<PAGE>
As filed with the Securities and Exchange Commission on September 3, 1999
Registration No. 333-82485
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PLANETRX.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<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>
--------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
--------------
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>
<CAPTION>
Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities to be Offering Price Aggregate Registration
Registered Per Share(1)(2) Offering Price(1)(2) Fee(3)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, ($0.001 par
value).................. $14.00 $241,573,556 $67,157
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes 900,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any, and 10,355,254 shares offered to Express
Scripts, Inc. in a concurrent offering.
(2) The number of shares being registered hereby is omitted pursuant to Rule
457(a) promulgated under the Securities Act. Estimated solely for the
purposes of determining the registration fee pursuant to Rule 457(a)
promulgated under the Securities Act.
(3) Of this amount, $19,182 has previously been paid.
--------------
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 or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 September 3, 1999.
[Company Logo]
6,000,000 Shares
PlanetRx.com, Inc.
Common Stock
------------
This is an initial public offering of shares of common stock of
PlanetRx.com, Inc. All of the 6,000,000 shares of common stock are being sold
by PlanetRx.com in an underwritten public offering. Concurrently with the sale
of the shares in the underwritten offering, PlanetRx.com is offering directly
to Express Scripts, Inc. 10,355,254 shares of common stock. The sale of shares
to Express Scripts, Inc. will be made at the initial public offering price in a
non-underwritten transaction.
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 $12.00 and $14.00. 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 900,000 shares from PlanetRx.com at the initial price to public less
the underwriting discount.
------------
The underwriters expect to deliver the shares against payment on ,
1999.
Goldman, Sachs & Co.
BancBoston Robertson Stephens
Hambrecht & Quist
William Blair & Company
------------
Prospectus dated , 1999.
<PAGE>
INSIDE FRONT COVER
The inside front cover includes:
Screen shot of the PlanetRx.com home page in the center of the inside front
cover, with the PlanetRx.com logo and the slogan "Health at Your Fingertips" in
the upper right corner of the inside front cover. In the upper left corner of
the inside front cover, there is a caption that reads:
"THE STORE
With over 27,000 products, PlanetRx.com offers one of the largest selections
of traditional and alternative healthcare-related products available on the
Internet."
On the left side of the page, there is a caption that reads:
"eCENTERS
eCenters are organized around specific chronic health conditions and
targeted demographic groups, such as women, seniors and children. eCenters
combine the content and products relevant to each group's needs."
On the left side of the inside front cover, there is a caption that reads:
"PERSONALIZED SHOPPING
Get e-mail reminders when it's time to fill your prescription or when your
favorite products go on sale. Easily reorder products from a convenient,
personal shopping list. Keep track of prescription purchases and store your
family's medical information, all in one convenient place."
On the right side of the inside front cover, there is a caption that reads:
"RESOURCES
Up-to-date, unbiased content in an easy-to-understand format so our
customers can make informed healthcare decisions. Information on over 100
disease categories. suggestions for alternative remedies, a drug interaction
tool, expert advice and more. And our pharmacists are available with answers to
your questions, 24 hours a day, seven days a week."
On the right side of the inside front cover, there is a caption that reads:
"COMMUNITY
A forum for sharing, including bulletin boards, chatrooms and moderated
discussion groups."
On the right side of the inside front cover, there is a caption that reads:
"PRESCRIPTIONS
PlanetRx.com is fully licensed to ship prescriptions to all U.S. states and
territories. Our pharmacy is staffed 24 hours a day, seven days a week. We are
able to ship each customer's prescription the same day it is filled."
On the bottom of the inside front cover, there is a caption that reads:
"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:
. Building our brand through advertising and promotion
. Building premier content and community websites
. Maintaining an independent distribution center and pharmacy
. Utilizing technology to improve the customer experience
. Expanding our product offerings
. Developing strategic relationships to further revenue opportunities"
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 23,804,148 shares of common stock upon closing of the offering;
. 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 a purchase option for 700,000 shares of our
series B preferred stock;
. 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;
. excludes 1,943,270 shares of common stock reserved for issuance in
connection with our assumption of yourPharmacy.com options at a weighted
average exercise price of $4.83 per share;
. the issuance of 10,355,254 shares of our common stock to Express Scripts,
Inc. in a concurrent offering; if the over-allotment option is not
exercised, Express Scripts will return to us, at no cost, that number of
shares as is necessary to reduce its ownership to 19.9% of our then
outstanding stock;
. a corporate reorganization in which we will become a wholly owned
subsidiary of a holding company; and
. no exercise of the underwriters' over-allotment option.
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. We acquired the e-commerce operations of
Express Scripts' yourPharmacy.com and became the online pharmacy for Express
Scripts, one of the three largest pharmacy benefit managers in the U.S. with
over 36 million covered lives. Under the terms of our agreement, Express
Scripts will actively promote us to its members, who have the ability to use
their insurance reimbursement plans to order prescriptions online at
PlanetRx.com for a minimal co-payment.
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 and Information Resources,
3
<PAGE>
Inc., we believe that the U.S. market for health and personal care products was
over $175 billion in 1999, of which prescription drugs comprised over $120
billion.
The PlanetRx.com Healthcare Destination
Our websites offer a convenient shopping experience, extensive product
selection, professionally-created content and online 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). Other key advantages of
our online store include:
. ability to fill and process both cash and non-cash prescriptions
(prescriptions directly reimbursable by insurance companies for members
of our affiliated pharmacy benefit managers);
. 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;
. online forums for consumer interaction; and
. personalized and confidential information (such as health answers,
medical records and e-mail reminders) for customers.
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.
The PlanetRx.com Strategy
Our strategy is to attract new customers, develop customer loyalty and
promote repeat purchases by:
. continuing to build our brand;
. 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, such as our pharmacy benefit manager
relationship with Express Scripts, to increase traffic to our store and
further e-commerce opportunities.
Limited Operating History
We were incorporated in Delaware on March 31, 1995 and only began
substantial operations in September 1998. We incurred net losses of $7,000 for
the year ended 1996, $137,000 for the year ended 1997, $4.1 million for the
year ended 1998 and $20.1 million for the six-month period ended June 30, 1999.
Corporate Information; Reorganization
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.
Immediately prior to the closing of this offering, we will effect a
corporate reorganization under which the current PlanetRx.com, Inc. will become
a wholly owned subsidiary of a newly-formed holding company. Our current
stockholders will become stockholders of the holding company with the exact
same rights and obligations they had prior to the reorganization. Upon
completion of the reorganization, the holding company's corporate name will be
changed to "PlanetRx.com, Inc." and the current PlanetRx.com, Inc. will become
"PlanetRx.com Operating Co., Inc."
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Shares offered.................................. 6,000,000 shares
Shares offered to Express Scripts............... 10,355,254 shares
Shares to be outstanding after the offering..... 50,848,802 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(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>
5
<PAGE>
<TABLE>
<CAPTION>
June 30, 1999
------------------
As
Actual Adjusted(2)
------- ----------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................................. $62,688 $145,158
Working capital............................................ 71,712 148,113
Total assets............................................... 85,236 327,896
Borrowings and capital lease obligations, long-term........ 1,600 1,600
Total stockholders' equity................................. 78,995 315,555
</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.
(2) "As adjusted" reflects the application of the net proceeds from the sale of
6,000,000 shares of common stock offered by us at an assumed initial public
offering price of $13.00 per share, after deducting the underwriting
discount and estimated offering expenses and excludes the exercise of the
underwriters' over-allotment option and reflects the issuance of 10,355,254
shares of common stock to Express Scripts in connection with our purchase
of certain assets and certain liabilities of yourPharmacy.com effective
upon the completion of this offering, under a contribution agreement. 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, the purchase option
for 700,000 shares of our series B preferred stock and the issuance in
September 1999 of 371,103 shares of series D 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. If any of the following risks actually occur,
our business, financial condition or operating results could be materially
adversely affected and the trading price of our common stock could decline, and
could cause you to 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. We incurred net losses of $7,000 for the year ended 1996,
$137,000 for the year ended 1997, $4.1 million for the year ended 1998 and
$20.1 million for the six-month period ended June 30, 1999. 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.
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.
If we fail to establish the PlanetRx.com brand or attract repeat customers, we
may not be able to increase our revenues
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.
We may be unable to significantly expand our customer base because of limited
insurance reimbursement coverage for prescription drugs that we sell
We currently have limited access to insurance reimbursement coverage for
our prescription products. The majority of purchases in the prescription drug
market are paid for by third-party payors. Additionally, the inclusion of
prescription drugs in Medicare coverage, as is being considered in legislation
before the U.S. Congress, could harm our business. If Medicare is expanded to
provide government reimbursement for any prescription drugs that we sell, and
we are not allowed to participate as a provider under Medicare, we could lose
these sales. 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.
Our relationship with Express Scripts, Inc. is complex, involves many risks and
requires significant cash payments for which we may receive no benefit
In August 1999, we entered into a series of agreements with Express
Scripts, Inc. and its wholly owned subsidiary, yourPharmacy.com. These
agreements involve many aspects of our business, including the sale of equity
securities, the operation of our respective websites, significant cash payments
to Express Scripts, and the inclusion of us as an authorized pharmacy in the
Express Scripts network. These arrangements are complex and will require
significant efforts to operate successfully. As a result, there are many risks
related to these arrangements, including some that we may not have foreseen.
In particular, we have committed to pay Express Scripts a minimum of
$14,650,000 annually for five years, with a potential five-year extension, plus
an incremental fee based on Express Scripts members' activity on our website.
Express Scripts has committed to actively promote us as Express Scripts' online
pharmacy; however, we do not control the choice of ads and the advertising may
not result in additional customers. If we are not successful in converting a
significant number of Express Scripts members into customers, we may not
receive any benefit from our cash payments to Express Scripts and our revenues
will be harmed.
Additionally, while our relationship with Express Scripts significantly
broadens our
9
<PAGE>
ability to provide prescription medication to consumers with insurance
reimbursement plans, it may not allow all of our potential customers to
purchase these medications from us and receive insurance reimbursement. Also,
as part of the relationship, we agreed to certain exclusivity provisions that
preclude us from operating as a pharmacy benefit manager.
Due to Express Scripts' 19.9% ownership of our common stock post-offering,
it will be able to influence all matters requiring approval by our
stockholders, including the approval of mergers or other business combinations.
For more information about our relationship with Express Scripts, see
"Business -- Relationship with Express Scripts" and "Management -- Principal
Stockholders".
If we are not able to obtain additional contracts with insurance companies and
pharmacy benefit managers or retain existing contracts, our customers may not
be able to obtain reimbursement for purchases of prescription products
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 pharmacy benefit managers. Although we
currently have contracts with a limited number of insurance companies and
pharmacy benefit managers, 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 pharmacy benefit
managers, which represent a significant portion of the reimbursed payments for
prescription drugs.
Our ability to obtain additional contracts with other insurance companies
and pharmacy benefit managers, 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 pharmacy benefit managers that have
announced their intentions to establish online pharmacies.
In addition, it is likely that some insurance companies and pharmacy
benefit managers 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.
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
. pharmacy benefit managers that sell prescription drugs directly.
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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 pharmacy benefit manager. Our competitors may continue to gain
access to major pharmacy benefit managers, major HMOs or chain drugstores. The
combined resources of these partnerships could pose a significant competitive
challenge to PlanetRx.com and could prevent these pharmacy benefit managers,
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.
Our gross margins may be affected by downward price pressure on pharmaceutical
drugs
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. Our
failure to realize adequate profit margins on prescription drugs 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
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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 we fail to provide updated healthcare content and other features that
consumers demand, we will not be able to attract or retain customers
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.
If a regulatory body alleges that we have engaged in the practice of medicine,
we may be subject to significant liabilities and our operations may be
disrupted
The practice of medicine requires licensing under applicable state law. It
is not our intent to practice medicine and we have structured 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. An allegation that we practice medicine could
result in significant liabilities. 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.
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 these 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
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through our Ask the Pharmacist service on our websites may subject us to
liability to the extent that it contains any inaccuracies.
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, this 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.
We may be unable to accommodate increased consumer traffic on our website,
which would limit our ability to increase sales
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.
We may suffer systems failures on our websites which could result in negative
publicity and reduce the volume of products sold
From time to time, we have experienced temporary system interruptions in
connection with dramatically increased traffic on our website in response to
promotional activities. Although these interruptions have not significantly
harmed our operations, 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.
In addition, because we outsource some 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 many of the elements of our transaction processing.
Our growth and changing operations have placed a significant burden on our
management system and resources
We have expanded our operations rapidly since our inception and the launch
of our
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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.
If we are unable to attract and train adequate numbers of customer service
personnel, we may not be able to provide sufficient customer service
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 may be unable to expand the breadth and depth of our product offerings in a
cost-effective and timely manner
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 be able to offer every product 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
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our operations after that time, in which case, we may 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.
If our online security measures fail, we could incur significant liabilities
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.
This would be costly, divert the attention of our management and cause
significant harm to our reputation.
If we experience significant credit card fraud, we will incur increased costs.
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.
If one or more of our pharmacy licenses is not renewed, our operations would
be disrupted.
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 imposes many
restrictions on 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. Many of these regulations are new and subject to varying
interpretations, which makes the task of assuring compliance difficult.
Noncompliance with one or more of these regulations could result in
substantial fines and other monetary penalties, exclusion from participation
in some networks, and/or criminal sanctions which could adversely affect our
business. See "Business --Government Regulation" for examples of the laws and
regulations most likely to affect our business.
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.
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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
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 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 may not be able to acquire new domain names or maintain our existing ones
Our strategy is dependent, in part, on our ability to use our satellite
websites and domain names to increase revenues. We believe that operating
satellite websites with names like
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"diabetes.com" that consumers can easily locate and that provide useful
information will attract consumers to these websites and, by having links to
the PlanetRx.com website, will increase traffic and revenue opportunities. 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, which could result in the creation of domain names similar to ours. 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.
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, including 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 infringement claim, whether
meritorious or not, could be time-consuming, result in costly litigation or
require us to enter into royalty or licensing agreements. These 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 these costs and negatively impact results of
operations in future periods.
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Year 2000 issues could affect our business
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates.
As a result, many companies' software and computer systems may need to be
upgraded or replaced to comply with these year 2000 requirements. Our business
is dependent on the operation of numerous systems that could potentially be
impacted by year 2000 related problems. If our suppliers' systems, or third-
party software that we rely on, are not year 2000 compliant, or if our efforts
to make our systems year 2000 compliant are not successful, then our critical
systems will fail and our business will be harmed. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Year 2000".
We are controlled by officers, directors and entities affiliated with them
Based upon shares outstanding as of September 3, 1999, executive officers,
directors and entities affiliated with them will, in the aggregate,
beneficially own approximately 34.2% of our 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.
Antitakeover provisions applicable to us 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 Regulation of Internet Commerce
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. These proposals, if adopted, could substantially impair the
growth of e-commerce, and could adversely affect our ability to derive
financial benefit from our commercial activities. Additionally, the imposition
of these taxes would force online retailers to manage a more complex
transaction processing system.
Government regulation of the Internet and data transmission over the Internet
could affect our operations
Our customers regularly provide us with confidential information, such as
personal health information and credit card numbers. 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
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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. These 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 September 3, 1999, upon
completion of this offering, we will have outstanding 51,036,453 shares of
common stock, assuming no exercise of the underwriters' over-allotment option.
Other than the shares of common stock sold in this offering, 19,500 shares will
be eligible for sale in the public market immediately. Substantially all of our
stockholders, including Express Scripts, 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 33,433,701 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 that these 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".
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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 $13.00 per share are estimated to
be $71,340,000, after deducting the underwriting discount and estimated
offering expenses payable by us, ($82,221,000 if the underwriters' over-
allotment option is exercised in full). We have no specific plan for the net
proceeds of this offering, however, we may use these proceeds 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.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
. on an actual basis,
. 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, the issuance in September 1999 and conversion of all shares of
Series D preferred stock into 371,103 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
. on an as adjusted basis as to give effect to the issuance of 10,355,254
shares of common stock to Express Scripts in connection with our
purchase of certain assets and certain liabilities of yourPharmacy.com
which will be effective upon the closing of this offering, under the
contribution agreement and the receipt and application of the net
proceeds from the sale by us of 6,000,000 shares of common stock at an
assumed initial public offering price of $13.00 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 $ 1,600
-------- -------- --------
Stockholders' equity:
Preferred stock: $0.0001 par value, 28,000,000
shares authorized, 23,135,364 shares issued
and outstanding, actual; 28,000,000 shares
authorized, none issued and outstanding, pro
forma, 5,000,000 shares authorized, none
issued and outstanding as adjusted........... 2 -- --
Common stock: $0.0001 par value, 42,000,000
shares authorized, 9,840,250 shares issued
and outstanding actual; 42,000,000 shares
authorized, 34,493,548 shares issued and
outstanding, pro forma(1); 100,000,000 shares
authorized, 50,848,802 shares issued and
outstanding as adjusted(1)................... 1 3 4
Additional paid-in capital..................... 121,682 132,812 358,241
Notes receivable from stockholders............. (35) (35) (35)
Deferred stock-based compensation.............. (17,292) (17,292) (17,292)
Accumulated deficit............................ (25,363) (25,363) (25,363)
-------- -------- --------
Total stockholders' equity.................... 78,995 90,125 315,555
-------- -------- --------
Total capitalization.......................... $ 80,595 $ 91,725 $317,155
======== ======== ========
</TABLE>
- --------
(1) Excludes 1,882,750 shares reserved for issuance under our 1998 stock
option plan, of which 1,326,050 shares were subject to outstanding options
as of June 30, 1999 at a weighted average exercise price of $1.46 per
share. Excludes options to purchase 1,943,270 shares of our common stock to
be granted to employees of yourPharmacy.com effective on the closing of
this offering at a weighted average exercise price of $4.83 per share.
Reflects the filing of an amended and restated certificate of incorporation
to provide for authorized capital stock of 100,000,000 shares of common
shares and 5,000,000 shares of undesignated preferred stock effective upon
the closing of the offering. See "Management -- Stock Plans", "Certain
Transactions" and Note 7 of Notes to Financial Statements.
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$85,903,000 or $2.49 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, the issuance in September 1999 and
conversion of all shares of Series D preferred stock into 371,103 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. Pro forma data also excludes options to
purchase 1,943,270 shares of our common stock to be granted to employees of
yourPharmacy.com effective on the closing date of this offering at a weighted
average exercise price of $4.83 per share. See "Management -- Stock Plans",
"Certain Transactions," Notes 1 and 7 of Notes to Financial Statements and
"Unaudited Pro Forma Consolidated Financial Data--Overview." "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 issuance of 10,355,254 shares of common stock to Express
Scripts in connection with our purchase of certain assets and certain
liabilities of yourPharmacy.com which will be effective upon the closing of
this offering, under the contribution agreement and the sale of the
6,000,000 shares of common stock offered by us at an assumed initial public
offering price of $13.00 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 $151,941,000 or
approximately $2.99 per share of common stock. This represents an immediate
increase in net tangible book value of $0.50 per share to existing stockholders
and an immediate dilution of $10.01 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.................... $13.00
Pro forma net tangible book value per share before the offering.. $2.49
Increase per share attributable to new investors................. 0.50
-----
Pro forma net tangible book value per share after the offering..... 2.99
------
Dilution per share to new investors................................ $10.01
======
</TABLE>
The following table sets forth, as of June 30, 1999, the differences
between the number of shares of common stock purchased from PlanetRx.com, the
total cash paid and the average price per share paid by existing holders of
common and preferred stock, by Express Scripts and by the new investors, before
deducting the underwriting discount and estimated offering expenses payable by
PlanetRx.com, at the initial public offering price of $13.00 per share.
<TABLE>
<CAPTION>
Total Cash
Shares Purchased Consideration Average Cash
--------------------- ----------------------- Price
Number Percentage Amount Percentage Per Share
---------- ---------- ------------ ---------- ------------ ---
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders... 34,122,445 67.1% $ 87,585,000 50.6% $ 2.57
Series D stockholder.... 371,103 0.7 7,500,000 4.3 20.21
Express Scripts(1)...... 10,355,254 20.4 -- 0.0 0.00
New investors........... 6,000,000 11.8 78,000,000 45.1 13.00
---------- ----- ------------ -----
Totals................ 50,848,802 100.0% $173,085,000 100.0%
========== ===== ============ =====
</TABLE>
- --------
(1) Simultaneous with the close of this offering, we will issue 10,355,254
shares of common stock to Express Scripts in connection with our purchase
of certain assets and certain liabilities of yourPharmacy.com. These shares
will represent 19.9% of our outstanding stock after this offering, assuming
the over-allotment option is exercised. If the over-allotment option is not
exercised, Express Scripts will return to us, at no cost, that number of
shares necessary to reduce its ownership to 19.9% of our then outstanding
stock.
22
<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.
23
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
In August 1999, PlanetRx.com entered into a series of agreements with
Express Scripts, Inc. and its wholly owned subsidiary, yourPharmacy.com, Inc.
Effective upon the closing of the offering under the contribution agreement,
PlanetRx.com will issue 19.9% of our outstanding stock to Express Scripts
assuming the over-allotment option is exercised and in exchange we will acquire
certain assets and certain liabilities of yourPharmacy.com Inc. Additionally
under other agreements in the series, Express Scripts members will be able to
use their reimbursement plan to fill prescriptions online at PlanetRx.com and
Express Scripts will promote the Company as Express Scripts' Internet pharmacy.
The acquisition will be accounted for using the purchase method of accounting
and, accordingly, the purchase price will be allocated to the tangible and
intangible assets acquired and the liabilities assumed at their respective fair
values at the date the acquisition is consummated. The purchase price will
consist of the quantity of shares issued upon the closing of the initial public
offering (including shares issued pursuant to the underwriters' over-allotment
option) to enable Express Scripts to own 19.9% of the Company's outstanding
common stock at the price per share issued in the initial public offering, the
fair value of 1.9 million options to purchase our common stock issued in
exchange for outstanding yourPharmacy.com, Inc. options and direct acquisition
costs. Accordingly, for purchase accounting purposes, changes in quantity of or
price for shares issued in the initial public offering will change the
computation of the purchase price.
For the purpose of preparing the unaudited pro forma consolidated financial
data, the estimated purchase price of $158.8 million was comprised of the
assumed issuance of 10,355,254 shares of Common Stock and the assumption of
1,943,270 options and a price per share in this offering of $13.00 per share,
plus assumed net liabilities and estimated direct acquisition costs of $5.3
million. The allocation of the purchase price in the unaudited pro forma
consolidated financial data resulted in an excess purchase consideration over
tangible net liabilities of $159.4 million which has been allocated to goodwill
with an estimated useful life of 5 years. The following unaudited pro forma
consolidated financial data reflects the effects of the contribution agreement
as if the acquisition occurred on February 2, 1998, the yourPharmacy.com
inception date. The consolidated pro forma statement of operations data may not
be indicative of the results of operation had the acquisition actually occurred
on February 2, 1998, nor do they purport to indicate the future results of
PlanetRx.com.
24
<PAGE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1998 June 30, 1999
----------------- ----------------
(in thousands, except per share
data)
<S> <C> <C>
Pro Forma Consolidated 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 10,091
Product development........................ 1,621 4,677
General and administrative................. 1,436 4,132
Stock-based compensation................... 1,650 4,308
Amortization of goodwill................... 29,222 15,939
-------- --------
Total operating expenses.................. 34,836 39,147
-------- --------
Operating loss.............................. (34,836) (39,059)
Interest income............................. 38 399
Interest expense............................ (2) (1,046)
-------- --------
Net loss.................................... $(34,800) $(39,706)
======== ========
Basic and diluted net loss per share
unaudited(1)............................... $ (2.61) $ (1.33)
======== ========
Weighted average shares used to compute
basic and diluted net loss per share
(unaudited)(1)............................. 13,351 30,565
======== ========
</TABLE>
- --------
(1) See Note 1 of Notes to Unaudited Pro Forma Consolidated Financial Data for
a description of the method used to compute basic and diluted net loss per
share.
25
<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.
26
<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.
In August 1999, we entered into a series of agreements with Express
Scripts, Inc. and its wholly owned subsidiary, yourPharmacy.com, Inc. Under the
contribution agreement, effective upon the closing of the initial public
offering we will issue 19.9% of our outstanding stock to Express Scripts,
assuming the underwriter's over-allotment option is exercised, in exchange for
certain assets and certain liabilities of yourPharmacy.com. In addition, under
the other agreements, Express Scripts members will be able to use their
reimbursement plan to fill prescriptions with PlanetRx.com and Express Scripts
will promote us as Express Scripts' Internet pharmacy.
The acquisition will be accounted for using the purchase method of
accounting and, accordingly, the purchase price will be allocated to the
tangible and intangible assets acquired and the liabilities assumed at their
respective fair values at the date the acquisition is consummated. The purchase
price will consist of the quantity of shares issued upon the closing of the
initial public offering (including shares issued pursuant to the underwriters'
over-allotment option) to enable Express Scripts to own 19.9% of our
outstanding common stock at the price per share issued in the initial public
offering, the fair value of 1,943,270 options to purchase our common stock
issued in exchange for outstanding yourPharmacy.com options, and direct
acquisition costs. Accordingly, for purchase accounting purposes, changes in
quantity of or price for shares issued in the initial public offering will
change the computation of the purchase price.
For the purpose of preparing the unaudited pro forma consolidated financial
data, the estimated purchase price of $158.8 million was comprised of the
assumed issuance of 10,355,254 shares of our common stock and the assumption of
1,943,270 options and a price per share in the offering of $13.00 per share,
plus assumed net liabilities and estimated direct acquisition costs of $5.3
million. The allocation of the purchase price resulted in an excess purchase
consideration over tangible net liabilities of $159.4 million which has been
allocated to goodwill with an estimated useful life of 5 years.
This preliminary amount will be amortized over a five-year period using a
straight-line basis. We expect to amortize approximately $7.9 million of the
remainder in 1999, $31.9 million in 2000, 2001, 2003 and 2004, and $23.9
million in 2004, if the fair value assumptions we used in the calculation of
the preliminary purchase price are consistent with the actual fair values on
the acquisition dates. Effective upon the closing of this offering, we will be
obligated to pay five annual payments of $14.7 million to Express Scripts in
connection with the series of agreements. We may be obligated to pay additional
incremental amounts based on Express Scripts' member activity on the
PlanetRx.com website.
In September 1999, we entered into a three year sponsorship and content
license with iVillage, Inc. Under the terms of the agreement, we will be
provided with a specific number of advertising impressions featuring us as the
exclusive online full service pharmacy devoted to health and wellness needs. In
consideration, we have agreed to pay approximately $22.5 million over a three
year term.
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.
27
<PAGE>
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 some of our 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 may also include Internet access fees and
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, Internet access fees, 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. In addition to the
amortization of deferred stock-based compensation, we recorded stock
compensation expense of $765,000 and $1.3 million associated with stock,
options and warrants in exchange for services for the year ended December 31,
1998 and the six months ended June 30, 1999, respectively. We recorded
additional deferred stock based compensation of $10.2 million in connection
with 1,673,900 stock options granted to our employees in July and August 1999.
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.
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.
28
<PAGE>
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 one of our
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. 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
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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 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
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ywill 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 continue these tests through the end 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. To date,
approximately 47% of these vendors have responded to our requests, and none of
these respondents have indicated that they have year 2000 compliance issues. We
expect this assessment process to continue through the end of 1999. Each of
these vendors supplies us with software that is significant to our over-all
operations. Despite the responses we have received from these vendors, we
cannot assure you that the software they provide us will not experience year
2000 problems and cause significant disruptions to our operations. 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 prior to the end of 1999. Costs
incurred to date in connection with year 2000 compliance issues have been
immaterial, and, 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
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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, such as our internal accounting, database and security systems.
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
and Information Resources, Inc., we believe the U.S. market for health and
personal care products will exceed $175 billion in 1999, of which prescription
drugs comprised over $120 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.
Continue to Develop Strategic Relationships to Further Revenue
Opportunities. We will continue to develop strategic relationships 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, such as our
relationship with Express Scripts;
. 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, the disease state management sponsor is responsible
for supplying content to the satellite website related to a particular disease,
and we receive guaranteed minimum payments and content for the website. Disease
state management programs are designed to improve patient outcomes through
education and drug compliance. The disease state management sponsor provides
information about a particular disease, including treatment, care, products and
alternatives, thus enabling those afflicted with the disease to better manage
their condition.
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>
Relationship with Express Scripts, Inc.
In August 1999, we entered into a strategic relationship with Express
Scripts, Inc. and its wholly owned subsidiary, yourPharmacy.com, Inc. Under the
terms of the agreements, we have agreed to acquire the e-commerce operations of
the yourPharmacy.com business and Express Scripts has agreed to make us their
co-branded and co-marketed online pharmacy for Express Scripts and its members.
The agreements, which have an initial term of five years, may be extended for
an additional five years and will become effective upon completion of this
offering. Simultaneous with the closing of this offering, we will issue common
stock to Express Scripts which will represent 19.9% of our outstanding stock
after this offering, assuming the over-allotment option is exercised. If the
over-allotment option is not exercised, Express Scripts will return to us, at
no cost, that number of shares as is necessary to reduce its
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ownership to 19.9% of our then outstanding stock. We will also assume options
granted to employees of yourPharmacy.com which will convert into options to
purchase approximately 1.9 million shares of our common stock. Additionally, we
will be included in the Express Scripts network as an authorized pharmacy for a
minimum of ten years.
Under the agreements, customers who are covered under an Express Scripts
pharmacy benefit plan will be able to fill prescriptions at our website and
will be entitled to insurance reimbursement. In addition, Express Scripts has
agreed to promote us as Express Scripts' online pharmacy to fill prescriptions
and market other health and wellness products to Express Scripts' plan members
for five years, with a potential five-year extension. Under the terms of the
agreements we will pay Express Scripts a minimum of $14,650,000 annually for
five years, plus incremental fees based on Express Scripts members' activity on
our website. We believe that the potential benefits of our relationship with
Express Scripts may include additional revenue and traffic generated by Express
Scripts' plan members who may visit our website, the pharmacy benefit coverage
provided by Express Scripts, and the co-promotion and co-branding activities
both companies will undertake. We expect that Barrett A. Toan, Express Scripts'
chief executive officer, will become a member of our board of directors after
the completion of this offering.
As part of the relationship, we agreed to certain exclusivity provisions
that preclude us from operating as a pharmacy benefit manager.
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 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.
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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 pharmacy benefit
manager 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.
In September 1999, we entered into a three-year sponsorship agreement with
iVillage Inc. under which we will become iVillage's exclusive online retailer
for prescription drugs, over-the-counter medications and vitamins. In addition,
we entered into a content license agreement for access to iVillage health,
wellness, beauty and fitness content. Concurrent with the agreement, iVillage
also made an equity investment in PlanetRx.com.
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 and HealthCentral.com. We have also created an affiliate program,
which encourages website 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.
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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 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,
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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;
. 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;
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. 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, under 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 reporting requirements related to
the purchase, storage and dispensing of controlled substances, prescription
drugs, and some over-the-counter drugs. "Compendial standards" which can also
be called "official compendium" means the standards for drugs related to
strength, purity, weight, quality, labeling and packing contained in the
official Pharmacopeia of the United States, official National Formulary, or any
supplement to any of them. Under the Food, Drug and Cosmetic Act of 1938, a
drug recognized by the Homeopathic Pharmacopeia of the United States must meet
all compendial standards and labeling requirements contained therein, or it
will be considered adulterated (e.g., lacking appropriate strength, quality, or
purity; or containing poisonous or unsanitary ingredients) or misbranded (e.g.,
having a false or misleading label; or label containing inaccurate description
of contents). While homeopathic remedies account for less than
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one percent (1%) of our revenues, we are still required to comply with the
Food, Drug and Cosmetic Act. The distribution of adulterated or misbranded
homeopathic remedies or other drugs is prohibited under the Food, Drug and
Cosmetic Act, and violations could result in substantial fines and other
monetary penalties, seizure of the misbranded or adulterated items, and/or
criminal sanctions which could adversely affect our business. 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, a coalition of state
pharmacy boards, has developed a program, the Verified Internet Pharmacy
Practice Sites, as a model for self-regulation for online pharmacies. We have
assisted the National Association of Boards of Pharmacy with the development of
the Verified Internet Pharmacy Practice Sites 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 Food and Drug Administration does not regulate the practice of
pharmacy, other than pharmacy compounding, which we do not currently engage in,
Food and Drug Administration regulations impact some of our product and service
offerings because the Food and Drug Administration 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 Food and
Drug Administration 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, some 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 these licensees, we cannot assure that these 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.
Express Scripts Director
Our board of directors currently consists of five members. We have agreed
with Express Scripts that we will appoint a designee of Express Scripts to our
board of directors within five business days after the completion of this
offering. We have also agreed to include the director designated by Express
Scripts in the group of nominees that we recommend for election at each meeting
of our stockholders to elect directors. We expect that the director designated
by Express Scripts will be Barrett A. Toan. Mr. Toan, 51, was elected chief
executive officer of Express Scripts in March 1992, and president and a
director in October 1990. He has been an executive employee of Express Scripts
since May 1989.
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.
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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.
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, those 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 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.
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<PAGE>
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 some
exceptions);
. the rights conferred in the bylaws are not exclusive;
. 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
Summary Compensation Table
The following table sets forth information concerning compensation that was
earned during the fiscal year ended December 31, 1998 by our Chief Executive
Officer and each of our other most highly compensated officers, collectively
referred to below as the Named Executive Officers. This table sets forth 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 -- Executive Officers and Directors".
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.............................. $54,545 $47,879 1,809,000
Chief Executive Officer and Chairman
John McAlpin.................................... 33,750 0 200,000
Vice President of Distribution Services
Allan Goldman................................... 4,688 0 100,000
Vice President of Merchandising
</TABLE>
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.
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 vesting start
date is the date on which the optionee begins to receive vesting credit for the
option. As of December 31, 1998, Mr. Razzouk was vested in 678,376 option
shares and Messrs. McAlpin and Goldman were not vested in any option shares.
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. The percentage of total options
granted to each Named Executive Officer is 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.
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
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<PAGE>
purchased shares, together with any federal and state income tax liability
incurred by the optionee in connection with such exercise.
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. 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.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Exercise Option Term
Options Employees Price Expiration ---------------------
Name Granted(#) in 1998 ($/Sh) 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>
In addition to the options listed in the table, stock options were granted
in 1999 to some 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. 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.
<TABLE>
<CAPTION>
Number of Securities Exercise Price
Name Underlying Options Granted ($/Sh)
- ---- -------------------------- --------------
<S> <C> <C>
William J. Razzouk.................... 300,000 $5.50
Allan Goldman......................... 50,000 0.05
75,000 2.00
50,000 5.50
John McAlpin.......................... 100,000 2.00
50,000 5.50
James Chong........................... 335,000 0.05
65,000 2.00
150,000 5.50
Jay O'Connor.......................... 325,000 0.05
Steve Valenzuela...................... 400,000 0.50
75,000 5.50
Stephanie Schear...................... 50,000 5.50
Matthew Naythons...................... 125,000 5.50
</TABLE>
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<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth for each of the Named Executive Officers the
number of options exercised during the fiscal year ended December 31, 1998 and
the number and value of securities underlying unexercised options that are held
by the Named Executive Officers as of December 31, 1998. No stock appreciation
rights were exercised by the Named Executive Officers in fiscal year 1998, and
no stock appreciation rights were outstanding at the end of that year.
<TABLE>
<CAPTION>
Value of
Unexercised
Number of Securities in-the-Money
Underlying Unexercised Options at
Options at December 31, December 31,
Shares 1998(#)(2) 1998($)(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;
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<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.
Restricted shares vest at the time or times determined by the compensation
committee.
Change in Control. 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 750,000 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 May 1 and November 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on April 30, 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 April 30, and October
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
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<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 vest over four
years.
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.
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<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. These
figures also reflect 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. The per share purchase price for our series A preferred
stock was $0.50. The per share purchase price for our series B preferred stock
was $5.00. The per share purchase price for our series C preferred stock was
$8.755.
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Preferred Preferred Common Total Shares
Investor(1) Stock Stock Stock Stock as Converted
- ----------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
William J. Razzouk(2).... -- -- -- 1,809,000 1,809,000
Steve Valenzuela(3)...... -- -- -- 400,000 400,000
Michael Bruner(4)........ 2,000 -- -- 2,000,000 2,002,000
James Chong(5)........... -- -- -- 335,000 335,000
Allan Goldman............ -- -- -- -- --
John McAlpin(6).......... -- -- -- 200,000 200,000
Matthew Naythons,
M.D.(7)................. -- -- -- 690,000 690,000
Jay O'Connor(8).......... -- -- -- 325,000 325,000
Stephanie Schear(9)...... -- -- -- 1,280,000 1,280,000
David Beirne(10)......... 5,050,000 100,000 228,441 -- 5,384,989
Michael Moritz(11)....... 5,000,000 100,000 228,441 -- 5,334,989
Christos M.
Cotsakos(12)............ 100,000 510,000 113,627 100,000 848,194
Terrence C. Burke(13).... -- -- -- 100,000 100,000
Funds affiliated with
Benchmark Capital(14)... 5,000,000 100,000 228,441 -- 5,334,989
Funds affiliated with
Sequoia Capital(15)..... 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) Reflects the exercise on October 8, 1998 of options to purchase our common
stock.
(3) Reflects the exercise on March 31, 1999 of options to purchase our common
stock.
(4) 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.
(5) Reflects the exercise on January 11, 1999 of options to purchase our
common stock.
(6) Reflects the exercise on January 11, 1999 of options to purchase our
common stock.
(7) Reflects a grant of 198,000 shares in December 1998 for services rendered
in connection with the acquisition of 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.
(8) Reflects the exercise on February 19, 1999 of options to purchase our
common stock.
(9) Reflects the purchase of shares of common stock pursuant to a stock
purchase agreement dated September 15, 1998.
(10) 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
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<PAGE>
is the General Partner of Benchmark Capital Partners II, L.P., and
Chairman of Ramsey/Beirne Associates.
(11) 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. Each of the entities listed in this note are affiliated
with Sequoia Capital. Mr. Moritz is a general partner of SC VIII
Management, LLC, the general partner of Sequoia Capital VIII, Sequoia
International Technology Partners VIII and Sequoia International
Technology Partners VIII (Q). CMS Partners is an affiliated side fund
of Sequoia Capital VIII.
(12) 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.
(13) Mr. Burke also has a warrant to purchase 100,000 shares of series A
preferred stock.
(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.
(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.
In addition, we have granted options to our executive officers. See
"Management -- Option Grants in Last Fiscal Year".
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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.
Series D Financing
On September 3, 1999, we issued an aggregate of 371,103 shares of series D
preferred stock at a per share purchase price of $20.21 to iVillage, Inc.
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. The original conversion price for the series B preferred stock was
$5.00. The original conversion price for the series C preferred stock was
$8.755. The conversion price of the series B preferred stock was adjusted to
$4.79 and the conversion price of the series C preferred stock was adjusted to
$8.682 to reflect dilution that occurred after the closing of the series C
financing.
Employment Agreements with 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 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 domain names, including aids.com, birth.com, cancer.com, cholesterol.com,
depression.com, diabetes.com, obesity.com, nursing.com, pharmacist.com and
physicians.com. 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, including acne.com, alzheimers.com, alzheimers.net, anorexia.com,
epilepsy.com, fertility.com, hepatitis-b.com, hepatitis-c.com, hepatitis.com,
hypertension.com, impotence.com, infertility.com, osteopathy.com,
parkinsons.com, podiatry.com, pollenwatch.com, prenatal.com, rxnet.com,
sportsdoc.com and stroke.com. 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.
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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
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".
Corporate Reorganization
Immediately prior to the closing of this offering, we will effect a
corporate reorganization under which the current PlanetRx.com, Inc. will become
a wholly owned subsidiary of a newly-formed holding company. Our current
stockholders will become stockholders of the holding company with the exact
same rights and obligations they had prior to the reorganization. Upon
completion of the reorganization, the holding company's corporate name will be
changed to "PlanetRx.com, Inc." and the current PlanetRx.com, Inc. will become
"PlanetRx.com Operating Co., Inc."
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 -- Limitations on Directors'
Liability and 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.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of PlanetRx.com's
common stock as of September 3, 1999 and as adjusted to reflect the sale of the
common stock offered in this prospectus for:
. each person who is known by us to beneficially own more than 5% of our
common stock;
. each of our Named Executive Officers,
. each of our directors; and
. 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
34,681,199 shares of common stock outstanding as of September 3, 1999 assuming
conversion of all outstanding shares of preferred stock into common stock, and
exercise of all outstanding warrants and similar purchase rights, and
51,036,453 shares of common stock outstanding after the completion of this
offering, assuming no exercise of the underwriters' over-allotment option, and
the completion of the concurrent offering of 10,355,254 shares of our common
stock to Express Scripts.
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 of Shares Beneficially 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 6.0% 3.5%
John McAlpin.................... 300,000 * *
Allan Goldman................... 225,000 * *
David Beirne(3)................. 5,384,989 15.5 10.6
Terrence C. Burke............... 200,000 * *
Christos M. Cotsakos(4)......... 848,194 2.7 1.7
Michael Moritz(5)............... 5,334,989 15.4 10.5
Other 5% Stockholders
Michael Bruner.................. 2,002,000 5.8 3.9
Entities affiliated with
Benchmark Capital(6)........... 5,334,989 15.4 10.5
2480 Sand Hill Road, Suite 200
Menlo Park, California 94025
Entities affiliated with Sequoia
Capital(7)..................... 5,334,989 15.4 10.5
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
Markas Holding B.V.............. 2,825,878 8.1 5.5
Locatellikade, 1
Parnassustoren
1076 AZ Amsterdam
The Netherlands
News America Incorporated....... 1,727,698 5.0 3.4
1211 Avenue of the Americas
New York, New York 10036
Express Scripts, Inc.(8)........ 0 * 19.9
13900 Riverport Drive
St. Louis, Missouri 63043
All executive officers and
directors as a group (12
persons)(9).................... 17,197,172 49.8 34.2
</TABLE>
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- --------
* Represents beneficial ownership of less than 1%.
(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 10,355,254 shares of our common stock which will be issued to
Express Scripts at the close of this offering in connection with the
acquisition of the e-Commerce operations of yourPharmacy.com, Inc. Assumes
the exercise of the over-allotment option granted to the underwriters. If
the over-allotment option is not exercised, Express Scripts will return to
us, at no cost, that number of shares as is necessary to reduce its
ownership to 19.9% of our then outstanding stock.
(9) Includes options immediately exercisable for 1,150,000 shares.
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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 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
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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 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
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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 34,159,402 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 34,159,402 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 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.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have 51,036,453 shares of
common stock outstanding, assuming the issuance of shares of common stock
offered in this prospectus and no exercise of options after September 3, 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 51,036,453 shares of common stock outstanding upon completion of
this offering, 45,036,453 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, 19,500 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 the
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 510,364 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 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 September 3, 1999, there were a total of 2,801,050 shares of common
stock subject to outstanding options under our 1998 Stock Plan, of which none
were vested. In addition, upon completion of this offering, we will assume
options granted to employees of yourPharmacy.com, which will convert into
options to purchase approximately 1,943,270 shares of our common stock.
However, all of these shares are subject to lock-up agreements. Immediately
after the completion 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
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reserved for future issuance under the 1998 Stock Plan and issued outside the
1998 Stock Plan and the assumed yourPharmacy.com options. On the date 180 days
after the effective date of the offering, a total of 343,950 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, shares granted outside the
1998 Stock Plan and shares purchased upon exercise of the assumed
yourPharmacy.com options 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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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. 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 of PlanetRx.com, Inc. as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998 and
the financial statements of yourPharmacy.com, Inc. as of December 31, 1998 and
for the period from February 2, 1998 (inception) through December 31, 1998
included in this prospectus has been so included in reliance on the reports 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 may only
be summaries of such documents. 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.
69
<PAGE>
PLANETRX.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
PlanetRx.com, Inc.
Financial Statements
<S> <C>
Report of Independent
Accountants............ F-2
Balance Sheets.......... F-3
Statements of Opera-
tions.................. F-4
Statements of Stockhold-
ers' Equity (Deficit).. F-5
Statements of Cash
Flows.................. F-6
Notes to Financial
Statements............. F-7
<CAPTION>
Pro Forma Consolidated
Financial Data
<S> <C>
Overview................ F-26
Pro Forma Consolidated
Balance Sheet.......... F-28
Pro Forma Consolidated
Statements of Opera-
tions.................. F-29
Notes to Pro Forma Con-
solidated Financial Da-
ta..................... F-30
<CAPTION>
YourPharmacy.com, Inc., a
Wholly-owned Subsidiary of
Express Scripts, Inc.
<S> <C>
Report of Independent
Accountants............ F-31
Balance Sheets.......... F-32
Statements of Opera-
tions.................. F-33
Statements of Changes of
Stockholders' Deficit.. F-34
Statements of Cash
Flows.................. F-35
Notes to Financial
Statements............. F-36
</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 each of 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 -- 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 48 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, was
launched on March 18, 1999. 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
The Company recognizes advertising expenses in accordance with Statement of
Position 93-7 "Reporting on Advertising Costs." As such, the Company expenses
the cost of communicating advertising in the period in which the advertising
space or airtime is used. 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. The Company plans to effect, upon the closing
of its initial public offering, the authorization of 100,000,000 shares of
Common Stock and 5,000,000 share of undesignated Preferred 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:
At December 31, 1997 and 1998, the Company had approximately $166,000 and
$2.6 million, respectively, of federal and state net operating loss
carryforwards available to offset future taxable income which expire in varying
amounts beginning in 2018 and 2006, respectively. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. Events which cause limitations in
the amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than
50%, as defined, over a three year period.
The Company has incurred losses from Inception through the year ended
December 31, 1998. 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.
Deferred tax assets and liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 68 $ 1,066
Accruals and reserves...................................... -- (3)
----- -------
68 1,063
Less valuation allowance................................... (68) (1,063)
----- -------
$ -- $ --
===== =======
</TABLE>
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
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)
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.
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.
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)
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 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.
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)
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.
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
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)
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 difference of the 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.
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 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.
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)
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.
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,
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)
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.
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
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)
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.
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.
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)
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.
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.
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)
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.
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.
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)
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.
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 initial public 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
initial public 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
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 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.
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 initial public 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.
Stock Option Grants (Unaudited)
In July and August 1999, the Company granted incentive stock options to
employees to purchase 1,673,900 shares of Common Stock at exercise prices
ranging between $2.00 and $5.50 per share. In connection with such option
grants, the Company recognized unearned compensation totaling $10,203,000 which
is being amortized over the four year vesting period of the related options.
Express Scripts Agreement (Unaudited)
In August 1999, the Company entered into a series of agreements with
Express Scripts, Inc. and its wholly owned subsidiary, YourPharmacy.com, Inc.
Effective upon the closing of the initial public offering, the Company will
issue 19.9% of our outstanding stock to Express Scripts, Inc. (ESI) after this
offering, assuming the over-allotment option is exercised. Under the terms of
the series of agreements,
F-24
<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 Company will acquire certain assets and certain liabilities of
YourPharmacy.com, Inc. Additionally, ESI members will be able to use their
reimbursement plan to fill prescriptions online at PlanetRx.com and ESI will
promote the Company as ESI's exclusive Internet pharmacy. In connection with
the promotion of its website, the Company has committed to pay $14.65 million
annually for five years plus an incremental annual fee based on the number of
ESI members who make any purchase on the Company's website. This acquisition
will be accounted for using the purchase method of accounting, and accordingly,
the purchase price will be allocated to the tangible and intangible assets
acquired and liabilities assumed on the basis of their respective values at the
date the acquisition is consummated.
Sponsorship and Content License Agreement (Unaudited)
In September 1999, the Company issued 371,103 shares of Series D Preferred
Stock to a web portal company in exchange for approximately $7.5 million in
cash. In connection with this transaction, the Company also entered into a
three-year sponsorship and content license agreement. The agreement requires
the Company to pay approximately $22.5 million over the three year period in
exchange for certain advertising services and rights to certain online content.
F-25
<PAGE>
PLANETRX.COM, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
Overview
In August 1999, the Company entered into a series of agreements with
Express Scripts, Inc. ("ESI") and its wholly owned subsidiary,
YourPharmacy.com, Inc. Effective upon the closing of the offering under the
contribution agreement (the "Agreement"), the Company will issue 19.9% of its
outstanding stock to ESI, assuming the over-allotment option is exercised and
in exchange the Company will acquire certain assets and certain liabilities of
YourPharmacy.com, Inc. Additionally under other agreements in the series, ESI
members will be able to use their reimbursement plan to fill prescriptions
online at the Company's website and ESI will promote the Company as ESI's
exclusive Internet pharmacy.
The following unaudited pro forma consolidated financial data assumes a
purchase of certain assets of YourPharmacy.com, Inc. by the Company.
YourPharmacy.com, Inc. operates two websites, YourPharmacy.com ("YPC") and
DrugDigest.com and the following assumes the Company will purchase certain
assets and assume certain liabilities related to the YPC website and business
activities.
The acquisition will be accounted for using the purchase method of
accounting and, accordingly, the purchase price will be allocated to the
tangible and intangible assets acquired and the liabilities assumed at their
respective fair values at the date the acquisition is consummated. The purchase
price will consist of the quantity of shares issued upon the closing of the
initial public offering (including shares issued pursuant to the underwriters'
over-allotment option) to enable ESI to own 19.9% of the Company's outstanding
Common Stock at the price per share issued in the initial public offering, the
fair value of 1.9 million options to purchase the Company's common stock issued
in exchange for outstanding YourPharmacy.com, Inc. options, and direct
acquisition costs. Accordingly, for purchase accounting purposes, changes in
quantity of or price for shares issued in the initial public offering will
change the computation of the purchase price.
For the purpose of preparing the Unaudited Pro Forma Consolidated Financial
Data, the estimated purchase price of $158.8 million was comprised of the
assumed issuance of 10.3 million shares of Common Stock and the assumption of
1.9 million options and a price per share in the Offering of $13.00 per share,
plus assumed net liabilities and estimated direct acquisition costs of $5.3
million. The allocation of the purchase price in the Unaudited Pro Forma
Consolidated Financial Data resulted in an excess purchase consideration over
tangible net liabilities of $159.4 million which has been allocated to goodwill
with an estimated useful life of 5 years.
The acquisition has been structured as a tax free exchange of stock,
therefore, the differences between the recognized fair values of acquired
assets, including tangible assets, and their historical tax bases will not be
deductible for tax purposes.
The following unaudited pro forma balance sheet gives effect to this
acquisition as if it had occurred on June 30, 1999 by combining the assets and
liabilities of YPC with the balance sheet of the Company.
The following unaudited pro forma statement of operations gives effect to
this acquisition as if it had occurred on February 2, 1998, the inception date
of yourPharmacy.com, Inc., by combining the results of operations of YPC with
the results of operations of the Company for the year ended December 31, 1998
and the six months ended June 30, 1999.
F-26
<PAGE>
The unaudited pro forma statements of operations are not necessarily
indicative of the operating results that would have been achieved had the
transactions been in effect as of the beginning of the periods presented and
should not be construed as being representative of future operating results.
The historical financial statements of the Company and YourPharmacy.com,
Inc. are included elsewhere in this Prospectus, and the unaudited pro forma
financial information presented herein should be read in conjunction with those
financial statements and related notes.
F-27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
June 30, 1999 Pro Forma
------------------- -----------------------
PlanetRx.com YPC Adjustments Combined
------------ ------ ----------- --------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents......... $ 62,688 $ -- $ -- $ 62,688
Inventories....................... 1,612 -- -- 1,612
Prepaid expenses and other........ 12,053 31 -- 12,084
-------- ------ -------- --------
Total current assets............ 76,353 31 -- 76,384
Property and equipment, net....... 4,493 767 -- 5,260
Intangible assets, net............ 4,222 -- 159,392 (A) 163,614
Other assets...................... 168 -- -- 168
-------- ------ -------- --------
$ 85,236 $ 798 $159,392 $245,426
======== ====== ======== ========
Liabilities and Stockholders'
Equity
Current liabilities:
Accounts payable.................. $ 3,736 $ 319 $ -- $ 4,055
Accrued expenses.................. 523 1,081 4,700 (B) 6,304
Deferred revenue.................. 375 -- -- 375
Borrowings, current............... -- -- -- --
Capital lease obligations,
current.......................... 7 -- -- 7
-------- ------ -------- --------
Total current liabilities....... 4,641 1,400 4,700 10,741
Borrowings, long-term............. 1,600 -- -- 1,600
Capital lease obligations, long-
term............................. -- -- -- --
-------- ------ -------- --------
6,241 1,400 4,700 12,341
-------- ------ -------- --------
Stockholders' equity:
Preferred Stock................... 2 -- -- 2
Common Stock...................... 1 -- 1 (C) 2
Additional paid-in capital........ 121,682 -- 154,089 (C) 275,771
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 -- 154,090 233,085
-------- ------ -------- --------
$ 85,236 $1,400 $158,790 $245,426
======== ====== ======== ========
</TABLE>
F-28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
PlanetRx.com YPC Pro Forma PlanetRx.com YPC
------------ ------------------- --------------------- ------------ ----------------
Six Months
Year Ended Period from Ended
December 31, February 2, 1998 to Adjust- June 30, Six Months Ended
1998 December 31, 1998 ments Combined 1999 June 30, 1999
------------ ------------------- -------- -------- ------------ ----------------
<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 -- -- 907 9,614 477
Product
development.... 1,025 596 -- 1,621 3,254 1,423
General and
administrative.. 541 895 -- 1,436 2,366 1,766
Stock-based
compensation... 1,650 -- -- 1,650 4,308 --
Amortization of
Goodwill....... -- -- 29,222 (A) 29,222 -- --
------- ------- -------- -------- -------- -------
4,123 1,491 29,222 34,836 19,542 3,666
------- ------- -------- -------- -------- -------
Operating loss... (4,123) (1,491) (29,222) (34,836) (19,454) (3,666)
<CAPTION>
Pro Forma
-------------------------
Adjust-
ments Combined
------------ ------------
<S> <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.......... -- 10,091
Product
development.... -- 4,677
General and
administrative.. -- 4,132
Stock-based
compensation... -- 4,308
Amortization of
Goodwill....... 15,939 (A) 15,939
------------ ------------
15,939 39,147
------------ ------------
Operating loss... (15,939) (39,059)
Interest income.. 38 -- -- 38 399 --
Interest
expense......... (2) -- -- (2) (1,046) --
------- ------- -------- -------- -------- -------
Net loss......... $(4,087) $(1,491) $(29,222) $(34,800) $(20,101) $(3,666)
======= ======= ======== ======== ======== =======
Basic and diluted
net loss per
share........... $ (2.61)(D)
========
Weighted average
shares used to
compute basic
and diluted net
loss per share.. 13,351 (D)
========
Interest income.. -- 399
Interest
expense......... -- (1,046)
------------ ------------
Net loss......... $(15,939) $(39,706)
============ ============
Basic and diluted
net loss per
share........... $ (1.33)(D)
============
Weighted average
shares used to
compute basic
and diluted net
loss per share.. 30,565 (D)
============
</TABLE>
F-29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
1. The following pro forma adjustments are reflected in the unaudited pro
forma financial data and are required to allocate the preliminary purchase
price and acquisition costs to the net assets to be acquired from
YourPharmacy.com, Inc.
Adjustments reflecting the acquisition of certain assets from
YourPharmacy.com, Inc.:
(A) To record and amortize goodwill associated with the Agreement.
Amortization is over the estimated useful lives of the assets acquired
of five years.
(B) To record non-recurring charges estimated to be associated with the
purchase of YPC. These charges are direct acquisition costs. There can
be no assurance the Company will not incur or assume additional
charges in subsequent periods.
(C) Reflects the estimated fair value of shares issued to ESI and employee
stock options assumed.
(D) The difference between the historical and pro forma basic and diluted
net loss per share for the year ended December 31, 1998 and the six
months ended June 30, 1999, other than the adjustments discussed
above, is the result of the following:
Increase in shares used in the calculation of pro forma net loss per
share:
. Inclusion of 10,355 shares issued in connection with the purchase of
certain assets and certain liabilities of YPC as if such shares were
outstanding from February 2, 1998. The resulting pro forma
adjustment increases the weighted average shares used to compute
basic and diluted net loss per share by 9,249 and 10,355 for the
year ended December 31, 1998 and the six months ended June 30, 1999,
respectively.
. Inclusion of all outstanding warrants and the purchase option at
June 30, 1999 and the assumed conversion of the Company's Preferred
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 increased the weighted
average shares used to compute basic and diluted net loss per share
by 3,654 and 17,682 for the year ended and six months ended June 30,
1999, respectively.
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Express Scripts, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' deficit, and of cash flows present
fairly, in all material respects, the financial position of YourPharmacy.com,
Inc., a wholly-owned subsidiary of Express Scripts, Inc., at December 31, 1998,
and the results of its operations and its cash flows for the period from
February 2, 1998 (date of inception) through December 31, 1998 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the management of Express Scripts, Inc. and
YourPharmacy.com, Inc.; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit 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 audit provides a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
August 23, 1999, except for Note 8
which is as of August 31, 1999
F-31
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
BALANCE SHEET
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Accounts receivable.................................. $ -- $ 37
Miscellaneous receivables............................ 2
Deferred tax asset................................... 137 113
Prepaid expenses..................................... 15 34
------- -------
Total current assets................................ 154 184
Property and equipment, less accumulated
depreciation......................................... 153 830
Other assets.......................................... 8 339
------- -------
Total assets.......................................... $ 315 $ 1,353
======= =======
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable..................................... $ 146 $ 319
Accrued product development.......................... 628 464
Accrued compensation................................. 131 517
Accrued other........................................ 41 293
------- -------
Total current liabilities........................... 946 1,593
------- -------
Commitments and contingencies (Note 5)
Stockholders' Equity:
Common stock, $0.01 par value, 1,000 shares
authorized, issued and outstanding
Investment by Parent................................. 573 3,288
Deficit accumulated during development stage......... (1,204) (3,528)
------- -------
Total stockholder's deficit......................... (631) (240)
------- -------
Total liabilities and stockholder's deficit........... $ 315 $ 1,353
======= =======
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
February 2, 1998 Six Months
to Ended
December 31, 1998 June 30, 1999
----------------- -------------
(unaudited)
<S> <C> <C>
Net revenues.................................... $ -- $ 75
------- -------
Cost and expenses:
Marketing and selling.......................... -- 485
Product development............................ 1,046 1,566
General and administrative..................... 912 1,801
------- -------
1,958 3,852
------- -------
Loss before income taxes........................ (1,958) (3,777)
Benefit from income taxes....................... 754 1,453
------- -------
Net loss........................................ $(1,204) $(2,324)
======= =======
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During The
------------- Investment Development
Shares Amount by Parent Stage Total
------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at February 2, 1998..... -- $ -- $ -- $ -- $ --
Net loss....................... (1,204) (1,204)
Net transactions with Parent... -- -- 573 -- 573
----- ----- ------ ------- --------
Balance at December 31, 1998.... -- -- 573 (1,204) (631)
Net loss (unaudited)........... (2,324) (2,324)
Common stock issued
(unaudited)................... 1,000
Net transactions with Parent
(unaudited)................... -- -- 2,715 -- 2,715
----- ----- ------ ------- --------
Balance at June 30, 1999
(unaudited).................... 1,000 $ -- $3,288 $(3,528) $ (240)
===== ===== ====== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
February 2, 1998 Six Months
to Ended
December 31, 1998 June 30, 1999
----------------- -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss...................................... $(1,204) $(2,324)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 24 50
Deferred tax benefit......................... (145) 21
Changes in operating assets and liabilities:
Accounts receivable......................... (37)
Miscellaneous receivables................... (2) 2
Prepaid expenses............................ (15) (19)
Other assets................................ (335)
Accounts payable............................ 146 173
Accrued product development................. 628 (164)
Accrued compensation........................ 131 386
Accrued other............................... 41 252
------- -------
Net cash used in operating activities...... (396) (1,995)
------- -------
Cash flows from investing activities:
Purchases of property and equipment........... (177) (720)
------- -------
Net cash used in investing activities...... (177) (720)
Cash flows from financing activities:
Net transactions with Parent.................. 573 2,715
------- -------
Net cash provided by financing activities.. 573 2,715
------- -------
Net increase in cash........................... -- --
Cash at beginning of period.................... -- --
------- -------
Cash at end of period.......................... $ -- $ --
======= =======
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and operations
YourPharmacy.com, Inc. ("the Company"), a wholly owned subsidiary of
Express Scripts, Inc. ("Express Scripts") is an Internet pharmacy offering
prescription drugs; non-prescription drugs; personal care; beauty and
cosmetics; vitamins and nutrition; medical supplies; and household supplies.
The Company's e-commerce website, www.yourPharmacy.com, officially launched on
July 27, 1999. The Company also maintains a second site, DrugDigest.org, which
is a non-commercial, fact-based information resource dedicated to helping
consumers make informed health choices. The Company has been in development
since February 2, 1998 and officially incorporated on February 26, 1999 as ESI
OnLine, Inc. and issued 1,000 shares of Common Stock to Express Scripts. On
April 12, 1999, the Company officially changed its name. The Company is
headquartered in St. Louis, Missouri and has a technology office in San Mateo,
California.
Unaudited interim results
The interim financial statements as of and for the six months ended June
30, 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 the financial statements conform to generally accepted
accounting principles, and require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual amounts could differ from those estimates and
assumptions.
Property and equipment
Property and equipment is carried at cost and is depreciated using the
straight-line method over estimated useful lives of seven years for furniture,
five years for equipment and purchased computer software, and three years for
personal computers. Leasehold improvements are amortized on a straight-line
basis over the term of the lease or the useful life of the asset, if shorter.
Expenditures for repairs and maintenance are charged to income as incurred.
Expenditures that improve an asset or extend its estimated useful life are
capitalized. When properties are retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the accounts and any gain or
loss is included in income.
Impairment of long lived assets
The Company evaluates whether events and circumstances have occurred that
indicate the remaining estimated useful life of long lived assets may warrant
revision or that the remaining
F-36
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
balance of an asset may not be recoverable. The measurement of possible
impairment is based on the ability to recover the balance of assets from
expected future operating cash flows on an undiscounted basis. In the opinion
of management, no such impairment existed as of December 31, 1998 or as of June
30, 1999.
Revenue recognition
The Company recognizes e-commerce revenue when the related products are
shipped to customers. Outbound shipping charges are included in net revenues
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
The Company expenses product development costs as incurred for the periods
ended December 31, 1998 and June 30, 1999.
Advertising expense
The Company recognizes advertising expenses in accordance with Statement of
Position 93-7 "Reporting on Advertising Costs." As such, the Company expenses
the cost of communicating advertising in the period in which the advertising
space or airtime is used. 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 periods ended December 31, 1998 and June 30,
1999.
Income taxes
The Company's operating results are included in the consolidated federal
income tax return of Express Scripts. However, for financial reporting
purposes, the Company's benefit from income taxes are computed as if a separate
return had been filed for the Company, using those elements of income and
expense as reported in the Statement of Operations. Deferred tax assets and
liabilities are recognized based on temporary differences between financial
statement basis and tax basis of assets and liabilities using presently enacted
tax rates. The related benefit from current income taxes receivable is
reflected in investment by parent at December 31, 1998 and additional paid-in
capital at June 30, 1999 within the Stockholder's Equity section of the
Company's Balance Sheet.
Fair value of financial instruments
The carrying value of accounts receivable, miscellaneous receivables and
accounts payable approximates fair value due to their short-term maturities.
Stock-based compensation
The Company, in conjunction with Express Scripts, accounts for employee
stock options in accordance with Accounting Principles Board No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." Under APB 25, the Company applies
the intrinsic value method of accounting and, therefore, does not recognize
compensation expense for options granted, because options are only granted at a
price equal to market value at the time of grant. Statement of Financial
Accounting
F-37
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Standards No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation,"
prescribes the recognition of compensation expense based on the fair value of
options determined on the grant date. However, FAS 123 grants an exception that
allows companies applying APB 25 at FAS 123's effective date to continue using
that method. Express Scripts elected to continue applying the intrinsic value
method under APB 25. For companies that choose to continue applying the
intrinsic value method, FAS 123 mandates certain pro forma disclosures as if
the fair value method has been utilized (see Note 7).
Comprehensive income
During 1998, Statement of Financial Accounting Standards No. 130 ("FAS
130"), "Reporting Comprehensive Income," became effective for the Company. FAS
130 requires non-cash changes in stockholder's equity be combined with net
income and reported in a new financial statement category entitled
"comprehensive income." The Company has no other components, other than net
loss, that should be included in comprehensive income for the periods ended
December 31, 1998 and June 30, 1999.
Segment reporting
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 requires that the Company report certain information, if
specific requirements are met, about operating segments of the Company
including information about services, geographic areas of operation and major
customers. The information is to be derived from the management approach which
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the Company's
reportable segments. The Company adopted FAS 131 during 1998 and operates in
only one segment.
New 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 early adopted the
provisions of SOP 98-1 in its fiscal year ended December 31, 1998, and the
adoption did not 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 early adopted the provisions of SOP 98-5 in the period ended December
31, 1998, and expensed start-up activities as incurred.
In June 1998, Statement of Financial Accounting Standards Statement 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") was
issued. FAS 133 requires all derivatives to be recognized as either assets or
liabilities in the statement of financial position and
F-38
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
measured at fair value. In addition, FAS 133 specifies the accounting for
changes in the fair value of a derivative based on the intended use of the
derivative and the resulting designation. The effective date for FAS 133 was
originally effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. However, the Financial Accounting Standards Board has deferred
the effective date so that it will begin for all fiscal quarters of fiscal
years beginning after June 15, 2000, and will be applicable to the Company's
first quarter of fiscal year 2001. Adoption of FAS 133 will not have a material
impact on the Company's financial position, results of operations or cash
flows.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
(in thousands)
<S> <C> <C>
Furniture........................................... $ 36 $ 88
Equipment........................................... 43 450
Leasehold improvements.............................. 96 96
Software............................................ 20 299
---- ----
195 933
Less accumulated depreciation....................... 42 103
---- ----
$153 $830
==== ====
</TABLE>
NOTE 3--INCOME TAXES
The income tax (benefit) provision consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
(in thousands)
<S> <C> <C>
Current (benefit) provision:
Federal........................................... $(522) $(1,264)
State............................................. (87) (210)
----- -------
Total current (benefit) provision................ (609) (1,474)
Deferred (benefit) provision:
Federal........................................... (132) 18
State............................................. (13) 3
----- -------
Total deferred (benefit) provision............... (145) 21
----- -------
Total current and deferred (benefit) provision..... $(754) $(1,453)
===== =======
Effective tax rate................................. 38.5% 38.5%
===== =======
</TABLE>
The effective tax rate is comprised of a federal rate of 35.0% for the
periods ended December 31, 1998 and June 30, 1999, state taxes net of federal
benefit of 3.6% for the periods ended December 31, 1998 and June 30, 1999; and
all other items comprising (0.1)% for the periods ended December 31, 1998 and
June 30, 1999.
F-39
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The net deferred tax asset recorded in the balance sheet as of December 31,
1998 and June 30, 1999 was $145,000 and $124,000, respectively. The deferred
tax asset consisted of depreciation and accruals for professional fees and
bonuses. The deferred tax asset at December 31, 1998 and June 30, 1999,
reflected above, is realized when included in the consolidated Federal and
certain state income tax returns of Express Scripts. Additionally, the Federal
and state tax benefit recorded by the Company during the periods ended December
31, 1998 and June 30, 1999 are realized when included in the consolidated
Federal and certain state income tax returns of Express Scripts.
NOTE 4--RELATED PARTY TRANSACTIONS
Express Scripts uses a centralized cash management system to finance its
operations. Cash deposits from the Company are deposited into Express Scripts
on a daily basis and Express Scripts funds the Company's accounts payable and
accrued expenses as required. No interest has been charged on transactions with
Express Scripts.
Express Scripts also provides certain centralized general and
administrative functions, including legal, accounting, tax, treasury, risk
management, and employee benefits. Portions of these costs were allocated to
the Company. Allocations for the periods ended December 31, 1998 and June 30,
1999 were $193,000 and $389,000, respectively. The allocations were based on
the Company's relative percentage of selling, general and administrative
expenses to the consolidated selling, general and administrative expenses of
Express Scripts. In the opinion of management, the methods for allocating such
costs to the Company appear reasonable. However, such costs are not necessarily
indicative of the costs that would have been incurred if the Company had
performed these functions.
Express Scripts pays rent expense on behalf of the Company for certain
office space leased by Express Scripts and occupied by the Company. Rent
expense included in the Statement of Operations for the periods ended December
31, 1998 and June 30, 1999 were $0 and $13,027, respectively.
The investment by Parent at December 31, 1998 and June 30, 1999 included
within the Stockholder's Equity section of the Company's Balance Sheet
represents the net intercompany payable from the Company and reflects the
transactions described above.
NOTE 5--COMMITMENTS AND CONTINGENCIES
The Company has non-prescription health, wellness and beauty orders
supplied and fulfilled by an independent pharmacy wholesaler. Express Scripts
dispenses all of the Company's prescription orders. The Company believes other
alternative sources are readily available and that no other concentration risks
exist at December 31, 1998 and June 30, 1999.
The Company has entered into an advertising agreement with a third-party to
be the exclusive online pharmacy for certain sites. The agreement requires the
Company to pay $1,285,000 in equal installments on July 1, 1999, December 31,
1999, March 31, 2000 and June 30, 2000. The agreement also requires the Company
to pay $0.15 per click up to a maximum $3,715,000.
F-40
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1998 and June 30, 1999, the Company was a guarantor of
Express Scripts' $1.05 billion credit facility and $250 million 9 5/8% Senior
Notes due 2009. On August 23, 1999, the $1.05 billion credit facility was
amended to remove the Company as guarantor. Contemporaneously, with this
amendment, the Company is no longer a guarantor for the $250 million 9 5/8%
Senior Notes due 2009 based on provisions within the description of the notes.
NOTE 6--RETIREMENT PLAN
Retirement savings plan
The Company, through Express Scripts, offers all of its full-time employees
a retirement savings plan under Section 401(k) of the Internal Revenue Code.
Employees may elect to enter into a written salary deferral agreement under
which a maximum of 10% of their salary, subject to aggregate limits required
under the Internal Revenue Code, may be contributed to the plan. The Company
matches the first $2,000 of the employee's contribution for the year. For the
periods ended December 31, 1998 and June 30, 1999, the Company made
contributions of approximately $5,700 and $3,200, respectively.
Employee stock purchase plan
The Company, through Express Scripts, offers all of its full-time
employees, excluding certain management level employees, the ability to
purchase shares of Express Scripts' Class A Common Stock through a plan that
qualifies under Section 423 of the Internal Revenue Code. Participating
employees may elect to contribute up to 10% of their salary to purchase common
stock at the end of each six-month participation period at a purchase price
equal to 85% of the fair market value of the common stock at the end of the
participation period.
NOTE 7--STOCK-BASED COMPENSATION PLAN
Express Scripts offers a stock option plan for certain employees through
its Express Scripts, Inc. 1994 Stock Option Plan (the "Plan"), amended in 1995,
1997 and 1998. Under the Plan, the exercise price of the options granted may
not be less than the fair market value of the shares at the time of grant. The
options typically vest over a five-year period from the date of grant and must
be exercised within 10 years from the date of grant.
The Company and Express Scripts applies APB 25, and related interpretations
in accounting for the Plan. Accordingly, no compensation cost has been
recognized for the stock option plan. Had compensation cost for the stock based
compensation plan been determined based on the fair value at the grant dates
for awards under those plans consistent with the method prescribed by FAS 123,
the Company's net loss would have been increased to $1,246,000 for the period
ended December 31, 1998 and $2,417,000 for the six months ended June 30, 1999
on a pro forma basis. Because future options may be granted and vesting
typically occurs over a five year period, the pro forma impact shown is not
necessarily representative of the impact in future years.
The fair value of the options granted (which is amortized to expense over
the option vesting period in determining the pro forma impact), is estimated on
the date of grant using the Black-Scholes multiple option-pricing model with
the following weighted average assumptions for the period
F-41
<PAGE>
YOURPHARMACY.COM, INC.,
A WHOLLY OWNED SUBSIDIARY OF EXPRESS SCRIPTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
ended December 31, 1998 and for the six months ended June 30, 1999: expected
option life of 3-7 years, dividend yield of 0.0%, volatility of 44%, risk free
investment rate of 4.1-5.5%.
NOTE 8--SUBSEQUENT EVENTS
On August 31, 1999, Express Scripts and the Company entered into an Asset
Contribution and Reorganization Agreement (the "Contribution Agreement") with
PlanetRx.com, Inc. ("PlanetRx"), PRX Holdings, Inc. ("Holdings"), and PRX
Acquisition Corp. ("Acquisition Sub"). Pursuant to the Contribution Agreement,
the Company will contribute certain operating assets constituting its e-
commerce business in prescription and non-prescription drugs and health and
beauty aids to Holdings in exchange for 19.9% of the post-initial public
offering common equity of Holdings (the "IPO"). Simultaneously, Acquisition Sub
will merge into PlanetRx and PlanetRx shareholders will receive stock in
Holdings, which will change its name to "PlanetRx.com Inc." As a result of the
transactions, the Company will be a 19.9% shareholder in the new PlanetRx
(formerly Holdings), which will conduct business as an internet pharmacy.
F-42
<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 900,000
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 900,000 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 share
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.
Each of PlanetRx.com, iVillage, Express Scripts, and substantially all the
directors, officers, employees and other stockholders of PlanetRx.com 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 will be 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, will be 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 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.
Concurrently with the underwritten offering, PlanetRx.com is offering
10,335,254 shares of common stock to Express Scripts in a non-underwritten
offering at the initial public offering price.
U-2
<PAGE>
INSIDE BACK COVER
The inside back cover includes:
The PlanetRx.com logo at the upper right corner of the inside back cover,
and the caption "A LEADING INTERNET PHARMACY, INTEGRATING COMMERCE, CONTENT AND
COMMUNITY" is to the left of the logo.
Screen shot of the PlanetRx online store on the upper right side of the page.
To the left of the screen shot is a caption that reads:
"COMMERCE
. Advice and other helpful information about how to use the product
. Specific product information and ingredients
. Related conditions for which the product is often used"
Screen shot of a PlanetRx.com web page containing content on the left side of
the inside back cover. To the right of the screen shot is a caption that reads:
"CONTENT
. Up-to-date, unbiased content in an easy-to-understand format
. Information on symptoms, diagnosis, treatment and alternative care
. An extensive drug information library
. Content is reviewed by our Healthcare Advisory Board comprised of medical
and pharmacy experts"
Screen shots of five satellite site web pages in the lower right corner of the
inside back cover. To the left of the screen shots is a caption that reads:
"COMMUNITY
A family of satellite websites designed to provide an extended community
for people interested in chronic healthcare conditions, with links to
PlanetRx.com for products. Today, diabetes.com, cholestoral.com,
depression.com, obesity.com, arthritis.com, weightloss2000.com and
alzheimers.com are operational"
At the bottom of the inside back cover is a caption that reads:
"ADDITIONAL DOMAINS THAT PlanetRx.com OWNS
<TABLE>
<S> <C> <C> <C> <C>
aids.com infertility.com parkinsons.com osteopathy.com physicians.com
birth.com hepatitis.com hypertension.com podiatry.com pharmacist.com
cancer.com stroke.com impotence.com pollenwatch.com nursing.com
fertility.com epilepsy.com anorexia.com prenatal.com sportsdoc.com"
acne.com rxnet.com
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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................................ 20
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Financial Data.................................................. 23
Selected Unaudited Pro Forma Consolidated Financial Data................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Business................................................................. 33
Management............................................................... 47
Certain Transactions..................................................... 58
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 64
Shares Eligible for Future Sale.......................................... 67
Legal Matters............................................................ 69
Experts.................................................................. 69
Additional Information................................................... 69
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6,000,000 Shares
PlanetRx.com, Inc.
Common Stock
----------------
[COMPANY LOGO]
----------------
Goldman, Sachs & Co.
BancBoston Robertson Stephens
Hambrecht & Quist
William Blair & Company
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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................................................ $ 67,157
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............................................................. $1,200,000
==========
</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 and prior to the holding company
reorganization to be effected at the closing of this offering, 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.
II-1
<PAGE>
2. On September 15, 1998, 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.
3. On October 6, 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 in exchange for services
previously rendered.
4. On January 15, 1999, the company issued and sold an aggregate of
5,200,000 shares of its Series B 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 in connection with an equipment financing arrangement.
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 in
connection with a line of credit.
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.
8. On September 2, 1999, the Company issued and sold 371,103 shares of its
Series D Preferred Stock for an aggregate purchase price of $7.5 million to
iVillage Inc.
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).
2.1 Asset Contribution and Reorganization Agreement between PlanetRx.com,
Inc., PRX Holdings, Inc., PRX Acquisition Corp., yourPharmacy.com,
Inc. and Express Scripts, Inc., dated August 31, 1999.
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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
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 Sublease between Registrant and Rader Companies, dated
May 5, 1999.
10.9** Real Property Sublease between Registrant and Cellegy
Pharmaceuticals, Inc., dated November 6, 1998.
10.10+*** Supply Agreement between Registrant and McKesson U.S. Health Care,
dated January 14, 1999.
10.11** Asset Acquisition Agreement between Registrant and NetHealth.com,
Inc.
10.12** Internet Domain and Trademark Assignment Agreement between
Registrant and Epicenter Communications, Inc.
10.13 Series A Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated September 15, 1998.
10.14 Series B Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated January 15, 1999.
10.15 Series C Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated June 3, 1999.
10.16 Series D Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated September , 1999.
10.17 Agreement between Registrant and Express Scripts, Inc. dated August
31, 1999.
21.1 List of Subsidiaries.
23.1** Consent of Independent Accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
23.3 Consent of Independent Accountants.
24.1 Power of Attorney (see page II-4).
27.1** Financial Data Schedule for EDGAR filing.
</TABLE>
- --------
* To be supplied by amendment.
** Previously filed.
*** Corrected version of previously filed document.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
(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
II-3
<PAGE>
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment No.2 to the Form S-1 registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
city of San Francisco, State of California on September 3, 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 amendment
No. 2 to the Form S-1 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 September 3, 1999
____________________________________ Chairman of the Board of
William J. Razzouk Directors
/s/ Steve Valenzuela Chief Financial Officer, September 3, 1999
____________________________________ Vice President, Finance
Steve Valenzuela and Secretary
/s/ David M. Beirne Director September 3, 1999
____________________________________
David M. Beirne
/s/ Terrence C. Burke Director September 3, 1999
____________________________________
Terrence C. Burke
/s/ Christos M. Cotsakos Director September 3, 1999
____________________________________
Christos M. Cotsakos
/s/ Michael Moritz Director September 3, 1999
____________________________________
Michael Moritz
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1** Form of Underwriting Agreement (preliminary form).
2.1 Asset Contribution and Reorganization Agreement between
PlanetRx.com, Inc., PRX Holdings, Inc., PRX Acquisition Corp.,
yourPharmacy.com, Inc. and Express Scripts, Inc., dated August 31,
1999.
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 Sublease between Registrant and Rader Companies, dated
May 5, 1999.
10.9** Real Property Sublease between Registrant and Cellegy
Pharmaceuticals, Inc., dated November 6, 1998.
10.10+*** Supply Agreement between Registrant and McKesson U.S. Health Care,
dated January 14, 1999.
10.11** Asset Acquisition Agreement between Registrant and NetHealth.com,
Inc.
10.12** Internet Domain and Trademark Assignment Agreement between
Registrant and Epicenter Communications, Inc.
10.13 Series A Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated September 15, 1998.
10.14 Series B Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated January 15, 1999.
10.15 Series C Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated June 3, 1999.
10.16 Series D Stock Purchase Agreement between Registrant and the
Investors named on Schedule thereto, dated September , 1999.
10.17 Agreement betwen Registrant and Express Scripts, Inc. dated August
31, 1999.
21.1 List of Subsidiaries.
23.1** Consent of Independent Accountants.
23.2 Consent of Counsel. Reference is made to Exhibit 5.1.
23.3 Consent of Independent Accountants.
24.1 Power of Attorney (see page II-4).
27.1** Financial Data Schedule for EDGAR filing.
</TABLE>
- --------
* To be supplied by amendment.
** Previously filed.
*** Corrected version of previously filed document.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commision pursuant to the application for
confidential treatment.
<PAGE>
EXHIBIT 2.1
ASSET CONTRIBUTION AND REORGANIZATION AGREEMENT
BETWEEN
PLANETRX.COM, INC.,
PRX HOLDINGS, INC.,
PRX ACQUISITION CORP.
YOURPHARMACY.COM, INC.
AND
EXPRESS SCRIPTS, INC.
August 31, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C> <C>
1. Basic Transactions........................................................ 1
(a) Contribution of Assets by/Assumption of Liabilities of YPC......... 1
(b) The Merger......................................................... 2
(c) The Closing........................................................ 2
(d) Deliveries at the Closing.......................................... 2
2. Representations and Warranties of ESI and YPC............................. 3
(a) Organization of YPC................................................ 3
(b) Authorization of Transaction....................................... 3
(c) Noncontravention................................................... 3
(d) Brokers' Fees...................................................... 3
(e) Title to Assets.................................................... 3
(f) Investment......................................................... 3
(g) Year 2000.......................................................... 4
(h) Disclaimer of Other Representations and Warranties................. 4
3. Representations and Warranties of PlanetRx, Holdings and Merger Sub....... 4
(a) Organization of PlanetRx, Holdings and Merger Sub.................. 4
(b) Authorization of Transaction....................................... 5
(c) Noncontravention................................................... 5
(d) Brokers' Fees...................................................... 5
(e) Valid Issuance of Stock............................................ 5
(f) Litigation......................................................... 5
(g) Compliance with Laws............................................... 5
(h) Year 2000.......................................................... 6
4. Covenants................................................................. 6
(a) General............................................................ 6
(b) Notices and Consents............................................... 6
(c) Full Access........................................................ 6
(d) Notice of Developments............................................. 6
(e) Exclusivity........................................................ 6
(f) Certificate of Incorporation of Holdings........................... 7
(g) ESI Consents....................................................... 7
(h) Registration of Holdings Shares.................................... 7
(i) Lock-up Agreement/NASD Questionnaire............................... 7
(j) YPC Employees...................................................... 8
(k) Board Seat......................................................... 8
(l) Shut-down Costs.................................................... 9
5. Conditions to Obligation to Close......................................... 9
(a) Conditions to Obligation of Holdings............................... 9
(b) Conditions to Obligation of YPC.................................... 10
</TABLE>
i.
<PAGE>
<TABLE>
<CAPTION>
Page
----------
<S> <C> <C>
6. Termination of Agreement.................................................. 11
7. Miscellaneous............................................................. 11
(a) Survival of Representations and Warranties......................... 11
(b) Press Releases and Public Announcements............................ 11
(c) Third-Party Beneficiaries.......................................... 11
(d) Entire Agreement................................................... 11
(e) Succession and Assignment.......................................... 11
(f) Counterparts....................................................... 11
(g) Headings........................................................... 11
(h) Notices............................................................ 11
(i) Governing Law...................................................... 12
(j) Amendments and Waivers............................................. 12
(k) Severability....................................................... 13
(l) Expenses........................................................... 13
(m) Construction....................................................... 13
(n) Incorporation of Exhibits and Schedules............................ 13
(o) Specific Performance............................................... 13
(p) Bulk Transfer Laws................................................. 14
</TABLE>
Exhibit A--Agreement and Plan of Merger
Exhibit B--Registration Rights
Schedule I--Contributed Assets
Schedule II--Assumed Liabilities
ii.
<PAGE>
ASSET CONTRIBUTION AND REORGANIZATION AGREEMENT
Asset Contribution and Reorganization Agreement entered into as of August
31, 1999, by and among PlanetRx.com, Inc., a Delaware corporation ("PlanetRx"),
--------
PRX Holdings, a Delaware corporation ("Holdings"), PRX Acquisition Corp., a
--------
Delaware corporation and a wholly-owned subsidiary of Holdings ("Merger Sub"),
----------
YourPharmacy.com, Inc., a Delaware corporation ("YPC"), and Express Scripts,
---
Inc., a Delaware corporation ("ESI"). PlanetRx, Holdings, Merger Sub, YPC and
ESI are collectively referred to herein as the "Parties," and each individually
as a "Party."
WITNESSETH
WHEREAS, the Boards of Directors of PlanetRx and YPC have determined that
it is in the best interests of their respective stockholders that PlanetRx be
combined with certain assets of YPC's online pharmacy business;
WHEREAS, to effect such combination, PlanetRx has caused Holdings and
Merger Sub to be formed;
WHEREAS, for federal income tax purposes, it is intended that the
Contribution (as defined in Section 1(a)) and the Merger (as defined in Section
1(b)) shall constitute one or more integrated aspects of a transaction
qualifying as a tax-deferred property-for-stock exchange described under Section
351 of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Contribution and the Merger are to occur simultaneously with
the closing of Holdings' initial public offering of Common Stock (the "IPO"),
and as a result of these transactions, the issued and outstanding capital stock
of Holdings immediately after the Merger will be held by YPC, the former
stockholders of PlanetRx and purchasers in the IPO.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the parties agree as follows:
1. Basic Transactions
------------------
(a) Contribution of Assets by/Assumption of Liabilities of YPC. In
----------------------------------------------------------
consideration for the issuance of a certain number of fully paid, non-assessable
shares of common stock of Holdings equal to 19.9% of Holdings' outstanding
common stock immediately after the closing of the IPO (including, at YPC's
option and in its sole discretion, for purposes of calculating the number of
shares outstanding as of the time of the initial closing of the IPO any shares
that may be sold by Holdings pursuant to exercises of the underwriters' over-
allotment option) (the "Holdings Shares"), and the assumption by Holdings of the
liabilities of YPC set forth on Schedule II to this Agreement (the "Assumed
Liabilities"), YPC agrees to assign, transfer, convey, and deliver to Holdings
all of the right, title, and interest in and to the assets of YPC set forth on
Schedule I to this Agreement (the "Contributed Assets"). Holdings will not
assume or have any responsibility with respect to any other obligation or
liability of YPC, including any tax liabilities incurred or accrued prior to the
Closing, not included within the definition of Assumed
1
<PAGE>
Liabilities. The transaction referred to in this Section 1 is referred to herein
as the "Contribution." It is the intention of the parties that YPC shall hold
19.9% of Holdings outstanding common stock immediately after the closing of the
IPO and the transactions contemplated herein, including after any exercise of
the underwriters' over-allotment option in connection with the IPO. In the event
the underwriters' over-allotment option shall not be exercised in full within
the 30-day period after the pricing of the IPO, YPC agrees to return to Holdings
free of charge the number of Holdings Shares as may be necessary to cause YPC's
ownership of Holdings outstanding common stock as of such time not to exceed
19.9%.
(b) The Merger. Holdings, PlanetRx and Merger Sub shall enter into an
----------
Agreement and Plan of Merger (the "Merger Agreement") in the form attached
hereto as Exhibit A, and in compliance with Section 251(g) of the Delaware
---------
General Corporation Law ("Delaware Law"), pursuant to which, among other things,
Merger Sub shall be merged with and into PlanetRx , the separate corporate
existence of Merger Sub shall cease, the PlanetRx stockholders shall receive
shares of Holdings' common stock in exchange for their shares of PlanetRx, and
PlanetRx shall continue as the surviving corporation and a wholly-owned
subsidiary of Holdings (the "Merger").
(c) The Closing. For purposes hereof, the Parties agree that the closing
-----------
of the Merger shall take place immediately prior to the closing of the
Contribution (collectively, the "Closing"), both of which shall take place
-------
immediately prior to the closing of the IPO at the time and place designated for
the closing of the IPO (the "Closing Date").
------------
(d) Deliveries at the Closing. At the Closing,
-------------------------
(i) YPC will deliver to Holdings the various certificates,
instruments, and documents referred to in Section 5(a) below;
(ii) Holdings will deliver to YPC the various certificates,
instruments, and documents referred to in Section 5(b) below;
(iii) YPC will execute, acknowledge, and deliver to Holdings (A)
assignments (including intellectual property transfer documents) in the form
customary for transactions of this type and (B) such other instruments of sale,
transfer, conveyance, and assignment as Holdings and its counsel reasonably may
request;
(iv) Holdings will execute, acknowledge, and deliver to YPC (A) an
assumption in the form customary for transactions of this type and (B) such
other instruments of assumption as YPC and its counsel reasonably may request;
(v) Holdings will deliver to YPC the Holdings Shares; and
(vi) the Parties shall cause the Merger to be consummated by filing
the Merger Agreement with the Secretary of State of the State of Delaware, as
provided in the Merger Agreement.
2
<PAGE>
2. Representations and Warranties of ESI and YPC. YPC and ESI represent and
---------------------------------------------
warrant to PlanetRx, Holdings and Merger Sub that the statements contained in
this Section 2 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 2).
(a) Organization of YPC. YPC and ESI are corporations duly organized,
-------------------
validly existing, and in good standing under the laws of their respective
jurisdictions of incorporation.
(b) Authorization of Transaction. YPC and ESI each have full power and
----------------------------
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform their respective obligations hereunder. Without
limiting the generality of the foregoing, ESI, as YPC's sole stockholder, has
duly authorized the execution, delivery, and performance of this Agreement by
YPC. This Agreement constitutes the valid and legally binding obligation of each
of YPC and ESI, enforceable in accordance with its terms and conditions.
(c) Noncontravention. The execution and delivery of this Agreement,
----------------
consummation of the transactions contemplated hereby, and compliance with the
terms and provisions hereof will not conflict with or result in a breach of the
terms and conditions of, or constitute a default under the Certificate of
Incorporation or Bylaws of YPC or ESI or of any contract or agreement to which
YPC or ESI are now a party, except where such conflict, breach or default of any
such contract or agreement, either individually or in the aggregate, would not
have a material adverse effect on the YPC's or ESI's business, financial
condition or results of operations or the Contributed Assets or Assumed
Liabilities; provided, however, that each of YPC's and ESI's performance under
-------- -------
this Agreement shall require the consent of (i) the lenders under ESI's credit
agreement, dated as of April 1, 1999, among Express Scripts, Inc., the lenders
listed therein, Credit Suisse First Boston, as lead arranger, administration
agent and collateral agent, Bankers Trust Company, as syndication agent, BT Alex
Brown, Incorporated, as co-arranger, the First National Bank of Chicago, as
documentation agent, and Mercantile Bank N.A., as documentation agent; and (ii)
the holders of ESI's 9-5/8% Senior Notes due 2009 (collectively the "ESI
Consents").
(d) Brokers' Fees. Neither YPC nor ESI has any liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Holdings could become
liable or obligated.
(e) Title to Assets. YPC has good and marketable title to all of the
---------------
Contributed Assets, free and clear of any restriction on transfer or any
mortgage, pledge, lien, encumbrance, charge, or other security interest,
other than (a) mechanic's, materialmen's, and similar liens, (b) liens for taxes
- ----------
not yet due and payable or for taxes that the taxpayer is contesting in good
faith through appropriate proceedings, (c) purchase money liens and liens
securing rental payments under capital lease arrangements, and (d) other liens
arising in the ordinary course of business and not incurred in connection with
the borrowing of money.
(f) Investment. YPC (i) is acquiring the Holdings Shares solely for its
----------
own account for investment purposes, and not with a view to the distribution
thereof (except to YPC's affiliates, including ESI), (ii) is a sophisticated
investor with knowledge and experience in business and
3
<PAGE>
financial matters, (iii) has received certain information concerning Holdings
and has had the opportunity to obtain additional information as desired in order
to evaluate the merits and the risks inherent in investing in the Holdings
Shares, and (iv) is an Accredited Investor as such term is defined in Rule 502
under the Securities Act of 1933, as amended.
(g) Year 2000. YPC has developed a plan (the "YPC-Y2K Plan") intended to
---------
ensure that all computer hardware and software used in and material to its
business is designed to be Year 2000 Compliant. The YPC-Y2K Plan includes
reasonable steps to determine whether the failure of any suppliers or customers
with which YPC has a material relationship to be Year 2000 Compliant would have
or would reasonably be expected to have a material adverse effect on YPC and
assuming the consummation of the YPC-Y2K Plan, the occurrence of calendar year
2000 will not cause or will not reasonably be expected to have a material
adverse effect on YPC. For purposes of this subsection and Section 3(h), "Date
Data" means any data of any kind that includes date information or which is
otherwise derived from, dependent on or related to date information; "Date-
Sensitive System" means any software, microcode or hardware system or component,
including any electronic or electronically controlled system or component that
processes any Date Data and that is installed, in development or on order, for
internal or external use, or the provision or operation of which provides a
benefit to customers, vendors, suppliers or any other party; and "Year 2000
Compliant" means (i) with respect to Date Data, that such data is in proper
format and accurate for all dates in the twentieth and twenty-first centuries,
and (ii) with respect to Date-Sensitive Systems, that each such system
accurately processes all Date Data, including for the twentieth and twenty-first
centuries, without loss of any functionality or performance, including, without
limitation, calculating, comparing, sequencing, storing and displaying such Date
Data (including all leap year considerations), when used as a stand-alone system
or in combination with other software or hardware.
(h) Disclaimer of Other Representations and Warranties. Except as
--------------------------------------------------
expressly set forth in this Section 2, YPC and ESI make no representation or
warranty, express or implied, at law or in equity, in respect of any of YPC's
assets (including, without limitation, the Contributed Assets), liabilities or
operations, including, without limitation, with respect to merchantability or
fitness for any particular purpose, and any such other representations or
warranties are hereby expressly disclaimed. Holdings hereby acknowledges and
agrees that, except to the extent specifically set forth in this Section 2,
Holdings is purchasing the Contributed Assets on an "as-is, where-is" basis.
Without limiting the generality of the foregoing, YPC and ESI make no
representation or warranty regarding any assets other than the Contributed
Assets or any liabilities other than the Assumed Liabilities, and none shall be
implied at law or in equity.
3. Representations and Warranties of PlanetRx, Holdings and Merger Sub. Each
-------------------------------------------------------------------
of PlanetRx, Holdings and Merger Sub represents and warrants to YPC and ESI that
the statements contained in this Section 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Section 3).
(a) Organization of PlanetRx, Holdings and Merger Sub. Each of PlanetRx,
-------------------------------------------------
Holdings and Merger Sub is a corporation duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation.
4
<PAGE>
(b) Authorization of Transaction. Each of PlanetRx, Holdings and Merger
----------------------------
Sub has full power and authority (including full corporate power and authority)
to execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of each of
PlanetRx, Holdings and Merger Sub, enforceable in accordance with its terms and
conditions.
(c) Noncontravention. The execution and delivery of this Agreement,
----------------
consummation of the transactions contemplated hereby, and compliance with the
terms and provisions hereof will not conflict with or result in a breach of the
terms and conditions of, or constitute a default under the Certificate of
Incorporation or Bylaws of PlanetRx, Holdings or Merger Sub or of any contract
or agreement to which any of them is now a party, except where such conflict,
breach or default of any such contract or agreement, either individually or in
the aggregate, would not have a material adverse effect on such party's
business, financial condition or results of operations.
(d) Brokers' Fees. None of PlanetRx, Holdings and Merger Sub has any
-------------
liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement for which
YPC or ESI could become liable or obligated; without limiting the generality of
the foregoing, YPC and ESI shall have no liability or obligation with respect to
any fee owed by PlanetRx or Holdings to William Blair & Company in connection
with the transactions contemplated under this Agreement.
(e) Valid Issuance of Stock. The Holdings Shares, when issued, sold and
-----------------------
delivered in accordance with the terms hereof for the consideration expressed,
will be duly and validly issued, fully paid and nonassessable and, based in part
upon the representations of YPC in this Agreement, will be issued in compliance
with all applicable federal and state securities laws.
(f) Litigation. Except as set forth in Holdings' registration statement
----------
prepared in connection with the IPO, as filed with the Securities and Exchange
Commission ("SEC") and amended from time to time (the "Registration Statement"),
there are no actions, proceedings or investigations pending or, to the best of
Holdings' or PlanetRx's knowledge, any basis therefor or threat thereof, against
or affecting Holdings or PlanetRx that, either in any case or in the aggregate,
would result in any material adverse change in the business, financial
condition, or results of operations of Holdings or PlanetRx.
(g) Compliance with Laws. PlanetRx and Holdings are not in violation of
--------------------
any applicable statute, rule, regulation, order or restriction (including any
resident and non-resident pharmacy laws) of any domestic government or any
instrumentality or agency thereof in respect of the conduct of their businesses
or the ownership of their properties which violation would materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of PlanetRx or Holdings. No governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection with
the execution and delivery of this Agreement and the issuance of the Holdings
Shares, except such as have been duly and validly obtained or filed, or with
respect to any filings that must be made after the Closing, as will be filed in
a timely manner. PlanetRx and Holdings have all franchises, permits, licenses
and any similar authority necessary for the conduct of their businesses as now
being conducted, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of PlanetRx and
5
<PAGE>
Holdings and each believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be conducted.
(h) Year 2000. Each of PlanetRx and Holdings has developed a plan (the
---------
"Y2K Plan") intended to ensure that all computer hardware and software used in
and material to their businesses is designed to be Year 2000 Compliant. The Y2K
Plans include reasonable steps to determine whether the failure of any suppliers
or customers with which PlanetRx, Holdings or any subsidiary has a material
relationship to be Year 2000 Compliant would have or would reasonably be
expected to have a material adverse effect on PlanetRx or Holdings and assuming
the consummation of the Y2K Plans, the occurrence of calendar year 2000 will not
cause or will not reasonably be expected to have a material adverse effect on
PlanetRx or Holdings.
4. Covenants.
---------
(a) General. Prior to the Closing, each of the Parties will use its
-------
reasonable best efforts to take all action and to do all things necessary,
proper, or advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Section 5 below).
(b) Notices and Consents. Prior to the Closing, YPC and ESI will give any
--------------------
notices to third parties, and each of YPC and ESI will use its reasonable best
efforts to obtain any third party consents, that Holdings reasonably may request
in connection with the Contribution. Each of the Parties will give any notices
to, make any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the Contribution and the Merger. Without limiting the
generality of the foregoing, each of the Parties will file any Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "Hart-Scott-Rodino Act"), will use its best efforts to
obtain an early termination of the applicable waiting period, and will make any
further filings pursuant thereto that may be necessary, proper, or advisable in
connection therewith.
(c) Full Access. Prior to the Closing, YPC will permit representatives of
-----------
PlanetRx and Holdings to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of YPC, to all
premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to the Contributed Assets or Assumed
Liabilities.
(d) Notice of Developments. Each Party will give prompt written notice to
----------------------
the other Parties of any material adverse development causing a breach of any of
its own representations and warranties in Section 2 and Section 3 above.
(e) Exclusivity. YPC and ESI will not (i) solicit, initiate, or encourage
-----------
the submission of any proposal or offer from any individual, a partnership, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof) ("Person") relating to the acquisition
of any capital stock or other voting securities, or any substantial
6
<PAGE>
portion of the assets, of YPC (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. YPC will notify Holdings immediately
if any Person makes any proposal, offer, inquiry, or contact with respect to any
of the foregoing.
(f) Certificate of Incorporation of Holdings. Immediately prior to the
----------------------------------------
filing of the Merger Agreement with the Delaware Secretary of State, PlanetRx
shall cause the Certificate of Incorporation of Holdings to be amended and
restated to read as set forth in exhibit 3.2 to the Registration Statement.
Additionally, prior to or at the filing of the Merger Agreement with the
Delaware Secretary of State, the corporate name of Holdings shall be changed to
"PlanetRx.com, Inc."
(g) ESI Consents. ESI shall use its reasonable best efforts to obtain the
-------------
ESI Consents within 21 days after the date of this Agreement.
(h) Registration of Holdings Shares. Holdings and PlanetRx agree that, to
-------------------------------
the extent allowed by the SEC, Holdings will register the Holdings Shares in the
IPO. Regardless of whether the Holdings Shares are registered in the IPO, YPC
shall be made a party to the Investors Rights Agreement (the "Rights Agreement")
dated as of June 3, 1999 between Holdings (as successor to PlanetRx) and certain
investors of Holdings identified in Schedule A thereto, which Rights Agreement
shall have been amended such that (a) the registration rights provided for in
Section 1.4 of the Rights Agreement shall also be made available upon the
written request of Holders of Registrable Securities with an anticipated
aggregate offering price of at least $2,000,000 and (b) the rights provided for
in Section 1 shall not terminate with respect to YPC until five (5) years
following the consummation of the IPO. In addition, Holdings and PlanetRx
further agree that they shall not consent to any amendment or waiver in
connection with the Rights Agreement the effect of which would materially
adversely affect YPC's substantive rights under said Rights Agreement, unless
YPC has consented to such amendment or waiver. Additionally, if Holdings is not
able to register the Holdings Shares in the IPO, Holdings and PlanetRx agree
that, upon request by YPC, Holdings will effect registration of the Holdings
Shares in accordance with the provisions contained in Exhibit B attached hereto.
---------
If Holdings is not able to register the Holdings Shares in the IPO, then YPC
understands and agrees that (i) the Holdings Shares will be characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from Holdings in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act only in certain limited
circumstances, and (ii) each certificate representing the Holdings Shares and
any other securities issued in respect of the Holdings Shares upon any stock
split, stock dividend, recapitalization, merger or similar event (unless no
longer required in the opinion of counsel for Holdings) shall be stamped or
otherwise imprinted with appropriate legends mandated by federal and state
securities laws.
(i) Lock-up Agreement/NASD Questionnaire. Prior to the Closing, YPC shall
------------------------------------
execute a 180-day lock-up agreement with respect to the IPO in the form signed
by Holdings' officers, directors and other stockholders, except as provided in
Section 1(a) above. Additionally, YPC shall complete and deliver to Holdings
such questionnaires and other
7
<PAGE>
information reasonably and customarily requested from stockholders in connection
with an initial public offering of common stock, including a form of NASD
questionnaire.
(j) YPC Employees. Immediately after the Closing, Holdings shall offer
-------------
employment to all YPC employees. Holdings shall reimburse YPC for any severance
costs incurred by YPC for employees who do not accept employment with Holdings,
up to a maximum of $2,500,000. Effective at the Closing, the YPC's Stock
Option/Stock Issuance Plan (the "YPC Stock Plan") and each outstanding option to
purchase shares of YPC Common Stock under the YPC Stock Plan, whether vested or
unvested, will be assumed by Holdings, and such obligations shall be included
within the Assumed Liabilities; provided, however, that the number of shares
-----------------
underlying such assumed options shall not exceed 3.6% of Holdings' outstanding
common stock after giving effect to the closing of the IPO and the issuance of
the Holdings Shares. Each such option so assumed by Holdings under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the YPC Stock Plan and the applicable stock option
agreement immediately prior to the Closing, except that the number of shares
subject to said options shall be adjusted such that the total number of shares
underlying said options shall equate to approximately 3.6% of the total number
of PlanetRx shares outstanding immediately after the closing of the IPO
(excluding any over-allotment shares) and the issuance of the Holdings Shares
(excluding any over-allotment shares) to YPC, and the per share exercise price
thereof shall be adjusted accordingly. Consistent with the terms of the YPC
Stock Plan and the documents governing the outstanding options under such plan,
the Closing will not terminate any of the outstanding options under the YPC
Stock Plan or the shares of Holdings' common stock which will be subject to
those options upon the Holdings's assumption of the options in connection with
this Agreement. After the Closing, Holdings will issue to each person who,
immediately prior to the Closing was a holder of an outstanding option under the
YPC Stock Plan a document in form and substance satisfactory to YPC evidencing
the foregoing assumption of such option by Holdings. On or before the Closing
Date, Holdings will reserve a sufficient number of shares of its authorized but
unissued common stock to cover the exercise of all of such assumed options. The
names of employees and the number of options granted by YPC to each shall be
specified in a schedule to be delivered by YPC prior to Closing.
(k) Board Seat. Holdings hereby agrees that ESI, or its designee, shall
----------
be entitled, from and after the Closing, to designate one member of the Board of
Directors of Holdings, such member to be reasonably acceptable to Holdings, it
being understood that Barrett A. Toan or any senior or executive vice president
of ESI shall be deemed acceptable to Holdings (such director being referred to
herein as the "Stockholder Director"). Notwithstanding the foregoing, if at any
time ESI's percentage beneficial ownership of Holdings' outstanding common stock
is less than five percent (5%), ESI thereafter shall not be entitled to
designate a director. The Stockholder Director shall be entitled to the same
indemnification, compensation and other benefits provided to all other non-
employee members of Holdings' Board of Directors. In accordance with the
foregoing, Holdings hereby agrees that its Board of Directors will take all
action necessary such that upon the fifth (5th) business day following the
Closing, Holdings' Board of Directors shall be increased in size, if necessary,
and the person designated by ESI shall be elected as a director effective upon
such date. Following the Closing, Holdings shall cause (i) the person designated
by ESI as a director to be included (consistent with applicable law and
Holdings' Certificate of Incorporation) in the group of nominees who are
recommended for election to the Board of Directors by the management of Holdings
and included in Holdings' proxy statement pursuant to
8
<PAGE>
the Securities Exchange Act of 1934, as amended, at each meeting of stockholders
of Holdings when directors are to be elected, and (ii) at any special meeting of
the Board of Directors held as soon as practicable after the creation of any
vacancy as a result of the death, resignation or removal of the Stockholder
Director, the appointment of such person or persons as are designated by ESI to
fill any such vacancy. Unless written notice, signed by the President of ESI,
designating another individual shall be received by Holdings, the Stockholder
Director shall be Barrett A. Toan.
(l) Shut-down Costs. Holdings shall reimburse YPC for any costs
---------------
relating to terminating any of YPC's functions in connection with the
Contributions, not to exceed $500,000 (exclusive of severance costs set forth in
Section 4(j)).
5. Conditions to Obligation to Close.
----------------------------------
(a) Conditions to Obligation of Holdings. The obligation of Holdings to
------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 2 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) YPC shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) YPC shall have procured all of the third party consents
specified in Section 4(b) above;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of Holdings to own the
Contributed Assets;
(v) YPC shall have delivered to Holdings a certificate to the
effect that each of the conditions specified above in Section 5(a)(i)-(iv) is
satisfied in all respects;
(vi) all authorizations, approvals or permits, if any, of any
governmental authority or regulatory body that are required in connection with
transactions to be consummated pursuant to this Agreement (including, if
applicable, the expiration of any waiting period under the Hart-Scott-Rodino
Act) shall have been duly obtained and shall be effective on and as of the
Closing; and
(vii) The offer and sale of the Holdings Shares to YPC pursuant to
this Agreement shall be either (i) registered under the Securities Act or (ii)
exempt from the registration requirements of the Securities Act and the
registration and/or qualification requirements of all applicable state
securities laws.
9
<PAGE>
(b) Conditions to Obligation of YPC. The obligation of YPC to consummate
-------------------------------
the transactions to be performed by it in connection with the Closing is subject
to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) Holdings and PlanetRx shall have performed and complied with
all of its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(iv) Holdings and PlanetRx shall have delivered to YPC a
certificate to the effect that each of the conditions specified above in Section
5(b)(i)-(iii) is satisfied in all respects;
(v) YPC and ESI shall have obtained the ESI Consents;
(vi) all authorizations, approvals or permits, if any, of any
governmental authority or regulatory body that are required in connection with
transactions to be consummated pursuant to this Agreement (including, if
applicable, the expiration of any waiting period under the Hart-Scott-Rodino
Act) shall have been duly obtained and shall be effective on and as of the
Closing;
(vii) all actions to be taken by PlanetRx, Holding and Merger Sub in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to YPC;
(viii) The offer and sale of the Holdings Shares to YPC pursuant to
this Agreement shall be either (i) registered under the Securities Act or (ii)
exempt from the registration requirements of the Securities Act and the
registration and/or qualification requirements of all applicable state
securities laws; and
(ix) The IPO shall have occurred.
YPC may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
10
<PAGE>
6. Termination of Agreement. YPC may terminate this Agreement by giving
------------------------
written notice to Holdings if the Closing shall not have occurred within 120
days of the date of this Agreement. If the failure to close does not occur
through the fault of YPC or ESI, PlanetRx shall pay YPC a termination fee of
10,000,000.
7. Miscellaneous.
-------------
(a) Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the parties contained in this Agreement shall survive the Closing
hereunder.
(b) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this without the prior written approval of the other Party; provided, however,
-----------------
that any Party may make any public disclosure it believes in good faith is
required by applicable law (including its reporting obligations under the
Securities Exchange Act of 1934, as amended) or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Party prior to making the
disclosure).
(c) Third-Party Beneficiaries. This Agreement shall not confer any rights
-------------------------
or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party, except that YPC may assign any of its rights and interests
in this Agreement (including its registration rights as set forth in Section 4),
to ESI.
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
11
<PAGE>
If to YPC:
----------
Barrett A. Toan
c/o Express Scripts, Inc.
13900 Riverport Drive
St. Louis, MO 63043
fax: (314) 770-1581
Copies to:
----------
Richard R. Plumridge, Esq. Express Scripts, Inc.
Brobeck, Phleger & Harrison, LLP 13900 Riverport Drive
370 Interlocken Blvd., Suite 500 St. Louis, MO 63043
Broomfield, CO 80021 Attention: General Counsel
fax: (303) 410-2199 Fax: (314) 702-7120
If to the PlanetRx, Holdings or Merger Sub:
-------------------------------------------
William J. Razzouk
PlanetRx
349 Oyster Point Blvd., Suite 201
South San Francisco, CA 94080
Fax: (650) 616-1535
Copy to:
--------
Jeffrey P. Higgins
Gunderson Dettmer
155 Constitution Drive
Menlo Park, CA 94025
Fax: (650) 321-2800
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Delaware.
(j) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by
PlanetRx, Holdings and Merger Sub and YPC. YPC may consent to any such amendment
at any time prior to the Closing with
12
<PAGE>
the prior authorization of its board of directors; provided, however, that any
amendment effected after YPC Stockholders have approved this Agreement will be
subject to the restrictions contained in the Delaware General Corporation Law.
No waiver by any Party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of PlanetRx, Holdings and Merger Sub on the one hand,
--------
and YPC on the other hand, will bear his or its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. YPC agrees that none of its
Subsidiaries has borne or will bear any of the costs and expenses of YPC and YPC
Stockholders (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby. YPC also agrees
that it has not paid any amount to any third party, and will not pay any amount
to any third party until after the Closing, with respect to any of the costs and
expenses of YPC and YPC Stockholders (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
(m) Construction. The Parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees
--------------------
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter [(subject to the provisions set forth in Section 8(p)
below)], in addition to any other remedy to which it may be entitled, at law or
in equity.
13
<PAGE>
(p) Bulk Transfer Laws. Holdings acknowledges that YPC will not comply
------------------
with the provisions of any bulk transfer laws of any jurisdiction in connection
with the transactions contemplated by this Agreement.
*****
14
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
PLANETRX.COM, INC.
By:
-----------------------------------------
Title:
-----------------------------------------
PRX HOLDINGS, INC.,
By:
-----------------------------------------
Title:
-----------------------------------------
PRX ACQUISITION CORP.
By:
-----------------------------------------
Title:
-----------------------------------------
YOURPHARMACY.COM, INC.
By:
-----------------------------------------
Title:
-----------------------------------------
EXPRESS SCRIPTS, INC.
By:
-----------------------------------------
Title:
-----------------------------------------
15
<PAGE>
Exhibit A
---------
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ( the "Agreement") is made and entered
into this __ day of ___, 1999 by and between PRX Acquisition Corp., a Delaware
corporation (the "Disappearing Corporation"), PlanetRx.com, Inc., a Delaware
corporation (the "Surviving Corporation") and PRX Holdings, Inc., a Delaware
corporation ("Parent Corporation").
R E C I T A L S
- - - - - - - -
A. The Surviving Corporation has the authority to issue ____ shares of
common stock, par value $.0001 per share, of which there are 100 shares issued
and outstanding as of the date hereof ("Company Common Stock").
B. The Disappearing Corporation has the authority to issue 100 shares of
common stock, no par value, of which there are 100 shares issued and outstanding
as of the date hereof.
C. The Board of Directors of each of the Parent Corporation, the Surviving
Corporation and the Disappearing Corporation deem it advisable and in the best
interest of the Surviving Corporation and the Disappearing Corporation that the
Disappearing Corporation be merged into and with the Surviving Corporation as
permitted by the Delaware General Corporation Law. The Surviving Corporation and
the Disappearing Corporation are sometimes collectively referred to herein as
the "Constituent Corporation".
D. This Agreement has been approved by the Board of Directors of each of
the Parent Corporation, the Surviving Corporation and the Disappearing
Corporation and by the stockholders of each of the Constituent Corporations.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the Disappearing Corporation and the Surviving
Corporation agree to merge pursuant to the following terms and conditions:
(a) Merger.
------
(i) Effect of Merger. As of the Effective Date (defined in Section
----------------
1.2), the Disappearing Corporation shall be merged into and with the Surviving
Corporation (the "Merger"). The Surviving Corporation shall survive the Merger
and the separate corporate existence of the Disappearing Corporation shall
cease.
(ii) Effective Date. The date on which the Merger occurs and becomes
--------------
effective is hereby defined to be and is hereinafter referred to as the
Effective Date. The Merger
A-1
<PAGE>
shall occur and be effective on the date that this Agreement and Plan of Merger
is filed with the Delaware Secretary of State.
(iii) Surviving Corporation. PlanetRx.com, Inc., a Delaware
---------------------
corporation, as the Surviving Corporation, shall continue its corporate
existence under the laws of the State of Delaware under the name
"______________" upon the effective date of the Merger pursuant to the
provisions of the Delaware General Corporation Law.
(b) Amendment of Articles of Incorporation.
--------------------------------------
The Articles of Incorporation of the Surviving Corporation shall be amended
to real in full as set forth in Exhibit "A" hereto.
-----------
(c) Effect of Merger on Outstanding Shares.
--------------------------------------
On the Effective Date, each share of Company Common Stock issued and
outstanding immediately prior to the Merger, shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become one (1) fully paid and nonassessable shares of common stock of the Parent
Corporation, par value $.0001 per share. On the Effective Date, each share of
the common stock of the Disappearing Corporation issued and outstanding
immediately prior to the Merger shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and become one fully
paid and nonassessable share of common stock, par value $.0001 per share, of the
Surviving Corporation. On the Effective Date, each share of Company Common
Stock owned by Parent Corporation or any subsidiary of Parent Corporation or
held in treasury immediately prior to the Effective Date, if any, shall be
cancelled and cease to exist from and after the Effective Date. From and after
the Effective Date, all Company Common Stock outstanding prior to the Merger
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of a certificate representing shares
of Company Common Stock shall cease to have any rights with respect thereto,
except the right to receive in exchange thereof, upon surrender thereof to
Parent Corporation, a certificate of certificates representing the number of
whole shares of Parent Corporation Common Stock to which such holder is entitled
pursuant to this Section 3.
(d) Transfer Provisions.
-------------------
(iv) Transfer of Assets and Liabilities. On the Effective Date, the
----------------------------------
rights, privileges, powers, property and franchises and all other interests of
the Constituent Corporations shall be transferred to, vested in and possessed by
the Surviving Corporation, subject to all the liabilities, duties and
restrictions of or upon each of the Constituent Corporations; and all debts due
to each of the Constituent Corporations on whatever account, and all things in
action or belonging to each of the Constituent Corporations shall be transferred
to and vested in the Surviving Corporation. All property, rights, privileges,
powers and franchises, and every other interest shall thereafter be the property
of the Surviving Corporation as they were of the Constituent Corporations, and
all title to real property vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; provided, however, that the liabilities of the Constituent
-------- -------
Corporations and the officers and directors shall not be affected, and all
rights of creditors, and all liens upon any property of either
<PAGE>
of the Constituent Corporations, shall be preserved unimpaired, and any claim,
action or proceeding existing, or pending by or against either of the
Constituent Corporations may be prosecuted to judgment as if such Merger had not
taken place except as they may be modified with the consent of such creditors,
and all debts, liabilities and duties of or upon each of the Constituent
Corporations shall attach to the Surviving Corporation, and may be enforced
against it to the same extent as if such debt, liabilities and duties had been
incurred or contracted by the Surviving Corporation.
(v) Further Actions. Each of the parties hereto shall use its best
---------------
efforts to take all such action as may be necessary or appropriate to effectuate
the Merger in accordance with this Agreement. If, at any time after the
Effective Date, any further action may be necessary or appropriate to vest,
perfect, confirm or assure the Surviving Corporation's title to and possession
of all of said property, rights, privileges, immunities, powers and franchises,
or otherwise to carry out the intent and purposes of this Agreement, the
officers of the Surviving Corporation are fully authorized, in the name and on
behalf of each Constituent Corporation or otherwise, to take, and shall take,
all such lawful and necessary action.
(e) Miscellaneous Provisions.
------------------------
(vi) Expenses. Except as otherwise expressly provided herein, each
--------
of the Surviving Corporation and the Disappearing Corporation shall pay all of
their own expenses (including attorneys' fees) incurred in connection with the
negotiation of this Agreement, the performance of their respective obligations
under this Agreement, and the consummation of the transactions contemplated
hereby and thereby (whether consummated or not).
(vii) Governing Law. This Agreement and the rights and obligations
-------------
hereunder of the parties hereto shall be governed by and construed in accordance
with the laws of the State of Delaware.
(viii) Headings. The various headings used in this Agreement are
--------
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement or any provision hereof.
(ix) Counterparts. This Agreement may be executed simultaneously
------------
in two or more counterparts, each of which shall be deemed to be an original
instrument, but all of such counterparts together shall constitute one and the
same instrument.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be executed by the officers set forth below as of the day and year
first above written.
"SURVIVING CORPORATION" PLANETRx.COM, INC., a Delaware corporation
By: _____________________________
Chairman of the Board and
Chief Executive Officer
"DISAPPEARING CORPORATION" PRX ACQUISITION CORP., a Delaware corporation
By: _____________________________
Chairman of the Board
By: _____________________________
Secretary
"PARENT CORPORATION" PRX HOLDINGS, INC., a Delaware corporation
By: _____________________________
Chairman of the Board
By: _____________________________
Secretary
<PAGE>
EXHIBIT B
---------
1. Registration Rights. Holdings covenants and agrees as follows:
-------------------
1.1 Definitions. For purposes of this Exhibit B, capitalized terms
----------- ---------
used herein and not otherwise defined shall have the meanings ascribed to them
in the Asset Contribution and Reorganization Agreement between Holdings and YPC
to which this Exhibit B is attached. In addition, the following terms used
---------
herein shall have the following meanings:
(a) The term "Form S-1" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which does not permit inclusion or incorporation of
substantial information by reference to other documents filed by Holdings with
the SEC.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by Holdings with the SEC.
(c) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
(d) 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.
(e) The term "stock" means the Holdings Shares, as defined in
the Asset Contribution and Reorganization Agreement
1.2 Request for Registration. As soon as practicable after the
------------------------
Closing, Holdings shall effect a registration on a Form S-1 and any related
qualification or compliance with respect to one half of the Stock and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of such Stock. Notwithstanding anything to
the contrary in this Section 1.2, Holdings shall not be obligated to effect any
such registration, qualification or compliance, pursuant to this Section 1.2:
(i) if Holdings shall furnish to YPC a certificate signed by the President of
Holdings stating that, in the good faith judgment of the Board of Directors of
Holdings, such registration should be deferred due to material events directly
relating to Holdings, in which event Holdings shall have the right to defer the
filing of the Form S-1 for a period of not more than 90 days after receipt of
the request of YPC under this Section 1.2 (provided, however, that Holdings may
defer such registration only once); or (ii) in any particular jurisdiction in
which Holdings would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
1.3 Obligations of Holdings. In connection with the registration on
-----------------------
Form S-1, Holdings shall:
B-1
<PAGE>
(a) Prepare and file with the SEC a Form S-1 with respect to
such Stock and use its best efforts to cause such registration statement to
become effective as soon as reasonably practicable but in no event later than
one hundred and eighty (180) days after the Closing. Holdings shall keep such
registration statement effective until the earlier of (i) two (2) years after
the Closing, (ii) the distribution of all of the Stock as contemplated in the
registration statement has been completed, and (iii) the date which all shares
of the Stock held by YPC may immediately be sold under Rule 144 during any 90-
day period.
(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 YPC such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as YPC may reasonably request in order to
facilitate the disposition of the Stock.
(d) Use its best 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 YPC; provided
that Holdings 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) Notify YPC covered by such registration statement at any
time when a prospectus relating thereto is required to be delivered under the
Act of 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.
(f) Cause all such Stock registered pursuant hereunder to be
listed on each securities exchange on which similar securities issued by
Holdings are then listed.
(g) Provide a transfer agent and registrar for all of the Stock
registered pursuant hereunder and a CUSIP number for all such Stock, in each
case not later than the effective date of such registration.
1.4 Investor Obligation to Furnish Information. It shall be a
------------------------------------------
condition precedent to the obligations of Holdings to take any action pursuant
hereto with respect to the Stock that YPC shall furnish to Holdings such
information regarding itself, the Stock, and the intended method of disposition
of such securities as shall be required to effect the registration of such
Stock.
1.5 Expenses of Registration. All expenses incurred in connection
------------------------
with registrations, filings or qualifications pursuant hereto, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for Holdings (including
fees and disbursements of counsel for Holdings in its capacity as
<PAGE>
counsel to YPC hereunder but excluding the fees and disbursements of any other
counsel for YPC) shall be borne by Holdings.
1.6 Indemnification. In the event any Stock is included in a
---------------
registration statement under Section 1.2:
(a) To the extent permitted by law, Holdings will indemnify and
hold harmless YPC, any underwriter (as defined in the Act) for YPC and each
person, if any, who controls YPC 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 other
federal or state law, 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 Holdings of the Act, the 1934 Act,
any state securities law or any rule or regulation promulgated under the Act,
the 1934 Act or any state securities law; and Holdings will pay to YPC, or such
underwriter or controlling person, as incurred, 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 (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 Holdings (which consent shall not
be unreasonably withheld), nor shall Holdings 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 which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Investor, underwriter or controlling person.
(b) To the extent permitted by law, YPC will indemnify and hold
harmless Holdings, each of its directors, each of its officers who has signed
the registration statement, each person, if any, who controls Holdings within
the meaning of the Act, any underwriter, and any controlling person of any such
underwriter, 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 other federal or state law, 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 Investor expressly for use in connection with such
registration; and each such Investor will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection (b), in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection (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 YPC, which consent shall not be
unreasonably withheld; provided, that, in no event shall any indemnity under
this subsection (b) exceed the gross proceeds from the offering received by YPC.
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section 1.6 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 1.6, 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 which 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
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
1.6, 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 1.6.
(d) If the indemnification provided for in this Section 1.6 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
therein, 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 an 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 Holdings and YPC under this Section 1.6
shall survive the completion of any offering of the Stock in a registration
statement pursuant hereto, and otherwise.
1.7 Termination. Holdings' obligation to register the Stock pursuant
-----------
to this agreement shall terminate on the earlier of (i) the second anniversary
of the Closing and (ii) the date on which all shares of the Stock held by YPC
may immediately be sold under Rule 144 during any 90-day period.
<PAGE>
SCHEDULE I
CONTRIBUTED ASSETS
The amounts included represent the balance of the contributed assets as of June
30, 1999.
A. Prepaid Expenses
<TABLE>
<S> <C>
Jupiter Communications, Inc. $30,983
=================
B. Furniture and Fixtures, net $81,307
=================
</TABLE>
<TABLE>
<CAPTION>
Sys No. 8. Acq. Date 9. Description
- --------------- --------- -----------
<S> <C> <C>
87 02/01/95 Bus Essen - 4-Drawer Lateral Firefile
72 05/01/99 Office Solutions- workstations 6'x5.5' work areas
73 05/01/99 Office Solutions- workstations 6'x5.5' work areas
74 05/01/99 Office Solutions- workstations 6'x5.5' work areas
75 05/01/99 Office Solutions- workstations 6'x5.5' work areas
76 05/01/99 Office Solutions- workstations 6'x5.5' work areas
77 05/01/99 Office Solutions- workstations 6'x5.5' work areas
78 05/01/99 Office Solutions- workstations 6'x5.5' work areas
79 05/01/99 Office Solutions- workstations 6'x5.5' work areas
80 05/01/99 Office Solutions- workstations 6'x5.5' work areas
81 05/01/99 Office Solutions- workstations 6'x5.5' work areas
82 05/01/99 Office Solutions- workstations 6'x5.5' work areas
83 05/01/99 Office Solutions- workstations 6'x5.5' work areas
84 05/01/99 Office Solutions- workstations 6'x5.5' work areas
85 05/01/99 Office Solutions- workstations 6'x5.5' work areas
86 08/01/94 Bus Essen - 4 Drawer File
12 12/01/98 Office Solns - Furniture for private office - 12 workstations
13 01/01/99 Office Solutions Inc.-Workstation
</TABLE>
<TABLE>
<S> <C>
C. Personal Computers, net $94,851
=================
</TABLE>
<TABLE>
<CAPTION>
Sys No. 10. Acq. Date 11. Description
- --------------- --------- -----------
<S> <C> <C>
49 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
50 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
51 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
52 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
53 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
54 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
55 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
56 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
57 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
58 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sys No. 10. Acq. Date 11. Description
- --------------- --------- -----------
<S> <C> <C>
90 04/01/96 Srv Assur - (2) Prolinea 575 PC's
91 09/01/96 Srv Assur - (4) Compaq DP 2000 P166 PCs
94 12/01/97 Dynamic Computer - Everex Stepnote 5/150
97 06/01/99 GE Capital-CPQ Deskpro EN M6350x/6400 32mb, CPQ 32mb100mhz dimm
89 03/01/96 Srv Assur - (7) Prolinea 5/120 PC's
103 06/01/99 GE Cap-CPQ Desk Pro ENM6350x/6400 32mb,CPQ 32mb 100mhzmem, 19"mo
96 06/01/99 Gateway-Solo5150SELaptop, 17"Monitor, Port Replicator
102 06/01/99 GE Cap-CPQ Desk Pro ENM6350x/6400 32mb,CPQ 32mb 100mhzmem, 19"mo
68 05/01/99 Gateway-Solo 5150se Laptop
69 05/01/99 Gateway-Solo 5150se Laptop
70 05/01/99 Gateway-Solo 5150se Laptop
101 06/01/99 GE Cap-CPQ Desk Pro ENM6350x/6400 32mb,CPQ 32mb 100mhzmem, 19"mo
2 11/01/98 Gateway - Solo 5150SE laptop Pent II 233MHz 14" 20X CD 17"
3 11/01/98 Gateway - Solo 5150SE laptop Pent II 233MHz 14" 20X CD 17"
4 11/01/98 Gateway - Solo 5150SE laptop Pent II 233MHz 14" 20X CD 17"
5 12/01/98 Gateway - 5150SE Ntbk II 233MHz
6 12/01/98 Gateway - 5150SE Ntbk II 233MHz
7 12/01/98 Gateway - 5150SE Ntbk II 233MHz
15 03/01/99 Gateway-Sola 5150SE SN 1001904
17 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
18 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
19 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
20 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
21 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
22 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
23 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
98 06/01/99 GE Capital-CPQ Deskpro EN M6350x/6400 32mb, CPQ 32mb100mhz dimm
99 06/01/99 GE Capital-CPQ Deskpro EN M6350x/6400 32mb, CPQ 32mb100mhz dimm
100 06/01/99 GE Capital-CPQ Deskpro EN M6350x/6400 32mb, CPQ 32mb100mhz dimm
104 06/01/99 GE Cap-CPQ Desk Pro ENM6350x/6400 32mb,CPQ 32mb 100mhzmem, 19"mo
105 06/01/99 GE Cap-CPQ Desk Pro ENM6350x/6400 32mb,CPQ 32mb 100mhzmem, 19"mo
106 06/01/99 GE Cap-CPQ Desk Pro ENM6350x/6400 32mb,CPQ 32mb 100mhzmem, 19"mo
107 06/01/99 GE Cap-CPQ Desk Pro ENM6350x/6400 32mb,CPQ 32mb 100mhzmem, 19"mo
108 06/01/99 GE Cap-CPQ Desk Pro ENM6350x/6400 32mb,CPQ 32mb 100mhzmem, 19"mo
24 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
25 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
26 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
27 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
28 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
29 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sys No. 10. Acq. Date 11. Description
- --------------- --------- -----------
<S> <C> <C>
30 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
31 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
32 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
33 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
34 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
35 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
36 03/01/99 GE Capital-CPQ DP EN M6350x,-CPQ SDRAM100MHZ, CDRolm 32
39 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
40 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
41 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
42 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
43 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
44 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
45 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
46 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
47 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
48 04/01/99 GE Capital-NEC Multisync A900 19" Monitor
</TABLE>
<TABLE>
<S> <C>
D. Machinery and equipment, net $296,045
=================
</TABLE>
<TABLE>
<CAPTION>
Sys No. 12. Acq. Date 13. Description
- --------------- --------- -----------
<S> <C> <C>
59 04/01/99 GE Capital-SERVER ROOM CPQ PROL 1850r 6/450-1
60 04/01/99 GE Capital-SERVER ROOM CPQ PROL 1850r 6/450-1
61 04/01/99 GE Capital-SERVER ROOM CPQ INT 35/70GB DLT DRV
62 04/01/99 GE Capital-SERVER ROOM CPQ SMART ARRAY 3200
63 04/01/99 GE Capital-SERVER ROOM CPQ MULI-ITEMS SEE INVOICE 90299269
65 05/01/99 Reynolds & Reynolds: Lexmark Optra SE 3455 Laser Printer
66 05/01/99 GE Capital- Server Room-combination 5 invoices
67 05/01/99 GE Capital- Server Room-HPC LJ 8000n/mn/24ppm/1200dpi/network, c
64 05/01/99 Reynolds & Reynolds: Lexmark Optra SE 3455 Laser Printer
92 09/01/96 Ent Ofc - Xerox Telecopier
93 07/01/97 Datamax - (2) Canon Fax Machines
88 11/01/95 Datamax - HP4+ Laser Printer
95 06/01/99 Reynolds & Reynolds-Lexmark Optra SE Laser Printer ESIOL
71 05/01/99 GE Captial-Server-cpq prol 5500r p2, smart array 3200, hd9.1gb,
14 02/01/99 Data Projections - Projector and remote control
16 03/01/99 GE Capital-Printer HPC LJ USDD001342 8000N/MN/24PPM/1200DPI
37 07/01/96 Boxlight - Projector
38 04/01/99 GE Capital-CAS FAX 5000 10/100MBS 8Line Fax PE
1999 Server located at Mediapolis, Inc.
</TABLE>
<TABLE>
<S> <C>
E. Software-Purchased, net $16,000
=================
</TABLE>
<TABLE>
<CAPTION>
Sys No. 14. Acq. Date 15. Description
- --------------- --------- -----------
<S> <C> <C>
10 12/01/98 Mediapolis - Software License
</TABLE>
<TABLE>
<S> <C>
F. Software-Developed, net $279,080
=================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sys No. 16. Acq. Date 17. Description
- --------------- --------- -----------
<S> <C> <C>
1999 Customer service call center
</TABLE>
G. Other
Various contract rights, intangible assets and the goodwill associated with
the yourPharmacy.com e-commerce business.
<PAGE>
SCHEDULE II
ASSUMED LIABILITIES
The amounts included represent the balance of the assumed liabilities as of June
30, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
A. Accounts Payable $318,743
===============
B. Accrued Product Development
Mediapolis $242,200
Arthur Andersen 42,095
Global Solutions 26,723
---------------
$311,018
===============
C. Accrued Compensation
Accrued payroll $ 69,616
Fringe benefits 42,380
Accrued vacation 49,791
Accrued bonus 325,000
Accrued payroll taxes 15,266
---------------
$502,053
===============
D. Accrued Other
Adventures in Advertising $109,385
Forrester Research 62,000
The Arbor Group 18,265
Creative Producers 17,350
Executech 12,500
Remedy 10,000
Digital Impact, Inc. 5,000
Miscellaneous 33,854
---------------
$268,354
===============
E. Other Long-Term Liabilities
Deferred taxes $3,756
===============
</TABLE>
F. Additional Liabilities
PlanetRx will assume additional liabilities incurred post June 30, 1999 in
the ordinary course of business in an aggregate amount up to $750,000
(unless otherwise agreed to in writing by PlanetRx); provided that
PlanetRx shall not be obligated to assume any individual liability
incurred after the execution of this Agreement in an amount of $50,000 or
more unless PlanetRx shall have approved of the incurrence of such
liability in writing.
<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
PlanetRx.com, 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
PlanetRx.com, 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
2
<PAGE>
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.
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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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<PAGE>
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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<PAGE>
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.
8
<PAGE>
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.
9
<PAGE>
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
10
<PAGE>
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."
11
<PAGE>
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.
12
<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 by Action by Written Consent by the
Stockholders and Directors on September __, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this _____ day of September, 1999.
_______________________________________
Steve Valenzuela
Secretary
<PAGE>
EXHIBIT 4.2
PLANETRX.COM, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
September __, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
1. Registration Rights........................................... 1
1.1 Definitions............................................ 1
1.2 Request for Registration............................... 2
1.3 Company Registration................................... 3
1.4 Form S-3 Registration.................................. 5
1.5 Obligations of the Company............................. 6
1.6 Information from Holder................................ 6
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....................... 14
3. Miscellaneous................................................. 14
3.1 Successors and Assigns................................. 14
3.2 Governing Law.......................................... 15
3.3 Counterparts........................................... 15
3.4 Titles and Subtitles................................... 15
3.5 Notices................................................ 15
3.6 Expenses............................................... 15
3.7 Entire Agreement: Amendments and Waivers............... 15
3.8 Severability........................................... 15
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 __ day of September, 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,
Series B Preferred Stock and Series C Preferred Stock (the "Series A Investors,"
the "Series B Investors" and the "Series C Investors") possess registration and
other rights granted pursuant to that certain PlanetRx, Inc. Amended and
Restated Investors' Rights Agreement (the "Prior Agreement") dated as of June 3,
1999 by and among the Company and the Investors listed on Schedule A thereto;
WHEREAS, the Prior Agreement may be amended, and any provision therein
waived, with the consent of the Company and the Series A Investors, the Series B
Investors and the Series C Investors holding a majority of the "Registrable
Securities" of the Company (as defined in the Prior Agreement);
WHEREAS, in order to induce the Company to enter into the Series D
Agreement and to induce the Series D Investors to invest funds in the Company
pursuant to the Series D Agreement, the Series A Investors, the Series B
Investors and the Series C 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 D Investors and the Company have agreed, pursuant
to the Series D Agreement, to enter into this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY CONSENT TO THE ISSUANCE OF SERIES D
PREFERRED STOCK PURSUANT TO THE SERIES D AGREEMENT AND AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
-------------------
follows:
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.
(c) The term "Initial Offering" means the Company's first
firm commitment underwritten public offering of its Common Stock under the Act.
<PAGE>
(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, Series C Preferred Stock and Series D 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 interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders
2
<PAGE>
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 corporate
reorganization or other transaction under Rule 145 of the Act, a registration on
any
3
<PAGE>
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.
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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
10
<PAGE>
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, Series C Preferred Stock or Series D 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
11
<PAGE>
(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, Series C Preferred Stock or
Series D 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 forth 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, Series C Preferred Stock or Series D 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,
12
<PAGE>
(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, Series C Preferred Stock
and Series D 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 and iVillage. 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 (i) 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 A1 attached
----------
hereto ( a "Media Competitor"), and (ii) to iVillage Inc. ("iVillage") a right
of first offer with respect to future sales by the Company of its Shares to any
competitor of iVillage as listed on Exhibit A2 attached hereto (an "Internet
----------
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 in the case of a Media Competitor or iVillage in the case of
an Internet Competitor, stating
13
<PAGE>
(i) its bona fide intention to offer such Shares to such Media Competitor or
Internet Competitor, (ii) the number of such Shares to be offered and (iii) the
price and terms upon which it proposes to offer such Shares.
(b) In the case of an offer to a Media Competitor, 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. In the case of an
offer to an Internet Competitor, by written notification received by the Company
within five (5) business days after receipt of the Notice, iVillage 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 Internet 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 either News or iVillage are
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 or Internet Competitor, as the
case may be, 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 either News or iVillage 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 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,
14
<PAGE>
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.
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.
15
<PAGE>
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 D 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.
16
<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
Signature Page
PlanetRx.com, Inc. Amended and Restated Investors' Rights Agreement
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INVESTORS:
By:
-------------------------------------------
By:
-------------------------------------------
Signature Page
PlanetRx.com, Inc. Amended and Restated Investors' Rights Agreement
<PAGE>
Exhibit A1
----------
Media Competitors
The following entities or media, including any parent or subsidiary of the
following:
ABC (including ABC news)
CBS (including Sportsline and Sportsline News)
NBC (including MSNBC and CNBC)
CNN (including CNN/SI and CNNfn)
The Discovery Channel's new health channel or network
ESPN
Entertainment Tonight!
E!
Market Watch
The Sporting News
USA Today
The Wall Street Journal
<PAGE>
Exhibit A2
----------
Internet Competitors
The following entities, including any parent or subsidiary of the following:
Women.com
Oxygen.com
<PAGE>
Schedule A
----------
Schedule of Investors
---------------------
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Name and Address Shares Shares Shares Shares
---------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 5.1
____________ __, 1999
PlanetRx.com, Inc.
349 Oyster Point Blvd, Suite 201
South San Francisco, California 94080
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-
82485) originally filed by PlanetRx.com, Inc. (the "Company") with the
Securities and Exchange Commission (the "Commission") on July 8, 1999, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of up to
________ shares of the Company's Common Stock (the "Shares"). The Shares, which
include an over-allotment option granted by the Company to the Underwriters to
purchase up to ________ additional shares of the Company's Common Stock, are to
be sold to the Underwriters by the Company as described in the Registration
Statement for resale to the public. As your counsel in connection with this
transaction, we have examined the proceedings taken and are familiar with the
proceedings proposed to be taken by you in connection with the sale and issuance
of the Shares.
It is our opinion that, upon completion of the proceedings being taken in
order to permit such transactions to be carried out in accordance with the
securities laws of the various states where required, the Shares being sold by
the Company, when issued and sold in the manner described in the Registration
Statement and in accordance with the resolutions adopted by the Board of
Directors of the Company, will be legally and validly issued, fully paid and
non-assessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement and further consent to the use of our name wherever appearing in said
Registration Statement, including the prospectus constituting a part thereof,
and in any amendment or supplement thereto.
Very truly yours,
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE>
EXHIBIT 10.3
PlanetRX.com, Inc.
Employee Stock Purchase Plan
(As Adopted July __, 1999)
<PAGE>
TABLE OF CONTENTS
Page
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
i
<PAGE>
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
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 November 1 and May 1, except that the first
Offering Period shall commence on the date of the IPO and end on April 30, 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 2
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>
i
<PAGE>
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.
<PAGE>
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 as follows: 25% of the Option shares shall become exercisable upon
the completion of 12 months of service from the date of grant and the remaining
balance of the option shares shall become exercisable in equal monthly
installments upon the completion of each of the next 36 months of service. 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.
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
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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<PAGE>
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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<PAGE>
EXHIBIT 10.10
SUPPLY AGREEMENT
----------------
This Supply Agreement dated this 14th day of January, 1999, between McKesson
U.S. Health Care, a division of McKesson Corporation ("McKesson") and Planet Rx,
Inc. ("Customer") shall be to establish a five (5) year program for the supply
of prescription drugs and other health and beauty care products by McKesson to
Customer's centralized pharmacy (referred to herein as "Facility"). The parties
hereto agree as follows:
1. MERCHANDISE
For purposes hereof, "Merchandise" shall comprise all items normally
stocked or drop-shipped by McKesson Drug Distribution Centers servicing the
48 contiguous states, including prescription drugs, OTC drugs, home health
care products, DME, health and beauty aids and sundries. This Agreement
does not apply to merchandise sold to Customer by McKesson Corporation
divisions or subsidiaries other than McKesson Drug Company.
2. TERM
The term of this Agreement shall be for the five (5) year period commencing
on January 1, 1999, and during such period Customer agrees to designate
McKesson as its primary wholesale supplier of Merchandise and to purchase
from McKesson substantially all of the requirements of its Facility(ies)
for Merchandise and other items covered hereunder.
3. ORDERING AND DELIVERY
Prescription products will be delivered to Customer's Facility up to [+]
times per week, on mutually agreed upon days. Orders transmitted by 9:30
p.m. local time Sunday through Thursday will be delivered the next day.
Additional deliveries will be available on a mutually agreed upon schedule.
4. PAYMENT TERMS
A. Except as provided in Section 4(J) regarding opening orders, the
payment terms options for the Merchandise covered by this Agreement
are as follows:
Standard Semi-Monthly Payment Terms
-----------------------------------
Payment for Merchandise delivered to Customer's Facility shall be paid
by Customer as follows: Invoices dated from the [+] to the [+] of the
month are due and payable on the [+] day of the [+] month. Invoices
dated from the [+] to the [+] are due and payable on the [+] of the
[+] month.
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
<PAGE>
Weekly Payment Terms
--------------------
Invoices dated from Monday through Friday are due by [+] of the
following week. A [+]% reduction in the cost of goods markup shall
apply.
Prepayment Incentives
---------------------
Prepayment Terms (30 day, 15 day and 7 day): The prepayment is a one-
time payment equivalent to thirty (30) or fifteen (15) or seven (7)
days worth of purchases (based on the most recent three-month purchase
history) which is held as a deposit by McKesson. The amount of the
required deposit will be adjusted quarterly, and may be adjusted as
often as monthly, to cover increases or decreases in purchase volume.
Following such one-time payment, all purchases are payable under the
Standard Semi-Monthly Payment Terms as described above.
Customer shall be entitled to a reduction in the markup set forth in
the cost of goods schedule for prepayment if Customer elects this
prepayment option. The prepay incentive shall be as follows:
Prepay Incentive Markup Reduction
- ---------------------------------
30 Days [+]%
15 Days [+]%
7 Days [+]%
B. If any of the above-specified due dates falls on a weekend day or
holiday, payment is due on the [+].
C. McKesson encourages the use of Electronic Funds Transfer ("EFT"). If
EFT is used as the Customer's method of payment, a [+]% reduction in
the cost of goods markup shall apply.
D. Any payments made after the due date indicated herein shall result in
a [+] percent ([+]%) (or the maximum amount permissible under
applicable law, if lower) increase in the purchase price of the
Merchandise. A [+] percent ( [+] %) service charge (or the maximum
amount permissible under applicable law, if lower) will be imposed
semi-monthly on all balances delinquent more than [+] days.
E. Customer agrees to render payment in full to McKesson on the
applicable due date as specified in this Agreement without (i) making
any deductions, short payments, or other accounts payable adjustments
to such payment obligation except as specified herein in Section 8
(5); or (ii) seeking to condition such remittance on any demand for or
receipt of proofs of delivery. Any accounts payable adjustments
claimed by Customer shall require prior written authorization
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
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<PAGE>
of McKesson and must be supported by accompanying detail documenting
the basis for any such requested adjustments.
F. Customer hereby grants to McKesson a purchase money security interest
for all Merchandise shipped to Customer to secure the price of the
Merchandise and all related charges. Customer agrees to execute from
time to time such financing statements as McKesson may request for the
purpose of perfecting McKesson's security interest.
G. This Agreement is conditioned upon Customer's maintaining a sound
financial condition throughout the term hereof and to that end,
Customer agrees to promptly substantiate in writing, at McKesson's
request, the existence of such condition with audited financial
statements and any other supporting information required by McKesson.
H. Each company doing business with McKesson is required to negotiate its
payment terms and credit line with McKesson individually, based upon
such company's individual financial and risk characteristics. Nothing
in this Agreement is intended to be, nor shall it be construed as, a
binding obligation or continuing commitment by McKesson to extend
credit or payment terms options and all such terms and conditions
shall be subject to the review and approval of McKesson's Financial
Services Department.
I. McKesson reserves the right, in its sole discretion, to change a
payment term (including imposing the requirement of cash payment upon
delivery) or limit total credit, if (i) McKesson concludes there has
been a material change in the Customer's financial condition or an
unsatisfactory payment performance; or (ii) Customer ceases to meet
McKesson's credit requirements or McKesson determines that the
Customer is likely to cease meeting such requirements. Upon the
occurrence of any of the above-specified events, McKesson further
shall be entitled to suspend or discontinue the shipment of any
additional orders to Customer's Facility.
J. Opening orders shall include any new Facility orders submitted to
McKesson up to the end of the second week after the Facility begins
filling prescriptions. For purposes hereof, the term "new Facilities"
shall not include (i) any existing Facility of Customer that changes
its address; or (ii) any Facility acquired through acquisition,
merger, partnership or other business combination by Customer.
Opening orders for new Facilities of Customer will be billed at the
normal cost for both Rx and OTC Merchandise as determined by the Cost
Plus Markup schedule set forth in Section 5 below. Opening order
invoices will receive [+] ([+]) month payment terms, subject to review
and approval by McKesson's Credit Department. Customer's opening
orders for its initial Facility shall be due and payable on [+].
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
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<PAGE>
5. COST OF GOODS
A. In consideration for the Cost of Goods specified herein, Customer
expressly commits to purchase no less than 80% of its total volume of
Merchandise purchased from wholesalers from McKesson during the term
of this Agreement ("Volume Purchase Commitment"). Due to the start-up
nature of the Customer's business, McKesson will bill Merchandise
purchased hereunder based on the $[+]-$[+] volume bracket amount
category specified in Section 5.C below until the Customer's purchases
surpass this purchase volume level. If after the first year of this
Agreement Customer has not achieved a monthly average purchase volume
amount of at least $[+] per Facility, McKesson, in addition to the
other rights and remedies available to it hereunder, reserves the
right in its sole discretion to redetermine the Cost of Goods pricing
specified below.
B. Subject to the terms and conditions of this Section, the Cost of Goods
for Merchandise delivered to Customer shall be Cost plus the
applicable markup as specified below. Except in the case of contract
items as discussed below, "Cost" for the purposes of this Agreement
shall mean the manufacturer's published acquisition cost (exclusive of
cash discounts) on the date of McKesson's invoice to Customer,
adjusted for selected bonus goods, manufacturers' off-invoice
allowances, and manufacturers' deal prices to be made available to
Customer in accordance with McKesson's established policies. For
purchases of Merchandise with respect to which Customer has entered
into a vendor contract with a manufacturer ("Contract Products")
loaded with McKesson, "Cost" shall mean the "bid price" of the product
as set forth in the vendor contract.
C. Subject to the terms and conditions herein, the Cost of Goods under
this Agreement shall be in accordance with the pricing schedule set
forth below. After the Customer achieves the maximum purchase volume
for the initial volume bracket category specified below, the
Customer's Cost of Goods shall thereafter be subject to monthly review
by McKesson and will be adjusted, if and to the extent necessary, to
reflect the Customer's actual monthly average purchase volume.
Cost Plus Markup
Chain-wide Monthly Average Based on Standard
Volume Per Facility Semi-Monthly Payment Terms
(net of returns, allowances and rebates) RxOTC
----------------------------------------------
[+]
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
4
<PAGE>
[+]
Net Billed Items: The purchase price for selected Merchandise,
----------------
including but not limited to the following product lines, will be net-
billed and not covered by the above-specified Cost of Goods pricing:
[+].
D. McKesson believes that the price, value, and quality of the
Merchandise delivered to Customer pursuant to this Agreement will be
market competitive at all times throughout the term of this Agreement.
In the event that at any time during the term of this Agreement there
is a material decline in the prevailing market price for comparable
products to similarly situated purchasers, Customer may so notify
McKesson and McKesson and Customer will meet and negotiate in good
faith an adjustment in the pricing with respect to future purchases as
appropriate to reflect such price decline. Nothing in this paragraph
is intended to restrict McKesson in its ability to meet individual
competitive situations.
6. SERVICE LEVEL
McKesson shall extend to Customer a service level guarantee on Rx
Merchandise purchased hereunder if McKesson acts as the primary supplier of
such pharmaceutical products to Customer. If such service level (based on
the definition below) falls below [+]% for [+] consecutive quarters,
McKesson shall pay Customer a sum equal to [+]% of net Rx Merchandise sales
to Customer's Facility(ies) for those quarters.
Service Level Guarantee - Definition
- ------------------------------------
"Service Level" shall mean a percentage amount calculated as follows:
[+] = Service Level
where,
A=[+]
B=[+]
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
5
<PAGE>
C=[+]
Any agreed upon Service Level Guarantee shall be subject to the following:
i) The Service Level Guarantee shall not apply within sixty
(60) days after the later of (i) the commencement date of
the term of the Supply Agreement entered into between
Customer and McKesson, or (ii) the date on which Customer
has furnished to McKesson reasonably accurate estimates of
its pharmaceutical products requirements.
ii) The Service Level Guarantee shall not apply for any month in
which Customer purchases exceed [+] percent [+] of its prior
month's purchases.
iii) Items that (i) are new to the market or (ii) have not been
previously ordered by Customer shall require a one-month
startup period.
7. MANUFACTURERS' PRICE CHANGE COMMUNICATIONS
Advance notice of prescription drug increases, when and if received from
the manufacturer, shall be submitted to Customer in the fastest manner
practicable. McKesson agrees to use fax communication to provide prompt
information related to open buy price increases, special deals, extended
dating or investment buy opportunities.
8. RETURNED GOODS
A. Credits for returned goods from McKesson "("Credits")" are divided
into four categories, depending on the reason for the claim. Credits
will be issued for any of the following reasons:
1) Non-merchandise problems, such as shortages and pricing errors;
2) McKesson merchandise received in error;
3) Recalls; and
4) Outdated merchandise (defined as items with less than 6 months
dating)
B. The amount of credit allowed by McKesson will vary as follows:
1) [+]% credit will be given for:
-----------
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
6
<PAGE>
a) Pricing errors, shipping errors and billing errors;
b) Shortages (required to be phoned into the Distribution
Center within 48 hours of receipt of Merchandise);
c) Ordering errors (must be returned within 30 days of
receipt);
d) Manufacturer recalls;
e) Items received by McKesson's customer with less than
six (6) months dating; and
f) Merchandise that had concealed damage.
Invoice number is required in each of the above-specified instances,
except recalls, for full credit.
2) [+]% credit will be given for:
-----------------------------
Clean, salable merchandise with at least nine (9) months dating
returned more than 30 days after store receipt.
3) [+]% credit will be given for:
-----------------------------
a) Unsalable merchandise which can be returned to
manufacturer;
b) Outdated items (subject to the approved vendor list);
and
c) Salable merchandise with price tickets not removed.
---
4) [+] will be given for:
---------------------
a) Merchandise damaged in Customer's Facility;
b) Merchandise from manufacturers not listed on the
approved vendor list; and
c) Merchandise not purchased from McKesson.
These items will be sent back to the Facility which initiated the return.
5) If McKesson has failed to provide Customer with Credits as
identified above within fifteen (15) business days of McKesson's
receipt of notice of such Credit, then Customer may defer payment
of an amount equal to such Credits until the earlier of
McKesson's issuance of a credit memorandum to Customer in such
amount or McKesson's written notice that it has
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
7
<PAGE>
determined that no credit or a lower credit was required in
accordance with the terms of this Agreement.
9. CUSTOMER SUPPORT
A. A National Account Executive will be assigned to Customer's
headquarters and will hold regular meetings and business review to
identify business opportunities and address Customer's needs.
B. The designated National Account Manager will become the first contact
for headquarters when Customer requires assistance for issue
resolution.
C. National Account Customer service personnel will be available at the
McKesson Premier Service Center from 8 a.m. EST to 8 p.m. EST Monday
through Friday. Technical and emergency support is available 24 hours
a day, seven (7) days a week.
D. Customer will be provided the names and telephone numbers of its key
contacts at McKesson as well as the names and telephone numbers of
McKesson's designated support personnel.
10. CONTRACT MANAGEMENT
A. McKesson agrees to service all manufacturers' contracts negotiated by
Customer, provided such manufacturers are approved suppliers of
McKesson. Merchandise will be supplied at Customer's negotiated bid
price plus McKesson's applicable markup as described above in the Cost
of Goods section.
B. Customer's eligibility for participation under a vendor contract must
be authorized by the vendor and Customer's group purchasing
organization, if applicable, before the contract is loaded by McKesson
for Customer. Customer shall be liable for unpaid chargebacks
resulting from eligibility issues.
C. In the event a vendor (i) makes an assignment for the benefit of
creditors, files a petition in bankruptcy, is adjudicated insolvent or
bankrupt, or if a receiver of trustee is appointed with respect to a
substantial part of the vendor's property or a proceeding is commenced
against it which will substantially impair its ability to pay on
chargebacks or (ii) otherwise defaults in the payment of chargebacks
to McKesson, Customer shall be invoiced and become liable for the
unpaid chargebacks allocable to its purchases from such vendor.
11. GENERIC PHARMACEUTICALS
Customer agrees to fully participate in McKesson's Select Generics Program
through its auto-substitution feature and to thereby designate this program
as Customer's primary source of generic pharmaceuticals. In consideration
for the above commitments, McKesson will extend to Customer McKesson Select
Generics contract pricing in
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<PAGE>
accordance with the attached. This contract is based upon McKesson Select
Generics Program pricing less [+]%. Prices are subject to change; provided
however, the contract discount percentage made available under this
Agreement will remain the same. A quarterly rebate shall be paid to
Customer in accordance with the following schedule based on such above-
specified participation:
Quarterly McKesson Select
Generics Volume (net of Quarterly Rebate % on Net
returns, allowances and rebates)McKesson Select Generics Purchases
------------------------------------------------------------------
[+]
Customer shall be rebated at [+]% for the [+] ([+]) months of this
Agreement and thereafter rebated at the earned rate based on actual
quarterly purchases. The rebate check will be due to Customer no later than
the 30th of the month following the end of the quarter. A [+]% penalty will
be paid to Customer on rebate payments received after the applicable due
date as defined above.
12. REPACKAGED PHARMACEUTICALS
A competitive and comprehensive program will be made available to Customer
for repackaged pharmaceutical products. Such products shall be net-billed
with an additional volume rebate to be paid to Customer's headquarters on a
quarterly basis.
Quarterly RxPak
Volume (net of returns, Quarterly Rebate %
allowances and rebates)on Net RxPak Purchases
---------------------------------------------
[+]
Customer shall be rebated at [+]% for the [+] ([+]) months of this
Agreement and thereafter rebated at the earned rate based on actual
quarterly purchases. The rebate check will be due to Customer no later than
the 30th of the month following the end of the quarter. A [+]% penalty will
be paid to Customer on rebate payments received after the applicable due
date as defined above.
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
9
<PAGE>
13. SYSTEM SERVICES AND EQUIPMENT
The following systems and services will be made available to Customer by
McKesson:
A. Telxon electronic order entry equipment (including shelf wand) [+].
B. Item price stickers, [+], with Customer custom pricing, where
required, and other features, to the extent applicable to Customer,
such as:
1) Department number
2) Invoice cost
3) Month and year ordered
4) Facility name
5) AWP or retail pricing
(Note: Each feature is available for both Rx and OTC.)
C. Bar-coded shelf labels, [+].
D. Consolidated Quarterly Purchase Reports for all of Customer's Facility
purchases, [+].
E. Monthly report of controlled substances purchased from McKesson Drug
for each Facility, [+].
F. A complete catalog or microfiche of items stocked by McKesson's
Distribution Centers, [+].
G. Electronic price update information will be provided weekly, [+].
H. [+] EconoLink systems shall be provided to Customer [+]. [+] will be
provided to its headquarters and [+] to its Memphis dispensing
Facility. EconoLink shall be subject to a separate license agreement
between the parties governing use and maintenance.
I. OmniLink: Terms and conditions for utilization of McKesson's OmniLink
program will be agreed to under separate contract.
14. TERMINATION
A. Failure to make any payment when due in accordance with the terms of
this Agreement shall constitute a default. Any other material breach
of this Agreement by either party shall constitute a default if not
cured within thirty (30) days after written notice of such breach is
given by the non-breaching party.
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
10
<PAGE>
Upon default by either party, the other party may terminate this
Agreement on five (5) days' written notice.
B. Either party may terminate this Agreement without cause by providing
the other party with sixty (60) days' prior written notice.
C. Either party may, on ten (10) days written notice, terminate this
Agreement:
1) If the other party shall file any petition under any bankruptcy,
reorganization, insolvency or moratorium laws, or any other law
or laws for the relief of or in relation to the relief of
debtors; or
2) If the other party shall file any involuntary petition under any
bankruptcy statute or a receiver or trustee shall be appointed to
take possession of all or substantial part of the assets of the
party which has not been dismissed or terminated within sixty
(60) days of the date of such filing or appointment; or
3) If the other party shall make a general assignment for the
benefit of creditors or shall become unable or admit in writing
its inability to meet its obligations as they mature; or
4) If the other party shall institute any proceedings for
liquidation or the winding up of its business other than for
purposes of reorganization, consolidation or merger; or
5) If the other party's financial condition shall become such as to
endanger completion of its performance in accordance with the
terms and conditions of this Agreement.
D. McKesson may, at its own discretion, terminate this Agreement on sixty
(60) days written notice to Customer upon or at any time following the
sale or transfer of the stock or assets of Customer or a controlling
interest therein, or a change in the effective control of the
management of Customer; provided however, this Section 14.C shall not
apply if the change of control is due to an Initial Public Offering
(IPO) of Customer.
E. In the event of a termination hereunder the following continuing
obligations and liabilities shall survive termination and remain in
full force and effect:
1) Liability for accounts receivable balances or any other payment
due hereunder to the other party at the date of or upon the
occurrence of such termination; and
2) Obligations imposed on each party under the Proprietary and
Confidentiality Information section set forth below.
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
11
<PAGE>
15. PROPRIETARY AND CONFIDENTIAL INFORMATION
A. Any and all accounts, records, books, files, and lists regarding any
transaction provided for or contemplated hereunder, shall be
confidential and proprietary to the party creating or generating such
information. This Agreement, and the terms and conditions hereof, are
confidential. The parties expressly agree to maintain such terms and
conditions in confidence, and shall take every precaution to disclose
the contents of this Agreement only to those employees of each of the
parties who have a reasonable need to know such information.
B. Customer and McKesson each acknowledge that, in connection with their
respective businesses, they have developed certain operating manuals,
symbols, trademarks, trade names, service marks, trade secrets,
customer lists, procedures, formulas, and other patented, copyrighted,
or legally protected materials which are confidential and proprietary
to each of them.
C. Neither party may disclose the terms of this Agreement during the term
hereof and for an additional period of thirty-six (36) months
following the effective date of expiration or other termination of
this Agreement. Furthermore, except upon the prior written consent of
the other party, neither party may divulge, disclose, communicate, or
use any of the other party confidential or proprietary information
generally described in Subsection A and B above, in any manner or for
any purpose, including, without limitation, use in advertising or for
promotional materials, except upon the prior written consent of the
other party. A party hereto may refuse consent to the use of its
confidential or proprietary information for any or no reason. In the
event that any such confidential or proprietary information is used
during the course of this Agreement it shall retain its confidential
and proprietary nature and shall be returned immediately to its owner
or destroyed upon termination of this Agreement. Notwithstanding
anything herein to the contrary, nothing in this subsection shall
require either party to maintain in confidence any information,
materials, or data which is in the public domain, enters the public
domain through no fault of such party, was in possession of the party
prior to being furnished to it by the other, was supplied to the party
by a third party or parties lawfully in possession thereof, or which
the party is required to divulge pursuant to process of any judicial
or governmental body of competent jurisdiction, provided that notice
of receipt of such process is given to the other.
16. ALTERNATE SERVICE
If service from any McKesson distribution center to any Facility of the
Customer is interrupted or delayed because of strike, lockout, labor
dispute, fire or other casualty, or any other reasons beyond the reasonable
control of McKesson, McKesson will take such action as may be reasonably
necessary, without additional cost or expense to Customer, to maintain
service as mutually agreed upon to the affected Facility from an alternate
McKesson Distribution Center.
12
<PAGE>
17. NOTICES
All notices pertaining to this Agreement shall be delivered in person, sent
by certified mail, delivered by air courier, or transmitted by facsimile
and confirmed in writing (sent by air courier or certified mail) to a party
at the address or facsimile number shown in this Section, or such other
address or facsimile number as a party may notify the other party from time
to time. Notices delivered in person, and notices dispatched by facsimile
prior to 4:00 p.m. and confirmed, shall be deemed to be received on the day
sent. All other facsimiles and notices shall be deemed to have been
received on the business day following receipt; provided, however, if such
day falls on a weekend or legal holiday, receipt shall be deemed to occur
on the next business day. Notices may also be transmitted electronically
between the parties, provided that proper arrangements are made in advance
to facilitate such communications and provide for their security and
verification.
If to McKesson:
McKesson Corporation
Central Regional Office
2001 Butterfield Road, Suite 1440
Downers Grove, IL 60515
Attention: Jim Devers
Senior Vice President, Group Sales Operations
Fax:(630) 434-4210
If Customer:
Planet Rx, Inc.
349 Oyster Point Blvd.
Suite 201
So. San Francisco, CA 94080
Attention: William J. Razzouk
Chief Executive Officer
Fax:(650) 616-1585 and (901) 767-2803
cc: H. Stephen Brown
1661 International Place
Suite 300
Memphis, TN 38120
Fax: (901) 767-2803
13
<PAGE>
18. MISCELLANEOUS
A. This Agreement embodies the entire agreement between the parties with
regard to the subject matter hereof and supersedes all prior
agreements, understandings and representations with the exception of
any promissory note, security agreement or other credit or financial
related document(s) executed by Customer or between Customer and
McKesson. This Agreement may not be modified, supplemented or extended
except by a writing signed by both parties.
B. This Agreement supersedes any and all prior McKesson agreements and
discount plans in which any Customer Facility may currently be
participating.
C. Except as provided above in the Alternate Service section, neither
party shall have any obligation hereunder for failure or delay of
performance due to fire, shortage of materials or transportation,
government acts, or any other cause beyond its control.
D. Neither party shall have the right to assign this Agreement or any
interest therein without the prior written consent of the other party,
and any such attempted assignment shall be without effect, except that
either party may, without the consent of the other, assign this
Agreement to an affiliate of such party and except that this provision
shall not be applicable to any corporate reorganization of McKesson,
including but not limited to any merger, reincorporation or sale of a
significant portion of McKesson's assets.
E. This Agreement shall be construed in accordance with the laws of the
State of California without regard to the provisions of Section 1654
of the California Civil Code or the rules regarding conflict of laws.
F. If any provision of this Agreement shall be held invalid under any
applicable law, such invalidity shall not affect any other provision
of this Agreement. The parties agree to replace any such invalid
provision with a new provision which has the most nearly similar
permissible economic effect.
G. The failure of either party to enforce at any time or for any period
of time any one or more of the provisions thereof shall not be
construed to be a waiver of such provisions or of the right of such
party thereafter to enforce each such provision.
H. If any federal, state, or local tax currently or in the future is
levied upon McKesson in a jurisdiction where either McKesson or
Customer does business and such tax relates or applies to the
Merchandise or any transactions covered by this Agreement (excluding
taxes imposed on McKesson's net income), the Cost of Goods to the
involved Facility will be increased a corresponding percentage amount.
14
<PAGE>
I. Customer represents and warrants that the above conditions, including
prices, rebates, terms and delivery, have been made available to its
Facility by wholesale drug competitors of McKesson in the areas
covered by this Agreement.
J. Customer agrees to comply fully with all federal, state and local laws
and regulations applicable to the purchase, handling, sale or
distribution of the Merchandise and to defend, indemnify and hold
McKesson harmless from any and all liability arising out of or due to
Customer's nonadherence with such legal or regulatory requirements.
K. If and to the extent any product discounts, rebates or other
purchasing incentives are earned by or granted to Customer and paid by
McKesson under this Agreement, then applicable provisions of the
Medicare/Medicaid and state health care fraud and abuse/antikickback
laws and regulations (collectively, "fraud and abuse laws") may
require disclosure of the applicable price reduction on customer's
claims or cost reports for reimbursement from governmental or other
third party health care programs or provider plans. Customer agrees to
comply with all applicable provisions of the fraud and abuse laws and
to defend, indemnify and hold McKesson harmless for any failure on its
part to do so.
L. Participation hereunder by Customer's Facility in McKesson's Preferred
Provider Network may be terminated by McKesson if such Facility fails
to comply with the terms and conditions of this Agreement or the
M.P.P.N. Agreement.
M. McKesson shall be entitled at all times to set off any amount owing at
any time from Customer to McKesson against any amount payable at any
time by McKesson to Customer whether arising under this Agreement or
otherwise. For purposes of this Section, Customer and McKesson in each
case shall include its subsidiaries and affiliates.
N. Whenever possible, each provision of this Agreement shall be
interpreted so as to be effective and valid under applicable law, but
if any provision of this Agreement should be prohibited or invalid
under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity without invalidating the
other of such provision or the remaining provisions of this Agreement.
O. The section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
P. This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed an original instrument, but
all such counterparts together shall constitute one agreement.
15
<PAGE>
IN WITNESS WHEREOF the parties have caused this Agreement to be duly executed as
of the date and year written below and the persons signing warrant that they are
duly authorized to sign for and on behalf of the respective parties. This
Agreement shall be deemed accepted by McKesson only upon execution by a duly
authorized representative of McKesson.
PLANET RX, INC. McKESSON U.S. HEALTH CARE,
a division of McKesson Corporation
By: ____________________________ By: _______________________________________
Name: William J Razzouk Name: Mark T. Majeske
------------------------- ------------------------------------
(Print or Type) (Print or Type)
Title: Chief Executive Officer Title: Group President, Customer Operations
------------------------- ------------------------------------
Date: __________________________ Date: _____________________________________
<PAGE>
Exhibit 10.13
AZURE DIAGNOSTICS, INC.
SERIES A PREFERRED
STOCK PURCHASE AGREEMENT
September 15, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of Stock............................................ 1
1.1 Sale and Issuance of Series A Preferred Stock................... 1
1.2 Closing......................................................... 1
1.3 Subsequent Sale of Series A Preferred Stock..................... 1
2. Representations and Warranties of the Company......................... 2
2.1 Organization, Good Standing and Qualification................... 2
2.2 Capitalization and Voting Rights................................ 2
2.3 Subsidiaries.................................................... 3
2.4 Authorization................................................... 3
2.5 Valid Issuance of Preferred and Common Stock.................... 3
2.6 Governmental Consents........................................... 3
2.7 Offering........................................................ 3
2.8 Litigation...................................................... 4
2.9 Proprietary Information and Employee Stock Purchase Agreements.. 4
2.10 Patents and Trademarks......................................... 4
2.11 Compliance with Other Instruments.............................. 5
2.12 Agreements; Action............................................. 5
2.13 Permits........................................................ 6
2.14 Registration Rights............................................ 6
2.15 Corporate Documents............................................ 6
2.16 Title to Property and Assets................................... 6
3. Representations and Warranties of the Investors....................... 6
3.1 Authorization................................................... 6
3.2 Purchase Entirely for Own Account............................... 6
3.3 Disclosure of Information....................................... 7
3.4 Investment Experience........................................... 7
3.5 Accredited Investor............................................. 7
3.6 Restricted Securities........................................... 7
3.7 Further Limitations on Disposition.............................. 7
3.8 Legends......................................................... 8
4. Conditions of Investors' Obligations at Closing....................... 8
4.1 Representations and Warranties.................................. 8
4.2 Performance..................................................... 8
4.3 Compliance Certificate.......................................... 8
4.4 Qualifications.................................................. 8
4.5 Proceedings and Documents....................................... 9
4.6 Board of Directors.............................................. 9
4.7 Opinion of Company Counsel...................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.8 Investors' Rights Agreement..................................... 9
5. Conditions of the Company's Obligations at Closing.................... 9
5.1 Representations and Warranties.................................. 9
5.2 Payment of Purchase Price....................................... 9
5.3 Qualifications.................................................. 9
6. Miscellaneous......................................................... 9
6.1 Survival of Warranties.......................................... 9
6.2 Successors and Assigns.......................................... 9
6.3 Governing Law................................................... 10
6.4 Counterparts.................................................... 10
6.5 Titles and Subtitles............................................ 10
6.6 Notices......................................................... 10
6.7 Finder's Fee.................................................... 10
6.8 Expenses........................................................ 10
6.9 Amendments and Waivers.......................................... 10
6.10 Severability................................................... 11
6.11 Corporate Securities Law....................................... 11
6.12 Aggregation of Stock........................................... 11
6.13 Entire Agreement............................................... 11
6.14 Waiver of Conflicts............................................ 11
</TABLE>
SCHEDULE A Schedule of Investors
SCHEDULE B Schedule of Exceptions
EXHIBIT A Restated Certificate of Incorporation
EXHIBIT B Investors' Rights Agreement
EXHIBIT C Opinion of Counsel for the Company
ii
<PAGE>
AZURE DIAGNOSTICS, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 15th day of
September, 1998, by and among Azure Diagnostics, Inc., a Delaware corporation
(the "Company"), and the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series A Preferred Stock .
---------------------------------------------
(a) The Company shall adopt and file with the Secretary
of State of Delaware on or before the Closing (as defined below) the Restated
Certificate of Incorporation in the form attached hereto as Exhibit A (the
---------
"Restated Certificate").
(b) On or prior to the Initial Closing (as defined
below), the Company shall have authorized (i) the sale and issuance to the
Investors of the Series A Preferred Stock and (ii) the issuance of the shares of
Common Stock to be issued upon conversion of the Series A Preferred Stock (the
"Conversion Shares"). The Series A Preferred Stock and the Conversion Shares
shall have the rights, preferences, privileges and restrictions set forth in the
Restated Certificate.
(c) Subject to the terms and conditions of this
Agreement, each Investor agrees, severally and not jointly, to purchase at the
Initial Closing or pursuant to Section 1.3, and the Company agrees to sell and
issue to each Investor at the Initial Closing or pursuant to Section 1.3, that
number of shares of the Company's Series A Preferred Stock set forth opposite
such Investor's name on Schedule A hereto for the purchase price set forth
----------
thereon
1.2 Closing. The purchase and sale of the Series A Preferred
-------
Stock shall take place at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, at
2:00 P.M., September____, 1998 or at such other time and place as the Company
and Investors acquiring in the aggregate more than half the shares of Series A
Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Closing"). At the Closing the
Company shall deliver to each Investor a certificate representing the Series A
Preferred Stock that such Investor is purchasing against payment of the purchase
price therefor by check, wire transfer, cancellation of indebtedness, or any
combination thereof.
1.3 Subsequent Sale of Series A Preferred Stock . The Company
-------------------------------------------
may sell up to the balance of the authorized number of shares of Series A
Preferred Stock not sold at the
<PAGE>
Closing to such purchasers as it shall select, at a price not less than $1.00
per share, provided the agreement for sale is executed not later than September
30, 1998. Any such purchaser shall become a party to this Agreement, and that
certain Investors' Rights Agreement of even date herewith by and among the
Company and the Investors, the form of which is attached as Exhibit B (the
---------
"Investors' Rights Agreement"), and shall have the rights and obligations
hereunder and thereunder, unless such purchaser enters into an acquisition
agreement that provides otherwise.
2. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to each Investor that, except as set
forth on the Schedule of Exceptions (the "Schedule of Exceptions") furnished to
each Investor which exceptions shall be deemed to be representations and
warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The
---------------------------------------------
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. Except for qualification in the State of California, the Company is
duly qualified to transact business and is in good standing in each jurisdiction
in which the failure to so qualify would have a material adverse effect on its
business or properties. The Company is in the process of qualifying to do
business in California.
2.2 Capitalization and Voting Rights. The authorized capital
--------------------------------
of the Company consists of:
(a) Preferred Stock. Seven million (7,000,000) shares of
---------------
Preferred Stock, par value $0.0001 (the "Preferred Stock"), of which seven
million (7,000,000) shares have been designated Series A Preferred Stock (the
"Series A Preferred Stock"). The rights, privileges and preferences of the
Series A Preferred Stock will be as stated in the Company's Restated
Certificate.
(b) Common Stock. Twenty million (20,000,000) shares of
------------
common stock, par value $0.0001 ("Common Stock"), of which two million one
hundred seventy-five thousand (2,175,000) shares are issued and outstanding.
(c) Except for (A) the conversion privileges of the
Series A Preferred Stock to be issued under this Agreement and (B) the rights
provided in Section 2.4 of the Investors' Rights Agreement, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. In addition, the Company has reserved two million
four hundred thirty-two thousand (2,432,000) shares of its Common Stock for
purchase upon exercise of options to be granted in the future to the Company's
service providers. The Company is not a party or subject to any agreement or
understanding, and, to the best of the Company's knowledge, there is no
agreement or understanding between any persons and/or entities, which affects or
relates to the voting or giving of written consents with respect to any security
or by a director of the Company.
2
<PAGE>
2.3 Subsidiaries. The Company does not presently own or
------------
control, directly or indirectly, any interest in any other corporation,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the
-------------
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, and the Investors'
Rights Agreement, the performance of all obligations of the Company hereunder
and thereunder, and the authorization, issuance (or reservation for issuance),
sale and delivery of the Series A Preferred Stock being sold hereunder and the
Common Stock issuable upon conversion of the Series A Preferred Stock has been
taken or will be taken prior to the Closing, and this Agreement and the
Investors' Rights Agreement constitute valid and legally binding obligations of
the Company, enforceable in accordance with their respective terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock. The Series
--------------------------------------------
A Preferred Stock that is being purchased by the Investors hereunder, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, and the Investors' Rights
Agreement under applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Series A Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Certificate, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement, and the
Investors' Rights Agreement under applicable state and federal securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except (i) the filing of the Restated
Certificate with the Secretary of State of Delaware; and (ii) the filing
pursuant to Section 25102(f) of the California Corporate Securities Law of 1968,
as amended, and the rules thereunder, which filing will be effected within 15
days of the sale of the Series A Preferred Stock hereunder, or such other post-
closing filings as may be required.
2.7 Offering. Subject in part to the truth and accuracy of
--------
each Investor's representations set forth in Section 3 of this Agreement, the
offer, sale and issuance of the Series A Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of any applicable state
and federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
3
<PAGE>
2.8 Litigation. There is no action, suit, proceeding or
----------
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement, and the Investors' Rights
Agreement, or the right of the Company to enter into such agreements, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company. The
foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 Proprietary Information and Employee Stock Purchase
---------------------------------------------------
Agreements. Each employee, officer and consultant of the Company has executed a
- ----------
Proprietary Information and Inventions Agreement in substantially the form
provided to the Investors. The Company is not aware that any of its employees,
officers or consultants are in violation thereof, and the Company will use
reasonable efforts to prevent any such violation.
2.10 Patents and Trademarks. To its knowledge (but without
----------------------
having conducted any special investigation or patent or trademark search), the
Company has sufficient title and ownership of or licenses to all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted without any conflict with or infringement of the
rights of others, except for such items as have yet to be conceived or developed
or that are expected to be available for licensing on reasonable terms from
third parties. There are no outstanding options, licenses, or agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
except, in either case, for end-user, object code, internal-use software license
and support/maintenance agreements. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement, or the Investors' Rights Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such
4
<PAGE>
employees is now obligated. The Company does not believe it is or will be
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to or outside the scope of their
employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default in any material respect of any provision of its Restated
Certificate or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
this Agreement, and the Investors' Rights Agreement, and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.12 Agreements; Action.
------------------
(a) Except for agreements explicitly contemplated hereby
and by the Investors' Rights Agreement, there are no agreements, understandings
or proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound that may involve
(i) obligations (contingent or otherwise) of, or payments to the Company in
excess of, $10,000, or (ii) the license of any patent, copyright, trade secret
or other proprietary right to or from the Company (other than the license of the
Company's software and products in the ordinary course of business), or (iii)
provisions restricting or affecting the development, manufacture or distribution
of the Company's products or services.
(c) The Company has not (i) declared or paid any
dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $10,000 or, in the
case of indebtedness and/or liabilities individually less than $10,000, in
excess of $25,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above,
all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
5
<PAGE>
2.13 Permits. The Company has all franchises, permits,
-------
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects, or financial condition of the
Company, and the Company believes it can obtain, without undue burden or
expense, any similar authority for the conduct of its business as planned to be
conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses, or other similar authority.
2.14 Registration Rights. Except as provided in the Investors'
-------------------
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.15 Corporate Documents. Except for amendments necessary to
-------------------
satisfy representations and warranties or conditions contained herein (the form
of which amendments has been approved by the Investors), the Restated
Certificate and Bylaws of the Company are in the form previously provided to the
Investors.
2.16 Title to Property and Assets. The Company owns its
----------------------------
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance with all material terms of such leases and, to the
best of its knowledge, holds a valid leasehold interest free of any liens,
claims or encumbrances.
3. Representations and Warranties of the Investors. Each
-----------------------------------------------
Investor hereby represents and warrants that:
3.1 Authorization. Such Investor has full power and authority
-------------
to enter into this Agreement, and the Investors' Rights, and each such Agreement
constitutes its valid and legally binding obligation, enforceable in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made
---------------------------------
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series A Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
6
<PAGE>
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series A Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series A Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon .
3.4 Investment Experience. Such Investor is an investor in
---------------------
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series A
Preferred Stock. If other than an individual, Investor also represents it has
not been organized for the purpose of acquiring the Series A Preferred Stock.
3.5 Accredited Investor. Such Investor is an "accredited
-------------------
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the
---------------------
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way
----------------------------------
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreements are then applicable, and :
(a) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is
7
<PAGE>
agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by an Investor that is a partnership to a partner of
such partnership or a retired partner of such partnership who retires after the
date hereof, or to the estate of any such partner or retired partner or the
transfer by gift, will or intestate succession of any partner to his or her
spouse or to the siblings, lineal descendants or ancestors of such partner or
his or her spouse, if the transferee agrees in writing to be subject to the
terms hereof to the same extent as if he or she were an original Investor
hereunder.
3.8 Legends. It is understood that the certificates
-------
evidencing the Securities may bear one or all of the following legends:
"These securities have not been registered under the
Securities Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
"The shares represented by this Certificate are subject to a
right of first refusal option in favor of the Company, as provided by the Bylaws
of the Company. Copies of the Company's Bylaws may be obtained upon written
request to the Secretary of the Company."
4. Conditions of Investors' Obligations at Closing. The
-----------------------------------------------
obligations of each Investor under subsection 1.1(c) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against any Investor who
does not consent thereto:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and
-----------
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.3 Compliance Certificate. The President of the Company
----------------------
shall deliver to each Investor at the Closing a certificate stating that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating
that there shall have been no material adverse change in the business, affairs,
operations, properties, assets or condition of the Company since the date of the
incorporation.
4.4 Qualifications. All authorizations, approvals, or
--------------
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in
8
<PAGE>
connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be duly obtained and effective as of the Closing.
4.5 Proceedings and Documents. All corporate and other
-------------------------
proceedings inconnection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.6 Board of Directors. The authorized number of directors of
------------------
the Company shall be six (6). The initial directors of the Company shall be
Messrs. Bruner, Beirne and Moritz and there shall be three (3) vacancies on the
Board of Directors.
4.7 Opinion of Company Counsel. Each Investor shall have
--------------------------
received from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
("Gunderson Dettmer"), counsel for the Company, an opinion, dated as of the
Closing, in the form attached hereto as Exhibit C.
---------
4.8 Investors' Rights Agreement. The Company and each
---------------------------
Investor shall have entered into the Investors' Rights Agreement in the form
attached as Exhibit B.
---------
5. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have
-------------------------
delivered the purchase price specified in Section 1.1(c).
5.3 Qualifications. All authorizations, approvals, or
--------------
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful issuance
and sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6. Miscellaneous.
-------------
6.1 Survival of Warranties. The warranties, representations
----------------------
and covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
6.2 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
9
<PAGE>
successors and assigns of the parties (including transferees of any 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.
6.3 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.
6.4 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.
6.5 Titles and Subtitles. The titles and subtitles used in
--------------------
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 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
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.
6.7 Finder's Fee. Each party represents that it neither is
------------
nor will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each
Investor from any liability for any commission or compensation in the nature of
a finders' fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
6.8 Expenses. Irrespective of whether the Closing is
--------
effected, the Company shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the Investors' Rights Agreement, or the
Restated Certificate, 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.
6.9 Amendments and Waivers. 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
10
<PAGE>
Company and the holders of a majority of the Common Stock issuable or issued
upon conversion of the Series A Preferred Stock. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
6.10 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.
6.11 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6.12 Aggregation of Stock. All shares of the Preferred Stock 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.
6.13 Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
6.14 Waiver of Conflicts. Each party to this Agreement acknowledges
-------------------
that Gunderson Dettmer, counsel for the Company, has in the past and may
continue to perform legal services for certain of the Investors in matters
unrelated to the transactions described in this Agreement, including the
representation of such Investors in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (1) acknowledges that
they have had an opportunity to ask for information relevant to this disclosure;
(2) acknowledges that Gunderson Dettmer represented the Company in the
transaction contemplated by this Agreement and has not represented any
individual Investor or any individual shareholder or employee of the Company in
connection with such transaction; and (3) gives its informed consent to
Gunderson Dettmer's representation of certain of the Investors in such unrelated
matters and to Gunderson Dettmer's representation of the Company in connection
with this Agreement and the transactions contemplated hereby.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY
AZURE DIAGNOSTICS, INC.
By: __________________________________
Michael Bruner, President
Address: ______________________________
______________________________
Facsimile: ______________________________
Signature Page
Series A Preferred Stock Purchase Agreement
<PAGE>
Schedule A
----------
Schedule of Investors
---------------------
<TABLE>
<CAPTION>
Number of Total Purchase
Name and Address Shares Purchased Price of Shares
---------------- ---------------- ---------------
<S> <C> <C>
TOTAL 5,050,000 $5,050,000
</TABLE>
S-1
<PAGE>
Schedule B
----------
Schedule of Exceptions
----------------------
S-2
<PAGE>
Exhibit A
---------
Restated Certificate of Incorporation
-------------------------------------
E-1
<PAGE>
Exhibit B
---------
Investors' Rights Agreement
---------------------------
E-2
<PAGE>
Exhibit C
---------
Opinion of Counsel for the Company
----------------------------------
E-3
<PAGE>
Exhibit 10.14
PLANETRX, INC.
SERIES B PREFERRED
STOCK PURCHASE AGREEMENT
January 15, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of Stock............................................. 1
1.1 Sale and Issuance of Series B Preferred Stock.................... 1
1.2 Initial Closing.................................................. 1
1.3 Subsequent Sale of Series B Preferred Stock...................... 1
1
2. Representations and Warranties of the Company..........................
2.1 Organization, Good Standing and Qualification.................... 2
2.2 Capitalization and Voting Rights................................. 2
2.3 Subsidiaries..................................................... 2
2.4 Authorization.................................................... 3
2.5 Valid Issuance of Preferred and Common Stock..................... 3
2.6 Governmental Consents............................................ 3
2.7 Offering......................................................... 3
2.8 Litigation....................................................... 3
2.9 Proprietary Information and Employee Stock Purchase Agreements... 4
2.10 Patents and Trademarks.......................................... 4
2.11 Compliance with Other Instruments............................... 4
2.12 Agreements; Action.............................................. 5
2.13 Permits......................................................... 5
2.14 Registration Rights............................................. 5
2.15 Corporate Documents............................................. 6
2.16 Title to Property and Assets.................................... 6
6
3. Representations and Warranties of the Investors........................ 6
3.1 Authorization.................................................... 6
3.2 Purchase Entirely for Own Account................................ 6
3.3 Disclosure of Information........................................ 7
3.4 Investment Experience............................................ 7
3.5 Accredited Investor.............................................. 7
3.6 Restricted Securities............................................ 7
3.7 Further Limitations on Disposition............................... 7
3.8 Legends.......................................................... 8
4. Conditions of Investors' Obligations at Closing........................ 8
4.1 Representations and Warranties................................... 8
4.2 Performance...................................................... 8
4.3 Compliance Certificate........................................... 8
4.4 Qualifications................................................... 8
4.5 Proceedings and Documents........................................ 8
4.6 Board of Directors............................................... 9
4.7 Opinion of Company Counsel....................................... 9
4.8 Investors' Rights Agreement...................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5. Conditions of the Company's Obligations at Closing..................... 9
5.1 Representations and Warranties................................... 9
5.2 Payment of Purchase Price........................................ 9
5.3 Qualifications................................................... 9
5.4 Investors' Rights Agreement...................................... 9
6. Miscellaneous 9
6.1 Survival of Warranties........................................... 9
6.2 Successors and Assigns........................................... 9
6.3 Governing Law.................................................... 10
6.4 Counterparts..................................................... 10
6.5 Titles and Subtitles............................................. 10
6.6 Notices.......................................................... 10
6.7 Finder's Fee..................................................... 10
6.8 Expenses......................................................... 10
6.9 Amendments and Waivers........................................... 10
6.10 Severability.................................................... 11
6.11 Corporate Securities Law........................................ 11
6.12 Aggregation of Stock............................................ 11
6.13 Entire Agreement................................................ 11
6.14 Waiver of Conflicts............................................. 11
</TABLE>
SCHEDULE A Schedule of Investors
SCHEDULE B Schedule of Exceptions
EXHIBIT A Restated Certificate of Incorporation
EXHIBIT B Amended and Restated Investors' Rights Agreement
EXHIBIT C Opinion of Counsel for the Company
ii
<PAGE>
PLANETRX, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 15th day of January,
1999, by and among PlanetRx, Inc., a Delaware corporation (the "Company"), and
the investors listed on Schedule A hereto, each of which is herein referred to
----------
as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series B Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of Delaware on or before the Closing (as defined below) the Restated Certificate
of Incorporation in the form attached hereto as Exhibit A (the "Restated
---------
Certificate").
(b) On or prior to the Initial Closing (as defined below), the
Company shall have authorized (i) the sale and issuance to the Investors of the
Series B Preferred Stock and (ii) the issuance of the shares of Common Stock to
be issued upon conversion of the Series B Preferred Stock (the "Conversion
Shares"). The Series B Preferred Stock and the Conversion Shares shall have the
rights, preferences, privileges and restrictions set forth in the Restated
Certificate.
(c) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Initial Closing
or pursuant to Section 1.3, and the Company agrees to sell and issue to each
Investor at the Initial Closing or pursuant to Section 1.3, that number of
shares of the Company's Series B Preferred Stock set forth opposite such
Investor's name on Schedule A hereto for the purchase price set forth thereon.
----------
1.2 Initial Closing. The purchase and sale of the Series B Preferred
---------------
Stock shall take place at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, at
2:00 P.M., January 15, 1999 or at such other time and place as the Company and
Investors acquiring in the aggregate more than half the shares of Series B
Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Initial Closing"). At the Initial
Closing the Company shall deliver to each Investor a certificate representing
the Series B Preferred Stock that such Investor is purchasing against payment of
the purchase price therefor by check, wire transfer, cancellation of
indebtedness, or any combination thereof.
1.3 Subsequent Sale of Series B Preferred Stock. The Company may sell
------------------------------------------
up to the balance of the authorized number of shares of Series B Preferred Stock
not sold at the Initial Closing to such purchasers as it shall select, at a
price not less than $5.00 per share, provided the agreement for sale is executed
not later than March 15, 1999. Any such purchaser
<PAGE>
shall become a party to this Agreement, and that certain Amended and Restated
Investors' Rights Agreement of even date herewith by and among the Company and
the Investors, the form of which is attached as Exhibit B (the "Investors'
---------
Rights Agreement"), and shall have the rights and obligations hereunder and
thereunder, unless such purchaser enters into an acquisition agreement that
provides otherwise.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions (the "Schedule of Exceptions") furnished to each Investor
which exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. Except
for qualification in the State of California, the Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business or
properties. The Company is in the process of qualifying to do business in
California.
2.2 Capitalization and Voting Rights. The authorized capital of the
--------------------------------
Company consists of:
(a) Preferred Stock. Twenty-one million (21,000,000) shares of
---------------
Preferred Stock, par value $0.0001 (the "Preferred Stock"), fourteen million
(14,000,000) shares of which have been designated Series A Preferred Stock (the
"Series A Preferred Stock"), ten million nine hundred thirty-six thousand
(10,936,000) of which are issued and outstanding, and seven million (7,000,000)
shares of which have been designated Series B Preferred Stock (the "Series B
Preferred Stock"), all of which may be sold pursuant to this Agreement. The
rights, privileges and preferences of the Series A Preferred Stock and Series B
Preferred Stock will be as stated in the Company's Restated Certificate.
(b) Common Stock. Forty million (40,000,000) shares of common
------------
stock, par value $0.0001 ("Common Stock"), of which six million six hundred
sixty-five thousand (6,665,000) shares are issued and outstanding.
(c) Except for (A) the conversion privileges of the Series A
Preferred Stock and the Series B Preferred Stock, (B) the rights provided in
Section 2.4 of the Investors' Rights Agreement and (C) warrants to purchase
three hundred thousand (300,000) shares of Series A Preferred Stock, there are
not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. In addition, the Company has
reserved four million eight hundred sixty-four thousand (4,864,000) shares of
its Common Stock for purchase upon exercise of options to be granted in the
future to the Company's service providers. The Company is not a party or subject
to any agreement or understanding, and, to the best of the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company.
<PAGE>
2.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Investors' Rights Agreement,
the performance of all obligations of the Company hereunder and thereunder, and
the authorization, issuance (or reservation for issuance), sale and delivery of
the Series B Preferred Stock being sold hereunder and the Common Stock issuable
upon conversion of the Series B Preferred Stock has been taken or will be taken
prior to the Initial Closing, and this Agreement and the Investors' Rights
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement may be
limited by applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock. The Series B
--------------------------------------------
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, and the Investors' Rights
Agreement under applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Series B Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Certificate, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement and under applicable state and federal securities
laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except (i) the filing of the Restated
Certificate with the Secretary of State of Delaware; and (ii) the filing
pursuant to Section 25102(f) of the California Corporate Securities Law of 1968,
as amended, and the rules thereunder, which filing will be effected within 15
days of the sale of the Series B Preferred Stock hereunder, or such other post-
closing filings as may be required.
2.7 Offering. Subject in part to the truth and accuracy of each
--------
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series B Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of any applicable state
and federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
3
<PAGE>
2.8 Litigation. There is no action, suit, proceeding or investigation
----------
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement and the Investors' Rights
Agreement, or the right of the Company to enter into such agreements, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company. The
foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 Proprietary Information and Employee Stock Purchase Agreements.
--------------------------------------------------------------
Each employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement in substantially the form provided to the
Investors. The Company is not aware that any of its employees, officers or
consultants are in violation thereof, and the Company will use reasonable
efforts to prevent any such violation.
2.10 Patents and Trademarks. To its knowledge (but without having
----------------------
conducted any special investigation or patent or trademark search), the Company
has sufficient title and ownership of or licenses to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted without any conflict with or infringement of the rights of
others, except for such items as have yet to be conceived or developed or that
are expected to be available for licensing on reasonable terms from third
parties. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
except, in either case, for end-user, object code, internal-use software license
and support/maintenance agreements. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement or the Investors' Rights Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be
4
<PAGE>
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to or outside the scope of their
employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default in any material respect of any provision of its Restated
Certificate or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
this Agreement and the Investors' Rights Agreement, and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.12 Agreements; Action.
-------------------
(a) Except for agreements explicitly contemplated hereby and by
the Investors' Rights Agreement, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of, $25,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than the license of the Company's software
and products in the ordinary course of business), or (iii) provisions
restricting or affecting the development, manufacture or distribution of the
Company's products or services.
(c) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.13 Permits. The Company has all franchises, permits, licenses, and
-------
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack
5
<PAGE>
of which could materially and adversely affect the business, properties,
prospects, or financial condition of the Company, and the Company believes it
can obtain, without undue burden or expense, any similar authority for the
conduct of its business as planned to be conducted. The Company is not in
default in any material respect under any of such franchises, permits, licenses,
or other similar authority.
2.14 Registration Rights. Except as provided in the Investors' Rights
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.15 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Restated Certificate and
Bylaws of the Company are in the form previously provided to the Investors.
2.16 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with all material terms of such leases and, to the best of its knowledge, holds
a valid leasehold interest free of any liens, claims or encumbrances.
3. Representations and Warranties of the Investors. Each Investor
-----------------------------------------------
hereby represents and warrants that:
3.1 Authorization. Such Investor has full power and authority to
-------------
enter into this Agreement and the Investors' Rights Agreement, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
such Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Series B Preferred Stock to be received by such Investor and
the Common Stock issuable upon conversion thereof (collectively, the
"Securities") will be acquired for investment for such Investor's own account,
not as a nominee or agent (except that Benchmark Capital Partners II, L.P. may
acquire the Securities as nominee for Benchmark Capital Partners II, L.P.,
Benchmark Founders' Fund II, L.P., Benchmark Founders' Fund II-A, L.P. and
Benchmark Members' Fund II, L.P.), and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.
6
<PAGE>
3.3 Disclosure of Information. Such Investor believes it has received
-------------------------
all the information it considers necessary or appropriate for deciding whether
to purchase the Series B Preferred Stock. Such Investor further represents that
it has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series B Preferred
Stock and the business, properties, prospects and financial condition of the
Company. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Investors to rely thereon.
3.4 Investment Experience. Such Investor is an investor in securities
---------------------
of companies in the development stage and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Series B Preferred Stock. If other
than an individual, Investor also represents it has not been organized for the
purpose of acquiring the Series B Preferred Stock.
3.5 Accredited Investor. Such Investor is an "accredited investor"
-------------------
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the
---------------------
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreements are then applicable, and:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Investor
7
<PAGE>
that is a partnership to a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his or her spouse or to the siblings, lineal descendants or
ancestors of such partner or his or her spouse, if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he or she
were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
"These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
4. Conditions of Investors' Obligations at Closing'. The obligations
-----------------------------------------------
of each Investor under subsection 1.1(c) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
thereto:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Initial Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Initial Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Initial
Closing.
4.3 Compliance Certificate. The Chief Executive Officer of the
----------------------
Company shall deliver to each Investor at the Initial Closing a certificate
stating that the conditions specified in Sections 4.1 and 4.2 have been
fulfilled and stating that there shall have been no material adverse change in
the business, affairs, operations, properties, assets or condition of the
Company since the date of the incorporation.
4.4 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Initial Closing.
4.5 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at the Initial Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
8
<PAGE>
4.6 Board of Directors. The authorized number of directors of the
------------------
Company shall be seven (7). The directors of the Company as of the Initial
Closing shall be Messrs. Razzouk, Bruner, Beirne, Moritz, Cotsakos, Burke and
McCall.
4.7 Opinion of Company Counsel. Each Investor shall have received
--------------------------
from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP ("Gunderson
Dettmer"), counsel for the Company, an opinion, dated as of the Closing, in the
form attached hereto as Exhibit C.
---------
4.8 Investors' Rights Agreement. The Company and each Investor and
---------------------------
shall have entered into the Investors' Rights Agreement. Additionally, the
requisite parties to that certain Investors' Rights Agreement dated as of
September 15, 1998 by and among the Company and the Investors listed on Schedule
A thereto (the "Prior Agreement") shall also enter into the Investors' Rights
Agreement so that the Prior Agreement shall be replaced in its entirety by the
Investors' Rights Agreement.
5. Conditions of the Company's Obligations at Closing. The
--------------------------------------------------
obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have delivered the
-------------------------
purchase price specified in Section 1.1(c).
5.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
5.4 Investors' Rights Agreement. The Company and each Investor and
---------------------------
shall have entered into the Investors' Rights Agreement. Additionally, the
requisite parties to the Prior Agreement shall also enter into the Investors'
Rights Agreement so that the Prior Agreement shall be replaced in its entirety
by the Investors' Rights Agreement.
6. Miscellaneous.
-------------
6.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
6.2 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 Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto
9
<PAGE>
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.
6.3 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.
6.4 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.
6.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 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
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.
6.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.8 Expenses. Irrespective of whether the Closing is effected, the
--------
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Initial Closing is effected, the Company shall, at the Initial Closing,
reimburse the reasonable fees and expenses of special counsel to the Investors,
not to exceed $10,000. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the Investors' Rights Agreement, or
the Restated Certificate, 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.
6.9 Amendments and Waivers. 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
Common Stock issuable or issued upon conversion of the Series B Preferred Stock.
Any amendment or waiver effected in accordance with this
10
<PAGE>
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
6.10 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.
6.11 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6.12 Aggregation of Stock. All shares of the Preferred Stock 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.
6.13 Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
6.14 Waiver of Conflicts. Each party to this Agreement acknowledges
-------------------
that Gunderson Dettmer, counsel for the Company, has in the past and may
continue to perform legal services for certain of the Investors in matters
unrelated to the transactions described in this Agreement, including the
representation of such Investors in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (1) acknowledges that
they have had an opportunity to ask for information relevant to this disclosure;
(2) acknowledges that Gunderson Dettmer represented the Company in the
transaction contemplated by this Agreement and has not represented any
individual Investor or any individual stockholder or employee of the Company in
connection with such transaction; and (3) gives its informed consent to
Gunderson Dettmer's representation of certain of the Investors in such unrelated
matters and to Gunderson Dettmer's representation of the Company in connection
with this Agreement and the transactions contemplated hereby.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
PLANETRX, INC.
By:_________________________________________
William J. Razzouk
Chairman and Chief Executive Officer
Address: 349 Oyster Point Blvd.
Suite 201
South San Francisco, CA 94080
Signature Page
PlanetRx, Inc. Series B Preferred Stock Purchase Agreement
<PAGE>
Schedule A
Schedule of Investors
---------------------
<TABLE>
<CAPTION>
Number of Total Purchase
Name and Address Shares Purchased Price of Shares
---------------- ---------------- ---------------
<S> <C> <C>
TOTALS 5,200,000 $26,000,000
========= ===========
</TABLE>
<PAGE>
Schedule B
----------
Schedule of Exceptions
----------------------
<PAGE>
Exhibit A
---------
Restated Certificate of Incorporation
-------------------------------------
<PAGE>
Exhibit B
---------
Investors' Rights Agreement
---------------------------
<PAGE>
Exhibit C
---------
Opinion of Counsel for the Company
----------------------------------
<PAGE>
EXHIBIT 10.15
PLANETRX.COM, INC.
SERIES C PREFERRED
STOCK PURCHASE AGREEMENT
June 3, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purchase and Sale of Stock............................................. 1
1.1 Sale and Issuance of Series C Preferred Stock.................... 1
1.2 Initial Closing.................................................. 1
1.3 Subsequent Sale of Series C Preferred Stock...................... 2
2. Representations and Warranties of the Company.......................... 2
2.1 Organization, Good Standing and Qualification.................... 2
2.2 Capitalization and Voting Rights................................. 2
2.3 Subsidiaries..................................................... 3
2.4 Authorization.................................................... 3
2.5 Valid Issuance of Preferred and Common Stock..................... 3
2.6 Governmental Consents............................................ 3
2.7 Offering......................................................... 4
2.8 Litigation....................................................... 4
2.9 Proprietary Information and Employee Stock Purchase Agreements... 4
2.10 Patents and Trademarks.......................................... 4
2.11 Compliance with Other Instruments............................... 5
2.12 Agreements; Action.............................................. 5
2.13 Permits......................................................... 6
2.14 Registration Rights............................................. 6
2.15 Corporate Documents............................................. 6
2.16 Title to Property and Assets.................................... 6
3. Representations and Warranties of the Investors........................ 6
3.1 Authorization.................................................... 6
3.2 Purchase Entirely for Own Account................................ 7
3.3 Disclosure of Information........................................ 7
3.4 Investment Experience............................................ 7
3.5 Accredited Investor.............................................. 7
3.6 Restricted Securities............................................ 7
3.7 Further Limitations on Disposition............................... 7
3.8 Legends.......................................................... 8
4. Conditions of Investors' Obligations at Closing........................ 8
4.1 Representations and Warranties................................... 8
4.2 Performance...................................................... 9
4.3 Compliance Certificate........................................... 9
4.4 Qualifications................................................... 9
4.5 Proceedings and Documents........................................ 9
4.6 Board of Directors............................................... 9
4.7 Opinion of Company Counsel....................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.8 Investors' Rights Agreement...................................... 9
5. Conditions of the Company's Obligations at Closing..................... 9
5.1 Representations and Warranties................................... 9
5.2 Payment of Purchase Price........................................ 10
5.3 Qualifications................................................... 10
5.4 Investors' Rights Agreement...................................... 10
6. Miscellaneous.......................................................... 10
6.1 Survival of Warranties........................................... 10
6.2 Successors and Assigns........................................... 10
6.3 Governing Law.................................................... 10
6.4 Counterparts..................................................... 10
6.5 Titles and Subtitles............................................. 10
6.6 Notices.......................................................... 10
6.7 Finder's Fee..................................................... 11
6.8 Expenses......................................................... 11
6.9 Amendments and Waivers........................................... 11
6.10 Severability.................................................... 11
6.11 Corporate Securities Law........................................ 11
6.12 Aggregation of Stock............................................ 12
6.13 Entire Agreement................................................ 12
6.14 Waiver of Conflicts............................................. 12
</TABLE>
SCHEDULE A Schedule of Investors
SCHEDULE B Schedule of Exceptions
EXHIBIT A Restated Certificate of Incorporation
EXHIBIT B Amended and Restated Investors' Rights Agreement
EXHIBIT C Opinion of Counsel for the Company
EXHIBIT D Advertising Agreement between News America Incorporated and the
Company
ii
<PAGE>
PLANETRX.COM, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE 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
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"Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
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1.1 Sale and Issuance of Series C Preferred Stock.
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(a) The Company shall adopt and file with the Secretary of State
of Delaware on or before the Closing (as defined below) the Restated Certificate
of Incorporation in the form attached hereto as Exhibit A (the "Restated
---------
Certificate").
(b) On or prior to the Initial Closing (as defined below), the
Company shall have authorized (i) the sale and issuance to the Investors of the
Series C Preferred Stock and (ii) the issuance of the shares of Common Stock to
be issued upon conversion of the Series C Preferred Stock (the "Conversion
Shares"). The Series C Preferred Stock and the Conversion Shares shall have the
rights, preferences, privileges and restrictions set forth in the Restated
Certificate.
(c) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Initial Closing
or pursuant to Section 1.3, and the Company agrees to sell and issue to each
Investor at the Initial Closing or pursuant to Section 1.3, that number of
shares of the Company's Series C Preferred Stock set forth opposite such
Investor's name on Schedule A hereto for the purchase price set forth thereon.
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1.2 Initial Closing. The purchase and sale of the Series C Preferred
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Stock shall take place at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, at
2:00 P.M., June 3, 1999 or at such other time and place as the Company and
Investors acquiring in the aggregate more than half the shares of Series C
Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Initial Closing"). At the Initial
Closing the Company shall deliver to each Investor a certificate representing
the Series C Preferred Stock that such Investor is purchasing against payment of
the purchase price therefor by check, wire transfer, cancellation of
indebtedness, or any combination thereof. In the case of News America
Incorporated ("News"), payment shall be made in cash or pre-paid media services
or a combination thereof. If payment is made, in whole or in part, in pre-paid
media services, the terms and conditions of such media services shall be those
contained in the Advertsing Agreement attached hereto as Exhibit D.
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1.3 Subsequent Sale of Series C Preferred Stock. The Company may
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sell up to the balance of the authorized number of shares of Series C Preferred
Stock not sold at the Initial Closing to such purchasers as it shall select, at
a price not less than $8.755 per share, provided the agreement for sale is
executed not later than July 1, 1999. Any such purchaser shall become a party to
this Agreement, and that certain Amended and Restated Investors' Rights
Agreement of even date herewith by and among the Company and the Investors, the
form of which is attached as Exhibit B (the "Investors' Rights Agreement"), and
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shall have the rights and obligations hereunder and thereunder, unless such
purchaser enters into an acquisition agreement that provides otherwise.
2. Representations and Warranties of the Company. The Company hereby
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represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions (the "Schedule of Exceptions") furnished to each Investor
which exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
--------------------------------
Company consists of:
(a) Preferred Stock. Twenty-eight million (28,000,000) shares
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of Preferred Stock, par value $0.0001 (the "Preferred Stock"), fourteen million
(14,000,000) shares of which have been designated Series A Preferred Stock (the
"Series A Preferred Stock"), eleven million fifty-nine thousand (11,059,000) of
which are issued and outstanding, and seven million (7,000,000) shares of which
have been designated Series B Preferred Stock (the "Series B Preferred Stock"),
five million two hundred thousand (5,200,000) of which are currently
outstanding, and seven million (7,000,000) of which have been designated Series
C Preferred Stock (the "Series C Preferred Stock"), all of which may be sold
pursuant to this Agreement. The rights, privileges and preferences of the Series
A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
will be as stated in the Company's Restated Certificate.
(b) Common Stock. Forty-two million (42,000,000) shares of
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common stock, par value $0.0001 ("Common Stock"), of which nine million three
hundred forty-five thousand fifty (9,345,050) shares are issued and outstanding.
(c) Except for (A) the conversion privileges of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock,
(B) the rights provided in Section 2.4 of the Investors' Rights Agreement, (C)
warrants to purchase two hundred thousand (200,000) shares of Series A Preferred
Stock and warrants to purchase sixteen thousand (16,000) shares of Series B
Preferred Stock, (D) a note convertible into seven hundred thousand (700,000)
shares of Series B Preferred Stock, and (E) currently outstanding options to
purchase seven
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hundred seventy-nine thousand six hundred fifty (779,650) shares of the
Company's Common Stock granted to employees and service providers, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock. In addition, the Company has reserved one million
two hundred fifty-six thousand three hundred (1,256,300) shares of its Common
Stock for purchase upon exercise of options to be granted in the future to the
Company's employees and service providers. The Company is not a party or subject
to any agreement or understanding, and, to the best of the Company's knowledge,
there is no agreement or understanding between any persons and/or entities,
which affects or relates to the voting or giving of written consents with
respect to any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control,
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directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the Company,
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its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Investors' Rights Agreement,
the performance of all obligations of the Company hereunder and thereunder, and
the authorization, issuance (or reservation for issuance), sale and delivery of
the Series C Preferred Stock being sold hereunder and the Common Stock issuable
upon conversion of the Series C Preferred Stock has been taken or will be taken
prior to the Initial Closing, and this Agreement and the Investors' Rights
Agreement constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement may be
limited by applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock. The Series C
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Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, and the Investors' Rights
Agreement under applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Series C Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Certificate, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement and under applicable state and federal securities
laws.
2.6 Governmental Consents. No consent, approval, order or
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authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except (i) the filing of the
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Restated Certificate with the Secretary of State of Delaware; and (ii) the
filing pursuant to Section 25102(f) of the California Corporate Securities Law
of 1968, as amended, and the rules thereunder, which filing will be effected
within 15 days of the sale of the Series C Preferred Stock hereunder, or such
other post-closing filings as may be required.
2.7 Offering. Subject in part to the truth and accuracy of each
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Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series C Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of any applicable state
and federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.8 Litigation. There is no action, suit, proceeding or
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investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of this Agreement and the
Investors' Rights Agreement, or the right of the Company to enter into such
agreements, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse changes in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company. The foregoing includes, without limitation, actions, suits, proceedings
or investigations pending or threatened involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 Proprietary Information and Employee Stock Purchase Agreements.
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Each employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement in substantially the form provided to the
Investors. The Company is not aware that any of its employees, officers or
consultants are in violation thereof, and the Company will use reasonable
efforts to prevent any such violation.
2.10 Patents and Trademarks. To its knowledge (but without having
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conducted any special investigation or patent or trademark search), the Company
has sufficient title and ownership of or licenses to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted without any conflict with or infringement of the rights of
others, except for such items as have yet to be conceived or developed or that
are expected to be available for licensing on reasonable terms from third
parties. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
except, in either case, for end-user, object code, internal-use software license
and support/maintenance agreements. The Company has not received any
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communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement or the Investors' Rights Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to or outside the scope of their
employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in
---------------------------------
violation or default in any material respect of any provision of its Restated
Certificate or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to its knowledge, of any provision of any federal or state statute, rule or
regulation applicable to the Company. The execution, delivery and performance of
this Agreement and the Investors' Rights Agreement, and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.12 Agreements; Action.
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(a) Except for agreements explicitly contemplated hereby and by
the Investors' Rights Agreement, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations
(contingent or otherwise) of, or payments to the Company in excess of, $25,000,
or (ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company (other than the license of the Company's software
and products in the ordinary course of business), or (iii) provisions
restricting or affecting the development, manufacture or distribution of the
Company's products or services.
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(c) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.13 Permits. The Company has all franchises, permits, licenses, and
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any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
2.14 Registration Rights. Except as provided in the Investors' Rights
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.15 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Restated Certificate and
Bylaws of the Company are in the form previously provided to the Investors.
2.16 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with all material terms of such leases and, to the best of its knowledge, holds
a valid leasehold interest free of any liens, claims or encumbrances.
3. Representations and Warranties of the Investors. Each Investor
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hereby represents and warrants that:
3.1 Authorization. Such Investor has full power and authority to
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enter into this Agreement and the Investors' Rights Agreement, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
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relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
such Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Series C Preferred Stock to be received by such Investor and
the Common Stock issuable upon conversion thereof (collectively, the
"Securities") will be acquired for investment for such Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, such Investor further represents that such Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has
-------------------------
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series C Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series C Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.
3.4 Investment Experience. Such Investor acknowledges that it is
---------------------
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series C
Preferred Stock. If other than an individual, Investor also represents it has
not been organized for the purpose of acquiring the Series C Preferred Stock.
3.5 Accredited Investor. Such Investor is an "accredited investor"
-------------------
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the
---------------------
Securities it ispurchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit
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of the Company to be bound by this Section 3 and the Investors' Rights Agreement
provided and to the extent this Section and such agreements are then applicable,
and:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for (i) a transfer by an Investor to a parent or majority owned subsidiary of
such Investor, or, (ii) if such Investor is a partnership, to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse; provided however, that the transferee under (i) or (ii) above agrees in
writing to be subject to the terms hereof to the same extent as if he or she
were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
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Securities may bear one or all of the following legends:
"These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
4. Conditions of Investors' Obligations at Closing. The
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obligations of each Investor under subsection 1.1(c) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall not be effective against any Investor who
does not consent thereto:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true on and as of the
Initial Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Initial Closing.
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4.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Initial
Closing.
4.3 Compliance Certificate. The Chief Executive Officer of the
----------------------
Company shall deliver to each Investor at the Initial Closing a certificate
stating that the conditions specified in Sections 4.1 and 4.2 have been
fulfilled and stating that there shall have been no material adverse change in
the business, affairs, operations, properties, assets or condition of the
Company since the date of the incorporation.
4.4 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Initial Closing.
4.5 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at the Initial Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
4.6 Board of Directors. The authorized number of directors of the
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Company shall be seven (7). The directors of the Company as of the Initial
Closing shall be Messrs. Razzouk, Bruner, Beirne, Moritz, Cotsakos, Burke and
McCall.
4.7 Opinion of Company Counsel. Each Investor shall have received
--------------------------
from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP ("Gunderson
Dettmer"), counsel for the Company, an opinion, dated as of the Closing, in the
form attached hereto as Exhibit C.
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4.8 Investors' Rights Agreement. The Company and each Investor shall
---------------------------
have entered into the Investors' Rights Agreement. Additionally, the requisite
parties to that certain Amended and Restated Investors' Rights Agreement dated
as of January 15, 1999 by and among the Company and the Investors listed on
Schedule A thereto (the "Prior Agreement") shall also enter into the Investors'
Rights Agreement so that the Prior Agreement shall be replaced in its entirety
by the Investors' Rights Agreement.
5. Conditions of the Company's Obligations at Closing. The
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obligations of the Company to each Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
that Investor:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
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5.2 Payment of Purchase Price. The Investor shall have delivered the
-------------------------
purchase price specified in Section 1.1(c).
5.3 Qualifications. All authorizations, approvals, or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
5.4 Investors' Rights Agreement. The Company and each Investor and
---------------------------
shall have entered into the Investors' Rights Agreement. Additionally, the
requisite parties to the Prior Agreement shall also have entered into the
Investors' Rights Agreement so that the Prior Agreement shall be replaced in its
entirety by the Investors' Rights Agreement.
6. Miscellaneous.
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6.1 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
6.2 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 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.
6.3 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.
6.4 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.
6.5 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 Notices. Unless otherwise provided, any notice required or
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permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, upon
transmission via facsimile to a facsimile number indicated by such party in
writing as such party may designate by ten (10) days' advance written notice to
the other parties, 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
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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.
6.7 Finder's Fee. Each party represents that it neither is nor will
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be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.8 Expenses. Irrespective of whether the Closing is effected, the
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Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Initial Closing is effected, the Company shall, at the Initial Closing,
reimburse the reasonable fees and expenses of any counsel to the Investors, not
to exceed a maximum aggregate amount of $15,000. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
Investors' Rights Agreement, or the Restated Certificate, 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.
6.9 Amendments and Waivers. 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
Common Stock issuable or issued upon conversion of the Series C Preferred Stock.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities are
convertible), each future holder of all such securities, and the Company.
6.10 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.
6.11 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
11
<PAGE>
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6.12 Aggregation of Stock. All shares of the Preferred Stock 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.
6.13 Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
6.14 Waiver of Conflicts. Each party to this Agreement acknowledges
-------------------
that Gunderson Dettmer, counsel for the Company, has in the past and may
continue to perform legal services for certain of the Investors in matters
unrelated to the transactions described in this Agreement, including the
representation of such Investors in venture capital financings and other
matters. Accordingly, each party to this Agreement hereby (1) acknowledges that
it has had an opportunity to ask for information relevant to this disclosure;
(2) acknowledges that Gunderson Dettmer represented the Company in the
transaction contemplated by this Agreement and has not represented any
individual Investor or any individual stockholder or employee of the Company in
connection with such transaction; and (3) gives its informed consent to
Gunderson Dettmer's representation of certain of the Investors in such unrelated
matters and to Gunderson Dettmer's representation of the Company in connection
with this Agreement and the transactions contemplated hereby.
12
<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
Signature Page
planetRx.com, Inc. Series C Preferred Stock Purchase Agreement
<PAGE>
Schedule A
Schedule of Investors
---------------------
Number of Total Purchase
Name and Address Shares Purchased Price of Shares
- ---------------- ---------------- ---------------
TOTALS 6,776,364 $59,327,067
============== =============
<PAGE>
Schedule B
----------
Schedule of Exceptions
----------------------
<PAGE>
Exhibit A
---------
Restated Certificate of Incorporation
-------------------------------------
<PAGE>
Exhibit B
---------
Investors' Rights Agreement
---------------------------
<PAGE>
Exhibit C
---------
Opinion of Counsel for the Company
----------------------------------
<PAGE>
Exhibit D
---------
Advertising Agreement Between News America Incorporated and the Company
-----------------------------------------------------------------------
<PAGE>
EXHIBIT 10.16
PLANETRX.COM, INC.
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
September __, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Purchase and Sale of Stock............................................ 1
1.1 Sale and Issuance of Series D Preferred Stock................... 1
1.2 Initial Closing................................................. 1
2. Representations and Warranties of the Company......................... 1
2.1 Organization, Good Standing and Qualification................... 2
2.2 Capitalization and Voting Rights................................ 2
2.3 Subsidiaries.................................................... 3
2.4 Authorization................................................... 3
2.5 Valid Issuance of Preferred and Common Stock.................... 3
2.6 Governmental Consents........................................... 3
2.7 Offering........................................................ 3
2.8 Litigation...................................................... 4
2.9 Proprietary Information and Employee Stock Purchase Agreements.. 4
2.10 Patents and Trademarks......................................... 4
2.11 Compliance with Other Instruments.............................. 5
2.12 Agreements; Action............................................. 5
2.13 Permits........................................................ 6
2.14 Registration Rights............................................ 6
2.15 Corporate Documents............................................ 6
2.16 Title to Property and Assets................................... 6
3. Representations and Warranties of the Investors....................... 6
3.1 Authorization................................................... 6
3.2 Purchase Entirely for Own Account............................... 6
3.3 Disclosure of Information....................................... 7
3.4 Investment Experience........................................... 7
3.5 Accredited Investor............................................. 7
3.6 Restricted Securities........................................... 7
3.7 Further Limitations on Disposition.............................. 7
3.8 Legends......................................................... 8
4. Conditions of Investors' Obligations at Closing....................... 8
4.1 Representations and Warranties.................................. 8
4.2 Performance..................................................... 8
4.3 Compliance Certificate.......................................... 8
4.4 Qualifications.................................................. 8
4.5 Proceedings and Documents....................................... 9
4.6 Board of Directors.............................................. 9
4.7 Opinion of Company Counsel...................................... 9
4.8 Investors' Rights Agreement..................................... 9
i
<PAGE>
5. Conditions of the Company's Obligations at Closing.................... 9
5.1 Representations and Warranties.................................. 9
5.2 Payment of Purchase Price....................................... 9
5.3 Qualifications.................................................. 9
5.4 Investors' Rights Agreement..................................... 9
6. Miscellaneous......................................................... 10
6.1 Survival of Warranties.......................................... 10
6.2 Successors and Assigns.......................................... 10
6.3 Governing Law................................................... 10
6.4 Counterparts.................................................... 10
6.5 Titles and Subtitles............................................ 10
6.6 Notices......................................................... 10
6.7 Finder's Fee.................................................... 10
6.8 Expenses........................................................ 11
6.9 Amendments and Waivers.......................................... 11
6.10 Severability................................................... 11
6.11 Corporate Securities Law....................................... 11
6.12 Aggregation of Stock........................................... 11
6.13 Entire Agreement............................................... 11
6.14 Waiver of Conflicts............................................ 11
SCHEDULE A Schedule of Investors
SCHEDULE B Schedule of Exceptions
EXHIBIT A Restated Certificate of Incorporation
EXHIBIT B Amended and Restated Investors' Rights Agreement
EXHIBIT C Opinion of Counsel for the Company
ii
<PAGE>
PLANETRX.COM, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the ___ day of September,
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."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
--------------------------
1.1 Sale and Issuance of Series D Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State of
Delaware on or before the Closing (as defined below) the Restated Certificate of
Incorporation in the form attached hereto as Exhibit A (the "Restated
---------
Certificate").
(b) On or prior to the Initial Closing (as defined below), the
Company shall have authorized (i) the sale and issuance to the Investors of the
Series D Preferred Stock and (ii) the issuance of the shares of Common Stock to
be issued upon conversion of the Series D Preferred Stock (the "Conversion
Shares"). The Series D Preferred Stock and the Conversion Shares shall have the
rights, preferences, privileges and restrictions set forth in the Restated
Certificate.
(c) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Initial Closing
or pursuant to Section 1.3, and the Company agrees to sell and issue to each
Investor at the Initial Closing or pursuant to Section 1.3, that number of
shares of the Company's Series D Preferred Stock set forth opposite such
Investor's name on Schedule A hereto for the purchase price set forth thereon.
----------
1.2 Initial Closing. The purchase and sale of the Series D Preferred
---------------
Stock shall take place at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, at
2:00 P.M., September __, 1999 or at such other time and place as the Company and
Investors acquiring in the aggregate more than half the shares of Series D
Preferred Stock sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Initial Closing"). At the Initial
Closing the Company shall deliver to each Investor a certificate representing
the Series D Preferred Stock that such Investor is purchasing against payment of
the purchase price therefor by check, wire transfer, cancellation of
indebtedness, or any combination thereof.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions
<PAGE>
(the "Schedule of Exceptions") furnished to each Investor
which exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization and Voting Rights. The authorized capital of the
--------------------------------
Company consists of:
(a) Preferred Stock. Thirty million (30,000,000) shares of Preferred
---------------
Stock, par value $0.0001 (the "Preferred Stock"), fourteen million (14,000,000)
shares of which have been designated Series A Preferred Stock (the "Series A
Preferred Stock"), eleven million fifty-nine thousand (11,159,000) of which are
issued and outstanding, and seven million (7,000,000) shares of which have been
designated Series B Preferred Stock (the "Series B Preferred Stock"), five
million nine hundred thousand (5,900,000) of which are currently outstanding,
seven million (7,000,000) of which have been designated Series C Preferred Stock
(the "Series C Preferred Stock"), six million seven hundred seventy-six thousand
three hundred sixty-four (6,776,364) of which are currently outstanding, and
five hundred thousand (500,000) of which have been designated Series D Preferred
Stock (the "Series D Preferred Stock") all of which may be sold pursuant to this
Agreement. The rights, privileges and preferences of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series
D Preferred Stock will be as stated in the Company's Restated Certificate.
(b) Common Stock. Fifty million (50,000,000) shares of common stock,
------------
par value $0.0001 ("Common Stock"), of which ten million twenty-seven thousand
nine hundred (10,027,900) shares are issued and outstanding.
(c) Except for (A) the conversion privileges of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D Preferred Stock, (B) the rights provided in Section 2.4 of the
Investors' Rights Agreement, (C) a warrant to purchase one hundred thousand
(100,000) shares of Series A Preferred Stock and a warrant to purchase sixteen
thousand (16,000) shares of Series B Preferred Stock, and (D) currently
outstanding options to purchase two million nine hundred one thousand nine
hundred fifty (2,801,950) shares of the Company's Common Stock granted to
employees and service providers, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or agreements for
the purchase or acquisition from the Company of any shares of its capital stock.
In addition, the Company has reserved seven hundred ninety-three thousand one
hundred fifty (893,150) shares of its Common Stock for purchase upon exercise of
options to be granted in the future to the Company's employees and service
providers. The Company is not a party or subject to any agreement or
understanding, and, to the best of the Company's knowledge, there is no
agreement or understanding between any persons and/or entities, which
2
<PAGE>
affects or relates to the voting or giving of written consents with respect to
any security or by a director of the Company.
2.3 Subsidiaries. The Company does not presently own or control, directly
------------
or indirectly, any interest in any other corporation, association, or other
business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement and the Investors' Rights Agreement, the
performance of all obligations of the Company hereunder and thereunder, and the
authorization, issuance (or reservation for issuance), sale and delivery of the
Series D Preferred Stock being sold hereunder and the Common Stock issuable upon
conversion of the Series D Preferred Stock has been taken or will be taken prior
to the Initial Closing, and this Agreement and the Investors' Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 Valid Issuance of Preferred and Common Stock. The Series D Preferred
--------------------------------------------
Stock that is being purchased by the Investors hereunder, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, and the Investors' Rights
Agreement under applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Series D Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Restated Certificate, will be duly and validly
issued, fully paid, and nonassessable and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement and under applicable state and federal securities
laws.
2.6 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except (i) the filing of the Restated Certificate with the
Secretary of State of Delaware; and (ii) the filing pursuant to Section 25102(f)
of the California Corporate Securities Law of 1968, as amended, and the rules
thereunder, which filing will be effected within 15 days of the sale of the
Series D Preferred Stock hereunder, or such other post-closing filings as may be
required.
2.7 Offering. Subject in part to the truth and accuracy of each
--------
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series D Preferred Stock as contemplated by this
Agreement are exempt from the registration
3
<PAGE>
requirements of any applicable state and federal securities laws, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.
2.8 Litigation. There is no action, suit, proceeding or investigation
----------
pending or, to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement and the Investors' Rights
Agreement, or the right of the Company to enter into such agreements, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any material adverse changes
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company. The
foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened involving the prior employment of any of
the Company's employees, their use in connection with the Company's business of
any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 Proprietary Information and Employee Stock Purchase Agreements. Each
--------------------------------------------------------------
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement in substantially the form provided to the
Investors. The Company is not aware that any of its employees, officers or
consultants are in violation thereof, and the Company will use reasonable
efforts to prevent any such violation.
2.10 Patents and Trademarks. To its knowledge (but without having
----------------------
conducted any special investigation or patent or trademark search), the Company
has sufficient title and ownership of or licenses to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted without any conflict with or infringement of the rights of
others, except for such items as have yet to be conceived or developed or that
are expected to be available for licensing on reasonable terms from third
parties. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
except, in either case, for end-user, object code, internal-use software license
and support/maintenance agreements. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement or the Investors'
4
<PAGE>
Rights Agreement, nor the carrying on of the Company's business by the employees
of the Company, nor the conduct of the Company's business as proposed, will, to
the Company's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to or
outside the scope of their employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in violation
---------------------------------
or default in any material respect of any provision of its Restated Certificate
or Bylaws, or in any material respect of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound, or, to its
knowledge, of any provision of any federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of this
Agreement and the Investors' Rights Agreement, and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event that results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
2.12 Agreements; Action.
------------------
(a) Except for agreements explicitly contemplated hereby and by the
Investors' Rights Agreement, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
is a party or by which it is bound that may involve (i) obligations (contingent
or otherwise) of, or payments to the Company in excess of, $25,000, or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company (other than the license of the Company's software and products
in the ordinary course of business), or (iii) provisions restricting or
affecting the development, manufacture or distribution of the Company's products
or services.
(c) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions
5
<PAGE>
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such subsections.
2.13 Permits. The Company has all franchises, permits, licenses, and any
-------
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
2.14 Registration Rights. Except as provided in the Investors' Rights
-------------------
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.15 Corporate Documents. Except for amendments necessary to satisfy
-------------------
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Restated Certificate and
Bylaws of the Company are in the form previously provided to the Investors.
2.16 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens that arise in the ordinary course of business and do
not materially impair the Company's ownership or use of such property or assets.
With respect to the property and assets it leases, the Company is in compliance
with all material terms of such leases and, to the best of its knowledge, holds
a valid leasehold interest free of any liens, claims or encumbrances.
3. Representations and Warranties of the Investors. Each Investor hereby
-----------------------------------------------
represents and warrants that:
3.1 Authorization. Such Investor has full power and authority to enter
-------------
into this Agreement and the Investors' Rights Agreement, and each such Agreement
constitutes its valid and legally binding obligation, enforceable in accordance
with its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Investors' Rights Agreement may be limited by applicable federal or state
securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with such
---------------------------------
Investor in reliance upon such Investor's representation to the Company, which
by such Investor's execution of this Agreement such Investor hereby confirms,
that the Series D Preferred Stock to be received by such Investor and the Common
Stock issuable upon conversion thereof (collectively, the "Securities") will be
acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part
6
<PAGE>
thereof, and that such Investor has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, such Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities.
3.3 Disclosure of Information. Such Investor believes it has received all
-------------------------
the information it considers necessary or appropriate for deciding whether to
purchase the Series D Preferred Stock. Such Investor further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series D Preferred
Stock and the business, properties, prospects and financial condition of the
Company. The foregoing, however, does not limit or modify the representations
and warranties of the Company in Section 2 of this Agreement or the right of the
Investors to rely thereon.
3.4 Investment Experience. Such Investor acknowledges that it is able to
---------------------
fend for itself, can bear the economic risk of its investment, and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Series D Preferred
Stock. If other than an individual, Investor also represents it has not been
organized for the purpose of acquiring the Series D Preferred Stock.
3.5 Accredited Investor. Such Investor is an "accredited investor" within
-------------------
the meaning of Securities and Exchange Commission ("SEC") Rule 501 of Regulation
D, as presently in effect.
3.6 Restricted Securities. Such Investor understands that the Securities
---------------------
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above, such Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreements are then applicable, and:
(a) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to
7
<PAGE>
the Company that such disposition will not require registration of such shares
under the Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for (i)
a transfer by an Investor to a parent or majority owned subsidiary of such
Investor, or, (ii) if such Investor is a partnership, to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse; provided however, that the transferee under (i) or (ii) above agrees in
writing to be subject to the terms hereof to the same extent as if he or she
were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
-------
Securities may bear one or all of the following legends:
"These securities have not been registered under the Securities Act of
1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
4. Conditions of Investors' Obligations at Closing'. The obligations of
-----------------------------------------------
each Investor under subsection 1.1(c) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
thereto:
4.1 Representations and Warranties. The representations and warranties of
------------------------------
the Company contained in Section 2 shall be true on and as of the Initial
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Initial Closing.
4.2 Performance. The Company shall have performed and complied with all
-----------
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Initial
Closing.
4.3 Compliance Certificate. The Chief Executive Officer of the Company
----------------------
shall deliver to each Investor at the Initial Closing a certificate stating that
the conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating
that there shall have been no material adverse change in the business, affairs,
operations, properties, assets or condition of the Company since the date of the
incorporation.
4.4 Qualifications. All authorizations, approvals, or permits, if any, of
--------------
any governmental authority or regulatory body of the United States or of any
state that are required in
8
<PAGE>
connection with the lawful issuance and sale of the Securities pursuant to this
Agreement shall be duly obtained and effective as of the Initial Closing.
4.5 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at the Initial Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
4.6 Board of Directors. The authorized number of directors of the Company
------------------
shall be seven (7). The directors of the Company as of the Initial Closing
shall be Messrs. Razzouk, Beirne, Moritz, Cotsakos and Burke and there shall be
two vacancies.
4.7 Opinion of Company Counsel. Each Investor shall have received from
--------------------------
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP ("Gunderson
Dettmer"), counsel for the Company, an opinion, dated as of the Closing, in the
form attached hereto as Exhibit C.
---------
4.8 Investors' Rights Agreement. The Company and each Investor shall have
---------------------------
entered into the Investors' Rights Agreement. Additionally, the requisite
parties to that certain Amended and Restated Investors' Rights Agreement dated
as of June 3, 1999 by and among the Company and the Investors listed on Schedule
A thereto (the "Prior Agreement") shall also enter into the Investors' Rights
Agreement so that the Prior Agreement shall be replaced in its entirety by the
Investors' Rights Agreement.
5. Conditions of the Company's Obligations at Closing. The obligations of
--------------------------------------------------
the Company to each Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by that Investor:
5.1 Representations and Warranties. The representations and warranties of
------------------------------
the Investors contained in Section 3 shall be true on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have delivered the
-------------------------
purchase price specified in Section 1.1(c).
5.3 Qualifications. All authorizations, approvals, or permits, if any, of
--------------
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall be duly obtained and effective as of
the Closing.
5.4 Investors' Rights Agreement. The Company and each Investor and shall
---------------------------
have entered into the Investors' Rights Agreement. Additionally, the requisite
parties to the Prior Agreement shall also have entered into the Investors'
Rights Agreement so that the Prior Agreement shall be replaced in its entirety
by the Investors' Rights Agreement.
9
<PAGE>
6. Miscellaneous.
-------------
6.1 Survival of Warranties. The warranties, representations and covenants
----------------------
of the Company and Investors contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investors or the Company.
6.2 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 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.
6.3 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.
6.4 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.
6.5 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.6 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, upon transmission via
facsimile to a facsimile number indicated by such party in writing as such party
may designate by ten (10) days' advance written notice to the other parties, 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.
6.7 Finder's Fee. Each party represents that it neither is nor will be
------------
obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
10
<PAGE>
6.8 Expenses. Irrespective of whether the Closing is effected, the
--------
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Initial Closing is effected, the Company shall, at the Initial Closing,
reimburse the reasonable fees and expenses of any counsel to the Investors, not
to exceed a maximum aggregate amount of $10,000. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
Investors' Rights Agreement, or the Restated Certificate, 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.
6.9 Amendments and Waivers. 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 Common
Stock issuable or issued upon conversion of the Series D Preferred Stock. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this Agreement at the time
outstanding (including securities into which such securities are convertible),
each future holder of all such securities, and the Company.
6.10 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.
6.11 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE THE
------------------------
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
6.12 Aggregation of Stock. All shares of the Preferred Stock 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.
6.13 Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
6.14 Waiver of Conflicts. Each party to this Agreement acknowledges that
-------------------
Gunderson Dettmer, counsel for the Company, has in the past and may continue to
perform legal services for certain of the Investors in matters unrelated to the
transactions described in this
11
<PAGE>
Agreement, including the representation of such Investors in venture capital
financings and other matters. Accordingly, each party to this Agreement hereby
(1) acknowledges that it has had an opportunity to ask for information relevant
to this disclosure; (2) acknowledges that Gunderson Dettmer represented the
Company in the transaction contemplated by this Agreement and has not
represented any individual Investor or any individual stockholder or employee of
the Company in connection with such transaction; and (3) gives its informed
consent to Gunderson Dettmer's representation of certain of the Investors in
such unrelated matters and to Gunderson Dettmer's representation of the Company
in connection with this Agreement and the transactions contemplated hereby.
12
<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:
---------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INVESTORS:
By:
----------------------------------------
<PAGE>
Schedule A
Schedule of Investors
---------------------
<TABLE>
<CAPTION>
Number of Total Purchase
Name and Address Shares Purchased Price of Shares
- -------------------------------- -------------------------- --------------------------
<S> <C> <C>
iVillage Inc. 371,103 $7,499,991.60
TOTALS 371,103 $7,499,991.60
======= =============
</TABLE>
<PAGE>
Schedule B
----------
Schedule of Exceptions
----------------------
<PAGE>
Exhibit A
---------
Restated Certificate of Incorporation
-------------------------------------
<PAGE>
Exhibit B
---------
Amended and Restated Investors' Rights Agreement
------------------------------------------------
<PAGE>
Exhibit C
---------
Opinion of Counsel for the Company
----------------------------------
<PAGE>
EXHIBIT 10.17
AGREEMENT
---------
This Agreement ("Agreement"), dated as of August 31, 1999, is between
Express Scripts, Inc., a Delaware corporation ("ESI") and PlanetRx.com, Inc., a
Delaware corporation ("PlanetRx").
RECITALS
--------
Whereas, ESI provides and manages prescription drug programs for its
clients, which programs include claims administration, mail service dispensing
and other pharmacy management services.
Whereas, PlanetRx is a leading Internet Pharmacy (as hereinafter defined)
which owns and operates an internet based online shopping site for the retail
sale of prescription and non-prescription pharmaceuticals and health and beauty
products.
In consideration of the agreements, covenants and conditions set forth
herein, intending to be legally bound, the parties hereto agree as follows:
Section 1. Definitions
Whenever used in this Agreement with initial letters capitalized, the
following terms will have the following specified meanings:
"Affiliate" means, with respect to a party, any Person that, directly or
indirectly, Controls, or is Controlled by, or is under common Control with, such
party.
"Competitor" (i) of ESI means any Third Party that is a PBM, and (ii) of
PlanetRx means (a) a Third Party that sells prescription and non-prescription
pharmaceuticals and health and beauty aids via the Internet or (b) the Internet
division of a traditional pharmacy provider which utilizes the Internet for the
sale, order, reorder or mail delivery of Pharmaceutical Products.
"Confidential Information" means all trade secrets, know-how and nonpublic
information that relates to research, development, trade secrets, inventions,
source code, technical data, software programming, concepts, designs,
procedures, manufacturing, purchasing, accounting, engineering, marketing,
merchandising, selling, business plans or strategies and other proprietary or
confidential information, protectable under the laws of the United States or any
other nation, state or jurisdiction (including, but not limited to, any foreign
equivalents thereto).
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether by contract or through the ownership of voting securities, including the
ownership of more than fifty percent (50%) of the equity, partnership or similar
interest in such Person.
"DrugDigest Site" means the website currently located at
www.DrugDigest.org.
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
<PAGE>
"Effective Time" shall have the meaning as set forth in Section 18.15 of
this Agreement.
"Equity Transaction" means, collectively, the transactions described in
that certain Asset Contribution and Reorganization Agreement dated as of August
31, 1999, among ESI, YPC, PlanetRx, PRX Holding Company and PRX Acquisition
Corp.
"ESI Member" means any individual who is entitled to benefits under a
prescription drug benefit plan provided by ESI, or a Person Controlled by ESI,
to an ESI Plan Sponsor or directly to such individual.
"ESI Networks" means any or all of the networks of retail pharmacies
contracted with ESI to dispense prescription drugs to ESI Members. A pharmacy
network that is contracted by an ESI Plan Sponsor and merely administered by ESI
for such ESI Plan Sponsor shall not be deemed to be an ESI Network for purposes
of this Agreement.
"ESI Plan Sponsor" means a sponsor of a health plan (such as an insurance
company, health maintenance organization, employer, Taft-Hartley plan, or other
Person, or a third party administrator acting on behalf of such a plan sponsor,
including a sponsor of a "cash and carry" or discounted card program) who
contracts with ESI or one of its Affiliates to provide a prescription drug
benefit to members of such health plan.
"ESI Site" means the website currently located at www.express-scripts.com
(and any successor site, Mirror site or sites controlled by ESI or sites of any
entity Controlled by ESI).
"Fully Diluted Equity" means the potential number of shares in PlanetRx
which includes: (a) all issued shares of common stock (whether fully or partly
paid), (b) the maximum number of shares of common stock which may be issued
upon: (i) the exercise of options granted by PlanetRx and (ii) conversion of
securities which are convertible into shares of common stock, including but not
limited to, all convertible notes, bonds and shares; and (c) shares issued by
PlanetRx in any other class.
"Home Page" means (i) with respect to the PlanetRx Site, the page that is
displayed to the user when the URL www.PlanetRx.com or any successor URL is
entered, (ii) with respect to the YPC Site, the page that is displayed to the
user when the URL www.yourPharmacy.com or any successor URL is entered, and
(iii) with respect to the DrugDigest Site, the page that is displayed to the
user when the URL www.DrugDigest.org or any successor URL is entered.
"Internet Pharmacy" means a pharmacy which does not have a physical
location for patrons to visit for retail sales but that receives orders from
customers only through the Internet, but does not include the Internet division
or operations of pharmacy chains and other retail merchants (such as supermarket
chains and discount stores) that dispense prescription drugs and who, as an
adjunct to their traditional pharmacy operations also accept prescription orders
via the Internet and mail or deliver the Pharmaceutical Products to their
customers.
2
<PAGE>
"Internet" means the Internet or the World Wide Web (or any successor or
other online network including those using delivery over television, cable, set
top boxes, intranets, extranets and personal digital assistants).
"IP Right" means any copyright, Trademark, patent, trade secret, moral
right or other intellectual property or proprietary right of any kind (including
applications therefor and, in the case of patents, any continuation or
divisional patent applications claiming priority thereto), whether arising under
the laws of the United States or any other nation, state or jurisdiction
(including any foreign equivalents thereto).
"Link" means a hypertext link connecting a website to another.
"Member Data" means any and all information regarding ESI Members
(identifiable as such by PlanetRx) including, without limitation, any and all
information reasonably obtainable in connection with any ESI Member purchases
facilitated through the PlanetRx Site, whether in separately identifiable or
aggregated form, including, without limitation, first or last name; E-mail or
other address; postal code; gender or other demographic characteristics; year or
date of birth; social security or other tax identification number; occupation or
other socio-economic or financial information; nature, subject matter, date or
amount paid in any purchase(s), preferences or habits; and any other identifying
information, whether or not actually provided, collected, derived or deduced,
and regardless of its accuracy or completeness.
"Member Impression" means any discrete communication of any nature
whatsoever that is directed to an ESI Member that originates with ESI or with a
Third Party (such as an ESI Plan Sponsor) at ESI's request and that refers to
PlanetRx (by name, logo, or otherwise) or to the services it provides,
including, but not limited to, (i) banner advertisements, commerce buttons and
marketing buttons displayed on a web site, (ii) e-mail or paper mail
communications, (iii) ESI Member informational materials or identification
cards, (iv) mail order package inserts, and (v) taped messages played to ESI
Members waiting in a phone queue.
"Mirror site" means an Internet site that (i) contains the exact form and
content of a site, (ii) is located at a geographic location distinct from a site
and (iii) is created for the purpose of improving the performance of and
accessibility to a site.
"PBM" means any Person which engages in any of the following activities,
whether or not constituting such Person's principal line of business:
contracting with a health plan sponsor to provide prescription drug benefits via
mail order, point-of-sale electronic processing of pharmacy claims, formulary
development and administration, or developing and/or maintaining retail pharmacy
networks for fulfillment of consumer orders for Pharmaceutical Products for
members of a prescription drug benefit plan; provided, that an insurance
--------
company, HMO or other Person whose principal business involves offering policies
or plans of comprehensive health care and which engages in such activities
solely for the benefit of its policyholders or members of its comprehensive
health plans shall not be deemed to be a PBM for purposes of this Agreement.
3
<PAGE>
"Person" means any individual, corporation, partnership, limited liability
company, trust, association or other entity or organization, including any
governmental or political subdivision or any agency or instrumentality thereof.
"Pharmaceutical Products" means any product that under law may not be
dispensed except pursuant to a prescription order written by a licensed medical
professional and dispensed by a licensed pharmacy.
"Pharmacy Chain" means any Third Party that is engaged in a retail business
and which owns or operates more than 50 retail outlets at which an individual
consumer may have a prescription order for Pharmaceutical Products filled.
"PlanetRx IPO" shall mean the initial public offering of shares of common
stock of PlanetRx as defined in the Equity Transaction Agreements.
"PlanetRx.com" means the website currently located at www.PlanetRx.com and
any successor site.
"PlanetRx Site" means the website currently located at www.PlanetRx.com and
any successor site, Mirror site or sites controlled by PlanetRx or sites of any
entity Controlled by PlanetRx.
"Term" means the period commencing on the Effective Time and ending on the
fifth anniversary of such date, subject to extension in accordance with Section
17.5.
"Third Party" means any Person that is not a party hereto or an Affiliate
of a party hereto.
"Trademark(s)" means all common law or registered trademarks, logos,
service marks, trade names, Internet domain names and trade dress rights and
similar or related rights arising under any of the laws of the United States or
any other country or jurisdiction, whether now existing or hereafter adopted or
acquired.
"website" means a location accessible on the Internet through the World
Wide Web and which provides multimedia content via a graphical user interface.
"World Wide Web" means a method of representing and obtaining graphical
data and linking data items used by Internet users.
"YPC" means yourPharmacy.com, Inc., a Delaware corporation and wholly owned
subsidiary of ESI.
"YPC Site" means the site currently located at www.yourPharmacy.com (and
any successor site or Mirror site).
4
<PAGE>
Section 2. Affiliation Grants
2.1 ESI Grant.
---------
(a) Subject to the terms and conditions of this Agreement and the
conditions described below, ESI agrees that (i) PlanetRx shall be the exclusive
Internet Pharmacy contracted in the ESI Networks in the United States to fulfill
orders for ESI Members for Pharmaceutical Products and (ii) ESI shall not enter
into any agreement with any other Internet Pharmacy to fulfill orders for ESI
Members for non-prescription drugs and health and beauty aids for the Term of
this Agreement. Initially, PlanetRx shall be admitted into the ESI network
solely to fill prescriptions for a 30 or fewer days' supply of Pharmaceutical
Products. The parties may, but are under no obligation to, subsequently
negotiate terms under which PlanetRx may fill orders for Pharmaceutical Products
for a greater than 30 days' supply. Among other things, the parties will discuss
an arrangement pursuant to which PlanetRx will fulfill up to $200 million in
ingredient cost of prescriptions for ESI Members for quantities in excess of a
30-day supply on economic and other terms no less favorable to ESI than those
that ESI would have realized had ESI fulfilled such orders in its own
facilities. If ESI, whether due to legal requirements or a "Competitive Reason"
(as defined below), finds it necessary to permit other Internet Pharmacies into
the ESI Networks, ESI will not promote such other Internet Pharmacies to ESI
Members or ESI Plan Sponsors except as required by law; provided, however, that
-------- -------
the foregoing shall not preclude the listing of such Internet Pharmacies in
ESI's or an ESI Plan Sponsor's provider directory. ESI shall use its reasonable
best efforts to include PlanetRx in all the ESI Networks but does not guarantee
that PlanetRx shall be included in all of the ESI Networks. PlanetRx
acknowledges that an ESI Plan Sponsor may require that one or more other
Internet Pharmacies be included in the network for that ESI Plan Sponsor, or
that one or more Internet Pharmacies (which might include PlanetRx) be excluded
from the network for that ESI Plan Sponsor. A "Competitive Reason" means a
circumstance that ESI deems, in good faith, to constitute a material competitive
or business disadvantage to ESI in maintaining PlanetRx as the sole Internet
Pharmacy in the ESI Networks. Examples of such circumstances include the
insistence of actual or potential ESI Plan Sponsors that ESI include other
Internet Pharmacies in the network or competitive disadvantage in the sales
process that ESI might suffer if ESI's Competitors open their networks to more
than one Internet Pharmacy. For purposes of this section ESI shall include any
Person Controlled by ESI that is in the pharmacy benefit management business.
(b) The terms and conditions upon which PlanetRx will fulfill orders for
Pharmaceutical Products will be governed by a Pharmacy Provider Agreement in the
form of Exhibit B hereto. The terms of such Agreement will govern over any
---------
inconsistent term in the body of this Agreement or in any other agreement
between the parties with respect to the matters addressed therein.
(c) The scope of this Agreement is limited to ESI's pharmacy benefit
management business relating to Pharmaceutical Products that are customarily
dispensed from retail pharmacies directly to patients for self-administration,
and shall not be deemed to include or affect in any manner whatsoever ESI's
ancillary health care
5
<PAGE>
businesses, including, but not limited to, (i) its infusion therapy business
presently conducted by its wholly owned subsidiary, IVTx, Inc.; (ii) its
specialty distribution business, which involves the distribution of prescription
drugs requiring special handling or special eligibility requirements, to
physician offices, or pursuant to special programs operated by pharmaceutical
manufacturers; and (iii) its medical information management business, conducted
by its subsidiary, Practice Patterns Science, Inc.
2.2 PlanetRx Grant.
--------------
(a) PlanetRx agrees that ESI shall be its "Preferred PBM Partner" meaning
that, although PlanetRx shall have the right to contract with other PBMs, the
following conditions shall be met: (i) ESI shall retain the most prominent
position in any promotional placements for PBMs on the PlanetRx Site, and (ii)
ESI shall be given "most favored nation" financial terms compared to any other
PBM, such that the total economic package to ESI under this Agreement shall be
at least [+] more favorable than that offered or given to any other PBM.
(b) PlanetRx hereby appoints ESI as its exclusive formulary manager, which
shall include the right to negotiate with pharmaceutical manufacturers for
rebates and other retrospective discounts (and associated administrative fees)
for Pharmaceutical Products, and to bill and collect any such rebates, discounts
and fees, with respect to purchases of Pharmaceutical Products by PlanetRx
customers whose purchases of such products are not reimbursed, in whole or in
part, under a plan that permits the sponsor of such plan or some other Third
Party a superior right to collect such rebates, discounts or fees. ESI will pay
[+] of any rebates and retrospective discounts collected by ESI with respect to
such PlanetRx customer purchases to PlanetRx, and ESI will retain the balance of
rebates and discounts, and any administrative fees, collected by it as its fee
for developing, implementing and managing the formulary program for PlanetRx.
Rebates, discounts and fees in respect of purchases by ESI Members are not
subject to the rebate-sharing provisions of this section, and shall be retained
100% by ESI. ESI shall collect and pay such rebates to PlanetRx in the same
manner and at the same times that it pays rebates to ESI Plan Sponsors.
PlanetRx acknowledges that drug manufacturers may discontinue payment of
such rebates and discounts at will, that laws governing prescription drug
pricing (including rebates) may change, and that rebate amounts are affected by
physician prescribing patterns and other factors. Accordingly, PlanetRx
acknowledges that no rebate or discount amounts can be guaranteed.
(c) ESI shall be entitled to contract with pharmaceutical manufacturers
relating to ancillary programs, such as compliance, disease management, drug and
disease education and formulary management with respect to any ESI Members. The
parties agree that the restrictions described in this Section are not intended
to prevent PlanetRx from entering into an agreement with a Third Party PBM
provided that such agreement complies with the restrictions described in Section
2.2(a).
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
6
<PAGE>
(d) During the initial Term of this Agreement PlanetRx grants ESI the
exclusive right to negotiate, in cooperation with PlanetRx, any strategic
alliance or equity investment in PlanetRx by one or more Pharmacy Chains for up
to an aggregate of [+] of the Fully Diluted Equity of PlanetRx calculated at the
time such transaction is proposed to PlanetRx (the "Equity Threshold"), subject
to review and approval of PlanetRx's Board. ESI's exclusive right shall
terminate once the Equity Threshold is reached.
Section 3. Exclusivity and Non-competition
3.1 ESI will not, and will not permit any entity that it Controls to, (i)
directly or indirectly own any interest in or operate an Internet Pharmacy or
(ii) promote any Person that is a PlanetRx Competitor to ESI Members or ESI Plan
Sponsors during the Term of this Agreement; provided, however, that the
-------- -------
foregoing shall not preclude ESI from (1) holding an ownership interest in
PlanetRx, (2) conducting activities relating to the PlanetRx Site and the YPC
Site as set forth in Section 6.1 of this Agreement, (3) listing Internet
Pharmacies in ESI's or an ESI Plan Sponsor's provider directory, or (4) honoring
contractual obligations of a business or entity acquired by ESI under agreements
existing at the time of such acquisition until such agreements can be lawfully
terminated without financial or other penalty.
3.2 PlanetRx will not, and will not permit any entity that it Controls to
(i) directly or indirectly, engage in business as a PBM, (ii) take any actions
to attempt to convert ESI Members ordering a greater than 30 days' supply of a
Pharmaceutical Product to a 30 or fewer days' supply, or (iii) contact any ESI
Plan Sponsors without ESI's prior written consent; provided, however, that
-------- -------
general solicitations or promotions targeted at the general population or
PlanetRx's general member base shall not be deemed to violate this provision.
3.3 ESI will not promote any PlanetRx Competitor during the Term of this
Agreement. Without limitation, the foregoing shall not be construed to preclude
(i) the listing of such PlanetRx Competitor in ESI's or an ESI Plan Sponsor's
provider directory or general benefit plan information or (ii) permitting an
ESI member to Link from the "Pharmacy Locator" section of the site currently
located at www.express-scripts.com or any successor site to the website of a
pharmacy or pharmacy chain that maintains physical retail locations if (a)
either one of the two largest PBM's or (b) any two of the top four largest PBM's
(excluding ESI) offers such a Linking capability. Subject to the foregoing,
ESI shall not provide a Link to any PlanetRx Competitor on the ESI Site.
3.4 Commencing on the Effective Time and throughout the Term of this
Agreement, PlanetRx shall supply up to 15 employees, on a full-time basis, for
the purpose of converting ESI Members to use the PlanetRx Site. The YPC
employees hired by PlanetRx in the Equity Transaction will initially focus on
converting ESI members to use the PlanetRx Site, but if the former YPC employees
terminate their employment with PlanetRx or have their employment terminated by
PlanetRx, PlanetRx will hire new employees or assign existing employees to focus
solely on such conversion. ESI will
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
7
<PAGE>
have the right to approve any PlanetRx employees who work on the conversion of
ESI Members.
3.5 Except as contemplated by the Equity Transaction, each party agrees
that neither it nor any Affiliates controlled, directly or indirectly, by such
party will at any time from the date of this Agreement until the second year
anniversary of the date upon which the Term of this Agreement terminates for any
reason, directly or indirectly, solicit for employment or employ (except any
employees whose place of employment is located in California) any individual who
was, at any time during the 6 months immediately preceding such solicitation or
employment, an employee of the other party, except with the consent of the other
party.
Section 4. Brands and Advertising/ Co-Branded Effort
4.1 Promotional Plan. ESI and PlanetRx shall develop a plan to promote
----------------
their products and services and agree to the level of resources each will
commit. The general parameters of the plan will be as follows:
(i) PlanetRx shall designate ESI as its "Preferred PBM Partner" on the
PlanetRx Site.
(ii) ESI shall promote PlanetRx on the ESI Site and the YPC Site and
shall provide a Link to the PlanetRx Site on the YPC Site, and
PlanetRx shall promote the YPC Site and provide a Link to the YPC
Site on the PlanetRx Site. The placement of such Links shall be
mutually agreed upon by the parties. PlanetRx and ESI will develop
Links from the disease state websites to the ESI Site such that ESI
Members can Link to ESI's disease management program.
(iii) ESI Member materials shall indicate that PlanetRx is ESI's Internet
Pharmacy provider, subject to ESI Plan Sponsor review and approval
of the form and content of such communications where so applicable.
(iv) ESI shall use reasonable best efforts to provide PlanetRx with 50
million total Member Impressions in the first year of this
Agreement, 75 million total Member Impressions in the second year,
100 million total Member Impressions in the third year, 125 million
total Member Impressions in the fourth year and 150 million total
Member Impressions in the fifth and any subsequent year. The content
of Member Impressions referring to or relating to PlanetRx shall be
subject to reasonable approval by PlanetRx. In computing the number
of total Member Impressions the parties shall develop mutually
agreed upon standards to apply where precise enumeration is not
practicable, or where a Member Impression can reasonably be expected
to reach more than one ESI Member (as in the case of a mailing sent
to a residence where more than one ESI Member resides).
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4.2 Co-branded Website.
------------------
4.2.1 PlanetRx shall co-brand the PlanetRx Site and all PlanetRx disease
state websites (e.g., www.arthritis.com, www.diabetes.com etc.) for ESI Members
(identifiable as such by PlanetRx) in a manner that is mutually agreed upon by
the parties; provided, however, that ESI shall have the right to not have co-
-------- --------
branding on certain designated areas on any such websites.
4.2.2 The co-branded website will include the respective logo(s) of each
party with the position, placement and prominence of such logos to be mutually
agreed upon by the parties. It is acknowledged that each party's logo(s) and
name are the intellectual property of such party and must be protected.
4.2.3 The co-branded website content, sponsorship and advertising
available to ESI Members (identifiable as such by PlanetRx) may be different
from that which is available to non-ESI Members. For example, in order to
minimize the opportunities for ESI Members to view content or promotional
material on the PlanetRx Site that may be inconsistent with the applicable
formulary or benefit design of the plan to which such ESI Member belongs, the
parties will cooperate to develop methodologies by which ESI Members can be
identified as such and routed to pages on the PlanetRx Site and the PlanetRx
disease state websites that do not contain any such content or promotional
materials.
4.2.4 PlanetRx agrees to cooperate with ESI to develop programs which
demonstrate to ESI Members the benefits of using the PlanetRx Site.
4.2.5 Both parties agree to develop appropriate procedures and technology,
including any requisite technical and web interfaces, in order to identify and
track ESI Member usage of the PlanetRx Site in a mutually agreed upon manner.
4.2.6 At ESI's request, PlanetRx shall expend up to $100,000 per year on
marketing efforts and promotions aimed at ESI Members.
4.3 Promotional Materials. PlanetRx shall co-brand offline collateral
---------------------
materials, such as package inserts, for ESI Plan Sponsors and ESI Members
(identifiable as such by PlanetRx) in a mutually agreed upon format. Any form
of branded communication and documentation must be agreed in writing by the
parties before it is issued, published or otherwise made available (in any form
or medium). All outbound communications from PlanetRx to ESI Members
(identifiable as such by PlanetRx) (other than those customarily occurring
between a pharmacist and patient with respect to the dispensing of
Pharmaceutical Products or those reasonably necessary to fulfill a customer's
order) shall require ESI's prior written approval; provided, however, that in
-------- -------
the event that PlanetRx shall request consent for a specific promotion, ESI
shall provide a response to such request within one (1) business day.
4.4 PlanetRx Home Page
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4.4.1 One of the ESI Trademarks designated by ESI shall be featured on the
Home Page of PlanetRx.com, in a manner mutually agreeable to the parties.
4.4.2 ESI shall provide PlanetRx with samples of ESI Trademarks for use in
advertising and on the PlanetRx Site. Without ESI's prior written approval,
PlanetRx may not use Trademarks owned by ESI.
4.5 ESI and YPC Home Pages
----------------------
4.5.1 One of the PlanetRx Trademarks designated by PlanetRx shall be
featured on the Home Pages of the ESI Site and the YPC Site, in a manner
mutually agreeable to the parties.
4.5.2 PlanetRx shall provide ESI with samples of PlanetRx Trademarks for
use in advertising and on the ESI Site and the YPC Site. Without PlanetRx's
written approval, ESI may not use Trademarks owned by PlanetRx.
4.5.3 At the request of PlanetRx, ESI shall provide PlanetRx with a set of
Frequently Asked Questions ("FAQs") and answers thereto to be used by PlanetRx
at its option in conjunction with PlanetRx's FAQs, provided that PlanetRx must
incorporate any updates provided by ESI into any ESI FAQs and answers it uses.
4.6 Content
-------
4.6.1 ESI shall not knowingly publish on the ESI Site, and PlanetRx shall
not knowingly publish on the PlanetRx Site, any content, that is contrary to
law, false or misleading in any material respect, that promotes products
generally acknowledged to be injurious to good health (e.g., cigarettes and
other smoking products; alcoholic beverages), or that is in bad taste or can
reasonably be expected to be offensive to ESI Members. Any content that either
party reasonably determines to be contrary to law or false or misleading in any
material respect shall be removed, upon notice from the determining party, as
soon as practicable by the offending party. After such removal, the parties may
bring the dispute to the advertising liaisons for immediate resolution.
4.6.2 ESI shall have final approval regarding any representations made
relating to the quality of ESI services. PlanetRx shall have final approval
regarding any representations made relating to the quality of PlanetRx services.
4.6.3 ESI shall have the right to approve all prescription related and
other healthcare content and all advertising on the PlanetRx Site to which ESI
Members (identifiable as such by PlanetRx) shall have access.
Section 5. License
5.1 License to Trademarks
---------------------
5.1.1 Subject to Section 4, PlanetRx hereby grants to ESI and any of its
wholly owned entities a non-exclusive, royalty-free, non-transferable (except as
provided in
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Section 18.2), non-sublicensable worldwide license in all jurisdictions in which
PlanetRx has any rights, to use, reproduce, distribute and display the PlanetRx
Trademarks in connection with the agreements among the parties with respect to
advertising and promotions and the performance of its obligations hereunder.
5.1.2 Subject to Section 4, ESI hereby grants to PlanetRx and any of its
wholly owned entities a non-exclusive, royalty-free, non-transferable (except as
provided in Section 18.2), non-sublicensable worldwide license in all
jurisdictions in which ESI has any rights, to use, reproduce, distribute and
display the ESI Trademarks in connection with the agreements among the parties
with respect to advertising and promotions and the performance of its
obligations hereunder.
5.1.3 Each party shall have the right to exercise quality control over the
use of its Trademarks by the other party to the degree necessary, in the sole
opinion of the owner of such Trademarks, to maintain the validity and
enforceability of such Trademarks and to protect the goodwill associated
therewith. Each party shall, in its use of the other's Trademarks, adhere to a
level of quality required by the Trademark owner. If the owner of a Trademark,
in its reasonable opinion, finds that use of such Trademark by the other party
materially threatens the goodwill of such Trademark, the user of such Trademark
shall, upon notice from the owner, immediately, and no later than ten (10) days
after receipt of such owner's notice, take all measures reasonably necessary to
correct the deviation(s) or misrepresentation(s) in, or misuse of, the
applicable Trademark. All goodwill associated with the use of the other's
trademarks hereunder shall inure to the benefit of the owner of such Trademark.
5.1.4 Each party shall use the other's Trademarks in accordance with sound
trademark and trade name usage principles and in compliance with all applicable
laws and regulations of the United States (including all laws and regulations
relating to the maintenance of the validity and enforceability of such
Trademarks) and shall not use the Trademarks in any manner that might tarnish,
disparage, or reflect adversely on the Trademarks or the owner of such
Trademarks. Each party shall use, in connection with the other's Trademarks, all
legends, notices and markings required by law. No party may materially alter the
appearance of another's Trademarks in any advertising, marketing, distribution,
or sales materials, or any other publicly distributed materials without the
prior written consent of the other party.
5.2 Maintenance of PlanetRx Site. PlanetRx shall use reasonable efforts
----------------------------
to maintain the PlanetRx Site such that up-time, scalability, back-up
capability, security and response time meet the then current generally accepted
standards for e-commerce sites on the World Wide Web, and are comparable to or
better than the standards maintained by PlanetRx Competitors.
Section 6. ESI Internet Initiative.
6.1 ESI shall develop, whether alone or with one or more other Third
Parties, its own Internet functionality for the ESI Site which shall link to
PlanetRx.com so that users of the ESI Site can order and purchase products
through PlanetRx.com. In addition, ESI
11
<PAGE>
may develop other Internet functionality which may, among other things, enhance
and support (i) its call center operations, (ii) account information, (iii) the
DrugDigest Site, (iv) a pharmacy locator service, (v) its disease management
programs, (vi) its newsletters, (vii) other PBM services, and (viii) physician
connectivity. The ESI Site will not itself have functionality or operate as an
e-commerce site selling prescription and non-prescription drugs and health and
beauty aids.
6.2 Subject to Section 6.1, PlanetRx shall pay $3 million per year, in
equal quarterly installments, to ESI to fund such activities by ESI throughout
the Term of the Agreement.
6.3 ESI shall establish a committee, to which PlanetRx shall be entitled
to appoint one member, which shall oversee such activities.
6.4 ESI shall own all IP Rights associated with the ESI Site.
Section 7. Drug Digest Site Content License
The parties shall mutually agree to and shall negotiate in good faith
regarding the terms and conditions relating to the license by PlanetRx of
content from the DrugDigest Site.
Section 8. PlanetRx Disease State Websites
8.1 Subject to section 8.3, during the Term of this Agreement, PlanetRx
shall appoint ESI as its exclusive marketing and sales agent for selling
advertising and promotions to Persons engaged primarily in a non-Internet based
healthcare business including, without limitation, manufacturers of
Pharmaceutical Products and non-prescription drugs, medical device manufacturers
and health plan sponsors for its disease state websites (e.g., arthritis.com,
diabetes.com) to which ESI Members (identifiable as such by PlanetRx) shall have
access throughout the Term of the Agreement.
8.2 Except for any advertising or sponsorship revenue derived by PlanetRx
from any existing agreements at the Effective Time, PlanetRx shall pay ESI a
commission of 15% of the total annual advertising and sponsorship revenue (less
any returns and charge-backs) PlanetRx receives for such disease state websites
from those Persons to which ESI's exclusivity applies pursuant to Section 8.1
above.
8.3 The parties shall develop mutually satisfactory annual advertising
revenue goals for the disease state websites for the fourth and fifth years of
this agreement and for any periods thereafter. In the event that such goals are
not achieved, ESI's right to act as the exclusive marketing and sales agent
shall convert to a non-exclusive right and ESI shall receive the commission set
forth in Section 8.2 for any advertising and sponsorship revenue for which it is
directly responsible.
8.4 The aggregate revenue goal for the disease state websites in
advertising and sponsorship revenue received from those Persons to which ESI's
exclusivity applies pursuant to Section 8.1 above shall be as follows: (i)
[+] for the first 12 months
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<PAGE>
of this Agreement; (ii) [+] for the following 12 month period and (iii) [+] for
the 12 month period thereafter.
Section 9. Compensation
9.1 In consideration of the rights granted to PlanetRx and the obligations
undertaken by ESI under this Agreement, PlanetRx shall pay ESI a base fee and an
incremental fee (collectively, the "Operating Fee") based on the schedule
attached hereto as Exhibit A.
---------
9.2 ESI will be entitled to have a nationally recognized accounting firm
selected by ESI, other than ESI's then current accounting firm, to audit
PlanetRx's applicable books and records on an annual basis in order to monitor
PlanetRx's compliance with its payment obligations described in Section 9.1 and
Section 8.2 above. ESI will provide PlanetRx with at least fifteen days
business notice and such audit shall take place at such location where PlanetRx
maintains its books and records and during reasonable business hours. In
connection with any such audit, PlanetRx shall provide ESI and its accountants
with access to the applicable books and records and shall otherwise cooperate
with such audit in a reasonable manner. All audits shall be at the expense of
ESI; provided, however, that if any annual audit reveals an underpayment by
-------- -------
PlanetRx of 5% or more, such audit shall be at the expense of PlanetRx. In the
event any annual audit reveals a shortfall in PlanetRx's annual payment
obligations under either Section 9.1 or Section 8.2, PlanetRx shall immediately
make payments to ESI in order to cover such shortfall.
9.3 Any Payment obligations of PlanetRx pursuant to Sections 6.2 and the
base fee as set forth on Exhibit A shall be due and payable on a quarterly
---------
basis, in equal quarterly installments, within five (5) days of the end of such
quarter. Any Payment obligations of PlanetRx pursuant to Sections 8.2 of this
Agreement are due and payable on a quarterly basis within 30 days from the end
of such quarter. Any Payment obligations of PlanetRx pursuant to Sections 9.1
relating to the incremental fee as set forth on Exhibit A of this Agreement are
---------
due and payable on a quarterly basis on the later of (i) 30 days from the end
of such quarter or (ii) within 30 days from the date on which ESI provides
PlanetRx with any necessary information to calculate any necessary payment due
ESI pursuant to Sections 9.1 relating to the incremental fee as set forth on
Exhibit A of this Agreement. All payments are payable by wire transfer in
- ---------
immediately available funds to an account designated by ESI. Any late payments
shall bear interest at the lesser of (i) the prime rate of Citibank N.A. plus
four percent (4%) per year, or (ii) the maximum amount allowed by law.
Section 10. IP Rights Ownership; Member Data
10.1 Ownership by ESI. As between ESI and PlanetRx, ESI shall own all ESI
----------------
IP Rights.
10.2 Ownership by PlanetRx. As between ESI and PlanetRx, PlanetRx shall
------------------------
own all PlanetRx IP Rights.
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
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10.3 Population of Web Sites. Subject to legal restrictions and to
-----------------------
receiving consent from ESI Members and/or ESI Plan Sponsors, and any other
required consents, the parties will (i) share email addresses, benefit design
and drug profile information for ESI Members to populate the ESI Member profiles
on the parties' respective sites and (ii) systematically and promptly provide
updates to each other's shared customer profiles to reflect any new information
acquired with respect to any such profiles in each case to enhance the ESI
Member's experience in the ordering of products or providing of services by
PlanetRx. PlanetRx's privacy policy with respect to ESI Members (identifiable as
such by PlantetRx) shall be at least as restrictive as the privacy policy ESI
has with respect to the ESI Members.
10.4 Ownership of Data. ESI and PlanetRx will, as between one and the
-----------------
other, own customer data as follows: All records and other data relating to ESI
Members including, but not limited to, their names, identification numbers,
addresses, drug profiles and prescribers, that are received by ESI or PlanetRx
from a Third Party (including the customer) shall remain the property of the
receiving party. Claim adjudication data sent by PlanetRx to ESI for purposes of
having ESI process a claim for payment shall be the joint property of the
parties.
10.5 Restrictions. Notwithstanding the foregoing, however, without the
------------
prior written consent of ESI, PlanetRx will not (i) disclose member information
obtained from ESI under Section 10.3 to a Third Party, and any use of the same
shall be subject to applicable laws and the then current privacy policy of ESI
and (ii) identify in any way ESI Member Data as data obtained from or in any way
relating to ESI Members. Notwithstanding the foregoing, however, without the
prior written consent of PlanetRx, ESI will not (x) disclose member information
obtained from PlanetRx under Section 10.3 to any Third Party, and any use of the
same shall be subject to applicable laws and the then current privacy policy of
PlanetRx and (y) identify in any way that the data obtained under section 10.3
as data obtained from or in any way relating to PlanetRx. Nothing contained
herein shall be interpreted to restrict a party from maintaining records
required by state or federal law or regulation.
10.6 PlanetRx Restriction. PlanetRx shall neither transfer nor disclose,
--------------------
or allow any Third Party access to, any ESI Member specific information
(identifiable as such by PlanetRx) (other than a transfer, disclosure or grant
of access customarily occurring between a pharmacist and a Third Party, such as
the prescriber, with respect to the dispensing of Pharmaceutical Products or
those reasonably necessary to fulfill a customer's order) or ESI Plan Sponsor
specific information to Third Parties without ESI's prior written approval and
any such disclosure shall be in strict accordance with PlanetRx's published
privacy policy and shall comply with all state and federal laws relating to such
disclosure.
Section 11. Technical and Advertising Communications
11.1 Advertising and Promotions. The parties will: (i) each appoint a
--------------------------
liaison to oversee and address issues and disputes regarding ongoing advertising
activities; and (ii) each appoint one senior marketing representative, that will
meet on at least a calendar
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<PAGE>
quarterly basis to discuss opportunities and establish advertising goals of the
parties for the next calendar quarter, establish general long term marketing
strategies. Any advertising-related dispute not resolved by the liaisons shall
be subject to the dispute resolution procedures set forth in Section 16.
11.2 Oversight. Each party will appoint a senior executive officer to
---------
oversee and have overall responsibility for the administration of this Agreement
and the parties' business relationship contemplated by this Agreement and the
Provider Agreement. Such senior executive officers will meet, either in person
or by telephone conference, at least once each calendar quarter.
Section 12. Representations and Warranties
12.1 Representations and Warranties of PlanetRx. PlanetRx hereby
-------------------------------------------
represents and warrants to ESI:
(a) Authorization. All corporate action on the part of PlanetRx, its
-------------
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement by and between PlanetRx and ESI, and the
performance of all obligations of PlanetRx hereunder has been taken, and this
Agreement, when executed and delivered by PlanetRx, will constitute valid and
legally binding obligations of PlanetRx, enforceable against PlanetRx in
accordance with its terms except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
(b) Intellectual Property. To its knowledge, PlanetRx owns or possesses
---------------------
sufficient legal rights to all IP Rights necessary for its business as now
conducted without any conflict with, or infringement of, the rights of others.
To its knowledge, PlanetRx technology or Trademarks do not violate any of the IP
Rights of any Third Party.
(c) Compliance with Other Instruments. The execution, delivery and
---------------------------------
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any violation of or be in conflict with
or constitute, with or without the passage of time and giving of notice, a
default under any provision of PlanetRx's or any of its subsidiaries' charter or
bylaws or any instrument, judgment, order, writ, decree or contract to which
PlanetRx or any of its subsidiaries is a party or by which PlanetRx or any of
its subsidiaries is bound, or any provision of any federal or state statute,
rule or regulation applicable to PlanetRx or any of its subsidiaries, the effect
of which would have a material adverse effect on the ability of PlanetRx or any
of its subsidiaries to perform its obligations under this Agreement or result in
the creation of any lien, charge or encumbrance upon any assets of PlanetRx or
any of its subsidiaries.
(d) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, PLANETRX
MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, DIRECTLY OR
INDIRECTLY, EXPRESS OR
15
<PAGE>
IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY GOODS OR SERVICES TO
BE PROVIDED UNDER THIS AGREEMENT, OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS
AGREEMENT.
12.2 Representations and Warranties of ESI. ESI hereby represents and
-------------------------------------
warrants to PlanetRx:
(a) Authorization. All corporate action on the part of ESI, its officers,
-------------
directors and stockholders necessary for the authorization, execution and
delivery of this Agreement, and the performance of all obligations of ESI
hereunder has been taken, and this Agreement, when executed and delivered by
ESI, will constitute valid and legally binding obligations of ESI, enforceable
against ESI in accordance with its terms except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws of general application affecting enforcement of creditors' rights
generally, as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
(b) Intellectual Property. To its knowledge, ESI owns or possesses
---------------------
sufficient legal rights to all IP Rights necessary for its business as now
conducted without any conflict with, or infringement of, the rights of others.
To its knowledge, ESI's technology or Trademarks do not violate any of the IP
Rights of any Third Party.
(c) Compliance with Other Instruments. The execution, delivery and
---------------------------------
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any violation of or be in conflict with
or constitute, with or without the passage of time and giving of notice, a
default under any provision of ESI's or any of its subsidiaries' charter or
bylaws or any instrument, judgment, order, writ, decree or contract to which ESI
or any of its subsidiaries is a party or by which ESI or any of its subsidiaries
is bound, or any provision of any federal or state statute, rule or regulation
applicable to ESI or any of its subsidiaries, the effect of which would have a
material adverse effect on the ability of ESI or any of its subsidiaries to
perform its obligations under this Agreement or result in the creation of any
lien, charge or encumbrance upon any assets of ESI or any of its subsidiaries.
(d) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, ESI MAKES
NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, DIRECTLY OR INDIRECTLY,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO ANY GOODS
OR SERVICES TO BE PROVIDED UNDER THIS AGREEMENT, OTHER THAN THOSE EXPRESSLY SET
FORTH IN THIS AGREEMENT.
16
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Section 13. Indemnification
13.1 Indemnification. Subject to section 13.2, ESI and PlanetRx each
---- ---------------
shall indemnify and hold harmless the other and its divisions, its Affiliates
and its officers, directors, employees, representatives and agents (the
"Indemnified Parties") from and against (i) any and all liabilities, suits,
costs, judgments, penalties, expenses, obligations, losses and damages arising
from or related to claims or actions made by a Third Party, including any
obligation or liability which may be imposed upon any of the Indemnified Parties
as a matter of law, and constituting, or in any way based upon, resulting from
or arising out of any breach or alleged breach by ESI or PlanetRx, as
applicable, of any representation, warranty, agreement or covenant made by such
party in this Agreement, and (ii) any cost or expense (including legal fees and
out-of-pocket expenses) reasonably incurred by any of the Indemnified Parties
(and their counsel) in investigating, preparing for, defending against or
otherwise taking any action in connection with any of the foregoing
(collectively "Damages"). A party's Damages shall be calculated net of any tax
benefit such party would be entitled to in respect of such Damages.
13.2 Procedure. If any claim, demand, assessment or liability or cost
---- ---------
incidental thereto (collectively, an "Indemnified Claim"), is asserted against
an Indemnified Party in respect of which the Indemnified Party proposes to
demand indemnification from the other party (the "Indemnifying Party") pursuant
to Section 13.1, such Indemnified Party will promptly notify the Indemnifying
Party in writing. No failure of an Indemnified Party to so notify the
Indemnifying Party shall relieve the Indemnifying Party from the obligation to
indemnify the Indemnified Party unless and to the extent the Indemnifying Party
is actually prejudiced by such failure. Such Indemnified Party will accord the
Indemnifying Party the opportunity to assume entire control for the defense,
compromise or settlement of any such Indemnified Claim through its own counsel
and at its own expense; provided that no such compromise or settlement shall
include any non-monetary terms and conditions applicable to such Indemnified
Party without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, the Indemnified
Party may retain its own counsel at its own expense (the Indemnifying Party
shall only be liable for the reasonable cost of one such counsel for all
Indemnified Parties) if (i) the Indemnifying Party, within thirty (30) days
after notice of any Indemnified Claim, fails to assume the defense of such
Indemnified Claim or (ii) the representation of both the Indemnifying Party and
the Indemnified Party would, in the reasonable judgment of the parties, be
inappropriate due to actual or potential conflicting interests between them. If
the Indemnifying Party does not assume entire control of the defense, compromise
or settlement of such Indemnified Claim, the Indemnified Party may compromise or
settle any such Indemnified Claim. PlanetRx and ESI each agrees to reasonably
cooperate with respect to the defense of any Indemnified Claim, at the
indemnifying party's expense.
Section 14. Infringement Claims
14.1 Legal Action for Infringement of IP Rights.
------------------------------------------
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14.1.1 ESI reserves any and all rights to commence, prosecute, compromise
and settle any claim, action or proceeding for infringement, unfair competition,
unauthorized use, misappropriation or violation of any of the ESI IP Rights by
any Third Party. ESI may commence, prosecute, compromise or settle any such
claim, action or proceeding, as well as any claim, action or proceeding to
defend any of the ESI IP Rights, in its sole discretion, but shall not have any
obligation to do so.
14.1.2 PlanetRx reserves any and all rights to commence, prosecute,
compromise and settle any claim, action or proceeding for infringement, unfair
competition, unauthorized use, misappropriation or violation of any of the
PlanetRx IP Rights by any Third Party. PlanetRx may commence, prosecute,
compromise or settle any such claim, action or proceeding, as well as any claim,
action or proceeding to defend any of the PlanetRx IP Rights, in its sole
discretion, but shall not have any obligation to do so.
14.1.3 No party shall have the right to commence or prosecute any legal
action with regard to the IP Rights of the other party, without such other
party's prior written consent in such other party's sole discretion.
14.1.4 If either party becomes the subject of a claim, action or
proceeding for infringement, unfair competition, unauthorized use,
misappropriation or violation of any IP Rights of a Third Party as a result of
its use of the other party's IP Rights pursuant to this Agreement, then the
party owning such IP Rights shall upon the request of such other party defend
and indemnify the requesting party from and against such Third Party claim,
action or proceeding ("IP Claim") and shall pay any and all damages,
liabilities, costs and attorneys fees awarded against a party arising out of
such IP Claim; provided, that: the party owning such IP Rights has sole control
--------
over the defense or settlement of such IP Claim, the requesting party shall
provide the party owning such IP Rights prompt notice of the IP Claim, and such
assistance in defense of the claim, action or proceeding as the owning party may
reasonably request and shall comply with any settlement or court order made in
connection with the claim, action or proceeding (e.g., relating to the future
use of any infringing IP Rights). In any case, the requesting party shall be
entitled to participate in the defense of any such claim, action or proceeding,
at its own cost, with counsel of its choice.
14.1.5 In the event either party should have a claim against the other
party for infringement, unfair competition, unauthorized use, misappropriation
or violation of any of its IP Rights as a result of the use of its IP Rights by
the other party pursuant to this Agreement, the parties shall resort to the
dispute resolution provisions set forth in Section 16.
Section 15. Additional Obligations of the Parties
15.1 Nondisclosure.
-------------
15.1.1 A party (the "Receiving party") receiving any Confidential
Information of the other party (the "Disclosing party") will exercise a
reasonable degree of care, but in no event less than the same degree of care
that it uses to protect its own confidential
18
<PAGE>
information of a like nature, to keep confidential and not disclose such
Confidential Information and not to use such Confidential Information except as
authorized by this Agreement. Without limiting the generality of the foregoing,
the Receiving Party shall disclose the Confidential Information of the other
party only to those of its employees and contractors (a) who have a need to know
the Confidential Information in order to exercise its license to such
Confidential Information, and (b) who are contractually bound to terms and
conditions protecting against the unauthorized disclosure or use of Confidential
Information.
15.1.2 The obligations set forth in Section 15.1.1 above shall not apply
to any Confidential Information to the extent it: (a) is approved by prior
written authorization of the Disclosing party for release by the Receiving
party; (b) is disclosed in order to comply with a judicial order issued by a
court of competent jurisdiction, in which event the Receiving party shall give
prior written notice to the Disclosing party of such disclosure as soon as
practicable and shall cooperate with the Disclosing party in using all
reasonable efforts to obtain an appropriate protective order or equivalent,
provided that the information shall continue to be Confidential Information to
the extent it is covered by such protective order or equivalent; (c) becomes
generally available to the public through any means other than a breach by the
Receiving party of its obligations under this Agreement; (d) was in the
possession of the Receiving party without obligation of confidentiality prior to
receipt or disclosure under this Agreement as evidenced by written records made
prior to such receipt or disclosure; (e) is developed independently by the
Receiving party without the use of or benefit from any of the Confidential
Information of the other party or without breach of this Agreement, as evidenced
by records of the Receiving party; or (f) is required to be disclosed by any
national securities exchange, by government rule or regulation (e.g., in
connection with a securities filing) or by any other provisions of applicable
law, provided that the Receiving party gives the Disclosing party advance
--------
written notice (to the extent practicable) of the disclosure and cooperates with
the Disclosing party in any reasonable attempt to limit the scope of the
required disclosure. In any dispute over whether information is Confidential
Information under this Agreement, it will be the burden of the Receiving party
to show that such contested information falls within the exceptions set forth in
this Section 15.1.2.
15.2 No Contest of ESI IP Rights. PlanetRx shall not contest or otherwise
---------------------------
challenge (e.g., in any legal action or otherwise), or assist or encourage any
other Person to contest or challenge, the validity of any ESI IP Rights;
provided that the foregoing shall not preclude PlanetRx from claiming that the
IP Rights in question are PlanetRx IP Rights.
15.3 No Contest of PlanetRx IP Rights. ESI shall not contest or otherwise
--------------------------------
challenge (e.g., in any legal action or otherwise), or assist or encourage any
other Person to contest or challenge, the validity of any PlanetRx IP Rights;
provided that the foregoing shall not preclude ESI from claiming that the IP
Rights in question are ESI IP Rights.
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<PAGE>
Section 16. Resolution of Disputes
16.1 General. If any dispute arises between the parties relating to this
-------
Agreement, each party will follow the dispute resolution procedures set forth in
this Section 16 prior to initiating any litigation or pursuing other available
remedies unless otherwise agreed in writing by the parties at the time the
dispute arises. Notwithstanding the foregoing, any party may commence litigation
without having first complied with the provisions of this Section 16 if such
commencement occurs within thirty (30) days prior to the date after which the
commencement of litigation would be barred by any statute of limitations,
statute of repose or other law, rule, regulation, or order of similar import or
in order to request injunctive or other equitable relief necessary to prevent
irreparable harm. In such event, the parties will (except as may be prohibited
by judicial order) nevertheless continue thereafter to follow the procedures set
forth in this Section 16.
16.2 Initiation of Procedures. If a party seeks to initiate the
------------------------
procedures under this Section 16, such party will give written notice thereof to
the other party. Such notice will (i) state that it is a notice initiating the
procedures under this section, (ii) describe briefly the nature of the dispute
and the initiating party's claim or position in connection with the dispute, and
(iii) identify an individual with authority to settle the dispute on such
party's behalf. Within ten (10) days after receipt of any notice under this
Section 16.2, the receiving party will give the initiating party written notice
that describes briefly the receiving party's claims and positions in connection
with the dispute and identifies an individual with the authority to settle the
dispute on behalf of the receiving party.
16.3 Pre-Litigation Discussion. The parties will cause the individuals
-------------------------
identified in their respective notices under Section 16.2 above to promptly make
such investigation of the dispute as such individuals deem appropriate. Promptly
and in no event later than ten (10) days after the date of the initiating
party's notice under Section 16.2, such individuals will commence discussions
concerning resolution of the dispute. If the dispute has not been resolved
within 30 days after commencement of such discussions, then any party may
request that the other party make its president available to discuss resolution
of such dispute. Each party will cause its president to meet together with the
other party's president to discuss such dispute at a mutually agreed upon time
within 15 days after a party makes such request. If the dispute has not been
resolved within 15 days after the presidents of the parties have first met, then
any party may request that the other party make an independent director
available to discuss resolution of such dispute. "Independent Director" means
any director that is neither an employee of, nor an outside provider of services
to, a party. Each party will cause its Independent Director to meet together
with the other party's Independent Director to discuss such dispute at a
mutually agreed upon time within ten (10) days after a party makes such request.
If the Independent Directors do not resolve the dispute within five (5) days of
their first meeting, the parties shall submit the dispute for non-binding
mediation to a mutually agreed upon mediator or mediation firm. The parties will
use their best efforts to cause the mediator to resolve the dispute within 15
days of its submission thereto. If the mediator is unable to resolve the dispute
within such time period, any party may submit the dispute to litigation. The
parties shall each pay one-half of the costs and expenses of such mediation, and
each shall separately pay its respective counsel fees and expenses.
20
<PAGE>
16.4 Waiver of Right to Jury Trial. THE PARTIES HEREBY WAIVE THEIR
-----------------------------
RESPECTIVE RIGHTS TO A TRIAL BY JURY IN THE EVENT THAT ANY DISPUTE PURSUANT TO
THIS AGREEMENT SHALL BE SUBMITTED TO LITIGATION.
Section 17. Termination; Extension
17.1 The following shall be Events of Default under this Agreement:
(a) ESI is in material breach of any of its material obligations
under this Agreement or the Equity Transaction agreements (including any
material breach or inaccuracy of its representations or warranties that has a
material adverse effect on the ability of ESI to perform its obligations under
this Agreement or the Equity Transaction agreements), which breach ESI does not
cure within sixty (60) days after PlanetRx gives ESI written notice thereof;
(b) PlanetRx is in material breach by of any of its material
obligations under this Agreement or the Equity Transaction agreements (including
any material breach or inaccuracy of its representations or warranties that has
a material adverse effect on the ability of PlanetRx to perform its obligations
under this Agreement or the Equity Transaction agreements), which breach
PlanetRx does not cure within sixty (60) days after ESI gives PlanetRx written
notice thereof;
(c) PlanetRx engages in prescribing medicine or referring consumers
to physicians or other medical or dental professionals to obtain prescriptions
for Pharmaceutical Products;
(d) PlanetRx fails to pay any payment due hereunder to ESI when due,
and such failure is not cured within five (5) business days after the receipt of
the notice of such failure; or
(e) PlanetRx fails to maintain its privacy structure in accordance
with state and federal regulatory requirements and industry standards, as may be
reflected in certification standards of organizations such as Trust e, BBB,
VIPPS, the NABP or similar organizations and at a level comparable to that
maintained by other Internet Pharmacies.
17.2 Termination
---- ------------
17.2.1 If an Event of Default occurs under Section 17.1(a) and such
default is not cured within the prescribed notice period, PlanetRx may
immediately terminate this Agreement.
17.2.2 If an Event of Default occurs under Section 17.1(b) and such
default is not cured within the prescribed notice period, ESI may immediately
terminate this Agreement.
21
<PAGE>
17.2.3 If an Event of Default occurs under Section 17.1(c), (d) or (e),
ESI shall have the option to (along with any other rights it may have under this
Agreement, law or in equity): (i) immediately terminate this Agreement or (ii)
terminate only those provisions of this Agreement which require ESI to name
PlanetRx as the exclusive Internet Pharmacy in the ESI Network and suspend any
co-branding and co-marketing efforts pursuant to this Agreement, until such
Event of Default is cured.
17.2.4 If either party (i) ceases to do business, or otherwise terminates
its business operation or (ii) is declared insolvent or seeks protection under
any bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding, the other party may immediately terminate this Agreement.
17.2.5 In the event that the PlanetRx IPO is not consummated within four
(4) months from the date of this Agreement, ESI shall have the option to
terminate this Agreement. Upon such termination, this Agreement shall become
void and of no further effect.
17.2.6 If there is no early termination pursuant to an Event of Default,
this Agreement will terminate upon the expiration of the Term.
17.3 Remedies and Liabilities for Events of Default.
---- ----------------------------------------------
17.3.1 Upon the first instance that an Event of Default occurs under
Section 17.1(d) which is not cured within the specified cure period, ESI shall
be entitled to irrevocable, worldwide, royalty free, fully paid up license to
any PlanetRx IP Rights relating to the PlanetRx Site, such that ESI may use or
modify any such IP Rights for its own purposes.
17.3.2 If the first Event of Default remains uncured and a subsequent
Event of Default occurs under Section 17.1(d), or if the initial Event of
Default is cured but two or more Events of Default occur within a twelve month
period, ESI shall have additional shares issued to it having a value equal to
two times the amount of all the defaulted payments, and also be entitled to
additional Board representation such that it shall control a majority of the
Board of PlanetRx.
17.4 Survival
---- --------
Sections 3.5, 10.1, 10.2, 10.4, 10.5, 10.6, 13, 14, 15, 16, 17.3, 17.4 and
18 shall survive termination of this Agreement.
17.5 Extension. ESI shall have the option to extend this Agreement by an
---- ---------
additional five year term provided that during the 12 months immediately
preceding the notice of extension PlanetRx realized not less than $250 million
in gross revenue attributable to purchases of goods or services by ESI Members.
If such ESI Member revenue for such period is greater than $500 million, this
Agreement (as amended from time to time prior to such extension) shall be
extended on the same terms and conditions. If such ESI Member revenue for such
period is from $250 million to $500 million, this Agreement (as amended from
time to time prior to such extension) shall be extended on
22
<PAGE>
the same terms and conditions except that base fee set forth on Exhibit A hereto
---------
shall be $5,825,000. Notwithstanding the preceding sentence, if in any calendar
year during the extension period, PlanetRx realizes more than $500 million in
gross revenue attributable to purchases of goods or services by ESI Members, the
base fee for such year and each year thereafter shall be $11,650,000. ESI shall
provide PlanetRx with written notice not later than one-hundred and twenty (120)
days prior to the expiration of the Term that it wishes to extend the Term of
this Agreement in accordance with this section 17.5. PlanetRx covenants and
agrees that it will not voluntarily change its accounting and revenue
recognition policies in such a manner as to disadvantage ESI in achieving the
revenue levels described herein.
Section 18. Miscellaneous
18.1 Relationship. The parties are independent contractors under this
------------
Agreement. Each party acknowledges and agrees that it is not and will not be
during the Term an employee or an agent of the other party. Nothing in this
Agreement will be deemed to constitute, create, give effect to or otherwise
recognize a joint venture, partnership, franchise or business entity of any
kind.
18.2 Assignment; Sale of Assets or Capital Stock. This Agreement shall be
-------------------------------------------
binding upon and inure to the benefit of the parties hereto, and the legal
representatives, successors in interest and permitted assigns, respectively, of
each such party. This Agreement shall not be assigned in whole or in part by any
party without the prior written consent of the other party, such consent not to
be unreasonably withheld, except to an entity that acquires all or substantially
all of the business or assets of such party.
18.3 Change in Existing Law. In the event that there is a change in law
----------------------
or regulation, a change in interpretation of existing law or regulation, or new
enforcement of existing law or regulation such that any provision of this
Agreement shall be deemed illegal, invalid or unenforceable, or impractical, the
parties shall in good faith renegotiate such affected terms so as to put the
parties in as close to the same economic position as they would have been in had
the affected provisions not been deemed illegal, invalid or unenforceable.
18.4 Notices. All notices, requests, demands, applications, services of
-------
process, and other communications that are required to be or may be given under
this Agreement shall be in writing and shall be deemed to have been duly given
if sent by telecopy or facsimile transmission, answer back requested, or
delivered by courier or mailed, certified first class mail, postage prepaid,
return receipt requested, to the parties to this Agreement at the following
addresses:
If to ESI: Express Scripts, Inc.
13900 Riverport Drive
Maryland Heights, Missouri 63403
Attention: President
Fax: 314-770-1581
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<PAGE>
With a copy to: Express Scripts, Inc.
13900 Riverport Drive
Maryland Heights, Missouri 63403
Attention: General Counsel
Fax: 314-702-7120
If to PlanetRx: PlanetRx, Inc.
349 Oyster Point Blvd., Suite 201
South San Francisco, California, 94080
Attention: Legal
Fax: 650-616-1505
or to such other address as the party shall have furnished to the other party by
notice given in accordance with this Section 18.4. Such notice shall be
effective (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, or (ii) if sent by telecopy or facsimile transmission, on
the date of transmission unless transmitted after normal business hours, in
which case on the following date, or (iii) if mailed, upon the date of first
attempted delivery.
18.5 Waiver. No provision of this Agreement shall be deemed to be waived
------
and no breach excused unless such waiver or consent shall be in writing and
signed by the party that is claimed to have waived or consented. The failure of
a party at any time, or from time to time, to require performance by the other
party of any provision hereof shall in no way affect the rights of such party
thereafter to enforce the same nor shall the waiver by a party of any breach of
any provision hereof by the other party constitute a waiver of any succeeding
breach of such provision, or a waiver of any provision itself, or a waiver of
any other provisions hereof.
18.6 Severability. This Agreement will be enforced to the fullest extent
------------
permitted by applicable law. If for any reason any provision of this Agreement
is held to be invalid or unenforceable to any extent, then: (a) such provision
will be interpreted, construed or reformed to the extent reasonably required to
render the same valid, enforceable and consistent with the original intent
underlying such provision; (b) such provision will be void to the extent it is
held to be invalid or unenforceable; (c) such provision will remain in effect to
the extent that it is not invalid or unenforceable; and (d) such invalidity or
unenforceability will not affect any other provision of this Agreement or any
other agreement between the parties.
18.7 Remedies. Except as otherwise expressly provided in this Agreement,
--------
each and all of the rights and remedies provided in this Agreement, and each and
all of the remedies allowed at law and in equity, will be cumulative, and the
exercise of one right or remedy will not be exclusive of the right to exercise
or resort to any and all other rights or remedies provided in this Agreement or
at law or in equity.
18.8 Injunctive Relief. The parties acknowledge that a material breach of
-----------------
sections 2.1(a), 2.2(a), 3.1-3.5, 5, 10 and 15 this Agreement would cause
irreparable harm, the extent of which would be difficult to ascertain.
Accordingly, they agree that, in
24
<PAGE>
addition to any other legal remedies to which the non-breaching party may be
entitled, such party will be entitled to obtain immediate injunctive relief in
the event of a material breach of this Agreement.
18.9 Governing Law. This Agreement will be governed by and construed
-------------
according to the laws of the State of Delaware without regard to its choice of
law provisions. The parties consent to the jurisdiction of such courts and waive
any right to assert that any such court constitutes an inconvenient or improper
forum.
18.10 Publicity. Neither party shall, without the approval of the other,
---------
make any press release or other public announcement concerning the transactions
contemplated by the Agreements, except as and to the extent that any such party
shall be so obligated by law or by the rules, regulations or policies of any
national securities exchange or association or governmental entity, in which
case the other party shall be advised and the parties shall use reasonable
efforts to cause a mutually agreeable release or announcement to be issued;
provided, however, that the parties hereby acknowledge and agree that
- -------- -------
communications among employees of the parties and their attorneys,
representatives and agents necessary to consummate the transactions contemplated
hereby shall not be deemed a public announcement for purposes of this Section
18.10. Upon the execution and delivery of this Agreement, the parties hereto
will cooperate in respect of the immediate issuance of a mutually acceptable
press release relating to the transactions contemplated by the Agreements.
18.11 Entire Agreement. All Exhibits and Schedules to this Agreement are
----------------
incorporated in and constitute a part of this Agreement. This Agreement,
including the Exhibits and Schedules hereto, each as amended from time to time,
constitute the entire understanding between the parties in relation to the
subject matter hereof and supersede all prior discussions, agreements and
representations related to this subject matter, whether oral or written and
whether or not executed by a party. Unless otherwise provided in this Agreement,
no modification, amendment or other change may be made to this Agreement or any
part thereof unless reduced to writing and executed by authorized
representatives of all parties.
18.12 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
18.13 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement and in the Exhibits and Schedules hereto are used for convenience only
and are not to be considered in construing or interpreting this Agreement.
18.14 Force Majeure. Neither party shall be responsible for a failure to
-------------
meet its obligations under this Agreement to the extent caused by the following:
(i) materially inaccurate data submitted by the other party; (ii) any failure of
equipment, facilities or services not controlled or supplied by such party; or
(iii) failure(s) caused by acts of God, acts of nature, riots and other major
civil disturbances, strike by such party's personnel, sabotage, injunctions or
applicable laws or regulations, in each case without breach by
25
<PAGE>
such party of any obligations under this Agreement with regard to either such
event or such failure. ESI or PlanetRx, as applicable, agrees to use its
commercially reasonable efforts to restore performance of its obligations under
this Agreement as soon as reasonably practicable following any such event.
18.15 Effective Time. This Agreement shall only become effective (the
--------------
"Effective Time") upon (i) the consummation of the PlanetRx IPO and the Equity
Transaction; (ii) the execution of the Provider Agreement as set forth in
Exhibit B hereto and (iii) the assumption of all of the obligations pursuant to
- ---------
this Agreement by the entity into which PlanetRx merges pursuant to the Equity
Transaction and any entity that Controls or is Controlled by such new entity.
[Signature Page Follows]
26
<PAGE>
IN WITNESS WHEREOF, the parties have duly entered into this Agreement as of
the date first written above.
<TABLE>
<CAPTION>
ESI: PlanetRx:
<S> <C>
EXPRESS SCRIPTS, INC. PLANETRX.COM, INC.
By: _______________________________ By: _______________________________
Name: _______________________________ Name: _______________________________
Title: _______________________________ Title: ______________________________
</TABLE>
27
<PAGE>
EXHIBIT A
Operating Fee to be Paid to ESI
A. Base Fee.
--------
PlanetRx shall pay ESI a base fee of $11,650,000/year, payable in equal
quarterly installments.
B. Incremental Fee
---------------
[+]
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
28
<PAGE>
[+]
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
29
<PAGE>
EXHIBIT B
Provider Agreement
30
<PAGE>
EXHIBIT B
TO AGREEMENT DATED AS OF
AUGUST 31, 1999,
BETWEEN EXPRESS SCRIPTS, INC.
AND PLANETRX.COM, INC.
INTERNET PHARMACY
PROVIDER AGREEMENT
------------------
THIS INTERNET PHARMACY PROVIDER AGREEMENT ("Agreement") is effective as of
this ___________________ day of ______________________________________ , 1999
(the "Effective Date"), by and between Express Scripts, Inc., a Delaware
corporation ("ESI"), and PlanetRx.com, Inc. a Delaware corporation
("Provider").
RECITALS
A. ESI provides and manages prescription drug programs for its clients,
which programs include claims administration, mail service dispensing and
other pharmacy benefit management services.
B. Provider, a Web-based pharmacy, wishes to provide Internet Pharmacy
services to eligible members of certain prescription drug programs by
participating in one or more of ESI's pharmacy networks, all in accordance
with and subject to the terms and conditions set forth herein.
TERMS AND CONDITIONS
1. DEFINITIONS For purposes of this Agreement, the following capitalized
-----------
terms shall have the meanings set forth below:
"Average Wholesale Price" or "AWP" means the average wholesale price of a
prescription drug based upon the most current information provided to ESI
by drug pricing services such as First Databank, Redbook or other source
generally recognized in the retail prescription drug industry selected by
ESI.
"Benefit Plan" means a health care plan pursuant to which prescription drug
benefits are available to Members.
"Copayment" means that portion of the total charge for each prescription
drug that a Member is required to pay to Provider in accordance with that
Member's Prescription Drug Program and the provisions of Section 2.A
hereof, whether designated as a "copayment" or "deductible" under the
applicable Prescription Drug Program.
"Covered Medications" means those prescription drugs, supplies and other
items prescribed by an authorized, licensed medical practitioner that are
covered by a Benefit Plan.
<PAGE>
"DAW Code" means the "dispense as written" codes as developed by the NCPDP,
as may be revised from time to time.
"Formulary" means a list of preferred drugs developed by ESI or a Sponsor
and revised periodically, which drugs physicians are encouraged to
prescribe and pharmacists are encouraged to dispense, consistent with their
professional judgment and applicable medical and pharmaceutical laws and
procedures, and which Members are encouraged to use. ESI will send
Formulary information to the Provider on-line at time of claim
adjudication, or in such other manner as ESI deems appropriate.
"Internet Pharmacy" means a pharmacy which does not have a physical
location for patrons to visit for retail sales but that receives orders
from customers only through the Internet, but does not include the Internet
division or operations of pharmacy chains and other retail merchants (such
as supermarket chains and discount stores) that dispense prescription drugs
and who, as an adjunct to their traditional pharmacy operations also accept
prescription orders via the Internet and mail or deliver the Pharmaceutical
Products to their customers.
"MAC" means the maximum allowable cost that ESI will pay Provider for
generic drugs and multi-source brand drugs where a generic drug is
available (except in cases where the prescriber or Member insist upon
receiving the multi-source brand drug. MAC is determined by ESI, in its
sole discretion, based on industry wholesale trends and related current
pricing data for generic drugs.
"Internet" means the Internet or the World Wide Web (or any successor or
other online network including those using delivery over television, cable,
set top boxes, intranets, extranets and personal digital assistants).
"Member" means a subscriber and his or her eligible dependents to whom
benefits are available pursuant to a Prescription Drug Program.
"NCPDP" means the National Council for Prescription Drug Programs, or any
successor organization.
"Operating Agreement" means the Operating Agreement entered into by
Provider and ESI, dated as of August 31, 1999, which agreement provides for
certain operations and co-marketing arrangements.
"Prescription Drug Program" means prescription drug program services
provided to a Sponsor pursuant to an agreement with ESI, including any
Formulary.
"Provider Manual" is a written description of ESI's generally applicable
practices, policies, rules and procedures provided by ESI for pharmacies
dispensing Covered Medications to Members, including such provisions as are
specific to Internet
2
<PAGE>
Pharmacies. The Provider Manual may be revised from time to time by ESI in
its sole discretion.
"Sponsor" means any health maintenance organization (HMO), insurance
company, employer or other organization having principal financial
responsibility for payment of Covered Medications provided to Members under
a Prescription Drug Program, or a person or entity (such as a third party
administrator) contracting on behalf of such an entity, or a person or
entity sponsoring a "cash and carry" or discounted card program.
"Usual and Customary Retail Price" means the Provider's usual and customary
retail price of a Covered Medication in a cash transaction (in the quantity
dispensed) on the date that it is dispensed, including any discounts or
special promotions offered on such date.
2. PHARMACY SERVICES
-----------------
A. Provider shall provide Internet Pharmacy services to Members through
its Internet Pharmacy website in connection with ESI's Prescription
Drug Programs, and agrees to perform the following:
1. Verification of Eligibility. Verify on-line with ESI that the
---------------------------
Member submitting the prescription request is eligible for
benefits under the Prescription Drug Program. Provider shall
require the Member provide a health plan identification number.
2. Dispensing. Dispense Covered Medications to each Member (not to
----------
exceed a one month's supply) in accordance with all applicable
laws and regulations and the applicable Prescription Drug
Program. Any prescription for a Member for a Covered Medication
greater than one-month's supply shall be transferred to ESI for
fulfillment unless otherwise mutually agreed to by the parties.
The parties will develop procedures for the transfer of such
prescription orders to ESI. Initially, however, Provider will
create an order for each Member request for such a prescription;
obtain approval from the credit card issuer for the amount of the
Copayment; and remit the Copayment to ESI when received, net of
the credit card issuer's fee.
3. Claims Processing. Submit each and every prescription drug claim
-----------------
for a Member to ESI in a current and industry accepted NCPDP
telecommunications format for processing and payment in
accordance with the requirements set forth in the Provider
Manual, which submission shall include, among other things, (a)
the DAW Code, (b) the nationally determined unique provider
identifier, when such identifier is readily available (or the DEA
number) or such other identifier agreed to by ESI for the
prescribing medical practitioner, and (c) the NDC number for the
original package size from which the Covered Medication was
dispensed.
3
<PAGE>
If a claim cannot be transmitted on-line, Provider will make
reasonable attempts to retransmit the claim. In no event shall a
claim be submitted later than 30 days after the prescription is
filled. All messages and DUR information transmitted by ESI for
paid or rejected claims will be displayed for the dispensing
pharmacist at the time of claim processing. Provider will respond
to on-line messages received from ESI.
4. Copayments. Charge Members and collect the applicable Copayment
-----------
indicated on-line or if on-line processing is unavailable, then
as outlined in the Provider Manual, subject to the provisions of
Section 2.B. hereof regarding coupons. Copayments for Members
may not be waived or discounted without ESI's consent, nor may
Provider accept coupons issued by any person other than ESI in
lieu of collecting the Copayment in cash (including charge or
debit cards) for Members submitting prescriptions for Covered
Medications. In no event (including but not limited to
nonpayment by ESI or ESI's insolvency) shall Provider bill,
charge, collect a deposit from, or seek any other fees, taxes or
surcharges or any other compensation from any Member for any
Covered Medications or services provided in connection herewith
other than (i) the applicable Copayment (and in no event shall
ESI be liable for any Copayment), and (ii) standard shipping
charges, which shall not be less favorable than the charges to
Provider customers that are not Members. This Section 2.A.4
shall survive termination of this Agreement, regardless of the
cause of termination, and shall be construed for the benefit of
Members.
5. Verification of Dispensing. Maintain order detail and method of
--------------------------
shipment records (or other evidence specifically approved by ESI)
for each Covered Medication dispensed to Members.
6. Consultation Services. Provide reasonable consultation services
---------------------
with regard to Covered Medications that the Member is taking.
Reasonable consultation services shall include, at a minimum,
such consultation as is required under applicable federal or
state law or regulation.
B. Standards of Service. Provider shall perform the services required of
--------------------
it under this Agreement with at least the same standard of care, skill
and diligence that is customarily used by pharmacies, including VIPPS
certified internet pharmacies, in the community and that Provider uses
in serving other customers. Provider shall not engage in prescribing
prescription drugs or in referring Members to physicians or other
medical or dental professionals for prescriptions for Covered
Medications. Provider agrees that the administrative and billing
practices applied and the prices charged for products and services
that are not Covered Medications provided to Members shall be no less
favorable than such practices applied or such prices charged to other
customers. Provider shall not refuse to provide services required
under a Benefit Plan or attempt to disenroll any Member.
4
<PAGE>
Further, Provider agrees to implement and maintain a tracking program
for orders identified by Members as lost in the mail. Provider will
comply with the Pharmacy Practice Standards promulgated from time to
time by the Pharmaceutical Care Management Association (PCMA), whether
or not Provider is a member of such association, or, if such
association ceases to promulgate such standards, the comparable
standards of any generally recognized successor organization that
promulgates standards for mail and/or Internet pharmacies.
C. Compliance with Applicable Law; Permits and Licenses. Provider shall
----------------------------------------------------
be bound by and comply with the provisions of all applicable laws,
rules and regulations of the state board of pharmacy and other
governmental bodies having jurisdiction over Provider, including non-
resident pharmacy requirements. Where required by a Sponsor that is a
health maintenance organization, this Agreement shall be subject to
the Federal Health Maintenance Organization Act, 42 U.S.C. 300 et.
seq., or any successor statutes and the rules and regulations
thereunder, and to the comparable laws and regulations of any
applicable state, which laws, rules and regulations shall take
precedence over this Agreement to the extent of any inconsistency.
Provider shall maintain at all times all required federal, state and
local licenses, non-resident pharmacy registrations and licenses,
certificates and permits that are necessary to allow Provider to
dispense Covered Medications to Members. Provider shall notify ESI in
writing immediately in the event of any suspension, revocation,
restriction or limitation on any such license, registration,
certificate or permit.
D. Drug Utilization Review; Compliance with Formularies and Provider
-----------------------------------------------------------------
Manual. Provider shall (1) cooperate with ESI's procedures for drug
------
utilization review and generic substitution, as set forth from time to
time in the Provider Manual; (2) comply with ESI's procedures for
calling prescribers to facilitate generic substitution and Formulary
compliance, and other programs established by a Sponsor; and (3)
comply with the Provider Manual. Provider shall use commercially
reasonable efforts to comply with the applicable Formulary when
dispensing Covered Medications to Members. Without limiting the
generality of the foregoing, in no event will Provider (i) attempt to
switch a Member's prescription to a drug that is not a Formulary drug
on the applicable Formulary, except for generic substitution
opportunities or where required by medical necessity. Provider agrees
that ESI's manufacturer agreements, therapeutic programs and
formularies take precedence with the manufacturers over any such
agreements or programs to which Provider is a party with respect to
Covered Medications dispensed to Members. Provider will not implement
any substitution program for Members of Prescription Drug Programs
that is inconsistent with such Prescription Drug Program, including
the applicable Formulary.
E. Hours of Service. Provider shall operate and be available to Members
----------------
on-line 24 hours a day, 7 days a week.
5
<PAGE>
F. Member Communications. All outbound communications from Provider to
---------------------
ESI Members (identifiable as such by Provider) (other than those
customarily occurring between a pharmacist and a patient with respect
to the dispensing of Pharmaceutical Products or those reasonably
necessary to fulfill a Member's order) shall require ESI's prior
written approval, provided, however, that in the event that Provider
shall request consent for a specific promotion, ESI shall provide a
response to such request within one (1) business day.
3. PROVIDER COMPENSATION
---------------------
A. Reimbursement Pricing -- 30-Day Prescriptions. In addition to any
---------------------------------------------
Copayments, Provider shall receive payments from ESI for pharmacy
services described in Section 2 hereof, for prescriptions for
medication for a 30-day supply of medication or less, in accordance
with the payment schedule set forth in the applicable Exhibit A, or in
---------
any special pricing rider for a specific ESI network to which Provider
may agree (less the applicable Copayments). Payments shall be based
upon the prescription drug claims submitted to ESI pursuant to Section
2.A.3 hereof. The parties agree to negotiate in good faith adjustments
to the transfer pricing/reimbursement fees for a particular network
if, during the term, ESI recontracts one or more of its retail
pharmacy networks (e.g., PerxCare, PerxSelect or any successors
thereto), as necessary to maintain the positive rate differential
between Provider and the retail network pharmacies.
B. Payment Schedule for Reimbursement Pricing. ESI shall pay Provider
------------------------------------------
for approved claims for pharmacy services prescribed in Section 2
hereof for prescriptions for medication for a 30-day supply of
medication or less, on a twice monthly payment cycle; approved claims
will be paid on average of thirty (30) days from date of acceptance.
Rejected or disputed claims must be resubmitted within 30 days of the
initial rejection. ESI may deny payment for any claim not submitted
within these time periods. Further, Provider and ESI hereby agree that
ESI may refuse to pay any claim not submitted in accordance with the
provisions of this Section 3.A. and of Section 2.A.3 hereof. Except
with respect to Copayments, Provider shall look solely to ESI for
compensation for Covered Medications and other services provided to
Members pursuant to this Agreement. ESI will not reverse any of its
approvals for properly submitted claims with respect to which Provider
has complied with the terms of this Agreement.
C. Fulfillment Pricing. For prescriptions ordered by a Member through
-------------------
Provider but fulfilled/dispensed by ESI ("Fulfillment Claims"),
Provider shall receive payments from ESI equal to ESI's drug
ingredient cost upon ESI's collection of payment from the applicable
Sponsor. Provider shall bear the risk of loss for the inability of ESI
to collect from the Sponsor. If ESI is unable to collect from the
Sponsor, ESI will assign its rights in such receivable to Provider.
Provider will remit the Copayments on all Fulfillment Claims to ESI,
net of any credit card issuer's fee on the transaction.
6
<PAGE>
D. Payment Schedule for Fulfillment Pricing. ESI shall pay Provider for
----------------------------------------
Fulfillment Claims based on a schedule mutually agreeable to the
parties.
E. Order Fees. ESI shall pay Provider an order processing fee for
----------
Fulfillment Claims of [+] per prescription, payable monthly.
F. Preferred Product Fees. ESI shall pay Provider a preferred product
----------------------
fee of [+] per prescription for each attempt to convert a prescription
for a non-preferred product to a preferred product for prescriptions
filled by Provider. The method of communication to the Member or the
prescriber shall be at the discretion of Provider.
G. Remittance Advices. Provider agrees that it is obligated to review
------------------
remittance advices to verify their accuracy, and must notify ESI in
writing within 45 days of receipt of each such remittance advice of
any disputed information thereon. Upon proper notice to ESI and
verification of amounts to be paid, if any, ESI shall only be
responsible for remitting additional payments to a Provider in
connection with the specific disputed remittance advice. If Provider
does not notify ESI in the manner and time provided herein, ESI shall
have no further responsibility with respect to such remittance.
H. Taxes: Transmission Charges. With respect to Covered Medications
----------------------------
dispensed to Members by Provider, if permitted by the terms of its
contract with the Sponsor, ESI will bill the Sponsor for any Federal,
state, or local sales taxes payable with respect to any sales of
Covered Medications to a Member, and will remit to Provider any such
taxes collected from Sponsors. Provider shall remit any such sales
taxes to the appropriate taxing authority. Provider shall be solely
responsible for any other taxes or surcharges associated with its
performance under this Agreement (but not for income taxes payable on
ESI's income). For purposes of this section "sales tax" means any
excise tax on Covered Medications now or hereafter in existence
required to be collected or paid by a retail seller on consumer retail
sales, whether designed as a sales tax, gross receipts tax, retail
occupation tax, value added tax, or otherwise. Provider shall be
solely responsible for expenses included in transmitting claims to
ESI. If Provider transfers a prescription order to ESI for
fulfillment, ESI shall be solely responsible for any applicable sales
taxes and any other taxes or surcharges associated with fulfilling
such prescription order (but not for income taxes payable on
Provider's income).
4. COMPENSATION TO ESI. For prescriptions ordered by a Member through Provider
-------------------
but fulfilled/dispensed by ESI because the quantity dispensed exceeded a 30
days supply, Provider shall reimburse ESI for its drug ingredient cost and
remit the applicable Copayment to ESI. Provider shall be responsible for
collecting the Copayment from the Member. Provider shall make such
payments to ESI based on a schedule mutually agreeable to the parties.
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
7
<PAGE>
5. LIABILITY INSURANCE; INDEMNITY
------------------------------
A. Provider shall obtain and maintain in full force and effect and
throughout the term of this Agreement such policies of general
liability, professional liability and other insurance of the types and
amounts as are reasonably and customarily carried by pharmacies with
respect to their operations. Provider shall obtain and maintain
during the term of this Agreement, comprehensive general liability
insurance coverage in the amount of at least $1,000,000 per
occurrence, including pharmacist's professional liability insurance,
for protection from claims for bodily injury and personal injury to
Members from Provider's operation under this Agreement. By signing
this Agreement, Provider represents that these insurance requirements
are being met. Provider shall furnish not less than 30 days' prior
written notice to ESI in the event of termination or material
modification of any such policies of insurance which renders Provider
non-compliant with the foregoing. Upon ESI's request, Provider shall
provide ESI with evidence of such insurance coverage satisfactory to
ESI. If the insurance purchased to satisfy the requirements of this
Section is of the "claims made" variety, Provider shall purchase an
extended period of indemnity so that ESI is protected from any and all
claims brought against ESI for a period of not less than three years
subsequent to the date of termination of this Agreement.
B. With respect to any prescription orders filled by Provider, ESI shall
not be liable or suffer loss for any claim, injury, demand, or
judgment of any kind whatsoever arising out of the sale, compounding,
dispensing, manufacturing, consultation or use of any prescription
drug or any service provided by Provider pursuant to this Agreement.
Regardless of the insurance coverage required herein above, Provider
shall indemnify, defend and hold harmless ESI, its officers, directors
and employees, against the full amount of any and all loss, expense,
claim, or damage (including expert and professional fees and attorneys
fees) arising out of or attributable to any of the foregoing.
C. With respect to any prescription orders that are referred by Provider
to ESI for fulfillment, Provider shall not be liable or suffer loss
for any claim, injury, demand, or judgment of any kind whatsoever
arising out of the sale, drug or any service provided by ESI in
fulfilling such prescription order. ESI shall indemnify, defend and
hold harmless Provider, its officers, directors and employees, against
the full amount of any and all loss, expense, claim, or damage
(including expert and professional fees and attorneys fees) arising
out of or attributable to any of the foregoing as related to such
prescriptions dispensed by ESI.
D. If any claim, injury, demand, or judgment (collectively, an
"Indemnified Claim"), is asserted against a person entitled to
indemnification hereunder (an "Indemnified Party") in respect of which
the Indemnified Party proposes to demand indemnification from the
other party (the "Indemnifying Party") pursuant to Sections 4.B or 4.C
above, such Indemnified Party will promptly notify the Indemnifying
Party in writing. No failure of an Indemnified Party to so notify the
8
<PAGE>
Indemnifying Party shall relieve the Indemnifying Party from the
obligation to indemnify the Indemnified Party unless and to the extent
the Indemnifying Party is actually prejudiced by such failure. Such
Indemnified Party will accord the Indemnifying Party the opportunity
to assume entire control for the defense, compromise or settlement of
any such Indemnified Claim through its own counsel and at its own
expense; provided that no such compromise or settlement shall include
--------
any non-monetary terms and conditions applicable to such Indemnified
Party without the consent of the Indemnified Party, which consent
shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, the Indemnified Party may retain its own counsel at its own
expense (the Indemnifying Party shall only be liable for the
reasonable cost of one such counsel for all Indemnified Parties) if
(i) the Indemnifying Party, within fifteen (15) days after notice of
any Indemnified Claim, fails to assume the defense of such Indemnified
Claim or (ii) the representation of both the Indemnifying Party and
the Indemnified Party would, in the reasonable judgment of the
parties, be inappropriate due to actual or potential conflicting
interests between them. If the Indemnifying Party does not assume
entire control of the defense, compromise or settlement of such
Indemnified Claim, the Indemnified Party may compromise or settle any
such Indemnified Claim. Provider and ESI each agrees to reasonably
cooperate with respect to the defense of any Indemnified Claim, at the
Indemnifying Party's expense.
6. RECORDS
-------
Provider shall maintain medical, financial and administrative records
relating to Members and their prescriptions for Covered Medications in
accordance with applicable law and as required for quality assurance and
peer review programs for a minimum of 5 years from the date any such
prescription is dispensed. The parties agree that such records shall be
treated as confidential so as to comply with all applicable state and
Federal laws regarding the confidentiality of patient records. Provider
shall permit ESI or a third party authorized by ESI to inspect, review,
audit and reproduce, during regular business hours and without charge, any
business, financial and prescription records maintained by Provider
pertaining to ESI, Members or this Agreement as ESI deems necessary to
determine compliance with the terms of this Agreement.
7. QUALITY ASSURANCE
-----------------
Provider shall cooperate and participate with ESI in any and all quality
assurance procedures, peer review, credentialing process, audit systems and
any complaint resolution procedures established by ESI or required by a
Sponsor from time to time, and Provider shall abide by, comply with and
carry out all determinations resulting from such processes or procedures.
9
<PAGE>
8. ADVERTISING, MARKETING AND RESERVATION OF RIGHTS
------------------------------------------------
(A) During the term of the Operating Agreement dated August 31, 1999,
between ESI and Provider, such agreement shall govern the parties'
respective rights and obligations with respect to advertising and
marketing. Thereafter, this section shall govern.
(B) Subject to compliance with Provider's trademark quality control
guidelines, ESI may use Provider's name, URL and description of
services for purposes of advertising or marketing prescription drug
programs in all media, including any website operated by ESI, subject
to compliance with Provider's trademark quality control guidelines.
ESI reserves the exclusive rights to, and control of, the use of the
name "Express Scripts, "PERx" and all other names, symbols and service
marks presently existing or hereinafter adopted by ESI. Provider shall
not advertise or use any names, symbols or trademarks of ESI in any
advertising or promotional materials or otherwise without the prior
written consent of ESI. It is understood and agreed that any decal
incorporating an ESI servicemark or logo is solely for on-line screen
display by Provider in connection with its performance under this
Agreement and that all such use and display shall terminate upon
termination of the Agreement.
9. TERM
----
A. The term of this Agreement shall commence on the Effective Date and
continue for ten (10) years, unless terminated as provided in this
Section 9.
B. Notwithstanding any provision to the contrary, the parties hereto
agree that in the event either (i) Provider, on the one hand, or (ii)
ESI, on the other, shall default in performance of any of their
respective obligations under this Agreement and good faith efforts to
cure such default have not begun within 10 days after the receipt of
written notice thereof, the nondefaulting party shall have the right
by further written notice to the defaulting party to terminate this
Agreement effective as of any future designated date, not less than 30
days from the date of the termination notice.
C. ESI shall have the right to automatically and immediately terminate
this Agreement upon written notice in the event that (i) Provider
ceases to be licensed by the appropriate licensing authorities, or is
excluded as a sanction for misconduct from participation in any
government health care programs, (ii) Provider submits a fraudulent
prescription drug claim or any information in support thereof, knowing
it to be fraudulent, (iii) Provider is declared insolvent, goes into
receivership or bankruptcy or any other action is taken on behalf of
its creditors, or (iv) the Operating Agreement is terminated due to
Provider's breach of such agreement.
10
<PAGE>
D. Notwithstanding termination pursuant to Section 8.B.(i) above, for
each Prescription Drug Program in effect as of the termination date of
this Agreement, the obligations of the parties under Sections 2, 3, 4,
5, 6, 9.D, and 9.E hereof shall remain in full force and effect until
the earlier of one year following termination of this Agreement or
expiration date of each such Prescription Drug Program. ESI agrees,
upon termination of this Agreement, to furnish Provider with a list of
all Prescription Drug Programs covered under this Agreement and the
expiration dates of those programs.
10. MISCELLANEOUS
-------------
A. Any notice required to be given pursuant to the terms hereof shall be
in writing and sent by ordinary or express mail to the other party at
the address listed below or to the last reported address of such
party:
If to Express Scripts, Inc., to:
Attn: Provider Relations
13900 Riverport Drive
Maryland Heights, MO 63043
with a copy to General Counsel at the same address.
If to PlanetRx, Inc., to:
PlanetRx.com, Inc.
6399 Shelby View Dr. Suite 111
Memphis TN 38134
Attn: Legal
and to:
PlanetRx, Inc.
349 Oyster Point Blvd., Suite 201
South San Francisco, California, 94080
Attention: Legal
Fax: 650-616-1505
B. Any reference to the parties in this Agreement shall include, apply
to, bind and benefit the permitted assigns and successors of the
parties and any corporation, partnership, individual, or person acting
in a fiduciary capacity on their behalf.
C. This Agreement, including the Exhibit(s) and the Provider Manual,
constitute the entire understanding of the parties hereto with respect
to the subject matter hereof and, upon execution by the parties,
supersedes all prior oral or written agreements between the parties
with respect to the subject matter hereof. No modification,
11
<PAGE>
alteration or waiver of any term, covenant or condition of this
Agreement shall be valid unless agreed to in writing by both parties,
except as hereinafter set forth. Notwithstanding the foregoing,
Provider and ESI agree that ESI may amend this Agreement to comply
with any changes required or suggested by the appropriate regulatory
authorities in the course of discharging their responsibilities under
applicable laws and regulations. ESI shall furnish Provider with
written notice of such amendments. In the event any such amendment
constitutes a material change in the terms of the Agreement that is
unacceptable to Provider, Provider may elect to terminate this
Agreement by giving written notice of such election to terminate to
ESI within 20 days of receipt of amendment, and such termination
shall be effective no earlier than 180 days after receipt of written
notice by ESI. If Provider does not so elect to terminate this
Agreement within such 20-day period, such amendment will be deemed
approved by Provider and ESI and shall automatically become a part of
this Agreement. Provider further agrees that ESI may amend the
Provider Manual and all policies and procedures of ESI, in its sole
discretion, and such amendment shall not require consent of Provider.
D. Provider and ESI each acknowledge that in the performance of the
services to be rendered hereunder, each Party will have access to
certain confidential business information regarding the other,
including but not limited to the following: trade secrets, know-how
and nonpublic information that relates to research, development,
software programming, concepts, designs, procedures, purchasing,
accounting, engineering, marketing, merchandising, selling, business
plans or strategies, inventions, source code, pricing and other
financial and contractual arrangements with Sponsors and vendors,
manuals, marketing strategies, customer lists, Member information
protectable under the laws of the United States or any other nation,
state or jurisdiction (including, but not limited to, any foreign
equivalents thereto) (collectively, the "Confidential Information").
The receiving party shall not disclose or use or enable anyone else to
disclose or use, in whole or in part, any such Confidential
Information other than for the purpose of providing the services to be
provided hereunder and shall promptly return all Confidential
Information to the providing party upon request. The obligations set
forth in Section 9.D above shall not apply to any Confidential
Information to the extent it: (a) is approved by prior written
authorization of the disclosing party for release by the receiving
party; (b) is disclosed in order to comply with a judicial order
issued by a court of competent jurisdiction, in which event the
receiving party shall give prior written notice to the disclosing
party of such disclosure as soon as practicable and shall cooperate
with the disclosing party in using all reasonable efforts to obtain an
appropriate protective order or equivalent, provided that the
information shall continue to be Confidential Information to the
extent it is covered by such protective order or equivalent; (c)
becomes generally available to the public through any means other than
a breach by the receiving party of its obligations under this
Agreement; (d) was in the possession of the receiving party without
obligation of confidentiality prior to receipt or disclosure under
this Agreement as evidenced by written records made prior to such
receipt or disclosure; (e) is developed independently by the receiving
party without the
12
<PAGE>
use of or benefit from any of the Confidential Information of the
other party or without breach of this Agreement, as evidenced by
records of the receiving party; or (f) is required to be disclosed by
any national securities exchange, by government rule or regulation
(e.g., in connection with a securities filing) or by any other
provisions of applicable law, provided that the receiving party gives
--------
the disclosing party advance written notice (to the extent
practicable) of the disclosure and cooperates with the disclosing
party in any reasonable attempt to limit the scope of the required
disclosure. In any dispute over whether information is Confidential
Information under this Agreement, it will be the burden of the
receiving party to show that such contested information falls within
the exceptions set forth in this Section.
E. Provider further agrees during the term of this Agreement and for a
period of one year thereafter it will not solicit the trade or
patronage of any of the Sponsors or potential sponsors of ESI with
respect to prescription drug programs, services, .products or other
matters referred to in this Agreement without ESI's prior written
consent. Notwithstanding termination of this Agreement, the rights
and obligations of the parties under this Subsection shall remain in
full force and effect for a period of one year following termination.
F. This Agreement shall be construed and governed in all respects
according to the internal laws in the State of Missouri.
G. The relationship created hereunder is that of independent contractors
and nothing herein shall create or be deemed to create an agency,
partnership or joint venture relationship between the parties. No
provision of this Agreement or any part of any Sponsor's Prescription
Drug Program shall be construed to require any pharmacist to dispense
any Covered Medication to any Member if, in the pharmacist's
reasonable professional judgment, such Covered Medication should not
be dispensed to such person. In such event, Provider agrees to notify
ESI of the circumstances of the decision not to dispense such Covered
Medication.
H. No waiver of a breach of any covenant or condition shall be construed
to be a waiver of any subsequent breach. No act, delay or omission
done, suffered, or permitted by the parties shall be deemed to exhaust
or impair any right, remedy or power of the parties hereunder.
13
<PAGE>
I. This Agreement will be enforced to the fullest extent permitted by
applicable law. If for any reason any provision of this Agreement is
held to be invalid or unenforceable to any extent, then: (i) such
provision will be interpreted, construed or reformed to the extent
reasonably required to render the same valid, enforceable and
consistent with the original intent underlying such provision; (ii)
such provision will be void to the extent it is held to be invalid or
unenforceable; (iii) such provision will remain in effect to the
extent that it is not invalid or unenforceable; and (iv) such
invalidity or unenforceability will not affect any other provision of
this Agreement or any other agreement between the parties.
J. This Agreement shall not be assigned, in whole or in part, by either
party without the prior written consent of the other, except in
connection with an acquisition of a party or of all or substantially
all of a party's assets, provided, that in any such case the assignee
--------
agrees in writing to be bound by all of the obligations of the
assignor hereunder.
IN WITNESS WHEREOF, the undersigned have executed this Provider Agreement
as of the day and year first above written.
PLANETRX.COM, INC. EXPRESS SCRIPTS, INC.
By: By:
---------------------------- ----------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
---------------------------- ----------------------------
14
<PAGE>
EXHIBIT A
----------
FEES
----
Reimbursement Rates. The reimbursement rates (i.e., rates at which ESI
-------------------
shall pay Provider) for 30 or fewer days Internet Pharmacy prescriptions
dispensed to ESI Members by Provider shall be the lesser of:
(A) The following rates for the applicable networks:
[+]
or
(B) [+]
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
15
<PAGE>
EXHIBIT B
---------
PERFORMANCE STANDARDS
---------------------
For prescriptions dispensed by Provider, the following performance standards
will apply:
1. Mail Service Prescription Accuracy
- -------------------------------------
Standard
- --------
While Provider strives for 100 percent accuracy, Provider guarantees [+] percent
accuracy in dispensing the correct drug, at the correct strength and at the
correct dosage, unless the error is a prescriber error. This standard will be
measured quarterly.
Guarantee
- ---------
Provider places 33.3 percent of the dispensing fee at risk, if performance is
below the stated standard.
2. Turnaround time for routine prescriptions
- --------------------------------------------
Standard
- --------
Provider guarantees dispensing and shipping (or return) of 95 percent of all
fillable prescriptions not subject to intervention within an average of 4
business days of receipt of the order at Provider. This standard will be
measured and reported quarterly. "Interventions" include all calls to members or
prescribers to clarify the prescriber's direction, to obtain consent for generic
or therapeutic substitution, or otherwise.
Guarantee
- ---------
Provider places 33.3 percent of the dispensing fee at risk, if performance is
below the stated standard for one full day or more.
3. Turnaround time for prescriptions subject to intervention
- -------------------------------------------------------------
Standard
- --------
Provider guarantees dispensing and shipping (or return) of 95 percent of all
prescriptions subject to intervention within an average of 5 business days of
receipt of the order at Provider, if the prescriber provides a response on the
initial attempts at intervention. This standard will be measured quarterly.
Guarantee
- ---------
Provider places [+] percent of the dispensing fee at risk if performance is
below the stated standard for one full day or more.
[+] Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
16
<PAGE>
EXHIBIT 21.1
List of Subsidiaries
PlanetRx.com Operating Co., Inc., a Delaware corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report 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
September 2, 1999
