As filed with the Securities and Exchange Commission on July 2, 1998
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VALUE AMERICA, INC.
(Exact name of registrant as specified in its charter)
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Virginia 5999 33-0712568
<S> <C> <C>
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Code Number) Identification Number)
</TABLE>
Value America, Inc.
2300 Commonwealth Drive
Charlottesville, Virginia 22901
(804) 817-7700
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
---------------
Dean M. Johnson
Executive Vice President and Chief Financial Officer
Value America, Inc.
2300 Commonwealth Drive
Charlottesville, Virginia 22901
(804) 817-7700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of communications to:
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J. BENJAMIN ENGLISH, Esq. MARK L. JOHNSON, Esq.
LeClair Ryan, A Professional Corporation Foley Hoag & Eliot LLP
707 East Main Street, Suite 1100 One Post Office Square
Richmond, Virginia 23219 Boston, Massachusetts 02109
(804) 783-2003 (617) 832-1000
</TABLE>
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Approximate date of proposed sale to the public: As soon as practicable on or
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] -----------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] -----------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] -----------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Aggregate Amount of
Title of Each Class of Securities to be Registered Offering Price(1) Registration Fee
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Common Stock, without par value .................... $86,250,000 $25,444
</TABLE>
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(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the amount of the
registration fee.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JULY 2, 1998
[LOGO OF VALUE AMERICA]
Shares
Common Stock
---------------
All of the shares of Common Stock offered hereby are being sold by Value
America, Inc. ("Value America" or the "Company"). Prior to this offering, there
has been no public market for the Common Stock of the Company. See
"Underwriting" for information relating to the method of determining the
initial public offering price. It is currently estimated that the initial
public offering price will be between $ and $ per share. Application has
been made to have the Common Stock approved for quotation on the Nasdaq
National Market under the proposed symbol "VUSA."
---------------
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors" beginning on page 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting
Price to Discounts and Proceeds to
Public Commissions Company(1)
<S> <C> <C> <C>
Per Share ......... $ $ $
Total (2) ......... $ $ $
</TABLE>
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(1) Before deducting expenses of the offering payable by the Company, estimated
at $750,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional shares of Common Stock solely to cover over-allotments,
if any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
Company will be $ , $ and $ , respectively.
---------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any
order in whole or in part. It is expected that delivery of such shares will be
made through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BancAmerica Robertson Stephens Volpe Brown Whelan & Company
The date of this Prospectus is , 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET FOR THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
[Two-page presentation combining text, photographs and drawings under heading
containing Value America logo, with the slogan "The Marketplace for a New
Millennium"]
Value America delivers what customers want most. Quality products: from
over 500 trusted brands. Selection: thousands of choices from technology to
office products, from consumer electronics to jewelry. Value: Internet
technologies enable Value America to sell the best for less. Service: a virtual
"Personal Shopper" makes shopping fast and easy. Convenience: Value America's
store is in your home and on your desk. Information: interactive multimedia
presentations communicate each product's features and benefits.
Shopping Smarter
Value America is a fast, easy and smart way to shop. Multimedia product
presentations help customers make better buying decisions. [Photograph
depicting individuals using computer]
50 Million Locations. There's One Near You.
Value America can be reached from any Internet-enabled computer at
ValueAmerica.com. Customers can shop from their homes or offices, 24 hours a
day, 7 days a week. [Simulation of screen from Value America Web site]
Benefits of Membership
Everyone is welcome, but members enjoy special privileges, starting with
lower prices. A "Personal Shopper" keeps track of receipts, warranties, related
products, important dates and discounts, and he makes checkout faster and
easier. [Simulation of screen from Value America Web site]
Brand Loyalty
Over 500 brands are represented on the Value America Web site. The store
even allows customers to shop in exclusive departments by brand. [Simulation of
screen from Value America Web site]
Have It Your Way
How many retailers are willing to rearrange their entire store for each
shopper? Value America does. Customers can shop by product category, product
type, brand name, what's new or what's on sale. [Drawing depicting globe in
box]
Interactivity
Value America is not a collection of static catalog Web pages. Everything
is dynamically pulled together for each individual customer from a database
using the company's proprietary authoring and administration software.
[Simulation of screen from Value America Web site]
Be Choosey. Be Picky. Be Selective.
Value America is a factory authorized reseller for many brands offered on
its Web site. Broad product assortment means that customers can make the right
choice, because they actually have a choice! [Simulation of screen from Value
America Web site]
Reasons To Buy
Value America's multimedia product presentations are more than lists of
features or technical specifications. They provide insights into the products'
features, benefits, applications and use. They are factual, product-focused,
informative and entertaining. [Simulation of screen from Value America Web
site]
Multi-media Shopping
Product presentations are researched and written by Value America's
marketing team. They include copy, photographs and illustrations. Many include
blind-launched audio streams. Some even contain a video demonstration, streamed
in real time. [Photograph of television, with caption "Projection Television"]
<PAGE>
Product Purchasing Information
Each presentation ends with a list of the products, along with their
specifications, features, price and options, as well as a close-up photo of
each item. It's easy to make one-on-one comparisons. The store helps shoppers
make intelligent, informed decisions about their purchases. The result is fewer
returns and more loyal customers. [Simulation of screen from Value America Web
site]
Our First Name Is Value
Value America's customers enjoy the benefits of the Company's low overhead
and aggressive pricing. [Drawing of coins]
Buying Is Easy
The "Personal Shopper" holds customers' selections until they are ready to
check out. He remembers a member's favorite shipping and billing addresses, as
well as most of their credit card information. This data remains encrypted and
behind firewalls to maximize security. [Drawing of genie]
[Drawing of butterfly]
<PAGE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
the date hereof.
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
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TABLE OF CONTENTS
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Page
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Summary .............................................................................. 4
Risk Factors ......................................................................... 7
Use of Proceeds ...................................................................... 17
Dividend Policy ...................................................................... 17
Capitalization ....................................................................... 18
Dilution ............................................................................. 19
Selected Financial Data .............................................................. 20
Management's Discussion and Analysis of Financial Condition and Results of Operations 21
Business ............................................................................. 26
Management ........................................................................... 38
Certain Transactions ................................................................. 45
Principal Stockholders ............................................................... 46
Description of Capital Stock ......................................................... 47
Shares Eligible for Future Sale ...................................................... 51
Underwriting ......................................................................... 52
Legal Matters ........................................................................ 54
Experts .............................................................................. 54
Additional Information ............................................................... 54
Index to Financial Statements ........................................................ F-1
</TABLE>
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Value America is a registered service mark of the Company. This Prospectus
also includes service marks, trademarks and trade names of companies other than
the Company.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and to make available quarterly reports
containing unaudited summary financial information for the first three quarters
of each fiscal year.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, including "Risk Factors"
and the Financial Statements and Notes thereto, appearing elsewhere in this
Prospectus. This Prospectus contains forward-looking statements based upon
current expectations that involve risks and uncertainties. The Company's actual
results and timing of certain events could differ materially from the results
discussed in the forward-looking statements. Factors that could cause or
contribute such a difference include those set forth under "Risk Factors," as
well as those discussed elsewhere in this Prospectus.
The Company
Value America is an Internet-based destination retailer that offers a wide
selection of technology, office and consumer products for sale at its Internet
site, www.valueamerica.com. The products offered for sale in the Company's
online store are branded goods from national and international manufacturers
such as Hewlett-Packard and IBM. These products are presented to customers
utilizing information-rich multi-media product presentations designed to take
advantage of the online selling environment. The Company's online store has
been created to provide consumers with product information, shopping
convenience and value on brand name products, and to offer manufacturers the
ability to communicate effectively the features and benefits of their products.
The Company generates revenues primarily from the sale of branded products.
Customers visit the Company's online store as a result of direct response
marketing and co-operative advertising programs in which brand name
manufacturers share in the cost of advertising. The Company also receives
revenue from manufacturers for the creation of product presentations shown on
the Value America online store.
In recent years, a number of companies have developed new business models
that have significantly altered the competitive environment in the retailing
industry. Superstore retailers such as Circuit City and Staples seek to attract
customers by emphasizing very broad selections of a few related categories of
merchandise. Volume discount retailers such as Sam's Wholesale Club and
Price/Costco generally seek to attract customers by de-emphasizing traditional
retail concepts such as personalized customer service and breadth of
merchandise in order to sell fewer products at substantial discounts. In order
to remain competitive, many traditional retailers have responded by lowering
prices and seeking to lower costs, in part by offering lower quality
merchandise and employing fewer, less experienced customer service and sales
employees.
The market for electronic commerce is large and growing. One industry
source estimates that the total value of goods and services purchased over the
Internet reached $12.4 billion in 1997 and projects the market may grow to $425
billion by 2002. The sale of technology, office and consumer products has begun
to generate significant online revenues for segment-specific retailers such as
Dell Computer, Office Depot and Amazon.com. The Company believes that this
rapid growth in electronic commerce is being driven in large part by the unique
nature of the Internet, which gives online retailers such as Value America the
ability to provide their customers (i) high quality goods at lower prices, (ii)
convenient in-home or in-office access 24-hours-a-day, 365-days-a-year, (iii)
increased product selection and (iv) access to detailed information about
product features, functions, benefits and applications. Unlike traditional
retailers, online retailers are not limited by the constraints of real estate
selection, store construction or shelf space, and they can react quickly and
cost-effectively to change product descriptions, pricing and mix.
The Company has developed and continues to expand relationships with
manufacturers and distributors of branded technology, office and consumer
products. The Company has formed relationships with manufacturers of more than
200 technology and office products brands, including (i) technology
manufacturers such as Compaq, Hewlett-Packard, IBM and Toshiba, (ii) computer
peripheral manufacturers such as Brother, Canon, Epson, Iomega and US Robotics,
and (iii) office products suppliers such as 3M, Avery, Pitney-Bowes and Texas
Instruments. In order to expand its line of products and to leverage its
current customer base, the Company has also integrated more than 300 consumer
product brands into its online store, including Amana, Braun, Delta, Hoover,
Kodak, Norelco, Philips/Magnavox, Polaroid, Sharp and Singer.
The Company has created an integrated technology platform to support its
online store. The Company believes that its software and system architecture
has been designed to accommodate peak transaction loads and that it will "scale
up" efficiently as transaction volume on the Company's online store increases.
The Company has also devised a proprietary Web-based authoring tool that
enables the Company's marketing department to effectively integrate copy,
graphics, pictures, and audio and video streaming into the Company's product
presentations with a minimal amount of technology expertise.
The Company's objective is to create the leading online destination store
that offers consumers, businesses, educational institutions and government
agencies access to, and information about, a wide variety of products from
brand name manufacturers. In order to achieve this objective, the Company is
(i) initially emphasizing the sale of business technology and office products,
(ii) moving rapidly into the business-to-consumer market, (iii) expanding
relationships with leading brand name manufacturers,
4
<PAGE>
(iv) continuing to enhance its customers' online shopping experience and (v)
developing and expanding direct response marketing campaigns and strategic
partnerships.
The Company was incorporated in March 1996 in the State of Nevada and was
reincorporated in October 1997 in the Commonwealth of Virginia. Its principal
executive offices are located at 2300 Commonwealth Drive, Charlottesville,
Virginia 22901, and its telephone number is (804) 817-7700.
The Offering
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Common Stock Offered by the Company ................... shares
Common Stock to be Outstanding after the Offering ..... shares(1)
Use of Proceeds ....................................... For working capital and other general
corporate purposes, including marketing
and advertising, development of system
enhancements, and expansion of
facilities. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol ................ VUSA
</TABLE>
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(1) Based on shares outstanding as of June 30, 1998. Includes 4,737,162 shares
of common stock, without par value (the "Common Stock"), to be issued upon
conversion of the Company's Series A Preferred Stock, without par value
(the "Series A Stock"), and Series B Preferred Stock, without par value
(the "Series B Stock"), concurrently with the closing of the offering made
hereby (based on the respective conversion rates of the Series A Stock and
the Series B Stock as of June 30, 1998). Excludes as of June 30, 1998 (i)
3,287,625 shares of Common Stock issuable upon exercise of stock options
outstanding under the Company's 1997 Stock Incentive Plan (the "Incentive
Plan"); (ii) 462,375 shares of Common Stock reserved for grants of future
options pursuant to the Incentive Plan; and (iii) 213,750 shares of Common
Stock issuable upon exercises of outstanding warrants. See "Management --
Incentive Plan," "Certain Transactions" and "Description of Capital Stock
-- Warrants."
5
<PAGE>
Summary Financial Data
(in thousands, except per share amounts)
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Period from
Inception Three Months Ended
(March 13, 1996) March 31,
Through Year Ended -----------------------
December 31, 1996 December 31, 1997 1997 1998
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Statement of Operations Data:
Total revenues ................................................. $ -- $ 134 $ -- $ 2,192
Total cost of revenues ......................................... (97) (486) (29) (2,392)
Gross profit (loss) ............................................ (97) (352) (29) (200)
Total operating expenses ....................................... (331) (1,519) (118) (3,438)
Operating income (loss) ........................................ (428) (1,871) (147) (3,638)
Other income ................................................... 3 18 -- 99
Net loss ....................................................... (425) (1,853) (147) (3,539)
Net loss per share -- basic and diluted ........................ $ (0.02) $ (0.09) $ (0.01) $ (0.20)
Weighted average number of shares -- basic and diluted ......... 22,500 22,616 22,500 23,153
</TABLE>
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March 31, 1998
----------------------------------------------
Pro Forma
Actual Pro Forma(1) as Adjusted(2)
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Balance Sheet Data:
Cash and cash equivalents ...................... $ 6,944 $24,548
Working capital ................................ 5,993 23,597
Total assets ................................... 10,083 27,687
Long-term debt ................................. 50 50
Mandatorily redeemable preferred stock ......... 10,481 --
Total stockholders' (deficit) equity ........... (5,663) 22,422
</TABLE>
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(1) Gives effect, as of March 31, 1998, to the issuance and sale by the Company
of 617,979 shares of Series B Stock, which was completed as of June 26,
1998, and the conversion of all outstanding shares of the Series A Stock
and the Series B Stock into an aggregate of 4,737,162 shares of Common
Stock (based on the respective conversion rates of the Series A Stock and
the Series B Stock as of June 30, 1998) upon the closing of this offering.
See "Capitalization" and Notes 5 and 12 of Notes to Financial Statements.
(2) Adjusted to give effect to the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company, and the application of the net
proceeds thereof. See "Use of Proceeds," "Capitalization" and Notes 5 and
12 of Notes to Financial Statements.
Except as otherwise noted, all information in this Prospectus (i) gives
effect to the conversion of all of the outstanding shares of Series A Stock and
Series B Stock into an aggregate of 4,737,162 shares of Common Stock
concurrently with the closing of this offering (based on the respective
conversion rates of the Series A Stock and the Series B Stock as of June 30,
1998), (ii) gives effect to a 3-for-1 split of the Common Stock effected as of
July 1, 1998, and (iii) assumes no exercise of the Underwriters' over-allotment
option. See "Description of Capital Stock" and "Underwriting."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing shares of the Common Stock offered
hereby. This Prospectus contains forward-looking statements based upon current
expectations that involve risks and uncertainties. The Company's actual results
and timing of certain events may differ significantly from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include those set forth below and elsewhere in
this Prospectus.
Limited Operating History
Although the Company was incorporated in March 1996, the Company did not
commence operations until January 1997 and did not advertise the Value America
online store until late January 1998. Accordingly, the Company has a limited
operating history upon which to base an evaluation of the Company and its
business and prospects. The Company's business and prospects must be considered
in light of the risks, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets, such as the market for online retailing and
electronic commerce. To address these risks, the Company must, among other
things, continue to develop and extend relationships with manufacturers for
merchandise, implement and successfully execute an evolving and unproven
business model, establish and upgrade internal accounting systems and controls,
manage growth, continue to develop its technological platform, continue to
develop and upgrade its transaction processing systems, continue to improve its
Internet site, anticipate and adapt to a developing market, develop online
service offerings that are equal or superior to those of the Company's
competitors, provide customer support and service, and identify, attract,
retain and motivate qualified personnel. There can be no assurance that the
Company will be successful in addressing such risks, and the failure to do so
could have a material adverse effect on the Company's business, financial
condition and results of operations. Due to the Company's limited operating
history, investors should not rely upon the Company's historical results of
operations as an indication of future performance. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview."
Historical and Anticipated Losses; Uncertain Availability of Additional Funding
To date, the Company has incurred significant start-up and other expenses,
including the costs of additional personnel and equipment, developing its
technology, and commencing sales and marketing efforts. These expenses have
resulted in substantial losses. For the year ended December 31, 1997 and the
three months ended March 31, 1998, the Company incurred net losses of $1.9
million and $3.5 million, respectively, and as of March 31, 1998, the Company
had an accumulated deficit of $7.2 million. In order to succeed, the Company
believes that it must rapidly establish name recognition and a reputation for
value, and dramatically increase customer traffic through, and purchases from,
the Value America online store. The Company intends to invest extensively in
marketing, advertising and promotion, increase the number of its employees, and
fund the development of its technology and operating infrastructure. As a
result, the Company expects that it will continue to incur substantial
operating losses for the foreseeable future. Because the Company has relatively
low product gross margins, its ability to achieve profitability depends upon
its ability to generate and sustain substantially increased revenue levels. The
Company believes that one or more substantial additional equity or debt
financings may be required to fund its operations. There can be no assurance
that the Company will be able to consummate any such financing on favorable
terms, if at all. Similarly, there can be no assurance that such financings, if
any, will be adequate to meet the Company's capital requirements. Any
additional equity financing could result in substantial dilution to the
Company's stockholders, and any debt financing may be costly and could involve
restrictive covenants that preclude the Company from making distributions to
stockholders and taking other actions beneficial to stockholders. The failure
of the Company's marketing and promotion campaign and other activities to
generate substantially increased revenues, and the Company's inability to
obtain needed capital, would have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, although
the Company has experienced revenue growth in recent periods, there can be no
assurance that the Company's revenues will continue to increase or even
continue at their current levels. See "Use of Proceeds," "Dilution," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
Early Stage of Development
The Company's early stage of development and rapid growth have placed, and
are expected to continue to place, a significant strain on the Company's
managerial, operational and financial resources. From January 1, 1998 to June
30, 1998, the number of the Company's full-time equivalent employees increased
from 30 to 133. The Company is still in the process of implementing its
business model of offering for sale on the Internet a broad selection of brand
name merchandise that is shipped directly to the customer. Although the
Company's business model depends upon the direct sale of merchandise
7
<PAGE>
through the Company's online store, to date a significant portion of the
Company's revenues has been derived from telephone orders generated by
advertisements in the print media of particular high profile or heavily
discounted products. These telephone orders have been processed by employees in
the Company's call center. The failure of the Company's marketing and promotion
campaign to generate dramatic increases in customer traffic through the
Company's online store and sustained levels of product purchases will have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Order Fulfillment."
The Company's business model also depends upon the Company's ability to
offer a complete selection of brand name products in a broad variety of product
categories. Many of the Company's product categories do not yet provide a broad
product selection, and there can be no assurance that the Company will be able
to establish vendor relationships that will enable it to achieve the breadth of
product offerings necessary for the Company to succeed. Moreover, there can be
no assurance that customers will be satisfied with the Company's current or
future product offerings. The failure of the Company to offer a satisfactory
product selection could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's success
will also depend upon its ability to upgrade and maintain its current systems
and automate certain types of business transactions. The Company's agreements
with its product vendors generally require the Company to place product orders
through electronic data interchange ("EDI"). Since February 1998, the Company
has installed and tested software capable of placing orders through EDI,
electronic mail and automated facsimile transmission. Beginning in May 1998,
the Company has placed orders with vendors through parallel EDI transmissions
as well as facsimile transmissions. The Company has established EDI connections
with 11 of its most significant product vendors; however, these vendors are
continuing to rely upon facsimile receipts for all product purchase orders.
Other vendors have yet to be integrated onto the Company's EDI platform or have
been unable or unwilling to establish EDI connections with merchants such as
the Company. To date, the number of customer purchases has not exceeded the
Company's capacity to place orders in a timely manner. In light of the
Company's planned operations, the failure or inability of the Company to
establish and utilize reliable EDI-only connections with its product vendors
could cause delays in product ordering, shipping confirmations and fulfillment,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Order Fulfillment."
In addition, the Company believes that, to the extent that the number of
product orders increases, the Company will need to establish more efficient or
automated systems to, among other things, track shipments of products from
vendors to customers, provide customer assistance and handle product returns.
To date, the Company has not had a material number of product returns and has
been able to respond to customers' efforts to return products on a case-by-case
basis. The failure of the Company to establish and maintain adequate systems
and hire sufficient personnel to provide these vital functions would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Systems Infrastructure, Technology and
Security" and " -- Customer Service."
Weaknesses in Certain Financial and Accounting Controls
In connection with their audit of the Company's financial statements for
the year ended December 31, 1997 and the three months ended March 31, 1998, the
Company's independent accountants advised the Company of certain weaknesses in
the Company's financial and accounting controls. These weaknesses include
matters relating to the Company's inability to determine product shipment dates
and order statuses on a timely basis. The Company's inability to make these
determinations on a timely basis may make it difficult for the Company to
produce accurate financial reports on a timely basis. As a result, the
Company's independent accountants determined these matters constitute a
"reportable condition," which the American Institute of Certified Public
Accountants defines to be matters involving significant deficiencies in the
design or operation of the internal control structure that could adversely
affect a company's ability to record, process, summarize and report financial
data consistent with the assertions of management in such company's financial
statements.
Section 13 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company to devise and maintain a system of
internal accounting controls that meets certain specified minimum requirements.
The Company is making significant investments in its order fulfillment and
accounting systems that the Company believes address the reportable condition
and will enable the Company to fulfill its obligations under Section 13 of the
Exchange Act; however, there can be no assurance that these investments will be
adequate to alleviate the reportable condition. Furthermore, the Company
believes that additional improvements in the Company's financial and management
controls, reporting systems and procedures are needed, and will continue to be
needed, to manage any future growth. The failure to implement or the inadequacy
of such controls, systems and procedures, or a subsequent failure by the
Company to maintain and adhere to existing controls, systems and procedures,
would have a material adverse effect on the Company's business, financial
condition and results of operations. The failure to comply with the Company's
obligations under Section 13 of the Exchange Act could cause the
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Securities and Exchange Commission (the "SEC") to seek to deregister the Common
Stock under the Exchange Act and result in a suspension of trading in the
Common Stock.
Unpredictability of Future Revenues; Potential Fluctuations in Quarterly
Results
As a result of the Company's limited operating history and the emerging
nature of the market in which it competes, the Company is unable to forecast
its revenues accurately. The Company's results of operations include only a
single financial quarter in which the Company operated its online store in
substantially the manner in which it proposes to conduct its future operations.
The Company's current and future expense levels are based largely on its
investment plans and estimates of future revenues and are to a large extent
fixed. Sales and operating results generally depend on the volume of, timing of
and ability to fulfill orders received, which are difficult to forecast. The
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues in relation to the Company's planned expenditures would have an
immediate adverse affect on the Company's business, financial condition and
results of operations. Further, in response to changes in the competitive
environment, the Company may from time to time make certain pricing, service or
marketing decisions that could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Competition."
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include: (i) the Company's ability to attract and
retain customers, maintain customer satisfaction and establish consumer
confidence in conducting transactions on the Internet environment, (ii) the
Company's ability to manage fulfillment operations electronically and to
establish competitive gross margins, (iii) the announcement or introduction of
new Web sites, services and products by the Company and its competitors, (iv)
price competition or higher vendor prices, (v) the level of use and consumer
acceptance of the Internet and other online services for the purchase of
technology, office and consumer products such as those offered by the Company,
(vi) the Company's ability to upgrade and develop its systems and
infrastructure and attract new personnel in a timely and effective manner,
(vii) the level of traffic on the Company's Web site, (viii) technical
difficulties, systems downtime or Internet "brownouts," (ix) the amount and
timing of operating costs and capital expenditures relating to expansion of the
Company's business, operations and infrastructure, (x) delays in revenue
recognition at the end of a fiscal period as a result of shipping or logistical
problems, (xi) the level of merchandise returns experienced by the Company,
(xii) governmental regulation and (xiii) general economic conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Fluctuations in Operating Results."
Capacity Constraints; Reliance on Internally Developed Systems; System
Development Risks
A key element of the Company's strategy is to generate a high volume of
traffic through, and purchases from, the Value America online store.
Accordingly, the availability, reliability and satisfactory performance of the
Company's Internet site, transaction processing systems and network
infrastructure are critical to the Company's reputation and its ability to
attract and retain customers and provide adequate customer service. The
Company's revenues depend on the number of visitors who shop at the Value
America online store and the volume of orders the Company fulfills. Any network
interruptions or system shortcomings that result in the unavailability of the
Company's Internet site or reduced order fulfillment would reduce the volume of
goods sold and the attractiveness of the Company's product and service
offerings. The Company has experienced system interruptions which it believes
may recur from time to time. Such delays or interruptions could negatively
impact a customer's shopping experience and reduce the likelihood that such
customer would return to the Company's online store in the future. Substantial
increases in the volume of traffic on the Company's Internet site or the number
of orders placed by customers through the Company's online store may require
the Company to further expand and upgrade its technology, transaction
processing systems and network infrastructure. There can be no assurance that
the Company will be able to accurately project the rate or timing of increases,
if any, in the use of its Internet site, or to expand and upgrade its systems
and infrastructure to accommodate such increases in a timely manner.
The Company uses an internally developed system for its Internet site,
product presentations, and substantially all aspects of order fulfillment,
including order management, purchasing and shipping. This order fulfillment
system is not yet integrated with the Company's accounting system. To date,
development efforts for the Company's order fulfillment systems have focused
primarily on support for rapid growth of order volume, and less on traditional
accounting, control and reporting aspects of system development. As a result,
the Company's current management information system is less efficient with
respect to traditional accounting-oriented reporting and requires a significant
amount of manual effort to prepare information for financial and accounting
reporting. This may make it difficult for management to produce accurate
financial statements and reporting information on a timely basis. The Company
intends to upgrade and expand its order fulfillment systems and to integrate
newly developed and/or purchased modules with its existing systems in order to
improve its accounting, control
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and reporting methods and to support increased transaction volume. The
Company's inability to add additional software and hardware or to develop and
upgrade further its existing technology, order fulfillment systems or network
infrastructure may cause unanticipated system disruptions, slower response
times, degradation in levels of customer service, impaired quality and speed of
order fulfillment, and delays or inaccuracies in reporting accurate financial
information, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that the Company will be able to upgrade and expand its order
fulfillment systems effectively, or to integrate any newly developed or
purchased modules with its existing systems. Any inability to do so could have
a material adverse effect on the Company's business, financial condition and
results of operations. See " -- Weaknesses in Financial and Accounting
Controls" and "Business -- Systems Infrastructure, Technology and Security."
Dependence on Certain Manufacturers and Other Vendors
The Company is entirely dependent upon manufacturers and distributors to
provide merchandise for sale through the Company's online store. During the
three months ended March 31, 1998, the Company purchased goods from IBM,
Hewlett- Packard and Toshiba that accounted for approximately 56%, 25% and 15%,
respectively, of cost of goods sold. The Company also relies upon its product
vendors to fulfill a number of traditional retail functions, including
maintaining inventory, accepting product returns, and preparing merchandise for
shipment to individual customers. There can be no assurance that vendors of the
products that the Company wishes to offer will agree to perform these tasks on
behalf of the Company or will be willing or able to establish the necessary
communication protocols to support the Company's direct shipment
infrastructure. Moreover, the Company has no effective means, other than
through contractual provisions, to control the extent to which its product
vendors will perform these tasks to the Company's satisfaction. The Company's
product vendors have no obligation to supply products to the Company or to
perform these other tasks and may terminate their relationships with the
Company at any time and without penalty. Because the Company has not
established regular purchasing patterns with a substantial number of its
product vendors, there can be no assurance that any vendor with a limited
inventory would give the Company any priority in the allocation of its
available inventory. The Company may be unable to assess the availability of
inventory prior to the acceptance of an order and the Company may accept orders
which it is unable to fulfill. The Company has entered into long-term
agreements to purchase certain types of office and other products exclusively
from certain vendors. These agreements may preclude the Company from obtaining
such merchandise at the lowest price or on the most favorable terms. The
failure of the Company or its vendors to arrange for the delivery of products
in a timely manner, to accept product returns, to provide good customer service
or to prepare merchandise properly for shipment to customers could cause
customer dissatisfaction and result in the cancellation of orders, either of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The failure of the Company to maintain its
relationships with existing product vendors on acceptable commercial terms, to
establish similar relationships with vendors of products not currently offered
by the Company but demanded by its customers, or to obtain satisfactory
performance from such vendors could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Supplier Relationships."
Dependence on Key Personnel; Need for Additional Qualified Personnel
The Company's performance is substantially dependent on the continued
services and performance of its current senior management and other key
personnel, particularly Craig A. Winn, the Company's Chairman and Chief
Executive Officer, Rex Scatena, the Company's President and President, Consumer
Products Division, and Joseph L. Page, the Company's Executive Vice President
and Chief Technology Officer. The loss of the services of any of these
individuals could have a material adverse effect on the Company's business,
financial condition and results of operations. Certain members of the Company's
senior management have joined the Company only recently, including: Dean M.
Johnson, the Company's Chief Financial Officer, who joined the Company in
November 1997; Mark McCullough, the Company's President, Office Products
Division, who joined the Company in April 1998; Kimberly E. De Jong, the
Company's President, Technology Products Division, who joined the Company in
May 1998; and Jerry K. Goode, the Company's Vice President of Engineering, who
joined the Company in May 1998. In order to achieve its business objectives,
the Company believes that it must hire additional personnel to fill certain key
managerial positions, and must augment its accounting staff. The Company's
future success will depend to a significant degree on the ability of its
current executive officers and other current and future members of senior
management to establish clear lines of responsibility and authority, to work
effectively as a team and to gain the trust and confidence of the Company's
other employees. The Company does not have employment agreements with Messrs.
Winn and Scatena. The Company believes that its future success will also depend
upon its ability to identify, attract, train, motivate and retain other highly
skilled technical, managerial, merchandising, engineering, marketing and
customer service personnel. Competition for such personnel is intense, and
there can be no assurance that the Company will be successful in attracting,
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training, motivating or retaining the necessary personnel, and the failure to
do so could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Employees" and
"Management."
Developing Market; Unproven Acceptance of the Internet as a Medium for Commerce
The Company's long-term viability is substantially dependent upon the
widespread acceptance and use of the Internet as a medium of commerce. The use
of the Internet as a means of effecting retail transactions is in a recent
stage of development, and there can be no assurance that a sufficiently large
number of customers will begin to use the Internet as a medium of commerce.
Demand and market acceptance for recently introduced products and services over
the Internet are subject to a high level of uncertainty and there exist few
proven electronic commerce business models. For the Company to be successful,
consumers and manufacturers that have historically relied upon traditional
means of commerce to purchase and sell merchandise must accept and utilize new
ways of conducting business and exchanging information. The Internet may not
prove to be a viable medium of commerce for certain purposes because of
inadequate development of the necessary infrastructure, such as a reliable
network backbone, or delayed development of enabling technologies, such as high
speed modems and high speed communication lines. The Internet has experienced,
and is expected to continue to experience, significant growth in the number of
users and amount of traffic. There can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it by
this continued growth. In addition, delays in the development or adoption of
new standards and protocols to handle increased levels of Internet activity or
increased governmental regulation could slow or stop the growth of the Internet
as a viable medium for commerce. Moreover, critical issues concerning the
commercial use of the Internet (including security, reliability, accessibility
and quality of service) remain unresolved and may adversely affect the growth
of Internet use or the attractiveness of conducting commerce online. Because
the exchange of information on the Internet is new and evolving, there can be
no assurance that the Internet will prove to be a viable medium of commerce.
The failure to resolve critical issues concerning the commercial use of the
Internet, the failure of the necessary infrastructure to develop in a timely
manner, or the failure of the Internet to continue to develop rapidly as a
viable medium of commerce would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Industry Background."
Competition
The electronic commerce market is new, rapidly evolving and intensely
competitive, and the Company expects competition to increase in the future.
Barriers to entry are minimal, and current and new competitors can establish
Internet stores at relatively low cost. Moreover, all of the products sold by
the Company are widely available through established traditional retail
channels, and accordingly, the Company competes not only with other
participants in the electronic commerce market but also with traditional
retailers and resellers. The Company currently or potentially competes with a
variety of other companies depending on the type of merchandise and sales
format offered to customers. These competitors and potential competitors
include: (i) segment-specific online retailers such as Amazon.com, BuyComp,
CDNow, Dell Computer and Gateway International; (ii) online vendors of a broad
selection of consumer products such as Cendant, CyberShop, iMall, Internet
Shopping Network, iQVC, ONSALE and Wal-Mart Online; (iii) a number of indirect
competitors that derive a substantial portion of their revenues from electronic
commerce, including America Online, Excite, Infoseek, Lycos, Microsoft Network,
Prodigy and Yahoo!; (iv) mail order catalog operators such as Lands' End, Micro
Warehouse, Sharper Image, Spiegel and Williams-Sonoma; (v) retail and
warehouse/discount store operators such as Circuit City, Home Depot, Office
Depot, Price/Costco, Staples and Target; and (vi) other national and
international retail, catalog, distribution and manufacturing companies. The
Company believes the principal competitive factors in its markets are breadth
of selection, quality of brands, price, convenience, customer service,
reliability and speed of fulfillment. Most of the Company's current and
potential competitors have substantially longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than the Company. In addition, competing online
retailers may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well-financed
companies as the use of the Internet and other online services increases. Many
of the Company's competitors may be able to secure merchandise from vendors on
more favorable terms, respond more quickly to changes in customer preferences,
devote greater resources to marketing and promotional campaigns, adopt more
aggressive pricing or inventory availability policies and devote substantially
more resources to Internet site and systems development than the Company.
Current and potential competitors have established or may establish cooperative
relationships among themselves or directly with vendors to obtain exclusive or
semi-exclusive sources of merchandise. Accordingly, it is possible that new
competitors or alliances among competitors and vendors may emerge and rapidly
acquire market share. Increased competition may result in reduced operating
margins, loss of market share and a diminished brand franchise, any one of
which could materially adversely affect the Company's business, results of
operations and financial condition. There can be no assurance that the Company
will be able to compete successfully against current and future competitors,
and competitive pressures faced by the Company may have a material adverse
effect
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on the Company's business, financial condition and results of operations. New
technologies and the expansion of existing technologies may increase the
competitive pressures on the Company. In addition, companies that control
access to transactions through network access or Web browsers could promote the
Company's competitors or charge the Company a substantial fee for inclusion.
See "Business -- Competition."
Internet Commerce Security Risks
A significant precondition for the successful development of electronic
commerce is the secure transmission of confidential information over public
networks. The Company relies on licensed, third-party encryption technology to
transmit confidential payment and other information securely over the Internet.
Nonetheless, there can be no assurance that existing technologies, advances in
computer capabilities, new discoveries in the field of cryptography or other
events or developments will not permit a compromise or breach of the security
of the customer transaction data of the Company and other online retailers. Any
such compromise or breach could substantially impair customer confidence in the
Company's online store or otherwise have a material adverse effect on the
Company's business, financial condition and results of operations. A party who
is able to circumvent the Company's security measures could destroy valuable
transaction and other data, misappropriate proprietary information or cause
interruptions in the Company's operations. The Company expects that it will be
required to expend capital and other resources to protect against the threat of
such security breaches or to alleviate problems caused by such breaches.
Concerns over the security of Internet transactions and the privacy of users
may also inhibit the growth of the Internet generally, especially as a means of
conducting commercial transactions. To the extent that activities of the
Company or third party contractors involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches could
expose the Company to a risk of loss or litigation and possible liability.
There can be no assurance that the Company's security measures will prevent
security breaches or that failure to prevent such security breaches will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Systems Infrastructure, Technology
and Security."
Reliance on Other Third Parties
In addition to its product vendors, the Company's operations depend to a
significant degree on a number of other third parties, including Internet
service providers and less-than-truckload delivery services. The Company has no
effective control over these third parties and no long-term contractual
relationships with any of them. For example, the Company relies on UUNet and
MCI to connect the Company's Web site to the Internet. From time to time, the
Company could experience temporary interruptions in its Web site connection and
its telecommunications access. Continuous or prolonged interruptions in the
Company's Web site connection or in its telecommunications access would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's agreements with its Internet service
providers place certain limits on the Company's ability to obtain damages from
the service providers for failure to maintain the Company's connection to the
Internet. The Company also uses third-party delivery services, including United
Parcel Service and Roadway, to deliver all of its products to its customers.
Increases in delivery costs, delays in delivery or the failure of these third
parties to deliver the Company's products for a sustained period of time as a
result of a strike or for other reasons could have a material adverse effect on
the Company's business, financial condition and results of operations.
In connection with the sale of the Series A Stock and Series B Stock to
The Union Labor Life Insurance Company ("ULLICO"), the Company agreed that so
long as ULLICO remains a stockholder of the Company, the Company will use
shippers that have recognized one or more unions as the collective bargaining
representative of some or all of its employees, unless such shipping
arrangements are unreasonable or unavailable to the Company. This agreement may
limit the Company's ability to utilize certain third party delivery services
that may offer lower delivery costs. The failure of the Company to develop and
maintain satisfactory relationships with third party vendors or poor
performance by these third parties could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Order Fulfillment."
Rapid Technological Change
The Internet and the electronic commerce industry are characterized by
rapid technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions, and the emergence
of new industry standards and practices that could render the Company's
existing online systems obsolete. To remain competitive, the Company must
continue to enhance and improve the responsiveness, functionality and features
of the Value America online store. The Company's success will depend, in part,
on its ability to identify, select and license leading technologies useful in
its business, enhance its existing services, develop new services and
technology that address the increasingly sophisticated and varied needs of its
prospective customers, and respond to technological advances and emerging
industry standards and
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practices in a cost-effective manner and on a timely basis. There can be no
assurance that the Company will successfully use new technologies effectively
or adapt its Internet site, technology and transaction processing systems to
customer requirements or emerging industry standards. The failure of the
Company to adapt in a timely manner to changing market conditions or customer
requirements for technical, legal, financial or other reasons could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Systems Infrastructure, Technology and
Security."
Risk of System Failure; Single Site
The Company's business is dependent on the efficient and uninterrupted
operation of its computer and communications hardware systems. These systems
are presently located at a single site in Charlottesville, Virginia, and the
Company does not have a redundant "mirror" site. The Company intends to move
substantially all of its operations to a new location before January 1999, and
although the Company intends to establish a redundant site prior to its move,
there can be no assurance that system interruptions will not occur during the
move. The Company's computer and communications hardware systems are also
vulnerable to interruption or damage from fire, flood, prolonged power loss,
telecommunications failure, earthquake and other events. Any system
interruptions that result in the unavailability of the Company's Internet site
or reduced transaction processing performance could reduce the volume of
products sold, damage the Company's reputation and cause customer
dissatisfaction, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's coverage limits on its property and business interruption insurance
may not be adequate to compensate the Company for all losses that may occur.
Despite the implementation of network security measures by the Company, its
servers are also vulnerable to computer viruses, physical or electronic
break-ins and other disruptive problems. Computer viruses, break-ins or other
problems caused by third parties could lead to interruptions, delays, loss of
data or cessation of service to the Company's customers, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Systems Infrastructure, Technology
and Security."
Limited Customer Service Capabilities
As of June 30, 1998, the Company employed 30 full-time equivalent
employees in its customer service department. On such date, the Company had
limited capabilities to provide customer service in the form of telephone
ordering, telephone support and e-mail replies to customer inquiries. The
Company has experienced periods during which its personnel were unable to meet
the Company's target response time for customer service calls or inquiries.
There can be no assurance that the Company will be able to hire the personnel
necessary to build a customer service organization that is able to respond
satisfactorily to the needs of the Company's customers. The failure of the
Company to provide adequate customer service could damage the Company's
reputation and could cause customers to transfer their business to other
Internet retailers or traditional retail stores. Accordingly, there can be no
assurance that the Company will not experience customer service capacity
constraints and the failure to remedy such constraints in a timely manner could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Customer Service."
Sales and Other Taxes
The Company does not currently collect sales or other taxes in respect of
shipments of goods into states other than Virginia. However, one or more
federal, state or local governmental authorities may seek to impose sales tax
collection obligations on companies that engage in electronic commerce via the
Internet. Further, a requirement to pay sales tax may discourage customers from
making product purchases through online stores. In addition, any new operations
in other jurisdictions could subject shipments to sales taxes under the laws of
those jurisdictions. Any requirement by multiple jurisdictions for the Company
to collect and remit sales taxes could result in potentially cumbersome
administrative burdens for the Company. Further, a successful assertion by any
jurisdiction that the Company should collect sales or other taxes on the sale
of merchandise could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation."
Proprietary Rights; Infringement Claims
The Company's success will depend in part on its proprietary intellectual
property. The Company principally relies upon trade secret and contract law to
protect its proprietary property. There can be no assurance that the steps
taken by the Company will be adequate to prevent misappropriation of its
proprietary intellectual property or that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technology. The Company has registered the "Value
America" service mark in the United States for limited uses and claims service
mark rights in, and has applied for service mark registrations in the United
States for, a number of other uses. There can be no assurance that the Company
will be able to secure significant protection for these service marks. It is
possible that competitors
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of the Company or others will adopt product or service names similar to "Value
America" and the Company's other service marks, thereby impeding the Company's
ability to build brand identity and possibly leading to customer confusion. The
inability of the Company to protect the name "Value America" adequately would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Intellectual Property."
Due to the importance of copyright, trade secret and contractual
protections and the competitive nature of its industry, the Company may also be
subject to claims that its technologies infringe on the proprietary rights of
other companies. While the Company believes that its current and proposed
operations do not and will not infringe on any such rights, there can be no
assurance that such claims will not arise, that the Company will have
sufficient resources to pursue any resulting litigation to a final judgment, or
that the Company will prevail in such litigation. The Company could incur
substantial costs and diversion of management resources with respect to the
defense of any claims relating to proprietary rights, which could materially
affect the Company's business, financial condition and results of operations.
Parties making such claims could secure a judgment awarding substantial
damages, as well as injunctive or other equitable relief that could effectively
block the Company's ability to exploit its products and services in the United
States or abroad. Such a judgment could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Intellectual Property."
Control by Principal Stockholders, Officers and Directors
Upon completion of this offering, the Company's officers, directors and
greater-than-five-percent stockholders (and their affiliates) will, in the
aggregate, beneficially own approximately % of the outstanding Common Stock.
As a result, such persons, acting together, will have the ability to control
substantially all matters submitted to stockholders of the Company for approval
(including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of the Company's assets) and to control the
management and affairs of the Company. Accordingly, such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company, impeding a merger, consolidation, takeover or other
business combination involving the Company or discouraging a potential acquiror
from making a tender offer or otherwise attempting to obtain control of the
Company, which in turn could have an adverse effect on the market price of the
Common Stock. See "Management" and "Principal Stockholders."
Government Regulation and Legal Uncertainties
The Company is currently subject to few laws and regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted with respect to the Internet, covering
issues such as privacy, pricing and characteristics and quality of products and
services. Furthermore, the growth and development of electronic commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on companies conducting business over the Internet. The
adoption of any additional laws or regulations may decrease the growth of
Internet usage, which, in turn, could decrease the demand for the Company's
service, increase the Company's costs of doing business or otherwise have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the applicability to the Internet of existing
laws in various jurisdictions governing issues such as property ownership,
sales tax, libel and personal privacy is uncertain and may take years to
resolve. Any such new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to the
Company's business, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission (the
"FCC") in the same manner as other telecommunications services. Because the
growing popularity and use of the Internet has burdened the existing
telecommunications infrastructure and many areas with high Internet use have
begun to experience interruptions in phone service, local telephone carriers,
such as Pacific Bell, have petitioned the FCC to regulate Internet service
providers and online service providers in a manner similar to long distance
telephone carriers and to impose access fees on such providers. If any such
petition is granted, or the relief sought therein is otherwise granted, the
costs of communicating on the Internet could increase substantially,
potentially slowing the growth in the use of the Internet. Any such new
legislation or regulation, or new applications or interpretations of existing
laws, could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, U.S. and foreign laws regulate certain uses of customer
information and the development and sale of mailing lists. The Company believes
that it is in material compliance with these laws, but new restrictions may
arise in this area that could have an adverse affect on the Company.
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The law regarding linking to and framing of third-party Web sites without
permission is uncertain. The Company believes that its linking and framing
activities are lawful, but there is a possibility that it may be asked to pay a
license fee or cease linking or framing. See "Business -- Governmental
Regulation."
Recent and Continuing Publicity
The Company has received, and may continue to receive, a high degree of
media coverage, including coverage that is not directly attributable to
statements by the Company's executive officers and employees. Neither the
Company nor any of the Underwriters has confirmed, endorsed or adopted these
third-party statements for utilization by, or distribution to, prospective
purchasers in this offering. To the extent that any such statements are
inconsistent with, or conflict with, the information contained in this
Prospectus, or otherwise relate to information contained in this Prospectus,
they are disclaimed by the Company and the Underwriters. Accordingly,
prospective investors should not rely on such third-party statements or any
other information not contained in this Prospectus.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish twenty-first century
dates from twentieth century dates. As a result, in less than eighteen months,
computer systems and/or software may need to be upgraded to comply with such
"Year 2000" requirements. Although the Company has designed its systems to be
Year 2000 compliant, there can be no assurance that this is the case. For
example, the Company utilizes third-party equipment and software that may or
may not be Year 2000 compliant. Failure of the Company's systems or such
third-party equipment or software to operate properly with regard to the Year
2000 problem could require the Company to incur unanticipated expenses to
remedy any problems, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
currently is unable to predict the extent to which Year 2000 compliance issues
will affect its vendors' systems (insofar as they relate to the Company's
business) or the extent to which the Company would be vulnerable to any failure
by its vendors to remediate Year 2000 compliance issues on a timely basis. The
failure of a major vendor's systems to operate properly with respect to the
Year 2000 problem on a timely basis or a Year 2000 conversion that is
incompatible with the Company's systems could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, most of the purchases from the Company's store are made with credit
cards via the Internet, and the Company's operations may be materially
adversely affected to the extent its customers are unable to use their credit
cards or access the Internet due to Year 2000 problems that are not remedied by
their credit card vendors or by the organizations responsible for maintaining
and providing access to the Internet. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000 Compliance."
Shares Eligible for Future Sale; Registration Rights
Sales of a substantial number of shares of Common Stock in the public
market could have a material adverse effect on the market price of the Common
Stock and could impair the Company's ability to raise capital through
additional sales of its equity securities. Following the closing of this
offering, there will be shares of Common Stock outstanding, of which the
shares of Common Stock offered hereby will generally be freely tradable
in the public market. Upon the expiration of "lock-up" agreements between the
existing stockholders of the Company and the Representatives of the
Underwriters 180 days after the date of this Prospectus (or earlier with the
consent of BancAmerica Robertson Stephens in certain cases), approximately
25,864,429 of the remaining shares of outstanding Common Stock (excluding
approximately 342,250 shares then issuable upon vested options) will be
eligible for immediate sale in the public market under Rules 144 and 701 under
the Securities Act. Approximately 90 days after the closing of this offering,
the Company intends to register on Form S-8 an aggregate of 3,750,000 shares of
Common Stock reserved for issuance under the Incentive Plan, which would permit
the immediate resale in the public market of any shares of Common Stock issued
pursuant to that plan. Upon the expiration of the lock-up agreements referred
to above, the holders of approximately 5,025,483 shares of Common Stock will be
entitled to certain registration rights. If those holders, by exercising their
registration rights, cause a large number of shares to be registered and sold
in the public market, such sales could have a material adverse effect on the
market price of the Common Stock. See "Management -- Incentive Plan," "Shares
Eligible for Future Sale" and "Underwriting."
Anti-Takeover Provisions; Indemnification
Upon the closing of the offering, the Company's Articles of Incorporation,
as amended (the "Articles"), and Bylaws will provide for a classified Board of
Directors, the removal of directors only with cause, and advance notice
requirements for director nominations and actions to be taken at annual
meetings of the Company's stockholders. The Company is subject to certain
provisions of the Virginia Stock Corporation Act (the "Virginia Act") that, in
general, (i) prevent an Interested Stockholder (defined generally as a person
owning more than 10% of any class of the Company's voting securities) from
15
<PAGE>
engaging in an "Affiliated Transaction" (as defined herein) with the Company
unless certain conditions are met and (ii) deny voting rights to shares
acquired by a person in a Control Share Acquisition (defined generally as an
acquisition resulting in voting power which exceeds one-fifth, one-third or a
majority) unless such rights are granted by the Company's stockholders, and
permit the Company, under certain circumstances, to redeem the shares so
acquired. Such provisions could impede any merger, consolidation, takeover or
other business combination involving the Company or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of the Company. See "Description of Capital Stock -- Anti-Takeover Effects of
Provisions of the Articles and Bylaws" and "Business -- Certain Corporate
Governance Provisions of the Virginia Act."
The Company's Articles of Incorporation require the Company to indemnify
directors and officers against liabilities and expenses sustained by them with
respect to claims brought against them in their capacities as directors and
officers. Such provisions may deprive stockholders of the opportunity to
recover damages from the Company's directors and officers for acts or omissions
of directors or officers unless the exceptions to liability limitation can be
proven. See "Management -- Limitation of Liability and Indemnification
Matters."
No Public Market; Potential Stock Price Volatility
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active public market will develop or
be sustained after this offering or that investors will be able to sell shares
of Common Stock should they desire to do so. The initial public offering price
will be determined by negotiations among the Company and the Representatives of
the Underwriters and may bear no relationship to the price at which the Common
Stock will trade upon completion of this offering. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The market price of the Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as actual or anticipated variations in the Company's results of operations,
announcements of technological innovations, new sales formats by the Company or
its competitors, changes in financial estimates by securities analysts,
conditions and trends in the Internet and electronic commerce industries,
adoption of new accounting standards affecting the retail sales industry,
general market conditions and other factors. Further, the stock markets have
experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many Internet companies and
that often have been unrelated or disproportionate to the operating performance
of those companies. The trading prices of the stocks of many Internet companies
are at or near historical highs and reflect price-to-earnings ratios
substantially above historical market averages. There can be no assurance that
these trading prices and price-to-earnings ratios will be sustained. These
broad market factors may adversely affect the market price of the Common Stock.
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted
against such company. Any such litigation instituted against the Company could
result in substantial costs and a diversion of management's time, attention and
resources, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Broad Management Discretion in Allocation of Proceeds
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby at an assumed initial public offering price of $ per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses, are estimated to be approximately $ million.
The Company intends to use the net proceeds of this offering for working
capital and other general corporate purposes, including the implementation of
the Company's marketing and advertising strategy, development of system
enhancements and expansion of corporate facilities. Accordingly, the Company's
management will retain broad discretion as to the allocation of the proceeds of
this offering. The failure of management to apply such funds effectively could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Use of Proceeds."
Immediate and Substantial Dilution
Purchasers of Common Stock in this offering will experience immediate and
substantial dilution of $ per share in the net tangible book value of the
Common Stock from the initial public offering price (assuming an initial public
offering price of $ per share). To the extent that outstanding options
and warrants to purchase shares of Common Stock are exercised, there may be
further dilution. See "Dilution."
No Dividends on Common Stock
The Company has not paid any cash or other dividends on its Common Stock
and intends for the foreseeable future to retain any earnings to fund
operations. See "Dividend Policy."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby are estimated to be $ million ($ million
if the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company intends to use its net proceeds of this offering
for working capital and other general corporate purposes, including the
implementation of its marketing and advertising strategy, the development of
system enhancements and the expansion of corporate facilities. Pending such
uses, the Company intends to invest such funds in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
In March and July 1998, the Company paid or will pay $144,000 and
$129,000, respectively, in dividends on outstanding shares of the Series A
Stock and the Series B Stock. The Company expects to pay additional dividends
in the aggregate amount of approximately $189,000 to the holders of the Series
A Stock and the Series B Stock upon the closing of this offering and the
resulting conversion of the Series A Stock and the Series B Stock into shares
of Common Stock. The Company has never declared or paid dividends on the Common
Stock. The Company intends to retain its earnings, if any, for use in its
operations and does not intend to pay cash dividends on the Common Stock in the
foreseeable future. Payments of future cash dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account
various factors, including the Company's financial condition, operating results
and current and anticipated cash needs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 on: (i) an actual basis; (ii) a pro forma basis giving effect,
as of March 31, 1998, to the issuance and sale by the Company of 617,979 shares
of Series B Stock, which was completed as of June 26, 1998, and the conversion
of all outstanding shares of the Series A Stock and the Series B Stock into an
aggregate of 4,737,162 shares of Common Stock upon the closing of this offering
(based on the respective conversion rates of the Series A Stock and the Series
B Stock as of June 30, 1998); and (iii) a pro forma basis, as adjusted to give
effect to the sale of the shares of Common Stock offered hereby at an assumed
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses and the
application of the net proceeds thereof. This table should be read in
conjunction with the Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1998
----------------------------------------------------
Pro Forma
Actual Pro Forma as Adjusted
----------- ----------------------- ------------
(in thousands)
<S> <C> <C> <C>
Long-term debt ................................................... $ 50 $ 50
-------- -----------
Mandatorily redeemable preferred stock:
Series A Preferred Stock (convertible), without par value, 5%
cumulative dividend; 5,000,000 shares authorized, issued and
outstanding, actual; no shares outstanding, pro forma and pro
forma as adjusted ............................................ 10,481 --
Stockholders' equity (deficit):
Common Stock, without par value; 50,000,000 shares
authorized; 23,152,500 shares issued and outstanding, actual;
27,889,665 shares issued and outstanding, pro forma;
shares issued and outstanding, pro forma as adjusted ......... 1,503 30,688 (1)(2)
Accumulated deficit ........................................... (7,166) (8,266)(1)
-------- -----------
Total stockholders' equity (deficit) ........................ (5,663) 22,422
-------- -----------
Total capitalization ..................................... $ 4,868 $ 22,472
======== ===========
</TABLE>
- ---------
(1) Reflects, as of March 31, 1998, the effect of the sale of 288,321 shares of
Common Stock by Craig A. Winn, the Chairman and Chief Executive Officer
and the principal stockholder of the Company, to a third party on June 24,
1998 for consideration less than estimated fair value. The Company is in
the process of determining the value of the consideration exchanged. The
Company believes the excess of the estimated fair value of the Common
Stock over the consideration exchanged will not exceed $1,100,000. This
amount is reflected as a capital contribution and as a general and
administrative expense that has increased the Company's accumulated
deficit. See Note 11 of Notes to Financial Statements.
(2) Reflects, as of March 31, 1998, the receipt by the Company of the net
proceeds of the sale of 617,979 shares of Series B Stock as of June 26,
1998. See Note 11 of Notes to Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1998
was approximately $22.4 million, or $0.80 per share of Common Stock. Pro forma
net tangible book value per share represents the total amount of the Company's
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding after, giving effect, as of March 31, 1998, to the
issuance and sale by the Company of 617,979 shares of Series B Stock, which was
completed as of June 26, 1998, and the conversion of all outstanding shares of
the Series A Stock and the Series B Stock into shares of Common Stock. After
giving effect to the sale of the Common Stock offered hereby (based upon an
assumed initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses), the pro forma net tangible book value of the Company as of March 31,
1998 would have been approximately $ million, or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ........................ $
Pro forma net tangible book value per share as of March 31, 1998 ..... $ 0.80
Increase per share attributable to new investors .....................
-------
Pro forma net tangible book value per share after the offering .........
----------
Dilution in net tangible book value per share to new investors ......... $
==========
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
March 31, 1998, after giving effect, as of March 31, 1998, to the issuance and
sale by the Company of 617,979 shares of Series B Stock, which was completed as
of June 26, 1998, and the conversion of all outstanding shares of the Series A
Stock and the Series B Stock into shares of Common Stock, the number of shares
of Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid by the existing stockholders and
by the investors purchasing shares of Common Stock in the offering, based upon
an assumed initial public offering price of $ per share (before deducting
estimated underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------------- ------------------------ Average Price
Number Percent Amount Percent Per Share
------------ --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 27,889,665 % $29,438,090 % $ 1.06
New investors .................
---------- --- ----------- ---
Total ...................... 100% $ 100%
========== === =========== ===
</TABLE>
The foregoing tables assume no exercise of outstanding stock options and
warrants. As of June 30, 1998, there were outstanding (i) stock options to
purchase an aggregate of 3,287,625 shares of Common Stock at a weighted average
exercise price of $ per share and (ii) warrants to purchase an aggregate of
213,750 shares of Common Stock at an exercise price of $1.67 per share. To the
extent that these options and warrants are exercised, there will be further
dilution to new investors. See "Management -- Incentive Plan," "Description of
Capital Stock -- Warrants" and Note 5 of Notes to Financial Statements.
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company are qualified by
reference to, and should be read in conjunction with, the Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus. The
statement of operations data for the period from Inception (March 13, 1996)
through December 31, 1996, the year ended December 31, 1997 and the three
months ended March 31, 1998 and the balance sheet data at December 31, 1996 and
1997 and March 31, 1998 have been derived from the Company's audited financial
statements. The statement of operations data for the three months ended March
31, 1997 and the balance sheet data at March 31, 1997 have been derived from
the Company's unaudited financial statements and, in the opinion of the
Company's management, contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the Company's results of
operations for such interim period and the Company's financial position at
March 31, 1997. Results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results to be expected for the entire
year.
<TABLE>
<CAPTION>
Period
From Inception Three Months
(March 13, 1996) Ended March 31,
Through Year Ended ----------------------
December 31, 1996 December 31, 1997 1997 1998
------------------ ------------------ ---------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Net sales ..................................................... $ -- $ 48 $ -- $ 1,987
Product presentations ......................................... -- 86 -- 205
------- -------- ------- --------
Total revenues .............................................. -- 134 -- 2,192
------- -------- ------- --------
Cost of revenues:
Cost of goods sold ............................................ -- 31 -- 2,062
Product presentations ......................................... 97 455 29 330
------- -------- ------- --------
Total costs of revenues ..................................... 97 486 29 2,392
------- -------- ------- --------
Gross loss ..................................................... (97) (352) (29) (200)
------- -------- ------- --------
Operating expenses:
Sales and marketing ........................................... 44 488 43 2,224
General and administrative .................................... 200 544 54 840
Technical and system development .............................. 87 487 21 374
------- -------- ------- --------
Total operating expenses .................................... 331 1,519 118 3,438
------- -------- ------- --------
Operating loss ................................................. (428) (1,871) (147) (3,638)
------- -------- ------- --------
Interest income, net ........................................... 3 18 -- 99
------- -------- ------- --------
Net loss ....................................................... $ (425) $ (1,853) $ (147) $ (3,539)
======= ======== ======= ========
Net loss per share -- basic and diluted ........................ $ (0.02) $ (0.09) $ (0.01) $ (0.20)
Weighted average number of shares -- basic and diluted ......... 22,500 22,616 22,500 23,153
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
---------------------- ----------------------
1996 1997 1997 1998
--------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ...................... $ 81 $ 10,341 $ 16 $ 6,944
Working capital (deficit) ...................... (116) 9,601 (25) 5,993
Total assets ................................... 144 10,994 67 10,083
Long-term debt ................................. -- 50 -- 50
Mandatorily redeemable preferred stock ......... -- 9,466 -- 10,481
Stockholders' deficit .......................... (275) (1,037) (423) (5,663)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed in these forward-looking statements as a result of various
factors, including those set forth in "Risk Factors" and elsewhere in this
Prospectus. The following discussion should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Prospectus.
Overview
Value America is an Internet-based destination retailer that offers a wide
selection of technology, office and consumer products for sale at its Internet
site, www.valueamerica.com. Value America was in a developmental period from
its inception in March 1996 until the first quarter of 1998, when it launched
its initial advertising campaign. In 1996 and 1997, the Company's primary
activities related to establishing relationships with manufacturers, creating
product presentations and developing the Company's systems and operating
procedures. The Company has been selling merchandise on the Internet since the
third quarter of 1997.
Accordingly, the Company has a limited operating history and is still in
the early stages of development. Currently revenues are derived from two
sources: sales of products through the Company's online store and fees
collected from manufacturers for the preparation and hosting of product
presentations on the online store. Revenues from product sales are recognized
upon shipment from the vendor. The Company's vendors typically ship products
directly to the customer within two to three days after receipt of an order
from the Company. The Company is responsible for selling the merchandise,
collecting payment from the customer, ensuring that the shipment reaches the
customer and processing returns. The Company generally takes title to products
upon shipment and bears the risk of loss for collection, delivery and
merchandise returns from customers. The Company periodically purchases
merchandise prior to receiving customer orders and records such merchandise as
inventory until shipped to customers. The Company accrues a reserve for
estimated product returns at the time of sale.
The Company has contractual agreements with suppliers under which the
Company develops and maintains multi-media product presentations on the
Company's online store. These agreements provide for the development of the
presentations and the listing of the presentations on the Company's Internet
site, typically for a specified period. For agreements entered into prior to
January 1, 1998, the listing period generally extended for 36 months; for
agreement entered into after that date, the period generally has been 12
months. The Company recognizes the costs of developing presentations as
incurred and recognizes the product presentation revenues ratably over the
period of the related agreement. Amounts that are billed under the terms of
these agreements but are not yet earned are reflected as deferred revenue.
Certain of these agreements provide that suppliers may pay a renewal fee to
continue product listings beyond the initial listing periods. Any revenues from
these renewal fees will be recognized ratably over the renewal term.
To date, payments for products purchased through the Company's online
store have been primarily made with credit cards. The Company anticipates that
it will begin to extend trade credit terms to certain large customers.
Typically the Company receives payment from a customer's credit card through a
financial institution within one to four business days. The Company typically
pays its vendors for goods within 30 to 60 days.
The Company expects that its operating expenses will increase
significantly during the foreseeable future, as the result of its plans to
increase expenditures on marketing, advertising and promotion, hire additional
personnel, enhance existing store operations, and establish strategic vendor
relationships that the Company believes are important to the success of the
Company. The Company expects to incur substantial operating losses for the
foreseeable future. The Company has an extremely limited operating history upon
which to base an evaluation of the Company and its business. The Company's
business and prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving markets such as
electronic commerce. Although the Company has experienced significant growth in
revenue, there can be no assurance that the Company's revenue will continue at
its current level or increase.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues
Revenues consist of product sales through the Company's online store and
product presentation fees. The Company did not open its online store until the
third quarter of 1997, and the Company did not generate any revenues from
product sales or product presentations for the three months ended March 31,
1997. For the three months ended March 31, 1998, net sales totaled $2.0 million
and product presentation fees were $205,000.
21
<PAGE>
Cost of Revenues
Cost of revenues consists of cost of goods sold and cost of product
presentations. Cost of goods sold consists of payments to third-party suppliers
for merchandise, net of shipping costs and credit card processing fees. The
Company did not incur any cost of goods sold for the three months ended March
31, 1997. For the three months ended March 31, 1998, cost of goods sold totaled
$2.1 million, representing 104% of net sales. The gross loss on product sales
was due to (a) the Company's short-term strategy to selectively accept negative
margins in order to attain increased volumes and brand awareness and (b)
isolated instances in which the Company provided upgraded merchandise in
response to unanticipated favorable response to advertised promotions.
Cost of product presentations consists of direct costs associated with the
production of multi-media product presentations, together with payroll and
related expenses. Cost of product presentations increased from $29,000 for the
three months ended March 31, 1997 to $330,000 for the three months ended March
31, 1998. In the three months ended March 31, 1998, cost of product
presentations represented 161% of product presentation revenues. The dollar
increase of $301,000 in the cost of product presentations was due primarily to
increases in payroll and related expenses of $177,000 and to increases in video
and production expenses of $63,000. The gross loss on product presentations in
the three months ended March 31, 1998 resulted from recognizing product
presentation revenues over a period ranging from 12 to 36 months while
expensing production costs as incurred. The Company expects that this timing
difference will result in gross losses on product presentation for at least the
next two years.
Sales and Marketing
Sales and marketing expenses consist of costs of advertising and
promotional expenses associated with promoting the Company's online store to
potential vendors, together with payroll and related expenses. Sales and
marketing expenses increased from $43,000 for the three months ended March 31,
1997 to $2.2 million for the three months ended March 31, 1998. The increase
primarily reflected the commencement of the Company's advertising campaign in
late January 1998, an increase in the number of merchandising, advertising and
promotion department employees, and a general increase in the level of the
Company's promotional activities. Advertising and promotional expenses
increased from $12,000 for the three months ended March 31, 1997 to $1.9
million for the three months ended March 31, 1998. Payroll expenses relating to
merchandising, advertising and promotion department employees increased from
$30,000 for the three months ended March 31, 1997 to $211,000 for the three
months ended March 31, 1997. Since February 1998, the Company has been spending
approximately $1.0 million per month on advertising its branded product
offerings. The Company intends to increase its sales and marketing expenses
significantly following the completion of this offering. See "Use of Proceeds."
General and Administrative
General and administrative expenses consist of management and executive
compensation, customer service compensation, depreciation, rent, professional
services, telephone expense, postage and other general corporate expenses.
General and administrative expenses increased from $54,000 for the three months
ended March 31, 1997 to $840,000 for the three months ended March 31, 1998.
This increase reflected the hiring of additional management and customer
service personnel, the incurrence of increased facilities charges and
substantially increased activity levels to support the expansion of the
Company's operation, all of which were undertaken in late 1997 and continued
into the first quarter of 1998. Payroll expenses relating to general and
administrative personnel increased from $41,000 for the three months ended
March 31, 1997 to $225,000 for the three months ended March 31, 1998. The
Company expects that general and administrative expenses will continue to
increase significantly for the foreseeable future, as the Company continues to
expand its operations.
Technical and System Development
Technical and system development expenses consist primarily of expenses
incurred for the development and maintenance of the Company's online store,
including employee compensation and the cost of designing, developing and
improving store content, Internet connectivity, operations and reporting. Due
to the rapid rate of changes in associated technology and the Company's
business, these expenses are expensed as incurred. Technical and systems
development expenses increased from $21,000 for the three months ended March
31, 1997 to $374,000 for the three months ended March 31, 1998. This increase
principally reflected higher payroll and consulting expenses. Payroll expenses
related to technical and system development increased from $19,000 for the
three months ended March 31, 1997 to $151,000 for the three months ended March
31, 1998. Payments to outside consultants totaled $116,000 for the three months
ended March 31, 1998; there was no comparable expense for the three months
ended March 31, 1997. The Company expects that technical and system development
expenses will continue to increase for the foreseeable future.
22
<PAGE>
Interest and Other Income
Interest and other income of $99,000 for the three months ended March 31,
1998 consisted primarily of income earned on the net proceeds of the Company's
issuance and sale of the Series A Stock in December 1998.
Income Taxes
The Company did not provide for income taxes in either the three months
ended March 31, 1997 or the three months ended March 31, 1998, since the
Company incurred a net loss in each period. A full valuation allowance was
recorded to offset the future benefit from tax loss carryforwards.
Year Ended December 31, 1997 Compared to Period from Inception (March 13, 1996)
through December 31, 1996
Revenues
The Company did not open its online store until the third quarter of 1997,
and the Company did not generate any revenues from product sales or product
presentations for the year ended December 31, 1996. For the period ended
December 31, 1997, net sales totaled $48,000 and product presentation revenues
were $86,000.
Cost of Revenues
The Company did not incur any cost of goods sold for the period ended
December 31, 1996. For the year ended December 31, 1997, cost of goods sold
totaled $31,000, representing 65% of net sales.
Cost of product presentations increased from $97,000 for the period ended
December 31, 1996 to $455,000 for the year ended December 31, 1997. In the year
ended December 31, 1997, cost of product presentations represented 529% of
product presentation revenues. The dollar increase of $358,000 in the cost of
product presentations was due primarily to increases in payroll and related
expenses of $286,000 and to increases in video and production expenses of
$19,000. The gross loss on product presentations in the year ended December 31,
1997 resulted from recognizing product presentation revenues over a period
ranging from 12 to 36 months while expensing production costs as incurred.
Sales and Marketing
Sales and marketing expenses increased from $44,000 for the period ended
December 31, 1996 to $488,000 for the year ended December 31, 1997. This
increase resulted from significant increases in both advertising and
promotional expenses and related payroll expenses. Advertising and promotional
expenses totaled $194,000 for the year ended December 31, 1997; there were no
advertising and promotional expenses for the period ended December 31, 1996.
Payroll expense relating to merchandising, advertising and promotion department
employees increased from $16,000 for the period ended December 31, 1996 to
$183,000 for the year ended December 31, 1997.
General and Administrative
General and administrative expenses increased from $212,000 for the period
ended December 31, 1996 to $545,000 for the year ended December 31, 1997. This
increase reflected the hiring of additional management and customer service
personnel, the incurrence of increased facilities charges and substantially
increased activity levels to support the expansion of the Company's operation,
all of which were undertaken in late 1997. Payroll expenses relating to general
and administrative personnel increased from $151,000 for the period ended
December 31, 1996 to $193,000 for the year ended December 31, 1997.
Technical and System Development
Technical and systems development expenses increased from $87,000 for the
period ended December 31, 1996 to $487,000 for the year ended December 31,
1997. This increase principally reflected higher payroll expenses relating to
technical and system development, which increased from $46,000 for the period
ended December 31, 1996 to $423,000 for the year ended December 31, 1997.
Fluctuations in Operating Results
The Company's operating results have fluctuated in the past, and are
expected to continue to fluctuate in the future, due to a number of factors,
many of which are outside the Company's control. These factors include: (i) the
Company's ability to attract and retain customers, maintain customer
satisfaction and establish consumer confidence in conducting transactions on
the Internet environment, (ii) the Company's ability to manage fulfillment
operations electronically and to establish competitive gross margins, (iii) the
announcement or introduction of new Web sites, services and products by the
Company and its competitors, (iv) price competition or higher vendor prices,
(v) the level of use and consumer acceptance of the Internet and other online
services for the purchase of technology, office and consumer products such as
those offered by the Company,
23
<PAGE>
(vi) the Company's ability to upgrade and develop its systems and
infrastructure and attract new personnel in a timely and effective manner,
(vii) the level of traffic on the Company's Web site, (viii) technical
difficulties, systems downtime or Internet "brownouts," (ix) the amount and
timing of operating costs and capital expenditures relating to expansion of the
Company's business, operations and infrastructure, (x) delays in revenue
recognition at the end of a fiscal period as a result of shipping or logistical
problems, (xi) the level of merchandise returns experienced by the Company,
(xii) governmental regulation, and (xiii) general economic conditions. As a
strategic response to changes in the competitive environment, the Company may
from time to time make certain service, marketing or supply decisions or
acquisitions that could have a material adverse effect on the Company's
quarterly results of operations and financial condition. Due to the foregoing
factors, in future quarters the Company's operating results may not meet or
exceed the expectations of securities analysts and investors. In such event,
the trading price of the Common Stock may be materially adversely affected.
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily from
capital contributions from stockholders and from amounts paid by vendors for
product presentations. During the year ended December 31, 1997, the Company
received $10,962,500 in capital contributions from stockholders. In June 1998,
the company received $18,830,000, net of deal costs, in capital contributions
upon the sale of Series B Stock. The Company presently believes that its
existing capital resources and the proceeds of the offering, will enable it to
maintain its operations for at least 12 months from the effective date of this
Prospectus. Thereafter, if cash generated from operations is insufficient to
satisfy the Company's liquidity requirements, the Company may seek to sell
additional equity or convertible debt securities or obtain a larger credit
facility. The sale of additional equity or convertible debt securities could
result in additional dilution to the Company's stockholders. There can be no
assurance that financing will be available to the Company in amounts sufficient
to fund the Company's operations or on terms acceptable to the Company. See
"Risk Factors -- Historical and Anticipated Losses; Uncertain Availability of
Additional Funding" and "Certain Transactions."
Net cash used in operating activities was $165,535 and $337,664 and
$1,231,069 for the fiscal periods ended December 31, 1996, 1997 and March 31,
1998, respectively. The Company has financed its operating activities primarily
through the aforementioned capital contributions by stockholders. Capital
expenditures, primarily for computers and peripheral equipment and office
furniture and fixtures, totaled $57,715, $165,168, $428,914 for the fiscal
periods ended December 31, 1996, 1997 and March 31, 1998, respectively. The
purchases were required to support the Company's expansion and increased
infrastructure.
The Company has a $5.0 million line of credit from Wachovia Bank that is
backed by cash deposits and a $750,000 standby letter of credit in favor of a
trade creditor secured by a $750,000 certificate of deposit. The line of credit
provides for cash advances evidenced by short term notes and secured by cash
deposits. This line which bears interest on advanced funds at LIBOR plus 1.75%
[7.59% at June 30, 1998] expires on May 31, 1999. The standby letter of credit
which expires June 8, 1999 is callable if the Company defaults in the payment
of trade payables to the secured vendor.
The Company has no material commitments for capital expenditures. The
Company incurred capital expenditures of approximately $429,000 during the
first three months of 1998, and expects to incur approximately $2.0 million in
capital expenditures for the remaining nine months of 1998. These expenditures
are primarily for computer equipment, furniture and fixtures, and expenditures
associated with the Company's anticipated relocation to new facilities and
continued systems development. Also, as a result of the Company's intention to
offer ordinary trade credit to certain large customers in the near future, the
Company may require additional cash to support the anticipated growth in
accounts receivable. The Company plans to increase its operating expenses
significantly in order to increase the size of its staff, expand its marketing
and advertising efforts, increase its technical and systems development
efforts, improve and maintain its controls, systems and procedures, and support
its growing infrastructure. As a result, the Company may experience substantial
quarterly net losses for the foreseeable future. Thus, the Company may have to
finance its capital expenditures, increased accounts receivable from product
sales, marketing and advertising efforts and some portion of its growth in
operating expenses with the proceeds of the offering.
Year 2000 Compliance
The Company believes that its computer systems and software products are
"Year 2000" compliant. However, it is possible that certain computer systems or
software products of the Company's suppliers or customers may not properly
accept dates in the year 2000 or thereafter without error or interruption. The
Company may be required to make expenditures to identify, address or remedy any
potential Year 2000 problems. However, while uncertainty does exist concerning
potential Year 2000 problems, the Company does not believe that Year 2000
compliance will have a material adverse effect on its business, financial
condition or results of operations. See "Risk Factors -- Year 2000 Compliance."
24
<PAGE>
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in financial statements that is displayed with the same prominence as
other financial statements. SFAS No. 130 is required to be adopted for the
Company's fiscal year ending December 31, 1998. The adoption of this
pronouncement for the period ended March 31, 1998 had no impact on the
Company's financial position or results of operations as the comprehensive loss
was the same amount as the Company's net loss. SFAS No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is required to be adopted for the Company's fiscal year
ending December 31, 1998. Based upon present structure, the Company does not
believe that SFAS No. 131 will significantly impact existing presentations and
disclosures. As the Company's business and structure continues to evolve, the
Company will continue to evaluate the impact, if any, of the adoption of this
pronouncement on the Company's existing disclosures.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. Costs incurred prior to the initial application of SOP 98-1,
whether capitalized or not, should not be adjusted to the amounts that would
have been capitalized had this SOP been in effect when those costs were
incurred. SOP 98-1 is effective for the Company's fiscal year ending December
31, 1999. The Company has not yet evaluated the impact of this pronouncement on
the Company's financial condition, results of operations or cash flows.
25
<PAGE>
BUSINESS
Overview
Value America is an Internet-based destination retailer that offers a wide
selection of technology, office and consumer products for sale at its Internet
site, www.valueamerica.com. The products offered for sale in the Company's
online store are branded goods from national and international manufacturers
such as Hewlett-Packard and IBM. These products are presented to customers
utilizing information-rich multi-media product presentations designed to take
advantage of the online selling environment. The Company's online store has
been created to provide consumers with product information, shopping
convenience and value on brand name products, and to offer manufacturers the
ability to communicate effectively the features and benefits of their products.
The Company generates revenues primarily from the sale of branded products.
Customers visit the Company's online store as a result of direct response
marketing and co-operative advertising programs in which brand name
manufacturers share in the cost of advertising. The Company also receives
revenue from manufacturers for the creation of product presentations shown on
the Value America online store.
Industry Background
Growth of the Internet and Electronic Commerce
The audience of potential customers in the United States on the World Wide
Web now exceeds 60 million people and is growing at a rate of close to 10
million users per quarter, according to data cited in a 1998 report by the U.S.
Department of Commerce. Shopping has become one of the most popular activities
on the Internet, and the number of people who shop and buy products on the
Internet is growing rapidly. Industry reports indicate that more than 10
million households in the U.S. and Canada have purchased at least one product
or service over the Internet and that the number of households world-wide that
shop online will double from 5% to 10% by the end of 1998. One industry souce
estimates that the total value of goods and services purchased by businesses
and consumers on the Internet was $12.4 billion in 1997 and projects that the
market may grow to $425 billion by 2002.
The rapid growth in electronic commerce is not limited to consumer usage
of the Internet. Prior to the advent of the Internet, large retailers and
manufacturers began to establish a system of communicating business documents
in a standard electronic form, known as electronic data interchange ("EDI").
These business-to-business EDI systems enable purchase orders, invoices and
shipping instructions to be transmitted electronically among manufacturers,
distributors and retailers, and thereby can diminish costs and improve service
opportunities.
The Traditional Retail Marketplace
In the traditional marketplace, retailers utilize "brick-and-mortar"
stores and catalogs to sell goods to customers. Retailers typically maintain an
inventory of products offered for sale and assume the costs and risks
associated with that inventory. These costs include expenses relating to
personnel, distribution, warehousing, and leasing or buying real property to
display merchandise. Risks of carrying inventory include damage, theft, loss,
obsolescence and mismatches between supply and demand. Traditional retailers
must attempt to factor these costs and risks into their selling prices.
In recent years, a number of companies have introduced new business models
that have significantly altered the competitive environment in the retailing
industry. Many of these business models rely on variations of two basic
retailing concepts: the "superstore" concept and the "volume discount" concept.
In general, superstore retailers such as Circuit City and Staples seek to
attract customers by emphasizing very broad selections of a few related
categories of merchandise. Volume discount retailers such as Sam's Wholesale
Club and Price/Costco generally seek to attract customers by de-emphasizing
traditional retail concepts such as personalized customer service, product
presentations, consistency of product offerings and breadth of merchandise in
order to be able to offer a smaller number of products at substantial discounts
from manufacturers' suggested retail prices. Superstores and volume discounters
have succeeded in drawing customers away from more traditional retail stores.
In order to remain competitive, many traditional retailers have responded by
lowering prices and seeking to lower costs, in part by offering lower quality
merchandise and hiring fewer, less experienced customer service and sales
employees.
As a result of the significant number of retailers who compete for
customers primarily on the basis of price, the Company believes that retail
customers may not receive sufficient information to make informed purchasing
decisions and may purchase products that fail to meet their expectations. Many
retailers are attempting to re-focus their sales strategies to address certain
of these concerns: large destination stores offer more efficient operations;
specialty retailers offer improved product quality and presentation; and direct
response retailers offer greater convenience.
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<PAGE>
The Online Retail Opportunity
The Internet provides retailers with the opportunity to offer a broad and
evolving selection of merchandise from a wide array of product categories.
Through the use of the Internet, retailers can have access to input product
information and users can have access to shop 24-hours-a-day, 365-days-a-year.
An online store, unlike a traditional retail store, is not limited by the
constraints and expenses of store construction, real estate selection, shelf
space, in-store staffing or the customer inconvenience associated with travel
to and from a store location. Internet retailers have the ability to react
quickly to update product descriptions, pricing and mix without incurring
substantial costs in revising, printing and mailing catalogs.
The Internet is a highly interactive medium through which online retailers
can track shopper responses and preferences, thereby enabling retailers to
customize their online stores, target specific customer groups and individuals,
and tailor cross-selling efforts. Online retailers also benefit from the
traditional marketing and advertising strategies employed by product
manufacturers, which typically invest substantial amounts to advertise the
benefits and features of their branded products. Product manufacturers also
typically utilize television, radio and print advertising to build strong brand
recognition. In turn, consumers seek out their preferred brands and products in
each of the channels in which they are available for sale, including the
Internet. Online retailers can use EDI to facilitate the entire ordering,
shipping, invoicing and documentation process, thereby reducing costs
throughout the supply chain and increasing their ability to service their
customers more cost-effectively and efficiently.
The Company believes that an electronic commerce strategy can enable the
Company to provide a comprehensive solution to the difficulties associated with
the traditional retail market. The Company has identified three segments of the
traditional retailing industry that are particularly attractive for electronic
commerce: (i) technology products, (ii) office products and (iii) consumer
products. Each of these segments has begun to generate online revenues for
segment-specific retailers such as Dell Computer, Office Depot and Amazon.com.
Technology Products include computers, computer peripherals,
communications products and software. These products are sold to small,
medium and large businesses, educational institutions, governmental
agencies and individual consumers. Technology products are typically
distributed through a distribution channel whereby certain value-added
resellers, system integrators, distributors and direct marketers sell to
end-users.
Office Products include equipment, supplies and furniture. This segment
includes a broad assortment of products ranging from facsimile machines to
pencils to desk chairs. Office products have traditionally been sold
through catalog-based distributors and brick-and-mortar retailers.
Consumer Products encompass a wide range of hard and soft goods targeted
for use by individuals, including electronics, housewares, home
improvement, jewelry, books, music, home furnishings, sporting goods, toys,
household products, health and beauty aids, and pet supplies. These sales
principally occur in traditional brick-and-mortar stores and through
catalog shopping. In recent years, larger retailers, including "big box"
retailers, warehouse clubs, superstores and volume discounters have
constituted a significant portion of this market segment.
The Value America Solution
Value America is an Internet-based destination retailer that offers a wide
selection of technology, office and consumer products for sale at its Internet
site, www.valueamerica.com. Consumers visit the Value America online store as a
result of the Company's traditional advertising, direct response marketing,
online promotions, affinity marketing and Internet browsing. The store provides
the customer with entertaining and informative multi-media product
presentations. Consumers purchase products directly online by selecting the
items they wish to buy and providing credit card and shipping information. The
Company also offers a toll-free telephone number that customers can call to
complete a purchase transaction or obtain additional customer service. Once a
product has been purchased, the Company transmits ordering and shipping
information to the manufacturer or distributor, which ships the product
directly to the customer.
The Value America business model is designed to utilize the benefits of
the Internet and electronic commerce to provide customers with value by
offering convenient access to quality brand name products, responsive service
and pertinent product information. The Value America online store also
addresses the desire of manufacturers and distributors to have direct exposure
to individual consumers and businesses, the ability to sell products based upon
their merits and distribution efficiency.
The Company believes that its online store offers customers a number of
benefits that differentiate the Company from traditional retailers and
distributors:
Quality and Selection of Recognized Brands. As an online store, the
Company's virtually unlimited shelf space allows the Company to offer a
broad variety of technology products, office products and
27
<PAGE>
consumer products from a large number of leading manufacturers. The
Company believes that customers shopping on the Internet, a relatively
new commercial medium, will be more comfortable purchasing products with
recognized brand names.
Value Pricing. The Company's fixed cost infrastructure and direct
distribution process is designed to enable the Company to offer brand
name products at lower prices.
Information-Rich Marketing. In order to educate customers, the Value
America online store is designed to provide valuable information
regarding the features, functions, benefits and applications of the
products sold by the Company. The Company's store utilizes interactive
multi-media presentations to encourage purchases and allow customers to
make informed purchase decisions.
Customer Convenience. Value America's online store is open
24-hours-a-day, 365-days-a-year and is available to consumers and
business customers through any computer with Internet access. The
Company's graphical user interface and database design enable customers
to organize the store in a manner specifically designed to meet their
shopping styles. Customers can shop in the Company's store by category,
product, brand or price.
Personalized Service. The Company's store emphasizes customer
satisfaction by offering personalized services, including Web access to
receipts, shipping and warranty information. The store greets members by
name, thanks them for the last products they purchased and asks them to
share their opinions about their shopping experience and the purchased
products. The Company provides telephone customer service, as well as
recommendations for additional purchases and reminders of important dates
such as anniversaries and birthdays via electronic mail. The store
retains and utilizes shipping addresses and billing data to make check
outs more efficient.
The Company believes that its electronic commerce model offers four key
benefits to manufacturers:
Broader Reach. The Company's online presence provides manufacturers
with access to an increasingly large base of customers beyond the reach
of any individual brick-and-mortar retailer or catalog operator.
Closer Customer Contact. The Company solicits manufacturer's
suggestions regarding the development of multi-media product
presentations in order to properly present product information to
customers.
Emphasis on Product Merits. The multi-media product presentations in
the Company's online store provide manufacturers with the opportunity to
educate potential customers as to the benefits and features associated
with their products. Consequently, manufacturers are able to sell
products on their merits, rather than price alone.
Efficient Distribution. Value America's technology platform is capable
of processing order information electronically to product manufacturers,
distribution centers and freight companies, thereby facilitating
efficient delivery of purchased goods directly from the manufacturer or
distributor to the customer. The Company is seeking to automate its
distribution process further by implementing EDI-only order processing.
Strategy
The Company's strategy is to provide a single destination online store
that offers consumers, businesses, educational institutions and government
agencies access to and information about products from brand name
manufacturers. To implement this strategy, the Company is pursuing the
following objectives:
Initially Emphasize Sale of Business Technology and Office Products. The
Company has focused its initial strategy on business technology and office
products. The Company believes that the most rapid acceptance of electronic
commerce has been in the business-to-business market segment, which serves
customers who are rapidly integrating the use of the Internet into their
day-to-day business operations. The Company has formed relationships with
manufacturers of more than 200 brands, including (i) technology manufacturers
such as Compaq, Hewlett-Packard, IBM and Toshiba, (ii) computer peripheral
manufacturers such as Brother, Canon, Epson, Iomega and US Robotics, and (iii)
office products suppliers such as 3M, Avery, Pitney-Bowes and Texas
Instruments.
Move Rapidly into the Business-to-Consumer Market. The Company intends to
offer a wide selection of products from a variety of categories to consumers.
The Company believes that individual consumer use of the Internet and
electronic commerce as a means to purchase consumer products will increase as
electronic commerce becomes more commonplace.
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<PAGE>
In order to accommodate this increasing demand, the Company has integrated more
than 300 consumer product brands into its online store. The categories for
these targeted consumer products include: consumer technology and electronics,
sporting goods, home furnishings and home improvement, housewares, jewelry,
personal care and health care products, household products, specialty foods and
gift items. The Company has, for example, recently entered into a relationship
with Procter & Gamble, which the Company expects will provide 50 brands of
household products and personal care products.
Expand Brand Relationships. The Company intends to continue to develop and
expand the presence of recognized name brand manufacturers and products within
the store. The Company believes that relationships with name brand
manufacturers and products are essential to the Company's ability to continue
to build its reputation as an online destination store. Furthermore, the
Company believes that the high-quality reputation of leading brands is
essential to building consumer confidence in online shopping. The Company
offers products from more than 500 brands and intends to enhance existing
relationships with leading brand name manufacturers to obtain access to new
product introductions. In addition, the Company will continue to increase the
number of new brands offered in its online store by expanding existing product
categories and developing new categories.
Enhance the Customer Experience. The Company utilizes multi-media product
presentations to inform its customers of product features, functions, benefits
and applications prior to a sale. Manufacturers pay Value America to create
multi-media product presentations that combine sound, video, copy and visual
elements to create informative and entertaining presentations that reveal
product features and benefits. As of June 30, 1998, the Company has received
commitments for approximately 750 product presentations and generated an
aggregate of approximately $3.2 million in revenues from the production of
these presentations (much of which is reflected as deferred revenue). The
Company intends to utilize the features of its proprietary presentation
authoring tool to upgrade the content of existing picture and audio listings to
more comprehensive video-enhanced presentations. The Company plans to implement
additional technology to increase the number of customers that can shop in the
store simultaneously, improve audio and video streaming techniques, integrate
customer service capabilities with converging telephony technologies and
implement expanded EDI relationships with manufacturers and suppliers.
Develop and Expand Direct Response Advertising and Partnerships. The
Company intends to continue to develop and expand upon its direct response
advertising and partnership strategies. Since February 1998, the Company has
been investing approximately $1 million per month into advertising its branded
product offerings in regional and national newspapers, technology and consumer
magazines, direct mailings, regional radio commercials and Internet portals.
The Company also may partner with certain manufacturers to conduct exclusive
direct response campaigns. The Company expects advertising expenditures to
continue to represent a significant portion of the Company's expenses.
29
<PAGE>
The Value America Store
Customers enter the Value America online destination store at
www.valueamerica.com (also at www.va.com). At the store, customers can register
for membership, conduct targeted product or brand searches, browse through the
store's product offerings, buy products, obtain personalized shopping services,
view multi-media product presentations, check order status, obtain a receipt
for a previous purchase and check warranty status. The Company's online store
offers customers the following key features:
Multiple Methods of Shopping. The customer interface of the Value America
store enables customers to organize the store to suit their own shopping
preferences. The store can be organized to permit shopping by category, brand
or product type. The Value America store also allows customers to shop solely
for new products or for special promotional offerings. Customers may also use
an internal search engine to search for products by keywords. When customers
shop by brand, the store displays the logos associated with the leading brands
offered by the Company.
Informative Product Presentations. Each of the products offered by the
Company is accompanied by at least one of four different types of product
presentations which have been created and produced by the Company under
contract with the manufacturer. The four types of presentations are: picture
listings, basic presentations, multi-media presentations and video
presentations. A standard picture listing presents a digital and compressed
color picture of the product, lists the product's most important specifications
and provides specific product purchasing information. A basic presentation adds
to the picture listing by providing several pages of copy and visual images
that describe features and benefits. A multi-media presentation provides a
further in-depth look at the product through a combination of photographs,
illustrations, special effects and audio streaming. A video presentation, the
most comprehensive of the Company's product presentations, provides customers
with a full motion video demonstration of the product, including a detailed
audio description of its features and benefits and a textual description of the
history and applications of the product.
Personalized Shopping Services. Customers may become members of the Value
America online store and obtain access to the benefits of the Company's
personalized shopping services. This membership entitles customers to
additional discounts, typically 5%, from the prices that are available to all
shoppers, as well as other member benefits such as bonus "Value America
Dollars" and retention of shipping and credit information to make additional
purchases faster and easier. The Value America store offers the use of an
animated "personal shopper" who greets members by name and who can serve as a
guide through the store's features and functions. A member's personal shopper
can be used as a convenient method to (i) retain access to receipts, product
warranties and information relating to past Value America purchases, (ii) track
the accumulation of Value America Dollars and (iii) remind shoppers of
important dates, such as birthdays and anniversaries, which may require gift or
other product purchases. Membership in the Value America store is currently
free. The Company is currently contemplating a small membership fee, such as
$25 annually for individual memberships.
Convenient Ways to Order. Customers may order products either on Value
America's Internet site or via a toll-free telephone number and may pay for
purchases by credit or debit card or by check. Regardless of the purchasing
method selected by the customer, substantially all purchases are routed through
the technological platform that supports the Company's online store so as to
allow customers access to order status, shipping and warranty information via
the Internet.
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<PAGE>
Wide Selection of Leading Branded Products. The Value America store
emphasizes brand name products from leading manufacturers across a broad array
of product categories. The Company organizes its products into 20 categories.
At present, the Company has made 12 of these categories available for shopping:
computers, computer peripherals, computer software, fun stuff, home
electronics, home furnishings, home improvement, housewares, jewelry, office
supplies, specialty gifts, and sports and fitness. The list below includes the
brand names and representative products of manufacturers with which the Company
has entered into product listing agreements:
<TABLE>
<CAPTION>
BRANDS DESCRIPTION
- --------------------- --------------------------------------
<S> <C>
3M LCD Projectors, Ergonomic Products,
Air Purifiers and Office Products
Acco Brands Office Equipment
Acme Brands Office Equipment
Alsons Handheld Showers and Accessories
Amana Major Appliances and Microwave
Ovens
American Camper Outdoor and Camping Equipment
Ames Lawn and Garden Tools
Apollo Office Equipment
Aroma Spa Aromatic Steam Sauna
At-A-Glance Dated Goods, Diaries, Journals and
Organizers
Avery Inkjet, Laser and Office Labels,
Media Storage and Presentation
Supplies
Baby Jogger Contemporary Children's Strollers
Beaulieu Rugs Manufactured Oriental Rugs
Bic Pens and Pencils
Bissell Floor Care Products
Bold Laundry Products
Boyd's Premium Car Care Products
BPI Office Panels and Modular Furniture
Braun Kitchen Appliances, Hair Care and
Health Care
Brother Printers, Scanners, Copiers, Faxes,
Word Processors and Labeling
Bush Office Furniture
Canon Copiers, Printers, Scanners, Faxes
and Cameras
Cascade Dish Care
Casio Calculators, Personal Televisions and
Palm Computers
Claris Productivity Software
C-Phone Video Phones
Compaq Business Servers, Notebook
Computers and Business Computers
Computer Associates Virus Protection Software
Congoleum Floor Coverings
Connisseurs Jewelry Cleaning Equipment
Curtis Computer Equipment
Curtis Mathes Home Electronics
DayTimer Dated Goods, Personal Organizers
and Productivity Software
Delonghi Coffee and Cappuccino Makers,
Heaters and Air Conditioners
Delta Faucets, Shower and Bath Products
Dragon Voice Recognition Software
</TABLE>
<TABLE>
<CAPTION>
BRANDS DESCRIPTION
- --------------------- --------------------------------------
<S> <C>
Epson Printers, Scanners, Copiers, Faxes
and Cameras
Fellowes Ergonomic Accessories, Computer
Peripherals
Franchi Menotti Fine Watches
FujiFilm Digital and Film Cameras, Film
Processing and APS Cameras
Galoob Toys Children's Toys
General Electric Major Appliances, Phones,
Microwaves and Televisions
General Housewares Professional Quality Knives
Gillette Fine Writing Instruments -
Waterman and Parker
Ginsana Dietary Supplements
Global Office Chairs, Desks and Filing
Cabinets
Gori & Zucchi Fine Giftware and Designer Gold
Jewelry
Graphic Utilities Ink Jet Printer Supplies
Hammermill Copier, Laser and Inkjet Papers
Hewlett-Packard Printers, Faxes, Copiers, Scanners,
Ink Cartridges, Drives, Business
Computers, Servers, Notebooks,
Home Computers and Cameras
Hitachi Computer Monitors and Notebook
Computers
Hoover Vacuums and Floor Care
Hughes Electronics Direct Satellite Systems
IBM Business Computers, Servers,
Notebooks, Home Computers and
Printers
Igloo Coolers
Imation Data Storage and Media
International Paper Business Papers
Iomega Data Storage Drives and Media
Ivory Dish Care
Johnson & Johnson Medical Products
Josten's Class Rings
Jules Jurgenson Fashion Watches
Kensington Computer Accessories
Kindred Fine Sinks
Kitchenaid Small Appliances, Food Mixers and
Processors
Kodak Digital and Film Cameras and
Writable CDs
Lexmark Printers and Supplies
Lucent Technologies Telephone Systems
Luvs Diapers
Macabee Sports Camping Equipment
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BRANDS DESCRIPTION
- ------------------- --------------------------------------
<S> <C>
Marks-a-lot Markers and Hi-Liters
Martin Fishing Equipment
Merriam Webster Dictionaries, Reference Books and
Software
MicroTek Scanners and Video Conference
Cameras
Newell Office Furniture
Noble Watches
Norelco Shavers, Coffee Makers, Kitchen
Appliances and Personal Care
O'Sullivan Furniture
Okidata Laser and Dot Matrix Printers and
Supplies
Olympus Digital and Film Cameras, APS
Cameras, SLR Camera
Oxford File Folders and Filing Systems
Oxo Good Grips Ergonomic Kitchen Accessories
Quantum Fishing Equipment
Pampers Diapers
Panasonic Consumer Electronics
Peerless Faucets, Shower and Bath Products
Pelonis Ceiling Fans
Pendaflex Hanging File Systems and
Accessories
Perfect Data Computer Cleaning Supplies
Philips/Magnavox Monitors, Televisions, Video Cassette
Recorders, WebTVs and Portable
Audio
Pitney Bowes Postal Meters and Mailroom Supplies
Plantronics Business Telephone Headsets
Polaroid Instant, Commercial and Digital
Cameras, and Film
Post-It Adhesive Note Pads
Creations Jewelry
RCA TV and Camcorders
Roadmaster Bicycles
Rolodex Card Files and Electronic
Organization
Safco Bookcases, Seating, Ergonomics and
Office Organizers
Samsung Computer Monitors
Sanford Writing Instruments, Markers and
Pencils
</TABLE>
<TABLE>
<CAPTION>
BRANDS DESCRIPTION
- ------------------- --------------------------------------
<S> <C>
Satco Track Lighting
Scotch Adhesives, Glue Sticks and Tape
Watches
Sharp Microwave Ovens, Vacuum Cleaners
and Air Conditioners
Shop-Vac Wet-Dry Vacuums
Singer Sewing Machines and Ironing
Products
Sirco Contemporary Office Furniture
Smart Modular Technology and Modems
Smead Filing Systems
Sony Data Storage Media
Survivor Waterproof and Puncture-Proof
Envelopes
Swingline Staplers and Desk Accessories
Targus Computer Notebook Bags
TDK Audio and Video Tapes
Team Concepts Laptop Computers for Children
Technics Quality Audio Systems
Tenex Contemporary Office Accessories
Texas Instruments Calculators and Organizers
Tobacco Source Hand-Rolled Cigars
Toshiba Televisions, Video Cassette
Recorders, DVD Players, Telephones
and Notebook Computers
US Robotics Modems and Palm Computers
Upjohn/Pharmacia Health Care Products
UUNet Internet Connectivity
Vantage Point Television Mounting Equipment
Verbatim Data Storage Media
Victor Business Calculators
Vidal Sassoon Hair Care Products
Weber Barbecue Grills
Weiser Lock Residential Hardware
Wenger Original Swiss Army Knives
Wite-Out Correction Supplies
Zebco Fishing Equipment
Zenith Corp. Televisions, Video Cassette
Recorders, DVD Players and Audio
Systems
</TABLE>
32
<PAGE>
Marketing and Promotion
The Company's marketing strategy is designed to sell products at its
online store by increasing customer traffic, promoting the Value America brand
name, building strong customer loyalty and encouraging repeat purchases. Since
February 1998, the Company has been investing approximately $1 million per
month in advertising its branded product offerings in regional and national
newspapers, technology and consumer magazines, direct mailings, regional radio
commercials and Internet portals. Following this offering, the Company expects
to increase significantly its investment in direct marketing, advertising and
promotion to continue to sell products and attract and retain customers. The
Company employs a variety of promotional activities and various media to
accomplish its marketing goals including:
Traditional Advertising. The Company has implemented a program of print
advertising in general circulation newspapers including The Wall Street
Journal, USA Today, Los Angeles Times, Washington Post, San Francisco Chronicle
and The New York Times and magazines including Computer Shopper, Internet Week,
Internet World, PC Computing, PC Week, PC World and Windows. The Company values
newspaper advertising for its strong demographics with respect to
Internet-savvy consumers and the relatively short period of time from
advertising creation to media insertion. The Company uses magazine advertising
to target specific products to specific target markets, and uses radio
advertising to motivate shopping excursions. In the future, the Company intends
to supplement its primary print advertising campaign with national radio and
television advertisements in selected markets. The Company expects television
marketing efforts to begin in the fourth quarter of 1998.
Direct Marketing. The Company utilizes direct response marketing to sell
products, promote the Value America online store and increase brand share. The
Company coordinates its own direct response efforts with manufacturers to
create a unified marketing approach for products. Elements of the Company's
direct response advertising efforts include the use of direct targeted
mailings, the development and utilization of a telephone call center, and the
use of advertisements in specific industry publications.
Cooperative Marketing Support. The Company has conducted cooperative
marketing activities with Amana, Brother, Canon, GBC Quartet, Hewlett-Packard,
IBM, Intel, Panasonic, Procter & Gamble, Toshiba and Weber. The Company intends
to further develop coordinated marketing plans with certain manufacturers. By
creating such affiliations, the Company can reduce its marketing expenses and
increase the level of its advertising, thereby developing customer recognition
of the interrelationship between the Value America store and the manufacturers'
brand name products.
Online Service and Internet Advertising. The Company advertises on various
high profile and high-traffic Web sites such as Alta Vista, c | net, ESPN
SportZone, Excite, Infoseek, Lycos and Yahoo!. These advertisements take the
form of banners that encourage readers to click through directly to the Value
America online store. The Company is seeking to use portals to build and direct
Internet traffic to its online store. In addition to banner advertisements, the
Company is designing an external interface that brings Value America product
category presentations to the attention of individuals using search engine
services on the Internet.
Value America Dollar Program. Value America awards each member a store
credit equal to a percentage of the member's total purchases of certain
products. This credit is typically 1% of the purchase price of each product,
although some promotional products earn bonus Value America Dollars. Members
may apply accumulated Value America Dollars toward a portion of the purchase
price of products on future visits to the Value America store.
Order Fulfillment
The Company fulfills orders primarily by arranging for direct shipment of
products from the manufacturer or their designated distribution partner. Value
America does not carry significant levels of inventory. The Company's order
fulfillment systems are designed to choose the best product price and
availability if multiple distributors offer the same product. The Value America
store generates a purchase order for each manufacturer or distributor and
delivers the purchase order via facsimile or EDI. The Company currently has EDI
connections in parallel transmission with 11 vendors; these vendors' products
have accounted for a substantial majority of the Company's recent net sales. In
the future, the Company expects the process of ordering and fulfillment to
become increasingly automated, as e-mails, automated facsimile transmissions
and EDI transmissions are used to transmit transaction documents. The Company's
order fulfillment system is capable of transmitting all data necessary to
prompt labels to be printed automatically at the appropriate shipment or
distribution centers. These labels will include information stored within the
Company's customer database, including the customer's name, address and
telephone number. At the time the product is provided to the freight company
for shipment, the title and risk of loss of the purchased goods are transferred
to Value America. The Company currently ships most products with United Parcel
Service and Roadway. As part of its relationship with ULLICO, the Company has
agreed that so long as ULLICO remains a shareholder of the Company, the Company
will only use shippers that have recognized one or more unions as the
collective bargaining
33
<PAGE>
representative of some or all of its employees unless such shipping
arrangements are unreasonable or unavailable to the Company. See "Certain
Transactions."
Customer Service
The Company believes that its ability to establish and maintain long-term
relationships with its customers and encourage repeat visits and purchases
depends, in significant part, upon the strength of its customer support and
service operations and staff. The Company encourages frequent communication
with, and feedback from, its customers in order to continually improve its
product and service offerings. To this end, the Company has dedicated
significant resources to establishing a customer service department and
providing its support and service personnel with the tools to answer customer
inquiries and to keep customers informed of the status of orders. Customer
support and service personnel are responsible for processing customer orders,
handling general customer inquiries, answering customer questions about the
ordering process, and investigating the status of orders, shipments and
payments. The tools used by this staff are automated and fully integrated with
the Company's online store. The staff is divided into teams dedicated to
certain types of products. Members of the various teams receive training on
attributes and benefits of products in the categories with which they work.
The Value America store offers an e-mail address and a toll-free telephone
number to enable customers to request information and to encourage feedback and
suggestions, via the Internet or telephone. The Company's telephone system
provides automatic call distribution and call statistics reporting. Currently
the Company's online store provides customers with automatic e-mail updates for
a change in order status. The Company intends to install e-mail management
softwares that will allow the Company's customer support and service personnel
to handle a large volume of e-mail more efficiently by providing for
prioritization and routing.
Manufacturer Relationships
The Company typically forms relationships directly with manufacturers. The
Company has listing agreements with manufacturers under which the Company
develops and hosts multi-media product presentations on the Company's online
store. Certain of these agreements require the Company to maintain product
listings for a minimum period of time, typically 12 or 36 months. The
manufacturers are not obligated under these agreements to offer or provide
products for sale by Value America for any minimum period of time. The Company
has entered into significant arrangements with the following manufacturers:
IBM. IBM provides its technology products for sale through the Value
America online store. IBM is providing dedicated account support, proprietary
advertising support, special terms and conditions programs, direct buy programs
and promotional opportunities. Value America, in turn, identifies IBM as an
alliance partner, provides Internet access to IBM products through its online
store, advertises IBM products in major print media, and engages in joint
electronic commerce and direct response marketing with IBM.
Hewlett-Packard. In 1997, the Company entered into agreements with
Hewlett-Packard pursuant to which Hewlett-Packard authorized the Company to
sell Hewlett-Packard's Pavilion line of home personal computers, consumer and
business printing and imaging products, and selected business computer systems.
Procter & Gamble. In April 1998, the Company entered into an agreement
with Procter & Gamble. The terms of this agreement authorize the Company to
sell 50 Procter & Gamble brands and to produce related presentations. The
Company is obligated to list the brands and provide Web access for a minimum of
12 months. The Company and Procter & Gamble are also in the process of
implementing a cooperative advertising plan.
Competition
The electronic commerce industry is relatively new, intensely competitive
and rapidly evolving. Barriers to entry are minimal, allowing current and new
competitors to launch new Web sites at a relatively low cost. The Company
currently or potentially competes with a variety of other companies. These
competitors and potential competitors include: (i) segment-specific online
retailers such as Amazon.com, BuyComp, CDNow, Dell Computer and Gateway
International; (ii) online vendors of a broad selection of consumer products
such as Cendant, CyberShop, iMall, Internet Shopping Network, iQVC, ONSALE and
Wal-Mart Online; (iii) a number of general purpose commercial online services
and Web directories that derive a substantial portion of their revenues from
online products and services, including America Online, Excite, Infoseek,
Lycos, Microsoft Network, Prodigy and Yahoo!; (iv) mail order catalog operators
such as Lands' End, Micro Warehouse, Sharper Image, Spiegel and
Williams-Sonoma; (v) traditional retail and warehouse/discount store operators,
such as Circuit City, Home Depot, Office Depot, Price/Costco, Staples and
Target; and (vi) numerous other national and international retail, catalog,
34
<PAGE>
distribution or manufacturing companies that may enter the electronic commerce
industry. The Company anticipates that the number of its direct and indirect
competitors will increase in the future.
The Company believes that the principal competitive factors in its market
are brand recognition, quality of brands, convenience, ease of use, price,
value, accessibility, speed of fulfillment, reliability, personalized services,
customer service, and quality of site content. Many of the Company's current
and potential competitors have longer operating histories, larger customer
bases, greater brand name recognition and significantly greater financial,
marketing and other resources than the Company. In addition, other online
retailers may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well-financed
companies as the use of the Internet and other commercial online services
increases. Certain of the Company's competitors may be able to secure
merchandise from vendors on more favorable terms, devote greater resources to
marketing and promotional campaigns, adopt more aggressive pricing or inventory
availability policies or devote substantially more resources to Web site and
systems development than the Company. Increased competition may result in
reduced operating margins or loss of market share, and may have a material
adverse effect on the Company's business, financial condition and results of
operations.
Systems Infrastructure, Technology and Security
The Company's technology platform consists of the deployment environment,
Web servers, applications and infrastructure for EDI, financial transactions
and security, as well as the Company's proprietary content management and
authoring system. The Company maintains all computer systems for hosting and
maintaining the online store at its Charlottesville, Virginia, headquarters
facility. All of the Company's computer equipment is powered by redundant APC
filtering, battery-backed power supplies designed to provide continuous power
to the online store in the event of outages from the local power utility. To
ensure reliable 24 hours-a-day, 365-days-a-year operation of the store, the
Company has designed its system architecture to be fault tolerant with
redundant Web and database servers as well as redundant paths into the
Internet. If a failure should occur with either Internet connection, traffic is
automatically routed through the alternate path.
The online store uses database technology and dynamic HTML page generation
to offer maximum flexibility while minimizing maintenance overhead of the site.
The Company also has a powerful text search engine that is incorporated into
the online store to provide for both full text and key word searching of
product information. A significant portion of the technology for the store has
been developed by the Company, including the personal shopper, dynamic page
generation system, authoring tool, order management, order pipeline and EDI
interfaces. Additionally, the Web application provides a proprietary and
sophisticated multi-media presentation engine for the Web, which has the
ability to accommodate many forms of media including graphics, images,
animation, and streaming audio and video. This framework has been designed so
that future media types and formats may be efficiently integrated.
The Company has developed a proprietary authoring tool to efficiently
create and manage content for publication in the online store. This tool
provides a database-centric approach to Web page creation that dramatically
speeds the development and maintenance of product listings, presentations and
pricing information. This tool enables the Company's merchandising department
to operate with a minimum of technology expertise so that they may autonomously
publish content without relying on expensive and often overburdened technical
resources.
The Company believes that the security solution that it has designed and
implemented provides at least the level of transaction security used in
traditional in-store or mail order operations. The Company utilizes secure
credit card transaction processing software from PaymentNet. All transactions
are audited from credit authorization through receipt of funds, and no
Internet-supplied credit card numbers are stored on Company systems. The
Company addresses theft of information during transmission over the Internet by
utilizing standard SSL encryption technology. available to customers using
browsers which are SSL encryption enabled, such as Netscape Navigator or
Microsoft Internet Explorer. To guard against theft of telephonically provided
credit card numbers residing on the Company's internal systems, secure
firewalls and separate domains are designed into the system architecture such
that the database cannot be reached from either internal or external sources
except via secure, logged access methods.
The Company is making significant investments in implementing EDI
interfaces with suppliers, and has contracted with General Electric Information
Services to set up the appropriate systems, mapping tables and business
processes. When human intervention is required, the Company has developed a set
of simple, efficient customer service utilities.
The network that supports the online store is designed for scalability to
accommodate peak transaction loads and to "scale up" efficiently to handle
increasing volumes over time. The Company uses virtual web servers, which allow
new servers to be configured and brought online transparently as transaction
loads dictate. Similarly, the SQL servers that drive the store content are
replicated to allow new servers to be added if greater capacity is required.
35
<PAGE>
The network architecture consists of redundant firewalls with
progressively tighter security policies. The firewalls protect the network from
both internal and external attacks and provide an audit trail for suspicious
activity. Access from external sites to the store is restricted to the HTTP
protocol, and access from the internal network is restricted to only essential
maintenance services. The Company performs self-diagnostic security checks,
including measures for password cracking, port scanning and operating system
vulnerabilities.
The Company is dependent on the ongoing operation, maintenance and
upgrading of its systems to achieve its business objectives. Notwithstanding
any precautions taken by the Company, any failure of, or disruption in, the
Company's Internet access, technological platform or security measures, or any
other failure or damage that causes significant system disruptions, could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Intellectual Property
The Company relies on a combination of copyright and trademark laws, trade
secret protections, and confidentiality and non-disclosure agreements, as well
as other contractual provisions to establish and protect its proprietary
rights. The Company does not currently hold any patents or have any patent
applications pending for itself or its products. The Company has obtained a
registered service mark for "Value America" and two other variations of such
name. The Company also owns six pending applications for federal registration
of other variations of the "Value America" name. The Company retains certain
intellectual property rights associated with the multi-media product
presentations developed by the Company for the branded manufacturers whose
products are featured in the Company's store. The Company has entered into
non-disclosure and invention assignment agreements with all its employees and
enters into non-disclosure agreements with certain of its consultants and
subcontractors. There can be no assurance, however, that such measures will
protect the Company's proprietary technology, that the Company will be able to
prevent competitors from developing software with similar functionality, or
that third parties will not infringe upon or misappropriate the Company's
intellectual property rights.
The Company believes that its trademarks, software and other proprietary
rights do not infringe on the proprietary rights of third parties. The Company
has been displaying the content of its site on the Internet without receiving
claims from third parties that its product offerings, trademarks or names
infringe on any proprietary rights of any other parties. However, the Company
is a recent entrant in the market for sale of merchandise on the Internet, and
there can be no assurance that third parties will not assert infringement or
other claims against the Company in the future with respect to current or
future product offerings, trademarks or other Company works. Such assertion may
require the Company to enter into royalty arrangements or result in costly
litigation. The Company is also dependent upon obtaining licenses to utilize
existing technology related to its operations. To the extent that new
technological developments are unavailable to the Company on terms acceptable
to it, or at all, the Company may be unable to continue to implement its
business, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
Government Regulation
The Company is subject, both directly and indirectly, to various laws and
governmental regulation relating to its business. However, because the market
for electronic commerce is new and rapidly evolving, there are currently few
laws or regulations directly applicable to commerce on the Internet. Due to the
increasing popularity and use of the Internet and other commercial online
services, it is possible that a number of laws and regulations may be adopted
with respect to electronic commerce covering issues such as user privacy,
pricing, content, copyrights, distribution and characteristics and quality of
products and services. The adoption of certain of these laws or regulations may
have the effect of decreasing the growth of electronic commerce or increasing
the cost of doing business on the Internet. Moreover, the applicability to the
Internet and other commercial online services of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Any such new legislation or regulation, the application of laws and regulations
from jurisdictions whose laws do not currently apply to the Company's business,
or the application of existing laws and regulations to the Internet and other
commercial online services, could have a material adverse effect on the
Company's business, financial condition and results of operations.
Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the FCC in the same manner as other
telecommunications services. Because the growing popularity and use of the
Internet has burdened the existing telecommunications infrastructure and many
areas with high Internet use have begun to experience interruptions in phone
service, local telephone carriers, such as Pacific Bell, have petitioned the
FCC to regulate Internet service providers and online service providers in a
manner similar to long distance telephone carriers and to impose access fees on
such providers. If any such petition is granted, or the relief sought therein
is otherwise granted, the costs of communicating on the Internet could increase
substantially, potentially slowing the growth in the use of the Internet. Any
such new legislation
36
<PAGE>
or regulation, or new applications or interpretations of existing laws, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
In addition, U.S. and foreign laws regulate certain uses of customer
information and the development and sale of mailing lists. The Company believes
that it is in material compliance with these laws, but new restrictions may
arise in this area that could have an adverse affect on the Company.
The law regarding linking to and framing of third-party Web sites without
permission is uncertain. The Company believes that its linking and framing
activities are lawful, but there is a possibility that it may be asked to pay a
license fee or cease linking or framing.
Permits or licenses may be required from federal, state or local
government authorities to operate or to sell certain products on the Internet.
No assurances can be made that such permits or licenses will be obtainable. The
Company may be required to comply with future national or international
legislation and statutes regarding conducting commerce on the Internet in all
or specific countries throughout the world. No assurances can be made that the
Company will be able to comply with such legislation or statutes, or that the
adoption of such legislation or statutes will not have a material adverse
effect on the Company's business, financial condition, and results operations.
Facilities
The Company's principal administrative, computer, marketing and customer
service facilities are located in two office buildings in Charlottesville,
Virginia encompassing an aggregate of approximately 12,000 square feet. The
facilities occupied by the Company are subject to leases that expire from
October 1998 through March 1999. The leases provide for aggregate monthly
rental charges of approximately $12,000. The Company has found suitable
substitute facilities providing for 26,700 square feet with aggregate monthly
rental charges of approximately $25,000. These facilities will become available
to the Company between October 1998 and January 1999.
Employees
As of June 30, 1998, the Company had 133 full-time equivalent employees,
of which 27 were in technical and related operations, 60 were in marketing and
merchandising, 30 were in customer service, and 16 were in finance,
administration and management. The Company believes that its future success
will depend in large part on its ability to attract hire and retain qualified
personnel. Competition for such personnel is intense, and while the Company
believes that it can attract and retain qualified personnel, there can be no
assurance that the Company will be able to do so.
The Company believes its relationships with its employees are good. None
of the Company's employees is represented by a collective bargaining agreement,
and the Company has never experienced a work stoppage. In connection with the
Company's sale of Series A Stock and Series B Stock, the Company agreed that so
long as ULLICO is a stockholder of the Company (i) the Company will recognize
any union attempting to represent the Company's employees upon a showing of
majority support through a formal gathering of cards for such union and (ii) in
connection with any organizing activities being performed by a union, the
Company will refrain from actively campaigning in opposition to the designation
of such union as the representative of the Company's employees.
Legal Proceedings
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. The
Company is not currently party to any litigation or other legal proceedings,
nor is the Company aware of any planned legal action by third parties, the
adverse outcome of which, individually or in the aggregate, would have a
material adverse effect on the Company's business, financial conditions and
results of operations.
37
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Personnel
The executive officers, directors and other key personnel of the Company,
and their ages and positions as of June 30, 1998, are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
- --------------------------------- ----- ----------------------------------------------------------------
<S> <C> <C>
Executive Officers and Directors
Craig A. Winn 43 Chairman and Chief Executive Officer
Rex Scatena 48 President of the Company, President, Consumer Products Division
and Director
Dean M. Johnson 39 Executive Vice President, Chief Financial Officer and Director
Joseph L. Page 29 Executive Vice President and Chief Technology Officer
Kimberly E. De Jong 37 President, Technology Products Division
Mark N. McCullough 40 President, Office Products Division
Gary D. LeClair (1) 43 Director
John L. Motley III 48 Director
Michael R. Steed (1) 49 Director
David R. Dukes 54 Director-nominee
William D. Savoy 33 Director-nominee
Key Personnel
Kenneth R. Power 52 Senior Vice President-Advertising and Creative Director
Sandra T. Watson 41 Senior Vice President-Finance and Controller
Jerry K. Goode 35 Vice President of Engineering
Marcus F. Nucci 31 Director of Business Commerce
</TABLE>
- ---------
(1) Member of the Audit Committee and the Compensation Committee.
Executive Officers and Directors
Craig A. Winn, the principal founder of the Company, has been Chairman and
Chief Executive Officer since founding the Company in March 1996. In 1978, he
founded The Winn Company, a manufacturers representative firm which grew to over
$100 million in annual product volume. During this period, Mr. Winn worked
closely with the original Price Company management team. It is here that Mr.
Winn learned much of what he has integrated into the Value America solution. In
March 1986, Mr. Winn created Dynasty Classics Corporation, a manufacturer and
distributor of decorative and fixture lighting ("Dynasty"), and served as its
Chairman and Chief Executive Officer until August 1993. Dynasty grew to nearly
$100 million in revenue within five years, selling to a variety of large
retailers such as Sam's Wholesale Club, Sears, Price Club and Home Depot. While
managing Dynasty, Mr. Winn grew to appreciate the challenges facing suppliers
and how their EDI and distribution systems operate. In October 1993, Dynasty
filed a petition for relief under Chapter 11 of the Federal Bankruptcy Code.
Through this experience, Mr. Winn developed a new business model that reduces
the risks of inventory, customer concentration, and bank loans and covenants and
came to appreciate the value of a low-cost, high-value solution. Mr. Winn
received his B.A. in Business Administration, magna cum laude, from the
University of Southern California.
Rex Scatena co-founded the Company with Mr. Winn in March 1996. From the
Company's inception until April 1998, Mr. Scatena served as the Company's
President. In April 1998, Mr. Scatena was appointed as President, Consumer
Products Division. From July 1988 to August 1997, Mr. Scatena was Managing
Partner of the law firm Jaffe, Trutanich, Scatena & Blum. Mr. Scatena served as
a director of Dynasty from October 1992 to July 1994. Mr. Scatena received a
B.A. in Political Science from the University of California, Santa Barbara, and
a J.D. from the Western State University College of Law.
Dean M. Johnson joined the Company in November 1997 as Executive Vice
President and Chief Financial Officer. From April 1996 to November 1997, Mr.
Johnson served as Vice President of Business Development of Pacific
Monolithics, a developer of gallium arsenide semiconductors. From April 1991
until August 1995, he was Vice President and General Manager of CFW Cable, a
wireless cable television company that he co-founded. From September 1986 to
April 1991, he was Vice President-Corporate Finance for Lehman Brothers, an
investment bank. Mr. Johnson received his B.S. in Industrial Administration
from General Motors Institute, and his M.B.A. from the University of Virginia.
Joseph L. Page has been Chief Technology Officer and Executive Vice
President of the Company since March 1996. From February 1994 to March 1996,
Mr. Page was Chief Technology Officer at Internet Connect, a company providing
Internet services, including hosting for corporations. From May 1993 to
September 1994, he was a Systems Engineer at Raycon Corporation, a manufacturer
of laser and electronic drilling machines. Mr. Page holds a B.S. in Computer
Engineering from the University of Michigan.
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<PAGE>
Kimberly E. De Jong joined the Company in May 1998 as President,
Technology Products Division. Prior to joining the Company, she spent 14 years
with IBM in various capacities, including from May 1997 to April 1998,
MidAtlantic PC sales manager; from March 1996 to April 1997, business unit
executive for the Southeast region; from January 1994 to February 1996,
national account representative for the Southeast region; from January 1993 to
December 1993, manager of plans and schedules for the United States; from
February 1991 to December 1992 project manager for supply management and
distribution. Prior to February 1991, she held various other positions in the
areas of engineering and supply management. She holds a B.S. from Michigan
State University and an M.S. in Finance from The Johns Hopkins University.
Mark N. McCullough joined the Company in April 1998 as President, Office
Products Division. Prior to joining the Company, Mr. McCullough was the
regional sales manager for the Southeast region for United
Stationers/MicroUnited from November 1989 until April 1998. Prior to this he
worked in marketing operations for United Stations/MicroUnited from March 1983
until November 1989. From June 1981 until February 1983, he was an area sales
manager with Cherry Electronics in Waukegan, IL. Mr. McCullough holds a B.S. in
Marketing and Computer Science from the University of Wisconsin.
Gary D. LeClair has been a director of the Company since November 1997.
Mr. LeClair has been Chairman of LeClair Ryan, A Professional Corporation,
legal counsel to the Company, since 1988. He has served as a director of
MacroSonix Corp. since April 1996 and The Tredegar Trust Company since
September 1994 and as Chairman of the Board and a director of Community Pride
Grocery Stores, Inc. since 1993. He holds a B.S. in accounting from the College
of William & Mary and a J.D. from Georgetown University Law Center.
John L. Motley III has been a director of the Company since November 1997.
Mr. Motley is the founder and has been the President of John Motley Associates,
Inc., an office products manufacturers' representative company, since 1980. Mr.
Motley received a B.S. in Political Science from the University of Vermont.
Michael R. Steed has been a director of the Company since December 1997.
He has been Senior Vice President of Investments for ULLICO, a financial
services holding company, and President of ULLICO's investment subsidiary,
Trust Fund Advisors since November 1992. Prior to his joining ULLICO, Mr. Steed
served as President and Founder of A.F.I.C. Group, Ltd., a financial and
investment consulting firm from 1985 to 1992. He received a B.A. from Loyola
University of Los Angeles and a J.D. from Loyola University School of Law in
Los Angeles.
David R. Dukes has been nominated to serve as a director of the Company
upon the closing of this offering. Mr. Dukes currently serves as the Chairman
of the Global Technology Distribution Council, an organization designed to
represent wholesale distributors in connection with the development of
standards for the wholesaling industry. From September 1989 until May 1998, Mr.
Dukes was employed by Ingram Micro in various executive capacities, including
Acting President of Ingram Micro Asia-Pacific from May 1997 to May 1998, Chief
Executive Officer of Ingram Alliance from January 1994 to May 1998, President
of Ingram Micro from September 1989 to December 1991 and Chief Operating
Officer of Ingram Micro from September 1989 to December 1993. Mr. Dukes
currently serves as Vice Chairman of the Board of Directors of Ingram Micro.
William D. Savoy has been nominated to serve as a director of the Company
upon the closing of this offering. Mr. Savoy has served as Vice President of
Vulcan Ventures Incorporated, a venture capital fund, since November 1990. From
October 1987 until November 1990, Mr. Savoy was employed by Layered, Inc. and
became its President in 1988. Mr. Savoy has served as President of Vulcan
Northwest Inc., a company that manages the personal financial activities of
Paul G. Allen, co-founder of Microsoft Corporation, from November 1990 until
the present. Mr. Savoy serves on the Advisory Board of Directors of Dreamworks
SKG and serves as a director of c|net, Inc., Harbinger Corporation, Metricom,
Inc., PersonaLogic, Inc., Telescan Inc., Ticketmaster, USA Networks, Inc. and
U.S. Satellite Broadcasting. He also represents Mr. Allen in a wide variety of
other personal financial transactions. Mr. Savoy holds a B.S. in computer
science, accounting and finance from Atlantic Union College.
Kenneth R. Power has been Senior Vice President-Advertising since April
1997 and Creative Director of the Company since August 1996. From February 1987
to August 1996, Mr. Power owned and operated K.R. Power Graphics, Inc., a
graphic design studio. He received a B.A. from California State University,
Long Beach.
Sandra T. Watson has been Controller of the Company since November 1997.
From August 1993 to August 1997, Ms. Watson held positions in the financial,
regulatory, and new business development areas at CFW Cable. From July 1979 to
August 1993, she was at Coopers & Lybrand, most recently as Audit Manager. Ms.
Watson is a certified public accountant. She received a B.B.A. from the College
of William and Mary.
Jerry K. Goode joined the Company in May 1998 as Vice
President-Engineering. From January 1995 to November 1997, Mr. Goode was Area
Manager for Engineering Services for Apple. From May 1993 to January 1995, Mr.
Goode was
39
<PAGE>
Director of On-Line Product Development at Starwave Corporation, an Internet
technology company. Since 1995, Mr. Goode has also been an independent
management consultant. He holds a B.S. in Computer Science from Southern
Methodist University.
Marcus F. Nucci joined the Company in June 1998 as Director-Business
Commerce. From February 1998 to June 1998, he was Manager, Solution Architects
in the Interactive Media group at IBM. From August 1996 to February 1998, Mr.
Nucci was Kiosk Development Manager in Direct Customer Access and Kiosk
Solutions at IBM. From January 1993 to August 1996, he was Lead Architect in
Direct Customer Access and Kiosk Solutions at IBM. Mr. Nucci has a B.S. in
Electrical Engineering from Syracuse University.
Executive officers of the Company are elected annually by the Board of
Directors and serve until the next annual meeting of the Board of Directors and
until their successors have been duly elected and qualified. There are no
family relationships among the executive officers and directors of the Company.
Board of Directors
The Articles and the Bylaws provide that the Company's Board of Directors
shall have between six and nine members and shall be divided into three classes
as nearly equal in number as possible. The members of the three classes of
directors will serve for staggered three-year terms. Following the completion
of the offering, Messrs. Johnson and Motley will be classified as Class I
directors and will serve until the annual meeting of the Company's stockholders
(the "Annual Meeting") to be held in 1999; Mr. Scatena will be classified as a
Class II director and will serve until the Annual Meeting to be held in 2000;
and Messrs. Winn, LeClair and Steed will be classified as Class III directors
and will serve until the Annual Meeting to be held in 2001. Each successor to a
director whose term expires at an Annual Meeting will be elected to serve until
the third Annual Meeting after his election and until his successor has been
duly elected and qualified. Any director chosen to fill a vacancy on the Board
shall hold office until the next election of the class for which he shall have
been chosen and until his successor has been duly elected and qualified.
Directors may be removed only by stockholders and only with cause (as defined
in the Articles).
Committees of the Board of Directors
The Company's Board of Directors has an Audit Committee and a Compensation
Committee. Messrs. Steed and LeClair serve as the members of both committees.
The Audit Committee recommends the annual appointment of the Company's
independent auditors, with whom the Audit Committee reviews the scope of audit
and non-audit assignments and related fees, accounting principles used by the
Company in financial reporting, internal auditing procedures, the quality and
integrity of the Company's financial statements, and the adequacy of the
internal accounting controls. The Compensation Committee administers the
Company's Incentive Plan and makes recommendations to the Board of Directors
regarding compensation and benefits for the Company's executive officers. The
Compensation Committee also has oversight responsibilities for all employee
compensation and benefit programs.
Director Compensation
Directors of the Company do not receive cash compensation for their
services as directors but are reimbursed for their reasonable expenses in
attending meetings of the Board and the committees on which they serve.
Directors who are not employees of the Company are eligible to receive
incentive awards under the Incentive Plan. The Company has granted Mr. LeClair
non-qualified options to purchase 105,000 shares of Common Stock. Such options
vest over a three-year period, have ten-year terms and have an exercise price
of $1.67 per share. The Company may grant additional non-qualified options to
non-employee directors in the future.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to Craig A. Winn, the Company's Chairman and Chief Executive Officer (the
"Named Officer"), for services rendered to the Company in all capacities during
1997. No executive officer of the Company received salary and bonus in excess
of $100,000 for 1997.
40
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Compensation
-------------------
Name and Principal Position Year Salary(1)
- ------------------------------------------------------------- ------ ----------
<S> <C> <C>
Craig A. Winn, Chairman and Chief Executive Officer ......... 1997 $45,000
</TABLE>
- ---------
(1) Represents salary earned by Mr. Winn from October 1, 1997 to December 31,
1997. Mr. Winn served without compensation during the first nine months of
1997.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board was formed in December 1997 to
make recommendations to the Board of Directors regarding the compensation and
benefits for the Company's executive officers and to administer the Company's
Incentive Plan. The Compensation Committee is currently composed of Messrs.
LeClair and Steed. Prior to the appointment of the Compensation Committee, the
Board of Directors determined the compensation of the Company's executive
officers. No executive officer of the Company serves as a member of the Board
of Directors or Compensation Committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
Gary D. LeClair serves as a member of the Compensation Committee of the
Board. Mr. LeClair also serves as the Chairman of LeClair Ryan, A Professional
Corporation, the Company's legal counsel.
Michael R. Steed also serves as a member of the Compensation Committee of
the Board. Mr. Steed also serves as the Senior Vice President of ULLICO, which
is the record holder of 3,139,854 shares of the Company's Common Stock.
Incentive Plan
The Company adopted the Incentive Plan on August 1, 1997. The Incentive
Plan provides for the granting of incentive awards to employees, officers,
directors, consultants and certain non-employees of the Company. Incentive
awards may be in the form of stock options, stock appreciation rights ("SARs"),
restricted stock, incentive stock, or tax offset rights. The maximum number of
shares of Common Stock that may be issued under the Incentive Plan is
1,250,000, subject to adjustment in the event of a stock split, stock dividend
or other change in the Common Stock or capital structure of the Company. The
Compensation Committee administers the Incentive Plan. Subject to the
provisions of the Incentive Plan, the Compensation Committee is authorized to
determine who may participate in the Incentive Plan, the number and type of
awards to each participant, the schedules on which each award will become
exercisable and the terms, conditions and limitations applicable to each award.
The Compensation Committee has the exclusive power to interpret the Incentive
Plan and to adopt such rules and regulations as it may deem necessary or
appropriate to amend, modify or terminate the Incentive Plan to meet any
changes in legal requirements or for any other purpose permitted by law.
Options. Options granted under the Incentive Plan may be either "incentive
stock options" within the meaning of Section 422(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or non-qualified options. Incentive
stock options may be granted only to employees of the Company (including
directors who are employees), while non-qualified options may be issued to
non-employee directors, employees, consultants, advisors and other independent
contractors providing services to the Company. The per share exercise price of
the Common Stock subject to any option granted pursuant to the Incentive Plan
is determined by the Compensation Committee at the time the option is granted.
In the case of incentive stock options, the exercise price must not be less
than 100% of the fair market value of the Common Stock at the time the
incentive stock option is granted. "Fair market value" is determined by the
Board of Directors, or its designated committee, in good faith and using any
reasonable method of calculation. No person who owns, directly or indirectly,
at the time of the grant of an incentive stock option, 10% or more of the total
combined voting power of all classes of voting stock (a "10% Stockholder"), is
eligible to receive an incentive stock option under the Incentive Plan unless
the exercise price is at least 110% of the fair market value of the Common
Stock, determined on the date of grant. Non-qualified options are not subject
to this limitation.
No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment, other than by death or permanent disability, the
optionee will have three months after such termination to exercise the option.
Upon termination of employment of any optionee by reason of death or permanent
disability, an incentive stock option remains exercisable for one year
thereafter to the extent it was exercisable on the date of such termination. No
similar limitation applies to non-qualified options.
41
<PAGE>
Incentive stock options granted under the Incentive Plan cannot be
exercised more than 10 years from the date of grant, and incentive stock
options issued to 10% Stockholders cannot be exercised more than 5 years after
the date of grant. All options granted under the Incentive Plan may provide for
the payment of the exercise price in cash, by equivalent consideration
acceptable to the Company, or by delivery to the Company of shares of Common
Stock already owned by the optionee having a fair market value equal to the
exercise price of the options being exercised, or by a combination of such
methods of payment. Therefore, an optionee may be able to tender shares of
Common Stock to purchase additional shares of Common Stock and may,
theoretically, exercise all of his or her stock options with no additional
investment other than his or her original shares, if any. Any shares of Common
Stock subject to unexercised options that expire or terminate become available
for the issuance of new options.
SARs. Under the Incentive Plan, the Compensation Committee may also grant
SARs either in tandem with a stock option or alone. SARs granted in tandem with
a stock option may be granted at the same time as the stock option or at a
later time. An SAR entitles the participant to receive from the Company an
amount, payable in cash, in shares of Common Stock or in a combination of cash
and Common Stock, equal to the difference between the fair market value of a
share of Common Stock on the date of exercise and the exercise price.
Restricted Stock. Restricted stock issued pursuant to the Incentive Plan
is subject to the following general restrictions: (i) restricted stock may not
be sold, transferred, pledged or otherwise encumbered or disposed of until the
restrictions on such stock have lapsed or have been removed under the
provisions of the Incentive Plan; and (ii) if a holder of restricted stock
ceases to be employed by the Company, the holder will forfeit any shares of
restricted stock on which such restrictions have not lapsed or been otherwise
removed.
The Compensation Committee will establish as to each share of restricted
stock issued under the Incentive Plan the terms and conditions upon which the
restrictions on such share shall lapse. Such terms and conditions may include,
without limitation, the lapsing of such restrictions at the end of a specified
period of time or as a result of death, permanent disability or retirement of
the participant. In addition, the Compensation Committee may, at any time, in
its sole discretion, accelerate the time at which any or all of the
restrictions lapse or remove any or all of such restrictions.
Incentive Stock. The Compensation Committee may establish performance
programs with fixed goals and designate key employees as eligible to receive
incentive stock if the goals are achieved. More than one performance program
may be established by the Compensation Committee. They may operate concurrently
or for varied periods of time, and a participant may participate in more than
one program at the same time. A participant who is eligible to receive
incentive stock under a performance program has no rights as a stockholder
until the incentive stock is received.
Tax Offset Rights. The Compensation Committee may, in its sole discretion,
award tax offset rights in conjunction with any incentive award. Tax offset
rights entitle the participant to receive an amount of cash from the Company
sufficient to satisfy the income and payroll taxes legally required to be
withheld upon exercise of an option, SAR or tax offset right, upon grant of
incentive stock or upon the lapse or removal of restrictions on restricted
stock.
Federal Income Tax Consequences. A participant will not incur federal
income tax upon the grant of an option, SAR, tax offset right, and, in most
cases and depending on the restrictions imposed, restricted stock. Upon receipt
of incentive stock, a participant will recognize compensation income, which is
subject to income tax withholding by the Company, equal to the fair market
value of the shares of incentive stock on the date of transfer to the
participant.
Upon exercise of a non-qualified stock option, a participant generally
will recognize compensation income, which is subject to income tax withholding
by the Company, equal to the difference between the fair market value of the
Common Stock on the date of the exercise and the exercise price. The
Compensation Committee has the authority under the Incentive Plan to include
provisions allowing the participant to deliver Common Stock, or elect to have
withheld a portion of the shares the participant would otherwise acquire upon
exercise, to cover tax liabilities. The election will be effective only if
approved by the Compensation Committee and made in compliance with other
requirements set forth in the Incentive Plan. When an employee exercises an
incentive stock option, the employee generally will not recognize income,
unless the employee is subject to the alternative minimum tax provisions of the
Code.
If the terms of an option permit, a participant may deliver shares of
Common Stock instead of cash to acquire shares under the option without having
to recognize taxable gain (except in some cases with respect to stock acquired
upon the exercise of incentive stock options, or "statutory option stock") on
any appreciation in value of the shares delivered. However, if a participant
delivers shares of statutory option stock in satisfaction of all, or any part,
of the exercise price under an
42
<PAGE>
incentive stock option, and if the applicable holding periods of the statutory
option stock have not been met (two years from grant and one year from
exercise), the participant will be considered to have made a taxable
disposition of the statutory option stock.
The exercise of an SAR is generally a taxable event. The participant
usually must recognize income equal to any cash that is paid and the fair
market value of any Common Stock that is received in settlement of an SAR.
In general, a participant who received shares of restricted stock will
include in his gross income as compensation an amount equal to the fair market
value of the shares of restricted stock at the time the restrictions lapse or
are removed. Such amounts will be included in the tax year in which such event
occurs. The income recognized will be subject to income tax withholding by the
Company.
Upon exercise of a tax offset right, a participant generally will
recognize ordinary compensation income, which is subject to income tax
withholding by the Company, equal to the cash received.
The Company generally will be entitled to a business expense deduction,
except as explained below, at the time and in the amount that the recipient of
an incentive award recognizes ordinary compensation income in connection
therewith. As stated above, this usually occurs upon exercise of non-qualified
options or tax offset rights, upon the lapse or removal of restrictions on
restricted stock, upon issuance of incentive stock and upon exercise of an SAR.
Generally, the Company's deduction is contingent upon the Company's meeting of
certain tax withholding requirements. No deduction is allowed in connection
with an incentive stock option, unless the employee disposes of the Common
Stock received upon exercise in violation of the holding period requirements.
This summary of the federal income tax consequences of incentive stock
options, non-qualified stock options, SARs, restricted stock, incentive stock
and tax offset rights does not purport to be complete. There may also be
certain state and local income taxes applicable to these transactions.
Change in Control Provisions. In the event of a "change in control"
transaction, the Compensation Committee may take any one or more of the
following actions either at the time an incentive award is granted or any time
thereafter: (i) provide for the assumption of incentive awards granted under
the Incentive Plan; (ii) provide for substitution of appropriate new incentive
awards covering the stock of a successor corporation or the Company or an
affiliate thereof; or (iii) give notice to participants that no such assumption
or substitution will be made, in which event each outstanding incentive award
will automatically accelerate to become fully exercisable immediately before
the effective date of the change in control, except that such acceleration will
not occur if, in the opinion of the Company's independent accountants, it would
render unavailable "pooling of interests" accounting treatment for a change in
control that would otherwise qualify for such accounting treatment. All
incentive awards will terminate immediately following the consummation of a
change in control, except to the extent assumed by the successor corporation or
an affiliate thereof. Under the Incentive Plan, a "change in control"
transaction is defined to constitute any of the following: (i) approval by the
stockholders of a merger or consolidation in which holders of outstanding
voting securities of the Company would receive less than 50% of the voting
securities of the surviving or resulting corporation; (ii) approval by the
stockholders of a plan of liquidation or approval of the dissolution of the
Company; (iii) approval by the stockholders of the sale or transfer of
substantially all of the assets of the Company; or (iv) the acquisition by a
person or group of related persons of beneficial ownership of 50% or more of
the outstanding voting securities of the Company. Should a change in control or
other event result in acceleration of vesting of outstanding options or changes
in other benefits, as defined under Section 280G of the Internal Revenue Code,
certain highly-compensated employees would likely be subject to payment of a
20% excise tax on their incremental gain, as defined.
Employment Agreements
The Company does not presently have any employment agreements or change in
control arrangements with the Named Officer.
43
<PAGE>
CERTAIN TRANSACTIONS
On August 1, 1997, the Company issued a promissory note to Mr. Winn in the
principal amount of $150,000. The principal amount of this note represented
reimbursement for Company expenses that Mr. Winn personally incurred on behalf
of the Company in 1996 and 1997. The note did not accrue interest and was paid
in full in December 1997.
On November 13, 1997, the Company sold an aggregate of 577,500 shares of
Common Stock and warrants to purchase an aggregate of 213,750 shares of Common
Stock to 15 investors for an aggregate purchase price of $962,500, or
approximately $1.50 per share and $.33 per warrant. The warrants issued have
five-year terms and exercise prices of $1.67 per share. Purchasers of these
securities included the following:
<TABLE>
<CAPTION>
Investor Shares Purchased Warrants Purchased
- ----------------------------------------------- ------------------ -------------------
<S> <C> <C>
Dean M. Johnson, Executive Vice President,
Chief Financial Officer and Director ......... 60,000 30,000
Gary D. LeClair, Director ..................... 60,000 30,000
John L. Motley, Director ...................... 300,000 --
</TABLE>
On June 24, 1998, Mr. Winn sold 288,321 shares of Common Stock to a single
investor for $999,993, or $3.47 per share. In connection with this transaction,
and for valid consideration, the Company granted such purchaser certain demand
and piggy-back registration rights. See "Description of Capital Stock --
Registration Rights."
On June 26, 1998, the Company issued an aggregate of 617,979 shares of
Series B Stock to 18 investors for an aggregate purchase price $18,829,820 or
$30.47 per share (the "Series B Transaction"). The Company granted the holders
of Series B Stock certain rights of first refusal, tag-along rights, and demand
and piggy-back registration rights. The terms of the Series B Stock also
require the Company to pay quarterly dividends on such shares of stock until
they are redeemed or converted. Mandatory redemption of the Series B Stock may
occur if the Company does not successfully offer shares of Common Stock to the
public prior to December 19, 1999. Simultaneously with the closing of this
offering, the shares of Series B Stock will automatically convert to an
aggregate of 1,853,937 shares Common Stock. Upon such conversion, certain of
the rights granted to Series B investors, such as rights of first refusal and
tag-along rights, will terminate. In connection with the Series B Transaction,
Mr. Winn and Rex Scatena, the Company's President and President, Consumer
Products Division and director, executed a Voting Agreement whereby Mr. Winn
and Mr. Scatena agreed to vote their shares of Common Stock in favor of the
election of certain individuals nominated by ULLICO and Vulcan Ventures
Incorporated for a period of up to ten years. ULLICO, the holder of all
outstanding shares of the Series A Stock and the beneficial holder of more than
5% of the outstanding shares of the Common Stock, purchased 7,801 shares of
Series B Stock.
In connection with the Series B Transaction, Messrs. Winn and Scatena sold
an aggregate of 617,979 shares of Common Stock to three investors for an
aggregate purchase price of $6,276,607 or $10.16 per share.
On July 1, 1998, Mr. Winn sold an aggregate of 28,350 shares of Common
Stock to three investors for an aggregate of $289,942 or $10.16 per share.
LeClair Ryan, A Professional Corporation, serves as the Company's legal
counsel. Gary D. LeClair, one of the Company's directors, serves as the
Chairman of such law firm.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of July 2, 1998, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby
by: (i) each person known by the Company to be the beneficial owner of more
than 5% of the Common Stock, (ii) each of the Company's directors and director
nominees, (iii) the Named Officer and (iv) all current executive officers and
directors as a group.
<TABLE>
<CAPTION>
Percent Beneficially
Owned (1)
Number of ----------------------
Shares Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
- ---------------------------------------------------- -------------------- ---------- ---------
<S> <C> <C> <C>
Craig A. Winn (2) .................................. 14,946,450 53.6%
Rex Scatena (3) .................................... 6,562,200 23.5
Michael R. Steed (4) ............................... 3,139,854 11.3
The Union Labor Life Insurance Company (5) ......... 3,139,854 11.3
William D. Savoy (6) ............................... 1,526,094 5.5
John L. Motley (7) ................................. 375,000 1.3
Dean M. Johnson (8) ................................ 144,900 *
Gary D. LeClair (9) ................................ 120,000 *
David Dukes (10)-- ................................. - *
All executive officers and directors as a group
(8 persons) (11) .................................. 26,814,498 95.7
</TABLE>
- ---------
* Less than one percent (1%)
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days of July 2, 1998 are deemed outstanding. Such
shares are not deemed outstanding for the purposes of computing the
percentage ownership of any other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property
laws, each person named in the table has sole voting and investment power
with respect to the shares set forth opposite such person's name. This
table assumes no exercise of the Underwriters' over-allotment option.
Percentage of ownership is based on 27,889,662 shares of Common Stock
outstanding on July 2, 1998 (after giving effect to the conversion of the
Series A Stock and the Series B Stock upon the closing of this offering)
and shares of Common Stock to be outstanding after the completion of
this offering.
(2) The address of Mr. Winn is c/o Value America, Inc., 2300 Commonwealth
Drive, Charlottesville, Virginia 22901. Includes 300,300 shares of Common
Stock held of record by Crystal Investments, L.L.C., a Virginia limited
liability company, for which Mr. Winn serves as Manager.
(3) The address of Mr. Scatena is c/o Value America, Inc., 2300 Commonwealth
Drive, Charlottesville, Virginia 22901. Includes 300,300 shares of Common
Stock held of record by Frostine, L.L.C., a Virginia limited liability
company, for which Mr. Scatena serves as Manager.
(4) Consists of shares of Common Stock held of record by ULLICO. Mr Steed is
the Senior Vice President of Investments of ULLICO. Mr. Steed's address is
c/o The Union Labor Life Insurance Company, 111 Massachusetts Avenue,
N.W., Washington, D.C. 20001.
(5) The address of ULLICO is 111 Massachusetts Avenue, N.W., Washington, D.C.
20001
(6) Includes 1,476,861 shares of Common Stock held of record by Vulcan Ventures
Incorporated ("Vulcan"). Mr. Savoy is the Vice President of Vulcan. Mr.
Savoy's address is c/o Vulcan Nortwest Inc., 110 110th Avenue Northeast,
Suite 550, Bellevue, Washington 98004.
(7) The address of Mr. Motley is c/o John L. Motley Associates, Inc., 14900
Sweitzer Lane, Suite 103, Laurel, Maryland 20707. Includes 225,000 shares
of Common Stock underlying options exercisable within 60 days of July 2,
1998.
(8) The address of Mr. Johnson is c/o Value America, Inc., 2300 Commonwealth
Drive, Charlottesville, Virginia 22901. Includes 45,000 shares of Common
Stock underlying options exercisable within 60 days of July 2, 1998 and
30,000 shares of Common Stock underlying warrants exercisable within 60
days of July 2, 1998.
(9) The address of Mr. LeClair is c/o LeClair Ryan, A Professional Corporation,
707 East Main Street, 11th Floor, Richmond, Virginia 23219. Includes
30,000 shares of Common Stock underlying options exercisable within 60
days of July 2, 1998 and 30,000 shares of Common Stock underlying warrants
exercisable within 60 days of July 2, 1998.
(10) The address of Mr. Dukes is c/o Xerox Center, 1851 East First Street,
Suite 850, Santa Anna, California 92705. Includes an aggregate of 300,000
shares of Common Stock underlying options exercisable within 60 days of
July 2, 1998.
(11) Includes 75,000 shares of Common Stock underlying options exercisable
within 60 days of July 2, 1998 and 60,000 shares of Common Stock
underlying warrants exercisable within 60 days of July 2, 1998.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, 5,000,000 shares of Series A Stock and 617,979 shares of
Series B Stock. Upon the closing of this offering, all of the outstanding
shares of Series A Stock and Series B Stock will automatically convert into
shares of Common Stock.
The following summary of certain provisions of the Common Stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
Company's Articles which are included as an exhibit to the Registration
Statement of which this Prospectus is a part, and the provisions of applicable
law.
Common Stock
As of July 2, 1998, there were 23,077,500 shares of Common Stock
outstanding that were held of record by 20 stockholders and there were
outstanding options and warrants to purchase an aggregate of 3,287,637 shares
and 213,750 shares of Common Stock, respectively. See "Management -- Incentive
Plan" and " -- Warrants." Based on the number of shares of Common Stock
outstanding and the number of shares of Common Stock issuable upon conversion
of the Series A Stock and Series B Stock as of July 2, 1998, and after giving
effect to the sale of the _________ shares of Common Stock offered hereby,
there will be shares of Common Stock outstanding (assuming no exercise of
outstanding options and warrants).
The holders of Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Holders of Common
Stock do not have cumulative voting rights in the election of directors. The
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available for
the payment of dividends. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
of the Company. Holders of Common Stock have no preemptive rights or rights to
convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are fully paid and non-assessable, and the shares of
Common Stock to be issued upon completion of this offering will be fully paid
and non-assessable.
Warrants
As of July 2, 1998, there were outstanding warrants to purchase an
aggregate of 213,750 shares of Common Stock that were held of record by 14
persons. The warrants are fully exercisable, have an exercise price of $1.67
per share and expire on October 31, 2002. In the event the Company issues or
sells any shares of Common Stock without consideration or for a consideration
per share less than the market price per share of the Common Stock on the date
immediately prior to the issuance or sale of such shares, the number of shares
issuable upon exercise of each warrant and the exercise price of such warrant
will be adjusted according to a pre-defined, weighted-average formula. The
warrants and the shares of Common Stock issuable upon exercise of the warrants
are subject to certain restrictions on transfer.
Registration Rights
Pursuant to an Amended and Restated Registration Rights Agreement (the
"Preferred Stock Registration Rights Agreement") dated as of June 26, 1998
among the Company and the holders of the Series A Stock and the Series B Stock
(the "Preferred Holders"), the Preferred Holders are entitled to certain rights
with respect to the registration under the Securities Act of the shares of
Common Stock owned now or in the future by such holders and the shares of
Common Stock issuable upon conversion of the Series A Stock and the Series B
Stock (collectively, the "Registrable Securities"). As of June 30, 1998, the
Registrable Securities consisted of a total of 5,025,483 shares of Common Stock
(after giving effect to the conversion of the Series A Stock and the Series B
Stock into Common Stock upon the closing of this offering). If the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other securityholders, the Preferred
Holders are entitled to notice of such registration and are entitled to include
the Registrable Securities therein; provided, however, among other conditions,
that any underwriters for such offering may limit the number of such shares
included in such registration. In addition, the Preferred Holders may require
the Company on not more than two occasions to file a registration statement
under the Securities Act with respect to the Registrable Securities, and the
Company is required to use its best efforts to effect the registration, subject
to certain conditions and limitations. Further, the Preferred Holders may
require the Company, on not more than six occasions and not more than once in
any six-month period, to register the Registrable Securities on Form S-3 when
such form becomes available to the Company, subject to certain conditions and
limitations. The Company will bear all of the expenses of any such
registration.
46
<PAGE>
In addition, pursuant to a Registration Rights Agreement dated as of June
3, 1998 between the Company and Capital Advisers, L.L.C. ("Capital"), Capital
is entitled to certain rights with respect to the registration under the
Securities Act of 288,321 shares of Common Stock (the "Capital Registrable
Shares"). If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other
securityholders, Capital is entitled to notice of such registration and is
entitled to include, on not more than two occasions, the Capital Registrable
Shares therein; provided, however, among other conditions, that any
underwriters for such offering may limit the number of such shares included in
such registration. In addition, Capital may require the Company on not more
than one occasion to file a registration statement on Form S-3 under the
Securities Act with respect to the Capital Registrable Securities, and the
Company is required to use its best efforts to effect the registration, subject
to certain conditions and limitations. The Company will bear all of the
expenses of any such registration. Capital's registration rights are subject to
and restricted by the terms of the Preferred Stock Registration Rights
Agreement.
Anti-Takeover Effects of Provisions of the Articles and Bylaws
The Company's Articles and Bylaws contain provisions that might make more
difficult the acquisition of control of the Company by means of a tender offer,
a proxy contest, open market purchases or otherwise. The Articles provide for
the Company's Board of Directors to be divided into three classes serving
staggered terms so that the initial terms of each class of directors will
expire at the respective annual meetings of stockholders in 1999, 2000 and
2001. Starting with the annual meeting of stockholders in 1999, one class of
directors will be elected each year for a three-year term, subject to the terms
of a voting agreement among certain existing stockholders. See "Certain
Transactions." A director may be removed only for cause and then only by the
holders of at least a majority of the shares then entitled to vote at an
election of directors.
The Articles require the affirmative vote of more than two-thirds of the
outstanding shares of Common Stock for the approval of mergers, share
exchanges, certain dispositions of assets and other extraordinary transactions.
The Articles further require the affirmative vote of the majority of the
outstanding shares of Common Stock for the approval of amendments to the
Articles, except that the affirmative vote of at least three-quarters of the
outstanding shares of Common Stock is required to approve an amendment to the
Articles that (i) reduces or eliminates the number of authorized shares of the
Company's capital stock, (ii) amends or repeals the Company's staggered Board
of Directors, (iii) amends or repeals the Articles' super-majority voting
provisions, (iv) amends or repeals the Articles' indemnification provisions,
(v) amends or repeals the Articles' restrictions on the calling of special
meetings of the Company's stockholders, or (vi) amends or repeals the Articles'
limitations on the removal of the Company's directors.
The Bylaws establish an advance notice procedure for the nomination, other
than by the Board of Directors of the Company, of candidates for election as
directors and for certain matters to be brought before an annual meeting of
stockholders. A stockholder must give the Company notice not less than 90 days
prior to an annual meeting of stockholders to (i) nominate persons to be
elected directors of the Company at such meeting or (ii) propose business
matters to be considered at such meeting.
The purpose of the relevant provisions of the Articles and Bylaws is to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company and to encourage persons seeking to
acquire control of the Company to consult first with the Company's Board of
Directors to negotiate the terms of any proposed business combination or offer.
The provisions are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a takeover of the Company that does not have the
effect of maximizing long-term stockholder value or is otherwise unfair to
stockholders of the Company, or an unsolicited proposal for the restructuring
or sale of all or part of the Company that could have such effects. See "Risk
Factors -- Anti-Takeover Provisions; Indemnification."
Elimination of Liability and Indeminfication
The Company's Articles eliminate the liability of the officers and
directors of the Company for monetary damages in any proceeding brought by or
on behalf of stockholders of the Company except in cases of willful misconduct
or a knowing violation of criminal law or any federal or state securities law.
The Company's Articles of Incorporation also provide for mandatory
indemnification of any director or officer of the Company who is, was, or is
threatened to be made a party to a proceeding (including a proceeding by or in
the right of the Company) because (i) he or she is or was a director or officer
of the Company or (ii) he or she is or was serving the Company or another legal
entity in any capacity at the request of the Company while a director or
officer of the Company, against all liabilities and expenses incurred in
connection with such proceeding, except such liabilities as are incurred
because of such individual's willful misconduct or knowing violation of the
criminal law. In addition, the Company's Articles expressly authorize the
Company to enter into agreements to indemnify
47
<PAGE>
its officers and directors to the fullest extent permitted by the Articles and
to advance expenses incurred as a result of any proceeding against them as to
which they could be indemnified.
There is no pending litigation or proceeding involving an officer or
director of the Company as to which indemnification is being sought, and the
Company is not aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
The rights of indemnification provided in the Company's Articles are not
exclusive of any other rights that may be available under any insurance or
other agreement, by vote of stockholders or disinterested directors, or
otherwise. In addition, the Articles authorize the Company to maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company, whether or not the Company would have the power to
provide indemnification to such person.
Certain Corporate Governance Provisions of the Virginia Act
The Company is subject to certain anti-takeover provisions of the Virginia
Act that regulate affiliated transactions, control share acquisitions and the
adoption of stockholder rights plans. The "affiliated transactions" provisions
of the Virginia Act restrict certain transactions ("Affiliated Transactions")
between the Company and any person (an "Interested Stockholder") who
beneficially owns more than 10% of any class of the Company's voting
securities. These restrictions, which are described below, do not apply to an
Affiliated Transaction with an Interested Shareholder who has been such
continuously since the date the Company first had 300 stockholders of record or
whose acquisition of shares making such person an Interested Stockholder was
previously approved by a majority of the Company's Disinterested Directors.
"Disinterested Director" means, with respect to a particular Interested
Stockholder, a member of the Company's Board of Directors who was (i) a member
on the date on which an Interested Shareholder became an Interested Stockholder
or (ii) recommended for election by, or was elected to fill a vacancy and
received the affirmative vote of, a majority of the Disinterested Directors
then on the Board of Directors. Affiliated Transactions include mergers, share
exchanges, material dispositions of corporate assets not in the ordinary course
of business, any dissolution of the Company proposed by or on behalf of an
Interested Stockholder, or any reclassification, including a reverse stock
split, recapitalization or merger of the Company with its subsidiaries, which
increases the percentage of voting shares beneficially owned by an Interested
Stockholder by more than five percent.
The "affiliated transaction" provisions of the Virginia Act prohibits the
Company from engaging in an Affiliated Transaction with an Interested
Stockholder for a period of three years after the Interested Stockholder became
such unless the transaction is approved by the affirmative vote of a majority
of the Disinterested Directors and by the affirmative vote of the holders of
two-thirds of the voting shares other than those shares beneficially owned by
the Interested Stockholder. Following the three-year period, in addition to any
other vote required by law, an Affiliated Transaction must be approved either
by a majority of the Disinterested Directors or by the stockholder vote
described in the preceding sentence unless the transaction satisfies the
fair-price provisions of the statute. These fair-price provisions require, in
general, that the consideration to be received by stockholders in the
Affiliated Transaction (i) be in cash or in the form of consideration used by
the Interested Stockholder to acquire the largest number of its shares and (ii)
not be less, on a per share basis, than the amount determined in the manner
specified in the statute by reference to the highest price paid by the
Interested Stockholder for shares it acquired and the fair market value of the
shares on specified dates.
The Company is also subject to the "control share acquisitions" provision
of the Virginia Act, which provide that shares of the Company's voting
securities which are acquired in a "Control Share Acquisition" have no voting
rights unless such rights are granted by a stockholders' resolution approved by
the holders of a majority of the votes entitled to be cast on the election of
directors by persons other than the acquiring person or any officer or
employee-director of the Company. A "Control Share Acquisition" is an
acquisition of voting shares which, when added to all other voting shares
beneficially owned by the acquiring person, would cause such person's voting
strength with respect to the election of directors to meet or exceed any of the
following thresholds: (i) one-fifth, (ii) one-third or (iii) a majority.
"Beneficial ownership" means the sole or shared power to dispose or direct the
disposition of shares, or the sole or shared power to vote or direct the voting
of shares, or the sole or shared power to acquire shares, including any such
power which is not immediately exercisable, whether such power is direct or
indirect or through any contract, arrangement, understanding, relationship or
otherwise. A person is deemed to be a beneficial owner of shares as to which
such person may exercise voting power by virtue of an irrevocable proxy
conferring the right to vote. An acquiring person is entitled, before or after
a Control Share Acquisition, to file a disclosure statement with the Company
and demand a special meeting of stockholders to be called for the purpose of
considering whether to grant voting rights for the shares acquired or proposed
to be acquired. The Company may, during specified periods, redeem the shares so
acquired if no disclosure statement is filed or if the stockholders have failed
to grant voting rights to such shares. In the event full voting rights are
granted to an acquiring person who then has majority voting power, those
stockholders who did not vote in favor of such grant are entitled to dissent
and demand payment of the fair
48
<PAGE>
value of their shares from the Company. The control share acquisitions statute
does not apply to an actual or proposed Control Share Acquisition if the
Articles or Bylaws are amended, within the time limits specified in the
statute, to so provide.
Finally, the stockholder rights plan provisions of the Virginia Act permit
the Company's Board of Directors to adopt a stockholder rights plan that could
render a hostile takeover prohibitively expensive if the Board determines that
such a takeover is not in the best interests of the Company.
A corporation may, at its option, elect not to be governed by the
foregoing provisions of the Virginia Act by amending its articles of
incorporation or bylaws to exempt itself from coverage; provided, however, that
any such election not to be governed by the "affiliated transactions" statute
must be approved by the corporation's stockholders and will not become
effective until 18 months after the date it is approved. The Company has not
elected to exempt itself from coverage under these statutes. See "Risk Factors
- -- Anti-Takeover Provisions; Indemnification."
Effect of Certain Provisions Upon an Attempt to Acquire Control of the Company
The foregoing provisions of the Company's Articles and Bylaws, as well as
the provisions of Virginia law described above, make more difficult, and may
discourage certain types of potential acquirors from proposing, a merger,
tender offer or proxy contest, even if such transaction or occurrence may be
favorable to the interests of the stockholders. Similarly, such provisions may
delay or frustrate the assumption of control by a holder of a large block of
Common Stock and the removal of incumbent management, even if such removal
might be beneficial to stockholders. By discouraging takeover attempts, these
provisions might have the incidental effect of inhibiting certain changes in
management and temporary fluctuations in the market price of the Common Stock
that might result from actual or proposed takeover attempts. See "Risk Factors
- -- Anti-Takeover Provisions; Indemnification."
Transfer Agent and Registrar
First Union National Bank serves as the Company's transfer agent and
registrar.
Listing
Application has been made to have the Common Stock approved for quotation
on the Nasdaq National Market under the proposed symbol "VUSA."
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares
of Common Stock outstanding, based on shares outstanding on July 2, 1998. There
will also be approximately 808,752 shares covered by outstanding vested
options, which are not considered to be outstanding shares. Of the outstanding
shares, the shares sold in this offering will be freely tradable
without restriction under the Securities Act unless purchased by "affiliates"
of the Company, as that term is defined in Rule 144 under the Securities Act.
All of the remaining 28,103,412 outstanding shares (the "Restricted Shares")
will be "restricted securities" as defined in Rule 144. Restricted securities
generally may be sold in the public market only if they are registered under
the Securities Act or sold in compliance with Rule 144. The Restricted Shares
are subject to lock-up agreements providing that, with certain limited
exceptions, the holder thereof will not offer, sell, contract to sell, grant an
option to purchase, make a short sale or otherwise dispose of, or engage in any
hedging or other transaction that is designed or reasonably expected to lead to
a disposition of, any shares of Common Stock or any option or warrant to
purchase shares of Common Stock or any securities exchangeable for or
convertible into shares of Common Stock for a period of 180 days after the date
of this Prospectus without the prior written consent of BancAmerica Robertson
Stephens. As a result of these lock-up agreements, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144 and 701 under
the Securities Act, none of these shares will be available for sale in the
public market until 180 days after the date of this Prospectus. Beginning 180
days after the date of this Prospectus (or earlier with the consent of
BankAmerica Robertson Stephens), approximately 25,047,375 of these shares
(excluding approximately 1,199,580 shares then issuable upon vested options)
will be eligible for immediate resale in the public market under Rules 144 and
701 under the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding periods of certain prior owners) will be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(i) 1% of the number of shares of Common Stock then outstanding (or
approximately shares immediately after this offering); or (ii) the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales under
Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years (including the holding periods of certain prior owners), is entitled to
sell such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. The one-year and two-year
holding periods described above do not begin to run until the full purchase
price or other consideration is paid by the person acquiring the Restricted
Shares from the Company or an affiliate of the Company.
Rule 701 permits resales of certain shares in reliance upon Rule 144 but
without compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of, or consultant
to, the Company who purchased his or her shares from the Company pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements of
Rule 144. Rule 701 further provides that non-affiliates may sell such shares in
reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
Prospectus before selling such shares. However, certain of the shares that may
be issued pursuant to Rule 701 will be subject to the lock-up agreements
described above and will not become eligible for sale until the expiration of
180 days after the date of this Prospectus (or 90 days after the date of this
Prospectus with the prior written consent of BancAmerica Robertson Stephens).
Approximately 90 days after the closing of this offering, the Company
intends to file a registration statement on Form S-8 under the Securities Act
covering shares of Common Stock subject to incentive awards outstanding or
reserved for issuance under the Company's Incentive Plan. Based on the number
of shares subject to outstanding options at July 2, 1998 and currently reserved
for issuance under all such plans, such registration statement will cover
approximately 3,750,000 shares. Such registration statement will automatically
become effective upon filing. Accordingly, shares registered under such
registration statement will be available for sale in the open market upon the
filing of such registration statement subject to Rule 144 volume limitations
applicable to affiliates of the Company, and, in the case of existing
stockholders, subject to the expiration of the 180-day lock-up agreements
described above.
Prior to this offering, there has been no public market for the Common
Stock of the Company. There can be no assurance that a significant public
market for the Common Stock will develop or be sustained after this offering.
Future sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock prevailing from time to
time and could impair the Company's ability to raise capital through the sale
of its equity securities.
50
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, BancAmerica Robertson Stephens and Volpe Brown Whelan &
Company, LLC (the "Representatives"), have severally agreed with the Company,
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock set forth
opposite their names below. The Underwriters are committed to purchase and pay
for all such shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
- ---------------------------------------------------- ----------
<S> <C>
BancAmerica Robertson Stephens ...............
Volpe Brown Whelan & Company, LLC ............
----------
Total ......................................
==========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share, of
which $ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount of
proceeds to be received by the Company as set forth on the cover page of this
Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the same price per share as the
Company will receive for the shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of
the shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the shares are
being sold. The Company will be obligated, pursuant to the option, to sell
shares to the extent the option is exercised. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares of Common Stock offered hereby.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each of the Company's executive officers, directors and stockholders has
agreed with the Representatives, for a period of 180 days after the date of
this Prospectus (the "Lock-Up Period"), subject to certain exceptions, not to
offer to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock, or any securities convertible
into or exchangeable for shares of Common Stock owned as of the date of this
Prospectus or thereafter acquired directly by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the
prior written consent of BancAmerica Robertson Stephens. However, BancAmerica
Robertson Stephens may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
There are no agreements between the Representatives and any of the Company's
stockholders providing consent by the Representatives to the sale of shares
prior to the expiration of the Lock-Up Period. The Company has agreed that
during the Lock-Up Period, the Company will not, subject to certain exceptions,
without the prior written consent of BancAmerica Robertson Stephens, (i)
consent to the disposition of any shares held by stockholders prior to the
expiration of the Lock-Up Period or (ii) issue, sell, contract to sell or
otherwise dispose of, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock, or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock, other than the
Company's sale of shares in the offering, the issuance of Common Stock upon the
exercise of outstanding options and warrants, and the Company's issuance of
incentive awards under the Company's Incentive Plan. See "Shares Eligible for
Future Sale."
51
<PAGE>
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock offered hereby will be determined through negotiations between the
Company and the Representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain financial information of
the Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation
M under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or purchase of the
Common Stock on behalf of the Underwriters to reduce a short position incurred
by the Underwriters in connection with the offering. A "penalty bid" is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with the
offering if the Common Stock originally sold by such Underwriter or syndicate
member is purchased by the Representatives in a syndicate covering transaction
and has therefore not been effectively placed by such Underwriter or syndicate
member. The Representatives have advised the Company that such transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may
be discontinued at any time.
52
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by LeClair Ryan, A Professional Corporation, Richmond,
Virginia. Gary D. LeClair, the Chairman of LeClair Ryan, A Professional
Corporation, is a director of the Company and the beneficial owner of 120,000
shares of Common Stock. See "Management -- Executive Officers, Directors and
Key Personnel" and "Principal Stockholders." Certain legal matters in
connection with this offering will be passed upon for the Underwriters by
Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
The financial statements of Value America, Inc. as of March 31, 1998,
December 31, 1997 and December 31, 1996, and for the three months ended March
31, 1998, the year ended December 31, 1997 and the period from inception (March
13, 1996) through December 31, 1996 included in this Prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby (the "Registration Statement"). This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement
and the exhibits and schedules filed as a part thereof. Statements contained in
this Prospectus regarding the contents of any contract or any other document
referred to contain the information required to be disclosed in this Prospectus
pursuant to the Securities Act and the rules and regulations thereunder. In
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. A copy of the Registration
Statement, including the exhibits and schedules thereto, may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional
offices located at 7 World Trade Center, Suite 1300, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all
or any part of the Registration Statement may be obtained from the public
reference facilities of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The SEC maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as the Company, that file
electronically with the SEC.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Accountants ........................................................ F-2
Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998 ....................... F-3
Statements of Operations for the period from Inception (March 13, 1996) through
December 31, 1996, the year ended December 31, 1997 and the three months ended
March 31, 1997 (unaudited) and 1998 .................................................... F-4
Statements of Changes in Stockholders' Equity (Deficit) for the period from Inception
(March 13, 1996) through March 31, 1998 ................................................ F-5
Statements of Cash Flows for the period from Inception (March 13, 1996) through
December 31, 1996, the year ended December 31, 1997 and the three months ended
March 31, 1997 (unaudited) and 1998 .................................................... F-6
Notes to Financial Statements ............................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
STOCKHOLDERS OF VALUE AMERICA, INC.
In our opinion, the accompanying balance sheets and related statements of
operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Value
America, Inc. at December 31, 1996 and 1997 and at March 31, 1998, and the
results of its operations and its cash flows for the period from Inception
(March 13, 1996) through December 31, 1996, the year ended December 31, 1997,
and the three months ended March 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Falls Church, VA
June 8, 1998, except as to Note 11, which
is as of July 1, 1998
F-2
<PAGE>
VALUE AMERICA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
December 31, March 31, Balance Sheet at
------------------------------ --------------- March 31, 1998
1996 1997 1998 (Note 12)
------------- -------------- --------------- -----------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 80,902 $ 10,340,987 $ 6,943,868 $ 6,793,868
Restricted cash ....................................... -- -- 1,000,000 1,000,000
Accounts receivable, net of allowances of $0, $49,000
and $148,000 ........................................ 12,500 458,005 1,135,070 1,135,070
Inventory ............................................. -- -- 347,200 347,200
Other current assets .................................. -- 7,128 89,000 89,000
---------- ------------ ------------ ------------
TOTAL CURRENT ASSETS ................................ 93,402 10,806,120 9,515,138 9,365,138
---------- ------------ ------------ ------------
Equipment, furniture and fixtures, net ................. 48,578 167,800 548,062 548,062
Other assets ........................................... 1,894 20,158 20,297 20,297
---------- ------------ ------------ ------------
TOTAL ASSETS ........................................ $ 143,874 $ 10,994,078 $ 10,083,497 $ 9,933,497
========== ============ ============ ============
LIABILITIES, MANDATORILYREDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS'EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable ...................................... 29,744 126,643 2,214,579 2,214,579
Accrued expenses ...................................... 25,052 707,133 213,833 213,833
Deferred revenue ...................................... -- 352,500 1,059,213 1,059,213
Other current liabilities ............................. 4,152 18,041 34,685 34,685
Loan from stockholder ................................. 150,000 -- -- --
---------- ------------ ------------ ------------
TOTAL CURRENT LIABILITIES ........................... 208,948 1,204,317 3,522,310 3,522,310
Deferred revenue ....................................... 210,000 1,294,586 1,693,002 1,693,002
Other liabilities ...................................... -- 66,644 50,000 50,000
---------- ------------ ------------ ------------
TOTAL LIABILITIES ................................... 418,948 2,565,547 5,265,312 5,265,312
Commitments and contingencies
MANDATORILY REDEEMABLE PREFERRED STOCK:
Series A, without par value, convertible, 5% cumulative
dividend; 5,000,000 shares authorized, issued and
outstanding (0 in 1996 and pro forma); redeemable
for $4.00 per share ................................. -- 9,465,982 10,481,084 --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 50,000,000 shares
authorized; 22,500,000, 23,152,500, 23,152,500 and
26,035,728 shares issued and outstanding ............ 150,000 1,429,250 1,503,250 11,834,334
Accumulated deficit ................................... (425,074) (2,466,701) (7,166,149) (7,166,149)
---------- ------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ................ (275,074) (1,037,451) (5,662,899) 4,668,185
---------- ------------ ------------ ------------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT) .......................................... $ 143,874 $ 10,994,078 $ 10,083,497 $ 9,933,497
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VALUE AMERICA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period
from Inception
(March 13, Three Months Ended
1996) through Year Ended March 31,
December 31, December 31, --------------------------------
1996 1997 1997 1998
--------------- --------------- -------------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales ................................ $ -- $ 47,677 $ -- $ 1,986,654
Product presentations .................... -- 85,764 -- 204,915
----------- ------------ ----------- ------------
Total revenues ......................... -- 133,441 -- 2,191,569
----------- ------------ ----------- ------------
COST OF REVENUES:
Cost of goods sold ....................... -- 31,025 -- 2,061,993
Product presentations .................... 96,680 454,617 29,324 329,550
----------- ------------ ----------- ------------
Total cost of revenues ................. 96,680 485,642 29,324 2,391,543
----------- ------------ ----------- ------------
Gross profit (loss) ....................... (96,680) (352,201) (29,324) (199,974)
----------- ------------ ----------- ------------
OPERATING EXPENSES:
Sales and marketing ...................... 43,862 487,626 42,786 2,224,292
General and administrative ............... 201,157 544,479 54,211 840,006
Technical and system development ......... 86,758 486,776 21,474 374,215
----------- ------------ ----------- ------------
Total operating expenses ............... 331,777 1,518,881 118,471 3,438,513
----------- ------------ ----------- ------------
Operating income (loss) .................. (428,457) (1,871,082) (147,795) (3,638,487)
OTHER INCOME AND EXPENSES:
Interest income, net ..................... 3,383 17,823 351 99,006
----------- ------------ ----------- ------------
NET LOSS (425,074) (1,853,259) (147,444) (3,539,481)
Accretion and dividends on Series A
preferred stock .......................... -- 188,368 -- 1,159,967
----------- ------------ ----------- ------------
NET LOSS AVAILABLE FOR COMMON
SHAREHOLDERS ............................. $ (425,074) $ (2,041,627) $ (147,444) $ (4,699,448)
=========== ============ =========== ============
NET LOSS PER COMMON SHARE:
Basic .................................... $ (0.02) $ (0.09) $ (0.01) $ (0.20)
=========== ============ =========== ============
Diluted .................................. $ (0.02) $ (0.09) $ (0.01) $ (0.20)
=========== ============ =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic .................................... 22,500,000 22,615,625 22,500,000 23,152,500
=========== ============ =========== ============
Diluted .................................. 22,500,000 22,615,625 22,500,000 23,152,500
=========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VALUE AMERICA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from Inception (March 13, 1996) through March 31, 1998
<TABLE>
<CAPTION>
Common Stock
---------------------------- Accumulated
Shares Amount Deficit Total
------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Initial capitalization ................................ 22,500,000 $ 150,000 $ -- $ 150,000
Net loss .............................................. -- -- (425,074) (425,074)
---------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1996 ............................ 22,500,000 150,000 (425,074) (275,074)
---------- ---------- ------------ ------------
Common stock granted as employee compensation ......... 75,000 43,750 -- 43,750
Sale of common stock and warrants ..................... 577,500 962,500 -- 962,500
Accrual of preferred stock dividends .................. -- -- (37,500) (37,500)
Accretion of mandatorily redeemable preferred
stock ................................................ -- -- (150,868) (150,868)
Stock-based compensation .............................. -- 273,000 -- 273,000
Net loss .............................................. -- -- (1,853,259) (1,853,259)
---------- ---------- ------------ ------------
BALANCE, DECEMBER 31, 1997 ............................ 23,152,500 1,429,250 (2,466,701) (1,037,451)
---------- ---------- ------------ ------------
Accrual of preferred stock dividends .................. -- -- (225,000) (225,000)
Accretion of mandatorily redeemable preferred
stock ................................................ -- -- (934,967) (934,967)
Stock-based compensation .............................. -- 74,000 -- 74,000
Net loss .............................................. -- -- (3,539,481) (3,539,481)
---------- ---------- ------------ ------------
BALANCE, MARCH 31, 1998 ............................... 23,152,500 $1,503,250 $ (7,166,149) $ (5,662,899)
========== ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VALUE AMERICA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period
from Inception
(March 13, Three Months Ended
1996) through Year Ended March 31,
December 31, December 31, -------------------------------
1996 1997 1997 1998
--------------- ----------------- -------------- ----------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................... $ (425,074) $ (1,853,259) $ (147,444) $ (3,539,481)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization ............................. 9,137 45,946 11,515 48,652
Common stock granted as employee compensation ............. -- 43,750 -- --
Stock-based compensation .................................. -- 273,000 -- 74,000
(Increase) decrease in:
Accounts receivable ..................................... (12,500) (445,505) 8,985 (677,065)
Inventory ............................................... -- -- -- (347,200)
Other current assets .................................... -- (7,128) -- (81,872)
Other assets ............................................ (1,894) (18,264) -- (139)
Increase (decrease) in:
Accounts payable ........................................ 29,744 96,899 (15,366) 2,087,936
Accrued expenses ........................................ 25,052 89,810 5,155 98,971
Deferred revenue ........................................ 210,000 1,437,086 34,750 1,105,129
---------- ------------- ---------- ------------
NET CASH USED IN OPERATING ACTIVITIES ........................ (165,535) (337,665) (102,405) (1,231,069)
---------- ------------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash ............................................. -- -- -- (1,000,000)
Capital expenditures ........................................ (57,715) (165,168) (8,967) (428,914)
---------- ------------- ---------- ------------
NET CASH USED IN INVESTING ACTIVITIES ........................ (57,715) (165,168) (8,967) (1,428,914)
---------- ------------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from assets placed under capital lease ............. 5,558 46,892 46,892 --
Principal payments under capital lease obligations .......... (1,406) (16,359) (452) --
Proceeds from issuance of common stock ...................... 150,000 962,500 -- --
Proceeds from issuance of preferred stock ................... -- 10,000,000 -- --
Payment of offering costs ................................... -- (130,115) -- (592,271)
Repayment of loan from stockholder .......................... -- (150,000) -- --
Borrowing from stockholder .................................. 150,000 -- -- --
Proceeds from note payable .................................. -- 50,000 -- --
Dividends paid .............................................. -- -- -- (144,865)
---------- ------------- ---------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .......... 304,152 10,762,918 46,440 (737,136)
---------- ------------- ---------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......... 80,902 10,260,085 (64,932) (3,397,119)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD ........... -- 80,902 80,902 10,340,987
---------- ------------- ---------- ------------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD ................. $ 80,902 $ 10,340,987 $ 15,970 $ 6,943,868
========== ============= ========== ============
</TABLE>
Non-cash investing and financing transactions:
During 1997, the Company granted 75,000 shares of common stock valued at
$43,750 to an employee in lieu of cash compensation.
During 1997, the increase in accrued expenses includes $592,271 related to
offering costs for the issuance of mandatorily redeemable preferred stock.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997 and March 31, 1998
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Value America, Inc. (the "Company") is an Internet-based retailer that
sells a large selection of high quality, brand name products and services at
competitive prices to both consumers and businesses. Additionally, the Company
develops and maintains custom multi-media presentations for the products and
services featured on its online store. The Company was considered to be a
development stage enterprise until late 1997.
Risks and Uncertainties
The Company is subject to all of the risks inherent in an early stage
business in the technology and retail industries. These risks include, but are
not limited to: limited operating history, limited senior management resources,
management of a changing business, reliance on merchandise vendors, reliance on
other third parties, the competitive nature of the industry, dependence on the
Internet and related security risks, and the uncertain ability to protect
proprietary intellectual properties.
Use of Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with
original maturities of three months or less to be cash equivalents.
Restricted Cash
In March 1998, the Company entered into an asset collateral agreement with
Deutsche Financial Services Corporation (DFS) whereby the Company granted a
security interest in and limited power of attorney over the entire balance of a
$1,000,000 certificate of deposit in support of a wholesale financing agreement
with DFS and a major vendor of the Company. In addition, DFS and the vendor
have been granted a security interest in substantially all of the Company's
assets. Such agreement may be terminated upon written notice at any time by
either party. The security interests in the certificate of deposit and other
assets of the Company will continue in existence until termination of the
agreements and settlement of all amounts owed, if any, to DFS. The $1,000,000
certificate of deposit is included in restricted cash as of March 31, 1998.
In April 1998, the Company entered into a two-year agreement for credit
card clearing services which required the Company to establish a $1,500,000
cash deposit account to cover potential chargebacks. Although the agreement may
be terminated without penalty by either party, the credit card processor can
require the Company to maintain the account for up to ten months following
termination. Additionally, the credit card processor has a first priority lien
and security interest in the reserve account until the funds are released to
the Company.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, which include
accounts receivable and accounts payable, is considered to approximate fair
value due to the relatively short maturities of the respective instruments.
Inventory and Cost of Goods Sold
The Company began in 1998 to periodically purchase quantities of
merchandise from vendors prior to receiving customer orders. The inventory
generally remains at the manufacturer or distributor that provides fulfillment
services. Inventories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
During the three months ended March 31, 1998, the Company purchased goods
from three vendors that accounted for approximately 56%, 25% and 15%,
respectively, of cost of goods sold. The comparable amount of cost of goods
sold is minimal in 1997. The Company has no long-term contracts or arrangements
with any of its vendors that guarantee the availability of merchandise, the
continuation of particular payment terms, or the extension of credit limits.
There can be no assurance that the Company's current vendors will continue to
sell merchandise to the Company on current terms or that
F-7
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
the Company will be able to establish new or extend current vendor
relationships to ensure acquisition of merchandise in a timely manner and on
acceptable commercial terms. If the Company were unable to develop and maintain
relationships with vendors that would allow it to obtain sufficient quantities
of merchandise on acceptable commercial terms, such inability could have a
material adverse effect on the Company's financial position, results of
operations and cash flows.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are recorded at cost. The Company
computes depreciation on a straight-line basis for financial reporting purposes
and uses accelerated depreciation methods for tax purposes, where appropriate.
Revenue and Cost Recognition
The Company has contractual agreements with vendors to prepare and
maintain multi-media product presentations in the Company's online store. These
agreements provide for both the development and the Web-access of these
presentations for established contractual periods. The Company recognizes the
costs of developing presentations as incurred and recognizes product
presentation revenue ratably over the period of the related agreement beginning
upon availablity of the presentation in the Company's online store. At December
31, 1997 and March 31, 1998, the Company had deferred revenue of $1,647,086 and
$2,752,215, respectively, which it will recognize over varying terms through
2000. The agreements generally provide for the payment of a renewal fee if the
vendor wants the presentation to be listed beyond the initial agreement period.
Revenues from renewal fees when generated will be recognized ratably over the
renewal term.
The Company's online store showcases products and services using
multi-media presentations that allow customers to learn more about the features
and benefits of the products and to purchase the products from the Company. The
Company's vendors generally ship products directly to the customer upon receipt
of an order from the Company. Revenue from product sales is recognized upon
shipment from the vendor. The Company is responsible for selling the
merchandise, collecting payment from the customer, ensuring shipment to the
customer and processing returns. The Company takes title to the product upon
shipment and bears the risk of loss for collection, delivery and merchandise
returns from customers. The Company accrues a reserve for estimated product
returns at the time of sale.
Advertising
Advertising costs are expensed as incurred. Revenue received from
cooperative advertising agreements is recorded as a reduction of advertising
expense. Advertising expense for the year ended December 31, 1997 and the three
months ended March 31, 1998 was approximately $194,000 and $1,826,000,
respectively.
Value America Dollars
The Company offers customers Value America Dollars on certain purchases.
These can be used against future purchases of merchandise from the store. The
Company records a liability for Value America Dollars at the time of the sale
on which they are earned. At December 31, 1997 and March 31, 1998, the Company
had recorded approximately $2,000 and $4,000, respectively, in accrued expenses
for Value America Dollars.
Mandatorily Redeemable Preferred Stock
The Company carries its mandatorily redeemable preferred stock at fair
value with periodic adjustment to increase the carrying value to its redemption
value by the earliest possible date of stockholder initiated redemption. See
Note 5 for additional information on the Company's mandatorily redeemable
preferred stock.
Earnings per Share
Statement of Financial Accounting Standards No. 128 (FAS 128), Earnings
per Share, establishes standards for computing and presenting earnings per
share. Basic earnings per share is calculated using the average shares of
common stock outstanding, while diluted earnings per share reflects the
potential dilution that could occur if stock options and warrants were
exercised. Stock options and warrants are excluded from the calculation if
their effect would be antidilutive.
F-8
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Stock-Based Compensation
FAS 123, Accounting for Stock-Based Compensation, defines a fair value
based method of accounting for an employee stock option or similar equity
instrument. This statement gives entities a choice of recognizing related
compensation expense by adopting the fair value method or to measure
compensation using the intrinsic value approach under Accounting Principles
Board (APB) Opinion No. 25. The Company has chosen to continue to use the
measurement prescribed by APB Opinion No. 25 for employee stock options and to
make supplemental disclosures to show the effects of using the fair value-based
measurement criteria. The Company accounts for options granted to non-employees
under FAS 123.
Income Taxes
FAS 109, Accounting for Income Taxes, requires the recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences in future
years arising from differences between the tax bases of assets and liabilities
and their financial reporting amounts at each period end based on enacted tax
laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized. The provision for income taxes represents the tax payable for the
period and the change during the period in deferred tax assets and liabilities.
Technical and System Development
Technical and system development expenses consist primarily of payroll,
related expenses and consulting fees for the development of the Company's Web
site and order fulfillment systems. To date, all technical and system
development costs have been expensed as incurred.
New Accounting Pronouncements
As of January 1, 1998, the Company adopted FAS 130, Reporting
Comprehensive Income, which establishes standards for the reporting and display
of comprehensive income and its components. The adoption of FAS 130 had no
impact on the Company's net loss or stockholders' equity as the comprehensive
loss was the same as the Company's net loss.
In June 1997, the Financial Accounting Standards Board issued FAS 131,
Disclosures about Segments of an Enterprise and Related Information. FAS 131
establishes standards for the way that public reporting enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in annual financial reports issued to stockholders. FAS 131 is
required to be adopted for the Company's fiscal year ending December 31, 1998.
Based upon its present structure, the Company does not believe that FAS 131
will significantly impact existing presentations and disclosures. As the
Company's business and structure continue to evolve, the Company will continue
to evaluate the impact, if any, of the adoption of this pronouncement on the
Company's existing disclosures.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1 Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. Costs incurred prior to the initial application of SOP 98-1,
whether capitalized or not, should not be adjusted to the amounts that would
have been capitalized had this SOP been in effect when those costs were
incurred. SOP 98-1 is effective for the Company's fiscal year ending December
31, 1999. The Company has not yet evaluated the impact of this pronouncement on
the Company's financial condition, results of operations or cash flows.
Interim Financial Information (Unaudited)
Interim financial information for the three months ended March 31, 1997
included herein is unaudited. However, the Company believes the interim
financial information includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for the three months ended March 31,
1998 were audited but are not necessarily indicative of the results to be
expected for the year ending December 31, 1998.
F-9
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
2. ACCOUNTS RECEIVABLE
Accounts receivable primarily represent amounts billed for contracts
related to multi-media product presentations. Contract terms permit the Company
to bill 50% of the total contract value at signing with the remainder billable
upon Web accessibility.
The Company has recorded a provision for estimated uncollectible accounts
receivable of $49,000 and $99,000 for the year ended December 31, 1997 and the
three months ended March 31, 1998, respectively. To date the Company has not
written off any accounts receivable.
3. EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ March 31, Depreciable
1996 1997 1998 Lives
---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Computer hardware and software ................ $ 54,537 $ 179,072 $ 510,148 2 years
Office furniture and equipment ................ 3,178 37,580 134,131 2-5 years
Other ......................................... -- 6,231 7,518 2 years
-------- --------- ----------
57,715 222,883 651,797
Accumulated depreciation ...................... (9,137) (55,083) (103,735)
-------- --------- ----------
Net equipment, furniture and fixtures ......... $ 48,578 $ 167,800 $ 548,062
======== ========= ==========
</TABLE>
Computer equipment with a capitalized cost of $5,558, $50,998 and $50,998,
at December 31, 1996 and 1997 and March 31, 1998, respectively, and accumulated
depreciation of $1,853, $33,671 and $40,045, at December 31, 1996 and 1997 and
March 31, 1998, respectively, is held under capital lease agreements.
4. NOTE PAYABLE
At December 31, 1997 and March 31, 1998, the Company had a note payable to
an employee for $50,000. This note bears interest at 5% annually with interest
and principal payable on September 15, 2007. The note payable is included in
other liabilities at December 31, 1997 and March 31, 1998.
5. MANDATORILY REDEEMABLE PREFERRED STOCK
In December 1997, the Company sold 5,000,000 shares of 5% Cumulative
Convertible Series A Preferred Stock ("Series A") for $10,000,000. The Company
recorded this sale, net of related issuance costs, at $9,277,614. These shares
are convertible at any time at the option of the holder at a rate such that one
preferred share will be convertible into the number of common shares which
results from dividing $2.00 by the conversion price (approximately $3.47 at
December 31, 1997, subject to adjustment). A preferred stockholder is entitled
to the number of votes equal to the largest number of full shares of common
stock into which the preferred shares could be converted on the record date for
the determination of stockholders eligible to vote on a particular matter.
If the Company does not successfully offer common shares to the public
before December 19, 1999, these Series A shares may be redeemed at the option
of the stockholder for $4.00 per share plus any unpaid dividends. If full
redemption is not elected by the stockholder, 1,666,666 shares are mandatorily
redeemable in each of January 2003, 2004 and 2005 at a price of $4.00 per share
plus any unpaid dividends. In addition, if there is no successful public
offering by that date, the dividend rate increases to 9%, retroactive to the
issuance date. Dividends accrue daily and are due quarterly on April 1, July 1,
October 1 and January 1. As discussed in Note 1, the carrying amount of these
securities is periodically adjusted to increase the carrying value to the
redemption value of $20,000,000 at December 19, 1999. Accretion for 1997 and
the three months ended March 31, 1998 was $188,368 and $1,159,967,
respectively, inclusive of cumulative, unpaid dividends at 9%.
At the completion of a successful public offering of equity securities
with aggregate gross proceeds of at least $25,000,000 with common share price
of a minimum of $3.82, these shares will automatically convert to common
shares, with registration
F-10
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
5. MANDATORILY REDEEMABLE PREFERRED STOCK -- Continued
rights. In addition, the preferred stockholders could, at their discretion,
elect to purchase up to 85% of the Company for a previously agreed-upon price
before March 17, 1998. This option lapsed without exercise.
See Note 12 -- Events (Unaudited) Subsequent to the Date of the Report of
Independent Accountants.
6. STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
During 1996, the Company was capitalized with the issuance of an aggregate
of 22,500,000 shares of common stock, without par value, to two officers of the
Company for $150,000. A common stockholder is entitled to one vote for each
common share held.
In October through November 1997, the Company sold 427,500 and 150,000
shares of common stock at a price of $1.50 and $1.67 per share, respectively,
and 213,750 warrants at a price of $0.33 per warrant. The warrants expire
October 31, 2002 and allow the holder to purchase one share of common stock for
$1.67.
Common Stock Options
The Company's Board of Directors adopted the Company's 1997 Stock
Incentive Plan ("Plan") and reserved 3,750,000 shares of common stock for
grants under this Plan. Generally, these options are offered to all employees
at the fair value of the stock at the date of the grant. These options vest
over periods ranging from three to five years (as determined by the Board at
the date of grant) and expire the earlier of ten years from the grant date or
upon optionee's termination of employment.
<TABLE>
<CAPTION>
Number of Weighted
Options Average Price
------------- --------------
<S> <C> <C>
Balance, December 31, 1996 ......... -- $ --
Granted ............................ 2,591,625 0.88
Exercised .......................... -- --
Expired/forfeited .................. (6,000) 1.67
--------- -----
Balance, December 31, 1997 ......... 2,585,625 0.88
Granted ............................ 407,250 3.50
Exercised .......................... -- --
Expired/forfeited .................. (153,000) 1.70
--------- -----
Balance, March 31, 1998 ............ 2,839,875 $ 1.21
========= ======
</TABLE>
At March 31, 1998, the following options were outstanding:
<TABLE>
<CAPTION>
Exercise Weighted
Number Price Average Life
- ---------------------- ---------- -------------
<S> <C> <C>
1,906,875 ......... $ 0.58 10 years
510,750 ........... $ 1.67 10 years
422,250 ........... $ 3.50 10 years
</TABLE>
Certain options were issued during 1997 which provide for cash bonuses
upon exercise. The Company recorded approximately $273,000 and $38,000 in
compensation for 1997 and the three months ended March 31, 1998, respectively,
related to these bonuses. Additional expense to be recognized related to those
bonuses is as follows: April 1, 1998 through December 31, 1998 -- $115,000,
1999 -- $77,000, 2000 -- $19,000. Additionally, the Company issued options
through March 31, 1998 to certain employees with exercise prices less than the
fair market value at the date of grant, resulting in compensation expense of
approximately $36,000 for the three months ended March 31, 1998; $188,000 for
the nine months ended December 31, 1998; 1999 -- $152,000; 2000 -- $92,000;
2001 -- $53,000; 2002 -- $25,000.
F-11
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
6. STOCKHOLDERS' EQUITY (DEFICIT) -- Continued
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its Plan and recognizes compensation expense for its employee
stock-based compensation plan based upon the intrinsic value method. If the
Company had elected to recognize compensation expense based upon fair value at
the grant dates for the stock option awards granted, consistent with the
methodology prescribed by SFAS No. 123, net loss for the period from Inception
(March 13, 1996) through December 31, 1996 would be the same as currently
presented. For the year ended December 31, 1997 and the three months ended
March 31, 1998, the balances would have been reported at the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1997 March 31, 1998
------------------- -------------------
<S> <C> <C>
Net loss
As reported ......................... $ (1,853,259) $ (3,539,481)
============= ============
Pro forma ........................... $ (1,885,509) $ (3,605,017)
============= ============
Net loss per share, basic and diluted
As reported ......................... $ (0.09) $ (0.20)
============= ============
Pro forma ........................... $ (0.09) $ (0.21)
============= ============
</TABLE>
The fair value for these options was estimated at the grant date using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
-------------- ---------------
<S> <C> <C>
Expected volatility ............. 0.01% 0.01%
Risk-free interest rate ......... 5.71%-5.90% 5.38%-5.71%
Expected life ................... 5 years 5 years
Expected dividend yield ......... 0% 0%
</TABLE>
Earnings per Share
The following table sets forth the calculation for loss (numerator) and
shares (denominator) for earnings per share:
<TABLE>
<CAPTION>
Period from Inception (March 13, 1996)
through December 31, 1996
------------------------------------------
Per-Share
Loss Shares Amount
-------------- ------------ ----------
<S> <C> <C> <C>
Basic and Diluted EPS
Loss available to common stockholders ......... $ (425,074) 22,500,000 $ (0.02)
========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended March 31, 1997
------------------------------------------
(unaudited)
Per-Share
Loss Shares Amount
-------------- ------------ ----------
<S> <C> <C> <C>
Basic and Diluted EPS
Loss available to common stockholders ......... $(147,444) 22,500,000 $ (0.01)
========= ========== =======
</TABLE>
F-12
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
6. STOCKHOLDERS' EQUITY (DEFICIT) -- Continued
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
--------------------------------------------
Per-Share
Loss Shares Amount
---------------- ------------ ----------
<S> <C> <C> <C>
Basic EPS
Net loss .............................................................. $ (1,853,259)
Less: Preferred stock dividends ....................................... (37,500)
Less: Accretion of preferred stock .................................... (150,868)
------------
Loss available to common stockholders ................................. $ (2,041,627) 22,615,625 $ (0.09)
============ ========== =======
Diluted EPS
Loss available to common stockholders and assumed conversions ......... $ (2,041,627) 22,615,625 $ (0.09)
============ ========== =======
</TABLE>
<TABLE>
<CAPTION>
Three Months
Ended March 31, 1998
--------------------------------------------
Per-Share
Loss Shares Amount
---------------- ------------ ----------
<S> <C> <C> <C>
Basic EPS
Net loss .............................................................. $ (3,539,481)
Less: Preferred stock dividends ....................................... (225,000)
Less: Accretion of preferred stock .................................... (934,967)
------------
Loss available to common stockholders ................................. $ (4,699,448) 23,152,500 $ (0.20)
============ ========== =======
Diluted EPS
Loss available to common stockholders and assumed conversions ......... $ (4,699,448) 23,152,500 $ (0.20)
============ ========== =======
</TABLE>
Options and warrants to purchase common shares (see Note 6) are not
included in EPS calculations as their effect is anti-dilutive. Certain of these
options are potentially dilutive in future periods.
7. INCOME TAXES
From inception through October 31, 1997, the Company has provided no
provision for income taxes since it had elected, with the consent of its
original stockholders, to be an S Corporation under the Internal Revenue Code.
In lieu of corporate income taxes, the stockholders of an S corporation are
taxed on their proportionate share of the Company's taxable income.
Accordingly, no provision for income taxes was recorded for this period.
Effective November 1, 1997, the Company terminated its S Corporation status and
recorded gross deferred tax assets of $478,787.
For the period November 1, 1997 through March 31, 1998, the Company has
not recorded a provision or benefit for income taxes due to the net loss
incurred for tax purposes for which there is no carryback potential. The
Company has available net operating loss carryforwards of approximately
$3,566,527 for tax purposes to offset future taxable income. The net operating
loss carryforwards expire principally in 2012. If certain substantial changes
in the Company's ownership should occur, there would be an annual limitation on
the amount of the carryforwards which can be utilized.
F-13
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
7. INCOME TAXES -- Continued
The components of deferred income tax assets are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
-------------- ---------------
<S> <C> <C>
Deferred tax assets:
Deferred revenue ......................... $ 448,720 $ 441,818
Stock-based compensation ................. 103,740 131,860
Depreciation ............................. 6,867 11,248
Net operating loss carryforwards ......... 36,652 1,355,280
---------- ------------
595,979 1,940,206
Valuation allowance ....................... (595,979) (1,940,206)
---------- ------------
Net deferred tax assets .................. $ -- $ --
========== ============
</TABLE>
Deferred tax assets are offset by a full valuation allowance as the lack
of earnings history gives rise to uncertainty as to whether the assets are
realizable. As a result of the Company's history of operating losses and the
uncertainty surrounding the Company's ability to recognize income tax benefits
associated with such losses, no pro forma tax provision calculation or related
earnings per share effects have been included in these financial statements as
they relate to the Company's previous status as an S Corporation.
A reconciliation between the statutory federal income tax rate and the
effective rate of income tax expense follows:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1997 March 31, 1998
------------------- -------------------
<S> <C> <C>
Statutory federal income tax rate ........................................ 34% 34%
Decrease in taxes resulting from:
Effect of S corporation status prior to November 1, 1997 ................ (28%) --
Limitations on the utilization of net operating loss carryforwards ...... (6%) (34%)
--- ---
0% 0%
=== ===
</TABLE>
8. RELATED PARTY TRANSACTIONS
At December 31, 1996, the Company had a non-interest bearing loan from a
stockholder. This note was repaid during 1997.
For the year ended December 31, 1997, 13% of net sales, or approximately
$6,000, were to a stockholder.
9. LEASE COMMITMENTS
The Company is obligated under various capital leases for equipment, which
are capitalized at the present value of future minimum lease payments,
discounted at imputed interest rates of 12% to 19%. Interest paid in connection
with these leases was $563, $4,686 and $1,100 for the period from Inception
(March 13, 1996) through December 31, 1996, for the year ended December 31,
1997 and for the three months ended March 31, 1998, respectively.
F-14
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
9. LEASE COMMITMENTS -- Continued
The future minimum lease payments under capital leases are as follows:
<TABLE>
<S> <C>
Period from April 1, 1998 through December 31, 1998 ......... $ 15,233
1999 ........................................................ 19,560
2000 ........................................................ 1,630
---------
36,423
Less amounts representing interest .......................... (1,738)
---------
Present value of future minimum lease payments .............. 34,685
Less current portion ........................................ (34,685)
---------
Noncurrent portion .......................................... $ --
=========
</TABLE>
The Company repaid the capital lease obligation in its entirety subsequent
to March 31, 1998; accordingly, the Company categorized this liability as
current at March 31, 1998.
The Company has operating lease commitments of approximately $28,000 for
the nine months ending December 31, 1998 and $6,000 for the year ending
December 31, 1999. Rent expense for the Company was $35,379, $45,369 and
$10,683 for the three months ended March 31, 1998, the year ended December 31,
1997 and the period from Inception (March 16, 1996) through December 31, 1996,
respectively.
10. LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had approximately $7.9 million in cash,
cash equivalents and restricted cash. For fiscal 1998, the Company's plans
include a substantial expansion of its business, including such investments as
the hiring of additional resources, systems investment and a national
advertising campaign.
During 1998, the Company plans to pursue the filing of a registration
statement in connection with obtaining additional equity financing and to use
such financing to fund the expansion of the business. Should the acquisition of
equity financing either be delayed or not occur, management has developed a
contingent operating plan which, if ultimately necessary, could involve scaling
back investments from levels presently budgeted for 1998. In management's view,
were such contingency actions required and therefore pursued, the Company would
have sufficient liquidity to continue in business at least through fiscal 1998.
On April 8, 1998, the Company entered into a line of credit agreement with
a bank, which provides for borrowings up to $5,000,000. Such borrowings are to
be fully secured by liquid securities. Interest on any funds advanced will
accrue at a rate of LIBOR plus 1.75% and the agreement expires on May 31, 1999.
Management is also considering a private placement of preferred stock to
provide additional funding (Note 12).
11.STOCK SPLIT
On July 1, 1998, the Company's Board of Directors approved a three-for-one
stock split of the Company's common stock. All references to the number of
shares issued and outstanding, the Preferred Stock conversion factor and per
share information for all periods presented have been adjusted to give effect
to the aforementioned stock split.
12. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
ACCOUNTANTS
In July 1998, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public. Upon
completion of the offering, each outstanding share of Series A Stock will
convert into shares of common stock on the basis described in Note 5 to these
financial statements. The unaudited pro forma balance sheet reflects the
assumed conversion of the Series A stock into common stock as of March 31,
1998. Dividends associated with the Series A stock were assumed to have been
paid in cash.
F-15
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
12. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
ACCOUNTANTS -- Continued
In June 1998, the Company sold 617,979 shares of 5% Cumulative Convertible
Series B Preferred Stock ("Series B") for $17,603,756, net of offering costs.
These shares are convertible at any time at the option of the holder at a rate
such that one preferred share will be convertible into three shares of common
stock (subject to adjustment).
The sales price of the Series B shares equals the estimated fair value of
the common stock at the date of sale. A Series B stockholder is entitled to the
number of votes equal to the largest number of common shares into which the
shares can be converted.
If the Company does not successfully offer common shares to the public
before December 19, 1999, the Series B shares may be redeemed for $60.94 per
share plus any unpaid dividends at the option of the stockholder. If full
redemption is not elected by the stockholder, 205,993 shares are mandatorily
redeemable in each of January 2003, 2004 and 2005 at a price of $60.94 per
share. In addition, if there is no successful public offering, as defined, by
that date, the dividend rate increases to 9% retroactive to the issuance date.
Dividends accrue daily and are due quarterly. The carrying amount of these
securities will be periodically adjusted to increase the carrying value to the
redemption value of $37,659,640 at December 31, 1999.
At the completion of a successful public offering of equity securities
with aggregate gross proceeds of at least $25,000,000 and with common share
price of a minimum of $3.82, the Series B Preferred Shares will automatically
convert to common shares, with registration rights.
In addition to the Series B Stock acquired, in June 1998 the Series B
investors acquired 205,993 shares of common stock from the two founders of the
Company for $6,276,607.
In June 1998, the Company's principal stockholder sold 96,017 shares of
common stock to an entity which assisted in the promotion of the Series B
private placement. The consideration exchanged for the common stock was below
the estimated fair value at the date of the sale. The excess of the estimated
fair value over the sales price will be initially recorded as a charge to
general and administrative expenses in June 1998. While the Company presently
believes that the June 1998 charge will not exceed $1,100,000, the Company is
in the process of determining the value of the consideration exchanged. Such
transaction is expected to be treated utilizing variable plan accounting which
will require the recording of additional expense should the value of the
Company's common stock appreciate.
On June 26, 1998, the Company entered into an operating lease agreement
for several office buildings for the Company's Charlottesville, Virginia
headquarters. The lease has terms commencing between October 1998 and January
1999 for the individual buildings and ending on February 1, 2000, with optional
terms of extension. Total lease payments will approximate $52,000 in 1998,
$303,000 in 1999 and $25,000 in 2000.
F-16
<PAGE>
[VALUE AMERICA LOGO]
[BACK COVER]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the Common Stock being registered. All amounts shown are estimates,
except for the registration fee, the Nasdaq National Market filing fee and the
NASD fee.
<TABLE>
<S> <C>
Registration fee ....................................... $ 25,444
NASD filing fee ........................................ 9,125
Nasdaq National Market fee ............................. 95,000
Accounting fees and expenses ........................... 275,000
Legal fees and expenses ................................ 150,000
Printing and engraving expenses ........................ 75,000
Blue sky fees and expenses ............................. 7,500
Transfer agent and registrar fees and expenses ......... 10,000
Miscellaneous .......................................... 102,931
Total ................................................ $750,000
========
</TABLE>
ITEM 14. Indemnification of Directors and Officers.
The Company's Articles of Incorporation implement the provisions of the
Virginia State Corporation Act ("VSCA"), which provide for the indemnification
of the Company's directors and officers in a variety of circumstances, which
may include indemnification for liabilities under the Securities Act. Under
Sections 13.1-697 and 13.1-702 of the VSCA, a Virginia corporation generally is
authorized to indemnify its directors and officers in civil and criminal
actions if they acted in good faith and believed their conduct to be in the
best interests of the corporation and, in the case of criminal actions, had no
reasonable cause to believe that the conduct was unlawful. The Company's
Articles of Incorporation require indemnification of directors and officers
with respect to certain liabilities, expenses and other amounts imposed upon
them by reason of having been a director or officer, except in the case of
willful misconduct or a knowing violation of criminal law. In addition, the
VSCA and the Company's Articles of Incorporation eliminate the liability of a
director or officer in a stockholder or derivative proceeding. This elimination
of liability will not apply in the event of willful misconduct or a knowing
violation of the criminal law or any federal or state securities law. Sections
13.1-692 and 13.1-696 to --704 of the VSCA are incorporated herein by
reference.
The Company has purchased officers' and directors' liability insurance
policies. Within the limits of their coverage, the policies insure (1) the
directors and officers of the Company against certain losses resulting from
claims against them in their capacities as directors and officers to the extent
that such losses are not indemnified by the Company and (2) the Company to the
extent that it indemnifies such directors and officers for losses as permitted
under the laws of Virginia.
The Underwriting Agreement contains provisions by which the Underwriters
have agreed to indemnify the Company, each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act, each director
of the Company, and each officer of the Company who signs this Registration
Statement, with respect to information furnished in writing by or on behalf of
the Underwriters for use in this Registration Statement.
ITEM 15. Recent Sales of Unregistered Securities.
Since March 13, 1996, the Company's date of incorporation, the Company has
sold and issued the following unregistered securities:
(1) On May 24, 1996, the Company issued an aggregate of 14,625,000 shares
of Common Stock to Craig A. Winn, the Company's Chairman and Chief
Executive Officer and Rex Scatena, the Company's President and
President, Consumer Products Division, for nominal consideration;
(2) On May 24, 1996, the Company issued an aggregate of 4,500,000 shares
of Common Stock to Mr. Winn and
Mr. Scatena for nominal consideration;
(3) On August 13, 1996, the Company issued an aggregate of 1,125,000 shares
of Common Stock to Mr. Winn for nominal consideration;
II-1
<PAGE>
(4) On August 13, 1996, the Company issued an aggregate of 2,250,000 shares
of Common Stock to Mr. Scatena for nominal consideration;
(5) On October 31, 1997, the Company issued an aggregate of 577,500 shares
of Common Stock and warrants to purchase an aggregate of 213,750 shares
of Common Stock to a total of 14 accredited investors. The Company
issued the shares of Common Stock at $1.50 per share and the warrants at
$0.33 per warrant.
(6) On October 31, 1997, the Company issued 150,000 shares of Common Stock
to a single, accredited investor at $1.67 per share.
(7) On December 17, 1998, the Company issued 5,000,000 shares of Series A
Preferred Stock to The Union Labor Life Insurance Company pursuant to
the terms of a Preferred Stock Purchase Agreement of even date
therewith. The aggregate purchase price of the Series A Preferred Stock
was $10,000,000.
(8) On June 24, 1998, Mr. Winn sold 288,321 shares of Common Stock to a
single investor for $999,993 or $3.47 per share.
(9) On June 26, 1998, the Company issued an aggregate of 617,979 shares of
Series B Preferred Stock to 18 accredited investors (collectively, the
"Series B Investors") pursuant to a Preferred Stock Purchase Agreement
of even date therewith. The aggregate purchase price of the Series B
Preferred Stock was $18,829,820 or $30.47 per share. In connection with
such offering, Craig A. Winn, the Company's Chairman and Chief Executive
Officer, and Rex Scatena, the Company's President and President,
Consumer Products Division, sold an aggregate of 617,979 shares of
Common Stock to the Series B Investors for an aggregate purchase price
of $6,276,607 or $10.16 per share.
(10) On July 1, 1997, Mr. Winn sold an aggregate of 28,350 shares of Common
Stock to three investors for an aggregate of $289,942 or $10.16 per
share.
(11) The Company has issued an aggregate of 3,287,625 options to purchase
Common Stock with exercise prices ranging from $0.58 to $6.67 per share
under the Incentive Plan.
The sales and issuances of securities in the above transactions were
deemed to be exempt under the Securities Act by virtue of Section 4(2) thereof
and/or Regulation D and Rule 701 promulgated thereunder as transactions not
involving any public offering. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends were affixed to the stock
certificates issued in such transactions. Similar representations of investment
intent were obtained and similar legends imposed in connection with any
subsequent transfers of any such securities. The Company believes that all
recipients had adequate access, through employment or other relationships, to
information about the Company to make an informed investment decision.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ---------- ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement**
3.1 Articles of Incorporation of Registrant, as amended*
3.2 Amended and Restated Bylaws of the Company*
4.1 Form of Stock Certificate**
5.1 Opinion of LeClair Ryan, A Professional Corporation**
10.1 Consent Agreement, dated as of December 3, 1997, by and between the Company
and Stephen S. Freedman relating to the mark "Value America"*
10.2 Agreement, dated as of December 3, 1997, by and between Stephen S. Freedman
and the Company relating to the mark "Value America", with Personal Guaranty
of Rex and Jane Scatena*
10.3 Lease, dated as of September 17, 1997, by and between 2300 Commonwealth
Building and the Company relating to property located at 2300 Commonwealth
Drive, Charlottesville, Virginia*
10.4 Tenant Lease, dated as of March 16, 1998, by and between Preston O. Stallings and
the Company relating to property located at 2340 Commonwealth Avenue, Suites
102, 103 and B-1, Charlottesville, Virginia*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ----------- -------------------------------------------------------------------------------------
<S> <C>
10.5 Lease, dated as of June 10, 1996, by and between Commonwealth Clinical Systems,
Inc. and the Company relating to property located at 1650 State Farm Boulevard,
Charlottesville, Virginia*
10.6 Lease Agreement, commencing January 15, 1998, by and between Preston O.
Stallings and the Company relating to property located at 2340 Commonwealth
Drvie, Suite 202, Charlottesville, Virginia*
10.7 Employment Agreement, dated as of August 1, 1997, by and between John L.
Motley, Director and Value America, Inc., a Nevada corporation (predecessor of the
company)*
10.8 Professional Services Agreement, executed by the company on February 11, 1998,
by and between Business Data Services, Inc. and the Company*
10.9 Loan Agreement, executed by the company on April 8, 1998, by and between
Jefferson National Bank (predecessor of Wachovia Bank, N.A.) and the Company*
10.10 Assignment, Pledge and Subordination Agreement, dated as of April 16, 1998, by
and among First Data Merchant Services Corp. Wachovia Bank, N.A. and the
Company*
10.11 Bank Asset Collateral Agreement and Limited Power of Attorney, dated as of March 23,
1998, by and among Deutsche Financial Services Corporation, Jefferson
National Bank (predecessor of Wachovia Bank, N.A.) and the Company*
10.12 Warrant, dated November 20, 1997 to purchase 10,000 Shares of Common Stock of
the Company issued to Dean M. Johnson, Director*
10.13 Employment Agreement, dated as of November 13, 1997, by and between Dean M.
Johnson, Director and the Company*
10.14 Form of Developments, Noncompete and Nondisclosure Agreement, by and between
the Company and each of the Company's employees*
10.15 1997 Stock Incentive Plan adopted on August 1, 1997 by Value America, Inc., a
Nevada Corporation (predecessor of the company)*
10.16 Amended and Restated Registration Rights Agreement, dated as of June 26, 1998,
by and among the Company and the entities and individuals listed on Annex A
thereto*
10.17 Amended and Restated Stockholders Agreement, dated as of June 26, 1998, by and
among the Company, Craig A. Winn, Director, Rex Scatena, Director, Crystal
Investments, L.L.C., Frostine, L.L.C., and the holders of the Series A Preferred
Stock and the Series B Preferred Stock*
10.18 Voting Agreement, dated as of June 26, 1998, by and among the Company, Craig A.
Winn, Director, Rex Scatena, Director, Crystal Investments, L.L.C., Frostine, L.L.C.
and the holders of the Company's Series B Preferred Stock*
10.19 Preferred Stock Purchase Agreement, dated as of June 26, 1998, by and among the
Company and those entities and individuals listed on Annex A thereto*
10.20 Preferred Stock Purchase Agreement, dated as of December 17, 1997, by and
between The Union Labor Life Insurance Company acting on behalf of its Separate
Account P and the Company*
10.21 Stock Purchase Agreement, dated as of June 26, 1998, by and among Craig A.
Winn, Director, Rex Scatena, Director, The Union Labor Life Insurance Company
acting on behalf of its Separate Account P, United Association of Journeyman and
Apprentices of the Plumbing and Pipefitting Industry of the United States and
Canada, General Fund, and The Annette M. and Theodore N. Lerner Family
Foundation*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of LeClair Ryan, A Professional Corporation (included in Exhibit 5.1)**
24.1 Power of Attorney (See page II-5)*
27.1 Financial Data Schedule*
</TABLE>
- ---------
* Filed herewith.
** To be filed by amendment.
(b) The following financial statement schedules are filed herewith:
II-3
<PAGE>
All financial statement schedules have been omitted because they are not
required, are not applicable or the information is included in the Financial
Statements or Notes thereto.
ITEM 17. Undertakings.
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlottesville,
Commonwealth of Virginia, on the 2nd day of July, 1998.
VALUE AMERICA, INC.
By: /s/ CRAIG A. WINN
Craig A. Winn,
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Craig A. Winn and Rex Scatena, and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by the Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act, and all post-effective amendments thereto, and to file the
same, with all exhibits thereto and all documents in connection therewith, with
the SEC, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done or by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of July 2, 1998.
<TABLE>
<CAPTION>
Name Title
- ------------------------------------- -----------------------------------
<S> <C>
/S/ CRAIG A. WINN Chairman, Chief Executive Officer
----------------------------------
Craig A. Winn (Principal Executive Officer)
and Director
/S/ REX SCATENA President, and President, Consumer
----------------------------------
Rex Scatena Products Division and Director
/S/ DEAN M. JOHNSON Executive Vice President,
----------------------------------
Dean M. Johnson Chief Financial Officer
(Principal Financial Officer),
and Director
/S/ JOHN L. MOTLEY Director
----------------------------------
John L. Motley
/S/ GARY D. LECLAIR Director
----------------------------------
Gary D. LeClair
/S/ MICHAEL R. STEED Director
----------------------------------
Michael R. Steed
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ---------- -----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement**
3.1 Articles of Incorporation of Registrant, as amended*
3.2 Amended and Restated Bylaws of the Company*
4.1 Form of Stock Certificate**
5.1 Opinion of LeClair Ryan, A Professional Corporation**
10.1 Consent Agreement, dated as of December 3, 1997, by and between the Company
and Stephen S. Freedman relating to the mark "Value America"*
10.2 Agreement, dated as of December 3, 1997, by and between Stephen S. Freedman
and the Company relating to the mark "Value America, with Personal Guaranty"*
10.3 Lease, dated as of September 17, 1997, by and between 2300 Commonwealth
Building and the Company relating to property located at 2300 Commonwealth
Drive, Charlottesville, Virginia*
10.4 Tenant Lease, dated as of March 16, 1998, by and between Preston O. Stallings and
the Company relating to property located at 2340 Commonwealth Avenue, Suites
102, 103 and B-1, Charlottesville, Virginia*
10.5 Lease, dated as of June 10, 1996, by and between Commonwealth Clinical Systems,
Inc. and the Company relating to property located at 1650 State Farm Boulevard,
Charlottesville, Virginia*
10.6 Lease Agreement, commencing January 15, 1998, by and between Preston O.
Stallings and the Company relating to property located at 2340 Commonwealth
Drvie, Suite 202, Charlottesville, Virginia*
10.7 Employment Agreement, dated as of August 1, 1997, by and between John L.
Motley, Director and Value America, Inc., a Nevada corporation (predecessor of the
company)*
10.8 Professional Services Agreement, executed by the company on February 11, 1998,
by and between Business Data Services, Inc. and the Company*
10.9 Loan Agreement, executed by the company on April 8, 1998, by and between
Jefferson National Bank (predecessor of Wachovia Bank, and the Company*
10.10 Assignment, Pledge and Subordination Agreement, dated as of April 16, 1998, by
and among First Data Merchant Services Corp. Wachovia Bank, N.A. and the
Company*
10.11 Bank Asset Collateral Agreement and Limited Power of Attorney, dated as of March
23, 1998, by and among Deutsche Financial Services Corporation, Jefferson
National Bank N.A. and the Company*
10.12 Warrant, dated November 20, 1997 to purchase 10,000 Shares of Common Stock of
the Company issued to Dean M. Johnson, Director*
10.13 Employment Agreement, dated November 13, 1997, by and between Dean M.
Johnson, Director and the Company*
10.14 Form of Developments, Noncompete and Nondisclosure Agreement, by and between
the Company and each of the Company's employees*
10.15 1997 Stock Incentive Plan adopted on August 1, 1997 by Value America, Inc., a
Nevada Corporation (predecessor of the company)*
10.16 Amended and Restated Registration Rights Agreement, dated as of June 26, 1998,
by and among the Company and the holders of the Series A Stock and Series B
Stock*
10.17 Amended and Restated Stockholders Agreement, dated as of June 26, 1998, by and
among the Company, Craig A. Winn, Director, Rex Scatena, Director, Crystal
Investments, L.L.C., Frostine, L.L.C., and the holders of the Series A Preferred
Stock and the Series B Preferred Stock*
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------------ ------------------------------------------------------------------------------------
<S> <C>
10.18 Voting Agreement, dated as of June 26, 1998, by and among the Company, Craig A.
Winn, Director, Rex Scatena, Director, Crystal Investments, L.L.C., Fostine, L.L.C.
and the holders of the Company's Series B Preferred Stock*
10.19 Preferred Stock Purchase Agreement, dated as of June 26, 1998, by and among the
Company and those entities and individuals listed on Annex A thereto*
10.20 Preferred Stock Purchase Agreement, dated as of December 17, 1997, by and
between The Union Labor Life Insurance Company acting on behalf of it, Separate
Account P and the Company*
10.21 Stock Purchase Agreement, dated as of June 26, 1998, by and among Craig A.
Winn, Director, Rex Scatera, Director, The Union Labor Life Insurance Company
acting on behalf of its Separate Account P, United Association of Journeyman and
Apprentices of the Plumbing and Pipefitting Industry of the United States and
Canada, General Funds and The Annette M. and Theodore N. Lerner Family
Foundation*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of LeClair Ryan, A Professional Corporation (included in Exhibit 5.1)**
24.1 Power of Attorney (See page II-5)*
27.1 Financial Data Schedule*
</TABLE>
- ---------
* Filed herewith.
** To be filed by amendment.
II-7
<PAGE>
ARTICLES OF AMENDMENT
OF
VALUE AMERICA, INC.
1. The name of the Corporation is Value America, Inc.
2. The amendments adopted hereby are listed as follows:
A. Article III A of the Articles of Incorporation is hereby deleted in its
entirety and the material attached hereto as Annex A shall be added as
Article III A in lieu thereof.
B. [INTENTIONALLY OMITTED]
C. The first paragraph under Article III. 2. of the Articles of Incorporation
is hereby amended by deleting such paragraph and adding the following in
lieu thereof:
"The number of shares of Preferred Stock which the Corporation shall have
the authority to issue shall be 5,617,979 shares, without par value."
D. Article VII of the Articles of Incorporation is hereby amended by adding the
following after the sole paragraph of such Article:
"Notwithstanding the foregoing, immediately upon the closing of a Qualified
Offering (as such term is defined in Article III. A. of these Articles), the
previous paragraph shall not be applicable and the following provisions
shall govern:
Except as otherwise required in these Articles:
a. Any corporate action requiring shareholder consent, except the
election of directors, an amendment or restatement of these Articles, a
merger, a statutory share exchange, the sale or other disposition of all or
substantially all the Corporation's assets otherwise than in the usual and
regular course of business, or dissolution shall be approved at a meeting at
which a quorum of the Corporation's shareholders is present if the votes
cast in favor of the action exceed the votes cast against the action;
b. Directors shall be elected by a plurality of the voting power of all
of the then outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as
a single class at a meeting at which a quorum is present;
c. An amendment or restatement of these Articles other than an amendment
or restatement described, or involved in a transaction described, in
Subsection d or e of this Section shall be approved by a majority the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote on such matters, voting together as a single
class;
d. A merger, statutory share exchange, sale or other disposition of all
or substantially all the Corporation's assets otherwise than in the usual
and regular course of business, or dissolution shall be approved by at least
two-thirds of the of the voting power of all of the then outstanding shares
of the capital stock of the Corporation entitled to vote on such matters,
voting together as a single class; and
e. An amendment to these Articles that (i) reduces or eliminates the
number of authorized shares of any capital stock set forth in Article III or
(ii) amends, repeals or adopts any provision inconsistent with Articles VI,
VII, VIII, or X of these Articles shall be approved by at least
three-quarters of the then outstanding shares of the capital stock of the
Corporation entitled to vote on such matters, voting together as a single
class."
E. Article VIII of the Articles of Incorporation is hereby amended by
adding the following after the sole sentence in Article VIII:
"Notwithstanding the foregoing, immediately upon the closing of a Qualified
Offering (as such term is defined in Article III A of these Articles), the
previous sentence shall not be applicable and the following provisions shall
govern:
1. The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the Bylaws of the Corporation, subject to any
limitation thereof contained in the Bylaws. The stockholders shall also have
the power to adopt, amend or repeal the Bylaws; provided, however, that, in
addition to any vote of the holders of any class or series of capital stock
of the Corporation required by law or by these Articles, the affirmative
vote of the holders of at least seventy-five percent (75%) of the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to adopt, amend or repeal any
provision of the Bylaws; and
2. Special meetings of stockholders may be called at any time only by
the Chairman, the President or the Board of Directors. Business transacted
at any special meeting of stockholders shall be limited to matters relating
to the purpose or purposes stated in the notice of the meeting."
F. The following shall be added to the Articles of Incorporation as Article X
thereof:
"Upon the closing of a Qualified Offering (as such term is defined in
Article III. A. of these Articles), the following provisions shall apply:
1. The Board of Directors shall be divided into three classes, Class I,
Class II and Class III, as nearly equal in number as possible. Directors of
the first class (Class I) shall be elected to hold office for a term
expiring at the 1999 annual meeting of shareholders; directors of the second
class (Class II) shall be elected to hold office for a term expiring at the
2000 annual meeting of shareholders; and directors of the third class (Class
III) shall be elected to hold office for a term expiring at the 2001 annual
meeting of shareholders. At each annual meeting of shareholders, the
successors to the class of directors whose terms then shall expire shall be
identified as being of the same class as the directors they succeed and
elected to hold office for a term expiring at the third succeeding annual
meeting of shareholders. When the number of directors is changed, any
newly-created directorships or any decrease in directorships shall be
apportioned among the classes by the Board of Directors as to make all
classes as nearly equal in number as possible.
2. Any one or more or all of the directors may be removed only with
Cause, and then only by the holders of at least a majority of the shares
then entitled to vote at an election of directors. For the purposes of these
Articles, the term "Cause" shall mean:
a. gross incompetence, gross negligence, willful misconduct in office or
breach of a material fiduciary duty owed to the Corporation or any
subsidiary or affiliate thereof;
b. conviction of a felony, a crime of moral turpitude or commission of
an act of embezzlement or fraud against the Corporation or any subsidiary or
affiliate thereof;
c. deliberate dishonesty of the director with respect to the Corporation
or any subsidiary or affiliate thereof; or
d. material dereliction of duties owed to the Corporation by a director.
3. Advance notice of stockholder nominations for election of directors
and other business to be brought by stockholders before a meeting of
stockholders shall be given in the manner provided in the Bylaws of the
Corporation."
3. The amendments were recommended by the Corporation's Board of
Directors to the Corporation's shareholders pursuant to Section 13.1-707A of
the Virginia Stock Corporation Act (the "Act").
4. Pursuant to Section 13.1-707E of the Act, the amendment was duly
adopted by the shareholders of the Corporation by unanimous written consent,
effective as of June 16, 1998.
<PAGE>
Dated: June 26, 1998
-------------------
VALUE AMERICA, INC.
By: /s/ Dean M. Johnson
---------------------
Title: Executive Vice President
------------------------
ARTICLE III A
A series of Preferred Stock consisting of 5,000,000
shares designated and known as "Series A Preferred Stock" and a
series of Preferred Stock consisting of 617,979 shares designated as
"Series B Preferred Stock" are hereby established. The Series A
Preferred Stock and the Series B Preferred Stock shall have the
rights, preferences and privileges set forth below in this Article III
A and elsewhere in Article III of these Articles of Incorporation.
Section 1. Definitions. For purposes of this Article
III A the following definitions shall apply:
"Board" shall mean the Board of Directors
of the Corporation.
"Business Day" shall mean a day which is not
a Saturday, Sunday or legal holiday on which banking institutions in New
York are authorized to close.
"Commitment Date" shall mean for the
Series A Preferred Stock the date immediately prior to the date of
original issuance of the Series A Preferred Stock and for the Series B
Preferred Stock the date immediately prior to the date of original
issuance of the Series B Preferred Stock.
"Common Stock" shall mean the common stock,
without par value, of the Corporation.
"Common Stock's Fair Market Value" shall
mean the fair market value of a share of Common Stock, as determined in
good faith by the Board for the purpose of granting stock options or
issuing shares to employees of the Corporation or any Subsidiary
and determined as of the most recent date that such determination
has been made within three months of the applicable date or, if no such
determination has been made during such period, the fair market value
of such stock, as determined in good faith by the Board as of the
applicable date; provided, however, that if the Common Stock's Fair
Market Value is being determined in connection with the automatic
conversion of Series Preferred Stock upon the consummation of a
Qualified Offering, the fair market value of Common Stock issued in
payment of accumulated and accrued dividends shall be the per share
"Price to the Public" (as shown in the final prospectus used for the
Qualified Offering).
<PAGE>
"Dividend Rate" means (i) the Standard
Dividend Rate (as hereinafter defined) unless the Corporation is in
arrears at least six months in the payment of all or any portion
of the Redemption Price of any shares of Series Preferred Stock, and
(ii) during any period in which the Corporation is in arrears at least
six months in the payment of all or any portion of the Redemption Price
of any shares of Series Preferred Stock, the Standard Dividend Rate
plus an additional 2% per annum for each full six-month period in which
any such arrears exists. "Standard Dividend Rate" means (1) 5% if
the Corporation completes a Qualified Offering within 24 months after
the first issuance of Series A Preferred Stock, and (2) 9% if
the Corporation does not complete a Qualified Offering within 24
months after the first issuance of Series A Preferred Stock, which
9% dividend rate shall be effective retroactively to the original
issuance of the Series A Preferred Stock.
"Holders of a Majority of the Series
Preferred Stock" means any Person or Persons holding, beneficially or of
record, a Majority of the Series Preferred Stock.
"Investment Value" of any share of Series
Preferred Stock means, as of any date, the sum of (i) the Per Share
Amount of such share, plus (ii) the amount of any unpaid dividends on
such share added to the Investment Value of such share on any Dividend
Reference Date pursuant to Section 2(a) hereof; and in the event
of any liquidations, dissolution or winding up of the Corporation,
within the meaning of Section 3 hereof, or a merger, consolidation
or other transaction involving the Corporation described in
Section 4 hereof, or the redemption of such share, unpaid dividends
on such share, whether or not earned or declared, will be added to the
Investment Value of such share on the payment or distribution date
under Section 3 or 4 hereof, as the case may be, or on the Redemption
Date (as defined in Section 5 hereof), as the case may be, calculated
cumulatively on a daily basis to the close of business on such payment
date, distribution date, or Redemption Date, as the case may be.
"Per Share Amount" means (1) $2.00 per share for the Series A
Preferred Stock and $30.47 per share for the Series B Preferred Stock,
except if determining the Investment Value in the case of the definition
of Mandatory Redemption Price, and (2) $4.00 per share for the Series A
Preferred Stock and $60.94 per share for the Series B Preferred
Stock, if determining the Investment Value in the case of the
definition of Mandatory Redemption Price.
"Junior Stock" shall mean the Common Stock
and all other shares of Capital Stock of the Corporation, whether
presently outstanding or hereafter issued, other than Series Preferred
Stock.
"Majority of the Series Preferred Stock"
shall mean (x) for so long as the issued and outstanding shares of
Series A Preferred Stock and Series B Preferred Stock represent at
least fifty percent (50%) of the total authorized shares of Series A
Preferred Stock and Series B Preferred Stock, respectively, the
vote of both (i) more than fifty percent (50%) of the total number of
outstanding shares of Series A Preferred Stock, voting as a separate
class, and (ii) more than fifty percent (50%) of the outstanding shares
of Series B Preferred Stock, voting as a separate class, or (y) for so
long as the issued and outstanding shares of Series A Preferred Stock or
Series B Preferred Stock represent less than fifty percent (50%) of the
total authorized shares of Series A Preferred Stock or Series B
Preferred Stock, respectively, the vote of more than fifty percent
(50%) of the total number of outstanding shares of Series A Preferred
Stock and Series B Preferred Stock, both series voting together as a
single class on a fully diluted as converted basis.
"Original Issue Price" shall mean $10.405
per share of Series A Preferred Stock and $30.47 per share of Series B
Preferred Stock.
"Person" means an individual, corporation,
partnership, association, trust, limited liability company or any other
entity or organization, including a government or political
subdivision or an agency, unit or instrumentality thereof.
<PAGE>
"Series A Preferred Stock" shall mean the
Series A Preferred Stock, without par value, of the Corporation.
"Series B Preferred Stock" shall mean the
Series B Preferred Stock, without par value, of the Corporation.
"Series Preferred Stock" shall mean the
Series A Preferred Stock and the Series B Preferred Stock.
"Subsidiary" means, with respect to the
Corporation, any Person of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time
directly or indirectly owned by the Corporation or a Subsidiary of the
Corporation.
"Voting Stock" shall mean any shares having
general voting power in electing the Board of Directors (irrespective of
whether or not at the time stock of any other class or classes has or
might have voting power by reason or the happening of any
contingency). The Common Stock, the Series A Preferred Stock and the
Series B Preferred Stock are Voting Stock.
Section 2. Dividends.
(a) Right to Dividends. (i) The holders
of the outstanding Series Preferred Stock shall be entitled to receive,
when and as declared by the Board, and out of any funds legally
available therefor, cumulative cash dividends at the rate and in
the manner provided herein. Dividends on the Series Preferred Stock
shall accumulate and accrue on each such share from the date of its
original issue and shall accumulate and accrue from day to day
thereafter, whether or not earned or declared. Such dividends shall
be cumulative so that if such dividends in respect of any previous
or current quarterly dividend period, at the rate specified herein,
shall not have been paid or declared and a sum sufficient for the
payment thereof set apart, the deficiency shall first be fully paid
before any dividend or other distribution shall be paid or declared
and set apart for the Common Stock. Any accumulation of dividends on
the Series Preferred Stock shall not bear interest. Dividends shall
accumulate and accrue on each share of Series Preferred Stock from
the date of its original issue and shall not be affected by the
transfer of any of such shares thereafter or the cancellation and
issuance or reissuance of certificates evidencing such shares.
<PAGE>
(ii) Dividends will be
calculated cumulatively on a daily basis on each share of each series of
Series Preferred Stock at the Dividend Rate per annum on the
applicable Investment Value of such series. To the extent not paid on
the first day of any April, July, October or January (each a "Dividend
Reference Date"), commencing January 1, 1998, all dividends which
have been calculated on each share of Series Preferred Stock then
outstanding during the three-month period (or other period in the case
of the first Dividend Reference Date) ending on such Dividend Reference
Date, whether or not earned or declared, will be added to the
applicable Investment Value of such share and will remain a part
thereof until such dividends are paid. If the Dividend Rate changes as a
result of a change in the Standard Dividend Rate (as provided in the
definition of Investment Value), then the unpaid dividends shall be
deemed to have been added to the applicable Investment Value of each
share of Series Preferred Stock retroactively on and as of each Dividend
Reference Date preceding the change in the Standard Dividend Rate.
(iii) Notwithstanding the cash
dividend requirement of Section 2(a)(i), the Corporation at its option
may make any dividend payment on the Series Preferred Stock in shares
of Common Stock or cash, or both, with each share of Common Stock being
valued for this purpose at the Common Stock's Fair Market Value on the
date such dividend is declared or, if the Common Stock is not issued
within ten (10) days after the date of declaration, on the date such
Common Stock is issued.
(b) Priority. Unless full dividends on
all Series Preferred Stock for all past dividend periods and the then
current dividend period shall have been paid or declared and a sum
sufficient for the payment thereof set apart in trust for the
benefit of all holders of the Series Preferred Stock, (1) no dividend
whatsoever (other than a dividend payable solely in Common Stock)
shall be paid or declared, and no distribution shall be made, on any
Junior Stock, and (2) no shares of Junior Stock shall be purchased,
redeemed or acquired by the Corporation and no monies shall be paid into
or set aside or made available for a sinking fund for the purchase,
redemption or acquisition thereof; provided, however, that this
restriction shall not apply to the repurchase of shares of Common
Stock from directors or employees of or consultants to the Corporation
or any Subsidiary pursuant to agreements under which the Corporation
has the option to repurchase such shares upon the occurrence of certain
events, including without limitation the termination of employment
by or service to the Corporation or any Subsidiary; and provided
further, however, that without the approval, by vote or written consent,
of the Holders of a Majority of the Series Preferred Stock the total
amount applied to the repurchase of shares of Common Stock shall
not exceed $25,000 during any twelve-month period.
(c) Additional Dividends. After
cumulative dividends on the Series Preferred Stock for all past dividend
periods and the then current dividend period shall have been declared
and paid or set apart, subject to Section 8(d) hereof, if the Board
shall elect to declare additional dividends, such additional dividends
shall be declared in equal amounts per share on all shares of Series
Preferred Stock and Common Stock, but with each share of Series
Preferred Stock being entitled to dividends based upon the number of
shares of Common Stock into which such share of Series Preferred Stock
could be converted, pursuant to Section 7 hereof, at the record date
for the determination of shareholders entitled to receive such dividend
or, if no such record date is established, on the date such dividend is
declared.
Section 3. Liquidation Rights of Series Preferred Stock.
<PAGE>
(a) Preference. In the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of each series of Series Preferred
Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its
shareholders, whether such assets are capital, surplus, or earnings,
before any payment or declaration and setting apart for payment of any
amount shall be made in respect of the Junior Stock, an amount equal to
the Investment Value per share of such series of Series
Preferred Stock on the date of payment. If upon any liquidation,
dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed to the holders of the
Series Preferred Stock shall be insufficient to permit the payment
to such shareholders of the full preferential amounts aforesaid, then
all of the assets of the Corporation to be distributed shall be
distributed ratably to the holders of Series A Preferred Stock and
Series B Preferred Stock in proportion to the Per Share Amount of
each series times the number of shares of each series held.
(b) Remaining Assets. After the
payment or distribution to the holders of the Series Preferred Stock of
the full preferential amounts aforesaid, the holders of the Junior
Stock shall be entitled to receive $0.17 (seventeen cents) per share,
and after the payment of such amount, if there are any remaining
assets available for distribution to the stockholders of the
Corporation, the holders of the Series Preferred Stock and Junior Stock
then outstanding shall be entitled to receive ratably, with all
Series Preferred Stock treated as if it had been converted into
Common Stock pursuant to Section 7 hereof, all remaining assets of
the Corporation to be distributed.
Section 4. Merger, Consolidation.
(a) At any time, in the event of:
(1) any consolidation or merger
of the Corporation with or into any other corporation or other entity or
person, or any other corporate reorganization or transaction or series
of related transactions by the Corporation in which in excess of 50%
of the Corporation's voting power is transferred, or
(2) a sale or other disposition
of all or substantially all of the assets of the Corporation, then:
(A) holders of each series
of Series Preferred Stock shall be entitled to receive for each share
of such stock in cash or in securities (including, without
limitation, debt securities) received from the acquiring
corporation, or a combination thereof, at the closing of any such
transaction, an amount equal to the applicable Investment Value per
share of such Series Preferred Stock on the date of full payment;
(B) holders of the
Junior Stock shall be entitled to receive $0.17 (seventeen cents) per
share; and
(C) after (i) the payment
or distribution to the holders of each series of Series Preferred Stock
of the full preferential amounts stated in Section 4(a)(2)(A) hereof,
and (ii) the payment or distribution to the holders of the Junior Stock
of the full amounts stated in Section 4(a)(2)(B) hereof, the remaining
proceeds of such transaction shall be distributed as a Shared
Allocation (as defined in Section 4(b) hereof).
<PAGE>
Such payments shall be made with respect
to the Series Preferred Stock and Junior Stock by (i) redemption or
purchase of such shares by the Corporation or (ii) purchase or
acquisition of such shares by the surviving or acquiring corporation,
entity or person or by the Corporation. Before any payment or
distribution is made to the holders of the Junior Stock, the full
preferential amount stated in Section 4(a)(2)(A) hereof shall first
be paid to the holders of each series of Series Preferred Stock. In
the event the full amount of such payment is not paid to the holders of
each series of Series Preferred Stock upon or immediately prior to
such transaction in accordance herewith, then all cash and securities
(including, without limitation, debt securities) to be distributed
in respect of the proposed transaction shall be distributed ratably
among the holders of the Series A Preferred Stock and the Series B
Preferred Stock in proportion to the Per Share Amount of each series
times the number of shares of each series held.
(b) "Shared Allocation" shall mean that the
holders of Series Preferred Stock and Junior Stock shall share the
remaining consideration to be paid by the acquiring corporation in
such transaction in proportion to the number of shares held by each
holder but, for this limited purpose, treating each holder of the
Series Preferred Stock as if it held the number of shares of Common
Stock issuable to it upon conversion of the Series Preferred Stock
held by it in accordance with the conversion privilege set forth in
Section 7 hereof.
(c) Any securities or other property to be
delivered to the holders of the Series Preferred Stock or Common Stock
pursuant to Section 4(a) hereof shall be valued as follows:
(1) Securities not subject to
investment letter or other similar restrictions on free marketability:
(A) If traded on a
securities exchange, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the 30-day
period ending three (3) days prior to the closing;
(B) If quoted on the Nasdaq
National Market, the value shall be deemed to be the average of the
closing prices (or, if the securities are not quoted on the Nasdaq
National Market but are regularly quoted on another NASDAQ quotation
system and there is an active public market for the securities, the
bid prices) over the 30-day period ending three (3) days prior to the
closing; and
(C) If the securities are
not quoted on the Nasdaq National Market and are either not otherwise
quoted on a NASDAQ quotation system or there is no active public
market therefor, the value shall be the fair market value thereof, as
mutually determined by the Corporation and the Holders of a
Majority of the Series Preferred Stock.
(2) The method of valuation of
securities subject to investment letter or other restrictions on free
marketability shall be to make appropriate discount from the market
value determined as above in paragraph (1)(A), (B) or (C) to
reflect the approximate fair market value thereof, as mutually
determined by the Corporation and the Holders of a Majority of the
Series Preferred Stock.
(3) All other securities or other
property shall be valued at the fair market value thereof, as mutually
determined by the Corporation and the Holders of a Majority of the
Series Preferred Stock.
<PAGE>
(4) If the Holders of a Majority
of the Series Preferred Stock and the Corporation are unable to reach
agreement on any valuation matter, such valuation shall be submitted to
and determined by a nationally recognized independent investment
banking firm selected by the Board and the Holders of a Majority of
the Series Preferred Stock (or, if such selection cannot be made,
by a nationally recognized independent investment banking firm
selected by the American Arbitration Association in accordance with
its rules).
(d) In the event the requirements of
Section 4(a) hereof are not complied with, the Corporation shall
forthwith either:
(1) Cause such closing to be
postponed until such time as the requirements of this Section 4 have
been complied with; or
(2) Cancel such transaction, in
which event the rights, preferences and privileges of the holders of
each series of Series Preferred Stock shall revert to and be the same as
such rights, preferences and privileges existing immediately prior
to the date of the first notice referred to in Section 4(e) hereof.
(e) The Corporation shall give each holder
of record of each series of Series Preferred Stock written notice of
such impending transaction not later than twenty-five (25) days prior
to the shareholders' meeting called to approve such transaction, or
twenty-five (25) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the
impending transaction and the provisions of this Section 4, and the
Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place
sooner than twenty-five (25) days after the Corporation has given the
first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened upon
the written consent of the Holders of a Majority of the Series
Preferred Stock.
(f) The provisions of this Section 4 are
in addition to the protective provisions of Section 8 hereof.
Section 5. Redemption.
(a) Restriction on Redemption and
Purchase. Except as expressly provided in this Section 5, the
Corporation shall not have the right to purchase, call, redeem or
otherwise acquire for value any or all of the Series Preferred Stock.
(b) Optional Redemption. On, or at any
time after, the fifth anniversary of the Commitment Date of the Series
A Preferred Stock, the Corporation may, at its option, redeem the
Series Preferred Stock in whole, but not in part, at the applicable
Optional Redemption Price for each series of Series Preferred
Stock hereinafter specified; provided, however, that the Corporation
shall not redeem any series of Series Preferred Stock or give
notice of any redemption unless the Corporation has sufficient
and lawful funds to redeem all of the then outstanding Series
Preferred Stock. The date on which the Series Preferred Stock is to be
redeemed pursuant to this Section 5(b) is herein called the "Optional
Redemption Date."
<PAGE>
(c) Mandatory Redemption.
(1) The Corporation shall redeem
the number of shares of Series Preferred Stock as indicated below on the
dates indicated in the following table (each a "Scheduled
Redemption Date"), at the applicable Mandatory Redemption Price for
each series of Series Preferred Stock hereinafter specified (a
"Scheduled Redemption"):
1,666,666 shares of Series A
Preferred Stock and 205,993
shares of Series B Preferred
Stock First Business Day of January, 2003
1,666,666 shares of Series A
Preferred Stock and 205,993
shares of Series B Preferred
Stock First Business Day of January, 2004
1,666,668 shares of Series A
Preferred Stock and 205,993
shares of Series B Preferred
Stock First Business Day of January, 2005
In addition to the foregoing, if the Corporation does not complete a
Qualified Offering (as hereinafter defined) within twenty-four (24)
months after the first issuance of Series A Preferred Stock, any
holder or holders holding, beneficially or of record, more than
fifty percent (50%) of the total number of outstanding shares of Series
A Preferred Stock or Series B Preferred Stock, by giving written notice
to the Corporation (a "Demand Notice"), may cause the Corporation to
redeem all outstanding shares of such series of Series Preferred Stock
at the applicable Optional Redemption Price for such series of
Series Preferred Stock on the Redemption Date specified in the
Demand Notice (the "Demand Date"), which may not be earlier than
thirty (30) days after the Demand Notice is received by the Corporation
(any such redemption being herein called a "Demand Redemption");
provided, however, that the Corporation shall not be obligated to
redeem any shares of Series Preferred Stock in accordance with a
Demand Notice if, within fifteen (15) days after the Demand Notice is
received, all of the persons named in the Demand Notice (to the extent
that they are not already directors of the Corporation) are elected to
the Board and constitute a majority of the members of the Board. A
Demand Notice shall state the names the individuals whom the holders
giving the Demand Notice wish to have elected to the Board (to the
extent that they are not already directors) and constitute a majority
of the member of the Board. A Scheduled Redemption or a Demand
Redemption is herein sometimes referred to as a "Mandatory Redemption."
<PAGE>
(2) If the funds of the Corporation
legally available for redemption of Series Preferred Stock on a
Scheduled Redemption Date or the Demand Date are insufficient to
redeem the number of shares to be redeemed pursuant to this subsection
(c) on such date, those funds which are legally available will be
used to redeem the maximum possible number of shares ratably among
all holders of Series A Preferred Stock and Series B Preferred Stock
in proportion to the Per Share Amount of each series times the
number of shares of such series held. At the earliest time thereafter
when additional funds of the Corporation are legally available for
redemption of Series Preferred Stock in the manner provided above, such
funds will be immediately used to redeem the balance of the
Series Preferred Stock which the Corporation has become obligated to
redeem on such Scheduled Redemption Date or the Demand Date, as the
case may be, but which it has not yet redeemed.
(3) If fewer than all shares of
Series Preferred Stock are being redeemed, the redemption will be made
ratably among all holders of Series A Preferred Stock and Series B
Preferred Stock in proportion to the Per Share Amount of each series
times the number of shares of each series held.
(d) Redemption Price. The Optional
Redemption Price of a series of Series Preferred Stock (the "Optional
Redemption Price") shall be the Investment Value per share of such
series of Series Preferred Stock. The Mandatory Redemption Price of a
series of Series Preferred Stock (the "Mandatory Redemption
Price") shall be the Investment Value per share of such series of
Series Preferred Stock. As used herein, "Redemption Price" shall
mean either the Optional Redemption Price or the Mandatory Redemption
Price, whichever shall be applicable.
(e) Redemption Notice. The Corporation
shall, not less than thirty (30) days nor more than sixty (60) days
prior to the Optional Redemption Date and each Scheduled Redemption Date
(a "Redemption Date"), give written notice ("Redemption Notice"), to
each holder of record of Series Preferred Stock to be redeemed. In
the case of a Demand Redemption, the Redemption Notice shall be given
by the Corporation to all holders of the Series Preferred Stock not
less than 10 days after receipt of the Demand Notice, and the
"Redemption Date" shall be the Demand Date. The Redemption Notice
shall state:
(1) That all or a specified number of the
outstanding shares of Series Preferred Stock are to
be redeemed and the total number of shares being
redeemed;
(2) The number of shares of Series
Preferred Stock held by the holder which the
Corporation intends to redeem;
(3) The Redemption Date and Redemption
Price;
(4) That the holder's right to convert the
Series Preferred Stock will terminate on the
Redemption Date; and
(5) The time, place and manner in which the
holder is to surrender to the Corporation the
certificate or certificates representing the shares
of Series Preferred Stock to be redeemed.
<PAGE>
(f) Payment of Redemption Price and
Surrender of Stock. On the Redemption Date, the applicable Redemption
Price of each series of Series Preferred Stock scheduled to be
redeemed or called for redemption shall be payable to the holders of
such Series Preferred Stock. On or before the Redemption Date,
each holder of Series Preferred Stock to be redeemed, unless the
holder has exercised his right to convert the shares as provided
in Section 7 hereof, shall surrender the certificate or certificates
representing such shares to the Corporation, in the manner and at the
place designated in the Redemption Notice, and thereupon the
Redemption Price for such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the
owner thereof, and each surrendered certificate shall be canceled and
retired.
(g) Termination of Rights. If the
Redemption Notice is duly given, and if at least ten (10) days prior to
the Redemption Date the Redemption Price is either paid or made
available for payment through the arrangement specified in subsection
(h) below, then notwithstanding that the certificates evidencing any
of the shares of Series Preferred Stock so called or scheduled for
redemption have not been surrendered, all rights with respect to such
shares shall forthwith after the Redemption Date cease and determine,
except only (i) the right of the holders to receive the Redemption
Price without interest upon surrender of their certificates therefor
or (ii) the right to receive Common Stock plus dividends upon exercise
of the conversion rights provided in Section 7 hereof on or before the
Redemption Date.
(h) Deposit of Funds. At least ten (10)
days prior to the Redemption Date, the Corporation shall deposit with
any bank or trust company in Washington, D.C., having a capital and
surplus of at least $1 billion as a trust fund, a sum equal to the
aggregate Redemption Price of all shares of the Series Preferred Stock
scheduled to be redeemed or called for redemption and not yet
redeemed, with irrevocable instructions and authority to the bank or
trust company to pay, on or after the Redemption Date or prior thereto,
the Redemption Price to the respective holders upon the surrender of
their share certificates. The deposit shall constitute full payment
of the shares to their holders, and from and after the date of such
deposit (even if prior to the Redemption Date), the shares shall be
deemed to be redeemed and no longer outstanding, and the holders
thereof shall cease to be shareholders with respect to such shares and
shall have no rights with respect thereto, except the right to receive
from the bank or trust company payment of the Redemption Price of the
shares, without interest, upon surrender of their certificates
therefor and the right to convert such shares and receive accrued and
unpaid dividends as provided in Section 7 hereof. Any monies so
deposited and unclaimed at the end of one year from the Redemption Date
shall be released or repaid to the Corporation, after which the
holders of shares called for redemption shall be entitled to receive
payment of the Redemption Price only from the Corporation.
Section 6. Voting Rights.
(a) Series Preferred Stock. Each holder
of shares of Series Preferred Stock shall be entitled to vote on all
matters and, except as otherwise expressly provided herein, shall
be entitled to the number of votes equal to the largest number of
full shares of Common Stock into which such shares of Series
Preferred Stock could be converted, pursuant to the provisions of
Section 7 hereof, at the record date for the determination of the
shareholders entitled to vote on such matters or, if no such record
date is established, at the date such vote is taken.
(b) Common Stock. Each holder of shares
of Common Stock shall be entitled to one vote for each share thereof
held. Except as otherwise expressly provided herein or as required by
law, the holders of Series Preferred Stock and the holders of Common
Stock shall vote together and not as separate classes.
(c) Authorized Directors and Class
Voting Rights of Series Preferred Stock and Common Stock; Compensation
Committee.
<PAGE>
(1) The Corporation shall have
nine (9) authorized directors. Subject to subsection (d) of this
Section 6, the holders of Series A Preferred Stock, as a class, shall
be entitled to elect two (2) directors, the holders of the Series B
Preferred Stock, as a class, shall be entitled to elect one (1)
director, and the holders of all other Voting Stock, as a class, shall
be entitled to elect the remaining members of the Board.
(2) The Board shall establish a
compensation committee of three directors (the "Compensation
Committee"), one member of which shall be selected by the Holders of a
Majority of the Series A Preferred Stock, one member of which shall
be selected by the Holders of a Majority of the Series B Preferred
Stock, and the third member of which shall be appointed by the Board
of the Corporation. All action taken by the Compensation Committee
shall require the vote or written consent of two of the three members of
the Compensation Committee, provided that one of such two members is
the member selected by the holders of a Majority of the Series A
Preferred Stock. All matters affecting compensation of any officer or
director of the Corporation or any Subsidiary or any employee of or
consultant to the Corporation or any Subsidiary whose base compensation
is at an annual rate of at least $75,000 shall require approval of the
Compensation Committee in order to be effective. No option or warrant
to purchase Common Stock, stock appreciation right or stock issuance to
any officer, director or employee of the Corporation shall be granted,
effected, modified or accelerated unless the same has been approved
by the Compensation Committee. In addition, the Compensation Committee
shall have the exclusive authority to administer and take all action
permitted or required to be taken by the Board or any committee of
the Board under all stock option plans of the Corporation and under
any other plan or arrangement that provides for the issuance of
Common Stock, stock appreciation rights, phantom stock or other
similar benefits to any employee of or any advisor or consultant to
the Corporation.
<PAGE>
(d) Special Voting Rights of Series
Preferred Stock in Case of Certain Events. If the Corporation shall
have failed to redeem and pay in full the applicable Redemption Price
of any Series Preferred Stock called for redemption or scheduled or
otherwise to be redeemed as required by Section 5 hereof, whether or
not funds are legally available therefor, the holders of the Series
Preferred Stock shall, immediately upon the giving of written notice
to the Corporation by any holder of Series Preferred Stock, be
entitled to elect the smallest number of directors which shall
constitute a majority of the authorized number of directors of
the Corporation as follows: the holders of the Series A Preferred
Stock and the holders of the Series B Preferred Stock, voting as
separate classes, shall each elect an equal number of the directors
constituting such majority of the Board, and to the extent that an
unequal number of directors is required to form such majority, the
extra director shall be elected by the holders of the Series A
Preferred Stock. The holders of all other shares of Voting Stock, as
a class, shall be entitled to elect the remaining members of the
Board. Whenever the holders of the Series Preferred Stock shall be
entitled to elect directors as provided in this subsection (d), the
holders of the Series Preferred Stock may call a special meeting of
stockholders and shall have access to the stock books and records of
the Corporation for such purpose. At any such meeting, or at any other
meeting held while the holders of the Series Preferred Stock have
the voting power described in this subsection (d), the Holders of a
Majority of the Series Preferred Stock, present in person or by proxy,
shall be sufficient to constitute a quorum for the election of directors
as herein provided. At such meeting or, if no such special meeting
shall have been called, then at the next annual meeting of the
stockholders, the holders of the Series Preferred Stock shall be
entitled to elect a majority of the directors of the Corporation (as
provided in the first sentence of this Section 6(d)), and the
holders of all other shares of Voting Stock, as a class, shall be
entitled to elect the remaining members of the Board. Upon the
election by the holders of Series Preferred Stock of a majority of
the directors, the terms of office of all persons who were
theretofore directors of the Corporation shall forthwith terminate,
whether or not the holders of the Common Stock shall then have
elected the remaining directors of the Corporation.
(e) Divestment of Special Voting Rights
of Series Preferred Stock. If the Redemption Price of all Series
Preferred Stock scheduled for redemption or called for redemption or
otherwise to be redeemed, as the case may be, shall have been paid in
full, as required by Section 5 hereof, then the holders of the Series
Preferred Stock shall be divested of the voting rights specified in
Section 6(d). These voting rights shall again accrue to the holders of
Series Preferred Stock as and when provided in Section 6(d). Upon
the termination of any such voting rights as hereinabove provided,
the Board shall call a special meeting of the stockholders at which all
directors will be elected, and the terms of office of all persons who
are then directors of the Corporation shall terminate immediately upon
the election of their successors.
(f) Vacancies. In the case of any
vacancy in the office of a director elected by the holders of the Series
A Preferred Stock or the Series B Preferred Stock, voting as
separate classes, pursuant to subsection (c) of this Section 6 or
the holders of the Series Preferred Stock, voting together as a
separate class, pursuant to subsection (d) of this Section 6, such
vacancy shall be filled by the vote or written consent of the holders
of the class of Series Preferred Stock which elected such director
or, in the absence of action by such holders, by action of the remaining
director elected by the holders of such class, and any such
director so elected shall hold the office for the unexpired term of the
director whose place shall be vacant. Any director who shall have
been elected by the holders of the Series A Preferred Stock or the
Series B Preferred Stock, voting as separate classes, or by the
holders of the Series Preferred Stock, voting together as a separate
class, or any director so elected as provided in the immediately
preceding sentence, shall be removed during the aforesaid term of
office, whether with or without cause, only by the affirmative
vote of the holders of a majority of the class of Series Preferred
Stock entitled to elect such director.
Section 7. Conversion. The holders of Series
Preferred Stock shall have the following conversion rights:
(a) Right to Convert. Each share of
Series Preferred Stock shall be convertible, at any time at the option
of the holder thereof, into fully paid and nonassessable shares of
Common Stock.
<PAGE>
(b) Conversion Price. Each share of a
series of Series Preferred Stock shall be convertible into the number of
shares of Common Stock which results from dividing the Conversion
Price (as hereinafter defined) of that series of Series Preferred
Stock in effect at the time of conversion into the Original Issue Price
of such series of Series Preferred Stock being converted. The initial
Conversion Price for each series of Series Preferred Stock shall be the
Per Share Amount for such series. The Conversion Price for each series
of Series Preferred Stock shall be subject to adjustment from time to
time as provided below.
(c) Mechanics of Conversion. Each holder
of Series Preferred Stock who desires to convert the same into shares of
Common Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series Preferred Stock or Common Stock, and
shall give written notice to the Corporation at such office that such
holder elects to convert the same and shall state therein the number
of shares of Series Preferred Stock being converted. Thereupon the
Corporation shall promptly issue and deliver to such holder a
certificate or certificates for the number of shares of Common Stock
to which such holder is entitled and shall promptly pay in cash or, if
the Corporation so elects or is legally or financially unable to pay
such dividends in cash, Common Stock (valued at the Common Stock's
Fair Market Value at the time of surrender), all accumulated, accrued
and unpaid dividends on the shares of Series Preferred Stock being
converted, whether or not earned or declared, to and including the time
of conversion. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such
surrender of the certificate representing the shares of Series
Preferred Stock to be converted, and the Person entitled to receive
the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of Common
Stock on such date.
(d) Adjustment for Stock Splits and
Combinations. If the Corporation at any time or from time to time after
the Commitment Date of a series of Series Preferred Stock effects
a subdivision of the outstanding Common Stock, the Conversion Price
for such series of Series Preferred Stock then in effect
immediately before that subdivision shall be proportionately
decreased, and conversely, if the Corporation at any time or from
time to time after the Commitment Date combines the outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price
for such series then in effect immediately before the
combination shall be proportionately increased. Any adjustment
under this subsection (d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
<PAGE>
(e) Adjustment for Certain Dividends and
Distributions. If the Corporation at any time or from time to time
after the Commitment Date of a series of Series Preferred Stock makes,
or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the
Conversion Price for such series then in effect shall be decreased as
of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by
multiplying the Conversion Price for such series then in effect by a
fraction (1) the numerator of which is the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date is fixed
and such dividend is not fully paid or if such distribution is not
fully made on the date fixed therefor, the Conversion Price for such
series shall be recomputed accordingly as of the close of business on
such record date and thereafter the Conversion Price for such series
shall be adjusted pursuant to this subsection (e) as of the time of
actual payment of such dividends or distributions.
(f) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time or from time to
time after the Commitment Date of a series of Series Preferred
Stock makes, or fixes a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other
distribution payable in securities of the Corporation other than
shares of Common Stock, then and in each such event provision shall
be made so that the holders of such series of Series Preferred Stock
shall receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of securities
of the Corporation which they would have received had their Series
Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such
event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 7
with respect to the rights of the holders of such series of Series
Preferred Stock.
(g) Adjustment for Reclassification,
Exchange and Substitution. In the event that at any time or from time
to time after the Commitment Date of a series of Series Preferred
Stock, the Common Stock issuable upon the conversion of such series of
Series Preferred Stock is changed into the same or a different number
of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets, provided for
elsewhere in this Section 7), then and in any such event each holder
of such series of Series Preferred Stock shall have the right
thereafter to convert such stock into the kind and amount of stock and
other securities and property receivable upon such recapitalization,
reclassification or other change, by holders of the maximum number of
shares of Common Stock into which such shares of Series Preferred
Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further
adjustment as provided herein.
<PAGE>
(h) Reorganizations, Mergers,
Consolidations or Sales of Assets. If at any time or from time to time
after the Commitment Date of a series of Series Preferred Stock,
there is a capital reorganization of the Common Stock (other than a
recapitalization, subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section 7) or a
merger or consolidation of the Corporation with or into another
corporation, or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part
of such reorganization, merger, consolidation or sale, provision shall
be made so that the holders of such series of Series Preferred Stock
shall thereafter be entitled to receive upon conversion of such Series
Preferred Stock the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the
provisions of this Section 7 with respect to the rights of the holders
of such series of Series Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of this
Section 7 (including adjustment of the Conversion Price for such
series then in effect and the number of shares purchasable upon
conversion of such Series Preferred Stock) shall be applicable after
that event and be as nearly equivalent as may be practicable.
(i) Sale of Shares Below Conversion
Price.
(1) If at any time or from time
to time after the Commitment Date of a series of Series Preferred Stock,
the Corporation issues or sells, or is deemed by the express provisions
of this subsection (i) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a dividend
or other distribution on any class of stock as provided in subsection
(e) above and other than upon a subdivision or combination of shares of
Common Stock as provided in subsection (d) above, for an Effective Price
(as hereinafter defined) less than the then existing Conversion Price
for such series, then and in each such case the then existing
Conversion Price for such series shall be reduced, as of the opening of
business on the date of such issue or sale, as follows:
(I) if such issuance or deemed issuance
occurs during the twelve-month period immediately
following the first issuance of Series A Preferred
Stock and prior to a Qualified Offering and
constitutes a Financing Transaction (as
hereinafter defined), the Conversion Price for
such series shall be reduced to the Effective
Price at which the Additional Shares of Common
Stock were issued or deemed to have been issued; and
(II) if such issuance or deemed issuance
occurs during the twelve-month period immediately
following the first issuance of Series A Preferred
Stock and constitutes a Financing Transaction or
occurs after the twelve-month period immediately
following the first issuance of Series A Preferred
Stock, the Conversion Price for such series shall be
reduced to a price determined by multiplying that
Conversion Price by a fraction (i) the numerator of
which shall be (A) the number of shares of Common
Stock outstanding at the close of business on the day
next preceding the date of such issue or sale, plus
(B) the number of shares of Common Stock which the
aggregate consideration received (or by the express
provisions hereof deemed to have been received) by
the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at
such Conversion Price, plus (C) the number of
shares of Common Stock into which the outstanding
shares of all Series Preferred Stock are convertible
at the close of business on the date next preceding
the date of such issue or sale, plus (D) the number of
shares of Common Stock underlying all Other Securities
(as hereinafter defined) at the close of business on
the date next preceding the date of such issue or
sale, and (ii) the denominator of which shall be
(A) the number of shares of Common Stock outstanding
at the close of business on the date of such issue or
sale after giving effect to such issue of Additional
Shares of Common Stock, plus (B) the number of
shares of Common Stock into which the
outstanding shares of all Series Preferred
Stock are convertible at the close of business
on the date next preceding the date of such issue
or sale, plus (C) the number of shares of Common
Stock underlying the Other Securities at the close
of business on the date next preceding the date of
such issue or sale.
<PAGE>
"Financing Transaction" means any transaction or series of related
transactions in which Additional Shares of Common Stock are issued or
sold, or are deemed to have been issued or sold, for at least $1,000,000
in the aggregate.
(2) For the purpose of making any
adjustment required under this subsection (i), the consideration
received by the Corporation for any issue or sale of securities shall
(A) to the extent it consists of cash be computed at the amount of
cash received by the Corporation, (B) to the extent it consists of
property other than cash, be computed at the fair value of that
property as determined in good faith by the Board, (C) if Additional
Shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares of
Common Stock or Convertible Securities are issued or sold together with
other stock or securities or other assets of the Corporation for a
consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good
faith by the Board to be allocable to such Additional Shares of Common
Stock, Convertible Securities or rights or options, and (D) be
computed after reduction for all expenses payable by the Corporation in
connection with such issue or sale.
<PAGE>
(3) For the purpose of the
adjustment required under this subsection (i), if the Corporation issues
or sells any rights or options for the purchase of, or stock or
other securities convertible into or exchangeable for, Additional
Shares of Common Stock (such convertible or exchangeable stock or
securities being hereinafter referred to as "Convertible Securities")
and if the Effective Price of such Additional Shares of Common Stock
is less than the Conversion Price for such series then in effect, then
in each case the Corporation shall be deemed to have issued at the time
of the issuance of such rights or options or Convertible Securities
the maximum number of Additional Shares of Common Stock issuable upon
exercise, conversion or exchange thereof and to have received as
consideration for the issuance of such shares an amount equal to
the total amount of the consideration, if any, received by the
Corporation for the issuance of such rights or options or Convertible
Securities, plus, in the case of such rights or options, the minimum
amounts of consideration, if any, payable to the Corporation
upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any,
payable to the Corporation (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities)
upon the conversion or exchange thereof. No further adjustment of the
Conversion Price for such series, adjusted upon the issuance of such
rights, options or Convertible Securities, shall be made as a result
of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion or exchange of
any such Convertible Securities. If any such rights or options or the
conversion or exchange privilege represented by any such Convertible
Securities shall expire without having been exercised, the Conversion
Price adjusted upon the issuance of such rights, options or Convertible
Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the
only Additional Shares of Common Stock so issued were the Additional
Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion or exchange
of such Convertible Securities, and such Additional Shares of Common
Stock, if any, were issued or sold for the consideration actually
received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for
the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or
selling the Convertible Securities actually converted or exchanged,
plus the consideration, if any, actually received by the Corporation
(other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) on the conversion or exchange of such
Convertible Securities.
(4) For the purpose of the
adjustment required under this subsection (i), if the Corporation issues
or sells, or is deemed by the express provisions of this subsection
to have issued or sold, any rights or options for the purchase of
Convertible Securities and if the Effective Price of the Additional
Shares of Common Stock underlying such Convertible Securities is less
than the Conversion Price for such series then in effect, then in
each such case the Corporation shall be deemed to have issued at the
time of the issuance of such rights or options the maximum number of
Additional Shares of Common Stock issuable upon conversion or exchange
of the total amount of Convertible Securities covered by such rights or
options and to have received as consideration for the issuance
of such Additional Shares of Common Stock an amount equal to
the amount of consideration, if any, received by the Corporation
for the issuance of such rights or options, plus the minimum amounts of
consideration, if any, payable to the Corporation upon the exercise of
such rights or options and plus the minimum amount of consideration, if
any, payable to the Corporation (other than by cancellation of
liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange of such Convertible
Securities. No further adjustment of the Conversion Price for such
series, adjusted upon the issuance of such rights or options, shall
be made as a result of the actual issuance of the Convertible
Securities upon the exercise of such rights or options or upon the
actual issuance of Additional Shares of Common Stock upon the
conversion or exchange of such Convertible Securities. The provisions
of paragraph (3) above for the readjustment of the Conversion Price for
such series upon the expiration of rights or options or the rights of
conversion or exchange of Convertible Securities shall apply mutatis
mutandis to the rights, options and Convertible Securities referred to
in this paragraph (4).
<PAGE>
(5) "Additional Shares of Common
Stock" shall mean all shares of Common Stock issued by the Corporation
after the Commitment Date of a series of Series Preferred Stock,
whether or not subsequently reacquired or retired by the Corporation,
other than (i) shares of Common Stock issued upon conversion of the
Series Preferred Stock, (ii) the first 1,095,875 shares of Common Stock
issued to individuals who are or were employees or directors of or
consultants to the Corporation or any Subsidiary pursuant to
stock purchase or stock option plans or other arrangements,
(iii) 71,250 shares of Common Stock issued upon the exercise of stock
purchase warrants that were outstanding on the date of first issuance
of Series A Preferred Stock, and (iv) 25,000 shares to be issued
to a former employee for services rendered. The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by
dividing the total number of Additional Shares of Common Stock issued
or sold, or deemed to have been issued or sold by the Corporation under
this subsection (i), into the aggregate consideration received, or
deemed to have been received, by the Corporation for such issue under
this subsection (i), for such Additional Shares of Common Stock.
"Other Securities" with respect to an issue or sale of Additional Shares
of Common Stock shall mean stock and other securities convertible
into or exchangeable for Common Stock; "the number of shares of Common
Stock underlying Other Securities" on a particular date shall mean the
number of shares of Common Stock issuable upon the exercise, conversion
or exchange, as the case may be, of such Other Securities at the
close of business on such date but only to the extent that the holders
thereof have the fully vested legal right to exercise, convert or
exchange such Other Securities on such date and to retain the Common
Stock issued upon such exercise, conversion or exchange.
(j) Accountants' Certificate of
Adjustment. In each case of an adjustment or readjustment of the
Conversion Price of a series of Series Preferred Stock or the number
of shares of Common Stock or other securities issuable upon
conversion of a series of Series Preferred Stock, the Corporation, at
its expense, shall cause independent public accountants of recognized
standing selected by the Corporation (who may be the independent
public accountants then auditing the books of the Corporation)
to compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to each registered holder of
Series Preferred Stock at the holder's address as shown in the
Corporation's books. The certificate shall set forth such adjustment
or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of
(1) the consideration received or deemed to be received by the
Corporation for any Additional Shares of Common Stock issued or sold
or deemed to have been issued or sold, (2) the Conversion Price of such
series of Series Preferred Stock at the time in effect, (3) the
number of Additional Shares of Common Stock and (4) the type and
amount, if any, of other property which at the time would be
received upon conversion of such series of Series Preferred Stock.
(k) Notices of Record Date. In the
event of (i) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or (ii) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation with
or into any other corporation, or any transfer of all or substantially
all of the assets of the Corporation to any other person or any
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, the Corporation shall mail to each holder of Series
Preferred Stock at least thirty (30) days prior to the record date
specified therein, a notice specifying (1) the date on which any
such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (2)
the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up
is expected to become effective, and (3) the date, if any, that is to be
fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock
(or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
(l) Automatic Conversion.
<PAGE>
(1) Each share of Series
Preferred Stock shall automatically be converted into shares of Common
Stock based on the then effective Conversion Price of such series
immediately upon the closing of an underwritten public offering
pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offering and sale of Common
Stock for the account of the Corporation in which the aggregate
gross proceeds received by the Corporation at the public offering price
equals or exceeds $25 million, the public offering price per share of
which equals or exceeds 110% of the Conversion Price of the Series A
Preferred Stock then in effect and the obligation of the underwriters
with respect to which is that if any of the securities being
offered are purchased, all such securities must be purchased (herein
called a "Qualified Offering"); provided, however, that such
conversion shall be conditioned upon payment by the Corporation of
all accrued and unpaid dividends on the outstanding Series
Preferred Stock, whether or not earned or declared, to and including
the date of such conversion, payable either in cash or Common Stock
(valued at the Common Stock's Fair Market Value), or both. Each
share of a series of Series Preferred Stock shall automatically be
converted into shares of Common Stock based on the then effective
Conversion Price of such series upon the receipt by the Corporation of
a written notice from any holder or holders holding, beneficially or
of record, more than fifty percent (50%) of the total number of
outstanding shares of such series of Series Preferred Stock electing
unconditionally to convert their shares of Series Preferred Stock.
(2) Upon the occurrence of
either of the events specified in paragraph (1) above the outstanding
shares of Series Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or
not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the
Corporation shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series Preferred Stock are
either delivered to the Corporation or its transfer agent as provided
below, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion of any
series of Series Preferred Stock, the holders of such Series
Preferred Stock shall surrender the certificates representing such
shares at the office of the Corporation or any transfer agent for
the Series Preferred Stock or Common Stock. Thereupon, there shall be
issued and delivered to such holder promptly at such office and in
its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock
into which the shares of such Series Preferred Stock surrendered were
convertible on the date on which such automatic conversion
occurred, and the Corporation shall promptly pay in cash or Common
Stock (taken at the Common Stock's Fair Market Value as of the date
of such conversion), or both, all accrued and unpaid dividends on the
shares of Series Preferred Stock being converted, whether or not
earned or declared, to and including the date of such conversion.
(m) Fractional Shares. Fractional
shares otherwise issuable upon conversion of Series Preferred Stock held
by a single holder shall be aggregated into whole shares and issued to
such holder. Otherwise, no fractional shares of Common Stock shall
be issued upon conversion of Series Preferred Stock. Except as
provided above, in lieu of any fractional share to which the holder
would otherwise be entitled, the Corporation shall pay cash equal
to the product of such fraction multiplied by the fair market value of
one share of Common Stock on the date of conversion, as determined in
good faith by the Board.
<PAGE>
(n) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the shares
of the Series Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding
shares of the Series Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(o) Notices. Any notice required or
permitted by this Section 7 or any other provision of this Article III
A to be given to a holder of Series Preferred Stock or to the
Corporation shall be in writing and be deemed given upon the earlier
of actual receipt or three (3) days after the same has been deposited in
the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, and addressed (i) to each
holder of record at the address of such holder appearing on the books
of the Corporation, or (ii) to the Corporation at 2300 Commonwealth
Drive, Charlottesville, Virginia 22901, or (iii) to the Corporation
or any holder, at any other address specified in a written notice
given to the other for the giving of notice.
(p) Payment of Taxes. The Corporation will
pay all taxes (other than taxes based upon income) and other
governmental charges that may be imposed with respect to the issue
or delivery of shares of Common Stock upon conversion of shares of
Series Preferred Stock, including without limitation any tax or
other charge imposed in connection with any transfer involved in
the issue and delivery of shares of Common Stock in a name other than
that in which the shares of Series Preferred Stock so converted were
registered.
(q) No Dilution or Impairment. The
Corporation shall not amend its Articles of Incorporation or participate
in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action,
for the purpose of avoiding or seeking to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of
the Series Preferred Stock against dilution or other impairment.
Section 8. Restrictions and Limitations. For so
long as any shares of Series Preferred Stock remain outstanding, the
Corporation shall not, and shall not permit any Subsidiary to, without
the vote or written consent by the Holders of a Majority of the Series
Preferred Stock:
(a) Redeem, purchase or otherwise
acquire for value any share or shares of Series Preferred Stock,
otherwise than by redemption in accordance with Section 5 hereof,
or any warrant, option or right to purchase any Series Preferred Stock;
<PAGE>
(b) Purchase, redeem or otherwise acquire
for value (or pay into or set aside as a sinking fund for such purpose)
any Junior Stock or any warrant, option or right to purchase any Junior
Stock; provided, however, that this restriction shall not apply to
(i) the repurchase of shares of Common Stock from directors or
employees of or consultants to the Corporation or any Subsidiary
pursuant to agreements under which the Corporation has the option
to repurchase such shares upon the occurrence of certain events,
including the termination of employment by or service to the
Corporation or any Subsidiary; and provided further, however, that
without the approval, by vote or written consent, of the Holders of
a Majority of the Series Preferred Stock, the total amount
applied to the repurchase of shares of Common Stock shall not
exceed $25,000 during any twelve-month period; or (ii) amounts paid
by the Corporation in accordance with its 1997 Stock Incentive Plan in
cancellation of outstanding stock options upon a "Change of Control" as
defined in such Plan; provided, that such payment is approved by the
Compensation Committee.
(c) Authorize or issue, or obligate itself
to issue, any other equity security senior to or on a parity with any
series of Series Preferred Stock as to dividend or redemption rights,
liquidation preferences, conversion rights, voting rights or otherwise;
for purposes of this subsection, a senior equity security shall
include any indebtedness convertible into or exchangeable for shares of
capital stock of the Corporation or any indebtedness issued with (i)
shares of capital stock of the Corporation or (ii) warrants or other
rights to purchase capital stock of the Corporation or Convertible
Securities;
(d) Declare or pay any dividends on or
declare or make any other distribution, direct or indirect, (other than
a dividend payable solely in shares of Common Stock) on account of the
Junior Stock or set apart any sum for any such purpose;
(e) Effect any sale, lease, assignment,
transfer or other conveyance of all or substantially all of the assets
of the Corporation or any of its Subsidiaries, or any consolidation or
merger involving the Corporation or any of its Subsidiaries, or
any reclassification or other change of any stock, or any
recapitalization, or any dissolution, liquidation, or winding up of
the Corporation or, unless the obligations of the Corporation under
an agreement are expressly conditioned upon the requisite approval of
the Holders of a Majority of the Series Preferred Stock as provided
for herein, make any agreement or become obligated to do so; provided,
however, that this Section 8(e) shall not require approval of a
transaction by the Holders of a Majority of the Series Preferred Stock
if as a result of such transaction the holders of the Series Preferred
Stock and the holders of the Junior Stock collectively receive, in
exchange for the capital stock of the Corporation and in accordance with
either Section 3 or 4 hereof, in such transaction cash or fully
marketable securities, or both, having a fair market value on the
date of receipt by all such holders of at least the Minimum Value (as
hereinafter defined), with fair market value determined in accordance
with the procedure specified in Section 4(c); for this purpose
"Minimum Value" shall mean $500 million, which amount shall be
increased by 10% per annum (compounded annually) on each anniversary
of the first issuance of Series A Preferred Stock;
(f) Effect any sale, transfer,
assignment, license or sublicense of any of the Corporation's software
or systems that are used or developed by the Corporation and are
material to the conduct of its business;
(g) Permit any Subsidiary to issue or
sell, or obligate itself to issue or sell, except to the Corporation or
any wholly-owned Subsidiary, any stock or other equity Securities of
such Subsidiary;
<PAGE>
(h) Increase or decrease (other than by
redemption or conversion) the total number of authorized shares of any
series of Series Preferred Stock;
(i) Amend its Articles of Incorporation
or amend or repeal its bylaws;
(j) Enter into or effect any transaction
between the Corporation, on the one hand, and any officer, director,
senior employee or holder of at least 3% of the outstanding Common
Stock of the Corporation, on the other hand, other than any matter
requiring approval of the Compensation Committee of the Board of the
Corporation, except for services rendered in the ordinary course of
business of the Corporation; or
(k) Take any action which would result in
taxation of the holders of any series of Series Preferred Stock under
Section 305 of the Internal Revenue Code of 1986 (or any comparable
provision of the Internal Revenue Code as hereafter from time to time
amended).
Section 9. Additional Restrictions and Limitations.
For so long as any shares of Series A Preferred Stock or Series B
Preferred Stock remain outstanding, in addition to any other vote or
consent required herein or by law, a separate series vote or written
consent of the holders of at least fifty percent (50%) of the
outstanding shares of Series A Preferred Stock or Series B Preferred
Stock, as the case may be, shall be necessary (a) to effect or validate
any amendment, alteration or repeal of any provision of the Articles of
Incorporation of the Bylaws of the Corporation which would change or
alter any of the rights, preferences, privileges or restrictions
provided for herein for the benefit of any shares of such series of
Series Preferred Stock, or (b) to authorize any equity security
senior to or on a parity with such series of Series Preferred Stock as
to dividend or redemption rights, liquidation preferences, voting
rights, or with respect to the rights provided for in this Section 9,
or otherwise.
Section 10. No Reissuance of Series Preferred Stock.
No share or shares of Series Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise
shall be reissued, and all such shares shall be canceled, retired
and eliminated from the shares which the Corporation shall be
authorized to issue.
<PAGE>
ARTICLES OF MERGER
for the Merger of
VALUE AMERICA, INC., a Nevada Corporation
into
VALUE AMERICAN, INC., a Virginia Corporation
1. The Plan and Agreement of merger ("Plan of Merger") is attached hereto
as Exhibit A.
2. The sole shareholder of Value America, Inc., a Virginia corporation,
adopted the Plan by written consent effective October 21, 1997.
3. The shareholders of Value America, Inc., a Nevada corporation, adopted
the Plan by unanimous written consent effective October 21, 1997.
Effective Date: October 23, 1997
VALUE AMERICA, INC.
(a Virginia Corporation)
By: /s/ Rex Scatena
--------------------
Rex Scatena, President
Date: 10-21-98
--------------------
ATTEST:
By: /s/ Rex Scatena
- ---------------------
Rex Scatena, Secretary
Date: 10-21-98
- ---------------------
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF ARTICLES OF MERGER
of
VALUE AMERICA, INC.
(a Nevada Corporation)
with and into
VALUE AMERICA, INC.
(a Virginia Corporation)
This Agreement and Plan of Articles of Merger (the "Plan") is made and
entered into as of October 21, 1997 between Value America, Inc., a Nevada
corporation ("Value America (Nevada)"), and Value America, Inc., a Virginia
corporation (the "Corporation"), with reference to the following recitations.
The address of each of Value America (Nevada) and the Corporation is 1650
State Farm Boulevard, Charlottesville, Virginia 22911.
A. The Corporation is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Virginia. As of the date
hereof, the authorized capital stock of the Corporation consists of 50,000,000
shares of common stock (the "Virginia Corporation Common Stock"), without par
value, 100 of which shares are issued and outstanding, and 5,000,000 shares of
preferred stock (the "Virginia Corporation Preferred Stock"), without par value,
none of which shares are issued and outstanding.
B. Value America (Nevada) is a corporation organized and validly existing
under the laws of the State of Nevada, with authorized capital stock of
7,500,000 shares (the "Nevada Corporation Common Stock"), $.01 par value,
7,500,000 of which shares are issued and outstanding.
C. The board of directors and shareholders of the Corporation have adopted
resolutions by unanimous written consent authorizing the proposed merger (the
"Merger") of Value America (Nevada) with and into the Corporation upon the terms
and conditions hereinafter set forth in accordance with the Virginia Stock
Corporation Act.
D. The board of directors and shareholders of Value America (Nevada) have
adopted resolutions by unanimous written consent approving the Merger upon the
terms and conditions hereinafter set forth in accordance with Title 7 of the
Nevada Revised Statutes.
E. The Merger is intended to qualify as a reorganization under Sections
368(a)(1)(A) and 368 (a)(1)(F) of the Internal Revenue Code of 1986, as amended.
F. The Corporation and Value America (Nevada) are hereinafter sometimes
referred to collectively as the "Constituent Corporations."
NOW, THEREFORE, in consideration of the matters recited above and the
covenants, conditions and agreements contained herein and intending to be
legally bound hereby, the parties hereto agree as follows.
<PAGE>
1. Merger. the Constituent Corporations shall effect the Merger on the
terms and conditions set forth in this Plan.
a. Effect. At the Effective Time, as defined in subsection (b), Value
America (Nevada) shall be merged with and into the Corporation, and the separate
existence of Value America (Nevada), except insofar as it may be continued by
statute or Section 7, shall cease, all with the effect provided in Section
92A.190 of the Nevada Revised Statutes and Section 13.1-721 of the Virginia
Stock Corporation Act. From and after the Effective Time, the Corporation shall
be, and is sometimes hereinafter referred to as, the "Surviving Corporation."
b. Effectiveness. Subject to the terms and conditions herein provided,
an appropriate Articles of Merger under the Nevada Revised Statutes and Articles
of Merger under the Virginia Stock Corporation Act shall be executed by the
Constituent Corporations to be effective as of October 23, 1997. On October 23,
1997, Articles of Merger shall be filed with the Secretary of State of the State
of Nevada, and Articles of merger shall be filed with the State Corporation
Commission of Virginia (the "Commission") and the Merger shall become effective
upon the date and at the time the Certificate of Merger is issued by the
Commission (which date and time are hereinafter referred to as the "Effective
Time").
2. Conversion of Shares: Stock Incentive Plan. At the Effective Time, the
manner and basis of converting shares of the Constituent Corporations will be as
follows: every share of the Nevada Corporation Common Stock issued and
outstanding at the Effective Time shall at the Effective Time be exchanged for
and converted into and become without further action by the holder thereof 1
share of the Virginia Corporation Common Stock, and from and after the Effective
Time shall represent 1 share of the common stock, without par value, of the
Surviving Corporation. Pursuant to Section 19 of the Value America, Inc. 1997
Stock Incentive Plan established by Value America (Nevada) as of August 1, 1997
(the "Stock Incentive Plan"), the Stock Incentive Plan shall become the stock
incentive plan of the Surviving Corporation as of the Effective Time. Every
right of a participant in the Stock Incentive Plan to purchase a share of the
Nevada Corporation Common Stock shall become, as of the Effective Time, a right
to purchase a share of the Virginia Corporation Common Stock under the same
terms and conditions and at the same price provided in the Stock Incentive Plan.
All terms and conditions of the Stock Incentive Plan (including without
limitation the reservation for issuance pursuant to Section 4 of the Stock
Incentive Plan of 1,250,000 shares of common stock) shall be binding upon the
Surviving Corporation and shall apply to the Virginia Corporation Common Stock,
and all obligations under the Stock Incentive Plan (including without limitation
all outstanding options for the purchase of common stock) shall be assumed by
the Surviving Corporation, as of the Effective Time.
3. Articles of Incorporation. From and after the Effective Time, the
Articles of Incorporation of the Corporation, as in effect immediately prior to
the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until duly amended in accordance with law, and the Surviving
Corporation shall continue to be a corporation organized and governed by the
laws of the Commonwealth of Virginia.
<PAGE>
4. Bylaws. The Bylaws of the Corporation, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until duly
amended in accordance with law.
5. Certain Agreements. As of the Effective Time, the Surviving Corporation
shall assume all obligations under, and the Surviving Corporation shall be bound
by the terms and conditions of, each of the following agreements: any and all
agreements titled "Employment Agreement" to which Value America (Nevada) was a
party immediately prior to the Effective Time; any and all agreements titled
"Incentive Stock Option Agreement" to which Value America (Nevada) was a party
immediately prior to the Effective Time; and any and all agreements titled
"Developments, Noncompete and Nondisclosure Agreement" to which Value America
(Nevada) was a party immediately prior to the Effective Time.
6. Directors and Officers. The directors and officers of the Corporation
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation until their successors have been duly elected and
qualified, or until their earlier death, resignation or removal.
7. Termination. This Plan may be terminated at any time at or before the
Effective time by agreement of the boards of directors of the Constituent
Corporations.
8. Further Assurances. If at any time the Surviving Corporation shall
consider or be advised that any further assignments of assurances of any other
acts are necessary or desirable to carry out the purposes of this Plan, Value
America (Nevada) and its proper officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such proper deeds, assignments and assurances and to do all acts
necessary or proper to carry out the purposes of this Plan; and the proper
officers and directors of the Surviving Corporation are fully authorized in the
name of Value America (Nevada).
9. Interpretation. The headings herein are for convenience of reference
only, do not constitute a part of this Plan, and shall not be deemed to limit or
affect any of the provisions hereof. Words used herein, regardless of the number
specifically used, shall be deemed to include any other number, singular or
plural, as the context may require.
IN WITNESS WHEREOF, the undersigned have executed this Plan as of the date
first above written.
VALUE AMERICA, INC.
(a Virginia corporation)
Attest:
By:/s/ Rex Scatena By:/s/ Rex Scatena
- ------------------- --------------------
Secretary Its: President
Date: 10-21-97 Date: 10-21-97
- ------------------- -------------------
VALUE AMERICA, INC.
(a Nevada corporation)
Attest:
By:/s/ Rex Scatena By:/s/ Rex Scatena
- --------------------- --------------------
Secretary Its: President
Date: 10-21-97 Date: 10-21-97
- --------------------- --------------------
<PAGE>
ARTICLES OF INCORPORATION
OF
VALUE AMERICA, INC.
I.
The name of the corporation is Value America, Inc.
II.
The purpose for which the Corporation is formed is to transact any or all
lawful business, not required to be specifically stated in these Articles, for
which corporations may be incorporated under the Virginia Stock Corporation Act,
as amended from time to time.
III.
1. The number of shares of common stock which the Corporation shall have
authority to issue shall be 50,000,000 shares, without par value.
Dividends may be paid upon the Common Stock out of any assets of the
Corporation available for dividends remaining after full dividends on the
outstanding Preferred Stock at the dividend rate or rates therefor, together
with the full additional amount required by any participation right, with
respect to all past dividend periods and the current dividend period shall have
been paid or declared and set apart for payment and all mandatory sinking funds
payment that shall have become due in respect of any series of the Preferred
Stock shall have been made.
In the event of any liquidation, dissolution or winding up of the
Corporation, the Board of Directors may, after satisfaction of the rights of the
holders of all shares of Preferred Stock, or the deposit in trust of money
adequate for such satisfaction, distribute in kind to the holders of the Common
Stock all then remaining assets of the Corporation or may sell, transfer or
otherwise dispose of all or any of such remaining assets of the Corporation and
receive payment therefor wholly or partly in cash and/or in stock and/or in
obligations and may sell all or part of the consideration received therefor and
distribute all or the balance thereof in kind to the holders of the Common
Stock.
The holders of the Common Stock shall, to the exclusion of the holders of
the Preferred Stock, have the sole and full power to vote for the election of
directors and for all other purposes without limitation except (i) as otherwise
recited or provided in these Articles of Incorporation applicable to the
Preferred Stock, (ii) with respect to a class or series of Preferred Stock, as
shall be determined by the Board of Directors pursuant to Section 2(b) of this
Article III and (iii) with respect to any voting rights provided by law.
Subject to the provisions of these Articles of Incorporation applicable to
the Preferred Stock, the Corporation may from time to time purchase or otherwise
acquire for a consideration or redeem (if permitted by the terms thereof) shares
of Common Stock or shares of any other class of stock hereafter created ranking
junior to the Preferred Stock in respect of dividends or assets and any shares
so purchased, acquired or redeemed may be held or disposed of by the Corporation
from time to time for its corporate purposes or may be retired as provided by
law.
2. The number of shares of Preferred Stock which the Corporation shall have
the authority to issue shall be 5,000,000 shares, without par value.
The Board of Directors is hereby empowered to cause any class of the
Preferred Stock of the Corporation to be issued in series with such of the
variations permitted by clauses (a)-(k) below, as shall be determined by the
Board of Directors.
The shares of Preferred Stock of different classes or series may vary as
to:
a. the designation of such class or series, the number of shares to
constitute such class or series and the stated value thereof;
b. whether the shares of such class or series shall have voting rights
in addition to any voting rights provided by law, and if so, the terms of
such voting rights, which (i) may be general or limited, and (ii) may
permit more than one vote per share;
c. the rate or rates (which may be fixed or variable) at which
dividends, if any, are payable on such class or series, whether any such
dividends shall be cumulative, and if so, from what dates, the conditions
and dates upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends payable on any
shares of stock of any other class or any other series of such class;
d. whether the shares of such class or series shall be subject to
redemption by the Corporation, and if so, the times, prices and other
conditions of such redemption;
e. the amount or amounts payable upon shares of such class or series
upon, and the rights of the holders of such class or series in, the
voluntary or involuntary liquidation, dissolution or winding up, or any
distribution of the assets of, the Corporation;
f. whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund, and if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
g. whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
such class or any other securities (including Common Stock) and, if so, the
price or prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and conditions
of conversion or exchange;
h. the limitations and restrictions, if any, to be effective while any
shares of such class or series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of, the Common Stock or
shares of stock of any other class or any other series of such class;
i. the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other series
of such class or of any other class;
j. the ranking (be it pari passu, junior or senior) of each class or
series as to the payment of dividends, the distribution of assets and all
other matters; and
k. any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and
restrictions thereof, insofar as they are not inconsistent with the
provisions of these Articles of Incorporation, to the full extent permitted
in accordance with the laws of the Commonwealth of Virginia.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid to or set aside for the holders of
the Preferred Stock the full preferential amounts to which they are respectively
entitled under the provisions of these Articles of Incorporation applicable to
the Preferred Stock, the holders of the Preferred Stock shall have no claim to
any of the remaining assets of the Corporation.
The powers, preferences and relative, participating, option and other
special rights of each class or series of Preferred Stock and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other classes and series at any time outstanding. All
shares of Preferred Stock of each series shall be equal in all respects.
3. Notwithstanding the foregoing, if one or more series of the Preferred
Stock shall be subject to (i) redemption or (ii) repurchase by the Corporation
at the option of the holders thereof, as provided in the terms thereof, the
following provisions shall apply:
a. If (i) less than all the outstanding shares of one or more series
are to be redeemed or (ii) the Corporation is unable to purchase all the
shares of one or more series that it is required to offer to repurchase and
which the holders thereof desire the Corporation to repurchase, the shares
to be redeemed or repurchased shall be selected prorata in such manner as
may be prescribed by resolution of the Board of Directors, or in such other
manner, if any, as shall be specified elsewhere in the Articles of
Incorporation.
b. Notice to the holders of the shares to be redeemed or repurchased
shall be given by mailing to such holders a notice of such redemption or
offer to repurchase, first class, postage prepaid, not later than the
thirtieth day, and not earlier than the sixtieth day, before the date fixed
for redemption or repurchase, at their last addresses as they shall appear
upon the books of the Corporation. Any notice which is mailed in such
manner shall be conclusively presumed to have been duly given, whether or
not the stockholder receives such notice; and failure duly to give such
notice by mail, or any defect in such notice, to the holders of any stock
designated for redemption or repurchase shall not affect the validity of
the proceedings for the redemption or repurchase of any other shares.
c. The notice of redemption or offer to repurchase to each stockholder
whose shares are to be redeemed or which the Corporation is required to
offer to repurchase shall specify the number and designation of the shares
of such stockholder to be redeemed or repurchased, the date fixed for
redemption or repurchase, the redemption or repurchase price, and where
payment of the redemption or repurchase price is to be made upon surrender
of certificates for such shares; and shall state the date to which accrued
dividends, if any, will be paid and that from and after said date dividends
thereon will cease to accrue. In the event any of such shares have
conversion rights, the notice shall also state the conversion rate then in
effect and the date on which the conversion rights shall cease and
terminate.
d. In the case of each share called for redemption, or which the
Corporation offers to repurchase and the holder thereof desires the
Corporation to repurchase, the Corporation shall be obligated (unless such
share has conversion rights and shall be converted on or prior to the
redemption or repurchase date), to pay to the holder thereof the redemption
or repurchase price (including accrued dividends, if any, to the extent and
if so provided for such shares) upon surrender of the certificate for such
share at the office of the Corporation or any transfer agent for the
series, specified for that purpose on or after the redemption or repurchase
date. Unless the Corporation shall default in the payment of the redemption
or repurchase price plus accrued dividends, if any, dividends on each share
so called for redemption, or which the Corporation offers to repurchase and
the holder thereof desires the Corporation to repurchase, shall cease to
accrue from and after the redemption or repurchase date or such earlier
date as shall be specified in the terms thereof.
4. In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, if the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay in full all
amounts to which the holders of Preferred Stock and any other stock of any class
ranking on a parity as to liquidation preference are entitled, the amount
available for distribution to stockholders shall be shared by the holders of all
such classes and any series thereof prorata according to the preferential
amounts to which the shares of each such series or class are entitled. For the
purposes of this Section 4, a consolidation or merger of the Corporation with
any other corporation, or the sale, transfer or lease of all or substantially
all its assets shall not constitute or be deemed a liquidation, dissolution, or
winding up of the Corporation.
5. Any and all shares of Preferred Stock and Common Stock of the
Corporation, at the time authorized but not issued and outstanding, may be
issued and disposed of by the Board of Directors of the Corporation in any
lawful manner, consistently, in the case of shares of Preferred Stock, with the
requirements set forth in the provisions of these Articles of Incorporation
applicable to the Preferred Stock, at any time and from time to time, for such
considerations as may be fixed by the Board of Directors of the Corporation.
6. No holder of shares of any class of stock of the Corporation shall have
any preemptive or preferential right to purchase or subscribe to (i) any shares
of any class of the Corporation, whether now or hereafter authorized; (ii) any
warrants, rights, or options to purchase any such shares; or (iii) any
securities or obligations convertible into any such shares or into warrants,
rights or options to purchase any such shares.
7. Any class of stock of the Corporation shall be deemed to rank --
a. prior to another class either as to dividends or upon liquidation,
if the holders of such class shall be entitled to the receipt of dividends
or of amounts distributable on liquidation, dissolution or winding up, as
the case may be, in preference or priority to holders of such other class;
b. on a parity with another class either as to dividends or upon
liquidation, whether or not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof are different from those
of such others, if the holders of such class of stock shall be entitled to
receipt of dividends or amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in proportion to their respective
dividend rates or prices, without preference or priority one over the other
with respect to the holders of such other class; and
c. junior to another class either as to dividends or upon liquidation,
if the rights of the holders of such class shall be subject or subordinate
to the rights of the holders of such other class in respect of the receipt
of dividends or of amounts distributable upon liquidation, dissolution or
winding up, as the case may be.
IV.
The initial registered office shall be located at 707 East Main Street,
11th Floor, in the City of Richmond, Virginia 23219, and the initial registered
agent shall be Gary D. LeClair, who is a resident of Virginia and a member of
the Virginia State Bar, and whose business address is the same as the address of
the initial registered office.
<PAGE>
V.
The number of directors constituting the initial Board of Directors shall
be 2, and the names and addresses of the persons who are to serve as the initial
directors are as follows:
Craig A. Winn 1650 State Farm Blvd.
Charlottesville, Virginia 22911
Rex Scatena 1650 State Farm Blvd.
Charlottesville, Virginia 22911
VI.
1. In this Article:
"applicant" means the person seeking indemnification pursuant to this
Article.
"expenses" includes counsel fees.
"liability" means the obligation to pay a judgment, settlement,
penalty, fine, including any excise tax assessed with respect to an
employee benefit plan, or reasonable expenses incurred with respect to a
proceeding.
"party" includes an individual who was, is or is threatened to be made
a named defendant or respondent in a proceeding.
"proceeding" means any threatened, pending, or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal.
2. In any proceeding brought by or in the right of the Corporation or
brought by or on behalf of shareholders of the Corporation, no director or
officer of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages with respect to any transaction, occurrence or
course of conduct, whether before or after the effective date of this Article,
except for liability resulting from that person's having engaged in willful
misconduct or a knowing violation of the criminal law or any federal or state
securities law.
3. The Corporation shall indemnify (i) any person who was or is a party to
any proceeding, including a proceeding brought by a shareholder in the right of
the Corporation or brought by or on behalf of shareholders of the Corporation,
by reason of the fact that the person is or was a director or officer of the
Corporation, or (ii) any director or officer who is or was serving at the
request of the Corporation as a director, trustee, partner or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability incurred by that person in connection with the
proceeding unless that person engaged in willful misconduct or a knowing
violation of the criminal law. A person whose duties to the Corporation also
impose duties on, or otherwise involve services by, that person to an employee
benefit plan or to participants in or beneficiaries of the plan is considered to
be serving the plan at the Corporation's request. The Board of Directors is
hereby empowered, by a majority vote of a quorum of disinterested directors, to
enter into a contract to indemnify any director or officer in respect of any
proceedings arising from any act or omission, whether occurring before or after
the execution of the contract.
4. No amendment or repeal of this Article shall affect the rights provided
under this Article with respect to any act or omission occurring before the
amendment or repeal. The Corporation shall promptly take all such actions, and
make all such determinations, as shall be necessary or appropriate to comply
with its obligation to make any indemnity under this Article and shall promptly
pay or reimburse all reasonable expenses, including attorneys' fees, incurred by
any such director, officer, employee or agent in connection with such actions
and determinations or proceedings of any kind arising therefrom.
5. The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that the applicant did not meet the standard of
conduct described in Section (2) or (3) of this Article.
6. Any indemnification under Section (3) of this Article (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification is proper in the circumstances
because the applicant has met the standard of conduct set forth in Section (3).
The determination shall be made:
a. By the Board of Directors by a majority vote of a quorum consisting
of directors not at the time parties to the proceeding;
b. If a quorum cannot be obtained under subsection (a) of this
Section, by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to the
proceeding;
c. By special legal counsel:
(1) Selected by the Board of Directors or its committee in the
manner prescribed in subsection (a) or (b) of this section; or
(2) If a quorum of the Board of Directors cannot be obtained
under subsection (a) of this section and a committee cannot be
designated under subsection (b) of this section, selected by majority
vote of the full Board of Directors, in which selection directors who
are parties may participate; or
d. By the shareholders, but shares owned by or voted under the control
of directors who are at the time parties to the proceeding may not be voted
on the determination.
Any evaluation as to reasonableness of expenses shall be made in the same
manner as the determination that indemnification is appropriate, except that if
the determination is made by special legal counsel, such evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (c)
of this Section 6 to select counsel.
Notwithstanding the foregoing, if the composition of a majority of the
Board of Directors has changed after the date of the alleged act or omission
with respect to which indemnification is claimed, any determination with respect
to any claim for indemnification or advancement of expenses made pursuant to
this Article shall be made by special legal counsel agreed upon by the Board of
Directors and applicant. If the Board of Directors and the applicant are unable
to agree upon such special legal counsel, the Board of Directors and the
applicant each shall select a nominee, and the nominees shall select such
special legal counsel.
7. a. The Corporation shall pay for or reimburse the reasonable expenses
incurred by any applicant who is a party to a proceeding in advance of final
disposition of the proceeding or the making of any determination under Section
(3) if the applicant furnishes the Corporation:
(1) a written statement of the applicant's good faith belief that
he or she has met the standard of conduct described in Section (3);
and
(2) a written undertaking, executed personally or on the
applicant's behalf, to repay the advance if it is ultimately
determined that the applicant did not meet such standard of conduct.
b. The undertaking required by paragraph (2) of subsection (a) of this
Section shall be an unlimited general obligation of the applicant but need
not be secured and may be accepted without reference to financial ability
to make repayment.
c. Authorizations of payments under this Section shall be made by the
persons specified in Section 6.
8. The Board of Directors is hereby empowered, by majority vote of a quorum
consisting of disinterested directors, to cause the Corporation to indemnify or
contract to indemnify any person not specified in Section (2) or (3) of this
Article who was, is or may become a party to any proceeding, by reason of the
fact that the person is or was an employee or agent of the Corporation, is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, to the same extent as if that person were
specified as one to whom indemnification is granted in Section (3). The
provisions of Sections (4) through (7) of this Article shall be applicable to
any indemnification provided hereafter pursuant to this Section (8).
9. The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it accordance with
this Article and may also procure insurance, in such amounts as the Board of
Directors may determine, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred in any such
capacity or arising from the person's status as such, whether or not the
Corporation would have power to indemnify that person against such liability
under the provisions of this Article.
10. Every reference herein to directors, officers, employees or agents
shall include former directors, officers, employees and agents and their
respective heirs, executors and administrators. The indemnification hereby
provided and provided hereafter pursuant to the power hereby conferred by this
Article on the Board of Directors shall not be exclusive of any other rights to
which any other person may be entitled, including any right under policies of
insurance that may be purchased and maintained by the Corporation or others,
with respect to claims, issues or matters in relation to which the Corporation
would not have the power to indemnify that person under the provisions of this
Article. Such rights shall not prevent or restrict the power of the Corporation
to make or provide for any future indemnity, or provisions for determining
entitlement to indemnity, pursuant to one or more indemnification agreements,
bylaws, or other arrangements (including, without limitation, creation of trust
funds or security interests funded by letters of credit or other means) approved
by the Board of Directors (whether or not any of the directors of the
Corporation shall be a party to or beneficiary of any such agreements, bylaws or
arrangements); provided, however, that any provision of such agreements, bylaws
or other arrangements shall not be effective if and to the extent that it is
determined to be contrary to this Article or applicable laws of the Commonwealth
of Virginia.
11. Each provision of this Article shall be severable, and an adverse
determination as to any such provision shall in no way affect the validity of
any other provision.
VII.
Unless these Articles of Incorporation provide otherwise or the Board of
Directors conditions its submission of a particular matter on receipt of a
greater vote or on any other basis permitted by applicable law, the vote of the
holders of a majority of the outstanding shares of any series or class of stock
voting as such series or class, or any series(es) and/or class(es) of stock
voting together as a voting group, entitled to vote on the following matters
required by applicable law to be submitted to such series(es), class(es) or
voting group shall be required and sufficient for the adoption or approval
thereof by such series(es), class(es) or voting group: (i) any amendment or
restatement of the Articles of Incorporation of the Corporation, (ii) a plan of
merger, (iii) a plan of share exchange, (iv) the sale, lease or exchange or
other disposition of all or substantially all of the property of the Corporation
other than in the usual and regular course of business, or (v) a proposal to
dissolve the Corporation. The foregoing provisions of this Article VII shall not
be construed to alter or modify in any respect the voting requirements
prescribed by the Virginia Stock Corporation Act which would in the absence of
such provisions be applicable to the approval of any affiliated transaction (as
defined in said Act) or any amendment of the Articles of Incorporation relating
to the vote required for such approval.
VIII.
Except as otherwise provided in the bylaws, the Board of Directors shall
have the power to make, amend or repeal bylaws of the Corporation.
IX.
Except as otherwise expressly provided herein, the creation or the issuance
to directors, officers or employees of the Corporation or any subsidiary of the
Corporation of rights, options or warrants for the purchase of Common Stock of
the Corporation, where such rights, options or warrants are not issued or to be
issued to shareholders of the Corporation generally, shall not require approval
by the shareholders of the Corporation.
Dated: October 21, 1997
/s/ Andrew W. White
----------------------------------
Incorporator
AMENDED AND RESTATED
BYLAWS
OF
VALUE AMERICA, INC.
ARTICLE I: MEETINGS OF SHAREHOLDERS
1.1 PLACE OF MEETINGS. All meetings of the shareholders shall be held
at such place, either within or without the Commonwealth of Virginia, as from
time to time may be fixed by the Board of Directors.
1.2 ANNUAL MEETINGS. The annual meeting of the shareholders, for the
election of Directors and transaction of such other business as may come before
the meeting, shall be held in each year on the second Monday in March, at 10:00
a.m., or on such other day as the Board of Directors shall determine if that day
is not a legal holiday. If that day is a legal holiday, the annual meeting shall
be held on the next succeeding day not a legal holiday.
1.3 SPECIAL MEETINGS. A special meeting of the shareholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President, or by a majority of the Board of Directors, and by no other person.
At a special meeting no business shall be transacted and no corporate action
shall be taken other than that stated in the notice of the meeting, except as
otherwise determined by the Board of Directors or the chairman of the meeting.
1.4 NOTICE OF MEETINGS. Written or printed notice stating the place,
day and hour of every meeting of the shareholders and, in case of a special
meeting, the purpose or purposes of which the meeting is called, shall be mailed
not less than 10 nor more than 60 days before the date of the meeting to each
shareholder of record entitled to vote at such meeting, at his address which
appears in the stock transfer books of the Corporation. Such further notice
shall be given as may be required by law, but such meetings may be held without
notice if all the shareholders entitled to vote at the meeting are present in
person or by proxy or if notice is waived in writing by those not present,
either before or after the meeting.
1.5. ADJOURNMENTS. Any annual or special meeting of stockholders may be
adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the date, time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than 120
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting in accordance with Section 1.4.
1.6 QUORUM. Except as otherwise required by the Corporation's Articles
of Incorporation, as may be amended from time to time, any number of
shareholders together holding at least a majority of the outstanding shares of
capital stock entitled to vote with respect to the business to be transacted,
who shall be present in person or represented by proxy at any meeting duly
called, shall constitute a quorum of the transaction of business. If less than a
quorum shall be in attendance at the time for which a meeting shall have been
called, the meeting may be adjourned from time to time by a majority vote of the
shareholders present or represented by proxy without notice other than by
announcement at the meeting.
1.7 ORGANIZATION. Meetings of stockholders shall be presided over by
the Chairman of the Board, if any, or if there is none or in his or her absence,
by the President, or in his or her absence, by a chairman designated by the
Board of Directors, or in the absence of such designation by a chairman chosen
at the meeting. The Secretary shall act as secretary of the meeting, but in his
or her absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
1.8 VOTING.
(a) Except as otherwise required by the Corporation's Articles of
Incorporation, as may be amended from time to time, each stockholder entitled to
vote at any meeting of stockholders shall be entitled to one vote for each share
of capital stock held by such stockholder which has voting power on the matter
in question.
(b) Voting at meetings of stockholders need not be by written ballot
and need not be conducted by inspectors of election unless so required by
Section 1.10 of these Bylaws or so determined by the holders of capital stock
having a majority of the votes which could be cast by the holders of all
outstanding capital stock entitled to vote which are present in person or by
proxy at such meeting. Except as otherwise required by the Corporation's
Articles of Incorporation, as may be amended from time to time, directors shall
be elected by a plurality of the votes cast in the election of directors. Each
other question shall, unless otherwise provided by law, the Articles of
Incorporation or these Bylaws, as such may be amended or restated from time to
time, be decided by the vote of the holders of stock having a majority of the
votes which could be cast by the holders of all stock entitled to vote on such
question which are present in person or by proxy at the meeting.
(c) Stock of the Corporation standing in the name of another
corporation and entitled to vote may be voted by such officer, agent or proxy as
the bylaws or other internal regulations of such other corporation may prescribe
or, in the absence of such provision, as the board of directors or comparable
body of such other corporation may determine.
(d) Stock of the Corporation standing in the name of a deceased person,
a minor, an incompetent or a debtor in a case under Title 11, United States
Code, and entitled to vote may be voted by an administrator, executor, guardian,
conservator, debtor-in-possession or trustee, as the case may be, either in
person or by proxy, without transfer of such shares into the name of the
official or other person so voting.
(e) A stockholder whose voting stock of the Corporation is pledged
shall be entitled to vote such stock unless on the transfer records of the
Corporation the pledgor has expressly empowered the pledgee to vote such shares,
in which case only the pledgee, or such pledgee's proxy, may represent such
shares and vote thereon.
(f) If voting stock is held of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the Secretary
is given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(i) if only one votes, such act binds all; (ii) if more than one vote, the act
of the majority so voting binds all; and (iii) if more than one votes, but the
vote is evenly split on any particular matter each faction may vote such stock
proportionally, or any person voting the shares, or a beneficiary, if any, may
apply to a court in the Commonwealth of Virginia as may have jurisdiction to
appoint an additional person to act with the persons so voting the stock, which
shall then be voted as determined by a majority of such persons and the person
appointed by such court. If the instrument so filed shows that any such tenancy
is held in unequal interests, a majority or even split for the purpose of this
subsection shall be a majority or even split in interest.
1.9 PROXIES.
(a) Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by proxy filed
with the Secretary before or at the time of the meeting. No such proxy shall be
voted or acted upon after 11 months from its date, unless the proxy provides for
a longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing with the Secretary an instrument in writing revoking the proxy or
another duly executed proxy bearing a later date.
(b) A stockholder may authorize another person or persons to act for
such stockholder as proxy (i) by executing a writing authorizing such person or
persons to act as such, which execution may be accomplished by such stockholder
or such stockholder's authorized officer, director, partner, employee or agent
(or, if the stock is held in a trust or estate, by a trustee, executor or
administrator thereof) signing such writing or causing his or her signature to
be affixed to such writing by any reasonable means, including, but not limited
to, facsimile signature, or (ii) by transmitting or authorizing the transmission
of a telegram, cablegram or other means of electronic transmission (a
"Transmission") to the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
Transmission; provided that any such Transmission must either set forth or be
submitted with information from which it can be determined that such
Transmission was authorized by such stockholder.
(c) Any inspector or inspectors appointed pursuant to Section 1.10 of
these Bylaws shall examine Transmissions to determine if they are valid. If no
inspector or inspectors are so appointed, the Secretary or such other person or
persons as shall be appointed from time to time by the Board of Directors shall
examine Transmissions to determine if they are valid. If it is determined a
Transmission is valid, the person or persons making that determination shall
specify the information upon which such person or persons relied. Any copy,
facsimile telecommunication or other reliable reproduction of such a writing or
Transmission may be substituted or used in lieu of the original writing or
Transmission for any and all purposes for which the original writing or
Transmission could be used; provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or Transmission.
1.10 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) If the Corporation has a class of voting stock that is (i) listed
on a national securities exchange, (ii) authorized for quotation on an
inter-dealer quotation system of a registered national securities association or
(iii) held of record by more than 2,000 stockholders, the Board of Directors
shall, in advance of any meeting of stockholders, appoint one or more inspectors
(individually an "Inspector," and collectively the "Inspectors") to act at such
meeting and make a written report thereof. The Board of Directors may designate
one or more persons as alternate Inspectors to replace any Inspector who shall
fail to act. If no Inspector or alternate is able to act at such meeting, the
chairman of the meeting shall appoint one or more other persons to act as
Inspectors. Each Inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
Inspector with strict impartiality and according to the best of his or her
ability.
(b) The Inspectors shall (i) ascertain the number of shares of stock of
the Corporation outstanding and the voting power of each, (ii) determine the
number of shares of stock of the Corporation present in person or by proxy at
such meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the Inspectors and
(v) certify their determination of the number of such shares present in person
or by proxy at such meeting and their count of all votes and ballots. The
Inspectors may appoint or retain other persons or entities to assist them in the
performance of their duties.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at such meeting. No ballots, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless a court of appropriate jurisdiction within the
Commonwealth of Virginia upon application by any stockholder shall determine
otherwise.
(d) In determining the validity and counting of proxies and ballots,
the Inspectors shall be limited to an examination of the proxies, any envelopes
submitted with such proxies, any information referred to in paragraphs (b) and
(c) of Section 1.9 of these Bylaws, ballots and the regular books and records of
the Corporation, except that the Inspectors may consider other reliable
information for the limited purpose of reconciling proxies and ballots submitted
by or on behalf of banks, brokers, their nominees or similar persons which
represent more votes than the holder of a proxy is authorized by a stockholder
of record to cast or more votes than such stockholder holds of record. If the
Inspectors consider other reliable information for the limited purpose permitted
herein, the Inspectors, at the time they make their certification pursuant to
paragraph (b) of this Section 1.10, shall specify the precise information
considered by them, including the person or persons from whom such information
was obtained, when and the means by which such information was obtained and the
basis for the Inspectors' belief that such information is accurate and reliable.
1.11 FIXING DATE OF DETERMINATION OF STOCKHOLDERS OF RECORD. For the
purposes of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors may fix in advance a date as
the record date for any such determination of shareholders, such date in any
case to be not more than seventy days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If no record
date is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive payment
of a dividend, the date on which notices of the meeting are mailed or the date
on which the resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date, which it shall do if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
1.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare, at least ten days before every meeting of stockholders, a complete list
of the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address and the number of shares registered in the name
of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the corporation, or to vote in person or by proxy
at any meeting of stockholders.
1.13 STOCKHOLDER PROPOSALS.
(a) At any annual meeting of the Corporation's stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (ii) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (iii) otherwise
properly brought before the meeting by a stockholder in accordance with these
Bylaws. Business may be properly brought before an annual meeting by a
stockholder only if written notice of the stockholder's intent to propose such
business has been delivered, either by personal delivery, United States mail,
first class postage prepaid, or other similar means, to the Secretary of the
Corporation not later than 90 calendar days in advance of the anniversary date
of the release of the Corporation's proxy statement to stockholders in
connection with the preceding year's annual meeting of stockholders (the
"Anniversary Date"), except that if no annual meeting was held in the previous
year or the date of the annual meeting has been changed by more than 30 calendar
days from the anniversary of the annual meeting date stated in the previous
year's proxy statement, a stockholder proposal shall be received by the
Corporation a reasonable time before the solicitation is made.
(b) Each notice of new business must set forth: (i) the name and
address of the stockholder who intends to raise the new business; (ii) the
business desired to be brought forth at the meeting and the reasons for
conducting such business at the meeting; (iii) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
with respect to such business and intends to appear in person or by proxy at the
meeting to move the consideration of such business; (iv) such stockholder's
total beneficial ownership of the Corporation's voting stock; and (v) such
stockholder's interest in such business. The chairman of the meeting may refuse
to acknowledge a motion to consider any business that he determines was not made
in compliance with the foregoing procedures.
(c) An adjourned meeting, if notice of the adjourned meeting is not
required to be given to stockholders, shall be regarded as a continuation of the
original meeting, and any notice of new business must have met the foregoing
requirements as of the date of the original meeting. In the event of an
adjourned meeting where notice of the adjourned meeting is required to be given
to stockholders, any notice of new business made by a stockholder with respect
to the adjourned meeting must meet the foregoing requirements based upon the
date on which notice of the date of the adjourned meeting was given.
<PAGE>
ARTICLE II: DIRECTORS
2.1 POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided by the Articles of Incorporation, as such may be amended from time to
time, or required by law.
2.2 NUMBER AND TERMS. Except as otherwise required by the Corporation's
Articles of Incorporation, as may be amended from time to time, the number of
Directors of the Corporation shall be fixed by resolution duly adopted from time
to time by the Board of Directors at a number between six and nine.
2.3 DIRECTOR NOMINATIONS.
(a) Except as otherwise required by the Corporation's Articles of
Incorporation, as may be amended from time to time, nominations of candidates
for election as directors of the Corporation at any annual meeting may be made
only (i) by, or at the direction of, a majority of the Board of Directors or
(ii) by any holder of record (both as of the time notice of such nomination is
given by the stockholder as set forth below and as of the record date for the
annual meeting in question) of any shares of the capital stock of the
Corporation entitled to vote at such annual meeting who complies with the
timing, informational and other requirements set forth in this Section 2.3. Any
stockholder who seeks to make such a nomination or his representative must be
present in person at the annual meeting. Only persons nominated in accordance
with the procedures set forth in this Section 2.3 shall be eligible for election
as directors at an annual meeting.
(b) Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 2.3. Such nominations
may be properly made by a stockholder only if written notice is delivered,
either by personal delivery, United States mail, first class postage prepaid, or
other similar means, to the Secretary of the Corporation not later than 90
calendar days in advance of the Anniversary Date, except that if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than 30 calendar days from the anniversary of the annual meeting
date stated in the previous year's proxy statement, a stockholder nomination
shall be received by the Corporation a reasonable time before the solicitation
is made.
(c) A stockholder's notice to the Secretary shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as
a director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such stockholder notice, and
(iv) the consent of each nominee to serve as a director if elected. A
stockholder's notice to the Secretary shall further set forth as to the
stockholder giving such notice: (A) the name and address, as they appear on the
Corporation's stock transfer books, of such stockholder and of the beneficial
owners (if any) of the Corporation's capital stock registered in such
stockholder's name and the name and address of other stockholders known by such
stockholder to be supporting such nominee(s), (B) the class and number of shares
of the Corporation's capital stock which are held of record, beneficially owned
or represented by proxy by such stockholder and by any other stockholders known
by such stockholder to be supporting such nominee(s) on the record date for the
annual meeting in question (if such date shall then have been made publicly
available) and on the date of such stockholder's notice, and (C) a description
of all arrangements or understandings between such stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by such stockholder.
(d) If the Board of Directors or a designated committee thereof
determines that any stockholder nomination was not timely made in accordance
with the terms of this Section 2.3 or that the information provided in a
stockholder's notice does not satisfy the informational requirements of this
Section 2.3 in any material respect, then such nomination shall not be
considered at the annual meeting in question. If neither the Board of Directors
nor such committee makes a determination as to whether a nomination was made in
accordance with the provisions of this Section 2.3, the presiding officer of the
annual meeting shall determine whether a nomination was made in accordance with
such provisions. If the presiding officer determines that any stockholder
nomination was not timely made in accordance with the terms of this Section 2.3
or that the information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 2.3 in any material respect, then
such nomination shall not be considered at the annual meeting in question, If
the Board of Directors, a designated committee thereof or the presiding officer
determines that a nomination was made in accordance with the terms of this
Section 2.3, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such nominee.
(e) In the event that the number of directors to be elected to the
Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 75 days prior
to the Anniversary Date, a stockholder's notice required by this Section 2.3
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if such notice shall be delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the 15th day following the day on which such
public announcement is first made by the Corporation.
(f) No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of Directors at the annual meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such annual meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the annual meeting in accordance with the procedures set forth in this Section
shall be provided for use at the annual meeting.
2.4 QUALIFICATION. No Director need be a stockholder of the
Corporation.
2.5 VACANCIES. Except as otherwise required by the Corporation's
Articles of Incorporation, as may be amended from time to time, any and all
vacancies in the Board of Directors, however occurring, including, without
limitation, by reason of an increase in size of the Board of Directors, or the
death, resignation, disqualification or removal of a Director, shall be filled
solely by the affirmative vote of the holders of a majority of the total votes
which would be eligible to be cast by stockholders in the election of such
Director. Any Director appointed in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of Directors in
which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been duly elected and qualified or until his or
her earlier resignation or removal. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.
2.6 REMOVAL. Except as otherwise required by the Corporation's Articles
of Incorporation, as may be amended from time to time, Directors may be removed
from office at any time, with or without cause by the affirmative vote of a
majority of the total votes which would be eligible to be cast by stockholders
in the election of such Director.
2.7 RESIGNATION. A Director may resign at any time by giving written
notice to the Chairman of the Board, if one is elected, the President or the
Secretary. A resignation shall be effective upon receipt, unless the resignation
otherwise provides.
2.8 REGULAR MEETINGS. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Bylaw, on the same date
and at the same place as the annual meeting following the close of such meeting
of stockholders. Other regular meetings of the Board of Directors may be held at
such hour, date and place as the Board of Directors may by resolution from time
to time determine without notice other than such resolution.
2.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called, orally or in writing, by or at the request of (i) any Director, (ii) the
Chairman of the Board, if one is elected, or (iii) the President. The person
calling any such special meeting of the Board of Directors may fix the hour,
date and place thereof.
2.10 NOTICE OF MEETINGS.
(a) Notice of the hour, date and place of all special meetings of the
Board of Directors shall be given to each Director by the Secretary or an
Assistant Secretary, or in case of the death, absence, incapacity or refusal of
such persons, by the Chairman of the Board, if one is elected, or the President
or such other officer designated by the Chairman of the Board, if one is
elected, or the President. Notice of any special meeting of the Board of
Directors shall be given to each Director in person, by telephone, or by telex,
telecopy, telegram, or other written form of electronic communication, sent to
his business or home address, at least 24 hours in advance of the meeting, or by
written notice mailed to his business or home address, at least 48 hours in
advance of the meeting. Such notice shall be deemed to be delivered when hand
delivered to such address, read to such Director by telephone, deposited in the
mail so addressed, with postage thereon prepaid if mailed, dispatched or
transmitted if telexed or telecopied, or when delivered to the telegraph company
if sent by telegram.
(b) When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
(c) A written waiver of notice signed before or after a meeting by a
Director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Articles of
Incorporation of the Corporation or by these Bylaws, neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
2.11 QUORUM. At any meeting of the Board of Directors, a majority of
the Directors then in office shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
Directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 2.10.
Any business which might have been transacted at the meeting as originally
noticed may be transacted at such adjourned meeting at which a quorum is
present.
2.12 ACTION AT MEETINGS. At any meeting of the Board of Directors at
which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Articles of Incorporation of the Corporation or by these Bylaws.
2.13 ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors may be taken without a meeting if all
members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
2.14 MANNER OF PARTICIPATION. Directors may participate in meetings of
the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these Bylaws.
2.15 COMPENSATION OF DIRECTORS. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that Directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as Directors of the
Corporation.
ARTICLE III: COMMITTEES
3.1 COMMITTEES. The Board of Directors, by vote of a majority of the
Directors then in office, may elect from its number one or more committees,
including an Executive Committee, a Compensation Committee and an Audit
Committee, and may delegate thereto some or all of its powers except those which
by law, by the Articles of Incorporation of the Corporation or by these Bylaws
may not be delegated. Except as the Board of Directors may otherwise determine,
any such committee may make rules for the conduct of its business, but unless
otherwise provided by the Board of Directors or in such rules, its business
shall be conducted so far as possible in the same manner as is provided by these
Bylaws for the Board of Directors. All members of such committees shall hold
such offices at the pleasure of the Board of Directors. The Board of Directors
may abolish any such committee at any time. Any committee to which the Board of
Directors delegates any of its powers or duties shall keep records of its
meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.
3.2 EXECUTIVE COMMITTEE. The Board of Directors, by resolution adopted
by a majority of the number of Directors fixed by these Bylaws, may elect an
executive Committee which shall consist of not less than three Directors,
including the Chairman, if one is elected, and the President. When the Board of
Directors is not in session, the Executive Committee shall have all power vested
in the Board of Directors by law, by the Articles of Incorporation, or by these
Bylaws, provided that the Executive Committee shall not have power to (a)
approve or recommend to shareholders action that the Virginia Stock Corporation
Act requires to be approved by shareholders; (b) fill vacancies on the Board or
any of its committees; (c) amend the Articles of Incorporation pursuant to
Section 13.1-706 of the Virginia Code; (d) adopt, amend or repeal the Bylaws;
(e) approve a plan of merger not requiring shareholder approval; (f) authorize
or approve a distribution, except according to a general formula or method
prescribed by the Board of Directors; or (g) authorize or approve the issuance
or sale or contract for sale of shares, or determine the designation and
relative rights, preferences and limitations of a class or series of shares,
other than within the limits specifically prescribed by the Board of Directors.
3.3 COMPENSATION COMMITTEE. The Board of Directors, in its sole
discretion, shall designate a Compensation Committee which shall consist of one
or more directors. In addition, the Board may at any time designate one or more
alternate members of such committee who shall be Directors who may act in place
of any absent regular member upon invitation by the Chairman or Secretary of the
Committee. With respect to bonuses, the Compensation Committee shall have and
may exercise the powers to determine the amounts annually available for bonuses
pursuant to any bonus plan or formula approved by the Board, to determine bonus
awards to executive officers and to exercise such further powers with respect to
bonuses as may from time to time be conferred by the Board of Directors. With
respect to salaries, the Compensation Committee shall have and may exercise the
power to fix and determine from time to time all salaries of the executive
officers of the Corporation, and such further powers with respect to salaries as
may from time to time be conferred by the Board of Directors. The Compensation
Committee shall administer the Corporation's 1997 Stock Incentive Plan (the
"Plan") and from time to time may grant, consistent with the Plan, stock
options, stock appreciation rights and shares of restricted stock. Vacancies in
the Compensation Committee shall be filled by the Board of Directors, and
members shall be subject to removal by the Board at any time. The Compensation
Committee shall fix its own rules of procedure. A majority of the number of
regular members then serving shall constitute a quorum; and regular and
alternate members present shall be counted to determine whether there is a
quorum. The Compensation Committee shall keep minutes of its meetings, and all
action taken by it shall be reported to the Board of Directors.
3.4 AUDIT COMMITTEE. The Board of Directors, in its sole discretion,
shall designate an Audit Committee which shall consist of one or more Directors.
Vacancies in the Committee shall be filled by the Board of Directors with
Directors, giving consideration to continuity of the Committee, and members
shall be subject to removal by the Board at any time. The Committee shall fix
its own rules of procedures and a majority of the members serving shall
constitute a quorum. The Committee shall meet at least twice a year with both
the internal and the Corporation's outside auditors present at each meeting and
shall keep minutes of its meetings and all action taken shall be reported to the
Board of Directors. The Committee shall review the reports and minutes of any
audit committees of the Corporation's subsidiaries. The Committee shall review
the Corporation's financial reporting process, including accounting policies and
procedures. The Committee shall examine the report of the Corporation's outside
auditors, consult with them with respect to their report and the standards and
procedures employed by them in their audit, report to the Board the results of
its study and recommend the selection of auditors for each fiscal year.
3.5 MEETINGS. Regular and special meetings of any Committee established
pursuant to this Article may be called and held subject to the same requirements
with respect to time, place and notice as are specified in these Bylaws for
regular and special meetings of the Board of Directors.
3.6 QUORUM AND MANNER OF ACTING. A majority of the members of any
Committee serving at the time of any meeting thereof shall constitute a quorum
for the transaction of business at such meeting. The action of a majority of
those members present at a Committee meeting at which a quorum is present shall
constitute the act of the Committee.
3.7 TERM OF OFFICE. Members of the Committee shall be elected as above
provided and shall hold office until their successors are elected by the Board
of Directors or until such Committee is dissolved by the Board of Directors.
3.8 RESIGNATION AND REMOVAL. Any member of a Committee may resign at
any time by giving written notice of his intention to do so to the President or
the Secretary of the Corporation, or may be removed, with or without cause, at
any time by such vote of the Board of Directors as would suffice for his
election.
3.9 VACANCIES. Any vacancy occurring in a Committee resulting
from any cause whatsoever may be filled by a majority of the
number of Directors --------- then serving.
ARTICLE IV: OFFICERS
4.1 ELECTION OF OFFICERS; TERMS. The officers of the Corporation shall
consist of a Chairman of the Board, a President and a Secretary. Other officers,
including a Treasurer, one or more Vice-Presidents (whose seniority and title,
including Executive Vice-Presidents Senior Vice-Presidents, and Executive
Vice-Presidents / Division Presidents, who shall be referred to as Division
Presidents, may be specified by the Board of Directors), and assistant and
subordinate officers, may from time to time be elected by the Board of
Directors. All officers shall hold office until the next annual meeting of the
Board of Directors and until their successors are elected. The President shall
be chosen from among the Directors. Any offices may be combined in the same
person as the Board of Directors may determine.
4.2 REMOVAL OF OFFICERS; VACANCIES. Any officer of the Corporation may
be removed summarily with or without cause, at any time, by the Board of
Directors. Vacancies may be filled by the Board of Directors.
4.3 DUTIES. The officers of the corporation shall have such duties as
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors. The Board of Directors may
require any officer to give such bond for the faithful performance of his duties
as the Board may see fit.
4.4 DUTIES OF THE CHAIRMAN. The Chairman of the Board shall be the
chief executive officer of the Corporation and shall be primarily responsible
for the implementation of the policies of the Board of Directors. He shall have
authority over the general management and direction of the business and
operations of the Corporation and its divisions, if any, subject only to the
ultimate authority of the Board of Directors. He shall be a Director and, except
as otherwise provided by these Bylaws or in the resolutions of establishing such
committees, he shall be ex officio a member of all Committees of the Board. The
chairman shall preside at all corporate meetings. The Chairman may,
notwithstanding Section 4.5, sign and execute in the name of the Corporation
share certificates, deeds, mortgages, bonds, contracts or other instruments
except in cases where the signing and the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law otherwise to be signed or
executed. In addition, he shall perform all duties incident to the office of the
Chairman and such other duties as from time to time may be assigned to him by
the Board of Directors.
4.5 DUTIES OF THE PRESIDENT. The President shall be the chief operating
officer of the Corporation. He shall have authority over the general,
day-to-day, management and direction of the business and operations of the
Corporation and its divisions, if any, subject only to the ultimate authority of
the Board of Directors and the Chairman. He shall be a Director. In the absence
of the Chairman and the Vice-Chairman of the Board, or if there are no such
officers, the President shall preside at all corporate meetings. He may sign and
execute in the name of the Corporation share certificates, deeds, mortgages,
bonds, contracts or other instruments except in cases where the signing and the
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the Corporation or shall be
required by law otherwise to be signed or executed. In addition, he shall
perform all duties incident to the office of the President and such other duties
as from time to time may be assigned to him by the Board of Directors or the
Chairman.
4.6 DUTIES OF THE VICE-PRESIDENTS. Each Vice-President, if any, shall
have such powers and duties as may from time to time be assigned to him by the
President or the Board of Directors. No Vice-President may sign and execute in
the name of the Corporation any deeds, mortgages, bonds, contracts or other
instruments except where the signing and execution of such documents shall be
expressly delegated by the Board of Directors to such Vice-President.
4.7 DUTIES OF THE TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit all monies and securities of the Corporation in
such banks and depositories as shall be designated by the Board of Directors. He
shall be responsible (a) for maintaining adequate financial accounts and records
in accordance with generally accepted accounting practices; (b) for the
preparation of appropriate operating budgets and financial statements; (c) for
the preparation and filing of all tax returns required by law; and (d) for the
performance of all duties incident to the officer of Treasurer and such other
duties as from time to time may be assigned to him by the Board of Directors,
the Finance Committee or the President. The Treasurer may sign and execute in
the name of the Corporation share certificates, deeds, mortgages, bonds,
contracts or other instruments, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation or shall be required by
law or otherwise to be signed or executed.
4.8 DUTIES OF SECRETARY. The Secretary shall act as secretary of all
meetings of the Board of Directors and shareholders of the Corporation. When
requested, he also shall act as secretary of the meetings of the committees of
the Board. He shall keep and preserve the minutes of all such meetings in
permanent books. He shall be responsible for (a) seeing that all notices
required to be given by the Corporation are duly given and served; (b) having
custody of the seal of the Corporation and shall affix the seal or cause to be
affixed to all share certificates of the Corporation and to all documents the
execution of which on behalf of the Corporation under its corporate seal is duly
authorized in accordance with law or the provisions of these Bylaws; (c) having
custody of all deeds, leases, contracts and other important corporate documents;
(d) having charge of the books, records and papers of the Corporation relating
to its organization and management as a Corporation; (e) seeing that all
reports, statements and other documents required by law (except tax returns) are
properly filed; and (f) in general, performing all the duties incident to the
office of Secretary and such other duties as from time to time be assigned to
him by the Board of Directors or the President.
ARTICLE V: CAPITAL STOCK
5.1 CERTIFICATES. The shares of capital stock of the Corporation shall
be evidenced by certificates in forms prescribed by the Board of Directors and
executed in any manner permitted by law and stating thereon the information
required by law. Transfer agents and/or registrars for one or more classes of
shares of the Corporation may be appointed by the Board of Directors and may be
required to countersign certificates representing shares of such class or
classes. If any officer whose signature or facsimile thereof shall have been
used on a share certificate for any reason cease to be an officer of the
Corporation and such certificate shall not then have been delivered by the
Corporation, the Board of Directors may nevertheless adopt such certificate and
it may then be issued and delivered as though such person had not ceased to be
an officer of the Corporation.
5.2 LOST, DESTROYED AND MUTILATED CERTIFICATES. Holders of the shares
of the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such shareholder upon the
surrender of the mutilated certificate or upon satisfactory proof or affidavit
of such loss or destruction, and the Board of Directors, in its discretion, may
require deposit of a bond in such form and amount and with such surety as the
Board of Directors may deem appropriate.
5.3 TRANSFER OF SHARES. The shares of the Corporation shall be
transferable or assignable only on the books of the Corporation by the holder in
person or by attorney on surrender of the certificate for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a written
power of attorney to have the same transferred on the books of the Corporation.
The Corporation will recognize, however, the exclusive right of the person
registered on its books as the owner of shares to receive dividends and to vote
as such owner.
ARTICLE VI: MISCELLANEOUS PROVISIONS
6.1 SEAL. The seal of the Corporation shall consist of a flat-faced
circular die, of which there may be a number of counterparts, on which there
shall be engraved the word "Seal" and the name of the Corporation.
6.2 FISCAL YEAR. The fiscal year of the Corporation shall end on
such date and shall consist of such accounting periods as
may be fixed by the ----------- Board of Directors.
6.3 CHECKS, NOTES AND DRAFTS. Checks, notes, drafts and other orders
for the payment of money shall be signed by such persons as the Board of
Directors from time to time may authorize. When the Board of Directors so
authorizes, however, the signature of any such person may be a facsimile.
6.4 AMENDMENT OF BYLAWS BY THE BOARD OF DIRECTORS. These Bylaws may be
altered, amended or repealed, or new Bylaws may be adopted, by the affirmative
vote of a majority of the directors present at any regular or special meeting of
the Board of Directors at which a quorum is present.
6.5 AMENDMENT OF THE BYLAWS BY THE STOCKHOLDERS. These Bylaws may be
altered, amended or repealed, or new Bylaws may be adopted, by the affirmative
vote of the holders of seventy-five percent (75%) of the shares of the capital
stock of the Corporation issued and outstanding and entitled to vote at any
regular meeting of the stockholders or at any special meeting of the
stockholders, provided notice of such alteration, amendment, repeal or adoption
of new Bylaws shall have been stated in the notice of such meeting.
6.6 VOTING OF SHARES HELD. Unless otherwise provided by resolution of
the Board of Directors or of the Executive Committee, if any, the President may
from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the vote
which the Corporation may be entitled to cast as a shareholder or otherwise in
any other corporation, any of whose securities may be held by the Corporation,
at meetings of the holders of the shares or other securities of such other
corporation, or to consent in writing to any action by any such other
corporation; and the President shall instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent and may execute or
cause to be executed on behalf of the Corporation, and under its corporate seal
or otherwise, such written proxies, consents, waivers or other instruments as
may be necessary or proper in the premises. In lieu of such appointment, the
President may himself attend any meetings of the holders of shares or other
securities of any such other corporation and there vote or exercise of any or
all power of the Corporation as the holder of such shares or other securities of
such other corporation.
CONSENT AGREEMENT
This Agreement made this 3rd day of December, 1997, by and between
Stephen S. Freedman, an individual doing business as Value America, with a
principal place of business at 5115 Vernon Ridge Drive, Dunwoody, GA 30338
(hereinafter referred to as "Freedman"); and
Value America, Inc., a corporation of Virginia, having its principal place of
business at 2300 Commonwealth Drive, Charlottesville, VA 22901, (hereinafter
referred to as "VA-Virginia");
Whereas, Freedman is the owner of U.S. Registration No. 1,964,038 for the mark
Value America for preparing and disseminating advertising matter, including
direct mail advertising; and
Whereas, VA-Virginia desires to use the mark Value America for an Internet
retail store; and
Whereas, VA-Virginia is the applicant for registration of the marks listed in
Appendix A; and
Whereas, VA-Virginia recognizes the validity of Freedman's registered mark and
wishes to avoid an conflict therewith,
Now, therefore, in consideration of the sum of One Dollar and other good and
valuable consideration, it is agreed as follows:
1. VA-Virginia recognizes the validity of Freedman's registered mark.
2. Freedman believes there is no likelihood of confusion or conflict between
the use of the trademark Value America by Freedman for preparing and
disseminating advertising matter, including direct mail advertising, and by
VA-Virginia in connection with the operation of an Internet retail store.
3. Freedman consents to the use and registration by VA-Virginia of the
trademark Value America in the applications listed in Appendix A, for use in
connection with the operation of an Internet retail store.
4. Freedman will take no action to interfere with the use of Value America by
VA-Virginia for an Internet retail store nor with the registration of the
applications listed in Appendix A.
<PAGE>
5. Freedman hereby withdraws his request for an extension of time to file an
opposition with respect to application SERIAL NO.: 75-100,961, FILED May 1,
1996.
In witness whereof, the parties hereto set their hands and seals hereto on the
date first written above.
Witness:
/s/ Paige Coker /s/ Stephen S. Freedman
- ------------------------- -------------------------
Stephen S. Freedman
Attest: Value America, Inc., a corporation of
Virginia
/s/ Dean M. Johnson /s/ Rex Scatena
- ------------------------- --------------------------
By: Rex Scatena, President
ACKNOWLEDGMENT
State of George) ss.:
County of Dekalb)
On this 8th day of December, 1997, before me personally came Stephen S.
Freedman, to me known to be the individual described in and who executed the
foregoing instrument, and he acknowledged execution of the same.
Jamie G. Hornbuckle
- --------------------
A Notary Public Notary Public, Dekalb, County Georgia
My Commission Expires Sept. 14, 1999
ACKNOWLEDGMENT
Commonwealth of Virginia ) ss.:
County of "Albemarle" )
On this 3rd day of December, 1997, before me personally Dean M. Johnson, and
this person acknowledged under oath, to my satisfaction, that he is the
Secretary of Value America, Inc., a corporation of Virginia; that he is the
attesting witness to the signing of this instrument by Rex Scatena, who is the
President of Value America, Inc., that this document was signed and delivered by
the corporation as its voluntary act duly authorized by proper resolution of its
Board of Directors; that he knows the proper seal of the corporation which was
affixed to this instrument, and that he signed this proof to attest to the truth
of these facts.
Dean M. Johnson
--------------------------
ATTESTING WITNESS
/s/ Sandra T. Watson
- -----------------------
A Notary Public My commission expires 12/31/98
Approved as to form by:
/s/ Barry H. Freedman , Dated: December 4, 1997
- ----------------------------
Barry H. Freedman, Esq.
Attorney for Stephen S. Freedman
/s/ Rex Scatena , Dated: December 3, 1997
- -----------------------------
Rex Scatena, Esq.
Attorney for Value America, Inc.
<PAGE>
APPENDIX A
SERIAL NO.: 75-143,138
FILED: July 12, 1996
VALUE AMERICA THE LIVING STORE! and Design
GOODS/SERVICES: MULTIMEDIA AND PRODUCT DEMONSTRATIONS USING NARRATION,
PHOTOGRAPHY, MUSIC, GRAPHICS AND ANIMATION TO CREATE DEMONSTRATIONS THAT ARE
EDUCATIONAL AND ENTERTAINING
INTL CLASS: 35 (Advertising & Business Services)
SERIAL NO.: 75-143,137
FILED: July 12, 1996
VALUE AMERICA THE LIVING STORE! and Design
GOODS/SERVICES: RETAIL AND WHOLESALE DISTRIBUTORSHIPS FEATURING A WIDE VARIETY
OF CONSUMER PRODUCTS RENDERED BY MEANS OF GLOBAL COMPUTER COMMUNICATIONS
NETWORKS FEATURING INTERACTIVE DATA BASE PROGRAMMING AND MULTIMEDIA PRODUCT
DEMONSTRATIONS
INTL CLASS: 35 (Advertising & Business Services)
SERIAL NO.: 75-143,136
FILED: July 12, 1996
VALUE AMERICA THE LIVING STORE! and Design GOODS/SERVICES: RECORDING, SOUND AND
IMAGE REPRODUCTION-RECORDED NARRATION, AND MUSIC FOR PRODUCT PRESENTATIONS AND
TESTIMONIALS; IMAGE CREATION AND REPRODUCTION TO SUPPORT SALE OF CONSUMER
PRODUCTS ON THE INTERNET; VIDEO DEMONSTRATIONS OF CONSUMER PRODUCTS INTL CLASS:
9 (Electrical & Scientific Apparatus)
SERIAL NO.: 75-133,409
FILED: July 12, 1996
VALUE AMERICA THE LIVING STORE! and Design
GOODS/SERVICES: PROVIDING TELECOMMUNICATIONS CONNECTED TO GLOBAL COMPUTER
NETWORKS INCLUDING HOSTING AND CONNECTIVITY VIA TELEPHONY, COAXIAL AND/OR
DIGITAL SATELLITE
INTL CLASS: 38(Communications Services)
SERIAL NO.: 75-100,961
FILED: May 1, 1996
PUBLISHED: September 2, 1997
VALUE AMERICA
GOODS/SERVICES: RETAIL AND WHOLESALE DISTRIBUTORSHIPS FEATURING A WIDE VARIETY
OF CONSUMER PRODUCTS RENDERED BY MEANS OF GLOBAL COMPUTER COMMUNICATIONS
NETWORKS FEATURING INTERACTIVE DATA BASE PROGRAMMING AND MULTIMEDIA PRODUCT
DEMONSTRATIONS
INTL CLASS: 35(Advertising & Business Services)
<PAGE>
SERIAL NO.: 75-099,776
FILED: May 1, 1996
VALUE AMERICA
GOODS/SERVICES: (INT. CL.9) PRERECORDED MUSICAL AND NARRATED SOUND AND VIDEO
RECORDINGS FOR PRODUCT PRESENTATIONS AND TESTIMONIALS (INT. CL.35) VIDEO
DEMONSTRATIONS OF CONSUMER PRODUCTS; PHOTOGRAPHIC IMAGE REPRODUCTION; CREATION
AND DISSEMINATION OF ADVERTISEMENTS TO SUPPORT SALES OF CONSUMER PRODUCTS ON
GLOBAL COMPUTER NETWORKS (INT. CL. 40) VIDEO DEMONSTRATIONS OF CONSUMER
PRODUCTS; PHOTOGRAPHIC IMAGE REPRODUCTION; CREATION AND DISSEMINATION OF
ADVERTISEMENTS TO SUPPORT SALES OF CONSUMER PRODUCTS ON GLOBAL COMPUTER NETWORKS
(INTL. CL. 41) AUDIO AND VIDEO RECORDING
INTL CLASS: 9 (Electrical & Scientific Apparatus)
35 (Advertising & Business Services)
40 (Material Treatment Services)
41 (Education & Entertainment Services)
SERIAL NO.: 75-099,775
FILED: May 1, 1996
VALUE AMERICA
GOODS/SERVICES: MULTIMEDIA AND VIDEO PRODUCT DEMONSTRATIONS USING NARRATION,
PHOTOGRAPHY, MUSIC, GRAPHICS AND ANIMATION TO CREATE DEMONSTRATIONS THAT ARE
EDUCATIONAL AND ENTERTAINING
INTL CLASS: 35 (Advertising & Business Services)
AGREEMENT
This Agreement made this 3rd day of December, 1997, by and between
Stephen S. Freedman, an individual doing business as Value America, with a
principal place of business at 5115 Vernon Ridge Drive, Dunwoody, GA 30338
(hereinafter referred to as "Freedman"); and
Value America, Inc., a corporation of Virginia, having its principal place of
business at 2300 Commonwealth Drive, Charlottesville, VA 22901, (hereinafter
referred to as "VA-Virginia");
Whereas, Freedman is the owner of U.S. Registration No. 1,964,038 for the mark
Value America for preparing and disseminating advertising matter, including
direct mail advertising; and
Whereas, VA-Virginia desires to use the mark Value America for an Internet
retail store; and
Whereas, VA-Virginia is the applicant for registration of the marks listed in
Appendix A; and
Whereas, VA-Virginia intends to be the applicant for registration of the marks
listed in Appendix B for use in connection with its operation as an Internet
retailer; and
Whereas, VA-Virginia is the owner of U.S. Registration No. 2,098,957 for the
mark Value America; and
Whereas, VA-Virginia recognizes the validity of Freedman's registered mark and
wishes to avoid any conflict therewith, and
Whereas, Freedman recognizes the validity of VA-Virginia's registered mark and
wishes to avoid any conflict therewith, and
Now, therefore, in consideration of the sum of One Dollar and other good and
valuable consideration, it is agreed as follows:
I. Freedman will execute and deliver to VA-Virginia, the Consent Agreement
attached hereto as Exhibit 1.
II. VA-Virginia recognizes the validity of Freedman's registered mark and
wishes to avoid any conflict therewith, and Freedman recognizes the
validity of VA-Virginia's registered mark and wishes to avoid any
conflict therewith. Both
<PAGE>
Agreement Page 2
parties agree that with respect to (i) the use by VA-Virginia of the
mark containing the words Value America in connection with an Internet
retail store, and (b) the use by Freedman of the mark containing the
words Value America for preparing and disseminating advertising matter,
including direct mail advertising, they will not:
A. oppose, object to, or seek to cancel the registrations owned by the
other,
B. oppose, object to, or seek to cancel any applications made in the
future by the other, provided that, in the case of VA-Virginia, said
future applications are limited to its operation as an Internet
retailer, and that, in the case of Freedman, said applications are
limited to its operation in preparing and disseminating advertising
matter, including direct mail advertising, and
C. institute trademark infringement actions against the other.
III. VA-Virginia will pay to Freedman, the sum of Fifteen Thousand
($15,000.00), in payments as follows:
A. Eight Thousand Dollars ($8,000.00) simultaneously upon execution of
this Agreement; and
B. The balance of Seven Thousand Dollars ($7,000.00) within three (3)
months after the date of this Agreement.
IV. If any payment with respect to Paragraphs III (A) and III (B) is not
paid when due:
A. VA-Virginia shall pay a late fee of $100.00, plus interest on the
unpaid balance at the rate of eight (8%) percent per year, and
B. VA-Virginia shall pay all reasonable legal fees and expenses
incurred by Freedman in connection with collection of the unpaid
balance.
V. As security for the payment of the amounts set forth in Paragraph III
(B), it is agreed as follows:
A. If the amount due to Freedman are not paid when due, Freedman may
file with the USPTO, the Consent to Cancellation attached hereto
as Exhibit 2, and VA-Virginia agrees that it will not oppose such
cancellation. If the amount due to Freedman is paid when due, the
Consent to Cancellation attached hereto as Exhibit 2 shall be null,
void and of no effect, and shall be marked as such, signed by
Freedman, and returned to VA-Virginia within ten (10) days after
payment.
B. In addition to or in lieu of the remedy specified in paragraph V (A)
above, if the amount due to Freedman are not paid when due,
Freedman may file
<PAGE>
Agreement Page 3
with the USPTO, the Assignment attached hereto as Exhibit 3, and
VA-Virginia agrees that it will not take any action to oppose or
otherwise interfere with such assignment. If the amount due to
Freedman is paid when due, the Assignment attached hereto as
Exhibit 3 shall be null, void and of no effect, and shall be marked
as such, signed by Freedman, and returned to VA-Virginia within
ten (10) days after payment.
C. VA-Virginia agrees to indemnify and hold Freedman harmless against
any expenses, including attorney fees, incurred in connection with
the recovery of the amounts due to Freedman under Paragraphs III
and IV of this Agreement.
D. The payment obligations of VA-Virginia pursuant to Paragraphs III
and IV of this Agreement shall be personally guaranteed by Rex
Scatena and Jane Scatena, husband and wife.
VI. Upon payment by VA-Virginia to Freedman within three (3) months of the date
of this Agreement (or such shorter time as is specified in subparagraph
VI (F) below), of a non-refundable option fee of Five Thousand Dollars
($5,000.00), VA-Virginia shall have an option to obtain from Freedman, an
assignment of U.S. Registration No. 1,964,038 for the mark Value America,
upon the following terms and conditions:
A. In order to exercise the option, VA-Virginia shall notify Freedman,
within six (6) months of the date of this Agreement, of its intention
to do so.
B. Within forty-eight (48) hours of the giving of the notice referred to
above, VA-Virginia shall pay to Freedman, the additional sum of Five
Thousand Dollars ($5,000.00), plus the amount specified in
Paragraph III (B) if then unpaid. Accordingly, at this point,
VA-Virginia will have paid Freedman the total sum of Twenty Five
Thousand Dollars ($25,000.00).
C. Freedman shall, upon receipt of such payment in the manner indicated
in paragraph VI (E) below, and provided that the total of all
payments to Freedman equals Twenty Five Thousand Dollars
($25,000.00), assign to VA-Virginia all of his right, title and
interest in and to U.S. Registration No. 1,964,038 for the mark
Value America, subject to the reservation indicated below.
D. The form of the assignment shall be as set forth in Exhibit 4, and
shall reserve to Freedman the right to continue to use the mark
Value America for preparing and disseminating advertising matter,
including direct mail advertising, in connection with Freedman's
business.
E. Payments by VA-Virginia to Freedman pursuant to paragraph VI (B)
shall be made by wire transfer to the account of Barry H.
Freedman, Esq., attorney trust account, or as otherwise mutually
agreed by the parties.
<PAGE>
Agreement Page 4
F. In the event that Freedman receives a bona-fide written offer with
respect to his rights in the mark Value America, the three month
period specified in this paragraph VI shall be reduced to a period
of seventy-two (72) hours following the furnishing of a copy of said
written offer to VA-Virginia.
G. If the option is not exercised within six (6) months of the date of
this Agreement, the option shall expire, Freedman may retain the
non-refundable option fee, and Freedman shall be under no further
obligation with respect thereto.
VII. This Agreement shall be governed by the laws of the State of Georgia. Any
action relating to this Agreement shall be brought in the courts in
Georgia.
VIII. If any portion of this Agreement is found to be invalid or unenforceable,
the remaining provisions shall remain in effect and the parties will
immediately begin negotiations to replace invalid or unenforceable
portions that are essential parts of this Agreement.
IX. All notices under this Agreement shall be in writing and deemed to have
been made and received when personally served, or when mailed by certified
or registered mail, postage prepaid return receipt requested, and
addressed to each party at the address set forth on the front of this
Agreement or such other address as a party designates in writing.
X. The obligations in this Agreement shall be binding upon the parties hereto,
their heirs, representatives, successors and assigns.
XI. This Agreement is personal to the parties hereto, and shall not be assigned
by either party without the express written permission of the other party.
If all of the assets or stock of VA-Virginia are sold or transferred to
a third party, or if an agreement is made for such sale or transfer, the
remaining amounts due to Freedman under Paragraph III (B) shall be
immediately due and payable.
XII. This Agreement, including all of its attachments, constitutes the entire
agreement between the parties, and supersedes all prior agreements,
proposals, representations, statements or understandings, whether oral or
written. This Agreement shall not be contradicted, explained or
supplemented by any written or oral statements, proposals or
representations not expressly set forth in this Agreement or an
attachment hereto.
In witness whereof, the parties hereto set their hands and seals hereto on the
date first
<PAGE>
Agreement Page 5
written above.
Witness:
/s/ Paige Coker /s/ Stephen S. Freedman
- -------------------------- ----------------------------------
Stephen S. Freedman
Attest: Value America, Inc., a corporation of
Virginia
/s/ Dean M. Johnson /s/ Rex Scatena
- -------------------------- -------------------------------------
By: Rex Scatena, President
PERSONAL GUARANTY
For valuable consideration, the receipt of which is acknowledged, it is
understood and agreed that the payment obligations of Value America, Inc.
under this Agreement are hereby personally guaranteed by the undersigned:
/s/ Rex Scatena Dated: December 3, 1997
- --------------------------------
Rex Scatena, personally
/s/ Jane Scatena Dated: December 3, 1997
- --------------------------------
Jane Scatena, personally
ACKNOWLEDGMENT
State of Georgia) ss.:
County of DeKalb
On this 8th day of December, 1997, before me personally came Stephen S.
Freedman, to me known to be the individual described in and who executed the
foregoing instrument, and he acknowledged execution of the same.
/s/ Jamie G. Hornbuckle
- ----------------------------
A Notary Public
9-14-99
ACKNOWLEDGMENT
Commonwealth of Virginia ) ss.:
County of Albemarle
On this 3rd day of December, 1997, before me personally came Rex Scatena and
Jane Scatena, husband and wife, to me known to be the individuals described
in and who executed the foregoing instrument, and they acknowledged
execution of the same.
/s/ Sandra T. Watson
- ------------------------------
A Notary Public
My commission expires 12/31/98
<PAGE>
Agreement Page 6
ACKNOWLEDGMENT
Commonwealth of Virginia ) ss.:
County of Albemarle )
On this 3rd day of December, 1997, before me personally came Dean M. Johnson,
and this person acknowledged under oath, to my satisfaction, that he is the
Secretary of Value America, Inc., a corporation of Virginia; that he is the
attesting witness to the signing of this instrument by Rex Scatena, who is the
President of Value America, Inc., that this document was signed and delivered
by the corporation as its voluntary act duly authorized by a proper resolution
of its Board of Directors; that he knows the proper seal of the corporation
which was affixed to this instrument; and that he signed this proof to attest
to the truth of these facts.
/s/ Dean M. Johnson
-------------------------
ATTESTING WITNESS
/s/ Sandra T. Watson
- ---------------------------
A Notary Public
My commission expires 12/31/98
Approved as to form by:
/s/ Barry H. Freedman Dated: December 4, 1997
- --------------------------------
Barry H. Freedman, Esq.
Attorney for Stephen S. Freedman
/s/ Rex Scatena Dated: December 3, 1997
- --------------------------------
Rex Scatena, Esq.
Attorney for Value America, Inc.
<PAGE>
APPENDIX A
SERIAL NO.: 75-143,138
FILED: July 12, 1996
VALUE AMERICA THE LIVING STORE! and Design
GOODS/SERVICES: MULTIMEDIA AND PRODUCT DEMONSTRATIONS USING
NARRATION, PHOTOGRAPHY, MUSIC, GRAPHICS AND ANIMATION TO CREATE
DEMONSTRATIONS THAT ARE EDUCATIONAL AND ENTERTAINING
INTL CLASS: 35 (Advertising & Business Services)
SERIAL NO.: 75-143,137
FILED: July 12, 1996
VALUE AMERICA THE LIVING STORE! and Design
GOODS/SERVICES: RETAIL AND WHOLESALE DISTRIBUTORSHIPS FEATURING A
WIDE VARIETY OF CONSUMER PRODUCTS RENDERED BY MEANS OF GLOBAL
COMPUTER COMMUNICATIONS NETWORKS FEATURING INTERACTIVE DATA
BASE PROGRAMMING AND MULTIMEDIA PRODUCT DEMONSTRATIONS
INTL CLASS: 35 (Advertising & Business Services)
SERIAL NO.: 75-143,136
FILED: July 12, 1996
VALUE AMERICA THE LIVING STORE! and Design
GOODS/SERVICES: RECORDING, SOUND AND IMAGE REPRODUCTION-RECORDED
NARRATION, AND MUSIC FOR PRODUCT PRESENTATIONS AND TESTIMONIALS;
IMAGE CREATION AND REPRODUCTION TO SUPPORT SALE OF CONSUMER
PRODUCTS ON THE INTERNET; VIDEO DEMONSTRATIONS OF CONSUMER
PRODUCTS
INTL CLASS: 9 (Electrical & Scientific Apparatus)
SERIAL NO.: 75-133,409
FILED: July 12, 1996
VALUE AMERICA THE LIVING STORE! and Design
GOODS/SERVICES: PROVIDING TELECOMMUNICATIONS CONNECTED TO GLOBAL
COMPUTER NETWORKS INCLUDING HOSTING AND CONNECTIVITY VIA
TELEPHONY, COAXIAL AND/OR DIGITAL SATELLITE
INTL CLASS: 38 (Communications Services)
SERIAL NO.: 75-100,961
FILED: May 1, 1996
PUBLISHED: September 2, 1997
VALUE AMERICA
GOODS/SERVICES: RETAIL AND WHOLESALE DISTRIBUTORSHIPS FEATURING A
WIDE VARIETY OF CONSUMER PRODUCTS RENDERED BY MEANS OF GLOBAL
COMPUTER COMMUNICATIONS NETWORKS FEATURING INTERACTIVE DATA
BASE PROGRAMMING AND MULTIMEDIA PRODUCT DEMONSTRATIONS
INTL CLASS: 35 (Advertising & Business Services)
<PAGE>
Appendix A Page 2
SERIAL NO.: 75-099,776
FILED: May 1, 1996
VALUE AMERICA
GOODS/SERVICES: (INT. CL. 9) PRERECORDED MUSICAL AND NARRATED
SOUND AND VIDEO RECORDINGS FOR PRODUCT PRESENTATIONS AND
TESTIMONIALS (INT. CL. 35) VIDEO DEMONSTRATIONS OF CONSUMER
PRODUCTS; PHOTOGRAPHIC IMAGE REPRODUCTION; CREATION AND
DISSEMINATION OF ADVERTISEMENTS TO SUPPORT SALES OF CONSUMER
PRODUCTS ON GLOBAL COMPUTER NETWORKS (INT. CL. 40) VIDEO
DEMONSTRATIONS OF CONSUMER PRODUCTS; PHOTOGRAPHIC IMAGE
REPRODUCTION; CREATION AND DISSEMINATION OF ADVERTISEMENTS TO
SUPPORT SALES OF CONSUMER PRODUCTS ON GLOBAL COMPUTER NETWORKS
(INT. CL. 41) AUDIO AND VIDEO RECORDING
INTL CLASS: 9 (Electrical & Scientific Apparatus)
35 (Advertising & Business Services)
40 (Material Treatment Services)
41 (Education & Entertainment Services)
SERIAL NO.: 75-099,775
FILED: May 1, 1996
VALUE AMERICA
GOODS/SERVICES: MULTIMEDIA AND VIDEO PRODUCT DEMONSTRATIONS USING
NARRATION, PHOTOGRAPHY, MUSIC, GRAPHICS AND ANIMATION TO CREATE
DEMONSTRATIONS THAT ARE EDUCATIONAL AND ENTERTAINING
INTL CLASS: 35 (Advertising & Business Services)
<PAGE>
APPENDIX B
Value America - The Retail Revolution
Value America - The Ultimate Superstore
Value America - The Future of Retailing
Value America - Down the Hall, Not Down the Street
Value America - The World's Best Store
2300 Commonwealth Building
P.O. Box 5685
Charlottesville, Virginia 22905
THIS LEASE, hereinafter called "Lease" made this 17th day of September
1997, between 2300 Commonwealth, hereinafter called "Landlord" and Value
America, Inc., hereafter called "Tenant".
WITNESSETH:
1. PREMISES: Landlord, in consideration of the rent which Tenant agrees to
pay, demises unto Tenant, the following property (the "Premises")
to-wit:
The entire building located on the corner of Greenbrier
Drive and Commonwealth Drive, designated as 2300 Commonwealth
Drive, consisting of approximately seven thousand seven
hundred seventy seven square feet (7,777 s.f.), with the
exception of Suite 201 currently occupied by Protein
Solutions.
2. TERM: The term of the Lease (the "Term") shall be for six (6) months,
commencing at noon on October 15, 1997, (or when the Premises shall be
ready for occupancy by Tenant, whichever last occurs) and expiring at
noon on April 15, 1998. Occupancy of the Premises by the Tenant shall be
deemed to be acceptance of the Premises. While it is contemplated by the
parties hereto that tenancy shall begin on said date, Landlord shall
have no liability for damages caused by said delay, unless the delay is
due to gross negligence on the part of the Landlord. For purposes of
this Lease, ready shall mean those items which Landlord has agreed to do
to make space ready, and not any special requirements the Tenant may
have to be operational.
3. SPECIAL TERMS AND CONDITIONS:
Agreed list submitted by Lane Bonner.
4. TERMINATION: This Lease shall terminate at noon on the last day of the
Term. Should the Lease be extended or renewed under any provisions
herein or contained or by separate agreement, then the lease shall
terminate at noon on the last day of the additional term. For three (3)
months prior to the termination of this Lease the Landlord shall have
the right to post "For Rent" signs and, at reasonable times, in person
or by Landlord's duly authorized agent, to show the Premises to
prospective tenants.
5. RENT: The total rental for the initial Term of the Lease is forty two
thousand seven hundred seventy three & 500/100, ($42,773.50) due and
payable in lawful money of the United States of America in equal monthly
installments of seven thousand one hundred twenty eight & 92/100
($7,128.92) on the first day of each and every month during the Term, in
advance, and without demand being made therefore, to Landlord (its
successors or assigns) at Landlord's offices at 2246 Ivy Road, Suite 17,
Charlottesville, Virginia 22903, or by mail to P.O. Box 5685,
Charlottesville, Virginia 22905; or at such other place as Landlord may
from time to time in writing designate.
Late Charges: The Lessee agrees that payment not paid by Lessor in a
timely fashion shall be subject to the following late charges:
Day of Month 1st to 5th No penalty
6th to 15th $100
16th to 25th $200
30th Default
6. OPTION TO RENEW: The Term hereby granted, at the option of the Tenant
and Landlord, may be extended at the end thereof for an additional two
(2) three (3) month terms upon the same covenants and conditions, except
rent, which at the end of the initial Term, and beginning on the first
day of this additional term, shall be adjusted to:
The same amount of rent per square foot not to exceed a total of six (6)
months.
Tenant must notify Landlord in writing ninety (90) days (three months)
in advance of expiration date of the Tenant's desire to exercise renewal
option.
7. PURPOSE: The Premises are to be used for the following purpose and
for no other purpose, unless Landlord is notified in writing of any
additional usage.
8. UTILITIES: Office Tenant shall pay for electric, water and sewer and
shall have those utilities placed in their name on the date of
occupancy. Upon vacating the premises Tenant shall notify Landlord in
writing as to date that utilities shall be removed from Tenant's name.
This should not occur until a final inspection at vacancy has been
obtained. Landlord represents that Suite 201 is separately metered for
electricity.
9. MAINTENANCE OF PREMISES: Landlord shall, at his own expense, be
responsible for snow removal, trash removal from dumpster located at
rear of property, and grass and trimming of all trees and ornamentals.
Landlord covenants that he will, in a timely fashion, and at his sole
costs and expense, make such structural repairs as may be required by
natural wear and tear during the term of this Lease, and keep the
plumbing, heating and cooling systems, and electrical systems in proper
working condition, and will maintain the exterior of the Premises.
10. SECURITY DEPOSIT: Tenant has deposited with Landlord the sum of seven
thousand one hundred twenty eight & no/100 ("Security Deposit") which
shall be held by Landlord as security for the faithful performance by
Tenant of each and every obligation of Tenant hereunder. If Tenant shall
commit any breach hereunder, Landlord shall be entitled, in addition to
any other remedies available under this Lease, to utilize all or any
portion of the Security Deposit to cure such breach, in which event
Tenant shall immediately restore the Security Deposit. Upon termination
of this Lease, including any renewal or extensions thereof, provided
Tenant has fulfilled all of its obligations hereunder, the remaining
balance of the Security Deposit shall be returned to Tenant within
thirty (30) days of termination of Lease.
11. SIGNS: Lessee may install a sign on the main sign board located on the
from lawn of the building, not to exceed 12" x 24"; colors and location
to be approved by Lessor.
12. TAXES: Lessee shall pay all real estate taxes assessed against said
property.
13. DAMAGE AND DESTRUCTION: In the event of damage or destruction to the
Premises, by fire or otherwise, rendering same unfit for the carrying on
of Lessee's business, the rent shall abate until said destruction or
damage is repaired, provided, however, if said repairs are not completed
within one hundred twenty (120) days after such destruction or damage,
the Lessee at its option may terminate the Lease. Nothing herein shall
be construed as requiring Lessor to rebuild or repair.
14. ASSIGNMENT OR SUBLETTING: The Premises may be sublet or assigned only
upon written notice to the Lessor. Written approval shall not be
unreasonably withheld, provided however, that the Lessor shall have the
right to reject any sub-lessee or assignees where the Lessor can
demonstrate said sub-lessee's or assignee's inability to assume the
obligations of this Lease.
Initials /s/ RS
------
<PAGE>
15. SURRENDER OF PREMISES: Lessee agrees to surrender the Premises in as
good a condition as they are at the beginning of the period of this
Lease, reasonable wear and tear excepted. The said Lessee also covenants
and agrees that the Lessor may show the premises at any time upon
reasonable notice, and may place a "For Sale" or a "For rent" sign in
one or more conspicuous places at any time, but only after notice shall
have been given by the Lessee or its intention not to renew their
Lease.
16. INSURANCE: Lessor shall carry fire and extended coverage insurance on
the building and improvements on the Premises, with a provision that
said policy may not be canceled until after thirty (30) days written
notice to the Lessee, and it will cause its insurer to furnish the
Lessee a certificate to that effect.
17. NOTICES: Official notices or communications given or required under
this Lease shall be in writing and shall be deemed given when deposited
in the United States mail, postage prepaid and addressed as follows:
If to Lessor: If to Lessee:
Mr. James W. Newman, Jr. Value America, Inc.
2300 Commonwealth Building 2300 Commonwealth Drive
P.O. Box 5685 Charlottesville, VA 22901
Charlottesville, VA 22905 Attn: Rex Scatena
or to such other address as to which either party may given written
notice to the other.
18. WAIVER OF SUBROGATION: Each party hereby waives all claims for recovery
from the other party for any loss or damage whatsoever the nature, cause
or extent, insured under valid and collectible insurance policies to the
extent of any recovery collectible under such insurance.
19. LIABILITY FOR NEGLIGENCE: The Landlord shall not be chargeable with any
liability by reason of negligence or otherwise for not making repairs to
the Premises. In addition, Landlord shall not be liable for any damage,
unless attributable to negligent acts of Landlord or its employees, to
person or property that the Tenant assigns or any other person or
persons may sustain on or about the Premises, whether caused by the use
of the Premises, water, electricity, gas, heating or air-conditioning
equipment or otherwise. The Premises shall be used solely by the Tenant
in accordance with the terms of this Lease, and Tenant shall take the
same responsibilities with respect to the Premises as if the Premises
were its own. The Tenant agrees to indemnify, protect and hold Landlord
harmless, at its own expense, against any and all claims which might
arise against the Landlord by reason of Value America's use of the
Premises during the Term.
Initials /s/ RS.
---------
<PAGE>
20. INSPECTION: The Landlord reserves the right to inspect the Premises at
all reasonable times and show the Premises through agents or otherwise
to bona fide purchasers or prospective tenants.
21. RULES, REGULATIONS, STIPULATIONS, ETC.: The Landlord and Tenant further
covenant that the following rules, regulations and stipulations shall
be faithfully observed and performed by Tenant (including its employees,
agents, customers and visitors), to wit:
(a) The entry, corridors and stairways shall not be obstructed by
Tenant, nor used by it for any other purpose than igress or egress to
and from its offices. Mechanical closets shall not be used for storage.
(b) The doors and windows that reflect or admit light into passageways,
or into any place in the building other than the Premises shall not
covered or obstructed by Tenant. The water closets and other water
apparatus shall not be used for any purpose other than those for which
they were constructed or this Lease was made, and no sweepings, rubbish,
rags or other substance shall be thrown therein. Any damage resulting
from misuse shall be borne by the Tenant responsible for same.
(c) Except as contemplated hereby, Tenant shall not do or permit
anything to be done in or about the Premises, or bring or keep anything
therein, which will in any way increase the rate of fire insurance on
the Building or on property kept therein, or obstruct or interfere with
the rights of other tenants or in any way injure or annoy them, or which
conflicts with the laws relating to fire prevention or with the
regulations of the Fire Department, or with the requirements of any
insurance policy or carrier providing insurance upon the Building or any
part thereof.
(d) In order that the Premises may be kept in a good state of
preservation and cleanliness, Tenant shall make appropriate arrangements
for the Premises to be regularly cleaned and for the prompt removal of
all trash and rubbish.
(e) The Landlord, its agents or employees, shall have the right to
enter the Premises at any hour, to examine the same, or to make such
repairs and alterations as it shall deem necessary for the safety and
preservation of the Building, provided that the Landlord will not
unreasonably interfere with Tenant's business.
(f) No animals shall be kept in or about the Premises.
(g) If the Tenant desires special utility installations of any sort,
they shall be with the prior written approval of the Landlord who will
direct such installations with all costs thereof to be paid by the
Tenant whether the actual installment is performed by the Landlord or an
independent contractor.
Initials /s/ RS
--------
<PAGE>
(h) Tenant agrees that no part of the Premises shall be used for
sleeping purposes, or any other undesirable use.
(i) Any and all damages to the Premises or other property of the
Landlord, or to the person or property of any of its tenants, due to the
negligence of the Tenant (including its employees, agents, customers or
visitors) shall be paid for by the Tenant as additional rent. Nails will
not be driven in the floors, windows, or woodwork, nor will the same be
defaced or otherwise injured, and in the event of such injury Tenant
shall immediately, without demand from the Landlord, have the same
repaired at its own expense. The Tenant shall further, at its own
expense, repair any injury, or damage to the Premises, or the Building,
caused by moving its furniture or other property in or out of the
Building. Nails can be driven in walls, and upon termination of the
Lease, Tenant shall be responsible for removal of nails and filling in
nail holes.
(j) The Landlord reserves the right to make such other and further
rules and regulations as in its judgement may from time to time be
needed for the government, safety, care and cleanliness of the Premises,
and for the preservation of good order therein.
22. QUIET POSSESSION: The Landlord, for itself, and its assigns, agrees
that the Tenant, upon paying the rental herein reserved and upon the
performance of the covenant and agreements herein provided to be
observed and performed by it, shall peaceably and quietly hold and enjoy
the Premises for and during the term hereof, or any extension thereof.
23. DEFAULT: If Lessor shall default in performing its obligations under
this Lease, Lessee shall give Lessor written notice of the deficiency,
and Lessor shall have a reasonable time to correct the same, and if not
corrected within a reasonable time and such breach is a material breach,
Lessee may terminate this Lease or take such other legal steps to which
it may be entitled.
24. FINAL UNDERSTANDING: This Lease is entered into and shall be construed
under the laws of the State of Virginia. The Landlord, and his agent,
are licensed Realtors in the State of Virginia. The Lessor, including
its executors, administrators, heirs, successors and assigns, agrees
that the Lessee, upon paying the rental herein provided, shall peaceably
and quietly hold and enjoy the demised Premises for and during the
entire time of this Lease, including any extensions thereof.
Initial /s/ RS
-------
<PAGE>
THIS LEASE, executed by the Lessee and the Lessor in duplicate, merges
all the understandings and agreements between the parties hereto with
respect to the Premises and shall constitute the entire agreement which
may not be modified except in writing, and signed by Lessor and Lessee.
WITNESS THE FOLLOWING SIGNATURES:
Date: 9/18/97 /s/ Rex Scatena
---------------------- ------------------------
Date: 9/18/97 /s/ Faye P. Taylor
---------------------- -------------------------
2300 Commonwealth Building
Faye P. Taylor, Agent
LESSOR IMPROVEMENTS TO 2300 COMMONWEALTH
(See 3 - Special Terms and Conditions)
FIRST FLOOR
1. New carpet in common areas and southern one half of building.
2. New floors in bathroom
3. New paint throughout.
SECOND FLOOR
1. New carpet throughout-carpet to be padded in entrance foyer and down
hall.
2. New paint throughout-removing all wallpaper from entrance area, and
Suite 101.
3. New bathroom floors.
4. Two interior walls to be removed in the Care Advantage space.
THIRD FLOOR
1. Flush mount electrical junctions on floor and remove electrical
junctions near entrance.
2. Sheetrock entire northeast room walls where paneled and replace
floor moulding
3. New paint throughout.
4. Carpet throughout with exception of southwestern room.
5. New bathroom floors
Carpet will be 26 oz level loop in a blue-steel color to match existing
carpeting. Paint will be white on all walls with trim to be blue-steel color.
TENANT LEASE
This Lease entered into the 16th day of March, 1998, between Preston O.
Stallings, Lessor, and Value America, Inc., Lessee. Lessee agrees to pay a
prorated portion of rent, amounting to $34.38 per day from date of move in to
end of March.
That the Lessor does hereby rent and demise unto the Lessee the following
premises to-wit 2340 Commonwealth Drive, Suites 102 and 103 approximately 1125
square feet, and Suite B-1 approximately 1125 square feet including common area,
Charlottesville, Virginia 22901 (hereinafter referred to as the "Premises").
1. The term of the Lease shall be for one (1) year commencing on March 16,
1998 and terminating on March 16, 1999, unless notice by Lessor or Lessee within
sixty (60) days prior to the expiration of the Lease agreement shall notify the
other party of its intention to renew the Lease as hereinafter provided.
The Lessee shall notify the Lessor in writing, sixty (60) days prior to the
expiration of this Lease or any renewal thereof, of its intention to renew this
Lease, which renewal shall be on terms and conditions which shall be
substantially similar to those stated herein and provided further, that the rent
shall not exceed the rent for the preceding year by more than ten percent (10%)
and that any renewal term shall not be less than one (1) year not more than
three (3) years, at the option of the Lessee.
1. Rent is to be paid by the Lessee to the Lessor as follows:
(A) Base Rent;
(1) The rent for the first year of this Lease shall be twenty four
thousand seven hundred fifty dollars and no cent, ($24,750.00) payable in
monthly installments. The first installment of two thousand sixty two dollars
and fifty cents, ($2,062.50) payable on the first day of the term as set forth
herein and each succeeding installment of two thousand sixty-two dollars and
fifty cents, due on the first day of each calendar month thereafter. Rent
includes electric utilities
(B) Late Charges: The Lessee agrees that payments not received by the
Lessor in a timely fashion in accordance with subparagraph 2a shall be subject
to the following Late Charges.
Day of Month
1st to 5th No Penalty
6th to 10th $50.00
11th to 15th $75.00
16th Default
(c)Contemporaneously with the execution of this agreement, Lessee will
deposit with Lessor a security deposit in the amount of two thousand sixty two
dollars and fifty cent, ($2,062.50).
(D) The Lessor may reenter for default of fifteen days in the payment of
any installment of rent, or for the breach of any material covenant herein
contained.
3. The Lessor covenants that he will, in a timely fashion and all at his
sole cost and expense, make such structural repairs as may be required by
natural wear and tear during the period of this Lease, and keep the plumbing,
heating, air conditioning, and electrical systems in proper working condition
and that he will maintain the exterior of the Premises.
4. The Lessee will be responsible for upkeep and repairs to the interior of
the Premises, and may make such alterations therein as he deems necessary at
his own expense. Any shelving, fixture and other personal property which Lessee
installs at his own expense may be removed by him at the termination of this
Lease; however, Lessee agrees to pay Lessor for any damages occasioned by such
removal.
5. The Lessor agrees to furnish at its own expense water, required on the
Premises.
<PAGE>
6. Lessor shall pay all real estate taxes assessed against said property.
7. In the event of destruction or damage to the Premises, by fire or
otherwise, rendering same unfit for the carrying on of Lessee's business, the
rent shall abate until said destruction or damage is repaired, provided,
however, if said repairs are not completed within one hundred twenty (120) days
after such destruction or damage, the Lessee at its option may terminate the
Lease. Nothing herein, however, shall be construed as requiring Lessor to
rebuild or to repair.
8. The Premises may be sublet or assigned only upon written notice to the
Lessor, provided however, that the Lessor shall have the right to reject any
sublease or assignee where the Lessor can demonstrate said sublessee's or
assignee's inability to assume the obligations of this Lease.
9. Lessee agrees to surrender the Premises in as good a condition as they
are at the beginning of the period of this Lease, reasonable wear and tear
excepted.
10. The said Lessee also covenants and agrees that the Lessor may show the
Premises to prospective purchasers or renters at any time upon reasonable
notice, and that it may placard the aforementioned property "FOR SALE" and/or
"FOR RENT" in one or more conspicuous places at any time, but only after notice
shall have been given by the Lessee of its intention not to renew the Lease.
11. Lessor shall carry fire and extended coverage insurance on the
buildings and improvements on the Premises, with a provision that said policy
may not be canceled until after thirty (30) days written notice to the Lessee,
and that it will cause its insurer to furnish the Lessee a certificate to that
effect.
12. Notices. Official notices or communications given or required under
this Lease shall be in writing and shall be deemed given when deposited in the
United States mail postage prepaid and addressed as follows:
If to the Lessor: If to the Lessee:
Preston O. Stallings Value America, Inc.
P.O. Box 6249 2340 Commonwealth Drive
Charlottesville, VA 22906 Charlottesville, VA 22901
13. This Lease is entered into and shall be construed under the laws of the
State of Virginia.
14. The Lessor, including its executors, administrators, heirs, successors
and assigns, agrees that the Lessee, upon paying the rental herein reserved and
upon the performance of the covenants and agreements herein provided, shall
peaceably and quietly hold and enjoy the demised Premises for and during the
entire term of this Lease, including any extension(s) thereof.
WITNESS THE FOLLOWING SIGNATURES:
Value America, Inc. /s/Dean M. Johnson Witness: /s/Rex Scatena
- --------------------------------------------------------------------------------
Preston Stallings: /s/Preston Stallings/CDS Witness:
- --------------------------------------------------------------------------------
The Lessor may raise the rent by four percent (4%) for a renewal beginning
March 16, 1999.
LEASE AGREEMENT
1. PARTIES. This Lease, dated as of the 10th day of June, 1996, is
made by and between Commonwealth Clinical Systems, Inc., 1650 State Farm Blvd.
Charlottesville, VA 22911 (herein called "Landlord") and Value America
Corporation, 18632 Beach Blvd., Suite 220, Huntington Beach, CA 92648 (herein
called "Tenant").
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby
leases from Landlord that certain space (herein called "Premises"), containing
approximately 1,894 square feet of floor area located in a building (the
"building") known as 1650 State Farm Blvd. The location and dimensions of said
Premises are delineated on Exhibit "A" attached hereto and incorporated by
reference herein. Said Premises are located in the City of Charlottesville
County of Albermarle, State of Virginia.
This Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed.
3. USE. Tenant shall use the Premises for general office purposes
and shall not use or permit the Premises to be used for any other purpose
without the prior written consent of Landlord.
4. MINIMUM RENT.
4A. Tenant agrees to pay to Landlord as Minimum Rent, without
notice, offset, or demand, the monthly sum of one thousand eight hundred
ninety-four ($1,894). Dollars in advance, on or before the first day of each and
every successive calendar month during the term hereof in lawful money of the
United States at such place as Landlord may from time to time designate. The
rental shall commence on the 15th day of July, 1996. Any Minimum Rent or
additional rent which is not paid within five (5) days of the due date thereof
shall bear interest at the rate of 1 1/2% per month from the due date thereof
until paid.
4B. The Minimum Rental specified above shall be adjusted at
the beginning of each Lease Year to reflect proportionate increases in the cost
of living as indicated by the U.S. Bureau of Labor Statistics Consumer Price
Index (All items, All Urban Consumers, 1967=100). Such adjustment shall be
accomplished by multiplying the Minimum Rental as stated in the lease by a
fraction, the numerator of which shall be the index as of the last day of the
preceding lease year and the denominator of which shall be this index as of the
execution of this lease. The product so obtained shall be the new Minimum Rent
payable hereunder after determining the cost-of-living adjustment as aforesaid.
If such consumer price index shall be discontinued, Landlord shall designate an
appropriate substitute index or formula having the same general acceptance as to
use and reliability as the index referred to above, and such substitute shall
be used as if originally designated herein. In no event, however, shall the
Minimum Rental during that period be less than the amount stated in Section 4-A
of this lease.
Rent for any period which is for less than one (1) month shall be a
prorated portion of the monthly installment herein based upon a thirty (30) day
month.
5. TERM. The lease term shall be one-half (1/2) "Lease Years" plus
the partial month, if any, in which the rental commences. "Lease Year" shall
mean a period of twelve consecutive calendar months. The parties hereto
acknowledge that certain obligations under various articles hereof may commence
prior to the lease term, i.e. construction, hold harmless, liability insurance,
etc.: and the parties agree to be bound by these articles prior to commencement
of the lease term. Beyond the lease term, month-to-month renewal shall occur
automatically unless Tenant gives 30 days' written notice or Landlord gives 60
days' written notice.
<PAGE>
6. SECURITY DEPOSIT. Concurrently with Tenant's execution of the lease.
Tenant will deposit with Landlord, a sum equivalent to the first months' rent.
Said sum shall be held by Landlord as security for the faithful performance by
Tenant of all the terms, covenants, and conditions of this lease to be kept and
performed by Tenant during the term hereof. If Tenant defaults with respect to
any provision of this lease, including, but not limited to the provisions
relating to the payment of rent, Landlord may (but shall not be required to)
use, apply or retain all or any part of this security deposit for the payment of
any rent or any other sum in default, or for the payment of any amount which
Landlord may spend or become obligated to spend by reason of Tenant's default.
If any portion of said deposit is so used or applied Tenant shall, withing five
(5) days after written demand therefore, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount and Tenant's
failure to do so shall be a default under this Lease. Landlord shall not be
required to keep this security deposit separate from its general funds, and
Tenant shall not be entitled to interest on such deposit. If Tenant shall fully
and faithfully perform every provision of this Lease to be performed by it, the
security deposit or any balance thereof shall be returned to Tenant (or at
Landlord's option, to the last assignee of Tenant's interest hereunder) within
ten (10) days following the return of the premises key at the expiration of the
Lease Term. In the event of termination or assignment of Landlord's interest in
this Lease, if Landlord shall transfer said deposit to Landlord's successor in
interest, Landlord shall be relieved of all obligation to return said deposit to
Tenant.
7. USES PROHIBITED. Tenant shall not do or permit anything to be done
in or about the Premises nor bring or keep anything therein which is not within
the permitted use of the premises or which will in any way increase the existing
rate of or affect any fire or other insurance upon the Building or any of its
contents. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or injure or annoy them or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purpose; nor shall Tenant cause, maintain or permit any nuisance in, on or about
the Premises. Tenant shall not commit or allow to be committed any waste in or
upon the Premises.
8. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit
anything to be done in or about Premises, which will in anyway, conflict with
any law, statute, ordinance or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated. Tenant shall, as its sole cost
and expense, promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force and with the requirements of any board of fire underwrites
or other similar bodies now or hereafter constituted related to or affecting
the condition, use or occupancy of the Premises, or by Tenant's improvements or
acts. The judgment of any court of competent jurisdiction or the admission of
Tenant in any action against Tenant, whether Landlord be a party thereto or not,
that Tenant has violated any law, statute, ordinance or governmental rule,
regulation or requirement, shall be conclusive of that fact as between the
Landlord and Tenant.
9. ALTERATIONS AND ADDITIONS. Tenant shall not make or allow to be
made any alterations, additions or improvements to or of the Premises or any
part thereof without first obtaining the written consent of Landlord and any
alterations, additions or improvements to or of said Premises, including, but
not limited to, wall covering, paneling and built-in-cabinet work, but excepting
movable furniture and trade fixtures, shall at once become a part of the realty
and belong to the Landlord and shall be surrendered with the Premises. In the
event Landlord consents to the making of any alterations, additions or
improvements to the premises by Tenant, the same shall be made by Tenant at
Tenant's sole cost and expense. Upon the expiration or sooner termination of the
term hereof, Tenant shall, upon written demand by Landlord, given at least
thirty (30) days prior to the end of the term, at Tenant's sole cost and
expense, forthwith and with all due diligence, remove any alterations, additions
or improvements made by Tenant, designated by Landlord to be removed, and Tenant
shall, forthwith and with all due diligence, at its sole cost and expense,
repair any damage to the Premises caused by such removal. Landlord hereby
reserves the right at any time to make alterations, additions or improvements to
the building in which the Leased Premises are contained and to build additional
stories thereon.
10. REPAIRS AND MAINTENANCE.
10A. Upon taking possession of the Premises, Tenant shall be deemed to
have accepted the Premises as being in good, sanitary order, condition and
repair. Tenant shall, upon the expiration or sooner termination of this Lease
hereof, surrender the Premises to the Landlord in good condition, broom clean,
ordinary wear and tear and damage from causes beyond the reasonable control of
Tenant excepted. Any damage to adjacent premises caused by Tenant's use of the
Premises shall be repaired at the sole cost and expense of Tenant.
10B. Landlord shall maintain the interior of the Premises including all
windows and doors, and all mechanical HVAC, plumbing and other systems in good
condition and repair and in a neat and clean condition and free of dirt, trash,
vermin, and other pests. Landlord shall maintain the inside of the Lease
Premises at a temperature sufficiently high to prevent freezing of water pipes
and fixtures inside the Lease Premises.
10C. Landlord shall repair and maintain the structural portions of the
Building including the exterior walls and structural portions of the roof,
unless such maintenance and repairs are caused in part or in whole by the act,
neglect, fault or omission of or by the Tenant, its agents, servants, employees,
invitees, or any damage caused by breaking and entering, in which case Tenant
shall pay to Landlord the actual cost of such maintenance and repairs. Landlord
shall not be liable for any failure to make such repairs or to perform
maintenance unless such failure shall persist for an unreasonable time after
written notice of the need of such repairs or maintenance is given to Landlord
by Tenant. There shall be no abatement to rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations or improvements in or to any portion of the
building or the Premises or in or to fixtures, appurtenances and equipment
therein. Tenant waives the right to make repairs at Landlord's expense under any
law, statue or ordinance now or hereafter in effect.
11. LIENS. Tenant shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or obligations incurred by or on behalf or Tenant. If any
such liens are filed against the Premises, Tenant shall pay or bond off such
liens within 15 days after such liens are files. Landlord may require, at
Landlord's sole option, that Tenant shall provide to Landlord, at Tenant' sole
cost and expense, a lien and completion bond in an amount equal to one and
one-half (1 1/2) time the estimated cost of any improvements, additions or
alterations in the Premises which the Tenant desires to make, to insure Landlord
against any liability for mechanic's and materialmen's liens and to insure
completion of the work.
12. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily,
or by operation of law, assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein, and shall not sublet the said
Premises or any part thereof, or any right or privilege appurtenant thereto, or
allow any other person to occupy or use the said Premises, or any portion
thereof, without first obtaining the written consent of Landlord. A Consent to
one assignment, subletting, occupation or use by another person shall not be
deemed to be a consent to any subsequent assignment, subletting, occupation or
use by another person. Consent to any such assignment or subletting shall in no
way relieve Tenant of any liability under this Lease. Any such assignment or
subletting without such consent shall be void, and shall, at the option of the
Landlord, constitute a default under the terms of this Lease. For the purposes
of this paragraph, a merger or consolidation of Tenant with another corporation,
partnership, or other entity, a transfer of a controlling interest in Tenant or
a transfer of a controlling interest in Tenant's general partner (if Tenant is a
partnership) shall be deemed an assignment.
13. HOLD HARMLESS. Tenant shall idemnify and hold harmless Landlord
against and from any and all claims arising from Tenant's use of the Premises or
from the conduct of its business or from any activity, work or other things
done, permitted or suffered by the Tenant in or about the Premises and
appurtenant common areas, and shall further indemnify and hold harmless Landlord
against and from any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this lease, or arising from any act of negligence of the Tenant, or any
officer, agent, employee, guest, or invitee of Tenant, and from all costs,
attorney's fees, and liabilities incurred in or about the defense of any such
claim or any action or proceeding brought thereon and in case any action or
proceeding be brought against Landlord by reason of such claim, Tenant upon
notice from Landlord shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord. Tenant shall give prompt notice to Landlord
in case of casualty or accidents in the Premises.
Landlord or its agents shall not be liable for any loss or damage to
persons or property (including any inventory, raw material, or other property of
Tenant) resulting from fire, explosion, falling plaster, steam, accidental
sprinkler leakage, gas, electricity, water or rain which may leak from any part
of the Building or from the pipes, appliances or plumbing works therein or from
the roof, street or subsurface or from any other place resulting from dampness
or any other cause whatsoever, unless caused by or due to the negligence of
Landlord, its agents, servants or employees. Landlord or its agents shall not be
liable for interference with the light, air, or for any latent defect in the
Premises.
14. SUBROGATION. As long as their respective insurers so permit,
Landlord and Tenant hereby mutually waive their respective rights of recovery
against each other for any loss insured by fire, extended coverage and other
property insurance policies existing for the benefit of the respective parties.
Each party shall apply to their insurers to obtain said waivers. Each party
shall obtain any special endorsements, if required by their insurer to evidence
compliance with the aforementioned waiver.
15. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain
and keep in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant (and, if requested, Landlord's
mortgagee) against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto and any acts,
omissions or negligence of Tenant, its employees, invitees, and licensees. Such
insurance shall be in the initial amount of not less than $500,000.00 for injury
or death of one person in any one accident or occurrence and in the initial
amount of not less than $1,000,000.00 for injury or death of more than one
person in any one accident or occurrence. Such insurance shall further initially
insure Landlord and Tenant against liability for property damage of at least
$100,000.00 and not less than $100,000.00 for fire legal liability. The limit of
any such insurance shall not, however, limit the liability of the Tenant
hereunder. Tenant may provide this insurance under a blanket policy, provided
that said insurance shall have Landlord's protective liability endorsement
attached thereto. If Tenant shall fail to procure and maintain said insurance,
Landlord may, but shall not be required to, procure and maintain same, but at
the expense of tenant. Insurance required hereunder shall be in companies with a
service rating of A or better and a financial rating of XII or better, in
"Best's Insurance Guide". Tenant shall deliver to Landlord, prior to right of
entry, copies of policies of liability insurance required herein or certificate
evidencing the existence and amounts of such insurance with loss payable clauses
satisfactory to Landlord. No policy shall be cancelable or subject to reduction
of coverage. All such policies shall be written as primary policies not
contributing with and not in excess of coverage which Landlord may carry. Tenant
shall be responsible for carrying its own contents insurance and shall provide
Landlord with evidence satisfactory of same. The amounts of such insurance shall
be increased from time to time to reflect increases in the cost of living and
general good business practice.
16. UTILITIES. Landlord shall pay for all heat, light, power, and
all other services and utilities supplied to the Premises, together with any
taxes thereon. Telephone service shall be established by and charged directly to
Tenant.
17. PERSONAL PROPERTY TAXES. Tenant shall pay, or cause to be paid,
before delinquency any and all taxes and/or assessments levied or assessed and
which become payable during the term hereof upon all tenant's leasehold
improvements, equipment, furniture, fixtures, and any other personal property
located in the premises. In the event any or all of the Tenant's leasehold
improvements, equipment, furniture, fixtures, and other personal property shall
be assessed and taxed with the real property. Tenant shall pay to Landlord its
share of such taxes within ten (10) days after delivery to tenant by Landlord of
a statement in writing setting forth the amount of such taxes applicable to
tenant's property.
18. RULES AND REGULATIONS. Tenant shall faithfully observe and
comply with the rules and regulations that Landlord shall from time to time
promulgate and/or modify. The rules and regulations shall be binding upon the
Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any said rules and regulations
by any other tenants or occupants.
19. HOLDING OVER. If Tenant remains in possession of the Premises
or any part thereof after the expiration of the term hereof with the express
written consent of Landlord, such occupancy shall be a tenancy from month to
month at a rental in the amount of the last monthly Minimum Rent, plus all other
charges payable hereunder, and upon all the terms hereof applicable to a month
to month tenancy.
20. ENTRY BY LANDLORD. Landlord reserves, and shall at any and all
times have, the right to enter the Premises to inspect the same, to show said
Premises to prospective purchasers or tenants, to post notices of
non-responsibility, to repair the Premises and any portion of the Building of
which the Premises are a part that Landlord may deem necessary or desirable,
without abatement of rent, and may for that purpose erect scaffolding and other
necessary structures where reasonably required by the character of the work to
be performed, always providing that the entrance to the Premises shall not be
unreasonably blocked thereby, and further providing that the business of the
Tenant shall not be interfered with unreasonably. Tenant hereby waives any
claim for damages or for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding Tenant's vaults, safes and files, and
Landlord shall have the right to use and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises without liability to Tenant except for any failure to exercise due care
for Tenant's property and any entry to the Premises obtained by Landlord by any
of said means, or otherwise, shall not under any circumstances be construed or
deemed to be forcible or unlawful entry into, or a detainer of, the Premises, or
an eviction of Tenant from the Premises or any portion thereof. Landlord shall
have the right to place "For Lease" signs in a conspicuous place on the premises
one hundred twenty (120) days prior to the expiration of the term of the lease.
21. TENANT'S DEFAULT. The occurrence of any one or more of the
following events shall constitute a default and breach of this Lease by Tenant:
21A. The vacating or abandonment of the Premises by Tenant.
21B. The failure by Tenant to make any payment of rent, additional
rent, or any other payment required to be made by Tenant hereunder, as and when
due.
21C. The failure by Tenant to observe or perform any of the conditions
or provisions of the Lease to be observed or performed by the Tenant, other than
described in Articles 21 B, above, where such failure shall continue for a
period of fifteen (15) days after written notice hereof by Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that more than
fifteen (15) days are reasonably required for its cure, then Tenant shall not be
deemed to be in default if Tenant commences such cure within a fifteen (15) day
period and thereafter diligently prosecutes such cure to completion.
21D. The insolvency of Tenant, the making by Tenant of any general
assignment or general arrangement for the benefit of creditors; or the filing by
or against Tenant of a petition to have Tenant adjudged a bankrupt, or a
petition of reorganization or arrangement under any law relating to bankruptcy
unless, in the case of a petition filed against Tenant, the same is dismissed
within sixty (60) days; or the appointment of a trustee or a receiver to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or the attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged in thirty (30)
days.
22. REMEDIES IN DEFAULT. In the event of any such default or breach
by Tenant, Landlord may at any time thereafter, at its sole discretion, with or
without notice or demand and without limiting Landlord in the exercise of a
right or remedy which Landlord may have by reason of such default or breach:
22A. Terminate Tenant's right to possession of the Premises by any
lawful means, in which case all Minimum Rent, additional rent and other charges
payable hereunder for the balance of the term shall immediately become due and
payable, this Lease shall terminate and Tenant shall immediately surrender
possession of the Premises to Landlord. In such event Landlord shall be entitled
to recover from Tenant all damages incurred by Landlord by reason of Tenant's
default including, but not limited to the cost of recovering possession of the
Premises; expenses of reletting, including necessary renovation and alteration
of the Premises; and reasonable attorney's fee.
22B. Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the Premises
and Landlord shall be entitled to recover the rent and any other charges and
adjustments as may become due hereunder, and
22C. Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State in which the Premises are
located.
22D. Cure such default at the expense of Tenant, and Tenant shall
promptly reimburse Landlord for any costs so incurred, plus interest thereon at
the rate of 1 1/2% until paid, with such sums due from Tenant being additional
rent hereunder.
22E. The Tenant hereby covenants and agrees that if, at any time,
Tenant is adjudged bankrupt or insolvent under the laws of any state, or makes a
general assignment for the benefit of creditors, or, if a receiver for all the
property of the Tenant is appointed and shall not be discharged within sixty
(60) days after such appointment, the Landlord may, at its option, declare the
term of this lease agreement at an end and shall forthwith be entitled to
immediate possession of said premises and proceed with other remedies available
to Landlord at law or in equity including those set forth in the paragraph 22A
herein and in other parts of this Lease. In the event the Tenant files any
bankruptcy proceeding, or any bankruptcy proceeding is filed against the Tenant
under the laws of the United States, the Tenant shall elect (and shall make
every reasonable effort to cause the Trustee to elect) within ten (10) days of
the entry of the Order for Relief whether to accept or reject the terms of this
lease and perform the same.
23. DEFAULT BY LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within a reasonable
time, but in no event less than thirty (30) days after written notice by Tenant
to Landlord and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have theretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for the performance then
Landlord shall not be in default if Landlord commences performance within such
thirty (30) day period and thereafter diligently prosecutes the same to
completion.
24. RECONSTRUCTION.
24A. In the event the Premises are damaged except during the last 2
years of the term hereof by fire or other perils covered by extended coverage
insurance and such damage can be repaired within 120 days. Landlord agrees to
forthwith repair same, and this Lease shall remain in full force and effect,
except that Tenant shall be entitled to a proportionate reduction of the Minimum
Rent from the date of damage and while such repairs are being made, such
proportionate reduction to be based upon the extent to which the damage and
making of such repairs shall reasonably interfere with the business carried on
by the Tenant in the Premises. If the damage is due to the fault or neglect of
Tenant, or its employees, there shall be no abatement of rent. If such damage
occurs during the last two years of the term hereof or cannot be repaired within
120 days, then landlord shall have the right within sixty (60) days after such
damage to terminate this Lease.
24B. In the event the Premises are damaged as a result of any cause
other than the perils covered by fire and extended coverage insurance, then
Landlord shall forthwith repair the same; provided the extent of the destruction
be less than ten (10%) percent of the then full replacement cost of the
Premises. In the event the destruction of the Premises is to and extent of ten
(10%) percent or more of the full replacement cost then Landlord shall have the
option: (1) to repair or restore such damage, this Lease continuing in full
force and effect, but Minimum Rent to be proportionately reduced as hereinabove
in this article provided; or (2) give notice to Tenant at any time within sixty
(60) days after such damage, terminating this Lease as of the date so specified
in such notice, which date shall be no more than thirty (30) days after the
giving of such notice. In the event of giving such notice, this Lease shall
expire and all interest of the Tenant in the Premises shall terminate on the
date so specified in such notice and the Minimum Rent reduce by a proportionate
reduction, based upon the extent, if any, to which such damage interfered with
the business carried on by the Tenant in the Premises, shall be paid up to date
of said termination.
24C. Landlord shall not be required to repair any injury or damage by
fire or other cause, or to make any repairs or replacements of any leasehold
improvements, fixtures or other personal property of Tenant. Tenant shall give
to Landlord prompt written notice of any damage to or destruction of any portion
of the Lease Premises.
24D. The operation of this paragraph shall be subordinate to the terms
and conditions of any deed of trust secured in whole or part by the Premises.
25. PARKING AND COMMON AREAS
25A. The Landlord shall keep parking and common areas in a neat, clean
and orderly condition and shall repair any damage to the facilities thereof.
25B. Tenant shall have use of only that parking area that is designated
from time to time by the Landlord.
25C. The Tenant, in the use of said common and parking areas, agrees to
comply with such reasonable rules and regulations as the Landlord or Tenant's
Association may adopt from time to time for the orderly and proper operation of
such common and parking areas. Such rules may include but shall not be limited
to the following: (1) The restricting of employee parking to a limited,
designated area or areas; and (2) The regulation of the removal, storage and
disposal of Tenant's refuse and other rubbish at the sole cost and expense of
Tenant.
26. SIGNS. The Tenant may affix only signs, advertising placards,
names, insignia, trademarks and descriptive material as shall have first
received written approval of the Landlord as to type, size, color, location,
copy nature and display qualities.
27. AUCTIONS. Tenant shall not conduct or permit to be conducted any
sale by auction in, upon or from the Premises whether said auction be voluntary,
involuntary, pursuant to any assignment for the payment of creditors or pursuant
to any bankruptcy or other insolvency proceeding.
28. GENERAL PROVISIONS.
(I) Plats and Riders. Clauses, plats, riders and addendums, if any,
affixed to this Lease are a part hereof.
(II) Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding default by Tenant
of any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding default at the time of acceptance of such rent.
(III) Joint Obligation. If there be more than one Tenant the obligation
hereunder imposed shall be joint and several.
(IV) Marginal Headings. The marginal headings and article titles to
the articles of this Lease are not a part of the Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(V) Time. Time is of the essence of this Lease and each and all of
its provisions in which performance is a factor.
(VI) Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to, bind and
benefit the heirs, successors, executors, administrators and assigns of the
parties hereto.
(VII) Recordation. Neither Landlord nor Tenant shall record this Lease,
but a short form memorandum hereof may be recorded at the request of Landlord.
(VIII) Late Charges. Tenant hereby acknowledges that late payments by
Tenant to Landlord of rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the premises.
Accordingly, if any installment of rent or any sum due from Tenant shall not be
received by Landlord or Landlord's designee within five (5) days after its due
date, then Tenant shall pay to Landlord a late charge equal to the maximum
amount permitted by law (and in the absence of any governing law, ten percent of
such overdue amount), plus any attorney's fees incurred by Landlord by reason of
Tenant's failure to pay rent and/or other charges when due hereunder. The
parties hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Landlord will incur by reason of the late payment by
Tenant. Acceptance of such late charges by the Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, not
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
(IX) Prior Agreements. This Lease contains all of the agreements of
the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreements or understanding pertaining to any such matters
shall be effective for any purpose. No provision of this Lease may be amended or
added to except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.
(X) Inability to Perform. This Lease and the obligations of the
Tenant hereunder shall not be affected or impaired because the Landlord is
unable to fulfill any of its obligations hereunder or is delayed in doing so, if
such inability or delay is caused by reason of strike, labor troubles, acts of
God, or any other cause beyond the reasonable control of the Landlord.
(XI) Partial Invalidity. Any provision of this Lease which shall prove
to be invalid, void, or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provision shall remain in full force and
effect.
(XII) Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, whenever possible, be cumulative with all other
remedies at law or in equity.
(XIII) Choice of Law. This Lease shall be governed by the laws of the
State in which the Premises are located.
(XIV) Attorney's Fees. In the event of any action or proceeding brought
by either party against the other under this Lease the prevailing party shall be
entitled to recover for the fees of its attorney in such action or proceeding,
including costs of appeal, if any, in such amount as the court may adjudge
reasonable as attorney's fees. In addition, should it be necessary for Landlord
to employ legal counsel to enforce any of the provisions herein contained,
Tenant agrees to pay all attorney's fees and court costs reasonably incurred.
(XV) Sale of Premises by Landlord. In the event of any sale of the
Premises by Landlord, Landlord shall be and is hereby entirely freed and
relieved of all liability under any and all of its covenants and obligations
contained in or derived from this Lease arising out of any act, occurrence or
omission occurring after the consummation of such sale; and the purchaser, at
such sale or any subsequent sale of the Premises shall be deemed, without any
further agreement between the parties or their successors in interest or between
the parties and any such purchaser to have assumed and agreed to carry out any
and all of the covenants and obligations of the Landlord under this Lease.
(XVI) Subordination, Attornment. This Lease, and all of Tenant's rights
hereunder, are and shall be subject and subordinate to the lien of any deed of
trust or mortgage (and any modifications, replacements, or refinancing thereof)
now or hereafter encumbering the Premises,and the rights of the beneficiary of
such deed of trust or mortgage. Upon request of the Landlord, Tenant will in
writing confirm the subordination of its rights hereunder to the lien of any
such mortgage or deed of trust, and to all advances made or hereafter to be
made upon the security thereof.
In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of trust
made by the Landlord covering the Premises, the Tenant shall at the election of
the foreclosure purchaser, attorn to the purchaser upon any such foreclosure or
sale and recognize such purchaser as the Landlord under this Lease.
(XVII) Notices. All notices are demands which may or are to be required
or permitted to be given by either party on the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
certified mail with a return receipt, postage prepaid, addressed to the Tenant
at the Premises, and to the address herein below, or to such other places as
Tenant may from time to time designate in a notice to the Landlord. All notices
and demands by the Tenant to the Landlord shall be sent by certified mail with a
return receipt, postage prepaid, addressed to the Landlord at the address set
forth herein, or to such other person or place as the Landlord may from time to
time designate in a notice to the Tenant.
To Landlord at: 1650 State Farm Blvd., Charlottesville, VA 22911
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To Tenant at: 1650 State Farm Blvd., Charlottesville, VA 22911
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(XVIII) Tenant's Statement. Tenant shall at any time and from time to
time, upon not less than three days prior written notice from Landlord, execute,
acknowledge and deliver to Landlord a statement in writing (a) certifying that
this Lease is unmodified and in full force and effect (or, if modified, stating
the nature of such modification and certifying that this Lease as so modified is
in full force and effect), and the date to which the rental and other charges
are paid in advance, if any, and (b) acknowledge that Tenant has accepted the
Premises and that Landlord has performed all obligation of an inducement nature
to be performed by it, (c) acknowledge that there are not, to Tenant's
knowledge, any uncured defaults on the part of the Landlord hereunder, or
specifying such defaults if any are claimed, (d) setting forth the commencement
and expiration of the term hereof and (e) setting forth such other items as may
be requested by Landlord. Any such statement may be relied upon by the
prospective purchaser or encumbrancer of all or any portion of the real property
of which the Premises are a part.
29. The sole execution of this Lease by Tenant shall be an offer to
Landlord to enter into an agreement, and the terms contained herein shall not
bind the Landlord until the Landlord has executed this Lease.
Signed, sealed and delivered in the Presence of: LANDLORD:
- ------------------------------------------------ By: /s/ Robert S. Reid
--------------------------
- ------------------------------------------------ By: Robert S. Reid
--------------------------
- ------------------------------------------------ TENANT:
- ------------------------------------------------ By: /s/ Craig A. Winn
--------------------------
- ------------------------------------------------ By: Craig A. Winn
--------------------------
LEASE
THIS LEASE AGREEMENT made by and between PRESTON O. STALLINGS (hereinafter
called "Lessor"), and VALUE AMERICA, INC. (hereinafter called "Lessee"), TRADING
AS SAME.
W I T N E S S E T H
The real property or leasehold estate on the real property located at 2340
COMMONWEALTH DRIVE, CHARLOTTESVILLE, VA, as the same may be modified from time
to time pursuant to hereof.
1. PREMISES. That portion of the building designated Suite 202 consisting of
1175 Sq. Ft. of "leasable space" on the THIRD floor. Leasable space, as herein
defined, excludes stairwells and elevator.
2. COMMENCEMENT DATE. JANUARY 15, 1998. Immediate occupancy upon proof of
insurance.
3. TERM. A period of ONE YEAR following (a) the Commencement Date, or (b) if the
Commencement Date is not the first day of a month, the first day of the month
following the month in which the Commencement Date occurs or as said period may
be extended by any options to extend herein granted.
4. RENTAL AMOUNT. The fixed rent payable by Lessee during the term in monthly
installments in advance without notice or demand as follows:
$1077.03 per month or $12,925.00 per year
Rent for the month of January, 1998 will be pro-rated. The total amount
due upon occupancy is rent of $538.54 plus security deposit of $1,077.03 for a
sum of $1,615.57.
5. MORTGAGE ENCUMBERING FEE. Lessor at Lessor's expense shall have the right to
secure a first mortgage encumbering the property containing the demised premises
from a bank, insurance company or other recognized institutional lender. It is
expressly agreed that this lease is and shall be subordinate to such mortgage.
Lessee agrees to execute such instruments evidencing this subordination and such
estoppel certificates as may be reasonably required by the mortgage and if the
holder of any such mortgage shall thereafter succeed the rights of Lessor under
this lease, whether through possession or foreclosure action, or otherwise,
Lessee shall attorn to and recognize such successor as Lessee's Lessor under
this lease.
6. PERMITTED USES. Photography Studio and Sound Studio
7. BROKER'S NAME AND ADDRESS. REAL ESTATE III COMMERCIAL PROPERTIES, INC., P. O.
BOX 8186, CHARLOTTESVILLE, VIRGINIA 22906. Brokerage fee of three percent (3%)
of the gross lease amount will be due and payable to Real Estate III Commercial
Properties, Inc. upon occupancy by the Lessee. Should the Lessee continue to
occupy the space through January 31, 2000, a second brokerage fee of three
percent (3%) of the gross lease amount for the second year will be due and
payable on February 1, 2000.
8. PAYMENT DISPUTE. In the event that Lessor and Lessee dispute a payment due,
Lessor and Lessee agree that the disputed amount will be deposited in an
interest bearing account held by a mutually agreeable third party as escrow
agent until the dispute is settled. The prevailing party will receive such
balance in the account, including interest, in accordance with the terms of
settlement.
9. ASSIGNING AND SUBLETTING. Lessee may not assign this lease or sublet any
portion of the premises without the prior written consent of Lessor which will
not be unreasonably withheld, except to a company under common control or
ownership with Lessee in which case Lessee will give Lessor prompt written
notification of the same.
10. MAINTENANCE AND REPAIRS. Lessor, at its own expense, will put the premises
in good order and repair on or before the commencement of this lease and subject
to Lessee's inspection. Lessor, at its own expense, will maintain all structural
elements of the premises, the plumbing, electric, heating, air conditioning and
other utility lines servicing the premises, and the walls, roof, doors, and
windows of the premises. Lessee, at its own expense, will otherwise maintain the
premises in good and safe condition and will surrender the premises, at the
termination of this lease, in as good condition as received, normal wear and
tear excepted. Lessor shall be responsible for maintaining the HVAC units in
working condition.
Lessor, at its own expense, will maintain the building's exterior, including but
not limited to landscaping, parking, snow removal, lighting, in a safe and
serviceable condition.
<PAGE>
11. SERVICES AND UTILITIES. Lessor to pay water and sewer and interior common
area maintenance. Lessee to pay all other utility and janitorial fees for the
demised space.
12. LOSS OF SERVICE. In the event that services or utilities are interrupted for
a period of longer than seven (7) days, which interruption is not due to
Lessee's negligence, and Lessee's business is interrupted, Lessee will receive a
rent abatement for the entire period of interruption. In the event that such
interruption remains for over thirty (30) days, Lessee shall have the right to
terminate this lease, upon provision of written notice to Lessor.
13. ENTRY, INSPECTION, AND REPAIRS. Lessee will permit Lessor or Lessor's agents
to enter the premises at reasonable times during the normal business day from
9:00 a.m. to 5:00 p.m. and upon reasonable notice, for the purpose of
inspection, repairs. Within ninety (90) days of the termination of this lease,
Lessee will allow Lessor access at reasonable times, and upon reasonable notice,
to exhibit the premises for purposes of sale or rental. In the event of an
emergency, Lessor may enter the premises without prior notice.
14. INDEMNIFICATION. Lessor will not be liable for any damage or injury caused
solely by Lessee on the premises. Notwithstanding anything contained in this
lease to the contrary, Lessee will indemnify and hold Lessor harmless for any
claims or damages caused solely by an act or omission of Lessee, its agents or
employees that occurs on the premises, and Lessor will indemnify and hold
harmless Lessee for any claims for damages caused by and act or omission of
Lessor, its agents or employees.
15. CONDEMNATION OR EMINENT DOMAIN. If any part of the premises is taken or
condemned for public use or purpose then the term will cease from the date of
the taking or condemnation and Lessee will have no further obligation to pay
rent after such date. All sums which may be payable on account of condemnation
will belong to Lessor, provided however, that Lessee will be entitled to retain
any amount awarded to it for the value of the leasehold, loss of business,
moving expenses and any other damages and/or compensation as provided in law or
equity.
16. BANKRUPTCY. If before or during the term, a petition in bankruptcy is filed
by or against Lessor or Lessee and is not dismissed within ninety (90) days, or
if either party makes an assignment for the benefit of creditors or is
adjudicated bankrupt ("Bankrupt Party"), this lease will terminate, at the
option of the other party, after ten (10) days written notice to the bankrupt
party.
17. CASUALTY. If any part of the premises are damaged by fire or other cause to
the extent that the Premises are rendered untenable and cannot be reasonably
rendered in as good condition as existed prior to the damage within sixty (60)
days from the date of the damage, this lease may be terminated by Lessee by
giving written notice to Lessor and the rent will be abated from the date of
damage. If the damage is not such as to permit a termination of this lease as
described above, of if Lessee does not terminate this lease, Lessor will
promptly repair the premises to its original condition. The obligation for rent
will be abated during the period that the premises are being repaired. In the
event of fire or other casualty, Lessor shall look solely to Lessor's insurance
for payment of damages and replacement. In the event that insurance does not
adequately cover damages, Lessee shall be liable to the extent that the casualty
or fire was due to its acts or omissions and, in such event, Lessee's liability
shall be limited to the insurance coverage required in paragraph 18 of this
Agreement.
18. LIABILITY FOR NEGLIGENCE AND INSURANCE. (A) Lessor shall not be liable for
any damage, except for negligent acts of Lessor or its employees, to persons or
property that Lessee or assigns or any other person or persons may sustain on
or about the premises, whether caused by the use of the premises, water,
electricity, gas, heating or air conditioning equipment, or otherwise. The
premises are to be used by Lessee only in accordance with the terms of this
lease, and it is the intention hereof that Lessee shall be required to take the
same precautions to protect persons and property, and to have the same
responsibilities with respect to the demised premises as would be expected of
Lessee if the demised premises were its own. To this end, Lessee agrees, at its
own expense, to maintain broad form public liability insurance for the
protection of Lessor, as well as itself, in an amount of not less than
$1,000,000/$2,000,000 plus $100,000 property damage. A copy of the policy and
endorsement covering Lessor shall be furnished to Lessor by Lessee upon request.
Lessor, at its own expense, will pay casualty insurance premiums on the building
of which the premises are part in an amount sufficient to cover the entire
building including building glass. Lessor will provide Lessee with proof of such
insurance upon Lessee's demand. Any insurance companies obtained must be duly
licensed by the Insurance Department of the State of Virginia. To the maximum
extent permitted by their respective insurance policies, Lessee and Lessor, for
the benefit of each other, waive any and all rights of subrogation.
<PAGE>
19. POSSESSION. If Lessor is unable to deliver possession of the Premises at the
commencement of the term, Lessee will not be liable for any rent until
possession is delivered. Lessee may terminate this lease if possession is not
delivered within thirty (30) days of the commencement of the term.
20. LESSOR'S REMEDIES. In the event the monthly rental provided above remains
unpaid for fifteen (15) days after the due date, or in the event Lessee has not
properly corrected any other defaults under this lease after thirty (30) days
written notice from Lessor to do so, then Lessor will have the option of
terminating this lease or pursuing any other remedies which Lessor may have at
law or equity or under any state statute or regulation. The election by Lessor
of any remedy afforded Lessor will not be deemed a waiver of any other remedies
available to Lessor, Lessor's remedies being cumulative.
21. LESSEE'S REMEDIES. Upon default by Lessor, in the event of a breach of this
lease by Lessor, and Lessor's failure to cure such breach within fifteen (15)
days of Lessee's written notice of breach to Lessor, Lessee will have the option
of (1) taking reasonable steps to cure such breach, (2) terminating this lease
upon at least ten (10) days written notice to Lessor, and/or (3) pursuing any
other remedies which Lessee may have at law or equity or under any such state
statute or regulation. Should Lessee elect to cure Lessor's breach, Lessee may
offset the costs of cure incurred by Lessee against future sums due Lessor under
this lease and/or submit an invoice to Lessor specifying the amount due Lessee,
which amount Lessor will pay within ten (10) days of receipt of Lessee's
invoice. The election by Lessee of any remedy afforded Lessee will not be deemed
a waiver of any other remedies available to Lessee, Lessee's remedies being
cumulative.
22. WAIVER. No failure by Lessor to insist upon the strict performance of any
covenant, agreement, term or condition of this lease or to exercise any right or
remedy consequent upon a breach thereof, and no acceptance of full or partial
rent during the continuance of any such breach, shall constitute a waiver of any
such breach or of such covenant, agreement, term or condition. No covenant,
agreement, term or condition of this lease to be performed or complied with by
Lessee, and no breach thereof, shall be waived, altered of modified except by a
written instrument executed by Lessor. No waiver of any breach shall affect or
alter this lease, but each and every covenant, agreement, term and condition of
this lease shall continue in full force and effect with respect to any other
then-existing or subsequent breach thereof.
23. CONSENTS. Any consent required of either Lessor or Lessee will not be
unreasonably withheld.
24. OPTION TO RENEW. Lessor grants to Lessee an option to renew this lease on a
month to month term with the renewal rate the same as exists at the end of the
current term plus four percent (4%), and with all other terms and conditions of
the renewal lease to be the same as those contained in this lease. To terminate
this lease either Lessor or Lessee must give written notice of its intention to
terminate at least ninety (90) days prior to the date of termination.
25. HOLDING OVER. Any holding over after the expiration of this lease, with the
consent of Lessor, shall be construed as a month-to-month tenancy at a rental
equal to the rent being paid at the end of the last lease term plus five percent
(5%).
26. QUIET ENJOYMENT. Lessor hereby covenants that if Lessee shall pay the rent
herein reserved and faithfully perform its other obligations hereunder, Lessee
shall, during the term hereby demised or any extension thereof, freely,
peaceably and quietly enjoy and occupy the full possession of the demised
premises without molestation, hindrance, eviction or disturbance by Lessor.
27. BINDING EFFECT. All covenants, conditions, agreements and undertakings
contained in this lease shall extend to and be binding upon the respective
heirs, successors and assigns of the respective parties hereto the same as if
they were in every case named and expressed, and the same shall be construed as
covenants running with the land.
28. RULES, REGULATIONS, STIPULATIONS. Lessor and Lessee covenant that the
following rules, regulations and stipulations shall be faithfully observed and
performed by Lessee (including its employees, agents, customers and visitors):
(a) The entry, corridors and stairways outside of the leased space shall
not be obstructed by Lessee nor used by it for any other purpose than ingress or
egress to and from its offices; nor shall employees of Lessee loiter or
congregate therein.
(b) The floors and windows that reflect or admit light into passageways,
or into any place in the building other than the demised premises shall not be
covered
<PAGE>
or obstructed by Lessee. The water closets and other water apparatus shall not
be used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, or other substances shall be thrown therein.
(c) Lessee shall not do or permit anything to be done in the building,
or bring or keep anything therein, which will or may increase the rate of fire
insurance on the building or on property kept therein; or which will permit
objectionable sounds or odors to escape beyond the interior of the demised
premises; or which obstruct or interfere with the rights of other Lessees or in
any way injure or annoy them; or which conflict with the laws relating to fires,
or with any insurance policy upon the building or any part thereof, or conflict
with any of the rules and ordinances of the governing fire and/or health
authorities. Without limiting the generality of the foregoing, Lessee shall not
use or permit the use of any apparatus for sound reproduction, transmission or
production including any musical instrument in such manner that the sound so
reproduced, transmitted or produced shall be audible beyond the interior of the
demised premises.
(d) No animals shall be kept in or about the demised premises.
(e) If Lessee desires special utility installations of any kind, they
shall be installed with the prior approval of Lessor, who will direct such
installations, with all costs thereof to be paid by Lessee, whether the actual
installation is performed by Lessor or an independent contractor.
(f) Lessee agrees to keep all windows and exterior doors closed in the
demised premises in order to assure properly functioning of heating and air
conditioning systems and to prevent damage to the demised premises.
(g) Lessor reserves the right to make such further reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the premises and for the preservation of good order
therein.
29. LESSEE IMPROVEMENT. Must be approved in writing by Lessor.
30. SIGNS. Lessee shall neither place, nor cause, nor allow to be placed any
signs or signs of any nature whatsoever at, in, or about the demised premises,
without written consent of Lessor. Provided however that Lesser shall provide
exterior signable and interior directory identifying Lessee's offices to the
public of a size commensurate with the percentage of leased space occupied by
Lessee and in a style agreeable to Lessor and Lessee.
31. SECURITY DEPOSIT. A security deposit shall be One Thousand Seventy Seven and
03/100 Dollars ($1,077.03). Said deposit shall be held by Lessor to insure the
full performance of all of Lessee's obligations hereunder. Said deposit shall be
returned to Lessee at the termination of this lease if it has fully and
faithfully performed its obligations and nothing herein shall entitle Lessee to
a credit of the deposit against any delinquent rent account.
32. SECURITY. Lessor shall permit Lessee to restrict public access to the
premises subject to applicable fire safety codes as Lessee deems necessary for
the security of its business. This may include special devices at stairwell
doors and in the elevator of the building.
33. ENTIRE AGREEMENT. This lease embodies the entire agreement of the parties
hereto and no changes or modification to this lease shall be effective unless in
writing and signed by all the parties hereto or their respective successors in
interest.
34. NOTICES: All notices required under this lease shall be deemed to be
properly served when posted by certified United States mail, postage prepaid,
return receipt requested, addressed to the party to whom directed at its
last-known mailing address.
To Lessor at: P. O. Box 6249
Charlottesville, VA 22906
To Lessee at: 2300 Commonwealth Drive
Charlottesville, VA 22901
Lessor: Telephone (804) 296-6138
---------------
Lessee: Telephone (804) 970-7880 I.R.S. Tax ID Number 54-
--------------- --------------
Rental Payment Address: P. O. Box 6249, Charlottesville, VA 22906
-------------------------------------------------------
END OF LEASE
SIGNATURES FOLLOW ON NEXT PAGE
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Lease as of the
day and year first written above.
LESSOR: PRESTON O. STALLINGS
--------------------------------
BY: /s/ Preston O. Stallings
--------------------------------
Preston O. Stallings
DATE: --------------------------------
LESSEE: VALUE AMERICA, INC.
--------------------------------
BY: /s/ Dean M. Johnson
--------------------------------
Dean Johnson
TITLE: EVP & CFO
--------------------------------
DATE: 1/9/98
--------------------------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is effective as of the 1st day of August,
1997, by and between VALUE AMERICA, INC., a Nevada corporation (the "Company"),
and John L. Motley (the "Executive").
In consideration of the mutual convenants contained herein, the Company
and the Executive agree as follows:
1. Employment. The Company agrees to employ the Executive and the
Executive agrees to continue in the employ of the Company on the terms and
conditions hereinafter set forth.
2. Capacity. Consistent with the "Extent of Service" provisions in
Section 5, the Executive shall serve the Company on a part-time basis in such
positions or offices with such authority, titles and duties as may be prescribed
from time to time by the President, Chief Executive Officer or Board of
Directors (the "Board") of the Company, and shall serve the Company in such
other or additional offices in which he may be requested to serve from time to
time. By executing this Agreement, the parties hereby acknowledge that the
Executive has performed services for the Company beginning on or before the
Effective Date in a manner consistent with this Section 2 and Section 5.
3. Effective Date and Term. The commencement date of this Agreement
shall be August 1, 1997 (the "Commencement Date"). Subject to the provisions of
Section 6, the term of the Executive's employment hereunder shall be for two
years from the Commencement Date; provided, however, that the term shall be
extended automatically for an additional period of one year commencing on the
second anniversary of the Commencement Date and on each subsequent anniversary
thereafter, unless either the Executive or the Company gives written notice to
the other, at least thirty (30) days prior to the date of any such anniversary,
of such party's election not to extend the term of this Agreement. The last day
of such term, as so extended from time to time, is herein sometimes referred to
as the "Expiration Date."
4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
Agreement, the Company shall pay the Executive a total salary at the rate of
$12,000 per year, commencing effective August 1, 1997. The Executive's salary
shall be reviewed at least annually and may be increased (but not decreased)
based upon the evaluation of the Executive's performance and the compensation
policies of the Company in effect at the time of each such review. Upon the
execution of this Agreement by the Executive, the Company shall pay to the
Executive within a reasonable period of time thereafter his salary for the
first three months of this Agreement ($3,000). The Executive's salary for all
subsequent time periods shall be payable in periodic installments in accordance
with the Company's usual payroll practices.
(b) Other Incentives. The Company may, but shall not be obligated
to, provide the Executive with such other performance-based compensation,
benefits or incentives as shall be established, amended or thereafter terminated
from time to time by and in the sole discretion of the Board or the compensation
committee thereof, and in considering any such compensation, benefits or
incentives, the Board or such committee may consider such factors as the
Executive's performance, productivity and contribution to the Company's profit-
ability.
5. Extent of Service. During his employment hereunder, the Executive
shall devote no more than five (5) hours per month to the performance of his
duties hereunder and may devote such additional time and efforts as the
Executive determines, in his sole discretion, are necessary for the effective
advancement of the Company's interests. The Executive may engage in any other
business or personal activities during his employment hereunder; provided,
however, that the Executive shall not engage in any business activity that
directly competes with the Company in the Protected Business, as defined in
the Developments, Noncompete and Nondisclosure Agreement incorporated into this
Agreement pursuant to Section 7.
6. Termination.
Notwithstanding the provisions of Section 3, the Executive's employment
hereunder shall terminate under the following circumstances and shall be subject
to the following provisions:
(a) Death. In the event of the Executive's death during the
Executive's employment hereunder, the Executive's employment shall terminate on
the date of his death and the Executive or his estate shall be entitled to no
further compensation or benefits under this Agreement; provided, however, that
the Company shall continue to pay an amount equal to the Executive's salary
(not including any bonus other than any Bonus Amount payable under Section
4(b)hereof) to the Executive's beneficiary designated in writing to the Company
prior to his death (or to his estate, if he fails to make such designation)
for a period of one month after the date of the Executive's death, at the
salary rate in effect on the date of his death, said payments to be made on the
same periodic dates as salary payments would have been made to the Executive
had he not died.
(b) Termination by the Company for Cause. The Executive's
employment hereunder may be terminated without further liability on the part of
the Company effective immediately by the Company (acting through its President,
Chief Executive Officer or Board), for Cause by written notice to the
Executive setting forth in reasonable detail the nature of such Cause. Upon
termination of employment by the Company for Cause, the Executive shall be
entitled to no further compensation or benefits under this Agreement. Only
the following shall constitute "Cause" for such termination:
(i) gross incompetence, gross negligence, willful misconduct
in office or breach of a material fiduciary duty owed to the Company, or any
subsidiary or affiliate thereof;
(ii) conviction of a felony, a crime of moral turpitude or
commission of an act of embezzlement or fraud against the Company, or any
subsidiary or affiliate thereof;
(iii) any material breach by the Executive of a material term
of this Agreement or any other agreement between the Executive and the Company,
including without limitation material failure to perform a substantial portion
of his duties and responsibilities hereunder; continued failure, after
reasonable notice from the Company, to adhere to or satisfy any production,
performance or other standards established by the Company and communicated to
the Executive; or unauthorized use or disclosure of Confidential Information
or trade secrets of the Company (all as consistent with the "Extent of Service"
prescribed in Section 5); or
(iv) dishonesty or fraud of the Executive with respect to the
Company, or any subsidiary or affiliate thereof.
(c) Termination by the Executive. The Executive may terminate his
employment hereunder by written notice to the President, Chief Executive Officer
or Board effective thirty (30) days after receipt of such notice. Upon termina-
tion of employment by the Executive, the Executive shall be entitled to no
further compensation or benefits under this Agreement; except as otherwise
provided in other agreements between the Executive and the Company (e.g.,
Incentive Stock Option Agreement).
(d) Termination by the Company Without Cause. The Executive's
employment with the Company may be terminated without Cause by the Company
(acting through its President, Chief Executive Officer or Board), effective
immediately by written notice to the Executive.
(e) No Termination Benefits. In the event of any termination of the
Executive's employment hereunder for any reason (including without limitation
pursuant to Sections 3, 6(a), 6(b), 6(c), or 6 (d)), the Executive shall not
be entitled to any salary, bonus, severance pay or benefits not otherwise
specified herein.
(f) Litigation and Regulatory Cooperation. The Executive shall
reasonably cooperate with the Company in the defense or prosecution of any
claims or actions now in existence or which may be brought in the future
against or on behalf of the Company, which relate to events or occurrences that
transpired while the Executive was employed by the Company. The Executive's
reasonable cooperation in connection with such claims or actions shall include,
but not be limited to, being reasonably available to meet with counsel to
prepare for discovery or trial and to act as a witness on behalf of the Company,
at mutually convenient times and locations. The Executive shall also reasonably
cooperate with the Company in connection with any examination or review of any
federal or state regulatory authority as any such examination or review relates
to events or occurrences that transpired while the Executive was employed by the
Company. If such cooperation is required after the Executive ceases to be
employed by the Company, the Company shall pay the Executive for such
cooperation a fee of twenty five dollars ($25.00) per hour, payable monthly in
arrears, and will reimburse the Executive for any reasonable out-of-pocket
expenses incurred in connection therewith.
7. Developments. Noncompete and Confidential Information. Simultaneous
with his execution of this Agreement, and as a material part of the
consideration for the Company's entering into this Agreement, the Executive
agrees to execute, comply with the terms of and become bound by a Developments,
Noncompete and Nondisclosure Agreement with the Company the terms of which (a)
are incorporated into this Agreement in their entirety, (b) are deemed for all
purposes to be a part of this Agreement, and (c) shall survive any termination
of this Agreement.
8. Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or by which he is bound, and that he is not subject to any covenants
against competition or similar covenants which would affect the performance of
his obligations hereunder.
9. Withholding. All payments made by the Company under this Agreement
shall be net of any tax or other amounts required to be withheld by the Company
under applicable law.
10. Arbitration of Disputes. Any controversy or claim arising out of or
relating to the employment relationship between the Executive and the Company
shall be settled by arbitration in accordance with the laws of the Commonwealth
of Virginia by three arbitrators, one of whom shall be appointed by the Company,
one by the Executive and the third by the first two arbitrators. If the first
two arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Richmond. Such arbitration shall be conducted in the City of
Richmond in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this Section 10. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The party or parties against
whom the arbitrators shall render an award shall pay the other party's or
parties' reasonable attorneys' fees and other reasonable costs and expenses in
connection with the enforcement of its or their rights under this Agreement
(including the enforcement of any arbitration award in court), unless and to the
extent the arbitrators shall determine that under the circumstances recovery by
the prevailing party or parties of all or a part of any such fees and costs and
expenses would be unjust.
11. Assignment: Successors and Assigns, etc. Neither the Company nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party or parties; provided, however, that the Company may assign its rights
under this Agreement without the consent of the Executive in the event that the
Company shall hereafter effect a reorganization, consolidation with or merges
into any other Person, or transfer all or substantially all of its properties or
assets to any other Person. This Agreement shall inure to the benefit of and be
binding upon the Company and the Executive, their respective successors,
subsidiaries, affiliates, executors, administrators, heirs and permitted
assigns. In the event of the Executive's death prior to the completion by the
Company of all payments due him under this Agreement, the Company shall continue
such payments to the Executive's beneficiary designated in writing to the
Company prior to his death (or to his estate, if he fails to make such
designation).
12. Enforceability. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
13. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party or parties. The failure of any
party to require the performance of any term or obligation of this Agreement, or
the waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
14. Notices. Any notices, request, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid (in which
case notice shall be deemed to have been given on the third day after mailing),
or by overnight delivery by a reliable overnight courier service (in which case
notice shall be deemed to have been given on the day after delivery to such
courier service) to the Executive at the last address the Executive has filed in
writing with the Company or, in the case of the Company, at its main offices,
attention of its President or Chief Executive Officer.
15. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Company.
16. Governing Law. This is a Virginia contract and shall be construed
under and be governed in all respects by the laws of the Commonwealth of
Virginia.
17. Entire Agreement. This Agreement, the Developments, Noncompete and
Nondisclosure Agreement referred to in Section 7, and any Incentive Stock Option
Agreement entered into by the Company and the Executive constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous written or oral agreements or
understandings with respect to the subject matter hereof.
18. Legal Counsel. Executive has reviewed the contents of this Agreement
and fully understands its terms. Executive acknowledges that he is fully aware
of his right to the advice of counsel independent from that of the Company, that
the Firm has advised him of such right and disclosed to him the risks in not
seeking such independent advice, and that he understands the potentially adverse
interests of the parties with respect to this Agreement. Executive further
acknowledges that no representations have been made with respect to the income
or estate tax or other consequences of this Agreement to him and that he has
been advised of the importance of seeking independent advice of counsel with
respect to such consequences.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, and by the Executive, and is effective as of the date
first above written.
VALUE AMERICA,INC.
/s/ Craig Winn
------------------
By: Craig Winn
CEO
Date:
/s/ John L. Motley
------------------
John L. Motley
Executive
Date: Dec. 5 97
Address: 7703 Carlton Place
McLean, VA 22102
PROFESSIONAL SERVICES AGREEMENT
_____________________________________ www.bdsinc.com
The Professional Services Agreement by and between Business Data Services, Inc.
(BDS) and Value America ("Client") sets forth the terms and conditions under
which BDS shall provide certain professional services.
1. Scope of Services
All services to be provided hereunder shall be as authorized and defined in
mutually agreed upon Attachments which shall be executed by the parties and
shall constitute a part of this Agreement and shall be subject to the terms and
conditions hereof. This Agreement and the Attachments, whenever reasonable,
shall be construed as being consistent; however, in the event such construction
is unreasonable, the provisions of the Attachments shall control.
2. Payment
The applicable rates, charges and invoicing information for each task authorized
hereunder shall be as specified in the applicable Attachment.
3. Travel
Any and all travel and out-of-pocket expenses incurred by BDS or Client and any
taxes applicable to this Agreement shall be borne by the Client. BDS' policy
for travel related expenses is:
A. Any distance traveled by a BDS consultant that is less than 50
minutes from the consultant's home residence will not be charged to
Client.
B. All other travel time incurred by a BDS Consultant will be billed to
the Client at one half the normal hourly rate.
4. Confidentiality of Data
A. Both parties acknowledge that in connection with the performance of
its duties hereunder it may be provided with or have access to
written information and data which is proprietary to the other and
which is so marked as proprietary. Both parties agree to keep
confidential all such information and data and shall not disclose
same either in whole or in part to any third party without the other
party's written consent.
B. Both parties agree that without the other's prior written consent, it
will not copy or reproduce any information or data or sell, assign,
disclose, disseminate, give or transfer any such information or data
or any portion thereof to any third party, at any time whether before
or after termination of this Agreement.
C. Both parties further agree that upon termination of this Agreement or
completion of any task assigned hereunder, it will return all
applicable
<PAGE>
information, data, related notes and work papers belonging to the
other.
D. BDS reserves the right to use Client name/logo in all of its
sales/marketing materials. BDS will, only with prior Client consent,
use Client name/logo in BDS press releases. Your company will be
asked to provide a public relations contact person for such purposes,
and partner with us in developing public relations information, where
possible.
5. BDS Representations
A. BDS represents that it shall at all times exert its best efforts to
diligently perform its assigned duties under this Agreement.
B. BDS warrants that all services under this Agreement shall be
performed in a professional and workmanlike manner.
C. BDS represents that all code developed for Client becomes the
property of the Client for whom it was developed and as such, Client
has unlimited usage of the developed applications.
D. Except as provided above and except as provided in the applicable
Software License Agreement with respect to the operation of any
software product, BDS MAKES NO WARRANTIES OR REPRESENTATIONS, EXPRESS
OR IMPLIED, IN FACT, OR IN LAW, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6. Termination
This Agreement or any Attachment hereunder may be terminated in the following
manner:
A. Each Attachment shall automatically terminate upon completion of all
work required to be performed thereunder.
B. Either party may terminate this Agreement at any time, provided an
open dialogue has been established to address issues, pertaining
to the project and/or the relationship in general.
C. By either party upon the default of the other party to perform any of
its responsibilities and obligations hereunder by giving the other
party written notice thereof, provided that such default has not been
corrected within the thirty (30) day period following receipt of such
notice.
D. By mutual consent of the parties.
<PAGE>
7. Default
A. Any of the following shall constitute a default by either party:
1. Failure or breach of any warranty
2. Failure to timely perform any duty, obligation or undertaking
required in this Agreement and further provided such failure
to timely perform is not caused by the other party, and
3. If any warranty, representation, statement or response made in
writing in connection with the Agreement is untrue in any
material respect on the date as of which it was made.
B. In the event of a default by either party and provided the default is
not cured pursuant to paragraph 6.C., the non-defaulting party shall
have the right, without further notice, to terminate the Agreement
and to exercise any, all or any combination of the remedies available
at law or in equity.
8. Limitation of Liability
BDS' liability under the Agreement for any and all damages, whether direct or
indirect, including consequential, shall be limited to the amount of charges to
be paid to BDS under this Agreement by Client for the services which gave rise
to such damages.
9. Independent Contractor
It is specifically agreed by the parties that the relationship of BDS to Client
is that of an Independent Contractor, and BDS shall not be entitled to any of
the employee benefits provided by Client to its employees.
10. Nonsolicitation of Employees
During the period this Agreement is in effect and for a period of six (6) months
thereafter, each party agrees that it will not, without prior written consent of
the other party, solicit the employees of the other party for the purpose of
offering them employment.
11. Nonassignability
This Agreement may not be assigned without the prior written consent of the
other party.
<PAGE>
12. Notices
Any notice required or permitted to be given hereunder shall be sent by prepaid
certified mail, return receipt requested and shall not be deemed to have been
given until received by the other party. Until either party hereto advises the
other party of a change in how notices shall be addressed, all notices shall be
sent to the respective address specified in this Agreement to the attention of
the applicable addressee, if any, noted below:
If to BDS: Vice President of Finance & Human Resources
If to Client: Dean Johnson, CFO
13. Force Majeure
Neither party shall be responsible for delays or failure in performance
resulting from acts beyond its control. Such acts shall include but not be
limited to Acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations, fire, earthquakes or other disasters.
14. Entire Agreement
THIS AGREEMENT AND THE ATTACHMENTS ISSUED HEREUNDER CONSTITUTE THE COMPLETE AND
EXCLUSIVE STATEMENT OF TERMS AND CONDITIONS BETWEEN BDS AND CLIENT COVERING THE
PERFORMANCE HEREOF. THIS AGREEMENT OR ANY ATTACHMENT MAY BE MODIFIED ONLY BY A
WRITTEN INSTRUMENT DULY SIGNED BY AN AUTHORIZED REPRESENTATIVE OF BDS AND
CLIENT.
This Agreement shall be construed in accordance with the laws of the State of
Connecticut.
The terms of this Agreement are agreed to by:
Business Data Services, Inc. Value America
78 Eastern Boulevard 2300 Commonwealth Drive
Glastonbury, CT 06033 Charlottesville, VA 22901
BY:___________________ BY: /s/ Craig A. Winn
_____________________
TITLE:_________________ TITLE: CEO
__________________
DATE:___________________ DATE: 2/11/98
___________________
LOAN AGREEMENT
GENERAL TERMS
BORROWER: Value America, Inc.
AMOUNT: $5,000,000
PURPOSE: Line of Credit to support letters of credit and vendor financing
COMMITMENT FEE: $2,500.00 payable quarterly.
LETTER OF CREDIT FEES: All letters of credit will carry a 0.75% annual fee
(prorated for shorter periods). Minimum letter of credit fee will be $350.00 and
maximum fee will be $10,000.00.
COLLATERAL: Advances under the line and issued letters of credit will be fully
secured by properly margined liquid securities acceptable to the bank.
INTEREST RATE: Interest on any funds advanced will accrue at a rate per annum
of the LIBOR plus 1.75% in effect on each respective day.
REPAYMENT TERMS: Any cash advances under the line will be evidenced by short
term notes (less than 12 months) with interest payable monthly on the first day
of each month.
PREPAYMENT: Borrower shall reserve the right to prepay any notes, in whole or
in part, at any time or times, without penalty and with interest payable only
on the amount of principal so prepaid to the date of such prepayment. Any such
prepayments shall apply to the latest maturing principal installments.
EXPIRATION/RENEWAL: Any Agreement to advance funds under the Agreement shall
expire on May 31, 1999, and the Bank shall have no further obligation to extend
credit.
REQUIREMENTS APPLICABLE TO LOAN
THE BORROWER UNDERSTANDS AND AGREES THAT THE BANK SHALL REQUIRE IN FORM AND
CONTENT SATISFACTORY TO THE BANK AND ITS COUNSEL THE FOLLOWING:
Borrowing Resolution: A Directors' resolution on the Bank's form authorizing
the loan or the guarantee or endorsement thereof and the execution of the loan
documents by the appropriate parties.
Articles of Incorporation, Bylaws: A certified true copy of the articles of
incorporation, bylaws of the corporation.
Legal Opinion: A legal opinion from an attorney acceptable to the Bank to the
effect that the loan documents are valid and binding and enforceable according
to their terms under all applicable laws and regulations and that liquid
collateral may be pledged under the terms of the 5% Cumulative Convertible
Series A Preferred Stock Agreement.
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COVENANTS AND CONDITIONS
Representations by the Borrower: In borrowing hereunder, the Borrower
represents and warrants to the Bank that all information that has been
furnished to the Bank prior to this Agreement being issued is true and accurate
and the Borrower has not failed to disclose any information of a material
nature regarding its business or financial condition and further that there is
no litigation, investigation or proceeding pending or threatened against the
Borrower or any other person liable to the Bank for the repayment of this loan
which may, in any way, adversely affect the financial condition, operation or
prospects of the Borrower or such person.
Advance Procedure: Advances on this loan will be made under individual notes
or letter of credit applications signed by an authorized representative of
the Borrower.
Financial Reporting Requirements: So long as the Borrower is indebted to
the Bank, the Borrower shall submit monthly, within 45 days of the end of
each month, internally prepared financial statements of the Borrower, including
a balance sheet and income statement; and annually, within one hundred twenty
(120) days following the end of the Borrower's fiscal year, a balance sheet
and income statement prepared in accordance with generally accepted
accounting principles on and audited basis by an independent certified public
accountant acceptable to the Bank, including, a balance sheet, income
statement, changes in capital position, and reconciliation of net worth and
including all normal and reasonable financial notes.
Closing Costs and Expenses: The Borrower shall be responsible for paying all
of the Bank's expenses incident to the making and closing of the loan.
Default: Borrower shall be in default under each of the loan documents if it
shall default in the payment or any amounts due and owing under the loans or
should it fail to timely and properly observe, keep or perform any term,
covenant, agreement or condition in any loan document or in any other loan
agreement, promissory note, security agreement, deed of trust, mortgage,
assignment or other contract securing or evidencing payment of any indebtedness
of Borrower to the Bank. Upon the occurrence of any Event of Default under this
Agreement, the Note[s], together with all interest accrued thereon and any
expenses of the Bank in connection therewith, will immediately become due and
payable on demand of the Bank.
Remedies Upon Default: If an Event of Default shall occur, Bank shall have all
rights, powers and remedies available under each of the loan documents as well
as all rights and remedies available at law or in equity.
Cure Period - Borrower will have ten calendar days to cure default under
document repayment terms and thirty calendar days to cure covenant and condition
defaults.
Additional Items: Such other documents and agreements as the Bank or its counsel
may reasonably request, including, but not limited to, an opinion of counsel
to the Borrower and the Guarantor(s), (if any).
Survival: The terms and provisions of this Agreement shall survive the closing
of the loan made hereunder, the delivery of all documents necessary to carry
out the provision of this Agreement, and the funding and making of loans and
disbursements hereunder.
Successor to Bank: The provisions of this Agreement will extend to and be
available to any subsequent holder of a Note, as well as to the Bank.
Amendments and Waivers: The Bank and the Borrower may, from time to time,
enter into written amendments, supplements or modifications to this Agreement,
the Note[s] or the Collateral Documents, and the Bank may execute and deliver
to the Borrower a written instrument waiving, on such terms and
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conditions as the Bank may specify, any of the requirements of this Agreement,
the Note[s] or the Collateral Documents or any Event of Default; provided,
however, that no such waiver will extend to any subsequent or other Event of
Default or impair any right consequent thereon.
Governing Law: This Agreement, the Note[s], the Collateral Documents and all
other loan documents executed in connection with this Agreement will be deemed
to be contracts made under, and for all purposes will be construed in
accordance with, the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed.
JEFFERSON NATIONAL BANK
By /s/ Perrie H. May Date: 3/17/98
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Senior Vice President
VALUE AMERICA, INC.
By /s/ Dean M. Johnson Date: 4/8/98
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Title: CFO & EVP
3
Use for Merchants Which Clear Through Wachovia Bank, N.A.
FIRST DATA MERCHANT SERVICES, CORP./WACHOVIA BANK, N.A.
ASSIGNMENT, PLEDGE AND SUBORDINATION AGREEMENT
This Assignment, Pledge and Subordination Agreement (the "Assignment"),
is made and entered into as of the 16 day of April 1998, by and between First
Data Merchant Services, Corp., a Delaware Corporation with offices at 265 Broad
Hollow Road, Melville, New York 11747 ("FDMS ") and Wachovia Bank, N.A.
("Bank"), a national banking association with its principal place of business at
547 Old Lynchburg Rd., Charlottesville, VA 22903 and Value America, Inc. a
corporation with its principal place of business at 2300 Commonwealth Dr.,
Charlottesville, VA 22901 ("Client").
WHEREAS, FDMS, Bank and Client entered into a certain Sales Agreement,
dated April 10, 1998 (the "Sales Agreement"); and
WHEREAS, the Sales Agreement provides, among other things, that FDMS
and Bank require Client to establish a Reserve Account (the "Reserve Account")
to be held in a Certificate of Deposit in Client's name which will be kept in
FDMS' possession, with the Certificate to be held as a condition of entering
into the Sales Agreement; and
WHEREAS, the Sales Agreement provides, among other things, that Client
irrevocably grants to FDMS and Bank a lien, security interest and right of
setoff in and to any of Client's funds, including but not limited to the Reserve
Account, now or hereafter in the possession of FDMS and/or Bank, and to all
money and amounts now or hereafter due or to become due to Client from FDMS
and/or Bank, together with the proceeds thereof; and
WHEREAS, pursuant to the Sales Agreement, Client agrees to duly execute
and deliver to FDMS this Assignment or such instruments and documents as FDMS
and/or Bank may reasonably request to perfect and confirm the lien, security
interest, setoff rights and subordination rights of FDMS and Bank;
NOW, THEREFORE, for good and valuable consideration, it is agreed as
follows:
1. Client shall immediately establish a Reserve Account in the sum of $
$1,500,000.00 (One Million Five Hundred-Thousand dollars and zero cents),
receipt of which is hereby acknowledged to be placed in a Certificate of Deposit
(or Passbook Savings Account) in Client's name in a financial institution, the
Certificate or Passbook to be kept in FDMS' possession or the possession of its
authorized agents. Client agrees and understands that FDMS or Bank, themselves
or through their authorized agents, shall increase this Reserve by deducting an
additional $ 0 (zero) dollars from Client's bankcard proceeds over the course of
the next sixty (60) days. Said additional amount shall also be placed in a
Certificate of Deposit in Client's name in a financial institution and shall be
kept in FDMS' possession (or in the possession of its authorized agents).
2. The monies transferred shall be under the complete control of FDMS,
Bank and their authorized agents, and Client shall have no rights to manage such
monies or to possess or transfer such monies, except as provided under the terms
of this Assignment.
3. Client hereby grants to FDMS and Bank a first priority lien upon and
a security interest in, and unconditionally assigns, transfers, pledges,
hypothecates, and gives over to FDMS and Bank, all right, title, control and
interest in the Reserve Account, and any and all proceeds thereof, as continuing
collateral security for Chargebacks, as that term is defined in the Sales
Agreement or Operating Procedures, and for the repayment of any obligations and
liabilities of Client to FDMS and Bank which
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have arisen or may in the future arise with respect to the Sales Agreement,
whether liquidated or unliquidated, matured or unmatured, absolute or contingent
(the "Obligations").
4. Client hereby authorizes and empowers FDMS, Bank and their
authorized agents, without prior notice to Client, to effect one or more
Chargebacks or payments of any of the Obligations by deducting from the Reserve
Account the amount of the Chargeback or any of the Obligations and applying same
towards the Chargeback and/or towards payment of the Obligation.
5. The Reserve Account, and any proceeds thereof, shall be deposited in
a financial institution on terms satisfactory to FDMS and Bank. The Reserve
Account shall be retained for a period not to exceed ten (10) months after
termination of the Sales Agreement or for such period as is consistent with
Chargeback liability as defined by MasterCard International and Visa U.S.A.
regulations. The balance, if any, in the Reserve Account at the end of the
applicable period shall be released and delivered to Client at such time.
6. Client agrees that whether or not the Reserve Account is held by
FDMS and/or Bank in a financial institution, FDMS and Bank and their authorized
agents are granted and may exercise a right of setoff against the Reserve
Account with respect to any Chargebacks or repayments of Obligations.
7. Client agrees that its rights, if any, to the Reserve Account, and
any proceeds thereof, are subject and subordinate to the setoff and lien rights
in the Reserve Account granted to FDMS and Bank pursuant to this Assignment and
the Sales Agreement, without regard to whether such setoff and lien rights are
being applied to claims of FDMS and/or Bank that are liquidated, unliquidated,
fixed, contingent, matured or unmatured. Client shall not further assign or
encumber the Reserve Account, nor shall Client enter into any agreement with any
creditor or person which grants such creditor or person any right, security
interest or lien in or to the Reserve Account.
8. Client agrees to duly execute and deliver to FDMS and/or Bank such
additional instruments and documents as FDMS and/or Bank, themselves or through
their authorized agents, may reasonably request to perfect and confirm the lien,
security interest, right of setoff and subordination set forth in this
Assignment.
9. The rights provided to FDMS and Bank in this Assignment shall not be
deemed to be exclusive, but shall be cumulative, and shall be in addition to all
other rights and remedies in favor of FDMS and Bank existing at law or in equity
or under any executed written agreements between the parties. FDMS and Bank
shall have the right to assign this Assignment to their successors and assigns.
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10. This Assignment is governed by the laws of the State of New York
and no part hereof may be waived, modified or amended without a written
agreement executed by the parties, except that FDMS and/or Bank, themselves or
through their authorized agents, may increase the amount of the Reserve Account
upon three (3) days notice to Client.
IN WITNESS WHEREOF, the parties have executed this Assignment. Pledge
and Subordination Agreement, as of the date first above written.
CLIENT /s/ Craig A. Winn FIRST DATA MERCHANT SERVICES, CORP.
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By: /s/ Dean M. Johnson By: THERESA K. CASTELLA
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Title: EVP+CFO Title: VICE PRESIDENT
---------------- ----------------
FIRST DATA MERCHANT SERVICES
Date: 4/16/98 Date: 4/17/98
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WACHOVIA BANK, N.A.
By: /s/ Perrie H. May
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Title: Senior Vice President
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Date: 4/16/98
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FINANCIAL INSTITUTION'S ACKNOWLEDGEMENT OF ASSIGNMENT, PLEDGE
AND SUBORDINATION AGREEMENT
Re: Certificate of Deposit Account No. 66335842
We acknowledge receipt of this Assignment, Pledge and Subordination Agreement.
We also acknowledge the blocking of the Reserve Account. We further agree that
the Reserve Account described above will be held as collateral security for FDMS
and Bank until such time as FDMS or Bank, provides the Financial Institution
with a written release of this Assignment, Pledge and Subordination Agreement.
If our consent is required, we hereby agree and consent to the Assignment,
Pledge and Subordination Agreement. No withdrawals by Client will be allowed
unless or until FDMS or Bank, executes a written release of Assignment, Pledge
and Subordination Agreement. Our records disclose no other assignments or
pledges of the Reserve Account. The signature(s) of Client on this Assignment,
Pledge and Subordination Agreement compare(s) favorably with signatures(s) on
file with Financial Institution. We further waive any right of offset or
banker's lien and all others that we may now or in the future have with respect
to this Reserve Account. We further agree that FDMS, Bank or their authorized
agents or assignees may withdraw the funds in the Reserve Account on their
signature and without further authorization by Client.
AGREED TO AND ACCEPTED BY:
(Wachovia Bank, N.A.)
Name: Perrie H. May
----------------------
By: /s/ Perrie H. May
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Title: Senior Vice President
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Date: April 16, 1998
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APPROVAL 90666 WACHOVIA
BANK ASSET COLLATERAL AGREEMENT
AND
LIMITED POWER OF ATTORNEY
This Bank Asset Collateral Agreement and Limited Power of Attorney
("Collateral Agreement") is hereby entered into this 23 day of March, 1998, by
and between DEUTSCHE FINANCIAL SERVICES CORPORATION, ("DFS"), Value America,
Inc. ("Assignor") with a residence or place of business located at 2300
Commonwealth Dr., Charlottesville, VA 22901, Jefferson National Bank ("Bank")
with a place of business located at P. O. Box 712, Charlottesville, VA 22902,
and Value America, Inc. with a place of business located at 2300 Commonwealth
Dr., Charlottesville, VA 22901 ("Dealer").
WHEREAS, the Assignor is the owner of a Certificate of Deposit which is
evidenced by a Certificate of Deposit bearing the account number 45825-5129-21,
with an issue date of March 13, 1998 and a maturity date of April 12, 1998 in
the amount of $1,000,000.00 which represents a credit due from the Bank
("Collateral"); and
WHEREAS, Dealer has entered into an Agreement for Wholesale Financing with
DFS, dated November 20, 1997, which is incorporated herein by reference
("Agreement") and pursuant to said Agreement and any other agreements which
Dealer may enter into with DFS form time to time, Dealer has incurred, or will
incur debts and liabilities to DFS ("Obligations"), and in furthermore of the
terms and conditions thereof and as collateral security to secure the payment of
all Obligations now or hereafter existing, absolute or contingent of the Dealer
to DFS, Assignor wishes to assign and pledge its interest in said Collateral to
DFS.
NOW, THEREFORE, in consideration of the premises and the promises
hereinafter set forth and for other good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged and in order to induce DFS to
extend financing to Dealer, the parties hereto agree as follows:
1. For value received, Assignor hereby grants DFS a security interest in and
assigns, pledges, hypothecates and transfers to DFS all of Assignor's right,
title and interest in the Collateral and any and all proceeds thereof, including
all substitutions, renewals and replacements, if any, to be held as collateral
security for any and all Obligations owed to DFS and its successors or assigns
by Assignor, which may now exist or hereafter be contracted.
2. Any breach of any duty or default under any provisions of the Agreement
by Dealer will be a default under the terms and conditions hereof, and any
breach of the terms and conditions of this Collateral Agreement will be a
default under the terms of such Agreement. In such event, DFS may withdraw and
collect the face amount of the Collateral and apply such amount first to any
reasonable costs of collection incurred in connection with the Agreement or this
Collateral Agreement, including attorney's fees, and then to any Obligations
owed to DFS under the terms of the Agreement, Assignor will be immediately
liable to pay DFS the balance of the collection costs and the Obligations owed
to DFS following the application of the Collateral. DFS will pay to Assignor any
funds which remain from the Collateral after such collection costs and
Obligations have been paid in full.
3. Assignor hereby grants to DFS a Limited Power of Attorney to take any
necessary steps to withdraw or redeem the Collateral in the name of Assignor,
including but not limited to, endorsing any certificate of deposit, time deposit
receipt or similar document, or a withdrawal slip from the Bank at any time DFS
deems necessary in its sole discretion. Assignor agrees that it will not
interfere in any manner with any attempted exercise of the Limited Power of
Attorney herein granted. Assignor will hold the Bank harmless if DFS exercises
its Limited Power of Attorney.
4. Bank recognizes this Collateral Agreement as a valid assignment of all of
Assignor's right, title and interest in and to the Collateral and all proceeds
thereof, including all substitutions, renewals or replacements, if any, and
agrees that if DFS exercises the Limited Power of Attorney as herein granted,
that it will withdraw the
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Collateral, even if such exercise is in advance of the maturity date of the
Collateral without requiring Assignor or DFS to amend or terminate any
"depositor" or similar agreement between Assignor and the Bank, subject to
regular penalty provisions if cashed prior to maturity. Bank acknowledges that
its books and records will reflect DFS as the holder of the Collateral and
agrees that it will not make any payment of the principal amount of the
Collateral to Assignor without the prior written consent of DFS. Bank hereby
waives any defense or right of setoff against the funds represented by the
Collateral.
5. Bank will pay any interest earned and accrued on the Collateral to the
Assignor unless DFS notifies Bank that Dealer is in default under the terms
hereof or under the terms of the Agreement or Obligations, in which event Bank
will pay any earned and accrued interest to DFS, together with the proceeds of
the Collateral.
6. This Collateral Agreement will continue in existence, notwithstanding the
substitution, renewal or replacement of the Collateral, until such time as DFS
notifies Bank in writing of its termination. No delay on the part of DFS in the
exercise of any right or remedy under the Agreement or hereunder will operate as
a waiver thereof, and no single or partial exercise by DFS of any right or
remedy will preclude any other or further exercise thereof or the exercise of
any other right or remedy. All rights and remedies existing under this Agreement
are cumulative to, and not exclusive of, any rights or remedies otherwise
available to DFS.
7. Assignor agrees that, unless and until all Obligations to DFS have been
performed and satisfied. Assignor will provide to DFS, at least five (5) days
prior to the maturity date of the Collateral, evidence satisfactory to DFS of
the Assignor having arranged for a substitution, renewal or replacement of the
Collateral to become effective on the maturity date of the Collateral, in an
amount not less than the amount of the Collateral, which is being replaced. If
Assignor fails to provide to DFS such evidence of substitution, renewal or
replacement, DFS may withdraw and collect the late amount of the Collateral
immediately or upon or after maturity, and may, in its sole discretion, apply
such amounts in accordance with Section 2 hereof, or may establish a certificate
of deposit, time deposit or deposit account with Bank in the same amount as the
Collateral and hold the certificate of deposit, time deposit or deposit account
and all interest earned thereon in the same manner and under the same conditions
as set forth herein. All of the terms and conditions of this Collateral
Agreement will apply to any substitution, renewal or replacement. If Assignor
desires to obtain a substitution or replacement certificate of deposit, time
deposit or deposit account from a depository other than the Bank, Assignor will
execute a new Collateral Agreement satisfactory to DFS and will cause such other
depository to execute such Collateral Agreement at least five (5) days prior to
the maturity of the Collateral.
8. This Collateral Agreement may not be modified, altered or amended in any
manner whatsoever except by a further agreement in writing signed by DFS,
Assignor, Dealer and Bank.
9. If any one or more of the provisions contained in this Collateral
Agreement or any document executed in connection herewith is invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions contained herein will not
in any way be affected or impaired.
10. BINDING ARBITRATION. Any controversy or claim arising out of or relating
to this Collateral Agreement, the relationship resulting in or from this
Collateral Agreement, the breach of any duties hereunder or any other
relationship, transaction or dealing between the parties (collectively
"Disputes") will be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of The American Arbitration Association, 140 West
51st Street, New York, New York 10020-1203. Except as otherwise stated herein,
all notices, arbitration claims, responses, requests and documents will be
sufficiently given or served if mailed or delivered: (i) to DFS at 655 Maryville
Centre Drive, St. Louis, Missouri 63141-5832, Attention: General Counsel; and
(ii) to any other party at the address specified herein; or such other address
as the parties may specify from time to time in writing. The parties agree that
all arbitrators selected will be attorneys with at least five (5) years secured
transactions experience. Any award rendered by the arbitrator(s) may be entered
as a judgment or order and confirmed or enforced by either party in any state or
federal court having competent jurisdiction thereof. If either party brings or
appeals any judicial action to vacate or modify any award rendered pursuant to
arbitration or opposes the confirmation of such award and the party bringing or
appealing such action or opposing
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confirmation of such award does not prevail, such party will pay all of the
costs and expenses (including, without limitation, court costs, arbitrators'
fees and expenses, and attorney's fees) incurred by the other party in defending
such action. Additionally, if either party brings any action for judicial relief
in the first instant without pursuing arbitration prior thereto, the party
bringing such action for judicial relief will be liable for and will immediately
pay to the other party all of the other party's costs and expenses (including,
without limitation, court costs and attorneys' fees) to stay or dismiss such
judicial action and/or remove it to arbitration. The failure of either party to
exercise any rights granted hereunder shall not operate as a waiver of any of
those rights. THE LAWS OF THE STATE OF Arizona WILL GOVERN THIS AGREEMENT AND
ALL TRANSACTIONS HEREUNDER AS TO INTERPRETATION, ENFORCEMENT, VALIDITY,
CONSTRUCTION, EFFECT AND IN ALL OTHER RESPECTS; PROVIDED HOWEVER, THAT THE
FEDERAL ARBITRATION ACT ("FAA"), TO THE EXTENT INCONSISTENT, WILL SUPERSEDE THE
LAWS OF SUCH STATE AND GOVERN. This Agreement concerns transactions involving
commerce among the several states. The arbitrators will not be empowered to
award punitive damages. The agreement to arbitrate will survive termination of
this Agreement. IF THIS AGREEMENT IS FOUND TO BE NOT SUBJECT TO ARBITRATION,
EACH PARTY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS LOCATED WITHIN
SUCH STATE AND AGREE THAT ALL LEGAL PROCEEDINGS WILL BE TRIED IN A COURT OF
COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. EACH PARTY WAIVES ANY RIGHT TO
A JURY TRIAL IN ANY SUCH PROCEEDING. THIS CONTRACT CONTAINS BINDING ARBITRATION,
JURY WAIVER AND PUNITIVE DAMAGE WAIVER PROVISIONS.
IN WITNESS WHEREOF, the parties hereto have executed this Collateral
Agreement on the day and year first above written.
/s/ Dean M. Johnson
-------------------
Value America, Inc.
(Assignor)
DEUTSCHE FINANCIAL SERVICES CORPORATION
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By: James M. Wardle
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Its: Branch Operations Manager
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Jefferson National Bank
(Bank)
By: /s/ Perrie H. May
---------------------------------------
Its: Senior Vice President
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/s/ Dean M. Johnson
---------------------------------------
Value America, Inc.
(Dealer)
By: /s/ Dean M. Johnson
---------------------------------------
Its: CFO & EVP
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THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE. THEY MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 AND APPLICABLE STATE LAW, OR (ii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL FOR VALUE AMERICA, INC., THAT AN
EXEMPTION FROM REGISTRATION SHALL BE AVAILABLE. FURTHERMORE, (i)
FOR A PERIOD OF AT LEAST 9 MONTHS FROM THE DATE OF ISSUANCE OF
THIS WARRANT, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE TRANSFERRED OR SOLD TO ANY PERSON NOT A RESIDENT OF THE
COMMONWEALTH OF VIRGINIA AND (ii) TRANSFER OF THIS WARRANT AND
TEE COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF ARE SUBJECT
TO CERTAIN OTHER RESTRICTIONS ON TRANSFER PURSUANT TO AN
AGREEMENT BETWEEN THE HOLDER AND THE COMPANY.
No. 14 10,000 Shares
WARRANT TO PURCHASE COMMON STOCK
OF
VALUE AMERICA, INC.
In consideration of $10 and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, VALUE AMERICA, INC., a
Virginia corporation ("Company"), hereby grants to DEAN MCWHORTER JOHNSON
(collectively, "Holder"), a Warrant to purchase at any time and from time to
time in whole or in part, from the date hereof until 5:00 p.m., E.S.T., on
October 31, 2002 (the "Expiration Date") up to 10,000 shares of common stock,
without par value, of Company (the "Common Stock"), upon delivery to Company of
this Warrant with the Warrant Exercise Notice on the bottom hereof duly
executed, and simultaneous payment therefor in lawful money of the United States
at the price of $5.00 per share (the "Exercise Price"), all subject to the terms
and conditions hereof.
Notwithstanding the foregoing and despite Holder's adherence to the
requirements for exercise set forth herein, the Warrant shall not be exercisable
for a period of up to 180 days after the date of exercise if in the opinion of
legal counsel for the Company, which opinion shall be based on the Company's
good faith assessment of its future plans for offers and sales of its securities
within the relevant integration period (a copy of which opinion shall be
provided to Holder), the exercise of the Warrant by such Holder or the issuance
of securities upon the exercise thereof will require registration with or
approval of any governmental authority under any federal or state law, or
listing on any national or regional securities exchange, provided that if such
prohibition shall extend beyond the Expiration Date such expiration shall be
tolled until the date 180 days after the lifting of such prohibition.
This Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Common Stock issuable
upon such exercise shall be treated for all purposes as the holder of record of
such shares as of the close of business on such date. As promptly as practicable
on or after such date and in any event within ten (10) days thereafter, the
Company at its expense shall issue and deliver to the person or persons entitled
to receive the same certificate or certificates for the number of shares
issuable upon such exercise. In the event that this Warrant is exercised in
part, the Company at its expense will execute and deliver a new Warrant of like
tenor exercisable for the number of shares for which this Warrant may then be
exercised.
No fractional shares or script representing fractional shares shall be
issued upon the exercise of this Warrant. In lieu of any fractional share to
which the Holder would otherwise be entitled, the Company shall make a cash
payment equal to the Exercise Price multiplied by such fraction.
Company at all times while this Warrant is exercisable will reserve and
keep available for issue upon the exercise hereof such number of shares of
Common Stock as will be sufficient to permit the exercise in full of this
Warrant.
Should Company effect one or more stock dividends, stock split-ups,
subdivisions or consolidations of shares, or other similar changes in
capitalization, or merge or consolidate with any other entity, the maximum
number of shares which may be purchased under this Warrant shall be
proportionately adjusted and the terms of this Warrant shall be adjusted as the
Board of Directors of Company shall determine to be equitably required, provided
that such adjustments shall be at least as favorable to Holder as any adjustment
made in such event under Company's 1997 Stock Incentive Plan is to the option
holders under such plan.
The issuance by Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property or for labor
or services, either upon direct sale or upon the exercise of rights or warrants
to subscribe therefor, or upon conversion of shares or obligations of Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, this Warrant,
provided that in the event Company issues or sells any shares of Common Stock
(other than shares of Common Stock issued under this Warrant, under any warrants
issued in a registered public offering of securities by Company, or under any
employee benefit or stock option plan for employees, directors or consultants of
Company) for a consideration per share less than the Market Price (as defined
below) per share of the Common Stock on the date immediately prior to the
issuance or sale of such shares, or without consideration, then upon such
issuance or sale, the number of shares issuable under this Warrant and the
Exercise Price shall be adjusted as follows:
(A) The number of shares shall be adjusted to a number equal to the product
(computed to the nearest share) resulting from the multiplication of (i) the
number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such adjustment by (ii) a fraction (the "Fraction"),
the numerator of which is the sum of the total number of shares of Common
Stock outstanding immediately prior to such issue or sale plus the number of
additional shares being issued or sold, and the denominator of which is the
sum of the total number of shares of Common Stock outstanding immediately
prior to such issue or sale plus the number of shares of Common Stock that
the aggregate consideration received for the additional shares being issued
or sold would purchase at the Market Price on the date of such issue or
sale.
(B) The Exercise Price shall be adjusted to a price resulting from dividing the
Exercise Price immediately prior to such adjustment by the Fraction.
Whenever any adjustment is made pursuant to the preceding two
paragraphs, Company shall promptly transmit to Holder a certificate signed by
the President of Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which the adjustment was calculated,
and specifying the number of shares of Common Stock or other securities or
property then comprising this Warrant after giving effect to such adjustment or
change.
The phrase "Market Price" at any date shall be deemed to be the last
reported sale price, or, in case no such reported sale takes place on such day,
the average of the last reported sale prices for the last three trading days, in
either case as officially reported by the principal securities exchange on which
the Common Stock is listed or admitted to trading or as reported on the NASDAQ
National Market System, or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on the NASDAQ National
Market System, the average closing bid price as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or similar organization
if NASDAQ is no longer reporting such information, or if the Common Stock is not
quoted on NASDAQ, as determined in good faith by resolution of the Board of
Directors of Company, based on the best information available to it.
On receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant and, in the case of loss,
theft or destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and substance to the Company or, in the case of mutilation,
on surrender and cancellation of this Warrant, the Company at its expense shall
execute and deliver, in lieu of this Warrant, a new warrant of like tenor and
amount.
The Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided therein.
On surrender of this Warrant for exchange, properly endorsed, the
Company at its expense shall issue to or on the order of the Holder a new
warrant or warrants of like tenor, in the name of the Holder or as the Holder
(on payment by the Holder of any application transfer taxes) may direct, of the
number of shares issuable upon exercise hereof. Notwithstanding the foregoing,
the Warrant is issued upon the following terms, all of which such Holder or
owner hereof by the taking hereof consents and agrees:
(a) Title to the Warrant may be transferred by endorsement (by the
Holder hereof executing the form of assignment at the end hereof) and delivery
to the Company of this Certificate representing the Warrant in the same manner
as in the case of a negotiable instrument transferable by endorsement and
delivery;
(b) any person in possession of this Certificate representing the
Warrant properly endorsed is authorized to represent himself as absolute owner
hereof and is empowered to transfer absolute title to the Warrant by endorsement
and delivery hereof to a bona fide purchaser hereof for value; each prior owner
waives and renounces all of his equities or rights in the Warrant in favor of
such bona fide purchaser, and each such bona fide purchaser shall acquire
absolute title to the Warrant and to all rights represented hereof; and
(c) until the Warrant is transferred on the books of the Company, the
Company may treat the registered Holder of the Warrant as the absolute owner of
the Warrant for all purposes, notwithstanding any notice to the contrary.
All notices, advises and communications with respect to this Warrant
shall be deemed to have been received, in the case of mailing, on the third
business day following the date of such mailing. All notices and all
communications from the Company to the Holder of the Warrants shall be mailed by
first class registered or certified mail, postage prepaid, at such address as
may have been furnished to the Company in writing by such Holder or, until any
such Holder furnishes to the Company an address, then to, and at the address of,
the last Holder of the Warrant who has so furnished an address to the Company.
Any term of this Warrant may be amended with the written consent of the
Company and the Holder. Any amendment effected in accordance with this paragraph
shall be binding upon the Holder, each future holder and the Company. No waivers
of, or exceptions to, any term, condition or provision of this Warrant, in any
one or more instances, shall not be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
In case of any consolidation or merger of Company with or into another
corporation or a sale of assets having similar effect (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock), the corporation formed by such consolidation
or merger or the entity purchasing such assets (or, in the event such
consolidation, merger or sale of assets is effected with a direct or indirect
subsidiary of a parent corporation, such parent corporation) shall execute and
deliver to the holders of this Warrant a new warrant entitling the holders to
receive, upon exercise of such warrant, the kind and amount of shares of stock
and other securities and property receivable upon such consolidation, merger or
sale of assets by a holder of the number of shares of Common Stock of Company
for which such Warrant could have been exercised immediately prior to such
consolidation, merger or sale of assets. The above provisions shall similarly
apply to successive consolidations, mergers or sales of assets.
This Warrant has been prepared by LeClair Ryan, A Professional
Corporafion, as counsel to the Company ("Counsel"), after full disclosure of its
representation of the Company and with the consent and direction of the Company
and the Holder. The Holder has reviewed the contents of this Warrant and fully
understand its terms. The Holder acknowledges that he, she, or it is fully aware
of his, her, or its right to the advice of counsel independent from that of the
Company, that Counsel has advised him of such right and disclosed to him the
risks in not seeking such independent advice, and that he, she, or it
understands the potentially adverse interests of the parties with respect to
this Warrant. The Holder further acknowledges that no representations have been
made with respect to the tax or other consequences of this Warrant to the Holder
and that he, she, or it has been advised of the importance of seeking
independent counsel with respect to such consequences. By executing this
Warrant, the Holder represents that he, she, or it has, after being advised of
the potential conflicts between the Holder and the Company with respect to the
future consequences of this Warrant, either consulted independent legal counsel
or elected, notwithstanding the advisability of seeking such independent legal
counsel, not to consult such independent legal counsel.
IN WITNESS WHEREOF, Company has caused this Agreement to be executed by
its officer hereunto duly authorized and Holder has executed this Agreement each
as of the day and year shown below.
Dated as of November 20, 1997.
VALUE AMERICA, INC.
By: /s/ Rex Scatena
-----------------
Its: President
-----------------
HOLDER
/s/ Dean Whorter Johnson
-------------------------
DEAN WHORTER JOHNSON
WARRANT EXERCISE NOTICE
The undersigned, owner of a Warrant to purchase shares of Common Stock
without par value,_______, of VALUE AMERICA, INC., hereby irrevocably elects to
purchase _______ of such shares and herewith makes a payment of $ _________
therefor, and requests that the certificates for such shares be issued in his
name, and delivered to __________________________________________________ .
Date: ___________________.
Form of Assignment
[to be signed only on transfer of Warrant]
For value received, the undersigned hereby sells, assigns, and transfers unto
__________ the right represented by the within Warrant to purchase ______ shares
of Common Stock of the Company to which the within Warrant relates, and appoints
the Secretary or Assistant Secretary of the Company as the undersigned's
Attorney to transfer such right on the books of the Company with full power of
substitution in the premises.
Dated: ________________, 19__ _______________________________________
(Signature must conform to name of
Holder as specified on the face of the
Warrant)
8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 13th day of November, 1997,
by and between VALUE AMERICA, INC., a Virginia corporation (the "Company"), and
Dean McWhorter Johnson (the "Executive").
In consideration of the mutual covenants contained herein, the Company
and the Executive agree as follows:
1. Employment. The Company agrees to employ the Executive and the
Executive agrees to continue in the employ of the Company on the terms and
conditions hereinafter set forth.
2. Capacity. The Executive shall serve the Company in such positions or
offices with such authority, titles and duties as may be prescribed from time to
time by the President, Chief Executive Officer or Board of Directors (the
"Board") of the Company, and shall serve the Company in such other or additional
offices in which he may be requested to serve from time to time.
3. Effective Date and Term. The commencement date of this Agreement
shall be as of November 13, 1997 (the "Commencement Date"). Subject to the
provisions of Section 6, the term of the Executive's employment hereunder shall
be for two years from the Commencement Date; provided, however, that the term
shall be extended automatically for an additional period of one year commencing
on the second anniversary of the Commencement Date and on each subsequent
anniversary thereafter, unless either the Executive or the Company gives written
notice to the other, at least thirty (30) days prior to the date of any such
anniversary, of such party's election not to extend the term of this Agreement.
The last day of such term, as so extended from time to time, is herein sometimes
referred to as the "Expiration Date."
4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Executive under this
Employment Agreement, the Company shall pay the Executive a total salary at the
rate of $100,000 per year subject to increase or decrease at any time and, from
time to time, in the sole discretion of the Company. The Executive's salary
shall be
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payable in periodic installments in accordance with the Company's usual payroll
practices.
(b) Regular Benefits. The Executive shall also be entitled to
participate in any employee benefit plans, medical insurance plans, life
insurance plans, disability income plans, retirement plans, bonus incentive
plans and other benefit plans from time to time in effect for all employees of
the Company. Such participation shall be subject to (i) the terms of the
applicable plan documents, (ii) generally applicable policies of the Company and
(iii) the discretion of the Board or any administrative or other committee
provided for in or contemplated by such plan.
(c) Business Expenses. The Company shall reimburse the Executive for all
reasonable travel and other business expenses incurred by him in the performance
of his duties and responsibilities, subject to such requirements with respect to
substantiation and documentation as may be specified by the Company.
(d) Vacation. The Executive shall be entitled to such number of weeks of
vacation per year as shall be provided for in Company's employee handbooks as
the same shall be modified from time to time, to be taken at such times and
intervals as shall be determined by the Executive with the approval of the
Company.
(e) Other Incentives. The Company may, but shall not be obligated to,
provide the Executive with such other performance-based compensation, benefits
or incentives as shall be established, amended or thereafter terminated from
time to time by and in the sole discretion of the Board or the compensation
committee thereof, and in considering any such compensation, benefits or
incentives, the Board or such committee may consider such factors as the
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Executive's performance, productivity and contribution to the Company's
profitability.
5. Extent of Service. During his employment hereunder, the Executive
shall, subject to the direction and supervision of the President, Chief
Executive Officer and Board, devote his full business time, best efforts and
business judgment, skill and knowledge to the advancement of the Company's
interests and to the discharge of his duties and responsibilities hereunder. The
Executive shall not engage in any other business activity, except as may be
approved by the President, Chief Executive Officer or Board of the Company;
provided, however, that nothing herein shall be construed as preventing the
Executive from:
(a) investing his assets in a manner not prohibited by Section 8(a)
hereof, and in such form or manner as shall not require any material services on
his part in the operations or affairs of the companies or other entities in
which such investments are made;
(b) serving on the board of directors of any company, subject to the
prohibitions set forth in Section 8(a) and provided that he shall not be
required to render any material services with respect to the operations or
affairs of any such company; or
(c) engaging in religious, charitable or other community or nonprofit
activities which do not impair his ability to fulfill his duties and
responsibilities under this Agreement.
6. Termination.
Notwithstanding the provisions of Section 3, the Executive's employment
hereunder shall terminate under the following circumstances and shall be subject
to the following provisions:
(a) Death. In the event of the Executive's death during the Executive's
employment hereunder, the Executive's employment shall terminate on the date of
his death and the Executive or his estate shall be entitled to no further
compensation or benefits under this Agreement; provided, however, that the
Company shall continue to pay an amount equal to the Executive's salary (not
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<PAGE>
including any bonus other than any Bonus Amount payable under Section 4(b)
hereof) to the Executive's beneficiary designated in writing to the Company
prior to his death (or to his estate, if he fails to make such designation) for
a period of one month after the date of the Executive's death, at the salary
rate in effect on the date of his death, said payments to be made on the same
periodic dates as salary payments would have been made to the Executive had he
not died.
(b) Termination by the Company for Cause. The Executive's employment
hereunder may be terminated without further liability on the part of the Company
effective immediately by the Company (acting through its President, Chief
Executive Officer or Board), for Cause by written notice to the Executive
setting forth in reasonable detail the nature of such Cause. Upon termination of
employment by the Company for Cause, the Executive shall be entitled to no
further compensation or benefits under this Agreement. Only the following shall
constitute "Cause" for such termination:
(i) gross incompetence, gross negligence, willful misconduct in office
or breach of a material fiduciary duty owed to the Company, or any subsidiary or
affiliate thereof;
(ii) conviction of a felony, a crime of moral turpitude or commission of
an act of embezzlement or fraud against the Company, or any subsidiary or
affiliate thereof;
(iii) any material breach by the Executive of a material term of this
Agreement or any other agreement between the Executive and the Company,
including without limitation material failure to perform a substantial portion
of his duties and responsibilities hereunder; continued failure, after
reasonable notice from the Company, to adhere to or satisfy any production,
performance or other standards established by the Company and communicated to
the Executive; or unauthorized use or disclosure of Confidential Information or
trade secrets of the Company; or
(iv) dishonesty or fraud of the Executive with respect to the Company,
or any subsidiary or affiliate thereof.
(c) Termination by the Executive. The Executive may terminate his
employment hereunder by written notice to the President, Chief Executive Officer
or
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<PAGE>
Board effective thirty (30) days after receipt of such notice. Upon termination
of employment by the Executive, the Executive shall be entitled to no further
compensation or benefits under this Agreement.
(d) Termination by the Company Without Cause. The Executive's employment
with the Company may be terminated without Cause by the Company (acting through
its President, Chief Executive Officer or Board), effective immediately by
written notice to the Executive. Upon termination of employment by the Company
without Cause, the Company shall pay to the Executive within fifteen (15) days
after the date of termination cash in the amount of (i) any unpaid salary due to
the Executive hereunder through the date of the termination, plus (ii) any
accrued but unpaid vacation pay due to the Executive.
(e) Officer's Severance Benefit. In the event the Executive is an
officer of the Company on the date of the termination of the Executive's
employment and has completed at least ninety (90) days of continuous employment
with the Company, the Company shall pay to the Executive thirty (30) days
additional salary at the same rate paid to the Executive prior to such
termination. If the Executive qualifies for the severance benefit under the
previous sentence, and in the event the Company does not waive with respect to
the Executive the provisions of Section 3.1 of the Developments, Noncompete and
Nondisclosure Agreement referenced in Section 8 below, the Company also shall
pay the Executive salary for a period of six (6) additional months at the same
rate paid to the Executive prior to termination. This Section 6(e) is expressly
made subject to Section 6(f) below.
(f) No Termination Benefits. In the event of any termination of the
Executive's employment hereunder for any reason (including without limitation
pursuant to Sections 3, 6(a), 6(b), 6(c), 6(d) or Section 7 hereof), the
Executive shall not be entitled to any salary, bonus, severance pay or benefits
not otherwise specified herein.
(g) Litigation and Regulatory Cooperation. The Executive shall
reasonably cooperate with the Company in the defense or prosecution of any
claims or actions now in existence or which may be brought in the future against
or on behalf of the Company, which relate to events or occurrences that
transpired while the Executive was employed by the Company. The Executive's
reasonable cooperation in connection with such claims or actions shall include,
but not be
5
<PAGE>
limited to, being reasonably available to meet with counsel to prepare for
discovery or trial and to act as a witness on behalf of the Company, at mutually
convenient times and locations. The Executive shall also reasonably cooperate
with the Company in connection with any examination or review of any federal or
state regulatory authority as any such examination or review relates to events
or occurrences that transpired while the Executive was employed by the Company.
If such cooperation is required after the Executive ceases to be employed by the
Company, the Company shall pay the Executive for such cooperation a fee of
twenty five dollars ($25.00) per hour, payable monthly in arrears, and will
reimburse the Executive for any reasonable out-of-pocket expenses incurred in
connection therewith.
7. Disability. If, due to physical or mental illness, the Executive
shall be disabled so as to be unable to perform substantially all of his duties
and responsibilities hereunder, which disability lasts for an uninterrupted
period of at least sixty (60) days or a total of at least one hundred eighty
(180) days in any calendar year (as determined by the opinion of an independent
physician selected by the Company), the Company may designate another executive
to act in his place during the period of such disability. Notwithstanding any
such designation, the Executive shall continue to receive his full salary and
benefits under Section 4 of this Agreement until he becomes eligible for
disability income under the Company's disability income plan, if any, or in the
absence of a disability income plan, until the Expiration Date.
8. Developments, Noncompete and Confidential Information. Simultaneous
with his execution of this Agreement, and as a material part of the
consideration for the Company's entering into this Agreement, the Executive
agrees to execute, comply with the terms of and become bound by a Developments,
Noncompete and Nondisclosure Agreement with the Company in the form of Exhibit A
attached hereto, the terms of which (a) are incorporated into this Agreement in
their entirety, (b) are deemed for all purposes to be a part of this Agreement,
and (c) shall survive any termination of this Agreement.
9. Conflicting Agreements. The Executive hereby represents and warrants
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or by which he is bound, and that he is not subject to any
6
<PAGE>
covenants against competition or similar covenants which would affect the
performance of his obligations hereunder.
10. Withholding. All payments made by the Company under this Agreement
shall be net of any tax or other amounts required to be withheld by the Company
under applicable law.
11. Arbitration of Disputes. Any controversy or claim arising out of or
relating to the employment relationship between the Executive and the Company
shall be settled by arbitration in accordance with the laws of the Commonwealth
of Virginia by three arbitrators, one of whom shall be appointed by the Company,
one by the Executive and the third by the first two arbitrators. If the first
two arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator shall be appointed by the American Arbitration Association in
the City of Richmond. Such arbitration shall be conducted in the City of
Richmond in accordance with the rules of the American Arbitration Association,
except with respect to the selection of arbitrators which shall be as provided
in this Section 11. Judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The party or parties against
whom the arbitrators shall render an award shall pay the other party's or
parties' reasonable attorneys' fees and other reasonable costs and expenses in
connection with the enforcement of its or their rights under this Agreement
(including the enforcement of any arbitration award in court), unless and to the
extent the arbitrators shall determine that under the circumstances recovery by
the prevailing party or parties of all or a part of any such fees and costs and
expenses would be unjust.
12. Assignment; Successors and Assigns, etc. Neither the Company nor the
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party or parties; provided, however, that the Company may assign its rights
under this Agreement without the consent of the Executive in the event that the
Company shall hereafter effect a reorganization, consolidation with or merges
into any other Person, or transfer all or substantially all of its properties or
assets to any other Person. This Agreement shall inure to the benefit of and be
binding upon the Company and the Executive, their respective successors,
subsidiaries, affiliates, executors, administrators, heirs and permitted
assigns. In the event of the Executive's death prior to the completion by the
Company of all payments due him
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<PAGE>
under this Agreement, the Company shall continue such payments to the
Executive's beneficiary designated in writing to the Company prior to his
death (or to his estate, if he fails to make such designation).
13. Enforceability. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
14. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party or parties. The failure of any
party to require the performance of any term or obligation of this Agreement, or
the waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
15. Notices. Any notices, request, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid (in which
case notice shall be deemed to have been given on the third day after mailing),
or by overnight delivery by a reliable overnight courier service (in which case
notice shall be deemed to have been given on the day after delivery to such
courier service) to the Executive at the last address the Executive has filed in
writing with the Company or, in the case of the Company, at its main offices,
attention of its President or Chief Executive Officer.
16. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Company.
17. Governing Law. This is a Virginia contract and shall be construed
under and be governed in all respects by the laws of the Commonwealth of
Virginia.
18. Entire Agreement. This Agreement, the Developments, Noncompete and
Nondisclosure Agreement referred to in Section 8, and any Incentive Stock
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Option Agreement entered into by the Company and the Executive constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior or contemporaneous written or oral agreements or
understandings with respect to the subject matter hereof.
19. Legal Counsel. Executive has reviewed the contents of this Agreement
and fully understands its terms. Executive acknowledges that he is fully aware
of his right to the advice of counsel independent from that of the Company, that
the Company has advised him of such right and disclosed to him the risks in not
seeking such independent advice, and that he understands the potentially adverse
interests of the parties with respect to this Agreement. Executive further
acknowledges that no representations have been made with respect to the income
or estate tax or other consequences of this Agreement to him and that he has
been advised of the importance of seeking independent advice of counsel with
respect to such consequences.
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, and by the Executive, as of the date first above
written.
VALUE AMERICA, INC.
By: /s/ Rex Scatena
Title: President
Date: 11-13-97
/s/ Dean M. Johnson, Executive
-------------------
Date: 11/13/97
Address: 5 Brook Hill
Charlottesville, VA 22901
10
VALUE AMERICA, INC.
DEVELOPMENTS, NONCOMPETE AND NONDISCLOSURE
AGREEMENT
This DEVELOPMENTS, NONCOMPETE AND NONDISCLOSURE AGREEMENT is made as of
this 13th day of November by and between Value America, Inc., a Virginia
corporation ("Company"), and , ("Employee").
WHEREAS, as a condition to Employee's employment by Company, it is
required that Employee execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other valuable consideration (including without limitation those
benefits to Company and Employee as an employee of Company), the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Assignment of Intellectual Properties.
1.1. Employee hereby sells, transfers and assigns, and agrees to sell,
transfer and assign, to Company all of his or her right, title and interest in
and to any and all developments, discoveries, inventions, technologies,
improvements, enhancements, innovations, designs, ideas, processes, know how,
methods, formulae, data, databases, capabilities, systems, source codes,
software, tools, programs, trade secrets, confidences, business opportunities,
works of authorship of whatever type (including but not limited to any art work,
presentations, computer programs, compilations and other works), and all names,
descriptions and marks and goodwill associated therewith; all documents,
electronic files and other tangible embodiments of any of the foregoing; and all
patents, patent applications, divisionals, continuations, continuations-in-part,
reissues, renewals, copyright registrations and applications associated with any
of the foregoing, and other intellectual property, proprietary and intangible
interests associated with the foregoing (the "Intellectual Properties"), whether
or not patentable or copyrightable, which (i) are discovered, learned, created,
made, conceived, reduced to practice, used, applied, improved, enhanced or
otherwise acquired by Employee, in whole or in part and alone or with others,
while an employee of Company, whether or not during normal working hours or with
the use of Company's facilities, materials or personnel and (ii) are within the
scope of Company's actual or anticipated business (the "Protected Business"),
the Protected Business being defined for purposes of this Agreement as the
promotion, sale and/or distribution of consumer and business products and/or
services through the Internet, convergence technologies, electronic commerce
and/or interactive multimedia presentations (all of which are collectively
referred to in this Agreement as "Developments"), to whatever extent such
Developments are not owned by Company as a matter of law. Employee acknowledges
that all Developments shall be works made for hire and shall be the sole,
exclusive and proprietary property of Company.
1.2. Employee will disclose fully, as soon as practicable and in
writing, all Developments to the President, Chief Executive Officer or Board of
Directors of Company. Employee agrees to maintain such records of his or her
work relating to Developments as shall be required by Company policy.
1.3. Company acknowledges that Developments subject to Section 1.1 do
not include any inventions, discoveries, creations, works of authorship, other
creative works, patents, copyrights and any intellectual property interests that
are owned in whole or in part by Employee and that were discovered, created,
learned, conceived and reduced to practice prior to the commencement of
Employee's employment by Company ("Excluded Intellectual Property"). However,
Employee represents that all Excluded Intellectual Property relating to the
actual or anticipated business of Company or within the scope of the Protected
Business is identified with specificity in Schedule l hereto, and, to the extent
such specified Excluded Intellectual Property is not hereby conveyed and
assigned to Company pursuant to Section 1.1, Employee grants to Company a
nonexclusive, paid-up, worldwide license in perpetuity to make, use, sell, copy,
modify, distribute and otherwise exploit the Excluded Intellectual Property
identified in Schedule 1 hereto to the extent the same are within the scope of
the Protected Business.
1.4. Employee represents and warrants that he or she shall not himself
or herself, and that he or she shall not cause Company to infringe,
misappropriate, engage in acts of unfair competition with respect to or
otherwise violate or impair the patent, copyright, trademark, trade secret or
other intellectual property rights of any third party, and further that
Company's use and exploitation of the Developments as well as the licensed
Excluded Intellectual Property listed in Schedule I will not infringe or
otherwise violate any third-party right.
2
1.5. Employee represents and warrants that he or she is not subject to
any noncompete agreement, non-solicitation agreement, confidentiality or
assignment agreement or other express or implied agreement with or obligation to
any third party, including but not limited to former employers, that would
prevent, limit or impair the Employee's performance of his or her duties to
Company.
1.6. At any time and from time to time, upon the request of Company,
Employee agrees to execute and deliver to Company any and all instruments,
documents and papers, and do any and all other acts that, in the sole judgment
of Company, are or may be necessary or desirable to transfer, assign, register,
record, perfect, reissue, continue, maintain, renew, or enforce or defend any
Developments and any Intellectual Properties therein. Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse Employee for
all reasonable expenses incurred by Employee in complying with the provisions of
this subsection. Employee further agrees that if Company is unable after
reasonable effort to secure the signature of Employee on any such papers, the
President or Chief Executive Officer of Company shall be entitled to execute any
such papers as the agent and attorney-in-fact of Employee and Employee hereby
irrevocably designates and appoints each such officer of Company as his or her
agent and attorney-in-fact to execute any such papers on his or her behalf and
to take any and all actions required or authorized by Company pursuant to this
subsection.
2. Confidential Information.
2.1. Employee agrees that any nonpublic information Employee learns or
acquires, in whatever manner and from whatever source, in the course of his or
her employment by and service for Company is "Confidential Information" owned
solely and exclusively by Company. Employee acknowledges that all Confidential
Information is a valuable, unique and proprietary asset of Company. Confidential
Information includes, but is not necessarily limited to, nonpublic information
and knowledge pertaining to Developments; price, cost, sales, profit and other
financial information; data, databases and data compilations; formulas,
processes, techniques, technologies, methods of doing business; computer
software, source code and program design, structure and organization; hardware,
3
databases, presentations, authoring tools, designs and systems; research and
development, including negative information; information about and listings of
Company's affiliates, officers, employees, agents and representatives,
distributors, customers, vendors, competitors, and markets; and information
disclosed to Company in confidence. Confidential Information does not include
information that is or that becomes generally known within Company's line of
business or that was known to Employee prior to his or her employment with
Company.
2.2. Employee agrees he or she shall not use the Confidential
Information except within the scope of his or her employment and, that he or she
shall use it solely for the sole benefit of Company, that he or she shall not
disclose Confidential Information to any third party without the express prior
written consent of Company, and that he or she shall take all reasonable
precautions to safeguard the Confidential Information against unauthorized use
or disclosure. If reasonable doubt may exist as to whether particular
information is Confidential Information subject to this Section, whether during
or after his or her employment with Company, Employee shall consult with the
President or Chief Executive Officer of Company before making any use or
disclosure of such information which may constitute a breach of this Section,
whether during or after his or her employment and Employee agrees to abide by
the determination of the President or Chief Executive Officer of Company.
Employee further agrees to adhere strictly to any Company policies and
procedures regarding the use and protection of Confidential Information.
2.3. Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, notebooks, software, discs, program listings
or other written, photographic, electronic, or other tangible documents or
material containing Confidential Information, whether created by Employee or
others, which shall come into his or her custody or possession, shall be and are
the exclusive property of Company and subject to the terms of this Section 2.
Employee shall immediately return and deliver to Company, without making or
retaining any copies or derivations, any such documents and things, as well as
any other equipment, supplies or other documents and things owned by Company
upon either (i) a request by Company or (ii) termination of Employee's
employment.
3. Noncompete and Nonsolicitation.
4
3.1. Employee acknowledges that he or she has and during the course of
his or her employment with Company will gain specialized knowledge and
experience in Company's business, that his or her reputation and contacts within
the field are considered of great value to Company, and that if his or her
knowledge, experience, reputation and contacts are used to compete with Company,
serious harm to Company may result. Employee agrees that, for so long as
Employee is employed by Company and for six (6) months thereafter, Employee
shall not, without the express prior written consent of Company, alone or in
concert with, or through or on behalf of, another person or entity, become, or
act or serve as, an owner, employee, consultant, independent contractor,
partner, or agent of any person or entity that competes with Company or does
business in the Protected Business (as constituted as of the date of the
termination of Employee's employment with Company), provided, however, that
Employee shall in no event be deemed to have violated the provisions of this
Section 3.1 if he or she serves in any capacities or conducts any activities
otherwise prohibited hereby from, at or out of a regularly established business
or office location which is not within a one hundred (100)-mile radius of
Charlottesville, Virginia as of the date of the termination of Employee's
employment with the Company.
3.2. Employee agrees that, for a period of two (2) years after Employee
ceases to be employed by Company, Employee shall not, without the express prior
written consent of Company, alone or in concert with or on behalf of another,
employ, solicit the employment of, or retain or solicit the services of any
employee of Company; employ, solicit the employment of, or retain or solicit the
services of any independent contractor, consultant, vendor or supplier of
Company providing goods or services to Company related to the Protected
Business; or solicit the business of or enter into any agreement to provide
goods or services related to the Protected Business to any person or entity that
was a client, partner, affiliate, joint venturer, agent, distributor, vendor or
representative of Company at any time while Employee was employed by Company.
4. Company Obligations to Third Parties. Employee acknowledges that Company from
time to time may have relationships and agreements with other persons or with
the United States or another government, or agencies thereof, which impose
obligations or restrictions on Company regarding inventions made during the
course of work under such agreements or regarding the confidential
5
nature of such work. Employee agrees to be bound by all such obligations and
restrictions which are made known to Employee and to take all action necessary
to discharge the obligations of Company under such agreements.
5. Use of Name and Likeness. Employee grants to Company permission to use,
whether during or after his or her employment, Employee's name, likeness and
image for any reasonable business purpose.
6. Employee-Terminable-At-Will. EMPLOYEE ACKNOWLEDGES AND AGREES THAT HE OR SHE
IS AN EMPLOYEE-AT-WILL AND, AS SUCH, EITHER COMPANY OR EMPLOYEE MAY TERMINATE
EMPLOYMENT AT ANY TIME WITH OR WITHOUT NOTICE OR CAUSE.
7. Survival. Employee's obligations under Sections 1, 2, 4 and 5 of this
Agreement shall survive the termination or expiration of his or her employment
without limitation in duration, Employee's obligations under Section 3 shall
survive his or her employment for the teens set forth therein.
8. Notice. All notices and other communications required or permitted hereunder
or necessary or convenient in connection herewith shall be in writing and shall
be deemed to have been given three business days after mailing by registered,
certified or first-class mail, or the next business day if sent by special
courier such as Federal Express (except that notice of change of address shall
be deemed given only when received), to the addresses provided in this Agreement
or to such other addresses as Company or Employee, as the case may be, shall
designate by notice to the other party in the manner specified in this Section.
9. Contents of Agreement Amendment and Assignment. This Agreement sets forth the
entire understanding between the parties hereto with respect to the subject
matter hereof and cannot be changed, modified or terminated except upon written
amendment duly executed by the parties hereto. All of the terms and provisions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, personal representatives, successors and
assigns of the parties hereto, except that Employee's duties and
responsibilities hereunder are of a personal nature and shall not be assignable
in whole or in part by Employee.
6
10. Severability. If any provision of this Agreement or application thereof to
anyone or under any circumstances is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provisions or applications of this Agreement that can be given effect
without the invalid or unenforceable provision or application and shall not
invalidate or render unenforceable the invalid or unenforceable provision in any
other jurisdiction or under any other circumstance.
11. Remedies Cumulative; No Waiver. No remedy conferred upon any of the parties
by this Agreement is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to any other
remedy given hereunder or now or hereafter existing at law or in equity. No
delay or omission by any of the parties in exercising any right, remedy or power
hereunder or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy or power may be exercised by either of the
parties from time to time and as often as may be deemed expedient or necessary
by each party in his or her or its sole discretion.
12. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the substantive laws of the Commonwealth of
Virginia, without reference to the principles governing the conflicts of laws
applicable in that or any other jurisdiction. All provisions of this Agreement
relating to ownership of Intellectual Properties are subject to applicable state
laws. The parties irrevocably and unconditionally consent to the exclusive
jurisdiction of the courts of the Commonwealth of Virginia and of the United
States located in the Commonwealth of Virginia in connection with any suit,
action or proceeding relating to this Agreement and agree not to commence any
suit, action or proceeding relating thereto except in such courts.
7
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
SCHEDULE 1
EXCLUDED INTELLECTUAL PROPERTIES
RELATING TO ACTUAL OR ANTICIPATED BUSINESS OF COMPANY
--------------------------
Acknowledged and Agreed:
----------------------------
--------------------Employee
VALUE AMERICA, INC.
1997 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Value America, Inc. 1997 Stock
Incentive Plan (the "Plan") is to further the long term stability and financial
success of Value America, Inc. (the "Company") by attracting and retaining
personnel, including employees, directors, officers, consultants, agents,
advisors and independent contractors, through the use of stock incentives. It is
believed that ownership of Company stock will stimulate the efforts of those
persons upon whose judgment and interest the Company is and will be largely
dependent for the successful conduct of its business. It is also believed that
Incentive Awards granted to such persons under this Plan will strengthen their
desire to remain with the Company or to continue to contribute to the growth of
the business of the Company and will further the identification of their
interests with those of the Company's shareholders. The Plan is intended to
conform to the provisions of Securities and Exchange Commission Rule 16b-3
promulgated under the 1934 Act, if the Company shall register its Common Stock
under Section 12 of the 1934 Act.
2. Definitions. As used in the Plan, the following terms have the
meanings indicated:
(a) "Agreement" means a written agreement (including any
amendment or supplement thereto) between the Company and a Participant
specifying the terms and conditions of an Incentive Award granted to such
Participant.
(b) "Applicable Withholding Taxes" means the aggregate amount
of federal, state, and local income and payroll taxes that the Company is
required to withhold in connection with any exercise of a Nonstatutory Stock
Option, SAR, or Tax Offset Right, any lapse of restrictions on Restricted Stock,
or any grant of Performance Stock.
(c) "Affiliate" means any "parent" or "subsidiary" corporation
(within the meaning of Code Section 424) of the Company.
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" means dishonesty, fraud, misconduct, gross
incompetence, gross negligence, breach of a material fiduciary duty, material
breach of an agreement with the Company or any of its Subsidiaries, unauthorized
use or disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), in each case
as determined by the Committee, which determination shall be binding.
(f) "Change of Control" means:
(i) The acquisition, other than from the Company, by
any individual, entity, or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the 1934 Act), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of 50% or more of either the then outstanding
shares of Common Stock or the combined voting power of the
then outstanding voting securities of the Company entitled to
vote generally in the election of directors (collectively,
"Voting Securities"), but excluding for this purpose, any such
acquisition by the Company or any of its subsidiaries, or any
employee benefit plan (or related trust) of the Company or its
subsidiaries, or any corporation with respect to which,
following such acquisition, more than 50% of the then
outstanding shares of Voting Securities of such is then
beneficially owned, directly or indirectly, by the individuals
and entities who were the beneficial owners of Voting
Securities of the Company immediately prior to such
acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the then
outstanding shares of Voting Securities of the Company;
provided, however, that a Change of Control shall not result
from beneficial ownership of 50% or more of either the then
outstanding shares of Voting Securities of the Company by any
individual, entity, or group who is the beneficial owner of
such securities as of the effective date of this Plan so long
as such individual, entity, or group does not thereafter
acquire beneficial ownership of additional shares of such
securities that in the aggregate exceed 5% of the outstanding
shares of Voting Securities of the Company without the prior
approval of the Board; or
(ii) Approval by the shareholders of the Company of
(A) a reorganization, merger or consolidation with respect to
which the individuals and entities who were the respective
beneficial owners of the Voting Securities of the Company
immediately prior to such reorganization, merger or
consolidation do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, more
than 50% of the then outstanding shares of Voting Securities
of the corporation resulting from such reorganization, merger
or consolidation, or (B) a complete liquidation or dissolution
of the Company, or (C) any sale, lease, exchange, or other
disposition in one transaction or a series of related
transactions of all or substantially all of the Company's
assets other than a disposition of the Company's assets to a
majority-owned Subsidiary.
(g) "Code" means the Internal Revenue Code of 1986, as
amended.
(h) "Committee" means the Compensation Committee appointed by
the Board from time to time as described under Section 19 hereof, or in the
absence of such Committee, the Board.
(i) "Common Stock" means Common Stock, no par value, of the
Company. If the par value of the Common Stock is changed, or in the event of a
change in the capital structure of the Company (as provided in Section 15), the
shares resulting from such a change shall be deemed to be Common Stock within
the meaning of the Plan.
(j) "Company" means Value America, Inc., a Nevada corporation.
(k) "Date of Grant" means the date on which an Incentive Award
is granted by the Committee. If, however, the Committee designates in a
resolution a later date as the date an Incentive Award is to be granted, then
such later date shall be the Date of Grant.
(l) "Disability" or "Disabled" means, as to an ISO, a
Disability within the meaning of Code Section 22(e)(3). As to all other
Incentive Awards, the Committee shall determine whether a Disability exists,
which determination shall be conclusive.
(m) "Fair Market Value" means, on any given date, the value of
a share of Common Stock. If the Common Stock is not publicly traded on the date
of valuation, the value shall be determined by the Committee in good faith using
any reasonable method. If the Common Stock is publicly traded, then Fair Market
Value shall equal (i) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for a single trading day or (ii)
if the Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange, the average of the high and low per share sales prices for the
Common Stock as such price is officially quoted in the composite tape of
transactions on such exchange for a single trading day. If there is no such
reported price for the Common Stock for the date in question, then such price on
the last preceding date for which such price exists shall be determinative of
the Fair Market Value.
(n) "Immediate Family Member" means, with respect to a
particular Participant, the Participant's spouse, children, stepchildren,
grandchildren, parents, grandparents, siblings, and adopted individuals.
(o) "Incentive Award" means any form of an Option, Stock
Appreciation Right, Performance Stock, Restricted Stock, or Tax Offset Right
granted under the Plan.
(p) "Incentive Stock Option" or "ISO" means an Option intended
to meet the requirements of, and qualify for favorable federal income tax
treatment, under Code Section 422.
(q) "Insider" means a person subject to Section 16(b) of the
1934 Act.
(r) "1934 Act" means the Securities Exchange Act of 1934,
as amended.
(s) "1933 Act" means the Securities Act of 1933, as amended.
(t) "Nonstatutory Stock Option" means an Option that does not
meet the requirements of Code Section 422, or, even if meeting the requirements
of Code Section 422, is not intended to be an ISO and is so designated.
(u) "Option" means a right to purchase Common Stock granted
under the Plan, at a price determined in accordance with the Plan and set forth
in an Agreement.
(v) "Participant" means an individual to whom an Incentive
Award is granted under the Plan.
(w) "Performance Stock" means Common Stock awarded when
performance goals are achieved pursuant to an incentive program as provided in
Section 7.
(x) "Permitted Transferee" has the meaning provided in
Section 11(b).
(y) "Plan" means the Value America, Inc. 1997 Stock
Option Plan.
(z) "Reload Feature" means a feature of an Option described in
an Agreement that authorizes the automatic grant of a Reload Option in
accordance with the provisions of Section 10(c).
(aa) "Reload Option" means an Option automatically granted to
a Participant equal to the number of shares of already owned Common Stock
delivered by the Participant to exercise an Option having a Reload Feature.
(bb) "Restricted Stock" means Common Stock awarded upon the
terms and subject to the restrictions set forth in Section 6.
(cc) "Rule 16b-3" means Rule 16b-3 of the Securities and
Exchange Commission promulgated under the 1934 Act. A reference in the Plan to
Rule 16b-3 shall include a reference to any corresponding rule (or number
redesignation) of any amendments to Rule 16b-3 enacted after the effective date
of the Plan's adoption.
(dd) "Stock Appreciation Right" or "SAR" means a right to
receive amounts from the Company granted under Section 9.
(ee) "Ten Percent Shareholder" means any individual who owns,
directly or indirectly, more than 10% of the total combined voting power of all
classes of stock of the Company or of an Affiliate. Indirect ownership of stock
shall be determined in accordance with Code Section 424(d).
(ff) "Tax Offset Right" means a right to receive cash amounts
related to Applicable Withholding Taxes from the Company as described in Section
12 of the Plan.
3. General. All types of Incentive Awards may be granted under the
Plan. Options granted under the Plan may be ISOs or Nonstatutory Stock Options.
4. Stock. Subject to Section 17 of the Plan, there shall be reserved
for issuance under the Plan an aggregate of 1,250,000 shares of Common Stock,
which shall be authorized, but unissued shares. Incentive Awards may be made and
exercised as to whole shares or fractional shares, at the discretion of the
Committee. Shares that have not been issued and shares allocated to options or
portions thereof that expire or otherwise terminate unexercised after the
effective date of the Plan may be subjected to an Incentive Award under the
Plan. If an Incentive Award is terminated or expires, in whole or in part, for
any reason other than its exercise, the number of shares of Common Stock
allocated to the Incentive Award or portion thereof may be reallocated to other
Incentive Awards to be granted under this Plan. Shares of Common Stock subject
to repurchase or forfeiture which are subsequently repurchased or reacquired by
the Company shall also be available for issuance in connection with future
grants of Incentive Awards. For purposes of determining the number of shares
that are available for Incentive Awards under the Plan, such number shall, to
the extent permissible under Rule 16b-3, include the number of shares
surrendered by a Participant or retained by the Company in payment of Applicable
Withholding Taxes; provided, however, that for purposes of Code Section 162(m),
any such shares shall be counted in accordance with the requirements of such
Code Section.
5. Eligibility.
(a) Subject to the sole discretion of the Committee, any
employee, director, officer, consultant, agent, advisor, or independent
contractor of the Company (or any Affiliate including a corporation that becomes
an Affiliate after the adoption of this Plan) is eligible to receive Incentive
Awards; provided that only employees of the Company or its Affiliates may be
granted ISO's. The Committee has the sole discretion to determine for each
Participant the terms and conditions, the nature of the award, and the number of
shares to be allocated to each Participant as part of each Incentive Award. Any
Incentive Award granted under this Plan shall be evidenced by an Agreement which
shall be subject to the applicable provisions of this Plan and to other such
provisions as the Committee may impose.
(b) The grant of an Incentive Award shall not obligate the
Company or any Affiliate to pay a Participant any particular amount of
remuneration, to continue the employment of a Participant after the grant, or to
make further grants to the Participant at any time thereafter.
6. Restricted Stock Awards.
(a) Whenever the Committee deems it appropriate to grant
Restricted Stock, notice shall be given to the Participant stating the number of
shares of Restricted Stock granted and the terms and conditions to which the
Restricted Stock is subject. This notice, when accepted in writing by the
Participant, shall become an Agreement and certificates representing the shares
shall be issued and delivered to the Participant. Restricted Stock may be
awarded by the Committee in its discretion without cash consideration.
(b) Restricted Stock issued pursuant to the Plan shall be
subject to the following restrictions:
(i) No shares of Restricted Stock may be sold,
assigned, transferred, or disposed of by an Insider within a
six-month period beginning on the Date of Grant, and
Restricted Stock may not be pledged, hypothecated, or
otherwise encumbered within a six-month period beginning on
the Date of Grant if such action would be treated as a sale or
disposition under Rule 16b-3.
(ii) No shares of Restricted Stock may be sold,
assigned, transferred, pledged, hypothecated, or otherwise
encumbered or disposed of until the restrictions on such
shares as set forth in the Participant's Agreement have lapsed
or been removed pursuant to paragraph (d) or (e) below.
(iii) If a Participant ceases to be employed by the
Company or an Affiliate, the Participant shall forfeit to the
Company any shares of Restricted Stock on which the
restrictions have not lapsed or been removed pursuant to
paragraph (d) or (e) below on the date such Participant shall
cease to be so employed and the Company shall have no
obligation to pay any amounts with respect to such forfeiture,
unless the Committee determines to the contrary.
(c) Upon the acceptance by a Participant of an award of
Restricted Stock, such Participant shall, subject to the restrictions set forth
in paragraph (b) above, have all the rights of a shareholder with respect to
such shares of Restricted Stock, including, but not limited to, the right to
vote such shares of Restricted Stock and the right to receive all dividends and
other distributions paid thereon. Certificates representing Restricted Stock
shall bear a legend referring to the restrictions set forth in the Plan and the
Participant's Agreement.
(d) The Committee shall establish as to each award of
Restricted Stock the terms and conditions upon which the restrictions set forth
in paragraph (b) above shall lapse. Such terms and conditions may include,
without limitation, the lapsing of such restrictions as a result of the
Disability, death or Retirement of the Participant or the occurrence of a Change
of Control.
(e) Notwithstanding the provisions of paragraphs (b)(ii) and
(iii) above, the Committee may at any time, in its sole discretion, accelerate
the time at which any or all restrictions will lapse or remove any and all such
restrictions.
(f) Until the requirements of Section 12 have been met, no
stock certificate free of a legend reflecting the restrictions set forth in
paragraph (b) above shall be issued to such Participant.
7. Performance Stock Awards.
(a) Performance Stock may be issued pursuant to the Plan in
connection with incentive programs established from time to time by the
Committee when performance criteria established by the Committee as part of the
incentive program have been achieved.
(b) Whenever the Committee deems it appropriate, the Committee
may establish an incentive program and notify Participants of their
participation in and the terms of the incentive program. More than one incentive
program may be established by the Committee and they may operate concurrently or
for varied periods of time and a Participant may be permitted to participate in
more than one incentive program at the same time. Performance Stock will be
issued only subject to the incentive program and the Plan and consistent with
meeting the performance goals set by the Committee. A Participant in an
incentive program shall have no rights as a shareholder until Performance Stock
is issued. Performance Stock may be issued without cash consideration.
(c) A Participant's interest in an incentive program may not
be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered.
8. Stock Options.
(a) Whenever the Committee deems it appropriate to grant
Options, a written agreement shall be given to the Participant stating the
number of shares for which Options are granted, the Option price per share,
whether the Options are ISOs or Nonstatutory Stock Options, the extent to which
SARs are granted (as provided in Section 9), and the conditions to which the
grant and exercise of the Options are subject. This written agreement, when duly
accepted in writing by the Participant, shall become an Agreement.
(b) The exercise price of shares of Common Stock covered by an
ISO shall be not less than 100% of the Fair Market Value of such shares on the
Date of Grant; provided that if an ISO is granted to a Participant who, at the
time of the grant, is a Ten Percent Shareholder, then the exercise price of the
shares covered by the ISO shall be not less than 110% of the Fair Market Value
of such shares on the Date of Grant.
(c) The exercise price of shares covered by a Nonstatutory
Stock Option shall be not less than 85% of the Fair Market Value of such shares
on the Date of Grant.
(d) Options may be exercised in whole or in part at such times
as may be specified by the Committee in the Participant's Agreement, subject to
Section 13; provided that no ISO may be exercised after ten years (or, in the
case of an ISO granted to a Ten Percent Shareholder, five years) from the Date
of Grant. Except as otherwise provided in this Plan, no ISO may be exercised
unless the Participant is employed by the Company or an Affiliate at the time of
the exercise and has been employed by the Company or an Affiliate of the Company
at all times since the Date of Grant. An ISO by its terms, shall be exercisable
in any calendar year only to the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the Common Stock with respect to which ISOs
are exercisable for the first time during the calendar year does not exceed
$100,000 (the "Limitation Amount"). ISOs granted after 1986 under the Plan and
all other plans of the Company and any Affiliate shall be aggregated for
purposes of determining whether the Limitation Amount has been exceeded. The
Board may impose such conditions as it deems appropriate on an ISO to ensure
that the foregoing requirement is met. If ISOs that first become exercisable in
a calendar year exceed the Limitation Amount, the excess will be treated as
Nonstatutory Stock Options to the extent permitted by law.
(e) To obtain certain tax benefits afforded to ISOs under
Section 422 of the Code, the Participant must hold the shares issued upon the
exercise of an ISO for two years after the Date of Grant of the ISO and one year
from the date of exercise. A Participant may be subject to the alternative
minimum tax at the time of exercise of an ISO. The Committee may require a
Participant to give the Company prompt notice of any disposition of shares
acquired by the exercise of an ISO before the expiration of such holding
periods.
(f) Notwithstanding the foregoing, no Option shall be
exercisable within the first six months after it is granted; provided that, this
restriction shall not apply if the Participant becomes Disabled or dies during
the six-month period.
(g) The Committee may, in its sole discretion, grant Options
that by their terms become fully exercisable upon a Change of Control,
notwithstanding other conditions on exercisability in the Agreement.
9. Stock Appreciation Rights.
(a) Whenever the Committee deems it appropriate, SARs may be
granted either in connection with an Option or independent of such. SARs shall
be evidenced in writing as part of the Agreement to which they pertain. The
following provisions apply to all SARs that are granted in connection with
Options:
(i) SARs shall entitle the Participant, upon exercise
of all or any part of the SARs, to surrender to the Company
unexercised that portion of the underlying Option relating to
the same number of shares of Common Stock as is covered by the
SARs (or the portion of the SARs so exercised) and to receive
in exchange from the Company an amount equal to the excess of
(A) the Fair Market Value on the date of exercise of the
Common Stock covered by the surrendered portion of the
underlying Option over (B) the exercise price of the Common
Stock covered by the surrendered portion of the underlying
Option. The Committee may limit the amount that the
Participant will be entitled to receive upon exercise of the
SAR.
(ii) Upon the exercise of a SAR and surrender of the
related portion of the underlying Option, the Option, to the
extent surrendered, shall not thereafter be exercisable.
(iii) Subject to any further conditions upon exercise
imposed by the Board, a SAR shall be exercisable only to the
extent that the related Option is exercisable; provided that
in no event shall a SAR held by an Insider be exercisable
within the first six months after it is awarded even though
the related Option is or becomes exercisable, and a SAR shall
expire no later than the date on which the related Option
expires.
(iv) A SAR may only be exercised at a time when the
Fair Market Value of the Common Stock covered by the SAR
exceeds the exercise price of the Common Stock covered by the
underlying Option.
(b) The manner in which the Company's obligation arising upon
the exercise of a SAR shall be paid shall be determined by the Committee and
shall be set forth in the Participant's Agreement. The Committee may provide for
payment in Common Stock, including fractional shares, or cash, or a combination
thereof, or the Committee may reserve the right to determine the manner of
payment at the time the SAR is exercised. Shares of Common Stock issued upon the
exercise of a SAR shall be valued at their Fair Market Value on the date of
exercise.
10. Method of Exercise of Options and Stock Appreciation Rights.
(a) Options and SARs may be exercised by the Participant
giving written notice of the exercise to the Company, stating the number of
shares the Participant has elected to purchase under the Option or the number of
SARs the Participant has elected to exercise. In the case of the purchase of
shares under an Option, such notice shall be effective only if accompanied by
the exercise price in full in cash; provided that, if the terms of an Option so
permit, the Participant may (i) deliver, or cause to be withheld from the Option
shares, shares of Common Stock (valued at their Fair Market Value on the date of
exercise) that have been held for at least six months if acquired from the
Company and are not subject to any restrictions in satisfaction of all or any
part of the exercise price, (ii) deliver a properly executed exercise notice
together with irrevocable instructions to a broker to deliver promptly to the
Company, from the sale or loan proceeds with respect to the sale of Common Stock
or a loan secured by Common Stock, the amount necessary to pay the exercise
price and, if required by the Committee, Applicable Withholding Taxes, or (iii)
deliver an interest bearing recourse promissory note, payable to the Company, in
payment of all or part of the exercise price together with such collateral as
may be required by the Committee at the time of exercise. The interest rate
under any such promissory note shall be established by the Committee and shall
be at least equal to the minimum interest rate required at the time to avoid
imputed interest under the Code.
(b) The Company may place on any certificate representing
Common Stock issued upon the exercise of an Option or SAR any legend deemed
desirable by the Company's counsel to comply with federal or state securities
laws, and the Company may require a customary written indication of the
Participant's investment intent. Until the Participant has made any required
payment, including any Applicable Withholding Taxes, and has had issued a
certificate for the shares of Common Stock acquired, he shall possess no
shareholder rights with respect to the shares.
(c) If a Participant exercises an Option that has a Reload
Feature by delivering already owned shares of Common Stock in payment of the
exercise price, the Committee shall grant to the Participant a Reload Option.
The Committee shall grant the Reload Option in the same manner as set forth in
Section 8(a). The Reload Option shall be subject to the following restrictions:
(i) The exercise price of shares of Common Stock
covered by a Reload Option shall be not less than 100% of the
Fair Market Value of such shares on the Date of Grant of the
Reload Option;
(ii) If and to the extent required by Rule 16b-3, a
Reload Option shall not be exercisable within the first six
months after it is granted; provided that this restriction
shall not apply if the Participant becomes Disabled or dies
during the six-month period;
(iii) The Reload Option shall be subject to the same
restrictions on exercisability imposed on the underlying
option (possessing the Reload Feature) exercised unless the
Committee specifies different limitations;
(iv) The Reload Option shall not be exercisable until
the expiration of any retention holding period imposed on the
disposition of any shares of Common Stock covered by the
underlying Option (possessing the Reload Feature) delivered;
and
(v) The Reload Option shall not have a Reload Feature.
The Committee may, in its sole discretion, cause the Company to place on any
certificate representing Common Stock issued to a Participant upon the exercise
of an underlying Option (possessing a Reload Feature as evidenced by the
Agreement for such Option) delivered pursuant to this subsection (c), a legend
restricting the sale or other disposition of such Common Stock.
(d) Notwithstanding anything herein to the contrary, at all
times at which the Company has any class of securities registered under Section
12 of the 1934 Act, Options and SARs shall be granted and exercised in such a
manner as to conform to the provisions of Rule 16b-3.
(e) Each Participant shall, before the exercise of any Option,
deliver to the Company any reasonable information the Company deems necessary to
be able to satisfy itself that the shares of Common Stock issuable upon exercise
of an Option will be acquired in accordance with the terms of an applicable
exemption from the securities registration requirements of applicable federal
and state securities law. With respect to Options that are not ISOs and without
limiting the scope of the Company's or the Committee's discretion to withhold
approval or otherwise administer this Plan, approval may be withheld to the
extent that the exercise, either individually or in the aggregate together with
the exercise of other previously exercised Options and/or offers and sales
pursuant to any prior or contemplated offering of securities, would, in the sole
and absolute judgment of the Company, require the filing of a registration
statement with the United States Securities and Exchange Commission or with the
securities commission of any state. The Company shall avail itself of any
exemptions from registration contained in applicable federal and state
securities laws which are reasonably available to the Company on terms which, in
its sole and absolute discretion, it deems reasonable and not unduly burdensome
or costly. If an Option which is not an ISO cannot be exercised at the time it
would otherwise expire due to the restrictions contained in this Section, the
exercise period for that Option shall be extended for successive one-year
periods until that Option can be exercised in accordance with this Section.
11. Nontransferability of Options and Stock Appreciation Rights.
(a) Options and SARs by their terms, shall be exercisable,
during the Participant's lifetime, only by the Participant or, if permitted by
Rule 16b-3, an alternative person under a qualified domestic relations order (as
defined in Code Section 414(p)) ("QDRO"), or by his guardian, duly authorized
attorney-in-fact, executor, administrator, or other legal representative.
(b) An Option or SAR shall not be assigned, alienated,
pledged, attached, sold, transferred, or encumbered by a Participant other than
by will or by the laws of descent and distribution, or in the case of
Nonstatutory Stock Options:
(i) pursuant to a QDRO, or
(ii) by transfer without consideration by a
Participant, subject to such rules as the Committee
may adopt to preserve the purposes of the Plan
(including limiting such transfers to transfers by
Participants who are directors or senior executives),
to
(A) an Immediate Family Member,
(B) a trust solely for the benefit of the
Participant or one or more Immediate Family
Members, or
(C) a partnership or limited liability
company whose only partners or members are
the Participant or one or more Immediate
Family Members,
(each transferee described in (i) - (ii), a "Permitted Transferee"), provided
that the Committee is notified in advance in writing of the terms and conditions
of any proposed transfer intended to be described in (i) or (ii) and it
determines that the proposed transfer complies with the requirements of the Plan
and the applicable option agreement. Any purported assignment, alienation,
pledge, attachment, sale, transfer, or other encumbrance that does not qualify
under (i) or (ii) shall be void and unenforceable against the Company.
(c) The terms of the Option shall apply to the beneficiaries,
executors, and administrators of the Participant and of the permitted
Transferees of the Participant (including the beneficiaries, executors, and
administrators of the Permitted Transferees), including the right to agree to
any amendment of the applicable Agreement, except that Permitted Transferees
shall not transfer any Option other than by will or by the laws of descent and
distribution. In addition, the Permitted Transferee is subject to the same
restrictions as the Participant for purposes of exercise of the Option after
death.
12. Payment of Applicable Withholding Taxes. The Company may require
the Participant to pay to the Company the amount of Applicable Withholding Taxes
with respect to the grant or exercise of any Incentive Award. Subject to the
Plan and applicable law, the Committee may, in its sole discretion, permit the
Participant to satisfy withholding obligations, in whole or in part, by paying
cash, by electing to have the Company withhold shares of Common Stock issuable
upon the exercise of an Incentive Award, or by transferring to the Company
shares of Common Stock that have been held for at least six months if acquired
from the Company and are not subject to any restrictions, in such amounts equal
to the Applicable Withholding Taxes. The Company shall have the right to
withhold from any shares of Common Stock issuable pursuant to an Incentive Award
or from any cash amounts otherwise due or to become due from the Company to the
Participant an amount equal to such taxes. The Company shall have no obligation
to deliver shares of Common Stock until the Applicable Withholding Taxes have
been satisfied.
13. Effect of Death, Disability, or Termination of Employment.
(a) In the event of termination of a Participant's employment
or services for the Company or its Affiliates for any reason other than for
Cause, death, or Disability, such Participant shall have the right to exercise
the Incentive Award at any time within three months after such termination of
employment to the extent of the full number of shares that such Participant was
entitled to purchase under the Incentive Award on the date of termination,
subject to the condition that no Incentive Award shall be exercisable after the
expiration of the term of the Incentive Award.
(b) If a Participant's employment or services is terminated by
the Company or its Affiliates for Cause, his Incentive Awards shall be
terminated as of the date of the misconduct.
(c) If a Participant's employment or services for the Company
or its Affiliates terminate for death or Disability, all Incentive Awards then
held by such Participant under the Plan expire on the earlier of (i) 12 months
from the date of such termination or (ii) the expiration date of such option.
The Incentive Award may be exercised by the personal representatives,
administrators, or guardian of the Participant or by any person or persons to
whom the Incentive Award is transferred by will or the applicable laws of
descent and distribution, but only to the extent of the full number of shares
such Participant was entitled to purchase under the Incentive Award on the date
of such death or termination of employment.
(d) Notwithstanding the foregoing, the Committee shall
establish and set forth in each Incentive Award agreement whether the Incentive
Award will continue to be exercisable, and the terms and conditions of such
exercise, if a Participant ceases to be employed by, or to provide services to,
the Company or its Affiliates, which provisions may be waived or modified by the
Committee at any time. If not so established in the agreement evidencing the
Incentive Award, the Incentive Award will be exercisable according to the
provisions of paragraphs (a), (b), and (c), above, which may be waived or
modified by the Committee at any time. If the Committee extends the
exercisability of an ISO beyond the time provided for in Code Section 422, the
ISO will become a Nonstatutory Stock Option.
<PAGE>
14. Tax Offset Rights.
(a) Whenever the Committee deems it appropriate, Tax Offset
Rights may be granted in connection with Nonstatutory Stock Options, SARs,
Performance Stock, or Restricted Stock. Tax Offset Rights shall be evidenced in
writing as part of the Agreement to which they pertain.
(b) Tax Offset Rights, (i) upon exercise of all or any part of
Nonstatutory Stock Option or SAR, (ii) upon grant of Performance Stock, or (iii)
upon the lapse of restrictions on Restricted Stock, entitle the Participant to
receive in cash from the Company an amount equal to or approximating the
Applicable Withholding Taxes.
(c) A Participant may exercise a Tax Offset Right by giving
the Committee written notice of exercise simultaneously with the exercise of a
Nonstatutory Stock Option or SAR, the receipt of an award of Performance Stock,
or the lapse of restrictions on Restricted Stock. To the extent exercised, the
Tax Offset Right shall lapse.
(d) The Committee may limit the amount the Participant will be
entitled to receive in connection with a Tax Offset Right and may include any
provisions in a Tax Offset Right that the Committee deems appropriate to ensure
that the Tax Offset Right will not be characterized as an "equity security" or
"derivative security" for purposes of Section 16 of the 1934 Act and the rules
and regulations thereunder.
15. Repurchase Rights, Escrow.
(a) The Committee shall have the discretion to authorize the
issuance of unvested shares of Common Stock pursuant to the exercise of an
Incentive Award. In the event of termination of the Participant's employment or
services or breach of a material obligation owed by Participant to the Company
or its Subsidiaries, all shares of Common Stock issued upon exercise of an
Incentive Award which are unvested at the time of cessation of employment or
services shall be subject to repurchase at the exercise price paid for such
shares. The terms and conditions upon which such repurchase right shall be
exercisable (including the period and procedure for exercise) shall be
established by the Committee and set forth in the agreement evidencing such
right. All of the Company's outstanding repurchase rights under this Section
15(a) are assignable by the Company at any time and shall remain in full force
and effect in the event of a Change of Control; provided that if the vesting of
Incentive Awards is accelerated pursuant to Section 18, the repurchase rights
under this Section 15(a) shall terminate and all shares subject to such
terminated rights shall immediately vest in full. The Committee shall have the
discretionary authority, exercisable either before or after the Participant's
cessation of employment or services or breach of a material obligation owed by
Participant to the Company or its Subsidiaries, to cancel the Company's
outstanding repurchase rights with respect to one or more shares purchased or
purchasable by the Participant under an Incentive Award and thereby accelerate
the vesting of such shares in whole or in part at any time.
(b) To ensure that shares of Common Stock acquired upon
exercise of an Incentive Award that are subject to any repurchase right,
stockholders agreement, security for any promissory note, or other restrictions,
including without limitation those set forth in Section 6(b), will be available
for repurchase, the Committee may require the Participant to deposit the
certificate or certificates evidencing such shares with an agent designated by
the Committee under the terms and conditions of escrow and security agreements
approved by the Committee. If the Committee does not require such deposit as a
condition of exercise of an Incentive Award, the Committee reserves the right at
any time to require the Participant to so deposit the certificate or
certificates in escrow. The Company shall bear the expense of the escrow. As
soon as practicable after the expiration of any repurchase rights, stockholders
agreement, or other restrictions, and after full repayment of any promissory
note secured by the shares in escrow, the agent shall deliver to the Participant
the shares no longer subject to such restrictions and no longer security for any
promissory note. In the event shares held in escrow are subject to the Company's
exercise of a repurchase option or stockholders agreement, the notices required
to be given to the Participant shall be given to the agent and any payment
required to be given to the Participant shall be given to the agent. Within 30
days after payment by the Company, the agent shall deliver the shares which the
Company has purchased to the Company and shall deliver the payment received from
the Company to the Participant. In the event of a stock dividend, stock split,
or consolidation of shares or any like capital adjustment of any of the
outstanding securities of the Company, any and all new, substituted or
additional securities or other property to which the Participant is entitled by
reason of ownership of shares acquired upon exercise of an Incentive Award shall
be subject to any repurchase rights, stockholders agreement, and/or security for
any promissory note with the same force and effect as the shares subject to such
repurchase rights, stockholders agreement and/or security interest immediately
before such event
16. Termination, Modification, Change. If not sooner terminated by the
Board, this Plan shall terminate at the close of business ten years after the
effective date as set forth in Section 25 hereof. No Incentive Awards shall be
made under the Plan after its termination. The Board may terminate the Plan or
may amend the Plan in such respects as it shall deem advisable; provided that,
if and to the extent required by the Code or Rule 16b-3, no change shall be made
that increases the total number of shares of Common Stock reserved for issuance
pursuant to Incentive Awards granted under the Plan (except pursuant to Section
17), materially modifies the requirements as to eligibility for participation in
the Plan, or materially increases the benefits accruing to Participants under
the Plan, or unless such change is authorized by the shareholders of the
Company. Notwithstanding the foregoing, the Board may unilaterally amend the
Plan and Incentive Awards as it deems appropriate to ensure compliance with Rule
16b-3 and to cause ISOs to meet the requirements of the Code and regulations
thereunder. Except as provided in the preceding sentence, a termination or
amendment of the Plan shall not, without the consent of the Participant,
adversely affect a Participant's rights under an Incentive Award previously
granted to him.
17. Change in Capital Structure.
(a) In the event of a stock dividend, stock split, combination
of shares, recapitalization, reincorporation, or merger (whether or not the
Company is the surviving corporation), or other change in the Company's capital
stock (including, but not limited to, the creation or issuance to shareholders
generally of rights, options, or warrants for the purchase of common stock or
preferred stock of the Company), the number and kind of shares of stock or
securities of the Company to be subject to the Plan and to Incentive Awards then
outstanding or to be granted thereunder, the maximum number of shares or
securities which may be delivered under the Plan, the exercise price and other
relevant provisions shall be appropriately adjusted by the Committee, whose
determination shall be binding on all persons. The Committee shall have the
authority to cause the surviving corporation in any merger (provided the
surviving corporation agrees) to assume the Plan (including without limitation
all rights and obligations of all parties hereunder and under any Agreement
issued pursuant hereto) with such adjustments, if any, as the Committee shall
deem appropriate, and any such determination by the Committee shall be binding
on all parties. If the adjustment would produce fractional shares with respect
to any unexercised Option, the Committee may, but need not, adjust appropriately
the number of shares covered by the Option so as to eliminate the fractional
shares.
(b) Notwithstanding anything in the Plan to the contrary, the
Committee may take the foregoing actions without the consent of any Participant,
and the Committee's determination shall be conclusive and binding on all persons
for all purposes.
18. Change of Control. Except as otherwise provided in the agreement
that evidences the Incentive Award, in the event of a Change of Control, the
Committee shall determine whether provision will be made in connection with the
Change of Control for an appropriate assumption of the Incentive Awards
theretofore granted under the Plan (which assumption may be effected by means of
a payment to each Participant (by the Company or any other person or entity
involved in the Change of Control), in exchange for the cancellation of the
Incentive Awards held by such Participant, of the difference between the then
Fair Market Value of the aggregate number of shares of Common Stock then subject
to such Incentive Awards and the aggregate exercise price that would have to be
paid to acquire such shares) or for substitution of appropriate new Incentive
Awards covering stock of a successor corporation to the Company or stock of an
Affiliate of such successor corporation. If the Committee determines that such
an assumption or substitution will be made, the Committee shall give notice of
such determination to the Participants, and the provisions of such assumption or
substitution, and any adjustments made (i) to the number and kind of shares
subject to the outstanding Incentive Awards (or to the options in substitution
therefor), (ii) to the exercise prices, and/or (iii) to the terms and conditions
of the stock options, shall be binding on the Participants. Any such
determination shall be made in the sole discretion of the Committee and shall be
final, conclusive, and binding on all Participants. If the Committee, in its
sole discretion, determines that no such assumption or substitution will be
made, the Committee shall give notice of such determination to the Participants,
and each Incentive Award that is at the time outstanding shall automatically
accelerate so that each such Incentive Award shall, immediately before the
specified effective date for the Change of Control, become 100% vested and
exercisable, except that such acceleration will not occur if, in the opinion of
the Company's outside accountants, it would render unavailable "pooling of
interest" accounting for a Change of Control that would otherwise qualify for
such accounting treatment. All such Incentive Awards shall terminate and cease
to remain outstanding immediately following the consummation of the Change of
Control, except to the extent assumed by the successor corporation or an
Affiliate thereof.
19. Administration of the Plan. The Plan shall be administered by the
Committee, which shall consist of not less than two members of the Board, who
shall be appointed by the Board. The Committee shall have general authority to
impose any limitation or condition upon an Incentive Award the Committee deems
appropriate to achieve the objectives of the Incentive Award and the Plan and,
without limitation and in addition to powers set forth elsewhere in the Plan,
shall have the following specific authority:
(a) The Committee shall have the power and sole and complete
discretion to determine (i) which eligible persons shall receive Incentive
Awards and the nature of each Incentive Award, (ii) the number of shares of
Common Stock to be covered by each Incentive Award, (iii) whether Options shall
be ISOs or Nonstatutory Stock Options, (iv) when, whether, and to what extent
SARs shall be granted in connection with Options, (v) when, whether and to what
extent Tax Offset Rights shall be granted and the terms thereof, (vi) the time
or times when an Incentive Award shall be granted, (vii) whether an Incentive
Award shall become vested over a period of time and when it shall be fully
vested, (viii) when Options and SARs may be exercised, (ix) whether a Disability
exists, (x) the manner in which payment will be made upon the exercise of
Options or SARs, (xi) conditions relating to the length of time before
disposition of Common Stock received upon the exercise of Options or SARs is
permitted, (xii) whether to approve a Participant's election (A) to deliver
shares of already owned Common Stock to satisfy Applicable Withholding Taxes or
(B) to have the Company withhold from the shares to be issued upon the exercise
of a Nonstatutory Stock Option or SAR the number of shares necessary to satisfy
Applicable Withholding Taxes, (xiii) the terms and conditions applicable to
Restricted Stock Awards, (xiv) the terms and conditions on which restrictions
upon Restricted Stock shall lapse, (xv) whether to accelerate the time at which
any or all restrictions with respect to Restricted Stock will lapse or be
removed, (xvi) notice provisions relating to the sale of Common Stock acquired
under the Plan, (xvii) the terms of incentive programs, performance criteria,
and other factors relevant to the issuance of Performance Stock, and (xviii) any
additional requirements relating to Incentive Awards that the Committee deems
appropriate. Notwithstanding the foregoing, no "tandem stock options" (where two
stock options are issued together and the exercise of one option affects the
right to exercise the other option) may be issued in connection with ISOs. The
Committee shall have the power to amend the terms of previously granted
Incentive Awards so long as the terms as amended are consistent with the terms
of the Plan and provided that the consent of the Participant is obtained with
respect to any amendment that would be detrimental to him, except that such
consent will not be required if such amendment is for the purpose of complying
with Rule 16b-3 or any requirement of the Code applicable to the Incentive
Award.
(b) The Committee may adopt rules and regulations for carrying
out the Plan. The interpretation and construction of any provision of the Plan
by the Committee shall be final and conclusive. The Committee may consult with
counsel, who may be counsel to the Company, and shall not incur any liability
for any action taken in good faith in reliance upon the advice of counsel.
(c) A majority of the members of the Committee shall
constitute a quorum, and all actions of the Committee shall be taken by a
majority of the members present. Any action may be taken by a written instrument
signed by all of the members, and any action so taken shall be fully effective
as if it had been taken at a meeting.
(d) If and so long as the Common Stock is registered under
Section 12 of the 1934 Act, the Board shall consider in selecting the membership
of the Committee, with respect to any person subject or likely to become subject
to Section 16 of the 1934 Act, the provisions regarding (a) "outside directors"
as contemplated by Code Section 162(m) and (b) "nonemployee directors" as
contemplated by Rule 16b-3 under the 1934 Act. The Committee may consist of two
or more members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such terms as the Board may
determine, subject to removal by the Board at any time.
20. Market Standoff.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the 1933 Act, including the Company's initial public offering, a
person shall not sell, or make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, otherwise dispose or transfer for value,
or otherwise agree to engage in any of the foregoing transactions with respect
to, any shares issued pursuant to an Incentive Award granted under the Plan
without the prior written consent of the Company or its underwriters. Such
limitations shall be in effect only if and to the extent and for such period of
time as may be requested by the Company or such underwriters and agreed to by
the Company's officers and directors; provided, however, that in no event shall
the weighted average number of days in the portion of such period that occurs
after the effective date of the Company's registration statement exceed 180
days. The limitations of this paragraph shall in all events terminate two years
after the effective date of the Company's initial public offering.
(b) In the event of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares, or other change
affecting the Company's outstanding Common Stock affected as a class without the
Company's receipt of consideration, then any new, substituted or additional
securities distributed with respect to the purchased shares shall be immediately
subject to the provisions of this Section 20, to the same extent the purchased
shares are at such time covered by such provisions.
(c) To enforce the limitations of this Section 20, the Company
may impose stop-transfer instructions with respect to the purchase shares and
any new, substituted or additional securities distributed with respect to the
purchased shares until the end of the applicable standoff period.
21. Registration.
(a) The Company shall be under no obligation to any
Participant to register for offering or resale or to qualify for exemption under
the 1933 Act, or to register or qualify under state securities laws, any shares
of Common Stock, security or interest in a security paid or issued under, or
created by, the Plan, or to continue in effect any such registrations or
qualifications if made. The Company may issue certificates for shares with such
legends and subject to such restrictions on transfer and stop-transfer
instructions as counsel for the Company deems necessary or desirable for
compliance by the Company with federal and state securities laws.
(b) Inability of the Company to obtain, from any regulatory
body having jurisdiction, the authority deemed by the Company's counsel to be
necessary for the lawful issuance and sale of any shares hereunder or the
unavailability of an exemption from registration for the issuance and sale of
any shares hereunder shall relieve the Company of any liability in respect of
the nonissuance or sale of such shares as to which such requisite authority
shall not have been obtained.
(c) As a condition to the exercise of an Incentive Award, the
Company may require the Participant to represent and warrant at the time of any
such exercise or receipt that such shares are being purchased or received only
for the Participant's own account and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any relevant provision of the aforementioned laws.
At the option of the Company, a stop-transfer order against any such shares may
be placed on the official stock books and records of the Company, and a legend
indicating that such shares may not be pledged, sold or otherwise transferred,
unless an opinion of counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on stock certificates to ensure exemption from
registration. The Committee may also require such other action or agreement by
the Participant as may from time to time be necessary to comply with the federal
and state securities laws.
22. Compliance With Laws and Approval of Regulatory Bodies. No Option
or SAR shall be exercisable, no Common Stock shall be issued, no certificates
for shares of Common Stock shall be delivered, and no payment shall be made
under this Plan except in compliance with all applicable federal and state laws
and regulations (including, without limitation, withholding tax requirements)
and the rules of all domestic stock exchanges on which the Company's shares may
be listed. The Company shall have the right to rely on an opinion of its counsel
as to such compliance. Any share certificate issued to evidence Common Stock for
which an Option or SAR is exercised may bear such legends and statements as the
Committee may deem advisable to assure compliance with federal and state laws
and regulations. No Option or SAR shall be exercisable, no Common Stock shall be
issued, no certificate for shares shall be delivered, and no payment shall be
made under this Plan until the Company has obtained such consent or approval as
the Committee may deem advisable from regulatory bodies having jurisdiction over
such matters. The exercise of any Option granted under this Plan shall
constitute a Participant's full and complete consent to whatever action the
Committee deems necessary to satisfy any federal and state tax withholding
requirements which the Committee, acting in its discretion, deems applicable to
such exercise.
23. Notice. All notices and other communications required or permitted
to be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows: (a) if to the Company - at its principal business address to the
attention of the Treasurer and (b) if to any Participant - at the last address
of the Participant known to the sender at the time the notice or other
communication is sent.
24. Interpretation. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury or his
delegate relating to the qualification of ISOs under the Code. If any provision
of the Plan conflicts with any such regulation or ruling, then that provision of
the Plan shall be void and of no effect. The terms of this Plan shall be
governed by the laws of the Commonwealth of Virginia.
25. Effective Date of the Plan. This Plan shall be effective on August
1, 1997, and shall be submitted to the shareholders of the Company for approval.
Until (i) the Plan has been approved by the Company's shareholders, and (ii) the
requirements of any applicable State securities laws have been met, no
Restricted Stock shall be awarded, no Performance Stock shall be issued and no
Option or SAR shall be exercisable.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted as
set forth herein this 1st day of August, 1997.
VALUE AMERICA, INC.
By: /s/ Rex Scatena
---------------
Its: President
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
--------------------------------------------------
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is entered into as of June 26, 1998, by and among VALUE AMERICA,
INC. (the "Company"), a Virginia corporation, and each of the entities and
individuals listed on Annex A hereto (individually referred to herein as an
"Investor" and collectively as the "Investors").
R E C I T A L S
A. Pursuant to the Registration Rights Agreement dated as of
December 17, 1997 (the "Prior Registration Rights Agreement"), by and between
the Company and Union Labor Life Insurance Company, a Maryland corporation
acting on behalf of its Separate Account P ("Ullico"), the Company granted
Ullico certain rights regarding registration of the Company's securities.
B. The Company and Ullico desire to terminate the Prior
Registration Rights Agreement and accept the rights created pursuant hereto in
lieu of the rights granted to Ullico under the Prior Registration Rights
Agreement.
C. Concurrently with entering into this Agreement, the Company
and the Investors are entering into a Preferred Stock Purchase Agreement of even
date herewith, pursuant to which the Investors agree to purchase 617,979 shares
of Series B Preferred Stock of the Company (the "Preferred Stock Purchase
Agreement") from the Company on the terms and subject to the conditions
appearing therein, and the execution and delivery of this Agreement by the
parties hereto are a condition to the Investors' obligation to purchase the
Series B Preferred Stock.
A G R E E M E N T
THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Unless the context otherwise requires, the terms
defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined.
"Agreement" means this Amended and Restated Registration Rights
Agreement.
"Board" means the Board of Directors of the Company.
"Common Stock" means the common stock of the Company, without par value
per share.
"Commission" means the Securities and Exchange Commission.
"Equity Security" has the meaning assigned to it in the Preferred Stock
Purchase Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE>
"Holder" of any security means the record or beneficial owner of such
security. A Holder of Preferred Stock shall be treated as the Holder of the
Registrable Securities underlying such Preferred Stock.
"Holders of a Majority of the Registrable Securities" means the Person
or Persons who are the Holders of greater than 50% of the shares of Registrable
Securities then outstanding.
"Initiating Holders" means (i) with respect to each registration
pursuant to Section 2, other than on Form S-3, the Holder or Holders of at least
25% of the shares of Registrable Securities then outstanding, and (ii) with
respect to a registration on Form S-3, the Holder or Holders of Registrable
Securities having an anticipated public offering price of at least $5.0 million
at the time the demand for registration is given under Section 2.
"Investors" has the meaning assigned to it in the introductory
paragraph of this Agreement.
"Person" includes any natural person, corporation, trust, association,
company, partnership, joint venture and other entity and any government,
governmental agency, instrumentality or political subdivision.
"Preferred Stock" means the Series B Preferred Stock, without par
value, of the Company.
"Preferred Stock Purchase Agreement" means the Preferred Stock Purchase
Agreement dated as of the date hereof, among the Company and the Investors.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Prior Purchase Agreement" means that certain Preferred Stock Purchase
Agreement dated as of December 17, 1997, between the Company and Ullico.
"Prior Registration Rights Agreement" means that certain Registration
Rights Agreement dated as of December 17, 1997, between the Company and Ullico.
<PAGE>
"Registrable Securities" means (1) all Common Stock owned now or in the
future by the Investors, (2) the Common Stock issued or issuable upon conversion
of the Preferred Stock issued and sold pursuant to the Preferred Stock Purchase
Agreement, whether owned by the Investors or not, (3) the Common Stock issued or
issuable upon conversion of the Series A Preferred Stock, without par value, of
the Company issued and sold pursuant to the Prior Purchase Agreement, whether
owned by Ullico or not, and (4) any securities issued or issuable with respect
to the Common Stock referred to in clauses (1), (2) and (3) above by way of a
stock dividend or stock split or in connection with a combination of shares,
reclassification, recapitalization, merger or consolidation or reorganization;
provided, however, that such shares of Common Stock shall (a) only be treated as
Registrable Securities if and so long as they have not been (i) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect to such Common Stock are removed upon the consummation of such sale
and the seller and purchaser of such Common Stock receive an opinion of counsel
for the Company, which shall be in form and content reasonably satisfactory to
the seller and buyer and their respective counsel, to the effect that such
Common Stock in the hands of the purchaser is freely transferable without
restriction or registration under the Securities Act in any public or private
transaction, and (b) not be treated as Registrable Securities after the Company
has completed its initial firmly underwritten public offering registered under
the Securities Act if the Holder thereof is lawfully able to sell such shares of
Common Stock without registration and in compliance with all other applicable
securities laws and in reliance upon Rule 144 (k) of the Commission and has
received a reasonably satisfactory opinion of the Company's counsel (which
counsel is reasonably satisfactory to such Holder) and its own counsel to this
effect and all transfer restrictions and restrictive legends have been removed
from the certificates evidencing such shares.
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
2. Required Registration
(a) If and whenever the Company shall receive a written
request therefor from Initiating Holders, the Company agrees to prepare and file
promptly a registration statement under the Securities Act covering the shares
of Registrable Securities which are the subject of such request and agrees to
use its best efforts to cause such registration statement to become effective as
expeditiously as possible. Upon the receipt of such request, the Company agrees
to give promptly written notice to all Holders of Registrable Securities that
such registration is to be effected. The Company agrees to include in such
registration statement such shares of Registrable Securities for which it has
received written requests to register such shares by the Holders thereof within
thirty (30) days after the receipt of written notice from the Company.
(b) The Company shall be obligated to prepare, file and cause
to become effective only two registration statements pursuant to this Section 2,
excluding registration statements on Form S-3 which shall not count for purposes
of this limitation. The Company shall not be obligated to effect more than one
registration on Form S-3 under this Section 2 during any six-month period and
shall be obligated to prepare, file and cause to become effective only six
registration statements on Form S-3 pursuant to this Section 2.
(c) The Company shall not be required by this Section 2 to
effect a registration of Registrable Securities pursuant to any registration
statement, other than on Form S-3, unless the proposed public offering price of
the securities to be included in such registration shall be at least $5.0
million (before deducting underwriting discounts and commissions). A
registration under this Section 2 shall be on a form selected by the Holders of
a majority of the shares of Registrable Securities to be included in such
registration.
<PAGE>
(d) If the Holders initiating a request for the registration
of Registrable Securities pursuant to this Section 2 intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they agree to provide the Company with the name of the managing underwriter or
underwriters (the "managing underwriter") that a majority interest of the
Initiating Holders requesting such registration propose to employ, as a part of
their request made pursuant to this Section 2, and the Company agrees to include
such information in its written notice referred to in Section 2(a). In such
event the right of any Holder to registration pursuant to this Section 2 shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent requested (unless otherwise mutually agreed by the Holders of a Majority
of the Registrable Securities initiating such request for registration and such
Holder) to the extent provided herein. All Holders proposing to distribute their
securities through such underwriting agree to enter into (together with the
Company) an underwriting agreement with the underwriter or underwriters selected
for such underwriting, in the manner set forth above, provided that such
underwriting agreement is in customary form and is reasonably acceptable to the
Holders of a majority of the shares of Registrable Securities to be included in
such registration.
(e) Notwithstanding any other provision of this Section 2, if
the managing underwriter of an underwritten distribution advises the Company and
the Holders of Registrable Securities participating in such registration in
writing that in its good faith judgment the number of shares of Registrable
Securities requested to be included in such registration exceeds the number of
shares of Registrable Securities which can be sold in such offering, then (i)
the number of shares of Registrable Securities so requested to be included in
such registration shall be reduced to that number of shares which in the good
faith judgment of the managing underwriter can be sold in such offering and (ii)
this reduced number of shares shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective number of shares of
Registrable Securities held by such Holders at the time of filing the
registration statement. Those Registrable Securities and other securities which
are excluded from the underwriting by reason of the managing underwriter's
marketing limitation and all other Registrable Securities not originally
requested to be so included shall not be included in such registration and shall
be withheld from the market by the Holders thereof for a period, not to exceed
one hundred and eighty (180) days, which the managing underwriter reasonably
determines is necessary to effect the underwritten public offering.
(f) If the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company and, subject to the
requirements of Section 7 hereof, other holders of the Company's securities may
include securities for its (or their) own account in such registration if the
managing underwriter so agrees and if the number of Registrable Securities which
would otherwise have been included in such registration and underwriting will
not thereby be limited.
<PAGE>
3. Incidental Registration
(a) Each time the Company shall determine to file a
registration statement under the Securities Act other than pursuant to Section 2
hereof and other than on Form S-4 or S-8 in connection with the proposed offer
and sale for money of any of its securities either for its own account or on
behalf of any other security holder, the Company agrees to give prompt written
notice of its determination to all Holders of Registrable Securities. Upon the
written request of a Holder of any shares of Registrable Securities given within
thirty (30) days after the receipt of such written notice from the Company, the
Company agrees to cause all such Registrable Securities, the Holders of which
have so requested registration thereof, to be included in such registration
statement and registered under the Securities Act, all to the extent requisite
to permit the sale or other disposition by the prospective seller or sellers of
the Registrable Securities to be so registered.
(b) If the registration of which the Company gives written
notice pursuant to Section 3(a) is for a public offering involving an
underwriting, the Company agrees to so advise the Holders as a part of its
written notice. In such event the right of any Holder to registration pursuant
to this Section 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting agree to enter into
(together with the Company and the other holders distributing their securities
through such underwriting) an underwriting agreement with the underwriter or
underwriters selected for such underwriting by the Company, provided that such
underwriting agreement is in customary form and is reasonably acceptable to the
Holders of a majority of the shares of Registrable Securities requested to be
included in such registration.
(c) Notwithstanding any other provision of this Section 3, if
the managing underwriter of an underwritten distribution advises the Company and
the Holders of the Registrable Securities participating in such registration in
writing that in its good faith judgment the number of shares of Registrable
Securities and the other securities requested to be registered exceeds the
number of shares of Registrable Securities and other securities which can be
sold in such offering, then (i) the number of shares of Registrable Securities
and other securities so requested to be included in the offering shall be
reduced to that number of shares which in the good faith judgment of the
managing underwriter can be sold in such offering (except for (x) shares to be
included pursuant to demand registration rights granted by the Company in
accordance with Section 7 hereof, in an offering initiated upon the exercise of
such rights, (y) shares to be issued by the Company in an offering initiated by
the Company, which shall have priority over the shares of Registrable
Securities, and (z) that number of shares of Common Stock with a proposed public
offering price not to exceed, in the aggregate, $7.0 million to be sold by Craig
Winn and Rex Scatena upon the exercise of the over-allotment option granted to
the managing underwriters of the initial public offering pursuant to an
effective registration statement under the Securities Act covering the offering
and sale of the Common Stock of the Company for the account of the Company),
provided, however that, in connection with a public offering of the Company's
Common Stock pursuant to an effective registration statement under the
Securities Act (other than the initial public offering), in no event shall the
number of shares of Registrable Securities be reduced below that number of
shares equal to 20% of the aggregate number of shares of Registrable Securities
and all other securities to be sold in such offering, and (ii) such reduced
number of shares shall be allocated among all participating Holders of
Registrable Securities and the holders of other securities in proportion, as
nearly as practicable, to the respective number of shares of Registrable
Securities and other securities held by such Holders and other holders at the
time of filing the registration statement. All Registrable Securities and other
securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation and all other Registrable Securities not
originally requested to be so included shall not be included in such
registration and shall be withheld from the market by the Holders thereof for a
period, not to exceed one hundred and eighty (180) days, which the managing
underwriter reasonably determines is necessary to effect the underwritten public
offering.
<PAGE>
4. Registration Procedures. If and whenever the Company is required by
the provisions of Section 2 or 3 hereof to effect the registration of
Registrable Securities under the Securities Act, the Company, at its expense
and as expeditiously as possible, agrees to:
(a) In accordance with the Securities Act and all applicable
rules and regulations, prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective until the securities
covered by such registration statement have been sold, and prepare and file with
the Commission such amendments and supplements to such registration statement
and the prospectus contained therein as may be necessary to keep such
registration statement effective and such registration statement and prospectus
accurate and complete until the securities covered by such registration
statement have been sold;
(b) If the offering is to be underwritten in whole or in part,
enter into a written underwriting agreement in form and substance reasonably
satisfactory to the managing underwriter of the public offering and the Holders
of a majority of the Registrable Securities participating in such offering;
(c) Furnish to the Holders of securities participating in such
registration and to the underwriters of the securities being registered such
number of copies of the registration statement and each amendment and supplement
thereto, preliminary prospectus, final prospectus and such other documents as
such underwriters and Holders may reasonably request in order to facilitate the
public offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue sky
laws of such jurisdictions as such participating Holders and underwriters may
reasonably request within ten (10) days prior to the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified;
(e) Notify the Holders participating in such registration,
promptly after it shall receive notice thereof, of the date and time when such
registration statement and each post-effective amendment thereto has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(f) Notify such Holders promptly of any request by the
Commission for the amending or supplementing of such registration statement or
prospectus or for additional information;
(g) Prepare and file with the Commission, promptly upon the
request of any such Holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such Holders, is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Registrable Securities by such Holders;
<PAGE>
(h) Prepare and file promptly with the Commission, and
promptly notify such Holders of the filing of, such amendments or supplements to
such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event has
occurred as the result of which any such prospectus or any other prospectus as
then in effect would include an 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 not misleading;
(i) In case any of such Holders or any underwriter for any
such Holders is required to deliver a prospectus at a time when the prospectus
then in circulation is not in compliance with the Securities Act or the rules
and regulations of the Commission, prepare promptly upon request such amendments
or supplements to such registration statement and such prospectus as may be
necessary in order for such prospectus to comply with the requirements of the
Securities Act and such rules and regulations;
(j) Advise such Holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(k) Not file any registration statement or prospectus or any
amendment or supplement to such registration statement or prospectus to which
the Holders of a majority of the Registrable Securities included or to be
included in a registration have reasonably objected on the grounds that such
registration statement or prospectus or amendment or supplement thereto does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished with a copy
thereof at least five (5) business days prior to the filing thereof; provided,
however, that the failure of such Holders or their counsel to review or object
to any registration statement or prospectus or any amendment or supplement to
such registration statement or prospectus shall not affect the rights of such
Holders or their respective officers, directors, partners, legal counsel,
accountants or controlling Persons or any underwriter or any controlling Person
of such underwriter under Section 6 hereof;
(l) Make available for inspection upon request by any Holder
of Registrable Securities covered by such registration statement, by any
managing underwriter of any distribution to be effected pursuant to such
registration statement and by any attorney, accountant or other agent retained
by any such Holder or any such underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause all of
the Company's officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney, accountant or
agent in connection with such registration statement; and
<PAGE>
(m) At the request of any Holder of Registrable Securities
covered by such registration statement, furnish to such Holder on the effective
date of the registration statement or, if such registration includes an
underwritten public offering, at the closing provided for in the underwriting
agreement, (i) an opinion dated such date of the counsel representing the
Company for the purposes of such registration, addressed to the underwriters, if
any, and to the Holder or Holders making such request, covering such matters
with respect to the registration statement, the prospectus and each amendment or
supplement thereto, proceedings under state and federal securities laws, other
matters relating to the Company, the securities being registered and the offer
and sale of such securities as are customarily the subject of opinions of
issuer's counsel provided to underwriters in underwritten public offerings, and
such opinion of counsel shall additionally cover such legal matters with respect
to the registration as such requesting Holder or Holders may reasonably request,
and (ii) letters dated each of such effective date and such closing date, from
the independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the Holder or Holders making such request, stating
that they are independent certified public accountants within the meaning of the
Securities Act and dealing with such matters as the underwriters may request, or
if the offering is not underwritten that in the opinion of such accountants the
financial statements and other financial data of the Company included in the
registration statement or the prospectus or any amendment or supplement thereto
comply in all material respects with the applicable accounting requirements of
the Securities Act, and additionally covering such other accounting and
financial matters, including information as to the period ending not more than
five (5) business days prior to the date of such letter with respect to the
registration statement and prospectus, as such requesting Holder or Holders may
reasonably request.
5. Expenses
(a) With respect to each registration effected pursuant to
Section 2 hereof and with respect to each inclusion of shares of Registrable
Securities in a registration statement pursuant to Section 3 hereof, the Company
agrees to bear all fees, costs and expenses of and incidental to such
registration and the public offering in connection therewith; provided, however,
that security holders participating in any such registration agree to bear their
pro rata share of the underwriting discount and commissions.
(b) The fees, costs and expenses of registration to be borne
as provided in paragraph (a) above, shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, fees and disbursements of counsel for
the underwriter or underwriters of such securities (if the Company and/or
selling security holders are otherwise required to bear such fees and
disbursements), all legal fees and disbursements and other expenses of complying
with state securities or blue sky laws of any jurisdictions in which the
securities to be offered are to be registered or qualified, reasonable fees and
disbursements of one firm of counsel for the selling security holders, selected
by the Holders of a majority of the shares of Registrable Securities to be
included in such registration, and the premiums and other costs of policies of
insurance against liability arising out of such public offering.
6. Indemnification
<PAGE>
(a) The Company hereby agrees to indemnify and hold harmless
each Holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of this Agreement and each of such Holder's
officers, directors, partners, legal counsel and accountants, and each Person
who controls such Holder within the meaning of the Securities Act and any
underwriter (as defined in the Securities Act) for such Holder, and any Person
who controls such underwriter within the meaning of the Securities Act, from and
against, and agrees to reimburse such Holder, its officers, directors, partners,
legal counsel, accountants and controlling Persons and each such underwriter and
controlling Person of such underwriter with respect to, any and all claims,
actions (actual or threatened), demands, losses, damages, liabilities, costs and
expenses to which such Holder, its officers, directors, partners, legal counsel,
accountants or controlling Persons, or any such underwriter or controlling
Person of such underwriter may become subject under the Securities Act or
otherwise, insofar as such claims, actions, demands, losses, damages,
liabilities, costs or expenses arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such case to the extent that any such
claim, action, demand, loss, damage, liability, cost or expense is caused by an
untrue statement or alleged untrue statement or omission or alleged omission so
made in strict conformity with written information furnished by such Holder,
such underwriter or such controlling Person specifically for use in the
preparation thereof.
(b) Each Holder of shares of Registrable Securities which are
included in a registration statement pursuant to the provisions of this
Agreement hereby agrees, severally (in the proportion that the number of shares
sold by it bears to the total number of shares sold in the applicable
registration) and not jointly, to indemnify and hold harmless the Company, its
officers, directors, legal counsel and accountants and each Person who controls
the Company within the meaning of the Securities Act, from and against, and
agrees to reimburse the Company, its officers, directors, legal counsel,
accountants and controlling Persons with respect to, any and all claims,
actions, demands, losses, damages, liabilities, costs or expenses to which the
Company, its officers, directors, legal counsel, accountants or such controlling
Persons may become subject under the Securities Act or otherwise, insofar as
such claims, actions, demands, losses, damages, liabilities, costs or expenses
are caused by any untrue or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or are caused by the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in strict conformity with
written information furnished by such Holder specifically for use in the
preparation thereof. Notwithstanding the foregoing, no Holder of Registrable
Securities shall be obligated hereunder to pay more than the net proceeds
realized by it upon its sale of Registrable Securities included in such
registration statement.
<PAGE>
(c) Promptly after receipt by a party indemnified pursuant to
the provisions of subsection (a) or (b) of this Section 6 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to the provisions of subsection (a)
or (b), notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 6 and shall not relieve the indemnifying party from liability under this
Section 6 unless such indemnifying party is prejudiced by such omission. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying parties similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties). Upon the permitted assumption by the indemnifying party of the defense
of such action, and approval by the indemnified party of counsel, the
indemnifying party shall not be liable to such indemnified party under
subsection (a) or (b) for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof (other than
reasonable costs of investigation) unless (i) the indemnified party shall have
employed separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence, (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time,
(iii) the indemnifying party and its counsel do not actively and vigorously
pursue the defense of such action, or (iv) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim without the consent of the
indemnifying party, and no indemnifying party may unreasonably withhold its
consent to any such settlement. No indemnifying party will consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability with respect to such claim or
litigation.
<PAGE>
(d) If the indemnification provided for in subsection (a) or
(b) of this Section 6 is held by a court of competent jurisdiction to be
unavailable to a party to be indemnified with respect to any claims, actions,
demands, losses, damages, liabilities, costs or expenses referred to therein,
then each indemnifying party under any such subsection, in lieu of indemnifying
such indemnified party thereunder, hereby agrees to contribute to the amount
paid or payable by such indemnified party as a result of such claims, actions,
demands, losses, damages, liabilities, costs or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such claims, actions, demands, losses,
damages, liabilities, costs or expenses, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the amount
any Holder of Registrable Securities shall be obligated to contribute pursuant
to this subsection (d) shall be limited to an amount equal to the per share
public offering price (less any underwriting discount and commissions)
multiplied by the number of shares of Registrable Securities sold by such Holder
pursuant to the registration statement which gives rise to such obligation to
contribute (less the aggregate amount of any damages which such Holder has
otherwise been required to pay in respect of such claim, action, demand, loss,
damage, liability, cost or expense or any substantially similar claim, action,
demand, loss, damage, liability, cost or expense arising from the sale of such
Registrable Securities).
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution hereunder
from any person who was not guilty of such fraudulent misrepresentation.
(e) In addition to its other obligations under this Section 6,
the Company further agrees to reimburse each Holder of Registrable Securities
included in a registration statement pursuant to this Agreement (and each of
such Holder's controlling Persons, officers, directors, parties, legal counsel,
accountants and underwriters (and controlling Persons of such underwriters)) on
a semi-annual basis for all reasonable legal fees and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or admission, described in subsection (a) of
this Section 6, notwithstanding the possibility that such payments might later
be held to be improper. To the extent that any payment is ultimately held to be
improper, each Person receiving such payment shall promptly refund such payment.
7. Future Registration Rights. Except as expressly permitted by this
Agreement and except for an underwriting agreement between the Company and
one or more professional underwriters of securities, the Company shall not
enter into any agreement to register any Equity Securities under the
Securities Act unless such agreement specifically provides that (a) the holder
of such Equity Securities may not participate in any registration requested
pursuant to Section 2 hereof without the written consent of the Holders of a
majority of the shares of Registrable Securities included in such registration
unless (i) the sale of the Registrable Securities is to be underwritten on a
firm commitment basis and the managing underwriter in its good faith judgment
concludes that the public offering or sale of such Equity Securities would
not cause the number of shares of Registrable Securities and such Equity
Securities to exceed the number which can be sold in such offering, and (ii)
the Holders of Registrable Securities shall have the right to participate, to
the extent that they may request, in any registration statement initiated
under a demand registration right exercised by the holder of such Equity
Securities, except that if the managing underwriter of a public offering made
pursuant to such a demand registration limits the number of shares of Common
Stock to be sold, the participation of the Holders of Registrable
Securities and the holders of all other Common Stock (other than the Equity
Securities held by such holder of Equity Securities) shall be pro rata based
upon the number of shares of Registrable Securities and Common Stock held at
the time of filing the registration statement, (b) the holder of such Equity
Securities may not participate in any registration requested pursuant to Section
3 hereof if the sale of Registrable Securities is to be underwritten unless, if
the managing underwriter limits the total number of securities to be sold, the
holders of such Equity Securities and the Holders of Registrable Securities are
entitled to participate in such underwritten distribution pro rata based upon
the number of shares of Common Stock and Registrable Securities held at the time
of filing the registration statement, and (c) all Equity Securities excluded
from any registration as a result of the foregoing limitations shall not be
included in such registration and may not be publicly offered or sold for such
period as the managing underwriter of such registered distribution may
reasonably request.
<PAGE>
8. Reporting Requirements Under the Exchange Act. When it is first
legally required to do so, the Company agrees to register its Common Stock
under Section 12 of the Exchange Act and agrees to keep effective such
registration and to file timely such information, documents and reports as the
Commission may require or prescribe under Section 13 of the Exchange Act.
From and after the effective date of the first registration statement filed
by the Company under the Securities Act, the Company agrees to file timely
(whether or not it shall then be required to do so) such information,
documents and reports as the Commission may require or prescribe under Section
13 or 15(d) (whichever is applicable) of the Exchange Act. Upon becoming
subject to the reporting requirements of either Section 13 or 15(d) of the
Exchange Act, the Company forthwith upon request agrees to furnish to any
Holder of Registrable Securities (a) a written statement by the Company that it
has complied with such reporting requirements, (b) a copy of the most recent
annual or quarterly report of the Company and (c) such other reports and
documents filed by the Company with the Commission as such Holder may reasonably
request in availing itself of an exemption for the sale of Registrable
Securities without registration under the Securities Act. The Company
acknowledges and agrees that the purposes of the requirements contained in this
Section 8 are (a) to enable any such Holder to comply with the current public
information requirement contained in paragraph (c) of Rule 144 under the
Securities Act should such Holder ever wish to dispose of any of the securities
of the Company acquired by it without registration under the Securities Act in
reliance upon Rule 144 (or any other similar exemptive provision) and (b) to
qualify the Company for the use of registration statements on Form S-3. In
addition, the Company agrees to take such other measures and file such other
information, documents and reports, as shall be required of it hereafter by the
Commission as a condition to the availability of Rule 144 under the Securities
Act (or any similar exemptive provision hereafter in effect) and the use of Form
S-3. The Company also covenants to use its best efforts, to the extent that it
is reasonably within its power to do so, to qualify for the use of Form S-3.
9. Shareholder Information. The Company may request each Holder of
Registrable Securities as to which any registration is to be effected pursuant
to this Agreement to furnish the Company with such information with respect
to such Holder and the distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing and as shall
be required by law or by the Commission in connection therewith, and each
Holder of Registrable Securities as to which any registration is to be effected
pursuant to this Agreement agrees to furnish the Company with such information.
10. Forms. All references in this Agreement to particular forms of
registration statements are intended to include, and shall be deemed to
include, references to all successor forms which are intended to replace, or
to apply to similar transactions as, the forms herein referenced.
<PAGE>
11. Miscellaneous
11.1. Waivers and Amendments. With the written consent of the
Holders of a majority of the Common Stock described in each of clauses (1), (2)
and (3) of the definition of "Registrable Securities", the obligations of the
Company and the rights of the Investors under this Agreement may be waived
(either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely),
and with the same consent the Company, when authorized by resolution of
its Board, may enter into a supplementary agreement for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of any supplemental agreement or modifying in
any manner the rights and obligations hereunder of the Investors and the
Company; provided, however, that no such waiver or supplemental agreement
shall reduce the aforesaid proportion of Registrable Securities, the
Holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the Holders of all of the Registrable
Securities. Upon the effectuation of each such waiver, consent or agreement of
amendment or modification, the Company agrees to give prompt written notice
thereof to the Holders of the Registrable Securities who have not previously
consented thereto in writing. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or by course of
dealing, but only by a statement in writing signed by the party against
which enforcement of the change, waiver, discharge or termination is sought,
except to the extent provided in this Section 11.1. Specifically, but without
limiting the generality of the foregoing, the failure of the Investors at any
time or times to require performance of any provision hereof by the
Company shall in no manner affect the right of the Investors at a later time to
enforce the same. No waiver by any party of the breach of any term or provision
contained in this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
11.2. Effect of Waiver or Amendment. The Investors acknowledge
that by operation of Section 11.1 hereof the Holders of a Majority of the
Registrable Securities will, subject to the limitations contained in such
Section 11.1, have the right and power to diminish or eliminate certain rights
of the Investors under this Agreement.
11.3. Rights of the Investors Inter Se. The Investors shall
have the absolute right to exercise or refrain from exercising any right or
rights which the Investors may have by reason of this Agreement or any
Registrable Security, including, without limitation, the right to consent to
the waiver of any obligation of the Company under this Agreement and to enter
into an agreement with the Company for the purpose of modifying this
Agreement or any agreement effecting any such modification; and the
Investors shall not incur any liability to any Holder or Holders of Registrable
Securities with respect to exercising or refraining from exercising any such
right or rights.
11.4. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing (including
telecopy or similar writing) and shall be given,
if to the Company to:
<TABLE>
<CAPTION>
<S> <C>
Value America, Inc.
2300 Commonwealth Drive
Charlottesville, Virginia 22901
Attention: Mr. Craig A. Winn, Chairman and Chief Executive Officer
Telecopier: (804) 817-7884
</TABLE>
<PAGE>
with a copy to
Gary D. LeClair, Esq.
LeClair Ryan, A Professional Corporation
707 East Main Street
Eleventh Floor
Richmond, VA 23219
Telecopier: (804) 783-2294
if to any Holder of Registrable Securities to such Holder at
the address or to the telecopier number as set forth for such
Holder on Annex A hereto or as such Holder may otherwise
specify by notice to the Company from time to time,
or to such other address or telecopier number as such party may specify for the
purpose by notice to the other party or parties to this Agreement, as the case
may be. A copy of any notice to the Company or to the Investors or any other
Holder of Registrable Securities shall also be given to each other Holder of
Registrable Securities. Any notice, request, consent or other communication
hereunder shall be deemed to have been given and received on the day on which it
is delivered (by any means including personal delivery, overnight air courier,
United States mail) or telecopied (or, if such day is not a business day or if
the notice, request, consent or communication is not telecopied during business
hours of the intended recipient, at the place of receipt, on the next following
business day).
11.5. Severability. Should any one or more of the provisions
of this Agreement or of any agreement entered into pursuant to this Agreement
be determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
11.6. Parties in Interest. All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not and, in particular, shall inure to the benefit of
and be enforceable by the Holder or Holders at the time of any of the
Registrable Securities, provided that the Company has received notice of any
such assignment. Subject to the immediately preceding sentence, this
Agreement shall not run to the benefit of or be enforceable by any Person
other than a party to this Agreement and its successors and assigns.
11.7. Headings. The headings of the sections, subsections and
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
11.8. Choice of Law. It is the intention of the parties
that the internal substantive laws, and not the laws of conflicts, of the
Commonwealth of Virginia should govern the enforceability and validity of
this Agreement, the construction of its terms and the interpretation of the
rights and duties of the parties.
<PAGE>
11.9. Expenses. The Company agrees to pay and hold the
Investors and Holders of the Registrable Securities harmless from liability
for the payment of, (i) the fees and expenses incurred in connection with any
requested waiver of the right of the Investors or the consent of the Investors
to contemplated acts of the Company not otherwise permissible by the terms of
this Agreement, (ii) the fees and expenses incurred with respect to any
amendment to this Agreement proposed by the Company (whether or not the same
becomes effective), (iii) the fees and expenses incurred in respect of the
enforcement of the rights granted under this Agreement, and (iv) all costs of
the Company's performance of and compliance with this Agreement.
11.10. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
with the same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
11.11. Restatement and Amendment. This Agreement amends and
restates in its entirety the Prior Registration Rights Agreement. All
provisions of, rights granted and covenants made in the Prior Registration
Rights Agreement are hereby waived, released and terminated in their entirety
and shall have no further force or effect whatsoever. The rights and
covenants contained in this Agreement set forth the sole and entire agreement
among the Company and the Investors, including, without limitation, Ullico,
on the subject matter hereof and supercede any and all rights granted or
covenants made under any prior agreement with respect to the subject matter
hereof, including the Prior Registration Rights Agreement.
11.12. Authorship. This Agreement shall not be construed
for or against any party by reason of the authorship or claimed authorship of
any provision of this Agreement or by reason of the status of the respective
parties.
11.13 Entire Agreement. This Agreement, the Preferred Stock
Purchase Agreement and any agreement, document or instrument referred to
herein or therein, constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof, and supersede all other
prior agreements or undertakings with respect thereto, both written and oral.
11.14. Counsel. In connection with the transactions
contemplated by this Agreement, the Company has been represented by LeClair
Ryan, A Professional Corporation ("Counsel"). Each party hereto has reviewed
the contents of this Agreement and fully understands its terms. Each party
hereto other than the Company acknowledges that he or it is fully aware of
his or its right to the advice of counsel independent from that of the Company,
that Counsel has advised him or it of such right and disclosed to him or it the
risks in not seeking such independent advice, and that he or it understands
the potentially adverse interests of the parties with respect to this
Agreement. Each party hereto further acknowledges that no representations
have been made with respect to tax or other consequences of this Agreement or
the transactions contemplated herein to him or it, and that he or it has been
advised of the importance of seeking independent counsel with respect to
such consequences. Each Investor acknowledges that he or it has not
received any information or advice from, and is not relying upon any statement
made by Ullico or Ullico's special counsel, Paul, Hastings, Janofsky &
Walker LLP, in entering into or in connection with this Agreement or the
transactions contemplated hereby.
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their duly authorized officers thereof as of
the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
VALUE AMERICA, INC.
By:
----------------------------
Craig A. Winn, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE COMPANY
Acting on behalf of its Separate Account P
By:
----------------------------
An Authorized Officer
</TABLE>
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT]
VULCAN VENTURES INCORPORATED
By:_______________________________________
An Authorized Officer
UNITED ASSOCIATION OF JOURNEYMEN AND APPRENTICES OF THE
PLUMBING AND PIPEFITTING INDUSTRY OF THE UNITED STATES AND
CANADA, GENERAL FUND
By:
-----------------------------------------
An Authorized Officer
THE ANNETTE M. AND THEODORE N.
LERNER FAMILY FOUNDATION
By:
------------------------------------------
An Authorized Officer
RYMAC JOINT VENTURE
By:_______________________________________
An Authorized Officer
BENDER FAMILY INVESTMENT LIMITED PARTNERSHIP
By:_______________________________________
An Authorized Officer
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT]
LERNER INVESTMENTS LIMITED
PARTNERSHIP, a Maryland limited partnership
By: Moloreaux, Inc., its general partner
By:________________________________
An Authorized Officer
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT]
------------------------------------
William D. Savoy
------------------------------------
Grover McKean
------------------------------------
David Schwinger
------------------------------------
Terence R. McAuliffe
------------------------------------
Charles T. Manatt
------------------------------------
Martha T. S. Werner
------------------------------------
Thomas Driscoll
------------------------------------
John D. Shulman
------------------------------------
C. Raymond Marvin
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT]
YAGEMANN REVOCABLE TRUST,
DATED NOVEMBER 13, 1992
By: ____________________________
Name: ____________________________
Title: ____________________________
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT]
DAVIDSON FAMILY LIMITED PARTNERSHIP,
a Nevada limited partnership
By:________________________________
Thomas R. Davidson, General Partner
<PAGE>
VALUE AMERICA, INC.
------------------------------------------
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
------------------------------------------
Dated as of June 26, 1998
<PAGE>
TABLE OF CONTENTS
Page
R E C I T A L S 1
A G R E E M E N T 1
1. Definitions 1
2. Required Registration 3
3. Incidental Registration 4
4. Registration Procedures 6
5. Expenses 8
6. Indemnification 8
7. Future Registration Rights 11
8. Reporting Requirements Under the Exchange Act 11
9. Shareholder Information 12
10. Forms 12
11. Miscellaneous 12
11.1 Waivers and Amendments 12
11.2 Effect of Waiver or Amendment 13
11.3 Rights of the Investors Inter Se 13
11.4 Notices 13
11.5 Severability 14
11.6 Parties in Interest 14
11.7 Headings 14
11.8 Choice of Law 14
11.9 Expenses 14
11.10 Counterparts 15
11.11 Restatement and Amendment 15
11.12 Authorship 15
11.13 Entire Agreement 15
11.14 Counsel 15
<PAGE>
ANNEX A
SCHEDULE OF INVESTORS
Name/Address
====================================================================
Union Labor Life Insurance Company
111 Massachusetts Avenue, N.W.
Washington, DC 20001
Attention: Mr. Michael R. Steed,
Senior Vice President
Telecopier: (202) 682-7932
Vulcan Ventures Incorporated
110 110th Avenue Northeast
Suite 550
Bellevue, WA 98004
Telecopier: (425) 453-1985
The United Association of Journeymen and Apprentices of
the Plumbing and Pipefitting Industry of the United
States and Canada,
General Fund
901 Massachusetts Avenue, N.W.
Washington, DC 20001
Telecopier: (202) 628-5024
The Annette M. and Theodore N. Lerner
Family Foundation, Inc.
11501 Huff Court
North Bethesda, MD 20895
Attention: Edward Cohen, Partner
Telecopier: (301) 770-0144
Lerner Investments Limited Partnership
11501 Huff Court
North Bethesda, MD 20895
Attention: Edward Cohen
Telecopier: (301) 770-0144
Rymac Joint Venture
5512 Oak Place
Bethesda, MD 20817
Attention: Paul McNamara
Telecopier: (301) 652-8291
Bender Family Investment Limited Partnership
1120 Connecticut Avenue, Suite 1200
Washington, DC 20036
Telecopier: (202) 785-9347
<PAGE>
Thomas Davidson
c/o Thomas Walsh
1600 Wilson Boulevard, Suite 800
Arlington, VA 22209
Telecopier: (703) 312-6419
William D. Savoy
c/o Vulcan Ventures Incorporated
110 110th Avenue Northeast
Suite 550
Bellevue, WA 98004
Telecopier: (425) 453-1985
Grover McKean
2311 Nottingham Avenue
Los Angeles, CA 90027
Telecopier: (213) 666-4235
David Schwinger
6009 Roseland Drive
Rockville, MD 20852-3646
Telecopier: (202) 298-7570
Terence R. McAuliffe
7527 Old Dominion Drive
McLean, VA 22102
Telecopier: (703) 749-9190
Charles T. Manatt
Manatt Phelps & Phillips
1501 M Street, N.W.
Washington, DC 20005
Telecopier: (202) 463-4394
Llewellyn Werner
Hawkes Carlton Sanchez & Co., Ltd.
11726 San Vicente Boulevard, Suite 300
Brentwood, CA 91436
(310) 442-4717
Thomas Driscoll
c/o R.W. Pressprich & Co., Inc.
40 Rose Wharf, Second Floor
Boston, MA 02110
Telecopier: (617) 330-9152
<PAGE>
John D. Shulman
4620 Laverock Place, NW
Washington, D.C. 20007
Telecopier: (202) 333-8260
C. Raymond Marvin
1371 Kirby Road
McLean, VA 22101
Telecopier: (703) 847-4215
Yagemann Revocable Trust,
Dated November 13, 1992
9 Cobb Island Drive
Greenwich, CT 06830
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (the
"Agreement") is entered into as of June 26, 1998, among each of the entities and
individuals listed on Annex A hereto (individually an "Investor" and
collectively the "Investors"), VALUE AMERICA, INC., a Virginia corporation (the
"Company"), and Craig A. Winn ("Winn") and Rex Scatena ("Scatena"), Crystal
Investments, L.L.C., a Virginia limited liability company ("Crystal") and
Frostine, L.L.C., a Virginia limited liability company ("Frostine") (each of
Winn, Scatena, Crystal and Frostine, a "Holder," and, collectively, "Holders").
RECITALS
A. Pursuant to the Stockholders Agreement dated as of December
17, 1997 (the "Prior Stockholders Agreement"), by and among the Company, the
Holders and Union Labor Life Insurance Company, a Maryland corporation acting on
behalf of its Separate Account P ("Ullico"), the Holders granted Ullico certain
rights of first refusal, rights of co-sale and noncompetition covenants.
B. The Holders, the Company and Ullico desire to terminate the
Prior Stockholders Agreement and accept the rights created pursuant hereto in
lieu of the rights granted to Ullico under the Prior Stockholders Agreement.
C. Concurrent with the execution of this Agreement, the
Company and the Investors propose to enter into a Preferred Stock Purchase
Agreement dated the date of this Agreement (the "Purchase Agreement") under
which the Investors will become obligated, subject to certain conditions, to
provide approximately $18.5 million in equity financing to the Company.
D. Winn is the beneficial owner of 5,153,893 shares (the "Winn
Shares") of the Company's authorized and issued common stock, without par value
(which class of shares is herein called "Common Stock"), and Winn is the record
owner of 5,053,793 shares of Common Stock and Crystal, which is closely-held and
managed by Winn, is the record owner of 100,100 shares of Common Stock.
E. Scatena is the beneficial owner of 2,250,000 shares (the
"Scatena Shares;" together with the Winn Shares, the "Holder Shares") of Common
Stock, and Scatena is the record owner of 2,149,900 shares of Common Stock and
Frostine, which is closely-held and managed by Scatena, is the record owner of
100,100 shares of Common Stock.
<PAGE>
F. The Investors are unwilling to provide equity financing to
the Company unless each Holder is willing to subject its Holder Shares to the
restrictions contained in this Agreement and make the covenants contained
herein, and it is a condition to the performance of the Investors' obligations
under the Purchase Agreement that the Company and each Holder enter into this
Agreement.
G. Each Holder acknowledges that having the Investors provide
equity financing to the Company pursuant to the Purchase Agreement will directly
benefit such Holder as a result of its ownership of Holder Shares and,
accordingly, that such Holder is entering into this Agreement to induce the
Investors to provide equity financing to the Company under the Purchase
Agreement.
A G R E E M E N T
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Definitions.
(a) Unless otherwise expressly defined herein or the
context otherwise requires, the capitalized terms appearing herein shall have
the respective meanings assigned to them in the Purchase Agreement.
(b) Unless the context otherwise requires, the terms
defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined.
"Governmental Entity" shall mean any local, state,
federal or foreign (i) court, (ii) government or (iii) governmental department,
commission, instrumentality, board, agency or authority, including the
Internal Revenue Service and other taxing authorities.
"Holder Shares" shall (i) have the meaning set forth
in Recital E above and (ii) also include all shares issued by the Company on
or in respect of the shares referred to in the preceding clause (i)
including, without limitation, by way of dividend, subdivision,
combination, reclassification, recapitalization, reorganization or otherwise.
"Legal Requirement" shall mean any foreign, federal,
state or local statute, law, ordinance, rule, regulation, permit, order, writ,
judgment, injunction, decree or award issued, enacted or promulgated by any
Governmental Entity or any arbitrator.
<PAGE>
"Transfer" shall mean any sale, pledge, assignment,
encumbrance or other transfer or disposition of any shares of Common Stock to
any other Person, whether directly, indirectly, voluntarily, involuntarily, by
operation of law, pursuant to judicial process or otherwise.
2. Covenant Against Certain Transfers.
(a) Each Holder covenants and agrees with the
Investors that except as permitted in this Agreement it will not Transfer any or
all of the Holder Shares held by it.
(b) Prior to a Qualified Offering, each Holder may
sell the Holder Shares owned by it for a cash price of not less than $35 per
share (which price shall be proportionately adjusted for subdivisions and
combinations of the outstanding shares of Common Stock) so long as the Investors
have the Right of First Refusal and Co-Sale Rights to with respect to such sale
as provided in Section 4.
(c) The minimum price requirement appearing in
Section 2(b) shall expire on the fourth anniversary of the Closing Date under
the Purchase Agreement.
3. Legend on Certificates.
All certificates evidencing the shares of Common Stock of
the Company now or hereafter held by the Holders shall bear substantially the
following legend:
"The shares represented by this certificate are subject to the
rights of certain investors of Value America, Inc., under the
terms of an Amended and Restated Stockholders Agreement, among
Value America, Inc., holders of shares of Common Stock and
holders of shares of Preferred Stock of Value America, Inc., a
copy of which is on file at the principal office of Value
America, Inc. and will be furnished upon request to the holder
of record of the shares represented by this certificate."
4. Investors' Rights of First Refusal and Co-Sale
Rights.
(a) Rights of First Refusal. Before any shares of
Common Stock may be Transferred by any Holder, such shares of Common Stock shall
first be offered to the Investors, as set forth below.
<PAGE>
(i) If a Holder desires to Transfer any shares of
Common Stock owned by him, the selling Holder shall deliver a notice (the
"Notice") to the Investors stating (w) its bona fide intention to Transfer such
shares of Common Stock, (x) the number of shares of Common Stock proposed to be
Transferred (the "Noticed Securities"), (y) the price at which it proposes to
Transfer the Noticed Securities (in the case of a Transfer not involving a sale,
such price shall be deemed to be the fair market value of the Noticed Securities
as determined pursuant to Section 4(a)(iii)) and the terms of payment of that
price and other terms and conditions of sale, and (z) the name and address of
the proposed purchaser or transferee. Such Holder shall not effect any transfer
for value of the shares of Common Stock other than for money (United States
dollars) or an obligation to pay money (United States dollars).
(ii) For a period of thirty (30) days after receipt
of the Notice, each Investor shall have the right to purchase that number of the
Noticed Securities equal to the product obtained by multiplying (a) the
aggregate number of Noticed Securities by (b) a fraction, the numerator of which
shall equal the aggregate number of shares of Common Stock owned by such
Investor at the time of the Transfer (assuming for this purpose that the
Investor's holdings include all shares of Common Stock underlying the Series A
Preferred Stock and Series B Preferred Stock of the Company then held by the
Investor), and the denominator of which shall equal the aggregate number of
shares of Common Stock owned by the selling Holder and the Investors at the time
of the Transfer (such product being referred to as such Investor's "Pro Rata
Share"). The price per share of Common Stock of the Noticed Securities purchased
by the Investors pursuant to this Section 4 shall be, in the case of a sale, the
price per share of Common Stock set forth in the Notice and, in the case of a
Transfer not involving a sale, the fair market value of such shares of Common
Stock determined pursuant to Section 4(a)(iii) hereof, and the purchase shall be
on the same terms and subject to the same conditions as those set forth in the
Notice. The right to purchase shall be exercisable by written notice to the
selling Holder within the 30-day period described above, specifying the number
of shares of Common Stock to be purchased and the number of shares of Common
Stock, if any, such Investor desires to purchase of any of such shares which are
not subscribed, as contemplated in Section 4(b)(iii).
(iii) In the case of a Transfer of shares of Common
Stock not involving a sale, if the Investors and the Transferring Holder do not
reach agreement on the fair market value thereof, then such fair market value
shall be determined in good faith by an independent and qualified investment
banker or appraisal firm selected by the Board. This determination will be final
and binding upon all parties and persons claiming under or through them.
<PAGE>
(b) Right of Co-Sale. If any Investor does not elect
to purchase all of the shares of Common Stock purchasable by it to which the
Notice refers as described in Section 4(a) hereof, then each such Investor shall
have the right, exercisable upon written notice to the selling Holder (the
"Tag-Along Notice") within thirty (30) days of the date of the original Notice
described in Section 4(a), to participate in such Transfer of shares of Common
Stock on the same terms and conditions. The Tag-Along Notice shall indicate the
number of shares of Common Stock the Investor wishes to Transfer under its right
to participate and the number of shares of Common Stock, if any, such Investor
desires to purchase of any of such shares which are not subscribed, as
contemplated in Section 4(b)(iii).
(i) Each Investor may sell all or any part of its Pro
Rata Share of the number of shares covered by the Notice (as reduced by any
purchases pursuant to Section 4(a)).
(ii) If any Investor elects to participate in the
sale pursuant to this Section 4(b), it shall effect its participation in the
sale by delivering to the prospective purchaser one or more certificates,
properly endorsed for transfer, which represent the number of shares of Common
Stock which each Investor elects to sell in consummation of the sale of the
Common Stock pursuant to the terms and conditions specified in the Notice, and
the purchaser shall concurrently therewith remit to each Investor that portion
of the sales proceeds to which each Investor is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares
from each Investor exercising its rights of co-sale hereunder, the selling
Holder shall not sell to such prospective purchaser or purchasers any Common
Stock unless and until, simultaneously with such sale, the selling Holder shall
purchase such shares from each Investor on the same terms and conditions
specified in the Notice.
(iii) To the extent that any Investor does not elect
to purchase its Pro Rata Share of the Shares of Common Stock to which the Notice
refers as described in Section 4(a) or participate in such Transfer to the
extent of its Pro Rata Share, then each other Investor shall have a right to
either purchase such unsubscribed shares of Common Stock in proportion to such
subscribing Investor's Pro Rata Share (calculated without regard to the
non-subscribing and non-participating Investor's shares) or to participate in
such Transfer to the extent of such unsubscribed shares based on such
subscribing Investor's Pro Rata Share (calculated without regard to the
non-subscribing and non-participating Investor's shares).
<PAGE>
(c) Closing if Rights Not Exercised. If the
Investors do not elect to purchase or participate in the sale of all of the
shares of Common Stock to which the Notice refers as provided in Section 4(a),
then the selling Holder may Transfer all (but not less than all) of the Noticed
Securities to any purchaser or transferee named in the Notice at, in the case of
a sale, the price specified in the Notice and on other terms and conditions not
materially more favorable to the transferor than those described in the Notice,
provided that (i) such Transfer is consummated within ninety (90) days of the
date of the Notice to the Investors and (ii) any purchaser or transferee named
in the Notice shall agree to be bound by all the terms and conditions of, and to
take upon itself the undertakings of the transferor pursuant to, this Agreement.
Any proposed Transfer at a price greater than the price specified in the Notice
or on terms and conditions materially more favorable to the transferor than
those described in the Notice, as well as any subsequent proposed Transfer of
any shares of Common Stock by a selling Holder, shall again be subject to the
right of first refusal and the co-sale rights of the Investors and shall require
compliance by the selling Holder with the procedures described in this Section
4.
(d) Excepted Transactions. Notwithstanding anything
contained herein to the contrary, the provisions of this Section 4 shall not
apply to (i) any Transfer to ancestors, descendants or spouse or to a trust for
the benefit of such Persons or a Holder, or (ii) any bona fide gift, (iii) any
Transfer to an entity that is wholly owned, and will remain wholly-owned, by
such Holder (or such Holder and one or more of the individuals referred to in
the preceding clause (i)), or (iv) any sale of Common Stock by a Holder in a
Qualified Offering of the Company; provided that (1) as a condition precedent to
any Transfer made pursuant to one of the exemptions provided in clause (i), (ii)
or (iii), (A) the Transferring Holder shall inform the Investors of such
Transfer or gift prior to effecting it, and (B) the transferee or donee shall
furnish the Investors with a written agreement to be bound by and comply with
all provisions of Sections 2, 3 and 4 and such Transferred shares of Common
Stock shall remain "shares of Common Stock" and "Holder Shares" hereunder, and
such transferee or donee shall be treated as a "Holder" for all purposes of this
Agreement, (2) in the case of a Transfer in trust, such Holder shall become the
trustee or, with such Holder's spouse, a co-trustee of such trust, (3) in the
case of a Transfer not in trust, as a condition precedent to such Transfer such
Holder shall retain an irrevocable proxy to vote the Transferred Common Stock
and (4) in the case of a Transfer described in clause (iii), as a condition
precedent to the Transfer all holders of equity or other ownership interests in
such entity shall enter into an agreement with the Investors, which shall be
mutually satisfactory to the Investors and the transferee, under which the
outstanding equity or other ownership interests in such transferee shall be
subjected to the same restrictions against Transfer that appear in Sections 2, 3
and 4 of this Agreement.
(e) Company Repurchases. This Agreement supersedes
any agreement between the Company and any Investor and any agreement between the
Company and any Holder under which the Company may have to repurchase Common
Stock from Investors or Holders, and, accordingly, Investors' rights under this
Section 4 shall be superior to any rights that the Company may have under any
such agreement.
(f) Transfers in Violation. Any attempted Transfer
of any shares of Common Stock in violation of the provisions of this Agreement
shall be null and void, and the Company shall not in any way give effect to any
such impermissible Transfer.
<PAGE>
5. Holders' Non-Competition and Non-Solicitation Covenants.
(a) Each Holder hereby covenants and agrees with the
Company and the Investors that, for the period beginning on the date hereof and
ending on the fifth (5th) anniversary of the Closing Date under the Purchase
Agreement (the "Covenant Period") (provided, however, that such period shall be
extended automatically by and for the duration of any period of time during
which such Holder is in violation of any provision hereof), such Holder shall
not, directly or indirectly, acting alone or as a member of a partnership,
limited liability company or other business entity or as a holder of any
security of any class (other than as holder of less than one percent (1%) of the
outstanding amount of any security listed on a national securities exchange or
designated as a Nasdaq National Market security by the National Association of
Securities Dealers, Inc.) or as an officer, director, partner, employee,
consultant, agent or representative of or as an advisor or lender to any
corporation or other business entity:
(i) engage in any business over the Internet (or any
comparable medium of communication), or within any geographic territory in which
the Company is conducting business during the Covenant Period, which business is
substantially similar to any business conducted by the Company at any time
during the Covenant Period;
(ii) request, induce or attempt to influence any
customer or supplier of the Company at any time during the Covenant Period to
limit, curtail or cancel its business with the Company; or
(iii) request, induce or attempt to influence any
officer, director or employee, of the Company at any time during the Covenant
Period to (x) terminate his, her or its employment or business relationship with
the Company or (y) commit any act that, if committed by Holder, would constitute
a breach of any provision hereof.
<PAGE>
(b) The provisions of clauses (i), (ii) and (iii)
above are separate and distinct commitments independent of each of the other
such clauses. Each Holder agrees that neither the Company nor any Investor has
an adequate remedy at law for any breach or threatened or attempted breach by
Holder of the covenants and agreements set forth in Section 5(a) hereof, and,
accordingly, such Holder also agrees that the Company and each Investor may, in
addition to the other remedies that may be available to either of them under
this Agreement or at law, commence proceedings in equity for an injunction
temporarily or permanently enjoining such Holder from breaching or threatening
or attempting any such breach of any covenant or agreement set forth in Section
5(a) hereof, and with respect to any such proceeding in equity, it shall be
presumed that the remedies at law available to the Company and the Investors
would be inadequate and that they would suffer irreparable harm as a result of
the violation of any provision hereof by such Holder. The prevailing party or
parties in any proceeding in equity or at law commenced in respect of this
Agreement shall be entitled to recover from the other party or parties to such
proceeding all reasonable fees, costs and expenses (including reasonable fees
and disbursements of counsel) incurred in connection with such proceeding and
any appeals therefrom.
(c) The parties hereto acknowledge and agree that if
the scope of any covenant set forth in Section 5(a) hereof is deemed by any
court to be overly broad, the court may reduce the scope thereof to that which
it deems reasonable under the circumstances. If any one or more provisions
hereof are held to be invalid or unenforceable, the validity and enforceability
of the remaining provisions shall not be affected thereby.
6. Holders' Confidentiality Covenant.
(a) Each Holder hereby agrees that such Holder will
maintain in confidence and not disclose, divulge or otherwise communicate to
others or use for any purpose, except as may be necessary to perform such
Holder's duties as an employee of the Company, where applicable, any
Confidential Information (as hereinafter defined) except as expressly set forth
in Section 6(c).
(b) As used herein, the term "Confidential
Information" refers to any and all financial, technical, commercial or other
information concerning the business and affairs of the Company, whether prepared
by employees, agents or advisors or the Company or otherwise, that has
heretofore been, or may hereafter be, provided to any Holder, irrespective of
the form or source of the communication, including, without limitation, computer
programs, code, technical information, data, reports, know-how, patent
positioning, financial information, analyses, compilations, studies and business
plans. The term "Confidential Information" does not include information which
(i) at the time of disclosure or thereafter is generally available to or known
by the public otherwise than by reason of a Holder's disclosure thereof in
violation of this Section 6, or (ii) becomes available to a Holder on a
nonconfidential basis from a source other than the Company or its agents,
provided that such Holder, after due inquiry, had no reason to believe that such
source was bound by a confidentiality agreement with the Company.
<PAGE>
(c) In the event that any Holder or Person to whom
any Holder furnishes Confidential Information as permitted by this Agreement
receives a request to disclose all or any part of the information contained in
the Confidential Information under the terms of a subpoena, order, civil
investigative demand or similar process issued by a court of competent
jurisdiction or by a governmental body or agency, subject to the following
sentence, such Holder agrees (i) to notify Company immediately of the existence,
terms and circumstances surrounding such a request, (ii) to consult with the
Company on the advisability of taking legally available steps to resist or
narrow such request, (iii) if disclosure of such information is required, to
furnish only that portion of the Confidential Information which, in the opinion
of counsel for such Holder, such Holder is legally compelled to disclose and to
advise Company as far in advance of such disclosure as is possible so that
Company may seek an appropriate protective order or other reliable assurance
that confidential treatment will be accorded the Confidential Information, and
(iv) not to oppose actions by Company to obtain an appropriate protective order
or reliable assurance that confidential treatment will be accorded the
Confidential Information. Nothing in this Section 6 shall prevent Holder from
disclosing Confidential Information to his counsel, the court and witnesses in
connection with Holder's enforcement or defense of its rights under this
Agreement and any other agreement entered into in connection with the Purchase
Agreement.
7. Miscellaneous.
(a) Construction. As used in this Agreement, the
masculine, feminine or neuter gender, and the singular or plural shall be deemed
to include the others or other whenever and wherever the context so requires.
<PAGE>
(b) Waivers and Amendments. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only by the written consent of (i) as to the Company, only by
the Company by action authorized by the Board, (ii) as to the Investors, only by
vote of both (a) the Investors holding more than fifty percent (50%) in interest
of the Series A Preferred Stock, and any Common Stock issued as a result of all
or any portion thereof, voting as a separate class, and (b) the Investors
holding more than fifty percent (50%) in interest of the Series B Preferred
Stock, and any Common Stock issued as a result of all or any portion thereof,
voting as a separate class, and (iii) as to the Holders, by Holders holding more
than fifty percent (50%) in interest of the Holder Shares held by Holders. Any
amendment or waiver effected in accordance with clause (i), (ii) and (iii) of
this Section 7(b) shall be binding upon the Company, the Investors, and the
Holders and their respective successors and assigns. No waiver by any party of
the breach of any term or provision contained in this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such breach, or a waiver of the breach of any other term or
covenant contained in the Agreement. The Investors acknowledge that by operation
of this Section Investors holding more than fifty percent (50%) of the
securities described in clause (ii) above will have the right and power to
diminish or eliminate certain rights of the Investors under this Agreement. Each
Investor shall have the absolute right to exercise or refrain from exercising
any right or rights which such Investor may have by reason of this Agreement,
including, without limitation, the right to consent to the waiver of any
obligation under this Agreement and to enter into an agreement for the purpose
of modifying this Agreement or any agreement effecting any such modification,
and such Investor shall not incur any liability to any other Investor with
respect to exercising or refraining from exercising any such right or rights.
(c) Entire Agreement; Assignment of Rights. This
Agreement constitutes the entire agreement among the parties hereto relative to
the subject matter hereof. Any previous agreement among the parties relative to
the specific subject matter hereof is superceded by this Agreement provided,
that nothing herein contained shall in any manner negate any provision of the
Purchase Agreement or any other written agreement referred to in the Purchase
Agreement. This Agreement and the rights and obligations of the parties
hereunder shall inure to the benefit of, and be binding upon, their respective
successors, estates, assigns, legal representatives and heirs.
(d) Notices. All notices, requests, consents and
other communications required or permitted hereunder shall be in writing
(including telecopy or similar writing) and shall be given,
if to the Company to:
Value America, Inc.
2300 Commonwealth Drive
Charlottesville, Virginia 22901
Attention: Mr. Craig A. Winn, Chairman and Chief
Executive Officer
Telecopier: (804) 817-7884
with a copy to
Gary D. LeClair, Esq.
LeClair Ryan, A Professional Corporation
707 East Main Street, Eleventh Floor
Richmond, Virginia 23219
Telecopier: (804) 783-2294
if to any Investor at the address or to the telecopier number
set forth for such Investor on Annex A hereto or if to any
Holder at the address or to the telecopier number set forth
for such Holder under his signature on the appropriate
signature page hereto,
<PAGE>
or to such other address or telecopier number as such party may specify for the
purpose by notice to the other party or parties to this Agreement, as the case
may be. A copy of any notice to any Investor shall be given to each other
Investor and a copy of any notice to any Holder shall also be given to each
other Holder. Any notice, request, consent or other communication hereunder
shall be deemed to have been given and received on the day on which it is
delivered (by any means including personal delivery, overnight air courier,
United States mail) or telecopied (or, if such day is not a business day or if
the notice, request, consent or communication is not telecopied during business
hours of the intended recipient, at the place of receipt, on the next following
business day).
(e) Severability. Should any one or more of the
provisions of this Agreement or of any agreement entered into pursuant to this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement and of each other agreement entered into pursuant to this
Agreement, shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
(f) Headings. The headings of the Sections and
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
(g) Choice of Law. It is the intention of the parties
that the internal substantive laws, and not the laws of conflicts, of Virginia
should govern the enforceability and validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties.
(h) Expenses. Except as provided below, the Company
shall be responsible for all of its own fees and expenses arising or incurred in
connection with this Agreement and consummation of the transactions contemplated
hereby.
(i) Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed
together and shall constitute one and the same instrument.
(j) Term. This Agreement shall commence upon the date
hereof and shall terminate upon the earlier to occur of (x) the tenth
anniversary of the date hereof or (y) the expiration of the underwriters'
lock-up period following the completion of a Qualified Offering.
(k) Further Assurances.
(i) Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Legal Requirements or
otherwise, to make effective the transactions contemplated by this Agreement.
<PAGE>
(ii) If at any time the Investors believe in good
faith that any further action is necessary or desirable on the part of the
Company or any Holder or Holders to carry out the purposes of this Agreement,
each of the Holders and the Company, as the case may be, shall, as requested by
the Investors in writing, take or cause to be taken all such necessary or
convenient action and execute, and deliver and file, or cause to be executed,
delivered and filed, all necessary or convenient documentation.
(l) Counsel. In connection with the transactions
contemplated by this Agreement, the Company has been represented by LeClair
Ryan, A Professional Corporation ("Counsel"). Each party hereto has reviewed the
contents of this Agreement and fully understands its terms. Each party hereto
other than the Company acknowledges that he or it is fully aware of his or its
right to the advice of counsel independent from that of the Company, that
Counsel has advised him or it of such right and disclosed to him or it the risks
in not seeking such independent advice, and that he or it understands the
potentially adverse interests of the parties with respect to this Agreement.
Each party hereto further acknowledges that no representations have been made
with respect to tax or other consequences of this Agreement or the transactions
contemplated herein to him or it, and that he or it has been advised of the
importance of seeking independent counsel with respect to such consequences.
Each Investor acknowledges that it has not received any information or advice
from, and is not relying upon any statement made by Ullico or Ullico's special
counsel, Paul, Hastings, Janofsky & Walker LLP, in entering into or in
connection with this Agreement or the transactions contemplated hereby.
(m) Expenses of Enforcement. If any party seeks to
enforce its rights under this Agreement against another party, the prevailing
party in any arbitration, litigation or dispute shall be entitled to its receive
from the party or parties against which it has prevailed the reasonable fees and
expenses incurred by the prevailing in connection therewith including, without
limitation, the reasonable fees and expenses of counsel, advisors and expert
witnesses.
<PAGE>
(n) Further Enforcement Matters. Each party hereby
agrees that each other party shall be entitled to equitable relief, including an
injunction and specific performance, in the event of any breach of the
provisions of this Agreement, in addition to all other remedies available at law
or in equity. Each party further agrees to waive, and to use its best efforts to
cause its officers, directors, employees and agents to waive, any requirement
for the securing or posting of any bond in connection with such remedy. Each
party also hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the courts of the United States of America located in
the District of Columbia for any actions, suits or proceedings arising out of or
relating to this Agreement or any matter contemplated hereby, and each party
agrees not to commence any action, suit or proceeding related thereto except in
such courts. Each party further agrees that service of any process, summons,
notice or document by United States mail, registered or certified, to its
address set forth or referred to in Section 7(d) shall be effective service of
process for any action, suit or proceeding against the party being served in any
such court. Each party hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of or relating to this Agreement, in the courts of the United States of America
located in the District of Columbia, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
(o) Authorship of Documents. This Agreement shall not
be construed for or against any party by reason of authorship or alleged
authorship of any provisions hereof or by reason of the status of the respective
parties.
(p) Amendment and Restatement. This Agreement amends
and restates in its entirety the Prior Stockholders Agreement. All provisions
of, rights granted and covenants made in the Prior Stockholders Agreement are
hereby waived, released and terminated in their entirety and shall have no
further force or effect whatsoever. The rights and covenants contained in this
Agreement supercede any and all rights granted or covenants made under the Prior
Stockholders Agreement.
(q) Termination of Buy-Out Option Agreement. The
Company, Ullico and the Holders hereby agree that, upon execution of this
Agreement by all of the parties hereto, that certain Buy-Out Option Agreement,
dated as of December 17, 1997, among the Company, Ullico and the Holders is
hereby terminated and shall have no further force or effect.
(r) Pronouns. As used herein, the masculine, feminine
or neuter gender shall be deemed to include the others whenever the context so
indicates or requires.
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this
Amended and Restated Stockholders Agreement to be duly executed as of the day
and year first above written.
VALUE AMERICA, INC.
By:____________________________________
Craig A. Winn, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE COMPANY
Acting on behalf of its Separate Account P
By:____________________________________
Authorized Officer
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT]
VULCAN VENTURES INCORPORATED
By:____________________________________
Authorized Officer
UNITED ASSOCIATION OF JOURNEYMEN AND
APPRENTICES OF THE PLUMBING AND
PIPEFITTING INDUSTRY OF THE UNTIED STATES
AND CANADA, GENERAL FUND
By:____________________________________
Authorized Officer
THE ANNETTE M. AND THEODORE N. LERNER
FAMILY FOUNDATION
By:____________________________________
Authorized Officer
RYMAC JOINT VENTURE
By:_______________________________________
Authorized Officer
BENDER FAMILY INVESTMENT LIMITED PARTNERSHIP
By:_______________________________________
Authorized Officer
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT]
LERNER INVESTMENTS LIMITED
PARTNERSHIP, a Maryland limited partnership
By: Moloreaux, Inc., its general partner
By:________________________________
Authorized Officer
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT]
------------------------------------
William D. Savoy
------------------------------------
Grover McKean
------------------------------------
David Schwinger
------------------------------------
Terence R. McAuliffe
------------------------------------
Charles T. Manatt
------------------------------------
Martha T. S. Werner
------------------------------------
Thomas Driscoll
------------------------------------
John D. Shulman
------------------------------------
C. Raymond Marvin
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT]
YAGEMANN REVOCABLE TRUST,
DATED NOVEMBER 13, 1992
By: __________________________________
Name: ____________________________
Title: ____________________________
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT]
DAVIDSON FAMILY LIMITED PARTNERSHIP,
a Nevada limited partnership
By:_______________________________________
Thomas R. Davidson, General Partner
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT]
HOLDERS:
--------------------------------------
Craig A. Winn
Address: 3420 Cesford Grange
Keswick, VA 22947
--------------------------------------
Rex Scatena
Address: 580 Milford Road
Earlysville, VA 94599
CRYSTAL INVESTMENT, L.L.C.
By:_____________________________________
Authorized Officer
Address: c/o Craig A. Winn
3420 Cesford Grange
Keswick, VA 22947
FROSTINE, L.L.C.
By:_____________________________________
Authorized Officer
Address: c/o Rex Scatena
580 Milford Road
Earlysville, VA 94599
<PAGE>
ANNEX A
SCHEDULE OF INVESTORS
Name/Address
'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
Union Labor Life Insurance Company
111 Massachusetts Avenue, N.W.
Washington, DC 20001
Attention: Mr. Michael R. Steed,
Senior Vice President
Telecopier: (202) 682-7932
Vulcan Ventures Incorporated
110 110th Avenue Northeast
Suite 550
Bellevue, WA 98004
Telecopier: (425) 453-1985
The United Association of Journeymen and Apprentices of the
Plumbing and Pipefitting Industry of the United States and
Canada,
General Fund
901 Massachusetts Avenue, N.W.
Washington, DC 20001
Telecopier: (202) 628-5024
The Annette M. and Theodore N. Lerner
Family Foundation, Inc.
11501 Huff Court
North Bethesda, MD 20895
Attention: Edward Cohen, Partner
Telecopier: (301) 770-0144
Lerner Investments Limited Partnership
11501 Huff Court
North Bethesda, MD 20895
Attention: Edward Cohen, Partner
Telecopier: (301) 770-0144
Rymac Joint Venture
5512 Oak Place
Bethesda, MD 20817
Attention: Paul McNamara
Telecopier: (301) 652-8291
Bender Family Investment Limited Partnership
1120 Connecticut Avenue, Suite 1200
Washington, DC 20036
Telecopier: (202) 785-9347
Davidson Family Limited Partnership
c/o Mr. Thomas Davidson
Thomas Walsh
1600 Wilson Boulevard, Suite 800
Arlington, VA 22209
Telecopier: (703) 312-6419
William D. Savoy
c/o Vulcan Ventures Incorporated
110 110th Avenue Northeast
Suite 550
Bellevue, WA 98004
Telecopier: (425) 453-1985
Grover McKean
2311 Nottingham Avenue
Los Angeles, CA 90027
Telecopier: (213) 666-4235
David Schwinger
6009 Roseland Drive
Rockville, MD 20852-3646
Telecopier: (202) 298-7570
Terence R. McAuliffe
7527 Old Dominion Drive
McLean, VA 22102
Telecopier: (703) 749-9190
Charles T. Manatt
Manatt Phelps & Phillips
1501 M Street, N.W.
Washington, DC 20005
Telecopier: (202) 463-4394
Martha T.S. Werner
c/o Hawkes Carlton Sanchez & Co., Ltd.
11726 San Vicente Boulevard, Suite 300
Brentwood, CA 91436
(310) 442-4717
Thomas Driscoll
c/o R.W. Pressprich & Co., Inc.
40 Rose Wharf, Second Floor
Boston, MA 02110
Telecopier: (617) 330-9152
John D. Shulman
4620 Laverock Place, NW
Washington, D.C. 20007
Telecopier: (202) 333-8260
C. Raymond Marvin
1371 Kirby Road
McLean, VA 22101
Telecopier: (703) 847-4215
Yagemann Revocable Trust,
Dated November 13, 1992
9 Cobb Island Drive
Greenwich, CT 06830
<PAGE>
VALUE AMERICA, INC.
------------------------------------------
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
------------------------------------------
Dated as of June 26, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions...............................................................................2
2. Covenant Against Certain Transfers........................................................3
3. Legend on Certificates....................................................................3
4. Investors' Rights of First Refusal and Co-Sale Rights....................................3
(a) Rights of First Refusal...........................................................3
(b) Right of Co-Sale..................................................................4
(c) Closing if Rights Not Exercised...................................................5
(d) Excepted Transactions.............................................................6
(e) Company Repurchases...............................................................6
(f) Transfers in Violation............................................................6
5. Holders' Non-Competition and Non-Solicitation Covenants...................................7
6. Holders' Confidentiality Covenant.........................................................8
7. Miscellaneous.............................................................................9
(a) Construction......................................................................9
(b) Waivers and Amendments............................................................9
(c) Entire Agreement; Assignment of Rights...........................................10
(d) Notices..........................................................................10
(e) Severability.....................................................................11
(f) Headings.........................................................................11
(g) Choice of Law....................................................................11
(h) Expenses.........................................................................11
(i) Counterparts.....................................................................11
(j) Term.............................................................................11
(k) Further Assurances...............................................................11
(l) Counsel..........................................................................12
(m) Expenses of Enforcement..........................................................12
(n) Further Enforcement Matters......................................................12
(o) Authorship of Documents..........................................................13
(p) Amendment and Restatement........................................................13
(q) Termination of Buy-Out Option Agreement..........................................13
(r) Pronouns.........................................................................13
</TABLE>
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into
this 26th day of June, 1998, by and among Value America, Inc., a Virginia
corporation (the "Company"), those certain existing holders of the Company's
Common Stock listed on Exhibit A hereto (the "Holders") and those certain
purchasers of the Company's Series B Preferred, as defined herein, listed on
Exhibit B hereto (the "Investors").
RECITALS
A. The Company and the Investors are parties to that certain
Preferred Stock Purchase Agreement, dated as of the date hereof (the "Series B
Agreement"), and the Company's and the Investors' obligations under the Series B
Agreement are conditioned upon the execution and delivery of this Agreement by
the parties hereto.
B. The Investors, as holders of Series B Preferred Stock, without
par value (the "Series B Preferred") of the Company, are entitled to elect one
director to serve on the Board of Directors of the Company, to remove such
director and to fill any vacancy caused by the resignation, death or removal of
such director, and the Company and the Investors desire to enter into this
Agreement with respect to the election of such director.
C. Upon the consummation of a Qualified Offering (as defined
herein) of the Common Stock, without par value (the "Common Stock") of the
Company, the holders of Common Stock (including the Holders as holders of Common
Stock and the Investors as holders of Common Stock upon conversion of the
Preferred Stock, without par value, of the Company) shall be entitled to elect
directors to serve on the Board of Directors of the Company, to remove such
directors and to fill any vacancy caused by the resignation, death or removal of
such directors, and the Company, the Holders and the Investors desire to enter
into this Agreement with respect to the election of such directors.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Voting of Series B Preferred Stock for Director.
<PAGE>
-5-
(a) Each Investor agrees to vote all shares of the
Series B Preferred registered in such Investor's name or beneficially owned
by such Investor as of the date hereof and any and all other shares of the
Series B Preferred legally or beneficially acquired by such Investor after
the date hereof (hereinafter collectively referred to as the "Series B
Shares"), at each meeting or pursuant to each consent of the Company's
stockholders in each case to elect directors, to elect as a director to serve
on the Board of Directors of the Company (the "Board"), pursuant to Article
IIIA, Section 6(c)(1) of the Company's Articles of Incorporation, as amended, a
nominee of Vulcan Ventures Incorporated or any affiliate thereof
(collectively, "Vulcan") as designated by Vulcan from time to time. As used
herein, the term "affiliate" shall have the meaning assigned thereto in the
Series B Agreement. In the event of the death, resignation, removal or
inability to serve for any reason of any nominee designated by Vulcan,
Vulcan shall be entitled to designate a successor to such nominee. Any vote
taken to remove any director elected pursuant to this Section 1(a), or to fill
any vacancy created by the resignation, death or removal of a director
elected pursuant to this Section 1(a), shall also be subject to the provisions
of this Section 1(a).
(b) Not later than thirty (30) days following the date of
this Agreement, the Investors shall cause the initial designee of Vulcan to be
elected as a director to serve on the Board until the next annual meeting of
stockholders of the Company and until his successor is duly elected and
qualified in accordance herewith.
(c) Each Investor hereby grants to Vulcan an irrevocable
proxy to vote its Series B Shares in accordance with the agreements contained in
this Section 1. THIS PROXY IS IRREVOCABLE AND IS COUPLED WITH AN INTEREST, HAS
BEEN GIVEN IN CONNECTION WITH A VOTING AGREEMENT COVERING SHARES OF CAPITAL
STOCK THAT ARE SUBJECT TO THE PROXY AND IS BEING GIVEN AND MADE PURSUANT TO
SECTION 13.1-664 OF THE CODE OF VIRGINIA.
2. Voting of Common Stock for Directors.
(a) (i) Each Holder agrees to vote all shares of
voting capital stock of the Company registered in his name or beneficially owned
by him as of the date hereof, and any and all other securities of the Company
legally or beneficially acquired by such Holder after the date hereof
(hereinafter collectively referred to as the "Holder Shares") subject to,
and in accordance with, the provisions of this Agreement.
(ii) Each Investor agrees to vote all shares
of voting capital stock of the Company (including, without limitation, all
shares of Common Stock issued upon conversion of the Series A Preferred and the
Series B Preferred) registered in its name or beneficially owned by it as of
the date hereof, and any and all other securities of the Company legally
or beneficially acquired by such Investor after the date hereof
(hereinafter collectively referred to as the "Investor Shares") subject to,
and in accordance with, the provisions of this Agreement.
<PAGE>
(b) From and after the consummation of a Qualified
Offering (as herein defined), and the conversion of the Series A Preferred and
Series B Preferred in connection therewith, each Holder shall vote all of such
person's Holder Shares, and each Investor shall vote all of such person's
Investor Shares, at each meeting or pursuant to each consent of the Company's
stockholders in each case to elect directors, to elect as a director to serve
on the Board (i) Michael R. Steed as nominee of Union Labor Life Insurance
Company ("Ullico") (provided that Ullico has nominated Michael R. Steed by
written notice to the Company to such effect) and (ii) William D. Savoy as
nominee of Vulcan (provided that Vulcan has nominated William D. Savoy by
written notice to the Company to such effect), in connection with the
expiration of their respective terms as directors. Any vote taken to remove any
director elected pursuant to this Section 2(b) shall also be subject to the
provisions of this Section 2(b). This Agreement shall not restrict the
voting of Investor Shares or Holder Shares to elect any director to any Board
seat other than those held by Michael R. Steed and William D. Savoy. As used
herein, a "Qualified Offering" means an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offering and sale of Common Stock for the account
of the Company in which the aggregate gross proceeds received by the Company at
the public offering price equals or exceeds $25.0 million, and the public
offering price per share of which equals or exceeds 110% of the conversion price
of the Series A Preferred then in effect, and the obligation of the underwriters
with respect to which is that if any of the securities being offered are
purchased, all of such securities must be purchased.
(c) Subject to Sections 3(c) and 4 below, each Holder and
each Investor hereby grants to Ullico and Vulcan, respectively, an
irrevocable proxy to vote his Holder Shares and its Investor Shares solely
(and without limitation of other voting rights with regard to the election of
directors or otherwise) for the election of Michael R. Steed and William
D. Savoy as directors of the Company in accordance with Section 2 hereof.
SUBJECT TO SECTIONS 3(c) AND 4 BELOW, THIS PROXY IS IRREVOCABLE AND IS
COUPLED WITH AN INTEREST, HAS BEEN GIVEN IN CONNECTION WITH A VOTING
AGREEMENT COVERING SHARES OF CAPITAL STOCK THAT ARE SUBJECT TO THE PROXY AND
IS BEING GIVEN AND MADE PURSUANT TO SECTION 13.1-664 OF THE CODE OF VIRGINIA.
The Company hereby acknowledges the proxy created hereby for the sole purpose
provided, and recognizes that the Investors and the Holders possess the
authority to vote all Investor Shares and Holder Shares, respectively,
on matters not covered by such proxy.
3. General Provisions.
(a) Concurrently with the execution of this
Agreement, there shall be imprinted or otherwise placed, on certificates
representing the Series B Shares, Holder Shares and the Investor Shares the
following restrictive legend (the "Legend"):
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A VOTING AGREEMENT, DATED JUNE
26, 1998 WHICH PLACES CERTAIN RESTRICTIONS ON THE VOTING
OF THE SHARES REPRESENTED HEREBY. ANY PERSON ACCEPTING ANY
INTEREST IN SUCH SHARES SHALL BE DEEMED TO AGREE TO AND
SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH
AGREEMENT. A COPY OF SUCH VOTING AGREEMENT WILL BE
FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS
PRINCIPAL PLACE OF BUSINESS."
(b) The Company agrees that, during the term of this
Agreement, it will not remove, and will not permit to be removed (upon
registration of transfer, reissuance of otherwise), the Legend from any such
certificate and will place or cause to be placed the Legend on any new
certificate issued to represent Series B Shares, Holder Shares or Investor
Shares theretofore represented by a certificate carrying the Legend.
<PAGE>
(c) The provisions of this Agreement shall be binding upon
the successors in interest to or transferee of any of the Series B Shares,
Holder Shares or Investor Shares, other than any transferee of any Holder
Shares which is not affiliated with any Holder or related by blood or marriage
to any Holder or a trustee for the benefit of any Holder or any of such
relatives (a "Non-Related Transferee"). The Company shall not permit the
transfer of any of the Series B Shares, Holder Shares or Investor Shares on its
books or issue a new certificate representing any of the Holder Shares or
Investor Shares unless and until the person to whom such security is to be
transferred (other than any Non-Related Transferee) shall have executed a
written agreement, pursuant to which such person becomes a party to this
Agreement or otherwise agrees to be bound by all the provisions hereof as if
such person were a Holder or an Investor, as applicable.
(d) The Company agrees not to give effect to any
action by any Holder or any Investor, Ullico, Vulcan or any other person or
entity which is in contravention of this Agreement.
(e) Except as provided by this Agreement, each Holder and
each Investor shall exercise the full rights of a stockholder with respect
to the Holder Shares and the Series B Shares and Investor Shares,
respectively.
4. Termination. This Agreement shall continue in full force and
effect from the date hereof through the date as of which the parties hereto
terminate this Agreement by written consent of holders of at least a majority
of the Investor Shares which constitute Series A Preferred and a majority of the
Investor Shares which constitute Series B Preferred and a majority of the
Holder Shares, on which date this Agreement shall terminate in its entirety;
provided, however, that the obligations of the Investors under Section 1 and
the obligations of the Holders and Investors under Section 2 with respect to
the election to the Board of a Vulcan designee or William D. Savoy as Vulcan's
designee under Section 2 shall terminate on the earlier to occur of (a) the
date that Vulcan ceases to hold at least that number of shares equal to 25%
of the number of shares of capital stock of the Company, on a fully diluted
basis, owned by Vulcan on the date hereof, including, without limitation,
after giving effect to the purchase of Series B Preferred under the Series
B Agreement, and (b) the tenth anniversary of the date of this
Agreement; provided further, that the obligations of the Holders and the
Investors under Section 2 with respect to the election to the Board of Michael
R. Steed as Ullico's designee shall terminate on the earlier to occur of (a)
the date on which Ullico ceases to hold at least that number of shares equal
to 25% of the number of shares of capital stock of the Company, on a fully
diluted basis, owned by Ullico on the date hereof, including, without
limitation, after giving effect to the purchase of Series B Preferred under
the Series B Agreement and the purchase of Common Stock under that certain
Stock Purchase Agreement dated as of the date hereof and defined in Section
6.1(m) of the Series B Agreement, and (b) the tenth anniversary of the date of
this Agreement.
5. Miscellaneous.
(a) The parties hereto hereby declare that it is
impossible to measure in money the damages which will accrue to a party
hereto or to their heirs, personal representatives, or assigns by reason
of a failure to perform any of the obligations under this Agreement and
agree that the terms of this Agreement shall be specifically enforceable. If
any party hereto or his heirs, personal representatives, or assigns institutes
any action or proceeding to specifically enforce the provisions hereof, any
person against whom such action or proceeding is brought hereby waives the
claim or defense therein that such party or such personal representative has an
adequate remedy at law, and such person shall not offer in any such action or
proceeding the claim or defense that such remedy at law exists.
(b) This Agreement, and the rights of the parties
hereto, shall be governed by and construed in accordance with the laws of the
State of Virginia.
<PAGE>
(c) This Agreement may be amended and any term hereof
may be waived only by an instrument in writing signed by the Company, Vulcan,
holders of a majority of the Investor Shares and holders of a majority of the
Holder Shares, except that this Agreement may be amended to include
transferees of Series B Shares and Investor Shares and transferees of Holder
Shares which are not Non-Related Transferees, in each case in accordance
herewith.
(d) If any provision of this Agreement is held to be
invalid or unenforceable, the validity and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
(e) This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, successors,
assigns, administrators, executors and other legal representatives.
(f) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same agreement.
(g) No waivers of any breach of this Agreement
extended by any party hereto to any other party shall be construed as a
waiver of any rights or remedies of any other party hereto or with respect to
any subsequent breach.
(h) In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party
shall be entitled to all costs and expenses of maintaining such suit or action,
including reasonable attorneys' fees.
(i) As used herein, the masculine, feminine or neuter
gender shall be deemed to include the others whenever the context so indicates
or requires.
(j) This is a voting agreement made pursuant to
Section 13.1-671 of the Code of Virginia regarding voting agreements.
<PAGE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
In Witness Whereof, the parties hereto have executed this
Agreement as of the date first above written.
COMPANY:
VALUE AMERICA, INC.
---------------------------
Craig A. Winn, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE
COMPANY Acting on behalf of its
Separate Account P
By: ___________________________
An Authorized Officer
<PAGE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
VULCAN VENTURES INCORPORATED
By:___________________________
An Authorized Officer
UNITED ASSOCIATION OF
JOURNEYMEN AND APPRENTICES OF
THE PLUMBING AND PIPEFITTING
INDUSTRY OF THE UNITED STATES
AND CANADA, GENERAL FUND
By: __________________________
An Authorized Officer
THE ANNETTE M. AND THEODORE N.
LERNER FAMILY FOUNDATION
By: __________________________
An Authorized Officer
RYMAC JOINT VENTURE
By:___________________________
An Authorized Officer
BENDER FAMILY INVESTMENT
LIMITED PARTNERSHIP
By:___________________________
An Authorized Officer
<PAGE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
LERNER INVESTMENTS LIMITED
PARTNERSHIP, a Maryland limited
partnership
By: Moloreaux, Inc., its
general partner
By:____________________________
An Authorized Officer
<PAGE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
------------------------------
William D. Savoy
------------------------------
Grover McKean
------------------------------
David Schwinger
------------------------------
Terence R. McAuliffe
------------------------------
Charles T. Manatt
------------------------------
Martha T. S. Werner
------------------------------
Thomas Driscoll
------------------------------
John D. Shulman
------------------------------
C. Raymond Marvin
<PAGE>
-10-
[SIGNATURE PAGE TO VOTING AGREEMENT]
YAGEMANN REVOCABLE TRUST,
DATED NOVEMBER 13, 1992
By: _________________________
Name: _______________________
Title: ____________________
<PAGE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
DAVIDSON FAMILY LIMITED
PARTNERSHIP, a Nevada limited
partnership
By:___________________________
Thomas R. Davidson,
General Partner
<PAGE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
HOLDERS:
------------------------------
Craig A. Winn
------------------------------
Rex Scatena
CRYSTAL INVESTMENTS, L.L.C.
By:___________________________
An Authorized Officer
FROSTINE, L.L.C.
By:___________________________
An Authorized Officer
<PAGE>
Exhibit A
LIST OF HOLDERS
<TABLE>
<CAPTION>
Name No. of Shares of Common Stock
---- -----------------------------
<S><C>
Craig A. Winn 5,053,793
3420 Cesford Grange
Keswick, VA 22947
Rex Scatena 2,149,900
580 Milford Road
Earlysville, VA 94599
Crystal Investments, L.L.C. 100,100
c/o Craig A. Winn
3420 Cesford Grange
Keswick, VA 22947
Frostine, L.L.C. 100,100
c/o Rex Scatena
580 Milford Road
Earlysville, VA 94599
</TABLE>
<PAGE>
Exhibit B
<TABLE>
<CAPTION>
LIST OF INVESTORS
<S><C>
No. of Shares of
----------------
Common Series A Preferred Series B
------ ------------------ --------
Preferred
---------
Union Labor Life Insurance Company 77,742 5,000,000 7,801
111 Massachusetts Avenue, N.W.
Washington, DC 20001
Attention: Mr. Michael R. Steed,
Senior Vice President
Telecopier: (202) 682-7932
Vulcan Ventures Incorporated 492,287
110 110th Avenue Northeast
Suite 550
Bellevue, WA 98004
Telecopier: (425) 453-1985
The United Association of 89,478 8,979
Journeymen and Apprentices
of the Plumbing and Pipefitting
Industry of the United States and
Canada, General Fund
901 Massachusetts Avenue, N.W.
Washington, DC 20001
Telecopier: (202) 628-5024
The Annette M. and Theodore 38,773 3,891
N. Lerner Family Foundation, Inc.
11501 Huff Court
North Bethesda, MD 20895
Attention: Edward Cohen, Partner
Telecopier: (301) 770-0144
Lerner Investments Limited Partnership, 6,563
a Maryland limited partnership
11501 Huff Court
North Bethesda, MD 20895
Attention: Edward Cohen, Partner
Telecopier: (301) 770-0144
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
No. of Shares of
----------------
Common Series A Preferred Series B
------ ------------------ --------
Preferred
---------
<S><C>
Rymac Joint Venture 9,846
5512 Oak Place
Bethesda, MD 20817
Attention: Paul McNamara
Telecopier: (301) 652-8291
Bender Family Investment 6,563
Limited Partnership
1120 Connecticut Avenue, Suite 1200
Washington, DC 20036
Telecopier: (202) 785-9347
Davidson Family Limited Partnership 13,127
c/o Thomas Davidson
c/o Thomas Walsh
1600 Wilson Boulevard, Suite 800
Arlington, VA 22209
Telecopier: (703) 312-6419
William D. Savoy 16,411
c/o Vulcan Ventures Incorporated
110 110th Avenue Northeast, Suite 550
Bellevue, WA 98004
Telecopier: (425) 453-1985
Grover McKean 1,641
2311 Nottingham Avenue
Los Angeles, CA 90027
Telecopier: (213) 666-4235
David Schwinger 6,563
6009 Roseland Drive
Rockville, MD 20852-3646
Telecopier: (202) 298-7570
Terence R. McAuliffe 3,282
7527 Old Dominion Drive
McLean, VA 22102
Telecopier: (703) 749-9190
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
No. of Shares of
<S><C> ----------------
Common Series A Preferred Series B
------ ------------------ --------
Preferred
---------
Charles T. Manatt 1,641
Manatt Phelps & Phillips
1501 M Street, N.W.
Washington, DC 20005
Telecopier: (202) 463-4394
Martha T.S. Werner 3,282
c/o Hawkes Carlton Sanchez & Co., Ltd.
11726 San Vicente Boulevard, Suite 300
Brentwood, CA 91436
(310) 442-4717
Thomas Driscoll 3,282
c/o R.W. Pressprich & Co., Inc.
40 Rose Wharf, Second Floor
Boston, MA 02110
Telecopier: (617) 330-9152
John D. Shulman 3,282
4620 Laverock Place, NW
Washington, D.C. 20007
Telecopier: (202) 333-8260
C. Raymond Marvin 13,127
1371 Kirby Road
McLean, VA 22101
Telecopier: (703) 847-4215
Yagemann Revocable Trust, 16,411
Dated November 13,1 992
9 Cobb Island Drive
Greenwich, CT 06830
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Voting of Series B Preferred Stock for Director. 1
2. Voting of Common Stock for Directors 2
3. General Provisions 3
4. Termination 4
5. Miscellaneous 4
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is entered
into as of June 26, 1998 among VALUE AMERICA, INC., a Virginia corporation (the
"Company"), and each of the entities and individuals listed on Annex A hereto
(each, a "Series B Investor" and collectively, the "Series B Investors").
THE PARTIES hereby agree as follows:
1. Authorization of Securities. The Company has authorized the issue
and sale of 617,979 shares of its 5% Cumulative Convertible Series B Preferred
Stock, without par value (the "Preferred Stock"), having the rights,
preferences and privileges set forth in the Company's Articles of Amendment of
Articles of Incorporation (hereinafter referred to as the "Certificate"), a
copy of which is attached hereto as Annex B. The Preferred Stock is convertible
into the Company's common stock, without par value, which class of shares is
sometimes referred to herein as the "Common Stock"; the Common Stock into
which the Preferred Stock is convertible is sometimes referred to herein as
the "Conversion Stock"; and the Preferred Stock and the Conversion Stock are
sometimes referred to herein individually and collectively as the
"Securities".
2. Sale and Purchase of Preferred Stock. Upon the terms and subject
to the conditions herein contained, the Company agrees to sell to the Series B
Investors, and each Series B Investor will purchase from the Company,
severally and not jointly, the total number of shares of Preferred Stock
specified opposite such Series B Investor's name on the Schedule of Investors
attached hereto as Annex A, at the Closing (as hereinafter defined) on the
Closing Date (as hereinafter defined), at a price of $30.47 per share (the
"Purchase Payment").
3. Closing. The closing of the sale to and purchase by the Series B
Investors of the Preferred Stock (the "Closing") shall occur at the offices
of Paul, Hastings, Janofsky & Walker LLP, 1299 Pennsylvania Avenue, N.W.,
Tenth Floor, Washington, D.C., at the hour of 10:00 A.M., Eastern time, on
June 26, 1998 or at such different time or day as the Series B Investors and
the Company shall agree (the "Closing Date"). At the Closing, the Company will
deliver to each of the Series B Investors a certificate evidencing the
Preferred Stock which shall be registered in such Series B Investor's name,
against delivery to the Company of payment by check or wire transfer in an
amount equal to the Purchase Payment.
4. Register of Securities; Restrictions on Transfer of Securities;
Removal of Restrictions on Transfer of Securities
<PAGE>
4.1 Register of Securities. The Company or its duly
appointed agent shall maintain a separate register for the shares of Preferred
Stock and Common Stock, in which it shall register the issue and sale of
all such shares. All transfers of the Securities shall be recorded on the
register maintained by the Company or its agent, and the Company shall be
entitled to regard the registered holder of the Securities as the actual
holder of the Securities so registered until the Company or its agent is
required to record a transfer of such Securities on its register. Subject to
Section 4.2(c) hereof, the Company or its agent shall be required to record any
such transfer when it receives the Security to be transferred duly and
properly endorsed by the registered holder thereof or by its attorney duly
authorized in writing.
4.2 Restrictions on Transfer
(a) Each Series B Investor understands and
agrees, severally and not jointly, that the Securities they will be acquiring
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and that accordingly they will not be fully transferable
except as permitted under various exemptions contained in the Securities Act or
applicable state securities laws, or upon satisfaction of the registration and
prospectus delivery requirements of the Securities Act or registration or
qualification requirements under applicable state securities laws. The Series
B Investors acknowledge that they must bear the economic risk of their
investment in the Securities for an indefinite period of time (subject, however,
to the Company's obligation to redeem the Preferred Stock in accordance with the
Certificate and to the Company's obligation to effect the registration of the
Conversion Stock under the Securities Act in accordance with the
Registration Rights Agreement (as hereinafter defined)) since they have not been
registered under the Securities Act and therefore cannot be sold unless they are
subsequently registered or an exemption from registration is available.
(b) (i) Each Series B Investor hereby
represents and warrants, severally and not jointly, to the Company that each
Series B Investor (i) is acquiring the Securities it has agreed to purchase
for investment purposes only, for its own account, and not as nominee or agent
for any other Person (as hereinafter defined), and not with the view to, or for
resale in connection with, any distribution thereof within the meaning of the
Securities Act, (ii) is an "accredited investor" within the meaning of Rule
501(a) of the Commission (as hereinafter defined) under the Securities Act,
(iii) is a corporation, partnership or other entity headquartered in
the jurisdiction as set forth on Annex A to this Agreement and (iv) has had the
opportunity to review information provided to it by the Company and ask
questions about and received answers regarding the same.
(c) Each Series B Investor hereby agrees,
severally and not jointly, with the Company as follows:
(i) Subject to Section 4.3 hereof,
the certificates evidencing the Securities such Series B Investor has agreed to
purchase, and each certificate issued in transfer thereof, will bear the
following legend:
<PAGE>
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 and have been taken for
investment purposes only and not with a view to the distribution
thereof, and, except as stated in an agreement between the holder of
this certificate, or its predecessor in interest, and the issuer
corporation, such securities may not be sold or transferred unless
there is an effective registration statement under such Act covering
such securities or the issuer corporation receives an opinion of
counsel (which may be counsel for the issuer corporation) stating
that such sale or transfer is exempt from the registration and
prospectus delivery requirements of such Act."
(ii) The certificates representing such
Securities, and each certificate issued in transfer thereof, will also bear any
legend required under any applicable state securities law.
(iii) Absent an effective registration
statement under the Securities Act, covering the disposition of the Securities
which such Series B Investor acquires, such Series B Investor will not sell,
transfer, assign, pledge, hypothecate or otherwise dispose of any or all of
the Securities without first providing the Company with an opinion of counsel
(which may be counsel for the Company) to the effect that such sale, transfer,
assignment, pledge, hypothecation or other disposition will be exempt from the
registration and the prospectus delivery requirements of the Securities Act
and the registration or qualification requirements of any applicable state
securities laws, except that no such registration or opinion shall be
required with respect to (A) a transfer not involving a change in
beneficial ownership, or (B) the distribution of Securities by such Series B
Investor to any of its partners, or retired partners, or to the estate of any of
its partners or retired partners, (C) the distribution of Securities by Ullico
to the participants in its Separate Account P, or (D) a sale to be effected in
accordance with Rule 144 of the Commission under the Securities Act (or any
comparable exemption).
(iv) Such Series B Investor agrees to
the Company's making a notation on its records or giving instructions to any
transfer agent of the Common Stock or Preferred Stock in order to implement the
restrictions on transfer of the Securities mentioned in this subsection (c).
4.3 Removal of Transfer Restrictions. Any legend endorsed
on a certificate evidencing a Security pursuant to Section 4.2(c)(i) hereof and
the stop transfer instructions and record notations with respect to such
Security shall be removed and the Company shall issue a certificate without
such legend to the holder of such Security (a) if such Security is registered
under the Securities Act, or (b) if such Security may be sold under Rule
144(k) of the Commission under the Securities Act or (c) if such holder
provides the Company with an opinion of counsel (which may be counsel for the
Company) reasonably acceptable to the Company to the effect that a public sale
or transfer of such Security may be made without registration under the
Securities Act.
<PAGE>
4.4 Lock-Up Agreement. Each Series B Investor agrees to
execute a Lock-Up Agreement, in the form attached as Annex 4.4 hereto, in
connection with the proposed initial public offering of the Common Stock of the
Company for the account of the Company pursuant to an effective registration
statement under the Securities Act. To the extent that the Company should change
lead underwriters prior to the effective date of such initial public offering,
each Series B Investor agrees to execute a Lock-Up Agreement with such lead
underwriter, so long as such agreement is in the form attached as Annex 4.4
hereto. Each Series B Investor (other than Ullico and Vulcan Ventures
Incorporated) agrees to execute a lock-up agreement, if any, requested by The
Nasdaq Stock Market, Inc. (the "Nasdaq Lock-Up Agreement") in connection with
such initial public offering.
5. Representations and Warranties by the Company. In order to
induce the Series B Investors to enter into this Agreement and to purchase
the Preferred Stock, the Company hereby covenants with and represents and
warrants to the Series B Investors as follows:
5.1 Organization, Standing, etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia, and has all requisite power and authority to carry on
its business, to own and hold its properties and assets, to enter into this
Agreement, the Registration Rights Agreement, the Stockholders Agreement
and the Voting Agreement (the Registration Rights Agreement, the Stockholders
Agreement and the Voting Agreement, each individually, an "Ancillary Agreement"
and collectively, the "Ancillary Agreements"), to issue the Securities and
to carry out the provisions hereof and thereof, and the terms of the
Certificate and the Securities. The copies of the Articles of Incorporation
and Bylaws of the Company which have been delivered to the Series B
Investors prior to the execution of this Agreement are true and complete and
have not been amended or repealed, except for the amendments to the Articles of
Incorporation which have been or will be accomplished by the filing of the
Certificate with the State Corporation Commission of the Commonwealth of
Virginia. The Company has no Subsidiaries (as hereinafter defined) or direct
or indirect interest (by way of stock ownership or otherwise) in any firm,
partnership, corporation, association or business enterprise.
5.2 Qualification. The Company is duly qualified, licensed
or domesticated as a foreign corporation in good standing in each jurisdiction
wherein the nature of its activities or its properties owned or leased makes
such qualification, licensing or domestication necessary.
<PAGE>
5.3 Capital Stock. Immediately prior to the Closing, the
authorized capital stock of the Company consists of (a) 50,000,000 shares of
Common Stock, of which 7,692,500 shares are issued and outstanding, (b)
5,000,000 shares of Series A Preferred Stock, of which 5,000,000 shares are
issued and outstanding, and (c) 617,979 shares of Series B Preferred Stock, none
of which has been issued. The Company has no authority to issue any other
capital stock. All outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid and nonassessable. The offer, issuance
and sale of such shares of Series A Preferred Stock and Common Stock were (a)
exempt from the registration and prospectus delivery requirements of the
Securities Act, (b) registered or qualified (or were exempt from registration or
qualification) under the registration or qualification requirements of all
applicable state securities laws, and (c) accomplished in conformity with all
other federal and applicable state securities laws, rules and regulations. The
Company has (A) reserved a total of 1,250,000 shares of Common Stock for
issuance under the Company's 1997 Stock Incentive Plan (the "Stock Plan"), under
which options to purchase a total of 1,095,875 shares have been granted, (B)
reserved a total of 71,250 shares for issuance upon exercise of outstanding
Stock Purchase Warrants issued by the Company, (C) reserved a total of 1,000,000
shares of Common Stock upon conversion of the Series A Preferred Stock, (D)
reserved a total of 617,979 shares of Common Stock upon conversion of the Series
B Preferred Stock, and (E) is obligated to issue 25,000 shares of Common Stock
to Chris Little. Except as expressly provided in this Agreement or the
Certificate, the Company has no outstanding subscription, option, warrant, call,
contract, demand, commitment, convertible security or other instrument,
agreement or arrangement of any character or nature whatsoever under which the
Company is or may be obligated to issue Common Stock, preferred stock or other
Equity Security (as hereinafter defined) of any kind. Neither the offer nor the
issuance or sale of the Securities constitutes or will constitute an event,
under any Equity Security or any anti-dilution or similar provision of any
agreement or instrument to which the Company is a party or by which it is bound
or affected, which shall either increase the number of shares or units of Equity
Securities issuable upon conversion of any securities (whether stock or
Indebtedness for Borrowed Money (as hereinafter defined)) or upon exercise of
any warrant or right to subscribe to or purchase any stock or similar security
(including Indebtedness for Borrowed Money), or decrease the consideration per
share or unit of Equity Security to be received by the Company upon such
conversion or exercise.
5.4 Preferred Stock. The Preferred Stock is duly
authorized and, when issued and paid for pursuant to the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will have the rights, preferences and privileges specified in
the Certificate and will be free and clear of all Liens (as hereinafter
defined) and restrictions, other than Liens that might have been created
by the Series B Investors and restrictions on transfer imposed by (i)
Sections 4.2 and 4.3 hereof, (ii) applicable state securities laws and
(iii) the Securities Act. The Conversion Stock is duly authorized and has been
reserved for issuance upon conversion of the Preferred Stock and, when issued
upon conversion in accordance with the terms of the Certificate, will be
duly authorized, validly issued, fully paid and nonassessable Common Stock and
free and clear of all Liens and restrictions, other than Liens that might have
been created by the Series B Investors and restrictions imposed by (i)
Sections 4.2 and 4.3 hereof, (ii) applicable state securities laws and (iii)
the Securities Act.
5.5 Indebtedness for Borrowed Money. The Company has no
Indebtedness for Borrowed Money except as disclosed on the Balance Sheet (as
hereinafter defined) or on Annex 5.5 hereto.
<PAGE>
5.6 Shareholder List. Annex 5.6 hereto contains a true and
complete list of the names and addresses of the beneficial holders of all of the
outstanding Common Stock and of the holders of all outstanding options,
warrants or other rights to purchase Common Stock. With respect to holders of
Common Stock, Annex 5.6 contains a true and complete description of the number
of shares held by each such holder, the date such shares were purchased, the
price paid per share and the form of payment therefor. With respect to each
outstanding option, Annex 5.6 sets forth the date of grant, the number of shares
subject thereto, the exercise price, vesting schedule and expiration date. With
respect to warrants, Annex 5.6 sets forth the date of issue of each warrant, the
number of shares of Common Stock subject to the warrant, the exercise price and
expiration date. Except as disclosed in Annex 5.6, no holder of Common Stock or
any other security of the Company or any other Person is entitled to any
preemptive right, right of first refusal or similar right as a result of the
issuance of the Securities or otherwise. Except as disclosed in Annex 5.6, there
is no voting trust, agreement or arrangement among any of the beneficial holders
of Common Stock of the Company affecting the exercise of the voting rights of
such stock.
5.7 Corporate Acts and Proceedings. All corporate acts and
proceedings required for the authorization, execution and delivery of this
Agreement and the Ancillary Agreements, the offer, issuance and delivery of the
Securities and the performance of this Agreement, the Registration Rights
Agreement (except to the extent that additional Board action may be
required to effect a Securities Act registration), and the Stockholders
Agreement and the terms of the Certificate have been lawfully and validly taken
or will have been so taken prior to the Closing.
<PAGE>
5.8 Compliance with Laws and Other Instruments. The
business and operations of the Company have been and are being conducted in
accordance with all applicable federal, state and local laws, rules and
regulations, except to the extent that noncompliance with laws, rules and
regulations would not, individually or in the aggregate, have a Material
Adverse Effect (as hereinafter defined) on the Company. The execution and
delivery by the Company of this Agreement and the Ancillary Agreements and
the performance of this Agreement and the Ancillary Agreements, and the terms
of the Certificate (a) will not require from the Board or stockholders of the
Company any consent or approval that has not been validly and lawfully obtained
(except to the extent that additional Board action may be required to effect a
Securities Act registration), (b) will not require any authorization,
consent, approval, license, exemption of or filing or registration
with any court or governmental department, commission, board, bureau,
agency or instrumentality of government, except such as shall have been
lawfully and validly obtained prior to the Closing (except for filing a Form D
with the Commission within 15 days of the Closing Date and proceedings under the
Securities Act or state blue sky laws to register Common Stock under the
Securities Act), (c) will not cause the Company to violate or contravene (i) any
provision of law, (ii) any rule or regulation of any agency or government,
domestic or foreign, (iii) any order, writ, judgment, injunction, decree,
determination or award, or (iv) any provision of the Articles of Incorporation
or Bylaws of the Company, (d) will not violate or be in conflict with, result in
a breach of or constitute (with or without notice or lapse of time or both) a
default under, any indenture, loan or credit agreement, note agreement, deed of
trust, mortgage, security agreement or other agreement, lease or instrument,
commitment or arrangement to which the Company is a party or by which the
Company or any of its properties, assets or rights is bound or affected, to the
extent that such violation, conflict breach or default would (individually or in
the aggregate) have a Material Adverse Effect and (e) will not result in the
creation or imposition of any Lien. The Company is not in material violation of,
or (with or without notice or lapse of time or both) in default under, any term
or provision of its Articles of Incorporation or Bylaws or of any indenture,
loan or credit agreement, note agreement, deed of trust, mortgage, security
agreement or other agreement, lease or other instrument, commitment or
arrangement to which the Company is a party or by which any of the Company's
properties, assets or rights is bound or affected. The Company is not subject to
any restriction of any kind or character which has or may have a Material
Adverse Effect on the Company or which prohibits the Company from entering into
this Agreement or would prevent or make burdensome its performance of or
compliance with all or any part of this Agreement, any Ancillary Agreement or
the Certificate or the consummation of the transactions contemplated hereby or
thereby.
5.9 Binding Obligations. This Agreement, each Ancillary
Agreement and the Certificate constitute the legal, valid and binding
obligations of the Company and are enforceable against the Company in accordance
with their respective terms, except as such enforcement is limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally.
5.10 Securities Laws. Subject to the accuracy of the
Series B Investors' representations and warranties in Section 4.2(b), the offer,
issue and sale of the Securities are and will be exempt from the
registration and prospectus delivery requirements of the Securities Act, and
have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws.
5.11 No Brokers or Finders. Except as provided in Annex
5.11, no Person has, or as a result of the transactions contemplated herein will
have, any right or valid claim against the Company or any Series B Investor for
any commission, fee or other compensation as a finder or broker, or in any
similar capacity.
5.12. Financial Statements. Attached hereto as Annex 5.12
are the Company's audited balance sheet (the "Balance Sheet") as of December 31,
1997 (the "Balance Sheet Date") and the audited statements of income and
shareholders' equity for the Company's twelve-month period then ended, together
with the opinion of Price Waterhouse LLP thereon, and the Company's unaudited
balance sheet as of March 31, 1998 and the unaudited statements of income and
shareholders equity for the three-month period then ended, and no more current
financial statements have been prepared. These financial statements (i) are in
accordance with the books and records of the Company, and (ii) accurately
present the financial condition of the Company at the Balance Sheet Date and the
results of its operations for the period therein specified. Specifically, but
not by way of limitation, the Balance Sheet discloses all of the debts,
liabilities and obligations of any nature (whether absolute, accrued, contingent
or otherwise and whether due or to become due) of the Company at the Balance
Sheet Date which must be disclosed on an accurate balance sheet.
5.13 Absence of Undisclosed Liabilities. Except as
disclosed on Annex 5.13 hereto, the Company has no material obligation or
liability (whether accrued, absolute, contingent, liquidated or otherwise,
whether due or to become due, whether or not known to the Company) arising out
of any transaction entered into at or prior to the Closing, or any act or
omission to act at or prior to the Closing, or any state of facts existing
at or prior to the Closing, including taxes with respect to or based upon
the transactions or events occurring at or prior to the Closing, and
including without limitation unfunded past service liabilities under any
pension, profit sharing or similar plan, except (a) to the extent set forth
on or reserved against in the Balance Sheet, and (b) current liabilities
incurred and obligations under agreements entered into, in the usual and
ordinary course of business, since the Balance Sheet Date, none of which
(individually or in the aggregate) has a Material Adverse Effect on the
Company.
<PAGE>
5.14 Changes. Since the Balance Sheet Date as to clauses
(a) and (c) below and since one year prior to the Balance Sheet Date as to the
remaining clauses of this Section 5.14, except as disclosed on Annex 5.14
hereto, the Company has not (a) incurred any debts, obligations or
liabilities, absolute, accrued, contingent or otherwise, whether due or to
become due, except current liabilities incurred in the usual and ordinary course
of business, none of which (individually or in the aggregate) materially and
adversely affects the business, finances, properties or prospects of the
Company, (b) made or suffered any changes in its contingent obligations by way
of guaranty, endorsement (other than the endorsement of checks for deposit in
the usual and ordinary course of business), indemnity, warranty or otherwise,
(c) discharged or satisfied any Liens other than those securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet Date, in each
case in the usual and ordinary course of business, (d) mortgaged, pledged or
subjected to Lien any of its assets, tangible or intangible, (e) sold,
transferred or leased any of its assets except in the usual and ordinary course
of business, (f) canceled or compromised any debt or claim, or waived or
released any right, of material value, (g) suffered any physical damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the properties, business or prospects of the Company, (h)
entered into any transaction other than in the usual and ordinary course of
business except for this Agreement, (i) encountered any labor difficulties or
labor union organizing activities, (j) except in the usual and ordinary course
of business, made or granted any wage or salary increase or entered into any
employment agreement, (k) issued or sold any shares of capital stock or other
securities or granted any options with respect thereto, or modified any Equity
Security, except to the extent disclosed on Annex 5.6 hereto, (l) declared or
paid any dividends on or made any other distributions with respect to, or
purchased or redeemed, any of its outstanding Equity Securities, (m) suffered or
experienced any change in, or condition affecting, its condition (financial or
otherwise), properties, assets, liabilities, business operations, results of
operations or prospects other than changes, events or conditions in the usual
and ordinary course of its business, none of which (either by itself or in
conjunction with all such other changes, events and conditions) has been
materially adverse, (n) made any change in the accounting principles, methods or
practices followed by it or depreciation or amortization policies or rates
theretofore adopted, or (o) entered into any agreement, or otherwise obligated
itself, to do any of the foregoing.
<PAGE>
5.15 Material Agreements of the Company. Except as
expressly set forth in this Agreement, the Balance Sheet or as disclosed on
Annex 5.15 hereto, the Company is not a party to any written or oral
agreement, instrument or arrangement not made in the ordinary course of
business that is material to the Company and the Company is not a party to any
written or oral (a) agreement with any labor union, (b) agreement for the
purchase of fixed assets or for the purchase of materials, supplies or
equipment in excess of normal operating requirements, (c) agreement for the
employment of any officer, individual employee or other Person on a full time
basis or any agreement with any Person for consulting services, (d) bonus,
pension, profit sharing, retirement, stock purchase, stock option, deferred
compensation, medical, hospitalization or life insurance (other than group
medical, hospitalization or insurance plans applicable to all employees
in which benefit levels are not related to compensation) or similar plan,
contract or understanding with respect to any or all of the employees of the
Company or any other Person, (e) indenture, loan or credit agreement, note
agreement, deed of trust, mortgage, security agreement, promissory note or
other agreement or instrument relating to or evidencing Indebtedness for
Borrowed Money (as hereinafter defined) or subjecting any asset or property of
the Company to any Lien or evidencing any Indebtedness (as hereinafter
defined), (f) guaranty of any Indebtedness, (g) lease or agreement under which
the Company is lessee of or holds or operates any property, real or personal,
owned by any other Person under which payments to such Person exceed $75,000
per annum, (h) lease or agreement under which the Company is lessor or permits
any Person to hold or operate any property, real or personal, owned or
controlled by the Company, (i) agreement granting any preemptive right, right of
first refusal or similar right to any Person, (j) agreement or arrangement with
any Affiliate (as hereinafter defined) or any "associate" (as this term is
defined in Rule 405 of the Commission under the Securities Act) of the Company
or any officer, director or shareholder of the Company, (k) agreement obligating
the Company to pay any royalty or similar charge for the use or exploitation of
any tangible or intangible property, (l) agreement or license under which the
Company has granted or transferred to any Person , or under which any Person has
granted or transferred to the Company, the right to exploit or otherwise use any
patent, trademark, service mark, copyright, trade name, trade secret, software,
intellectual property (as hereinafter defined) or other intangible asset, (m)
covenant not to compete or other restriction on its ability to conduct a
business or engage in any other activity, (n) agreement to register securities
under the Securities Act, or (o) agreement, instrument or other commitment or
arrangement with any Person continuing for a period of more than three months
from the Closing Date which involves an expenditure or receipt by the Company in
excess of $75,000. For purposes of the next preceding sentence, "material" shall
mean an obligation which by its terms calls for aggregate payments by the
Company in excess of $75,000. The Company has furnished to the Series B
Investors true and complete copies of all agreements and other documents
requested by the Series B Investors or their authorized representatives. All
parties having material contractual arrangements with the Company are in
substantial compliance therewith, and none is in default in any material respect
thereunder. The Company does not have outstanding any power of attorney.
<PAGE>
5.16 Employees. The following individuals (collectively,
"Designated Key Employees") are in the full-time employ of the Company: Craig
A. Winn, Rex Scatena, Dean Johnson, Joseph Page and Daniel Lucier. To the
best of the Company's knowledge, no Designated Key Employee of the Company has
any plans to terminate his or her employment with the Company, and the Company
has no intention of terminating the employment of any Designated Key Employee.
To the best of the Company's knowledge after reasonable inquiry, no Designated
Key Employee or any other employee of the Company is a party to or is otherwise
bound by any agreement or arrangement (including, without limitation,
any license, covenant, or commitment of any nature), or subject to any
judgment, decree, or order of any court or administrative agency, (a) that
would conflict with such employee's obligation diligently to promote and further
the interests of the Company or (b) that would conflict with the Company's
business as now conducted or as proposed to be conducted. No Designated Key
Employee has any direct or indirect equity interest (by way of stock ownership
or otherwise) in any firm, partnership, corporation, association or business
enterprise, other than any such interest (i) in a corporation which is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act and
(ii) which does not, alone or in the aggregate with other such interests, exceed
one percent (1%) of the equity of such corporation. The Company has complied in
all material respects with all laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity, collective
bargaining and payment of Social Security and other taxes, and the Company has
encountered no material labor difficulties. Except as disclosed on Annex 5.15
hereto or pursuant to ordinary arrangements for employment compensation, the
Company is not under any obligation or liability to any officer, director,
employee or Affiliate of the Company.
5.17 Tax Returns and Audits. Except as disclosed on Annex
5.13, all required federal, state and local tax returns of the Company have been
accurately prepared and duly and timely filed, and all federal, state and local
taxes required to be paid with respect to the periods covered by such returns
have been paid. Except as disclosed on Annex 5.13, the Company is not and has
not been delinquent in the payment of any tax, assessment or governmental
charge. The Company has never had any tax deficiency proposed or assessed
against it and has not executed any waiver of any statute of limitations on the
assessment or collection of any tax or governmental charge. None of the
Company's federal income tax returns nor any state income or franchise tax
returns has ever been audited by governmental authorities. Except as disclosed
on Annex 5.13, the reserves for taxes, assessments and governmental charges
reflected on the Balance Sheet are and will be sufficient for the payment of all
unpaid taxes, assessments and governmental charges payable by the Company with
respect to the period ended on the Balance Sheet Date. Except as disclosed on
Annex 5.13, since the Balance Sheet Date, the Company has made adequate
provisions on its books of account for all taxes, assessments and governmental
charges with respect to its business, properties and operations for such period.
The Company has withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment
Tax Act taxes) required to be withheld or collected therefrom, and has paid the
same to the proper tax receiving officers or authorized depositaries.
5.18 Patents and Other Intangible Assets5.18 Patents and
Other Intangible Assets
(a) The Company (i) owns or has the right to
use, free and clear of all Liens, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to the foregoing, used in or necessary for the conduct of its business
as now conducted or proposed to be conducted, (ii) is not infringing upon or
otherwise acting adversely to the right or claimed right of any Person under
or with respect to any patent, trademark, service mark, trade name,
copyright or license with respect thereto, and (iii) is not obligated or
under any liability whatsoever to make any payments by way of royalties,
fees or otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright or other intangible asset, with
respect to the use thereof or in connection with the conduct of its business or
otherwise.
<PAGE>
(b) The Company owns and has the unrestricted
right to use all trade secrets, including know-how, negative know-how, formulas,
patterns, compilations, programs, devices, methods, techniques, processes,
inventions, designs, technical data, computer software (in both source code
and object code forms and all documentation therefor, except for third-party
licensed software as shown on Annex 5.29A), including without limitation the
Fully Operational Software (as hereinafter defined), and all information that
derives independent economic value, actual or potential, from not being
generally known or known by competitors and which the Company has taken
reasonable steps to maintain in secret (all of the foregoing of which are
collectively referred to herein as "intellectual property") required for or
incident to the conduct of the Company's business, as it is presently conducted
and as it is proposed to be conducted, in each case free and clear of any right,
Lien or claim of others, including without limitation former employers of its
employees.
(c) Since its organization, the Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of all intellectual property and all Inventions (as defined below).
Since its organization, each of the Company's employees and other Persons
who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed intellectual property or
Inventions, or who has knowledge of or access to information about
intellectual property or Inventions, has entered into a written agreement with
the Company which provides that (i) this intellectual property, other
information and Inventions are proprietary to the Company and are not to be
divulged, misused or misappropriated, and (ii) this intellectual property, other
information and Inventions are to be disclosed by such employees and such
Persons to the Company and transferred by them to the Company, without any
further consideration being given therefor by the Company, together with all of
such employee's or other Person's right, title and interest in and to such
intellectual property, other information and Inventions and all patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to such intellectual property, other information and Inventions. As used
herein, "Inventions" means all inventions, developments and discoveries which
during the period of an employee's or other Person's service to the Company he
or she makes or conceives of, either solely or jointly with others, that relate
to any subject matter with which his or her work for the Company may be
concerned, or relate to or are connected with the business, products, services
or projects of the Company, or relate to the actual or demonstrably anticipated
research or development of the Company or involve the use of the Company's time,
material, facilities or trade secret information.
(d) The Company has not sold, transferred,
assigned, licensed or subjected to any Lien, any intellectual property, trade
secret, know-how, invention, design, process, computer software or
technical data, or any interest therein, necessary or useful for the
development, manufacture, use, operation or sale of any product or service
presently under development or manufactured, sold or rendered by the Company.
<PAGE>
(e) No director, officer, employee, agent or
shareholder of the Company owns or has any right in the intellectual property
of the Company, or any patents, trademarks, service marks, trade names,
copyrights, licenses or rights with respect to the foregoing, or any
inventions, developments or discoveries used in or necessary for the conduct of
the Company's business as now conducted or as proposed to be conducted.
(f) The Company has not received any
communication alleging or stating that the Company or any Designated Key
Employee has violated or infringed, or by conducting business as proposed,
would violate or infringe, any patent, trademark, service mark, trade name,
copyright, trade secret, proprietary right, process or other intellectual
property of any other Person.
5.19 Employment Benefit Plans--ERISA. Except as set forth
on Annex 5.19, the Company does not maintain or make contributions to any
pension, profit sharing or other employee retirement benefit plan. The Company
has no material liability with respect to any such plan (including, without
limitation, any unfunded liability or any accumulated funding deficiency)
or any material liability to the Pension Benefit Guaranty Corporation or
under Title IV of the Employee Retirement Income Security Act of 1974, as
amended, with respect to a multi-employer pension benefit plan, nor would
the Company have any such liability if any such plan were terminated or if the
Company withdrew, in whole or in part, from any multi-employer plan.
5.20 Title to Property and Encumbrances; Leases. The
Company has good and marketable title to all of its properties and assets,
including without limitation the properties and assets reflected in the Balance
Sheet and the properties and assets used in the conduct of its business, except
for properties disposed of in the ordinary course of business since the
Balance Sheet Date and except for properties held under valid and subsisting
leases which are in full force and effect and which are not in default, subject
to no Lien, except those which are shown and described on the Balance Sheet
and except for Permitted Liens (as hereinafter defined) and except for Liens
disclosed on Annex 5.20. All material leases under which the Company is a lessee
of any real or personal property are valid, enforceable and effective in
accordance with their terms (subject to the laws of bankruptcy, insolvency and
other similar laws affecting the enforcement of creditors' rights generally);
there is not under any such lease any existing or claimed default by the
Company or event or condition which with notice or lapse of time or both would
constitute a default by the Company. No lease under which the Company is a
lessee of any real property contains any provision which either (i) treats a
sale or transfer of any or all of the outstanding stock of the Company or a
merger of the Company with another Person as an assignment of the Company's
leasehold interest, or (ii) otherwise requires the consent of the lessor in the
event of any such sale, transfer or merger.
5.21 Condition of Properties. All facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by the
Company are in good operating condition and repair and are adequate and
sufficient for the Company's business.
<PAGE>
5.22 Insurance Coverage. The Company has in full force and
effect the insurance coverage specified in Annex 5.22. The Company has not been
refused any insurance coverage sought or applied for, and the Company has no
reason to believe that it will be unable to renew its existing insurance
coverage as and when the same shall expire upon terms at least as favorable as
those presently in effect, other than possible increases in premiums that do not
result from any act or omission of the Company.
5.23 Litigation. Except as disclosed on Annex 5.23 hereto,
there is no legal action, suit, arbitration or other legal, administrative or
other governmental investigation, inquiry or proceeding (whether federal,
state, local or foreign) pending or threatened against or affecting (i) the
Company or its properties, assets or business (existing or contemplated), or
(ii) any Designated Key Employee, before any court or governmental
department, commission, board, bureau, agency or instrumentality or any
arbitrator. After reasonable investigation, except as disclosed in Annex
5.23, neither the Company nor any Designated Key Employee of nor attorney for
the Company is aware of any fact which might result in or form the basis for any
such action, suit, arbitration, investigation, inquiry or other proceeding.
Neither the Company nor any Designated Key Employee is in default with respect
to any order, writ, judgment, injunction, decree, determination or award of any
court or of any governmental agency or instrumentality (whether federal, state,
local or foreign).
5.24 Registration Statement. The Company has furnished to
each Series B Investor a draft dated June 16, 1998 Registration Statement on
Form S-1 including the Prospectus included therein (the "Registration
Statement"), proposed to be filed with the Securities and Exchange
Commission under the Securities Act with respect to the proposed initial
public offering and sale of Common Stock of the Company for the account of the
Company (the "IPO").
5.25 Registration Rights. Except as noted in Annex 5.25
hereof, the Company has not agreed to register under the Securities Act any of
its authorized or outstanding securities.
5.26 Licenses. Except as disclosed on Annex 5.26, the
Company possesses from the appropriate agency, commission, board and
governmental body and authority, whether state, local or federal, all material
licenses, permits, authorizations, approvals, franchises and rights which are
necessary for the Company to engage in the business currently conducted by it
and proposed to be conducted, including without limitation the development,
manufacture, use, sale and marketing of its existing and proposed products and
services; and all such certificates, licenses, permits, authorizations and
rights are in full force and effect, and, to the best of the Company's
knowledge, will not be revoked, canceled, withdrawn, terminated or suspended.
5.27 Interested Party Transactions. Except as disclosed on
Annex 5.27 hereto, no officer, director or shareholder of the Company or any
Affiliate or "associate" (as this term is defined in Rule 405 of the Commission
under the Securities Act) of any such Person or the Company has or has
had, either directly or indirectly, (a) an interest in any Person which (i)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (ii) purchases from or
sells or furnishes to the Company any goods or services, or (b) a beneficial
interest in any transaction, contract or agreement to which the Company is a
party or by which it may be bound or affected.
<PAGE>
5.28 Minute Books and Check Authorizations. The minute
books of the Company provided to, or, if not so provided, made available to, the
Series B Investors, contain all resolutions adopted by directors and
shareholders since the incorporation of the Company and fairly and accurately
reflect, in all material respects, all matters and transactions referred to in
such minutes. The Board has adopted, and there is in full force and effect,
a policy which prohibits the issuance of any check or draft by the Company
in any amount in excess of $10,000 on any deposit account of the Company unless
the same has been signed by two officers of the Company who have been so
authorized by action of the Board.
5.29 Computer Software
(a) Attached as Annex 5.29A hereto is a true
and complete list of all material computer software used by the Company in the
conduct of its business as presently conducted or as proposed to be conducted
(the "Fully Operational Software"), together with a brief description of
each principal function thereof. All Fully Operational Software is fully
functional, complete and operational, has been fully documented and,
except for software licensed to the Company as shown on Annex 5.29A
("third-party software"), both source code and object code versions
thereof are in the Company's possession and control, and, except for third-party
software, no Person outside the Company has possession of or access to the
source code for any Fully Operational Software.
(b) Attached as Annex 5.29B hereto is a true and
complete list of all computer software that the Company can reasonably foresee
it will need to conduct its business as conducted and as proposed to be
conducted that is not Fully Operational Software (the "Developing
Software"), together with a brief description of the principal intended
functions thereof. Annex 5.29B also contains a schedule to complete the
development of each category of Developing Software (the "Completion Schedule"),
and each principal system or element within each such category as well as the
name of each employee and consultant of the Company who is responsible for
writing, documenting and completing each identified category, system and
element. The Company and each Designated Employee has carefully examined the
Completion Schedule for each category, system and element of the Developing
Software and believes, after conducting a reasonable investigation sufficient to
reach an informed view, that the Company will be able to achieve completion of
the Developing Software by the scheduled completion dates appearing in the
Completion Schedule and without the Company being required to incur any material
expense beyond that shown in the projections appearing in the Plan.
5.30 Value America Web Site and Systems
<PAGE>
(a) The Company owns and has the unrestricted
right to communicate and publish its "Value America" Internet product offering
(the "Web Site") and conduct business on the World Wide Web at the Internet
address "valueamerica.com" and in connection therewith to use the registered
service mark and trade name "Value America" and in so doing is not acting in
conflict with any patent, trademark, service mark, trade name, copyright, trade
secret, license or other proprietary right with respect thereto.
(b) The Company has not received any
communication from any Person that the Web Site or the conduct of the Company's
business is in violation of any law, rule or regulation or in conflict with any
patent, trademark, service mark, trade name, copyright, trade secret, license
or other proprietary right with respect thereto.
(c) Annex 5.30(c) attached hereto contains a true
and complete list of all complaints received by the Company from persons who
have ordered products using the Web Site.
(d) Except as disclosed on Annex 5.30(d) attached
hereto, no Person whose product or products have been offered for sale on the
Web Site has terminated or materially modified (or communicated an intention
to terminate or materially modify) its relationship with the Company.
5.31 Year 2000. The computer systems and software owned or
licensed by the Company are able to accurately process date data, including but
not limited to, calculating, comparing, and sequencing from, into and between
the twentieth century (through year 1999), the year 2000 and the twenty-first
century, including leap year calculations.
5.32 Disclosure. There is no fact which the Company has not
disclosed to the Series B Investors in writing which materially and adversely
affects nor, insofar as the Company can now foresee, will materially and
adversely affect, the properties, business, prospects, results of operation or
condition (financial or other) of the Company or the ability of the Company to
perform this Agreement or any Ancillary Agreement or observe the terms of the
Certificate. The information contained in the Prospectus, in this Agreement and
in any writing furnished pursuant hereto or in connection herewith is true,
complete and correct, and such information does not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or herein or necessary to make the statements therein or herein not
misleading.
5A. Series B Investors Representations and Warranties. Each
Series B Investor hereby represents and warrants, severally and not
jointly, to the Company as follows:
(1) Such Series B Investor is a corporation
or partnership or other entity duly organized or formed, validly
existing and in good standing under the laws of its state of
incorporation or formation as set forth on the Signature Page of this
Agreement and has all requisite power and authority to enter into this
Agreement and the Ancillary Agreements, to purchase the Securities and
carry out the provisions of this Agreement and the Ancillary Agreements.
<PAGE>
(2) All corporate acts and proceedings required
for the authorization, execution and delivery of this Agreement and the
Ancillary Agreements and the purchase of the Securities by the Series B
Investors have been lawfully and validly taken or will have been so
taken prior to the Closing.
(3) This Agreement and the Ancillary Agreements
are the legal, valid and binding obligations of the Series B Investors
and are enforceable against the Series B Investors in accordance
with their respective terms, except that such enforcement is limited by
bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally.
(4) Such Series B Investor acknowledges that
he or it has received and reviewed a copy of the Registration Statement.
Such Series B Investor acknowledges that the terms of the IPO may
differ from those included in the Registration Statement and that the
IPO may be delayed or terminated at any time.
(5) Such Series B Investor recognizes that
the purchase of shares of Preferred Stock pursuant to this Agreement
involves a high degree of risk and acknowledges that it understands
such risks, including those set forth in the section titled "Risk
Factors" in the Registration Statement.
60 Conditions of Parties' Obligations.
6.1 Conditions of the Series B Investors'
Obligations at the Closing. The obligation of the Series B Investors to
purchase and pay for the Preferred Stock is subject to the fulfillment
prior to or on the Closing Date of the following conditions, any of
which may be waived in whole or in part by the Series B Investors.
(a) No Errors, etc. The
representations and warranties of the Company under this Agreement shall
be deemed to have been made again on the Closing Date and shall then be
true and correct.
(b) Compliance with Agreement. The
Company shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with
by it on or before the Closing Date.
(c) No Default. There shall not
exist on the Closing Date any Default (as hereinafter defined) or Event
of Default (as hereinafter defined) or any event or condition which,
with the giving of notice or lapse of time or both, would constitute
a Default or Event of Default.
(d) Certificate of Officer. The
Company shall have delivered to the Series B Investors a certificate
dated the Closing Date, executed by its Chairman, certifying the
satisfaction of the conditions specified in subsections (a), (b) and (c)
of this Section 6.1.
<PAGE>
(e) Certificate of Principal
Shareholders. The Company shall have delivered to the Series B Investors
a certificate dated the Closing Date, executed by the Designated Key
Employees, certifying upon having made a reasonable investigation
sufficient to express an informed view, the satisfaction of the
conditions specified in subsections (a), (b) and (c) of this Section
6.1.
(f) Opinion of the Company's Counsel.
The Series B Investors shall have received from LeClair Ryan, A
Professional Corporation, counsel for the Company, an opinion dated the
Closing Date substantially in the form of Annex 6.1(f) hereto.
(g) Certificate. The Certificate shall
have been filed with the State Corporation Commission of the
Commonwealth of Virginia and a copy of the Certificate of Amendment
issued by the State Corporation Commission of the Commonwealth of
Virginia shall have been delivered to counsel for the Series B
Investors.
(h) Qualification Under State
Securities Laws. All registrations, qualifications, permits and
approvals required under applicable state securities laws shall
have been obtained for the lawful execution, delivery and performance
of this Agreement and the performance of the Certificate, including
without limitation the offer, sale, issue and delivery of the
Securities.
(i) Supporting Documents. The Series B
Investors shall have received the following:
(1) Copies of resolutions
of the Board, certified by the Secretary of the Company, authorizing and
approving the amendments to the Articles of Incorporation of the Company
reflected in the Certificate and, as to the Board, the execution,
delivery and performance of this Agreement and the Ancillary Agreements
and the performance of the Certificate, and all other documents and
instruments to be delivered pursuant hereto and thereto;
(2) A certificate of
incumbency executed by the Secretary of the Company certifying the
names, titles and signatures of the officers authorized to execute the
documents referred to in subparagraph (2) above and further certifying
that the Articles of Incorporation and Bylaws of the Company delivered
to the Series B Investors at the time of the execution of this
Agreement have been validly adopted and have not been amended or
modified, except to the extent provided in the Certificate; and
(3) Such additional
supporting documentation and other information with respect to the
transactions contemplated hereby as the Series B Investors or their
counsel may reasonably request.
(j) Proceedings and Documents. All
corporate and other proceedings and actions taken in connection with
the transactions contemplated hereby and all certificates,
opinions, agreements, instruments and documents mentioned herein or
incident to any such transactions, shall be satisfactory in form and
substance to the Series B Investors and to their counsel.
<PAGE>
(k) Amended and Restated
Stockholders Agreement. Craig W. Winn and Rex Scatena (the "Senior
Executives"), the Series B Investors and the Company shall have entered
into an Amended and Restated Stockholders Agreement, substantially in
the form of Annex 6.1(k) hereto (the "Stockholders Agreement") which
amends and restates the Stockholders Agreement dated December 17, 1997
and the certificates evidencing the Common Stock held by the Senior
Executives shall have been endorsed with the legend required by the
Stockholders Agreement.
(l) Amended and Restated
Registration Rights Agreement. The Company, all of the holders of
Series A Preferred Stock and the Series B Investors shall have entered
into an Amended and Restated Registration Rights Agreement
substantially in the form of Annex 6.1(l) hereto (the "Registration
Rights Agreement") which amends and restates the Registration Rights
Agreement dated December 17, 1997.
(m) Common Stock Purchase Agreement.
Craig Winn and Rex Scetana and certain Series B Investors shall have
entered into a Common Stock Purchase Agreement substantially in the
form of Annex 6.1(m) hereto.
(n) Voting Agreement. Craig Winn,
Rex Scetana, Ullico, as holder of Series A Preferred Stock and Series B
Preferred Stock, and the other Series B Investors shall have entered
into a Voting Agreement substantially in the form of Annex 6.1(n)
hereto (the "Voting Agreement").
6.2. Conditions of Company's Obligations. The
Company's obligation to issue and sell the Preferred Stock to the Series
B Investors on the Closing Date is subject to the fulfillment prior to
or at the Closing Date of the conditions precedent specified in
paragraphs (g) and (h) of Section 6.1 hereof.
70 Affirmative Covenants. The Company agrees that unless
the Holders of a Majority of the Restricted Stock (as hereinafter
defined) otherwise agree in writing, so long as the Series B Investors
are Holders of Restricted Stock, the Company (and each of its
Subsidiaries unless the context otherwise requires) will do the
following:
7.1. Maintain Corporate Rights and Facilities.
Maintain and preserve its corporate existence and all rights, franchises
and other authority adequate for the conduct of its business; maintain
its properties, equipment and facilities in good order and repair; and
conduct its business in an orderly manner without voluntary
interruption.
7.2 Maintain Insurance
(a) Maintain in full force and
effect a policy or policies of insurance issued by insurers of
recognized responsibility, insuring it and its properties and business
against such losses and risks, and in such amounts, as are customary
in the case of corporations of established reputation engaged in the
same or a similar business and similarly situated;
<PAGE>
(b) Within thirty (30) days after the
Closing Date obtain, and thereafter maintain in full force and effect
policies of term life insurance issued by issuers of recognized
responsibility, in the amount of $10 million on the life of Craig A.
Winn and $1 million each on the lives of Rex Scatena, Dean Johnson,
Joseph Page and Daniel Lucier in each case with the Company as the sole
beneficiary and so long as they are employees of the Company.
7.3 Pay Taxes and Other Liabilities. Pay and
discharge, before the same become delinquent and before penalties accrue
thereon, all taxes, assessments and governmental charges upon or
against it or any of its properties, and all its other material
liabilities at any time existing, except to the extent and so long as
(i) the same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse effect
upon its financial condition or the loss of any right of redemption
from any sale thereunder, and (ii) it shall have set aside on its
books reserves (segregated to the extent required by generally accepted
accounting principles) deemed by it adequate with respect thereto.
7.4. Records and Reports. Accurately and fairly
maintain its books of account in accordance with generally accepted
accounting principles, as approved from time to time by a majority of
the Board and its independent certified public accountants; employ a
firm of independent certified public accountants, which firm is
either one of the five largest national accounting firms or which is
approved by the Holders of the Majority of the Restricted Stock, to
make annual audits of its accounts in accordance with generally
accepted auditing standards; permit the Series B Investors and their
representatives to have access to and to examine its properties,
books and records (and to copy and make extracts therefrom) at such
reasonable times and intervals as the Series B Investors may request
and to discuss its affairs, finances and accounts with its officers
and auditors, all to such reasonable extent and at such reasonable
times and intervals as the Series B Investors may request; and the
Company shall also furnish each Holder of Preferred Stock:
(a) As soon as available, and in any
event within thirty (30) days after the close of each monthly accounting
period, financial statements prepared on a consolidated basis
(together with consolidating statements in support thereof)
consisting of a balance sheet of the Company as of the end of such
monthly accounting period and statements of income, shareholders'
equity and cash flow for such monthly accounting period, and for the
portion of the Company's fiscal year ending with the last day of such
monthly accounting period, setting forth in comparative form (i) the
figures for such period, figures for the corresponding periods of the
previous fiscal year and the budgeted figures for such periods prepared
and submitted pursuant to Section 7.5 hereof, and (ii) as of the end of
each fiscal quarter, the figures for such quarter, the figures for the
corresponding quarter of the preceding fiscal year and the budgeted
figures for such current quarter prepared and submitted pursuant to
Section 7.5 hereof, all in reasonable detail, prepared and certified by
the chief executive officer or the chief financial officer of the
Company as fairly presenting the financial condition as of the
balance sheet date and results of operations and cash flows for the
period then ended in accordance with generally accepted accounting
principles consistently applied, subject to normal year end adjustments
which in the aggregate shall not be material;
<PAGE>
(b) As soon as available, and in any
event within ninety (90) days after the close of each fiscal year of the
Company (commencing with 1998), financial statements prepared on a
consolidated basis (together with consolidating statements in support
thereof) consisting of a balance sheet of the Company, as of the end of
such fiscal year, together with statements of income, shareholders'
equity and cash flow for such fiscal year, setting forth in comparative
form the figures for such fiscal year and for the previous fiscal year,
all in reasonable detail, and duly certified by an opinion unqualified
as to scope of a firm of independent certified public accountants,
which firm is one of the five largest national accounting firms;
(c) So long as any Preferred Stock
remains outstanding, promptly upon learning of the occurrence of a
Default or an Event of Default or a condition or event which with
the giving of notice or the lapse of time, or both, would constitute a
Default or an Event of Default, a certificate signed by the chief
executive officer or chief financial officer of the Company describing
such Default, Event of Default or condition or event and stating what
steps are being taken to remedy or cure the same;
(d) Promptly upon the receipt
thereof by the Company or the Board, copies of all reports, all
management letters and other detailed information submitted to the
Company or the Board by independent accountants in connection with
each annual or interim audit or review of the accounts or affairs
of the Company made by such accountants;
(e) Promptly after the same are
available, copies of all such proxy statements, financial statements and
reports as the Company shall send to its stockholders, and promptly
upon the transmission thereof copies of all registration statements,
notifications, proxy statements, reports and other documents and
writings which the Company may file with or furnish to the Commission
or any governmental authority at any time substituted therefor; and
(f) With reasonable promptness,
such other information relating to the finances, properties, business
and affairs of the Company and each Subsidiary, as the Series B
Investors reasonably may request from time to time.
<PAGE>
7.5 Preparation of Budget. Within sixty (60) days
after the Closing Date, for the Company's partial fiscal year ending
after the Closing Date, and at least thirty (30) days prior to the
beginning of each subsequent fiscal year, prepare and submit to the
Board, and furnish to the Series B Investors a copy of, an annual plan
for such year which shall include monthly capital and operating
expense budgets, cash flow statements and profit and loss and quarterly
balance sheet projections, itemized in such detail as the Board may
request. A majority of the members of the Board shall approve such
budgets, statements and projections. Each annual plan shall be
modified as often as necessary, but in any event every six (6) months,
to reflect material changes required as a result of operating results
and other events that occur, or may be reasonably expected to occur,
during the year covered by the annual plan, and copies of these
modifications shall be submitted to and approved by the Board and
furnished to the Series B Investors. The Company may dispense with
any six-month modification if the Board reasonably determines that
no material change is required in the budget for that six-month fiscal
period.
7.6 Notice of Litigation and Disputes. Promptly
notify the Series B Investors of each legal action, suit, arbitration or
other administrative or governmental investigation or proceeding
(whether federal, state, local or foreign) instituted or threatened
against the Company which could materially and adversely affect its
condition (financial or otherwise), properties, assets, liabilities,
business, operations or prospects, or of any occurrence or dispute which
involves a reasonable likelihood of any such action, suit,
arbitration, investigation or proceeding being instituted.
7.7 Directors' Meetings. Hold meetings of the
Board at least once every two (2) months; give the Series B Investors at
least five (5) days' notice of, and permit an officer or other
representative of the Series B Investors or any Person designated by
the Series B Investors to attend as an observer, all meetings of the
Board and all meetings of committees of the Board; furnish the Series B
Investors and its designated representative with a complete and accurate
copy of the minutes and other records of all meetings and other
proceedings of the Board and its committees as well as of the written
consents of members of the Board by which action is taken by the Board
or any committee without a meeting, and minutes and written consents
relating to action taken by the shareholders of the Company; provided,
that, if a meeting of the Board or any committee thereof is required
to be held on shorter notice than five (5) days, waiver of the
notice contained in this Section 7.7 shall not be unreasonably
withheld; and also furnish the Series B Investors and their
designated representatives with a complete and accurate copy of the
minutes of the meetings and the written consents with respect to
action taken without a meeting of the board of directors and committees
of each Subsidiary and of the stockholders of each Subsidiary. The
Company will pay the reasonable out-of-pocket expenses of such
Persons in attending such meetings.
7.8. Conduct of Business. Conduct its business in
accordance with all applicable provisions of federal, state, local and
foreign law.
7.9 Replacement of Certificates. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of any certificate representing any of the
Securities, issue a new certificate representing such Securities in
lieu of such lost, stolen, destroyed, or mutilated certificate.
7.10 Compliance with Section 6. Use its best
efforts to cause the conditions specified in Sections 6.1 and 6.2 hereof
to be met by the Closing Date.
7.11. Securities Law Filings. Make all filings
necessary to perfect in a timely fashion exemptions from (i) the
registration and prospectus delivery requirements of the Securities
Act and (ii) the registration or qualification requirements of all
applicable securities or blue sky laws of any state or other
jurisdiction, for the issuance of the Securities to the Series B
Investors.
<PAGE>
7.12 Composition of the Board of Directors; Compensation
Committee.
(a) At all times cause at least one Person
designated by the Holders of a Majority of the Restricted Stock to be elected
as and remain as a director of the Company, and reimburse all such Persons so
designated for their out-of-pocket expenses in connection with attending
meetings of the Board and all committees thereof and all expenses otherwise
incurred in fulfilling their duties as directors.
(b) The Board shall establish a
compensation committee of three directors (the "Compensation
Committee"), one member of which shall be selected by Ullico, one
member of which shall be selected by the holders of a majority of the
Series B Preferred Stock, and one member of which shall be selected by
the majority of the members of the Board of the Company. All action
taken by the Compensation Committee shall require the vote or
written consent of two of the three members of the Compensation
Committee, provided that one of such two members is the member
selected by the holders of a majority of the Series A Preferred
Stock. All matters affecting compensation of any officer or director
of the Company or any Subsidiary or any employee of or consultant to
the Company or any Subsidiary whose base compensation is at an annual
rate of at least $75,000 shall require approval of the Compensation
Committee in order to be effective. No option or warrant to purchase
Common Stock, stock appreciation rights or stock issuance to any
officer, director, employee or consultant of the Corporation shall
be granted, effected, modified or accelerated unless the same has been
approved by the Compensation Committee. In addition, the Compensation
Committee shall have the exclusive authority to administer and take all
action permitted or required to be taken by the Board or any committee
of the Board under all stock option plans of the Company and under any
other plan or arrangement that provides for the issuance of Common
Stock, stock appreciation rights, phantom stock or other similar
benefits to any employee of or any advisor or consultant to the
Corporation.
7.13 Compliance With Certificate and Bylaws.
Perform and observe all requirements of the Company's Bylaws, Articles
of Incorporation and the Certificate, including without limitation its
obligations to the Holders of Securities set forth in the Certificate
and the Company's Articles of Incorporation and Bylaws.
7.14 Internal Accounting Controls. Devise and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (a) transactions are executed in
accordance with management's general or specific authorization, (b)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such
statements, and to maintain accountability for assets, (c) access to
assets is permitted only in accordance with management's general or
specific authorization, and (d) the recorded accountability for
assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
7.15 Use of Proceeds. Use the proceeds from the
sale of the Preferred Stock hereunder substantially as set forth in
Annex 7.15 hereof.
<PAGE>
7.16 Union Matters. So long as Ullico is a Holder
of Securities (as hereinafter defined):
(a) In the event of any attempt by
any union to organize or seek to represent employees of the Company or
any of its Affiliates, the Company will recognize the union as the
representative of its workers upon a showing of majority support
through a formal gathering of cards for the union in an appropriate
unit.
(b) In connection with any organizing
done by a union, the Company recognizes the right of its employees to
choose their bargaining representative without interference from
their employer (the Company or its Affiliates). Accordingly, the Company
and its officers, directors, employees and agents shall refrain, and
shall cause its Affiliates to refrain, from its or their support of or
opposition to the union and from actively campaigning in opposition to
the designation of such union as the representative of such employees.
(c) The Company will cause all
merchandise ordered by its customers to be shipped by shippers that have
recognized one or more unions as collective bargaining representatives
of some or all of its workers; provided, however, that exceptions
to this requirement will be permitted if installation of purchased
items requires set up and it is impracticable to obtain union labor
for on-site installation and set-up or there is no viable union
transportation option available.
Upon completion of a Qualified Offering, the
Company shall no longer be obligated to comply with the requirements of
this Section 7, other than Sections 7.4, 7.9 and 7.16. The Series B
Investors acknowledge their responsibilities under the Federal
securities laws with respect to information furnished to them that has
not been publicly disclosed.
80 Negative Covenants. The Company agrees that unless the
Holders of a Majority of the Restricted Stock (as hereinafter defined)
otherwise agree in writing, so long as the Series B Investors are
Holders of Securities, the Company (and each of its Subsidiaries
unless the context otherwise requires) will not do any of the
following:
8.1 Senior or Parity Securities. So long as any
Preferred Stock remains outstanding, issue, assume or suffer to exist
(a) any security that is senior to or on a parity with the Preferred
Stock, or (b) any Indebtedness for Borrowed Money (as hereinafter
defined) that is an Equity Security (as hereinafter defined) or is
issued with an Equity Security.
<PAGE>
8.2 Private Offerings. Except in a public offering
registered under the Securities Act, issue or sell any Equity Security
unless each issuee and purchaser agrees in writing with the Company
not to offer to sell, sell, make any short sale of, loan, grant any
option for the purpose of, or otherwise dispose of, any Equity
Security for at least the same period as shall be required of officers
and directors of the Company prior to and after the closing of any
public offering of securities of the Company registered under the
Securities Act, except that (i) the Board shall have the right to
dispense with this requirement in the case of sales of Common Stock to
individuals who are not directors or officers of the Company and who
purchase less than one percent (1%) of the then fully diluted Common
Stock outstanding, and (ii) the Company need not obtain such
standstill agreements from current holders of the Common Stock or
holders of options or warrants to purchase Common Stock if they have
already given standstill agreements restricting their right to sell as
requested by the managing underwriter in an offering for up to 270
days (in the case of outstanding stock and stock purchase
warrants) and 180 days (in the case of options granted under the Stock
Plan).
8.3 Changes in Type of Business. Make any
substantial change in the character of its business.
8.4 Loans; Guarantees. Make any loan or advance to
any Person, including, without limitation any employee or director of
the Company or any Subsidiary, except advances for travel and
entertainment expenses and similar expenditures in the ordinary course
of business or under the terms of a stock option plan or stock purchase
agreement approved by the Compensation Committee; or guarantee,
directly or indirectly, any Indebtedness except for trade accounts of
the Company or any Subsidiary arising in the ordinary course of
business.
8.5 Restrictive Agreements. Enter into or become a
party to any agreement or instrument which by its terms would violate or
be in conflict with or restrict the Company's performance of, its
obligations under this Agreement, the Certificate or any Ancillary
Agreement.
Upon completion of a Qualified Offering, the
Company shall no longer be obligated to comply with the requirements of
this Section 8.
90 Enforcement.
<PAGE>
9.1 Remedies at Law or in Equity. If any Default
shall occur or if any representation or warranty made by or on behalf of
the Company in this Agreement or in any certificate, report or other
instrument delivered under or pursuant to any term hereof shall be
untrue or misleading in any material respect as of the date of this
Agreement or as of the Closing Date or as of the date it was made,
furnished or delivered, the Holder of any Security may proceed to
protect and enforce its rights by suit in equity or action at law,
whether for the specific performance of any term contained in this
Agreement or the Certificate or for an injunction against the breach
of any such term or in aid of the exercise of any power granted in this
Agreement or the Certificate, or to enforce any other legal or
equitable right of such Holder of any such Securities, or to take
any one or more of such actions. In the event a Holder brings such an
action against the Company, the Holder shall be entitled to recover
from the Company all fees, costs and expenses of enforcing any right of
such Holder under or with respect to this Agreement or the
Certificate, including without limitation such reasonable fees and
expenses of attorneys, advisors, accountants and expert witnesses,
which shall include, without limitation, all fees, costs and expenses
of appeals; provided, however, that such Holder shall be required to
pay the reasonable out-of-pocket expenses of defense of the Company
(including without limitation such reasonable fees and expenses of
attorneys, advisors, accountants and expert witnesses, including
without limitation, the fees, costs and expenses of appeals) if the
Company is the prevailing party in such actions, and in such case, the
Holder shall not be entitled to receive its litigation expenses from the
Company.
9.2 Cumulative Remedies. None of the rights,
powers or remedies conferred upon any Holder of Preferred Stock or
Common Stock shall be mutually exclusive, and each such right, power or
remedy shall be cumulative and in addition to every other right, power
or remedy, whether conferred hereby or by the Certificate or now or
hereafter available at law, in equity, by statute or otherwise.
9.3 No Implied Waiver. Except as expressly
provided in this Agreement, no course of dealing between the Company and
the Series B Investors or the Holder of any Security and no delay in
exercising any such right, power or remedy conferred hereby or by
the Certificate or now or hereafter existing at law in equity, by
statute or otherwise, shall operate as a waiver of, or otherwise
prejudice, any such right, power or remedy.
100 Rights of First Refusal.
10.1 Subsequent Offerings. Each Series B Investor
shall have the right of first refusal to purchase all (or any part of
all) of its pro rata share of Equity Securities that the Company may,
from time to time, propose to sell and issue after the Closing Date,
other than the Equity Securities excluded by Section 10.5 hereof.
Each Series B Investor's pro rata share is equal to the ratio of (i)
the number of shares of the Company's Common Stock issued or
issuable upon conversion of the shares of Series B Preferred Stock
which such Series B Investor is deemed to be a Holder immediately
prior to the issuance of such Equity Securities, (ii) the total
number of shares of the Company's outstanding Common Stock issued or
issuable upon conversion of the shares of Preferred Stock held by
the Holders of Preferred Stock immediately prior to the issuance of
the Equity Securities.
10.2 Exercise of Rights. If and each time the
Company proposes to issue any Equity Securities, it shall give each
Series B Investor written notice of its intention, describing the
Equity Securities, the price, and the general terms and conditions
upon which the Company proposes to issue the same. Each Series B
Investor shall have thirty-five (35) days from the giving of such
notice to agree to purchase its pro rata share of the Equity
Securities for the price and upon the terms and conditions specified
in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased.
<PAGE>
10.3 Issuance of Equity Securites to Other Persons.
If not all of the Series B Investors elect to purchase their pro rata of
the Equity Securities, then the rsons Company shall promptly notify
in writing the Series B Investors who do so exercise such rights
and shall offer such Series B Investors the right to acquire such
unsubscribed shares. The Series B Investors shall have five (5) days
after receipt of such notice to notify the Company of its election
to purchase all or a portion thereof of the unsubscribed shares. If
the Series B Investors fail to exercise in full the rights of first
refusal, the Company shall have sixty (60) days thereafter to
complete the sale of the Equity Securities in respect of which the
Series B Investors rights were not exercised, at a price and upon
general terms and conditions no more favorable to the purchasers
thereof than specified in the Company's notice to Series B Investors
pursuant to Section 10.2 hereof. If the Company has not sold all of
these Equity Securities within such sixty (60) days, the Company shall
not thereafter issue or sell any of such Equity Securities, without
first offering such securities to the Series B Investors in the manner
provided above.
10.4 Termination of Right of First Refusal. The
rights of first refusal established by this Section 10 shall terminate
upon the closing of an underwritten public offering of Common Stock
made pursuant to an effective registration statement under the
Securities Act in which the obligation of the underwriters is to take
all of such stock being offered if any is taken. Such a firmly
underwritten public offering that raises at least $25 million of gross
proceeds for the account of the Company and has a per share price to
the public for the Common Stock of at least 110% of the "Conversion
Price" of the Series A Preferred Stock (as this quoted term is
defined in the Certificate) immediately prior to the closing of such
public offering, is herein called a "Qualified Offering."
10.5 Excluded Securities. The rights of first
refusal established by this Section 10 shall have no application to any
of the following Equity Securities: (a) the first 1,250,000 shares of
Common Stock sold pursuant to the Stock Plan to persons who are or
were employees or directors of or consultants to the Company upon
the exercise of stock options or pursuant to stock purchase
agreements, which options and agreements are approved by the Board
and, as to options granted after the Closing Date, the
Compensation Committee, and the options to purchase such shares, (b)
71,250 shares issuable upon exercise of the Warrants to Purchase Common
Stock referred to in Section 5.3, (c) the Conversion Stock, (d)
shares of Common Stock issuable upon conversion of the Company's
Series A Preferred Stock, (e) stock issued pursuant to any rights or
agreements including, without limitation, convertible securities,
options and warrants, provided that the rights of first refusal
established by this Section 10 applied with respect to the initial sale
or grant by the Company of such rights or agreements, (f) each Equity
Security issued for a consideration other than cash pursuant to a
merger, consolidation, acquisition or similar business combination, (g)
any Equity Security that is issued by the Company as part of an
underwritten public offering referred to in Section 10.4 hereof, (h)
shares of Common Stock issued in connection with any stock split,
stock dividend or reverse stock split, (i) 25,000 shares of Common
Stock to Chris Little for services rendered, and (j) any Equity
Security which the Holders of a Majority of the Restricted Stock
agree in writing shall not be subject to this Section 10.
<PAGE>
10.6 Strategic Investor Exception. Notwithstanding
Sections 10.1 and 10.2, in the event the Company proposes to issue
Equity Securities (other than those excluded under Section 10.5) to a
Strategic Investor primarily for the purpose of establishing a
business relationship that would benefit the growth or profitability
of the Company's business (as contrasted with obtaining capital as a
primary purpose), then rather than have the right to purchase all of
such Equity Securities the Series B Investors' rights shall be
limited to purchasing such portion of such Equity Securities to be
issued that will enable the Series B Investors to maintain, after
giving effect to the full issuance of such Equity Securities, their
fully-diluted Common Stock ownership percentage interest of the
Company determined immediately prior to giving effect to the
issuance of such Equity Securities. "Strategic Investor" means a
Person whose primary activity is other than investing in securities or
business enterprises and that the Board has concluded, reasonably and
in good faith, would be likely as a result of its business activities to
provide opportunities for the Company to increase its revenues and
profitability substantially.
110. Definitions. Unless the context otherwise requires,
the terms defined in this Section 11 shall have the meanings herein
specified for all purposes of this Agreement, applicable to both the
singular and plural forms of any of the terms herein defined. All
accounting terms defined in this Section 11 and those accounting
terms used in this Agreement not defined in this Section 11 shall,
except as otherwise provided for herein, be construed in accordance
with those generally accepted accounting principles that the Company is
required to employ by the terms of this Agreement. If and so long
as the Company has any Subsidiary, the accounting terms defined in
this Section 11 and those accounting terms appearing in this Agreement
but not defined in this Section 11 shall be determined on a consolidated
basis for the Company and each of its Subsidiaries, and the financial
statements and other financial information to be furnished by the
Company pursuant to this Agreement shall be consolidated and presented
with consolidating financial statements of the Company and each of its
Subsidiaries.
"Affiliate" shall mean any Person which directly or
indirectly controls, is controlled by, or is under common control with,
the indicated Person.
"Agreement" shall mean this Agreement, as the
same may be amended, modified or restated from time to time.
"Balance Sheet" and "Balance Sheet Date" shall
have the meanings assigned to these terms in Section 5.12 hereof.
"Board" shall mean the Board of Directors of the
Company.
"Certificate" shall have the meaning assigned
to it in Section 1 hereof.
"Closing" and "Closing Date" shall have the
meaning assigned to these terms in Section 3.
"Common Stock" shall have the meaning assigned
to it in Section 1 hereof.
"Common Stock Purchase Agreement" shall have the
meaning assigned to it in Section 6.1(m) hereof.
"Commission" shall mean the Securities and
Exchange Commission.
"Compensation Committee" shall have the meaning
assigned to it in Section 7.12(b).
<PAGE>
"Conversion Stock" shall have the meaning assigned
to it in Section 1 hereof.
"Default" shall mean a material default or failure
in the due observance or performance of any covenant, condition or
agreement on the part of the Company or any of its Subsidiaries to be
observed or performed under the terms of this Agreement or the
Certificate, if such default or failure in performance shall remain
unremedied for ten (10) days; provided, however, that the Company's
failure to pay dividends on Preferred Stock shall not be a Default
unless such dividends have been declared by the Board or unless the
Company has failed to pay dividends payable in cash or Common Stock
upon conversion of any Preferred Stock.
"Developing Software" shall have the meaning
assigned to it in Section 5.29(b).
"Equity Security" shall mean any stock or similar
security of the Company or any security (whether stock or Indebtedness
for Borrowed Money) convertible or exchangeable, with or without
consideration, into or for any stock or similar security, or any
security (whether stock or Indebtedness for Borrowed Money) carrying any
warrant or right to subscribe to or purchase any stock or similar
security, or any such warrant or right.
"Event of Default" shall mean (a) the failure of
either the Company or any Subsidiary to pay any Indebtedness for
Borrowed Money, or any interest or premium thereon, within ten (10)
days after the same shall become due, whether such Indebtedness
shall become due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, (b) an event of default under
any agreement or instrument evidencing or securing or relating to any
such Indebtedness, or (c) the failure of either the Company or any
Subsidiary to perform or observe any material term, covenant, agreement
or condition on its part to be performed or observed under any
agreement or instrument evidencing or securing or relating to
any such Indebtedness when such term, covenant or agreement is
required to be performed or observed.
"Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
"Fully Operating Software" shall have the meaning
assigned to it in Section 5.29(a).
"Holder" of any Security shall mean the record or
beneficial owner of such Security. A Holder of Preferred Stock shall be
treated as the Holder of the Restricted Stock underlying the Preferred
Stock.
"Holders of a Majority of the Restricted Stock"
shall mean the Person or Persons who are the Holders of greater than 50%
of the Restricted Stock.
<PAGE>
"Indebtedness" shall mean any obligation of the
Company or any Subsidiary which under generally accepted accounting
principles is required to be shown on the balance sheet of the
Company or such Subsidiary as a liability. Any obligation secured by a
Lien on, or payable out of the proceeds of production from, property
of the Company or any Subsidiary shall be deemed to be Indebtedness even
though such obligation is not assumed by the Company or Subsidiary.
"Indebtedness for Borrowed Money" shall mean (a)
all Indebtedness in respect of money borrowed including, without
limitation, Indebtedness which represents the unpaid amount of the
purchase price of any property and is incurred in lieu of borrowing
money or using available funds to pay such amounts and not constituting
an account payable or expense accrual incurred or assumed in the
ordinary course of business of the Company or any Subsidiary, (b) all
Indebtedness evidenced by a promissory note, bond or similar written
obligation to pay money, or (c) all such Indebtedness guaranteed by
the Company or any Subsidiary or for which the Company or any
Subsidiary is otherwise contingently liable.
"Lien" shall mean any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind, including, without
limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any
jurisdiction and including any lien or charge arising by statute or
other law.
"Material Adverse Effect" shall mean a material
adverse effect, or any condition, situation or set of circumstances that
could reasonably be expected to have a material adverse effect, on
a Person and its Subsidiaries, taken as a whole, or the business,
assets, properties, condition (financial and other), operations or
prospects of such Person and its Subsidiaries taken as a whole.
"Permitted Liens" shall mean (a) Liens for taxes
and assessments or governmental charges or levies not at the time due
or in respect of which the validity thereof shall currently be
contested in good faith by appropriate proceedings; (b) Liens in
respect of pledges or deposits under workers' compensation laws or
similar legislation, carriers', warehousemen's, mechanics', laborers'
and materialmen's and similar Liens, if the obligations secured by
such Liens are not then delinquent or are being contested in good
faith by appropriate proceedings; and (c) Liens incidental to the
conduct of the business of the Company or any Subsidiary which were not
incurred in connection with the borrowing of money or the obtaining of
advances or credits and which do not in the aggregate materially
detract from the value of its property or materially impair the use
thereof in the operation of its business.
"Person" shall include any natural person,
corporation, trust, association, company, partnership, joint venture and
other entity and any government, governmental agency, instrumentality or
political subdivision.
"Preferred Stock" shall have the meaning assigned
to it in Section 1 hereof.
"Qualified Offering" shall have the meaning
assigned to it in Section 10.4.
<PAGE>
"Registration Rights Agreement" shall have the
meaning assigned to it in Section 6.1(l) hereof.
"Restricted Stock" shall mean (a) all Common Stock
owned now or in the future by the Series B Investors, (b) the Common
Stock issued or issuable upon conversion of the Preferred Stock,
whether owned by the Series B Investors or not, and (c) any
securities issued or issuable with respect to such Common Stock by
way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger or consolidation or
reorganization; provided, however, that shares of Common Stock shall
only be treated as Restricted Stock if and so long as they have not
been (i) sold to or through a broker or dealer or underwriter
in a public distribution or a public securities transaction, or (ii)
sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act under Section 4(1) thereof
so that all transfer restrictions and restrictive legends with
respect to such Common Stock are removed upon the consummation of
such sale and the seller and purchaser of such Common Stock receive
an opinion of counsel for the Company, which shall be in form and
content reasonably satisfactory to the seller and buyer and their
respective counsel, to the effect that such Common Stock in the hands
of the purchaser is freely transferable without restriction or
registration under the Securities Act in any public or private
transaction.
"Securities" shall have the meaning assigned
to it in Section 1 hereof.
"Securities Act" shall mean the Securities Act of
1933, as amended.
"Senior Executive" shall have the meaning assigned
to it in Section 6.1(k).
"Series A Preferred Stock" shall mean the
Series A Preferred Stock, without par value, of the Company.
"Series B Investors" shall have the meaning
assigned to such term in the introductory paragraph of this Agreement.
"Stockholders Agreement" shall have the meaning
assigned to it in Section 6.1(k) hereof.
"Stock Plan" shall have the meaning assigned
to it in Section 5.3 hereof.
"Subsidiary" shall mean any corporation,
association or other business entity at least 50% of the outstanding
voting stock of which is at the time owned or controlled directly or
indirectly by the Company or by one or more of such subsidiary
entities or both, where "voting stock" means any shares of stock
having general voting power in electing the board of directors
(irrespective of whether or not at the time stock of any other class or
classes has or might have voting power by reason of any
contingency).
<PAGE>
"Voting Agreement" shall have the meaning assigned
to it in Section 6.1(n) hereof.
"Web Site" shall have the meaning assigned to it in
Section 5.30(a).
12. Miscellaneous.
12.1 Waivers and Amendments. With the written
consent of the Holders of a Majority of the Restricted Stock, the
obligations of the Company and the rights of the Holders of the
Securities under this Agreement may be waived (either generally or in
a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely), and with the
same consent the Company, when authorized by resolution of its Board,
may enter into a supplementary agreement for the purpose of
adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of any supplemental agreement
or modifying in any manner the rights and obligations hereunder of
the Holders of the Securities and the Company; provided, however,
that no such waiver or supplemental agreement shall (a) affect any of
the rights of any Holder of a Security created by the Certificate
or by the statutory corporate law of the state of incorporation of the
Company without compliance with all applicable provisions of the
Certificate and such statutory corporate law, or (b) reduce the
aforesaid proportion of Restricted Stock, the Holders of which are
required to consent to any waiver or supplemental agreement, without
the consent of the Holders of all of the Restricted Stock. Upon
the effectuation of each such waiver, consent or agreement of
amendment or modification, the Company shall promptly give written
notice thereof to the Holders of the Restricted Stock who have not
previously consented thereto in writing. Neither this Agreement nor
the Certificate, nor any provision hereof or thereof, may be
amended, waived, discharged or terminated orally or by course of
dealing, but only by a statement in writing signed by the party
against which enforcement of the change, waiver, discharge or
termination is sought, except to the extent provided in this Section
12.1. Specifically, but without limiting the generality of the
foregoing, the failure of the Series B Investors at any time or times
to require performance of any provision hereof or of the Certificate
by the Company shall in no manner affect the rights of the Series B
Investors at a later time to enforce the same. No waiver by any party
of the breach of any term or provision contained in this Agreement
or the Certificate, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant
contained in the Agreement or Certificate.
12.2 Effect of Waiver or Amendments. The Series B
Investors and each Holder of Securities acknowledge that by operation of
Section 12.1 hereof the Holders of a Majority of the Restricted Stock
will, subject to the limitations contained in such Section 12.1,
have the right and power to diminish or eliminate certain rights of
the Series B Investors under this Agreement.
<PAGE>
12.3 Rights of Holders Inter Se. Each Holder of
Securities shall have the absolute right to exercise or refrain from
exercising any right or rights which such Holder may have by reason of
this Agreement or any Security, including, without limitation, the
right to consent to the waiver of any obligation of the Company
under this Agreement and to enter into an agreement with the Company
for the purpose of modifying this Agreement or any agreement
effecting any such modification, and such Holder shall not incur any
liability to any other Holder or Holders of Securities with respect
to exercising or refraining from exercising any such right or rights.
12.4 Notices. All notices, requests, consents and
other communications required or permitted hereunder shall be in writing
(including telecopy or similar writing) and shall be given,
if to the Company to:
<TABLE>
<CAPTION>
<S> <C>
Value America, Inc.
2300 Commonwealth Drive
Charlottesville, Virginia 22901
Attention: Mr. Craig A. Winn, Chairman and Chief Executive Officer
Telecopier: (804) 817-7884
</TABLE>
with a copy to:
Gary D. LeClair, Esq.
LeClair Ryan, A Professional Corporation
707 East Main Street, 11th Floor
Richmond, VA 23219
Telecopier: (804) 783-2294
if to any other Holder of Securities to such
Holder at the address or to the telecopier number
as set forth for such Holder on Annex A hereto or
as such Holder may otherwise specify by notice
to the Company from time to time,
or to such other address or telecopier number as such party may specify
for the purpose by notice to the other party or parties to this
Agreement, as the case may be. A copy of any notice to the Company or
to the Series B Investors or any other Holder of Securities shall
also be given to each other Holder of Securities. Any notice,
request, consent or other communication hereunder shall be deemed to
have been given and received on the day on which it is delivered (by
any means including personal delivery, overnight air courier, United
States mail) or telecopied (or, if such day is not a business day or
if the notice, request, consent or communication is not telecopied
during business hours of the intended recipient, at the place of
receipt, on the next following business day).
<PAGE>
12.5 Survival of Representations and
Warranties, etc . All represen-tations and warranties made in, pursuant
to or in connection with this Agreement shall survive the execution and
delivery of this Agreement, any investigation at any time made by or
on behalf of the Series B Investors, and the sale and purchase of the
Securities and payment therefor. All statements contained in any
certificate, instrument or other writing delivered by or on behalf of
the Company pursuant hereto or in connection with or contemplation of
the transactions herein contemplated shall constitute
representations and warranties by the Company hereunder. Any claim
against the Company based upon any inaccuracy in any of the
representations or breach of any of the warranties hereunder must be
asserted against the Company, either by written notice given to the
Company specifying with reasonable particularity the claimed
inaccuracy or breach or by institution of an action at law or suit in
equity against the Company and the serving of the process and complaint
with respect thereto upon the Company, within thirty (30) months from
the Closing Date.
12.6 Severability. Should any one or more of the
provisions of this Agreement or of any agreement entered into pursuant
to this Agreement be determined to be illegal or unenforceable, all
other provisions of this Agreement and of each other agreement
entered into pursuant to this Agreement, shall be given effect
separately from the provision or provisions determined to be illegal
or unenforceable and shall not be affected thereby.
12.7 Parties in Interest. All the terms and
provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and
assigns of the parties hereto, whether so expressed or not, and, in
particular, shall inure to the benefit of and be enforceable by the
Holder or Holders at the time of any of the Securities. Subject
to the immediately preceding sentence, this Agreement shall not run to
the benefit of or be enforceable by any Person other than a party to
this Agreement and its successors and assigns.
12.8 Headings. The headings of the Sections and
paragraphs of this Agreement have been inserted for convenience of
reference only and do not constitute a part of this Agreement.
12.9 Choice of Law. It is the intention of the
parties that the internal substantive laws, and not the laws of
conflicts, of Virginia should govern the enforceability and validity
of this Agreement, the construction of its terms and the interpretation
of the rights and duties of the parties.
<PAGE>
12.10 Expenses. The Company agrees, whether or not
the transactions contemplated hereby are consummated, to pay, and hold
the Series B Investors and the Holders of the Securities harmless from
liability for the payment of, (i) the fees and expenses of their special
counsel arising in connection with the negotiation and execution
of this Agreement and all agreements and documents described in
Section 6.1 and the Certificate and consummation of the transactions
contemplated hereby and thereby, (ii) the fees and expenses incurred
with respect to any amendments to this Agreement or the Certificate
proposed by the Company (whether or not the same become effective),
(iii) if the Series B Investors or other Holder of Securities desires to
sell or otherwise transfer any or all of the Securities held by it and
counsel for the Company declines to render a legal opinion to the
Series B Investors or such holder, without cost or expense to such
Series B Investors or Holder, whether or not registration under the
Securities Act will be required for such sale or transfer, the fees
and expenses of counsel for the Series B Investor or such Holder in
rendering such an opinion, (iv) the fees and expenses of one firm of
counsel for any Holder or Holders of Securities who may be
deemed to be Affiliates of the Company for reviewing any registration
statement or prospectus to be filed under the Securities Act, or any
amendments or supplements thereto, unless such registration statement
is being prepared and effected in accordance with the Registration
Rights Agreement and such Holder or Holders are participating as
selling shareholders in such registration, (v) the fees and expenses
incurred in connection with any requested waiver of the right of any
Holder of Securities or the consent of any Holder of Securities to
contemplated acts of the Company not otherwise permissible by the terms
of this Agreement or the Certificate, (vi) stamp and other taxes,
excluding income taxes, which may be payable with respect to the
execution and delivery of this Agreement or the issuance, delivery or
acquisition of the Preferred Stock or upon the conversion of the
Preferred Stock, (vii) the fees and expenses incurred in respect of
the enforcement of the rights granted under this Agreement or the
Certificate, and (viii) all costs of the Company's performance of
and compliance with this Agreement and the Certificate.
12.11 Counterparts. This Agreement may be executed
in any number of counterparts and by different parties hereto in
separate counterparts, with the same effect as if all parties had
signed the same document. All such counterparts shall be deemed an
original, shall be construed together and shall constitute one and the
same instrument.
12.12 Authorship. This Agreement shall not be
construed for or against any party by reason of the authorship or
claimed authorship of any provision of this Agreement or by reason of
the status of the respective parties.
12.13 Entire Agreement. This Agreement and any
agreement, document or instrument referred to herein constitute the
entire agreement among the parties hereto with respect to the subject
matter hereof and thereof, and supersede all other prior agreements or
undertakings with respect thereto, both written and oral.
12.14 Exculpation Among Series B Investors. Each
Series B Investor acknowledges that it is not relying upon any other
Series B Investor, or any officer, director, employee, agent, partner
or affiliate of any such other Series B Investor, in making its
investment or decision to invest in the Company or in monitoring such
investment. Each Series B Investor agrees that no Series B Investor
nor any controlling person, officer, director, stockholder, partner,
agent or employee of any Series B Investor shall be liable for any
action heretofore or hereafter taken or omitted to be taken by any of
them relating to or in connection with the Company or the Preferred
Stock, or both. Without limiting the generality of the foregoing, no
Series B Investor (or any of its affiliates, officers, directors,
stockholders, partners, agents or employees) shall have any
obligation, liability or responsibility whatsoever for the
accuracy, completeness or fairness of any or all information about the
Company or its properties, business or financial and other affairs,
acquired by such Series B Investor from the Company or its officers,
directors, employees, agents, representatives, counsel or auditors,
and in turn provided to another Series B Investor, nor shall such
Series B Investor (or such other person) have any obligation or
responsibility whatsoever to provide any such information to any other
Series B Investor (or such other person) or to continue to provide any
such information if any information is provided.
<PAGE>
12.15 Counsel. In connection with the transactions
contemplated by this Agreement, the Company has been represented by
LeClair Ryan, A Professional Corporation ("Counsel"). Each party
hereto has reviewed the contents of this Agreement and fully understands
its terms. Each party hereto other than the Company acknowledges that
he or it is fully aware of his or its right to the advice of counsel
independent from that of the Company, that Counsel has advised him or it
of such right and disclosed to him or it the risks in not seeking such
independent advice, and that he or it understands the potentially
adverse interests of the parties with respect to this Agreement. Each
party hereto further acknowledges that no representations have been
made with respect to tax or other consequences of this Agreement or the
transactions contemplated herein to him or it, and that he or it has
been advised of the importance of seeking independent counsel with
respect to such consequences. Each Series B Investor acknowledges and
agrees that it has not received any information or advise from, and is
not relying upon any statement made by Ullico or Ullico's special
counsel, Paul, Hastings, Janofsky & Walker LLP, in entering into or in
connection with this Agreement or the transactions contemplated
hereby.
<PAGE>
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their respective duly authorized
officers as of the day and year first above written.
VALUE AMERICA, INC.
By:____________________________________
Craig A. Winn, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By:____________________________________
An Authorized Officer
<PAGE>
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
<TABLE>
<CAPTION>
<S> <C>
VULCAN VENTURES INCORPORATED
By:____________________________________
Name:___________________________
Title:__________________________
THE UNITED ASSOCIATION OF JOURNEYMEN
AND APPRENTICES OF THE PLUMBING AND
PIPEFITTING INDUSTRY OF THE UNITED
STATES AND CANADA, GENERAL FUND
By:____________________________________
Name:___________________________
Title:__________________________
THE ANNETTE M. AND THEODORE N. LERNER
FAMILY FOUNDATION
By:____________________________________
Name:___________________________
Title:__________________________
RYMAC JOINT VENTURE
By:____________________________________
Name:___________________________
Title:__________________________
BENDER FAMILY INVESTMENT LIMITED PARTNERSHIP
By:____________________________________
Name:___________________________
Title:__________________________
<PAGE>
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
LERNER INVESTMENTS LIMITED
PARTNERSHIP, a Maryland limited partnership
By: Moloreaux, Inc., its general partner
By:___________________________________
An Authorized Officer
<PAGE>
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
-------------------------------------
William D. Savoy
-------------------------------------
Grover McKean
-------------------------------------
David Schwinger
-------------------------------------
Terence R. McAuliffe
-------------------------------------
Charles T. Manatt
-------------------------------------
Martha T. S. Werner
-------------------------------------
Thomas Driscoll
-------------------------------------
John Shulman
DAVIDSON FAMILY LIMITED PARTNERSHIP
By: ___________________________________
Thomas R. Davidson, General Partner
-------------------------------------
C. Raymond Marvin
<PAGE>
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
YAGEMANN REVOCABLE TRUST,
DATED NOVEMBER 13, 1992
By: ___________________________________
Name: ____________________________
Title: ____________________________
</TABLE>
<PAGE>
[STOCKHOLDER SIGNATURE PAGE]
The undersigned hereby became parties to this
Preferred Stock Purchase Agreement solely for the purpose of Section
7.12(b) hereof.
Dated as of June 26, 1998
-------------
Craig A. Winn
-------------
Rex Scatena
<PAGE>
<TABLE>
<CAPTION>
ANNEX A
SCHEDULE OF INVESTORS
Name/Address Number of
Shares
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C>
Union Labor Life Insurance Company 7,801
111 Massachusetts Avenue, N.W.
Washington, DC 20001
Attention: Mr. Michael R. Steed,
Senior Vice President
Telecopier: (202) 682-7932
Vulcan Ventures Incorporated 492,287
110 110th Avenue Northeast
Suite 550
Bellevue, WA 98004
Telecopier: (425) 453-1985
The United Association of Journeymen and Apprentices of the 8,979
Plumbing and Pipefitting Industry of the United States and
Canada,
General Fund
901 Massachusetts Avenue, N.W.
Washington, DC 20001
Telecopier: (202) 628-5024
The Annette M. and Theodore N. Lerner 3,891
Family Foundation, Inc.
11501 Huff Court
North Bethesda, MD 20895
Attention: Edward Cohen, Partner
Telecopier: (301) 770-0144
Rymac Joint Venture 9,846
5512 Oak Place
Bethesda, MD 20817
Attention: Paul McNamara
Telecopier: (301) 652-8291
Bender Family Investment Limited Partnership 6,563
1120 Connecticut Avenue, Suite 1200
Washington, DC 20036
Telecopier: (202) 785-9347
Davidson Family Limited Partnership 13,127
c/o Mr. Thomas Davidson
Thomas Walsh
1600 Wilson Boulevard, Suite 800
Arlington, VA 22209
Telecopier: (703) 312-6419
<PAGE>
William D. Savoy 16,411
c/o Vulcan Ventures Incorporated
110 110th Avenue Northeast
Suite 550
Bellevue, WA 98004
Telecopier: (425) 453-1985
Grover McKean 1,641
2311 Nottingham Avenue
Los Angeles, CA 90027
Telecopier: (213) 666-4235
David Schwinger 6,563
6009 Roseland Drive
Rockville, MD 20852-3646
Telecopier: (202) 298-7570
Terence R. McAuliffe 3,282
7527 Old Dominion Drive
McLean, VA 22102
Telecopier: (703) 749-9190
Charles T. Manatt 1,641
Manatt Phelps & Phillips
1501 M Street, N.W.
Washington, DC 20005
Telecopier: (202) 463-4394
Martha T.S. Werner 3,282
c/o Hawkes Carlton Sanchez & Co., Ltd.
11726 San Vicente Boulevard, Suite 300
Brentwood, CA 91436
(310) 442-4717
Thomas Driscoll 3,282
c/o R.W. Pressprich & Co., Inc.
40 Rose Wharf, Second Floor
Boston, MA 02110
Telecopier: (617) 330-9152
John Shulman 3,282
4620 Laverock Place, NW
Washington, D.C. 20007
Telecopier: (202) 333-8260
C. Raymond Marvin 13,127
1371 Kirby Road
McLean, VA 22101
Telecopier: (703) 847-4215
<PAGE>
Yagemann Revocable Trust, 16,411
Dated November 13, 1992
9 Cobb Island Drive
Greenwich, CT 06830
</TABLE>
<PAGE>
ANNEX B
<PAGE>
ANNEX 4.4
LOCK-UP AGREEMENT FOR
DIRECTORS, OFFICERS AND SECURITYHOLDERS
OF VALUE AMERICA, INC.
BANCAMERICA ROBERTSON STEPHENS
As Lead Representative of the several Underwriters
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
The undersigned understands that you, as lead
representative of the several underwriters (the "Underwriters"),
propose to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Value America, Inc. (the "Company") and certain Selling
Stockholders (as defined in the Underwriting Agreement) providing for
the initial public offering (the "Public Offering") by the Underwriters,
including yourselves, of the Company's common stock, no par value,
(the "Common Stock") pursuant to a Registration Statement of Form S-1
(the "Registration Statement") to be filed with the Securities and
Exchange Commission. This letter agreement shall terminate and be of no
further force and effect either (i) upon a decision by BancAmerica
Robertson Stephens or the Company not to proceed with the Public
Offering, or (ii) if the Registration Statement is not filed with the
Securities and Exchange Commission by July 15, 1998.
<PAGE>
Page
In consideration of the Underwriters' agreement to
purchase and make the Public Offering of the Common Stock, and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the undersigned hereby agrees that the
undersigned will not, for a period commencing on the date hereof and
continuing thereafter until 180 days after the date of the final
prospectus for the Public Offering (the "Lock-Up Period"), offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to (collectively, a "Disposition") any
shares of Common Stock, any options or warrants to purchase any
shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock (collectively,
"Securities") now owned or hereafter acquired directly by the
undersigned or with respect to which the undersigned has or hereafter
acquires the power of disposition, otherwise than (a) as a bona
fide gift or a distribution to limited partners, members or
shareholders of the undersigned, provided that the donees or
distributees thereof (as the case may be) agree in writing to be bound
by the terms of this Lock-Up Agreement, (b) as a bona fide pledge or,
upon foreclosure of such pledge, to the pledgee, provided that the
pledgee agrees to be subject to the transfer restrictions herein to
the same extent as the undersigned, or (c) with the prior written
consent of BancAmerica Robertson Stephens. The foregoing restriction
is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of
securities during the Lock-Up Period, even if such Securities would
be disposed of by someone other than the undersigned. Such
prohibited hedging or other transactions include, without
limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation,
any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or
index) that includes, relates to or derives any significant part of
its value from the Securities. Notwithstanding the foregoing, this
Lock-Up Agreement does not prohibit (i) the sale of shares of
Common Stock by the undersigned to the Underwriters in the Public
Offering or (ii) resales of shares of Common Stock acquired by the
undersigned in the Public Offering or in subsequent open-market
purchases. The undersigned hereby agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent
against the transfer of the Securities held by the undersigned
except in compliance with this Lock-Up Agreement.
Date: _____________________, 1998
Very truly yours,
<PAGE>
- -------------------------------------------------------------------------------
VALUE AMERICA, INC.
----------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
-----------------------------------
617,979 SHARES OF 5% CUMULATIVE CONVERTIBLE
SERIES B PREFERRED STOCK
Dated as of June 26, 1998
- -------------------------------------------------------------------------------
<PAGE>
LIST OF ANNEXES
<TABLE>
<CAPTION>
<S> <C>
Annex A Schedule of Investors
Annex B Articles of Amendment of Value America, Inc.
Annex 4.4 Lockup Agreement for Directors, Officers and Security Holders of Value America, Inc.
Annex 5.2 Qualification
Annex 5.3 Capital Stock
Annex 5.5 Schedule of Indebtedness for Borrowed Money
Annex 5.6 Schedule of Holders of Common Stock, Options and Warrants
Annex 5.11 Brokers and Finders
Annex 5.12 Financial Statements
Annex 5.13 Schedule of Special Liabilities
Annex 5.14 Schedule of Changes
Annex 5.15 Schedule of Material Agreements
Annex 5.17 Taxes
Annex 5.18 Patents and Other Intangible Assets
Annex 5.19 Employment Benefit Plans
Annex 5.20 Title to Property and Encumbrances: Leases
Annex 5.22 Insurance
Annex 5.23 Schedule of Litigation
Annex 5.25 Registration Rights
Annex 5.26 Licenses
Annex 5.27 Schedule of Interested Party Transactions
<PAGE>
Annex 5.29A Schedule of Fully Operational Software
Annex 5.29B Schedule of Developing Software
Annex 5.30(c) Schedule of Customer Complaints
Annex 5.30(d) Schedule of Manufacturer Communications
Annex 6.1(f) Opinion of Company's Counsel
Annex 6.1(k) Amended and Restated Stockholders Agreement
Annex 6.1(l) Amended and Restated Registration Rights Agreement
Annex 6.1(m) Common Stock Purchase Agreement
Annex 6.1(n) Voting Agreement
Annex 7.15 Use of Proceeds
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Authorization of Securities.................................................................1
2. Sale and Purchase of Preferred Stock........................................................1
3. Closing.....................................................................................1
4. Register of Securities; Restrictions on Transfer of Securities; Removal of Restrictions on
Transfer of Securities 1
4.1 Register of Securities.............................................................1
4.2 Restrictions on Transfer...........................................................2
4.3 Removal of Transfer Restrictions...................................................3
4.4 Lock-Up Agreement..................................................................3
5. Representations and Warranties by the Company...............................................4
5.1 Organization, Standing, etc........................................................4
5.2 Qualification......................................................................4
5.3 Capital Stock......................................................................4
5.4 Preferred Stock....................................................................5
5.5 Indebtedness for Borrowed Money....................................................5
5.6 Shareholder List...................................................................5
5.7 Corporate Acts and Proceedings.....................................................6
5.8 Compliance with Laws and Other Instruments.........................................6
5.9 Binding Obligations................................................................7
5.10 Securities Laws....................................................................7
5.11 No Brokers or Finders..............................................................7
5.12 Financial Statements...............................................................7
5.13 Absence of Undisclosed Liabilities.................................................7
5.14 Changes............................................................................8
5.15 Material Agreements of the Company.................................................8
5.16 Employees..........................................................................9
5.17 Tax Returns and Audits............................................................10
5.18 Patents and Other Intangible Assets...............................................10
5.19 Employment Benefit Plans--ERISA...................................................12
5.20 Title to Property and Encumbrances; Leases........................................12
5.21 Condition of Properties...........................................................12
5.22 Insurance Coverage................................................................12
5.23 Litigation........................................................................13
5.24 Registration Statement............................................................13
5.25 Registration Rights...............................................................13
5.26 Licenses..........................................................................13
5.27 Interested Party Transactions.....................................................13
5.28 Minute Books and Check Authorizations.............................................14
5.29 Computer Software.................................................................14
5.30 Value America Web Site and Systems................................................14
5.31 Year 2000.........................................................................15
5.32 Disclosure........................................................................15
<PAGE>
5A. Series B Investors Representations and Warranties..........................................15
6. Conditions of Parties' Obligations.........................................................16
6.1 Conditions of the Series B Investors' Obligations at the Closing..................16
6.2 Conditions of Company's Obligations...............................................18
7. Affirmative Covenants......................................................................18
7.1 Maintain Corporate Rights and Facilities..........................................18
7.2 Maintain Insurance................................................................18
7.3 Pay Taxes and Other Liabilities...................................................19
7.4 Records and Reports...............................................................19
7.5 Preparation of Budget.............................................................20
7.6 Notice of Litigation and Disputes.................................................21
7.7 Directors' Meetings...............................................................21
7.8 Conduct of Business...............................................................21
7.9 Replacement of Certificates.......................................................21
7.10 Compliance with Section 6.........................................................21
7.11 Securities Law Filings............................................................21
7.12 Composition of the Board of Directors; Compensation Committee.....................22
7.13 Compliance With Certificate and Bylaws............................................22
7.14 Internal Accounting Controls......................................................22
7.15 Use of Proceeds...................................................................22
7.16 Union Matters.....................................................................23
8. Negative Covenants.........................................................................23
8.1 Senior or Parity Securities.......................................................23
8.2 Private Offerings.................................................................23
8.3 Changes in Type of Business.......................................................24
8.4 Loans; Guarantees.................................................................24
8.5 Restrictive Agreements............................................................24
<PAGE>
9. Enforcement................................................................................24
9.1 Remedies at Law or in Equity......................................................24
9.2 Cumulative Remedies...............................................................25
9.3 No Implied Waiver.................................................................25
10. Rights of First Refusal....................................................................25
10.1 Subsequent Offerings..............................................................25
10.2 Exercise of Rights................................................................25
10.3 Issuance of Equity Securities to Other Persons....................................25
10.4 Termination of Right of First Refusal.............................................26
10.5 Excluded Securities...............................................................26
10.6 Strategic Investor Exception......................................................26
11. Definitions................................................................................27
12. Miscellaneous..............................................................................31
12.1 Waivers and Amendments............................................................31
12.2 Effect of Waiver or Amendment.....................................................31
12.3 Rights of Holders Inter Se........................................................31
12.4 Notices...........................................................................32
12.5 Survival of Representations and Warranties, etc...................................32
12.6 Severability......................................................................33
12.7 Parties in Interest...............................................................33
12.8 Headings..........................................................................33
12.9 Choice of Law.....................................................................33
12.10 Expenses.........................................................................33
12.11 Counterparts......................................................................34
12.12 Authorship........................................................................34
12.13 Entire Agreement..................................................................34
12.14 Exculpation Among Series B Investors..............................................34
12.15 Counsel...........................................................................35
</TABLE>
========================================================================
VALUE AMERICA, INC.
------------------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
------------------------------------------
5,000,000 SHARES OF 5% CUMULATIVE CONVERTIBLE
SERIES A PREFERRED STOCK
Dated as of December 17, 1997
=================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. Authorization of Securities 1
2. Sale and Purchase of Preferred Stock. 1
3. Closing 1
4. Register of Securities; Restrictions on Transfer
of Securities; Removal of Restrictions on Transfer of
Securities 1
4.1 Register of Securities 1
4.2 Restrictions on Transfer 2
4.3 Removal of Transfer Restrictions 3
5. Representations and Warranties by the Company 3
5.1 Organization, Standing, etc 3
5.2 Qualification 4
5.3 Capital Stock 4
5.4 Preferred Stock 5
5.5 Indebtedness for Borrowed Money 5
5.6 Shareholder List 5
5.7 Corporate Acts and Proceedings 5
5.8 Compliance with Laws and Other Instruments 6
5.9 Binding Obligations 6
5.10 Securities Laws 7
5.11 No Brokers or Finders 7
5.12 Financial Statements 7
5.13 Absence of Undisclosed Liabilities 7
5.14 Changes 7
5.15 Material Agreements of the Company 8
5.16 Employees 9
5.17 Tax Returns and Audits 10
5.18 Patents and Other Intangible Assets 10
5.19 Employment Benefit Plans--ERISA 12
5.20 Title to Property and Encumbrances; Leases 12
5.21 Condition of Properties 12
5.22 Insurance Coverage 12
5.23 Litigation 12
5.24 Business Plan 13
5.25 Registration Rights 13
5.26 Licenses 13
5.27 Interested Party Transactions 13
5.28 Minute Books and Check Authorizations 13
5.29 Computer Software 14
5.30 Value America Web Site and Systems 14
5.31 Disclosure 15
5A. Investor Representations and Warranties 15
6. Conditions of Parties' Obligations 15
6.1 Conditions of Investor's Obligations at the Closing 15
6.2 Conditions of Company's Obligations 17
7. Affirmative Covenants 17
7.1 Maintain Corporate Rights and Facilities 17
7.2 Maintain Insurance 18
7.3 Pay Taxes and Other Liabilities 18
7.4 Records and Reports 18
7.5 Preparation of Budget 20
7.6 Notice of Litigation and Disputes 20
7.7 Directors' Meetings 20
7.8 Conduct of Business 20
7.9 Replacement of Certificates 21
7.10 Compliance with Section 6 21
7.11 Special Adjustment of Conversion Price 21
7.12 Securities Law Filings 22
7.13 Composition of the Board of Directors;
Compensation Committee 22
7.14 Compliance With Certificate and Bylaws 23
7.15 Internal Accounting Controls 23
7.16 Use of Proceeds 23
7.17 Union Matters 23
8. Negative Covenants 24
8.1 Senior or Parity Securities 24
8.2 Private Offerings 24
8.3 Changes in Type of Business 24
8.4 Loans; Guarantees 24
8.5 Restrictive Agreements 24
8.6 Buyout Option 25
9. Enforcement 25
9.1 Remedies at Law or in Equity 25
9.2 Cumulative Remedies 25
9.3 No Implied Waiver 25
10. Rights of First Refusal 26
10.1 Subsequent Offerings 26
10.2 Exercise of Rights 26
10.3 Issuance of Equity Securities to Other Persons 26
10.4 Termination of Right of First Refusal 26
10.5 Excluded Securities 26
10.6 Strategic Investor Exception 27
11. Definitions 27
12. Miscellaneous 31
12.1 Waivers and Amendments 31
12.2 Effect of Waiver or Amendment 32
12.3 Rights of Holders Inter Se 32
12.4 Notices 32
12.5 Survival of Representations and Warranties, etc 33
12.6 Severability 33
12.7 Parties in Interest 33
12.8 Headings 34
12.9 Choice of Law 34
12.10 Expenses 34
12.11 Counterparts 35
12.12 Authorship 35
12.13 Entire Agreement 35
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is entered
into as of December 17, 1997 between VALUE AMERICA, INC., a Virginia corporation
(the "Company"), and UNION LABOR LIFE INSURANCE COMPANY, a Maryland corporation
acting on behalf of its Separate Account P (which is not a separate entity)
("Ullico" or the "Investor").
THE PARTIES hereby agree as follows:
1. Authorization of Securities. The Company has authorized the
issue and sale of 5,000,000 shares of its 5% Cumulative Convertible Series A
Preferred Stock, without par value (the "Preferred Stock"), having the rights,
preferences and privileges set forth in the Company's Articles of Amendment of
Articles of Incorporation (hereinafter referred to as the "Certificate"), a copy
of which is attached hereto as Annex A. The Preferred Stock is convertible into
the Company's common stock, without par value, which class of shares is
sometimes referred to herein as the "Common Stock"; the Common Stock into which
the Preferred Stock is convertible is sometimes referred to herein as the
"Conversion Stock"; and the Preferred Stock and the Conversion Stock are
sometimes referred to herein individually and collectively as the "Securities".
2. Sale and Purchase of Preferred Stock. Upon the terms and
subject to the conditions herein contained, the Company agrees to sell to
Investor, and Investor agrees to Purchase from Company, at the Closing (as
hereinafter defined) on the Closing Date (as hereinafter defined) 5,000,000
shares of Preferred Stock at a price of $2.00 per share (the "Purchase
Payment").
3. Closing. The closing of the sale to and purchase by Investor of
the Preferred Stock (the "Closing") shall occur at the offices of Paul,
Hastings, Janofsky & Walker LLP, 1299 Pennsylvania Avenue, N.W., Tenth Floor,
Washington, D.C., at the hour of 10:00 A.M., Eastern time, on December 18, 1997
or at such different time or day as the Investor and the Company shall agree
(the "Closing Date"). At the Closing, the Company will deliver to Investor a
certificate evidencing the Preferred Stock which shall be registered in
Investor's name, against delivery to the Company of payment by check or wire
transfer in an amount equal to the Purchase Payment.
4. Register of Securities; Restrictions on Transfer of Securities;
Removal of Restrictions on Transfer of Securities.
<PAGE>
4.1 Register of Securities. The Company or its
duly appointed agent shall maintain a separate register for the shares of
Preferred Stock and Common Stock, in which it shall register the issue and sale
of all such shares. All transfers of the Securities shall be recorded on the
register maintained by the Company or its agent, and the Company shall be
entitled to regard the registered holder of the Securities as the actual holder
of the Securities so registered until the Company or its agent is required to
record a transfer of such Securities on its register. Subject to Section 4.2(c)
hereof, the Company or its agent shall be required to record any such transfer
when it receives the Security to be transferred duly and properly endorsed by
the registered holder thereof or by its attorney duly authorized in writing.
4.2 Restrictions on Transfer.
(a) Investor understands and agrees
that the Securities it will be acquiring have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and that accordingly
they will not be fully transferable except as permitted under various exemptions
contained in the Securities Act or applicable state securities laws, or upon
satisfaction of the registration and prospectus delivery requirements of the
Securities Act or registration or qualification requirements under applicable
state securities laws. Investor acknowledges that it must bear the economic risk
of its investment in the Securities for an indefinite period of time (subject,
however, to the Company's obligation to redeem the Preferred Stock in accordance
with the Certificate and to the Company's obligation to effect the registration
of the Conversion Stock under the Securities Act in accordance with the
Registration Rights Agreement (as hereinafter defined)) since they have not been
registered under the Securities Act and therefore cannot be sold unless they are
subsequently registered or an exemption from registration is available.
(b) (i) Investor hereby
represents and warrants to the Company that it (i) is acquiring the Securities
it has agreed to purchase for investment purposes only, for its own account, and
not as nominee or agent for any other Person, and not with the view to, or for
resale in connection with, any distribution thereof within the meaning of the
Securities Act, (ii) it is an "accredited investor" within the meaning of Rule
501(a) of the Commission under the Securities Act, (iii) it is a Maryland
corporation headquartered in Washington, D.C., and (iv) has had the opportunity
to review information provided to it by the Company and ask questions about and
received answers regarding the same.
(c) Investor hereby agrees with the Company
as follows:
(i) Subject to Section 4.3
hereof, the certificates evidencing the Securities it has agreed to purchase,
and each certificate issued in transfer thereof, will bear the following legend:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 and have been taken
for investment purposes only and not with a view to the
distribution thereof, and, except as stated in an agreement
between the holder of this certificate, or its predecessor in
interest, and the issuer corporation, such securities may not be
sold or transferred unless there is an effective registration
statement under such Act covering such securities or the issuer
corporation receives an opinion of counsel (which may be counsel
for the issuer corporation) stating that such sale or transfer is
exempt from the registration and prospectus delivery requirements
of such Act."
(ii) The certificates representing such
Securities, and each certificate issued in transfer thereof, will also bear any
legend required under any applicable state securities law.
(iii) Absent an effective registration
statement under the Securities Act, covering the disposition of the Securities
which Investor acquires, Investor will not sell, transfer, assign, pledge,
hypothecate or otherwise dispose of any or all of the Securities without first
providing the Company with an opinion of counsel (which may be counsel for the
Company) to the effect that such sale, transfer, assignment, pledge,
hypothecation or other disposition will be exempt from the registration and the
prospectus delivery requirements of the Securities Act and the registration or
qualification requirements of any applicable state securities laws, except that
no such registration or opinion shall be required with respect to (A) a transfer
not involving a change in beneficial ownership, or (B) the distribution of
Securities by such Investor to any of its partners, or retired partners, or to
the estate of any of its partners or retired partners, (C) the distribution of
Securities by Ullico to the participants in its Separate Account P, or (D) a
sale to be effected in accordance with Rule 144 of the Commission under the
Securities Act (or any comparable exemption).
(iv) Investor consents to the Company's
making a notation on its records or giving instructions to any transfer agent of
the Common Stock or Preferred Stock in order to implement the restrictions on
transfer of the Securities mentioned in this subsection (c).
4.3 Removal of Transfer Restrictions. Any
legend endorsed on a certificate evidencing a Security pursuant to Section
4.2(c)(i) hereof and the stop transfer instructions and record notations with
respect to such Security shall be removed and the Company shall issue a
certificate without such legend to the holder of such Security (a) if such
Security is registered under the Securities Act, or (b) if such Security may be
sold under Rule 144(k) of the Commission under the Securities Act or (c) if such
holder provides the Company with an opinion of counsel (which may be counsel for
the Company) reasonably acceptable to the Company to the effect that a public
sale or transfer of such Security may be made without registration under the
Securities Act.
5. Representations and Warranties by the Company. In order to
induce Investor to enter into this Agreement and to purchase the Preferred
Stock, the Company hereby covenants with, and represents and warrants to, the
Investor as follows:
5.1 Organization, Standing, etc. (a) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia, and has all requisite power and authority to carry on
its business, to own and hold its properties and assets, to enter into this
Agreement and the Registration Rights Agreement, to issue the Securities and to
carry out the provisions hereof and thereof, and the terms of the Certificate
and the Securities. The copies of the Certificate of Incorporation and Bylaws of
the Company which have been delivered to Investor prior to the execution of this
Agreement are true and complete and have not been amended or repealed, except
for the amendments to the Articles of Incorporation which have been or will be
accomplished by the filing of the Certificate with the State Corporation
Commission of the Commonwealth of Virginia. The Company has no Subsidiaries (as
hereinafter defined) or direct or indirect interest (by way of stock ownership
or otherwise) in any firm, partnership, corporation, association or business
enterprise.
(b) (i) On October 23, 1997 the
Company effected a statutory merger (the "Nevada Merger") with Value America,
Inc., a Nevada corporation ("Nevada Company"), the sole stockholders of which
were Craig A. Winn and Rex Scatena (the "Reincorporation Merger") pursuant to a
Plan and Agreement of Merger dated as of October 21, 1997 between the Company
and Nevada Company (the "Merger Agreement"). All references in this Agreement to
the Company are to the Company and Nevada Company unless the context otherwise
requires.
(ii) The Reincorporation
Merger and the execution, delivery and performance of the Merger Agreement were
duly authorized by all required corporate, director and stockholder action by
each of the Company and the Nevada Company and did not violate any applicable
law, rule or regulation and did not result in the creation or imposition of any
Lien and did not cause either Person (a) to violate or breach (i) any order,
writ, judgment, injunction, decree, determination or award, or (ii)any provision
of the Articles of Incorporation or Bylaws of either Person, or (b) to violate,
be in conflict with, breach or default under any indenture, loan or credit
agreement, note agreement, deed of trust, mortgage, security agreement or other
agreement, lease or instrument, commitment or arrangement, to which either
Person was a party or by which the properties, assets or rights of either Person
was bound or affected.
5.2 Qualification. The Company is duly
qualified, licensed or domesticated as a foreign corporation in good standing in
each jurisdiction wherein the nature of its activities or its properties owned
or leased makes such qualification, licensing or domestication necessary.
5.3 Capital Stock. The authorized capital stock
of the Company consists of 50,000,000 shares of Common Stock, and 5,000,000
shares of Preferred Stock, and the Company has no authority to issue any other
capital stock. No shares of Preferred Stock have been issued prior to the
Closing; only 7,692,500 shares of Common Stock are issued and outstanding, and
such shares are duly authorized, validly issued, fully paid and nonassessable.
The offer, issuance and sale of such shares of Common Stock were (a) exempt from
the registration and prospectus delivery requirements of the Securities Act, (b)
registered or qualified (or were exempt from registration or qualification)
under the registration or qualification requirements of all applicable state
securities laws, and (c) accomplished in conformity with all other federal and
applicable state securities laws, rules and regulations. The Company has (A)
reserved a total of 1,250,000 shares of Common Stock for issuance under the
Company's 1997 Stock Incentive Plan (the "Stock Plan"), under which options to
purchase a total of 860,375 shares have been granted, (B) reserved a total of
71,250 shares for issuance upon exercise of outstanding Stock Purchase Warrants
issued by the Company and (C) is obligated to issue 25,000 shares of Common
Stock to Chris Little. Except as expressly provided in this Agreement or the
Certificate, the Company has no outstanding subscription, option, warrant, call,
contract, demand, commitment, convertible security or other instrument,
agreement or arrangement of any character or nature whatsoever under which the
Company is or may be obligated to issue Common Stock, preferred stock or other
Equity Security (as hereinafter defined) of any kind. Neither the offer nor the
issuance or sale of the Securities constitutes or will constitute an event,
under any Equity Security or any anti-dilution or similar provision of any
agreement or instrument to which the Company is a party or by which it is bound
or affected, which shall either increase the number of shares or units of Equity
Securities issuable upon conversion of any securities (whether stock or
Indebtedness for Borrowed Money (as hereinafter defined)) or upon exercise of
any warrant or right to subscribe to or purchase any stock or similar security
(including Indebtedness for Borrowed Money), or decrease the consideration per
share or unit of Equity Security to be received by the Company upon such
conversion or exercise.
5.4 Preferred Stock. The Preferred Stock is
duly authorized and, when issued and paid for pursuant to the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will have the rights, preferences and privileges specified in the
Certificate and will be free and clear of all Liens (as hereinafter defined) and
restrictions, other than Liens that might have been created by Investor and
restrictions on transfer imposed by (i) Sections 4.2 and 4.3 hereof, (ii)
applicable state securities laws and (iii) the Securities Act; and the
Conversion Stock is duly authorized and has been reserved for issuance upon
conversion of the Preferred Stock and, when issued upon conversion in accordance
with the terms of the Certificate, will be duly authorized, validly issued,
fully paid and nonassessable Common Stock and free and clear of all Liens and
restrictions, other than Liens that might have been created by Investors and
restrictions imposed by (i) Sections 4.2 and 4.3 hereof, (ii) applicable state
securities laws and (iii) the Securities Act.
5.5 Indebtedness for Borrowed Money. The
Company has no Indebtedness for Borrowed Money except as disclosed on the
Balance Sheet (as hereinafter defined) or on Annex 5.5 hereto.
5.6 Shareholder List. Annex 5.6 hereto contains
a true and complete list of the names and addresses of the beneficial holders of
all of the outstanding Common Stock and of the holders of all outstanding
options, warrants or other rights to purchase Common Stock. With respect to
holders of Common Stock, Annex 5.6 contains a true and complete description of
the number of shares held by each such holder, the date such shares were
purchased, the price paid per share and the form of payment therefor. With
respect to each outstanding option, Annex 5.6 sets forth the date of grant, the
number of shares subject thereto, the exercise price, vesting schedule and
expiration date. With respect to warrants, Annex 5.6 sets forth the date of
issue of each warrant, the number of shares of Common Stock subject to the
warrant, the exercise price and expiration date. No holder of Common Stock or
any other security of the Company or any other Person is entitled to any
preemptive right, right of first refusal or similar right as a result of the
issuance of the Securities or otherwise. Except as disclosed in Annex 5.6, there
is no voting trust, agreement or arrangement among any of the beneficial holders
of Common Stock of the Company affecting the exercise of the voting rights of
such stock.
5.7 Corporate Acts and Proceedings. All
corporate acts and proceedings required for the authorization, execution and
delivery of this Agreement and the Registration Rights Agreement, the offer,
issuance and delivery of the Securities and the performance of this Agreement,
the Registration Rights Agreement (except to the extent that additional Board
action may be required to effect a Securities Act registration) and the terms of
the Certificate have been lawfully and validly taken or will have been so taken
prior to the Closing.
5.8 Compliance with Laws and Other Instruments.
The business and operations of the Company have been and are being conducted in
accordance with all applicable federal, state and local laws, rules and
regulations, except to the extent that noncompliance with laws, rules and
regulations would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. The execution and delivery by the Company of this
Agreement and the Registration Rights Agreement and the performance of this
Agreement and the Registration Rights Agreement and the terms of the Certificate
(a) will not require from the Board or stockholders of the Company any consent
or approval that has not been validly and lawfully obtained (except to the
extent that additional Board action may be required to effect a Securities Act
registration), (b) will not require any authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality of government,
except such as shall have been lawfully and validly obtained prior to the
Closing (except for filing a Form D with the Commission within 15 days of the
Closing Date and proceedings under the Securities Act or state blue sky laws to
register Common Stock under the Securities Act), (c) will not cause the Company
to violate or contravene (i) any provision of law, (ii) any rule or regulation
of any agency or government, domestic or foreign, (iii) any order, writ,
judgment, injunction, decree, determination or award, or (iv) any provision of
the Articles of Incorporation or Bylaws of the Company, (d) will not violate or
be in conflict with, result in a breach of or constitute (with or without notice
or lapse of time or both) a default under, any indenture, loan or credit
agreement, note agreement, deed of trust, mortgage, security agreement or other
agreement, lease or instrument, commitment or arrangement to which the Company
is a party or by which the Company or any of its properties, assets or rights is
bound or affected, to the extent that such violation, conflict breach or default
would (individually or in the aggregate) have a Material Adverse Effect and (e)
will not result in the creation or imposition of any Lien. The Company is not in
material violation of, or (with or without notice or lapse of time or both) in
default under, any term or provision of its Articles of Incorporation or Bylaws
or of any indenture, loan or credit agreement, note agreement, deed of trust,
mortgage, security agreement or other agreement, lease or other instrument,
commitment or arrangement to which the Company is a party or by which any of the
Company's properties, assets or rights is bound or affected. The Company is not
subject to any restriction of any kind or character which has or may have a
Material Adverse Effect on the Company or which prohibits the Company from
entering into this Agreement or would prevent or make burdensome its performance
of or compliance with all or any part of this Agreement, the Registration Rights
Agreement or the Certificate or the consummation of the transactions
contemplated hereby or thereby.
5.9 Binding Obligations. This Agreement, the
Registration Rights Agreement and the Certificate constitute the legal, valid
and binding obligations of the Company and are enforceable against the Company
in accordance with their respective terms, except as such enforcement is limited
by bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally.
5.10 Securities Laws. Subject to the accuracy of
Investor's representations and warranties in Section 4.2(b), the offer, issue
and sale of the Securities are and will be exempt from the registration and
prospectus delivery requirements of the Securities Act, and have been registered
or qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
5.11 No Brokers or Finders. Except as provided
in Annex 5.11, no Person has, or as a result of the transactions contemplated
herein will have, any right or valid claim against the Company or any Investor
for any commission, fee or other compensation as a finder or broker, or in any
similar capacity.
5.12 Financial Statements. Attached hereto as
Annex 5.12 are the Company's unaudited balance sheet (the "Balance Sheet") as of
August 31, 1997 (the "Balance Sheet Date") and the unaudited statements of
income and shareholders' equity for the eight-month period then ended, and no
more current financial statements have been prepared. These financial statements
(i) are in accordance with the books and records of the Company, and (ii)
accurately present the financial condition of the Company at the Balance Sheet
Date and the results of its operations for the period therein specified.
Specifically, but not by way of limitation, the Balance Sheet discloses all of
the debts, liabilities and obligations of any nature (whether absolute, accrued,
contingent or otherwise and whether due or to become due) of the Company at the
Balance Sheet Date which must be disclosed on an accurate balance sheet.
5.13 Absence of Undisclosed Liabilities. Except
as disclosed on Annex 5.13 hereto, the Company has no material obligation or
liability (whether accrued, absolute, contingent, liquidated or otherwise,
whether due or to become due, whether or not known to the Company) arising out
of any transaction entered into at or prior to the Closing, or any act or
omission to act at or prior to the Closing, or any state of facts existing at or
prior to the Closing, including taxes with respect to or based upon the
transactions or events occurring at or prior to the Closing, and including
without limitation unfunded past service liabilities under any pension, profit
sharing or similar plan, except (a) to the extent set forth on or reserved
against in the Balance Sheet, and (b) current liabilities incurred and
obligations under agreements entered into, in the usual and ordinary course of
business, since the Balance Sheet Date, none of which (individually or in the
aggregate) has a Material Adverse Effect on the Company.
5.14 Changes. Since the Balance Sheet Date as to
clauses (a) and (c) below and since one year prior to the Balance Sheet Date as
to the remaining clauses of this Section 5.14, except as disclosed on Annex 5.14
hereto, the Company has not (a) incurred any debts, obligations or liabilities,
absolute, accrued, contingent or otherwise, whether due or to become due, except
current liabilities incurred in the usual and ordinary course of business, none
of which (individually or in the aggregate) materially and adversely affects the
business, finances, properties or prospects of the Company, (b) made or suffered
any changes in its contingent obligations by way of guaranty, endorsement (other
than the endorsement of checks for deposit in the usual and ordinary course of
business), indemnity, warranty or otherwise, (c) discharged or satisfied any
Liens other than those securing, or paid any obligation or liability other than,
current liabilities shown on the Balance Sheet and current liabilities incurred
since the Balance Sheet Date, in each case in the usual and ordinary course of
business, (d) mortgaged, pledged or subjected to Lien any of its assets,
tangible or intangible, (e) sold, transferred or leased any of its assets except
in the usual and ordinary course of business, (f) canceled or compromised any
debt or claim, or waived or released any right, of material value, (g) suffered
any physical damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting the properties, business or prospects of the
Company, (h) entered into any transaction other than in the usual and ordinary
course of business except for this Agreement, (i) encountered any labor
difficulties or labor union organizing activities, (j) except in the usual and
ordinary course of business, made or granted any wage or salary increase or
entered into any employment agreement, (k) issued or sold any shares of capital
stock or other securities or granted any options with respect thereto, or
modified any Equity Security, except to the extent disclosed on Annex 5.6
hereto, (l) declared or paid any dividends on or made any other distributions
with respect to, or purchased or redeemed, any of its outstanding Equity
Securities, (m) suffered or experienced any change in, or condition affecting,
its condition (financial or otherwise), properties, assets, liabilities,
business operations, results of operations or prospects other than changes,
events or conditions in the usual and ordinary course of its business, none of
which (either by itself or in conjunction with all such other changes, events
and conditions) has been materially adverse, (n) made any change in the
accounting principles, methods or practices followed by it or depreciation or
amortization policies or rates theretofore adopted, or (o) entered into any
agreement, or otherwise obligated itself, to do any of the foregoing.
5.15 Material Agreements of the Company. Except
as expressly set forth in this Agreement, the Balance Sheet or as disclosed on
Annex 5.15 hereto, the Company is not a party to any written or oral agreement,
instrument or arrangement not made in the ordinary course of business that is
material to the Company and the Company is not a party to any written or oral
(a) agreement with any labor union, (b) agreement for the purchase of fixed
assets or for the purchase of materials, supplies or equipment in excess of
normal operating requirements, (c) agreement for the employment of any officer,
individual employee or other Person on a full time basis or any agreement with
any Person for consulting services, (d) bonus, pension, profit sharing,
retirement, stock purchase, stock option, deferred compensation, medical,
hospitalization or life insurance (other than group medical, hospitalization or
insurance plans applicable to all employees in which benefit levels are not
related to compensation) or similar plan, contract or understanding with respect
to any or all of the employees of the Company or any other Person, (e)
indenture, loan or credit agreement, note agreement, deed of trust, mortgage,
security agreement, promissory note or other agreement or instrument relating to
or evidencing Indebtedness for Borrowed Money or subjecting any asset or
property of the Company to any Lien or evidencing any Indebtedness, (f) guaranty
of any Indebtedness, (g) lease or agreement under which the Company is lessee of
or holds or operates any property, real or personal, owned by any other Person
under which payments to such Person exceed $ 75,000 per annum, (h) lease or
agreement under which the Company is lessor or permits any Person to hold or
operate any granting any preemptive right, right of first refusal or similar
right to any Person, (j) agreement or arrangement with any Affiliate (as
hereinafter defined) or any "associate" (as this term is defined in Rule 405 of
the Commission under the Securities Act) of the Company or any officer, director
or shareholder of the Company, (k) agreement obligating the Company to pay any
royalty or similar charge for the use or exploitation of any tangible or
intangible property, (l) agreement or license under which the Company has
granted or transferred to any Person , or under which any Person has granted or
transferred to the Company, the right to exploit or otherwise use any patent,
trademark, service mark, copyright, trade name, trade secret, software,
intellectual property (as hereinafter defined) or other intangible asset, (m)
covenant not to compete or other restriction on its ability to conduct a
business or engage in any other activity, (n) agreement to register securities
under the Securities Act, or (o) agreement, instrument or other commitment or
arrangement with any Person continuing for a period of more than three months
from the Closing Date which involves an expenditure or receipt by the Company in
excess of $75,000. For purposes of the next preceding sentence, "material" shall
mean an obligation which by its terms calls for aggregate payments by the
Company in excess of $75,000. The Company has furnished to Investor true and
complete copies of all agreements and other documents requested by Investor or
its authorized representative. All parties having material contractual
arrangements with the Company are in substantial compliance therewith, and none
is in default in any material respect thereunder. The Company does not have
outstanding any power of attorney.
5.16 Employees. The following individuals
(collectively, "Designated Key Employees") are in the full-time employ of the
Company: Craig A. Winn, Rex Scatena, Dean Johnson, Joseph Page and Daniel
Lucier. To the best of the Company's knowledge, no Designated Key Employee of
the Company has any plans to terminate his or her employment with the Company,
and the Company has no intention of terminating the employment of any Designated
Key Employee. To the best of the Company's knowledge after reasonable inquiry,
no Designated Key Employee or any other employee of the Company is a party to or
is otherwise bound by any agreement or arrangement (including, without
limitation, any license, covenant, or commitment of any nature), or subject to
any judgment, decree, or order of any court or administrative agency, (a) that
would conflict with such employee's obligation diligently to promote and further
the interests of the Company or (b) that would conflict with the Company's
business as now conducted or as proposed to be conducted. No Designated Key
Employee has any direct or indirect equity interest (by way of stock ownership
or otherwise) in any firm, partnership, corporation, association or business
enterprise, other than any such interest (i) in a corporation which is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act and
(ii) which does not, alone or in the aggregate with other such interests, exceed
one percent (1%) of the equity of such corporation. The Company has complied in
all material respects with all laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity, collective
bargaining and payment of Social Security and other taxes, and the Company has
encountered no material labor difficulties. Except as disclosed on Annex 5.15
hereto or pursuant to ordinary arrangements for employment compensation, the
Company is not under any obligation or liability to any officer, director,
employee or Affiliate of the Company.
5.17 Tax Returns and Audits. Except as disclosed
on Annex 5.13, all required federal, state and local tax returns of the Company
have been accurately prepared and duly and timely filed, and all federal, state
and local taxes required to be paid with respect to the periods covered by such
returns have been paid. Except as disclosed on Annex 5.13, the Company is not
and has not been delinquent in the payment of any tax, assessment or
governmental charge. The Company has never had any tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
None of the Company's federal income tax returns nor any state income or
franchise tax returns has ever been audited by governmental authorities. Except
as disclosed on Annex 5.13, the reserves for taxes, assessments and governmental
charges reflected on the Balance Sheet are and will be sufficient for the
payment of all unpaid taxes, assessments and governmental charges payable by the
Company with respect to the period ended on the Balance Sheet Date. Except as
disclosed on Annex 5.13, since the Balance Sheet Date, the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations for
such period. The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositaries.
5.18 Patents and Other Intangible Assets.
(a) The Company (i) owns or has the
right to use, free and clear of all Liens, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to the foregoing, used in or necessary for the conduct of its business
as now conducted or proposed to be conducted, (ii) is not infringing upon or
otherwise acting adversely to the right or claimed right of any Person under or
with respect to any patent, trademark, service mark, trade name, copyright or
license with respect thereto, and (iii) except for the obligation to pay $7,000
to Stephen Friedman pursuant to a December 3, 1997 agreement with the Company,
is not obligated or under any liability whatsoever to make any payments by way
of royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service mark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(b) The Company owns and has the
unrestricted right to use all trade secrets, including know-how, negative
know-how, formulas, patterns, compilations, programs, devices, methods,
techniques, processes, inventions, designs, technical data, computer software
(in both source code and object code forms and all documentation therefor,
except for third-party licensed software as shown on Annex 5.29A), including
without limitation the Fully Operational Software (as hereinafter defined), and
all information that derives independent economic value, actual or potential,
from not being generally known or known by competitors and which the Company has
taken reasonable steps to maintain in secret (all of the foregoing of which are
collectively referred to herein as "intellectual property") required for or
incident to the conduct of the Company's business, as it is presently conducted
and as it is proposed to be conducted, in each case free and clear of any right,
Lien or claim of others, including without limitation former employers of its
employees.
(c) Since its organization, the
Company has taken reasonable security measures to protect the secrecy,
confidentiality and value of all intellectual property and all Inventions (as
defined below). Since its organization, each of the Company's employees and
other Persons who, either alone or in concert with others, developed, invented,
discovered, derived, programmed or designed intellectual property or Inventions,
or who has knowledge of or access to information about intellectual property or
Inventions, has entered into a written agreement with the Company which provides
that (i) this intellectual property, other information and Inventions are
proprietary to the Company and are not to be divulged, misused or
misappropriated, and (ii) this intellectual property, other information and
Inventions are to be disclosed by such employees and such Persons to the Company
and transferred by them to the Company, without any further consideration being
given therefor by the Company, together with all of such employee's or other
Person's right, title and interest in and to such intellectual property, other
information and Inventions and all patents, trademarks, service marks, trade
names, copyrights, licenses and rights with respect to such intellectual
property, other information and Inventions. As used herein, "Inventions" means
all inventions, developments and discoveries which during the period of an
employee's or other Person's service to the Company he or she makes or conceives
of, either solely or jointly with others, that relate to any subject matter with
which his or her work for the Company may be concerned, or relate to or are
connected with the business, products, services or projects of the Company, or
relate to the actual or demonstrably anticipated research or development of the
Company or involve the use of the Company's time, material, facilities or trade
secret information.
(d) The Company has not sold,
transferred, assigned, licensed or subjected to any Lien, any intellectual
property, trade secret, know-how, invention, design, process, computer software
or technical data, or any interest therein, necessary or useful for the
development, manufacture, use, operation or sale of any product or service
presently under development or manufactured, sold or rendered by the Company.
(e) No director, officer, employee,
agent or shareholder of the Company owns or has any right in the intellectual
property of the Company, or any patents, trademarks, service marks, trade names,
copyrights, licenses or rights with respect to the foregoing, or any inventions,
developments or discoveries used in or necessary for the conduct of the
Company's business as now conducted or as proposed to be conducted.
(f) The Company has not received any
communication alleging or stating that the Company or any Designated Key
Employee has violated or infringed, or by conducting business as proposed, would
violate or infringe, any patent, trademark, service mark, trade name, copyright,
trade secret, proprietary right, process or other intellectual property of any
other Person.
5.19 Employment Benefit Plans--ERISA. The
Company does not maintain or make contributions to any pension, profit sharing
or other employee retirement benefit plan. The Company has no material liability
with respect to any such plan (including, without limitation, any unfunded
liability or any accumulated funding deficiency) or any material liability to
the Pension Benefit Guaranty Corporation or under Title IV of the Employee
Retirement Income Security Act of 1974, as amended, with respect to a
multi-employer pension benefit plan, nor would the Company have any such
liability if any such plan were terminated or if the Company withdrew, in whole
or in part, from any multi-employer plan.
5.20 Title to Property and Encumbrances; Leases.
The Company has good and marketable title to all of its properties and assets,
including without limitation the properties and assets reflected in the Balance
Sheet and the properties and assets used in the conduct of its business, except
for properties disposed of in the ordinary course of business since the Balance
Sheet Date and except for properties held under valid and subsisting leases
which are in full force and effect and which are not in default, subject to no
Lien, except those which are shown and described on the Balance Sheet and except
for Permitted Liens (as hereinafter defined) and except for Liens disclosed on
Annex 5.20. All material leases under which the Company is lessee of any real or
personal property are valid, enforceable and effective in accordance with their
terms (subject to the laws of bankruptcy, insolvence and other similar laws
affecting the enforcement of creditors' rights generally); there is not under
any such lease any existing or claimed default by the Company or event or
condition which with notice or lapse of time or both would constitute a default
by the Company. No lease under which the Company is lessee of any real property
contains any provision which either (i) treats a sale or transfer of any or all
of the outstanding stock of the Company or a merger of the Company with another
Person as an assignment of the Company's leasehold interest, or (ii) otherwise
requires the consent of the lessor in the event of any such sale, transfer or
merger.
5.21 Condition of Properties. All facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased or
used by the Company are in good operating condition and repair and are adequate
and sufficient for the Company's business.
5.22 Insurance Coverage. The Company has in full
force and effect the insurance coverage specified in Appendix 5.22. The Company
has not been refused any insurance coverage sought or applied for, and the
Company has no reason to believe that it will be unable to renew its existing
insurance coverage as and when the same shall expire upon terms at least as
favorable as those presently in effect, other than possible increases in
premiums that do not result from any act or omission of the Company.
5.23 Litigation. Except as disclosed on Annex
5.23 hereto, there is no legal action, suit, arbitration or other legal,
administrative or other governmental investigation, inquiry or proceeding
(whether federal, state, local or foreign) pending or threatened against or
affecting (i) the Company or its properties, assets or business (existing or
contemplated), or (ii) any Designated Key Employee, before any court or
governmental department, commission, board, bureau, agency or instrumentality or
any arbitrator. After reasonable investigation, except as disclosed in Annex
5.23, neither the Company nor any Designated Key Employee of nor attorney for
the Company is aware of any fact which might result in or form the basis for any
such action, suit, arbitration, investigation, inquiry or other proceeding.
Neither the Company nor any Designated Key Employee is in default with respect
to any order, writ, judgment, injunction, decree, determination or award of any
court or of any governmental agency or instrumentality (whether federal, state,
local or foreign).
5.24 Business Plan. In November 1997, the
Company furnished to Investor a Business Plan (which has been amended by a
memorandum from the Company to the Investor dated December 10, 1997 (which
Business Plan as so amended is referred to herein as the "Plan"), copies of
which have been initialed by the Company and Investor for purposes of
identification. While the Company does not warrant that it will achieve the
financial projections appearing in the Plan, the Plan discloses all material
assumptions used in the preparation of these projections; all such assumptions
are reasonable; the Company has a reasonable basis for making these projections;
the Company has no reason to believe that the Company will be unable to meet
these projections; and these projections fairly present the information which
they purport to show.
5.25 Registration Rights. Other than under the
Registration Rights Agreement, the Company has not agreed to register under the
Securities Act any of its authorized or outstanding securities.
5.26 Licenses. Except as disclosed on Annex
5.26, the Company possesses from the appropriate agency, commission, board and
governmental body and authority, whether state, local or federal, all material
licenses, permits, authorizations, approvals, franchises and rights which are
necessary for the Company to engage in the business currently conducted by it
and proposed to be conducted, including without limitation the development,
manufacture, use, sale and marketing of its existing and proposed products and
services; and all such certificates, licenses, permits, authorizations and
rights are in full force and effect, and, to the best of the Company's
knowledge, will not be revoked, canceled, withdrawn, terminated or suspended.
5.27 Interested Party Transactions. Except as
disclosed on Annex 5.27 hereto, no officer, director or shareholder of the
Company or any Affiliate or "associate" (as this term is defined in Rule 405 of
the Commission under the Securities Act) of any such Person or the Company has
or has had, either directly or indirectly, (a) an interest in any Person which
(i) furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (ii) purchases from or sells
or furnishes to the Company any goods or services, or (b) a beneficial interest
in any transaction, contract or agreement to which the Company is a party or by
which it may be bound or affected.
5.28 Minute Books and Check Authorizations. The
minute books of the Company provided to Paul, Hastings, Janofsky & Walker LLP
special counsel for the Investor, contain all resolutions adopted by directors
and shareholders since the incorporation of the Company and fairly and
accurately reflect, in all material respects, all matters and transactions
referred to in such minutes. The Board has adopted, and there is in full force
and effect, a policy which prohibits the issuance of any check or draft by the
Company in any amount in excess of $10,000 on any deposit account of the Company
unless the same has been signed by two officers of the Company who have been so
authorized by action of the Board.
5.29 Computer Software.
(a) Attached as Annex 5.29A hereto is
a true and complete list of all material computer software used by the Company
in the conduct of its business as presently conducted or as proposed to be
conducted (the "Fully Operational Software"), together with a brief description
of each principal function thereof. All Fully Operational Software is fully
functional, complete and operational, has been fully documented and, except for
software licensed to the Company as shown on Annex 5.29A ("third-party
software"), both source code and object code versions thereof are in the
Company's possession and control, and, except for third-party software, no
Person outside the Company has possession of or access to the source code for
any Fully Operational Software.
(b) Attached as Annex 5.29B hereto is a true
and complete list of all computer software that the Company can reasonably
foresee it will need to conduct its business as conducted and as proposed to be
conducted that is not Fully Operational Software (the "Developing Software"),
together with a brief description of the principal intended functions thereof.
Annex 5.29B also contains a schedule to complete the development of each
category of Developing Software (the "Completion Schedule"), and each principal
system or element within each such category as well as the name of each employee
and consultant of the Company who is responsible for writing, documenting and
completing each identified category, system and element. The Company and each
Designated Employee has carefully examined the Completion Schedule for each
category, system and element of the Developing Software and believes, after
conducting a reasonable investigation sufficient to reach an informed view, that
the Company will be able to achieve completion of the Developing Software by the
scheduled completion dates appearing in the Completion Schedule and without the
Company being required to incur any material expense beyond that shown in the
projections appearing in the Plan.
5.30 Value America Web Site and Systems
(a) The Company owns and has the
unrestricted right to communicate and publish its "Value America" Internet
product offering (the "Web Site") and conduct business on the World Wide Web at
the Internet address "valueamerica.com" and in connection therewith to use the
registered service mark and trade name "Value America" and in so doing is not
acting in conflict with any patent, trademark, service mark, trade name,
copyright, trade secret, license or other proprietary right with respect
thereto.
(b) The Company has not received any
communication from any Person that the Web Site or the conduct of the Company's
business is in violation of any law, rule or regulation or in conflict with any
patent, trademark, service mark, trade name, copyright, trade secret, license or
other proprietary right with respect thereto.
(c) Annex 5.30(c) attached hereto contains a
true and complete list of all complaints received by the Company from persons
who have ordered products using the Web Site.
(d) Except as disclosed on Annex 5.30(d)
attached hereto, no Person whose product or products have been offered for sale
on the Web Site has terminated or materially modified (or communicated an
intention to terminate or materially modify) its relationship with the Company.
5.31 Disclosure. There is no fact which the
Company has not disclosed to the Investor in writing which materially and
adversely affects nor, insofar as the Company can now foresee, will materially
and adversely affect, the properties, business, prospects, results of operation
or condition (financial or other) of the Company or the ability of the Company
to perform this Agreement or the Registration Rights Agreement or observe the
terms of the Certificate. The information contained in the Plan, in this
Agreement and in any writing furnished pursuant hereto or in connection herewith
is true, complete and correct, and such information does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or herein or necessary to make the statements therein or herein
not misleading.
5A. Investor Representations and Warranties. Investor
hereby represents and warrants to the Company as follows:
(1) Investor is a corporation duly organized,
validly existing and in good standing under the laws of the state of Maryland
and has all requisite power and authority to enter into this Agreement, the
Registration Rights Agreement, to purchase the Securities and carry out the
provisions of this Agreement and the Registration Rights Agreement.
(2) All corporate acts and proceedings required for the
authorization, execution and delivery of this Agreement, the Stockholders
Agreement, the Buyout Agreement and the Registration Rights Agreement and the
purchase of the Securities by Investor have been lawfully and validly taken or
will have been so taken prior to the Closing.
(3) This Agreement, the Registration Rights
Agreement, the Buyout Agreement and the Stockholders Agreement are the legal,
valid and binding obligations of Investor and are enforceable against Investor
in accordance with their respective terms, except that such enforcement is
limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally.
6. Conditions of Parties' Obligations.
6.1 Conditions of Investor's Obligations at the Closing.
The obligation of Investor to purchase and pay for the Preferred Stock is
subject to the fulfillment prior to or on the Closing Date of the following
conditions, any of which may be waived in whole or in part by Investor.
(a) No Errors, etc. The
representations and warranties of the Company under this Agreement shall be
deemed to have been made again on the Closing Date and shall then be true and
correct.
(b) Compliance with Agreement. The Company
shall have performed and complied with all agreements and conditions required by
this Agreement to be performed or complied with by it on or before the Closing
Date.
(c) No Default. There shall not
exist on the Closing Date any Default (as hereinafter defined) or Event of
Default (as hereinafter defined) or any event or condition which, with the
giving of notice or lapse of time or both, would constitute a Default or Event
of Default.
(d) Certificate of Officer. The Company
shall have delivered to Investor a certificate dated the Closing Date, executed
by its President, certifying the satisfaction of the conditions specified in
subsections (a), (b) and (c) of this Section 6.1.
(e) Certificate of Principal
Shareholders. The Company shall have delivered to Investor a certificate dated
the Closing Date, executed by the Designated Key Employees, certifying, to the
best of their knowledge, upon having made a reasonable investigation sufficient
to express an informed view, the satisfaction of the conditions specified in
subsections (a), (b) and (c) of this Section 6.1.
(f) Opinion of the Company's Counsel. The
Investors shall have received from LeClair Ryan, a professional corporation,
counsel for the Company, a favorable opinion dated the Closing Date
substantially in the form of Annex 6.1(f) hereto.
(g) Certificate. The Certificate shall have
been filed with the State Corporation Commission of the Commonwealth of Virginia
and a copy of the Certificate of Amendment issued by the State Corporation
Commission of the Commonwealth of Virginia shall have been delivered to special
counsel for the Investor, Paul, Hastings, Janofsky & Walker LLP.
(h) Qualification Under State
Securities Laws. All registrations, qualifications, permits and approvals
required under applicable state securities laws shall have been obtained for the
lawful execution, delivery and performance of this Agreement and the performance
of the Certificate, including without limitation the offer, sale, issue and
delivery of the Securities.
(i) Supporting Documents. Investor
shall have received the following:
(1) Copies of resolutions
of the Board, certified by the Secretary of the Company, authorizing and
approving the amendments to the Articles of Incorporation of the Company
reflected in the Certificate and, as to the Board, the execution, delivery and
performance of this Agreement and the Registration Rights Agreement and the
performance of the Certificate, and all other documents and instruments to be
delivered pursuant hereto and thereto;
(2) A certificate of
incumbency executed by the Secretary of the Company certifying the names, titles
and signatures of the officers authorized to execute the documents referred to
in subparagraph (2) above and further certifying that the Certificate of
Incorporation and Bylaws of the Company delivered to the Investors at the time
of the execution of this Agreement have been validly adopted and have not been
amended or modified, except to the extent provided in the Certificate; and
(3) Such additional supporting
documentation and other information with respect to the transactions
contemplated hereby as the Investor or its special counsel, Paul, Hastings,
Janofsky & Walker LLP, may reasonably request.
(j) Proceedings and Documents. All
corporate and other proceedings and actions taken in connection with the
transactions contemplated hereby and all certificates, opinions, agreements,
instruments and documents mentioned herein or incident to any such transactions,
shall be satisfactory in form and substance to Investor and to its special
counsel, Paul, Hastings, Janofsky & Walker LLP.
(k) Stockholders Agreement. Craig W.
Winn and Rex Scatena (the "Senior Executives"), Investor and the Company shall
have entered into a Stockholders Agreement, substantially in the form of Annex
6.1(k) hereto (the "Stockholders Agreement") and the certificates evidencing the
Common Stock held by the Senior Executives shall have been endorsed with the
legend required by the Stockholders Agreement.
(l) Registration Rights Agreement.
The Company and the Investor shall have entered into a Registration Rights
Agreement substantially in the form of Annex 6.1(l) hereto (the "Registration
Rights Agreement").
(m) Buyout Option Agreement. The
Company, Investor and the holders of the outstanding Common Stock shall have
entered into a Buyout Option Agreement substantially in the form of Annex 6.1(m)
(the "Buyout Agreement").
6.2 Conditions of Company's Obligations. The
Company's obligation to issue and sell the Preferred Stock to Investor on the
Closing Date and the Subsequent Closing Date is subject to the fulfillment prior
to or at the Closing Date of the conditions precedent specified in paragraphs
(g) and (h) of Section 6.1 hereof.
7. Affirmative Covenants. The Company agrees that unless the
Holders of a Majority of the Restricted Stock (as hereinafter defined) otherwise
agree in writing, so long as Investor is a Holder of Restricted Stock, the
Company (and each of its Subsidiaries unless the context otherwise requires)
will do the following:
7.1 Maintain Corporate Rights and Facilities.
Maintain and preserve its corporate existence and all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; and conduct its
business in an orderly manner without voluntary interruption.
<PAGE>
7.2 Maintain Insurance.
(a) Maintain in full force and effect
a policy or policies of insurance issued by insurers of recognized
responsibility, insuring it and its properties and business against such losses
and risks, and in such amounts, as are customary in the case of corporations of
established reputation engaged in the same or a similar business and similarly
situated;
(b) Within thirty (30) days after the
Closing Date obtain, and thereafter maintain in full force and effect policies
of term life insurance issued by issuers of recognized responsibility, in the
amount of $10 million on the life of Craig A. Winn and $1 million each on the
lives of Rex Scatena, Dean Johnson, Joseph Page and Daniel Lucier in each case
with the Company as the sole beneficiary and so long as they are employees of
the Company.
7.3 Pay Taxes and Other Liabilities. Pay and
discharge, before the same become delinquent and before penalties accrue
thereon, all taxes, assessments and governmental charges upon or against it or
any of its properties, and all its other material liabilities at any time
existing, except to the extent and so long as (i) the same are being contested
in good faith and by appropriate proceedings in such manner as not to cause any
materially adverse effect upon its financial condition or the loss of any right
of redemption from any sale thereunder, and (ii) it shall have set aside on its
books reserves (segregated to the extent required by generally accepted
accounting principles) deemed by it adequate with respect thereto.
7.4 Records and Reports. Accurately and fairly
maintain its books of account in accordance with generally accepted accounting
principles, as approved from time to time by a majority of the Board and its
independent certified public accountants; employ a firm of independent certified
public accountants, which firm is either one of the five largest national
accounting firms or which is approved by the Holders of the Majority of the
Restricted Stock, to make annual audits of its accounts in accordance with
generally accepted auditing standards; permit Investor and its representatives
to have access to and to examine its properties, books and records (and to copy
and make extracts therefrom) at such reasonable times and intervals as Investor
may request and to discuss its affairs, finances and accounts with its officers
and auditors, all to such reasonable extent and at such reasonable times and
intervals as Investor may request; and the Company shall also furnish each
Holder of Preferred Stock:
(a) As soon as available, and in any
event within thirty (30) days after the close of each monthly accounting period,
financial statements prepared on a consolidated basis (together with
consolidating statements in support thereof) consisting of a balance sheet of
the Company as of the end of such monthly accounting period and statements of
income, shareholders' equity and cash flow for such monthly accounting period,
and for the portion of the Company's fiscal year ending with the last day of
such monthly accounting period, setting forth in comparative form (i) the
figures for such period, figures for the corresponding periods of the previous
fiscal year and the budgeted figures for such periods prepared and submitted
pursuant to Section 7.5 hereof, and (ii) as of the end of each fiscal quarter,
the figures for such quarter, the figures for the corresponding quarter of the
preceding fiscal year and the budgeted figures for such current quarter prepared
and submitted pursuant to Section 7.5 hereof, all in reasonable detail, prepared
and certified by the chief executive officer or the chief financial officer of
the Company as fairly presenting the financial condition as of the balance sheet
date and results of operations and cash flows for the period then ended in
accordance with generally accepted accounting principles consistently applied,
subject to normal year end adjustments which in the aggregate shall not be
material;
(b) As soon as available, and in any
event within ninety (90) days after the close of each fiscal year of the Company
(commencing with 1997), financial statements prepared on a consolidated basis
(together with consolidating statements in support thereof) consisting of a
balance sheet of the Company, as of the end of such fiscal year, together with
statements of income, shareholders' equity and cash flow for such fiscal year,
setting forth in comparative form the figures for such fiscal year and for the
previous fiscal year, all in reasonable detail, and duly certified by an opinion
unqualified as to scope of a firm of independent certified public accountants,
which firm is one of the four or five largest national accounting firms;
(c) So long as any Preferred Stock remains
outstanding, promptly upon learning of the occurrence of a Default or an Event
of Default or a condition or event which with the giving of notice or the lapse
of time, or both, would constitute a Default or an Event of Default, a
certificate signed by the chief executive officer or chief financial officer of
the Company describing such Default, Event of Default or condition or event and
stating what steps are being taken to remedy or cure the same;
(d) Promptly upon the receipt thereof
by the Company or the Board, copies of all reports, all management letters and
other detailed information submitted to the Company or the Board by independent
accountants in connection with each annual or interim audit or review of the
accounts or affairs of the Company made by such accountants;
(e) Promptly after the same are available,
copies of all such proxy statements, financial statements and reports as the
Company shall send to its stockholders, and promptly upon the transmission
thereof copies of all registration statements, notifications, proxy statements,
reports and other documents and writings which the Company may file with or
furnish to the Commission or any governmental authority at any time substituted
therefor; and
(f) With reasonable promptness, such
other information relating to the finances, properties, business and affairs of
the Company and each Subsidiary, as Investor reasonably may request from time to
time.
In addition to the foregoing, the Company
shall promptly select an independent accounting firm from one of the current
five largest nationally recognized accounting firms to conduct an audit of the
Company's financial statements for the fiscal year ending December 31, 1996 and
engage such firm to conduct an audit of such financial statements in accordance
with generally accepted auditing standards. The Company shall deliver such
audited financial statements to Investor together with an unqualified opinion of
such accounting firm covering such financial statements no later than March 31,
1998.
7.5 Preparation of Budget. Within sixty (60)
days after the Closing Date, for the Company's partial fiscal year ending after
the Closing Date, and at least thirty (30) days prior to the beginning of each
subsequent fiscal year, prepare and submit to the Board, and furnish to Investor
a copy of, an annual plan for such year which shall include monthly capital and
operating expense budgets, cash flow statements and profit and loss and
quarterly balance sheet projections, itemized in such detail as the Board may
request. A majority of the members of the Board shall approve such budgets,
statements and projections. Each annual plan shall be modified as often as
necessary, but in any event every six (6) months, to reflect material changes
required as a result of operating results and other events that occur, or may be
reasonably expected to occur, during the year covered by the annual plan, and
copies of these modifications shall be submitted to and approved by the Board
and furnished to Investor. The Company may dispense with any six-month
modification if the Board reasonably determines that no material change is
required in the budget for that six-month fiscal period.
7.6 Notice of Litigation and Disputes. Promptly
notify Investor of each legal action, suit, arbitration or other administrative
or governmental investigation or proceeding (whether federal, state, local or
foreign) instituted or threatened against the Company which could materially and
adversely affect its condition (financial or otherwise), properties, assets,
liabilities, business, operations or prospects, or of any occurrence or dispute
which involves a reasonable likelihood of any such action, suit, arbitration,
investigation or proceeding being instituted.
7.7 Directors' Meetings. Hold meetings of the
Board at least once every two (2) months; give Investor at least five (5) days'
notice of, and permit an officer or other representative of Investor or any
Person designated by Investor to attend as an observer, all meetings of the
Board and all meetings of committees of the Board; furnish Investor and its
designated representative with a complete and accurate copy of the minutes and
other records of all meetings and other proceedings of the Board and its
committees as well as of the written consents of members of the Board by which
action is taken by the Board or any committee without a meeting, and minutes and
written consents relating to action taken by the shareholders of the Company;
provided, that, if a meeting of the Board or any committee thereof is required
to be held on shorter notice than five (5) days, waiver of the notice contained
in this Section 7.7 shall not be unreasonably withheld; and also furnish
Investor and its designated representative with a complete and accurate copy of
the minutes of the meetings and the written consents with respect to action
taken without a meeting of the board of directors and committees of each
Subsidiary and of the stockholders of each Subsidiary. The Company will pay the
reasonable out-of-pocket expenses of such Persons in attending such meetings.
7.8 Conduct of Business. Conduct its business
in accordance with all applicable provisions of federal, state, local and
foreign law.
7.9 Replacement of Certificates. Upon receipt
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of any certificate representing any of the
Securities, issue a new certificate representing such Securities in lieu of such
lost, stolen, destroyed, or mutilated certificate.
7.10 Compliance with Section 6. Use its best
efforts to cause the conditions specified in Sections 6.1 and 6.2 hereof to be
met by the Closing Date and Section 6.3 to be met by the Subsequent Closing
Date.
7.11 Special Adjustment of Conversion Price.
(a) Within forty-five (45) days after
the Closing Date, the Company, together with its counsel and representatives of
its accounting firm, Price Waterhouse, shall hold a pre-filing conference with
the staff accountants of the Division of Corporation Finance of the Commission
with respect to the Securities Act registration statement for its proposed
initial public offering. In preparation for this meeting, the Company and Price
Waterhouse will prepare a memorandum of facts to be submitted to the staff
describing the Company's methods of doing business and accounting for the sale
of merchandise; and prior to such meeting will deliver a copy of such memorandum
to Investor. Among the matters the Company will submit to the staff at the
pre-filing conference is a request as to whether the staff would object to the
Company's proposed method of accounting for the sale of merchandise by the
Company, including, without limitation, merchandise as to which the Company does
not have possession prior to delivery to the purchaser. If the staff does not
state to the Company and its auditors at the pre-filing conference (as
memorialized in a memorandum of the meeting prepared by Price Waterhouse and
delivered to Investor) that based upon the facts presented to it it has no
objection to the Company including in revenues the full sales price (net of
reasonable and customary reserves for returns, defective merchandise and the
like) of substantially all merchandise to be sold by the Company (the "Desired
Accounting Treatment") in the financial statements for its proposed initial
public offering, the Company may have until seventy-five (75) days after the
Closing Date to obtain written confirmation (or, in the alternative, oral
confirmation memorialized in a memorandum of the oral conversation prepared by
Price Waterhouse and delivered to Investor) that the staff has no objection to
the Desired Accounting Treatment for the financial statements for the proposed
public offering. In addition, after the pre-filing conference through the end of
the seventy-five (75th) day after the Closing Date, the Company may seek the
staff's written confirmation (or oral confirmation memorialized by Price
Waterhouse) that it has no objection to of the Desired Accounting Treatment on
the basis of a different method or methods of conducting business suggested by
the Company so long as the Company advises Investor in writing of its intended
change in methods and discusses them with Investor prior to submitting such
suggestions to the staff and provided further that such different method or
methods of doing business would not materially reduce the potential for the
Company to effect a Qualified Offering no later than the end of the second
calendar quarter of 1998.
(b) If by no later than the end of
such seventy-five (75) day period, the Company has not delivered to Investor
written confirmation from the staff (or oral confirmation memorialized in a
memorandum prepared by Price Waterhouse and delivered to Investor) stating that
the staff has no objection to the Desired Accounting Treatment for the Company's
financial statements to be included in the registration statement for its
initial public offering, then the Company shall promptly take all steps
necessary to cause Section 7(b) of Article III A of its Articles of
Incorporation to be amended to reduce the Conversion Price (as that term is
defined in such Article) then in effect by multiplying the same by the following
decimal fraction: 0.400 (four-tenths); and Craig A. Winn and Rex Scatena, by
signing this Agreement in their individual capacities as stockholders of the
Company, agree to take all action necessary to cause such amendment to be
effected promptly. The Investor hereby consents to such amendment. If there is
any dispute or controversy whether Section 7(b) of Article III A should be so
amended to reduce the Conversion Price, then the Company, Investor and Messrs.
Winn and Scatena agree to have this dispute or controversy resolved by binding
arbitration and, for this limited purpose, the provisions of Section 15(l) of
the Buyout Agreement are incorporated herein by reference mutatis mutandis.
7.12 Securities Law Filings. Make all filings
necessary to perfect in a timely fashion exemptions from (i) the registration
and prospectus delivery requirements of the Securities Act and (ii) the
registration or qualification requirements of all applicable securities or blue
sky laws of any state or other jurisdiction, for the issuance of the Securities
to Investor.
7.13 Composition of the Board of Directors;
Compensation Committee.
(a) At all times cause at least two
Persons designated by the Holders of a Majority of the Restricted Stock to be
elected as and remain directors of the Company, and reimburse all such Persons
so designated for their out-of-pocket expenses in connection with attending
meetings of the Board and all committees thereof and all expenses otherwise
incurred in fulfilling their duties as directors.
(b) The Board shall establish a compensation
committee of three directors (the "Compensation Committee"), one member of which
shall be selected by the Holders of a Majority of the Preferred Stock, one
member of which shall be selected by the holders of a majority of the other
Voting Stock, and the third member of which shall be selected by agreement of
the other two members; provided that if the member selected by the Holders of a
majority of the Series A Preferred Stock so approves, the Compensation Committee
shall consist of two members, one appointed by such holders and the other by the
holders of a majority of the other Voting Stock. All action taken by the
Compensation Committee shall require the unanimous vote or written consent of
all of the members. All matters affecting compensation of any officer or
director of the Corporation or any Subsidiary or any employee of or consultant
to the Corporation or any Subsidiary whose base compensation is at an annual
rate of at least $75,000 shall require approval of the Compensation Committee in
order to be effective. No option or warrant to purchase Common Stock, stock
appreciation right or stock issuance to any officer, director or employee of the
Corporation shall be granted, effected, modified or accelerated unless the same
has been approved by the Compensation Committee. In addition, the Compensation
Committee shall have the exclusive authority to administer and take all action
permitted or required to be taken by the Board or any committee of the Board
under all stock option plans of the Company and under any other plan or
arrangement that provides for the issuance of Common Stock, stock appreciation
rights, phantom stock or other similar benefits to any employee of or any
advisor or consultant to the Corporation.
7.14 Compliance With Certificate and Bylaws.
Perform and observe all requirements of the Company's Bylaws, Articles of
Incorporation and the Certificate, including without limitation its obligations
to the Holders of Securities set forth in the Certificate and the Company's
Articles of Incorporation and Bylaws.
7.15 Internal Accounting Controls. Devise and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (a) transactions are executed in accordance with
management's general or specific authorization, (b) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles or any other criteria applicable to
such statements, and to maintain accountability for assets, (c) access to assets
is permitted only in accordance with management's general or specific
authorization, and (d) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
7.16 Use of Proceeds. Use the proceeds from the
sale of the Preferred Stock hereunder substantially as set forth in Annex 7.16
hereof.
7.17 Union Matters.(a) So long as Investor is a
Holder of Securities, the Company will cause all products ordered by its
customers to be shipped by shippers that have recognized one or more unions as
the collective bargaining representative of some or all of its workers.
(a) So long as Investor is a Holder
of Securities:
(1) In the event of any
attempt by any union to organize or seek to represent employees of the Company
or any of its Affiliates, the Company will recognize the union as the
representative of its workers upon a showing of majority support through a
formal gathering of cards for the union in an appropriate unit.
(2) In connection with any
organizing done by a union, the Company recognizes the right of its employees to
choose their bargaining representative without interference from their employer
(the Company or its Affiliates). Accordingly, the Company and its officers,
directors, employees and agents shall refrain, and shall cause its Affiliates to
refrain, from its or their support of or opposition to the union and from
actively campaigning in opposition to the designation of such union as the
representative of such employees.
(3) The Company will cause
all merchandise ordered by its customers to be shipped by shippers that have
recognized one or more unions as collective bargaining representatives of some
or all of its workers; provided, however, that exceptions to this requirement
will be permitted if installation of purchased items requires set up and it is
impracticable to obtain union labor for on-site installation and set-up or there
is no viable union transportation option available.
Upon completion of a Qualified Offering, the Company
shall no longer be obligated to comply with the requirements of this Section 7,
other than Sections 7.4, 7.9 and 7.17. Investor acknowledges its
responsibilities under the Federal securities laws with respect to information
furnished to it that has not been publicly disclosed.
8. Negative Covenants. The Company agrees that unless the Holders
of a Majority of the Restricted Stock otherwise agree in writing, so long as
Investor is a Holder of Securities, the Company (and each of its Subsidiaries
unless the context otherwise requires) will not do any of the following:
8.1 Senior or Parity Securities. So long as any
Preferred Stock remains outstanding, issue, assume or suffer to exist (a) any
security that is senior to or on a parity with the Preferred Stock, or (b) any
Indebtedness for Borrowed Money that is an Equity Security or is issued with an
Equity Security.
8.2 Private Offerings. Except in a public
offering registered under the Securities Act, issue or sell any Equity Security
unless each issuee and purchaser agrees in writing with the Company not to offer
to sell, sell, make any short sale of, loan, grant any option for the purpose
of, or otherwise dispose of, any Equity Security for at least the same period as
shall be required of officers and directors of the Company prior to and after
the closing of any public offering of securities of the Company registered under
the Securities Act, except that (i) the Board shall have the right to dispense
with this requirement in the case of sales of Common Stock to individuals who
are not directors or officers of the Company and who purchase less than one
percent (1%) of the then fully diluted Common Stock outstanding, and (ii) the
Company need not obtain such standstill agreements from current holders of the
Common Stock or holders of options or warrants to purchase Common Stock if they
have already given standstill agreements restricting their right to sell as
requested by the managing underwriter in an offering for up to 270 days (in the
case of outstanding stock and stock purchase warrants) and 180 days (in the case
of options granted under the Stock Plan).
8.3 Changes in Type of Business. Make any substantial
change in the character of its business.
8.4 Loans; Guarantees. Make any loan or advance
to any Person, including, without limitation any employee or director of the
Company or any Subsidiary, except advances for travel and entertainment expenses
and similar expenditures in the ordinary course of business or under the terms
of a stock option plan or stock purchase agreement approved by the Compensation
Committee; or guarantee, directly or indirectly, any Indebtedness except for
trade accounts of the Company or any Subsidiary arising in the ordinary course
of business.
8.5 Restrictive Agreements. Enter into or
become a party to any agreement or instrument which by its terms would violate
or be in conflict with or restrict the Company's performance of, its obligations
under this Agreement, the Certificate, the Registration Rights Agreement, the
Stockholders Agreement or the Buyout Agreement.
8.6 Buyout Option. Until the buyout option
provided for in the Buyout Agreement has expired by its terms without being
exercised, issue any Common Stock or any other Equity Securities other than (i)
upon conversion of Preferred Stock if and to the extent that the conversion
privilege is exercised, (ii) upon the exercise of stock options that are
outstanding on the Closing Date, (iii) upon the exercise of Stock Purchase
Warrants outstanding on the Closing Date and (iv) 25,000 shares issued to Chris
Little for services rendered.
Upon completion of a Qualified Offering, the Company
shall no longer be obligated to comply with the requirements of this Section 8.
9. Enforcement.
9.1 Remedies at Law or in Equity. If any
Default shall occur or if any representation or warranty made by or on behalf of
the Company in this Agreement or in any certificate, report or other instrument
delivered under or pursuant to any term hereof shall be untrue or misleading in
any material respect as of the date of this Agreement or as of the Closing Date
or the Subsequent Closing Date or as of the date it was made, furnished or
delivered, the Holder of any Security may proceed to protect and enforce its
rights by suit in equity or action at law, whether for the specific performance
of any term contained in this Agreement or the Certificate or for an injunction
against the breach of any such term or in aid of the exercise of any power
granted in this Agreement or the Certificate, or to enforce any other legal or
equitable right of such Holder of any such Securities, or to take any one or
more of such actions. In the event a Holder brings such an action against the
Company, the Holder shall be entitled to recover from the Company all fees,
costs and expenses of enforcing any right of such Holder under or with respect
to this Agreement or the Certificate, including without limitation such
reasonable fees and expenses of attorneys, advisors, accountants and expert
witnesses, which shall include, without limitation, all fees, costs and expenses
of appeals; provided, however, that such Holder shall be required to pay the
reasonable out-of-pocket expenses of defense of the Company (including without
limitation such reasonable fees and expenses of attorneys, advisors, accountants
and expert witnesses, including without limitation, the fees, costs and expenses
of appeals) if the Company is the prevailing party in such actions, and in such
case, the Holder shall not be entitled to receive its litigation expenses from
the Company.
9.2 Cumulative Remedies. None of the rights,
powers or remedies conferred upon any Holder of Preferred Stock or Common Stock
shall be mutually exclusive, and each such right, power or remedy shall be
cumulative and in addition to every other right, power or remedy, whether
conferred hereby or by the Certificate or now or hereafter available at law, in
equity, by statute or otherwise.
9.3 No Implied Waiver. Except as expressly
provided in this Agreement, no course of dealing between the Company and
Investor or the Holder of any Security and no delay in exercising any such
right, power or remedy conferred hereby or by the Certificate or now or
hereafter existing at law in equity, by statute or otherwise, shall operate as a
waiver of, or otherwise prejudice, any such right, power or remedy.
10. Rights of First Refusal.
10.1 Subsequent Offerings. Investor shall have
the right of first refusal to purchase all (or any part of all) Equity
Securities that the Company may, from time to time, propose to sell and issue
after the Closing Date, other than the Equity Securities excluded by Section
10.5 hereof.
10.2 Exercise of Rights. If and each time the
Company proposes to issue any Equity Securities, it shall give Investor written
notice of its intention, describing the Equity Securities, the price, and the
general terms and conditions upon which the Company proposes to issue the same.
Investor shall have thirty-five (35) days from the giving of such notice to
agree to purchase Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
10.3 Issuance of Equity Securities to Other
Persons. If Investor fails to exercise in full the rights of first refusal
within such thirty-five (35)-day period by giving the agreement referred to in
Section 10.2, the Company shall have sixty (60) days thereafter to complete the
sale of the Equity Securities in respect of which Investor's rights were not
exercised, at a price and upon general terms and conditions no more favorable to
the purchasers thereof than specified in the Company's notice to the Investors
pursuant to Section 10.2 hereof. If the Company has not sold all of these Equity
Securities within such sixty (60) days, the Company shall not thereafter issue
or sell any of such Equity Securities, without first offering such securities to
Investor in the manner provided above.
10.4 Termination of Right of First Refusal. The
rights of first refusal established by this Section 10 shall terminate upon the
closing of an underwritten public offering of Common Stock made pursuant to an
effective registration statement under the Securities Act in which the
obligation of the underwriters is to take all of such stock being offered if any
is taken. Such a firmly underwritten public offering that raises at least $25
million of gross proceeds for the account of the Company and has a per share
price to the public for the Common Stock of at least 110% of the "Conversion
Price" of the Preferred Stock (as this quoted term is defined in the
Certificate) immediately prior to the closing of such public offering, is herein
called a "Qualified Offering."
<PAGE>
10.5 Excluded Securities. The rights of first
refusal established by this Section 10 shall have no application to any of the
following Equity Securities: (a) the first 1,250,000 shares of Common Stock sold
pursuant to the Stock Plan to persons who are or were employees or directors of
or consultants or advisors to the Company upon the exercise of stock options or
pursuant to stock purchase agreements, which options and agreements are approved
by the Board and, as to options granted after the Closing Date, the Compensation
Committee, and the options to purchase such shares, (b) 71,250 shares issuable
upon exercise of the Warrants to Purchase Common Stock referred to in Section
5.3, (c) the Conversion Stock, (d) stock issued pursuant to any rights or
agreements including, without limitation, convertible securities, options and
warrants, provided that the rights of first refusal established by this Section
10 applied with respect to the initial sale or grant by the Company of such
rights or agreements, (e) each Equity Security issued for a consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination, (f) any Equity Security that is issued by the Company as part of an
underwritten public offering referred to in Section 10.4 hereof, (g) shares of
Common Stock issued in connection with any stock split, stock dividend or
reverse stock split, (h) 25,000 shares of Common Stock to Chris Little for
services rendered and (i) any Equity Security which the Holders of a Majority of
the Restricted Stock agree in writing shall not be subject to this Section 10.
10.6 Strategic Investor Exception.
Notwithstanding Sections 10.1 and 10.2, in the event the Company proposes to
issue Equity Securities (other than those excluded under Section 10.5) to a
Strategic Investor primarily for the purpose of establishing a business
relationship that would benefit the growth or profitability of the Company's
business (as contrasted with obtaining capital as a primary purpose), then
rather than have the right to purchase all of such Equity Securities Investor's
right shall be limited to purchasing such portion of such Equity Securities to
be issued that will enable Investor to maintain, after giving effect to the full
issuance of such Equity Securities, its fully-diluted Common Stock ownership
percentage interest of the Company determined immediately prior to giving effect
to the issuance of such Equity Securities. "Strategic Investor" means a Person
whose primary activity is other than investing in securities or business
enterprises and that the Board has concluded, reasonably and in good faith,
would be likely as a result of its business activities to provide opportunities
for the Company to increase its revenues and profitability substantially.
11. Definitions. Unless the context otherwise requires, the terms
defined in this Section 11 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined in this Section 11
and those accounting terms used in this Agreement not defined in this Section 11
shall, except as otherwise provided for herein, be construed in accordance with
those generally accepted accounting principles that the Company is required to
employ by the terms of this Agreement. If and so long as the Company has any
Subsidiary, the accounting terms defined in this Section 11 and those accounting
terms appearing in this Agreement but not defined in this Section 11 shall be
determined on a consolidated basis for the Company and each of its Subsidiaries,
and the financial statements and other financial information to be furnished by
the Company pursuant to this Agreement shall be consolidated and presented with
consolidating financial statements of the Company and each of its Subsidiaries.
"Affiliate" shall mean any Person which directly or
indirectly controls, is controlled by, or is under common control with, the
indicated Person.
"Agreement" shall mean this Agreement, as the same may
be amended, modified or restated from time to time.
"Balance Sheet" and "Balance Sheet Date" shall have the
meanings assigned to these terms in Section 5.12 hereof.
"Board" shall mean the Board of Directors of the
Company.
"Buyout Agreement" shall have the meaning assigned to it
in Section 6.1(m).
"Certificate" shall have the meaning assigned to it in
Section 1 hereof.
"Closing" and "Closing Date" shall have the meaning
assigned to these terms in Section 3.1.
"Common Stock" shall have the meaning assigned to it in
Section 1 hereof.
"Commission" shall mean the Securities and Exchange
Commission.
"Compensation Committee" shall have the meaning assigned
to it in Section 7.13(b).
"Conversion Stock" shall have the meaning assigned to it
in Section 1 hereof.
"Default" shall mean a material default or failure in
the due observance or performance of any covenant, condition or agreement on the
part of the Company or any of its Subsidiaries to be observed or performed under
the terms of this Agreement or the Certificate, if such default or failure in
performance shall remain unremedied for ten (10) days; provided, however, that
the Company's failure to pay dividends on Preferred Stock shall not be a Default
unless such dividends have been declared by the Board or unless the Company has
failed to pay dividends payable in cash or Common Stock upon conversion of any
Preferred Stock.
"Designated Investor" shall have the meaning assigned to
it in Section 3.2.
"Developing Software" shall have the meaning assigned to
it in Section 5.29(b).
"Employee Stock Agreement" shall have the meaning
assigned to it in Section 6.1(k) hereof.
"Equity Security" shall mean any stock or similar
security of the Company or any security (whether stock or Indebtedness for
Borrowed Money) convertible or exchangeable, with or without consideration, into
or for any stock or similar security, or any security (whether stock or
Indebtedness for Borrowed Money) carrying any warrant or right to subscribe to
or purchase any stock or similar security, or any such warrant or right.
"Event of Default" shall mean (a) the failure of either
the Company or any Subsidiary to pay any Indebtedness for Borrowed Money, or any
interest or premium thereon, within ten (10) days after the same shall become
due, whether such Indebtedness shall become due by scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise, (b) an event of
default under any agreement or instrument evidencing or securing or relating to
any such Indebtedness, or (c) the failure of either the Company or any
Subsidiary to perform or observe any material term, covenant, agreement or
condition on its part to be performed or observed under any agreement or
instrument evidencing or securing or relating to any such Indebtedness when such
term, covenant or agreement is required to be performed or observed.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Fully Operating Software" shall have the meaning
assigned to it in Section 5.29(a).
"Holder" of any Security shall mean the record or
beneficial owner of such Security. A Holder of Preferred Stock shall be treated
as the Holder of the Restricted Stock underlying the Preferred Stock.
"Holders of a Majority of the Restricted Stock" shall
mean the Person or Persons who are the Holders of greater than 50% of the
Restricted Stock.
"Indebtedness" shall mean any obligation of the Company
or any Subsidiary which under generally accepted accounting principles is
required to be shown on the balance sheet of the Company or such Subsidiary as a
liability. Any obligation secured by a Lien on, or payable out of the proceeds
of production from, property of the Company or any Subsidiary shall be deemed to
be Indebtedness even though such obligation is not assumed by the Company or
Subsidiary.
"Indebtedness for Borrowed Money" shall mean (a) all
Indebtedness in respect of money borrowed including, without limitation,
Indebtedness which represents the unpaid amount of the purchase price of any
property and is incurred in lieu of borrowing money or using available funds to
pay such amounts and not constituting an account payable or expense accrual
incurred or assumed in the ordinary course of business of the Company or any
Subsidiary, (b) all Indebtedness evidenced by a promissory note, bond or similar
written obligation to pay money, or (c) all such Indebtedness guaranteed by the
Company or any Subsidiary or for which the Company or any Subsidiary is
otherwise contingently liable.
"Investor" shall have the meaning assigned to it in the
introductory paragraph of this Agreement and in Section 3.2 hereof.
"Lien" shall mean any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind, including, without
limitation, any conditional sale or other title retention agreement, any lease
in the nature thereof and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction and including
any lien or charge arising by statute or other law.
"Material Adverse Effect" on any Person means a material
adverse effect, or any condition, situation or set of circumstances that could
reasonably be expected to have a material adverse effect, on such Person and its
Subsidiaries, taken as a whole, or the business, assets, properties, condition
(financial and other), operations or prospects of such Person and its
Subsidiaries taken as a whole.
"Permitted Liens" shall mean (a) Liens for taxes and
assessments or governmental charges or levies not at the time due or in respect
of which the validity thereof shall currently be contested in good faith by
appropriate proceedings; (b) Liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, carriers', warehousemen's,
mechanics', laborers' and materialmen's and similar Liens, if the obligations
secured by such Liens are not then delinquent or are being contested in good
faith by appropriate proceedings; and (c) Liens incidental to the conduct of the
business of the Company or any Subsidiary which were not incurred in connection
with the borrowing of money or the obtaining of advances or credits and which do
not in the aggregate materially detract from the value of its property or
materially impair the use thereof in the operation of its business.
"Person" shall include any natural person, corporation,
trust, association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
"Preferred Stock" shall have the meaning assigned to it
in Section 1 hereof.
"Qualified Offering" shall have the meaning assigned to
it in Section 10.4.
"Registration Rights Agreement" shall have the meaning
assigned to it in Section 6.1(l) hereof.
"Restricted Stock" shall mean (a) all Common Stock owned
now or in the future by the Investors, (b) the Common Stock issued or issuable
upon conversion of the Preferred Stock, whether owned by the Investors or not,
and (c) any securities issued or issuable with respect to such Common Stock by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger or consolidation or reorganization; provided,
however, that shares of Common Stock shall only be treated as Restricted Stock
if and so long as they have not been (i) sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, or
(ii) sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect to such Common Stock
are removed upon the consummation of such sale and the seller and purchaser of
such Common Stock receive an opinion of counsel for the Company, which shall be
in form and content reasonably satisfactory to the seller and buyer and their
respective counsel, to the effect that such Common Stock in the hands of the
purchaser is freely transferable without restriction or registration under the
Securities Act in any public or private transaction.
"Securities" shall have the meaning assigned to it in
Section 1 hereof.
"Securities Act" shall mean the Securities Act of 1933,
as amended.
"Senior Executive" has the meaning assigned to it in
Section 6.1(k).
"Stock Plan" shall have the meaning assigned to it in
Section 5.3 hereof.
"Subsidiary" shall mean any corporation, association or
other business entity at least 50% of the outstanding voting stock of which is
at the time owned or controlled directly or indirectly by the Company or by one
or more of such subsidiary entities or both, where "voting stock" means any
shares of stock having general voting power in electing the board of directors
(irrespective of whether or not at the time stock of any other class or classes
has or might have voting power by reason of any contingency).
"Web Site" shall have the meaning assigned to it in
Section 5.30(a).
12. Miscellaneous.
12.1 Waivers and Amendments. With the written
consent of the Holders of a Majority of the Restricted Stock, the obligations of
the Company and the rights of the Holders of the Securities under this Agreement
may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely), and with the same consent the Company, when authorized by
resolution of its Board, may enter into a supplementary agreement for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of any supplemental agreement or
modifying in any manner the rights and obligations hereunder of the Holders of
the Securities and the Company; provided, however, that no such waiver or
supplemental agreement shall (a) affect any of the rights of any Holder of a
Security created by the Certificate or by the statutory corporate law of the
state of incorporation of the Company without compliance with all applicable
provisions of the Certificate and such statutory corporate law, or (b) reduce
the aforesaid proportion of Restricted Stock, the Holders of which are required
to consent to any waiver or supplemental agreement, without the consent of the
Holders of all of the Restricted Stock. Upon the effectuation of each such
waiver, consent or agreement of amendment or modification, the Company shall
promptly give written notice thereof to the Holders of the Restricted Stock who
have not previously consented thereto in writing. Neither this Agreement nor the
Certificate, nor any provision hereof or thereof, may be amended, waived,
discharged or terminated orally or by course of dealing, but only by a statement
in writing signed by the party n 12.1. Specifically, but without limiting the
generality of the foregoing, the failure of Investor at any time or times to
require performance of any provision hereof or of the Certificate by the Company
shall in no manner affect the right of Investor at a later time to enforce the
same. No waiver by any party of the breach of any term or provision contained in
this Agreement or the Certificate, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in the Agreement or
Certificate.
12.2 Effect of Waiver or Amendment. Investor and
each Holder of Securities acknowledge that by operation of Section 12.1 hereof
the Holders of a Majority of the Restricted Stock will, subject to the
limitations contained in such Section 12.1, have the right and power to diminish
or eliminate certain rights of such Investor under this Agreement.
12.3 Rights of Holders Inter Se. Each Holder of
Securities shall have the absolute right to exercise or refrain from exercising
any right or rights which such Holder may have by reason of this Agreement or
any Security, including, without limitation, the right to consent to the waiver
of any obligation of the Company under this Agreement and to enter into an
agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and such Holder shall not incur any
liability to any other Holder or Holders of Securities with respect to
exercising or refraining from exercising any such right or rights.
12.4 Notices. All notices, requests, consents
and other communications required or permitted hereunder shall be in writing
(including telecopy or similar writing) and shall be given,
if to the Company to:
Value America, Inc.
2300 Commonwealth Drive
Charlottesville, Virginia 22901
Attention: Mr. Craig A. Winn, Chairman and Chief Executive Officer
Telecopier: (804) 970-1981
with a copy to
Gary D. LeClair, Esq.
LeClair Ryan, A Professional Corporation
707 East Main Street
Eleventh Floor
Richmond, VA 23219
Telecopier: (804) 783-2294
if to Investor to:
Union Labor Life Insurance Company
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attention: Mr. Michael R. Steed,
Senior Vice President
Telecopier: (202) 682-7970
<PAGE>
with a copy to:
Alan J. Barton, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street - 23rd Floor
Los Angeles, CA 90071
Telecopier: (213) 627-0705
if to any other Holder of Securities to such Holder at
the address or to the telecopier number as such Holder
may specify by notice to the Company from time to time,
or to such other address or telecopier number as such party may specify for the
purpose by notice to the other party or parties to this Agreement, as the case
may be. A copy of any notice to the Company or to Investor or any other Holder
of Securities shall also be given to each other Holder of Securities. Any
notice, request, consent or other communication hereunder shall be deemed to
have been given and received on the day on which it is delivered (by any means
including personal delivery, overnight air courier, United States mail) or
telecopied (or, if such day is not a business day or if the notice, request,
consent or communication is not telecopied during business hours of the intended
recipient, at the place of receipt, on the next following business day).
12.5 Survival of Representations and Warranties,
etc. All representations and warranties made in, pursuant to or in connection
with this Agreement shall survive the execution and delivery of this Agreement,
any investigation at any time made by or on behalf of Investor, and the sale and
purchase of the Securities and payment therefor. All statements contained in any
certificate, instrument or other writing delivered by or on behalf of the
Company pursuant hereto or in connection with or contemplation of the
transactions herein contemplated shall constitute representations and warranties
by the Company hereunder. Any claim against the Company based upon any
inaccuracy in any of the representations or breach of any of the warranties
hereunder must be asserted against the Company, either by written notice given
to the Company specifying with reasonable particularity the claimed inaccuracy
or breach or by institution of an action at law or suit in equity against the
Company and the serving of the process and complaint with respect thereto upon
the Company, within thirty (30) months from the Closing Date.
12.6 Severability. Should any one or more of the
provisions of this Agreement or of any agreement entered into pursuant to this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement and of each other agreement entered into pursuant to this
Agreement, shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
12.7 Parties in Interest. All the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto, whether so expressed or not, and, in particular, shall inure to the
benefit of and be enforceable by the Holder or Holders at the time of any of the
Securities. Subject to the immediately preceding sentence, this Agreement shall
not run to the benefit of or be enforceable by any Person other than a party to
this Agreement and its successors and assigns.
12.8 Headings. The headings of the Sections and
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
12.9 Choice of Law. It is the intention of the parties
that the internal substantive laws, and not the laws of conflicts, of Virginia
should govern the enforceability and validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties.
12.10 Expenses. The Company agrees, whether or not the
transactions contemplated hereby are consummated, to pay, and hold Investor and
the Holders of the Securities harmless from liability for the payment of, (i)
the fees and expenses of their special counsel arising in connection with the
negotiation and execution of this Agreement and the Certificate and consummation
of the transactions contemplated hereby, (ii) the fees and expenses incurred
with respect to any amendments to this Agreement or the Certificate proposed by
the Company (whether or not the same become effective), (iii) if Investor or
other Holder of Securities desires to sell or otherwise transfer any or all of
the Securities held by it and counsel for the Company declines to render a legal
opinion to Investor or such holder, without cost or expense to such Investor or
Holder, whether or not registration under the Securities Act will be required
for such sale or transfer, the fees and expenses of counsel for Investor or such
Holder in rendering such an opinion, (iv) the fees and expenses of one firm of
counsel for any Holder or Holders of Securities who may be deemed to be
Affiliates of the Company for reviewing any registration statement or prospectus
to be filed under the Securities Act, or any amendments or supplements thereto,
unless such registration statement is being prepared and effected in accordance
with the Registration Rights Agreement and such Holder or Holders are
participating as selling shareholders in such registration, (v) the fees and
expenses incurred in connection with any requested waiver of the right of any
Holder of Securities or the consent of any Holder of Securities to contemplated
acts of the Company not otherwise permissible by the terms of this Agreement or
the Certificate, (vi) stamp and other taxes, excluding income taxes, which may
be payable with respect to the execution and delivery of this Agreement or the
issuance, delivery or acquisition of the Preferred Stock or upon the conversion
of the Preferred Stock, (vii) the fees and expenses incurred in respect of the
enforcement of the rights granted under this Agreement or the Certificate, and
(viii) all costs of the Company's performance of and compliance with this
Agreement and the Certificate.
12.11 Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed
together and shall constitute one and the same instrument.
12.12 Authorship. This Agreement shall
not be construed for or against any party by reason of the authorship or claimed
authorship of any provision of this Agreement or by reason of the status of the
respective parties.
12.13 Entire Agreement. This Agreement and any
agreement, document or instrument referred to herein constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof, and supersede all other prior agreements or undertakings with respect
thereto, both written and oral.
<PAGE>
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their respective duly
authorized officers as of the day and year first above written.
VALUE AMERICA, INC.
By: /s/ Craig A. Winn
----------------------------
Craig A. Winn, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By: /s/ Michael R. Steed
---------------------------------------
Michael R. Steed, Senior Vice President
<PAGE>
[STOCKHOLDER SIGNATURE PAGE]
The undersigned hereby became parties to this Preferred
Stock Purchase Agreement solely for the purpose of
Section 7.11(b) hereof.
Dated as of December 17, 1997
/s/ Craig A. Winn
-----------------
Craig A. Winn
/s/ Rex Scatena
---------------
Rex Scatena
<PAGE>
LIST OF ANNEXES
Tab grid changed here.
Annex 5.5 Schedule of Indebtedness for Borrowed Money
Annex 5.6 Schedule of Holders of Common Stock, Options and
Warrants
Annex 5.11 Brokers and Finders
Annex 5.12 Financial Statements
Annex 5.13 Schedule of Special Liabilities
Annex 5.14 Schedule of Changes
Annex 5.15 Schedule of Material Agreements
Annex 5.17 Taxes
Annex 5.18 Patents and Other Intangible Assets
Annex 5.20 Title to Property and Encumbrances: Leases
Annex 5.22 Insurance
Annex 5.23 Schedule of Litigation
Annex 5.26 Licenses
Annex 5.27 Schedule of Interested Party Transactions
Annex 5.29A Schedule of Fully Operational Software
Annex 5.29B Schedule of Developing Software
Annex 5.30(c) Schedule of Customer Complaints
Annex 5.30(d) Schedule of Manufacturer Communications
Annex 6.1(k) Stockholders Agreement
Annex 6.1(l) Registration Rights Agreement
Annex 6.1(m) Buyout Option Agreement
Annex 7.16 Use of Proceeds
EXHIBIT 10.21
VALUE AMERICA, INC.
------------------------------------------
STOCK PURCHASE AGREEMENT
------------------------------------------
205,993 SHARES OF COMMON STOCK
Dated as of June 26, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Sale and Purchase of Common Stock. 2
2. Closing 2
3. Certificates for Shares of Common Stock. 2
4. Representations and Warranties by the Selling Stockholders 2
4.1 Purchase Agreement 2
4.2 This Agreement 3
5. Investors' Representations and Warranties 4
6. Indemnification 5
6.1 Survival of Representations and Warranties
and Covenants 5
6.2 Indemnification 5
6.3 Third Party Claims 6
7. Miscellaneous 7
7.1 Waivers and Amendments 7
7.2 Effect of Waiver or Amendment 7
7.3 Rights of Investors Inter Se 7
7.4 Notices 8
7.5 Severability 8
7.6 Parties in Interest 8
7.7 Headings 8
7.8 Choice of Law 8
7.9 Counterparts 8
7.10 Authorship 9
7.11 Entire Agreement 9
7.12 Cumulative Remedies 9
7.13 No Implied Waiver 9
7.14 Exculpation Among Investors 9
7.15 Counsel 9
7.16 Lock-Up Agreement 10
7.17 Waivers 10
7.18 Participation Agreement and Related Indemnification 10
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into as of
June 26, 1998, among Craig A. Winn ("Winn"), Rex Scatena ("Scatena") (each a
"Selling Stockholder" and collectively the "Selling Stockholders"), UNION LABOR
LIFE INSURANCE COMPANY, a Maryland corporation acting on behalf of its Separate
Account P (which is not a separate entity) ("Ullico"), UNITED ASSOCIATION OF
JOURNEYMEN AND APPRENTICES OF THE PLUMBING AND PIPEFITTING INDUSTRY OF THE
UNITED STATES AND CANADA, GENERAL FUND (the "Plumbers"), and THE ANNETTE M. AND
THEODORE N. LERNER FAMILY FOUNDATION (the "Lerner Entity") (each of Ullico, the
Plumbers, and the Lerner Entity, an "Investor" and collectively, the
"Investors").
RECITALS
A. Concurrent with the execution of this Agreement, Value America,
Inc., a Virginia corporation (the "Company"), the Investors and certain other
entities and individuals (collectively, the "Series B Investors") propose to
enter into a Preferred Stock Purchase Agreement dated the date of this Agreement
(the "Purchase Agreement") under which the Series B Investors will become
obligated, subject to certain conditions, to provide approximately $18.5 million
in equity financing to the Company.
B. Winn is the record owner of 5,053,793 shares of the Company's
authorized and issued common stock, without par value (which class of shares is
herein called the "Common Stock") and the beneficial owner of 5,153,893 shares
of Common Stock.
C. Scatena is the record owner of 2,149,900 shares of Common Stock
and the beneficial owner of 2,250,000 shares of Common Stock.
D. The Investors are unwilling to provide equity financing to the
Company, unless each Selling Stockholder is willing to sell certain shares of
Common Stock held by it to the Investors, and it is a condition to the
performance of the Series B Investors' obligations under the Purchase Agreement
that the Selling Stockholders enter into this Agreement.
E. Each Selling Stockholder acknowledges that having the Series B
Investors provide equity financing to the Company pursuant to the Purchase
Agreement will directly benefit such Selling Stockholder as a result of its
ownership of Common Stock and, accordingly, that such Selling Stockholder is
entering into this Agreement to induce the Investors to provide equity financing
to the Company under the Purchase Agreement.
<PAGE>
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Sale and Purchase of Common Stock. Upon the terms and subject to
the conditions herein contained, the Selling Stockholders agree to sell to
the Investors, and each Investor agrees, severally and not jointly, to
purchase from the Selling Stockholders, at the Closing (as hereinafter
defined) on the Closing Date (as hereinafter defined), the total number of
shares of Common Stock specified opposite such Investor's name on the
Schedule of Investors attached hereto as Annex A (collectively, the "Shares"),
at a price of $30.47 per share (the "Purchase Payment").
2. Closing. The closing of the sale to and purchase by the
Investors of the Common Stock (the "Closing") shall occur at the offices
of Paul, Hastings, Janofsky & Walker LLP, 1299 Pennsylvania Avenue, N.W., Tenth
Floor, Washington, D.C., at the time and on the date of closing of the
purchase of Series B Preferred Stock of the Company by the Series B
Investors pursuant to the Purchase Agreement (the "Closing Date"). At
the Closing, each Selling Stockholder will deliver to each Investor a
certificate evidencing the Common Stock sold by him pursuant hereto together
with stock powers, dated the Closing Date, with respect to all of such shares
of Common Stock duly executed in blank, together with a certificate duly
executed by such Selling Stockholder, dated the Closing Date, certifying, upon
having made a reasonable investigation sufficient to express an informed view,
that all representations and warranties of the Selling Stockholders under
this Agreement are true and correct on the Closing Date and that the Selling
Stockholders have performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by them on or before
the Closing Date, against delivery to the Selling Stockholders of payment
by check or wire transfer in an amount equal to the Purchase Payment.
3. Certificates for Shares of Common Stock. Each Selling
Stockholder covenants and agrees to cause the Company to issue to each Investor
on the Closing Date a certificate representing the shares of Common Stock
purchased by such Investor pursuant hereto in such Investor's name upon
surrender by such Investor to the Company of the certificate and stock
power described in Section 2. The certificates evidencing the Common Stock
purchased by the Investors hereunder shall bear the legends agreed upon by
the Selling Stockholders and the Investors.
4. Representations and Warranties by the Selling Stockholders.
Representations and Warranties by the Selling Stockholders.
4.1 Purchase Agreement.
(a) Each Selling Stockholder, jointly and
severally, represents and warrants to, and covenants and agrees with the
Investors as follows:
<PAGE>
(i) The Selling Stockholders have
carefully reviewed the Purchase Agreement and the representations and warranties
of the Company appearing in Section 5 of the Purchase Agreement.
(ii) On the date hereof, each
representation and warranty of the Company appearing in Section 5 of the
Purchase Agreement is true and complete in all material respects and does
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated or necessary to make the statements made, in light
of the circumstances under which they were made, not misleading. On the Closing
Date, each representation and warranty of the Company appearing in Section 5
of the Purchase Agreement will be true and complete in all material respects and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or necessary to make the statements made,
in light of the circumstances under which they were made, not misleading.
4.2 This Agreement. Each Selling Stockholder, severally,
but not jointly, represents and warrants to, and covenants and agrees with the
Investors, as follows:
(a) Such Selling Stockholder has full power
and authority to execute, deliver and perform this Agreement and this Agreement
has been duly executed and delivered by such Selling Stockholder.
(b) This Agreement constitutes the legal, valid
and binding obligation of such Selling Stockholder and is enforceable against
such Selling Stockholder in accordance with its terms, except as such
enforcement is limited by bankruptcy, insolvency and other similar laws
affecting enforcement of creditors' rights generally.
(c) Winn is the beneficial owner of
5,153,893 share of Common Stock, and Winn is the record owner of 5,053,793
shares of Common Stock and Crystal Investments, L.L.C., a Virginia limited
liability company, which is closely-held and managed by Winn, is the record
owner of 100,100 shares of Common Stock. Scatena is the beneficial owner of
2,250,000 shares of Common Stock, and Scatena is the record owner of
2,149,900 shares of Common Stock and Frostine, L.L.C., a Virginia limited
liability company, which is closely-held and managed by Scatena, is the record
owner of 100,100 shares of Common Stock. Each Selling Stockholder has good and
marketable title to all of such Common Stock held of record, free and clear of
any mortgage, pledge, security interest, encumbrance, lien or charge of any kind
(a "Lien") or restriction on transfer.
(d) Upon delivery of a certificate evidencing the
shares of Common Stock owned by such Selling Stockholder and payment therefor
to such Selling Stockholder by each Investor pursuant to this Agreement, the
Investors will receive good and marketable title to all of the shares of Common
Stock purchased hereby, free and clear of all Liens, restrictions on transfer
and adverse claims.
<PAGE>
(e) The execution, delivery and performance of
this Agreement by the Selling Stockholders (a) will not require any consent or
approval that has not been validly and lawfully obtained, (b) will not
require any authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality of government, except such
as shall have been lawfully and validly obtained prior to the Closing, (c)
will not violate or contravene (i) any provision of law, (ii) any rule or
regulation of any agency or government, domestic or foreign, (iii) any order,
writ, judgment, injunction, decree, determination or award, or (iv) any
provision of the Articles of Incorporation or Bylaws of the Company, (d) will
not violate or be in conflict with, result in a breach of or constitute (with or
without notice or lapse of time or both) a default under, any indenture, loan or
credit agreement, note agreement, deed of trust, mortgage, security agreement or
other agreement, lease or instrument, commitment or arrangement to which any
Selling Stockholder is a party or by which any Selling Stockholder or any of his
properties, assets or rights is bound or affected, and (e) will not result in
the creation or imposition of any Lien.
(f) No person, corporation, trust, association,
company, partnership, joint venture or other entity (a "Person") has, or as a
result of the transactions contemplated herein will have, any right or valid
claim against any Selling Stockholder for any commission, fee or other
compensation as a finder or broker, or any similar capacity.
(g) The Selling Stockholders are being
represented in connection with this Agreement by LeClair Ryan, A Professional
Corporation, and such Selling Stockholders have not received any
information or advice from, and are not relying upon any statement made by
Ullico or Ullico's special counsel, Paul, Hastings, Janofsky & Walker LLP, or
counsel to any other Investor in entering into or in connection with this
Agreement or the transactions contemplated hereby.
5. Investor's Representations and Warranties. Each Investor hereby
represents and warrants severally, but not jointly, to the Selling Stockholders:
(a) Such Investor is a corporation or partnership or other
entity duly organized or formed, validly existing and in good standing under
the laws of its state of incorporation or formation and has full power and
authority to execute, deliver, and perform this Agreement and this Agreement
has been duly executed and delivered by such Investor.
(b) This Agreement constitutes the legal, valid and binding
obligation of such Investor and is enforceable against such Investor in
accordance with its terms, except as such enforcement is limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally.
(c) Such Investor understands that the Common Stock it
acquires hereunder has not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and that accordingly it will not be
fully transferable except as permitted under various exemptions contained in
the Securities Act or applicable state securities laws, or upon satisfaction of
the registration and prospectus delivery requirements of the Securities Act or
registration or qualification requirements under applicable state
securities laws. Such Investor acknowledges that it must bear the economic
risk of its investment in the Common Stock for an indefinite period of time
since it has not been registered under the Securities Act and therefore cannot
be sold unless it is subsequently registered or an exemption from
registration is available.
<PAGE>
(d) Such Investor (i) is acquiring the Common Stock it has
agreed to purchase for investment purposes only, for its own account, and not
as nominee or agent for any other person or entity, and not with the view to,
or for resale in connection with, any distribution thereof within the
meaning of the Securities Act, (ii) is an "accredited investor" within the
meaning of Rule 501(a) of the Securities and Exchange Commission under the
Securities Act, (iii) is a corporation, partnership, or other entity
headquartered in the jurisdiction as set forth on Annex A to this Agreement and
(iv) has had the opportunity to review information provided to it by the Company
and ask questions about and received answers regarding the same.
(e) Such Investor acknowledges that it has received and
reviewed a draft dated June 16, 1998 of a Registration Statement on Form S-1
(the "Registration Statement"), which the Company has represented it
intends to file with the Securities and Exchange Commission in connection
with an initial public offering of the Common Stock of the Company (an "IPO").
Such Investor acknowledges that the terms of the IPO may differ from those
contained in the Registration Statement and that the IPO may be delayed or
terminated at any time.
(f) Such Investor recognizes that the purchase of Shares of
the Company by it pursuant to this Agreement involves a high degree of risk and
acknowledges that it understands such risks, including those set forth in
the Section titled "Risk Factors" in the Registration Statement.
6. Indemnification.
6.1 Survival of Representations and Warranties and
Covenants. The representations, warranties and covenants of the Selling
Stockholders contained in this Agreement or in any writing delivered pursuant
hereto or at the Closing shall survive the execution and delivery of this
Agreement and the Closing and the consummation of the transactions
contemplated hereby (and any examination or investigation by or on behalf of any
party hereto) indefinitely. The representations, warranties and covenants of the
Investors contained in this Agreement or in any writing delivered pursuant
hereto or at the Closing shall survive the execution and delivery of this
Agreement and the Closing and the consummation of the transactions contemplated
hereby (and any examination or investigation by or on behalf of any party
hereto) indefinitely.
6.2 Indemnification.
(a) Each Selling Stockholder covenants and agrees
<PAGE>
to defend, indemnify and hold harmless each Investor and each Person who
controls such Investor within the meaning of the Securities Act from and
against any and all losses, liabilities, obligations, costs, expenses, damages
or judgments of any kind or nature whatsoever, including without
limitation reasonable attorneys', accountants' and experts' fees and
disbursements of counsel (collectively, "Damages") arising out of or
resulting from: (i) any inaccuracy in or breach of any representation or
warranty made by any Selling Stockholder in this Agreement or in any writing
delivered pursuant to this Agreement or at the Closing, or (ii) the failure
of any Selling Stockholder to perform or observe fully any covenant,
agreement or provision to be performed or observed by such Selling Stockholder
pursuant to this Agreement.
(b) Each Investor severally, but not jointly,
covenants and agrees to defend, indemnify and hold harmless each Selling
Stockholder and each Person who controls such Selling Stockholder within the
meaning of the Securities Act from and against any and all Damages arising out
of or resulting from: any inaccuracy in or breach of any representation or
warranty made by such Investor in Section 5(a), (c) or (d) of this Agreement.
6.3 Third Party Claims.
(a) If any party indemnifiable hereunder (an
"Indemnified Party") receives notice of the assertion by any third party of any
claim or of the commencement by any such third person of any action (any such
claim or action being referred to herein as an "Indemnifiable Claim")
with respect to which any other party hereto (an "Indemnifying Party")
is or may be obligated to provide indemnification, the Indemnified Party
shall promptly notify the Indemnifying Party in writing (the "Claim Notice") of
the Indemnifiable Claim; provided, however, that the failure to provide such
notice shall not relieve or otherwise affect the obligation of the
Indemnifying Party to provide indemnification hereunder, except to the
extent that any Damages directly resulted or were caused by such failure.
(b) The Indemnifying Party shall have thirty (30)
days after receipt of the Claim Notice to undertake, conduct and control,
through counsel of its own choosing, and at its expense, the settlement or
defense thereof, and the Indemnified Party shall cooperate with the
Indemnifying Party in connection therewith; provided, however, that (i)
the Indemnifying Party shall permit the Indemnified Party to participate in
such settlement or defense through counsel chosen by the Indemnified
Party (subject to the consent of the Indemnifying Party, which consent
shall not be unreasonably withheld), provided that the fees and expenses of such
counsel shall not be borne by the Indemnifying Party, and (ii) the
Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent. So long as the Indemnifying Party is vigorously
contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party's consent,
which consent shall not be unreasonably withheld.
(c) If the Indemnifying Party does not notify the
Indemnified Party within thirty (30) days after receipt of the Claim Notice
that it elects to undertake the defense of the Indemnifiable Claim
described therein or does not undertake and pursue vigorously the defense
of such Indemnifiable Claim, the Indemnified Party shall have the right to
contest, settle or compromise the Indemnifiable Claim in the exercise of its
reasonable discretion; provided, however, that the Indemnified Party shall
notify the Indemnifying Party of any compromise or settlement of any such
Indemnifiable Claim.
<PAGE>
(d) Anything contained in this Section 6.3 to the
contrary notwithstanding, no Indemnifying Party shall be entitled to assume the
defense of any Indemnifiable Claim (and shall be liable for the reasonable fees
and expenses incurred by the Indemnified Party in defending such claim) if the
Indemnifiable Claim seeks an order, injunction or other equitable relief or
relief for other than money damages against any Investor which such
Investor determines, after conferring with its counsel, cannot be separated
from any related claim for money damages.
7. Miscellaneous.
7.1 Waivers and Amendments. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only by the
written consent of (a) as to the Investors, only by the Investors holding more
than fifty percent (50%) in interest of the Common Stock purchased hereunder
voting as a single group, and (b) as to the Selling Stockholders, only by the
Selling Stockholder selling more than fifty percent (50%) of the Shares sold
hereunder. Any amendment or waiver effected in accordance with clause (a) and
(b) or this Section 7.1 shall be binding upon the Investors and the Selling
Stockholders and their respective successors and assigns. Upon the effectuation
of each such waiver, consent or agreement of amendment or modification, the
parties so consenting or waiving shall promptly give written notice thereof to
the other parties who have not previously consented thereto in writing. This
Agreement, and any provision hereof or thereof, shall not be amended, waived,
discharged or terminated orally or by course of dealing, but only by a statement
in writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, except to the extent provided in this
Section 7.1. Specifically, but without limiting the generality of the foregoing,
the failure of the Investors at any time or times to require performance of any
provision hereof by the Selling Stockholders shall in no manner affect the
rights of the Investors at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in the Agreement.
7.2 Effect of Waiver or Amendment. Each Investor acknowledges
that by operation of Section 7.1 hereof the Investors which purchase more than
fifty percent in interest of the Common Stock hereunder will, subject
to the limitations contained in such Section 7.1, have the right and power to
diminish or eliminate certain rights of the Investors under this Agreement.
7.3 Rights of Investors Inter Se. Each Investor shall have the
absolute right to exercise or refrain from exercising any right or rights which
such Investor may have by reason of this Agreement or any Share, including,
without limitation, the right to consent to the waiver of any obligation of any
Selling Stockholder under this Agreement and to enter into an agreement with any
Selling Stockholder for the purpose of modifying this Agreement or any agreement
effecting any such modification, and such Investor shall not incur any liability
to any other Investor with respect to exercising or refraining from exercising
any such right or rights.
<PAGE>
7.4 Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing (including
telecopy or similar writing) and shall be given to any Investor at the address
or to the telecopier number set forth opposite such Investor's name on Annex A
of this Agreement, to any Selling Stockholder at the address or to the
telecopier number set forth beneath such Selling Stockholder's name on the
signatures page(s) to this Agreement, or to such other address or telecopier
number as such party may specify for the purpose by notice to the other party or
parties to this Agreement, as the case may be. A copy of any notice to any
Investor or any Selling Stockholder shall also be given to each other Investor
or Selling Stockholder, respectively. Any notice, request, consent or other
communication hereunder shall be deemed to have been given and received on the
day on which it is delivered (by any means including personal delivery,
overnight air courier, United States mail) or telecopied (or, if such day is not
a business day or if the notice, request, consent or communication is not
telecopied during business hours of the intended recipient, at the place of
receipt, on the next following business day).
7.5 Severability. Should any one or more of the provisions of
this Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this
Agreement, shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
7.6 Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by the holder or holders at the time of any of the Shares. Subject
to the immediately preceding sentence, this Agreement shall not run to the
benefit of or be enforceable by any Person other than a party to this
Agreement and its successors and assigns.
7.7 Headings. The headings of the Sections and paragraphs of
this Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
7.8 Choice of Law. It is the intention of the parties that the
internal laws, and not the laws of conflicts, of Virginia should govern the
enforceability and validity of this Agreement, the construction of its terms
and the interpretation of the rights and duties of the parties.
7.9 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
with the same effect as if all parties had signed the same document. All
such counterparts shall be deemed an original, shall be construed together and
shall constitute one and the same instrument.
<PAGE>
7.10 Authorship. This Agreement shall not be construed for or
against any party by reason of the authorship or claimed authorship of any
provision of this Agreement or by reason of the status of the respective
parties.
7.11 Entire Agreement. This Agreement and any agreement,
document or instrument referred to herein constitute the entire agreement among
the parties hereto with respect to the subject matter hereof and thereof, and
supersede all other prior agreements or undertakings with respect thereto, both
written and oral.
7.12 Cumulative Remedies. None of the rights, powers or
remedies conferred upon any Investor shall be mutually exclusive, and each such
right, power or remedy shall be cumulative and in addition to every other right,
power or remedy, whether conferred hereby or now or hereafter available at law,
in equity, by statute or otherwise.
7.13 No Implied Waiver. Except as expressly provided in this
Agreement, no course of dealing between any Selling Stockholder and any Investor
and no delay in exercising any such right, power or remedy conferred hereby
or now or hereafter existing at law in equity, by statute or otherwise, shall
operate as a waiver of, or otherwise prejudice, any such right, power or
remedy.
7.14 Exculpation Among Investors. Each Investor acknowledges
that it is not relying upon any other Investor, or any officer, director,
employee, agent, partner or affiliate of any such other Investor, in making its
investment or decision to invest in the Shares or in monitoring such
investment. Each Investor agrees that no Investor nor any controlling person,
officer, director, stockholder, partner, agent or employee of any Investor
shall be liable for any action heretofore or hereafter taken or omitted to
be taken by any of them relating to or in connection with the Company or the
Common Stock, or both. Without limiting the generality of the foregoing, no
Investor (or any of its affiliates, officers, directors, stockholders,
partners, agents or employees) shall have any obligation, liability or
responsibility whatsoever for the accuracy, completeness or fairness of any
or all information about the Company or its properties, business or financial
and other affairs, acquired by such Investor from the Company or its
officers, directors, employees, agents, representatives, counsel or
auditors, and in turn provided to another Investor, nor shall such Investor
(or such other person) have any obligation or responsibility whatsoever
to provide any such information to any other Investor (or such other person) or
to continue to provide any such information if any information is provided.
<PAGE>
7.15 Counsel. Each party hereto has reviewed the contents of
this Agreement and fully understands its terms. Each party hereto acknowledges
that he or it is fully aware of his or its right to the advice of counsel
independent from that of any other party, and that it understands the
potentially adverse interests of the parties with respect to this Agreement.
Each party hereto further acknowledges that no representations have been made
with respect to the tax or other consequences of this Agreement or the
transactions contemplated herein to him or it, and that he or it has been
advised of the importance of seeking independent counsel with respect to such
consequences. Each Investor acknowledges and agrees that it has not received any
information or advice from, and is not relying upon any statement made by Ullico
or Ullico's special counsel, Paul, Hastings, Janofsky & Walker, LLP in entering
into or in connection with this Agreement or the transactions contemplated
hereby.
7.16 Lock-Up Agreement. Each Investor agrees to execute a
Lock-Up Agreement, in the form attached as Annex 7.16 hereto, in connection with
the proposed initial public offering of the Common Stock of the Company for the
account of the Company pursuant to an effective registration statement under the
Securities Act. To the extent that the Company should change lead
underwriters prior to the effective date of such initial public offering, each
Investor agrees to execute a Lock-Up Agreement with such lead underwriter, so
long as such agreement is in the form attached as Annex 7.16 hereto. Each
Investor (other than Ullico) agrees to execute a lock-up agreement, if any,
requested by The Nasdaq Stock Market, Inc. (the "Nasdaq Lock-Up Agreement") in
connection with such initial public offering.
7.17 Waivers. Ullico hereby waives the applicability of
Sections 2 and 4 of that certain Stockholders Agreement dated as of December 17,
1997, by and among the Company, Ullico and the Selling Stockholders (the
"Stockholders Agreement") with respect to the sale of the Shares of Common
Stock of the Company to the Investors pursuant to this Agreement, and Ullico
hereby agrees that its rights of first refusal and co-sale set forth in Section
4 of the Stockholders Agreement shall not apply to the Shares of Common Stock
sold to the Lerner Entity and the Plumbers pursuant to this Agreement.
7.18 Participation Agreement and Related Indemnification. Each
Selling Stockholder, jointly and severally, covenants and agrees that if any
transfer of shares of Common Stock held by any Investor would be restricted by
virtue of the application of the provisions of that certain Participation
Agreement dated October 31, 1997 executed by each Selling Stockholder,
if applicable, such Selling Stockholder shall not transfer or shall purchase
from such Investor (on the terms proposed by such Investor) such number of
shares of Common Stock so as to enable such Investor to transfer the full
number of shares of Common Stock it so desires to transfer. Each Selling
Stockholder, jointly and severally, covenants and agrees to defend, indemnify
and hold harmless each Investor and each Person who controls such Investor
within the meaning of the Securities Act from against any and all Damages
arising out of or resulting from the failure of any Selling Stockholder to
perform or observe fully its covenants and agreements contained in this Section
7.18 or arising out of or resulting from that certain such Participation
Agreement or any attachment thereto.
<PAGE>
[SIGNATURE PAGE OF STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed by their respective duly authorized officers as of the day
and year first above written.
UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By:____________________________________
<PAGE>
[SIGNATURE PAGE OF STOCK PURCHASE AGREEMENT]
UNITED ASSOCIATION OF JOURNEYMEN
AND APPRENTICES OF THE PLUMBING AND
PIPEFITTING INDUSTRY OF THE UNITED
STATES AND CANADA, GENERAL FUND
By:____________________________________
THE ANNETTE M. AND THEODORE N.
LERNER FAMILY FOUNDATION
By:____________________________________
------------------------------------
Craig A. Winn
Address: 3420 Cesford Grange
Keswick, VA 22947
------------------------------------
Rex Scatena
Address: 580 Milford Road
Earlysville, VA 94599
<PAGE>
ANNEX A
COMMON STOCK PURCHASED BY INVESTORS
Name/Address Number of
Shares
=======================================================================
Union Labor Life Insurance Company 77,742
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Telecopier: (202) 682-7932
United Association of Journeymen and 89,478
Apprentices of the Plumbing and Pipefitting
Industry of the United States and Canada,
General Fund
901 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Telecopier: (202) 628-5024
The Annette M. and Theodore H. Lerner 38,773
Family Foundation
11501 Huff Court
North Bethesda, MD 20895
Telecopier: (301) 770-0144
<PAGE>
ANNEX 7.16
LOCK-UP AGREEMENT FOR
DIRECTORS, OFFICERS AND SECURITYHOLDERS
OF VALUE AMERICA, INC.
BANCAMERICA ROBERTSON STEPHENS
As Lead Representative of the several Underwriters
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
The undersigned understands that you, as lead
representative of the several underwriters (the "Underwriters"), propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") with Value
America, Inc. (the "Company") and certain Selling Stockholders (as defined in
the Underwriting Agreement) providing for the initial public offering (the
"Public Offering") by the Underwriters, including yourselves, of the
Company's common stock, no par value, (the "Common Stock") pursuant to a
Registration Statement of Form S-1 (the "Registration Statement") to be filed
with the Securities and Exchange Commission. This letter agreement shall
terminate and be of no further force and effect either (i) upon a decision by
BancAmerica Robertson Stephens or the Company not to proceed with the Public
Offering, or (ii) if the Registration Statement is not filed with the Securities
and Exchange Commission by July 15, 1998.
In consideration of the Underwriters' agreement to purchase
and make the Public Offering of the Common Stock, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
undersigned hereby agrees that the undersigned will not, for a period commencing
on the date hereof and continuing thereafter until 180 days after the date of
the final prospectus for the Public Offering (the "Lock-Up Period"), offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to (collectively, a "Disposition") any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock
(collectively, "Securities") now owned or hereafter acquired directly by the
undersigned or with respect to which the undersigned has or hereafter acquires
<PAGE>
the power of disposition, otherwise than (a) as a bona fide gift or a
distribution to limited partners, members or shareholders of the undersigned,
provided that the donees or distributees thereof (as the case may be) agree in
writing to be bound by the terms of this Lock-Up Agreement, (b) as a bona fide
pledge or, upon foreclosure of such pledge, to the pledgee, provided that the
pledgee agrees to be subject to the transfer restrictions herein to the same
extent as the undersigned, or (c) with the prior written consent of BancAmerica
Robertson Stephens. The foregoing restriction is expressly agreed to preclude
the holder of the Securities from engaging in any hedging or other transaction
which is designed to or reasonably expected to lead to or result in a
Disposition of securities during the Lock-Up Period, even if such Securities
would be disposed of by someone other than the undersigned. Such prohibited
hedging or other transactions include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from the Securities. Notwithstanding the foregoing, this Lock-Up
Agreement does not prohibit (i) the sale of shares of Common Stock by the
undersigned to the Underwriters in the Public Offering or (ii) resales of shares
of Common Stock acquired by the undersigned in the Public Offering or in
subsequent open-market purchases. The undersigned hereby agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of the Securities held by the undersigned except in
compliance with this Lock-Up Agreement.
Date: _____________________, 1998
Very truly yours,
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 8, 1998, relating to
the financial statements of Value America, Inc., which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PricewaterhouseCoopers LLP
Falls Church, VA
July 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
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10,481,084
0
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