Exhibit 10.32

 

STOCK PURCHASE AGREEMENT

 

STOCK PURCHASE AGREEMENT (the “Agreement”), dated as of March 1, 2005 by and
among drugstore.com, inc., a Delaware corporation (the “Company”), and Ziff
Asset Management, L.P. (the “Investor”).

 

WHEREAS, the Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “Commission”) under the
Securities Act; and

 

WHEREAS, the Investor wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, 10,000,000 shares of the
common stock, par value $0.0001 per share, of the Company (the “Common Stock”).
The shares of Common Stock to be purchased by the Investor pursuant to this
Agreement are referred to herein as the “Securities”.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investor agree as
follows:

 

ARTICLE I

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
the following terms have the meanings indicated:

 

“13D Group” means any “group” (within the meaning of Section 13(d) of the
Exchange Act) formed for the purpose of acquiring, holding, voting or disposing
of Voting Securities of the Company.

 

“2004 10-K” has the meaning set forth in Section 3.2(i).

 

“Advice” has the meaning set forth in Section 6.5.

 

“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, “controls” or is “controlled”
by or is under common control with, such Person, as such terms are used in and
construed under Rule 144 under the Securities Act.

 

“Agreement” has the meaning set forth in the Preamble.

 

“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.

 

“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.

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“Closing Date” means the date and time of the Closing and shall be 10:00 a.m.,
New York City Time, on March 2, 2005 (or such other date and time as is mutually
agreed to by the Company and the Investor).

 

“Closing Price” means, for any date, the closing price per share of the Common
Stock for such date (or the nearest preceding date) on the primary Eligible
Market or exchange on which the Common Stock is then listed or quoted.

 

“Commission” has the meaning set forth in the Recitals.

 

“Common Stock” has the meaning set forth in the Recitals.

 

“Company” has the meaning set forth in the Preamble.

 

“Company Counsel” means Alesia L. Pinney, Vice President, General Counsel and
Secretary of the Company.

 

“Disclosure Materials” has the meaning set forth in Section 3.1(g).

 

“Effective Date” means the date that the Registration Statement is first
declared effective by the Commission.

 

“Effectiveness Period” has the meaning set forth in Section 6.1(b).

 

“Election Period” has the meaning set forth in Section 4.1(c)(ii).

 

“Eligible Market” means any of the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Fair Market Value” means (i) with respect to cash consideration, the total
amount of such cash consideration in United States dollars, (ii) with respect to
non-cash consideration consisting of publicly-traded securities, the average
daily closing sales price of such securities for the ten consecutive trading
days preceding the date the Fair Market Value of such securities is required to
be determined hereunder (with the closing price for each day being the last
reported sales price regular way or, in case no such reported sale takes place
on such day, the average of the reported closing bid and asked prices regular
way, in either case on the principal national securities exchange on which such
securities are listed and admitted to trading, or, if not listed and admitted to
trading on any such exchange, on the Nasdaq National Market System, or if not
quoted on the Nasdaq National Market System, the average of the closing bid and
asked prices in the over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Company for that purpose)
and (iii) with respect to non-cash consideration not consisting of
publicly-traded securities, such amount as is determined to be the fair market
value of the non-cash consideration as of the date such Fair Market Value is
required to be determined hereunder as determined in good faith by the Investor.

 

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For the purposes of Section 4.1(c), if the Company disputes in good faith the
determination by the Investor pursuant to the above clause (iii) of the Fair
Market Value of the non-cash consideration to be paid for the Restricted
Securities, then the Company may require that an investment bank selected by the
Company and reasonably acceptable to the Investor determine such Fair Market
Value for the purposes of clause (iii).

 

The Company shall pay the fees and expenses of the investment bank in making any
Fair Market Value determination.

 

“Indemnified Party” has the meaning set forth in Section 6.4(c).

 

“Indemnifying Party” has the meaning set forth in Section 6.4(c).

 

“Investor” has the meaning set forth in the Preamble.

 

“Investor Counsel” means Fried, Frank, Harris, Shriver & Jacobson LLP, counsel
to the Investor.

 

“Lien” means any lien, charge, claim, security interest, encumbrance, right of
first refusal or other restriction.

 

“Losses” means any and all losses, claims, damages, liabilities, settlement
costs and expenses, including, without limitation, costs of preparation and
reasonable attorneys’ fees.

 

“Market Adjustment” has the meaning set forth in Section 4.1(c)(iii).

 

“Material Adverse Effect” has the meaning set forth in Section 3.1(b).

 

“Offer Notice” has the meaning set forth in Section 4.1(c)(i).

 

“Offer Price” has the meaning set forth in Section 4.1(c)(i).

 

“Person” means any individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, or
joint stock company.

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened in writing.

 

“Prospectus” means the prospectus included in the Registration Statement at the
time of effectiveness (including, without limitation, a prospectus that includes
any information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to such prospectus including post effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such prospectus.

 

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“Purchase Price” means the Fair Market Value of the Transfer Consideration paid
by the Company or any of its Subsidiaries.

 

“Regulation D” has the meaning set forth in the Recitals.

 

“Registrable Securities” means any Securities issued pursuant to this Agreement,
together with any securities issued or issuable upon any stock split, dividend
or other distribution, recapitalization or similar event with respect to the
foregoing.

 

“Registration Statement” means each registration statement required to be filed
under Article VI, as amended at the time and on the date it became effective,
including the information (if any) contained in the form of final prospectus
filed with the Commission pursuant to Rule 424(b) or deemed to be part thereof
at the time of effectiveness pursuant to Rule 430A, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.

 

“Repurchase Notice” has the meaning set forth in Section 4.1(c)(ii).

 

“Required Effectiveness Date” means the date on which the Restricted Period
ends.

 

“Resale Price” has the meaning set forth in Section 4.1(c)(iii).

 

“Restricted Period” has the meaning set forth in Section 4.1(a).

 

“Restricted Securities” has the meaning set forth in Section 4.1(c)(i).

 

“Rule 144,” “Rule 415,” “Rule 424” and “Rule 430A” means Rule 144, Rule 415,
Rule 424 and Rule 430A, respectively, promulgated by the Commission pursuant to
the Securities Act, as such Rules may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

 

“SEC Reports” has the meaning set forth in Section 3.1(g).

 

“Securities” has the meaning set forth in the Recitals.

 

“Securities Act” has the meaning set forth in the Recitals.

 

“Shares” means shares of the Company’s Common Stock.

 

“Subsidiary” means any Person in which the Company, directly or indirectly, owns
Voting Securities having the power to elect a majority of the directors (or
similar members of such corporation’s or other entity’s governing body), or
otherwise direct the management and polices of such corporation or other entity.

 

“Tender Offer” shall mean a bona fide public offer subject to the provisions of
Regulation 13D or 14D under the Exchange Act, by a Person (which is not made by
and does not include the Investor, any Affiliates of the Investor or any 13D
Group that includes the Investor or any of its Affiliates) to purchase or
exchange for cash or other consideration any Voting Securities of the Company;
provided that, for the purposes of this definition, in no event shall the
Company be considered an Affiliate of the Investor.

 

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“Trading Day” means (a) any day on which the Common Stock is listed or quoted
and traded on its primary Trading Market, (b) if the Common Stock is not then
listed or quoted and traded on any Eligible Market, then a day on which trading
occurs on the Nasdaq National Market (or any successor thereto), or (c) if
trading ceases to occur on the Nasdaq National Market (or any successor
thereto), any Business Day.

 

“Trading Market” means the Nasdaq National Market or any other Eligible Market,
or any national securities exchange, market or trading or quotation facility on
which the Common Stock is then listed or quoted.

 

“Transfer” shall have the meaning set forth in Section 4.1(a).

 

“Transfer Agent” means Mellon Investor Services LLC or any successor transfer
agent for the Company.

 

“Transfer Consideration” shall have the meaning set forth in Section 4.1(c)(i).

 

“Transfer Offer” shall have the meaning set forth in Section 4.1(c)(i).

 

“Voting Securities” shall mean stock or other equity securities of an entity
with the power to vote with respect to the election of directors (or similar
members of an entity’s governing body) generally and shall include, in the case
of a partnership or limited liability company, a general partner, manager or
managing member interest, as applicable.

 

ARTICLE II

PURCHASE AND SALE

 

2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at
the Closing the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, the Securities. The date and time of the
Closing and shall be 10:00 a.m., New York City Time, on the Closing Date. The
Closing shall take place at the offices of Investor Counsel.

 

2.2 Closing Deliveries.

 

(a) At the Closing, the Company shall deliver or cause to be delivered to the
Investor the following:

 

(i) one or more stock certificates, containing only the legends expressly
provided in Section 4.1(d) hereof, evidencing 10,000,000 Shares registered in
the name of the Investor; and

 

(ii) a legal opinion of Company Counsel, in the form of Exhibit A, executed by
such counsel and delivered to the Investor.

 

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(b) At the Closing, the Investor shall deliver or cause to be delivered to the
Company the aggregate purchase price for the Securities, calculated by
multiplying the number of Securities (10,000,000) by the greater of $2.60 or the
Closing Price on the date of this Agreement, in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing to the Investor by the Company for such purpose.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. The Company hereby represents
and warrants to the Investor as follows (which representations and warranties
shall be deemed to apply, where appropriate, to each subsidiary of the Company):

 

(a) Subsidiaries. The Company has no Subsidiaries or any other equity interests
in any other Person other than those listed in Schedule 3.1(a) hereto. Except as
disclosed in Schedule 3.1(a) hereto, the Company owns, directly or indirectly,
all of the capital stock or comparable equity interests of each Subsidiary free
and clear of any Lien and all the issued and outstanding shares of capital stock
or comparable equity interests of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights.

 

(b) Organization and Qualification. Each of the Company and the Subsidiaries is
an entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and assets and
to carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly qualified to
do business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, have a material adverse effect on (i) the results of
operations, assets, business or financial condition of the Company and the
Subsidiaries, taken as a whole on a consolidated basis, or (ii) the Company’s
ability to consummate the transactions contemplated by this Agreement on a
timely basis (either of (i) or (ii), a “Material Adverse Effect”).

 

(c) Authorization; Enforcement. The Company has the requisite corporate
authority to enter into and to consummate the transactions contemplated by this
Agreement and otherwise to carry out its obligations hereunder. The execution
and delivery of this Agreement and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Company and no further consent or action is required by

 

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the Company, its board of directors or its stockholders. This Agreement has been
(or upon delivery will be) duly executed by the Company and is, or when
delivered in accordance with the terms hereof, will constitute, the valid and
legally binding obligation of the Company enforceable against the Company in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors rights generally, or by general
principles of equity.

 

(d) No Conflicts. The execution, delivery and performance of this Agreement by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby do not, and will not, (i) conflict with or violate any
provision of the Company’s Amended and Restated Certificate of Incorporation or
its bylaws, (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound, or
affected, except to the extent that such conflict, default, termination,
amendment, acceleration or cancellation right could not reasonably be expected
to have a Material Adverse Effect, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations and the
rules and regulations of any self-regulatory organization to which the Company
or its securities are subject), or by which any property or asset of the Company
or a Subsidiary is bound or affected, except to the extent that such violation
could not reasonably be expected to have a Material Adverse Effect.

 

(e) Issuance of the Securities. The Securities have been duly authorized and,
when issued and paid for in accordance with this Agreement, will be duly and
validly issued, fully paid and nonassessable, free and clear of all Liens and
shall not be subject to preemptive or similar rights of stockholders.

 

(f) Capitalization. The aggregate number of shares and type of all authorized,
issued and outstanding classes of capital stock, options and other securities of
the Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) as of the date of this
Agreement is set forth in Schedule 3.1(f) hereto. All outstanding shares of
capital stock are duly authorized, validly issued, fully paid and nonassessable
and have been issued in compliance with all applicable securities laws. Except
as disclosed in Schedule 3.1(f) hereto, the Company has not issued any other
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or entered into any
agreement giving any Person any right to subscribe for or acquire, any shares of
Common

 

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Stock, or securities or rights convertible or exchangeable into shares of Common
Stock. Except as set forth on Schedule 3.1(f) hereto, and except for customary
adjustments as a result of stock dividends, stock splits, combinations of
shares, reorganizations, recapitalizations, reclassifications or other similar
events, there are no anti-dilution or price adjustment provisions contained in
any security issued by the Company (or in any agreement providing rights to
security holders) and the issuance and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any Person
(other than the Investor) and will not result in a right of any holder of
securities to adjust the exercise, conversion, exchange or reset price under
such securities.

 

(g) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the twelve months preceding the date hereof (the
foregoing materials (together with any materials filed by the Company under the
Exchange Act, whether or not required) being collectively referred to herein as
the “SEC Reports” and, together with this Agreement and the Schedules to this
Agreement, the “Disclosure Materials”) on a timely basis. The Company has made
available to the Investor or its representatives true, correct and complete
copies of the SEC Reports not available on the EDGAR system. Except as disclosed
on Schedule 3.1(g), as of the respective dates on which they were filed, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Except as disclosed on Schedule 3.1(g), the audited consolidated
balance sheets and audited consolidated statements of income and cash flows of
the Company as at December 28, 2003 and December 29, 2002 and for the three
years ended December 28, 2003 and the unaudited consolidated balance sheets and
unaudited consolidated statements of income and cash flows of the Company as at
and for the periods ended March 28, 2004, June 27, 2004 and September 26, 2004
(including in each case any related notes and schedules thereto) included in the
SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Except as disclosed on Schedule
3.1(g), such financial statements have been prepared in accordance with United
States generally accepted accounting principles (“GAAP”) applied on a consistent
basis during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the consolidated financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, year-end audit adjustments. The Company has filed with
the Commission all material agreements required to be filed by the Company,
pursuant to Item 601 of Regulation S-K promulgated under the Securities Act.

 

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(h) Material Changes. Since the date of the latest audited financial statements
included within the SEC Reports, and except as specifically disclosed in the SEC
Reports or in Schedule 3.1(h) hereto, (i) there has been no event, occurrence or
development that, individually or in the aggregate, has had or that could result
in a Material Adverse Effect and (ii) the Company has not incurred any material
liabilities other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission.

 

(i) Absence of Litigation. Except as disclosed in the Company’s SEC Reports,
there is no action, suit, claim, or proceeding, or, to the Company’s knowledge,
inquiry or investigation, before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
that would be reasonably expected to, individually or in the aggregate, have a
Material Adverse Effect.

 

(j) Compliance. Neither the Company nor any Subsidiary, except in each case as
could not, individually or in the aggregate, reasonably be expected to have or
result in a Material Adverse Effect, (i) is in default under or in violation of
(and no event has occurred that has not been waived that, with notice or lapse
of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received written notice of a claim
that it is in default under or that it is in violation of, any indenture, loan
or credit agreement or any other agreement or instrument to which it is a party
or by which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority.

 

(k) No General Solicitation; No Placement Agent. Neither the Company, nor any of
its Affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Securities. The
Company has not engaged any placement agent or other agent in connection with
the sale of the Securities.

 

(l) Private Placement. Neither the Company, nor any of its Affiliates, nor any
Person acting on the Company’s behalf, has, directly or indirectly, at any time
within the past six months, made any offer or sale of any security or
solicitation of any offer to buy any security under circumstances that would (i)
eliminate the availability of the exemption from registration under Regulation D
under the Securities Act in connection with the offer and sale by the Company of
the Securities as contemplated hereby or (ii) cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company

 

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for purposes of any applicable law, regulation or stockholder approval
provisions, including, without limitation, under the rules and regulations of
any Trading Market.

 

(m) Investment Company. The Company is not, and is not an Affiliate of, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

 

(n) Real Property Holding Company. The Company is not “a United States real
property holding corporation” within the meaning of the Foreign Investment in
Real Property Tax Act of 1980.

 

(o) Form S-3 Eligibility. The Company is eligible to register the Securities for
resale by the Investor using Form S-3 promulgated under the Securities Act.

 

(p) Listing and Maintenance Requirements. The Company has not, in the twelve
months preceding the date hereof, received notice (written or oral) from any
Trading Market on which the Common Stock is or has been listed or quoted to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is in compliance with all such
listing and maintenance requirements.

 

(q) Registration Rights. Except as described in Schedule 3.1(q), the Company has
not granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been satisfied or
waived.

 

(r) Application of Takeover Protections. There is no control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s charter
documents or the laws of its state of incorporation that is or could become
applicable to the Investor as a result of the Investor and the Company
fulfilling their obligations or exercising their rights under this Agreement,
including, without limitation, as a result of the Company’s issuance of the
Securities and the Investor’s ownership of the Securities.

 

(s) Disclosure. The Company confirms that neither it nor any officers, directors
or Affiliates, has provided the Investor or its agents or counsel with any
information that constitutes or might constitute material, nonpublic information
with respect to the Company (other than the existence and terms of the issuance
of Securities, as contemplated by this Agreement, and the information disclosed
on Schedule 3.1(g)). The Company understands and confirms that the Investor will
rely on the foregoing representations in effecting transactions in securities of
the Company.

 

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(t) Internal Accounting Controls. Except as disclosed on Schedule 3.1(g), the
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

 

(u) Sarbanes-Oxley Act. The Company is in compliance with applicable, effective
requirements of the Sarbanes-Oxley Act of 2002 and applicable, effective rules
and regulations promulgated by the Commission thereunder, except where
noncompliance therewith would not, individually or in the aggregate, have a
Material Adverse Effect.

 

3.2 Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company as follows:

 

(a) Organization; Authority. The Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite partnership power and authority to enter into
and to consummate the transactions contemplated by this Agreement and otherwise
to carry out its obligations hereunder. The purchase by the Investor of the
Securities hereunder has been duly authorized by all necessary action on the
part of the Investor. This Agreement has been duly executed and delivered by the
Investor and constitutes the valid and legally binding obligation of the
Investor, enforceable against it in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization or other laws of
general application relating to or affecting the enforcement of creditors rights
generally, or by general principles of equity.

 

(b) No Public Sale or Distribution; Investment Intent. The Investor is acquiring
the Securities in the ordinary course of business for investment, for its own
account, and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales registered under
the Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws, and the Investor
does not have a present intention or arrangement to effect any sale or
distribution of the Securities to or through any person or entity, including,
without limitation, entering into any arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
Securities, whether any such transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise; provided, however, that by
making the representations herein, the Investor does not agree to hold any of
the Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act, subject, in
each case, to the provisions of Section 4.1 hereof.

 

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(c) Investor Status. At the time the Investor was offered the Securities, it
was, and at the date hereof it is, and at the Closing Date it will be, an
“accredited investor” as defined in Rule 501(a) under the Securities Act.

 

(d) Experience of the Investor. The Investor, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. The Investor is able to bear the economic risk of
an investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.

 

(e) Access to Information. The Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded: (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information (other than material non-public
information) about the Company and the Subsidiaries and their respective
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such
inquiries nor any other investigation conducted by or on behalf of the Investor
or its representatives or counsel shall modify, amend or affect the Investor’s
right to rely on the truth, accuracy and completeness of the Disclosure
Materials and the Company’s representations and warranties contained in this
Agreement.

 

(f) No Governmental Review. The Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(g) No Conflicts. The execution, delivery and performance by the Investor of
this Agreement and the consummation by the Investor of the transactions
contemplated hereby will not (i) conflict with or violate the organizational
documents of the Investor, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time, or both) of, any agreement,
credit facility, debt, indenture or other instrument to which the Investor is a
party

 

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or by which any of its property is bound, or (iii) result in a violation of any
law, rule, regulation, order, judgment, decree or other restriction of any court
or governmental authority to which the Investor is subject (including federal
and state securities laws) or by which any of its property or assets is bound or
affected, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults or violations that are not material and do not otherwise
affect the ability of the Investor to consummate the transactions contemplated
hereby.

 

(h) No Legal, Tax or Investment Advice. The Investor understands that nothing in
this Agreement or any other materials presented by or on behalf of the Company
to the Investor in connection with the purchase of the Securities constitutes
legal, tax or investment advice. The Investor has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Securities.

 

(i) Disclosure. The Investor confirms that, to the Investor’s knowledge, none of
the Company and its officers, directors and Affiliates has provided the Investor
or its agents or counsel with any information that constitutes or might
constitute material, nonpublic information with respect to the Company (other
than the existence and terms of the issuance of Securities, as contemplated by
this Agreement, and the information disclosed on Schedule 3.1(g), which
information the Investor agrees to keep confidential until such time as the
Company’s annual report on Form 10-K for the fiscal year ended January 2, 2005
(the “2004 10-K”) is filed with the Commission).

 

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) The Investor covenants that it will not, directly or indirectly sell,
transfer or otherwise dispose (including, without limitation, entering into any
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership) (collectively, “Transfer”) of any Securities during
the period beginning on the Closing Date and ending on the one year anniversary
of the Closing Date (the “Restricted Period”), except for any Transfer of
Securities: (i) to its Affiliates, provided that such Affiliates deliver a
written instrument to the Company, in form and substance reasonably satisfactory
to the Company, confirming that they are subject to the obligations of the
transferor under this Agreement, (ii) which have been consented to in writing by
the Company, (iii) pursuant to a Tender Offer that, in the case of a third party
Tender Offer, is recommended by the board of directors of the Company or (iv) to
its equity holders, as part of a plan of distribution to such equity holders,
provided that such equity holders deliver a written instrument to the Company,
in form and substance reasonably satisfactory to the Company, confirming that
they are subject to the obligations of this Agreement, and, in each case, in
accordance with the provisions of Section 4.1(c).

 

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(b) Following the end of the Restricted Period, the Investor covenants that the
Securities will only be disposed of pursuant to an effective registration
statement under, and in compliance with the requirements of, the Securities Act
or pursuant to an available exemption from the registration requirements of the
Securities Act, and in compliance with any applicable state securities laws,
and, in each case, in accordance with the provisions of Section 4.1(c). In
connection with any Transfer of Securities other than pursuant to an effective
registration statement or to the Company or pursuant to Rule 144(k), the Company
requires the transferor to provide to the Company an opinion of counsel selected
by the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration under the Securities Act.

 

(c) (i) If, following the end of the Restricted Period, the Investor desires to
Transfer any portion of the Securities constituting 6% or more of the Voting
Securities of the Company outstanding on the date of such Transfer (the
“Restricted Securities”) in a single transaction or series of related
transactions to a Person or 13D Group for their own account (but excluding any
sale to a broker-dealer or market maker, provided that such broker-dealer or
market maker sells such shares in substantially concurrent transactions to one
or more Persons and no such Person or Persons individually, together with its or
their Affiliates as applicable or as part of a 13D Group, purchases in such
transactions Securities constituting 6% or more of the Voting Securities of the
Company outstanding on the date of such transactions), the Investor shall
provide the Company with a written notice (the “Offer Notice”) setting forth:
(i) the number of shares of Common Stock proposed to be Transferred and (ii) the
material terms and conditions of the proposed Transfer including the minimum
price (the “Offer Price”) at which the Investor proposes to Transfer such shares
(the “Transfer Offer”). The Offer Notice shall also constitute an irrevocable
offer to sell the Restricted Securities to the Company (x) at the Offer Price
and on the same terms and conditions as the Transfer Offer or (y) if the
Transfer Offer includes any consideration other than cash, at the option of the
Company, at a cash price equal to the Fair Market Value of such non-cash
consideration (the “Transfer Consideration”).

 

(ii) If the Company wishes to accept the offer set forth in the Offer Notice,
the Company shall deliver within three (3) Business Days of receipt of the Offer
Notice (such period, the “Election Period”) an irrevocable notice of acceptance
to the Investor (the “Repurchase Notice”), which Repurchase Notice shall
indicate that the Company agrees to purchase all of the Restricted Securities
specified in the Offer Notice and the form of Transfer Consideration chosen (to
the extent that the Transfer Offer includes any consideration other than cash).

 

(iii) If the option to purchase the Restricted Securities represented by the
Offer Notice is accepted on a timely basis by the Company, in accordance with
all the terms specified in Section 4.1(c)(ii),

 

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no later than ten (10) Business Days after the date of the receipt by the
Company of the Offer Notice, the Company shall deliver payment by wire transfer
of immediately available funds, to the extent the Transfer Consideration is
cash, and/or by delivery of the non-cash Transfer Consideration (to the extent
chosen by the Company), to the Investor against delivery of certificates or
other instruments representing the Common Stock so purchased, appropriately
endorsed by the Investor. The Investor shall deliver its shares of Common Stock
free and clear of all liens, claims, options, pledges, encumbrances and security
interests. If (x) the Company does not give notice of its acceptance of the
offer represented by the Offer Notice to purchase all of the Restricted
Securities prior to the expiration of the Election Period or (y) the Company
timely tenders a Repurchase Notice but does not tender the Purchase Price for
the Restricted Securities in the manner and within the time period set forth
above in this Section 4.1(c)(iii), the Investor shall, after such period, be
free for a period of 120 days from the end of the Election Period (the “Transfer
Period”) to Transfer the Restricted Securities to a third party at a price equal
to or greater than the Resale Price (as defined below) and otherwise on terms
which are no more favorable in any material respect to such third party than the
terms and conditions set forth in the Offer Notice; it being acknowledged and
agreed that the right to sell Restricted Securities as a result of the
circumstances described in the foregoing clause (y) shall be in addition to any
other rights or remedies the Investor may have as a result of such
circumstances. If for any reason the Investor does not Transfer the Restricted
Securities to a third party on such terms and conditions or if the Investor
wishes to Transfer the Restricted Securities at a purchase price lower than the
Resale Price or on other terms which are more favorable in any material respect
to a third party than those set forth in the Offer Notice, the provisions of
this Section 4.1(c) shall again be applicable to the Restricted Securities.
“Resale Price” shall mean the lesser of (1) the Offer Price or (2) the product
of the Offer Price and the Market Adjustment (as defined below), but in no event
shall the Resale Price be less than 95% of the Offer Price, unless the Company
consents in writing to a lower Resale Price. “Market Adjustment” shall mean the
quotient of (1) the Closing Price on the day before the date the Investor and a
third party enter into a definitive agreement to Transfer Restricted Securities
in which the price at which the Restricted Securities are to be transferred to
such third party is specified and (2) the Closing Price on the day before the
date the Offer Notice is delivered to the Company. The Investor will provide the
Company with a certificate as to the compliance of any Transfer of Restricted
Securities to a third party pursuant to this Section 4.1(c)(iii) prior to the
closing of such transaction.

 

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(d) The Investor agrees to the imprinting, so long as is required by this
Section 4.1(d), of the following legends on any certificate evidencing
Securities:

 

(i) “THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.”

 

Certificates evidencing Securities shall not be required to contain such legend
(i) after a Transfer pursuant to a Registration Statement that is effective
under the Securities Act covering the resale of such Securities, (ii) following
any sale of such Securities pursuant to Rule 144, (iii) if such Securities are
eligible for sale under Rule 144(k) or (iv) if such legend is not required under
applicable requirements of the Securities Act (including controlling judicial
interpretations and pronouncements issued by the Staff of the Commission).
Following the Effective Date or at such earlier time as a legend is no longer
required for the Securities, the Company will no later than three Trading Days
following the delivery by the Investor to the Company or the Transfer Agent of a
legended certificate representing such Securities and an opinion of counsel to
the extent required by Section 4.1(b), deliver or cause to be delivered to the
Investor a certificate representing such Securities that is free from such
legend.

 

(ii) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCK
PURCHASE AGREEMENT, BETWEEN DRUGSTORE.COM, INC. AND ZIFF ASSET MANAGEMENT, L.P.
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF SUCH STOCK PURCHASE AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY
ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF
SUCH STOCK PURCHASE AGREEMENT.”

 

Certificates evidencing Securities shall not be required to contain such legend
after a Transfer of (x) Securities representing less than 6% of the Voting
Securities of the Company outstanding on the date of such Transfer or (y)
Restricted Securities in accordance with the provisions of

 

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Section 4.1(c). Following the delivery by the Investor to the Company or the
Transfer Agent of a legended certificate representing Securities no longer
requiring such legend pursuant to the immediately prior sentence and an opinion
of counsel to the extent required by Section 4.1(b), the Company will deliver or
cause to be delivered to the Investor a certificate representing such Securities
that is free from such legend, no later than the third Business Day after the
effective date of such Transfer, unless the Company is the purchaser of such
Restricted Securities, in which case the Company shall retain such certificate.

 

The Company may not make any notation on its records or give instructions to the
Transfer Agent that enlarge the restrictions on transfer set forth in this
Section 4.1.

 

(e) The Company will not object to and shall permit (except as prohibited by
law) the Investor to hypothecate, pledge or grant a security interest or other
lien in some or all of the Securities in connection with a bona fide loan or
other financing arrangement, entered into in the ordinary course of the
Investor’s business, secured by the Securities, and if required under the terms
of such agreement, loan or arrangement, the Company will not object to and shall
permit (except as prohibited by law) the Investor to transfer hypothecated,
pledged or secured Securities to the pledgees or secured parties. Except as
required by law, such a hypothecation, pledge or transfer will not be subject to
approval of the Company, no legal opinion of the pledgee, secured party or
pledgor shall be required in connection therewith, and no notice shall be
required of such pledge or grant. The Investor acknowledges that the Company
shall not be responsible for any pledges relating to, or the grant of any
security interest or other lien in, any of the Securities or for any agreement,
understanding or arrangement between the Investor and its pledgee or secured
party. At the Investor’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of selling stockholders
thereunder. Provided that the Company is in compliance with the terms of this
Section 4.1(e), the Company’s indemnification obligations pursuant to Section
6.4 shall not extend to any Proceeding or Losses arising out of or related to
this Section 4.1(e).

 

4.2 Furnishing of Information. As long as the Investor owns Securities, the
Company covenants to use its commercially reasonable efforts to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. The Company further covenants that it will use its
commercially reasonable efforts to take such further action as any holder of
Securities may reasonably request to satisfy the provisions of this Section 4.2.

 

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4.3 Integration. The Company shall not, and shall use its reasonable best
efforts to ensure that none of its Affiliates shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Investor or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market.

 

4.4 Securities Laws Disclosure; Publicity. The Company shall, on the first
Trading Day following execution of this Agreement, issue a press release
reasonably acceptable to the Investor disclosing all material terms of the
transactions contemplated hereby and shall, thereafter, timely file a Current
Report on Form 8-K with the Commission describing the terms of the transactions
contemplated by this Agreement in the form required by the Exchange Act and
shall file this Agreement as an exhibit to its 2004 10-K. The Company and the
Investor shall consult with each other in issuing any press releases or
otherwise making public statements or filings and other communications with the
Commission or any regulatory agency or Trading Market with respect to the
transactions contemplated hereby, and neither party shall issue any such press
release or otherwise make any such public statement, filing or other
communication without the prior consent of the other, except if such disclosure
is required by law, in which case the disclosing party shall promptly provide
the other party with prior notice of such public statement, filing or other
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of the Investor, or include the name of the Investor in any
press release without the prior written consent of the Investor. The Company
shall not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents not to, provide the
Investor with any material nonpublic information regarding the Company or any of
its Subsidiaries from and after the issuance of the above referenced press
release without the express written consent of the Investor.

 

4.5 Use of Proceeds. The Company intends to use the net proceeds from the sale
of the Securities for general corporate purposes. The Company also may use a
portion of the net proceeds, currently intended for general corporate purposes,
to acquire or invest in other entities, technologies, products or services that
complement its business, although the Company has no present plans or
commitments and is not currently engaged in any material negotiations with
respect to these types of transactions. Pending these uses, the Company intends
to invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities, or as otherwise pursuant to the Company’s customary
investment policies.

 

ARTICLE V

CONDITIONS

 

5.1 Conditions Precedent to the Obligations of the Investor. The obligation of
the Investor to acquire Securities at the Closing is subject to the satisfaction
or waiver by the Investor, at or before the Closing, of each of the following
conditions:

 

(a) Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing as though made on and as of such
date; and

 

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(b) Performance. The Company shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by it at or prior to the
Closing.

 

5.2 Conditions Precedent to the Obligations of the Company. The obligation of
the Company to sell the Securities at the Closing is subject to the satisfaction
or waiver by the Company, at or before the Closing, of each of the following
conditions:

 

(a) Representations and Warranties. The representations and warranties of the
Investor contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made on and as of
such date; and

 

(b) Performance. The Investor shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Investor at or
prior to the Closing.

 

ARTICLE VI

REGISTRATION RIGHTS

 

6.1 Shelf Registration.

 

(a) The Company shall prepare and file with the Commission a “Shelf”
Registration Statement covering the resale of all Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415, at least 90 days
prior to the end of the Restricted Period. The Registration Statement shall be
on Form S-3 (except if the Company is not then eligible to register for resale
the Registrable Securities on Form S-3, in which case such registration shall be
on another appropriate form in accordance with the Securities Act and the
Exchange Act and as consented to by the Investor).

 

(b) The Company shall use its reasonable best efforts to cause the Registration
Statement to be declared effective by the Commission as promptly as possible
after the filing thereof, but in any event prior to the Required Effectiveness
Date, and shall use its reasonable best efforts to keep the Registration
Statement continuously effective (the period for which the Company is required
to use its reasonable best efforts to keep such Registration Statement
effective, the “Effectiveness Period”) under the Securities Act until the
earlier of (i) the date that all Registrable Securities covered by such
Registration Statement have been sold or (ii) the date that all Registrable
Securities may be sold publicly under Rule 144(k).

 

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(c) The Company shall notify Investor Counsel in writing promptly (and in any
event within three Business Days) after receiving notification from the
Commission that the Registration Statement has been declared effective.

 

(d) Notwithstanding anything in this Agreement to the contrary, at any time when
the Registration Statement is effective, the Company may, by written notice to
the Investor, suspend sales thereunder and/or require that the Investor
immediately cease the sale of shares of Common Stock pursuant thereto if (x) the
Company is engaged in a material merger, acquisition or sale and the board of
directors of the Company determines in good faith, by appropriate resolutions,
that, as a result of such activity, (A) it would be materially detrimental to
the Company (other than as relating solely to the price of the Common Stock) to
maintain a Registration Statement at such time and (B) it is in the best
interests of the Company to suspend such Registration Statement or (y) another
event has occurred or is reasonably likely to occur that would require
additional disclosure by the Company and that the Company has a bona fide
business purpose (as determined in good faith, by appropriate resolutions, by
the board of directors of the Company) for keeping confidential, and the
nondisclosure of which would reasonably be expected to cause the Registration
Statement to fail to comply with applicable disclosure requirements at such
time. Upon receipt of such notice, the Investor shall immediately discontinue
any sales of Registrable Securities pursuant to such registration until the
Investor has received copies of a supplemented or amended Prospectus or until
the Investor is advised in writing by the Company that the then-current
Prospectus may be used and has received copies of any additional or supplemental
filings that are incorporated or deemed incorporated by reference in such
Prospectus. In no event, however, shall this right be exercised to suspend sales
beyond the period during which (in the good faith determination of the Company’s
board of directors) the failure to require such suspension would be materially
detrimental to the Company. The Company’s rights under this Section 6.1(d) may
be exercised for a period of no more than 25 days at a time and not more than
three times in any twelve-month period. Immediately after the end of any
suspension period under this Section 6.1(d), the Company shall take all
necessary actions (including filing any required supplemental prospectus) to
restore the effectiveness of the applicable Registration Statement and the
ability of the Investor to publicly resell its Registrable Securities pursuant
to such effective Registration Statement.

 

6.2 Registration Procedures. In connection with the Company’s registration
obligations hereunder, the Company shall:

 

(a) Not less than three Trading Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be incorporated
therein by reference), furnish to the Investor and Investor Counsel copies of
all such documents proposed to be filed, which documents (other than those
incorporated or deemed to be incorporated by reference) will be subject to the
review of the Investor and Investor Counsel. The Company shall reflect in each
such document when so filed with the Commission such comments as the Investor
may reasonably and promptly propose.

 

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(b) (i) Subject to Section 6.1(d), prepare and file with the Commission such
amendments, including post-effective amendments, to each Registration Statement
and the Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective, as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
during the Effectiveness Period any additional Registration Statements, only to
the extent necessary to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424; (iii) respond as promptly as
reasonably possible, and in any event within 12 Trading Days (except to the
extent that the Company reasonably requires additional time to respond to
accounting comments), to any comments received from the Commission with respect
to the Registration Statement or any amendment thereto and as promptly as
reasonably possible provide Investor Counsel with true and complete copies of
all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Investor thereof set forth in the Registration Statement as so amended or in
such Prospectus as so supplemented.

 

(c) Notify Investor Counsel as promptly as reasonably practicable, and no later
than two Trading Days thereafter, of any of the following events: (i) the
Commission notifies the Company whether there will be a “review” of any
Registration Statement; (ii) the Commission comments in writing on any
Registration Statement (in which case the Company shall deliver to Investor
Counsel a copy of such comments and of all written responses thereto); (iii) the
Registration Statement or any post-effective amendment is declared effective;
(iv) the Commission or any other federal or state governmental authority
requests any amendment or supplement to any Registration Statement or Prospectus
or requests additional information related thereto; (v) the Commission issues
any stop order suspending the effectiveness of any Registration Statement or
initiates any Proceedings for that purpose; (vi) the Company receives notice of
any suspension of the qualification or exemption from qualification of any
Registrable Securities for sale in any jurisdiction, or the initiation or threat
of any Proceeding for such purpose; or (vii) the financial statements included
in any Registration Statement become ineligible for inclusion therein or any
statement made in any Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference is untrue in any
material respect or any revision to a Registration Statement, Prospectus or
other document is required so that it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

 

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(d) Use its reasonable best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of any
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, as soon as possible.

 

(e) Upon request, provide the Investor and Investor Counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, and all exhibits to the
extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.

 

(f) Promptly deliver to the Investor and Investor Counsel, without charge, as
many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by the Investor in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto to the extent permitted by federal and state
securities laws and regulations.

 

(g) (i) In the time and manner required by each Trading Market, prepare and file
with such Trading Market an additional shares listing application covering all
of the Registrable Securities; (ii) take all steps necessary to cause such
Registrable Securities to be approved for listing on each Trading Market as soon
as possible thereafter; (iii) provide to Investor Counsel evidence of such
listing; and (iv) during the Effectiveness Period, maintain the listing of such
Registrable Securities on each such Trading Market or another Eligible Market.

 

(h) Prior to any public offering of Registrable Securities, use its reasonable
best efforts to register or qualify or cooperate with the Investor and Investor
Counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as the Investor requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective for so long as
required, but not to exceed the duration of the Effectiveness Period, and to do
any and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.

 

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(i) If requested by the Investor, as promptly as reasonably practicable
incorporate in the Registration Statement such appropriate information as the
Investor may reasonably request to have included therein by filing a Form 8-K,
or filing a supplement to the Prospectus, to reflect any change in the
information regarding the holder of the Registrable Securities or the Investor’s
plan of distribution, provided, that all filings made in connection with such
requests shall be made at the Investor’s expense.

 

(j) Cooperate with the Investor to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to the Registration Statement, which certificates shall be
free, to the extent permitted by this Agreement and under law, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as the Investor may reasonably
request.

 

(k) Upon the occurrence of any event described in Section 6.2(c)(vii), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

 

(l) Cooperate with any reasonable due diligence investigation undertaken by the
Investor in connection with the sale of Registrable Securities, including,
without limitation, by making available documents and information.

 

(m) Comply with all rules and regulations of the Commission applicable to the
registration of the Securities.

 

6.3 Registration Expenses. The Company shall pay all fees and expenses incident
to the performance of or compliance with Article VI of this Agreement by the
Company, including without limitation (a) all registration and filing fees and
expenses, including without limitation those related to filings with the
Commission, any Trading Market and in connection with applicable state
securities or Blue Sky laws, (b) printing expenses (including without limitation
expenses of printing certificates for Registrable Securities), (c) messenger,
telephone and delivery expenses, (d) fees and disbursements of counsel for the
Company, (e) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement and (f) all listing fees to be paid by the Company to the Trading
Market.

 

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6.4 Indemnification.

 

(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless the Investor, its
officers, directors, partners, members, agents and employees, each Person who
controls the Investor (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, partners, members,
agents and employees of each such controlling Person, to the fullest extent
permitted by applicable law, from and against any and all Losses arising out of
or based on (i) any breach of any representation or warranty made by the Company
in this Agreement or any other certificate, instrument or document delivered in
connection with this Agreement, (ii) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or any other certificate,
instrument or document delivered in connection with this Agreement or (iii) any
untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectus or related preliminary prospectus or in
any amendment or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except (x) to the extent, but only to the extent, that
any such untrue statement, alleged untrue statement, omission or alleged
omission was contained in or based upon information furnished in writing to the
Company by or on behalf of the Investor for use therein, or to the extent that
such information relates to the Investor or the Investor’s proposed method of
distribution of Registrable Securities, or (y) in the case of an occurrence of
an event of the type specified in Section 6.2(c)(v)-(vii), such Loss results
from the use by the Investor of an outdated or defective Prospectus after the
Company has notified the Investor in writing that the Prospectus is outdated or
defective and prior to the receipt by the Investor of the Advice contemplated in
Section 6.5. The indemnification obligations of the Company pursuant to
subsections 6.4(a)(i) and 6.4(a)(ii) shall terminate upon the first anniversary
of the Closing Date. In addition, the Company shall not be liable to reimburse
the Investor pursuant to subsection 6.4(a)(i) or 6.4(a)(ii) unless the aggregate
amount of Losses incurred by the Investor with respect to all such breaches of
representations, warranties, covenants, agreements or obligations by the Company
exceeds $375,000 and, provided that, the Company’s maximum aggregate
indemnification obligations pursuant to subsection 6.4(a)(i) or 6.4(a)(ii) will
be limited to the amount of the purchase price paid by the Investor for the
Securities pursuant to Section 2.2(b). Notwithstanding the foregoing,
indemnification from and against Losses arising out of or based on a preliminary
prospectus pursuant to subsection 6.4(a)(iii) shall be available only in the
case of the Investor’s participation in a piggyback registration contemplated by
Section 6.7 in which a preliminary prospectus is approved and authorized by the
Company for use in connection with the sale, pursuant to such piggyback
registration, of the Securities.

 

(b) Indemnification by Investor. The Investor shall indemnify and hold harmless
the Company, its directors, officers, agents and employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by

 

24

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applicable law, from and against all Losses arising out of or based on (i) any
breach of any representation or warranty made by the Investor in this Agreement
or any other certificate, instrument or document delivered in connection with
this Agreement, (ii) any breach of any covenant, agreement or obligation of the
Investor contained in this Agreement or any other certificate, instrument or
document delivered in connection with this Agreement or (iii) any untrue or
alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or related preliminary prospectus or in any amendment
or supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading to the extent, but only to the extent, that (x) any such untrue or
alleged untrue statement or omission or alleged omission was contained in or
based upon information furnished in writing by or on behalf of the Investor to
the Company specifically for inclusion in such Registration Statement or such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
or to the extent that such information relates to the Investor or the Investor’s
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved by the Investor expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (y) in the case of an occurrence of an event of the type
specified in Section 6.2(c)(v)-(vii), such Loss results from the use by the
Investor of an outdated or defective Prospectus after the Company has notified
the Investor in writing that the Prospectus is outdated or defective and prior
to the receipt by the Investor of the Advice contemplated in Section 6.5. In no
event shall the liability of the Investor hereunder be greater in amount than
the dollar amount of the proceeds received by the Investor upon the sale of the
Registrable Securities giving rise to such indemnification obligation. The
indemnification obligations of the Investor pursuant to subsections 6.4(b)(i)
and 6.4(b)(ii) shall terminate upon the first anniversary of the Closing Date.
In addition, the Investor shall not be liable to reimburse the Company pursuant
to subsection 6.4(b)(i) or 6.4(b)(ii) unless the aggregate amount of Losses
incurred by the Company with respect to all such breaches of representations,
warranties, covenants, agreements or obligations by the Investor exceeds
$375,000 and, provided that, the Investor’s maximum aggregate indemnification
obligations pursuant to subsection 6.4(b)(i) or 6.4(b)(ii) will be limited to
the amount of the purchase price paid by the Investor for the Securities
pursuant to Section 2.2(b). Notwithstanding the foregoing, indemnification from
and against Losses arising out of or based on a preliminary prospectus pursuant
to subsection 6.4(b)(iii) shall be available only in the case of the Investor’s
participation in a piggyback registration contemplated by Section 6.7 in which a
preliminary prospectus is approved and authorized by the Company for use in
connection with the sale, pursuant to such piggyback registration, of the
Securities.

 

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought
or asserted against any Person entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person from whom
indemnity is sought (the “Indemnifying Party”) in writing, and the

 

25

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Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (i) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (ii) the Indemnifying Party shall have failed promptly to assume
the defense of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (iii) the named parties to any
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Indemnifying Party). It
is understood, however, that the Indemnifying Party shall not, in connection
with any one such Proceeding be liable for the fees and expenses of more than
one separate firm of attorneys at any time for all Indemnified Parties, which
firm shall be appointed by a majority of the Indemnified Parties; provided,
however, that in the case a single firm of attorneys would be inappropriate due
to actual or potential differing interests or conflicts between such Indemnified
Parties and any other party represented by such counsel in such Proceeding or
otherwise, then the Indemnifying Party shall be liable for the fees and expenses
of one additional firm of attorneys with respect to such Indemnified Parties.
The Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability for claims that are the subject matter of such Proceeding.

 

(d) Contribution. If a claim for indemnification under Section 6.4(a) or 6.4(b)
is unavailable to an Indemnified Party or is otherwise insufficient to hold
harmless an Indemnified Party (by reason of public policy or otherwise), then
each Indemnifying Party, in lieu of indemnifying the Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of

 

26

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such Losses, in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying Party
or Indemnified Party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 6.4(c),
any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6.4(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.4(d), the Investor shall be not
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by the Investor from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that the Investor has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that an Indemnifying Party may have to an Indemnified
Party.

 

6.5 Dispositions. The Investor agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to the Registration Statement. The
Investor further agrees that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Sections 6.2(c)(v)-(vii), the
Investor will discontinue disposition of such Registrable Securities under the
Registration Statement until the Investor’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 6.2(k), or until it is advised in writing (the “Advice”) by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.

 

27

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6.6 No Piggyback on Registrations. Neither the Company nor any of its security
holders (other than the Investor in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.

 

6.7 Piggyback Registrations. If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to the Investor written notice of
such determination and if, within ten days after receipt of such notice, the
Investor shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities the
Investor requests to be registered.

 

ARTICLE VII

MISCELLANEOUS

 

7.1 Termination. This Agreement may be terminated by the Company or the
Investor, by written notice to the other party, if the Closing has not been
consummated by the third Business Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party.

 

7.2 Fees and Expenses. Each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
sale and issuance of the Securities.

 

7.3 Entire Agreement. This Agreement, together with the Exhibit and Schedules
hereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules. At or after the
Closing, and without further consideration, the Company will execute and deliver
to the Investor such further documents as may be reasonably requested in order
to give practical effect to the intention of the parties under this Agreement.

 

7.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York time) on a Trading Day,
(b) the next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York time) on any

 

28

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Trading Day, (c) the Trading Day following the date of deposit with a nationally
recognized overnight courier service and (d) the date of actual receipt by the
party to whom such notice is required to be given. The addresses and facsimile
numbers for such notices and communications are those set forth on the signature
pages hereof, or such other address or facsimile number as may be designated in
writing hereafter, in the same manner, by any such Person.

 

7.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and the Investor or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to rights under Article VI may be given by holders of least
a majority of the Registrable Securities to which such waiver or consent
relates.

 

7.6 Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 

7.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investor. The Investor may assign its
rights under this Agreement to any Person to whom the Investor assigns or
transfers any Securities in accordance with the provisions of Article IV of this
Agreement, provided such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions hereof that apply to the
“Investor.” Notwithstanding anything to the contrary herein, Securities may be
hypothecated, pledged or transferred to any Person in connection with a bona
fide loan or other financing arrangement entered into by the Investor in the
ordinary course of its business in accordance with the provisions of Section
4.1(e) and secured by such Securities.

 

7.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except that each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Sections directly against the parties with obligations thereunder.

 

7.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

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7.10 Survival. The representations and warranties, agreements and covenants
contained herein shall survive the Closing, provided that the representations
and warranties contained herein shall terminate on the second anniversary of the
Closing Date.

 

7.11 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

 

7.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

 

7.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) this Agreement,
whenever the Investor exercises a right, election, demand or option owed to the
Investor by the Company under this Agreement and the Company does not timely
perform its related obligations within the periods therein provided, then, prior
to the performance by the Company of the Company’s related obligation, the
Investor may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

 

7.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and the execution by the holder
thereof of a customary lost certificate affidavit of that fact and an agreement
to indemnify and hold harmless the Company for any losses in connection
therewith. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.

 

7.15 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investor
and the Company will be entitled to seek specific performance under this
Agreement. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation (other than in connection with any
action for temporary restraining order) the defense that a remedy at law would
be adequate.

 

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7.16 Adjustments in Share Numbers and Prices. In the event of any stock split,
subdivision, dividend or distribution payable in shares of Common Stock (or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in this Agreement or any other certificate, instrument or document
delivered in connection with this Agreement to a number of shares or a price per
share shall be amended to appropriately account for such event.

 

[SIGNATURE PAGES FOLLOW]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.

 

DRUGSTORE.COM, INC.

By:

 

/s/ Robert Barton

--------------------------------------------------------------------------------

Name:

  Robert Barton

Title:

  CFO

Address for Notice:

13920 Southeast Eastgate Way, Suite 300

Bellvue, Washington 98005

Facsimile No.: (425) 372-3801

Telephone No.: (425) 372-3200

Attn: General Counsel

With a copy to:

Simpson Thacher & Bartlett, LLP

3330 Hillview Avenue

Palo Alto, California 94304

Facsimile No.: (650) 251-5002

Telephone No.: (650) 251-5120

Attn: William H. Hinman, Esq.

 

ZIFF ASSET MANAGEMENT, L.P.

By:   PBK Holdings, Inc., its general partner By:  

/s/ David Gray

--------------------------------------------------------------------------------

Name:   David G. Gray, Esq. Title:   Vice-President

 

Address for Notice:

 

c/o Ziff Brothers Investments, L.L.C.

153 E. 53rd Street

43rd Floor

New York, New York 10022

Facsimile No.: 212-292-6381

Attn: General Counsel

 

and

 

c/o Ziff Brothers Investments, L.L.C.

153 E. 53rd Street

43rd Floor

New York, New York 10022

Facsimile No.: 212-292-6540

Attn: Ian McKinnon

--------------------------------------------------------------------------------

With a copy to:

 

Fried, Frank, Harris, Shriver & Jacobson LLP

One New York Plaza

New York, New York 10004-1980

Facsimile No.: (212) 859-4000

Telephone No.: (212) 859-8000

Attn: John M. Bibona, Esq.