,000 shares. That grant
will occur when the director takes office. The initial options are fully vested
at grant.
Annual Grants. At the time of each of our annual stockholders' meetings,
beginning in 2000, each non-employee director who will continue to be a
director after that meeting will automatically be granted an annual option for
10,000 shares of our common stock. However, a new non-employee director who is
receiving the 25,000-share initial option will not receive the 10,000-share
annual option in the same calendar year. The annual options vest in equal
monthly installments over the one-year period following the date of grant.
Other Option Terms. The exercise price of each non-employee director's
option will be equal to the fair market value of our common stock on the option
grant date. A director may pay the exercise price by using cash, shares of
common stock that the director already owns, or an immediate sale of the option
shares through a broker designated by us. The non-employee directors' options
have a 10-year term, except that they expire one year after a director leaves
the board (if earlier).
Amendments or Termination. Our board may amend or terminate the 1999
Director Stock Option Plan at any time. If our board amends the plan, it does
not need to ask for stockholder approval of the amendment unless applicable law
requires it. The 1999 Director Stock Option Plan will continue in effect
indefinitely, unless the board decides to terminate the plan.
55
<PAGE>
CERTAIN TRANSACTIONS
Since March 31, 1995, we have issued and sold securities to the following
persons who are executive officers, directors or principal stockholders of
PlanetRx.com. These figures reflect activity through June 30, 1999.
<TABLE>
<CAPTION>
Series A Series B Series C Total Shares
Preferred Preferred Preferred Common as
Investor(1) Stock(2) Stock(3) Stock(4) Stock Converted(5)
- ----------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
William J. Razzouk(6).... -- -- -- 1,809,000 1,809,000
Steve Valenzuela(7)...... -- -- -- 400,000 400,000
Michael Bruner(8)........ 2,000 -- -- 2,000,000 2,002,000
James Chong(9)........... -- -- -- 335,000 335,000
Allan Goldman............ -- -- -- -- --
John McAlpin(10)......... -- -- -- 200,000 200,000
Matthew Naythons,
M.D.(11)................ -- -- -- 690,000 690,000
Jay O'Connor(12)......... -- -- -- 325,000 325,000
Stephanie Schear(13)..... -- -- -- 1,280,000 1,280,000
David Beirne(14)......... 5,050,000 100,000 228,441 -- 5,384,989
Michael Moritz(15)....... 5,000,000 100,000 228,441 -- 5,334,989
Christos M.
Cotsakos(16)............ 100,000 510,000 113,627 100,000 848,194
Terrence C. Burke(17).... -- -- -- 100,000 100,000
Funds affiliated with
Benchmark Capital(18)... 5,000,000 100,000 228,441 -- 5,334,989
Funds affiliated with
Sequoia Capital(19)..... 5,000,000 100,000 228,441 -- 5,334,989
</TABLE>
- --------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
(2) The per share purchase price for our series A preferred stock was $0.50.
(3) The per share purchase price for our series B preferred stock was $5.00.
(4) The per share purchase price for our series C preferred stock was $8.755.
(5) Reflects the conversion to common stock of each share of series A, series
B and series C preferred stock that will be effective upon the closing of
our initial public offering. Each share of series A preferred stock is
convertible into one share of common stock, each share of series B
preferred stock is convertible into approximately 1.0463 shares of common
stock and each share of series C preferred stock is convertible into
approximately 1.0084 shares of common stock.
(6) Reflects the exercise on October 8, 1998 of options to purchase our common
stock.
(7) Reflects the exercise on March 31, 1999 of options to purchase our common
stock.
(8) On September 15, 1998, Mr. Bruner was a party to a recapitalization by
PlanetRx.com whereby Mr. Bruner's original shares in PlanetRx.com were
exchanged into his current shares of common stock.
(9) Reflects the exercise on January 11, 1999 of options to purchase our
common stock.
(10) Reflects the exercise on January 11, 1999 of options to purchase our
common stock.
(11) Reflects a grant of 198,000 shares in December 1998 for services rendered
in connection with the acquisition of certain domain names by
PlanetRx.com, a grant of 342,000 shares in June 1999 to a company
affiliated with Dr. Naythons in connection with the acquisition of
additional domain names and the exercise on February 12, 1999 of options
to purchase 150,000 shares of our common stock.
(12) Reflects the exercise on February 19, 1999 of options to purchase our
common stock.
(13) Reflects the purchase of shares of common stock pursuant to a stock
purchase agreement dated September 15, 1998.
(14) Consists of 5,000,000 shares of series A preferred stock, 100,000 shares
of series B preferred stock and 228,441 shares of series C preferred stock
held by Benchmark Capital Partners II, L.P. and 50,000 shares of series A
preferred stock held by Ramsey/Beirne Associates. Mr. Beirne is a Managing
Member of Benchmark Capital Management Company L.L.C., which
56
<PAGE>
is the General Partner of Benchmark Capital Partners II, L.P., and
Chairman of Ramsey/Beirne Associates.
(15) Consists of 4,531,500 shares of series A preferred stock, 90,630 shares
of series B preferred stock and 207,036 shares of series C preferred
stock held by Sequoia Capital VIII; 57,500 shares of series A preferred
stock, 1,150 shares of series B preferred stock and 2,627 shares of
series C preferred stock held by Sequoia International Technology
Partners VIII; 300,000 shares of series A preferred stock, 6,000 shares
of series B preferred stock and 13,707 shares of series C preferred stock
held by Sequoia International Technology Partners VIII (Q); 100,000
shares of series A preferred stock, 2,000 shares of series B preferred
stock and 4,568 shares of series C preferred stock held by CMS Partners,
LLC; and 11,000 shares of series A preferred stock, 220 shares of series
B preferred stock and 503 shares of series C preferred stock held by
Sequoia 1997. Mr. Moritz is a general partner of Sequoia Capital.
(16) Includes 100,000 shares of common stock, 100,000 shares of series A
preferred stock and 8,567 shares of series C preferred stock held by the
Cotsakos Revocable Trust u/a/d 9/3/87; 10,000 shares of series B
preferred stock held by Christos M. Cotsakos C/F Suzanne R. Cotsakos CA
UTMA; and 500,000 shares of series B preferred stock and 105,060 shares
of series C preferred stock held by the E*TRADE Group, Inc. Mr. Cotsakos
is Chairman and Chief Executive Officer of the E*TRADE Group, Inc.
(17) Mr. Burke also has a warrant to purchase 100,000 shares of series A
preferred stock.
(18) Consists of 5,000,000 shares of series A preferred stock, 100,000 shares
of series B preferred stock and 228,441 shares of series C preferred
stock held by Benchmark Capital Partners II, L.P.
(19) Consists of 4,531,500 shares of series A preferred stock, 90,630 shares
of series B preferred stock and 207,036 shares of series C preferred
stock held by Sequoia Capital VIII; 57,500 shares of series A preferred
stock, 1,150 shares of series B preferred stock and 2,627 shares of
series C preferred stock held by Sequoia International Technology
Partners VIII; 300,000 shares of series A preferred stock, 6,000 shares
of series B preferred stock and 13,707 shares of series C preferred stock
held by Sequoia International Technology Partners VIII (Q);
100,000 shares of series A preferred stock, 2,000 shares of series B
preferred stock and 4,568 shares of series C preferred stock held by CMS
Partners, LLC; and 11,000 shares of series A preferred stock, 220 shares
of series B preferred stock and 503 shares of series C preferred stock
held by Sequoia 1997.
In addition, we have granted options to certain of our executive officers.
See "Management -- Option Grants".
Series A Financing
On September 15, 1998, we issued an aggregate of 10,100,000 shares of
series A preferred stock at a per share purchase price of $0.50 to investors,
including entities affiliated with Benchmark Capital and Sequoia Capital.
Series B Financing
On January 15, 1999, we issued an aggregate of 5,200,000 shares of series
B preferred stock at a per share purchase price of $5.00 to investors,
including entities affiliated with Benchmark Capital, Sequoia Capital and
E*TRADE Group.
Series C Financing
Between June 3 and June 18, 1999, we issued an aggregate of 6,776,364
shares of series C preferred stock at a per share purchase price of $8.775 to
investors, including entities affiliated with Benchmark Capital, Sequoia
Capital and E*TRADE Group.
Change in Conversion Price
On June 30, 1999, PlanetRx.com filed a restated certificate of
incorporation whereby each share of series B preferred stock is convertible
into approximately 1.0463 shares of common stock and each share of series C
preferred stock is convertible into approximately 1.0084 shares of common
stock.
57
<PAGE>
Employment Agreements with Certain Executive Officers
In November 1998, we entered into an employment agreement with William J.
Razzouk, our Chairman and Chief Executive Officer, pursuant to which he was
granted an option to purchase 1,809,000 shares of common stock, one-third of
which was immediately vested, and the balance of which vests monthly over 48
months. Upon a change of control, if Mr. Razzouk is not employed by the
acquiring company in substantially the same position and job title, Mr. Razzouk
would be entitled to a cash payment equal to his base salary plus his most
recently paid bonus and his options would become fully vested.
Loans to Certain Executive Officers
On September 15, 1998, we advanced $31,936 to Stephanie Schear, one of our
officers, for the purchase of PlanetRx.com common stock pursuant to a stock
purchase agreement dated September 15, 1998. The principal balance of this
note, together with interest accrued and unpaid to date, is due and payable in
September 2003. Interest will accrue under the note on any unpaid principal
balance at the rate of 5.54% per annum, compounded annually. The amount of this
full recourse note is currently outstanding, plus accrued interest.
Acquisition of Domain Names
In December 1998, we issued 198,000 shares of common stock to Dr. Matthew
Naythons for services rendered in connection with the acquisition and transfer
of certain domain names. In June 1999, we issued 342,000 shares of common stock
to a company affiliated with Dr. Naythons for the acquisition of additional
domain names. In connection with these acquisitions, we entered into revenue
sharing arrangements based upon revenues earned from these domain names with
companies affiliated with Dr. Naythons. These revenue sharing arrangements are
capped at an aggregate amount of $500,000 over the terms of the agreements.
Warrant to Ramsey/Beirne Associates
On November 18, 1998, we granted to Ramsey/Beirne Associates a warrant to
purchase 50,000 shares of our series A preferred stock in exchange for certain
services. David Beirne, a director of PlanetRx.com, is chairman of
Ramsey/Beirne Associates.
Warrant and Option Grants
In the past, we have granted options to our executive officers and
directors. We intend to grant additional options to our directors and officers
in the future. Additionally, we have granted warrants to three of our
directors. See "Management -- Option Grants in Last Fiscal Year" and
"Management -- Director Compensation".
Indemnification and Limitation of Director and Officer Liability
We have entered into an Indemnification Agreement with each of our
executive officers and directors. See "Management --Indemnification".
We believe that the transactions set forth above were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
All future transactions, including loans between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, and will continue to be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of PlanetRx.com's
common stock as of June 30, 1999 and as adjusted to reflect the sale of the
common stock offered in this prospectus for: (1) each person who is known by us
to beneficially own more than 5% of our common stock; (2) each of our Named
Executive Officers, (3) each of our directors; and (4) all of our directors and
executive officers as a group. Except as otherwise indicated, we believe that
the beneficial owners of the common stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares.
The percentage of beneficial ownership for the following table is based on
34,122,445 shares of common stock outstanding as of June 30, 1999 assuming
conversion of all outstanding shares of preferred stock into common stock, and
exercise of all outstanding warrants and similar purchase rights, and
shares of common stock outstanding after the completion of this offering
assuming no exercise of the underwriters' over-allotment option.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Common stock subject to options currently
exercisable within 60 days of June 30, 1999 are deemed outstanding for purposes
of computing the percentage ownership of the person holding such option but are
not deemed outstanding for purposes of computing the percentage ownership of
any other person. Except where indicated, and subject to community property
laws where applicable, the persons in the table below have sole voting and
investment power with respect to all common stock shown as beneficially owned
by them.
<TABLE>
<CAPTION>
Percentage
of Shares
Number Beneficially
of Shares Owned
Beneficially -----------------
Owned Before Before After
Name of Beneficial Owner(1) Offering Offering Offering
- --------------------------- ------------ -------- --------
<S> <C> <C> <C>
Named Executive Officers and Directors
William J. Razzouk(2)......................... 1,809,000 5.3% %
John McAlpin.................................. 300,000 *
Allan Goldman................................. 225,000 *
David Beirne(3)............................... 5,384,989 15.8
Terrence C. Burke............................. 200,000 *
Christos M. Cotsakos(4)....................... 848,194 2.5
Michael Moritz(5)............................. 5,334,989 15.6
Other 5% Stockholders
Michael Bruner................................ 2,002,000 5.9
Entities affiliated with Benchmark
Capital(6)................................... 5,334,989 15.6
2480 Sand Hill Road, Suite 200
Menlo Park, California 94025
Entities affiliated with Sequoia Capital(7)... 5,334,989 15.6
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Markas Holding B.V............................ 2,825,878 8.3
Locatellikade, 1
Parnassustoren
1076 AZ Amsterdam
The Netherlands
News America Incorporated..................... 1,727,698 5.1
1211 Avenue of the Americas
New York, New York 10036
All executive officers and directors as a
group (12 persons)(8)........................ 17,197,172 49.7
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
59
<PAGE>
(1) Unless otherwise indicated, the address of each of the individuals listed
in the table is c/o PlanetRx.com, Inc., 349 Oyster Point Road, Suite 201,
South San Francisco, California 94080.
(2) Includes 25,000 shares owned by Katherine W. Razzouk, 25,000 shares owned
by Matthew J. Razzouk and 25,000 shares owned by Thomas E. Razzouk, Mr.
Razzouk's children.
(3) Includes 50,000 shares held by Ramsey/Beirne Associates, 5,000,000 shares
of series A preferred stock, 100,000 shares of series B preferred stock and
228,441 shares of series C preferred stock held by Benchmark Capital
Partners II, L.P. Mr. Beirne serves as chairman of Ramsey/Beirne
Associates, is a general partner of Benchmark Capital and is a director of
PlanetRx.com. He disclaims beneficial ownership of the shares held by
Ramsey/Beirne Associates and Benchmark Capital Partners II, L.P., except to
the extent of his proportionate interest therein.
(4) Includes 100,000 shares of common stock, 100,000 shares of series A
preferred stock and 8,567 shares of series C preferred stock held by the
Cotsakos Revocable Trust u/a/d 9/3/87 and 10,000 shares of series B
preferred stock held by Christos M. Cotsakos C/F Suzanne R. Cotsakos CA
UTMA, as well as 500,000 shares of series B preferred stock and
105,060 shares of series C preferred stock held by the E*TRADE Group, Inc.
Mr. Cotsakos is chairman and chief executive officer of the E*TRADE Group,
Inc. and a director of PlanetRx.com. He disclaims beneficial ownership of
the shares held by E*TRADE Group, Inc.
(5) Includes 4,531,500 shares of series A preferred stock, 90,630 shares of
series B preferred stock and 207,036 shares of series C preferred stock
held by Sequoia Capital VIII; 57,500 shares of series A preferred stock,
1,150 shares of series B preferred stock and 2,627 shares of series C
preferred stock held by Sequoia International Technology Partners VIII;
300,000 shares of series A preferred stock, 6,000 shares of series B
preferred stock and 13,707 shares of series C preferred stock held by
Sequoia International Technology Partners VIII (Q); 100,000 shares of
series A preferred stock, 2,000 shares of series B preferred stock and
4,568 shares of series C preferred stock held by CMS Partners, LLC; and
11,000 shares of series A preferred stock, 220 shares of series B preferred
stock and 503 shares of series C preferred stock held by Sequoia 1997. Mr.
Moritz is a general partner of Sequoia Capital and a director of
PlanetRx.com. He disclaims beneficial ownership of the shares held by the
entities except to the extent of his proportionate interest therein.
(6) Consists of 5,000,000 shares of series A preferred stock, 100,000 shares of
series B preferred stock and 228,441 shares of series C preferred stock
held by Benchmark Capital Partners II, L.P.
(7) Consists of 4,531,500 shares of series A preferred stock, 90,630 shares of
series B preferred stock and 207,036 shares of series C preferred stock
held by Sequoia Capital VIII; 57,500 shares of series A preferred stock,
1,150 shares of series B preferred stock and 2,627 shares of series C
preferred stock held by Sequoia International Technology Partners VIII;
300,000 shares of series A preferred stock, 6,000 shares of series B
preferred stock and 13,707 shares of series C preferred stock held by
Sequoia International Technology Partners VIII (Q); 100,000 shares of
series A preferred stock, 2,000 shares of series B preferred stock and
4,568 shares of series C preferred stock held by CMS Partners, LLC; and
11,000 shares of series A preferred stock, 220 shares of series B preferred
stock and 503 shares of series C preferred stock held by Sequoia 1997.
(8) Includes options immediately exercisable for 490,000 shares.
DESCRIPTION OF CAPITAL STOCK
General
Upon the closing of this offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, $0.0001 par value, and 5,000,000
shares of preferred stock, $0.0001 par value. The following summary of our
common stock and preferred stock does not purport to be complete and is subject
to, and qualified in its entirety by, our certificate of incorporation and
bylaws and by the provisions of applicable law.
Common Stock
As of June 30, 1999, there were 9,840,250 shares of common stock
outstanding that were held of record by approximately 107 stockholders. There
will be shares of common stock outstanding (assuming no exercise of the
underwriters' over-allotment option and assuming no exercise after June 30,
1999, of outstanding options) after giving effect to the sale of the shares of
common stock to the public offered hereby and the conversion of our preferred
stock into common stock.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available therefor.
See "Dividend Policy". In the event of the liquidation, dissolution or winding
up of PlanetRx.com, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The common
stock has no preemptive or conversion rights or other subscription rights.
There are no
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<PAGE>
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
Preferred Stock
The board of directors has the authority to issue the preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of PlanetRx.com without further action by the
stockholders and may adversely affect the voting and other rights of the
holders of common stock. The issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of
common stock, including the loss of voting control to others. At present, we
have no plans to issue any of the preferred stock.
Warrants
As of June 30, 1999, there is one warrant outstanding to purchase 100,000
shares of series A preferred stock at $0.50 per share, which expires on October
31, 2000, and one warrant outstanding to purchase 16,000 shares of series B
preferred stock at $5.00 per share, which expires on the earlier of January 15,
2009 or one year after the effective date of this offering.
Upon the closing of this offering, all warrants described herein will
become exercisable for common stock at the rate of one share of common stock
for each share of series A preferred stock and 1.0463 shares of common stock
for each share of series B preferred stock underlying the warrants.
Other Purchase Rights
In January 1999, in conjunction with a new credit facility, we granted a
purchase option for up to 700,000 shares of series B preferred stock at $5.00
per share. These series B shares are convertible into 732,410 shares of common
stock.
Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware Law
Certificate of Incorporation and Bylaws
The certificate of incorporation provides that, effective upon the closing
of this offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. The bylaws provide that our
stockholders may call a special meeting of stockholders only upon a request of
stockholders owning at least 50% of our capital stock. These provisions of the
certificate of incorporation and bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies formulated by the
board of directors and to discourage transactions that may involve an actual or
threatened change of control. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. The provisions also are
intended to discourage tactics that may be used in proxy fights. However, these
provisions could have the effect of discouraging others from making tender
offers for our shares and, as a consequence, they also may inhibit fluctuations
in the market price of our shares that could result from actual or rumored
takeover attempts. These provisions also may have the effect of preventing
changes in our management.
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law,
which, unless the stockholders adopt an amendment to the contrary, our stock is
no longer listed on a national securities exchange, or the stockholders consent
to such combination, prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years following
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<PAGE>
the date that the interested stockholder became an interested stockholder,
unless:
. prior to becoming an interested stockholder, the board of directors of
the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. on or subsequent to becoming an interested stockholder, the business
combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent,
by the affirmative vote of at least 66-2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholder except pursuant to the exercise, exchange or conversion of
securities exercisable for, exchangable for or convertible into stock of
such composition, pursuant to merger of a parent and a subsidiary, or
pursuant to an exchange offer by the company to purchase stock made on
the same terms to all holders of said stock;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Registration Rights
After this offering, the holders of 23,430,364 shares of common stock will
be entitled to rights with respect to the registration of these shares under
the Securities Act. Under the terms of our agreement with the holders of these
registrable securities, if we proposed to register any of our securities under
the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, these holders are entitled to
notice of that registration and are entitled to include shares of their
registrable common stock therein. Additionally, holders of 23,430,364 shares
of common stock are also entitled to demand registration rights pursuant to
which they may require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock,
and we are required to use our best efforts to effect that registration.
Further, the holders of these demand rights may require us to file additional
registration statements on Form S-3. All of these registration rights are
subject to conditions and limitations, including the right of the underwriters
of an offering to limit the number of shares included in that
62
<PAGE>
registration and our right not to effect a requested registration within six
months following an offering of our securities, including this offering.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is Boston EquiServe,
L.P.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have shares of common
stock outstanding, assuming the issuance of shares of common stock offered in
this prospectus and no exercise of options after June 30, 1999. Of these
shares, the shares sold in the offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares held by our affiliates, as that term is defined under the Securities
Act, may generally only be sold in compliance with the limitations of Rule 144
described below.
Sales of Restricted Shares
Of the shares of common stock outstanding upon completion of this
offering, 34,069,945 shares of common stock are deemed restricted shares under
Rule 144. The number of shares of common stock available for sale in the public
market is limited by restrictions under the Securities Act and lock-up
agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the
date of this prospectus without the prior written consent of Goldman, Sachs &
Co. On the date of this prospectus, 17,500 shares in addition to the shares
offered hereby will be eligible for sale. Beginning 180 days after the date of
this prospectus, or earlier with the consent of Goldman, Sachs & Co. restricted
shares will become available for sale in the public market subject to certain
limitations of Rule 144 of the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock
(approximately 35,000 shares after giving effect to this offering) and the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. Sales under Rule 144 of the
Securities Act are subject to certain restrictions relating to manner of sale,
notice and the availability of current public information about us. A person
who is not our affiliate at any time during the 90 days preceding a sale, and
who has beneficially owned shares for at least two years, would be entitled to
sell such shares immediately following this offering without regard to the
volume limitations, manner of sale provisions or notice or other requirements
of Rule 144 of the Securities Act. However, the transfer agent may require an
opinion of counsel that a proposed sale of shares comes within the terms of
Rule 144 of the Securities Act prior to effecting a transfer of such shares.
Prior to this offering, there has been no public market for our common
stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have on the
market price of our common stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through an offering of our equity
securities.
Options
As of June 30, 1999, there were a total of 1,326,050 shares of common stock
subject to outstanding options under our 1998 Stock Plan, of which 50,000 were
vested. However, all of these shares are subject to lock-up agreements.
Immediately after the completion
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<PAGE>
of the offering, PlanetRx.com intends to file registration statements on Form
S-8 under the Securities Act to register all of the shares of common stock
issued or reserved for future issuance under the 1998 Stock Plan and issued
outside the 1998 Stock Plan. On the date 180 days after the effective date of
the offering, a total of shares of common stock subject to
outstanding options will be vested. After the effective dates of the
registration statements on Form S-8, shares purchased upon exercise of options
granted pursuant to the 1998 Stock Plan and shares granted outside the 1998
Stock Plan generally would be available for resale in the public market.
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of outstanding options may be resold by persons other
than our affiliates, beginning 90 days after the date of this prospectus,
subject only to the manner of sale provisions of Rule 144, and by affiliates,
beginning 90 days after the date of this prospectus, subject to all provisions
of Rule 144 except its one-year minimum holding period. We intend to file one
or more registration statements on form S-8 under the Securities Act to
register all shares of common stock subject to outstanding stock options and
common stock issued or issuable pursuant to our 1998 Stock Plan. We expect to
file the registration statement covering shares offered pursuant to the 1998
Stock Plan and the 1999 Equity Incentive Plan approximately 30 days after the
closing of this offering. Such registration statements are expected to become
effective upon filing. Shares covered by these registration statements will
thereupon be eligible for sale in the public markets, subject to the lock-up
agreements, if applicable.
Lock-up Agreements
Our officers, directors and substantially all of our stockholders have
agreed not to sell or otherwise dispose of any of their shares for a period of
180 days after the date of the offering. Goldman, Sachs & Co., however, may in
its sole discretion, at any time without notice, release all or any portion of
the shares subject to lock-up agreements.
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<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
PlanetRx.com by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California. Robert V. Gunderson, Jr., a partner of Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, serves as our Assistant
Secretary. As of the date of this prospectus, Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP beneficially owned an aggregate of 25,000
shares of our common stock. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus has been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the Common Stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedule thereto. For further information with respect to PlanetRx.com and the
Common Stock offered in this offering, reference is made to the registration
statement and to the attached exhibits and schedules. Statements made in this
prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each such document filed as an exhibit to
the registration statement, reference is made to the exhibit for a more
complete description of the matter involved. The registration statement and the
attached exhibits and schedules may be inspected without charge at the public
reference facilities maintained by the Securities and Exchange Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York,
NY 10048, and the Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any part of the registration
statement may be obtained from the Securities and Exchange Commission upon
payment of prescribed fees. Reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
may also be inspected without charge at a website maintained by the Securities
and Exchange Commission at http://www.sec.gov.
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<PAGE>
PLANETRX.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity (Deficit)............................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of PlanetRx.com, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of PlanetRx.com, Inc. (the
"Company"), at December 31, 1997 and 1998, and the results of its operations
and its cash flows for the three years ended December 31, 1998 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
June 18, 1999,
except for Note 9,
which is as of
July 8, 1999
F-2
<PAGE>
PLANETRX.COM, INC.
BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
-------------- June 30,
1997 1998 1999
----- ------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 15 $ 935 $ 62,688
Inventories....................................... -- 18 1,612
Prepaid expenses and other current assets......... -- 1,864 12,053
----- ------- --------
Total current assets............................ 15 2,817 76,353
Property and equipment, net........................ 19 2,809 4,493
Intangible assets, net............................. -- -- 4,222
Other assets....................................... 2 81 168
----- ------- --------
$ 36 $ 5,707 $ 85,236
===== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................. $ 1 $ 1,600 $ 3,736
Accrued expenses.................................. 26 28 523
Deferred revenue.................................. -- -- 375
Borrowings, current............................... -- 600 --
Capital lease obligations, current................ 7 8 7
----- ------- --------
Total current liabilities....................... 34 2,236 4,641
Borrowings, long-term.............................. -- -- 1,600
Capital lease obligations, long-term............... 10 2 --
----- ------- --------
44 2,238 6,241
----- ------- --------
Commitments and contingencies (Note 5)
Stockholders' equity (deficit):
Preferred Stock: issuable in series, $0.0001 par
value; 28,000 shares authorized; 316, 11,039 and
23,135 actual shares issued and outstanding,
respectively (liquidation value of $90,907)...... -- 1 2
Common Stock: $0.0001 par value; 42,000 shares
authorized; 2,800, 6,592 and 9,840 shares issued
and outstanding, respectively.................... -- -- 1
Additional paid-in capital........................ 158 11,438 121,682
Notes receivable from stockholders................ -- (35) (35)
Deferred stock-based compensation................. -- (3,682) (17,292)
Accumulated deficit............................... (166) (4,253) (25,363)
----- ------- --------
Total stockholders' equity (deficit)............ (8) 3,469 78,995
----- ------- --------
$ 36 $ 5,707 $ 85,236
===== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PLANETRX.COM, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
--------------------------- ---------------
1996 1997 1998 1998 1999
------- ------- --------- ----- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue:
e-commerce..................... $ -- $ -- $ -- $ -- $ 622
Sponsorship.................... -- -- -- -- 195
------- ------- --------- ----- --------
-- -- -- -- 817
------- ------- --------- ----- --------
Cost of net revenue:
e-commerce..................... -- -- -- -- 694
Sponsorship.................... -- -- -- -- 35
------- ------- --------- ----- --------
-- -- -- -- 729
------- ------- --------- ----- --------
Gross profit.................... -- -- -- -- 88
------- ------- --------- ----- --------
Operating expenses:
Marketing and sales............ -- -- 907 3 9,614
Product development............ 7 113 1,025 106 3,254
General and administrative..... -- 23 541 2 2,366
Stock-based compensation....... -- -- 1,650 -- 4,308
------- ------- --------- ----- --------
Total operating expenses..... (7) (136) (4,123) (111) (19,542)
------- ------- --------- ----- --------
Operating loss.................. (7) (136) (4,123) (111) (19,454)
Interest income................. -- -- 38 -- 399
Interest expense................ -- (1) (2) -- (1,046)
------- ------- --------- ----- --------
Net loss........................ $ (7) $ (137) $ (4,087) $(111) $(20,101)
======= ======= ========= ===== ========
Basic and diluted net loss per
share.......................... $ -- $ -- $ (9.12) $ -- $ (8.35)
======= ======= ========= ===== ========
Basic and diluted pro forma net
loss per share (unaudited)..... $ (1.00) $ (1.04)
========= ========
Weighted average shares used to
compute basic and diluted net
loss per share................. -- -- 448 -- 2,528
======= ======= ========= ===== ========
Weighted average shares used to
compute pro forma basic and
diluted net loss per share
(unaudited).................... 4,102 20,210
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PLANETRX.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Notes Deferred Total
Receivable Stock- Stock-
Preferred Stock Common Stock Additional from based Accum- holders'
---------------- ------------- Paid-in Stock- Compen- ulated Equity
Shares Amount Shares Amount Capital holders sation Deficit (Deficit)
-------- ------- ------ ------ ---------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 54 $ -- 2,800 $ -- $ 27 $ -- $ -- $ (22) $ 5
Issuance of Series A
Preferred Stock at
$0.50.................. 10 -- -- -- 5 -- -- -- 5
Net loss................ -- -- -- -- -- -- -- (7) (7)
-------- ------- ----- ----- -------- ----- -------- -------- --------
Balance at December 31,
1996................... 64 -- 2,800 -- 32 -- -- (29) 3
Issuance of Series A
Preferred Stock at
$0.50.................. 222 -- -- -- 111 -- -- -- 111
Issuance of Series A
Preferred Stock for
services............... 30 -- -- -- 15 -- -- -- 15
Net loss................ -- -- -- -- -- -- -- (137) (137)
-------- ------- ----- ----- -------- ----- -------- -------- --------
Balance at December 31,
1997................... 316 -- 2,800 -- 158 -- -- (166) (8)
Issuance of Series A
Preferred Stock at
$0.50, net of issuance
costs of $37........... 10,474 1 -- -- 5,198 -- -- -- 5,199
Issuance of Series A
Preferred Stock for
services............... 149 -- -- -- 188 -- -- -- 188
Issuance of Series A
Preferred Stock
warrants for services.. -- -- -- -- 339 -- -- -- 339
Issuance of Series A
Preferred Stock in
connection with
warrants exercised..... 100 -- -- -- 50 -- -- -- 50
Issuance of Common Stock
and options for
services............... -- -- 263 -- 847 -- -- -- 847
Issuance of Common Stock
for cash in connection
with stock option
exercises.............. -- -- 2,109 -- 53 -- -- -- 53
Issuance of Common Stock
for notes receivable
from stockholders...... -- -- 1,420 -- 35 (35) -- -- --
Deferred stock-based
compensation........... -- -- -- -- 4,570 -- (4,570) -- --
Amortization of stock-
based compensation..... -- -- -- -- -- -- 888 -- 888
Net loss................ -- -- -- -- -- -- -- (4,087) (4,087)
-------- ------- ----- ----- -------- ----- -------- -------- --------
Balance at December 31,
1998................... 11,039 1 6,592 -- 11,438 (35) (3,682) (4,253) 3,469
Issuance of Series A
Preferred Stock for
services (unaudited)... 20 -- -- -- 77 -- -- -- 77
Issuance of Series A
Preferred Stock in
connection with a
warrant exercise
(unaudited)............ 100 -- -- -- 50 -- -- -- 50
Issuance of Series B
Preferred Stock at
$5.00, net of issuance
costs of $43
(unaudited)............ 5,200 -- -- -- 25,957 -- -- -- 25,957
Issuance of Series C
Preferred Stock at
$8.755, net of issuance
costs of $61
(unaudited)............ 5,919 1 -- -- 51,765 -- -- -- 51,766
Issuance of Series C
Preferred Stock for
advertising
(unaudited)............ 857 -- -- -- 7,500 -- -- -- 7,500
Issuance of Common Stock
for intellectual
property (unaudited)... -- -- 342 -- 3,762 -- -- -- 3,762
Issuance of Common Stock
and options for
services (unaudited)... -- -- -- -- 1,027 -- -- -- 1,027
Issuance of Common Stock
for cash in connection
with stock option
exercises, net
(unaudited)............ -- -- 2,865 1 595 -- -- -- 596
Issuance of Common Stock
for services in
connection with stock
option exercises
(unaudited)............ -- -- 41 -- 21 -- -- -- 21
Issuance of Series B
Preferred Stock
purchase option and
warrant for financing
(unaudited)............ -- -- -- -- 1,842 -- -- -- 1,842
Deferred stock-based
compensation
(unaudited)............ -- -- -- -- 16,639 -- (16,639) -- --
Amortization of stock-
based compensation
(unaudited)............ -- -- -- -- -- -- 3,029 -- 3,029
Effect of antidilution
provisions of Series B
Preferred Stock
(unaudited)............ -- -- -- -- 1,009 -- -- (1,009) --
Net loss (unaudited).... -- -- -- -- -- -- -- (20,101) (20,101)
-------- ------- ----- ----- -------- ----- -------- -------- --------
Balance at June 30, 1999
(unaudited)............ 23,135 $ 2 9,840 $ 1 $121,682 $ (35) $(17,292) $(25,363) $ 78,995
======== ======= ===== ===== ======== ===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PLANETRX.COM, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
--------------------- ---------------
1996 1997 1998 1998 1999
----- ----- ------- ----- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................. $ (7) $(137) $(4,087) $(111) $(20,101)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization......... 1 8 139 5 697
Interest expense related to purchase
option and warrant................... -- -- -- -- 906
Amortization of deferred stock-based
compensation......................... -- -- 888 48 3,029
Amortization of intellectual
property............................. -- -- -- -- 154
Issuance of Preferred Stock and
warrant for services................. -- 15 527 -- 77
Issuance of Common Stock for
services............................. -- -- 233 -- 1,027
Stock option exercises for services... -- -- -- -- 21
Changes in operating assets and
liabilities:
Inventories.......................... -- -- (18) -- (1,594)
Prepaid expenses and other current
assets.............................. -- -- (1,250) (10) (2,366)
Other assets......................... -- (2) (79) 1 (87)
Accounts payable..................... -- 1 1,600 -- 2,136
Accrued expenses..................... 1 22 2 (21) 495
Deferred revenue..................... -- -- -- -- 375
----- ----- ------- ----- --------
Net cash used in operating
activities......................... (5) (93) (2,045) (88) (15,231)
----- ----- ------- ----- --------
Cash flows from investing activities:
Purchases of property and equipment... -- (3) (2,929) (6) (2,381)
----- ----- ------- ----- --------
Net cash used in investing
activities......................... -- (3) (2,929) (6) (2,381)
----- ----- ------- ----- --------
Cash flows from financing activities:
Proceeds from Preferred Stock,
including warrant exercises, net..... 5 111 5,248 105 77,773
Proceeds from the exercise of Common
Stock options........................ -- -- 53 -- 595
Proceeds from borrowings.............. -- -- 600 -- 1,000
Principal payments on capital lease
obligations.......................... -- (5) (7) (4) (3)
----- ----- ------- ----- --------
Net cash provided by financing
activities......................... 5 106 5,894 101 79,365
----- ----- ------- ----- --------
Increase in cash and cash equivalents.. -- 10 920 7 61,753
Cash and cash equivalents at beginning
of period............................. 5 5 15 15 935
----- ----- ------- ----- --------
Cash and cash equivalents at end of
period................................ $ 5 $ 15 $ 935 $ 22 $ 62,688
===== ===== ======= ===== ========
Supplemental cash flow information:
Cash paid for interest................ $ -- $ 1 $ 2 $ -- $ 146
===== ===== ======= ===== ========
Supplemental non-cash financing
activity:
Property and equipment acquired under
capital leases....................... $ -- $ 21 $ -- $ -- $ --
===== ===== ======= ===== ========
Issuance of Common Stock for notes
receivable from stockholders......... $ -- $ -- $ 35 $ -- $ --
===== ===== ======= ===== ========
Issuance of Common Stock in exchange
for services, a prepaid asset in
1998, and reclassified to intangible
asset in 1999........................ $ -- $ -- $ 614 $ -- $ 614
===== ===== ======= ===== ========
Issuance of purchase option and
warrant for Series B Preferred Stock
for financing........................ $ -- $ -- $ -- $ -- $ 1,842
===== ===== ======= ===== ========
Effect of antidilution provision of
Series B Preferred Stock............. $ -- $ -- $ -- $ -- $ 1,009
===== ===== ======= ===== ========
Issuance of Series C Preferred Stock
for advertising...................... $ -- $ -- $ -- $ -- $ 7,500
===== ===== ======= ===== ========
Issuance of Common Stock in exchange
for intellectual property............ $ -- $ -- $ -- $ -- $ 3,762
===== ===== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES:
The Company
PlanetRx.com, Inc. (the "Company"), is an online healthcare destination for
commerce, content and community. Its e-commerce website, www.PlanetRx.com,
launched on March 18, 1999, provides a convenient, private and informative
shopping experience. The Company offers products in six categories:
prescription drugs; non-prescription drugs; personal care; beauty and spa;
vitamins, herbs and nutrition; and medical supplies. Headquartered in South San
Francisco, California, the Company operates its own pharmacy and distribution
center in Memphis, Tennessee. The Company was incorporated in the State of
Delaware on March 31, 1995 ("Inception") and was in the development stage
through December 31, 1998.
Unaudited interim results
The interim financial statements as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999, together with the financial data and other
information for those periods disclosed in these notes to the financial
statements, are unaudited. In the opinion of management, the interim financial
statements have been prepared on the same basis as the audited financial
statements and reflect all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of interim
periods. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for any future periods.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash and cash equivalents. Any
such investments are carried at cost plus accrued interest, which approximates
fair value. The Company deposits cash and cash equivalents with high credit
quality financial institutions.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consists primarily of prepaid
advertising costs.
Inventories
Inventories, of which all are finished goods, are carried at the lower of
cost or market determined using weighted average cost.
Property and equipment
Property and equipment, including leasehold improvements, are stated at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives
F-7
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
of the related assets, generally three years. Leasehold improvements and assets
held under capital leases are amortized over the term of the lease or estimated
useful lives, whichever is shorter.
Long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" ("SFAS 121"). SFAS 121 requires recognition of impairment of
long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. The Company
assesses the impairment of its long-lived assets when events or changes in
circumstances indicate that the carrying value of the assets may not be
recoverable.
Intangible assets
Intangible assets relate to the Company's acquisition of certain
intellectual property rights. Intangible assets, which have been acquired to
date, are amortized using the straight-line method over the estimated useful
lives which are deemed to be two years.
Revenue recognition
The Company recognizes e-commerce revenue when the related products are
shipped to customers. Outbound shipping charges are included in net sales when
the products are shipped. The Company records an allowance for estimated
returns, in the period of sales. The Company recognizes sponsorship revenue
ratably over the related period.
Product development
Product development expenses are expensed as incurred through December 31,
1998 and June 30, 1999.
Advertising expense
Internet advertising expenses are recognized based on the terms of the
individual agreements, but generally over the greater of the ratio of the
number of impressions received over the total number of contracted impressions,
or on a straight-line basis over the term of the contract. There was no
advertising expense for the two years ended December 31, 1997 and the six
months ended December 31, 1998. Advertising expenses totaled $266,000 for the
year ended December 31, 1998, and $4,954,000 for the six months ended June 30,
1999.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25,
compensation expense is based on the difference, as of the date of the grant,
between the fair value of the Company's stock and the exercise price. The
Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123 and Emerging
F-8
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Issues Task Force No. 96-18, "Accounting for Equity Instruments That Are Issued
to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services".
The Company amortizes stock-based compensation recorded in connection with
certain stock option grants over the vesting periods of the related options.
Recapitalization and exchange
In September 1998, the Company amended its Certificate of Incorporation to
effect a stock exchange whereby all of its then outstanding shares of Common
Stock were exchanged for Series A Preferred Stock ("Series A") at an exchange
ratio of 500-for-1. In connection with the recapitalization, the Company's
founders immediately exchanged shares of 1,600,000 Series A for restricted
Common Stock. At such time, generally twenty-five percent of the shares vested
immediately with the remaining seventy-five percent vesting monthly over a
three-year period. All references in the financial statements to the number of
shares and to the per share amounts available to then Common and Preferred
stockholders have been retroactively adjusted to reflect the recapitalization
and exchange.
Stock split
In November 1998, the Company approved a two-for-one stock split for Common
and Preferred Stock. Share information for the three years ended December 31,
1998 has been retroactively adjusted to reflect the stock split.
Concentration of credit risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents. Credit risk
related to cash and cash equivalents is managed by the Company by only
maintaining these accounts with high quality financial institutions.
Additionally, during the six months ended June 30, 1999, one customer accounted
for 15% of revenue.
Fair value of financial instruments
The Company's financial instruments include cash and cash equivalents,
borrowings, capital lease obligations and accounts payable, and are carried at
cost, which approximates their fair value due to their short-term maturities.
Income taxes
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted
tax rates and laws. A valuation allowance is provided for the amount of
deferred tax assets that, based on available evidence, are not expected to be
realized.
Pro forma stockholders' equity (unaudited)
Pro forma stockholders' equity is computed including (1) the exercise and
conversion of all outstanding warrants to purchase 100,000 shares of Series A,
warrants to purchase 16,000 shares of
F-9
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Series B and purchase rights to purchase 700,000 shares of Series B into
approximately 849,000 shares of Common Stock, and (2) the automatic conversion
of the pro forma outstanding shares of Series A, Series B and Series C
Preferred Stock into approximately 11,159,000, 5,441,000 and 6,833,000 shares,
respectively, of Common Stock.
At June 30, 1999, the pro forma effects of these transactions are as
follows (in thousands):
<TABLE>
<CAPTION>
Pro Forma
Stockholders' Equity
June 30, 1999 at June 30, 1999
------------- --------------------
<S> <C> <C>
Preferred Stock........................... $ 2 $ --
Common Stock.............................. 1 3
Additional paid-in capital................ 121,682 125,312
-------- --------
$121,685 $125,315
======== ========
</TABLE>
Net loss per common share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS
No. 128 and SAB 98, basic net loss per share is computed by dividing the net
loss available to common stockholders for the period by the weighted average
number of shares of Common Stock outstanding during the period. The
calculation of diluted net loss per share gives effect to common stock
equivalents, however, potential common shares are excluded if their effect is
antidilutive. Potential common shares are composed of Common Stock subject to
repurchase rights and incremental shares of Common Stock issuable upon the
exercise of stock options and warrants and upon conversion of Series A, B and
C Preferred Stock.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss....................... $ (7) $ (137) $(4,087) $ (111) $(20,101)
Plus effect of antidilution
provisions of Series B
Preferred Stock, see Note 6... -- -- -- -- (1,009)
------- ------- ------- ------- --------
Net loss available to common
shareholders.................. $ (7) $ (137) $(4,087) $ (111) $(21,110)
======= ======= ======= ======= ========
Denominator:
Weighted average Common
Shares........................ 2,800 2,800 3,706 2,800 8,766
Weighted average unvested
Common Shares subject to
repurchase.................... (2,800) (2,800) (3,258) (2,800) (6,238)
------- ------- ------- ------- --------
Denominator for basic and
diluted calculation........... -- -- 448 -- 2,528
======= ======= ======= ======= ========
Net loss per share:
Basic and diluted.............. $ -- $ -- $ (9.12) $ -- $ (8.35)
======= ======= ======= ======= ========
</TABLE>
F-10
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
The following table sets forth common stock equivalents (potential common
stock) that are not included in the diluted net loss per share calculation
above because to do so would be antidilutive for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
----------------- ------------
1996 1997 1998 1998 1999
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Weighted average effect of Common Stock
equivalents:
Series A Preferred Stock................. 55 169 3,645 519 11,159
Series B Preferred Stock................. -- -- -- -- 5,020
Series C Preferred Stock................. -- -- -- -- 1,057
Preferred Stock warrants................. -- -- 9 -- 193
Purchase option.......................... -- -- -- -- 253
Unvested Common Shares subject to
repurchase.............................. 2,800 2,800 3,258 2,800 6,238
Stock options............................ -- -- 138 -- 1,575
----- ----- ----- ----- ------
2,855 2,969 7,050 3,319 25,495
===== ===== ===== ===== ======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and the
six months ended June 30, 1999 is computed using the weighted average number of
Common Shares outstanding, including the exercise of all outstanding warrants
and the purchase option at June 30, 1999, and the assumed conversion of the
Company's Series A, B and C Preferred Stock into shares of the Company's Common
Stock effective upon the closing of the Company's initial public offering, as
if such change in conversion rate and conversion occurred on January 1, 1998 or
at the date of original issuance, if later. The resulting pro forma adjustment
includes an increase in the weighted average shares used to compute basic and
diluted net loss per share of 3,654,000 and 17,682,000 for the year ended
December 31, 1998 and the six months ended June 30, 1999, respectively. The
calculation of pro forma diluted net loss per share excludes Common Stock
subject to repurchase rights and incremental common shares issuable upon the
exercise of stock options.
Comprehensive income
The Company complies with the provisions of SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. During the period from Inception through December 31,
1998 and the six months ended June 30, 1999, the Company has not had any
significant transactions that are required to be reported in comprehensive
income.
Segment information
The Company complies with the provisions of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". The Company
identifies its operating segments based on business activities and management
responsibility. The Company operates in a single business segment providing
online services in the United States.
F-11
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-
1 is effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company adopted the
provisions of SOP 98-1 in its fiscal year beginning January 1, 1999, and does
not expect the adoption to have a material effect on the Company's results of
operations, financial position and cash flows.
In April 1998, the AICPA issued SOP 98-5 "Reporting on the Costs of Start-
Up Activities". Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, commencing some new operation or organizing a new entity. Under SOP
98-5, the cost of start-up activities should be expensed as incurred. The
Company adopted the provisions of SOP 98-5 in its fiscal year beginning January
1, 1999, and does not expect the adoption to have a material effect on the
Company's results of operations, financial position and cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal quarters
beginning with the quarter ending June 30, 2000. SFAS 133 establishes
accounting and reporting standards of derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The Company will adopt SFAS 133 in its quarter ending June 30, 2000 and does
not expect such adoption to have an impact on the Company's results of
operations, financial position or cash flows.
NOTE 2--BALANCE SHEET COMPONENTS (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1997 1998 1999
----- ------ --------
<S> <C> <C> <C>
Prepaid expenses and other current assets:
Prepaid advertising.............................. $ -- $1,250 $10,763
Prepaid debt issuance costs...................... -- -- 900
Prepaid (intellectual property).................. -- 614 --
Other............................................ -- -- 390
----- ------ -------
$ -- $1,864 $12,053
===== ====== =======
Property and equipment, net:
Computer equipment and software.................. $ 3 $2,406 $ 4,289
Equipment under capital leases................... 21 21 21
Furniture and fixtures........................... 4 435 906
Leasehold improvements........................... -- 86 122
----- ------ -------
28 2,957 5,338
Less: Accumulated depreciation and amortization.. (9) (148) (845)
----- ------ -------
$ 19 $2,809 $ 4,493
===== ====== =======
</TABLE>
F-12
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Depreciation expense for the three years ended December 31, 1998 and for
the six months ended June 30, 1998 and 1999 was $1,000, $8,000, $139,000,
$5,000 and $697,000, respectively. Accumulated depreciation of assets under
capital leases totaled $5,000, $12,000 and $16,000 at December 31, 1997 and
1998 and June 30, 1999, respectively. The equipment under capital leases
collaterizes the related lease obligations.
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1997 1998 1999
------ ------ --------
<S> <C> <C> <C>
Accrued expenses:
Compensation and benefits........................... $ -- $ 28 $378
Advertising......................................... -- -- 110
Other............................................... 26 -- 35
------ ------ ----
$ 26 $ 28 $523
====== ====== ====
</TABLE>
NOTE 3--INCOME TAXES:
The Company has incurred losses from Inception through June 30, 1999.
Management believes that, based on the history of such losses and other
factors, the weight of available evidence indicates that it is more likely than
not that the Company will not be able to realize its deferred tax assets and
thus a full valuation reserve has been recorded at December 31, 1997 and 1998
and June 30, 1999. At December 31, 1997 and 1998, the Company's fully reserved
deferred tax assets totaled $68,000 and $1,066,000, respectively.
NOTE 4--BORROWINGS:
Notes payable
At December 31, 1998, the Company had a demand note payable for $600,000
with a financing institution. The note bore interest at 10.0% per annum with
principal and accrued interest due on April 1, 1999. In January 1999, the
Company entered into another demand note payable for $1.0 million with the same
financing institution. The note bore interest at 10.0% per annum with principal
and accrued interest due on April 1, 1999. Upon the signing of the below
mentioned line of credit, the Company consolidated the above mentioned demand
notes under the terms of that agreement.
Line of credit
In January 1999, the Company entered into a $7.0 million line of credit
under a Loan and Security Agreement with the same financing institution. The
line of credit expires in January 2000. Each draw down must be in increments of
at least $1.0 million. Interest will accrue from the date of each draw down at
a rate of 11.0% per annum. Accrued interest will be payable in 18 equal monthly
installments followed by 18 equal installments of principal plus accrued
interest from the date of each draw down. Equipment, inventory, general
intangibles, and other assets of the Company are pledged as collateral for this
agreement. At June 30, 1999, the Company had $1.6 million outstanding under the
line of credit.
F-13
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Equipment financing arrangement
In January 1999, the Company entered into a $2.0 million capital lease
credit facility with a financing institution. The credit facility expires in
January 2000. Interest will accrue from the date of each draw down at a rate of
8.25% per annum. The arrangement allows for principal and accrued interest to
be paid in 42 equal monthly installments from the date of each draw down. At
June 30, 1999, no amounts were outstanding under this credit facility.
Equipment lease line and line of credit
In November 1998, the Company entered into an aggregate $1.0 million
equipment lease line and line of credit under a Loan and Security Agreement
with a bank. The line of credit is not to exceed $600,000. Interest will accrue
from the date of each draw down at a rate per annum equal to the bank's prime
rate and is payable monthly through May 9, 1999. Amounts outstanding on May 9,
1999 are payable thereafter in 24 equal monthly principal installments, plus
accrued interest of one-half percent plus the bank's prime rate per annum. The
equipment lease line expired in May 1999. The line of credit expires in
November 1999 and accrues interest at a rate per annum equal to the bank's
prime rate. At December 31, 1998 and June 30, 1999, there were no amounts
outstanding under this agreement.
NOTE 5--COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through December 2001. The
terms of the facility leases provide for rental payments on a graduated scale.
The Company recognizes rent expense on a straight-line basis over the lease
period. Rent expense under these leases was $0, $39,000 and $111,000 for the
three years ended December 31, 1998 and $18,000 and $476,000 for the six months
ended June 30, 1998 and 1999, respectively.
Future minimum lease payments under noncancelable operating and capital
leases at December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Year Ended December 31, Leases Leases
----------------------- ------- ---------
<S> <C> <C>
1999........................................................ $ 9 $ 380
2000........................................................ 2 422
2001........................................................ -- 422
----- ------
Total minimum lease payments................................ 11 $1,224
======
Less: Amount representing interest.......................... (1)
-----
Present value of capital lease obligations.................. 10
Less: Current portion....................................... (8)
-----
Long-term portion of capital lease obligations............ $ 2
=====
</TABLE>
Advertising agreement
In December 1998, the Company entered into a three year marketing agreement
with a web portal company. Under the terms of the agreement, the Company will
be provided with a specific
F-14
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
number of advertising impressions featuring it as an online full service
pharmacy devoted to health and wellness needs. In consideration, the Company
has agreed to pay approximately $15.0 million over a three year term. The
Company will recognize these fees as marketing and sales expenses over the
greater of (i) the ratio of the number of impressions delivered over the total
number of contracted impressions, or (ii) a straight-line basis over the term
of the contract. The Company paid an initial installment to the web portal
company of approximately $1.2 million prior to the start of the Internet
advertising. Such amount is included in prepaid expenses and other current
assets in the balance sheet at December 31, 1998. During the six months ended
June 30, 1999, the Company paid $3.0 million and recognized $1.5 million in
advertising expense in connection with the agreement.
Other commitments
At June 30, 1999, the Company had additional commitments for online
advertising, promotion programs and employment agreements. Future minimum
commitments under the noncancelable agreements are approximately $2.8 million,
$558,000 and $100,000 in the years ended December 31, 1999, 2000 and 2001,
respectively.
Contingencies
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
for contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect in the financial position or results of
operations of the Company.
NOTE 6--STOCKHOLDERS EQUITY (DEFICIT):
Preferred Stock
Preferred Stock at June 30, 1999 consists of the following, which reflects
the Certificate of Incorporation as amended as of June 1999 (in thousands):
<TABLE>
<CAPTION>
Cash Proceeds
Shares and Advertising
---------------------- Liquidation Services Net of
Series Authorized Outstanding Amount Issuance Costs
------ ---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
A........................ 14,000 11,159 $ 5,580 $ 6,061
B........................ 7,000 5,200 26,000 25,957
C........................ 7,000 6,776 59,327 59,266
------ ------ ------- -------
Total................... 28,000 23,135 $90,907 $91,284
====== ====== ======= =======
</TABLE>
The holders of Series A, B and C Preferred Stock ("Preferred Stock") have
various rights and preferences as follows:
Voting
Each share of Preferred Stock has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes
together as one class with the Common Stock.
F-15
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Dividends
Holders of Series A, B and C are entitled to receive noncumulative
dividends at the per annum rate of $0.04, $0.40 and $0.70 per share,
respectively, or if greater, an amount equal to that paid on any other shares
when and if declared by the Board of Directors. No dividends on Preferred or
Common Stock have been declared by the Board from Inception through December
31, 1998.
Liquidation
In the event of liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Preferred and Common Stock own less than 50% of the resulting
voting power of the surviving entity, the holders of Series A, B and C are
entitled to receive an amount of $0.50, $5.00 and $8.755 per share,
respectively, plus any declared but unpaid dividends prior to and in preference
to any distribution to the holders of Common Stock. If the assets of Company
are insufficient to permit the above preferential distributions, the assets
will be distributed ratably among Series A, B and C proportional to the
preferential amounts. The remaining assets, if any, shall be distributed to the
holders of Common Stock.
Conversion
Each share of Preferred Stock is convertible into Common Stock, at the
option of the holder, according to a conversion ratio, subject to adjustment
for dilution. The initial conversion price per share for Series A, B and C
shall be $0.50, $5.00 and $8.755, respectively. At June 30, 1999, the
conversion prices per share for Series A, B and C were $0.50, $4.779 and
$8.682, respectively. Each share of Series A, B and C automatically converts
into the number of shares of Common Stock into which such shares are
convertible at the then effective conversion ratio upon the closing of a
initial public offering of Common Stock with gross proceeds of at least $15.0
million. In addition, each share of Series A, B and C shall automatically
convert into shares of Common Stock upon the majority vote of Preferred Stock
voting together as a single class on an as-converted basis. At June 30, 1999,
the per share conversion ratios for Series A, B and C were 1.0000, 1.0463 and
1.0084, respectively.
In June 1999, upon the change of the conversion ratio of Series B, the
Company recorded $1.0 million associated with the then outstanding Series B
stock, warrants and purchase option. The change of the conversion ratio was
valued using the relative fair value of the Preferred Stock in January and June
of 1999, and a calculation of potential incremental Common Shares of
approximately 274,000.
Series A Preferred Stock for services
During 1997, the Company issued approximately 30,000 shares of Series A
Preferred Stock to non-employees in exchange for services previously rendered.
The Company recorded the estimated fair value of the stock of $15,000 as
general and administrative expense.
During 1998, the Company issued 149,000 shares of Series A Preferred Stock
to non-employees and a company affiliated with a member of the Board of
Directors of the Company in exchange for services previously rendered. The
Company recorded the estimated fair value of the stock of $188,000 as stock-
based compensation expense.
F-16
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
During 1999, the Company issued 20,000 shares of Series A Preferred Stock
to a non-employee for services previously rendered. The Company recorded the
estimated fair value of the stock of $77,000 as stock-based compensation
expense.
Warrants for Series A Preferred Stock
In October 1998, the Company issued warrants to purchase 300,000 shares of
Series A Preferred Stock for $0.50 per share to Directors of the Company in
exchange for services previously rendered. At December 31, 1998 and June 30,
1999, 200,000 and 100,000 of such warrants were outstanding, respectively. The
warrants were exercisable on the date of grant and expire in October 2000. The
Company recorded the fair value of the warrants of approximately $339,000,
using the Black-Scholes pricing model, at the date of issuance as stock-based
compensation expense. Common Stock issuable upon the exercise and conversion of
the warrant at June 30, 1999 was approximately 100,000 shares.
Series B Preferred Stock purchase option and warrant for financing
In January 1999, the Company issued a purchase option for up to 700,000
shares of Series B Preferred Stock at $5.00 per share in conjunction with the
$7.0 million line of credit. The purchase option expires upon a completed
initial public offering or merger event. At June 30, 1999, this purchase option
remained outstanding, and related to it, the Company recorded prepaid debt
issuance costs of $1.8 million using the Black-Scholes pricing model and
recognized non-cash interest expense of $900,000 for the six months ended June
30, 1999. The remaining prepaid debt issuance costs will be amortized over the
term of the agreement. Common stock issuable upon the exercise and conversion
of the purchase option at June 30, 1999 was approximately 732,000 shares.
In January 1999, the Company issued a warrant to purchase 16,000 shares of
Series B Preferred Stock at $5.00 per share in conjunction with the equipment
financing arrangement. The warrant expires in January 2009 or one year after a
completed initial public offering, whichever is shorter. At June 30, 1999, the
warrant remained outstanding. The Company recorded prepaid debt issuance costs
of $42,000 using the Black-Scholes pricing model and recognized non-cash
interest expense of $6,000 during the six months ended June 30, 1999. The
remaining prepaid debt issuance costs will be amortized over the term of the
agreement. Common Stock issuable upon the exercise and conversion of the
warrant at June 30, 1999 was approximately 17,000 shares.
Series C Preferred Stock for advertising
In June 1999, in conjunction with the sale of Series C Preferred Stock, the
Company issued approximately 1,714,000 shares of Series C Preferred Stock to a
third-party for $7.5 million in cash and $7.5 million for future advertising
services. The services may be utilized within a two-year period. At June 30,
1999, the Company recorded the value of the future services as prepaid
advertising. The Company will recognize advertising expense during the period
in which the services are provided based upon the rate card value of such
services.
Common Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 42,000,000 shares of $0.0001 par value Common Stock. A portion
of the shares sold are subject to the right of repurchase by the Company
subject to vesting, generally over a four year period.
F-17
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Founder Stock Agreements
Certain Common Stock was issued to founders of the Company and is subject
to repurchase in the event of voluntary termination or involuntary termination
with cause. On September 15, 1998, generally twenty-five percent of the shares
vested immediately with the remaining seventy-five percent vesting monthly over
a three-year period. In the event of termination without cause, a substantial
sale of the Company's assets, or a merger, all remaining shares would
immediately vest. As of December 31, 1998 and June 30, 1999, approximately
3,097,000 and 2,532,000 shares, respectively, of outstanding Common Stock were
subject to repurchase by the Company at $0.025.
Notes receivable from stockholders
At December 31, 1998 and June 30, 1999, the Company held full-recourse
notes receivable from stockholders of the Company totaling $35,000 for
purchases of the Company's Common Stock. The notes bear interest at 5.54% per
annum. The principal and accrued interest are due five years from the
anniversary of the notes.
Common Stock and options for services
During 1998, the Company issued 65,000 shares of Common Stock to a non-
employee for services previously rendered. The Company recorded the estimated
fair value of the stock and recognized $133,000 as stock-based compensation
expense.
During 1998, the Company issued 198,000 shares of Common Stock to an
employee of the Company for services rendered in connection with the
acquisition and transfer of certain domain names. The Company recorded the
estimated fair value of the stock of $614,000 as a prepaid asset, and
reclassified such amount to intangible assets upon the transfer of such rights
in January 1999. The fair value of the stock will be amortized as stock-based
compensation expense over the estimated useful life, which is deemed to be two
years. During the six months ended June 30, 1999, the Company amortized
$154,000 as stock-based compensation expense.
During 1998 and the six months ended June 30, 1999, the Company granted
approximately 38,000 and 108,000 options, respectively, to purchase Common
Stock to members of the Health Advisory Board in exchange for services
rendered. The options originally vested over four years. In the quarter ended
June 30, 1999, the Company amended the options to become fully vested. Until
their acceleration, these options were subject to variable plan accounting,
with fair value remeasurements at the end of each quarterly reporting period.
During the year ended December 31, 1998, the Company recorded deferred stock-
based compensation expense related to these grants of $116,000. Of this amount,
$5,000 was amortized as stock-based compensation expense in the year ended
December 31, 1998. During the six months ended June 30, 1999, but before the
acceleration of the vesting of these options, the Company recorded additional
deferred stock-based compensation expense of $356,000. During the six months
ended June 30, 1999, the Company recognized a total of $1.2 million, including
the effect of the acceleration, as stock-based compensation expense, of which
$471,000 was recorded as amortization of the deferred amount and $709,000 was
charged as period expense.
During 1998, the Company granted approximately 50,000 options to purchase
Common Stock to non-employees for services previously rendered. The options
were fully vested upon grant date. The Company recorded stock-based
compensation expense of $100,000, using the Black-Scholes pricing model.
F-18
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
During 1999, the Company granted approximately 36,000 options to purchase
Common Stock to non-employees for services previously rendered. The options
were fully vested upon grant date. The Company recorded stock-based
compensation expense of $193,000, using the Black-Scholes pricing model. Of the
36,000 options that were granted, 21,000 were exercised with additional
services previously rendered. The Company recorded stock-based compensation
expense of $8,000 in connection with these exercises.
During 1999, the Company granted options to purchase approximately 18,000
shares of Common Stock to non-employees in exchange for services rendered. The
options originally vested over two years. In June 1999, the Company amended the
options to become fully vested. These options were subject to variable plan
accounting until June 1999 when the options became fully vested, and
accordingly, the Company periodically remeasured the fair value of such options
and recognized stock-based compensation expense as the options vested. For the
six months ended June 30, 1999, the Company recorded the estimated fair value
of the options and recognized stock-based compensation expense of $125,000,
using the Black-Scholes pricing model. The options granted were exercised with
additional services previously rendered. The Company recorded stock-based
compensation expense of $13,000 in connection with these exercises.
Common Stock for intellectual property
During 1999, the Company issued 342,000 shares of Common Stock to a company
affiliated with an employee of the Company for additional domain names. The
Company recorded the estimated fair value of the stock of $3.8 million as an
intangible asset. The fair value of the stock will be amortized as stock-based
compensation expense over the estimated useful life, which is deemed to be two
years. During the six months ended June 30, 1999, the Company recognized no
amortization expense.
Reserved shares
The Company has reserved shares of Common Stock for future issuance as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
<S> <C> <C>
Conversion of Series A................................ 11,039 11,159
Conversion of Series B................................ -- 5,441
Conversion of Series C................................ -- 6,833
Exercise of stock options under the 1998 Stock Plan... 4,861 7,161
Exercise of outstanding warrants...................... 200 117
Exercise of purchase option........................... -- 732
Outstanding and undesignated.......................... 25,900 10,557
------ ------
42,000 42,000
====== ======
</TABLE>
The shares reserved above for the conversion of Preferred Stock include the
impact of the antidilution rights discussed in Note 6.
F-19
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
NOTE 7 -- EMPLOYEE BENEFIT PLANS:
401(k) Savings Plan
The Company has a savings plan (the "Savings Plan") which qualifies as a
defined contribution arrangement under Section 401(a), 401(k) and 501(a) of the
Internal Revenue Code. Under the Savings Plan, participating employees may
defer a percentage (not to exceed 25%) of their eligible pretax earnings up to
the Internal Revenue Service's annual contribution limit. All employees on the
United States payroll of the Company are eligible to participate in the Plan.
The Company will determine its contributions, if any, based on its current
profits and/or retained earnings; however, no contributions have been made
since the inception of the Savings Plan.
Stock Plan
In October 1998, the Company adopted the 1998 Stock Plan, which was amended
in February 1999 (the "1998 Plan"). The Plan provides for the granting of
direct stock grants and stock options to employees, outside directors, and
consultants of the Company. Options granted under the 1998 Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. At December 31, 1998 and June 30,
1999, the Company has reserved 4,861,000 and 7,161,000 shares of Common Stock
for issuance under the 1998 Plan, respectively.
The 1998 Plan provides that the options shall be exercisable over a period
not to exceed ten years from the date of the grant; however, in the case of an
ISO granted to a person owning more than 10% of the combined voting power of
all classes of the stock of the Company, the term of the option will be five
years from the date of the grant.
In accordance with the 1998 Plan, the stated exercise price shall not be
less than 85% of the estimated fair value of the shares on the date of grant as
determined by the Board of Directors, provided, however, that (i) the exercise
price of an ISO and NSO shall not be less than 100% and 85% of the estimated
fair value of the shares on the date of grant, respectively, and (ii) the
exercise price of an ISO and NSO granted to a 10% shareholder shall not be less
than 110% of the estimated fair value of the shares on the date of grant,
respectively.
Options are exercisable immediately and are subject to a repurchase right
by the Company at the original issuance price which lapses over a maximum
period of five years. To date, options granted generally vest ratably monthly
over four years; 25% one year after date of grant and remaining options
thereafter vest in equal monthly installments over the following 36 months. At
December 31, 1998 and June 30, 1999, there were approximately 1,456,000 and
3,983,000 shares subject to repurchase, respectively.
F-20
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Stock plan activity
The following summarizes stock option activity under the 1998 Plan (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Outstanding
------------------------
Options Weighted
Available Number of Average
for Grant Options Exercise Price
--------- --------- --------------
<S> <C> <C> <C>
Shares authorized............... 4,861 -- $ --
Options granted................. (3,184) 3,184 $ 0.03
Options exercised............... -- (2,109) $ 0.03
Options canceled................ -- -- $ --
Shares granted.................. (263) -- $ 0.05
------ ------
Balance at December 31, 1998...... 1,414 1,075 $ 0.05
Shares authorized............... 2,300 -- $ --
Options granted................. (3,367) 3,367 $ 0.76
Options exercised............... -- (3,008) $ 0.21
Options canceled................ 108 (108) $(0.48)
Unvested shares repurchased..... 102 -- $ 0.03
------ ------
Balance at June 30, 1999.......... 557 1,326 $ 1.46
====== ======
</TABLE>
The weighted-average grant-date fair value of options granted during the
year ended December 31, 1998 and the six months ended June 30, 1999 was $0.01
and $0.13, respectively.
The following table summarizes the information about stock options
outstanding and exercisable as of December 31, 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- --------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Price Outstanding Contractual Life Price Outstanding Price
-------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.05 1,075 9.89 years $0.05 1,075 $0.05
</TABLE>
At December 31, 1998, the Company had no options vested and exercisable.
The following table summarizes the information about stock options
outstanding and exercisable as of June 30, 1999 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- --------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Outstanding Price
-------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.05 115 9.46 years $0.05 115 $0.05
$0.50 328 9.74 years $0.50 328 $0.50
$2.00 883 9.95 years $2.00 883 $2.00
----- -----
1,326 9.85 years $1.46 1,326 $1.46
===== =====
</TABLE>
At June 30, 1999, the Company had 50,000 options vested and exercisable.
F-21
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Fair value disclosures
The Company applies the measurement principles of APB No. 25 in accounting
for its 1998 Plan. Had compensation expense for options granted for the year
ended December 31, 1998 and the six months ended June 30, 1999 (unaudited) been
determined based on the fair value at the grant dates as prescribed by SFAS No.
123, the Company's net loss would have been increased to the pro forma amounts
indicated below (in thousands, except per share amounts).
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ----------
<S> <C> <C>
Net loss available to common stockholders:
As reported....................................... $(4,087) $(21,110)
======= ========
Pro forma......................................... $(4,091) $(21,125)
======= ========
Net loss per share:
As reported....................................... $ (9.12) $ (8.35)
======= ========
Pro forma......................................... $ (9.13) $ (8.36)
======= ========
</TABLE>
The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes option pricing model as prescribed by SFAS No.
123 using the following assumptions:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ----------
<S> <C> <C>
Risk-free interest rates............................. 4.8% 4.5%
Expected lives (in years)............................ 4 years 4 years
Dividend yield....................................... 0 % 0 %
Expected volatility.................................. 0 % 0 %
</TABLE>
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described in the preceding paragraph, the
above results may not be presentative of future periods.
Deferred stock-based compensation
In connection with certain stock option grants to employees and Health
Advisory Board members from October 1998 through December 31, 1998 and the six
months ended June 30, 1999 the Company recognized deferred stock-based
compensation totaling $4.6 million and $16.6 million, respectively, which is
being amortized over the vesting periods of the related options. Stock-based
compensation expense recognized from amortization of the deferred amounts
during the year ended December 31, 1998 and for the six months ended June 30,
1999 totaled approximately $888,000 and $3.0 million, respectively.
F-22
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
NOTE 8--SPONSORSHIP AGREEMENT:
In May 1999, the Company entered into a strategic alliance with a
pharmaceutical company. Under the terms of the agreement, the company is the
exclusive therapeutic disease state management sponsor within the Company's
diabetes.com community.
NOTE 9--SUBSEQUENT EVENTS:
1999 Director Stock Option Plan
In July 1999, the Board of Directors adopted and stockholders approved the
1999 Director Stock Option Plan ("Director Plan") which will become effective
immediately prior to the effective date of the offering. The Director Plan
reserves a total of 400,000 shares of the Company's Common Stock for issuance
thereunder. Members of the board who are not employees of the Company, are
eligible to participate in the Director Plan. The option grants under the
Director Plan are automatic and nondiscretionary, and the exercise price of the
options must be 100% of the fair market value of the common stock on the date
of grant. Each eligible director who first becomes a member of the board will
initially be granted an option to purchase 25,000 shares on the date such
director first becomes a director. Immediately following each annual meeting of
the Company, beginning in 2000, each eligible director will automatically be
granted an additional option to purchase 10,000 shares if such director has
served continuously as a member of the board for at least the preceding six
months. The term of such options is ten years, provided that they will
terminate twelve months following the date the director ceases to be a director
or a consultant of the Company (twelve months if the termination is due to
death or disability). Options will vest, if applicable, as determined by
individual grant terms.
1999 Equity Incentive Plan
In July 1999, effective immediately prior to the effective date of the
Offering, the Board of Directors adopted and the stockholders approved, the
1999 Equity Incentive Plan (the "1999 Plan") and reserved 6,000,000 shares of
the Company's Common Stock, plus the aggregate number of shares available under
the 1998 Plan, for issuance thereunder. In January 2000, and every year
thereafter until the year 2005, shares reserved for issuance will automatically
increase by a number equal to the lesser of 5% of the total number of Common
Stock outstanding or 2,000,000 shares. The 1999 Plan authorized the award of
options, restricted stock awards and stock bonuses (the "Awards"). No person
will be eligible to receive more than 2,000,000 shares in any calendar year
pursuant to Awards under the 1999 Plan other than a new employee of the Company
who will be eligible to receive no more than 2,500,000 shares in the calendar
year in which such employee commences employment. Options granted under the
1999 Plan may be either incentive stock options ("ISO") or nonqualified stock
options ("NSO"). ISOs may be granted only to Company employees (including
officers and directors who are also employees). NSOs may be granted to Company
employees, outside directors, and consultants of the Company.
Options under the 1999 Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on the
date of grant as determined by the Board of Directors, provided, however, that
(i) the exercise price of an ISO may not be less than 100% of the estimated
fair value of the shares on the date of grant, and (ii) the exercise price of
an ISO granted to a 10% shareholder may not be less than 110% of the estimated
fair value of the shares on the date of grant.
F-23
<PAGE>
PLANETRX.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(information as of and relating to the six months ended June 30, 1998 and 1999
is unaudited)
(Continued)
Employee Stock Purchase Plan
In July 1999, the Board of Directors and stockholders adopted the Employee
Stock Purchase Plan (the "ESPP"), which will become effective immediately prior
to the effective date of the Offering. The ESPP reserves 1,000,000 shares of
common stock for issuance thereunder. On each September 1 beginning in 2000,
the aggregate number of shares reserved for issuance under the ESPP will be
increased automatically to the lesser of 2% of the total number of common
shares outstanding or 750,000 shares. Employees generally will be eligible to
participate in the ESPP if they are customarily employed by the Company for
more than 20 hours per week and more than five months in a calendar year and
are not (and would not become as a result of being granted an option under the
ESPP) 5% stockholders of the Company. Under the ESPP, eligible employees may
select a rate of payroll deduction up to 15% of their W-2 cash compensation
subject to certain maximum purchase limitations. The first offering period is
expected to begin on the first business day on which price quotations for the
Company's common stock are available on The Nasdaq National Market. Depending
on the effective date, the first Purchase Period may be more or less than six
months long. Offering periods thereafter will begin on March 1 and September 1.
Purchases will occur on February 28 and August 31, or the last day of trading
prior to these dates. The price at which the Common Stock is purchased under
the ESPP is 85% of the lesser of the fair market value of the Company's Common
Stock on the date before the first day of the applicable offering period or on
the last day of that purchase period.
F-24
<PAGE>
UNDERWRITING
PlanetRx.com and the underwriters for the offering named below have entered
into an underwriting agreement with respect to the shares being offered hereby.
Subject to certain conditions, each underwriter has severally agreed to
purchase the number of shares indicated in the following table. Goldman, Sachs
& Co., BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and William
Blair & Company, LLC are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ ------
<S> <C>
Goldman, Sachs & Co...................................................
BancBoston Robertson Stephens Inc.....................................
Hambrecht & Quist LLC.................................................
William Blair & Company, LLC..........................................
----
Total.................................................................
====
</TABLE>
----------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from PlanetRx.com to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the underwriters by PlanetRx.com. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by
PlanetRx.com
-----------------
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per Share..................................................... $ $
--- ---
Total....................................................... $ $
=== ===
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per shares
from the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
PlanetRx.com and its directors, officers, employees and other stockholders
have agreed with the underwriters not to dispose of or hedge any of their
common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. See "Shares Eligible for Future
Sale" for a discussion of certain transfer restrictions.
Prior to this offering, there has been no public market for the shares of
common stock. The initial public offering price was negotiated among
PlanetRx.com and the representatives. Among the factors to be considered in
determining the initial public offering price of the shares, in addition to
prevailing market conditions, were our historical performance, estimates of our
business potential and earnings prospects, an assessment of our management and
the consideration of the above factors in
U-1
<PAGE>
relation to market valuation of companies in related businesses.
The common stock will be quoted on the Nasdaq National Market under the
symbol "PLRX".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short-sale
covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the Common Stock. As a result, the price of the
Common Stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
PlanetRx.com estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
PlanetRx.com has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933.
Each of the representatives of the underwriters beneficially owns shares of
preferred stock of PlanetRx.com as follows:
. Goldman, Sachs & Co. beneficially owns 159,908 shares of our series C
preferred stock;
. BancBoston Robertson Stephens Inc. beneficially owns 45,688 shares of
our series C preferred stock;
. entities associated with Hambrecht & Quist LLC beneficially own
approximately 57,160 shares of our series B preferred stock; and
. William Blair & Company, LLC beneficially owns 114,220 shares of our
series C preferred stock.
U-2
<PAGE>
INSIDE BACK COVER
Description of Artwork
Computer screen shot of the Company's diabetes.com web page along with a
listing of all of PlanetRx.com's domain names
<PAGE>
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- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Note Regarding Forward-Looking Statements................................ 23
Use of Proceeds.......................................................... 23
Dividend Policy.......................................................... 23
Capitalization........................................................... 24
Dilution................................................................. 25
Selected Financial Data.................................................. 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 33
Management............................................................... 46
Certain Transactions..................................................... 56
Principal Stockholders................................................... 59
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 63
Legal Matters............................................................ 65
Experts.................................................................. 65
Additional Information................................................... 65
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
----------------
Through and including , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
PlanetRx.com, Inc.
Common Stock
----------------
[COMPANY LOGO]
----------------
Goldman, Sachs & Co.
BancBoston Robertson Stephens
Hambrecht & Quist
William Blair & Company
Representatives of the Underwriters
- -------------------------------------------------------------------------------
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by PlanetRx.com, Inc. in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee................................................. $19,182
NASD filing fee...................................................... *
Nasdaq National Market listing fee................................... *
Printing and engraving expenses...................................... *
Legal fees and expenses.............................................. *
Accounting fees and expenses......................................... *
Blue Sky qualification fees and expenses............................. *
Transfer Agent and Registrar fees.................................... *
Miscellaneous fees and expenses...................................... *
-------
Total.............................................................. $ *
=======
</TABLE>
- --------
*to be filed by amendment
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. Article VII of our
Certificate of Incorporation (Exhibit 3.2 hereto) and Article VI of
PlanetRx.com' Bylaws (Exhibit 3.3 hereto) provide for indemnification of our
directors, officers, employees and other agents to the maximum extent permitted
by Delaware law. In addition, we have entered into Indemnification Agreements
(Exhibit 10.1 hereto) with our officers and directors. The Underwriting
Agreement (Exhibit 1.1) also provides for cross-indemnification among
PlanetRx.com and the Underwriters with respect to certain matters, including
matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since our incorporation in March 1995, the Company has issued and sold the
following securities (which numbers reflect the 500 for one recapitalization on
September 15, 1998 and the two for one stock split on November 6, 1998):
1. From inception through June 30, 1999, the Company granted options to
purchase 6,551,050 shares of common stock and granted 263,000 shares of
restricted common stock at exercise prices ranging from $0.025 to $2.00 per
share to employees, consultants, directors and other service providers pursuant
to its 1998 Stock Plan. The consultants and service providers provided
recruiting, financial or marketing services to the company and in return
received grants in respect of 263,000 shares of common stock. All of these
shares were issued and outstanding at June 30, 1999.
2. On September 15, the Company issued and sold an aggregate of 10,100,000
shares of its Series A Preferred Stock for an aggregate purchase price of
$5,050,000 to investors including funds affiliated with Benchmark Capital and
Sequoia Capital.
II-1
<PAGE>
3. On October 31, 1998, the Company issued three warrants for 100,000
shares of Series A Preferred Stock to Christos Cotsakos, Charles McCall and
Terrence Burke at an exercise price of $0.50 per share.
4. On January 15, 1999, the company issued and sold an aggregate of
5,200,000 shares of its Series A Preferred Stock for an aggregate purchase
price of $26,000,000 to investors including investors affiliated with the
E*TRADE Group, and funds affiliated with Benchmark Capital and Sequoia Capital.
5. On January 15, 1999, the Company issued warrants to purchase 16,000
shares of its Series B Preferred Stock to Comdisco, Inc. at an exercise price
of $5.00 per share.
6. On January 15, 1999, the Company issued to Comdisco, Inc. an option to
purchase up to 700,000 share of Series B Preferred Stock for $5.00 per share.
7. Between June 3 and June 18, 1999, the Company sold 6,776,364 shares of
its Series C Preferred Stock for an aggregate purchase price of $59.3 million
to investors including investors affiliated with the E*TRADE Group, and funds
affiliated with Benchmark Capital and Sequoia Capital.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 9 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions. All recipients had adequate access, through their
relationships with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement (preliminary form).
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 Form of Restated Certificate of Incorporation to be filed upon the
closing of the offering made pursuant to this Registration Statement.
3.3 Bylaws of the Registrant.
3.4 Bylaws of the Registrant effective upon the closing of the offering
made pursuant to this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2 Amended and Restated Investors' Rights Agreement.
4.3* Specimen Common Stock Certificate.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
10.1 Form of Indemnification Agreement.
10.2 1999 Equity Incentive Plan.
10.3 Employee Stock Purchase Plan.
10.4 1999 Director Stock Option Plan.
10.5 Employment Agreement between Registrant and William J. Razzouk, dated
November 11, 1998.
10.6 Form of Warrant for the purchase of Preferred Stock.
10.7* Real Property Lease between Registrant and Belz Devco LP, dated
October 16, 1998.
10.8* Real Property Lease between Registrant and Belz Devco LP, dated May
, 1998.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.9* Real Property Lease between Registrant and Cellegy Pharmaceuticals,
Inc., dated November 6, 1998.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule for EDGAR filing.
</TABLE>
- --------
* To be supplied by amendment.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Francisco, State of
California on July 8, 1999.
PLANETRX.COM, INC.
By:/s/ William J. Razzouk
-------------------------
William J. Razzouk
Chief Executive Officer and
Chairman of the Board of
Directors
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, William
J. Razzouk and Steve Valenzuela, and each of them, as his attorney-in-fact,
with full power of substitution, for him in any and all capacities, to sign any
and all amendments to this registration statement (including post-effective
amendments), and any and all registration statements filed pursuant to Rule 462
under the Securities Act of 1933, as amended, in connection with or related to
the offering contemplated by this registration statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney to any and all amendments to said registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William J. Razzouk Chief Executive Officer and July 8, 1999
- ------------------------------------
William J. Razzouk Chairman of the Board of
Directors
/s/ Steve Valenzuela Chief Financial Officer, July 8, 1999
- ------------------------------------
Steve Valenzuela Vice President, Finance
and Secretary
/s/ David M. Beirne Director July 8, 1999
- ------------------------------------
David M. Beirne
/s/ Terrence C. Burke Director July 8, 1999
- ------------------------------------
Terrence C. Burke
/s/ Christos M. Cotsakos Director July 8, 1999
- ------------------------------------
Christos M. Cotsakos
/s/ Michael Moritz Director July 8, 1999
- ------------------------------------
Michael Moritz
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement (preliminary form).
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 Form of Restated Certificate of Incorporation to be filed upon the
closing of the offering made pursuant to this Registration Statement.
3.3 Bylaws of the Registrant.
3.4 Bylaws of the Registrant effective upon the closing of the offering
made pursuant to this Registration Statement.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2 Amended and Restated Investors' Rights Agreement.
4.3* Specimen Common Stock Certificate.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
10.1 Form of Indemnification Agreement.
10.2 1999 Equity Incentive Plan.
10.3 Employee Stock Purchase Plan.
10.4 1999 Director Stock Option Plan.
10.5 Employment Agreement between Registrant and William J. Razzouk, dated
November 11, 1998.
10.6 Form of Warrant for the purchase of Preferred Stock.
10.7* Real Property Lease between Registrant and Belz Devco LP, dated October
16, 1998.
10.8* Real Property Lease between Registrant and Belz Devco LP, dated May ,
1998.
10.9* Real Property Lease between Registrant and Cellegy Pharmaceuticals,
Inc., dated November 6, 1998.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule for EDGAR filing.
</TABLE>
- --------
* To be supplied by amendment.
<PAGE>
EXHIBIT 1.1
PlanetRx.com, Inc.
Common Stock, par value $0.0001 per share
____________
Underwriting Agreement
----------------------
______, 1999
Goldman, Sachs & Co.,
BancBoston Robertson Stephens, Inc.,
Hambrecht & Quist LLC,
William Blair & Co., LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
PlanetRx.com, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
________ shares (the "Firm Shares") and, at the election of the Underwriters, up
to ________ additional shares (the "Optional Shares") of Common Stock, par value
$0.0001 per share ("Stock") of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 33-_____) (the "Initial
Registration Statement") in respect of the Shares has been filed with the
Securities and Exchange Commission (the "Commission"); the Initial Registration
Statement and any post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such form; other
than a registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), which became effective upon
filing, no other document with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or threatened by
the Commission (any preliminary prospectus included in the Initial
<PAGE>
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective, each as amended at the time such part of the Initial Registration
Statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are hereinafter
collectively called the "Registration Statement"; and such final prospectus, in
the form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the use
made and
<PAGE>
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries;
(f) The Company and each of its subsidiaries own or possess adequate
licenses or other rights to use all patents, patent rights, inventions, trade
secrets, copyright, trademarks, service marks, trade names, technology and know-
how currently employed or proposed to be employed by them in connection with
their business as described in the Prospectus; the Company is not obligated to
pay a royalty, grant a license, or provide other consideration to any third
party in connection with its patents, copyrights, trademarks, service marks,
trade names, technology or know-how other than as disclosed in the Prospectus,
and, except as disclosed in the Prospectus, neither the Company nor any of its
subsidiaries has received any notice of infringement or conflict with (and
neither the Company nor any of its subsidiaries knows of any infringement or
conflict with) rights of others with respect to any patents, patent rights,
inventions, trade secrets, copyrights, trademarks, service marks, tradenames,
technology or know-how which could result in any material adverse effect upon
the Company and its subsidiaries, taken as a whole; and, except as disclosed in
the Prospectus, the discoveries, inventions, products or processes of the
Company and its subsidiaries referred to in the Prospectus do not, to the best
knowledge of the Company or any of its subsidiaries, infringe or conflict with
any right or patent of any third party, or any discovery, invention, product or
process which is the subject of a patent application filed by any third party,
known to the Company or any of its subsidiaries which could have a material
adverse effect on the general affairs, management, the current or future
consolidated financial position, business prospects, stockholders' equity or
results of operations of the Company and its subsidiaries;
(g) The Company and its subsidiaries possess all consents, licenses,
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a materially
adverse effect on the general affairs, management, the current or future
consolidated financial position, business prospects, stockholders' equity or
results of operations of the Company and its subsidiaries;
(h) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation;
(i) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the
<PAGE>
Prospectus; and all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are fully paid and
non-assessable and (except for directors' qualifying shares) are owned directly
or indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
(j) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(k) The issue and sale of the Shares by the Company and the compliance by
the Company with all of the provisions of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(l) Neither the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound;
(m) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock, and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(n) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries; and, to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(o) The Company is not and, after giving effect to the offering and sale
of the Shares, will not be an "investment company", as such term is defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act");
<PAGE>
(p) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba within the
meaning of Section 517.075, Florida Statutes;
(q) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(r) The Company has reviewed its operations and that of its subsidiaries
and any third parties with which the Company or any of its subsidiaries has a
material relationship to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries will be affected by the Year 2000
Problem. As a result of such review, the Company has no reason to believe, and
does not believe, that the Year 2000 Problem will have a material adverse effect
on the general affairs, management, the current or future consolidated financial
position, business prospects, stockholders' equity or results of operations of
the Company and its subsidiaries or result in any material loss or interference
with the Company's business or operations. The "Year 2000 Problem" as used
herein means any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $__________, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to __________ Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering sales of
shares in excess of the number of Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
<PAGE>
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on _________, 1999 or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on
the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(j) hereof, will be delivered at the offices of Wilson
Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304 (the
"Closing Location"), and the Shares will be delivered at the Designated Office,
all at such Time of Delivery. A meeting will be held at the Closing Location at
6:00 p.m., New York City time, on the New York Business Day next preceding such
Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary
<PAGE>
Prospectus or prospectus, of the suspension of the qualification of the Shares
for offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop order or
of any order preventing or suspending the use of any Preliminary Prospectus or
prospectus or suspending any such qualification, promptly to use its best
efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may reasonably request, and, if the delivery of a prospectus is required
at any time prior to the expiration of nine months after the time of issue of
the Prospectus in connection with the offering or sale of the Shares and if at
such time any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such period to amend or supplement the Prospectus
in order to comply with the Act, to notify you and upon your request to prepare
and furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Shares at any
time nine months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), without
your prior written consent;
<PAGE>
(f) To furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration Statement), to make available to its stockholders consolidated
summary financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or Form 10-K
as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs
<PAGE>
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, and Sections 8 and 11 hereof,
the Underwriters will pay all of their own costs and expenses, including the
fees of their counsel, stock transfer taxes on resale of any of the Shares by
them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters, shall
have furnished to you such written opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (viii), (xii) and (xiv)
of subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Gunderson Dettmer Stough Villaneuve Franklin & Hachigian, LLP, counsel
for the Company, shall have furnished to you their written opinion (a draft of
such opinion is attached as Annex II(b) hereto), dated such Time of Delivery, in
form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
state of Delaware, with power and authority (corporate and other)
to own its properties and conduct its business as described in
the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the Shares being delivered at
such Time of Delivery) have been duly and validly authorized and
issued and are fully paid and non-assessable; and the Shares
conform to the description of the Stock contained in the
Prospectus;
(iii) Except as set forth in the Prospectus, the Company
does not have outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital
stock or any such options, rights, convertible securities or
obligations;
<PAGE>
(iv) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to
require such qualification or is subject to no material liability
or disability by reason of failure to be so qualified in any such
jurisdiction;
(v) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation; and
all of the issued shares of capital stock of each such subsidiary
have been duly and validly authorized and issued, are fully paid
and non-assessable, and (except for directors' qualifying shares)
are owned directly or indirectly by the Company, free and clear
of all liens, encumbrances, equities or claims;
(vi) The Company and its subsidiaries have good and
marketable title in fee simple to all real property owned by
them, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as
do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(vii) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries,
would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries; and, to the best of such counsel's knowledge,
no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(viii) This Agreement has been duly authorized, executed and
delivered by the Company;
(ix) The issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency
<PAGE>
or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(x) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the
Act of the Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(xi) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in
default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which
it or any of its properties may be bound;
(xii) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport
to constitute a summary of the terms of the Stock, and under the
caption "Underwriting", insofar as they purport to describe the
provisions of the laws and documents referred to therein, are
accurate, complete and fair;
(xiii) The Company is not an "investment company", as such
term is defined in the Investment Company Act; and
(xiv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules
and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in
subsection (xii) of this section 7(c), they have no reason to
believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company
prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of
a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express
<PAGE>
no opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; and they do not know of any amendment to
the Registration Statement required to be filed or of any
contracts or other documents of a character required to be filed
as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which
are not filed or described as required;
(d) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any post-
effective amendment to the Registration Statement filed subsequent to the date
of this Agreement and also at each Time of Delivery, PricewaterhouseCoopers LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have occurred in
the rating accorded the Company's debt securities by any "nationally recognized
statistical rating organization", as that term is defined by the Commission for
purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall
have publicly announced that it has under surveillance or review, with possible
negative implications, its rating of any of the Company's debt securities;
(g) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by Federal, New
York or California State authorities; or (iv) the outbreak or escalation of
hostilities involving the United States or the declaration by the United States
of a national emergency or war, if the effect of any such event specified in
this clause (iv) in the judgment of the Representatives makes it impracticable
or inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
<PAGE>
(h) The Shares to be sold at such Time of Delivery shall have been duly
listed for quotation on NASDAQ;
(i) The Company has obtained and delivered to the Underwriters executed
copies of an agreement from each stockholder and optionholder of the Company,
substantially to the effect set forth in Subsection 5(e) hereof in form and
substance satisfactory to you;
(j) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to you at
such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (e) of this Section
and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement 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
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement 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 therein not misleading, 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 any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
<PAGE>
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were
<PAGE>
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of thirty-
six hours within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so arranged
for the purchase of such Shares, or the Company notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to
<PAGE>
require each non-defaulting Underwriter to purchase its pro rata share (based on
the number of Shares which such Underwriter agreed to purchase hereunder) of the
Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
<PAGE>
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us eight counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
PlanetRx.com, Inc.
By:_______________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
BancBoston Robertson Stephens, Inc.
Hambrecht & Quist LLC
William Blair & Co., LLC
By: _____________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
<PAGE>
SCHEDULE I
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be purchased Exercised
----------- --------------- --------------
Goldman, Sachs & Co...............
BancBoston Roberston Stephens, Inc.
Hambrecht & Quist LLC
William Blair & Co., LLC..........
-------------- --------------
Total................... ============== ==============
<PAGE>
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that cause them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years which
were included or incorporated by reference in the Company's Annual Reports
on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial
<PAGE>
statements and other information referred to below, a reading of the latest
available interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries since
the date of the latest audited financial statements included in the
Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries
and procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited condensed
financial statements referred to in clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated long-
term debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
<PAGE>
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in clause (E) there were any decreases in consolidated net
revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (vi)
above, they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PLANETRX.COM, INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
planetRx.com, Inc., a corporation organized and existing under and by
virtue of the provisions of the General Corporation Law of the State of Delaware
(the "General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the name of this corporation is planetRx.com, Inc. and
that this corporation was originally incorporated pursuant to the General
Corporation Law on March 31, 1995 under the name Azure Diagnostics, Inc.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Restated Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in the
best interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is PlanetRx.com, Inc.
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 15 East North Street, in the City of Dover, County of Kent. The
name of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
<PAGE>
ARTICLE IV
A. Classes of Stock. This corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that this corporation is authorized to issue
is seventy million (70,000,000) shares. Forty-two million (42,000,000) shares
shall be Common Stock and twenty-eight million (28,000,000) shares shall be
Preferred Stock, each with a par value of $0.0001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by this Restated Certificate of Incorporation may be
issued from time to time in one or more series. The rights, preferences,
privileges, and restrictions granted to and imposed on the Series A Preferred
Stock, which series shall consist of fourteen million (14,000,000) shares (the
"Series A Preferred Stock"), the Series B Preferred Stock, which series shall
consist of seven million (7,000,000) shares (the "Series B Preferred Stock"),
and the Series C Preferred Stock, which series shall consist of seven million
(7,000,000) shares (the "Series C Preferred Stock"), are as set forth below in
this Article IV(B). The Board of Directors is hereby authorized to fix or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or of any of them. Subject to
compliance with applicable protective voting rights that have been or may be
granted to the Preferred Stock or series thereof in Certificates of Designation
or this corporation's Certificate of Incorporation ("Protective Provisions"),
but notwithstanding any other rights of the Preferred Stock or any series
thereof, the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, pari passu with (including, without
---- -----
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also authorized to increase or decrease the number of
shares of any series (other than the Series A Preferred Stock, the Series B
Preferred Stock or the Series C Preferred Stock), prior or subsequent to the
issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
1. Dividend Provisions. Subject to the rights of any series of
-------------------
Preferred Stock that may from time to time come into existence, the holders of
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of this corporation) on the
Common Stock of this corporation, at the rate of $0.04 per share per annum for
the Series A Preferred Stock, $0.40 per share per annum for the Series B
Preferred Stock, and $0.70 per share per annum for the Series C Preferred Stock
(as adjusted for any stock splits, stock dividends, recapitalizations or the
like) or, if greater (as determined on a per annum basis and on an as converted
basis for the Series A Preferred Stock,
2
<PAGE>
Series B Preferred Stock and Series C Preferred Stock), an amount equal to that
paid on any other outstanding shares of this corporation, payable when, as, and
if declared by the Board of Directors. Such dividends shall not be cumulative.
The holders of the outstanding Series A Preferred Stock can waive any dividend
preference that such holders shall be entitled to receive under this Section 1
upon the affirmative vote or written consent of the holders of at least a
majority of the Series A Preferred Stock then outstanding. The holders of the
outstanding Series B Preferred Stock can waive any dividend preference that such
holders shall be entitled to receive under this Section 1 upon the affirmative
vote or written consent of the holders of at least a majority of the Series B
Preferred Stock then outstanding. The holders of the outstanding Series C
Preferred Stock can waive any dividend preference that such holders shall be
entitled to receive under this Section 1 upon the affirmative vote or written
consent of the holders of at least a majority of the Series C Preferred Stock
then outstanding.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock by reason of their ownership thereof, an amount per share equal to (i) the
sum of $0.50 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") plus declared but unpaid dividends on such
share (subject to adjustment of such fixed dollar amounts for any stock splits,
stock dividends, combinations, recapitalizations or the like), (ii) $5.00 for
each outstanding share of Series B Preferred Stock (the "Original Series B Issue
Price") plus declared but unpaid dividends on such share (subject to adjustment
of such fixed dollar amounts for any stock splits, stock dividends,
combinations, recapitalizations or the like), and (iii) $8.755 for each
outstanding share of Series C Preferred Stock (the "Original Series C Issue
Price") plus declared but unpaid dividends on such share (subject to adjustment
of such fixed dollar amounts for any stock splits, stock dividends,
combinations, recapitalizations or the like). If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of series of Preferred Stock
that may from time to time come into existence, the entire assets and funds of
this corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(b) Upon completion of the distribution required by subsection (a) of
this Section 2 and any other distribution that may be required with respect to
series of Preferred Stock that may from time to time come into existence, all of
the remaining assets of this corporation available for distribution to
stockholders shall be distributed among the holders of Common Stock pro rata
based on the number of shares of Common Stock held by each.
(c)
3
<PAGE>
(i) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include (unless the holders of at least a majority of the Preferred Stock then
outstanding shall determine otherwise), (A) the acquisition of this corporation
by another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
that results in the transfer of fifty percent (50%) or more of the outstanding
voting power of this corporation; or (B) a sale of all or substantially all of
the assets of this corporation.
(ii) In any of such events, if the consideration received by this
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the thirty (30)
day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty (30) day period ending three (3) days prior to
the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by this corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock (voting together as a class and on an as-converted basis).
(iii) In the event the requirements of this subsection 2(c) are not
complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time as
the requirements of this Section 2 have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall revert to and be the
same as such rights, preferences and
4
<PAGE>
privileges existing immediately prior to the date of the first notice referred
to in subsection 2(c)(iv) hereof.
(iv) This corporation shall give each holder of record of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
written notice of such impending transaction not later than twenty (20) days
prior to the stockholders' meeting called to approve such transaction, or twenty
(20) days prior to the closing of such transaction, whichever is earlier, and
shall also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this Section 2,
and this corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after this corporation has given the first notice provided for
herein or sooner than ten (10) days after this corporation has given notice of
any material changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
3. Redemption. The Series A Preferred Stock, Series B Preferred
----------
Stock and Series C Preferred Stock are not redeemable.
4. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock, Series
----------------
B Preferred Stock and Series C Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of this corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined (i) for the Series A Preferred Stock by dividing the Original Series
A Issue Price by the Conversion Price applicable to such share, determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion, (ii) for the Series B Preferred Stock by dividing the Original
Series B Issue Price by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion, and, (iii) for the Series C Preferred Stock by
dividing the Original Series C Issue Price by the Conversion Price applicable to
such share, determined as hereafter provided, in effect on the date the
certificate is surrendered for conversion. The initial Conversion Price per
share for shares of Series A Preferred Stock shall be the Original Series A
Issue Price; provided, however, that the Conversion Price for the Series A
Preferred Stock shall be subject to adjustment as set forth in subsection 4(d).
The Conversion Price per share for shares of Series B Preferred Stock shall be
$4.7788 per share; provided, however, that the Conversion Price for the Series B
Preferred Stock shall be subject to adjustment as set forth in subsection 4(d).
The Conversion Price per share for shares of Series C Preferred Stock shall be
$8.6818; provided, however, that the Conversion Price for the Series C Preferred
Stock shall be subject to adjustment as set forth in subsection 4(d).
5
<PAGE>
(b) Automatic Conversion. Each share of Series A Preferred Stock,
--------------------
Series B Preferred Stock and Series C Preferred Stock shall automatically be
converted into shares of Common Stock at the applicable Conversion Price at the
time in effect for each such series of Preferred Stock immediately upon the
earlier of (i) this corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1 or
Form SB-2 under the Securities Act of 1933, as amended, the public offering
price of which was not less than $15,000,000 in the aggregate or (ii) the date
specified by written consent or agreement of the holders of a majority of the
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock (voting together as a class and on an as-converted
basis).
(c) Mechanics of Conversion. Before any holder of Series A Preferred
-----------------------
Stock, Series B Preferred Stock or Series C Preferred Stock shall be entitled to
convert the same into shares of Common Stock, he or she shall surrender the
certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, and shall give written notice to
this corporation at its principal corporate office, of the election to convert
the same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933, the conversion
may, at the option of any holder tendering Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the persons entitled to receive the Common Stock upon
conversion of the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock shall not be deemed to have converted such Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock until immediately
prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Preferred Stock for Splits and
--------------------------------------------------------------
Combinations. The Conversion Price of the Series A Preferred Stock, Series B
- ------------
Preferred Stock and Series C Preferred Stock shall be subject to adjustment from
time to time as follows:
(i) In the event this corporation should at any time or from time
to time after the filing of this Restated Certificate of Incorporation (the
"Filing Date") fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or
6
<PAGE>
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series A Preferred Stock,
the Conversion Price of the Series B Preferred Stock and the Conversion Price of
the Series C Preferred Stock shall be appropriately decreased so that the number
of shares of Common Stock issuable on conversion of each share of each such
series shall be increased in proportion to such increase of the aggregate of
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(ii) If the number of shares of Common Stock outstanding at any
time after the Filing Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A Preferred Stock, the Conversion Price for the
Series B Preferred Stock and the Conversion Price for the Series C Preferred
Stock shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of each such series shall be
decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(d)(i), then, in each such
case for the purpose of this subsection 4(e), the holders of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of this corporation into
which their shares of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of this corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock the number
of shares of stock or other securities or property of this corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock after the recapitalization
to the end that the provisions of this Section 4 (including adjustment of the
respective Conversion Prices then in effect for the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock and the number of shares
purchasable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock and
7
<PAGE>
Series C Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, and the number of shares of Common Stock to be issued
shall be rounded to the nearest whole share. Whether or not fractional shares
are issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock pursuant to this Section 4, this corporation, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, as the case may be, a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. This corporation
shall, upon the written request at any time of any holder of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, furnish or cause to
be furnished to such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price for such series of Preferred Stock at
the time in effect, and (C) the number of shares of Common Stock and the amount,
if any, of other property that at the time would be received upon the conversion
of a share of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
8
<PAGE>
(j) Reservation of Stock Issuable Upon Conversion. This corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock, such number of its shares of Common Stock as shall from time
to time be sufficient to effect the conversion of all outstanding shares of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock;
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, in addition to such other remedies as shall be available to the holder of
such Preferred Stock, this corporation will take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to
obtain the requisite stockholder approval of any necessary amendment to this
Restated Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this Section 4
-------
to be given to the holders of shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each holder of
record at his address appearing on the books of this corporation.
5. Voting Rights. The holder of each share of Preferred Stock shall
-------------
have the right to one vote for each share of Common Stock into which such share
of Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any stockholders' meeting in accordance with
the bylaws of this corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
6. Protective Provisions. Subject to the rights of series of
---------------------
Preferred Stock that may from time to time come into existence, so long as at
least two million five hundred thousand (2,500,000) shares of Preferred Stock
are outstanding (as adjusted for any stock splits, dividends or combinations
with respect to such shares), this corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of the holders of
a majority of the then outstanding shares of Preferred Stock (voting together as
one class and on an as-converted basis):
(a) alter or change the rights, preferences or privileges of the
shares of any series of Preferred Stock so as to have a material adverse effect
on such shares;
(b) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Preferred Stock;
9
<PAGE>
(c) authorize or issue, or obligate itself to issue, any other equity
security (other than the shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock authorized on the date hereof), including any
other security convertible into or exercisable for any equity security having a
preference over or on parity with the Preferred Stock with respect to dividends,
liquidation, redemption or voting;
(d) sell all or substantially all of the corporation's assets or enter
into a merger or consolidation as a result of which the stockholders of the
corporation shall own less than 50% of the voting securities of the surviving
corporation or its parent or enter into a liquidation (whether complete or
partial) or dissolution or winding up of the corporation;
(e) redeem, purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such purpose) any share or shares of Common Stock;
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock from employees, officers, directors, consultants or other
persons performing services for this corporation or any subsidiary pursuant to
agreements under which this corporation has the option to repurchase such shares
at cost or at cost upon the occurrence of certain events, such as the
termination of employment; or
(f) declare or authorize the payment of any dividend on the Common
Stock.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be cancelled and shall not be issuable by this corporation. The Restated
Certificate of Incorporation of this corporation shall be appropriately amended
to effect the corresponding reduction in this corporation's authorized capital
stock.
C. Common Stock. The rights, preferences, privileges and
------------
restrictions granted to and imposed on the Common Stock are as set forth below
in this Article IV(C).
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of this corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of this corporation, the assets of this corporation shall be distributed as
provided in Section 2 of Division (B) of Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote for each such share, and shall be entitled to notice
of any stockholders' meeting in accordance with the bylaws of this corporation,
and shall be entitled to vote upon such matters and in such manner as may be
provided by law.
10
<PAGE>
ARTICLE V
Except as otherwise provided in this Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time
to time by a bylaw or amendment thereof duly adopted by the Board of Directors
or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the fullest extent permitted
by the General Corporation Law as it now exists or as it may hereafter be
amended, not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after approval by the stockholders of this Article,
to authorize corporation action further eliminating or limiting the personal
liability of directors, then the liability of a director of this corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article IX, by the stockholders of this corporation shall
not apply to or adversely affect any right or protection of a director of this
corporation existing at the time of such amendment, repeal, modification or
adoption.
11
<PAGE>
ARTICLE X
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which General Corporation Law
permits this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of
this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
* * *
THIRD: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law.
FOURTH: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
12
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been executed by the President and the Secretary of this corporation on this
30/th/ day of June, 1999.
___________________________________________________
William J Razzouk, Chief Executive Officer
___________________________________________________
Robert V. Gunderson, Jr., Secretary
<PAGE>
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF PlanetRx.COM, INC.,
a Delaware Corporation
The undersigned, William J. Razzouk and Steve Valenzuela hereby
certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The name of the corporation is PlanetRx.com, Inc. and that the
corporation was originally incorporated on March 31, 1995 under the name Azure
Diagnostics, Inc. pursuant to the General Corporation Law of the State of
Delaware.
THREE: Pursuant to Section 242 and Section 245 of the General
Corporation Law of the State of Delaware, PlanetRx.com, Inc. has adopted this
Restated Certificate of Incorporation, restating, integrating and further
amending its Restated Certificate of Incorporation dated on or about June 30th,
1999, which Restated Certificate of Incorporation has been duly proposed by the
directors and adopted by the stockholders of this corporation (by written
consent pursuant to Section 228 of said General Corporate Law) in accordance
with the provisions of said Section 242 and Section 245.
FOUR: The Restated Certificate of Incorporation of said corporation
shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is PlanetRx.com, Inc.
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 15 East North Street, in the City of Dover, 19901, County of
Kent. The name of its registered agent at such address is Incorporating
Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that this corporation is authorized to issue is one hundred
five million (105,000,000) shares. One hundred
<PAGE>
million (100,000,000) shares shall be Common Stock, par value $.0001 per share,
and five million (5,000,000) shares shall be Preferred Stock, par value $.0001
per share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of any wholly unissued series of Preferred Stock,
within the limitations and restrictions stated in this Restated Certificate of
Incorporation, to fix or alter the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation preferences of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of them, and to
increase or decrease the number of shares of any series subsequent to the issue
of shares of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status that they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time
to time by a bylaw or amendment thereof duly adopted by the Board of Directors
or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Restated Certificate, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at an annual or special meeting of the stockholders of the Corporation,
and no action required to be taken or that may be taken at any annual or special
meeting of the stockholders of the Corporation may be taken by written consent.
ARTICLE IX
A director of this corporation shall, to the full extent permitted by
the Delaware General Corporation Law as it now exists or as it may hereafter be
amended, not be liable to this corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
2
<PAGE>
Neither any amendment nor repeal of this Article IX, nor the adoption of any
provision of this Restated Certificate of Incorporation inconsistent with this
Article IX, shall eliminate or reduce the effect of this Article IX in respect
of any matter occurring, or any cause of action, suit or claim that, but for
this Article IX, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE X
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of the Corporation (and any other persons to which General Corporation Law
permits the Corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to the
Corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of
this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to, any acts or
omissions of such director, officer or agent occurring prior to such amendment,
repeal or modification.
* * *
FIVE: That thereafter said amendment and restatement was duly adopted
in accordance with the provisions of Section 242 and Section 245 of the General
Corporation Law by obtaining the vote of the holders of the majority of the
outstanding stock of the corporation in favor of said amendment and restatement
in the manner set forth in Section 228 of the General Corporation Law.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
______ __, 1999.
/s/
--------------------------------------------------
William J. Razzouk, Chief Executive Officer
/s/
--------------------------------------------------
Steve Valenzuela, Secretary
<PAGE>
EXHIBIT 3.3
BYLAWS OF
AZURE DIAGNOSTICS, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES................................................... 1
ARTICLE II. MEETINGS OF STOCKHOLDERS.................................. 1
ARTICLE III. DIRECTORS................................................. 3
ARTICLE IV. NOTICES................................................... 5
ARTICLE V. OFFICERS.................................................. 6
ARTICLE VI. CERTIFICATE OF STOCK...................................... 8
ARTICLE VII. GENERAL PROVISIONS........................................ 10
ARTICLE VIII. AMENDMENTS................................................ 12
ARTICLE IX. LOANS TO OFFICERS......................................... 12
</TABLE>
<PAGE>
BYLAWS
OF
AZURE DIAGNOSTICS, INC.
ARTICLE I
OFFICES
1.1 The registered office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
1.2 The corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 All meetings of the stockholders for the election of directors
shall be held in the City of Oakland State of California, at such place as may
be fixed from time to time by the Board of Directors, or at such other place
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
2.2 Annual meetings of stockholders, commencing with the year 1999,
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which they
shall elect by a plurality vote a Board of Directors, and transact such other
business as may properly be brought before the meeting.
2.3 Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not fewer than ten (10) nor more than sixty (60) days before the date of
the meeting.
2.4 The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
1
<PAGE>
2.5 Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least fifty
percent (50%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
2.6 Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
2.7 Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
2.8 The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.9 When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
2.10 Unless otherwise provided in the certificate of incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
2.11 Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders
of the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting
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at which all shares entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
3.1 The number of directors that shall constitute the whole Board of
Directors shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 3.2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.
3.2 Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board of Directors (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of the shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office.
3.3 The business of the corporation shall be managed by or under the
direction of its Board of Directors, which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these bylaws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
3.4 The Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
3.5 The first meeting of each newly elected Board of Directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected Board of Directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
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3.6 Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
3.7 Special meetings of the Board of Directors may be called by the
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telegram; special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of two (2) directors unless the Board of Directors
consists of only one director, in which case special meetings shall be called by
the president or secretary in like manner and on like notice on the written
request of the sole director.
3.8 At all meetings of the Board of Directors a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
3.9 Unless otherwise restricted by the certificate of incorporation
or these bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
3.10 Unless otherwise restricted by the certificate of incorporation
or these bylaws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
-----------------------
3.11 The Board of Directors may, by resolution passed by a majority of
the whole Board of Directors, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in
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the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the bylaws of the corporation; and, unless the
resolution or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
3.12 Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
-------------------------
3.13 Unless otherwise restricted by the certificate of incorporation
or these bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
--------------------
3.14 Unless otherwise restricted by the certificate of incorporation
or these bylaws, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV
NOTICES
4.1 Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
4.2 Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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ARTICLE V
OFFICERS
5.1 The officers of the corporation shall be chosen by the Board of
Directors and shall be a president, treasurer and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more vice-
presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
5.2 The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president, a treasurer, and a secretary
and may choose vice-presidents.
5.3 The Board of Directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
5.4 The salaries of all officers and agents of the corporation shall
be fixed by the Board of Directors.
5.5 The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
-------------------------
5.6 The Chairman of the Board, if any, shall preside at all meetings
of the Board of Directors and of the stockholders at which he shall be present.
He shall have and may exercise such powers as are, from time to time, assigned
to him by the Board of Directors and as may be provided by law.
5.7 In the absence of the Chairman of the Board, the Vice Chairman of
the Board, if any, shall preside at all meetings of the Board of Directors and
of the stockholders at which he shall be present. He shall have and may
exercise such powers as are, from time to time, assigned to him by the Board of
Directors and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
---------------------------------
5.8 The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
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5.9 He shall execute bonds, mortgages and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
5.10 In the absence of the president or in the event of his inability
or refusal to act, the vice-president, if any, (or in the event there be more
than one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
-------------------------------------
5.11 The secretary shall attend all meetings of the Board of Directors
and all meetings of the stockholders and record all the proceedings of the
meetings of the corporation and of the Board of Directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or president,
under whose supervision he shall be. He shall have custody of the corporate seal
of the corporation and he, or an assistant secretary, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by his signature or by the signature of such assistant secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
5.12 The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
--------------------------------------
5.13 The treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
5.14 He shall disburse the funds of the corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the corporation.
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5.15 If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
5.16 The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the treasurer and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
6.1 Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice Chairman of the Board of Directors, or the president or a vice-
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
6.2 Any of or all the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
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LOST CERTIFICATES
-----------------
6.3 The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
-----------------
6.4 Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
------------------
6.5 In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
-----------------------
6.6 The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
---------
7.1 Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
7.2 Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
------
7.3 All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
-----------
7.4 The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
----
7.5 The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
---------------
7.6 The corporation shall, to the fullest extent authorized under the
laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation; provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 7.6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both
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as to action in their official capacities and as to action in another capacity
while holding such office, (ii) continue as to a person who has ceased to be a
director, and (iii) inure to the benefit of the heirs, executors and
administrators of such a person. The corporation's obligation to provide
indemnification under this Section 7.6 shall be offset to the extent of any
other source of indemnification or any otherwise applicable insurance coverage
under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation that alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 7.6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 7.6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
that may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 7.6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation that is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
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ARTICLE VIII
AMENDMENTS
8.1 These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors by the certificate of incorporation at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws is
conferred upon the Board of Directors by the certificate or incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
ARTICLE IX
LOANS TO OFFICERS
9.1 The corporation may lend money to, or guarantee any obligation
of, or otherwise assist any officer or other employee of the corporation or of
its subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in these bylaws shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under any statute.
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CERTIFICATE OF SECRETARY OF
AZURE DIAGNOSTICS, INC.
The undersigned, Stephen Su, hereby certifies that he is the duly
elected and acting Secretary of Azure Diagnostics, Inc., a Delaware corporation
(the "Corporation"), and that the Bylaws attached hereto constitute the Bylaws
of said Corporation as duly adopted by Action by Written Consent by the
Stockholders and Directors on August __, 1998.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this _____ day of August, 1998.
_______________________________________
Stephen Su
Secretary
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
PLANETRX.COM, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover,
County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of South San Francisco, California, at such
place as may be fixed from time to time by the Board of Directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with fiscal
year 2000, shall be held at such date and time as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting, at
which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the
<PAGE>
meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least fifty
percent (50%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder
<PAGE>
entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no
<PAGE>
proxy shall be voted on after three years from its date, unless the proxy
provides for a longer period.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and new created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do
<PAGE>
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on two (2) days' notice to each director by mail or twenty-four (24)
notice to each director either personally, by telegram, or by facsimile; special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of two directors unless the board consists of
only one director, in which case special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of the sole director.
Section 8. At all meetings of the board a majority of the directors
shall constitute
<PAGE>
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting
<PAGE>
of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of
<PAGE>
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
<PAGE>
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or
more vice-presidents, assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may
<PAGE>
exercise such powers as are, from time to time, assigned to him by the Board and
as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
<PAGE>
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of
<PAGE>
Directors.
Section 14. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the chairman or vice- chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer,
<PAGE>
or the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
<PAGE>
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall
<PAGE>
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for
<PAGE>
such other purposes as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any officer or director made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of being an officer or
director of the corporation or a predecessor corporation or, at the
corporation's request, an officer or director of another corporation, provided,
however, that the corporation shall indemnify any such agent in connection with
a proceeding initiated by such agent only if such proceeding was authorized by
the Board of Directors of the corporation. The indemnification
<PAGE>
provided for in this Section 6 shall: (i) not be deemed exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement or
vote of stockholders or disinterested directors or otherwise, both as to action
in their official capacities and as to action in another capacity while holding
such office, (ii) continue as to a person who has ceased to be an officer or
director, and (iii) inure to the benefit of the heirs, executors and
administrators of such a person. The corporation's obligation to provide
indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by an officer or director of the corporation in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he is or was an officer or director of the corporation (or was serving at
the corporation's request as an officer or director of another corporation)
shall be paid by the corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such officer or director to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized by relevant sections of the General Corporation Law of Delaware.
Notwithstanding the foregoing, the corporation shall not be required to advance
such expenses to an agent who is a party to an action, suit or proceeding
brought by the corporation and approved by a majority of the Board of Directors
of the corporation which alleges willful misappropriation of corporate assets by
such agent, disclosure of confidential information in violation of such agent's
fiduciary or contractual obligations to the corporation or any other willful and
deliberate breach in bad faith of such agent's duty to the corporation or its
stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each officer and director who serves in
such capacity at any time
<PAGE>
while this bylaw is in effect, and any repeal or modification thereof shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any action, suit or proceeding theretofore
or thereafter brought based in whole or in part upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
bylaws may
<PAGE>
be adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the certificate of incorporation at any
regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws is
conferred upon the Board of Directors by the certificate or incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
<PAGE>
CERTIFICATE OF SECRETARY OF
PLANETRX.COM, INC.
The undersigned, Steve Valenzuela hereby certifies that he is
the duly elected and acting Secretary of PlanetRx.com, Inc., a Delaware
corporation (the "Corporation"), and that the Bylaws attached hereto constitute
the Bylaws of said Corporation as duly adopted at the Meeting of the Board of
Directors on July 1, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this ___ day of July 1999.
____________________________________________
Steve Valenzuela, Secretary
<PAGE>
EXHIBIT 4.2
PLANETRX.COM, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
June 3, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
1. Registration Rights 1.......................................... 1
1.1 Definitions.............................................. 1
1.2 Request for Registration................................. 2
1.3 Company Registration..................................... 4
1.4 Form S-3 Registration.................................... 5
1.5 Obligations of the Company............................... 6
1.6 Information from Holder.................................. 7
1.7 Expenses of Registration................................. 7
1.8 Delay of Registration.................................... 7
1.9 Indemnification.......................................... 7
1.10 Reports Under Securities Exchange Act of 1934........... 9
1.11 Assignment of Registration Rights....................... 10
1.12 Limitations on Subsequent Registration Rights........... 10
1.13 Market Stand--Off Agreement............................. 10
1.14 Termination of Registration Rights...................... 11
2. Covenants of the Company....................................... 11
2.1 Delivery of Financial Statements......................... 11
2.2 Inspection............................................... 12
2.3 Termination of Information and Inspection Covenants...... 12
2.4 Right of First Offer..................................... 12
2.5 Employee and Other Stock Arrangements.................... 14
2.6 Termination of Certain Covenants.......................... 15
3. Miscellaneous.................................................. 15
3.1 Successors and Assigns................................... 15
3.2 Governing Law............................................ 15
3.3 Counterparts............................................. 15
3.4 Titles and Subtitles..................................... 16
3.5 Notices.................................................. 16
3.6 Expenses................................................. 16
3.7 Entire Agreement: Amendments and Waivers................. 16
3.8 Severability............................................. 16
3.9 Aggregation of Stock..................................... 16
3.10 Additional Parties...................................... 16
3.11 Termination of Prior Agreement.......................... 16
<PAGE>
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") is made as of the 3rd day of June, 1999, by and among planetRx.com,
Inc., a Delaware corporation (the "Company"), and the investors listed on
Schedule A hereto, each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, certain of the Investors holding Series A Preferred Stock and
Series B Preferred Stock possess registration and other rights granted pursuant
to that certain PlanetRx, Inc. Amended and Restated Investors' Rights Agreement
(the "Prior Agreement") dated as of January 15, 1999 by and among the Company
and the Investors listed on Schedule A thereto (the "Series B Investors");
WHEREAS, the Prior Agreement may be amended, and any provision therein
waived, with the consent of the Company, the Series A Investors and the Series B
Investors holding a majority of the "Registrable Securities" of the Company (as
defined in the Prior Agreement);
WHEREAS, certain of the Investors are parties to the planetRx.com,
Inc. Series C Preferred Stock Purchase Agreement (the "Series C Agreement") of
even date herewith by and among the Company and the Investors listed on Schedule
A thereto (the "Series C Investors");
WHEREAS, in order to induce the Company to enter into the Series C
Agreement and to induce the Series C Investors to invest funds in the Company
pursuant to the Series C Agreement, the Series A Investors and the Series B
Investors desire to waive, amend and restate all rights granted to them under
the Prior Agreement, to terminate the Prior Agreement, and to replace the Prior
Agreement in its entirety as set forth herein; and
WHEREAS, the Series C Investors and the Company have agreed, pursuant
to the Series C Agreement, to enter into this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY CONSENT TO THE ISSUANCE OF SERIES C
PREFERRED STOCK PURSUANT TO THE SERIES C AGREEMENT AND AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
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1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.10 hereof.
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(c) The term "Initial Offering" means the Company's first firm
commitment underwritten public offering of its Common Stock under the Act.
(d) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
(e) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of, the shares referenced in
(i) above, excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which his rights under this Section 1 are not
assigned.
(g) The number of shares of "Registrable Securities"
outstanding shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) Subject to the conditions of this Section 1.2, if the
Company shall receive at any time after six (6) months after the effective date
of the Initial Offering, a written request from the Holders of at least thirty
percent (30%) of the Registrable Securities then outstanding (the "Initiating
Holders") that the Company file a registration statement under the Act covering
the registration of Registrable Securities with an anticipated aggregate
offering price of at least $7,500,000, then the Company shall, within twenty
(20) days of the receipt thereof, give written notice of such request to all
Holders, and subject to the limitations of this Section 1.2, use all reasonable
efforts to effect, as soon as practicable, the registration under the Act of all
Registrable Securities that the Holders request to be registered in a written
request received by the Company within twenty (20) days of the mailing of the
Company's notice pursuant to this Section 1.2(a).
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in Section 1.2(a). In such event the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in
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interest of the Initiating Holders and such Holder) to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company
(which underwriter or underwriters shall be reasonably acceptable to a majority
in interest of the Initiating Holders). Notwithstanding any other provision of
this Section 1.2, if the underwriter advises the Company that marketing factors
require a limitation of the number of securities underwritten (including
Registrable Securities), then the Company shall so advise all Holders of
Registrable Securities that would otherwise be underwritten pursuant hereto, and
the number of shares that may be included in the underwriting shall be allocated
to the Holders of such Registrable Securities on a pro rata basis based on the
number of Registrable Securities held by all such Holders (including the
Initiating Holders). Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Act; or
(ii) after the Company has effected two (2)
registrations pursuant to this Section 1.2, and such registrations have been
declared or ordered effective; or
(iii) during the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of the filing
of, and ending on a date one hundred eighty (180) days following the effective
date of, a Company-initiated registration subject to Section 1.3 below, provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or
(iv) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 1.2, a certificate
signed by the Company's Chief Executive Officer or Chairman of the Board stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be effected at such time, in which event the Company
shall have the right to defer such filing for a period of not more than one
hundred twenty (120) days after receipt of the request of the Initiating
Holders, provided that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12)-month period.
1.3 Company Registration.
(a) If (but without any obligation to do so) the Company
proposes to register (including for this purpose a registration effected by the
Company for stockholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating to a
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corporate reorganization or other transaction under Rule 145 of the Act, a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities, or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities that are also being registered), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.3(c), use all reasonable efforts to cause
to be registered under the Act all of the Registrable Securities that each such
Holder has requested to be registered.
(b) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 1.7 hereof.
(c) Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling Holders according to the total amount of securities entitled
to be included therein owned by each selling Holder or in such other proportions
as shall mutually be agreed to by such selling Holders), but in no event shall
(i) the amount of securities of the selling Holders included in the offering be
reduced below twenty percent (20%) of the total amount of securities included in
such offering, unless such offering is the initial public offering of the
Company's securities, in which case the selling Holders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included, or (ii) notwithstanding (i) above, any shares being
sold by a stockholder exercising a demand registration right similar to that
granted in Section 1.2 be excluded from such offering. For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
that is a Holder of Registrable Securities and that is a partnership or
corporation, the partners, retired partners and stockholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling Holder," and any pro rata reduction with respect to such
"selling Holder" shall be based upon the aggregate amount of Registrable
Securities owned by all such related entities and individuals.
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1.4 Form S-3 Registration. In case the Company shall receive from
the Holders of at least thirty percent (30%) of the Registrable Securities a
written request or requests that the Company effect a registration on Form S-3
(or similar or successor form) and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company shall:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance to all other Holders; and
(b) use all reasonable efforts to effect, as soon as
practicable, such registration and all such qualifications and compliances as
may be requested and as would permit or facilitate the sale and distribution of
all or such portion of such Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holders joining in such request as are specified in a written request
within fifteen (15) days after receipt of such written notice from the Company,
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 1.4:
(i) if Form S-3 (or similar or successor form) is not
available for such offering by the Holders;
(ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $1,000,000;
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer or Chairman of the Board of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration (or similar or successor form) to be
effected at such time, in which event the Company shall have the right to defer
the filing of the Form S-3 registration statement (or similar or successor form)
for a period of not more than one hundred (120) days after receipt of the
request of the Holder or Holders under this Section 1.4; provided, however, that
the Company shall not utilize this right more than once in any twelve month
period;
(iv) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected one registration on
Form S-3 (or similar or successor form) for the Holders pursuant to this Section
1.4; or
(c) subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Sections 1.2.
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1.5 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred twenty
(120) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them;
(d) use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act or the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all Registrable
Securities registered hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
1.6 Information from Holder. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the
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Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
1.7 Expenses of Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses pro
rata based upon the number of Registrable Securities that were to be requested
in the withdrawn registration), unless, in the case of a registration requested
under Section 1.2, the Holders of a majority of the Registrable Securities agree
to forfeit their right to one demand registration pursuant to Section 1.2.
1.8 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners or officers, directors and
stockholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, any state securities laws or any rule or regulation promulgated under the
Act, the 1934 Act or any state securities laws; and the Company will reimburse
each such Holder, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection l.9(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably
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withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person; provided
further, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, legal counsel and
accountants for the Company, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act, the 1934 Act or any state securities laws, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will reimburse any person intended
to be indemnified pursuant to this subsection l.8(b), for any legal or other
expenses reasonably incurred by such person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this subsection l.8(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld), provided that in no event shall any
indemnity under this subsection l.8(b) exceed the gross proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
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indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3 (or similar or successor form) , the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the Initial Offering;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the
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1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3, or similar or successor form (at any time after it
so qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC that permits the selling of any such
securities without registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that after such assignment or transfer, holds at
least five hundred thousand (500,000) shares of Registrable Securities (subject
to appropriate adjustment for stock splits, stock dividends, combinations and
other recapitalizations), provided: (a) the Company is, within a reasonable time
after such transfer, furnished with written notice of the name and address of
such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.12 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
1.12 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities, enter into
any agreement with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 1.3 hereof, unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.13 "Market Stand-Off" Agreement. Each Holder hereby agrees that
it will not, without the prior written consent of the managing underwriter,
during the period commencing on the date of the final prospectus relating to the
Company's public offering and ending on the date specified by the Company and
the managing underwriter (such period not to exceed one hundred eighty (l80)
days) (i) lend, 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, 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 (whether such shares or any such
securities are then owned by the Holder or are thereafter acquired), or (ii)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) 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 transactions relating to
shares of Common Stock or other securities acquired in open market transactions
after the completion of the Company's public offering. The foregoing provisions
of this Section 1.13 shall only be applicable to the Holders if all officers and
directors and greater
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than one percent (1%) stockholders of the Company enter into similar agreements.
The underwriters in connection with the Company's initial public offering are
intended third party beneficiaries of this Section 1.13 and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.14 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after three (3)
years following the consummation of the Initial Offering or, as to any Holder,
such earlier time at which all Registrable Securities held by such Holder (and
any affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144) can be sold in any three (3)-month period without registration in
compliance with Rule 144 of the Act.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
each Investor that holds at least two hundred thousand (200,000) shares (as
adjusted for subsequent stock splits, stock dividends, combinations and other
recapitalizations) of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock (or Common Stock issued upon conversion thereof) of the
Company:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("GAAP"), and audited
and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited income statement, statement of cash flows for
such fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for and
as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event at least thirty
(30) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance sheets,
income statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
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(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company certifying that such financials
were prepared in accordance with GAAP consistently applied with prior practice
for earlier periods (with the exception of footnotes that may be required by
GAAP) and fairly present the financial condition of the Company and its results
of operation for the period specified, subject to year-end audit adjustment.
2.2 Inspection. The Company shall permit each Investor that holds
at least two hundred thousand (200,000) shares (as adjusted for subsequent stock
splits, stock dividends, combinations and other recapitalizations) of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock (and/or
Common Stock issued upon conversion thereof), at such Investor's expense, to
visit and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information that it reasonably considers to
be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The
covenants set in Sections 2.1 and 2.2 shall terminate as to Investors and be of
no further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
firm commitment underwritten offering of its securities to the general public is
consummated or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.4, an "Investor" shall
mean (i) any Investor or transferee that holds any shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock (or the Common Stock
issued upon conversion thereof) and (ii) any general partners and affiliates of
an Investor. Notwithstanding the foregoing, any Investor who, through the
exercise of his or her rights under this Section 2.4, causes the loss of an
applicable exemption from the registration requirements under any state or
federal securities laws for any such future sales or offers for sales shall not
be deemed to be a Investor hereunder. An Investor shall be entitled to apportion
the right of first offer hereby granted it among itself and its partners and
affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exchangeable or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Investor in accordance with the following provisions.
(a) The Company shall deliver a notice in accordance with
Section 3.5 ("Notice") to the Investors stating (i) its bona fide intention to
offer such Shares,
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(ii) the number of such Shares to be offered, and (iii) the price and terms upon
which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after receipt of the Notice, each Investor may elect
to purchase or obtain, at the price and on the terms specified in the Notice, up
to that portion of such Shares that equals the proportion that the number of
shares of Common Stock issued and held, or issuable upon conversion of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
then held by such Investor bears to the total number of shares of Common Stock
of the Company then outstanding (assuming full conversion and exercise of all
convertible and exercisable securities).
(c) If all Shares that Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice, subject to the provisions of Section 2.5 below.
If the Company does not enter into an agreement for the sale of the Shares
within such period, or if such agreement is not consummated within ninety (90)
days of the execution thereof (plus the period referenced in subsection 2.5(b),
if applicable), the right provided hereunder shall be deemed to be revived and
such Shares shall not be offered unless first reoffered to the Investors in
accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be
applicable to (i) the issuance or sale of shares of Common Stock (or options
therefor) to employees, directors, officers and consultants for the primary
purpose of soliciting or retaining their services; (ii) the issuance of
securities pursuant to a bona fide, firmly underwritten public offering of
shares of Common Stock, registered under the Act; (iii) the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities; (iv) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise (v) the issuance of
securities to banks or equipment lessors, or (vi) the issuance of stock,
warrants or other securities or rights to persons or entities with which the
Company has business relationships provided such issuances are for other than
primarily equity financing purposes.
2.5 Right of First Offer for News. Subject to the terms and
conditions specified in Section 2.4 above, and after such rights have been
complied with or waived, the Company hereby grants to News America Incorporated
("News") a right of first offer with respect to future sales by the Company of
its Shares to any competitor of News as listed on Exhibit A attached hereto (a
---------
"Media Competitor").
(a) Subsequent to the notice and exercise of the right
referenced in Section 2.4, the Company shall deliver a notice in accordance with
Section 3.5 to News stating (i) its bona fide intention to offer such Shares to
a Media Competitor, (ii) the number of such Shares to be offered and (iii) the
price and terms upon which it proposes to offer such Shares.
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(b) By written notification received by the Company within five
(5) business days after receipt of the Notice, News may elect to purchase or
obtain, at the price and on the terms specified in the Notice, up to that number
of Shares so offered to such Media Competitor, less those shares already
purchased (or elected to be purchased in writing) by Investors pursuant to
Section 2.4.
(c) If all Shares that News is entitled to obtain pursuant to
subsection 2.5(b) hereof are not so obtained, the Company may, during the ninety
(90) day period following the expiration of the period provided in subsection
2.5(b) hereof, offer the remaining unsubscribed portion of such Shares to such
Media Competitor at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Shares within such period, or if such
agreement is not consummated within ninety (90) days of the execution thereof,
the right provided hereunder shall be deemed to be revived and such Shares shall
not be offered unless first reoffered to the Investors and News in accordance
herewith.
2.6 Employee and Other Stock Arrangements. Except as otherwise
approved by the Company's Board of Directors, all equity securities sold to
employees, consultants or other service providers of the Company henceforth
shall be subject to a market stand-off provision, right of first refusal (in
favor of the Company) and vesting in accordance with the following vesting
schedule: twenty five percent (25%) of such stock shall vest after one year of
service with the Company and the remainder of such stock shall vest in equal
monthly installments over the following thirty-six (36) months.
2.7 In connection with the increase in the Company's option pool by
2,300,000 shares shortly after the closing of the Company's Series B Preferred
Stock financing, the Company entered into a side-letter agreement with the
purchasers of the Series B Preferred Stock whereby the Company agreed to (i)
calculate the actual number of options granted out of the 2,300,000 option share
pool between January 15, 1999 and June 1, 1999 (the "Issued Options") and (ii)
adjust the conversion ratio of the Series B Preferred Stock as if such Issued
Options had been granted and were outstanding immediately prior to closing of
the Series B Preferred Stock financing, thereby increasing the number of shares
of Common Stock into which the Series B Preferred Stock can be converted. The
Company covenants and agrees that, within 30 days after the date of this
Agreement and in accordance with such side-letter agreement, it will recalculate
the conversion ratio of the Series B Preferred Stock to effectively increase the
number of shares of Common Stock into which the Series B Preferred Stock can be
converted (based on the number of Issued Options) and will amend its Certificate
of Incorporation accordingly. To the extent the adjustment to the conversion
ratio of the Series B Preferred Stock increases the number of fully diluted, as
converted, shares of Common Stock that would have otherwise been outstanding
prior to the closing of the Series C Preferred Stock financing and, therefore,
would have required a lower purchase price per share for the Series C Preferred
Stock than the purchase price per share actually paid for the Series C Preferred
Stock pursuant to the Series C Agreement, then the conversion ratio of the
Series C Preferred Stock will also be adjusted by amendment to the Company's
Certificate of Incorporation to effectively increase the number of shares of
Common Stock into which the Series C Preferred Stock can be converted (based on
the additional number of shares Common Stock into which the Series B Preferred
Stock can be converted). Notwithstanding the foregoing, the purchase price per
share actually
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<PAGE>
paid pursuant to the Series C Agreement has been calculated after taking into
account the Issued Options and the Issued Options shall not be included in any
calculation to adjust the conversion ratio of the Series C Preferred Stock
pursuant to this Section 2.7.
2.8 Termination of Certain Covenants. The covenants set forth in
Sections 2.4, 2.5 and 2.6 shall terminate and be of no further force or effect
upon the consummation of the sale of securities pursuant to a bona fide, firmly
underwritten public offering of shares of common stock, registered under the
Act.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). 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, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 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.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties. In addition, a copy of any notice sent to
the Company pursuant to this Agreement shall be sent to Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park,
California 94025, Attn: Jeff Higgins.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
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<PAGE>
3.7 Entire Agreement: Amendments and Waivers. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities each future
holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
3.10 Additional Parties. In the event of a subsequent closing with
a purchaser as provided for in Section 1.3 of the Series C Agreement, such
purchaser shall become a party to this Agreement as an "Investor" upon receipt
from such purchaser of a fully executed signature page hereto.
3.11 Termination of Prior Agreement. Upon the effectiveness of this
Agreement, the Prior Agreement shall terminate and be of no further force and
effect, and shall be superseded and replaced in its entirety by this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
PLANETRX.COM, INC.
By:
---------------------------------------
William J. Razzouk
Chairman and Chief Executive Officer
Address: 349 Oyster Point Blvd.
Suite 201
South San Francisco, CA 94080
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INVESTORS:
By:
----------------------------------------
By:
----------------------------------------
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of ____ __,
____, between PLANETRX.COM, INC., a Delaware corporation ("the Company"), and
________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law, the
Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in recognition of past services and in order to induce Indemnitee
to continue to serve as an officer or director of the Company, the Company has
determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an officer or
director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless
and indemnify Indemnitee to the full extent authorized or permitted by the
provisions of the Law, as such may be amended from time to time, and Article VII
of the Bylaws, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section l(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the
<PAGE>
Company and, with respect to any criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee shall
be entitled to the rights of indemnification provided in this Section 1(b) if,
by reason of his Corporate Status, he is, or is threatened to be made, a party
to or participant in any Proceeding brought by or in the right of the Company.
Pursuant to this Section 1(b), Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with such Proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company; provided,
however, that, if applicable law so provides, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company unless and to the extent that the Court of Chancery of the State of
Delaware shall determine that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. Contribution in the Event of Joint Liability.
(a) Whether or not the indemnification provided in Sections 1 and 2
hereof is available, in respect of any threatened, pending or completed action,
suit or proceeding in which Company is jointly liable with Indemnitee (or would
be if joined in such action, suit or proceeding), Company shall pay, in the
first instance, the entire amount of any judgment or settlement of such action,
suit or proceeding without requiring Indemnitee to contribute to such
2
<PAGE>
payment and Company hereby waives and relinquishes any right of contribution it
may have against Indemnitee. Company shall not enter into any settlement of any
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding) unless such
settlement provides for a full and final release of all claims asserted against
Indemnitee.
(b) Without diminishing or impairing the obligations of the Company
set forth in the preceding subparagraph, if, for any reason, Indemnitee shall
elect or be required to pay all or any portion of any judgment or settlement in
any threatened, pending or completed action, suit or proceeding in which Company
is jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in proportion to the
relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of this
Agreement, the Company shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding by reason of Indemnitee's Corporate
Status within ten (10) days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that
3
<PAGE>
Indemnitee is not entitled to be indemnified against such Expenses. Any advances
and undertakings to repay pursuant to this Section 5 shall be unsecured and
interest free. Notwithstanding the foregoing, the obligation of the Company to
advance Expenses pursuant to this Section 5 shall be subject to the condition
that, if, when and to the extent that the Company determines that Indemnitee
would not be permitted to be indemnified under applicable law, the Company shall
be entitled to be reimbursed, within thirty (30) days of such determination, by
Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Company that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any advance of
Expenses until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
Indemnification. It is the intent of this Agreement to secure for Indemnitee
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 6(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case by one of the following three methods, which shall be at
the election of Indemnitee: (1) by a majority vote of the disinterested
directors, even though less than a quorum, or (2) by independent legal counsel
in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors). Indemnitee or the Company, as
the case may be, may, within 10 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 13 of this Agreement, and the
4
<PAGE>
objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If a written objection is made and substantiated,
the Independent Counsel selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent
Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition the Court of Chancery of the State of Delaware or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(f) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be
5
<PAGE>
extended for a reasonable time, not to exceed an additional fifteen (15) days,
if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 6(g) shall
not apply if the determination of entitlement to indemnification is to be made
by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other disposition
short of final judgment may be successful if it permits a party to avoid
expense, delay, distraction, disruption and uncertainty. In the event that any
action, claim or proceeding to which Indemnitee is a party is resolved in any
manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
7. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section
6 of this Agreement that Indemnitee is not entitled to indemnification under
this Agreement, (ii) advancement of Expenses is not timely made pursuant to
Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to
6
<PAGE>
indemnification or such determination is deemed to have been made pursuant to
Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification. Indemnitee
shall commence such proceeding seeking an adjudication within 180 days following
the date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 7(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication.
(b) In the event that a determination shall have been made pursuant
to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section 6(b)
of this Agreement that Indemnitee is entitled to indemnification, the Company
shall be bound by such determination in any judicial proceeding commenced
pursuant to this Section 7, absent a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7, seeks a
judicial adjudication of his rights under, or to recover damages for breach of,
this Agreement, or to recover under any directors' and officers' liability
insurance policies maintained by the Company the Company shall pay on his
behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification as provided by this Agreement shall
not be deemed exclusive of any other rights to which Indemnitee may at any time
be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy
7
<PAGE>
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other right or
remedy.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the Company
contained herein shall continue during the period Indemnitee is an officer or
director of the Company (or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any Proceeding (or any proceeding commenced under
Section 7 hereof) by reason of his Corporate Status, whether or not he is acting
or serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company or any other Enterprise at the Company's
request.
11. Security. To the extent requested by the Indemnitee and approved by
the Board of Directors of the Company, the Company may at any time and from time
to time provide
8
<PAGE>
security to the Indemnitee for the Company's obligations hereunder through an
irrevocable bank line of credit, funded trust or other collateral. Any such
security, once provided to the Indemnitee, may not be revoked or released
without the prior written consent of the Indemnitee.
12. Enforcement.
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer or director of the Company, and the
Company acknowledges that Indemnitee is relying upon this Agreement in serving
as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a person who is or was
a director, officer, employee or agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the express written request of the Company
as a director, officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in
9
<PAGE>
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees to pay the
reasonable fees of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all Expenses, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement shall
be held by a court of competent jurisdiction to be invalid, void, illegal or
otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
15. Modification and Waiver. No supplement, modification, termination or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company
in writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any Proceeding or matter
which may be subject to indemnification covered hereunder. The failure to so
notify the Company shall not relieve the Company of any obligation which it may
have to the Indemnitee under this Agreement or otherwise unless and only to the
extent that such failure or delay materially prejudices the Company.
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<PAGE>
17. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee
signature hereto.
(b) If to the Company, to:
349 Oyster Point Boulevard
South San Francisco, California 94080
Attention: William J. Razzouk
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
19. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Governing Law. The parties agree that this Agreement shall be governed
by, and construed and enforced in accordance with, the laws of the State of
Delaware without application of the conflict of laws principles thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include usage
of the feminine pronoun where appropriate.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
PLANETRX.COM, INC.
By:
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address: 349 Oyster Point Boulevard
South San Francisco, California 94080
INDEMNITEE
---------------------------------------------
Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
<PAGE>
EXHIBIT 10.2
PlanetRX.com, Inc.
1999 Equity Incentive Plan
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION................................................. 1
ARTICLE 2. ADMINISTRATION............................................... 1
2.1 Committee Composition.......................................... 1
2.2 Committee Responsibilities..................................... 1
2.3 Committee for Non-Officer Grants............................... 1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.................................. 2
3.1 Basic Limitation............................................... 2
3.2 Annual Increase in Shares...................................... 2
3.3 Additional Shares.............................................. 2
3.4 Dividend Equivalents........................................... 2
ARTICLE 4. ELIGIBILITY.................................................. 2
4.1 Incentive Stock Options........................................ 2
4.2 Other Grants................................................... 3
ARTICLE 5. OPTIONS...................................................... 3
5.1 Stock Option Agreement......................................... 3
5.2 Number of Shares............................................... 3
5.3 Exercise Price................................................. 3
5.4 Exercisability and Term........................................ 3
5.6 Modification or Assumption of Options.......................... 4
5.7 Buyout Provisions.............................................. 4
ARTICLE 6. PAYMENT FOR OPTION SHARES.................................... 4
6.1 General Rule................................................... 4
6.2 Surrender of Common Stock...................................... 4
6.3 Exercise/Sale.................................................. 4
6.4 Exercise/Pledge................................................ 4
6.5 Promissory Note................................................ 5
6.6 Other Forms of Payment......................................... 5
ARTICLE 7. STOCK APPRECIATION RIGHTS.................................... 5
7.1 SAR Agreement.................................................. 5
7.2 Number of Shares............................................... 5
7.3 Exercise Price................................................. 5
7.4 Exercisability and Term........................................ 5
7.5 Exercise of SARs............................................... 6
7.6 Modification or Assumption of SARs............................. 6
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 8. RESTRICTED SHARES........................................... 6
8.1 Restricted Stock Agreement..................................... 6
8.2 Payment for Awards............................................. 6
8.3 Vesting Conditions............................................. 6
8.4 Voting and Dividend Rights..................................... 6
ARTICLE 9. STOCK UNITS................................................. 7
9.1 Stock Unit Agreement........................................... 7
9.2 Payment for Awards............................................. 7
9.3 Vesting Conditions............................................. 7
9.4 Voting and Dividend Rights..................................... 7
9.5 Form and Time of Settlement of Stock Units..................... 7
9.6 Death of Recipient............................................. 7
9.7 Creditors'Rights............................................... 8
ARTICLE 10. CHANGE IN CONTROL........................................... 8
10.1 Effect of Change in Control................................... 8
10.2 Involuntary Termination....................................... 8
ARTICLE 11. PROTECTION AGAINST DILUTION................................. 8
11.1 Adjustments................................................... 8
11.2 Dissolution or Liquidation.................................... 9
11.3 Reorganizations............................................... 9
ARTICLE 12. DEFERRAL OF AWARDS.......................................... 9
ARTICLE 13. AWARDS UNDER OTHER PLANS.................................... 10
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.................... 10
14.1 Effective Date................................................ 10
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units... 10
14.3 Number and Terms of NSOs, Restricted Shares or Stock.......... 10
ARTICLE 15. LIMITATION ON RIGHTS........................................ 10
15.1 Retention Rights.............................................. 10
15.2 Stockholders'Rights........................................... 11
15.3 Regulatory Requirements....................................... 11
ARTICLE 16. WITHHOLDING TAXES........................................... 11
16.1 General....................................................... 11
16.2 Share Withholding............................................. 11
ARTICLE 17. FUTURE OF THE PLAN.......................................... 11
17.1 Term of the Plan.............................................. 11
17.2 Amendment or Termination...................................... 12
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 18. LIMITATION ON PAYMENTS...................................... 12
18.1 Scope of Limitation........................................... 12
18.2 Basic Rule.................................................... 12
18.3 Reduction of Payments......................................... 12
18.4 Overpayments and Underpayments................................ 13
18.5 Related Companys.............................................. 13
ARTICLE 19. DEFINITIONS................................................. 13
</TABLE>
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PlanetRX.com, Inc.
1999 Equity Incentive Plan
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board to be effective as of the date of
the IPO. The purpose of the Plan is to promote the long-term success of the
Company and the creation of stockholder value by (a) encouraging Employees,
Outside Directors and Consultants to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission may
establish for administrators acting under plans intended to qualify for
exemption under Rule 16b-3 (or its successor) under the Exchange Act; and
(b) Such requirements as the Internal Revenue Service may establish
for outside directors acting under plans intended to qualify for exemption
under Section 162(m)(4)(C) of the Code.
2.2 Committee Responsibilities. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it deems appropriate to implement the Plan. The
Committee's determinations under the Plan shall be final and binding on all
persons.
2.3 Committee for Non-Officer Grants. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Company who need not satisfy the requirements of Section 2.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered officers or directors of
<PAGE>
the Company under Section 16 of the Exchange Act, may grant Awards under the
Plan to such Employees and Consultants and may determine all features and
conditions of such Awards. Within the limitations of this Section 2.3, any
reference in the Plan to the Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Shares of Common Stock issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of Options, SARs, Stock Units and Restricted Shares awarded under the Plan shall
not exceed (a) 6,000,000, plus the shares remaining available for issuance under
the Predecessor Plan, plus (b) the additional shares of Common Stock described
in Sections 3.2 and 3.3. The limitation of this Section 3.1 shall be subject to
adjustment pursuant to Article 11.
3.2 Annual Increase in Shares. As of January 1 of each year, commencing
with the year 2000 and ending with the year 2005, the aggregate number of
Options, SARs, Stock Units and Restricted Shares that may be awarded under the
Plan shall automatically increase by a number equal to the lesser of (a) 5% of
the total number of shares of Common Stock then outstanding or (b) 2,000,000
shares.
3.3 Additional Shares. If Restricted Shares or shares of Common Stock
issued upon the exercise of Options are forfeited (including any options
incorporated from the Predecessor Plan), then such shares of Common Stock shall
again become available for Awards under the Plan. If Stock Units, Options or
SARs are forfeited or terminate for any other reason before being exercised,
then the corresponding shares of Common Stock shall again become available for
Awards under the Plan. If Stock Units are settled, then only the number of
shares of Common Stock (if any) actually issued in settlement of such Stock
Units shall reduce the number available under Section 3.1 and the balance shall
again become available for Awards under the Plan. If SARs are exercised, then
only the number of shares of Common Stock (if any) actually issued in settlement
of such SARs shall reduce the number available under Section 3.1 and the balance
shall again become available for Awards under the Plan. The foregoing
notwithstanding, the aggregate number of shares of Common Stock that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
Restricted Shares or other shares of Common Stock are forfeited.
3.4 Dividend Equivalents. Any dividend equivalents paid or credited under
the Plan shall not be applied against the number of Restricted Shares, Stock
Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
ARTICLE 4. ELIGIBILITY.
4.1 Incentive Stock Options. Only Employees who are common-law employees
of the Company, a Parent or a Subsidiary shall be eligible for the grant of
ISOs. In addition, an Employee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Company or any of its
Parents or Subsidiaries shall not be eligible for
2
<PAGE>
the grant of an ISO unless the requirements set forth in Section 422(c)(6) of
the Code are satisfied.
4.2 Other Grants. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs.
ARTICLE 5. OPTIONS.
5.1 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in the form described in
Section 6.2.
5.2 Number of Shares. Each Stock Option Agreement shall specify the number
of shares of Common Stock subject to the Option and shall provide for the
adjustment of such number in accordance with Article 11. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than
2,000,000 shares of Common Stock, except that Options granted to a new Employee
in the fiscal year of the Company in which his or her service as an Employee
first commences shall not cover more than 2,500,000 shares of Common Stock. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price; provided that the Exercise Price under an ISO shall in no event be less
than 100% of the Fair Market Value of a share of Common Stock on the date of
grant and the Exercise Price under an NSO shall in no event be less than 85% of
the Fair Market Value of a share of Common Stock on the date of grant. In the
case of an NSO, a Stock Option Agreement may specify an Exercise Price that
varies in accordance with a predetermined formula while the NSO is outstanding.
5.4 Exercisability and Term. Each Stock Option Agreement shall specify the
date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service. Options may be awarded in
combination with SARs, and such an Award may provide that the Options will not
be exercisable unless the related SARs are forfeited.
3
<PAGE>
5.5 Modification or Assumption of Options. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
5.6 Buyout Provisions. The Committee may at any time (a) offer to buy out
for a payment in cash or cash equivalents an Option previously granted or (b)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 General Rule. The entire Exercise Price of shares of Common Stock
issued upon exercise of Options shall be payable in cash or cash equivalents at
the time when such shares of Common Stock are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 Surrender of Common Stock. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, shares of Common Stock that are already owned
by the Optionee. Such shares of Common Stock shall be valued at their Fair
Market Value on the date when the new shares of Common Stock are purchased under
the Plan. The Optionee shall not surrender, or attest to the ownership of,
shares of Common Stock in payment of the Exercise Price if such action would
cause the Company to recognize compensation expense (or additional compensation
expense) with respect to the Option for financial reporting purposes.
6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable, all
or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to a
securities broker approved by the Company to sell all or part of the shares of
Common Stock being purchased under the Plan and to deliver all or part of the
sales proceeds to the Company.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the shares of Common Stock
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being purchased under the Plan to a securities broker or lender approved by the
Company, as security for a loan, and to deliver all or part of the loan proceeds
to the Company.
6.5 Promissory Note. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) a full-recourse promissory
note. However, the par value of the shares of Common Stock being purchased under
the Plan, if newly issued, shall be paid in cash or cash equivalents.
6.6 Other Forms of Payment. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
7.1 SAR Agreement. Each grant of a SAR under the Plan shall be evidenced
by an SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various SAR
Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.
7.2 Number of Shares. Each SAR Agreement shall specify the number of
shares of Common Stock to which the SAR pertains and shall provide for the
adjustment of such number in accordance with Article 11. SARs granted to any
Optionee in a single calendar year shall in no event pertain to more than
2,000,000 shares of Common Stock, except that SARs granted to a new Employee in
the fiscal year of the Company in which his or her service as an Employee first
commences shall not pertain to more than 2,500,000 shares of Common Stock. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 11.
7.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price. A
SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
7.4 Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. An SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. An SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
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7.5 Exercise of SARs. Upon exercise of a SAR, the Optionee (or any person
having the right to exercise the SAR after his or her death) shall receive from
the Company (a) shares of Common Stock, (b) cash or (c) a combination of shares
of Common Stock and cash, as the Committee shall determine. The amount of cash
and/or the Fair Market Value of shares of Common Stock received upon exercise of
SARs shall, in the aggregate, be equal to the amount by which the Fair Market
Value (on the date of surrender) of the shares of Common Stock subject to the
SARs exceeds the Exercise Price. If, on the date when an SAR expires, the
Exercise Price under such SAR is less than the Fair Market Value on such date
but any portion of such SAR has not been exercised or surrendered, then such SAR
shall automatically be deemed to be exercised as of such date with respect to
such portion.
7.6 Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of an SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
ARTICLE 8. RESTRICTED SHARES.
8.1 Restricted Stock Agreement. Each grant of Restricted Shares under the
Plan shall be evidenced by a Restricted Stock Agreement between the recipient
and the Company. Such Restricted Shares shall be subject to all applicable terms
of the Plan and may be subject to any other terms that are not inconsistent with
the Plan. The provisions of the various Restricted Stock Agreements entered into
under the Plan need not be identical.
8.2 Payment for Awards. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the Award recipient
shall furnish consideration with a value not less than the par value of such
Restricted Shares in the form of cash, cash equivalents or past services
rendered to the Company (or a Parent or Subsidiary), as the Committee may
determine.
8.3 Vesting Conditions. Each award of Restricted Shares may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events.
8.4 Voting and Dividend Rights. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.
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ARTICLE 9. STOCK UNITS.
9.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall
be evidenced by a Stock Unit Agreement between the recipient and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Unit Agreements entered into under the Plan need
not be identical. Stock Units may be granted in consideration of a reduction in
the recipient's other compensation.
9.2 Payment for Awards. To the extent that an Award is granted in the form
of Stock Units, no cash consideration shall be required of the Award recipients.
9.3 Vesting Conditions. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events.
9.4 Voting and Dividend Rights. The holders of Stock Units shall have no
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one share of Common Stock while the Stock Unit is
outstanding. Dividend equivalents may be converted into additional Stock Units.
Settlement of dividend equivalents may be made in the form of cash, in the form
of shares of Common Stock, or in a combination of both. Prior to distribution,
any dividend equivalents which are not paid shall be subject to the same
conditions and restrictions as the Stock Units to which they attach.
9.5 Form and Time of Settlement of Stock Units. Settlement of vested Stock
Units may be made in the form of (a) cash, (b) shares of Common Stock or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or smaller than the number included
in the original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of shares of Common Stock over a series of
trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting conditions
applicable to the Stock Units have been satisfied or have lapsed, or it may be
deferred to any later date. The amount of a deferred distribution may be
increased by an interest factor or by dividend equivalents. Until an Award of
Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Article 11.
9.6 Death of Recipient. Any Stock Unit Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Unit Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award
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recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Unit Award that becomes
payable after the recipient's death shall be distributed to the recipient's
estate.
9.7 Creditors' Rights. A holder of Stock Units shall have no rights other
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Unit Agreement.
ARTICLE 10. CHANGE IN CONTROL
10.1 Effect of Change in Control. In the event of any Change in Control,
each outstanding Award shall automatically accelerate so that each such Award
shall, immediately prior to the effective date of the Change in Control, become
fully exercisable for all of the shares of Common Stock at the time subject to
such Award and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding Award shall not so accelerate if
and to the extent such Award is, in connection with the Change in Control,
either to be assumed by the successor corporation (or parent thereof) or to be
replaced with a comparable Award for shares of the capital stock of the
successor corporation (or parent thereof). The determination of Award
comparability shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
10.2 Involuntary Termination. In addition, in the event that the Award is
assumed by the successor corporation (or parent thereof) and the Participant
experiences an Involuntary Termination within twelve (12) months following a
Change in Control, each outstanding Award shall automatically accelerate so that
each such Award shall, immediately prior to the effective date of the
Involuntary Termination, become fully exercisable for all of the shares of
Common Stock at the time subject to such Award and may be exercised for any or
all of those shares as fully-vested shares of Common Stock.
ARTICLE 11. PROTECTION AGAINST DILUTION.
11.1 Adjustments. In the event of a subdivision of the outstanding shares
of Common Stock, a declaration of a dividend payable in shares of Common Stock,
a declaration of a dividend payable in a form other than shares of Common Stock
in an amount that has a material effect on the price of shares of Common Stock,
a combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a lesser number of shares of Common Stock, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or more
of:
(a) The number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Article 3;
(b) The limitations set forth in Sections 5.2 and 8.2;
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(c) The number of shares of Common Stock covered by each outstanding
Option and SAR;
(d) The Exercise Price under each outstanding Option and SAR; or
(e) The number of Stock Units included in any prior Award which has
not yet been settled.
Except as provided in this Article 11, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
11.2 Dissolution or Liquidation. To the extent not previously exercised or
settled, Options, SARs and Stock Units shall terminate immediately prior to the
dissolution or liquidation of the Company.
11.3 Reorganizations. In the event that the Company is a party to a merger
or other reorganization, outstanding Awards shall be subject to the agreement of
merger or reorganization. Such agreement shall provide for (a) the continuation
of the outstanding Awards by the Company, if the Company is a surviving
corporation, (b) the assumption of the outstanding Awards by the surviving
corporation or its parent or subsidiary, (c) the substitution by the surviving
corporation or its parent or subsidiary of its own awards for the outstanding
Awards, (d) full exercisability or vesting and accelerated expiration of the
outstanding Awards or (e) settlement of the full value of the outstanding Awards
in cash or cash equivalents followed by cancellation of such Awards.
ARTICLE 12. DEFERRAL OF AWARDS.
The Committee (in its sole discretion) may permit or require a
Participant to:
(a) Have cash that otherwise would be paid to such Participant as a
result of the exercise of an SAR or the settlement of Stock Units credited
to a deferred compensation account established for such Participant by the
Committee as an entry on the Company's books;
(b) Have shares of Common Stock that otherwise would be delivered to
such Participant as a result of the exercise of an Option or SAR converted
into an equal number of Stock Units; or
(c) Have shares of Common Stock that otherwise would be delivered to
such Participant as a result of the exercise of an Option or SAR or the
settlement of Stock Units converted into amounts credited to a deferred
compensation account established for such Participant by the Committee as
an entry on the Company's books. Such amounts shall be determined by
reference to
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the Fair Market Value of such shares of Common Stock as of the date when
they otherwise would have been delivered to such Participant.
A deferred compensation account established under this Article 12 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Article 12.
ARTICLE 13. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such
awards may be settled in the form of shares of Common Stock issued under this
Plan. Such shares of Common Stock shall be treated for all purposes under the
Plan like shares of Common Stock issued in settlement of Stock Units and shall,
when issued, reduce the number of shares of Common Stock available under Article
3.
ARTICLE 14. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
14.1 Effective Date. No provision of this Article 14 shall be effective
unless and until the Board has determined to implement such provision.
14.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees from the Company in the form of cash, NSOs, Restricted Shares or
Stock Units, or a combination thereof, as determined by the Board. Such NSOs,
Restricted Shares and Stock Units shall be issued under the Plan. An election
under this Article 14 shall be filed with the Company on the prescribed form.
14.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The
number of NSOs, Restricted Shares or Stock Units to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs, Restricted Shares or Stock Units shall also be determined by the
Board.
ARTICLE 15. LIMITATION ON RIGHTS.
15.1 Retention Rights. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the
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service of any Employee, Outside Director or Consultant at any time, with or
without cause, subject to applicable laws, the Company's certificate of
incorporation and by-laws and a written employment agreement (if any).
15.2 Stockholders' Rights. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any shares of
Common Stock covered by his or her Award prior to the time when a stock
certificate for such shares of Common Stock is issued or, if applicable, the
time when he or she becomes entitled to receive such shares of Common Stock by
filing any required notice of exercise and paying any required Exercise Price.
No adjustment shall be made for cash dividends or other rights for which the
record date is prior to such time, except as expressly provided in the Plan.
15.3 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue shares of Common Stock
under the Plan shall be subject to all applicable laws, rules and regulations
and such approval by any regulatory body as may be required. The Company
reserves the right to restrict, in whole or in part, the delivery of shares of
Common Stock pursuant to any Award prior to the satisfaction of all legal
requirements relating to the issuance of such shares of Common Stock, to their
registration, qualification or listing or to an exemption from registration,
qualification or listing.
ARTICLE 16. WITHHOLDING TAXES.
16.1 General. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any shares of Common Stock or make any cash payment under the
Plan until such obligations are satisfied.
16.2 Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any shares of Common Stock that otherwise
would be issued to him or her or by surrendering all or a portion of any shares
of Common Stock that he or she previously acquired. Such shares of Common Stock
shall be valued at their Fair Market Value on the date when taxes otherwise
would be withheld in cash.
ARTICLE 17. FUTURE OF THE PLAN.
17.1 Term of the Plan. The Plan, as set forth herein, shall become
effective as of the date of the IPO. The Plan shall remain in effect until it
is terminated under Section 17.2, except that no ISOs shall be granted on or
after the 10/th /anniversary of the later of (a) the date when the Board adopted
the Plan or (b) the date when the Board adopted the most recent increase in the
number of shares of Common Stock available under Article 3 which was approved by
the Company's stockholders. The Plan shall serve as the successor to the
Predecessor Plan, and no further option grants or stock awards shall be made
under the Predecessor Plan after the Plan effective date. All options
outstanding under the Predecessor Plan as of such date shall,
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immediately upon approval of the Plan by the Company's stockholders, be
incorporated into the Plan and treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock, except that the vesting acceleration provisions of
Article 10 relating to Change in Control may be extended to the options
incorporated from the Predecessor Plan in the discretion of the Board.
17.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 18. LIMITATION ON PAYMENTS.
18.1 Scope of Limitation. This Article 18 shall apply to an Award only if:
(a) The independent auditors most recently selected by the Board (the
"Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and local
income taxes, employment taxes and excise taxes applicable to the
Participant (including the excise tax under Section 4999 of the Code), will
be greater after the application of this Article 18 than it was before the
application of this Article 18; or
(b) The Committee, at the time of making an Award under the Plan or
at any time thereafter, specifies in writing that such Award shall be
subject to this Article 18 (regardless of the after-tax value of such Award
to the Participant).
If this Article 18 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
18.2 Basic Rule. In the event that the Auditors determine that any payment
or transfer by the Company under the Plan to or for the benefit of a Participant
(a "Payment") would be nondeductible by the Company for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
Section 280G of the Code, then the aggregate present value of all Payments shall
be reduced (but not below zero) to the Reduced Amount. For purposes of this
Article 18, the "Reduced Amount" shall be the amount, expressed as a present
value, which maximizes the aggregate present value of the Payments without
causing any Payment to be nondeductible by the Company because of Section 280G
of the Code.
18.3 Reduction of Payments. If the Auditors determine that any Payment
would be nondeductible by the Company because of Section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof
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and of the Reduced Amount, and the Participant may then elect, in his or her
sole discretion, which and how much of the Payments shall be eliminated or
reduced (as long as after such election the aggregate present value of the
Payments equals the Reduced Amount) and shall advise the Company in writing of
his or her election within 10 days of receipt of notice. If no such election is
made by the Participant within such 10-day period, then the Company may elect
which and how much of the Payments shall be eliminated or reduced (as long as
after such election the aggregate present value of the Payments equals the
Reduced Amount) and shall notify the Participant promptly of such election. For
purposes of this Article 18, present value shall be determined in accordance
with Section 280G(d)(4) of the Code. All determinations made by the Auditors
under this Article 18 shall be binding upon the Company and the Participant and
shall be made within 60 days of the date when a Payment becomes payable or
transferable. As promptly as practicable following such determination and the
elections hereunder, the Company shall pay or transfer to or for the benefit of
the Participant such amounts as are then due to him or her under the Plan and
shall promptly pay or transfer to or for the benefit of the Participant in the
future such amounts as become due to him or her under the Plan.
18.4 Overpayments and Underpayments. As a result of uncertainty in the
application of Section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
Section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under Section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in Section 7872(f)(2) of the Code.
18.5 Related Companys. For purposes of this Article 18, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with Section 280G(d)(5) of the Code.
ARTICLE 19. DEFINITIONS.
19.1 "Affiliate" means any entity other than a Subsidiary, if the Company
and/or one or more Subsidiaries own not less than 50% of such entity.
19.2 "Award" means any award of an Option, an SAR, a Restricted Share or a
Stock Unit under the Plan.
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19.3 "Board" means the Company's Board of Directors, as constituted from
time to time.
19.4 "Change in Control" shall mean:
(a) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not stockholders of the
Company immediately prior to such merger, consolidation or other
reorganization;
(b) The sale, transfer or other disposition of all or substantially
all of the Company's assets;
(c) A change in the composition of the Board, as a result of which
fewer than two-thirds of the incumbent directors are directors who either
(i) had been directors of the Company on the date 24 months prior to the
date of the event that may constitute a Change in Control (the "original
directors") or (ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election or
nomination and the directors whose election or nomination was previously so
approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at least
50% of the total voting power represented by the Company's then outstanding
voting securities. For purposes of this Paragraph (d), the term "person"
shall have the same meaning as when used in Sections 13(d) and 14(d) of the
Exchange Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of a Parent or
Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
19.5 "Code" means the Internal Revenue Code of 1986, as amended.
19.6 "Committee" means a committee of the Board, as described in Article
2.
19.7 "Common Stock" means the common stock of the Company.
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19.8 "Consultant" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1.
19.9 "Company" means PlanetRX.com, Inc., a Delaware corporation.
19.10 "Employee" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.
19.11 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
19.12 "Exercise Price," in the case of an Option, means the amount for
which one share of Common Stock may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement. "Exercise Price," in the
case of an SAR, means an amount, as specified in the applicable SAR Agreement,
which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR.
19.13 "Fair Market Value" means the market price of shares of Common
Stock, determined by the Committee in good faith on such basis as it deems
appropriate. Whenever possible, the determination of Fair Market Value by the
Committee shall be based on the prices reported in The Wall Street Journal.
-----------------------
Such determination shall be conclusive and binding on all persons.
19.14 "Involuntary Termination" means the termination of the Service of
any individual which occurs by reason of:
(a) such individual's involuntary dismissal or discharge by the
Company for reasons other than Misconduct, or
(b) such individual's voluntary resignation following (A) a change in
his or her position with the Company which materially reduces his or her
level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
bonus or incentive programs) or (C) a relocation of such individual's place
of employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Company without the
individual's consent.
19.15 "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Company with the Securities
and Exchange Commission.
19.16 "ISO" means an incentive stock option described in Section 422(b) of
the Code.
19.17 "Misconduct" means the commission of any act of fraud, embezzlement
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Company (or
any Parent or Subsidiary), or any
15
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other intentional misconduct by such person adversely affecting the business or
affairs of the Company (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts or
omissions which the Company (or any Parent or Subsidiary) may consider as
grounds for the dismissal or discharge of any Optionee or Participant or other
person in the Service of the Company (or any Parent or Subsidiary).
19.18 "NSO" means a stock option not described in Sections 422 or 423 of
the Code.
19.19 "Option" means an ISO or NSO granted under the Plan and entitling
the holder to purchase shares of Common Stock.
19.20 "Optionee" means an individual or estate who holds an Option or SAR.
19.21 "Outside Director" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.1.
19.22 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.
19.23 "Participant" means an individual or estate who holds an Award.
19.24 "Plan" means this PlanetRX.com, Inc. 1999 Equity Incentive Plan, as
amended from time to time.
19.25 "Predecessor Plan" means the Company's existing 1996 Stock Plan.
19.26 "Restricted Share" means a Common Share awarded under the Plan.
19.27 "Restricted Stock Agreement" means the agreement between the Company
and the recipient of a Restricted Share which contains the terms, conditions and
restrictions pertaining to such Restricted Share.
19.28 "SAR" means a stock appreciation right granted under the Plan.
19.29 "SAR Agreement" means the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
19.30 "Stock Option Agreement" means the agreement between the Company and
an Optionee that contains the terms, conditions and restrictions pertaining to
his or her Option.
19.31 "Stock Unit" means a bookkeeping entry representing the equivalent
of one Common Share, as awarded under the Plan.
16
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19.32 "Stock Unit Agreement" means the agreement between the Company and
the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
19.33 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
17
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EXHIBIT 10.3
PlanetRx.com, Inc.
Employee Stock Purchase Plan
(As Adopted July __, 1999)
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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SECTION 1. PURPOSE OF THE PLAN........................................... 1
SECTION 2. ADMINISTRATION OF THE PLAN.................................... 1
(a) Committee Composition........................................... 1
(b) Committee Responsibilities...................................... 1
SECTION 3. ENROLLMENT AND PARTICIPATION.................................. 1
(a) Offering Periods................................................ 1
(b) Enrollment...................................................... 1
(c) Duration of Participation....................................... 1
SECTION 4. EMPLOYEE CONTRIBUTIONS........................................ 2
(a) Frequency of Payroll Deductions................................. 2
(b) Amount of Payroll Deductions.................................... 2
(c) Changing Withholding Rate....................................... 2
(d) Discontinuing Payroll Deductions................................ 2
(e) Limit on Number of Elections.................................... 2
SECTION 5. WITHDRAWAL FROM THE PLAN...................................... 2
(a) Withdrawal...................................................... 2
(b) Re-Enrollment After Withdrawal.................................. 3
SECTION 6. CHANGE IN EMPLOYMENT STATUS................................... 3
(a) Termination of Employment....................................... 3
(b) Leave of Absence................................................ 3
(c) Death........................................................... 3
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.......................... 3
(a) Plan Accounts................................................... 3
(b) Purchase Price.................................................. 3
(c) Number of Shares Purchased...................................... 3
(d) Available Shares Insufficient................................... 4
(e) Issuance of Stock............................................... 4
(f) Unused Cash Balances............................................ 4
(g) Stockholder Approval............................................ 4
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP................................ 4
(a) Five Percent Limit.............................................. 4
(b) Dollar Limit.................................................... 5
</TABLE>
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<TABLE>
<S> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE....................................... 5
SECTION 10. NO RIGHTS AS AN EMPLOYEE..................................... 6
SECTION 11. NO RIGHTS AS A STOCKHOLDER................................... 6
SECTION 12. SECURITIES LAW REQUIREMENTS................................... 6
SECTION 13. STOCK OFFERED UNDER THE PLAN.................................. 6
(a) Authorized Shares............................................... 6
(b) Anti-Dilution Adjustments....................................... 6
(c) Reorganizations................................................. 6
SECTION 14. AMENDMENT OR DISCONTINUANCE................................... 7
SECTION 15. DEFINITIONS................................................... 7
(a) "Board"......................................................... 7
(c) "Code".......................................................... 7
(d) "Committee"..................................................... 7
(e) "Company"....................................................... 7
(f) "Compensation".................................................. 7
(f) "Corporate Reorganization"...................................... 7
(g) "Eligible Employee"............................................. 7
(h) "Exchange Act".................................................. 8
(i) "Fair Market Value"............................................. 8
(j) "IPO"........................................................... 8
(k) "Offering Period"............................................... 8
(l) "Participant"................................................... 8
(m) "Participating Company"......................................... 8
(n) "Plan".......................................................... 8
(o) "Plan Account".................................................. 8
(p) "Purchase Price"................................................ 8
(q) "Stock"......................................................... 9
(r) "Subsidiary".................................................... 9
</TABLE>
ii
<PAGE>
PlanetRX.com, Inc.
Employee Stock Purchase Plan
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board effective as of the date of the IPO. The
purpose of the Plan is to provide Eligible Employees with an opportunity to
increase their proprietary interest in the success of the Company by purchasing
Stock from the Company on favorable terms and to pay for such purchases through
payroll deductions. The Plan is intended to qualify under section 423 of the
Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) Committee Responsibilities. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) Offering Periods. While the Plan is in effect, two Offering Periods
shall commence in each calendar year. The Offering Periods shall consist of the
six-month periods commencing on each September 1 and March 1, except that the
first Offering Period shall commence on the date of the IPO and end on February
28, 2000.
(b) Enrollment. Any individual who, on the day preceding the first day of
an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than [__] days prior
to the commencement of such Offering Period.
(c) Duration of Participation. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Offering Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who discontinued
employee contributions under Section 4(d) or withdrew from the Plan under
Section 5(a) may again become a Participant, if he or she then is an Eligible
Employee, by following the procedure described in Subsection (b) above. A
Participant whose employee contributions were discontinued automatically under
Section 8(b) shall automatically resume
<PAGE>
participation at the beginning of the earliest Offering Period ending in the
next calendar year, if he or she then is an Eligible Employee.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) Frequency of Payroll Deductions. A Participant may purchase shares of
Stock under the Plan solely by means of payroll deductions. Payroll deductions,
as designated by the Participant pursuant to Subsection (b) below, shall occur
on each payday during participation in the Plan.
(b) Amount of Payroll Deductions. An Eligible Employee shall designate on
the enrollment form the portion of his or her Compensation that he or she elects
to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(c) Changing Withholding Rate. If a Participant wishes to change the rate
of payroll withholding, he or she may do so by filing a new enrollment form with
the Company at the prescribed location at any time. The new withholding rate
shall be effective as soon as reasonably practicable after such form has been
received by the Company. The new withholding rate shall be a whole percentage
of the Eligible Employee's Compensation, but not less than 1% nor more than 15%.
(d) Discontinuing Payroll Deductions. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time.
Payroll withholding shall cease as soon as reasonably practicable after such
form has been received by the Company. (In addition, employee contributions may
be discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) Limit on Number of Elections. No Participant shall make more than __
elections under Subsection (c) or (d) above during any Offering Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) Withdrawal. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Offering Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
2
<PAGE>
(b) Re-Enrollment After Withdrawal. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) Termination of Employment. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) Leave of Absence. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) Death. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) Plan Accounts. The Company shall maintain a Plan Account on its books
in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be
trust funds and may be commingled with the Company's general assets and applied
to general corporate purposes. No interest shall be credited to Plan Accounts.
(b) Purchase Price. The Purchase Price for each share of Stock purchased
at the close of an Offering Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last trading
day in such Offering Period; or
(ii) 85% of the Fair Market Value of such share on the last trading
day before the commencement of such Offering Period or, in the case of the
first Offering Period under the Plan, 85% of the price at which one share
of Stock is offered to the public in the IPO.
(c) Number of Shares Purchased. As of the last day of each Offering
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated
3
<PAGE>
in accordance with this Subsection (c), unless the Participant has previously
elected to withdraw from the Plan in accordance with Section 5(a). The amount
then in the Participant's Plan Account shall be divided by the Purchase Price,
and the number of shares that results shall be purchased from the Company with
the funds in the Participant's Plan Account. The foregoing notwithstanding, no
Participant shall purchase more than 2,500 shares of Stock with respect to any
Offering Period nor more than the amounts of Stock set forth in Sections 8(b)
and 13(a). The Committee may determine with respect to all Participants that any
fractional share, as calculated under this Subsection (c), shall be (i) rounded
down to the next lower whole share or (ii) credited as a fractional share.
(d) Available Shares Insufficient. In the event that the aggregate number
of shares that all Participants elect to purchase during an Offering Period
exceeds the maximum number of shares remaining available for issuance under
Section 13(a), then the number of shares to which each Participant is entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) Issuance of Stock. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Offering Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
(f) Unused Cash Balances. Any amount remaining in the Participant's Plan
Account that represents the Purchase Price for a fractional share shall be
carried over in the Participant's Plan Account to the next Offering Period. Any
amount remaining in the Participant's Plan Account that represents the Purchase
Price for whole shares that could not be purchased by reason of Subsection (c)
above, Section 8(b) or Section 13(a) shall be refunded to the Participant in
cash, without interest.
(g) Stockholder Approval. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) Five Percent Limit. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:
4
<PAGE>
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or
she has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to purchase
2,500 shares of Stock under this Plan with respect to each Offering Period.
(b) Dollar Limit. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period that
commenced in the current calendar year, the limit shall be equal to (A)
$25,000 minus (B) the Fair Market Value of the Stock that the Participant
previously purchased in the current calendar year (under this Plan and all
other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company).
(ii) In the case of Stock purchased during an Offering Period that
commenced in the immediately preceding calendar year, the limit shall be
equal to (A) $50,000 minus (B) the Fair Market Value of the Stock that the
Participant previously purchased (under this Plan and all other employee
stock purchase plans of the Company or any parent or Subsidiary of the
Company) in the current calendar year and in the immediately preceding
calendar year.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Offering Period ending in the next calendar year
(if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's interest
in any Stock or moneys to which he or she may be entitled under the Plan, shall
not be transferable by voluntary or involuntary assignment or by operation of
law, or in any other manner other than by beneficiary designation or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than by beneficiary designation or the laws of descent and distribution, then
such act shall be treated as an election by the Participant to withdraw from the
Plan under Section 5(a).
5
<PAGE>
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Offering
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance and
delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) Authorized Shares. The number of shares of Stock available for
purchase under the Plan shall be 1,000,000 (subject to adjustment pursuant to
this Section 13). In addition, the number of shares of Common Stock available
for purchase under the Plan shall automatically increase by the lesser of (i) 2%
of the total number of shares of Common Stock then outstanding or (ii) 750,000
shares on January 31 each year commencing with January 31, 2000, through January
31, 2005.
(b) Anti-Dilution Adjustments. The aggregate number of shares of Stock
offered under the Plan, the 2,500-share limitation described in Section 7(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) Reorganizations. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period then in progress shall terminate and shares shall be purchased
pursuant to Section 7, unless the Plan is continued or assumed by the surviving
corporation or its parent corporation. The Plan shall in no event be construed
to restrict in any way the Company's right to undertake a dissolution,
liquidation, merger, consolidation or other reorganization.
6
<PAGE>
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 13, any increase in
the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation.
SECTION 15. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company, as constituted
from time to time.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means a committee of the Board, as described in Section 2.
(d) "Company" means PlanetRX.com, Inc., a Delaware corporation.
(e) "Compensation" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(f) "Corporate Reorganization" means:
(i) The consummation of a merger or consolidation of the Company
with or into any other entity or any other corporate reorganization; or
(ii) The sale, transfer of other disposition of all or substantially
all of the Company's assets or the complete liquidation or dissolution of
the Company.
(g) "Eligible Employee" means any employee of a Participating Company who
meets both of the following requirements:
(i) His or her customary employment is for more than five months per
calendar year and for more than 20 hours per week; and
(ii) He or she has been an employee of a Participating Company for
not less than 0 consecutive months.
7
<PAGE>
The foregoing notwithstanding, an individual shall not be considered an Eligible
Employee if his or her participation in the Plan is prohibited by the law of any
country which has jurisdiction over him or her or if he or she is subject to a
collective bargaining agreement that does not provide for participation in the
Plan.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(i) "Fair Market Value" means the market price of Stock, determined by the
Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on the
date in question, then the Fair Market Value shall be equal to the last-
transaction price quoted for such date by The Nasdaq National Market;
(ii) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; or
(iii) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
-----------------------
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.
(j) "IPO" means the initial offering of Stock to the public pursuant to a
registration statement filed by the Company with the Securities and Exchange
Commission.
(k) "Offering Period" means a six-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(l) "Participant" means an Eligible Employee who elects to participate in
the Plan, as provided in Section 3(b).
(m) "Participating Company" means (i) the Company and (ii) each present or
future Subsidiary designated by the Committee as a Participating Company.
(n) "Plan" means this PlanetRX.com, Inc. Employee Stock Purchase Plan, as
it may be amended from time to time.
(o) "Plan Account" means the account established for each Participant
pursuant to Section 7(a).
(p) "Purchase Price" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
8
<PAGE>
(q) "Stock" means the Common Stock of the Company.
(r) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
9
<PAGE>
EXHIBIT 10.4
PlanetRX.com, Inc.
1999 Director Stock Option Plan
(As Adopted July __, 1999)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. INTRODUCTION..................................................... 1
ARTICLE 2. ADMINISTRATION................................................... 1
2.1 Committee Composition.............................................. 1
2.2 Committee Responsibilities......................................... 1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS...................................... 1
3.1 Basic Limitation................................................... 1
3.3 Additional Shares.................................................. 1
ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS................ 2
4.1 Eligibility........................................................ 2
4.2 Initial Grants..................................................... 2
4.3 Annual Grants...................................................... 2
4.5 Exercise Price..................................................... 2
4.6 Term............................................................... 2
4.7 Affiliates of Non-Employee Directors............................... 2
4.8 Stock Option Agreement............................................. 2
ARTICLE 5. PAYMENT FOR OPTION SHARES........................................ 3
5.1 Cash............................................................... 3
5.2 Surrender of Stock................................................. 3
5.3 Exercise/Sale...................................................... 3
5.4 Other Forms of Payment............................................. 3
ARTICLE 6. PROTECTION AGAINST DILUTION...................................... 3
6.1 Adjustments........................................................ 3
6.2 Dissolution or Liquidation......................................... 3
9.3 Reorganizations.................................................... 3
ARTICLE 7. LIMITATION ON RIGHTS............................................. 4
7.1 Stockholders' Rights............................................... 4
7.2 Regulatory Requirements............................................ 4
7.3 Withholding Taxes.................................................. 4
ARTICLE 8. FUTURE OF THE PLAN............................................... 4
8.1 Term of the Plan................................................... 4
8.2 Amendment or Termination........................................... 4
ARTICLE 9. DEFINITIONS...................................................... 4
</TABLE>
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PlanetRX.com, Inc.
1999 Director Stock Option Plan
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board on July __, 1999 to be effective
upon consummation of the IPO. The purpose of the Plan is to promote the long-
term success of the Company and the creation of stockholder value by (a)
encouraging Non-Employee Directors to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Non-Employee Directors with
exceptional qualifications and (c) linking Non-Employee Directors directly to
stockholder interests through increased stock ownership. The Plan seeks to
achieve this purpose by providing for automatic and non-discretionary grants of
Options to Non-Employee Directors.
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans intended to
qualify for exemption under Rule 16b-3 (or its successor) under the Exchange
Act.
2.2 Committee Responsibilities. The Committee shall interpret the Plan
and make all decisions relating to the operation of the Plan. The Committee may
adopt such rules or guidelines as it deems appropriate to implement the Plan.
The Committee's determinations under the Plan shall be final and binding on all
persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 Basic Limitation. Shares of Common Stock issued pursuant to the Plan
may be authorized but unissued shares or treasury shares. The aggregate number
of shares of Common Stock subject to Options granted under the Plan shall not
exceed (a) 400,000 plus (b) the additional shares of Common Stock described in
Section 3.2. The limitations of this Section 3.1 shall be subject to adjustment
pursuant to Article 6.
3.2 Additional Shares. If Options are forfeited or terminate for any
other reason before being exercised, then the shares of Common Stock subject to
such Options shall again become available for the grant of Options under the
Plan.
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ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
4.1 Eligibility. Only Non-Employee Directors shall be eligible for the
grant of Options under the Plan.
4.2 Initial Grants. Each Non-Employee Director who first becomes a member
of the Board after the date of the Company's initial public offering shall
receive a one-time grant of an Option to purchase 25,000 shares of Common Stock
(subject to adjustment under Article 6). Such Option shall be granted on the
date when such Non-Employee Director first joins the Board and shall become
exercisable in full on the date of grant. A Non-Employee Director who
previously was an Employee shall not receive a grant under this Section 4.2.
4.3 Annual Grants. Upon the conclusion of each regular annual meeting of
the Company's stockholders held in the year 2000 or thereafter, each Non-
Employee Director who will continue serving as a member of the Board thereafter
shall receive an Option to purchase 10,000 shares of Common Stock (subject to
adjustment under Article 6), except that such Option shall not be granted in the
calendar year in which the same Non-Employee Director received the Option
described in Section 4.2. Options granted under this Section 4.3 shall become
exercisable in full on the date of grant. A Non-Employee Director who
previously was an Employee shall be eligible to receive grants under this
Section 4.3.
4.4 Exercise Price. The Exercise Price under all Options granted to a
Non-Employee Director under this Article 4 shall be equal to 100% of the Fair
Market Value of a Common Share on the date of grant, payable in one of the forms
described in Article 5.
4.5 Term. All Options granted to a Non-Employee Director under this
Article 4 shall terminate on the earliest of (a) the 10th anniversary of the
date of grant, (b) the date 12 months after the termination of such Non-Employee
Director's service for any reason other than death, or (c) the date 12 months
after the termination of such Non-Employee Director's service because of death.
4.6 Affiliates of Non-Employee Directors. The Committee may provide that
the Options that otherwise would be granted to a Non-Employee Director under
this Article 4 shall instead be granted to an affiliate of such Non-Employee
Director. Such affiliate shall then be deemed to be a Non-Employee Director for
purposes of the Plan, provided that the service-related vesting and termination
provisions pertaining to the Options shall be applied with regard to the service
of the Non-Employee Director.
4.7 Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan.
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ARTICLE 5. PAYMENT FOR OPTION SHARES.
5.1 Cash. All or any part of the Exercise Price may be paid in cash or
cash equivalents.
5.2 Surrender of Stock. All or any part of the Exercise Price may be paid
by surrendering, or attesting to the ownership of, shares of Common Stock that
are already owned by the Optionee. Such shares of Common Stock shall be valued
at their Fair Market Value on the date when the new shares of Common Stock are
purchased under the Plan. The Optionee shall not surrender, or attest to the
ownership of, shares of Common Stock in payment of the Exercise Price if such
action would cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
5.3 Exercise/Sale. All or any part of the Exercise Price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Company) an irrevocable direction to a securities broker approved by the Company
to sell all or part of the shares of Common Stock being purchased under the Plan
and to deliver all or part of the sales proceeds to the Company.
5.4 Other Forms of Payment. At the sole discretion of the Committee, all
or any part of the Exercise Price and any withholding taxes may be paid in any
other form that is consistent with applicable laws, regulations and rules.
ARTICLE 6. PROTECTION AGAINST DILUTION.
6.1 Adjustments. In the event of a subdivision of the outstanding shares
of Common Stock, a declaration of a dividend payable in shares of Common Stock,
a declaration of a dividend payable in a form other than shares of Common Stock
in an amount that has a material effect on the price of shares of Common Stock,
a combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a lesser number of shares of Common Stock, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or more
of (a) the number of shares of Common Stock available for future grants under
Article 3, (b) the number of Options to be granted to Non-Employee Directors
under Article 4, (c) the number of shares of Common Stock covered by each
outstanding Option or (d) the Exercise Price under each outstanding Option.
Except as provided in this Article 6, an Optionee shall have no rights by reason
of any issue by the Company of stock of any class or securities convertible into
stock of any class, any subdivision or consolidation of shares of stock of any
class, the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class.
6.2 Dissolution or Liquidation. To the extent not previously exercised,
Options shall terminate immediately prior to the dissolution or liquidation of
the Company.
6.3 Reorganizations. In the event that the Company is a party to a merger
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Options by the Company, if the Company is a
surviving corporation, (b) the assumption of the outstanding Options by the
surviving corporation or its parent or subsidiary, (c) the substitution
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by the surviving corporation or its parent or subsidiary of its own options for
the outstanding Options, (d) full exercisability and accelerated expiration of
the outstanding Options or (e) settlement of the full value of the outstanding
Options in cash or cash equivalents followed by cancellation of such Options.
ARTICLE 7. LIMITATION ON RIGHTS.
7.1 Stockholders' Rights. A Optionee shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any shares of
Common Stock covered by his or her Option prior to the time when he or she
becomes entitled to receive such shares of Common Stock by filing a notice of
exercise and paying the Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.
7.2 Regulatory Requirements. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue shares of Common Stock
under the Plan shall be subject to all applicable laws, rules and regulations
and such approval by any regulatory body as may be required. The Company
reserves the right to restrict, in whole or in part, the delivery of shares of
Common Stock pursuant to any Option prior to the satisfaction of all legal
requirements relating to the issuance of such shares of Common Stock, to their
registration, qualification or listing or to an exemption from registration,
qualification or listing.
7.3 Withholding Taxes. To the extent required by applicable federal,
state, local or foreign law, an Optionee or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not
be required to issue any shares of Common Stock or make any cash payment under
the Plan until such obligations are satisfied.
ARTICLE 8. FUTURE OF THE PLAN.
8.1 Term of the Plan. The Plan, as set forth herein, shall become
effective on the effective date of the IPO. The Plan shall remain in effect
until it is terminated under Section 8.2.
8.2 Amendment or Termination. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Options shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
ARTICLE 9. DEFINITIONS.
9.1 "Board" means the Company's Board of Directors, as constituted from
time to time.
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9.2 "Change in Control" means:
(a) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if
persons who were not stockholders of the Company immediately prior to such
merger, consolidation or other reorganization own immediately after such
merger, consolidation or other reorganization 50% or more of the voting
power of the outstanding securities of each of (i) the continuing or
surviving entity and (ii) any direct or indirect parent corporation of such
continuing or surviving entity;
(b) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a result of
which fewer than two-thirds of the incumbent directors are directors who
either (i) had been directors of the Company on the date 24 months prior to
the date of the event that may constitute a Change in Control (the
"original directors") or (ii) were elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the
aggregate of the original directors who were still in office at the time of
the election or nomination and the directors whose election or nomination
was previously so approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at least
50% of the total voting power represented by the Company's then outstanding
voting securities. For purposes of this Subsection (d), the term "person"
shall have the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act but shall exclude (i) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or of a Parent or
Subsidiary and (ii) a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of the common stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
9.3 "Code" means the Internal Revenue Code of 1986, as amended.
9.4 "Committee" means a committee of the Board, as described in Article 2.
9.5 "Common Share" means one share of the common stock of the Company.
9.6 "Company" means PlanetRX.com, Inc., a Delaware corporation.
9.7 "Employee" means a common-law employee of the Company, a Parent or a
Subsidiary.
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9.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
9.9 "Exercise Price" means the amount for which one Common Share may be
purchased upon exercise of such Option, as specified in the applicable Stock
Option Agreement.
9.10 "Fair Market Value" means the market price of shares of Common Stock,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal. Such determination
-----------------------
shall be conclusive and binding on all persons.
9.11 "IPO" means the initial offering of Common Stock to the public
pursuant to a registration statement filed by the Corporation with the
Securities and Exchange Commission
9.12 "Non-Employee Director" means a member of the Board who is not an
Employee.
9.13 "Option" means an option granted under the Plan and entitling the
holder to purchase shares of Common Stock. Options do not qualify as incentive
stock options described in section 422(b) of the Code.
9.14 "Optionee" means an individual or estate who holds an Option.
9.15 "Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if each of the corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain. A
corporation that attains the status of a Parent on a date after the adoption of
the Plan shall be considered a Parent commencing as of such date.
9.16 "Plan" means this PlanetRX.com, Inc. 1999 Director Stock Option Plan,
as amended from time to time.
9.17 "Stock Option Agreement" means the agreement between the Company and
an Optionee that contains the terms, conditions and restrictions pertaining to
his or her Option.
9.18 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
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EXHIBIT 10.5
Employment Agreement
THIS AGREEMENT is entered into as of November 11, 1998, by and between
William J. RAZZOUK (the "Employee") and PLANETRX, INC., a Delaware corporation
(the "Company").
1. Duties and Scope of Employment.
(a) Position. For the term of his employment under this Agreement
("Employment"), the Company agrees to employ the Employee in the position of
Chairman of the Company's Board of Directors and Chief Executive Officer. The
Employee shall report to the Company's Board of Directors (the "Board").
(b) Obligations to the Company. During the term of his Employment,
the Employee shall devote his full business efforts and time to the Company.
During the term of his Employment, without the prior written approval of the
Company's Board, the Employee shall not render services in any capacity to any
other person or entity and shall not act as a sole proprietor or partner of any
other person or entity or as a stockholder owning more than five percent of the
stock of any other corporation. The Employee shall comply with the Company's
policies and rules, as they may be in effect from time to time during the term
of his Employment.
(c) No Conflicting Obligations. The Employee represents and warrants
to the Company that he is under no obligations or commitments, whether
contractual or otherwise, that are inconsistent with his obligations under this
Agreement. The Employee represents and warrants that he will not use or
disclose, in connection with his Employment, any trade secrets or other
proprietary information or intellectual property in which the Employee or any
other person has any right, title or interest and that his Employment by the
Company as contemplated by this Agreement will not infringe or violate the
rights of any other person. The Employee represents and warrants to the Company
that he has returned all property and confidential information belonging to any
prior employer.
(d) Commencement Date. The Employee shall commence full-time
Employment as soon as reasonably practicable and in no event later than November
15, 1998.
2. Cash and Incentive Compensation.
(a) Salary. The Company shall pay the Employee as compensation for
his services a base salary at a gross annual rate of not less than $160,000.
Such salary shall be payable in accordance with the Company's standard payroll
procedures. (The annual compensation specified in this Subsection (a), together
with any increases in such compensation that the Company may grant from time to
time, is referred to in this Agreement as "Base Compensation.")
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(b) Incentive Bonuses. The Employee shall be eligible to receive a
guaranteed bonus ("Guaranteed Bonus") at a gross annual rate of $160,000 for
each of the first two years of Employment. The Guaranteed Bonus shall be payable
on a monthly basis. After the first two years of Employment, the Employee may be
considered for an annual incentive bonus. Such bonus (if any) shall be awarded
based on objective or subjective criteria established in advance by the
Company's Board. The determinations of the Board with respect to such bonus
shall be final and binding.
(c) Relocation. The Company shall reimburse the reasonable expenses
that the Employee incurs in moving himself, his family and his household from
the Memphis, Tennessee area to the Bay Area, including the commission and
closing costs related to the sale of the Employee's home, cost of transporting
all household items and travel expenses for the Employee and his family. In any
event, the Employee and his family and household must be relocated to the Bay
Area within one year following the Commencement Date set forth in Section 1(d).
The Company shall pay all expenses directly related to any traveling completed
by the Employee on behalf of the Company. To the extent that the Employee incurs
any taxes as a result of the Company's reimbursement of his relocation expenses,
a Tax Gross-Up shall be applied to such relocation expenses. A Tax Gross-Up
shall mean that the Company shall pay to the Employee such additional
compensation as is necessary (after taking into account all federal, state and
local income and payroll taxes payable by the Employee as a result of the
receipt of such additional compensation) to place the Employee in the same
after-tax position (including federal, state and local income and payroll taxes)
as the Employee would have been in had no such tax been paid or incurred.
(d) Stock and Stock Options. Subject to the approval of the Board,
the Company shall grant the Employee an option ("Option") to purchase 904,500
shares of the Company's Common Stock under the Company's 1998 Stock Plan (the
"Plan"). The exercise price of such Option shall be equal to the fair market
value of such stock on the later of (i) the date of grant or (ii) the first day
of the Employee's service with the Company. The term of this Option shall be 10
years, subject to earlier expiration in the event of the termination of the
Employee's Employment. Such Option shall be immediately exercisable, but the
purchased shares shall be subject to repurchase by the Company at the exercise
price in the event that the Employee's Employment terminates before he vests in
the shares. The Employee shall vest in 301,500 of the Option shares on the
vesting commencement date of the Option and the remaining 603,000 of the Option
shares shall vest in equal monthly installments upon the completion of each
continuous month of service for the Company over a 48-month period from the
vesting commencement date of the Option. It is anticipated that there will be an
exemption from registration available under the federal securities laws for the
Option shares. If an exemption is not available, the Company shall register the
Option shares, including any exercised shares, on a Form S-8 registration
statement to the extent that it is permissible under federal securities laws.
These same Form S-8 registration statement rights shall be available to any
future options granted to the Employee to the extent that it is permissible
under federal securities laws. Please see Section 5, Change in Control, and
Section 7, Termination Benefits, for additional terms related to the Option. The
grant of this Option shall otherwise be subject to the other terms and
conditions set forth in the Plan and in the Company's standard form of stock
option agreement. Any shares of the Company's Common Stock purchased by the
Employee, pursuant to the
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exercise of options or otherwise, shall be treated in the same manner as any
other shares of the Company's Common Stock issued by the Company.
3. Vacation and Employee Benefits. During the term of his Employment,
the Employee shall be eligible for paid vacations in accordance with the
Company's standard policy for similarly situated employees, as it may be amended
from time to time. During the term of his Employment, the Employee shall be
eligible to participate in any employee benefit plans maintained by the Company
for similarly situated employees, subject in each case to the generally
applicable terms and conditions of the plan in question and to the
determinations of any person or committee administering such plan.
4. Business Expenses. During the term of his Employment, the Employee
shall be authorized to incur necessary and reasonable travel, entertainment and
other business expenses in connection with his duties hereunder. The Company
shall reimburse the Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in accordance with the
Company's generally applicable policies.
5. Change in Control.
(a) Subject to Section 5(c), in the event of a Change in Control (as
defined in the Plan) that occurs before the Employee's Employment terminates,
all options granted to the Employee, including the Option and any shares
obtained from the exercise of granted options, shall become fully vested.
(b) Subject to Section 5(c), in the event of a Change in Control (as
defined in the Plan) that occurs before the Employee's Employment terminates,
the Employee shall receive an amount equal to (i) the Employee's Base Salary for
a one-year period and (ii) a bonus equal to the Employee's most recently paid
bonus (collectively, "Change in Control Payment"), which Change in Control
Payment shall be payable in the Employee's discretion in a lump sum payment or
in twelve equal monthly installments.
(c) In the event that the Employee is retained by the successor
corporation in the Change in Control (as defined in the Plan), in substantially
the same position, with substantially the same job responsibilities, title,
compensation package, option package and location, as determined by the Board,
then the Employee hereby agrees to serve for a one-year period with the
successor corporation following the Change in Control (as defined in the Plan)
and the Change in Control Payment set forth in Section 5(b) above shall not be
paid during such employment with the successor corporation and the vesting
acceleration described in Section 5(a) will not occur. However, if the
Employee's employment with the successor corporation is not consistent with the
previous sentence or terminates for any reason before the completion of the one-
year period with the successor corporation, then the Company shall pay the
Employee an amount equal to the Change in Control Payment less any salary and
bonus amounts already paid during the period he was employed by the successor
corporation and the vesting acceleration described in Section 5(a) will occur.
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6. Term of Employment.
(a) Basic Rule. The Company agrees to continue the Employee's
Employment, and the Employee agrees to remain in Employment with the Company,
from the commencement date set forth in Section 1(d) until the date when the
Employee's Employment terminates pursuant to Subsection (b) or (c) below. The
Employee's Employment with the Company shall be "at will." Any contrary
representations which may have been made to the Employee shall be superseded by
this Agreement. This Agreement shall constitute the full and complete agreement
between the Employee and the Company on the "at will" nature of the Employee's
Employment, which may only be changed in an express written agreement signed by
the Employee and a duly authorized officer of the Company.
(b) Termination. The Company may terminate the Employee's Employment
at any time and for any reason (or no reason), and with or without Cause, by
giving the Employee notice in writing. The Employee may terminate his Employment
by giving the Company 14 days' advance notice in writing. The Employee's
Employment shall terminate automatically in the event of his death.
(c) Permanent Disability. The Company may terminate the Employee's
active Employment due to Permanent Disability by giving the Employee 30 days'
advance notice in writing. For all purposes under this Agreement, "Permanent
Disability" shall mean that the Employee, at the time notice is given, has
failed to perform his duties under this Agreement for a period of not less than
90 consecutive days as the result of his incapacity due to physical or mental
injury, disability or illness. In the event that the Employee satisfactorily
resumes the performance of substantially all of his duties hereunder before the
termination of his active Employment under this Subsection (c) becomes
effective, the notice of termination shall automatically be deemed to have been
revoked.
(d) Rights Upon Termination. Except as expressly provided in
Sections 5 and 7, upon the termination of the Employee's Employment pursuant to
this Section 6, the Employee shall only be entitled to the compensation,
benefits and reimbursements described in Sections 2, 3 and 4 for the period
preceding the effective date of the termination. The payments under this
Agreement shall fully discharge all responsibilities of the Company to the
Employee.
(e) Termination of Agreement. This Agreement shall terminate when
all obligations of the parties hereunder have been satisfied. The termination of
this Agreement shall not limit or otherwise affect any of the Employee's
obligations under Section 8.
7. Termination Benefits.
(a) General Release. Any other provision of this Agreement
notwithstanding, Subsection (b) below shall not apply unless the Employee (i)
has executed a general release (in a form prescribed by the Company) of all
known and unknown claims that he may then have against the Company or persons
affiliated with the Company and (ii) has agreed not to prosecute any legal
action or other proceeding based upon any of such claims.
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(b) Stock and Stock Options. If, during the term of this Agreement,
the Company terminates the Employee's Employment for any reason other than
Cause, then the vesting of outstanding options granted to the Employee by the
Company, including the Option and any shares of Company securities acquired
pursuant to the exercise of options, shall accelerate such that an additional
25% of such unvested, outstanding options and shares acquired pursuant to the
exercise of options, shall become vested.
(c) Definition of "Cause." For all purposes under this Agreement,
"Cause" shall mean:
(i) Unauthorized use or disclosure of the confidential
information or trade secrets of the Company;
(ii) Any breach of this Agreement, the Proprietary
Information and Inventions Agreement between the Employee and the Company,
or any other agreement between the Employee and the Company;
(iii) Conviction of, or a plea of "guilty" or "no contest" to,
a felony under the laws of the United States or any state thereof;
(iv) Threats or acts of violence directed at any present,
former or prospective employee, independent contractor, vendor, customer or
business partner of the Company;
(v) The sale, possession or use of illegal drugs on the
premises of the Company or a client of the Company;
(vi) Misappropriation of the assets of the Company or other
acts of dishonesty;
(vii) Illegal or unethical business practices;
(viii) Misconduct or gross negligence in the performance of
duties assigned to the Employee under this Agreement;
(ix) Failure to perform reasonable duties assigned to the
Employee under this Agreement; or
(x) Failure to comply with the Company's policies or rules,
as they may be in effect from time to time during the term of the
Employee's Employment.
The foregoing shall not be deemed an exclusive list of all acts or omissions
that the Company may consider as grounds for the termination of the Employee's
Employment.
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8. Non-Solicitation and Non-Disclosure.
(a) Non-Solicitation. During the period commencing on the date of
this Agreement and continuing until the second anniversary of the date when the
Employee's Employment terminated for any reason, the Employee shall not directly
or indirectly, personally or through others, solicit or attempt to solicit (on
the Employee's own behalf or on behalf of any other person or entity) the
employment of any employee of the Company or any of the Company's affiliates.
(b) Non-Disclosure. The Employee has entered into a Proprietary
Information and Inventions Agreement with the Company, which is incorporated
herein by reference.
9. Successors.
(a) Company's Successors. This Agreement shall be binding upon any
successor (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. Miscellaneous Provisions.
(a) Notice. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered mail, return receipt
requested and postage prepaid. In the case of the Employee, mailed notices shall
be addressed to him at the home address which he most recently communicated to
the Company in writing. In the case of the Company, mailed notices shall be
addressed to its corporate headquarters, and all notices shall be directed to
the attention of its Secretary.
(b) Modifications and Waivers. No provision of this Agreement shall
be modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by the Employee and by an authorized officer
of the Company (other than the Employee). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
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(c) Whole Agreement. No other agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the
Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof.
(d) Withholding Taxes. All payments made under this Agreement shall
be subject to reduction to reflect taxes or other charges required to be
withheld by law.
(e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California (except their provisions governing the choice of law).
(f) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(g) Arbitration. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof, or the Employee's Employment or the
termination thereof, shall be settled in Oakland, California, by arbitration in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association. The decision of the arbitrator shall be
final and binding on the parties, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The parties
hereby agree that the arbitrator shall be empowered to enter an equitable decree
mandating specific enforcement of the terms of this Agreement. The Company and
the Employee shall share equally all fees and expenses of the arbitrator;
provided, however, that the Company or the Employee, as the case may be, shall
bear all fees and expenses of the arbitrator and all of the legal fees and out-
of-pocket expenses of the other party if the arbitrator determines that the
claim or position of the Company or the Employee, as the case may be, was
without reasonable foundation. The Employee hereby consents to personal
jurisdiction of the state and federal courts located in the State of California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.
(h) No Assignment. This Agreement and all rights and obligations of
the Employee hereunder are personal to the Employee and may not be transferred
or assigned by the Employee at any time. The Company may assign its rights under
this Agreement to any entity that assumes the Company's obligations hereunder in
connection with any sale or transfer of all or a substantial portion of the
Company's assets to such entity.
7
<PAGE>
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
---------------------------------
William J. Razzouk
PLANETRX, INC.
By
-------------------------------
Title:
---------------------------
8
<PAGE>
EXHIBIT 10.6
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SUCH ACT.
WARRANT TO PURCHASE SERIES A PREFFERED STOCK
of
PLANETRX, INC.
Void after October __, 2000
This Warrant is issued to _________________________, or its registered
assigns ("Holder") by PlanetRx, Inc., a Delaware corporation (the "Company"), on
October __, 1998 (the "Warrant Issue Date").
1. Purchase Shares. Subject to the terms and conditions hereinafter
set forth, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company up to fifty
thousand (50,000) fully paid and nonassessable shares of Series A Preferred
Stock of the Company, as constituted on the Warrant Issue Date (the "Preferred
Stock"). The number of shares of Preferred Stock issuable pursuant to this
Section 1 (the "Shares") shall be subject to adjustment pursuant to Section 8
hereof.
2. Exercise Price. The purchase price for the Shares shall be $1.00,
as adjusted from time to time pursuant to Section 8 hereof (the "Exercise
Price").
3. Exercise Period. This Warrant shall be exercisable, in whole or in
part, during the term commencing on the Warrant Issue Date and ending at 5:00
p.m. on October __, 2000; provided, however, that in the event of (a) the
closing of the issuance and sale of shares of Common Stock of the Company in the
Company's first underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "IPO"),
(b) the closing of the Company's sale or transfer of all or substantially all of
its assets, or (c) the closing of the acquisition of the Company by another
entity by means of merger, consolidation or other transaction or series of
related transactions, resulting in the exchange of the outstanding shares of the
Company's capital stock such that the stockholders of the Company prior to such
transaction own, directly or indirectly, less than 50% of the voting power of
the surviving entity, this Warrant shall, on the date of such event, no longer
be exercisable and become null and void. In the event of a proposed transaction
of the kind described above, the Company shall notify the
<PAGE>
holder of the Warrant at least fifteen (15) days prior to the consummation of
such event or transaction.
4. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of the Warrant, together with a duly executed
copy of the form of Notice of Election attached hereto, to the Secretary of the
Company at its principal offices; and
(b) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased.
5. Net Exercise. In lieu of exercising this Warrant pursuant to
Section 4, the Holder may elect to receive, without the payment by the Holder of
any additional consideration, shares of Preferred Stock equal to the value of
this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with notice of such
election, in which event the Company shall issue to the holder hereof a number
of shares of Preferred Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Preferred Stock to be issued to the
Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share of the Preferred Stock at
the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of Preferred
Stock (or, to the extent all such Preferred Stock has been converted into the
Company's Common Stock) as of a particular date shall be determined as follows:
(i) if traded on a securities exchange or through the Nasdaq National Market,
the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the thirty (30) day period ending three (3)
days prior to the net exercise election; (ii) if traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the net exercise; and (iii) if there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Board of Directors of the Company; provided, that, if the Warrant is being
exercised upon the closing of the IPO, the value will be the initial "Price to
Public" of one share of such Preferred Stock (or Common Stock
2
<PAGE>
issuable upon conversion of such Preferred Stock) specified in the final
prospectus with respect to such offering.
6. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter (with appropriate
restrictive legends, if applicable), and in any event within thirty (30) days of
the delivery of the subscription notice.
7. Issuance of Shares. The Company covenants that the Shares, when
issued pursuant to the exercise of this Warrant, will be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens, and charges
with respect to the issuance thereof.
8. Adjustment of Exercise Price and Number of Shares. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
Company shall at any time prior to the expiration of this Warrant subdivide its
Preferred Stock, by split-up or otherwise, or combine its Preferred Stock, or
issue additional shares of its Preferred Stock or Common Stock as a dividend
with respect to any shares of its Preferred Stock, the number of Shares issuable
on the exercise of this Warrant shall forthwith be proportionately increased in
the case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination. Appropriate adjustments shall also be made to the
purchase price payable per share, but the aggregate purchase price payable for
the total number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 8(a) shall become effective
at the close of business on the date the subdivision or combination becomes
effective, or as of the record date of such dividend, or in the event that no
record date is fixed, upon the making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case
of any reclassification, capital reorganization, or change in the Preferred
Stock of the Company (other than as a result of a subdivision, combination, or
stock dividend provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of Preferred Stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the purchase price per
share payable hereunder, provided the aggregate purchase price shall remain the
same.
3
<PAGE>
(c) Notice of Adjustment. When any adjustment is required to be
made in the number or kind of shares purchasable upon exercise of the Warrant,
or in the Warrant Price, the Company shall promptly notify the holder of such
event and of the number of shares of Preferred Stock or other securities or
property thereafter purchasable upon exercise of this Warrant.
9. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
10. No Stockholder Rights. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights of a stockholder with respect to the
Shares, including (without limitation) the right to vote such Shares, receive
dividends or other distributions thereon, exercise preemptive rights or be
notified of stockholder meetings, and such holder shall not be entitled to any
notice or other communication concerning the business or affairs of the Company.
However, nothing in this Section 10 shall limit the right of the Holder to be
provided the Notices required under this Warrant.
11. Transfers of Warrant. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable in whole or in part by the Holder to any person or entity upon
written notice to the Company. The transfer shall be recorded on the books of
the Company upon the surrender of this Warrant, properly endorsed, to the
Company at its principal offices, and the payment to the Company of all transfer
taxes and other governmental charges imposed on such transfer. In the event of a
partial transfer, the Company shall issue to the holders one or more appropriate
new warrants.
12. Successors and Assigns. The terms and provisions of this Warrant
and the Purchase Agreement shall inure to the benefit of, and be binding upon,
the Company and the Holders hereof and their respective successors and assigns.
13. Amendments and Waivers. Any term of this Warrant may be amended
and the observance of any term of this Warrant may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the Holder.
14. Notices. All notices required under this Warrant and shall be
deemed to have been given or made for all purposes (i) upon personal delivery,
(ii) upon confirmation receipt that the communication was successfully sent to
the applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
4
<PAGE>
15. Attorneys' Fees. If any action of law or equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to its reasonable attorneys' fees, costs and disbursements in addition
to any other relief to which it may be entitled.
16. Captions. The section and subsection headings of this Warrant are
inserted for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
17. Governing Law. This Warrant shall be governed by the laws of the
State of California as applied to agreements among California residents made and
to be performed entirely within the State of California.
IN WITNESS WHEREOF, ____________ caused this Warrant to be executed by
an officer thereunto duly authorized.
PLANETRX, INC.
By: ___________________________________________
Name: _________________________________________
Title: ________________________________________
5
<PAGE>
NOTICE OF EXERCISE
------------------
To: PlanetRx, Inc.
The undersigned hereby elects to [check applicable subsection]:
________ (a) Purchase _________________ shares of Series A Preferred Stock of
PlanetRx, Inc., pursuant to the terms of the attached Warrant and
payment of the Exercise Price per share required under such
Warrant accompanies this notice;
OR
________ (b) Exercise the attached Warrant for _______________ of the shares
purchasable under the Warrant pursuant to the net exercise
provisions of Section 5 of such Warrant.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
WARRANTHOLDER:
__________________________________________________
By:_______________________________________________
[NAME]
Address: __________________________________________________
__________________________________________________
Date:________________
Name in which shares should be registered:
__________________________________________
6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated June 18, 1999, except for Note 9, which is as of July 8, 1999,
relating to the financial statements of PlanetRx.com, Inc., which appear in such
Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Francisco, California
July 8, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS<F1>
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 935 62,688
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 18 1,612
<CURRENT-ASSETS> 2,817 76,353
<PP&E> 2,957 5,338
<DEPRECIATION> 148 845
<TOTAL-ASSETS> 5,707 85,236
<CURRENT-LIABILITIES> 2,236 4,641
<BONDS> 2 1,600
0 0
1 2
<COMMON> 0 1
<OTHER-SE> 7,185 96,319
<TOTAL-LIABILITY-AND-EQUITY> 5,707 85,236
<SALES> 0 622
<TOTAL-REVENUES> 0 817
<CGS> 0 694
<TOTAL-COSTS> 0 729
<OTHER-EXPENSES> 4,123 19,542
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2 1,046
<INCOME-PRETAX> (4,087) (20,101)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,087) (20,101)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,087) (20,101)
<EPS-BASIC> (9.12) (8.35)
<EPS-DILUTED> (9.12) (8.35)
<FN>
<F1>Unaudited
</FN>
</TABLE>
