AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1999
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)
VIRGINIA
(State or other jurisdiction
of incorporation or organization)
5999
(Primary Standard
Industrial Classification Code Number)
33-0712568
(I.R.S. Employer
Identification Number)
VALUE AMERICA, INC.
1550 INSURANCE LANE
CHARLOTTESVILLE, VIRGINIA 22911
(804) 817-7700
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
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DEAN M. JOHNSON
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
VALUE AMERICA, INC.
1550 INSURANCE LANE
CHARLOTTESVILLE, VIRGINIA 22911
(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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GARY D. LECLAIR, ESQ. MARK L. JOHNSON, ESQ.
BRADLEY A. HANEBERG, ESQ. JOHN D. HANCOCK, 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 PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED TO BE REGISTERED (1) PER SHARE PRICE (2) REGISTRATION FEE
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Common Stock, without
par value per share .............. 5,750,000 shares $ 17.00 $97,750,000 $27,175
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(1) Includes 750,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
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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>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 21, 1999
[VALUE AMERICA LOGO]
5,000,000 SHARES
COMMON STOCK
Value America, Inc. is offering 5,000,000 shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol "VUSA." We anticipate that the initial
public offering price will be between $15.00 and $17.00 per share.
---------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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PER SHARE TOTAL
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Public offering price .......................... $ $
Underwriting discounts and commission .......... $ $
Proceeds to Value America, Inc. ................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
We and two of our executive officers have granted the underwriters a
30-day option to purchase up to an additional 750,000 shares of common stock to
cover over-allotments.
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BANCBOSTON ROBERTSON STEPHENS
VOLPE BROWN WHELAN & COMPANY
THE ROBINSON-HUMPHREY COMPANY
THE DATE OF THIS PROSPECTUS IS , 1999.
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[Reproduction of page from Value America Web site showing logos of
products
"Value America - We're known by the company we keep. . . " appears at top
of page.
Guide words "File," "Edit," "View," "Go," Favorites" and "Help" appear on
the next line.
Guide words "Back," "Forward," "Stop," "Refresh," "Home," "Search,"
"Favorites," "History," "Channels," "Fullscreen" and "Mail," together with
icons, appear on the next line.
The words "Address" and "http://www.valueamerica.com" appear on the next
line.
In the principal portion of the page, the ValueAmerica logo appears in the
upper lefthand corner, followed by "Wish List," "Servant," "Search," "Brand
Menu," "Hot Buys" and "Main Menu," together with icons. The caption "We're
known by the company we keep..." is centered above logos containing the
following:
IBM Business Computers
Hewlett-Packard (Expanding Possibilities)
Amana
3Com US Robotics
Samsung
Panasonic
Canon
Philips Magnavox
GE Appliances
Fujifilm
Weber
Microtek
DeLonghi
Pendaflex
Compaq
Epson
zenith
Microsoft
Kensington
Hoover
Casio
Sentry
Olympus
Bushnell
At-A-Glance
Singer
Avery
Weiser Lock
Delta
Adobe
3M
Fellowes
Crest
Seiko
Verbatim
brother
BIC
Rolodex
KitchenAid
West Bend
Imation
Day-Timer
Lexmark
Toshiba
Sony
Braun
Quartet
Technics
Peerless
shopovac (the only thing more powerful is our name)
Ram Golf
Iomega
Sharp
Pulsar
Oki
Duracell
Kodak
Pampers
3DO
ACCO Brands
Acer
Acme United
ActiVision
Adams
Adams
adaptec
adidas
Air
Alka-Setzer
All-Star
The phrases "The company we keep" and "Internet zone" appear at the bottom of
the page.]
<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 800 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 multi-media presentations
communicate each product's features and benefits.
SHOPPING SMARTER
The Value America Web site is a fast, easy, and smart way to shop.
Multi-media product presentations help customers make better buying decisions.
[Photograph depicting individuals using computer]
50 MILLION LOCATIONS. THERE'S ONE NEAR YOU.
The Value America store can be reached at www.valueamerica.com or
www.va.com from any Internet-enabled computer. Customers can shop from their
homes or offices, 24 hours a day, 7 days a week. [Simulation of screen from the
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 makes checkout faster and easier.
[Simulation of screen from the Value America Web site]
BRAND LOYALTY
Over 800 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 the Value America Web site]
SHOP 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
The Value America store is not a collection of static catalog Web pages.
Everything is dynamically pulled together for each individual customer from a
database using Value America's proprietary authoring and administration
software. [Simulation of screen from the Value America Web site]
BE SELECTIVE
Broad product assortment means that customers can make the right choice,
because they actually have a choice! [Simulation of screen from the Value
America Web site]
REASONS TO BUY
Value America's multi-media 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 the Value America Web
site]
MULTI-MEDIA SHOPPING
Product presentations are researched and written by Value America's
marketing team. The presentations include copy, photographs and illustrations.
Many include automatically-launched audio streams. Some even contain a video
demonstration, streamed in real time. [Photograph of television, with caption
"Projection Televisions"]
<PAGE>
PRODUCT PURCHASING INFORMATION
Each presentation ends with a list of the products, along with their
specifications, features, prices, 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. [Simulation of
screen from Value America Web site]
OUR FIRST NAME IS VALUE
Value America's customers enjoy the benefits of its low overhead and
aggressive pricing.
VALUE DOLLARS
When members make purchases, they gain credit toward further purchases.
Known as "Value Dollars," this credit is an average of one percent of every
purchase. The credit is applied to a member's next purchase -- the amount is
deducted from the price. Value Dollars encourage frequent visits and increase
customer value. [Drawing of coins]
BUYING IS EASY
The "Personal Shopper" holds customers' selections until they are ready to
check out. The Personal Shopper 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]
DELIVERING THE GOODS
When a product is purchased at the Value America store, the item is
shipped directly to the customer's designated shipping address. Value America'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 delivers the purchase order electronically. [Picture depicting delivery]
[Drawing of butterfly]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS
OR OF ANY SALE OF COMMON STOCK. IN THIS PROSPECTUS, "VALUE AMERICA," "WE," "US"
AND "OUR" REFER TO VALUE AMERICA, INC.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION 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 ......................................................................... 8
Use of Proceeds ...................................................................... 18
Dividend Policy ...................................................................... 18
Capitalization ....................................................................... 19
Dilution ............................................................................. 21
Selected Financial Data .............................................................. 23
Management's Discussion and Analysis of Financial Condition and Results of Operations 24
Business ............................................................................. 31
Management ........................................................................... 48
Certain Transactions ................................................................. 60
Principal Stockholders ............................................................... 62
Description of Capital Stock ......................................................... 64
Shares Eligible for Future Sale ...................................................... 70
Underwriting ......................................................................... 71
Legal Matters ........................................................................ 73
Experts .............................................................................. 73
Where You Can Find More Information .................................................. 73
Index to Financial Statements ........................................................ F-1
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VALUE AMERICA is our registered service mark. All other service marks,
trademarks or trade names referred to in this prospectus are the property of
their respective owners.
3
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SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.
OUR COMPANY
Value America is an Internet retailer offering a wide selection of
technology, office and consumer products through our online store at
WWW.VALUEAMERICA.COM and WWW.VA.COM. We sell brand name goods from
manufacturers in many industries, including goods from Hewlett-Packard, IBM,
Olympus, Panasonic and Weber. Customers can take advantage of our online store
format by shopping at their convenience and purchasing brand name products at
value prices. Our store features information-rich, multi-media product
presentations that help consumers make informed buying decisions. Manufacturers
can benefit from these presentations because the features and benefits of their
products are communicated directly to consumers. Our store provides
manufacturers with ready access to the large and growing base of online
consumers. We promote our online store in newspapers, magazines, direct
mailings, and television and radio commercials, as well as through Internet
portals. We earn revenues principally from the sale of products. We also
receive revenues from manufacturers for the creation of product presentations
for our online store.
OUR INDUSTRY
In recent years, a number of companies have introduced 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 a broad selection of merchandise in a single industry.
Volume discount retailers such as Sam's Wholesale Club and Price/Costco
generally seek to attract customers by offering very low prices on a limited
selection of products and with little or no traditional retail service. In
order to remain competitive, many traditional retailers have responded by
lowering prices and seeking to reduce costs by offering lower quality
merchandise and employing fewer and less experienced customer service and sales
employees.
The market for electronic commerce is large and growing, and electronic
commerce has the potential to further alter the competitive environment in the
retailing industry. One industry research firm estimates that the total value
of goods and services purchased over the Internet by individuals, businesses
and governmental agencies ranged between $55 billion and $80 billion in 1998
and projects this market may grow to between $1 trillion and $2 trillion by
2002. Sales of technology, office and consumer products are generating
significant online revenues for retailers such as Dell Computer and Amazon.com.
Unlike traditional retailers, online retailers are not limited by the
constraints of real estate selection, store construction or shelf space.
Internet retailers can react quickly and cost-effectively to change product
descriptions, pricing and mix. We believe that the unique nature of the
Internet provides online stores such as Value America with the ability to offer
a compelling retail solution by furnishing consumers with:
o high quality goods at lower prices;
o convenient in-home or in-office access 24-hours-a-day, 365-days-a-year;
o increased product selection; and
o detailed information about product features, benefits and applications.
4
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OUR STRATEGY
We believe that our strategy of using traditional off-line media to
generate online sales enables us to reach a broader audience and rapidly build
the Value America brand name. In addition, by offering a selection of over 800
brands, we believe that we can leverage the large advertising and promotional
investments of brand name manufacturers to generate product sales through our
online store.
Our objective is to create the leading online store for technology, office
and consumer products. In order to achieve this objective, we are:
o initially emphasizing the sale of technology and office products;
o moving rapidly into the business-to-consumer market;
o expanding our brand offerings;
o continuing to enhance our customers' online shopping experiences; and
o developing and expanding direct response marketing campaigns and
strategic business relationships.
OUR ADDRESS
We incorporated in March 1996 in the State of Nevada and reincorporated in
October 1997 in the Commonwealth of Virginia. Our principal executive offices
are located at 1550 Insurance Lane, Charlottesville, Virginia 22911, and our
telephone number is (804) 817-7700.
THE OFFERING
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Common stock offered by Value America ...................... 5,000,000 shares
Common stock to be outstanding after this offering ......... 42,934,862 shares
Use of proceeds ............................................ Working capital and other general
corporate purposes, including advertising
and promotion, development of system
enhancements, expansion of facilities, and
potential acquisitions of complementary
businesses and technologies.
Proposed Nasdaq National Market symbol ..................... VUSA
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on shares outstanding as of January 20, 1999. This number excludes:
o 4,361,825 shares issuable upon the exercise of stock options outstanding
as of January 20, 1998 at a weighted average exercise price of $3.80 per
share;
o 2,902,913 shares issuable upon the exercise of warrants outstanding as of
January 20, 1998 at a weighted average cash exercise price of $7.85 per
share (based on warrant terms that will apply if the trading price of the
common stock is $14.00 or more on or before December 31, 1999, as further
described under "Description of Capital Stock -- Warrants"); and
o 1,888,175 shares reserved for issuance under our stock incentive plan.
5
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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PERIOD FROM
INCEPTION NINE MONTHS ENDED
(MARCH 13, 1996) SEPTEMBER 30,
THROUGH YEAR ENDED ----------------------------
DECEMBER 31, 1996 DECEMBER 31, 1997 1997 1998
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STATEMENT OF OPERATIONS DATA:
Total revenues .................................. $ -- $ 134 $ 5 $ 22,483
Total cost of revenues .......................... 97 486 192 22,153
Gross profit (loss) ............................. (97) (352) (187) 330
Total operating expenses ........................ 331 1,519 662 28,507
Operating income (loss) ......................... (428) (1,871) (849) (28,177)
Other income (expense), net ..................... 3 18 (3) 229
Net loss ........................................ (425) (1,853) (852) (27,948)
Net loss per share -- basic and diluted ......... $ (0.02) $ (0.09) $(0.04) $ (1.49)
Weighted average number of shares --
basic and diluted .............................. 22,500 22,616 22,520 23,153
</TABLE>
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<CAPTION>
SEPTEMBER 30, 1998
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents ...................... $ 1,556 $101,435 $174,335
Working capital (deficit) ...................... (5,164) 94,714 167,614
Total assets ................................... 13,995 113,874 186,774
Long-term debt ................................. 50 50 50
Mandatorily redeemable preferred stock ......... 33,232 -- --
Total stockholders' (deficit) equity ........... (35,135) 97,976 170,876
</TABLE>
In the Pro Forma column, we have adjusted the Actual numbers to reflect
the following events that have occurred since September 30, 1998:
o the issuance of $34.0 million principal amount of notes payable and
related warrants, which occurred between October 1998 and January 1999,
o the issuance of 645,200 shares of common stock and related warrants at
$10.00 per share, which occurred in December 1998, and
o the issuance of 6,000,000 shares of convertible preferred stock and
related warrants at $10.00 per share, which occurred in January 1999.
We have further adjusted the Actual numbers to reflect the following events
that will occur immediately prior to the closing of this offering:
o the conversion of all of the outstanding shares of our convertible
preferred stock into 10,737,162 shares of common stock,
o the conversion of warrants resulting in the cancellation of the $34.0
million principal amount of notes payable and the issuance of 3,400,000
shares of our common stock, and
o the payment of approximately $573,000 of accrued preferred stock
dividends.
See "Capitalization" and notes 5 and 13 of notes to financial statements.
In the Pro Forma as Adjusted column, we have further adjusted the Pro
Forma numbers to give effect to our sale of the shares of common stock in this
offering at an assumed initial public offering price of $16.00 per share and to
our receipt and application of the estimated net proceeds of this offering. See
"Use of Proceeds."
We have engaged an independent appraiser to determine the value of the
warrants we issued in conjunction with our issuances of convertible preferred
stock and notes payable since September 30, 1998. We will use this
6
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valuation to help us allocate the purchase prices, on a fair value basis, among
the warrants, convertible preferred stock and notes payable. We expect the
appraiser's report will be completed by mid-February 1999. We anticipate that
the interest expense from the amortization of the resulting debt discount will
have a material effect on our net loss in the quarter and year in which this
offering is completed, and that the accretion of the discount from the
redemption value for the convertible preferred stock will have a material
effect on our net loss available for common stockholders in the quarter and
year in which this offering is completed. This amortization and accretion will
not affect our cash flows or stockholders' equity.
7
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE
REMAINDER OF THIS PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION.
WE MAY NOT ACHIEVE PROFITABILITY
We may never generate significant revenues or be profitable. Since we
began operations in January 1997, we have incurred significant start-up and
other expenses. These expenses have included the costs of additional employees
and new equipment, the development of our technology, and the implementation of
our sales and marketing program. We have incurred substantial losses as a
result of these expenses. In the first three quarters of 1998, we incurred a
net loss of $27.9 million, and in 1997 we incurred a net loss of $1.9 million.
At September 30, 1998, we had an accumulated deficit of $35.4 million.
We intend to continue to invest heavily in marketing, advertising and
promotion, increase the number of our employees, and develop our technology and
operating infrastructure. As a result, we expect to continue to incur
substantial losses for the foreseeable future. Our product gross margins are
small or sometimes negative, and we will not become profitable unless we
significantly increase purchases from our online store at acceptable gross
margins. To generate substantial revenues and achieve significant
profitability, we must, among other things:
o implement and successfully execute our unproven business model;
o establish name recognition and a reputation for value with consumers;
o improve the effectiveness of our advertising;
o manage fulfillment operations electronically;
o develop the technology underlying our online store;
o provide effective customer support;
o anticipate and adapt to a developing market;
o develop business relationships with merchandise manufacturers; and
o hire, motivate and retain skilled employees.
OUR QUARTERLY RESULTS ARE UNPREDICTABLE AND MAY FLUCTUATE SIGNIFICANTLY
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. If our quarterly revenues
or operating results fall below the expectations of investors or public market
analysts, the price of our common stock could fall significantly.
We incorporated in March 1996 and began operating in January 1997. Thus,
our track record in the electronic commerce market is short. We did not begin
our sales and marketing program until January 1998. Since that time, we have
modified our operations and substantially varied our monthly advertising
expenditures. As a result, we have only a limited basis on which to evaluate
the effect of these changes on our revenues. In evaluating our business
prospects, you should also consider that the electronic commerce market is new
and rapidly developing. As a result of our limited operating history and the
emerging nature of the electronic commerce market, we cannot accurately predict
our revenues.
We have based our current and budgeted expense levels on our investment
plans and our estimates of future revenues. To a large extent, with the
exception of advertising expenditures, our expenses are fixed. Our sales and
operating results generally depend on the timing and volume of orders and our
ability to fulfill those orders. These factors are difficult to forecast. We
may be unable to adjust spending in time to compensate for any unexpected
revenue shortfall. We may also need to adjust our prices, services and
marketing plans in response to changes in the competitive environment. For
example, in the third quarter of fiscal 1998, we wrote down our inventory by
approximately $350,000 due to competitive pricing pressure. Any significant
shortfall in revenues or unexpected changes could seriously harm our business.
8
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Other factors, many of which are outside of our control cause variations
in our quarterly revenues and operating results. Some of these factors are:
o the level of use and consumer acceptance of the Internet and other online
services for the purchase of technology, office and consumer products;
o the announcement or introduction of new Web sites, services and products
by us or our competitors;
o the level of traffic on our Web site;
o price competition or higher vendor prices for the types of products we
offer;
o our ability to upgrade and develop our systems and infrastructure;
o the occurrence of technical difficulties, systems downtime or Internet
"brownouts;"
o the amount and timing of operating costs and capital expenditures
relating to the expansion of our business and infrastructure;
o delays in revenue recognition at the end of a fiscal period as a result
of shipping or logistical problems;
o the level of merchandise returns we experience;
o the level and nature of our sales and marketing initiatives;
o our ability to attract new personnel in a timely and effective manner;
o governmental regulation; and
o general economic conditions.
WE ARE IN AN EARLY STAGE OF DEVELOPMENT AND MUST SUCCESSFULLY MANAGE FUTURE
GROWTH
Our early stage of development and our recent rapid growth are placing a
significant strain on our managerial, operational and financial resources.
During 1998, the number of our full-time employees increased from 30 to 227. In
order to be successful, we must effectively manage a number of risks associated
with our targeted growth:
WE MUST BROADEN OUR PRODUCT OFFERINGS
The success of our business model depends upon our ability to offer
customers a complete selection of brand name products in a wide variety of
product categories. To be successful, we must further broaden our product
selection in a number of categories. We may be unable to establish or maintain
relationships with vendors that will enable us to offer a complete selection of
brand products in all categories. Our failure to offer a satisfactory product
selection could seriously harm our business.
WE MUST MAINTAIN AND UPDATE OUR FINANCIAL SYSTEMS
Our rapid growth to date has challenged our management's ability to ensure
that our financial systems keep pace with such growth. In connection with their
audit of our financial statements for the three months ended March 31, 1998,
our independent accountants advised us of a significant deficiency in our
internal control structure resulting from our inability to determine product
shipment dates and order statuses on a timely basis. This deficiency may have
made it difficult for us to produce accurate financial reports on a timely
basis. Because we initially focused our development efforts on areas necessary
to support rapid growth, we did not sufficiently develop our accounting,
control and reporting systems until later in 1998, and consequently our
financial systems required significant manual effort during the first three
fiscal quarters of 1998. While we have taken steps that we believe address
these situations, continued rapid growth, changes in our business model or the
addition of a significant number of new or revised business relationships will
present additional challenges and could require further modification of our
accounting and reporting systems. Any breakdown or deficiencies in our
financial and control systems could cause unplanned costs and inaccurate
financial reporting, the results of which could include damaged credibility
with investors and litigation against us. Moreover, if we fail to maintain an
effective system of internal controls, the Securities and Exchange Commission
may seek to deregister and thereby suspend the trading of our common stock.
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WE MUST IMPROVE OUR OPERATIONAL SYSTEMS
In order for us to be successful, the number of purchases from our online
store must increase significantly. To support such an increase, we must
maintain and improve automated systems to track the delivery of products from
vendors to customers, provide additional customer service and efficiently
handle product returns. If we fail to maintain and improve these systems,
system disruptions and slower response times may lead to reductions in the
quality of our customer service and lower the speed of our product fulfillment.
We use an internally developed system for our Internet site, product
presentations and substantially all aspects of order fulfillment, including
order management, purchasing and shipping. This order fulfillment system has
only recently been integrated into our accounting system. In addition, we must
successfully integrate into our existing system any new modules that we develop
or purchase.
Our success depends upon our ability to continue to automate certain types
of business transactions. Our agreements with product vendors generally require
us to place product orders through electronic data interchange, or EDI. As of
December 31, 1998, we had established one-way EDI connections with our high
volume vendors, which collectively accounted for approximately 90% of our
revenues in 1998. We have not yet integrated other vendors onto our EDI
platform, and we may not be able to integrate all of our current and
prospective vendors. Any failure to establish and use reliable EDI-only
connections with vendors could cause delays in product ordering, shipping,
confirmations and fulfillment. Any such delay could lead to customer
dissatisfaction and could harm our business.
WE MUST INCREASE OUR CUSTOMER SERVICE CAPABILITIES
In 1998, a significant portion of our business was dependent upon
telephone ordering, telephone support and e-mail replies to customer questions.
We must continue to improve our capability to provide these types of customer
service. We have had periods during which our employees were unable to meet
targeted response times for customer service calls or questions. We must
continue to improve our customer service department so that it can respond
satisfactorily to the needs of our customers. The failure to continue to
improve our customer service department could cause customers to take their
business elsewhere, damage our reputation and otherwise seriously harm our
business.
WE MUST ENSURE THE AVAILABILITY OF OUR ONLINE STORE
Because our revenues depend on the number of customers who shop at our
online store and the volume of orders we fulfill, a key element of our strategy
is to generate a high volume of traffic through, and purchases from, our online
store. To attract and retain customers, we must ensure that our customers have
ready access to our online store and that our online store, transaction
processing systems and computer systems perform reliably and to our customers'
satisfaction. Any network interruptions or other computer system shortcomings,
such as inadequate capacity, could prevent customers from accessing our online
store, reduce our ability to fulfill orders, reduce the attractiveness of our
product offerings, and seriously damage our reputation. We have experienced
brief computer system interruptions in the past, and we believe that these
interruptions may recur from time to time. Interruptions that prohibit the
proper operation of our online store could reduce the number of products sold,
damage our reputation and cause customer dissatisfaction. If we experience
substantial increases in the volume of traffic through our online store or in
the number of orders that our customers place, we will need to further expand
and upgrade the technology underlying our online store. We may be unable to
predict accurately changes in the volume of customer traffic and orders. As a
result, we may be unable to expand and upgrade our systems and infrastructure
in time to avoid system interruptions.
We currently locate all of our computer and communications equipment at
two sites, both of which are located in Charlottesville, Virginia. Our computer
and communications equipment is vulnerable to interruption or damage from fire,
flood, prolonged power loss, telecommunications failure and earthquake in
Charlottesville. Some of the components of our computer and communication
systems do not have immediate automatic backup equipment. A failure of any of
these components could result in down time for our online store and, as a
result, could seriously harm our business. Our property damage and business
interruption insurance may not protect us completely from any loss that we may
suffer.
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Despite our efforts to create a secure system, our computer and
communications systems are also vulnerable to computer viruses, physical or
electronic break-in and other disruptions. These problems could lead to
interruptions, delays, loss of data or the ineffective operation of our online
store. Any of these outcomes could seriously harm our business.
WE DEPEND ON MANUFACTURERS, VENDORS AND OTHER THIRD PARTIES
We are entirely dependent upon manufacturers and distributors to provide
merchandise for sale in our online store. For the nine months ended September
30, 1998, goods manufactured by IBM represented approximately 68% of our net
sales. During the same period, goods manufactured by Hewlett-Packard
represented approximately 11% of net sales. We may be unable to maintain our
existing relationships with product vendors on acceptable commercial terms. We
may not be able to establish similar relationships with vendors of products
that our customers want but that we do not currently offer.
We rely on product vendors to fulfill a number of traditional retail
functions, such as maintaining inventory, accepting product returns and
preparing merchandise for shipment to individual customers. Our vendors may not
be willing to provide these services at competitive rates. In addition, vendors
may refuse to develop the communication technology necessary to support our
direct shipment infrastructure, and we have no effective means to ensure that
our vendors perform these services to our satisfaction. If we or our vendors
fail 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, our customers could become dissatisfied and
cancel their orders or decline to make future purchases. Our product vendors
have no obligation to make any products available for sale to our customers.
Further, product vendors may terminate their relationships with us at any time
and without penalty. Because we have not established regular purchasing
patterns with most of our product vendors, a vendor with limited inventory may
not give us any priority in allocating its available inventory. We cannot
always determine whether an item is available for sale before we accept an
order. Consequently, we may accept customer orders for certain products that we
are unable to provide on a timely basis.
We have long-term agreements to purchase certain types of office and other
products exclusively from certain vendors. These agreements do not obligate the
vendors to make merchandise available for sale in our online store, to continue
particular payment terms or to extend credit to us. These agreements may
preclude us from obtaining such merchandise on the best terms.
Our operations also depend heavily upon a number of other third parties,
including Internet service providers and product delivery services. We cannot
control the actions of these third parties, and we do not have long-term
contractual relationships with any of them. For example, we rely on MCI
WorldCom to connect our online store to the Internet. We could experience
temporary interruptions in our connection to the Internet. Continuous or
prolonged interruptions in our connection to the Internet would seriously harm
our business. Our agreements with our Internet service providers limit our
ability to obtain recompense from them for their failure to maintain our
connection to the Internet. We also use third-party delivery services,
including United Parcel Service and Roadway, to deliver all of our products to
our customers. Increases in our delivery costs or inefficient delivery as a
result of strikes or other reasons could seriously harm our business.
In connection with our sale of shares of preferred stock to The Union
Labor Life Insurance Company in December 1997, we agreed to use
union-represented delivery services unless they are not reasonably available.
This agreement may limit our ability to use the most cost-effective or readily
available delivery services. See "Business -- Order Fulfillment."
WE HAVE RECENTLY MADE PUBLIC STATEMENTS UPON WHICH YOU SHOULD NOT RELY
On January 19, 1999, William L. Hunt III, a Vice President -- Merchandise,
made several statements relating to our recent growth and comtemplated initial
public offering to a meeting of manufacturers. These statements were
subsequently reported by Dow Jones Online News on January 19, 1999. These
statements included assertions that (a) we were then in registration and
intended to file a registration statement with the Securities and Exchange
Commission in the near future, (b) our growth in sales doubled that of other
electronic commerce retailers and (c) our online store would include the
products of ten to twelve footwear vendors within a two week period.
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While we had begun the registration process at the time of Mr. Hunt's
statement, we had not filed a registration statement at that time. The
statements relating to our growth in sales and number of footwear vendors
cannot be validated by us. We and the underwriters disclaim all of the
statements made by Mr. Hunt, and you should not rely on any of them in
evaluating an investment in shares of our common stock.
WE MAY NEED ADDITIONAL FINANCING
To date, we have funded our business primarily by selling our securities
to investors. Since January 1, 1998, we have raised $119.3 million from the
sale of our equity and debt securities. We may need to raise additional funds
through public or private financings after the date of this offering. We may
not be able to obtain sufficient additional financing on favorable terms, or at
all. If we raise additional funds by selling our equity securities, the
relative ownership of our existing investors could be diluted or the new
investors could obtain terms more favorable than those of our existing
investors. If we raise additional funds through debt financing, we could incur
significant borrowing costs and the borrowing arrangements could prevent us
from, among other things, making distributions to our stockholders. If we
cannot obtain sufficient financing, we may have to delay, reduce or eliminate
our marketing and promotion campaign, which could seriously harm our business.
WE DEPEND ON THE SERVICES OF A NUMBER OF KEY PERSONNEL
We depend heavily on the continued services and performance of our current
senior management and other key personnel. In particular, we rely on the
services of:
o Craig A. Winn, our Chairman and Chief Executive Officer;
o Glenda M. Dorchak, our President and Chief Operating Officer;
o Dean M. Johnson, our Executive Vice President, Chief Financial Officer
and Secretary;
o Joseph L. Page, our Executive Vice President -- Engineering and Chief
Technology Officer;
o Rex Scatena, our Executive Vice President -- Business Development;
o Richard L. Gerhardt, our President -- Consumer Products Division;
o Jerry K. Goode, our Vice President -- Engineering and Chief Information
Officer; and
o Marcus F. Nucci, our Vice President -- Systems Development.
While we have entered into employment agreements with these individuals, these
agreements may be terminated by the employees at any time without penalty. The
loss of the services of any of these individuals could seriously harm our
business.
In order to achieve our business objectives, we must hire additional
personnel to fill certain key managerial positions. Our future success will
depend upon the ability of our current executive officers to establish clear
lines of responsibility and authority, to work effectively as a team, and to
gain the trust and confidence of our other employees. We must also identify,
attract, train, motivate and retain other highly skilled, technical,
managerial, merchandising, engineering, accounting, marketing and customer
service personnel. We compete intensely for such personnel and we may be unable
to achieve our personnel goals.
CUSTOMERS MAY NOT BE WILLING TO USE THE INTERNET TO PURCHASE GOODS
Our long-term future depends heavily upon the general public's willingness
to use the Internet as a means to purchase goods. Internet commerce is a new
concept, and we cannot assure you that large numbers of customers will begin or
continue to use the Internet to purchase goods. The demand for and acceptance
of products sold over the Internet are highly uncertain, and few Internet
commerce businesses have more than a short track record. Consumers have
traditionally traveled to stores or used mail-order catalogs to purchase goods.
For our business to develop profitably, both manufacturers and consumers must
be willing to use the Internet to conduct business and exchange information.
The Internet may not succeed as a medium of commerce because of delays in
developing elements of the needed Internet infrastructure, such as a reliable
network, high-speed modems, high-speed communication lines and other enabling
technologies. Moreover, the number of Internet users has been increasing
dramatically
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in the recent past. The Internet may not expand effectively to meet new levels
of demand. In addition, delays in the development or adoption of new standards
and protocols or increased governmental regulation could stop or delay the
growth of the Internet as a means to purchase goods and services. The use of
the Internet for commercial purposes raises additional considerations that may
adversely affect the growth of the Internet. These considerations include
security, reliability, accessibility and quality of service. These
considerations have not been, and may never be, resolved to the satisfaction of
many potential Internet customers. The failure of the Internet to develop into
an effective commercial tool as a result of any of these factors would
seriously harm our business.
THE ELECTRONIC COMMERCE INDUSTRY IS EXTREMELY COMPETITIVE
The electronic commerce industry is new, rapidly evolving and extremely
competitive. We expect competition in our industry to increase. Barriers to
entry into the electronic commerce market are relatively low. Moreover, all of
the products that we sell in our online store are available through traditional
retail outlets. Accordingly, we must compete with both companies in the
electronic commerce market and in the traditional retail industry. Our
competitors or potential competitors include:
o online retailers that specialize in a limited variety of products,
including Amazon.com, Buy.com, CDNow, Cyberian Outpost, Dell Computer and
Gateway International;
o online retailers that offer a broad selection of products, including
Cendant, Internet Shopping Network, iQVC, ONSALE and Wal-Mart Online;
o other online companies that offer centralized access to a broad selection
of products, including eBay and iMall;
o indirect competitors that generate a substantial portion of their
revenues from electronic commerce, including America Online, Excite,
Infoseek, Lycos, Microsoft and Yahoo!;
o mail order catalog operators, including Lands' End, Micro Warehouse,
Sharper Image, Spiegel and Williams-Sonoma;
o retail and warehouse/discount stores, including Circuit City, Home Depot,
Office Depot, Price/Costco, Staples and Target; and
o other national and international retail, catalog, distribution and
manufacturing companies.
We believe that participants in our industry compete on the basis of
breadth of product selection, quality of product brands, price, convenience,
customer service, reliability and speed of order fulfillment. Most of our
competitors and potential competitors have longer operating histories, more
customers, greater brand recognition and substantially larger financial and
other resources than we do. Our competitors may receive investments from or
establish commercial or other business relationships with larger, well-financed
companies. Our competitors may be able to acquire merchandise from vendors on
more favorable terms. In addition, our competitors may be able to respond more
quickly to changes in customer preferences, spend more on marketing and
promotional campaigns, adopt more aggressive pricing and inventory policies,
and devote more resources to developing their online stores. For example, a
number of Internet companies offer search engines and other tools that locate
multiple vendors of particular products. The pervasive use of these search
engines could result in severe price competition. This level of competition
could seriously harm our business.
Some of our competitors have exclusive or semi-exclusive rights to sell
certain popular products. The number of these exclusive vendor relationships
could increase and could permit competitors to rapidly acquire a significant
portion of the market. In addition, companies that provide access to
transactions through network access or Web browsers could grant exclusive
access rights to our competitors or charge us substantial fees to obtain such
rights. New technologies may also increase the competitive pressures we face.
We cannot guarantee that we can compete effectively in this rapidly developing
market, and our failure to do so could seriously harm our business.
ELECTRONIC COMMERCE IS SUBJECT TO SECURITY RISKS
In order for the electronic commerce market to develop successfully, it
must be possible to transmit confidential information securely over public
networks. We have licensed encryption software to enable us to transmit and
receive confidential payment and other information securely over the Internet.
Despite our precautions, it is possible
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that third parties may have the technology or know-how to breach the security
of our customer transaction data. Any such breach could cause customers to lose
confidence in the security of our online store and could seriously harm our
business. If someone is able to circumvent our security measures, he or she
could destroy or steal valuable information or cause interruptions in the
operation of our online store. We expect that we will need to dedicate
substantial resources to our efforts to prevent or remedy any security breach.
Concerns about the security and privacy of transactions over the Internet could
inhibit the growth of the Internet and electronic commerce. We cannot guarantee
that our security measures will effectively prohibit others from obtaining
unlawful access to the information contained in our online store. Any security
breach could expose us to risks of loss, litigation and liability and could
seriously harm our business.
THE TECHNOLOGY OF THE INTERNET IS CHANGING RAPIDLY
The technology of the Internet and electronic commerce is evolving rapidly
for many reasons, including:
o customers frequently change their requirements and preferences;
o competitors frequently introduce new products and services; and
o industry associations and others create new industry standards and
practices.
These changes could render our existing online store obsolete. To be
successful, we must continually enhance and improve our online store. Our
future success will depend, in part, on our ability to:
o identify, select and obtain leading technologies useful in our business;
o enhance our existing services;
o develop new technologies that can address the increasingly sophisticated
needs of our customers and potential customers; and
o respond to technological advances and emerging industry standards in a
cost-effective manner and on a timely basis.
We cannot guarantee that we will successfully adapt our business to this
rapidly changing environment, and our failure to do so could seriously harm our
business.
WE MAY NEED TO COLLECT ADDITIONAL TAXES
We do not currently collect sales or other taxes for the sale of goods
into states other than Virginia. If we establish operations in other states, we
will need to collect sales and other taxes imposed by those states. Other
governmental authorities may seek to force us to collect taxes for sales into
the areas they control. Any of these taxes could discourage our customers from
making additional purchases through our online store. If several governmental
authorities seek to force us to collect and remit taxes, the administrative
burdens could be cumbersome and could adversely affect our business.
OUR PROPRIETARY TECHNOLOGY IS SUBJECT TO LIMITED PROTECTION
Our business could be seriously harmed if we are unable to adequately
protect our proprietary software and other proprietary intellectual property
rights. We rely on a combination of trade secret laws, nondisclosure agreements
and other contractual arrangements to protect our proprietary rights. We may be
unable to deter misappropriation of our proprietary information, detect
unauthorized use and take appropriate steps to enforce our intellectual
property rights. Our competitors could, without violating our proprietary
rights, develop technologies that are as good as or better than our technology.
We have registered the "Value America" service mark in the United States
for limited uses and have applied to register that service mark in the United
States for several other uses. Our applications could be denied. The legal
protection for these service marks that we are able to obtain may not be
sufficient for our business purposes. For example, other companies could use
the name "Value America" and similar names to identify their products and
services. Any such use could confuse our customers and impair our ability to
build our brand identity. If
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we are unable to protect the name "Value America" or any of the other names
that we use, our business could suffer serious harm.
Because the protection of intellectual property rights is often critically
important to the success of companies in our industry, our competitors or
others could assert claims that our technologies infringe their proprietary
rights. We cannot guarantee that we will have the resources to pursue any
resulting litigation to a final judgment or that we will prevail in such
litigation. In defending such litigation, we could incur significant legal and
other expenses and our management could be distracted from our principal
business operations. If any party making a claim against us were to prevail in
litigation against us, the court could issue a judgment that requires us to pay
substantial damages. The court could also grant injunctive or other equitable
relief that could prevent us from offering our products and services without a
license or other permission from others. Any of these outcomes could seriously
harm our business.
OUR MANAGEMENT AND DIRECTORS WILL CONTINUE TO CONTROL MOST OF OUR COMMON STOCK
After we complete this offering, our executive officers, directors and
director-nominees and related persons will control 79.2% of our outstanding
common stock. As a result, they will have significant influence over:
o the election of directors;
o the approval of any merger, consolidation or sale of substantially all
of our assets;
o the approval of any other matter requiring shareholder approval; and
o our affairs and policies.
This concentration of ownership could make it difficult to remove our
executive officers and directors. Our executive officers and directors could be
able to delay or prevent a change of control or a merger or other form of
takeover that our other stockholders might find attractive. This situation
could adversely affect the market price of our common stock.
WE ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The application of existing federal, state and other laws to the Internet,
particularly with respect to property ownership, the payment of sales taxes,
libel, and personal privacy, is uncertain and may take years to resolve.
Because the Internet and electronic commerce are becoming increasingly popular,
various governments may seek to adopt laws and regulations to control their
use. These laws and regulations, if adopted, could apply to privacy, pricing
and the characteristics and quality of products and services. The growth and
development of electronic commerce may prompt calls for more stringent consumer
protection laws. These laws may impose additional burdens on companies
conducting business over the Internet. The adoption of any of these laws or
regulations may decrease the growth of Internet usage, which, in turn, could
decrease the demand for our products, increase our costs or otherwise seriously
harm our business.
Several telecommunications carriers have asked the Federal Communications
Commission, or the FCC, to regulate telecommunications over the Internet.
Because the increasing use of the Internet has burdened the existing
telecommunications infrastructure, local telephone carriers have asked the FCC
to regulate Internet service providers and online service providers and impose
access fees on those providers. If the FCC grants these requests, the costs of
communicating on the Internet could increase substantially, which could slow
the growth in the use of the Internet. Any relief granted by the FCC could harm
our business.
In addition, U.S. and foreign laws regulate our ability to use customer
information and to develop, buy and sell mailing lists. New restrictions in
this area could adversely affect our business.
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
Many currently installed computer systems and software products only
accept two digits to identify the year in any date. Thus, the year 2000 will
appear as "00," which systems or products might interpret as 1900 rather
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than 2000. This could result in system failures, delays or miscalculations.
Computer systems and software that have not been developed or enhanced recently
may need to be upgraded or replaced to comply with Year 2000 requirements.
Our computer systems may not be fully Year 2000 compliant. Based on our
Year 2000 assessment program, we believe that the portions of our computer
systems that we developed are Year 2000 compliant. Our computer system also
uses third-party equipment and software which may not be Year 2000 compliant.
We are currently assessing the third-party equipment and software for Year 2000
compliance. We are currently unable to predict whether Year 2000 issues will
affect the operations of our customers or vendors. The failure of our computer
system or the computer systems of our vendors or Internet service providers
could cause us to incur significant expenses to remedy problems, could reduce
our revenues or could otherwise seriously damage our business. In particular,
most of our business is dependent upon purchases made with credit cards via the
Internet, and our business could suffer if credit card vendors do not
adequately address Year 2000 concerns.
We have not incurred significant costs to date complying with Year 2000
requirements. We expect to spend up to $250,000 in the future to ensure
compliance with Year 2000 concerns. If we discover significant Year 2000 errors
or defects, we could incur substantial costs and our operations could be
seriously disrupted.
SALES OF SHARES OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK
The market price of our common stock could drop as a result of sales of
large numbers of shares in the public market or in response to the perception
that such sales could occur. All of the 5,000,000 shares sold in this offering
will be freely tradable. The remaining 37,934,862 shares outstanding after this
offering will be "restricted securities" under applicable securities laws. All
of the holders of these restricted securities have agreed, with certain limited
exceptions, not to sell or otherwise transfer those shares until 180 days after
the date of this prospectus. BancBoston Robertson Stephens can release shares
from these "lock-up" agreements without our approval. When this 180-day period
expires, 28,103,412 of such shares will be eligible for immediate sale in the
public market and 9,831,450 of such shares will become eligible for sale at
various times in the future upon expiration of applicable holding periods
required by federal securities laws. Approximately 90 days after we complete
this offering, we intend to register for sale in the public market 6,250,000
shares of common stock that we have reserved for issuance under our stock
incentive plan. In addition, the holders of approximately 15,158,483 restricted
securities (including shares that we may issue upon exercise of warrants) can
require that we register those shares for sale in the public market.
APPLICABLE LAWS AND OUR CHARTER DOCUMENTS CONTAIN ANTI-TAKEOVER AND
INDEMNIFICATION PROVISIONS THAT MAY ADVERSELY AFFECT STOCKHOLDERS
Virginia corporate law contains, and our charter documents will contain,
certain provisions that could have the effect of delaying or preventing a
change of control or a merger or other form of takeover that our stockholders
might find attractive. See "Description of Capital Stock" for a discussion of
these provisions. Certain of these provisions:
o provide for a staggered board of directors, under which it would take
three successive annual meetings to replace all directors;
o restrict the ability of our stockholders to remove our directors; and
o require our stockholders to provide us advance notice if they intend to
nominate individuals to serve as directors or if they intend to propose
matters for our stockholders to act upon at a meeting.
These provisions could limit the price that investors will pay for shares of
our common stock.
Our charter documents require us to indemnify our executive officers and
directors against certain liabilities and expenses that they may incur while
defending lawsuits brought against them as executive officers or directors. In
most cases, these indemnification provisions will prevent our stockholders from
recovering damages from our executive officers and directors for their acts or
omissions on our behalf.
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THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK PRIOR TO THIS OFFERING
Before this offering, there has been no public market for our common
stock. An active trading market may not develop or be sustained after this
offering. The initial public offering price of our common stock will not be
determined by market forces; rather, it will be determined by negotiations
among the underwriters and us. Accordingly, the initial public offering price
may bear no relation to the price at which our common stock will trade in the
public market.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE EXTREMELY VOLATILE
The market price of our common stock may be extremely volatile for many
reasons, including:
o actual or anticipated variations in our revenues and operating results;
o announcements of the development of improved technology;
o the implementation of new sales formats by us or our competitors;
o changes in estimates of our financial performance by securities
analysts;
o conditions and trends in the Internet and electronic commerce
industries;
o adoption of new accounting standards; and
o general market conditions.
In recent months, the stock markets have experienced extreme price and
volume fluctuations that have dramatically affected the market prices of the
stocks of many Internet companies. These fluctuations have often 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 far above historical
market averages. This trend may end at any time without warning. These factors
may affect the market price of our common stock.
VOLATILITY IN OUR STOCK PRICE MAY LEAD TO SECURITIES LITIGATION
Stockholders frequently commence securities class action litigation
against companies following a significant decrease in the companies' stock
prices. If our stock price drops and our stockholders commence litigation
against us, we could incur significant legal and other expenses defending the
litigation and our management could be distracted from our principal business
operations. Either of these outcomes could seriously harm our business.
WE WILL HAVE BROAD DISCRETION IN HOW WE USE OUR PROCEEDS FROM THIS OFFERING
We expect to use our net proceeds from this offering for working capital
and other general corporate purposes, including potential acquisitions and
investments. Accordingly, we will have broad discretion in how we use our
proceeds from this offering. If we fail to apply these funds effectively, our
business could suffer serious harm.
PURCHASERS OF COMMON STOCK WILL EXPERIENCE IMMEDIATE DILUTION
If you purchase shares of our common stock in this offering, you will
suffer immediate dilution of $12.02 per share, measured in terms of our pro
forma net tangible book value and assuming an initial public offering price of
$16.00 per share. If outstanding options and warrants are exercised, you will
suffer additional dilution. See "Dilution."
WE DO NOT INTEND TO PAY DIVIDENDS
We intend to retain any future earnings to finance the growth and
development of our business. We do not intend to pay dividends in the
foreseeable future.
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USE OF PROCEEDS
The net proceeds to Value America from the sale of the 5,000,000 shares of
common stock offered hereby are estimated to be $72.9 million ($84.1 million if
the underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $16.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
Value America intends to use the net proceeds of this offering for working
capital and other general corporate purposes. Value America currently expects
to utilize a majority of the net proceeds in connection with its advertising
and promotional campaign. In the first nine months of fiscal 1998, Value
America spent approximately $18.4 million on advertising and promotional
expenses. Value America expects to increase its average monthly advertising and
promotional expenses significantly following the completion of this offering.
Value America also intends to use a portion of the net proceeds for the
development of system enhancements and the expansion of corporate facilities.
In the normal course of business, Value America evaluates potential
acquisitions of businesses and technologies that could complement or expand its
business. A portion of Value America's net proceeds may be used for one or more
of these acquisitions. Value America has no present understandings, commitments
or agreements, and is not currently engaged in any negotiations, with respect
to any such acquisition. Value America has not identified specific uses for its
net proceeds, and Value America's management will have broad discretion in the
application of the net proceeds. Pending such uses, Value America intends to
invest the net proceeds in short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
In March and July 1998, Value America paid $145,000 and $125,000,
respectively, in dividends on outstanding shares of its Series A convertible
preferred stock. Value America has not paid dividends on the shares of its
Series B or Series C convertible preferred stock. Value America expects to pay
additional dividends of approximately $573,000 to the holders of Series A,
Series B and Series C convertible preferred stock immediately prior to the
closing of this offering.
Value America has never declared or paid dividends on its common stock.
Value America intends to retain its earnings, if any, for use in operations and
does not intend to pay cash dividends on the common stock in the foreseeable
future. Value America's board of directors has the discretion, after analyzing
various factors, including Value America's financial condition, operating
results, and current and anticipated cash needs to declare dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Value America as of
September 30, 1998.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ----------------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt ............................................................ $ 700 $ 700 $ 700
========= ========= =========
Long-term debt ............................................................. $ 50 $ 50 $ 50
--------- --------- ---------
Mandatorily redeemable preferred stock:
Series A convertible preferred stock, without par value, 5% cumulative
dividend; 5,000,000 shares authorized, issued and outstanding,
actual; 0 shares outstanding, pro forma and pro forma as adjusted ....... 12,968 -- --
Series B convertible preferred stock, without par value, 5% cumulative
dividend; 617,979 shares authorized, issued and outstanding, actual;
0 shares outstanding pro forma and pro forma as adjusted ................ 20,264 -- --
--------- --------- ---------
Series C convertible preferred stock, without par value, 5% cumulative
dividend; 6,000,000 shares authorized pro forma; 0 shares issued and
outstanding actual, pro forma and pro forma as adjusted ................. -- -- --
--------- --------- ---------
Stockholders' equity (deficit):
Common stock, without par value; 100,000,000 shares authorized,
actual; 500,000,000 shares authorized, pro forma and pro forma as
adjusted; 23,152,500 shares issued and outstanding, actual;
37,934,862 shares issued and outstanding,
pro forma; 42,934,862 shares issued and outstanding,
pro forma as adjusted ................................................... 238 133,349 206,249
Accumulated deficit ...................................................... (35,373) (35,373) (35,373)
--------- --------- ---------
Total stockholders' equity (deficit) .................................. (35,135) 97,976 170,876
--------- --------- ---------
Total capitalization ................................................ $ (1,853) $ 98,026 $ 170,926
========= ========= =========
</TABLE>
In the Pro Forma column, the Actual numbers have been adjusted to reflect
the following events that have occurred since September 30, 1998:
o the issuance of $34.0 million principal amount of notes payable and
related warrants, which occurred between October 1998 and January 1999,
o the issuance of 645,200 shares of common stock and related warrants at
$10.00 per share, which occurred in December 1998,
o the issuance of 6,000,000 shares of convertible preferred stock and
related warrants at $10.00 per share, which occurred in January 1999.
The Actual numbers have been further adjusted to reflect the following events
that will occur immediately prior to the closing of this offering:
o the conversion of all of the outstanding shares of convertible preferred
stock into 10,737,162 shares of common stock,
o the conversion of warrants resulting in the cancellation of the $34.0
million principal amount of notes payable and the issuance of 3,400,000
shares of common stock, and
o the payment of approximately $573,000 of accrued preferred stock
dividends.
See notes 5 and 13 of notes to financial statements.
In the Pro Forma as Adjusted column, the Pro Forma numbers have been
adjusted to give effect to the sale of the shares of common stock in this
offering at an assumed initial public offering price of $16.00 share and to the
receipt and application of the estimated net proceeds of this offering. See
"Use of Proceeds."
Value America has engaged an independent appraiser to determine the value
of the warrants issued in conjunction with the issuances of convertible
preferred stock and notes payable since September 30, 1998. Value America will
use this valuation to help it allocate the purchase prices, on a fair value
basis, among the warrants, convertible preferred stock and notes payable. Value
America expects the appraiser's report will be completed by mid-February
19
<PAGE>
1999. Value America anticipates that the interest expense from the amortization
of the resulting debt discount will have a material effect on its net loss in
the quarter and year in which this offering is completed, and that the
accretion of the discount from the redemption value for the convertible
preferred stock will have a material effect on its net loss available for
common stockholders in the quarter and year in which this offering is
completed. This amortization and accretion will not affect Value America's cash
flows or stockholders' equity.
20
<PAGE>
DILUTION
The pro forma net tangible book value of Value America as of September 30,
1998 was approximately $98.0 million, or $2.58 per share of common stock. Pro
forma net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding after giving effect, as of September 30, 1998, to
o the issuance of $34.0 million principal amount of notes payable and
related warrants, which occurred between October 1998 and January 1999,
o the issuance of 645,200 shares of common stock and related warrants at
$10.00 per share, which occurred in December 1998,
o the issuance of 6,000,000 shares of convertible preferred stock and
related warrants at $10.00 per share, which occurred in January 1999, and
o the conversion of all of the outstanding shares of convertible preferred
stock into 10,737,162 shares of common stock, the conversion of warrants
resulting in the cancellation of the $34.0 million principal amount of
notes payable and the issuance of 3,400,000 shares of common stock, and
the payment of approximately $573,000 of accrued preferred stock
dividends, all of which will occur immediately prior to the closing of
this offering.
Value America engaged an independent appraiser to determine the value of
warrants we issued in conjunction with the issuances of convertible preferred
stock and notes payable since September 30, 1998. Value America will use this
valuation to help it allocate the purchase prices, on a fair value basis, among
the warrants, convertible preferred stock and notes payable. Value America
expects the appraiser's report will be completed by mid-February 1999. Value
America anticipates that the interest expense from the amortization of the
resulting debt discount will have a material effect on its net loss in the
quarter and year in which this offering is completed, and that the accretion of
the discount from the redemption value for the convertible preferred stock will
have a material effect on its net loss available for common stockholders in the
quarter and year in which this offering is completed. This amortization and
accretion will not affect Value America's cash flows or stockholders' equity.
After giving effect to the sale of the common stock offered hereby (based
upon an assumed initial public offering price of $16.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses), the pro forma net tangible book value of Value America as
of September 30, 1998 would have been approximately $170.9 million, or $3.98
per share. This amount represents an immediate increase in pro forma net
tangible book value of $1.40 per share to existing stockholders and an
immediate dilution of $12.02 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share ................................. $ 16.00
Pro forma net tangible book value per share as of September 30, 1998 .. $ 2.58
Increase per share attributable to new investors ...................... 1.40
-------
Pro forma net tangible book value per share after the offering .......... 3.98
--------
Dilution per share to new investors ..................................... $ 12.02
========
</TABLE>
21
<PAGE>
The following table summarizes, on a pro forma as adjusted basis as of
September 30, 1998, after giving effect to the adjustments described in the
bulleted clauses in the first paragraph above, (a) the number of shares of
common stock purchased from Value America, (b) the total consideration paid to
Value America and (c) the average price per share paid by the existing
stockholders and by the investors purchasing shares of common stock in this
offering, based upon an assumed initial public offering price of $16.00 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 ......... 37,934,862 88.4% $130,323,144 62.0% $ 3.44
New investors ................. 5,000,000 11.6 80,000,000 38.0 16.00
---------- ----- ------------ -----
Total ...................... 42,934,862 100.0% $210,323,144 100.0%
========== ===== ============ =====
</TABLE>
The foregoing tables assume no exercise of outstanding stock options and
warrants and no issuance of shares reserved for future issuance under Value
America's stock incentive plan. As of September 30, 1998, there were
outstanding (a) stock options to purchase an aggregate of 3,681,875 shares of
common stock at a weighted average exercise price of $2.69 per share and (b)
warrants to purchase an aggregate of 213,750 shares of common stock at a
weighted average 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 -- Stock Incentive Plan," "Description of Capital
Stock -- Warrants" and note 6 of notes to financial statements.
22
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data set forth below for the period from
inception (March 13, 1996) through December 31, 1996 and the year ended
December 31, 1997 and the balance sheet data at December 31, 1996 and 1997 have
been derived from Value America's audited financial statements included
elsewhere herein. The statement of operations data for the nine months ended
September 30, 1998 and 1997 and the balance sheet data at September 30, 1998
have been derived from Value America's unaudited financial statements included
elsewhere herein and, in the opinion of Value America's management, contain all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly Value America's results of operations for such interim period.
Results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the entire year. The
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements, including notes thereto, included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION NINE MONTHS
(MARCH 13, 1996) ENDED SEPT. 30,
THROUGH YEAR ENDED ----------------------------
DEC. 31, 1996 DEC. 31, 1997 1997 1998
----------------- -------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Net sales ............................................. $ -- $ 48 $ 5 $ 21,631
Product presentations ................................. -- 86 -- 852
------- -------- ------ ---------
Total revenues ...................................... -- 134 5 22,483
------- -------- ------ ---------
Cost of revenues:
Cost of goods sold .................................... -- 31 5 21,570
Product presentations ................................. 97 455 187 583
------- -------- ------ ---------
Total cost of revenues .............................. 97 486 192 22,153
------- -------- ------ ---------
Gross profit (loss) .................................... (97) (352) (187) 330
------- -------- ------ ---------
Operating expenses:
Sales, advertising and marketing ...................... 44 488 205 20,974
General and administrative ............................ 152 544 217 4,259
Technical and system development ...................... 135 487 240 2,580
Professional fee (1) .................................. -- -- -- 694
------- -------- ------ ---------
Total operating expenses ............................ 331 1,519 662 28,507
------- -------- ------ ---------
Operating loss ......................................... (428) (1,871) (849) (28,177)
------- -------- ------ ---------
Interest income (expense), net ......................... 3 18 (3) 229
------- -------- ------- ---------
Net loss ............................................... $ (425) $ (1,853) $ (852) $ (27,948)
======= ======== ======= =========
Accretion and dividends on Series A and Series B
redeemable preferred stock ............................ -- (188) -- (6,570)
------- -------- -------- ---------
Net loss available for common stockholders ............. $ (425) $ (2,041) $ (852) $ (34,518)
======= ======== ======== =========
Net loss per common share -- basic and diluted ......... $ (0.02) $ (0.09) $(0.04) $ (1.49)
Weighted average number of shares -- basic and
diluted ............................................... 22,500 22,616 22,520 23,153
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30,
--------------------- ------------
1996 1997 1998
--------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...................... $ 81 $ 10,341 $ 1,556
Working capital (deficit) ...................... (116) 9,329 (5,164)
Total assets ................................... 144 10,994 13,995
Long-term debt ................................. -- 50 50
Mandatorily redeemable preferred stock ......... -- 9,466 33,232
Stockholders' deficit .......................... (275) (1,310) (35,135)
</TABLE>
- ----------
(1) In June 1998, Craig A. Winn, the Chairman and Chief Executive Officer and a
director of Value America, sold 288,321 shares of common stock to an
entity that had assisted in the promotion of private placements of Value
America's convertible preferred stock. Value America recognized the excess
of the fair value of the common stock sold by Mr. Winn over the
consideration he received as a period expense. See note 6 of notes to
financial statements.
23
<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. VALUE AMERICA'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 retailer offering a wide selection of
technology, office and consumer products for sale in its online store at
WWW.VALUEAMERICA.COM and WWW.VA.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, Value America's
primary activities related to establishing relationships with manufacturers,
creating product presentations, and developing internal systems and operating
procedures. Value America has been selling merchandise on the Internet since
the third quarter of 1997. Accordingly, Value America has a limited operating
history and is still in the early stages of development.
Currently, revenues are derived from two sources: (a) sales of products
through Value America's online store and (b) fees collected from manufacturers
for the preparation and hosting of product presentations and listing of
manufacturers' products available for purchase on the online store. Value
America's vendors ship products directly to the customer typically within one
to two days after a customer places an order with Value America. Revenues from
product sales are recognized upon shipment from the vendor. Value America is
responsible for selling the merchandise, collecting payment from the customer,
ensuring that the shipment reaches the customer and processing returns. Value
America generally takes title to products upon shipment and bears the risk of
loss for collection, delivery and merchandise returns from customers. Value
America occasionally purchases merchandise prior to receiving customer orders
and records such merchandise as inventory until shipped to customers. Value
America accrues a reserve for estimated product returns at the time of sale.
Value America has contractual agreements with many of its suppliers under
which Value America develops and maintains multi-media product presentations on
Value America's online store. These agreements provide for the development of
the presentations, the posting of the presentations and the listing of the
manufacturers' products on Value America'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 agreements entered into
after that date, the period generally has been 12 months. Value America
recognizes the costs of developing presentations and listing products on its
Web site as incurred and recognizes the product presentation and listing
revenues ratably over the period of the related agreement. Amounts that are
billed under the terms of these agreements, but not yet earned, are reflected
as deferred revenue. Certain of these agreements provide that suppliers pay a
renewal fee to continue product listings beyond the initial listing periods.
Revenues from these renewal fees will be recognized ratably over the renewal
term.
To date, payments for products purchased through Value America's online
store have been primarily made with credit cards. Value America generally
receives payment from a customer's credit card within one to four business
days. In the third quarter of fiscal 1998, Value America began to extend trade
credit terms, typically net 30 days, to certain large customers that Value
America has evaluated for creditworthiness. Value America typically pays its
vendors for goods within 30 to 60 days.
Value America 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. Value America expects to incur substantial operating losses for
the foreseeable future. Although Value America has experienced significant
growth in revenue, there can be no assurance that Value America's revenue will
continue at its current level or increase. Value America has a limited
operating history upon which to base an evaluation of Value America and its
business. Value America's business and prospects must be considered in light of
the risks, expenses and difficulties frequently
24
<PAGE>
encountered by companies in early stages of development, particularly companies
in new and rapidly evolving markets such as electronic commerce.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
REVENUES
Revenues consist of product sales through Value America's online store and
product presentation and listing fees. Value America opened its online store
late in the third quarter of 1997, and generated $5,000 of revenues from
product sales in the nine months ended September 30, 1997. For the nine months
ended September 30, 1998, net sales totaled $21.6 million and product
presentation fees recognized were $852,000. For the nine months ended September
30, 1998, the average order size of products purchased directly through Value
America's online store was approximately $1,000. For the nine months ended
September 30, 1998, product returns and cancellations (including product
returns resulting from malfunctioning products, erroneous shipments and other
quality-related issues) were approximately 5% of sales.
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, shipping costs and credit card processing fees. Cost of goods
sold for the nine months ended September 30, 1997 was $5,000. For the nine
months ended September 30, 1998, cost of goods sold totaled $21.6 million,
representing 99.7% of net sales. The narrow gross margin on product sales was
due principally to (a) Value America's short-term strategy to selectively
accept narrow or negative margins in order to attain increased volumes and
brand awareness and (b) a $346,000 write down of inventory on hand at September
30, 1998 to its net realizable value.
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 $187,000 for the
nine months ended September 30, 1997 to $583,000 for the nine months ended
September 30, 1998. In the nine months ended September 30, 1998, cost of
product presentations represented 68% of product presentation and listing
revenues. The dollar increase of $396,000 in the cost of product presentations
was due primarily to increases in payroll and related expenses of $316,000 and
increases in video and production expenses of $64,000. Negative margins on
product presentation and listing services during the nine months ended
September 30, 1997 occured as there were no revenues deferred in prior periods
to recognize against current costs. Additionally, margins on product
presentations and listing services improved during the nine months ended
September 30, 1998 compared to prior periods due to improved efficiencies in
the development of multimedia product presentations.
SALES, ADVERTISING AND MARKETING
Sales, advertising and marketing expenses consist of costs associated with
promoting Value America's online store to potential customers and vendors, as
well as payroll and related expenses. Sales, advertising and marketing expenses
increased from $205,000 for the nine months ended September 30, 1997 to $21.0
million for the nine months ended September 30, 1998. The increase primarily
reflected the commencement of Value America's advertising campaign in January
1998, an increase in the number of merchandising, advertising and promotion
department employees, and a general increase in the level of Value America's
promotional activities. Advertising and promotional expenses increased from
$15,000 for the nine months ended September 30, 1997 to $18.4 million for the
nine months ended September 30, 1998, net of cooperative advertising of
approximately $1.8 million. These 1998 expenditures were primarily for
advertising in regional and national newspapers and magazines, direct mailings
and regional radio commercials. Payroll expenses relating to merchandising,
advertising and promotion department employees increased from $153,000 for the
nine months ended September 30, 1997 to $2.3 million for the nine months ended
September 30, 1998. Value America 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, bad debts, postage and other general
25
<PAGE>
corporate expenses. General and administrative expenses increased from $217,000
for the nine months ended September 30, 1997 to $4.3 million for the nine
months ended September 30, 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 Value America's operations, all of which were
undertaken in late 1997 and continued into 1998. Payroll expenses relating to
general and administrative personnel increased from $114,000 for the nine
months ended September 30, 1997 to $1.1 million in the nine months ended
September 30, 1998. Value America expects that general and administrative
expenses will continue to increase significantly for the foreseeable future as
Value America 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 software required to
support Value America'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 Value America's business, these expenses are expensed
as incurred. Technical and system development expenses increased from $240,000
for the nine months ended September 30, 1997 to $2.6 million for the nine
months ended September 30, 1998. This increase principally reflected higher
payroll and consulting expenses. Payroll expenses related to technical and
system development increased from $225,000 for the nine months ended September
30, 1997 to $1.1 million for the nine months ended September 30, 1998. Payments
to outside consultants totaled $0 and $1.2 million for the nine months ended
September 30, 1997 and 1998, respectively. During the nine months ended
September 30, 1998, Value America hired consultants to assist in modifying its
information systems to improve its reporting and tracking abilities. Value
America expects that technical and systems development expenses will continue
to increase for the foreseeable future.
PROFESSIONAL FEE
In June 1998, Craig A. Winn, the Chairman and Chief Executive Officer and
a director of Value America, sold 288,321 shares of common stock for
consideration below fair value to an entity that had assisted in the promotion
of the private placements of the Series A and Series B convertible preferred
stock. Value America recognized the excess of the fair value of the common
stock sold by Mr. Winn over the consideration received as a current period
expense of $694,000. See Note 6 of notes to financial statements.
INTEREST INCOME (EXPENSE), NET
Interest income of $229,000 for the nine months ended September 30, 1998
consisted primarily of income earned on the net proceeds of Value America's
issuance and sale of Series A convertible preferred stock in December 1997 and
Series B convertible preferred stock in June 1998. The $3,000 expense for the
nine months ended September 30, 1997 consisted primarily of interest expense on
Value America's capital lease obligations.
INCOME TAXES
Value America provided $0 for income taxes in the nine months ended
September 30, 1997, since it was an S corporation under the Internal Revenue
Code prior to November 1997. Value America provided $0 for income taxes in the
nine months ended September 30, 1998, since Value America incurred a net loss
for that period.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO PERIOD FROM INCEPTION (MARCH 13, 1996)
THROUGH DECEMBER 31, 1996
REVENUES
Value America did not open its online store until the third quarter of
1997 and thus generated $0 of revenues from product sales, product
presentations and listing services for the period ended December 31, 1996. For
the year ended December 31, 1997, net sales totaled $48,000 and product
presentation revenues were $86,000.
26
<PAGE>
COST OF REVENUES
Value America incurred $0 of 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 $305,000 and to increases in video and production expenses of
$19,000. Negative margins on product presentation and listing services during
the year ended December 31, 1997 occurred as there were no revenues deferred in
prior periods to recognize against current costs.
SALES, ADVERTISING AND MARKETING
Sales, advertising 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 payroll related expenses. Advertising and promotional
expenses totaled $194,000 and $0 for the year ended December 31, 1997 and the
period ended December 31, 1996, respectively. Payroll expense relating to
merchandising, advertising and promotion department employees increased from
$21,000 for the period ended December 31, 1996 to $191,000 for the year ended
December 31, 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $152,000 for the period
ended December 31, 1996 to $544,000 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 Value America's
operations, all of which were undertaken in late 1997. Payroll expenses
relating to general and administrative personnel increased from $74,000 for the
period ended December 31, 1996 to $206,000 for the year ended December 31,
1997.
TECHNICAL AND SYSTEM DEVELOPMENT
Technical and system development expenses increased from $136,000 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 systems development, which increased from $95,000 for the period
ended December 31, 1996 to $434,000 for the year ended December 31, 1997.
27
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited quarterly financial data of Value
America commencing with the quarter ended September 30, 1997, the first quarter
during which Value America sold merchandise on the Internet. The information
has been derived from unaudited financial statements that, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such quarterly information.
The quarterly information for the periods prior to the quarter ended September
30, 1997 are not presented because it is not considered meaningful to Value
America's current operations. The operating results for any quarter are not
necessarily indicative of the results to be expected for any future period.
<TABLE>
<CAPTION>
1997 QUARTER ENDED 1998 QUARTER ENDED
-------------------------- ----------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
------------ ----------- ----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales ............................................. $ 5 $ 42 $ 1,986 $ 4,727 $ 14,918
Product presentations ................................. -- 86 206 312 334
------ -------- -------- --------- ---------
Total revenues ....................................... 5 128 2,192 5,039 15,252
------ -------- -------- --------- ---------
Cost of Revenues:
Cost of goods sold .................................... 5 26 2,062 4,605 14,903
Product presentations ................................. 45 267 330 131 122
------ -------- -------- --------- ---------
Total cost of revenues ............................... 50 293 2,392 4,736 15,025
------ -------- -------- --------- ---------
Gross profit (loss) .................................... (45) (165) (200) 303 227
------ -------- -------- --------- ---------
Operating Expenses:
Sales, advertising and marketing ...................... 205 283 2,224 6,712 12,038
General and administrative ............................ 110 327 841 1,154 2,264
Technical and system development ...................... 134 247 373 622 1,585
Professional fee ...................................... -- -- -- 694 --
------ -------- -------- --------- ---------
Total operating expenses ............................. 449 857 3,438 9,182 15,887
------ -------- -------- --------- ---------
Operating loss ......................................... (494) (1,022) (3,638) (8,879) (15,660)
Interest income (expense), net ........................ (2) 20 98 50 81
--------- -------- -------- --------- ---------
Net loss ............................................... $ (496) $ (1,002) $ (3,540) $ (8,829) $ (15,579)
======== ======== ======== ========= =========
Accretion and dividends on Series A and B
convertible preferred stock ........................... $ -- $ (188) $ (1,160) $ (1,254) $ (4,156)
Net loss available for common stockholders ............. (496) (1,190) (4,700) (10,083) (19,735)
Net loss per common share -- basic and diluted ......... $(0.02) $ (0.05) $ (0.20) $ (0.44) $ (0.85)
Weighted average number of shares ...................... 22,510 22,558 23,153 23,153 23,153
</TABLE>
Value America'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 Value America's control. See "Risk Factors -- Our
Quarterly Revenues are Unpredictable and May Fluctuate Significantly." As a
strategic response to changes in the competitive environment, Value America may
from time to time make certain service, marketing or supply decisions or
acquisitions that could have a material adverse effect on Value America's
quarterly results of operations and financial condition. In future quarters
Value America'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.
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LIQUIDITY AND CAPITAL RESOURCES
Since inception, Value America 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, Value America
received proceeds of $10.2 million from the sale of Series A convertible
preferred stock, common stock and warrants. During the nine months ended
September 30, 1998, Value America received proceeds of $18.8 million from the
sale of Series B convertible preferred stock. Subsequent to September 30, 1998,
Value America issued (a) $34.0 million of notes payable and related warrants to
purchase 4,133,000 shares of common stock, (b) 645,200 shares of common stock
and related warrants to purchase 118,320 shares of common stock and (c)
6,000,000 shares of convertible preferred stock and related warrants to
purchase 2,311,567 shares of common stock. Value America received proceeds of
$100.5 million from these offerings. See notes 5 and 13 of notes to financial
statements.
Net cash used in operating activities was $166,000 for the period ended
December 31, 1996, $338,000 for the year ended December 31, 1997 and $18.0
million for the nine months ended September 30, 1998. Net cash used in
operating activities in the nine months ended September 30, 1998 was due
primarily to (a) the net loss of $27.9 million, (b) a $2.6 million increase in
accounts receivable and a $1.1 million increase in inventory, both associated
with the growth in revenues, and (c) increased cash required to fund operating
activities. The increases in accounts receivable and inventory were partially
offset by an increase in accounts payable of $10.7 million. Value America 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 $58,000 for
the fiscal period ended December 31, 1996, $165,000 for the fiscal year ended
December 31, 1997 and $1.8 million for the nine months ended September 30,
1998. The purchases were required to support Value America's expansion and
increased infrastructure.
Value America has a $5.0 million line of credit from Wachovia Bank, N.A.
that is backed by cash deposits. The line of credit provides for cash advances
evidenced by short-term notes and secured by cash deposits. This line bears
interest on advanced funds at LIBOR plus 1.75% (7.59% at September 30, 1998)
and expires on May 31, 1999.
Value America has obtained stand-by letters of credit totaling $3,750,000
in favor of three vendors. Each letter of credit is secured by a certificate of
deposit. These standby letters of credit expire through August 1999 and are
callable if Value America defaults in the payments of trade payables to the
secured vendors.
Additionally, Value America has a two year agreement with a credit card
processor in which the credit card processor, to cover potential charge backs,
has a first priority lien and security interest in a $1,500,000 cash deposit
account. The agreement, which expires in April 2000, may be terminated by
either party and the credit card processor can require Value America to
maintain the cash deposit account for up to 10 months following termination.
Value America incurred capital expenditures of approximately $1.8 million
during the first nine months of 1998. These expenditures are primarily for
computer equipment and furniture and fixtures associated with Value America's
continued new employee growth, move to new facilities and continued systems
development. Additionally, at September 30, 1998, Value America has commitments
to purchase $2.3 million of inventory for future product offerings. Value
America 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, Value America may experience substantial quarterly net losses for
the foreseeable future. Thus, Value America may be required to use the proceeds
of this offering to finance capital expenditures, increased accounts receivable
and inventory from product sales, marketing and advertising expenses, and
growth in operating expenses.
Value America believes that its existing capital resources and the net
proceeds of this offering will be sufficient to fund its operations for at
least 12 months from the date of this prospectus. Thereafter, if cash generated
from operations is insufficient to satisfy Value America's liquidity
requirements, Value America 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
Value America's stockholders. There can be no assurance
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that financing will be available to Value America in amounts sufficient to fund
Value America's operations or on terms acceptable to Value America. See "Risk
Factors -- We May Need Additional Financing" and "Certain Transactions."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
programmed to assume that the century portion of a date was "19" to conserve
the use of storage and memory. This assumption resulted in the use of two
digits (rather than four) to define an applicable year. Accordingly, computer
systems that rely on two digits to define an applicable year may recognize a
date using "00" as the year 1900, rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process or transmit
data or engage in normal business activities. Value America's ability to
operate is dependent upon the delivery of accurate, electronic information via
the Internet. To the extent that Year 2000 issues result in the long-term
inoperability of the Internet or Value America's online store, Value America's
results of operation and financial condition may be materially and adversely
affected.
Value America has completed its assessment of its Year 2000 readiness.
This assessment included a review of Value America's internal information
technology systems, non-information technology systems and the systems of third
parties upon which Value America may rely. Although Value America has developed
its proprietary computer systems to specifically address Year 2000 issues,
there can be no assurance that Value America's systems, as a whole, are Year
2000 compliant. Value America utilizes third-party equipment and software that
may or may not be Year 2000 compliant. Consequently, Value America's ability to
address Year 2000 issues is, to a large extent, dependent upon the remediation
activities of third parties. Value America has requested statements of Year
2000 compliance from third party technology providers associated with Value
America's core information systems infrastructure.
Value America is in the process of initiating formal communications with
all of the manufacturers and distributors presented in Value America's online
store to determine the extent to which Value America is vulnerable to those
third parties' failures to remediate their own Year 2000 issues. In some cases,
corporate systems or EDI mappings have been designed to avoid Year 2000
problems. For other suppliers with which Value America communicates order,
invoice, and inventory information via EDI, Value America is switching to a
Year 2000 compliant standard format. Beginning in January 1999, Value America
is encouraging its suppliers to migrate to the Year 2000 compliant EDI format.
Value America believes that its current vendors either are in compliance with
Year 2000 requirements, or efforts will be undertaken to ensure their Year 2000
compliance by June 30, 1999.
In addition, Value America is evaluating Year 2000 compliance by credit
card processors and other financial intermediaries through which transactions
are processed when Value America's customers purchase goods from Value
America's store. Due to the complexity of these transaction processing systems
and the fact that Value America has no direct control over them, Value America
is in the process of securing a secondary source for financial transaction
processing as a backup measure. Value America has a contingency plan for
switching to a new processor in the event its current credit card processor is
not able to be Year 2000 compliant by the middle of fiscal 1999.
To date, the incremental costs of Value America's Year 2000 remediation
program have been approximately $25,000. Value America estimates that the
additional incremental costs related to its Year 2000 remediation program will
not exceed $250,000 and, in any event, believes that such costs will not have a
material adverse effect upon Value America's results of operation or financial
condition.
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BUSINESS
OVERVIEW
Value America is an Internet retailer offering a wide selection of
technology, office and consumer products through its online store at
WWW.VALUEAMERICA.COM and WWW.VA.COM. Value America sells brand name goods from
manufacturers in many industries, including goods from Hewlett-Packard, IBM,
Olympus, Panasonic and Weber. Customers can take advantage of Value America's
online store format by shopping at their convenience and purchasing brand name
products at value prices. The Value America online store features
information-rich, multi-media product presentations that help consumers make
informed buying decisions. Manufacturers can benefit from these presentations
because the features and benefits of their products are communicated directly
to consumers. The store provides manufacturers with ready access to the large
and growing base of online consumers. Value America promotes its online store
in newspapers, magazines, direct mailings, and television and radio
commercials, as well as through Internet portals. Value America earns revenues
principally from the sale of products. Value America also receives revenue from
manufacturers for the creation of product presentations for its 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 United States and Canada have purchased at least one
product or service over the Internet. The number of households world-wide that
shop online was expected to double in 1998. One industry research firm
estimates that the total value of goods and services purchased by businesses
and consumers on the Internet by individuals, businesses and governmental
agencies ranged between $55 billion and $80 billion in 1998 and projects that
the market may grow to between $1 trillion and $2 trillion 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, or 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 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,
financing inventory 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 a broad selection of merchandise in a single
industry. 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 presentation,
consistency of product offerings and breadth of merchandise in order 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. These cost reductions result, in part, from offering
lower quality merchandise and hiring fewer and less experienced customer
service and sales employees.
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As a result of the significant number of retailers who compete for
customers primarily on the basis of price, Value America believes that retail
customers do not receive sufficient information to make informed purchasing
decisions and may frequently purchase products that fail to meet their
expectations.
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 effectively change product
offerings and customers 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.
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 efficiently.
Value America believes that its electronic commerce strategy can enable it
to provide a comprehensive solution to the difficulties associated with the
traditional retail market. Value America has identified three market segments
that are particularly attractive for electronic commerce: technology products,
office products and 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.
o 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 relatively complex distribution channel whereby
certain value-added resellers, system integrators, distributors and direct
marketers sell to end-users.
o OFFICE PRODUCTS include office 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.
o 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, pet supplies, and health and beauty aids. These
sales principally occur in traditional brick-and-mortar stores and through
catalog shopping.
THE VALUE AMERICA SOLUTION
Value America offers a wide selection of technology, office and consumer
products for sale on its online store. Individual and business customers visit
Value America's online store as a result of its traditional advertising, direct
response marketing, online promotions and affinity marketing programs, as well
as through Internet browsing. The store provides the customer with entertaining
and informative multi-media product presentations. Customers purchase products
online by selecting the items they wish to buy and providing payment and
shipping information. Value America 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, Value America transmits
ordering and shipping information to the manufacturer or distributor, which
ships the product directly to the customer.
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The Value America business model is designed to utilize the benefits of
the Internet and electronic commerce to provide superior value to both
consumers and manufacturers. Value America provides customers with value by
offering them 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 efficient
distribution, direct exposure to individual consumers and businesses, and the
ability to sell products based upon their merits.
Value America believes that its online store offers customers a number of
benefits that differentiate it from traditional retailers and distributors:
o QUALITY AND SELECTION FROM RECOGNIZED BRANDS. As an online store, Value
America has virtually unlimited shelf space. This allows it to offer a
broad variety of products, from a large number of leading manufacturers in
many industries. Value America believes that customers shopping on the
Internet, a relatively new commercial medium, will be more comfortable
purchasing products from recognized brands.
o VALUE PRICING. Value America's virtual storefront and direct distribution
process are designed to enable Value America to offer brand name products
at lower prices.
o INFORMATION-RICH MARKETING. In order to educate customers and enable them
to make informed purchase decisions, Value America's online store provides
valuable interactive multi-media presentations that reveal the features,
benefits and applications of the products sold by Value America.
o CUSTOMER CONVENIENCE. Value America believes that customers benefit when
they can buy a wide variety of products to meet home and business needs in
one convenient place. Value America's online store is open 24-hours-a-day,
365-days-a-year and is available to both individual and business customers
through any computer with Internet access. Value America's graphic user
interface and database design enable each customer to organize the store
in a manner specifically designed to meet his or her shopping style.
Customers can shop by category, product, brand or price.
o PERSONALIZED SERVICE. Value America'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 products they have purchased. Value America
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.
Value America believes that its electronic commerce model offers four key
benefits to manufacturers:
o BROADER REACH. Value America'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.
o CLOSER CUSTOMER CONTACT. Value America creates a direct link between
factories and consumers. Value America collects, retains and shares
aggregate customer demographic information with product manufacturers.
This enables manufacturers to improve their marketing strategies. Value
America solicits each manufacturer's suggestions regarding the development
of multi-media product presentations in order to properly present product
information to customers.
o EMPHASIS ON PRODUCT MERITS. The multi-media product presentations in
Value America's online store provide manufacturers with the opportunity to
inform potential customers as to the benefits and features associated with
their products. Consequently, manufacturers are able to sell products on
their merits, rather than on price alone.
o EFFICIENT DISTRIBUTION. Value America's technology platform is capable of
transmitting customer orders 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.
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STRATEGY
Value America's objective is to be the leading online retailer of
technology, office and consumer products. To achieve this objective, Value
America is implementing the following strategies:
INITIALLY EMPHASIZE SALE OF BUSINESS TECHNOLOGY AND OFFICE PRODUCTS. Value
America has focused its initial strategy on business technology and office
products. Value America 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. Value America has formed relationships with
manufacturers of more than 200 business technology and office products brands,
including:
o technology manufacturers such as Compaq, Hewlett-Packard, IBM, NEC and
Toshiba;
o computer peripheral manufacturers such as 3Com US Robotics, Brother,
Canon, Epson and Lexmark; and
o office products suppliers such as Avery, Fellows, Quartet and Targus.
MOVE RAPIDLY INTO THE BUSINESS-TO-CONSUMER MARKET. Value America intends
to offer consumers a wide selection of products from a variety of categories.
Value America believes that both individual consumer use of the Internet and
electronic commerce as a means to purchase consumer products will increase. In
order to accommodate increasing demand, Value America has integrated more than
600 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. Value America has, for example, entered into a relationship with
Procter & Gamble which provides more than 50 brands of household and personal
care products for the Value America online store.
EXPAND BRAND OFFERINGS. Currently, Value America offers products from more
than 800 total brands on its online store. Value America intends to continue to
expand the number of recognized brand name manufacturers and products within
the store. Value America believes that relationships with brand name
manufacturers are essential to its ability to continue to build its reputation
as an online destination store. Furthermore, Value America believes that the
high-quality reputation of leading brands is essential to building consumer
confidence in online shopping. Value America intends 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. Value America utilizes multi-media
product presentations to inform its customers of product features, benefits and
applications prior to a sale. Manufacturers pay Value America to create
presentations that combine sound, video, copy and visual elements to
demonstrate product merits in an informative and entertaining online
environment. Value America recognized approximately $850,000 in product
presentation revenues for the nine months ended September 30, 1998 and had
approximately $2.4 million in deferred product presentation revenues as of
September 30, 1998. Value America currently estimates that it will recognize
such deferred revenues over the next 12 to 30 months. Value America 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. Value America plans to continue to implement
additional technological upgrades 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 expand EDI relationships with manufacturers and suppliers.
DEVELOP AND EXPAND DIRECT RESPONSE ADVERTISING AND PARTNERSHIPS. Value
America intends to continue to develop and expand upon its direct response
advertising and partnership strategies. From January 1998 through September
1998, Value America spent approximately $18.4 million on advertising and
promotional expenses. Value America also may partner with certain manufacturers
to conduct exclusive direct response campaigns. Value America intends to
increase its sales, advertising and marketing expenses significantly following
the completion of this offering.
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THE VALUE AMERICA STORE
Customers enter Value America's online store at WWW.VALUEAMERICA.COM or
WWW.VA.COM. Customers can register for membership or shop as a guest. They may
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. Value America's online store
offers customers the following key features:
MULTIPLE METHODS OF SHOPPING. The customer interface enables customers to
organize the online store to suit their own shopping preferences. The store
permits shopping by category, brand or specific 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 distinctive logos associated with each brand name product
available in a particular category.
INFORMATIVE PRODUCT PRESENTATIONS. Each of the products Value America
offers is accompanied by at least one of four different types of product
presentations which it has created and produced under contract with the
product's manufacturer. The four types of presentations are:
o a standard picture listing, which presents a digital and compressed color
picture of the product, lists the product's most important specifications
and provides specific product purchasing information;
o a basic presentation, which adds to the picture listing by providing
several pages of copy and visual images to describe features and benefits;
o a multi-media presentation, which provides a further in-depth look at the
product through a combination of photographs, illustrations, special
effects and audio streaming; and
o a video presentation, which 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 Value
America and obtain access to the benefits of Value America'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
many other member benefits. 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 access receipts, product warranties and
information relating to past Value America purchases. Membership in Value
America has been free to date. Value America is currently contemplating
charging a small membership fee, such as $5.00 per quarter, for individual
memberships.
CONVENIENT WAYS TO ORDER. Customers may order products either through
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. Business customers who have
established trade credit with Value America may also use a purchase order.
Regardless of the purchasing method selected by the customer, substantially all
purchases are routed through the technological platform that supports Value
America's online store so as to allow every customer access to his or her order
status and warranty information via the Internet.
WIDE SELECTION OF LEADING BRANDED PRODUCTS. The Value America store
emphasizes brand name products from leading manufacturers across a broad array
of product categories. Value America organizes its products into the following
categories: baby care, computers, computer peripherals, computer software, fun
stuff, gifts, health and beauty, home electronics, home furnishings, home
improvement, housewares, jewelry, major appliances, office products, pet
supplies, pharmaceuticals, specialty foods, and sports and fitness.
The following is a partial listing of the brand names and representative
products that Value America presents and sells, or intends to present and sell,
in its online store. Value America has selected these brand names based upon
its assessment of their brand awareness among Value America's targeted customer
base. Value America has not selected these brands on the basis of actual or
projected unit or dollar sales, and no inference should be drawn as to whether
Value America has received or will receive significant revenues from sales of
any particular
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brand of products listed below. Value America's product vendors have no
obligation to make any of these brand name products available for sale to Value
America's customers and may terminate their relationships with Value America at
any time and without penalty.
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
APPAREL
Adidas Sportswear
Cutter & Buck Sportswear
Georgio Brutini Men's Dress Shoes
Global Sports Women's Footwear
Herman Survivor Footwear
Puma Sportswear
Tretorn Athletic Footwear
Yukon Casual Shoes
COMPUTER ACCESSORIES
3COM Communications
3M Ergonomic & Glare
Acer Scanners, Monitors
APC Power Supply
Altec Lansing Speakers
Boca Research Networking
Brother Printers, Copiers
Canon Printers, Copiers, Fax
Casio Digital Imaging
Creative Graphic & Sound
Cross Electronic Pad
CTX Monitors
Curtis Computer Accessories
Curtis Mathes Convergence
Diamond Video & Sound Cards
Epson Printers, Scanners, Fax
Fellowes Ergonomic Cables & Input
Fuji Imaging
Hewlett Packard Printers, Drives, Imaging
Hitachi Monitors
IBM Monitors, Modems
Imation Data Storage & Media
Iomega Data Storage Drives
Kensington Computer Accessories
Kingston Data
Kodak Writeable CDs
Lexmark Printers & Supplies
Microtek Scanners
Microsoft Input Devices
NEC Monitors, Printers
Nokia Monitors
Okidata Printers & Supplies
Panamax Surge Protection
Perfect Data Cleaning
Philips/Magnavox Monitors
Polaroid Anti-Glare Screens
PNY Memory
Read Right Computer Care Products
Samsung Monitors
Smart Modular Modems
Sony Data Storage Media
Southland Micro Memory
Targus Computer Notebook Bags
Tripplite Surge Protection
US Robotics Modems
</TABLE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
UUNet Internet Connection
UMAX Scanners
Verbatim Data Storage Media
Viewsonic Monitors
Visioneer Scanners
COMPUTER SYSTEMS
Compaq
DeskPro Business Computers
Presario Consumer Computers
ProSignia Business Servers
Armada Notebook Computers
Proliant Business Servers
Hewlett Packard
Brio Small Business Computers
Pavilion Home Computers
Vectra Business Computers
Hitachi Notebook Computers
IBM
GL Series Business Computers
ThinkPad Notebook Computers
Netfinity Business Servers
InteliStation Business Computers
Aptiva Home Computers
Mitsubishi Notebook Computers
NEC Desktop & Notebook PCs
Packard Bell Desktop & Notebook PCs
Palm Pilot Palm Top Computer
Panasonic Notebook Computers
Toshiba
SatellitePro Notebook Computers
Tecra Notebook Computers
Portege Notebook Computers
Libretto Palm Top Computers
ELECTRONICS & CAMERA
Bazooka Speaker Systems
Canon 35mm Cameras
C-Phone Video Conferencing
Casio Personal TVs
Curtis Mathis Audio Device Convergence
Duracell Batteries
Epson Digital Cameras
Fisher Shelf Audio Systems
FujiFilm Digital & Film Cameras
GE Telephones
Hewlett Packard Digital Cameras
Hometech Speakers
Hughes Electronics Satellite Systems
Kodak ds Digital Cameras
Lucent Telephone Systems
Magnavox TV, VCR, Audio
Olympus Digital & Film Cameras
Panasonic Audio, TVs, VCRs,
Camcorders & DVDs
Philips Video, Audio
Phonemate Telephones & Answering
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Photo Smart Printing System
Polaroid Instant, Digital Cameras
RCA TV & Camcorders
Sanyo Telephones
Sonance Wall Speakers
Sony Playstation Video Game Systems
TDK Audio & Video Tape
Technics Audio Systems
Toshiba TV, VCR, DVD & Phones
Zenith TV, VCR & DVD
FUN STUFF & TOYS
American Camper Children's Camping Gear
Baby Jogger Running Stroller
Barbie Entertainment Software
Beanie Babies Collectable Toys
Disney Software
DreamWorks Entertainment Software
Flexible Flyer Sleds
Fundex Games Family Games
Galoob Toys Toys
Hasbro Software
Huffy Bicycles
Hedstrom Swing Sets
Kiddesigns Toys
Mattel Media Entertainment Software
Mega Bloks Toys
Microsoft Software
Ram Golf Children's Golf
Ritvik Toys Toys
Roadmaster Bicycles
Sierra Software
Team Concepts Children's Computers
World Sports In-Line Skates
Zebco Children's Fishing Gear
HEALTH & BEAUTY
Alka Seltzer Stomach Remedy
Allergan Eye Care
Always Feminine Hygiene
Abbott Labratories Home Medical Equipment
Aspercreme Medicated Rubs
Aveeno Skin Care Products
Band-Aid First Aid & Bandages
Benadryl Allergy Medication
Bayer Pain Relief
Braun Small Appliances
Chloraseptic Respiratory
Clearasil Skin Care
Coast Personal Cleansing
Cortaid Itch & Rash Treatment
Cover Girl Cosmetics
Crest Tooth Paste Dentifrice
Dramamine Motion Sickness
Doxidan Laxitive
Dreft Powder
Edge Shaving
Efferdent Denture Care
Emetrol Nausea
First Aid Gauze
Fixodent Dentures
Foster Grant Eye Wear
Galaxy Wheelchairs
</TABLE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Ginkoba Supplement
Ginsana Supplement
Giorgio Fragrances
Head & Shoulders Hair Care
Herbal Essences Hair Care
Intelligent Vitamins
Nutrition
Ivory Personal Cleansing
Johnson & Johnson Health Care Products
Imodium Anti-Diarrheal
Kaopectate Anti-diarrehal
Lactaid Dairy Digestant
Listerine Oral Care
L'Oreal Skin Care
Lubriderm Lotion
Luvs Diapers, Wipes
Max Factor Cosmetics
Metamucil Laxative
Micatin Antifungal
Monistat 7 Health Care
Motrin Pain Relief
Movana Dietary
Murine Eye Care
Mylanta Antacid
Neosporin First Aid Creams
Neutrogena Skin & Hair Care
Nicoderm CQ Stop Smoking
Nicorette Stop Smoking
Norelco Shavers
Noxzema Skin Care
No More Tangles Kids Hair Care Products
Oil of Olay Skin Care
Old Spice Anti-Perspirant/Deodorant
Oral B Plaque Removal
Pampers Diapers, Wipes
Pantene Hair Care
PediaCare Baby Care
Pepcid AC Antacid
Pepto-Bismol Stomach Remedy
Pert Plus Hair Care
Pharmacia & Personal Care Products
Upjohn
Polo Fragrances
Polysporine First Aid
Procter & Gamble Health & Beauty Care
Progaine Shampoo
Rogaine Hair Loss
Puffs Facial Tissue
Robotussin Cough Remedies
Rolaids Stomach Care
Safeguard Personal Cleansing
Scope Mouthwash
Secret Anti-Perspirant
Selsun Blue Hair Care
Silk-Epil Hair Removal
Sinex Nasal
Slimfast Diet Products
Sportscreme Skin Care
Stayfree Feminine Products
Sure Anti-Perspirant
Tampax Feminine Hygiene
Thermoscan Temperature Devices
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Tylenol Pain Relief
Unicap Vitamins
Unipath Pregnancy Testing
Variel Corp. Portable Stem Baths
Vicks Formula Respiratory
44
Vicks Vapo Rub Respiratory
Vidal Sassoon Hair Care
Vitasana Vitamins
WhiteHall-Robins Healthcare Products
Wings Fragrances
Zantac Health Care
Zest Personal Cleansing
HOUSEHOLD PRODUCTS
Bold Laundry
Bounce Fabric Conditioner
Bounty Paper Towels
Boyds Ultra Car Care
Violet
Cascade Dish Care
Charmin Bath Tissue
Cheer Laundry
Comet Cleanser
Dawn Dish Care
Downy Conditioner
Dreft Laundry
Duracell Batteries
Era Laundry
Fabreez Conditioner
Gain Laundry
Ivory Dish Care
Joy Dish Care
Lights of Electronic Lamps
America
Mr. Clean Cleaners
Off Insect Control
Philips Lamps
Proctor & Household Products
Gamble
Raid Insect Control
Rayovac Batterys
Simple Green Household Cleaning
Spic & Span Cleaners
Stack-On Storage Products
Tide Laundry
Westinghouse Specialty Bulbs
Windex Cleaning Products
Woolite Fabric Care
HOME FURNISHINGS
American Heritage Ceiling Fans
Angelo Lighting
Beaulieu Floorcovering
Bush Furniture
Congoleum Floorcovering -- Vinyl
Cosco Children's Furniture
Delta Enterprises Cribs & Accessories
Dorel Futons & Beds
Fashion Bed Bedroom Furniture
Galaxy Adjustable Beds
Global Chairs & Desks
Heirloom Clocks
</TABLE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Holmes Lighting
Milliken Floorcoverings
Iner Metro Shelving
King Koil Mattresses
N.D. Cass Juvenile
Oriental Weavers Floorcoverings
Pelonis Ceiling Fans
Replogle Decorative Accessories
Rose Hill Furniture
Seiko Clocks
Sunbeam Clocks
Sunroca Casual Furniture
Vantage Point Entertainment
HOME IMPROVEMENT
3M Air Purifiers
Alsons Hand Held Showers
Amana Major Appliances
American Shower Bath Enclosures
Ames Lawn & Garden
Amerock Hardware
American Heritage Ceiling Fans
Angelo Lighting
Aroma Spa Aroma Therapy
Black and Decker Power Tools
Bosch Power Tools
Cambell Hausfeld Generators, Power Tools
Chamberlain Garage Openers
Clairson Organizers
Closetmaid Storage
Cooper Hand Tools
Cosco Step Stools, Juvenile
Culligan Water Purification
Crawford Ladders
Delonghi Portable Heaters
Delta Faucets Faucets & Showers
Delta Power Tools
Design House Decorative Products
Dewalt Power Tools
Enviroworks Lawn & Garden
Flexon Garden Hoses
Flowtron Lawn & Garden
Frost King Home Products
Garrity Flashlights
General Electric Major Appliances
Growmaster Tools
Holmes Heaters
Keller Ladders
Kidde Home Safety
Kindred Sinks
Kwikset Security Locks
Liteway Lighting
Lighting America Electronic Lighting
Lights of America Electronic Lighting
L.R. Nelson Lawn & Garden
Norelco Heaters, Air Purifiers
Peerless Faucets, Shower
Pelonis Heaters
Pennington Seed Lawn & Garden
Pentair Power Tools
Plano Molding Tool Boxes
Porter Cable Power Tools
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Reeleasy Hose Products
Satco Lighting
Shop-Vac Wet-Dry Vacs
Skil Power Tools
Stack-On Tool Cabinets
Stanley/Whistler Door Openers
Steelqueen Sinks
Step 2 Mail Boxes
Sunroca Outdoor Furniture
Thermwell Weatherstripping
Walter Kidde Smoke Detectors
Wells Lamont Work Gloves
Weber Stephens Barbecue Grills
Weiser Lock Door Locks
HOUSEWARES
3M Housewares
Amana Major Appliances
Bissell Floor Care
Braun Small Appliances
Briel Espresso
Chantal Cookware
Chicago Cutlery Knives
Culligan Water Purification
Delonghi Small Appliance
Farberware Cookware
General Electric Major Appliances
General Housewares
Housewares
Hoover Floor Care
Igloo Coolers
KitchenAid Small Appliances
Krups Kitchen Appliances
Meyers Cookware
Mirro Cookware
Norelco Kitchen Appliances
Panasonic Appliances
Pfaltzgraff Dinnerware
Philips Lignting, Appliances
Profile Microwave Ovens
Pur Water Purifiers
Radar Range Microwave Ovens
Safety 1st Juvenile Products
Sanyo Appliances
Seiko Clocks
Sentry Fire Proof Safes
Sharp Kitchen Appliances
Shop-Vac Wet-Dry Vacs
Singer Sewing Machines
SmartWater Water Purification
Springfield Thermometers and Clocks
Sunbeam Timers and Clocks
Wearever Cookware
Weber-Stephens Barbecue Accessories
West Bend Kitchen Appliances
JEWELRY & GIFTS
Alarama Diamond Jewelry
Amikam Diamond Jewelry
Armitron Watches
Athra Silver Jewelry
Boma Silver & Gemstone
</TABLE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Breitling Watches
Casio Sport Watches
Citra Gold & Diamond
Clover Diamond Jewelry
Clyde Duneier Gemstone Jewelry
Connoisseurs Jewelry Cleaning
Croton Watches
Elgin Watches
Gemshapes Men's Jewelry
I.B. Goodman Men's Jewelry
Jacques Laurent Watches
Josten's Class Rings
Jules Jurgenson Fashion Watches
Kirchner Mother & Child
Lorus Watches
Mayers Platinum & Diamond
Mike Engel Anniversary Bands
Movado Swiss Watches
Nobel Watches
Nordic Trading Giftware
Nybro Fine Crystal
OroAmerica Gold Jewelry
Wenger, S.A.K. Watches & Knives
Princess Pride Pearl & Gemstone
Pulsar Watches
SDC Diamonds Diamond Jewelry
Seiko Watches
Shube's Turquoise Jewelry
Swiss Army Knives, Watches
USA Florals Flowers
Weinman Heirloom Jewelry
LUGGAGE & CASES
Hartmann Luggage
Hazel Briefcases
Maurice Gerard Leather Bags
Roma Luggage Business Luggage
Saccoche Leather Cases
Solo Luggage
Stebco Business Cases
Targus Computer Cases
US Luggage Soft Sided
OFFICE PRODUCTS
3M Presentation, Projectors &
Papers
ACCO Fasteners
Acme United First Aid Kits
American Tombo Writing Instruments
Ampad Notepads
Apollo Presentation Products
Artistic Desk Accessories
ATAPCO Binders & Portfolios
At-A-Glance Dated Goods, Diaries
Avery Labels & Presentation
Bates Punches & Fasteners
Bic Pens & Pencils
BPI HON Office Furniture
Brother Word Processors, Fax
Machines & Printers
Bubblejet Cartridges & Accessories
Bush Desks & Workstations
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Canon Printer Supplies
Cardinal Binders & Portfolios
Casio Calculators
Charles Leonard Fasteners
Cross Writing Instruments
DayMinder Appointment Books
DayTimer Dated Goods & Organizers
Deskjet Printer Supplies
Duracell Batteries
Dymo Labelmakers
Eaton Papers & Envelopes
Eldon Desk Accessories
Epson Printer Supplies
Esselte Office Products
Fellowes Accessories
Fireking Fireproof Storage
Franklin Crow Dated Goods
GBC Presentation
Geobook Word Processors
Gillette Writing Instruments
Global Office Furniture & Seating
Great White Paper
Hammermill Office Papers
Hewlett Packard Paper & Printer
Accessories
Hazel Briefcases, Portfolios
Hi-Liter Highlighters
IBICO Binding
International Office Paper
Inter-Metro Wire Furniture
Kensington Office Accessories
Laserjet Toner, Film & Paper
Lexmark Printing Products
Lucent Telephones
Marks-a-Lot Markers
Martin Yale Mailroom Machines
Merriam-Webster Reference & Dictionaries
Newell Office Products
Officejet Ink Cartridges
Okidata Printer Supplies
Oxford Filing Systems
P-Touch Labeling Systems
Panasonic Telephones & Transcribers
Parker Writing Instruments
Pelouze Postal & Stamp Machines
Pendaflex File Folders
Perma Storage Files
Pitney Bowes Postal Systems
Plantronics Telephone Headsets
Polaroid Business Imaging Products
Post-It Adhesive Note Pads
Powershred Shredders
Quality Park Business Envelopes
Quartet Office Supplies
Rogers Desk Accessories
Rolodex Files & Organization
Rubbermaid Office Furniture
Safeco Office Furniture
Sanford Writing Instruments
Sanyo Telephones
Schwab Safes & Storage
Scotch Adhesives & Tape
</TABLE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Sentry Safes & Storage
Sharp Office Electronics
Sharpie Markers
ShredMaster Shredders
Sirco Office Furniture
Smead File Folders
Southworth Office Papers & Stationery
Stebco Business Cases
Survivor Envelopes & Mailers
Swingline Staplers
Targus Computer Cases
Tenex Desk Accessories
Texas Instruments Calculators
Tyvek Envelopes
Victor Calculators
Waterman Writing Instruments
Wescott Rulers, Protractors
Wilson Jones Binders, Shredders, Files
Wite-Out Correction Supplies
PET SUPPLIES
Flexi USA Pet Leashes
Francodex Pet Grooming
J.W. Pet Pet Toys
Midwest Pet Supplies
Perky Pet Bird Feeders
PrevuePet Pet Travel Cages
TETRA Aquariums & Supplies
SOFTWARE
3DO Entertainment
Access Entertainment
Activision Entertainment
Adobe Graphic
Blizzard Entertainment
Block Financial
Bungie Entertainment
Claris Productivity
Corel Productivity
Cybermedia Productivity
Daytimer Oganizational
Disney Entertainment
Dragon Voice Recognition
Dr. Soloman Productivity
EIDOS Entertainment
Encarta Reference
Filemaker Organizational
Hasbro Entertainment
Interplay Entertainment
Mattel Entertainment
Maxis Entertainment
Merriam Webster Reference
Microsoft
Magic School Bus Entertainment
Office 97 Business
Windows 98 Operating
Windows NT Business Operating
SPECIALTY FOODS
Berliner Gourmet Food
BOJ Gourmet Food
Forrest Hall Dessert Toppings
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Folgers Coffee
Gourmet Gram Specialty Foods
Ham I Am Specialty Meats
Jerbeau Chocolate Chocolate
Kova Caviar
Lazzaroni Deserts
Millstone Coffee
Omaha Steaks Specialty Meats
Pringles Snack Food
Pulgini Pasta Gourmet Foods
See's Premium Candies
Tobacco Source Cigars
Toufayan Bakeries Gourmet Foods
SPORTING GOODS
Adams Tight Lies Golf Clubs
Adams Sports Football Equipment
Adidas Sportswear
Air Football Equipment
All-Star Football Equipment
American Camper Camping Equipment
Baby Jogger Jogging Stroller
Bike Protective Gear
Brine Sports Gear
Brunswick Sporting Goods
Burton Golf Bags
Bushnell Binoculars & Range Finder
Callaway Golf Clubs
Healthrider Exercise Equipment
Huffy Bicycles
Icon Exercise Equipment
Image Exercise Equipment
King Cobra Golf Clubs
Martin Fishing Equipment
MaCabee Camping Equipment
Maxfli Golf Balls
Mongoose Bicycles
Odyssey Putters
</TABLE>
<TABLE>
<CAPTION>
BRANDS PRODUCTS
<S> <C>
Ping Putters
Pinnacle Golf Balls
Pony Football Shoes
Precept Golf Balls
Pro Athletic Supports
Proform Exercise
Quantum Fishing Equipment
Ram Golf Golf Clubs
Rawlings Sporting Goods
Riddell Football
Roadmaster Bicycles
Schutt Football Gear
McKenzie Golf Bags
Mikasa Volleyballs
Mitre Soccer Shoes
Neumann Sports Gloves
Ping Golf Clubs
Pro Form Exercise Equipment
Puma Sports Accessories
Reusch Sporting Gloves
Spalding Sporting Goods
Scotty Camerron Putters
Tachikara Volleyballs
Taylor Made Golf Clubs
TearDrop Golf Golf Equipment
Titleist Golf Clubs & Balls
Tommy Armour Golf Clubs
Top-Flite Golf Balls
Wenger Knives
Wilson Sporting Goods
World Sports In-Line Skates
Zebco Fishing Equipment
Zebra Putters
</TABLE>
MARKETING AND PROMOTION
Value America believes that its strategy of using traditional off-line
media to generate online sales enables it to reach a broader audience, build
its brand name, more effectively control its promotional budgets and
effectively tie advertising to revenue. Following this offering, Value America
expects to significantly increase its investment in both off-line and online
advertising and promotion to continue to sell products and attract and retain
customers. Value America employs a variety of promotional activities and
utilizes various media to accomplish its marketing goals, including:
TRADITIONAL ADVERTISING. Value America has implemented a program of print
advertising in general circulation newspapers such as THE BOSTON GLOBE, LOS
ANGELES TIMES, THE NEW YORK TIMES, SAN FRANCISCO CHRONICLE, THE WALL STREET
JOURNAL, USA TODAY and THE WASHINGTON POST, as well as in approximately 20
other major urban daily newspapers and selected magazines. Value America 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. Value America uses magazine
advertising to target specific products to specific target markets. In
addition, Value America advertises on national television outlets such as ABC,
CNN and TBS, as well as on local television outlets. Value America's national
radio advertising coverage features stations in each of the following markets:
Atlanta, Baltimore, Boston, Denver, Houston, Miami, New York, Orlando,
Philadelphia, San Diego and Washington, D.C.
DIRECT MARKETING. Value America utilizes direct response marketing to sell
products, promote its online store and increase brand name reach. Value America
coordinates its own direct response efforts with certain manufacturers
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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. Value America has conducted cooperative
marketing activities with brands such as Amana, Brother, Canon, GBC Quartet,
Hewlett-Packard, IBM, Panasonic, Toshiba and Weber. Value America intends to
further develop coordinated marketing plans with certain manufacturers. By
creating such affiliations, Value America can reduce its marketing expenses,
increase the level of its advertising and develop customer recognition of the
connection between the Value America store and the manufacturers' brand name
products.
ONLINE ADVERTISING. In addition to its off-line advertising program, Value
America advertises on Internet portals and targeted content sites. Value
America manages its Internet promotional campaigns in-house.
Value America believes it receives favorable rates and strong positioning
with a well-targeted presence from a wide variety of popular Internet sites.
Value America promotes online with ABC News.com, Better Homes & Gardens.com,
Big Yellow, Bloomberg Financial, Broadcast.com, CBS Sportsline, Classifieds
2000, Compare.net, CNN.com, Computer Shopper.com, Excite, Flycast, GeoCities,
HotBot, Infoseek, Lycos, MSN AudioNet, NetAddress, Netscape, NYTimes on the
Web, PCWorld, Pointcast and USAToday.com.
In October 1998, Value America established a business relationship with
Yahoo!. Pursuant to this relationship, Value America is entitled to 336.5
million impressions and six two-week front page promotional campaigns on
Yahoo!'s home page. This relationship includes the anchor position in Yahoo!'s
Small Business Center and exclusivity in the consumer electronics shopping
category. The Yahoo! Consumer Electronics Merchant Program is exclusive to
Value America. Every visitor that searches for information on more than 200
consumer electronics keywords is directed to Value America's Consumer
Electronics Department. Value America also enjoys exclusivity with the Yahoo!
Build-a-Computer Module. This feature enables shoppers to locate the right
machine for their needs through a selection of pull-down menus that directs the
user to Value America's store by specific manufacturer and computer type.
AFFINITY AND AFFILIATE MARKETING. Value America has established custom
stores for organizations such as Fannie Mae, The Bon Vivant Foundation,
University of Virginia, University of Michigan, IBM Small and Medium Business,
and National Small Business Union. It intends to seek to develop custom stores
for additional corporations, governmental agencies, unions, universities and
charities. Value America can select any sub-set of products for any custom
store and then establish discounts, charity contributions and Value America
Dollars for that store. Value America is also establishing a unique network of
affiliates who will be rewarded for creating links to Value America's Web site.
Affiliates will be compensated for purchases made by shoppers who click into
the Value America online store from the affiliates' Web sites.
MEMBERSHIPS
As of June 30, 1998, Value America had approximately 17,000 members. In
the third and fourth quarters of 1998, Value America began to feature the value
of membership in Value America's print advertising campaign and feature
membership promotions in the online store. This increased visibility, along
with a strategy to retain customers through expansion of Value America's
customer support center, dramatically increased Value America's membership
base, which numbered approximately 150,000 as of December 31, 1998. To date,
Value America has not charged any membership fees.
Value America members enjoy a number of important benefits. Members enjoy
a price advantage of 5% on most products in the store. Members also benefit
from Value America's account management feature, which enables members to have
a private space that maintains a record of all of their past purchases and
access to their receipts and manufacturer's warranties. This feature can be
particularly helpful for small businesses because it enables them to track
office supply and office technology expenditures even if they are purchased by
several employees from multiple vendors. Members are awarded "Value America
Dollars" with every purchase. Value America Dollars equal one percent or more
of the purchase price on most products in the store. Value America Dollars can
be used as currency for future purchases at the Value America online store.
Value America also allows its members to select a favorite charity to which one
percent of their purchases is automatically awarded. Value
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America members can keep a record of the birthdays, anniversaries and other
important dates, and Value America will remind members of these events in time
to choose a gift.
ORDER FULFILLMENT
Value America fulfills orders primarily by arranging for direct shipment
of products from the manufacturer or its designated distribution partner. Value
America does not carry significant levels of inventory, but, from time to time,
does make commitments to purchase minimum quantities of products such as
certain high-demand technology products. Value America's order fulfillment
systems are designed to choose the best product price and availability if
multiple distributors offer the same product. As of December 31, 1998, Value
America had EDI connections with vendors that accounted for approximately 90%
of Value America's revenues and 73% of its number of product orders. Value
America has established two-way EDI connections with vendors whose products
accounted for approximately 54% of Value America's revenues for the nine months
ended September 30, 1998. Vendors representing an additional 7% of Value
America's 1998 revenues use both EDI and automated document servers to place
product orders, and Value America uses automated document servers to create
purchase orders for vendors representing the final 3% of Value America's 1998
revenues. Value America expects the process of ordering and fulfillment to
become increasingly automated. Value America'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
include information stored within Value America'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. Value America currently ships
most products with United Parcel Service and Roadway. As part of its
relationship with The Union Labor Life Insurance Company, or ULLICO, Value
America has agreed that so long as ULLICO remains a stockholder of Value
America, Value America will only use shippers which have recognized one or more
unions as the collective bargaining representative of some or all of their
employees unless such shipping arrangements are not reasonably available. See
"Certain Transactions."
CUSTOMER SERVICE AND CALL CENTER
Value America believes that its ability to establish and maintain
long-term relationships, earn trust, provide service and encourage repeat
visits and purchases largely depends upon the strength of its customer support
and service operations and staff. Value America believes this approach allows
it to sell high value products, such as products costing over $1,000, in an
online environment and to reach a broader customer base. Value America
encourages frequent communication with, and feedback from, its customers in
order to continually improve its product and service offerings. To this end, it
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 Value America'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. Value America's telephone system
provides automatic call distribution and call statistics reporting. Currently
its online store provides customers with automatic e-mail updates for a change
in order status. Value America has installed e-mail management software that
allows its customer support and service personnel to handle a large volume of
e-mail more efficiently by providing for prioritization and routing.
Value America believes that the convergence of computers, televisions and
telephones with the Internet will ultimately form a unified communication,
education, entertainment and commerce enabled medium. In addition, Value
America believes that this convergence will require leading electronic commerce
companies to integrate call centers into their business models. Value America
believes online shoppers will require electronic commerce
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companies to combine the efficiency and anonymity of the Internet with the
sense of community and personal service of a traditional store.
Value America's call center features built-in redundancy, scalability,
intelligent agent selection and automated voice messaging. Its software systems
allow Value America to capitalize on data mining efficiencies for up-selling
and customer retention and to track the relative performance of a wide variety
of promotional campaigns. Voice-over-data and screen-pop functionality makes it
possible to create a more seamless shopping experience. Inbound call routing
ensures that customers are automatically paired with a representative specially
trained to handle their specific product category needs. Inbound sales
opportunities are routed to consumer products, technology products, office
products or affinity program representatives. Each representative is trained to
help phone buyers become more comfortable buying on the Internet by providing
information about security, navigation and the convenience of online commerce.
The call center is the focal point for Value America's outbound,
business-to-business sales effort. The call center includes professional
account managers who manage up to 300 accounts in designated territories. They
sell Value America's full product offering including systems, peripherals,
office supplies and furnishings. This solution is a "one stop shop" for the
small business market.
MANUFACTURER RELATIONSHIPS
Value America typically forms relationships directly with manufacturers.
Value America has listing agreements with manufacturers under which Value
America develops and hosts multi-media product presentations on Value America's
online store. Certain of these agreements require Value America to maintain
product listings for a minimum period of time, typically 12 or 36 months.
For the nine months ended September 30, 1998, goods manufactured by IBM
accounted for approximately 68% of net sales, and goods manufactured by
Hewlett-Packard represented approximately 11% of net sales.
o IBM. IBM provides its technology products for sale through Value
America's online store. IBM offers its products to Value America at
competitive prices and provides Value America with cooperative advertising
support. Value America, in turn, identifies IBM as an alliance partner,
provides Web access to IBM products through its online store and
advertises IBM products in major media outlets.
o HEWLETT-PACKARD. In 1997, Value America entered into agreements with
Hewlett-Packard pursuant to which Hewlett-Packard authorized Value America
to sell Hewlett-Packard's Pavilion line of home personal computers,
consumer and business printing and imaging products, and selected business
computer systems. Hewlett-Packard also provides Value America with
cooperative advertising support.
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. Value America
currently or potentially competes with a variety of other companies. These
competitors and potential competitors include:
o online retailers that specialize in a limited number of products,
including Amazon.com, Buy.com, CDNow, Cyberian Outpost, Dell Computer and
Gateway International;
o online retailers that offer a broad selection of products, including
Cendant, eBay, Internet Shopping Network, iQVC, ONSALE and Wal-Mart
Online;
o other online companies that offer centralized access to a broad
selection of products, including iMall;
o indirect competitors that generate a substantial portion of their
revenues from electronic commerce, including America Online, Excite,
Infoseek, Lycos, Microsoft Network and Yahoo!;
o mail order catalog operators, including Lands' End, Micro Warehouse,
Sharper Image, Spiegel and Williams-Sonoma;
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o retail and warehouse/discount stores, including Circuit City, Home Depot,
Office Depot, Price/Costco, Staples and Target; and
o other national and international retail, catalog, distribution and
manufacturing companies.
Value America 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
service, customer service, and quality of site content. Many of Value America'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 Value America. 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 Value America'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 Value America. Increased competition may result in
reduced operating margins or loss of market share, and may have a material
adverse effect on Value America's business, financial condition and results of
operations.
SYSTEMS INFRASTRUCTURE, TECHNOLOGY AND SECURITY
Value America has designed and developed a scalable system for transacting
business on the Internet. Value America's hardware and software infrastructure
is capable of supporting multiple online stores, as well as internal systems
for customer service, order processing, EDI, fulfillment, accounting and
management of product data.
DEPLOYMENT NETWORK. Value America has developed a secure, fault tolerant
network for hosting its Web site. The network utilizes high quality, industry
standard hardware including Cisco routers, IBM Netfinity servers, RAID arrays
and redundant Hewlett-Packard tape libraries. Value America acquired an
Autonomous System Number, or ASN, and maintains a set of Internet routing
tables to provide optimal routing for its network traffic and to support its
internal network architecture. Value America has redundant connections to the
Internet via UUNet and MCI.
Value America maintains an "N+1" philosophy for capacity and redundancy
planning; that is, Value America implements at least one unit of capacity above
the expected requirements for peak load. For example, (a) Web servers are added
as loads increase so that failure of any single server will not significantly
degrade performance, (b) network bandwidth is increased symmetrically on both
Internet connections to ensure performance in the event of failure in either
path, and (c) all mission critical data is stored in RAID configurations. A
network and server monitoring system has been implemented to aid in network
management and to notify operators of potential problems.
SOFTWARE SYSTEMS. Value America has developed custom software that makes
extensive use of relational database technology to implement its online store.
The system is deployed on a network of Windows NT and Unix servers. Value
America has developed multiple proprietary internal support systems to
facilitate sales, support customer service and manage product and store
content. These systems utilize EDI to exchange information with trading
partners. Value America has worked with GE Information Systems to develop EDI
mappings with trading partners, and EDI transactions have been implemented in
certain instances for purchase orders, purchase order acknowledgements,
invoices, and inventory and price updates. Value America utilizes the Netscape
ECXpert system to manage EDI processing. Credit card transactions are
automatically verified and cleared through PaymentNet.
SOFTWARE ARCHITECTURE. As a user navigates the Value America store,
product pages are generated from the database. Pages are dynamically created by
retrieving data elements from the database and inserting them into HTML
templates. This proprietary separation of data from presentation allows product
content to be added to the site without any software updates. Proprietary
authoring and content management tools have been created to add products and
multi-media product presentations to the virtual store in a standardized way.
These tools do not require that users learn HTML or understand any complex
technology. Multi-media presentations are implemented with RealAudio and
RealVideo technology, with the streaming media remotely hosted on MCI and
RealNetwork's servers. In addition, the system architecture supports the
concept of multiple storefronts with custom product selections and custom
pricing for products in any given store.
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The order processing pipeline ensures that orders flow through the system
with minimum human intervention. A proprietary system tracks order status from
the initial purchase to placing the order with a supplier to the order's final
shipment and invoicing. Using a proprietary real-time shopping mechanism, the
system automatically selects appropriate suppliers based upon the selected
product, cost and product availability. An integrated fraud prevention system
filters out potential fraudulent orders and routes them to the fraud department
for investigation.
SECURITY. Value America's network architecture employs commercial firewall
software that has been designed to protect the system from unauthorized access.
Electronic transactions between Web browsers and the online store and between
the store and the credit card processor are encrypted and transmitted with
Secure Socket Layer, or SSL, to ensure the security of customer information.
Sensitive information is encrypted in the database and stored on a secure
sub-network with controlled access from both internal and external sources.
INTELLECTUAL PROPERTY
Value America 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 in intellectual property. Value America does not currently hold any
patents or have any patent applications pending for itself or its products.
Value America has obtained a registered service mark for "Value America" and
two other variations of such name. Value America also owns six pending
applications for federal service mark registration of other variations of the
"Value America" name. Value America retains certain intellectual property
rights associated with the multi-media product presentations developed by Value
America for the brand name manufacturers whose products are featured in Value
America's store. Value America has entered into non-disclosure and invention
assignment agreements with all of its employees and enters into non-disclosure
agreements with all of its consultants and subcontractors that have access to
or are involved in the development of proprietary intellectual property. There
can be no assurance, however, that such measures will protect Value America's
proprietary technology, that Value America will be able to prevent competitors
from developing software with similar functionality, or that third parties will
not infringe upon or misappropriate Value America's intellectual property
rights.
Value America believes that its trademarks, software and other proprietary
rights do not infringe on the proprietary rights of third parties. To date,
Value America has not received claims from third parties that its product
offerings, trademarks or names infringe on any proprietary rights of any other
parties. However, Value America 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 Value America in the
future with respect to current or future product offerings, trademarks or other
Company works. Such assertion may require Value America to enter into royalty
arrangements or result in costly litigation. Value America is also dependent
upon obtaining licenses to utilize existing technology related to its
operations. To the extent that new technological developments are unavailable
to Value America on terms acceptable to it, or at all, Value America may be
unable to continue to implement its business, which would have a material
adverse effect on Value America's business, financial condition and results of
operations.
GOVERNMENT REGULATION
Value America 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, or the application of existing laws and
regulations to the Internet and other commercial online services, could have a
material adverse effect on Value America's business, financial condition and
results of operations.
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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 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 Value America'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. Value America
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 Value
America.
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.
Value America 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
Value America 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 Value America's business, financial condition, and results of
operations.
FACILITIES
Value America's principal administrative, computer, marketing and customer
service facilities are located in seven office buildings in Charlottesville,
Virginia encompassing an aggregate of approximately 45,000 square feet. The
facilities occupied by Value America are subject to leases that expire from
February 2000 through September 2000. The leases provide for aggregate monthly
rental charges of approximately $37,000.
EMPLOYEES
As of January 1, 1999, Value America had 227 full-time equivalent
employees, of which 40 were in technology and system management; 23 were in
merchandising and vendor partnerships; 33 were in product presentation and
marketing; 14 were in advertising and promotion; 52 were in sales and customer
service; 38 were in operations and fulfillment; 20 were in finance and human
resources; and 7 were in executive and business development. Value America
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 Value America believes that it can attract and retain
qualified personnel, there can be no assurance that Value America will be able
to do so.
Value America believes its relationships with its employees are good. None
of Value America's employees is represented by a collective bargaining agent,
and Value America has never experienced a work stoppage.
In connection with Value America's sale of preferred stock, Value America
agreed that so long as ULLICO is a preferred or common stockholder of Value
America (a) Value America will recognize any union attempting to represent
Value America's employees upon a showing of majority support through a formal
gathering of cards for such union and (b) in connection with any organizing
activities being performed by a union, Value America will refrain from actively
campaigning in opposition to the designation of such union as the
representative of Value America's employees.
LEGAL PROCEEDINGS
From time to time, Value America may be involved in litigation relating to
claims arising out of its operations in the normal course of business. Value
America is not currently party to any litigation or other legal proceedings,
nor is Value America 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 Value America's business, financial conditions and
results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY PERSONNEL
The executive officers, directors, director-nominee and other key
personnel of Value America, and their ages and positions as of January 20,
1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---------------------------------- ----- -----------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND
DIRECTOR-NOMINEE
Craig A. Winn 43 Chairman and Chief Executive Officer
Glenda M. Dorchak 44 President, Chief Operating Officer and Director
Dean M. Johnson 40 Executive Vice President, Chief Financial Officer, Secretary and
Director
Rex Scatena 49 Executive Vice President -- Business Development and Director
Joseph L. Page 29 Executive Vice President and Chief Technology Officer
Richard L. Gerhardt 47 President -- Consumer Products Division
Gary D. LeClair (1) 43 Director
John L. Motley III 48 Director
Michael R. Steed (1) 49 Director
William D. Savoy 34 Director -- Nominee
Frederick W. Smith 54 Director -- Nominee
Thomas J. Casey 46 Director -- Nominee
KEY PERSONNEL
Kenneth K. Erickson, Jr. 37 Senior Vice President -- Merchandising
Kenneth R. Power 53 Senior Vice President -- Advertising
Sandra T. Watson 42 Senior Vice President -- Finance and Controller
Jerry K. Goode 35 Vice President -- Engineering and Chief Information Officer
Melissa M. Monk 32 Vice President -- Sales
Marcus F. Nucci 32 Vice President -- Systems Development
</TABLE>
- ----------
(1) Member of the Audit Committee and the Compensation Committee.
CRAIG A. WINN, the principal founder of Value America, has been Chairman
and Chief Executive Officer since co-founding Value America in March 1996. Mr.
Winn also served as the President of Value America from August 1998 to October
1998. In 1978, he founded Craig A. Winn Company, Inc. (the "Winn Company"), a
manufacturers representative firm. From 1979 to 1989, Mr. Winn held a variety
of positions, including President, with the Winn Company. During this period,
Mr. Winn worked with the original Price Company management team; Mr. Winn
believes that he has integrated into the Value America solution much of what he
learned through this relationship. In February 1986, Mr. Winn founded Dynasty
Classics Corporation, a manufacturer and distributor of decorative and fixture
lighting ("Dynasty"), and served as its Chief Executive Officer from February
1986 to August 1993 and its Chairman from February 1986 to February 1994.
Dynasty acquired the Winn Company in December 1989 and became a publicly traded
company in May 1990. Dynasty increased its annual net sales to more than $90
million in 1991, selling to a variety of large retailers including Home Depot,
Price Club, Sam's Wholesale Club and Sears. Mr. Winn believes that his
experience in managing Dynasty provided him with an appreciation of the
challenges facing suppliers and how the suppliers' electronic data interchange
and distribution systems operate. In October 1993 Dynasty filed a petition for
relief under Chapter 11 of the United States Bankruptcy Code, and in July 1994
it ceased being a publicly traded company. Relying on his experience with
Dynasty, Mr. Winn has sought to develop a new low-cost, high-value business
model that reduces the risks associated with inventory, customer concentration
and reliance upon debt. Mr. Winn received a B.S. in Business Administration,
MAGNA CUM LAUDE, from the University of Southern California.
GLENDA M. DORCHAK has been President and Chief Operating Officer since
October 1998. She served as Senior Vice President -- Marketing and Advertising
of Value America from August 1998 to October 1998. From
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December 1995 until August 1998, she held several executive positions at IBM
US, including Director of PC Direct, Director of General Business PC Sales,
Director of US Channel Marketing and Director of Marketing for the Personal
Systems Group North America. From December 1992 until December 1995, Ms.
Dorchak served as the Director of Sales and Service of AMBRA, a build-to-order,
telemarketing PC business. From July 1974 to December 1992, Ms. Dorchak held a
variety of positions with IBM Canada, including National Direct Sales Manager,
IBM Direct, where she launched IBM's first personal computer telemarketing
operation in 1991.
DEAN M. JOHNSON joined Value America in November 1997 as Executive Vice
President, Chief Financial Officer and director. In December 1997, Mr. Johnson
became Value America's Secretary. 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, Inc., a wireless
cable television company that he co-founded, and the Managing Director of
Charlottesville Quality Cable, a company acquired by the parent corporation of
CFW Cable, Inc. From September 1986 to April 1991, he was Vice
President-Corporate Finance for Lehman Brothers, an investment bank. Mr.
Johnson received a B.S. in Industrial Administration from General Motors
Institute and an M.B.A. from the University of Virginia.
REX SCATENA co-founded Value America with Mr. Winn in March 1996. Mr.
Scatena has served as Executive Vice President -- Business Development in
August 1998. Mr. Scatena has also served as a director since March 1996. From
June 1998 until August 1998, Mr. Scatena served as President -- Consumer
Products Division. From Value America's inception until August 1998, Mr.
Scatena served as Value America's President. From July 1988 to August 1997, Mr.
Scatena was Managing Partner of the law firm of 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.
JOSEPH L. PAGE has been Executive Vice President and Chief Technology
Officer of Value America 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.
RICHARD L. GERHARDT joined Value America in September 1998 as President --
Consumer Products Division. From February 1996 to June 1997, he served as
Director of Merchandising and Catalog Production for Maintenance Warehouse, a
division of Home Depot. From September 1993 to February 1996, Mr. Gerhardt was
a Vice President of Merchandising, Product Planning and Sales for Price Quest,
an electronic catalog operated by Price/Costco. From September 1989 to
September, 1993, he served as President and Vice Chairman of Dynasty.
GARY D. LECLAIR has been a director of Value America since November 1997.
Mr. LeClair has been Chairman of LeClair Ryan, A Professional Corporation,
legal counsel to Value America, 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.B.A. 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 Value America since November
1997. Since 1980, Mr. Motley has been the President of John Motley Associates,
Inc., an office products manufacturers' representative company that he founded.
Mr. Motley has served as a part-time employee of Value America since August
1997. See " -- Director Compensation." Mr. Motley received a B.S. in Political
Science from the University of Vermont.
MICHAEL R. STEED has been a director of Value America 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 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. Mr. Steed serves as a director
of Global Crossing, Ltd., a global fiber optic network. He received a B.A. from
Loyola University of Los Angeles and a J.D. from Loyola University School of
Law in Los Angeles.
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WILLIAM D. SAVOY has been nominated to serve as a director of Value
America 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
Online -- City Search, USA Networks, Inc. and U.S. Satellite Broadcasting. Mr.
Savoy holds a B.S. in computer science, accounting and finance from Atlantic
Union College.
FREDERICK W. SMITH is Chairman, President and Chief Executive Officer of
FDX Corporation, a global transportation and logistics holding company that was
formed when Federal Express Corporation acquired Caliber System, Inc. in
January 1998. He founded Federal Express in 1971 and was President of Federal
Express from 1971 to 1975 and from 1983 to January 1998. Mr. Smith was Chief
Executive Officer of Federal Express from 1977 to January 1998 and has served
as its Chairman since 1975. He is responsible for providing strategic direction
for all FDX Corporation business units, including Federal Express, RPS, Viking
Freight, Robert Express and FDX Global Logistics. Mr. Smith has served on the
boards of several large public companies. He is a director of the Business
Roundtable, the CATO Institute, the Library of Congress James Madison Council
and the Mayo Foundation, and he serves as Vice-Chairman of the U.S.-China
Business Council. Mr. Smith received a B.S. in economics from Yale University.
THOMAS J. CASEY has been Vice Chairman of Global Crossing, Ltd., an
independent developer, owner and operator of open access and undersea
fiberoptic global telecommunications networks since December 1998. He has also
served as Managing Director of Global Crossing since September 1998. Since
September 1998, Mr. Casey has been President and a director of Pacific Capital
Group, a Los Angeles-based merchant banking firm. From October 1995 to
September 1998, Mr. Casey was Managing Director of Merrill Lynch's Global
Communications Investment Banking Group. In this position, he oversaw equity,
debt and merger and acquisition assignments for United States, European and
Asian telecommunications media end technology information services companies.
From January 1990 to September 1995, he served as a partner and co-head of the
telecommunications and media group for the law firm of Skadden, Arps, Slate,
Meagher and Flom. Mr. Casey received a B.A. from Boston College and a J.D. from
George Washington University Law School.
KENNETH K. ERICKSON, JR. has been Senior Vice President -- Marketing since
August 1998 and served as Vice President -- Marketing from September 1997
through July 1998. From January 1997 through August 1997, he served as National
Accounts Director for M. Fabrikant & Sons, a jewelry manufacturer. From January
1996 through December 1996, he was Vice President of American Gem Corporation,
a mining company. From January 1995 through December 1995, he was President of
Golden Sun Manufacturing, a jewelry manufacturer. From January 1994 through
December 1994, Mr. Erickson served as National Accounts Manager for London Star
Inc., a jewelry manufacturing company. From May 1985 to December 1993, he was
Vice President of Sales and Marketing of Coleman Company, a jewelry
manufacturing company. Mr. Erickson holds a B.A. from Seattle University.
KENNETH R. POWER has been Senior Vice President -- Advertising since April
1997 and Creative Director of Value America since August 1996. In addition, he
served as Vice President -- Advertising from August 1996 to April 1997. 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 Senior Vice President -- Finance since March
1998 and Controller since November 1997. From August 1993 to August 1997, Ms.
Watson was financial and regulatory manager for CFW Cable, Inc. a wireless
cable television company, and the controller of Charlottesville Quality Cable,
a company acquired by the parent-corporation of CFW Cable, Inc. 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 Value America in May 1998 as Vice President --
Engineering. From January 1995 to February 1998, Mr. Goode was Area Manager for
Engineering Services for Apple Computer, Inc. From May 1993 to January 1995,
Mr. Goode was Director of On-Line Product Development at Starwave Corporation,
an
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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.
MELISSA M. MONK joined Value America in October 1998 as Vice President --
Sales. From March 1997 to October 1998, Ms. Monk was the Director of North
American Marketing Organization, North American Marketing Operations Manager
and Manager of Small and Medium Business Programs for the IBM Personal Systems
Group. From November 1995 to March 1997, Ms. Monk served as the Director of
Business Development for Avnet Computer Marketing Group, a reseller and value
added distributor of PC products. From October 1994 to August 1995, Ms. Monk
was Corporate Division Manager for Insight Direct, a mail order reseller of
PCs. From December 1993 to October 1994, Ms. Monk worked as Site Manager for
AMBRA, a PC subsidiary of IBM. Prior to December 1993, Ms. Monk worked for Dell
Computer, a manufacturer of PCs. She received a B.S. in Business Administration
from the University of Texas.
MARCUS F. NUCCI joined Value America in June 1998 as Director -- Business
Commerce and has served as Vice President -- Systems Development since August
1998. From March 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 April 1992 to August 1996, he was Senior 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 Value America 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. The Bylaws provide
that the President shall be chosen from among the Directors. There are no
family relationships among the executive officers and directors of Value
America.
BOARD OF DIRECTORS
The Articles provide that Value America's board of directors shall have
nine members and upon the closing of this offering, 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, Ms. Dorchak and Messrs. Johnson and Motley will be
classified as Class I directors and will serve until Value America's 1999
annual meeting of stockholders; Messrs. Savoy, Smith and Scatena will be
classified as Class II directors and will serve until the 2000 annual meeting;
and Messrs. Winn, LeClair and Steed will be classified as Class III directors
and will serve until the 2000 annual meeting of stockholders. Mr. Motley will
not stand for re-election as a director of Value America at the 1999 annual
meeting of shareholders, and Mr. Casey will stand for election to the Class I
directorship previously held by Mr. Motley. Each successor to a director whose
term expires at an annual meeting of stockholders will be elected to serve
until the 2001 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 of directors 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. Vacancies in the board of directors can be filled only
by the stockholders of Value America. Directors may be removed only by
stockholders and only with cause (as defined in the Articles).
COMMITTEES OF THE BOARD OF DIRECTORS
Value America's board of directors has established an Audit Committee and
a Compensation Committee. Messrs. Steed and LeClair serve as the members of
both committees. Under the Bylaws, Mr. Winn, as Value America's Chairman, is an
EX OFFICIO member of both committees. The Audit Committee recommends the annual
appointment of Value America's independent auditors, with whom the Audit
Committee reviews the scope of audit and non-audit assignments and related
fees, accounting principles used by Value America in financial reporting,
internal auditing procedures, the quality and integrity of Value America's
financial statements, and the adequacy of internal accounting controls. The
Compensation Committee determines the salaries and bonuses paid to the
executive officers of Value America and determines the amounts annually
available for bonuses pursuant to any bonus plan or formula approved by the
board of directors. Under the Articles, the Compensation Committee must approve
all matters affecting the compensation of any officer or director of Value
America or any employee of or consultant to Value America whose base
compensation exceeds $75,000. The Compensation Committee
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has the exclusive authority to administer and take all action permitted or
required to be taken by the board of directors or any committee of the board of
directors under the stock incentive plan and any other stock option plan or
arrangement that may provide for the issuance of common stock, stock
appreciation rights, phantom stock or other similar benefits to any employee of
or any adviser or consultant to Value America. The Compensation Committee also
has oversight responsibilities for all employee compensation and benefit
programs.
DIRECTOR COMPENSATION
Directors of Value America do not receive cash compensation for their
services as directors but are reimbursed for their reasonable expenses in
attending meetings of the board of directors and the committees on which they
serve. Directors who are not employees of Value America are eligible to receive
incentive awards under Value America's stock incentive plan. On August 1, 1997,
Value America granted Mr. Motley, as a part-time employee of Value America,
incentive stock options to purchase 375,000 shares of common stock. Options to
purchase 150,000 shares vested immediately and the remaining options vest in
equal installments over a three-year period. The options have ten-year terms
and an exercise price of $0.58 per share. On November 13, 1997, Value America
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. On November 18, 1998, Value America
granted non-qualified options to purchase 22,500 shares of common stock to The
Union Labor Life Insurance Company, acting on behalf of its Separate Account P
("Separate Account P"). The options vest in equal installments over a five-year
period, have ten-year terms and have an exercise price of $3.50 per share.
Value America intended to grant these options to Mr. Steed for his services as
a director of Value America. For reasons relating to his fiduciary obligations,
Mr. Steed requested that Value America issue these options to Separate Account
P. Upon a change in control, as such term is defined in the stock incentive
plan, the Compensation Committee may take any one or more of the following
actions either at the time such options are granted or any time thereafter: (a)
provide for the assumption of options granted under the Incentive Plan; (b)
provide for substitution of appropriate new options awards covering the stock
of a successor corporation to Value America or an affiliate thereof; or (c)
give notice to participants that no such assumption or substitution will be
made, in which event each outstanding option 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
Value America'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 such options will terminate
immediately following the consummation of a change in control, except to the
extent assumed by the successor corporation or an affiliate thereof. Value
America may grant additional non-qualified options to non-employee directors in
the future.
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EXECUTIVE COMPENSATION
The following table provides information on the compensation earned during
fiscal 1997 and 1998 by: (a) the chief executive officer of Value America and
(b) the other executive officers of Value America whose bonus and salary for
such fiscal years exceeded $100,000 in 1998. The persons named in the table are
referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------- ----------------------
NAME AND SECURITIES UNDERLYING
PRINCIPAL POSITION(S) YEAR SALARY ($) BONUS ($) OPTIONS (#)(1) ALL OTHER COMPENSATION ($)
- ---------------------------------- ------ ------------------- ----------- ---------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
Craig A. Winn,
Chairman and
Chief Executive Officer ......... 1998 $ 233,718 (2) -- -- --
1997 45,000 (3) -- -- --
Glenda M. Dorchak,
President and
Chief Operating Officer ......... 1998 57,780 (4) $62,364 325,000 $ 266,042 (5)
1997 -- -- -- --
Dean M. Johnson,
Executive Vice President,
Chief Financial Officer
and Secretary ................... 1998 146,074 (6) -- -- --
1997 13,269 (7) -- 225,000 --
Rex Scatena,
Executive Vice President --
Business Development ............ 1998 177,692 (8) -- -- --
1997 52,500 -- -- --
Joseph L. Page,
Executive Vice President
and Chief Technology
Officer ......................... 1998 129,327 (9) -- -- --
1997 68,015 -- 864,375 --
</TABLE>
- ----------
(1) Represents options granted pursuant to Value America's stock incentive
plan.
(2) Mr. Winn's current salary is $295,000 per year.
(3) 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.
(4) Ms. Dorchak joined Value America in August 1998. Her current salary is
$250,000 per year and her minimum bonus for 1999 is $150,000.
(5) This amount represents $154,042 for relocation expenses and a $250,000 loan
from Value America at an interest rate of 6% per annum.
(6) Mr. Johnson's current salary is $225,000 per year.
(7) Mr. Johnson joined Value America in November 1997.
(8) Mr. Scatena's current salary is $180,000 per year.
(9) Mr. Page's current salary is $150,000 per year.
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<PAGE>
OPTION GRANTS DURING FISCAL 1998
The following table provides information on the grants of stock options to
the only Named Executive Officer who received options during the fiscal year
ended December 31, 1998:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF STOCK
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM (1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------------
GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
------------ -------------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Glenda M. Dorchak ......... 325,000 15.4% $ 10.16 2008 $2,076,610 $5,262,538
</TABLE>
- ----------
(1) Amounts that may be realized upon exercise of the options immediately
before the expiration of their term, assuming the specified compound rates
of appreciation (5% and 10%) on the market value of the common stock on the
date of option grant over the term of the options. These numbers are
calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect Value America's estimate of future stock
growth. Actual gains, if any, on stock option exercises and common stock
holdings are dependent on the timing of exercise and the future performance
of the common stock. There can be no assurance that the rates of
appreciation assumed in this table can be achieved or that the amounts
reflected will be received by individuals.
FISCAL YEAR-END OPTION VALUES
The following table provides information on the number and value of
unexercised options held by each of the Named Executive Officers on December
31, 1998. No Named Executive Officers exercised stock options in the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Craig A. Winn ............. -- -- -- --
Glenda M. Dorchak ......... -- 325,000 -- $1,898,000
Dean M. Johnson ........... 105,000 120,000 $1,504,650 1,719,600
Rex Scatena ............... -- -- -- --
Joseph L. Page ............ 342,852 521,523 5,286,778 8,041,885
</TABLE>
- ----------
(1) Represents the difference between the exercise price and the assumed
initial public offering price of $16.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the board of directors was formed in
December 1997 to make recommendations to the board of directors regarding the
compensation and benefits for Value America's executive officers and to
administer Value America's stock 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 Value America's executive officers. No executive officer of Value America
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 Value
America's board of directors or Compensation Committee.
Gary D. LeClair serves as a member of the Compensation Committee of the
board of directors. Mr. LeClair also serves as the Chairman of LeClair Ryan, A
Professional Corporation, Value America's legal counsel.
54
<PAGE>
Michael R. Steed also serves as a member of the Compensation Committee of
the Board. Mr. Steed serves as the Senior Vice President of ULLICO, which, upon
the closing of this offering, will be the record holder of 3,544,229 shares of
Value America's common stock.
STOCK INCENTIVE PLAN
Value America adopted the stock incentive plan on August 1, 1997. The
stock incentive plan provides for the granting of incentive awards to
employees, officers, directors, consultants and certain non-employees of Value
America. 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 stock incentive plan is 6,250,000, subject to adjustment in the event of a
stock split, stock dividend or other change in the common stock or capital
structure of Value America. The Compensation Committee administers the stock
incentive plan. Subject to the provisions of the stock incentive plan, the
Compensation Committee is authorized to determine who may participate in the
stock 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 stock incentive plan and to adopt rules and
regulations to carry out the stock incentive plan.
OPTIONS. Options granted under the stock incentive plan may be either
"incentive stock options" within the meaning of Section 422 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 Value America
(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 Value America. The per share
exercise price of the common stock subject to any option granted pursuant to
the stock 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. 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 stock 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.
No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution. During the lifetime of any
optionee, the option generally will be exercisable only by the optionee. In the
event of termination of employment, other than for cause (as defined in the
stock incentive plan), death or permanent disability, the optionee will have
three months after such termination to exercise the option to the extent it was
exercisable on the date of such termination. In the event of termination of
employment for cause, the option terminates on the date of misconduct. Upon
termination of employment of any optionee by reason of death or permanent
disability, an incentive stock option remains exercisable for one year
thereafter.
Incentive stock options granted under the stock 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 stock incentive plan may
provide for the payment of the exercise price in cash or by delivery to Value
America 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.
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 stock 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 Value
America 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.
55
<PAGE>
RESTRICTED STOCK. Restricted stock issued pursuant to the stock incentive
plan is subject to the following general restrictions: (a) 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 stock incentive plan; and (b) if a holder of restricted stock
ceases to be employed by Value America, 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 stock 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 Value America
sufficient to satisfy the income and payroll taxes legally required to be
withheld upon exercise of an option or SAR, 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 and unless the grantee
otherwise elects, restricted stock. Upon receipt of incentive stock, a
participant will recognize compensation income, which is subject to income tax
withholding by Value America, 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 Value America, 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 stock 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 stock 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 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 that such shares are no
longer subject to a substantial risk of forfeiture. Such amounts will be
included in the tax recipient's income for the year in which such event occurs.
The income recognized will be subject to income tax withholding by Value
America.
56
<PAGE>
Upon exercise of a tax offset right, a participant generally will
recognize ordinary compensation income, which is subject to income tax
withholding by Value America, equal to the cash received.
Subject to certain limitations, Value America 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, upon a grantee's election to include in income on the date of
grant the fair market value of a grant of restricted stock, and upon exercise
of an SAR. 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: (a) provide for the assumption of incentive awards granted under
the stock incentive plan; (b) provide for substitution of appropriate new
incentive awards covering the stock of a successor corporation to Value America
or an affiliate thereof; or (c) 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 Value America'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 stock incentive
plan, a "change in control" transaction generally is defined to constitute any
of the following: (1) approval by the stockholders of a reorganization, merger
or consolidation in which holders of outstanding voting securities of Value
America would receive less than 50% of the voting securities of the surviving
or resulting corporation; (2) approval by the stockholders of a complete
liquidation or dissolution of Value America; (3) approval by the stockholders
of the sale or transfer of substantially all of the assets of Value America; or
(4) the acquisition other than from Value America by a person or group of
related persons of beneficial ownership of 50% or more of the outstanding
voting securities of Value America. 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 ARRANGEMENTS
Value America and Craig A. Winn, Chairman and Chief Executive Officer of
Value America, entered into an employment agreement as of January 19, 1999. The
agreement has a term of two years and renews automatically for additional
periods of one-year until either party gives notice of non-renewal at least 30
days before the expiration date of the agreement. Value America will pay Mr.
Winn an agreed-upon annual salary, subject to adjustment at any time in the
sole discretion of Value America. Mr. Winn's current salary is $295,000. Mr.
Winn is generally entitled to participate in any employee benefit plans from
time to time in effect for all employees. The agreement provides that, in the
event of Mr. Winn's death, Value America will pay his beneficiary or his estate
an amount equal to one month's salary. Mr. Winn may terminate his employment
under the agreement by giving 30 days' notice to Value America. Value America
may terminate Mr. Winn's employment immediately with or without cause by giving
him written notice of termination. If Mr. Winn is terminated without cause, he
will be entitled to any unpaid salary due to him through the date of
termination and any accrued but unpaid vacation pay.
Value America and Glenda M. Dorchak, President and Chief Operating Officer
of Value America, entered into an employment agreement as of October 5, 1998
pursuant to which Ms. Dorchak accepted the positions of President and Chief
Operating Officer. Under the agreement, Ms. Dorchak receives a salary at the
rate of $250,000 per year until December 31, 1999 and will receive a salary of
at least $300,000 every year thereafter, subject to increases. The term of the
agreement continues through December 31, 2001 and then renews automatically for
57
<PAGE>
additional periods of one-year until either party gives notice of non-renewal
at least three months before the expiration date of the agreement. Ms. Dorchak
is also eligible for quarterly incentive compensation. During the first year of
her employment, Value America will pay Ms. Dorchak a bonus of $37,500 per
calendar quarter. In each subsequent year of her employment, and based upon
achieving corporate and individual performance and other criteria as
established by the Compensation Committee, Ms. Dorchak may earn quarterly
bonuses amounting to, in the aggregate, a minimum of $150,000 per year. Value
America also has agreed to pay Ms. Dorchak a bonus in an amount (not to exceed
$390,000) equal to the product of (a) $6.50 and (b) up to an aggregate of no
more than 60,000 shares of common stock to be purchased by Ms. Dorchak upon the
exercise of a stock option received under the stock incentive plan. Such bonus,
if made by Value America, will be deemed earned on and will be paid on the date
of the exercise of such stock option. Value America also has loaned Ms. Dorchak
$250,000 with interest of 6% per annum. Ms. Dorchak is generally entitled to
participate in any employee benefit plans from time to time in effect for all
employees. Ms. Dorchak may voluntarily terminate her employment at any time
under the agreement. Value America may terminate Ms. Dorchak's employment with
or without due cause by giving her written notice of termination. If Ms.
Dorchak is terminated by Value America for due cause, she will receive her
salary through the date of termination. If Value America terminates her
employment other than for due cause, Ms. Dorchak will be entitled to the sum of
(a) her annual salary at the time and (b) if the effective date of termination
is on or before December 31, 1999, then $150,000; if the effective date of
termination is after December 31, 1999, then a pro rata portion of any bonus
she may have earned under the agreement if she had been employed for a full
calendar year. In addition, if Ms. Dorchak is terminated other than for due
cause prior to December 31, 1999, Value America will also reduce by $150,000
the amount she owes on the $250,000 loan from Value America.
Value America and Rex Scatena, Executive Vice President -- Business
Development of Value America, entered into an employment agreement as of
January 19, 1999. The agreement has a term of two years and renews
automatically for additional periods of one-year until either party gives
notice of non-renewal at least 30 days before the expiration date of the
agreement. Value America will pay Mr. Scatena an agreed-upon annual salary,
subject to adjustment at any time in the sole discretion of Value America. Mr.
Scatena's current salary is $180,000. Mr. Scatena is generally entitled to
participate in any employee benefit plans from time to time in effect for all
employees. The agreement provides that, in the event of Mr. Scatena's death,
Value America will pay his beneficiary or his estate an amount equal to one
month's salary. Mr. Scatena may terminate his employment under the agreement by
giving 30 days' notice to Value America. Value America may terminate Mr.
Scatena's employment immediately with or without cause by giving him written
notice of termination. If Mr. Scatena is terminated without cause, he will be
entitled to any unpaid salary due to him through the date of termination and
any accrued but unpaid vacation pay.
Value America and Dean M. Johnson, Executive Vice President, Chief
Financial Officer and Secretary of Value America, entered into an employment
agreement as of November 13, 1997. The agreement has a term of two years and
renews automatically for additional periods of one-year until either party
gives notice of non-renewal at least 30 days before the expiration date of the
agreement. Value America agreed to pay Mr. Johnson a salary of $100,000 per
year, subject to adjustment at any time in the sole discretion of Value
America. Value America increased Mr. Johnson's annual salary to $225,000 as of
September 1, 1998. Mr. Johnson is generally entitled to participate in any
employee benefit plans from time to time in effect for all employees. The
agreement provides that, in the event of Mr. Johnson's death, Value America
will pay his beneficiary or his estate an amount equal to one month's salary.
Mr. Johnson may terminate his employment under the agreement by giving 30 days'
notice to Value America. Value America may terminate Mr. Johnson's employment
immediately with or without cause by giving him written notice of termination.
If Mr. Johnson is an officer of Value America on the date of his termination,
he will be entitled to 30 days' salary and, if Value America does not waive Mr.
Johnson's obligation not to compete with Value America for a period of six
months following the termination of his employment, an additional six months'
salary.
Value America and Joseph L. Page, Executive Vice President and Chief
Technology Officer of Value America, entered into an employment agreement as of
April 1, 1996. The agreement has a term of two years and renews automatically
for additional periods of one year until either party gives notice of
non-renewal at least 30 days before the expiration date of the agreement. Value
America agreed to pay Mr. Page a salary of $85,000 per year
58
<PAGE>
for the fourth quarter of 1997 and $100,000 per year, beginning January 1, 1998
subject to adjustment at any time in the sole discretion of Value America. Mr.
Page's current salary is $150,000 per year. In addition, Mr. Page is generally
entitled to participate in any employee benefit plans from time to time in
effect for all employees. The agreement provides that, in the event of Mr.
Page's death, Value America will pay his beneficiary or his estate an amount
equal to one month's salary. Mr. Page may terminate his employment under the
agreement by giving 30 days' notice to Value America. Value America may
terminate Mr. Page's employment immediately with or without cause. If Mr. Page
is an officer of Value America on the date of his termination, and Mr. Page has
completed 90 days of continuous employment with Value America, he will be
entitled to (a) 30 days' salary and (b) if Value America does not waive Mr.
Page's obligation not to compete with Value America for a period of six months
following the termination of his employment, an additional six months' salary.
Value America and John L. Motley III, a director of Value America, entered
into an employment agreement effective as of August 1, 1997 under which Mr.
Motley agreed to serve as an employee of Value America for not more than five
hours per month at a salary of $12,000 per year. The agreement has a term of
two years and renews automatically for additional periods of one-year until
either party gives notice of non-renewal at least 30 days before the expiration
date of the agreement.
59
<PAGE>
CERTAIN TRANSACTIONS
On August 1, 1997, Value America 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 Value America in 1996 and 1997. The note accrued interest at a rate of 12%
per annum upon default. The note was paid in full in December 1997.
On November 13, 1997, Value America 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. Dean M.
Johnson, the Executive Vice President, Chief Financial Officer and Secretary
and a director of Value America, and Gary D. LeClair, a director of Value
America, each purchased 60,000 shares of common stock at $1.50 per share and
30,000 warrants at $0.33 per warrant. The warrants have five-year terms and
exercise prices of $1.67 per share. In addition, John M. Motley, a director of
Value America, purchased 150,000 shares of common stock at $1.67 per share.
Pursuant to an agreement entered into as of June 3, 1998, Mr. Winn sold
288,321 shares of common stock on June 24, 1998 to a single investor for
$2,000,000, or $6.94 per share, including $1,000,000 in cash and a $1,000,000
five-year promissory note. The promissory note will not be payable unless the
fair market value (as defined) of the transferred shares exceeds $6.0 million
on the date that is 180 days after the date of this prospectus. In connection
with this transaction, Value America granted the investor certain demand and
piggy-back registration rights. See "Description of Capital Stock --
Registration Rights" and Note 6 of Notes to Financial Statements.
On June 26, 1998, Value America issued an aggregate of 617,979 shares of
Series B preferred stock to 18 investors for an aggregate purchase price of
$18,829,894 or $30.47 per share of Series B preferred stock (equivalent to a
purchase price of $10.16 per share of common stock on an as-converted basis).
Value America granted the holders of Series B preferred stock certain rights of
first refusal, tag-along rights, and demand and piggy-back registration rights.
The terms of the Series B preferred stock also require Value America to pay
quarterly dividends on such shares of stock until they are redeemed or
converted. Mandatory redemption of the Series B preferred stock may occur if
Value America 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 preferred stock will automatically convert into 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 this transaction, Mr. Winn
and Rex Scatena, the Executive Vice President -- Business Development and a
director of Value America, 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 preferred stock and the beneficial holder of more than 5% of the
outstanding shares of the common stock, purchased 7,801 shares of Series B
preferred stock.
In connection with the Series B Transaction, Messrs. Winn and Scatena sold
an aggregate of 617,979 shares of common stock to ULLICO and two other
stockholders for an aggregate purchase price of $6,276,607 or $10.16 per share.
On July 2, 1998, Mr. Winn sold an aggregate of 28,350 shares of common
stock to three employees of Value America for an aggregate of $289,942 or
$10.16 per share.
On September 28, 1998, Mr. Winn loaned Value America $300,000. Value
America evidenced this debt by issuing a promissory note for such amount. The
note accrued interest at a rate of 10% per annum. Value America repaid the debt
in full in December 1998.
On September 28, 1998, Mr. Scatena loaned Value America $250,000. Value
America evidenced this debt by issuing a promissory note for such amount. The
note accrued interest at a rate of 10% per annum. Value America repaid the debt
in full in December 1998.
On September 30, 1998, John L. Motley III, a director of Value America,
loaned Value America $150,000. Value America evidenced this debt by issuing a
promissory note for such amount. The note accrued interest at a rate of 10% per
annum. Value America repaid the debt in full in December 1998.
Pursuant to a Revolving Loan Agreement, dated October 14, 1998, as amended
and restated from time to time, ULLICO loaned Value America an aggregate of
$34.0 million. ULLICO is entitled to receive a commitment
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<PAGE>
fee equal to $340,000 in connection with this agreement. In connection with
this loan, Value America issued to ULLICO and certain participants (including
an affiliate of Sam Belzberg, principals of the Carlyle Group, principals of
CIBC/Oppenheimer, George Cooney, Kluge Investments, principals of Pacific
Capital Group (including Gary K. Winnick and Thomas J. Casey) and an affiliate
of Yucaipa) warrants to purchase an aggregate of 4,133,000 shares of common
stock to ULLICO and the participants. ULLICO retained warrants to purchase
458,375 shares of common stock. Of these warrants (a) 54,000 have an exercise
price of $0.01 per share, (b) 250,000 have an exercise price of $10.00 per
share and (c) 154,375 have a variable exercise price of either $0.01 per share
or $10.00 per share. This variable exercise price will only equal $0.01 if the
aggregate value of Value America's capital stock does not exceed $600 million
on or before December 31, 1999. The warrants to purchase 250,000 shares of
common stock at $10.00 per share shall automatically be exercised immediately
prior to the completion of this offering in exchange for the elimination of
Value America's underlying debt to ULLICO under the loan agreement.
On December 31, 1998, Glenda M. Dorchak, Value America's President and
Chief Operating Officer invested $100,000 in Value America. In connection
therewith, Value America issued Ms. Dorchak 10,000 shares of common stock and
warrants to purchase 3,000 shares of common stock at $10.00 per share. The
warrants vest on December 31, 1999 and expire on December 31, 2008.
On December 31, 1998, Richard L. Gerhardt, Value America's President --
Consumer Products Division invested $100,000 in Value America. In connection
therewith, Value America issued Mr. Gerhardt 10,000 shares of common stock and
warrants to purchase 3,000 shares of common stock at $10.00 per share. These
warrants vest on December 31, 1999 and expire on December 31, 2008.
Pursuant to a consulting agreement entered into as of November 18, 1998,
Value America has engaged ULLICO as a consultant to Value America's affinity,
new markets, and employee compensation and benefit programs. The term of the
agreement began on the date it was entered into and ends when ULLICO no longer
holds shares of the Series A preferred stock or Series B preferred stock. For
services rendered to Value America, ULLICO will receive a fee of (a) $244.50
per day for the period commencing June 26, 1998 and ending June 30, 1998 and
(b) $22,005 per quarter commencing July 1, 1998 and ending on the last day of
the term of the agreement. Additionally, ULLICO received an option to purchase
up to 22,500 shares of common stock at an exercise price of $3.50 per share.
On January 15, 1999, Value America issued 6,000,000 shares of Series C
preferred stock and warrants to purchase 1,800,000 shares of common stock to
Vulcan Ventures Incorporated, a Washington corporation, FDX Corporation, a
Delaware corporation and Frederick W. Smith, a director-nominee of Value
America for an aggregate purchase price of $60,000,000. The warrants have
ten-year terms and a variable exercise price per share. The warrants issued are
immediately exercisable and expire on January 15, 2009. If the aggregate market
price of Value America's equity securities is in excess of $600 million on or
before December 31, 1999, the exercise price will be $10.00 per share. If the
aggregate market value of Value America's equity securities is less than $600
million on or before December 31, 1999, the exercise price of the warrants will
be $0.01 per share. The terms of the Series C preferred stock require Value
America to pay quarterly dividends on such shares of stock until they are
redeemed or converted. Mandatory redemption of the Series C preferred stock may
occur if Value America does not successfully offer shares of common stock to
the public prior to January 15, 2001. Simultaneously with the closing of this
offering, the Shares of Series C preferred stock will automatically convert
into 6,000,000 shares of common stock. In connection with this offering, Value
America issued warrants to purchase an aggregate of 511,567 to certain existing
stockholders, including ULLICO and William D. Savoy, a director-nominee of
Value America. These warrants have ten-year terms. Of these warrants, warrants
to purchase 473,724 have an exercise price of $0.01 and vest only if the
aggregate market value of Value America's equity securities does not exceed
$600 million on or before December 31, 1999. The remaining warrants to purchase
37,843 shares are immediately exercisable and have an exercise price of $0.01
per share.
LeClair Ryan, A Professional Corporation, serves as Value America's legal
counsel. Gary D. LeClair, one of Value America's directors, serves as the
Chairman of such law firm.
See "Management -- Employment Agreements" for a description of certain
employment agreements to which Value America is a party.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Value America's common stock as of January 19, 1999,
and as adjusted to reflect the sale of the 5,000,000 shares of common stock
offered hereby by: (i) the Named Officers, (ii) each of Value America's
directors and director-nominees, (iii) each person known by Value America to be
the beneficial owner of more than 5% of the common stock and (iv) all current
executive officers, directors and director-nominees 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) ........................................ 15,147,312 39.9% 35.3%
Rex Scatena (3) .......................................... 6,562,200 17.3 15.3
Joseph L. Page (4) ....................................... 514,278 1.3 1.2
Dean M. Johnson (5) ...................................... 204,900 * *
Glenda M. Dorchak (6) .................................... 10,000 * *
William D. Savoy (7) ..................................... 8,536,478 21.4 19.0
Michael R. Steed (8) ..................................... 3,544,229 9.3 8.2
John L. Motley III (9) ................................... 375,000 1.0 *
Gary D. LeClair (10) ..................................... 145,002 * *
Frederick W. Smith (11) .................................. 1,300,000 3.4 3.0
Thomas J. Casey (12) ..................................... 50,000 * *
Vulcan Ventures Incorporated (13) ........................ 8,486,062 21.2 18.9
The Union Labor Life Insurance Company (14) .............. 3,544,229 9.3 8.2
FDX Corporation (15) ..................................... 650,000 1.7 1.5
All executive officers, directors and director-nominees as
a group (12 persons) (16) ............................... 36,699,399 88.7 79.2
</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 January 20, 1999 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 37,934,862 shares of common stock
outstanding on January 20, 1999 (after giving effect to the conversion of
the convertible preferred stock upon the closing of this offering) and
42,934,862 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., 1550 Insurance Lane,
Charlottesville, Virginia 22911. 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, and 144,162
shares of common stock held of record by Capital Advisers, L.L.C., as to
which Mr. Winn holds an irrevocable proxy to vote until the earlier of
December 31, 2003 and the date on which Capital Advisers, L.L.C. transfers
such shares.
(3) The address of Mr. Scatena is c/o Value America, Inc., 1550 Insurance Lane,
Charlottesville, Virginia 22911. 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) The address of Mr. Page is c/o Value America, Inc., 1550 Insurance Lane,
Charlottesville, Virginia 22911. Includes 514,278 shares of common stock
underlying options exercisable within 60 days of January 20, 1999.
(5) The address of Mr. Johnson is c/o Value America, Inc., 1550 Insurance Lane,
Charlottesville, Virginia 22911. Includes 105,000 shares of common stock
underlying options exercisable within 60 days of January 20, 1999, 30,000
shares of common stock underlying warrants exercisable within 60 days of
January 20, 1999 and 9,900 shares of common stock held of record by Skye
Thug, L.L.C., a Delaware limited liability company for which Mr. Johnson
serves as manager.
(6) The address of Ms. Dorchak is c/o Value America, Inc., 1550 Insurance Lane,
Charlottesville, Virginia 22911.
(7) Includes 6,476,861 shares of common stock and 2,009,201 shares of common
stock underlying warrants exercisable within 60 days of January 20, 1999
held of record by Vulcan Ventures Incorporated ("Vulcan"). Mr. Savoy is
the Vice President of Vulcan. Mr. Savoy's address is c/o Vulcan Northwest
Inc., 110 110th Avenue Northeast, Suite 550, Bellevue, Washington 98004.
(8) Consists of 3,389,854 shares of common stock and 154,375 shares of common
stock underlying warrants exercisable within 60 days of January 20, 1999
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.
(9) Includes 225,000 shares of common stock underlying options exercisable
within 60 days of January 20, 1999.
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(10) Includes 55,002 shares of common stock underlying options exercisable
within 60 days of January 20, 1999 and 30,000 shares of common stock
underlying warrants exercisable within 60 days of January 20, 1999.
(11) The address of Mr. Smith is 6075 Poplar Avenue, Suite 300, Memphis,
Tennessee 38119. Includes 500,000 shares of common stock and 150,000
shares of common stock underlying warrants exercisable within 60 days of
January 19, 1999 held of record by FDX Corporation, a Delaware
corporation.
(12) The address of Mr. Casey is c/o Pacific Capital Group Inc., 150 El Camino
Drive, Beverly Hills, California 90212.
(13) The address of Vulcan is 110 110th Avenue Northeast, Suite 550, Bellevue,
Washington 98004. Includes 6,476,861 shares of common stock and 2,009,201
shares of common stock underlying warrants exercisable within 60 days of
January 19, 1999.
(14) The address of ULLICO is 111 Massachusetts Avenue, N.W., Washington, D.C.
20001. Includes 3,389,854 shares of common stock and 154,375 shares of
common stock underlying warrants exercisable within 60 days of January 19,
1999.
(15) The address of FDX Corporation is 6075 Poplar Avenue, Suite 300, Memphis,
Tennessee 38119. Includes 150,000 shares of common stock underlying
warrants exercisable within 60 days of January 19, 1999.
(16) Includes 899,280 shares of common stock underlying options exercisable
within 60 days of January 19, 1999 and 2,424,384 shares of common stock
underlying warrants exercisable within 60 days of January 19, 1999.
Craig A. Winn and Rex Scatena have granted to the underwriters an option
to purchase up to 333,333 and 133,333 shares of common stock, respectively,
solely to cover over-allotments. If the underwriters exercise the
over-allotment option in full, Mr. Winn will beneficially own 14,813,979 shares
of common stock, or 34.5% of the common stock outstanding after this offering,
and Mr. Scatena will beneficially own 6,562,200 shares of common stock, or
15.3% of the common stock outstanding after this offering.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Value America consists of 500,000,000
shares of common stock, 5,000,000 shares of Series A preferred stock, 617,979
shares of Series B preferred stock and 5,000,000 shares of Series C preferred
stock. Upon the closing of this offering, all of the outstanding shares of
Series A preferred stock, Series B preferred stock and Series C preferred 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
Articles of Incorporation and the provisions of applicable law.
COMMON STOCK
As of January 15, 1999, there were 37,934,862 shares of common stock
outstanding that were held of record by 118 stockholders and there were
outstanding options and warrants to purchase an aggregate of 4,361,825 shares
and 3,376,637 shares of common stock, respectively. See "Management -- Stock
Incentive Plan" and "Description of Capital Stock -- Warrants." Based on the
number of shares of common stock outstanding and the number of shares of common
stock issuable upon conversion of the convertible preferred stock as of January
13, 1999, and after giving effect to the sale of the 5,000,000 shares of common
stock offered hereby, there will be 42,934,862 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 Value America, the holders of common stock are
entitled to share ratably in all assets remaining after payment of Value
America's liabilities. 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 January 15, 1999, there were outstanding warrants to purchase an
aggregate of 3,376,633 shares of common stock that were held of record by 76
persons.
In October 1997, Value America issued warrants to purchase an aggregate of
213,750 shares of common stock to 14 accredited investors. All of the warrants
are fully exercisable, have exercise prices of $1.67 per share and expire on
October 31, 2002. In the event Value America 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.
In December 1998, Value America issued warrants to purchase an aggregate
of 4,133,000 shares of common stock to ULLICO and its participants pursuant to
a Revolving Loan Agreement, as amended and restated from time to time. Of these
warrants (a) 408,000 have an exercise price of $0.01 per share, (b) 3,400,000
have an exercise price of $10.00 per share and (c) 325,000 have a variable
exercise price of $0.01 per share or $10.00 per share. This variable exercise
price will only equal $0.01 if the aggregate value of Value America's capital
stock does not exceed $600 million on or before December 31, 1999. The warrants
to purchase 3,400,000 shares of common stock will be automatically exercised
immediately prior to the closing of this offering in exchange for the
elimination of Value America's debt under the loan agreement.
In January 1999, Value America issued warrants to purchase an aggregate of
2,311,567 shares of common stock to certain investors and existing stockholders
in connection with Value America's private placement of
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<PAGE>
6,000,000 shares of Series C preferred stock. All of these warrants have
ten-year terms. Of the warrants granted, warrants to purchase 1,800,000 shares
vest immediately have a variable exercise price of either $10.00 or $0.01 per
share of common stock. The exercise price of these warrants will only equal
$0.01 per share if the aggregate market value of Value America's equity
securities does not exceed $600 million on or prior to December 31, 1999.
Warrants to purchase 473,724 shares have an exercise price of $0.01 and will
vest only if the aggregate market value of Value America's equity securities
does not exceed $600 million on or before December 31, 1999. Warrants to
purchase 37,843 shares of common stock vest immediately and have an exercise
price of $0.01 per share. Assuming an initial public offering price of at least
$14.00 per share the aggregate market value of Value America's equity
securities will exceed $600 million on the closing of the offering.
As a result of the variable exercise prices of certain of the warrants
described above, if the market value of Value America's equity securities
exceeds $600 million on the applicable date, Value America will receive
additional proceeds of approximately $21.2 million upon the exercise of all of
the warrants. If the aggregate market value of Value America's equity
securities exceeds this level, outstanding warrants will be exercisable for an
aggregate of 2,902,913 shares of common stock at a weighted average exercise
price of $7.85 per share. If the market value of Value America's equity
securities does not exceed this amount, outstanding warrants will be
exercisable for an aggregate of 3,376,637 shares of common stock at a weighted
average exercise price of $0.47 per share. Based upon the number of shares
estimated to be outstanding immediately following this offering, the aggregate
market value of Value America's equity securities will exceed $600 million if
the trading price of its common stock exceeds $14.00 per share at any time on
or before December 31, 1999.
REGISTRATION RIGHTS
Pursuant to the Second Amended and Restated Registration Rights Agreement
(the "Preferred Stock Registration Rights Agreement") dated as of January 12,
1999 among Value America and the holders of the Series A preferred stock, the
Series B preferred stock and the Series C preferred 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 preferred stock, the Series B preferred stock
and the Series C preferred stock (collectively, the "Registrable Securities").
As of January 15, 1999, the Registrable Securities consisted of a total of
10,737,162 shares of common stock (after giving effect to the conversion of the
Series A preferred stock, the Series B preferred stock and Series C preferred
stock into common stock upon the closing of this offering). If Value America
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
Value America on not more than eight occasions to file a registration statement
under the Securities Act with respect to the Registrable Securities, and Value
America is required to use its best efforts to effect the registration, subject
to certain conditions and limitations. Further, the Preferred Holders may
require Value America, 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 Value America, subject to certain conditions and
limitations. Value America will bear all of the expenses of any such
registration.
In addition, pursuant to a Registration Rights Agreement dated as of June
3, 1998 between Value America 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 Value America 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 Value America 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 Value
America is required to use its best efforts to effect the registration, subject
to certain conditions and limitations. Value America 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.
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Pursuant to a Registration Rights Agreement, dated November 17, 1998, as
amended from time to time, among ULLICO and other participants in Value
America's debt financing, (collectively, the "Debt Participants") and Value
America, the Debt Participants 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 exercise of the warrants (the "Debt Warrants") issued in connection with
such debt financing (the "Debt Registrable Shares"). As of January 13, 1999,
the Debt Registrable Shares consisted of a total of 4,133,000 shares of common
stock (after giving effect to the exercise of the Debt Warrants and excluding
shares of common stock that are referenced in the Preferred Stock Registration
Rights Agreement). If Value America proposes to register any of its securities
under the Securities Act, either for its own account or for the account of
other securityholders, the Debt Participants are entitled to notice of such
registration and are entitled to include the Debt 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, the Debt Participants may require Value America on not more than two
occasions to file a registration statement under the Securities Act with
respect to the Debt Registrable Shares, and Value America is required to use
its best efforts to effect the registration, subject to certain conditions and
limitations. Further, the Debt Participants may require Value America, on not
more than six occasions and not more than once in any six-month period, to
register the Debt Registrable Shares on Form S-3 when such form becomes
available to Value America, subject to certain conditions and limitations.
Value America will bear all of the expenses of such registration.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES, BYLAWS AND SECURITIES
Value America's Articles and Bylaws contain provisions that might make
more difficult the acquisition of control of Value America by means of a tender
offer, a proxy contest, open market purchases or otherwise. The Articles
provide for Value America'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 (a) reduces or eliminates the number of authorized shares of
Value America's capital stock, (b) amends or repeals Value America's staggered
board of directors, (c) amends or repeals the Articles' super-majority voting
provisions, (d) amends or repeals the Articles' indemnification provisions, (e)
amends or repeals the Articles' restrictions on the calling of special meetings
of Value America's stockholders, or (f) amends or repeals the Articles'
limitations on the removal of Value America's directors.
The Bylaws establish an advance notice procedure for the nomination, other
than by the board of directors of Value America, of candidates for election as
directors and for certain matters to be brought before an annual meeting of
stockholders. A stockholder must give Value America notice not less than 90
days prior to an annual meeting of stockholders to (a) nominate persons to be
elected directors of Value America at such meeting or (b) 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 Value America and to encourage persons seeking
to acquire control of Value America to consult first with Value America's board
of directors to negotiate the terms of any proposed business combination or
offer. The provisions are designed to reduce the vulnerability of Value America
to an unsolicited proposal for a takeover of Value America that does not have
the effect of maximizing long-term stockholder value or is otherwise unfair to
stockholders of Value America, or an unsolicited proposal for the restructuring
or sale of all or part of Value America that could have such effects. See "Risk
Factors --
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Applicable Laws and Our Charter Documents Contain Anti-Takeover and
Indemnification Provisions that May Adversely Affect Stockholders."
As of January 15, 1999, Value America had issued warrants to purchase an
aggregate of 3,376,633 shares of common stock. Of these warrants, warrants to
purchase 118,320 shares will not vest until December 18, 1999. These warrants
contain provisions that will accelerate vesting in the event of a change in
control, which is defined generally to be (a) an acquisition of 50% or more of
Value America's common stock by an unrelated person, (b) the approval by Value
America's shareholders of a liquidation of Value America, (c) the sale by Value
America of substantially all of its assets, or (d) a reorganization or merger
of Value America in which its stockholders will subsequently hold less than 50%
of the resulting entity. All other warrants have vested.
ELIMINATION OF LIABILITY AND INDEMNIFICATION
The Articles eliminate the liability of the officers and directors of
Value America to Value America or its stockholders for monetary damages in any
proceeding brought by or on behalf of stockholders of Value America except in
cases of willful misconduct or a knowing violation of the criminal law or any
federal or state securities law. The Articles also provide for mandatory
indemnification of any director or officer of Value America who is, was, or is
threatened to be made a party to a proceeding (including a proceeding by or in
the right of Value America) because (a) he or she is or was a director or
officer of Value America or (b) he or she is or was serving as a director,
trustee, partner or officer of or another legal entity at the request of Value
America, against all liabilities and reasonable 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 Articles expressly authorize Value America to enter into
agreements to indemnify 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 Value America as to which indemnification is being sought, and
Value America 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 Value America'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 Value America to maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of Value America, whether or not Value America would have the power to
provide indemnification to such person.
CERTAIN CORPORATE GOVERNANCE PROVISIONS OF THE VIRGINIA ACT
Value America 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 Value America and any person (an "Interested
Stockholder") who beneficially owns more than 10% of any class of Value
America'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 Value America first had 300 stockholders
of record or whose acquisition of shares making such person an Interested
Stockholder was previously approved by a majority of Value America's
Disinterested Directors. "Disinterested Director" means, with respect to a
particular Interested Stockholder, a member of Value America's board of
directors who was (a) a member on the date on which an Interested Stockholder
became an Interested Stockholder or (b) 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
Value America proposed by or on behalf of an Interested Stockholder, or any
reclassification, including a reverse stock split, recapitalization or merger
of Value America with its subsidiaries, which increases the percentage of
voting shares beneficially owned by an Interested Stockholder by more than five
percent.
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The "affiliated transaction" provisions of the Virginia Act prohibit Value
America 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 (a) be in cash or in the form of consideration used by
the Interested Stockholder to acquire the largest number of its shares and (b)
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.
Value America is also subject to the "control share acquisitions"
provision of the Virginia Act, which provides that shares of Value America'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 Value America. 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: (a) one-fifth, (b) one-third or (c) 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 Value America
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. Value America 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 value of their shares from Value America. 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
Value America'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 Value America.
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. Value America has not
elected to exempt itself from coverage under these statutes. See "Risk Factors
- -- Applicable Laws and Our Charter Documents Contain Anti-Takeover and
Indemnification Provisions that May Adversely Affect Stockholders."
EFFECT OF CERTAIN PROVISIONS UPON AN ATTEMPT TO ACQUIRE CONTROL OF VALUE
AMERICA
The foregoing provisions of Value America's Articles and Bylaws, as well
as the provisions of the Virginia Act 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
68
<PAGE>
that might result from actual or proposed takeover attempts. See "Risk Factors
- -- Applicable Laws and Our Charter Documents Contain Anti-Takeover and
Indemnification Provisions that May Adversely Affect Stockholders."
TRANSFER AGENT AND REGISTRAR
First Union National Bank serves as Value America's transfer agent and
registrar.
LISTING
Value America has applied to have its common stock approved for quotation
on the Nasdaq National Market under the proposed symbol "VUSA."
69
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Value America will have 42,934,862
shares of common stock outstanding, based on shares outstanding on January 20,
1999. Of the outstanding shares, the 5,000,000 shares sold in this offering
will be freely tradable without restriction under the Securities Act unless
purchased by "affiliates" of Value America, as that term is defined in Rule 144
under the Securities Act. All of the remaining 37,934,862 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
BancBoston Robertson Stephens. As a result of these lock-up agreements,
notwithstanding possible earlier eligibility for sale under the provisions of
Rule 144 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 BancBoston Robertson Stephens), approximately 28,103,412 of these
shares will be eligible for immediate resale in the public market under Rule
144 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:
(a) 1% of the number of shares of common stock then outstanding (or
approximately 328,897 shares immediately after this offering); or (b) 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 Value
America. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Value America 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 Value America or an affiliate of Value America.
Approximately 90 days after the closing of this offering, Value America
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 Value America's stock incentive plan. Based on the
number of shares subject to outstanding options at August 31, 1998 and
currently reserved for issuance under all such plans, such registration
statement will cover 6,250,000 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 Value America, 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 Value America. 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 Value America's ability to raise capital through the sale
of its equity securities.
70
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Volpe Brown Whelan & Company, LLC and The
Robinson-Humphrey Company, LLC, have severally agreed with Value America,
subject to the terms and conditions set forth in the underwriting agreement, to
purchase from Value America the numbers 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>
BancBoston Robertson Stephens Inc. .........
Volpe Brown Whelan & Company, LLC ..........
The Robinson-Humphrey Company, LLC .........
Total ................................... 5,000,000
=========
</TABLE>
The representatives have been advised 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 Value America as set forth on the cover page of this prospectus.
Craig A. Winn, the Chairman and Chief Executive Officer and a director of
Value America, and Rex Scatena, the Executive Vice President -- Business
Development and a director of Value America (the "selling stockholders"), and
Value America have granted to the underwriters an option, exercisable during
the 30-day period after the date of this prospectus, to purchase up to 750,000
additional shares of common stock at the same price per share as Value America
will receive for the 5,000,000 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 5,000,000 shares offered hereby. If purchased, such additional shares will
be sold by the underwriters on the same terms as those on which the 5,000,000
shares are being sold. The selling stockholders and Value America 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 5,000,000 shares of
common stock offered hereby.
The following table shows the per share and total underwriting discounts
and commissions to be paid by Value America and the selling stockholders to the
underwriters. This information is presented assuming either no exercise or full
exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT
PER SHARE OPTION WITH OPTION
----------- ----------- ------------
<S> <C> <C> <C>
Public offering price ............................... $ $ $
Underwriting discounts and commissions .............. $ $ $
Proceeds, before expenses, to Value America ......... $ $ $
Proceeds to selling stockholders .................... $ $ -- $
</TABLE>
The expenses of the offering are estimated at $1.5 million and are payable
entirely by Value America. BancBoston Robertson Stephens Inc. expects to
deliver the shares of common stock to purchasers on , 1999.
The underwriting agreement contains covenants of indemnity among the
underwriters, Value America and the selling stockholders against certain civil
liabilities, including liabilities under the Securities Act of 1933 and
liabilities arising from breaches of representations and warranties contained
in the underwriting agreement.
71
<PAGE>
Each of Value America's executive officers, directors, director-nominees
and other stockholders of record has agreed with the representatives, for a
period of 180 days after the date of this prospectus (the "Lock-Up Period"),
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 BancBoston Robertson Stephens Inc.
However, BancBoston Robertson Stephens Inc. 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 Value America's stockholders providing consent by the Representatives to
the sale of shares prior to the expiration of the Lock-Up Period. In addition,
Value America has agreed that, during the Lock-Up Period, it will not, subject
to certain exceptions, without the prior written consent of BancBoston
Robertson Stephens Inc., (a) consent to the disposition of any shares held by
stockholders prior to the expiration of the Lock-Up Period or (b) 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 Value America's sale of shares in the offering, its issuance of
common stock upon the exercise of currently outstanding options and warrants,
and its issuance of incentive awards under its stock incentive plan. See
"Shares Eligible for Future Sale."
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 Value America. Consequently, the initial public offering price for the
common stock offered hereby will be determined through negotiations between
Value America and the representatives. Among the factors to be considered in
such negotiations are prevailing market conditions, certain financial
information of Value America, market valuations of other companies that Value
America and the representatives believe to be comparable to Value America,
estimates of the business potential of Value America, the present state of
Value America's development and other factors deemed relevant.
The Robinson-Humphrey Company, LLC, which is serving as one of the
representatives, identified an entity that made a short-term loan of $5.0
million to Value America in October 1998. The loan was repaid in December 1998.
For its services, Robinson-Humphrey received a fee of $150,000 from Value
America.
STABILIZATION. The representatives have advised Value America that,
pursuant to Regulation M under the Securities Exchange Act of 1934, 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 Value
America that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
72
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Value America by LeClair Ryan, A Professional Corporation, Richmond,
Virginia. Gary D. LeClair, the Chairman of LeClair Ryan, A Professional
Corporation, is a director of Value America, and Mr. LeClair and certain of his
partners beneficially own, in the aggregate, 201,252 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 December 31, 1997
and December 31, 1996, and for 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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission. This prospectus, which is a part of the registration
statement, does not contain all of the information included in the registration
statement. Certain information is omitted and you should refer to the
registration statement and its exhibits. With respect to references made in
this prospectus to any contract, agreement or other document of Value America,
such references are not necessarily complete and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. You may review a copy of the
registration statement, including exhibits, at the Securities and Exchange
Commission's public reference room at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at Seven World Trade Center, 13th Floor, New York, New
York 10048 or at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call 1-800-SEC-0330 for further information about the
operation of the public reference rooms.
We will file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information on file at the public
reference rooms. You can also request copies of these documents, for a copying
fee, by writing to the Securities and Exchange Commission.
The registration statement and our other Securities and Exchange
Commission filings can also be reviewed by accessing the Securities and
Exchange Commission's Internet site at HTTP://WWW.SEC.GOV, which contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants ........................................................ F-2
Financial Statements:
Balance Sheets as of December 31, 1996 and 1997 and September 30, 1998 (unaudited) ...... 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 nine months ended September 30, 1997
(unaudited) and 1998 (unaudited) ....................................................... F-4
Statements of Changes in Stockholders' Equity (Deficit) for the period from Inception
(March 13,1996) through September 30, 1998 (unaudited) ................................. 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 nine months ended September 30, 1997
(unaudited) and 1998 (unaudited) ....................................................... 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 the results of its operations
and its cash flows for the period from Inception (March 13, 1996) through
December 31, 1996, and the year ended December 31, 1997 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Value America'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
McLean, Virginia
June 2, 1998, except as to Note 12,
which is as of September 1, 1998
F-2
<PAGE>
VALUE AMERICA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, BALANCE SHEET AT
------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998 (NOTE 1)
------------- --------------- --------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 80,902 $ 10,340,987 $ 1,556,423 $ 101,435,145
Restricted cash ...................................... -- -- 3,750,000 3,750,000
Accounts receivable, net of allowance of $0,
$49,000 and $771,000 ............................... 12,500 458,005 3,086,933 3,086,933
Inventory ............................................ -- -- 1,144,796 1,144,796
Other current assets ................................. -- 7,128 87,500 87,500
---------- ------------ ------------- -------------
TOTAL CURRENT ASSETS ............................... 93,402 10,806,120 9,625,652 109,504,374
---------- ------------ ------------- -------------
Equipment, furniture and fixtures, net ................ 48,578 167,800 1,612,167 1,612,167
Restricted cash ....................................... -- -- 1,500,000 1,500,000
Deferred offering costs ............................... -- -- 990,147 990,147
Note receivable from officer .......................... -- -- 250,000 250,000
Other assets .......................................... 1,894 20,158 17,387 17,387
---------- ------------ ------------- -------------
TOTAL ASSETS ....................................... $ 143,874 $ 10,994,078 $ 13,995,353 $ 113,874,075
========== ============ ============= =============
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable ..................................... $ 29,744 $ 126,643 $ 10,805,042 $ 10,805,042
Accrued expenses ..................................... 25,052 707,133 847,879 847,879
Deferred revenue ..................................... -- 352,500 1,557,381 1,557,381
Accrued stock-based compensation ..................... -- 273,000 879,625 879,625
Notes payable to shareholders ........................ 150,000 -- 700,000 700,000
Other current liabilities ............................ 4,152 18,041 -- --
---------- ------------ ------------- -------------
TOTAL CURRENT LIABILITIES .......................... 208,948 1,477,317 14,789,927 14,789,927
---------- ------------ ------------- -------------
Deferred revenue ...................................... 210,000 1,294,586 1,057,742 1,057,742
Other liabilities ..................................... -- 66,644 50,000 50,000
---------- ------------ ------------- -------------
TOTAL LIABILITIES .................................. 418,948 2,838,547 15,897,669 15,897,669
---------- ------------ ------------- -------------
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 12,967,751 --
Series B, without par value, convertible, 5%
cumulative dividend; 617,979 shares authorized,
issued and outstanding (0 in 1996, 1997 and pro
forma); redeemable for $60.94 per share ............ -- -- 20,264,490 --
Series C, without par value, convertible, 5%
cumulative dividend; 6,000,000 shares authorized
pro forma, (0 issued and outstanding in 1996,
1997 and pro forma); redeemable for $20.00 per
share .............................................. -- -- -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 100,000,000 shares
authorized, actual; 500,000,000 shares authorized,
pro forma; 22,500,000, 23,152,500 and
23,152,500 shares issued and outstanding, actual;
27,889,662 shares issued and outstanding,
pro forma .......................................... 150,000 (455,500) 238,718 133,349,681
Accumulated deficit .................................. (425,074) (854,951) (35,373,275) (35,373,275)
---------- ------------ ------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ............... (275,074) (1,310,451) (35,134,557) 97,976,406
---------- ------------ ------------- -------------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT) ......................................... $ 143,874 $ 10,994,078 $ 13,995,353 $ 113,874,075
========== ============ ============= =============
</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, NINE MONTHS ENDED
1996) THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------------------
1996 1997 1997 1998
--------------- --------------- ------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Net sales ................................ $ -- $ 47,677 $ 5,134 $ 21,631,270
Product presentations .................... -- 85,764 -- 852,166
----------- ------------ ----------- -------------
Total revenues ......................... -- 133,441 5,134 22,483,436
----------- ------------ ----------- -------------
COST OF REVENUES:
Cost of goods sold ....................... -- 31,025 4,900 21,570,087
Product presentations .................... 96,680 454,617 187,366 583,000
----------- ------------ ----------- -------------
Total cost of revenues ................. 96,680 485,642 192,266 22,153,087
----------- ------------ ----------- -------------
Gross profit (loss) ....................... (96,680) (352,201) (187,132) 330,349
----------- ------------ ----------- -------------
OPERATING EXPENSES:
Sales, advertising and marketing ......... 43,863 487,626 204,855 20,973,771
General and administrative ............... 152,018 544,479 217,000 4,258,927
Technical and system development ......... 135,896 486,776 239,771 2,580,675
Professional fee (Note 6) ................ -- -- -- 694,218
----------- ------------ ----------- -------------
Total operating expenses ............... 331,777 1,518,881 661,626 28,507,591
----------- ------------ ----------- -------------
Operating loss ........................... (428,457) (1,871,082) (848,758) (28,177,242)
OTHER INCOME AND EXPENSES:
Interest income (expense), net ........... 3,383 17,823 (2,956) 229,310
----------- ------------ ----------- -------------
NET LOSS (425,074) (1,853,259) (851,714) (27,947,932)
Accretion and dividends on Series A
and Series B redeemable preferred
stock .................................. -- (188,368) -- (6,570,392)
----------- ------------ ----------- -------------
Net loss available for common
stockholders ........................... $ (425,074) $ (2,041,627) $ (851,714) $ (34,518,324)
=========== ============ =========== =============
NET LOSS PER COMMON SHARE:
Basic .................................... $ (0.02) $ (0.09) $ (0.04) $ (1.49)
=========== ============ =========== =============
Diluted .................................. $ (0.02) $ (0.09) $ (0.04) $ (1.49)
=========== ============ =========== =============
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic .................................... 22,500,000 22,615,625 22,519,505 23,152,500
=========== ============ =========== =============
Diluted .................................. 22,500,000 22,615,625 22,519,505 23,152,500
=========== ============ =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VALUE AMERICA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<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
Transfer of S-corporation losses upon
re-incorporation as a C-corporation ................ -- (1,611,750) 1,611,750 --
Sale of common stock and warrants ................... 577,500 962,500 -- 962,500
Accrual of preferred stock dividends ................ -- -- (37,500) (37,500)
Accretion of redeemable preferred stock ............. -- -- (150,868) (150,868)
Net loss ............................................ -- -- (1,853,259) (1,853,259)
---------- ------------ ------------- -------------
BALANCE, DECEMBER 31, 1997 .......................... 23,152,500 (455,500) (854,951) (1,310,451)
---------- ------------ ------------- -------------
Accrual of preferred stock dividends (unaudited)..... -- -- (1,098,672) (1,098,672)
Accretion of redeemable preferred stock
(unaudited) ........................................ -- -- (5,471,720) (5,471,720)
Professional fee (unaudited) ........................ -- 694,218 -- 694,218
Net loss (unaudited) ................................ -- -- (27,947,932) (27,947,932)
---------- ------------ ------------- -------------
BALANCE, SEPTEMBER 30, 1998 (UNAUDITED) ............. 23,152,500 $ 238,718 $ (35,373,275) $ (35,134,557)
========== ============ ============= =============
</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, NINE MONTHS ENDED
1996) THROUGH YEAR ENDED SEPTEMBER 30,
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) $ (851,714) $ (27,947,932)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization ................... 9,137 45,946 34,460 388,958
Common stock granted as employee
compensation ................................... -- 43,750 43,750 --
Stock-based compensation ........................ -- 273,000 109,200 606,625
Professional fee ................................ -- -- -- 694,218
Changes in assets and liabilities:
Accounts receivable ............................. (12,500) (445,505) (9,575) (2,628,928)
Inventory ....................................... -- -- -- (1,144,796)
Note receivable from officer .................... -- -- -- (250,000)
Other assets .................................... (1,894) (25,392) (7,045) (77,601)
Accounts payable ................................ 29,744 96,899 7,184 10,678,399
Accrued expenses ................................ 25,052 89,810 39,072 733,017
Deferred revenue ................................ 210,000 1,437,086 678,075 968,037
Other liabilities ............................... -- -- 98,857 --
---------- ------------ ---------- -------------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES ........................................ (165,535) (337,665) 142,264 (17,980,003)
---------- ------------ ---------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash ................................... -- -- -- (5,250,000)
Capital expenditures .............................. (57,715) (165,168) (50,168) (1,833,325)
---------- ------------ ---------- -------------
NET CASH USED IN INVESTING ACTIVITIES .............. (57,715) (165,168) (50,168) (7,083,325)
---------- ------------ ---------- -------------
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) (10,659) (34,685)
Proceeds from issuance of common stock ............ 150,000 962,500 -- --
Proceeds from issuance of preferred stock ......... -- 10,000,000 -- 18,829,894
Payment of offering costs ......................... -- (130,115) -- (2,946,149)
Debt repayments ................................... -- (150,000) (150,000) --
Borrowings ........................................ 150,000 50,000 50,000 700,000
Dividends paid .................................... -- -- -- (270,296)
---------- ------------ ---------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES ........................................ 304,152 10,762,918 (63,767) 16,278,764
---------- ------------ ---------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ....................................... 80,902 10,260,085 28,329 (8,784,564)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD ............................................ -- 80,902 80,902 10,340,987
---------- ------------ ---------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........... $ 80,902 $ 10,340,987 $ 109,231 $ 1,556,423
========== ============ ========== =============
Non-cash investing and financing transactions:
Issuance of common stock to an employee as
compensation .................................... $ -- $ 43,750 $ 43,750 $ --
========== ============ ========== =============
Increase in accrued expenses related to
preferred stock offering costs .................. $ -- $ 592,271 $ -- $ --
========== ============ ========== =============
Accretion and dividends on redeemable
preferred stock ................................. $ -- $ 188,368 $ -- $ 6,570,392
========== ============ ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Value America, Inc. ("Value America") 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, Value
America develops and maintains custom multi-media presentations for the
products and services featured on its on-line store. Value America was
considered to be a development stage enterprise until the first quarter of
1998.
RISKS AND UNCERTAINTIES
Value America 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, competitive nature of the industry, dependence on the
Internet and related security risks, development and maintenance of efficient
information technologies to support the business, and uncertain ability to
protect proprietary intellectual properties.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Value America considers all highly-liquid investments purchased with
original maturities of three months or less to be cash equivalents.
RESTRICTED CASH
Through September 30, 1998, Value America had entered into letter of
credit agreements with three vendors whereby Value America granted security
interests and limited powers of attorney over certificates of deposit totaling
$3,750,000 (unaudited). The letters of credit are callable if Value America
defaults in the payments of trade payables to the secured vendors and expire
through August 1999. The $3,750,000 (unaudited) in certificates of deposit is
included in restricted cash as of September 30, 1998.
In April 1998, Value America entered into a two-year agreement for credit
card clearing services which required Value America 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 Value America 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 deposit account until the funds are released to
Value America. This cash deposit is included in restricted cash as of September
30, 1998 (unaudited).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of Value America's financial instruments, which include
accounts receivable, accounts payable, notes payable, accrued expenses, and
mandatorily redeemable preferred stock, is considered to approximate fair value
due to the relatively short maturities of the respective instruments.
INVENTORY AND COST OF GOODS SOLD
In 1998, Value America began to periodically commit to purchase quantities
of merchadise from vendors prior to receiving customer orders. The inventory
generally remains at the manufacturer or distributor that provides fulfillment
services for Value America. Inventories are stated at the lower of cost
(determined on a first-in, first-out basis) or market. At September 30, 1998,
Value America committed to inventory purchases of approximately $2,275,000
(unaudited).
F-7
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
During the nine months ended September 30, 1998 (unaudited), Value America
purchased goods from three manufacturers that accounted for approximately 68%,
11% and 5%, respectively, of net sales. The amount of net sales related to
purchases from these manufacturers is minimal for the comparable period in
1997. Value America has no long-term contracts or arrangements with any of its
manufacturers that guarantee the availability of merchandise, the continuation
of particular payment terms, or the extension of credit limits. There can be no
assurance that Value America's current manufacturers will continue to sell
merchandise to Value America on current terms or that Value America will be
able to establish new or extend current relationships to ensure acquisition of
merchandise in a timely manner and on acceptable commercial terms. If Value
America were unable to develop and maintain relationships that would allow it
to obtain sufficient quantities of merchandise on acceptable commercial terms,
such inability could have a material adverse effect on Value America's
financial position, results of operations and cash flows.
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are recorded at cost. Value America
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
Value America'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 Value America.
Vendors generally ship products directly to the customer upon receipt of an
order from Value America. Revenue from product sales is recognized upon
shipment from the vendor. Value America is responsible for selling the
merchandise, collecting payment from the customer, ensuring shipment to the
customer and processing returns. Value America takes title to the product upon
shipment and bears the risk of loss for collection, delivery and merchandise
returns from customers. Value America accrues a reserve for estimated product
returns at the time of sale.
Value America has contractual agreements with vendors under which Value
America prepares and maintains multi-media production presentations and lists
vendors' merchandise in Value America's online store. These agreements provide
for both the development and the Internet-access of these presentations for
established contractual periods. Value America recognizes product presentation
and listing revenue ratably over the period of the related agreement beginning
upon availability of the presentation in Value America's online store and
recognizes the costs of developing and maintaining presentations as incurred.
At December 31, 1997 and September 30, 1998, Value America had total deferred
revenue associated with product presentations of $1,647,086 and $2,426,254
(unaudited), respectively, which it will recognize over varying terms through
2000. The agreements generally provide for the payment of a renewal fee for
presentations and merchandise listings beyond the initial agreement period.
Revenues from renewal fees are recognized ratably over the renewal term.
Value America also has deferred revenue of approximately $188,869 at
September 30, 1998 (unaudited) associated with cash received for product sales
in advance of the shipment of the underlying product, which will be recognized
as revenue upon product shipment.
ADVERTISING
Advertising costs are expensed as incurred. Cash received from cooperative
advertising agreements is recorded as a reduction of advertising expense.
Advertising expense for the year ended December 31, 1997 and the nine months
ended September 30, 1998 was approximately $194,000 and $18,372,000
(unaudited), net of cooperative advertising of approximately $0 and $1,761,000
(unaudited), respectively.
F-8
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
VALUE AMERICA DOLLARS
On certain purchases, Value America offers customers "Value America
Dollars", which can be used against future purchases of merchandise from the
store. Value America records a liability for Value America Dollars at the time
of the sale on which the Value America Dollars are earned. At December 31, 1997
and September 30, 1998 (unaudited), Value America had recorded approximately
$2,000 and $83,000 (unaudited), respectively, in accrued expenses for Value
America Dollars.
MANDATORILY REDEEMABLE PREFERRED STOCK
Value America carries its mandatorily redeemable preferred stock at fair
value with periodic adjustments to increase the carrying value to its
redemption value at the earliest possible date of stockholder initiated
redemption. See Note 5 for additional information related to 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 weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and potential common
shares outstanding during the period, except if anti-dilutive. Potential common
shares used in the diluted earnings per share calculation consist of (i) the
incremental common shares issuable upon conversion of the mandatorily
redeemable preferred stock (using the if-converted method) and (ii) shares
issuable upon the exercise of stock options and warrants (using the treasury
stock method).
STOCK-BASED COMPENSATION
FAS 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," defines a fair value
based method of accounting for employee stock options or similar equity
instruments. This statement allows companies to recognize compensation expense
associated with stock-based awards either by the fair value method prescribed
by FAS 123 or the intrinsic value method prescribed by Accounting Principles
Board (APB) Opinion No. 25. Value America uses the method prescribed by APB
Opinion No. 25 for employee stock options and makes supplemental disclosures
(Note 6) to show the effects of using the fair value-based measurement
criteria. Value America accounts for options granted to non-employees as
prescribed by 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 software to support
Value America's web site and order fulfillment systems. To date, all technical
and system development costs have been expensed as incurred.
RECLASSIFICATIONS
Certain reclassifications were made to the 1997 financial statements to
conform to the 1998 presentation.
F-9
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, Value America 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 Value America's net loss or stockholders' equity as the
comprehensive loss was the same as Value America's net loss.
In June 1997, the Financial Accounting Standards Board issued FAS 131,
"DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION." This
statement 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 Value America's fiscal year ending December 31,
1998. Based upon its present structure, Value America does not believe that FAS
131 will impact existing presentations and disclosures. As Value America's
business and structure continue to evolve, Value America will continue to
evaluate the impact, if any, of the adoption of this pronouncement on Value
America'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 Value America's fiscal year ending December
31, 1999. Value America is currently evaluating the prospective impact of this
pronouncement on Value America's financial condition, results of operations and
cash flows.
In December 1998, the Financial Accounting Standards Board reached a
tentative conclusion on its project addressing issues under APB 25, "ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES." The tentative conclusions reached by the Board
that would result in a change in Value America's current practice relate to the
repricing of options and the definition of an employee. An exposure draft of
the proposed interpretation is expected in the first quarter of 1999. If the
interpretation is adopted as drafted, it will be applied prospectively but will
cover events that occur after December 15, 1998. There will be no effect on
financial statements for the period prior to the effective date of the final
interpretation. Value America believes that it is in compliance with the
tentative conclusion of this project as of September 30, 1998.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
Interim financial information for the nine months ended September 30, 1997
and 1998 included herein is unaudited. However, Value America 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 periods. The results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of the results to be expected
for the year ending December 31, 1998.
PRO FORMA BALANCE SHEET (UNAUDITED)
The accompanying unaudited pro forma balance sheet at September 30, 1998,
reflects: (i) the issuance of revolving notes payable and 4,133,000 warrants
for $34.0 million, (ii) the issuance of 645,200 shares of common stock and
118,320 warrants at $10.00 per share, (iii) the issuance of 6,000,000 shares of
Series C redeemable convertible preferred stock and 2,311,567 warrants at
$10.00 per share, (iv) the mandatory conversion of the Series A, Series B and
Series C convertible preferred stock into 10,737,162 shares of common stock,
assuming consummation of the offering, and (v) the mandatory exercise of the
Type B warrants, resulting in the cancellation of $34.0 million of indebtedness
and the issuance of 3,400,000 shares of common stock, assuming consummation
F-10
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
of the offering. Value America will allocate the relative fair value of the
warrants to stockholders' equity once an independent valuation report is
received. See Note 13.
2. ACCOUNTS RECEIVABLE
Accounts receivable primarily represent amounts billed for agreements
related to multi-media product presentations and amounts billed for products
shipped to business customers. Agreement terms permit Value America to bill 50%
of the total product presentation agreement value at signing with the remainder
billable when the presentations become available to customers on Value
America's web site. Business customers that are extended credit are billed upon
product shipment. Value America maintains reserves for potential credit losses.
3. EQUIPMENT, FURNITURE AND FIXTURES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30, DEPRECIABLE
1996 1997 1998 LIVES
---------- ----------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer hardware and software ................ $ 54,537 $ 179,072 $1,590,232 2 years
Office furniture and equipment ................ 3,178 37,580 430,262 2-5 years
Other ......................................... -- 6,231 35,714 2 years
-------- --------- ----------
57,715 222,883 2,056,208
Accumulated depreciation ...................... (9,137) (55,083) (444,041)
-------- --------- ----------
Net equipment, furniture and fixtures ......... $ 48,578 $ 167,800 $1,612,167
======== ========= ==========
</TABLE>
Computer equipment with a capitalized cost of $5,558 and $50,998 at
December 31, 1996 and 1997, respectively, and accumulated depreciation of
$1,853 and $33,671, at December 31, 1996 and 1997, respectively, was held under
capital lease agreements. These leases were paid in full during the nine months
ended September 30, 1998.
4. NOTES PAYABLE AND LINE OF CREDIT
At December 31, 1997 and September 30, 1998 (unaudited), Value America had
a note payable to an employee in the amount of $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 September 30, 1998 (unaudited).
On April 8, 1998, Value America entered into a line of credit agreement
with a bank, which provides for borrowings up to $5,000,000. Such borrowings
are 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.
There were no amounts outstanding under this line at September 30, 1998.
5. MANDATORILY REDEEMABLE PREFERRED STOCK
In December 1997, Value America sold 5,000,000 shares of 5% Cumulative
Convertible Series A preferred stock ("Series A") for $10,000,000. Value
America recorded proceeds from this sale, net of related offering costs, of
$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 $3.47
conversion price (subject to adjustment). Series A stockholders are entitled to
the number of votes equal to the largest number of common shares 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 Value America does not successfully offer common shares to the public
before December 19, 1999, the 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
F-11
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. MANDATORILY REDEEMABLE PREFERRED STOCK -- Continued
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 December
19, 1999, 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 nine months ended
September 30, 1998 (unaudited) was $188,368 and $3,772,065, 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 a minimum common
share price of $3.82, the Series A Preferred Shares will automatically convert
to common shares, with certain registration rights. In addition, the Series A
preferred stockholders could, at their discretion, elect to purchase up to 85%
of Value America for a previously agreed-upon price before March 17, 1998. This
option lapsed without exercise.
In June 1998, Value America sold 617,979 shares of 5% Cumulative
Convertible Series B preferred stock ("Series B") for $18,829,894. Value
America recorded proceeds from this sale, net of related offering costs, of
$17,466,163. 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). Series B stockholders are
entitled to the number of votes equal to the largest number of common shares
into which the shares can be converted.
If Value America does not successfully offer common shares to the public
before December 19, 1999, the Series B shares may be redeemed at the option of
the stockholder for $60.94 per share plus any unpaid dividends. 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 plus any unpaid dividends. In addition, if there is no successful public
offering by December 19, 1999, 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 $37,659,640 at December 19, 1999. Accretion for the nine
months ended September 30, 1998 was $2,798,327 (unaudited), 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 a minimum common
share price of $3.82, the Series B Preferred Shares will automatically convert
to common shares, with certain registration rights.
The Series B investors also acquired 617,979 shares of common stock from
the two founders of Value America for $6,276,607.
Value America paid finders' fees of $500,000 and $1,050,000, for the
placement of the Series A and Series B preferred stock, respectively, to a
stockholder. These amounts are recorded as a reduction of the related proceeds
(Note 13).
6. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
During 1996, Value America was capitalized with the issuance of an
aggregate of 22,500,000 shares of common stock, without par value, to the two
founders of Value America for $150,000. A common stockholder is entitled to one
vote for each common share held.
F-12
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. STOCKHOLDERS' EQUITY (DEFICIT) -- Continued
In October and November 1997, Value America 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.
In June 1998, Value America's principal stockholder sold 288,321 shares of
common stock to an entity which assisted in the promotion of the private
placements of Series A and Series B preferred stock. The shares were sold for
$1,000,000 in cash and $1,000,000 in notes payable to the stockholder, due June
30, 2003. The note is not payable unless the fair market value of the shares,
as defined, exceeds $6,000,000 on the determination date. The excess of the
fair value of the stock sold by the principal stockholder over the
consideration received was recognized by Value America as a period expense
(with a corresponding increase in common stock) in the amount of $694,218. The
fair value of the note was determined by an independent valuation to be
$226,000.
PREFERRED STOCK
Value America has reserved for issuance 25,000,000 (unaudited), no par
value, shares of preferred stock. Through September 30, 1998, 5,617,979
(unaudited) shares of preferred stock were issued and outstanding (Notes 5 and
13).
INCENTIVE PLAN
In connection with Value America's Incentive Plan ("Plan"), Value
America's board of directors has reserved 6,250,000 shares of common stock to
grant nonqualified and incentive stock options to employees, officers,
directors and certain non-employees. The exercise price of each option granted
under the Plan is determined by the Compensation Committee of Value America's
board of directors and is generally equal to the fair market value of Value
America's common stock on the date of grant. The Plan also provides for the
issuance of stock appreciation rights, restricted stock and incentive stock.
The terms of option grants and issuances of stock appreciation rights,
restricted stock and incentive stock, including vesting and exerciseability,
are determined by the Compensation Committee. Options granted through September
30, 1998 (unaudited) generally vest over periods up to five years and expire
upon the earlier of ten years from the date of grant or upon termination of
employment. Through September 30, 1998 (unaudited), no stock appreciation
rights, restricted stock or incentive stock had been granted.
F-13
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. STOCKHOLDERS' EQUITY (DEFICIT) -- Continued
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
------------------- -----------------
<S> <C> <C>
Outstanding, December 31, 1996 ................................ -- $ --
Granted ....................................................... 2,591,625 0.88
Exercised ..................................................... -- --
Expired/forfeited ............................................. (6,000) 1.67
--------- -----
Outstanding, December 31, 1997 ................................ 2,585,625 0.88
Granted (unaudited) ........................................... 1,593,005 5.88
Exercised (unaudited) ......................................... -- --
Expired/forfeited (unaudited) ................................. (496,755) 3.53
--------- -----
Outstanding, September 30, 1998 (unaudited) ................... 3,681,875 $ 2.69
========= ======
Exercisable at December 31, 1996 .............................. -- $ --
--------- ------
Exercisable at December 31, 1997 .............................. 441,426 $ .69
========= ======
Exercisable at September 30, 1998 (unaudited) ................. 808,752 $ .68
========= ======
Available for grant at September 30, 1998 (unaudited) ......... 2,568,125 $ --
========= ======
</TABLE>
The following table summarizes information about stock options at
September 30, 1998 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ---------------------------------
WEIGHTED AVERAGE
REMAINING
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ------------- ----------------- ------------------ ------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.58 - 1.67 2,414,625 9 $ 0.81 808,752 $ .68
$3.47 - 3.50 726,750 10 $ 3.50 -- --
$6.67 - 10.16 540,500 10 $ 9.99 -- --
--------- -------
3,681,875 808,752
========= =======
</TABLE>
Certain options were issued during 1997 and 1998 which provide for cash
bonuses upon exercise. Value America recorded approximately $273,000 and
$125,000 (unaudited) in compensation for 1997 and the nine months ended
September 30, 1998 (unaudited), respectively, related to these bonus
provisions. Additional expense to be recognized related to these bonus
provisions is as follows: $58,000 for the three months ended December 31, 1998;
1999 -- $157,000; 2000 -- $99,000; 2001 -- $80,000; 2002 -- $80,000; 2003 --
$50,000.
Additionally, Value America issued options through September 30, 1998
(unaudited) to certain employees with exercise prices less than the fair market
value at the date of grant, resulting in compensation expense of approximately
$482,600 for the nine months ended September 30, 1998. Additional expense to be
recognized related to these options is as follows: $175,000 for the three
months ended December 31, 1998; 1999 -- $598,000; 2000 -- $349,000; 2001 --
$200,000; 2002 -- $99,000; 2003 -- $21,000.
Value America applies APB Opinion No. 25 and related interpretations in
accounting for its Plan and recognizes compensation expense for its employee
stock-based awards based upon the intrinsic value method. If Value America had
elected to recognize compensation expense using the fair value method
prescribed by FAS 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, Value America's net loss and net loss per
share would have been as follows:
F-14
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. STOCKHOLDERS' EQUITY (DEFICIT) -- Continued
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
NET LOSS:
As reported ............................ $ (1,853,259)
=============
Pro forma .............................. $ (1,855,509)
=============
NET LOSS PER SHARE:
As reported, basic and diluted ......... $ (0.09)
=============
Pro forma, basic and diluted ........... $ (0.09)
=============
</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>
YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
Expected volatility ............. 0.01%
Risk-free interest rate ......... 5.71%-5.90%
Expected life ................... 5 years
Expected dividend yield ......... 0%
</TABLE>
Because the determination of the fair value of all options granted after
Value America becomes a public entity will include an expected volatility
factor in addition to the factors described in the preceding table and because
additional option grants are expected to be made each year, the above pro forma
disclosures are not representative of the pro forma effects of option grants on
reported net income (loss) for future years.
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 NINE MONTHS
(MARCH 31, 1996) ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------------------
1996 1997 1997 1998
------------------ ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE:
LOSS (NUMERATOR):
Net loss ..................................... $ (425,074) $ (1,853,259) $ (851,714) $ (27,947,932)
Less: Preferred stock dividends .............. -- (37,500) -- (1,098,672)
Less: Accretion of preferred stock ........... -- (150,868) -- (5,471,720)
----------- ------------ ----------- -------------
Loss available to common stockholders and
assumed conversions ........................ $ (425,074) $ (2,041,627) $ (851,714) $ (34,518,324)
=========== ============ =========== =============
SHARES (DENOMINATOR):
Weighted average common shares ............... 22,500,000 22,615,625 22,519,505 23,152,500
=========== ============ =========== =============
Basic and diluted earnings per share ......... $ (0.02) $ (0.09) $ (0.04) $ (1.49)
=========== ============ =========== =============
</TABLE>
During the year ended December 31, 1997 and the nine months ended
September 30, 1998, Series A and B preferred stock convertible into 2,883,225
and 4,737,162 (unaudited) shares of common stock was outstanding, respectively,
but is not included in the earnings per share computation because it is
anti-dilutive. During the
F-15
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. STOCKHOLDERS' EQUITY (DEFICIT) -- Continued
years ended December 31, 1996 and 1997 and the nine months ended September 30,
1997 and 1998, options and warrants to purchase 0, 2,799,375, 1,831,875
(unaudited) and 3,895,625 (unaudited) shares of common stock, respectively,
were outstanding but are not included in the computation because they are
anti-dilutive.
7. INCOME TAXES
From Inception through October 31, 1997, Value America 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 Value America's taxable income.
Accordingly, no provision for income taxes was recorded for this period.
Effective November 1, 1997, Value America terminated its S Corporation status
and recorded gross deferred tax assets of $478,787.
Value America has not recorded a provision or benefit for income taxes for
the period November 1, 1997 through December 31, 1997 due to the net losses
incurred for tax purposes for which there is no carryback potential. Value
America has calculated net operating loss carryforwards of approximately
$96,500 at December 31, 1997. The net operating loss carryforwards would expire
principally in 2012. If certain substantial changes in Value America's
ownership should occur, there would be an annual limitation on the amount of
the carryforwards which can be utilized.
The components of deferred income tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
-------------
<S> <C>
Deferred tax assets:
Deferred revenue ......................... $ 448,720
Stock-based compensation ................. 103,740
Depreciation ............................. 6,867
Net operating loss carryforwards ......... 36,652
----------
595,979
Valuation allowance ....................... (595,979)
----------
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 Value America's history of operating losses and the
uncertainty surrounding Value America'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 Value America'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
DECEMBER 31,
1997
-------------
<S> <C>
Statutory federal income tax rate ................................. 34%
Decrease in taxes resulting from:
Effect of S corporation status prior to November 1, 1997 ......... (28%)
Change in valuation allowance .................................... (6%)
----
0%
====
</TABLE>
F-16
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. EMPLOYEE BENEFIT PLAN
In June 1998, Value America adopted a 401(k) defined contribution savings
plan. The plan covers all full-time employees who are at least 18 years of age,
and are not covered by a collective bargaining agreement where retirement
benefits are subject to good faith bargaining. Participants may contribute up
to 15% of pre-tax compensation, subject to certain limitations. Value America
may make discretionary annual profit sharing contributions as well as
discretionary employer matching contributions. Employees vest in employer
matching contributions and profit sharing contributions over three years of
eligible service. Value America has made no profit sharing or matching
contributions to date.
9. RELATED PARTY TRANSACTIONS
At September 30, 1998, Value America had notes payable to three
shareholders in the amount of $700,000 (unaudited). The notes bear interest at
10% annually with interest and principal payable at the earliest of i) December
31, 1998, ii) upon Value America's private placement of equity securities
raising an aggregate of at least $15,000,000, or iii) upon the closing of an
underwritten public offering of Value America's common stock. Subsequent to
September 30, 1998, Value America repaid all of the $700,000 (unaudited)
outstanding balances of these notes payable.
At September 30, 1998, Value America had a note receivable from an officer
in the amount of $250,000 (unaudited). The note bears interest at 6% annually
with interest and principal due in September 2000. Value America has agreed to
forgive $150,000 of the principal amount associated with the note if the
officer is terminated without cause prior to December 31, 1999.
For the year ended December 31, 1997, 13% of net sales, or approximately
$6,000, were to a stockholder. Sales to shareholders and other related parties
were immaterial during the nine months ended September 30, 1998 (unaudited).
At December 31, 1996, Value America had a non-interest bearing loan from a
stockholder. This note was repaid during 1997.
10. COMMITMENTS AND CONTINGENCIES
Value America is subject to various legal claims in the ordinary course of
business. In the opinion of management, none of these claims will have a
material adverse effect on the financial position, results of operations or
cash flows of Value America.
In the normal course of business, Value America ocassionally commits to
purchase specified levels of inventory from vendors for resale under future
product offers to customers. At September 30, 1998, Value America was committed
to inventory purchases of approximately $2,275,000 (unaudited).
Value America leases certain equipment and office space under
non-cancelable operating leases. Lease terms range from one to two years and
may include renewal options for additional periods. Management expects that in
the normal course of business, leases will be renewed or replaced by other
leases. At September 30, 1998 (unaudited), Value America is committed for the
payment of minimum rentals under operating lease agreements of approximately
$94,000, $441,000, and $49,400 for the three months ending December 31, 1998,
and for the years ending December 31, 1999 and 2000, respectively. Rent expense
was approximately $10,700, $45,400 and $119,200 (unaudited) for the period from
inception (March 13, 1996) through December 31, 1996, the year ended December
31, 1997, and the nine months ended September 30, 1998 (unaudited),
respectively.
At December 31, 1996 and 1997, Value America was obligated under various
capital leases for equipment, which were capitalized at the present value of
future minimum lease payments, discounted at imputed interest rates of 12% to
19%. These capital lease obligations were repaid in total during the nine
months ended
F-17
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. COMMITMENTS AND CONTINGENCIES -- Continued
September 30, 1998. Interest paid in connection with these leases was $563,
$4,686, and $6,339 (unaudited) for the period from Inception (March 13, 1996)
through December 31, 1996, for the year ended December 31, 1997 and for the
nine months ended September 30, 1998 respectively.
11. LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998 Value America had $6,806,423 (unaudited) in cash,
cash equivalents and restricted cash. For the remainder of fiscal 1998 and for
fiscal 1999, Value America'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. In addition, subsequent
to September 30, 1998, Value America received a total of $100,476,444 of debt
and equity financing from third parties (See Note 13).
In the first half of fiscal 1999, Value America plans to complete 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 this equity financing either be delayed or not occur,
management has developed a contingent operating plan which, if ultimately
necessary, management believes could involve scaling back investments from
levels presently budgeted for 1999. In management's view, were such contingency
actions required and therefore pursued, Value America would have sufficient
liquidity to continue in business at least through fiscal 1999. There can be no
assurance, however, that such contingency actions would be successful.
12. STOCK SPLIT
On July 1, 1998, Value America's board of directors approved a
three-for-one split of Value America's common stock which was effective as of
September 1, 1998. All references to the number of shares issued and
outstanding, the conversion factors for the Series A and Series B preferred
stock and per share information for all periods presented have been adjusted to
reflect the stock split.
13. SUBSEQUENT EVENTS (UNAUDITED)
In October and November 1998, Value America entered into capital leases
for equipment with terms commencing between October 1998 and January 1999 and
ending through October 2001. Total lease payments will approximate $89,000,
$756,000, $163,000, and $71,000 for the three months ending December 31, 1998,
and the years ending December 31, 1999, 2000, and 2001, respectively.
In November 1998, Value America entered into letter of credit agreements
with two vendors whereby Value America granted security interests and limited
powers of attorney over certificates of deposit totaling $1,750,000. The
letters of credit are callable if Value America defaults in the payments of
trade payables to the secured vendors and expire through May 1999.
Additionally, in November 1998, a letter of credit agreement with a vendor was
amended such that certificates of deposit totaling $1,500,000, in which the
vendor had security interests and limited powers of attorney at September 30,
1998, were reduced to $1,000,000.
Value America entered into a Revolving Credit Agreement ("Agreement") with
a preferred shareholder and additional participants including an affiliate of
Sam Belzberg, principals of the Carlyle Group, principals of CIBC/Oppenheimer,
George Cooney, Kluge Investments, principals of Pacific Capital Group
(including Gary K. Winnick and Thomas J. Casey) and an affiliate of Yucaipa in
October 1998, which agreement was amended in November and December 1998 and
January 1999. Amounts outstanding under the Agreement and subsequent amendments
totaled approximately $34 million at January 15, 1999. The principal amount is
repayable upon a qualifying public offering through the exercise of common
stock warrants.
Value America issued 408,000 Type A common stock warrants, 3,400,000 Type
B common stock warrants and 325,000 Type C common stock warrants in connection
with the amendments to the Agreement.
F-18
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
13. SUBSEQUENT EVENTS (UNAUDITED) -- Continued
Type A Warrants have an exercise price of $0.01 per share of common stock
and are exercisable upon the earlier of November 17, 1997 a qualified public
offering or a change in control, issuance until November 17, 2008. The exercise
price is payable in cash or by Value America not issuing that number of shares
having a fair market value equal to the exercise price.
Type B Warrants have an exercise price of $10.00 per share of common stock
and are exercisable upon the earlier of November 17, 1997 a qualified public
offering or a change in control, until November 17, 2008. The exercise price is
payable in cash or by Value America not issuing that number of shares having a
fair market value equal to the exercise price.
Type B Warrants have mandatory exercise upon the closing of a qualifying
public offering. Upon mandatory exercise, the holder must pay the exercise
price by cancellation of the indebtedness outstanding under the Agreement.
Type C Warrants have an exercise price of $10.00 per share of common stock
and are exercisable upon issuance until the earlier of January 15, 2009 or
three calendar years following a qualifying public offering. If the aggregate
fair value of Value America's capital stock does not exceed $600,000,000 on or
before the Evaluation Date (the earlier of December 31, 1999 or a change in
control, as defined), the exercise price of the warrants changes to $0.01. The
exercise price is payable in cash or by Value America not issuing that number
of shares having a fair market value equal to the exercise price.
Value America will allocate the fair value of the Type A, B and C common
stock warrants to stockholders' equity based upon the relative fair values of
the debt and the warrants, and amortize the resulting debt discount as interest
expense using the effective interest method until maturity or conversion. Upon
repayment of the debt through the exercise of the warrants for common stock,
the unamortized portion of the discount will be recorded as interest expense.
On December 18, 1998, Value America sold 645,200 shares of common stock
and 118,320 warrants for $6,452,000. The warrants have an exercise price of
$10.00 per share of common stock and are exerciseable after the vesting date,
which is the earlier of December 18, 1999 or a qualifying public offering,
until December 18, 2008.
On January 15, 1999, Value America sold 6,000,000 shares of 5% Cumulative
Convertible Series C Preferred Stock ("Series C") for $60,000,000 to Vulcan
Ventures, FDX Corporation and Frederick W. Smith. Value America issued
1,800,000 Type D common stock warrants, 473,724 Type E common stock warrants
and 37,843 Type F common stock warrants in connection with the Series C stock.
These Series C shares are convertible at any time after January 15, 2000 at the
option of the holder into an equal number of shares of common stock. Series C
stockholders are entitled to the number of votes equal to the largest number of
common shares into which the shares can be converted.
If Value America does not successfully offer common shares to the public
before December 19, 1999, the Series C shares may be redeemed at the option of
the shareholder for $20.00 per share plus any unpaid dividends. If full
redemption is not elected by the stockholder, 2,000,000 shares are mandatorily
redeemable in each of January 2003, 2004 and 2005 at a price of $20.00 per
share plus any unpaid dividends. In addition, if there is no successful public
offering by December 19, 1999, 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. The carrying amount of these securities will
periodically be adjusted to measure the carrying value to the redemption value
of $120,000,000 at December 19, 1999.
At the completion of a successful public offering of equity securities
with aggregate gross proceeds of at least $25,000,000 and with a minimum common
share price of $3.82, the Series C Preferred Shares will automatically convert
to common shares, with certain registration rights.
F-19
<PAGE>
VALUE AMERICA, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
13. SUBSEQUENT EVENTS (UNAUDITED) -- Continued
The Type D warrants have an exercise price of $10.00 per share of common
stock and are exercisable upon issuance until the earlier of January 15, 2009
or three calendar years following a qualifying public offering. If the
aggregate fair value of Value America's capital stock does not exceed
$600,000,000 on or before the Evaluation Date, the exercise price of the
warrants changes to $0.01. The exercise price is payable in cash or by Value
America not issuing that number of shares having a fair market value equal to
the exercise price.
The Type E warrants are exercisable on the Evaluation Date if the
aggregate fair value of Value America's capital stock does not exceed
$600,000,000 on the Evaluation Date. Type E warrants have an exercise price of
$0.01 per share of common stock and are exercisable upon issuance until the
earlier of January 15, 1999 or three calendar years following a qualifying
public offering. The exercise price is payable in cash or by Value America not
issuing that number of shares having a fair market value equal to the exercise
price.
The Type F warrants have an exercise price of $0.01 per share of common
stock and are exerciseable upon issuance until January 15, 2009. The exercise
price is payable in cash or by Value America not issuing that number of shares
having a fair market value equal to the exercise price.
Value America will allocate the fair value of the Type D, E and F warrants
to stockholders' equity based upon the relative fair values of the warrants and
the Series C stock. Upon conversion of the Series C stock into common stock,
the remaining discount from redemption value will be recorded as accretion and
affect net income or loss available to common stockholders.
Value America has engaged an independent appraiser to determine the value
of the warrants issued with the convertible preferred stock and notes payable
that have been issued since September 30, 1998, in order to help us to allocate
the purchase price on a fair value basis among the convertible preferred stock,
notes payable and warrants. We expect the appraiser's report will be completed
by mid-February 1999. Value America anticipates that the interest expense from
the amortization of the resulting debt discount will have a material effect on
its net loss in the quarter and year in which this public offering is completed
and that the accretion of the discount from the redemption value for the
convertible preferred stock will have a material effect on the net loss
available for common stockholders in the quarter and year in which this public
offering is completed. This amortization and accretion will not affect Value
America's cash flows or stockholders' equity.
Value America has an arrangement with a stockholder to pay finders' fees
in connection with equity and debt financing, as defined. Fees payable to this
stockholder of approximately $1,900,000 were incurred relative to certain of
the transactions since September 30, 1998. Additionally, Value America has an
agreement with a stockholder to pay a one percent fee in connection with the
aforementioned $34.0 million loan agreement.
F-20
<PAGE>
[VALUE AMERICA LOGO]
<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 Securities and Exchange Commission registration fee, NASD fee
and the Nasdaq National Market filing fee. Value America will pay all expenses,
other than underwriting commissions and discounts, related to any sale of
shares by the Selling stockholders.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ......... $ 27,175
NASD filing fee ............................................. 10,275
Nasdaq National Market fee .................................. 95,000
Accounting fees and expenses ................................ 600,000
Legal fees and expenses ..................................... 500,000
Printing and engraving expenses ............................. 200,000
Blue sky fees and expenses .................................. 20,000
Transfer agent and registrar fees and expenses .............. 10,000
Miscellaneous ............................................... 27,550
----------
Total ...................................................... $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Value America's Articles of Incorporation implement the provisions of the
Virginia Stock Corporation Act which provide for the indemnification of Value
America'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 Virginia Stock Corporation Act, 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. Value America'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, as permitted by the Virginia Stock Corporation Act, Value
America'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.
Value America has purchased officers' and directors' liability insurance
policies. Within the limits of their coverage, the policies insure (a) the
directors and officers of Value America 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 Value America and (b) Value America to
the extent that it indemnifies such directors and officers for losses as
permitted under the Virginia Stock Corporation Act.
The Underwriting Agreement contains provisions by which the underwriters
have agreed to indemnify Value America, each person, if any, who controls Value
America within the meaning of Section 15 of the Securities Act, each director
of Value America, and each officer of Value America 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, Value America's date of incorporation, Value America
has sold and issued the following unregistered securities:
II-1
<PAGE>
(1) On May 24, 1996, Value America issued an aggregate of 19,125,000
shares of common stock to Craig A. Winn, Value America's Chairman,
Chief Executive Officer and President, and Rex Scatena, Value America's
Executive Vice President -- Business Development, for an aggregate of
$127,500.
(2) On August 13, 1996, Value America issued an aggregate of 3,375,000
shares of common stock to Mr. Winn and Mr. Scatena for an aggregate of
$22,500.
(3) On November 13, 1997, Value America completed the issuance of an
aggregate of 427,500 shares of common stock and warrants to purchase an
aggregate of 213,750 shares of common stock to a total of 14 accredited
investors. Value America issued the shares of common stock at $1.50 per
share and the warrants at $0.33 per warrant. In addition, Value America
issued 150,000 shares of common stock to a single, accredited investor
at $1.67 per share.
(4) On December 17, 1997, Value America 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. In connection with this transaction, Value America
paid a $500,000 finder's fee to Timothy Driscoll.
(5) On June 24, 1998, Mr. Winn sold 288,321 shares of common stock to a
single investor for $2,000,000 or $6.94 per share.
(6) On June 26, 1998, Value America 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 $18,829,894 or $30.47 per share. In
connection with such offering, Mr. Winn and Mr. Scatena 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.
(7) 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.
(8) On December 31, 1998, Value America issued an aggregate of 373,460
shares of common stock and warrants to purchase an aggregate of 118,320
shares of common stock to 62 accredited investors. These investors paid
an aggregate of $6,452,000 for these securities, some of which took the
form of the cancellation of debt previously incurred by Value America.
(9) Pursuant to a Revolving Loan Agreement dated October 14, 1998, as
amended and restated from time to time, ULLICO and certain participants
loaned Value America an aggregate of $34.0 million. In connection with
this loan, Value America issued ULLICO and the participants warrants to
purchase an aggregate of 4,133,000 shares of common stock. Upon the
closing, and subject to the payment by Value America of all accrued
interest thereon, 3,400,000 of these warrants, each with an exercise
price of $10.00 per share, will be automatically exercised in
consideration for the cancellation of the principal amount of Value
America's underlying debt.
(10) On January 15, 1999, Value America issued 6,000,000 shares of Series C
preferred stock and warrants to purchase 1,800,000 shares of common
stock to three accredited investors for an aggregate purchase price of
$60,000,000. In addition, in connection with this offering, Value
America issued warrants to purchase 511,567 shares of common stock to
certain of its existing investors.
(11) Value America has issued an aggregate of 4,296,725 options to purchase
common stock with exercise prices ranging from $0.58 to $10.16 per
share under the stock incentive plan.
The offers and sales 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/or Rule 701 promulgated thereunder as transactions not
involving any public offering.
II-2
<PAGE>
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 Value America, as amended*
3.2 Amended and Restated Bylaws of Value America*
4.1 Form of Common Stock Certificate*
5.1 Opinion of LeClair Ryan, A Professional Corporation**
10.1 Consent Agreement, dated as of December 3, 1997, by and between Value America
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 Value America 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 Value America 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
Value America relating to property located at 2340 Commonwealth Avenue, Suites
102, 103 and B-1, Charlottesville, Virginia*
10.5 Lease Agreement, dated as of June 26, 1998, by and between Charles W. Hurt and
Value America relating to property located at 1524 Insurance Lane, 1534 Insurance
Lane, 1540 Insurance Lane, 1550 Insurance Lane, and 1560 Insurance Lane,
Charlottesville, Virginia*
10.6 Professional Services Agreement, executed by Value America on February 11, 1998,
by and between Business Data Services, Inc. and Value America*
10.7 Loan Agreement, executed by Value America on April 8, 1998, by and between
Jefferson National Bank (predecessor of Wachovia Bank, N.A.) and Value America*
10.8 Assignment, Pledge and Subordination Agreement, dated as of April 16, 1998, by
and among First Data Merchant Services Corp. Wachovia Bank, N.A. and Value
America*
10.9 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 Value America*
10.10 Warrant, dated November 20, 1997 to purchase 10,000 shares of common stock of
Value America issued to Dean M. Johnson*
10.11 Warrant, dated December 31, 1998 to purchase 3,000 shares of common stock of
Value America issued to Glenda M. Dorchak*
10.12 Warrant, dated December 31, 1998 to purchase 3,000 shares of common stock of
Value America issued to Richard L. Gerhardt*
10.13 Warrant, dated January 15, 1999 to purchase 473,724 shares of common stock of
Value America issued to Vulcan Ventures Incorporated*
10.14 Form of Type A warrant to purchase shares of common stock of Value America
(description of warrant included in note 13 to notes to financial statements)*
10.15 Form of Type B warrant to purchase shares of common stock of Value America
(description of warrant included in note 13 to notes to financial statements)*
10.16 Form of Type C and Type D warrants to purchase shares of common stock of Value
America (description of warrants included in note 13 to notes to financial
statements)*
10.17 Form of Type F warrant to purchase shares of common stock of Value America
(description of warrant included in note 13 to notes to financial statements)*
10.18 Employment Agreement, dated as of April 1, 1996, by and between Joseph L. Page
and Value America, Inc., a Nevada corporation (predecessor of Value America)*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ ---------------------------------------------------------------------------------
<S> <C>
10.19 Employment Agreement, dated as of August 1, 1997, by and between John L.
Motley, Director and Value America, Inc., a Nevada corporation (predecessor of
Value America)*
10.20 Employment Agreement, dated as of November 13, 1997, by and between Dean M.
Johnson and Value America*
10.21 Employment Agreement, dated as of October 5, 1998, by and between Value
America and Glenda M. Dorchak*
10.22 Employment Agreement, dated as of January 19, 1999, by and between Value
America and Craig A. Winn*
10.23 Employment Agreement, dated as of January 19, 1999, by and between Value
America and Rex Scatena*
10.24 Form of Developments, Noncompete and Nondisclosure Agreement, by and between
Value America and each of Value America's employees*
10.25 1997 Stock Incentive Plan adopted on August 1, 1997 by Value America, Inc., as
amended *
10.26 Registration Rights Agreement, dated as of June 3, 1998, by and between Value
America and Capital Advisers, L.L.C.*
10.27 Registration Rights Agreement, dated as of November 17, 1998, by and among
Value America and The Union Labor Life Insurance Company, acting on behalf of
its Separate Account P, as amended*
10.28 Second Amended and Restated Registration Rights Agreement, dated as of
January 12, 1999, by and among Value America and those entities and individuals
listed on Annex A thereto*
10.29 Amended and Restated Stockholders Agreement, dated as of June 26, 1998, by and
among Value America, Craig A. Winn, Director, Rex Scatena, Director, Crystal
Invesments, L.L.C. Frostine, L.L.C. and the holders of Value America's Series A
preferred stock and Value America's Series B preferred stock, as amended*
10.30 Consulting Agreement, dated as of November 18, 1998, by and between Value
America and The Union Labor Life Insurance Company, acting on behalf of its
Separate Account P*
10.31 Voting Agreement, dated as of June 26, 1998, by and among Value America,
Craig A. Winn, Director, Rex Scatena, Director, Crystal Investments, L.L.C.,
Frostine, L.L.C. and the holders of Value America's Series B preferred stock*
10.32 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 Value America, as amended*
10.33 Preferred Stock Purchase Agreement, dated as of June 26, 1998, by and among
Value America and those entities and individuals listed on Annex A thereto, as
amended*
10.34 Preferred Stock and Warrant Purchase Agreement, dated as of January 12, 1999, by
and among Value America, Vulcan Ventures Incorporated, FDX Corporation and
Frederick W. Smith*
10.35 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*
10.36 Product Listing Agreement, dated October 8, 1997, by and between Toshiba
America Information Systems and Value America*
10.37 Product Listing Agreement, dated June 3, 1997, by and between Toshiba America
Information Systems and Value America*
10.38 Category Presentation Agreement, dated January 21, 1998, by and between IBM and
Value America*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ -----------------------------------------------------------------------------------
<S> <C>
10.39 Product Listing Agreement, dated April 16, 1997, by and between Hewlett-Packard
and Value America*
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 (included on Page II-6 hereof)*
27.1 Financial Data Schedule*
99.1 Letter, dated January 21, 1998, from Value America to Mr. Robert A. Bayless, Chief
Accountant of the Division of Corporation of the Securities and Exchange
Commission, relating to Value America's revenue recognition for product sales*
</TABLE>
- ----------
* Filed herewith.
** To be filed by amendment.
(b) The following financial statement schedules are filed herewith:
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-5
<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 twenty-first day of January, 1999.
VALUE AMERICA, INC.
By:
-------------------------------------
CRAIG A. WINN
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
We, the undersigned officers and directors of Value America, Inc., hereby
severally constitute and appoint Craig A. Winn, Dean M. Johnson and Sandra T.
Watson, and each of them acting singly, our true and lawful attorneys with full
power to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, and any and all pre-effective and post-effective
amendments to this Registration Statement, and any subsequent Registration
Statement for the same offering which may be filed under Rule 462(b), and
generally to do all such things in our names and on our behalf in our
capacities as officers and directors to enable Value America, Inc. to comply
with the provisions of the Securities Act of 1933, and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto or to any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b).
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on the twenty-first day of
January, 1999, by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------ -------------------------------------
<S> <C>
Chairman, Chief Executive Officer
- -----------------------------------
CRAIG A. WINN (Principal Executive Officer) and
Director
Executive Vice President,
- -----------------------------------
DEAN M. JOHNSON Chief Financial Officer
(Principal Financial Officer),
Secretary and Director
Senior Vice President -- Finance and
- -----------------------------------
SANDRA T. WATSON Controller (Principal Accounting
Officer)
President, Chief Operating Officer
- -----------------------------------
GLENDA M. DORCHAK and Director
Director
- -----------------------------------
JOHN L. MOTLEY
Director
- -----------------------------------
GARY D. LECLAIR
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------ -------------------------------------
<S> <C>
Executive Vice President -- Business
- -----------------------------------
REX SCATENA Development and Director
Director
- -----------------------------------
MICHAEL R. STEED
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ----------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement**
3.1 Articles of Incorporation of Value America, as amended*
3.2 Amended and Restated Bylaws of Value America*
4.1 Form of Common Stock Certificate*
5.1 Opinion of LeClair Ryan, A Professional Corporation**
10.1 Consent Agreement, dated as of December 3, 1997, by and between Value America
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 Value America 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 Value America 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
Value America relating to property located at 2340 Commonwealth Avenue, Suites
102, 103 and B-1, Charlottesville, Virginia*
10.5 Lease Agreement, dated as of June 26, 1998, by and between Charles W. Hurt and
Value America relating to property located at 1524 Insurance Lane, 1534 Insurance
Lane, 1540 Insurance Lane, 1550 Insurance Lane, and 1560 Insurance Lane,
Charlottesville, Virginia*
10.6 Professional Services Agreement, executed by Value America on February 11, 1998,
by and between Business Data Services, Inc. and Value America*
10.7 Loan Agreement, executed by Value America on April 8, 1998, by and between
Jefferson National Bank (predecessor of Wachovia Bank, N.A.) and Value America*
10.8 Assignment, Pledge and Subordination Agreement, dated as of April 16, 1998, by
and among First Data Merchant Services Corp. Wachovia Bank, N.A. and Value
America*
10.9 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 Value America*
10.10 Warrant, dated November 20, 1997 to purchase 10,000 shares of common stock of
Value America issued to Dean M. Johnson*
10.11 Warrant, dated December 31, 1998 to purchase 3,000 shares of common stock of
Value America issued to Glenda M. Dorchak*
10.12 Warrant, dated December 31, 1998 to purchase 3,000 shares of common stock of
Value America issued to Richard L. Gerhardt*
10.13 Warrant, dated January 15, 1999 to purchase 473,724 shares of common stock of
Value America issued to Vulcan Ventures Incorporated*
10.14 Form of Type A warrant to purchase shares of common stock of Value America
(description of warrant included in note 13 to notes to financial statements)*
10.15 Form of Type B warrant to purchase shares of common stock of Value America
(description of warrant included in note 13 to notes to financial statements)*
10.16 Form of Type C and Type D warrants to purchase shares of common stock of Value
America (description of warrants included in note 13 to notes to financial
statements)*
10.17 Form of Type F warrant to purchase shares of common stock of Value America
(description of warrant included in note 13 to notes to financial statements)*
10.18 Employment Agreement, dated as of April 1, 1996, by and between Joseph L. Page
and Value America, Inc., a Nevada corporation (predecessor of Value America)*
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ ---------------------------------------------------------------------------------
<S> <C>
10.19 Employment Agreement, dated as of August 1, 1997, by and between John L.
Motley, Director and Value America, Inc., a Nevada corporation (predecessor of
Value America)*
10.20 Employment Agreement, dated as of November 13, 1997, by and between Dean M.
Johnson and Value America*
10.21 Employment Agreement, dated as of October 5, 1998, by and between Value
America and Glenda M. Dorchak*
10.22 Employment Agreement, dated as of January 19, 1999, by and between Value
America and Craig A. Winn*
10.23 Employment Agreement, dated as of January 19, 1999, by and between Value
America and Rex Scatena*
10.24 Form of Developments, Noncompete and Nondisclosure Agreement, by and between
Value America and each of Value America's employees*
10.25 1997 Stock Incentive Plan adopted on August 1, 1997 by Value America, Inc., as
amended *
10.26 Registration Rights Agreement, dated as of June 3, 1998, by and between Value
America and Capital Advisers, L.L.C.*
10.27 Registration Rights Agreement, dated as of November 17, 1998, by and among
Value America and The Union Labor Life Insurance Company, acting on behalf of
its Separate Account P, as amended*
10.28 Second Amended and Restated Registration Rights Agreement, dated as of
January 12, 1999, by and among Value America and those entities and individuals
listed on Annex A thereto*
10.29 Amended and Restated Stockholders Agreement, dated as of June 26, 1998, by and
among Value America, Craig A. Winn, Director, Rex Scatena, Director, Crystal
Invesments, L.L.C. Frostine, L.L.C. and the holders of Value America's Series A
preferred stock and Value America's Series B preferred stock, as amended*
10.30 Consulting Agreement, dated as of November 18, 1998, by and between Value
America and The Union Labor Life Insurance Company, acting on behalf of its
Separate Account P*
10.31 Voting Agreement, dated as of June 26, 1998, by and among Value America,
Craig A. Winn, Director, Rex Scatena, Director, Crystal Investments, L.L.C.,
Frostine, L.L.C. and the holders of Value America's Series B preferred stock*
10.32 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 Value America, as amended*
10.33 Preferred Stock Purchase Agreement, dated as of June 26, 1998, by and among
Value America and those entities and individuals listed on Annex A thereto, as
amended*
10.34 Preferred Stock and Warrant Purchase Agreement, dated as of January 12, 1999, by
and among Value America, Vulcan Ventures Incorporated, FDX Corporation and
Frederick W. Smith*
10.35 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*
10.36 Product Listing Agreement, dated October 8, 1997, by and between Toshiba
America Information Systems and Value America*
10.37 Product Listing Agreement, dated June 3, 1997, by and between Toshiba America
Information Systems and Value America*
10.38 Category Presentation Agreement, dated January 21, 1998, by and between IBM and
Value America*
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ -----------------------------------------------------------------------------------
<S> <C>
10.39 Product Listing Agreement, dated April 16, 1997, by and between Hewlett-Packard
and Value America*
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 (included on Page II-6 hereof)*
27.1 Financial Data Schedule*
99.1 Letter, dated January 21, 1998, from Value America to Mr. Robert A. Bayless, Chief
Accountant of the Division of Corporation of the Securities and Exchange
Commission, relating to Value America's revenue recognition for product sales*
</TABLE>
- ----------
* Filed herewith.
** To be filed by amendment.
II-10
EXHIBIT 3.1
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. The first paragraph of Article III.1 of the Articles of
Incorporation is hereby amended by deleting such paragraph in its
entirety and adding the following in lieu thereof:
"The number of shares of common stock which the Corporation
shall have the authority to issue shall be 500,000,000 shares,
without par value."
B. The first paragraph of Article III.2 of the Articles of
Incorporation is hereby amended by deleting such paragraph in its
entirety 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 25,000,000 shares,
without par value."
C. 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 IIIA in lieu thereof.
D. The first sentence of the first paragraph of Article VII of
the Articles of Incorporation is hereby amended by deleting it in
its entirety and adding the following in lieu thereof:
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 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.
E. Paragraph c. following the second paragraph of Article VII
of the Articles of Incorporation is hereby amended by deleting such
paragraph in its entirety and adding the following in lieu thereof:
c. An amendment of these Articles other than an amendment
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;
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 January 11, 1999.
Dated: January 15, 1999
VALUE AMERICA, INC.
By: /s/ Dean M. Johnson
Title: EVP & CFO
<PAGE>
Annex A - Article IIIA
Article IIIA is attached hereto.
<PAGE>
ARTICLE III A
A series of Preferred Stock consisting of 5,000,000 shares
designated and known as "Series A Preferred Stock", a series of Preferred Stock
consisting of 617,979 shares designated as "Series B Preferred Stock" and a
series of Preferred Stock consisting of 6,000,000 shares designated as "Series C
Preferred Stock" are hereby established. The Series A Preferred Stock, the
Series B Preferred Stock and the Series C 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:
"A/B Demand Date" shall have the meaning assigned to it
------------------
in Section 5 hereof.
"A/B Demand Notice" shall have the meaning assigned to it
-------------------
in Section 5 hereof.
"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.
"C Demand Date" shall have the meaning assigned to it in
----------------
Section 5 hereof.
"C Demand Notice" shall have the meaning assigned to it
------------------
in Section 5 hereof.
"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, for the Series B Preferred Stock the date immediately prior to
the date of original issuance of the Series B Preferred Stock and for the Series
C Preferred Stock the date immediately prior to the date of original issuance of
the Series C 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
<PAGE>
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).
"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 $2.00 per share for the Series A Preferred Stock, $30.47 per
share for the Series B Preferred Stock and $10.00 per share for the Series C
Preferred Stock, except as provided in the next sentence. If determining the
Investment Value in the case of the definition of Mandatory Redemption Price,
then "Per Share Amount" means $4.00 per share for the Series A Preferred Stock,
$60.94 per share for the Series B Preferred Stock and $20.00 per share for the
Series C Preferred Stock.
<PAGE>
"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 the vote
------------------------------------------
of all of the following (i) more than fifty percent (50%) of the total number of
outstanding shares of Series A Preferred Stock, voting as a separate class, (ii)
more than fifty percent (50%) of the outstanding shares of Series B Preferred
Stock, voting as a separate class, and (iii) more than fifty percent (50%) of
the outstanding shares of Series C Preferred Stock, voting as a separate class.
"Original Issue Price" shall mean $2.00 per share of Series A
----------------------
Preferred Stock, $30.47 per share of Series B Preferred Stock and $10.00 per
share of Series C 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.
"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 C Preferred Stock" shall mean the Series C Preferred
---------------------------
Stock, without par value, of the Corporation.
"Series Preferred Stock" shall mean the Series A Preferred
--------------------------
Stock, the Series B Preferred Stock and the Series C 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, the Series B Preferred Stock and the Series C Preferred Stock
are Voting Stock.
Section 2. Dividends.
<PAGE>
(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.
(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
<PAGE>
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.
(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, Series B Preferred Stock and Series C Preferred
Stock in proportion to the Per Share Amount per share 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 $.06
(six 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
<PAGE>
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 $.06 (six 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).
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, the
Series B Preferred Stock and the Series C Preferred Stock in proportion to the
Per Share Amount of each series times the number of shares of each series held.
<PAGE>
(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.
(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
<PAGE>
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
<PAGE>
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."
(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, 205,993 shares of Series B
Preferred Stock and 2,000,000 shares
of Series C Preferred Stock First Business Day of January, 2003
1,666,666 shares of Series A Preferred
Stock, 205,993 shares of Series B
Preferred Stock and 2,000,000 shares
of Series C Preferred Stock First Business Day of January, 2004
1,666,668 shares of Series A Preferred
Stock, 205,993 shares of Series B
Preferred Stock and 2,000,000 shares
of Series C Preferred Stock First Business Day of January, 2005
(2) In addition to the foregoing, if the Corporation
does not complete a Qualified Offering (as hereinafter defined) within:
(i) twenty-four (24) months after the first issuance of Series
A Preferred Stock (provided that none of the proceeds of
the sale of the Company's Series C Preferred Stock and no
proceeds from any loan or borrowing made for the specific
purpose of such a redemption may be used by the Company for
such a redemption), 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 (an "A/B Demand Notice"), which such
notice the Corporation shall within five (5) days of receipt
mail to all holders of Series C Preferred Stock, may cause
<PAGE>
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 A/B Demand Notice (the
"A/B Demand Date"), which may not be earlier than thirty
(30) days after the A/B Demand Notice is received by the
Corporation, and
(ii) twenty-four (24) months after the first issuance of Series
C 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 C
Preferred Stock, by giving written notice to the Corporation
(a "C Demand Notice"), may cause the Corporation to redeem
all outstanding shares of Series C Preferred Stock at the
applicable Optional Redemption Price for Series C Preferred
Stock on the Redemption Date specified in the C Demand
Notice (the "C Demand Date"), which may not be earlier than
thirty (30) days after the C Demand Notice is
received by the Corporation. Any such redemption pursuant
to this clause (ii) or clause (i) above is herein sometimes
referred to as a "Demand Redemption;" an A/B Demand Notice
or a C Demand Notice is herein sometimes referred to as
a "Demand Notice;" and an A/B Demand Date or a C Demand
Date is herein sometimes referred to as a "Demand Date;"
(iii) 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 such
Demand Notice is received, all of the persons named in such
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
shall state the names the individuals whom the holders giving
such 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."
(3) No shares of Series A Preferred Stock or Series B
Preferred Stock shall be redeemed until twenty-five (25) days after the
Corporation mails a copy of the A/B Demand Notice to all holders of Series C
Preferred Stock.
(4) 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
<PAGE>
shares ratably among all holders of Series A Preferred Stock, Series B
Preferred Stock and Series C 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.
(5) 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, Series B Preferred Stock and Series C
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 ten (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
<PAGE>
(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.
(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
<PAGE>
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.
(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 one 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
<PAGE>
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.
(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, the holders of the Series B Preferred Stock and the
holders of the Series C 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 Series B Preferred Stock, and the Series C Preferred Stock
voting together as a separate class. 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
<PAGE>
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; provided, however, that no
share of Series C Preferred Stock shall be convertible at the option of the
holder thereof on or before the first anniversary of the Commitment Date of the
Series C Preferred Stock except immediately prior to the consummation of any of
the following transactions: (i) 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; (ii) the sale of all or substantially all of the assets of the
Corporation; (iii) any consolidation or merger involving the Corporation; or
(iv) the acquisition by a single Person or group of Persons, in a single or
series of transactions, of in excess of a majority of the issued and outstanding
shares of Voting Stock of the Corporation.
(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 Conversion Price for the Series A Preferred Stock initially shall
be $3.46833333 per share, the Conversion Price for the Series B Preferred Stock
initially shall be $10.15666667 per share and the Conversion Price for the
Series C Preferred Stock initially shall be $10.00 per share. The Conversion
Price for each series of Series Preferred Stock shall be subject to adjustment
from time to time as provided below.
<PAGE>
(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.
(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
<PAGE>
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.
(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
<PAGE>
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, 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 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 Other Securities at the close of business on the date
next preceding the date of such issue or sale.
(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
<PAGE>
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.
(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
<PAGE>
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.
Notwithstanding the foregoing, the first paragraph of this Section 7(i)(3)
shall not apply to the issuance by the Corporation of any Convertible Securities
that a majority of the members of the Corporation's Board of Directors and the
Holders of a Majority of the Series Preferred Stock determine to exclude from
the definition of Convertible Securities as herein defined.
(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).
Notwithstanding the foregoing, the first paragraph of this Section 7(i)(4)
shall not apply to the issuance of any rights or options for the purchase of
Convertible Securities that a majority of the members of the Corporation's Board
of Directors and Holders of a Majority of the Series Preferred Stock exclude
from the adjustments contemplated by the first paragraph of this Section 7(i)(4)
of the Corporation's Common Stock into a small number of shares.
(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
<PAGE>
conversion of the Series Preferred Stock, (ii) up to 6,250,000 shares of Common
Stock, as approved by the Compensation Committee of the Corporation's Board of
Directors, which are issued or issuable to individuals or entities 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) 213,750 shares of Common Stock issued or issuable upon the
exercise of stock purchase warrants that were outstanding on the date of first
issuance of Series A Preferred Stock, (iv) 75,000 shares to be issued to a
former employee for services rendered, (v) any other shares of Common Stock
issued by the Corporation that a majority of the members of the Corporation's
Board of Directors and Holders of a Majority of the Series Preferred Stock
approve for exclusion from the definition of Additional Shares of Common Stock,
as such term is defined herein. The number of shares described in clauses (i),
(ii), (iii), (iv) and (v) above shall be proportionately increased in the event
of a subdivision of the outstanding shares of Common Stock or proportionately
decreased in the event of a combination of the outstanding shares of Common
Stock into a smaller number of shares. 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
<PAGE>
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.
(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,
<PAGE>
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.
(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.
<PAGE>
(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 1560 Insurance Lane, Charlottesville, Virginia 22911, 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;
(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;
<PAGE>
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;
(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. Restrictions on Use of Certain Funds for Redemptions. For
so long as any shares of Series C Preferred Stock remain outstanding, the
Corporation shall not, without the vote or written consent of the holders of a
majority of the Series C Preferred Stock, use any of the proceeds of the sale of
the Company's Series C Preferred Stock or the proceeds from any loan or
borrowing made for the specific purpose of such a redemption, for the redemption
of shares of Series A Preferred Stock or Series B Preferred Stock under Section
4(c)(2)(i) of this Article IIIA.
Section 10. Additional Restrictions and Limitations. For so long as
any shares of Series A Preferred Stock, Series B Preferred Stock or Series C
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, Series B Preferred Stock or Series C 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 10, or
otherwise.
Section 11. 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 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. The first paragraph of Article III, Section 1 of the Articles of
Incorporation is hereby amended by deleting such paragraph and
adding the following in lieu thereof:
"The number of shares of common stock which the Corporation shall have
the authority to issue shall be 100,000,000 shares, without par value."
b. The definition of "Original Issue Price" in Article III. A., Section 1
of the Articles of Incorporation is hereby amended by deleting it in
its entirety and adding the following in lieu thereof:
"Original Issue Price" shall mean $2.00 per share of Series A Preferred
Stock and $30.47 per share of Series B Preferred Stock."
c. Article III. A., Section 7(b) of the Articles of Incorporation is
hereby amended by deleting the second sentence thereof and adding
the following in lieu thereof:
"The initial Conversion Price for the Series A Preferred Stock shall be
$10.405 and the initial Conversion Price for the Series B Preferred
Stock shall be $30.47."
d. Article III. A., Section 7(i)(1)(I) of the Articles of Incorporation
is hereby amended by deleting the words "prior to a Qualified Offering"
and Article III. A., Section 7(i)(1)(II) of the Articles of
Incorporation is hereby amended by deleting the word "constitutes" in
the third line thereof and adding the following in lieu thereof:
"does not constitute"
e. Article III. A., Section 7(i)(5)(ii) of the Articles of Incorporation
is hereby amended by deleting such clause and adding the following in
lieu thereof:
"the first 3,287,625 shares (or such number of shares as is
proportionately increased in the event of a subdivision of the
outstanding shares of Common Stock or as is proportionately
decreased in the event of a combination of the outstanding shares
of Common Stock into a smaller number of 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,"
<PAGE>
f. Article III. A., Section 7(i)(5)(iii) of the Articles of Incorporation
is hereby amended by deleting such clause and adding the following in
lieu thereof:
"213,750 shares (or such number of shares as is proportionately
increased in the event of a subdivision of the outstanding shares of
Common Stock or as is proportionately decreased in the event of a
combination of the outstanding shares of Common Stock into a smaller
number of 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"
g. Article III. A., Section 7(i)(5)(iv) of the Articles of Incorporation
is hereby amended by deleting such clause and adding the following
in lieu thereof:
"75,000 shares (or such number of shares as is proportionately
increased in the event of a subdivision of the outstanding shares of
Common Stock or as is proportionately decreased in the event of a
combination of the outstanding shares of Common Stock into a smaller
number of shares) of Common Stock to be issued to a former employee
for services rendered."
3. The amendments were recommended by the Corporation's Board of Directors to
the Corporation's shareholders pursuant to Sections 13.1-707A and B of the
Virginia Stock Corporation Act (the "Act").
4. Pursuant to Sections 13.1-707B and E of the Act, the amendments were duly
adopted by the shareholders of the Corporation by unanimous written consent,
effective as of September 1, 1998.
[SIGNATURE APPEARS ON THE FOLLOWING PAGE]
<PAGE>
Dated: September 1, 1998
VALUE AMERICA, INC.
By: /s/ Craig A. Winn
-----------------------------
Print Name: Craig A. Winn
---------------------
Title: Chairman
--------------------------
<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 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;
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 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 & CFO
------------------------
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>
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
June 26, 1998
The State Corporation Commission has found the accompanying articles submitted
on behalf of
VALUE AMERICA, INC.
to comply with the requirements of law, and confirms payment of all related
fees.
Therefore, it is ORDERED that this
CERTIFICATE OF AMENDMENT
be issued and admitted to record with the articles of amendment in the Office of
the Clerk of the Commission, effective June 26, 1998.
The corporation is granted the authority conferred on it by law in accordance
with the articles, subject to the conditions and restrictions imposed by law.
STATE CORPORATION COMMISSION
By /s/ T.V. Morrison Jr.
-----------------------------
Commissioner
<PAGE>
ARTICLES OF AMENDMENT
OF
VALUE AMERICA, INC.
The undersigned corporation hereby submits these Articles of Amendment
for the purpose of amending its Articles of Incorporation pursuant to Section
13.1-639 of the Virginia Stock Corporation Act, as amended:
1. The name of the Corporation is Value America, Inc. (the "Corporation")
2. The amendment to the Articles of Incorporation of the Corporation
attached hereto as Appendix A was duly adopted by the Board of Directors
of the Corporation by unanimous written consent pursuant to Section
13.1-685 of the Virginia Stock Corporation Act, as amended, effective
the 17th day of December, 1997.
3. The consent of the shareholders of the Corporation was not required for
the amendment of the Corporation's Articles of Incorporation.
This the 17th day of December, 1997.
VALUE AMERICA, INC.
By:/s/ Rex Scatena
-------------------
Rex Scatena, President
<PAGE>
ARTICLE III A
A series of Preferred Stock consisting of 5,000,000 shares designated
and known as "Series A Preferred Stock" is hereby established. The Series A
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 Company.
"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 the date immediately prior to the
date of original issuance of the Series A 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 A 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).
"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 A 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, the Standard Dividend Rate plus and 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.
Annex A-1
<PAGE>
"Holders of a Majority of the Series A Preferred Stock" means
any Person or Persons holding, beneficially or of record, a Majority of the
Series A Preferred Stock.
"Investment Value" of any share of Series A Preferred Stock
means, as of any date, the sum of (i) the Per Share Amount, 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 except if determining the Investment Value in the case of the
definition of Mandatory Redemption Price, and (2) $4.00 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 A Preferred Stock.
"Majority of the Series A Preferred Stock" shall mean more than
50% of the outstanding Series A 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.
"Series A Preferred Stock" shall mean the Series A Preferred
Stock, without par value, of the Corporation.
"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 and Series A Preferred Stock
are Voting Stock.
Section 2. Dividends.
(a) Right to Dividends. (i) The holders of the outstanding
Series A 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
Annex A-2
<PAGE>
manner provided herein. Dividends on the Series A 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 A Preferred Stock
shall not bear interest. Dividends shall accumulated and accrue on each share of
Series A Preferred Stock from the date of original issue and shall not be
affected by the transfer of shares of Series A Preferred Stock thereafter or the
cancellation and issuance or reissuance of certificates evidencing such shares.
(ii) Dividends will be calculated cumulatively on a
daily basis on each share of Series A Preferred Stock at the Dividend Rate per
annum on the Investment Value thereof. 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 A 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 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 Investment Value
of each share of Series A 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 A 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 dividends 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 the Series A 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 the holders of the Series A 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 or advisers 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
Annex A-3
<PAGE>
Majority of the Series A 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 A
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 A Preferred Stock and Common Stock, but with each share of Series A
Preferred Stock being entitled to dividends based upon the number of shares of
Common Stock into which such share of Series A 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 A Preferred Stock.
(a) Preference. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
the Series A 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 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 A 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 the Series A Preferred Stock on the basis of the
number of shares of Series A Preferred Stock held.
(b) Remaining Assets. After the payment or distribution to the holders
of the Series A Preferred Stock of the full preferential amounts aforesaid, the
holders of the Junior Stock shall be entitled to receive $0.11 (eleven 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 A Preferred Stock and Junior Stock then outstanding shall
be entitled to receive ratably, with all Series A 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 (other than the "Buyout Transaction," as hereinafter defined) in
which in excess of 50% of the Corporation's voting power is transferred, or
Annex A-4
<PAGE>
(2) a sale or other disposition of all or substantially all of
the assets of the Corporation, then:
(A) holders of the Series A Preferred Stock shall
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 Investment Value per share on the date of full payment;
(B) holders of the Junior Stock shall be entitled to
receive $0.11 (eleven cents) per share; and
(C) after (i) the payment or distribution to the holders
of the Series A 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).
For purposes of Section 4(a)(i), "Buyout Transaction" means the sale of Common
Stock by Craig A. Winn and Rex Scatena pursuant to a Buy-Out Option Agreement
dated as of December 17, 1997 among these stockholders, the Corporation and
Union Labor Life Insurance Company.
Such payments shall be made with respect to the Series A 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 the Series A Preferred Stock. In the event the full amount of
such payment is not paid to the holders of the Series A 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.
(b) "Shared Allocation" shall mean that the holders of Series A
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 A Preferred Stock as if it held the number of shares
of Common Stock issuable to it upon conversion of the Series A 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 A Preferred Stock of 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:
Annex A-5
<PAGE>
(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 A 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 A 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 A Preferred Stock.
(4) If the Holders of a Majority of the Series A 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 A 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 the Series A 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 Series A
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 A Preferred Stock.
Annex A-6
<PAGE>
(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 A
Preferred Stock.
(b) Optional Redemption. On, or at any time after, the fifth
anniversary of the Commitment Date, the Corporation may, at its option, redeem
the Series A Preferred Stock in whole, but not in part, at the Optional
Redemption Price hereinafter specified; provided, however, that the Corporation
shall not redeem Series A Preferred Stock or give notice of any redemption
unless the Corporation has sufficient and lawful funds to redeem all of the then
outstanding Series A Preferred Stock. The date on which the Series A Preferred
Stock is to be redeemed pursuant to this Section 5(b) is herein called the
"Optional Redemption Date."
(c) Mandatory Redemption.
(1) The Corporation shall redeem the number of shares of Series A
Preferred Stock as indicated below on the dates indicated in the following table
(each a "Scheduled Redemption Date"), at the Mandatory Redemption Price
hereinafter specified (a "Scheduled Redemption"):
1,666,666 shares First Business Day of January, 2003
1,666,666 shares First Business Day of January, 2004
1,666,668 shares 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, then the Holders of a Majority of the
Series A Preferred Stock, by giving written notice to the Corporation (a "Demand
Notice"), may cause the Corporation to redeem all outstanding shares of Series A
Preferred Stock at the Optional Redemption Price 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 Series A
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
Annex A-7
<PAGE>
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 of a Majority of the Series A Preferred Stock 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"
(2) If the funds of the Corporation legally available for
redemption of Series A 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 among the
holders of the Series A Preferred Stock ratably on the basis of the number of
shares of Series A Preferred Stock held. At the earliest time thereafter when
additional funds of the Corporation are legally available for redemption of
Series A Preferred Stock in the manner provided above, such funds will be
immediately used to redeem the balance of the Series A 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 A Preferred Stock are
being redeemed, the redemption will be made ratably among all holders in
proportion to the number of shares of Series A Preferred Stock held.
(d) Redemption Price. The Optional Redemption Price of the Series A
Preferred Stock (the "Optional Redemption Price") shall be the Investment Value
per share. The Mandatory Redemption Price of the Series A Preferred Stock (the
"Mandatory Redemption Price") shall be the Investment Value per share. 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 A 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 A 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 A Preferred Stock are to be redeemed and the total number of shares being
redeemed;
(2) the number of shares of Series A Preferred Stock held
by the holder which the Corporation intends to redeem,
(3) The Redemption Date and Redemption Price;
Annex A-8
<PAGE>
(4) That the holder's right to convert the Series A 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 A Preferred Stock to be redeemed.
(f) Payment of Redemption Price and Surrender of Stock. On the
Redemption Date, the Redemption Price of the Series A Preferred Stock scheduled
to be redeemed or called for redemption shall be payable to the holders of the
Series A Preferred Stock. On or before the Redemption Date, each holder of
Series A 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 A 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
A 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.
Annex A-9
<PAGE>
Section 6. Voting Rights.
(a) Series A Preferred Stock. Each holder of shares of Series A
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 A 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 A 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 A
Preferred Stock and Common Stock; Compensation Committee.
(1) The Corporation shall have seven (7) 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, 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 other Voting Stock,
and the third member of which shall be selected by agreement of the other two
members; provided, however, that with the consent of the director selected by
the Holders of a Majority of the Series A Preferred Stock, the Compensation
Committee shall consist of two members, one selected 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 three 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.
(d) Special Voting Rights of Series A Preferred Stock in Case of
Certain Events. If the Corporation shall have failed to redeem and pay in full
the Redemption Price of any Series A Preferred Stock called for redemption or
scheduled or otherwise to be redeemed as required by Section 5 hereof, whether
or not funds are legally
Annex A-10
<PAGE>
available therefor, the holders of the Series A Preferred Stock shall,
immediately upon the giving of written notice to the Corporation by any holder
of Series A 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, and 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 A Preferred Stock shall be entitled to
elect directors as provided in this subsection (d), the holders of the Series A
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 A
Preferred Stock have the voting power described in this subsection (d), the
Holders of a Majority of the Series A 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 A Preferred Stock shall be entitled to elect a majority of the
directors of the Corporation, 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 A 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 A
Preferred Stock. If the Redemption Price of all Series A 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 A 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 A 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 occurring among the directors elected by the holders of the Series A
Preferred Stock pursuant to subsection (c) or (d) of this Section 6, the
remaining director or directors so elected by the holders of the Series A
Preferred Stock may, by affirmative vote of a majority thereof (or the remaining
director so elected if there is only one such director), elect a successor or
successors to hold the office for the unexpired term of the director or
directors whose place or places shall be vacant. Any director who shall have
been elected by the holders of the Series A Preferred Stock, 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 Series A Preferred Stock.
Section 7. Conversion. The holders of Series A Preferred Stock shall
have the following conversion rights:
Annex A-11
<PAGE>
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at any time at the option of the holder thereof, into
fully paid and nonassessable shares of Common Stock.
(b) Conversion Price. Each share of Series A Preferred Stock
shall be convertible into the number of shares of Common Stock which results
from dividing the Conversion Price (as hereinafter defined) in effect at the
time of conversion into $2.00 for each share of Series A Preferred Stock being
converted. The Conversion Price shall initially be $10.405, and shall be subject
to adjustment from time to time as provided below (the "Conversion Price"). The
Corporation and the initial holder of the Series A Preferred Stock have agreed
to a possible reduction in the Conversion Price pursuant to Section 7.11 of the
Preferred Stock Purchase Agreement dated as of December 17, 1997 between the
Corporation and such holder.
(c) Mechanics of Conversion. Each holder of Series A
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 A 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 A 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 A 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 A 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 effects a
subdivision of the outstanding Common Stock, the Conversion Price 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 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.
Annex A-12
<PAGE>
(e) Adjustment for Certain Dividends and Distributions. If
the Corporation at any time or from time to time after the Commitment Date
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 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 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 shall be recomputed accordingly as of the close of business
on such record date and thereafter the Conversion Price 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 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 Series A
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 A 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 the Series A
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, the Common Stock issuable upon the conversion of the Series A
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 Series A
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 A Preferred
Stock could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(h) Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time after the Commitment Date 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 the Series A Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A 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
Annex A-13
<PAGE>
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 the Series A 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 then in effect and the number of
shares purchasable upon conversion of the Series A 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,
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, then and in each such case the then existing
Conversion Price 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
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 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 A 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 A Preferred Stock are convertible
at the close
Annex A-14
<PAGE>
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.
"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.
(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 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, 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
Annex A-15
<PAGE>
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 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,
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
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).
(5) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Corporation after the Commitment Date,
whether or not subsequently reacquired or retired by the Corporation, other than
(i) shares of Common Stock issued upon conversion of the Series A Preferred
Stock, (ii) the first 860,375 shares of Common Stock issued to individuals who
are or were employees or directors of or consultants and advisers 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
Annex A-16
<PAGE>
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 or the number of shares of
Common Stock or other securities issuable upon conversion of the Series A
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 the Series A 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 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 the Series A 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 A Preferred Stock at least thirty (30) days prior to the record
date specified herein, 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.
(1) Each share of Series A Preferred Stock shall automatically be
converted into shares of Common Stock based on the then effective Conversion
Price (A) 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%
Annex A-17
<PAGE>
of the Conversion Price 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 A 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, or (B) upon the
receipt by the Corporation of a written notice from the Holders of a Majority of
the Series A Preferred Stock electing unconditionally to convert their shares of
Series A Preferred Stock.
(2) Upon the occurrence of either of the events specified in
paragraph (1) above the outstanding shares of Series A 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 A 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 the Series A Preferred
Stock, the holders of Series A Preferred Stock shall surrender the certificates
representing such shares at the office of the Corporation or any transfer agent
for the Series A 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
Series A Preferred Stock surrendered were convertible on the date on which such
automatic conversion occurred, and, subject to Section 2(a)(iv) hereof, 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 A 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 A 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 A 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.
(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 A Preferred Stock; such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation will take such corporate action as may, in the
Annex A-18
<PAGE>
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 A
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 A 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 A 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 A Preferred
Stock against diltution or other impairment.
Section 8. Restrictions and Limitations. So long as any shares of
Series A 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 A Preferred Stock.
(a) Redeem, purchase or otherwise acquire for value any share or
shares of Series A Preferred Stock, otherwise than by redemption in accordance
with Section 5 hereof, or any warrant, option or right to purchase any Series A
Preferred Stock;
(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 or advisers 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 A Preferred Stock, the total
amount applied to the repurchase of shares of Common Stock shall not exceed
$25,000 during any
Annex A-19
<PAGE>
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 the Series A 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 A 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 the transaction by the Holders of a Majority of the Series A
Preferred Stock if as a result of such transaction the holders of the Series A
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 $300 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;
(h) Increase of decrease (other than by redemption or conversion)
the total number of authorized shares of Series A Preferred Stock;
(i) Amend its Articles of Incorporation or amend or repeal it bylaws.
Annex A-20
<PAGE>
(j) Take any action which would result in taxation of the holders of
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986
(or any comparable provision for the Internal Revenue Code as hereafter from
time to time amended).
Section 9. No Reissuance of Series A Preferred Stock. No share or shares
of Series A 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.
Annex A-21
<PAGE>
ARTICLES OF MERGER
for the Merger of
VALUE AMERICA, INC., a Nevada Corporation
into
VALUE AMERICA, 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: 10-21-97
--------------------
ATTEST:
By: /s/ Rex Scatena
- ---------------------
Rex Scatena, Secretary
Date: 10-21-97
- ---------------------
<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
EXHIBIT 3.2
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 such
other 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 not less than six and no more than
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 ceases 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.
EXHIBIT 4.1
VALUE AMERICA, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA
COMMON STOCK
CUSIP 92038N 10 2
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF
VALUE AMERICA, INC.
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
CHAIRMAN
SECRETARY
SEE REVERSE FOR CERTAIN DEFINITIONS AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND LIMITATIONS OF SHARES
COUNTERSIGNED AND REGISTERED:
FIRST UNION NATIONAL BANK
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
VALUE AMERICA, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations and restrictions of such preferences
and/or rights as established, from time to time by the Articles of Incorporation
of the Corporation and by any certificate of determination, the number of shares
constituting each class and series, and the designation thereof, may be obtained
by the holder hereof upon request without charge at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
<TABLE>
<CAPTION>
<S> <C>
UNIF GIFT MIN ACT -- ............... Custodian ........................
(Cust) (Minor)
-------------------------------- under Uniform Gifts to Minors
Act ..............................................................
(State)
UNIF TRF MIN ACT -- ................. Custodian (until age ................)
(Cust)
............................ under Uniform Transfers
(Minor)
to Minors Act ..............................................
(State)
- ----------------------------------
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
</TABLE>
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
<PAGE>
Dated
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
X
X
NOTICE:
Signature(s) Guaranteed
By
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
EXHIBIT 10.1
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)
Exhibit 10.2
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
EXHIBIT 10.3
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.
EXHIBIT 10.4
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.
EXHIBIT 10.5
LEASE
AGREEMENT
1. PARTIES.
This Lease, dated as of this 26th day of June, is made by and between
Charles W. Hurt (herein called "Lessor") and Value AMERICA (herein called
"Lessee").
2. PREMISES.
Lessor does hereby lease to Lessee and Lessee hereby leases from Lessor
that certain space (herein called "Premises"), containing approximately *(See
schedule below) gross square feet of floor area located in a building (the
"Building") known as *(See schedule below). The location and dimensions of said
Premises are delineated on Exhibit "A" (floor plan) attached hereto and
incorporated by reference herein. Said Premises are located at Hollymead
Professional Center, Charlottesville, VA.
*4.944 gross square feet of floor area located in building (the
"building") known as 1524 Insurance Lane. 3,952 gross square feet of floor area
located in building known as 1534 Insurance Lane. 5,936 gross square feet of
floor area located in building known as 1540 Insurance Lane. 5,936 gross square
feet of floor area located in building known as 1550 Insurance Lane. 5,936 gross
square feet of floor area located in building known as 1560 Insurance Lane.
3. USE.
Lessee shall use the Premises as offices and shall not use or permit the
Premises to be used for any other purpose without the prior written consent of
Lessor.
4. TERM.
The lease term shall be *(See schedule below) "Lease Year(s)" 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.
*Commencement Expiration
------------ ---------
1524 Insurance Lane Building "D" October 1, 1998 February 1, 2000
1534 Insurance Lane Building "B" October 1, 1998 February 1, 2000
1540 Insurance Lane Building "E" October 1, 1998 February 1, 2000
1550 Insurance Lane Building "A" November 1, 1998 February 1, 2000
1560 Insurance Lane Building "F" January 1, 1999 February 1, 2000
NOTE: The above dates are target dates for Commencement in which Lessor will
work diligently to achieve.
In its sole discretion, Lessee shall have the right to renew this lease for
an additional four (4) six (6) month options under the same terms and conditions
set forth herein, provided Lessee shall not be in default under any of the terms
and conditions of this Lease and that Lessee shall have provided written notice
to Lessor of its intention to exercise such option no later than no hundred
eighty (180) days prior to the expiration of the Lease Term, and ninety (90)
days on the options.
1
<PAGE>
5. RENT.
A. Minimum Rent
Lessee agrees to pay to Lessor as Minimum Rent, without prior, offset, or
demand, the monthly sum of *(See schedule below) 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 *(See schedule below)
day of *(See schedule below), 1998 the "Commencement Date". 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.
*1524 Insurance Lane Building "D" $4,120/Month
1534 Insurance Lane Building "B" $3,293/Month
1540 Insurance Lane Building "E" $5,936/Month
1550 Insurance Lane Building "A" $5,936/Month
1560 Insurance Lane Building "F" $5,936/Month
B. Inflation Escalator
The Minimum Rental specified above shall be increased at the beginning of
each Lease Year at a rate of 3%.
C. Late Fees
In the event the Lessee does not pay Lessor any installments of rent within
five (5) days of the date for which such installments is due, a late fee of five
percent (5%) of the monthly rent installment shall be due as additional rent.
6. INITIAL TENANT IMPROVEMENTS.
After mutual approval of interior plans by Lessor and Lessee, Lessor agrees
to improve the Premises of Lessee as is described in Exhibit A of the lease.
Attached floor plan. Conduit will be provided by the Lessor between buildings.
Hyperion Fiber Optic Cable will be run into one building. Determination of which
building will be made in field survey by Hyperion Cable Company.
Lessor agrees to supply electric outlet, computer ethernet outlet and phone
outlet where desks are marked on floor plan.
Specialty equipment and build out for such equipment is not included in
initial improvement cost. If such build out is required, the Lessee must sign a
change order authorizing the work and additional cost. All change orders must be
paid prior to occupancy of premises by Lessee.
7. UTILITIES.
Lessee shall pay for all heat, light, power, sewer, telephone service and
all other services and utilities supplied to the Premises, together with any
taxes thereon.
8. COMMON AREA MAINTENANCE.
The Lessor shall keep parking and common areas in a neat, clean and orderly
condition and shall repair any damage to the facilities thereof. Lessor will
arrange for the mowing of grass as well as snow and litter removal. Lessee
responsible for snow removal from sidewalks adjacent to leased premises.
2
<PAGE>
A trash collection fee of $92.00 will be due each month. This fee is
subject to change per contract with trash collection company.
9. INCREASES IN TAXES AND INSURANCE.
*Lessee shall pay Lessor, as additional rent, Lessee's pro-rata share of
the amount by which the taxes and insurance payable by Lessor with respect to
the building and appurtenant areas for the second Lease Year and each subsequent
Lease Year exceed, respectively, the taxes and insurance payable by Lessor with
respect to the Building for the first Lease Year (the "Base Year"). Lessor shall
notify Lessee immediately upon receiving notice of taxes and insurance due and
will forward to Lessee documentation of amount owed Lessor. Payment is due
thirty (30) days after notification to Lessee. If Lessor's mortgagee requires
Lessor to make monthly escrow payments of taxes and/or insurance, Lessor shall
have the right to collect each month from Lessee, together with Lessee's
Minimum Rent, an amount equal to 1/12th the taxes and/or insurance due from
Lessee pursuant to this paragraph. Lessee's "pro rata share" shall be a
fraction, the numerator of which is the total square footage of the Premises and
the denominator of which is the gross lease area of the Building. If the
estimated taxes or insurance paid by Lessee during any Lease Year exceed or are
less than the actual amount of Lessee's pro rata share of such sums, then there
shall be a year-end adjustment with any overpayments credited against future
payments, and with any underpayments promptly paid by Lessee to Lessor.
10. SECURITY DEPOSIT AND LAST MONTHS RENT.
Concurrently with Lessee's occupancy of first building, Lessee will deposit
with Lessor, a sum of $25,221.00. Said sum shall be held by Lessor as security
for the faithful performance by Lessee of all the terms, covenants, and
conditions of this lease to be kept and performed by Lessee during the term
hereof. If Lessee 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 Lessor may spend or become
obligated to spend by reason of Lessee's default, or to compensate Lessor for
any other loss or damage which Lessor may suffer by reason of Lessee's default.
If any portion of said deposit is so used or applied Lessee shall, within five
(5) days after written demand therefore, deposit cash with Lessor in an amount
sufficient to restore the security deposit to its original amount and Lessee's
failure to do so shall be a default under this Lease. Lessor shall not be
required to keep this security deposit separate from its general funds, and
Lessee shall not be entitled to interest on such deposit. If Lessee 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 Lessee (or at
Lessor's option, to the last assignee of Lessee's interest, hereunder) within
(10) days following the return of the premises key at the expiration of the
Lease Term. In the event of termination or assignment of Lessor's interest in
this Lease, if Lessor shall transfer said deposit to Lessor's successor in
interest, Lessor shall be relieved of all obligation to return said deposit to
Lessee.
11. NOTICES.
All notices and 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 Lessor to the Lessee shall be sent by Certified mail with a
return receipt, postage prepaid, addressed to the Lessee at the Premises, and
to the address herein below, or to such other places as Lessee may from time to
time designate in a notice to the Lessor. All notices and demands by the Lessee
to the Lessor shall be sent by Certified mail with a return receipt, postage
prepaid, addressed to the Lessor at the address set forth herein, and to such
other person or place as the Lessor may from time to time designate in a notice
to the Lessee.
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To Lessor at:
Charles W. Hurt
P.O. Box 8147
195 Riverbend Drive
Charlottesville, VA 22906
To Lessee at:
12. BROKERS
Lessor and Lessee each represent to the other that they have used no real
estate brokers or other persons to whom a commission, leasing fee or other
similar payment is due except for Lane Bonner, HasBrouck Real Estate whose
commission Charles W. Hurt has agreed to pay. Lessor and Lessee hereby agree to
idemnify and hold harmless the other from any breach of this representation.
Commission of 3% of original term of Lease paid as Charles W. Hurt receives
rent.
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GENERAL PROVISIONS
PAGE
13. RULES AND REGULATIONS. 6
14. SIGNS. 6
15. REPAIRS AND MAINTENANCE. 6
16. ALTERATIONS AND ADDITIONS. 9
17. PARKING AND COMMON AREAS. 9
18. LOADING. 9
19. LATE CHARGES. 9
20. LIABILITY INSURANCE. 10
21. COMPLIANCE WITH LAW. 10
22. USES PROHIBITED. 10
23. ENTRY BY LANDLORD. 11
24. DEFAULT. 11
25. ASSIGNMENT AND SUBLETTING. 11
26. HOLD HARMLESS. 12
27. SUBROGATION. 12
28. PERSONAL PROPERTY TAXES. 12
29. LIENS. 12
30. AUCTIONS. 13
31. HOLDING OVER. 13
32. RECONSTRUCTION. 13
33. ADDITIONAL PROVISIONS. 14
34. OFFER AND ACCEPTANCE. 16
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13. RULES AND REGULATIONS.
Lessee shall faithfully observe and comply with the rules and regulations
that Lessor shall from time to time promulgate and/or modify. The rules and
regulations shall be binding upon the Lessee upon delivery of a copy of them to
Lessee. Lessor shall not be responsible to Lessee for the nonperformance of any
said rules and regulations by any other Lessee's or occupants.
14. SIGNS.
Lessor agrees to allow two (2) signs on each building 100% occupied by
Lessee (Buildings "A", "E", "F"). Each sign will be a maximum of 2' X 4'. Lessee
shall be responsible for sign permit through the County of Albemarle and all
other costs associated with making and installing signs.
15. REPAIRS AND MAINTENANCE.
A. Ordinary Wear & Tear
Upon taking possession of the Premises, Lessee shall be deemed to have
accepted the Premises as being in good, sanitary order, condition and repair.
Lessee shall, upon the expiration or sooner termination of this Lease hereof,
surrender the Premises to the Lessor in good condition, broom clean, ordinary
wear and tear and damage from causes beyond the reasonable control of Lessee
excepted. Any damage to adjacent premises caused by Lessee's use of the Premises
shall be repaired at the sole cost and expense of Lessee.
B. Interior and System Maintenance
Lessee shall maintain the interior of the Premises including all windows &
doors, and all mechanical, plumbing, HVAC and other systems in good condition
and repair and in a neat and clean condition and free of dirt, trash, vermin and
other pests. Lessee shall maintain the inside of the Lease Premises at a
temperature sufficiently high to prevent freezing of water pipes and fixtures.
C. Repairs and Replacements
Notwithstanding the provisions of Article A of this Section herein above,
Lessor 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 Lessee, its agents, servants, employees,
invitees. Lessor shall not be liable for any failure to make such repairs or to
perform any maintenance unless such failure shall persist for thirty (30) days
after written notice of the need of such repairs or maintenance is given to
Lessor by Lessee. There shall be no abatement of rent and no liability of Lessor
by reason of any injury to or interference with Lessee'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. Lessee waives the right to make repairs at Lessor's expense under any
law, statute or ordinance now or hereafter in effect.
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The following table specifically states the responsibility for repairs and
replacement for the described items.
REPAIRS TO BE REPLACEMENTS
MADE AND TO BE MADE AND
Description PAID FOR BY: PAID FOR BY:
- ----------- ------------ ------------
Strutural failure,
exteriors, roof, down-
spouts, foundations, walls,
sidewalks, canopies and/or
common areas Lessor Lessor
Floods, building only Lessor Lessor
Overflow of water or sewer Lessor* Lessor*
Parking lot Lessor Lessor
Windows and doors Lessor* Lessor*
Interior painting (when required) Lessor Lessor
Finished trim, etc. Lessor* Lessor*
Lessee's fixtures Lessee Lessee
Lessor's fixtures and
equipment (except as
otherwise noted) Lessee Lessor*
Plumbing and sewage,
within Leased Premises Lessee Lessor*
(Starting 2nd Yr.)
Max. $100 (Each Occurrence)
Heating & Air Conditioning Lessee Lessor*
Equipment** (Starting 2nd Yr.)
Max. $100 (Each Occurrence)
Lessee Lessor*
(Starting 2nd Yr.)
Max. $100 (Each Occurrence)
Electrical wiring Lessor* Lessor*
Electric fixtures, (Bulbs Lessee)
and ballast's Lessor* Lessor*
*Unless caused by Lessee's negligence or abuse
**Lessee will be responsible for replacing filters in Heating & A/C Equipment.
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All repairs and replacements shall be substantially of the same quality and
class as the original work and in accordance with all laws, directions, rules
and regulations of regulatory bodies or officials having jurisdiction thereof.
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16. ALTERATIONS AND ADDITIONS.
Lessee 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 Lessor 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
Lessor and shall be surrendered with the Premises. In the event Lessor consents
to the making of any alterations, additions or improvements to the premises
by Lessee, the same shall be made by Lessee at Lessee's sole cost and expense.
Upon the expiration or sooner termination of the term hereof, Lessee shall,
upon written demand by Lessor, given at least thirty (30) days prior to the
end of the term, at Lessee's sole cost, and expense, forthwith and with all due
diligence, remove any alterations, additions, or improvements made by Lessee,
designated by Lessor to be removed, and Lessee shall, forthwith and with all
due diligence, at its sole cost and expense, repair any damage to the Premises
caused by such removal. Lessor hereby reserves the right at any time to make
alterations or additions to the building in which the Leased Premises are
contained.
17. PARKING AND COMMON AREAS.
A. SEE PARKING SCHEDULE ATTACHED (EXHIBIT "B")
B. Compliance with Rules and Regulations
The Lessee, in the use of said common and parking areas, agrees to
comply with such reasonable rules and regulations as the Lessor may adopt
from time to time for the orderly and proper operation of said common and
parking areas, including the regulation of the removal, storage and disposal
of Lessee's refuse and other rubbish at the sole cost and expense of Lessee.
18. LOADING.
The Lessee shall not place a load upon any floor of the Premises
exceeding the designed or legally allowed floor load per square foot. The
Lessor reserves the right to prescribe the weight and position of all safes
and other heavy equipment in order to provide for proper distribution of
weight and the Lessee agrees to bear the cost, if any, to determine such
weights and positions. The Lessee shall determine, in advance, that any
proposed load is permissible pursuant to the terms hereof, and lack of
knowledge by the Lessee that any load exceeds design or lawful limits shall
not be a defense to any breach of this provision.
19. LATE CHARGES.
Lessee hereby acknowledges that late payments by Lessee to Lessor of
rent or other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed upon Lessor by
terms of any mortgage or trust deed covering the premises. Accordingly, if
any installment of rent or any sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after its due date, then
Lessee shall pay to Lessor a late charge equal to the maximum amount permitted
by law (and in the absence of any governing law, five percent of such overdue
amount), plus any attorney's fees incurred by Lessor by reason of Lessee'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 Lessor will incur by reason of the late payment by Lessee.
Acceptance of such late charges by the Lessor shall in no event constitute
a waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
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20. LIABILITY INSURANCE.
Lessee shall, at Lessee's expense, obtain and keep in force during the
term of this Lease a policy of comprehensive public liability insurance
insuring Lessor and Lessee (and, if requested, Lessor'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 Lessee, its employees, invitees and licensees. Such insurance
shall be in the initial amount of not less that $1,000,000.00 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 Lessor and Lessee against liability for property damage of at
least $100,000.00 and not less than $100,000.00 for fire liability. The limit
of any such insurance shall not, however, limit the liability of the Lessee
hereunder. Lessee may provide this insurance under a blanket policy, provided
that said insurance shall have a Lessor's protective liability endorsement
attached thereto. If Lessee shall fail to procure and maintain said insurance,
Lessor may, but shall not be required to, procure and maintain same, but at the
expense of Lessee. 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". Lessee shall deliver to Lessor copies of policies
of liability insurance required herein or certificate evidencing the existence
and amount of such insurance with loss payable clauses satisfactory to Lessor.
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 Lessor 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.
21. COMPLIANCE WITH LAW.
Lessee shall not use the Premises or permit anything to be done in or
about the 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. Lessee shall, at 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 underwriters or other similar
bodies now or hereafter constituted relating to or affecting the condition,
use or occupancy of the Premises, excluding structural changes not related
to or affected by Lessee's particular use of the Premises, or by Lessee's
improvements or acts. The judgment of any court of competent jurisdiction or
the admission of Lessee in any action against Lessee, whether Lessor be a party
thereto or not, that Lessee has violated any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive of that
fact as between the Lessor and Lessee.
22. USES PROHIBITED.
Lessee 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.
Lessee 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 Lessee cause, maintain or permit any nuisance in, on or
about the Premises. Lessee shall not commit or allow to be committed any waste
in or upon the Premises.
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23. ENTRY BY LESSOR.
Lessor 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
Lessor 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 Lessee shall not be interfered with
unreasonably. Lessee hereby waives any claim for damages or for any injury or
inconvenience to or interference with Lessee's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby. For
each of the aforesaid purposes, Lessor shall at all times have and retain a
key with which to unlock all of the doors in, upon and about the Premises,
excluding Lessee's vaults, safes and files, and Lessor shall have the right to
use any and all means which Lessor may deem proper to open said doors in an
emergency, in order to obtain entry to the Premises without liability to Lessee
except for any failure to exercise due care for Lessee's property and any entry
to the Premises obtained by Lessor by any of said means, or otherwise, shall
not under any circumstances by construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or an eviction of Lessee from the
Premises or any portion thereof. Lessor 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.
24. DEFAULT.
If Lessee defaults for a period of ten (10) days in paying any
installment of rent due hereunder, or defaults in performing any of the other
terms, covenants, conditions and provisions hereof binding upon Lessee and
fails to cure such default within thirty (30) days after written notice from
Lessor, or is insolvent, or makes a general assignment for the benefit of
creditors, or files or has filed against it a petition in bankruptcy under the
United States Bankruptcy Code, or vacates or abandons the Demised Premises for
a period of ten days or more, or, in the event any guarantor of this Lease is
insolvent or files for bankruptcy, then, in any of such events, all rent payable
hereunder for the balance of the term of the Lease shall, at the option of
Lessor, immediately become due and payable and Lessor shall have the right in
addition to all other rights and remedies provided by law, to re-enter the
Demised Premises, peaceably or by force, and to retake possession thereof and,
at its option, to terminate this Lease. In the event of such re-entry, Lessor
may, but shall be under no obligation to, relet the Demised Premises, in whole
or in part, from time to time, in the name of Lessor or Lessee, without further
notice, for such term or terms, or such conditions and for such uses and
purposes as Lessor. In its discretion may determine, and Lessor may collect
and receive all rents derived therefrom and apply the same, after deduction of
all appropriate expenses, including reasonable attorneys' fees and any costs
(including remodeling costs) incurred to relet such Premises, to the payment of
rent payable hereunder, and Lessee shall be obligated to reimburse Lessor for
any deficiency. In the event Lessor retakes possession of the Demised Premises,
Lessor may remove any property therein, and store such property at the expense
of Lessee without liability for damage to, and without obligation to restore,
such property. The occurrence of any one or more of the events shall constitute
a default and breach of this Lease by Lessee.
25. ASSIGNMENT AND SUBLETTING.
Lessee 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 Lessor. A consent to one assignment, subletting, occupation
or use by any other person shall not be deemed to be a consent to any subsequent
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assignment, subletting, occupation or use by another person. Consent to any
such assignment or subletting shall in no way relieve Lessee of any liability
under this Lease. Any such assignment or subletting without such consent shall
be void, and shall, at the option of the Lessor, constitute a default under the
terms of this Lease. For the purposes of this paragraph, a merger or
consolidation of Lessee with another corporation, partnership or other entity,
a transfer of a controlling interest in Lessee or a transfer of a controlling
interest in Lessee's general partner (if Lessee is a partnership) shall be
deemed an assignment.
26. HOLD HARMLESS.
Lessee shall indemnify and hold harmless Lessor against and from any and
all claims arising from Lessee'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 Lessee in or about the Premises and appurtenant common areas, and shall
further indemnify and hold harmless Lessor against and from any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this lease, or arising from
any act of negligence of the Lessee, or any officer, agent, employee, guest, or
invitee of Lessee, and from all costs, attorney's fees, and liabilities incurred
in or about the defense of any such claim or any action or proceeding be
brought against Lessor by reason of such claim. Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor. Lessee shall give prompt notice to Lessor in case of casualty or
accidents in the Premises.
Lessor or its agents shall not be liable for any loss or damage to
persons or property (including any inventory, raw materials, or other property
of Lessee) 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 Lessor, its agents, servants or employees. Lessor or its agents
shall not be liable for interference with the light, air, or for any latent
defect in the Premises.
27. SUBROGATION.
As long as their respective insurers so permit, Lessor and Lessee
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.
28. PERSONAL PROPERTY TAXES.
Lessee 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 Lessee's leasehold improvements, equipment, furniture,
fixtures, and any other personal property located in the premises. In the
event any or all of the Lessee's leasehold improvements, equipment, furniture,
fixtures, and other personal property shall be assessed and taxed with the
real property, Lessee shall pay to Lessor its share of such taxes within ten
(10) days after delivery to tenant by Lessor of a statement in writing setting
forth the amount of such taxes applicable to Lessee's property.
29. LIENS.
Lessee 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 of Lessee. If any such
liens are filed against the Premises, Lessee shall pay or bond off such liens
within 15 days after such liens are filed. Lessor may require, at Lessor's
sole option, that Lessee shall provide to Lessor, at Lessee's 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
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in the Premises which the Lessee desires to make, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion
of the work.
30. AUCTIONS.
Lessee 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.
31. HOLDING OVER.
If Lessee remains in possession of the Premises or any part thereof
after the expiration of the term hereof with the express written consent of
Lessor, 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.
32. RECONSTRUCTION.
A. Insured Damage
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, Lessor agrees to
forthwith repair same, and this Lease shall remain in full force and effect,
except that Lessee 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 reasonable interfere with the business
carried on by the Lessee in the Premises. If the damage is due to the fault
or neglect of Lessee 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 Lessor shall have the right within sixty (60)
days after such damage to terminate this Lease.
B. Non-Insured Damage
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 Lessor
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 an extent of ten (10%) percent
or more of the full replacement cost then Lessor shall have the option: (1) to
repair or restore such damage, this Lease continuing in full force and effect,
but the Minimum Rent to be proportionately reduced as herein above in this
article provided; or (2) give notice to Lessee at any time within sixty (60)
days after such damage, terminating this Lease as of the date 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 Lessee in the Premises shall terminate on the
date so specified in such notice and the Minimum Rent, reduced by a
proportionate reduction, based upon the extent, if any, to which such damage
interfered with the business carried on by the Lessee in the Premises, shall
be paid up to date of said termination.
C. Leasehold Damage
Lessor 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 Lessee. Lessee shall give
to Lessor prompt written notice of any damage to or destruction of any portion
of the Lease Premises.
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D. Subordinate to Deeds of Trust
The operation of this section on reconstruction shall be subordinate to
the terms and conditions of any deed of trust secured in whole or part by the
Premises.
33. ADDITIONAL PROVISIONS.
(i) Plats and Riders. Clauses, plats, riders and addendum's, if any,
affixed to this Lease are a part hereof.
(ii) Waiver. The waiver by Lessor 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 Lessor shall not be deemed to be a waiver of any preceding default
by Lessee of any term, covenant or condition of this Lease, other than the
failure of the Lessee to pay the particular rental so accepted, regardless
of Lessor's knowledge of such preceding default at the time of acceptance of
such rent.
(iii) Joint Obligation. If there be more than one Lessee the obligation
hereunder imposed shall be joint and several.
(iv) Marginal Headings. The marginal headings and section titles to the
sections 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 Lessor nor Lessee shall record this Lease,
but a short form memorandum hereof may be recorded at the request of Lessor.
(viii) 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.
(ix) Inability to Perform. This Lease and the obligations of the
Lessee hereunder shall not be affected or impaired because the Lessor 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 Lessor.
(x) 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.
(xi) 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.
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(xii) Choice of Law. This Lease shall be governed by the laws of the
State in which the Premises are located.
(xiii) Attorney's Fees. Should it be necessary for Lessor to employ
legal counsel to enforce any of the provisions herein contained, the party
that ultimately prevails shall recover all legal expenses from the non
prevailing party.
(xiv) Sale of Premises by Lessor. In the event of any sale of the
Premises by Lessor, Lessor 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 Lessor under this Lease.
(xv) Subordination, Attornment. This Lease, and all of Lessee'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 refinancings
thereof) now or hereafter encumbering the Premises, and the rights of the
beneficiary of such deed or trust or mortgage. Upon request of the Lessor,
Lessee 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 Lessor covering the
Premises, the Lessee shall at the election of the foreclosure purchaser,
attorn to the purchaser upon any such foreclosure or sale and recognize such
purchaser as the Lessor under this Lease.
(xvi) Lessee's Statement. Lessee shall at any time and from time to
time, upon not less than three days prior written notice from Lessor, execute,
acknowledge and deliver to Lessor 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) acknowledges that Lessee has
accepted the Premises and that Lessor has performed all obligations of an
inducement nature to be performed by it, (c) acknowledging that there are not,
to Lessee's knowledge, any uncured defaults on the part of the Lessor here
under, 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 Lessor. 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.
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34. OFFER AND ACCEPTANCE.
The sole execution of this Lease by Lessee shall be an offer to Lessor
to enter into an agreement, and the terms contained herein shall not bind the
Lessor until the Lessor has executed this Lease.
LESSOR:
BY: /S/ Charles W. Hurt
---------------------------
LESSEE:
Value AMERICA
BY: /s/ Craig A. Winn
---------------------------
16
EXHIBIT 10.6
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
___________________
EXHIBIT 10.7
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
2
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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
--------------------- ----------------------
Senior Vice President
VALUE AMERICA, INC.
By /s/ Dean M. Johnson Date: 4/8/98
-------------------- ---------------------
Title: CFO & EVP
EXHIBIT 10.8
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
1
<PAGE>
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.
-----------------
By: /s/ Dean M. Johnson By: THERESA K. CASTELLA
------------------- -------------------
Title: EVP+CFO Title: VICE PRESIDENT
---------------- ----------------
FIRST DATA MERCHANT SERVICES
Date: 4/16/98 Date: 4/17/98
----------------- -----------------
WACHOVIA BANK, N.A.
By: /s/ Perrie H. May
------------------------
Title: Senior Vice President
---------------------
Date: 4/16/98
----------------------
<PAGE>
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
------------------------
Title: Senior Vice President
---------------------
Date: April 16, 1998
----------------------
APPROVAL 90666 WACHOVIA
EXHIBIT 10.9
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
2
<PAGE>
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
---------------------------------------
By: James M. Wardle
---------------------------------------
Its: Branch Operations Manager
---------------------------------------
---------------------------------------
Jefferson National Bank
(Bank)
By: /s/ Perrie H. May
---------------------------------------
Its: Senior Vice President
---------------------------------------
/s/ Dean M. Johnson
---------------------------------------
Value America, Inc.
(Dealer)
By: /s/ Dean M. Johnson
---------------------------------------
Its: CFO & EVP
3
EXHIBIT 10.10
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
EXHIBIT 10.11
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE, AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO
THE DISTRIBUTION THEREOF. EXCEPT AS STATED IN THE SUBSCRIPTION AGREEMENT DATED
AS OF DECEMBER __, 1998, PURSUANT TO WHICH SUCH SECURITIES WERE ISSUED, SUCH
SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE ARE EFFECTIVE
REGISTRATION STATEMENTS UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH
MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO
THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES
LAWS.
VALUE AMERICA, INC.
No. 9008
WARRANT TO PURCHASE
3,000 SHARES OF
COMMON STOCK
This certifies that for value received Glenda Dorchak, an individual
investor, or registered its assigns ("Holder") is entitled, subject to the terms
set forth below, at any time from and after December 18, 1999 (the "Vesting
Date") and before 5:00 P.M., Eastern Time, on the Termination Date (as such term
is defined below) to purchase from VALUE AMERICA, INC., a Virginia corporation
(the "Company"), 3,000 shares of the common stock, without par value per share
(the "Common Stock"), of the Company, as constituted on the Vesting Date, upon
surrender hereof, at the principal office of the Company referred to below, with
a duly executed subscription form in the form attached hereto as Exhibit A and
simultaneous payment therefor in lawful money of the United States or otherwise
as hereinafter provided, at the Purchase Price (as such term is defined below).
The number and character of such shares of Common Stock are subject to further
adjustment as provided below.
<PAGE>
1. Definitions. As used herein, the terms indicated below shall have the
following meaning:
"Act" shall mean the Securities Act of 1933, as amended.
"Change-in-Control Transaction" shall mean (i) the acquisition by any
unrelated person of beneficial ownership (as that term is used for purposes of
the Act) of 50% or more of the then outstanding shares of Common Stock of the
Company or the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors ("Voting
Securities"). The term "unrelated person" means any person another than (x) the
Company and its subsidiaries, (y) an employee benefit plan or related trust of
the Company, and (z) a person who acquires stock of the Company pursuant to an
agreement with the Company that is approved by the Company's Board of Directors
in advance of the acquisition. For purposes of this subsection, a "person" means
an individual, entity or group, as that term is used for purposes of the Act; or
(ii) approval by the shareholders of the Company of (x) a reorganization, merger
or consolidation with respect to which the individuals and entities who were the
respective beneficial owners of the Voting Securities immediately before such
reorganization, merger or consolidation do not following such transaction
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; (y) a complete liquidation or
dissolution of the Company, or (z) any sale, lease, exchange or other
disposition of all or substantially all of the Company's assets to any entity
other than a wholly-owned subsidiary of the Company.
"Common Stock" shall mean the common stock, without par value, of the
Company, and, unless the context otherwise requires, the stock and other
securities and property at the time receivable upon the exercise of this
Warrant.
"Company" shall mean Value America, Inc., a Virginia corporation. "Company
Value" shall mean the aggregate Fair Market Value of the Company's capital
stock. Notwithstanding the foregoing, however, in the case of a
Change-in-Control Transaction, the Company Value shall be the implied value of
the Company utilized in determining the terms of such acquisition.
"Evaluation Date" shall mean the earlier of (i) December 31, 1999 or (ii)
the closing date of the first Change-in-Control Transaction occurring after
December 18, 1998.
"Fair Market Value" shall mean, as of any date, (i) if a security is listed
on a national securities exchange, the average of the closing prices as reported
for composite transactions during the 20 consecutive trading days preceding the
trading day immediately prior to such date or, if no sale occurred on a trading
day, then the mean between the closing bid and asked prices on such exchange on
such trading day, (ii) if a security is not so listed but is traded on the
Nasdaq National Market ("NNM"), the average of the closing prices as reported on
the NNM during the 20 consecutive trading days preceding the trading day
immediately prior to such date or, if no sale occurred on a trading day, then
the mean between the highest bid and lowest asked prices as of the close of
business on such trading day, as reported on the NNM or (iii) if a security is
not traded on a national securities exchange or the NNM otherwise traded
over-the-counter, the arithmetic average (for consecutive trading days) of the
mean between the highest bid and lowest asked prices as of the close of business
during the 20 consecutive trading days preceding the trading day immediately
prior to such date as quoted on the National Association of Securities Dealers
Automated Quotation system or an equivalent generally accepted reporting
service. If none of (i), (ii) or (iii) of the preceding sentence applies, "Fair
Market Value" shall mean, as of the date in question, the fair market value of a
security as determined by an investment banking firm of national repute selected
by the Company (with the Company bearing the expenses of such investment banking
firm).
"Holder" shall mean the initial purchaser of this Warrant or its registered
assigns.
"Issuance Date" shall mean December 18, 1998.
"Purchase Agreement" shall mean that certain Subscription Agreement, dated
as of December __, 1998, by and between the Company and the initial holder of
this Warrant.
"Purchase Price" shall mean $10.00 per share of Common Stock.
"Stock Purchase Rights" shall mean any options, warrants or subscription
rights entitling a holder to purchase Common Stock or any security convertible
into or exchangeable for Common Stock or to purchase any other stock or security
of the Company.
"Termination Date" shall mean the earlier of (i) December 18, 2008 or (ii)
the date that is one calendar year following the closing the Company's
firmly-underwritten, initial public offering of Common Stock.
"Vesting Date" shall mean December 18, 1999.
"Warrant" or "Warrants" shall mean this warrant and any warrants delivered
in substitution or exchange therefor as provided herein.
2. Exercise. This Warrant may be exercised at any time or from time to time
from and after the Vesting Date and before 5:00 P.M., Eastern Time, on the
Termination Date on any business day, for the full number of shares of Common
Stock called for hereby, by surrendering it at the principal office of the
Company, at 2300 Commonwealth Drive, Charlottesville, Virginia 22901, with the
subscription form duly executed, together with payment in an amount equal to (a)
the number of shares of Common Stock called for on the face of this Warrant
(without giving effect to any further adjustment herein) multiplied (b) by the
Purchase Price. Payment of this amount may be made (1) by payment in cash or by
corporate check, payable to the order of the Company, or (2) by the Company not
issuing that number of shares of Common Stock subject to this Warrant having a
Fair Market Value (as hereinafter defined) on the date of exercise equal to such
sum, as Holder may determine. This Warrant may be exercised for less than the
full number of shares of Common Stock at the time called for hereby, except that
the number of shares receivable upon the exercise of this Warrant as a whole,
and the sum payable upon the exercise of this Warrant as a whole, shall be
proportionately reduced. Upon a partial exercise of this Warrant in accordance
with the terms hereof, this Warrant shall be surrendered, and a new Warrant of
the same tenor and for the purchase of the number of such shares not purchased
upon such exercise shall be issued by the Company to Holder without any charge
therefor. A 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 such
shares of record as of the close of business on such date. As soon as
practicable on or after such date, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of full shares of Common Stock issuable upon such exercise, together
with cash, in lieu of any fraction of a share, equal to such fraction of the
then Fair Market Value on the date of exercise of one full share of Common
Stock.
3. Payment of Taxes. All shares of Common Stock issued upon the exercise of
a Warrant shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges (other than any
application income taxes to be paid by Holder) that may be imposed in respect of
the issue or delivery thereof.
4. Transfer and Exchange. This Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company maintained for
such purpose at its principal office referred to above by Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with a
completed and executed assignment form in the form attached as Exhibit B and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer, the Company will issue and
deliver to Holder a new Warrant or Warrants with respect to the shares of Common
Stock not so transferred. Each taker and holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant when endorsed in blank
shall be deemed negotiable and that when this Warrant shall have been so
endorsed, the holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered Holder hereof as the owner for all purposes.
This Warrant is exchangeable at such office for Warrants for the same
aggregate number of shares of Common Stock, each new Warrant to represent the
right to purchase such number of shares as the Holder shall designate at the
time of such exchange.
5. A. Adjustment for Dividends in Other Stock and Property;
Reclassifications. In case at any time or from time to time the holders of the
Common Stock (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or property (other
than cash) by way of dividend,
(2) any cash or other property paid or payable out of any source other
than retained earnings (determined in accordance with generally accepted
accounting principles), or
(3) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification,
combination of shares or similar corporate rearrangement,
(other than (x) additional shares of Common Stock or any other stock or
securities into which such Common Stock shall have been changed, (y) any other
stock or securities convertible into or exchangeable for such Common Stock or
such other stock or securities or (z) any Stock Purchase Rights (as hereinafter
defined), issued as a stock dividend or stock-split, adjustments in respect of
which shall be covered by the terms of Section 5.C, 5.D, 5.E or 5.H), then and
in each such case Holder, upon the exercise hereof as provided in Section 1,
shall be entitled to receive the amount of stock and other securities and
property (including cash in the cases referred to in clauses (2) and (3) above)
which such Holder would hold on the date of such exercise if on the Vesting Date
Holder had been the holder of record of the number of shares of Common Stock
called for on the face of this Warrant, as adjusted in accordance with the first
paragraph of this Warrant, and had thereafter, during the period from the
Issuance Date to and including the date of such exercise, retained such shares
and/or all other or additional stock and other securities and property
(including cash in the cases referred to in clause (2) and (3) above) receivable
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by Sections 5.A and 5.B.
B. Adjustment for Reorganization, Consolidation and Merger. In case of any
reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
after the Issuance Date, or in case, after such date, the Company (or any such
other corporation) shall consolidate with or merge into another corporation or
entity or convey all or substantially all its assets to another corporation or
entity, then and in each such case Holder, upon the exercise hereof as provided
in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and property receivable upon the exercise of this
Warrant prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if Holder had
exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in Sections 5.A, 5.B, 5.C, 5.D and 5.E; in each such
case, the terms of this Warrant shall be applicable to the shares of stock or
other securities or property receivable upon the exercise of this Warrant after
such consummation.
C. Adjustment for Certain Dividends and Distributions. If the Company at
any time or from time to time 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
(1) the Purchase Price 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 Purchase Price
then in effect by a fraction (A) 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 (B)
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 as the case may be, 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 Purchase Price shall be recomputed accordingly as
of the close of business on such record date, and thereafter the Purchase
Price shall be adjusted pursuant to this Section 5.C as of the time of
actual payment of such dividends or distributions; and
(2) the number of shares of Common Stock theretofore receivable upon
the exercise of this Warrant shall be increased, 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, in inverse proportion to the decrease in the
Purchase Price.
D. Stock Split and Reverse Stock Split. If the Company at any time or from
time to time effects a stock split or subdivision of the outstanding Common
Stock, the Purchase Price then in effect immediately before that stock split or
subdivision shall be proportionately decreased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant shall be
proportionately increased. If the Company at any time or from time to time
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Purchase Price then in effect immediately
before that reverse stock split or combination shall be proportionately
increased and the number of shares of Common Stock theretofore receivable upon
the exercise of this Warrant shall be proportionately decreased. Each adjustment
under this Section 5.D shall become effective at the close of business on the
date the stock split, subdivision, reverse stock split or combination becomes
effective.
E. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Warrants, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any share of stock
receivable upon the exercise of the Warrants above the amount payable therefor
upon such exercise, and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares upon the exercise of all Warrants at the time
outstanding.
F. Accountants' Certificate as to Adjustment. In each case of an adjustment
in the number of shares of Common Stock or the number or type of other stock,
securities or property receivable on the exercise of the Warrants, the Company
at its expense shall cause independent public accountants of recognized standing
selected by the Company (who may be the independent public accountants then
auditing the books of the Company) to compute such adjustment in accordance with
the terms of the Warrants and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company will forthwith mail a copy of each such certificate to each holder
of a Warrant at the time outstanding.
G. Notices of Record Date. In case
(1) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the exercise of
the Warrants) for the purpose of entitling them to receive any dividend or
other distribution, or any right to subscribe for or purchase any shares of
stock of any class or any other securities, or to receive any other right,
or
(2) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation, or any conveyance of all or
substantially all of the assets of the Company to another corporation, or
(3) of any voluntary dissolution, liquidation or winding-up of the
Company,
then, and in each such case, the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (a) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (b) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is expected to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or such stock or securities at the
time receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up, such
notice shall be mailed at least 30 days prior to the date therein specified.
H. Stock Purchase Rights. If at any time or from time to time, the Company
grants or issues Stock Purchase Rights to the record holders of the Common
Stock, the Holder shall be entitled to acquire, upon the terms applicable to
such Stock Purchase Rights, the aggregate Stock Purchase Rights which Holder
could have acquired if Holder had been the record holder of the maximum number
of shares of Common Stock issuable upon exercise of this Warrant on both (x) the
record date for such grant or issuance of such Stock Purchase Rights, and (y)
the date of the grant or issuance of such Stock Purchase Rights.
6. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it (in the exercise of reasonable discretion) of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and (in the case of loss,
theft or destruction) of indemnity satisfactory to it (in the exercise of
reasonable discretion), and (in the case of mutilation) upon surrender and
cancellation thereof, the Company will execute and deliver in lieu thereof a new
Warrant of like tenor.
7. Reservation of Common Stock. The Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants.
8. Purchase Agreement. This Warrant has been issued pursuant to the
Purchase Agreement and the transferability of this Warrant and the Common Stock
issuable upon the exercise hereof are subject to the Purchase Agreement.
9. Notices. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
10. Change; Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
11. Headings. The headings in this Warrant are for purposes of convenience
in reference only, and shall not be deemed to constitute a part hereof.
12. Law Governing. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the Commonwealth of
Virginia without reference to the choice of law provisions of any jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this warrant as of
December 31, 1998
VALUE AMERICA, INC.
By: /s/ Dean M. Johnson
Name: Dean M. Johnson
Title: EVP & CFO
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant and purchases _______ of the number of shares of Common Stock of Value
America, Inc., purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
DATED:__________________
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip)
<PAGE>
EXHIBIT B TO WARRANT
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint __________________________
Attorney to make such transfer on the books of Value America, Inc., maintained
for the purpose, with full power of substitution in the premises.
DATED:__________________
-------------------------------
(Signature)
-------------------------------
(Witness)
EXHIBIT 10.12
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE, AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO
THE DISTRIBUTION THEREOF. EXCEPT AS STATED IN THE SUBSCRIPTION AGREEMENT DATED
AS OF DECEMBER __, 1998, PURSUANT TO WHICH SUCH SECURITIES WERE ISSUED, SUCH
SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE ARE EFFECTIVE
REGISTRATION STATEMENTS UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH
MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO
THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES
LAWS.
VALUE AMERICA, INC.
No. 9016
WARRANT TO PURCHASE
3,000 SHARES OF
COMMON STOCK
This certifies that for value received Richard Gerhardt, an individual, or
registered its assigns ("Holder") is entitled, subject to the terms set forth
below, at any time from and after December 18, 1999 (the "Vesting Date") and
before 5:00 P.M., Eastern Time, on the Termination Date (as such term is defined
below) to purchase from VALUE AMERICA, INC., a Virginia corporation (the
"Company"), 3,000 shares of the common stock, without par value per share (the
"Common Stock"), of the Company, as constituted on the Vesting Date, upon
surrender hereof, at the principal office of the Company referred to below, with
a duly executed subscription form in the form attached hereto as Exhibit A and
simultaneous payment therefor in lawful money of the United States or otherwise
as hereinafter provided, at the Purchase Price (as such term is defined below).
The number and character of such shares of Common Stock are subject to further
adjustment as provided below.
<PAGE>
1. Definitions. As used herein, the terms indicated below shall have the
following meaning:
"Act" shall mean the Securities Act of 1933, as amended.
"Change-in-Control Transaction" shall mean (i) the acquisition by any
unrelated person of beneficial ownership (as that term is used for purposes of
the Act) of 50% or more of the then outstanding shares of Common Stock of the
Company or the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors ("Voting
Securities"). The term "unrelated person" means any person another than (x) the
Company and its subsidiaries, (y) an employee benefit plan or related trust of
the Company, and (z) a person who acquires stock of the Company pursuant to an
agreement with the Company that is approved by the Company's Board of Directors
in advance of the acquisition. For purposes of this subsection, a "person" means
an individual, entity or group, as that term is used for purposes of the Act; or
(ii) approval by the shareholders of the Company of (x) a reorganization, merger
or consolidation with respect to which the individuals and entities who were the
respective beneficial owners of the Voting Securities immediately before such
reorganization, merger or consolidation do not following such transaction
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; (y) a complete liquidation or
dissolution of the Company, or (z) any sale, lease, exchange or other
disposition of all or substantially all of the Company's assets to any entity
other than a wholly-owned subsidiary of the Company.
"Common Stock" shall mean the common stock, without par value, of the
Company, and, unless the context otherwise requires, the stock and other
securities and property at the time receivable upon the exercise of this
Warrant.
"Company" shall mean Value America, Inc., a Virginia corporation.
"Evaluation Date" shall mean the earlier of (i) December 31, 1999 or (ii)
the closing date of the first Change-in-Control Transaction occurring after
December 18, 1998.
"Fair Market Value" shall mean, as of any date, (i) if a security is listed
on a national securities exchange, the average of the closing prices as reported
for composite transactions during the 20 consecutive trading days preceding the
trading day immediately prior to such date or, if no sale occurred on a trading
day, then the mean between the closing bid and asked prices on such exchange on
such trading day, (ii) if a security is not so listed but is traded on the
Nasdaq National Market ("NNM"), the average of the closing prices as reported on
the NNM during the 20 consecutive trading days preceding the trading day
immediately prior to such date or, if no sale occurred on a trading day, then
the mean between the highest bid and lowest asked prices as of the close of
business on such trading day, as reported on the NNM or (iii) if a security is
not traded on a national securities exchange or the NNM otherwise traded
over-the-counter, the arithmetic average (for consecutive trading days) of the
mean between the highest bid and lowest asked prices as of the close of business
during the 20 consecutive trading days preceding the trading day immediately
prior to such date as quoted on the National Association of Securities Dealers
Automated Quotation system or an equivalent generally accepted reporting
service. If none of (i), (ii) or (iii) of the preceding sentence applies, "Fair
Market Value" shall mean, as of the date in question, the fair market value of a
security as determined by an investment banking firm of national repute selected
by the Company (with the Company bearing the expenses of such investment banking
firm).
"Holder" shall mean the initial purchaser of this Warrant or its registered
assigns.
"Issuance Date" shall mean December 18, 1998.
"Purchase Agreement" shall mean that certain Subscription Agreement, dated
as of December __, 1998, by and between the Company and the initial holder of
this Warrant.
"Purchase Price" shall mean $10.00 per share of Common Stock.
"Stock Purchase Rights" shall mean any options, warrants or subscription
rights entitling a holder to purchase Common Stock or any security convertible
into or exchangeable for Common Stock or to purchase any other stock or security
of the Company.
"Termination Date" shall mean the earlier of (i) December 18, 2008 or (ii)
the date that is one calendar year following the closing the Company's
firmly-underwritten, initial public offering of Common Stock.
"Vesting Date" shall mean December 18, 1999.
"Warrant" or "Warrants" shall mean this warrant and any warrants delivered
in substitution or exchange therefor as provided herein.
2. Exercise. This Warrant may be exercised at any time or from time to time
from and after the Vesting Date and before 5:00 P.M., Eastern Time, on the
Termination Date on any business day, for the full number of shares of Common
Stock called for hereby, by surrendering it at the principal office of the
Company, at 2300 Commonwealth Drive, Charlottesville, Virginia 22901, with the
subscription form duly executed, together with payment in an amount equal to (a)
the number of shares of Common Stock called for on the face of this Warrant
(without giving effect to any further adjustment herein) multiplied (b) by the
Purchase Price. Payment of this amount may be made (1) by payment in cash or by
corporate check, payable to the order of the Company, or (2) by the Company not
issuing that number of shares of Common Stock subject to this Warrant having a
Fair Market Value (as hereinafter defined) on the date of exercise equal to such
sum, as Holder may determine. This Warrant may be exercised for less than the
full number of shares of Common Stock at the time called for hereby, except that
the number of shares receivable upon the exercise of this Warrant as a whole,
and the sum payable upon the exercise of this Warrant as a whole, shall be
proportionately reduced. Upon a partial exercise of this Warrant in accordance
with the terms hereof, this Warrant shall be surrendered, and a new Warrant of
the same tenor and for the purchase of the number of such shares not purchased
upon such exercise shall be issued by the Company to Holder without any charge
therefor. A 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 such
shares of record as of the close of business on such date. As soon as
practicable on or after such date, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of full shares of Common Stock issuable upon such exercise, together
with cash, in lieu of any fraction of a share, equal to such fraction of the
then Fair Market Value on the date of exercise of one full share of Common
Stock.
3. Payment of Taxes. All shares of Common Stock issued upon the exercise of
a Warrant shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges (other than any
application income taxes to be paid by Holder) that may be imposed in respect of
the issue or delivery thereof.
4. Transfer and Exchange. This Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company maintained for
such purpose at its principal office referred to above by Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with a
completed and executed assignment form in the form attached as Exhibit B and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer, the Company will issue and
deliver to Holder a new Warrant or Warrants with respect to the shares of Common
Stock not so transferred. Each taker and holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant when endorsed in blank
shall be deemed negotiable and that when this Warrant shall have been so
endorsed, the holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered Holder hereof as the owner for all purposes.
This Warrant is exchangeable at such office for Warrants for the same
aggregate number of shares of Common Stock, each new Warrant to represent the
right to purchase such number of shares as the Holder shall designate at the
time of such exchange.
5. A. Adjustment for Dividends in Other Stock and Property;
Reclassifications. In case at any time or from time to time the holders of the
Common Stock (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or property (other
than cash) by way of dividend,
(2) any cash or other property paid or payable out of any source other
than retained earnings (determined in accordance with generally accepted
accounting principles), or
(3) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification,
combination of shares or similar corporate rearrangement,
(other than (x) additional shares of Common Stock or any other stock or
securities into which such Common Stock shall have been changed, (y) any other
stock or securities convertible into or exchangeable for such Common Stock or
such other stock or securities or (z) any Stock Purchase Rights (as hereinafter
defined), issued as a stock dividend or stock-split, adjustments in respect of
which shall be covered by the terms of Section 5.C, 5.D, 5.E or 5.H), then and
in each such case Holder, upon the exercise hereof as provided in Section 1,
shall be entitled to receive the amount of stock and other securities and
property (including cash in the cases referred to in clauses (2) and (3) above)
which such Holder would hold on the date of such exercise if on the Vesting Date
Holder had been the holder of record of the number of shares of Common Stock
called for on the face of this Warrant, as adjusted in accordance with the first
paragraph of this Warrant, and had thereafter, during the period from the
Issuance Date to and including the date of such exercise, retained such shares
and/or all other or additional stock and other securities and property
(including cash in the cases referred to in clause (2) and (3) above) receivable
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by Sections 5.A and 5.B.
B. Adjustment for Reorganization, Consolidation and Merger. In case of any
reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
after the Issuance Date, or in case, after such date, the Company (or any such
other corporation) shall consolidate with or merge into another corporation or
entity or convey all or substantially all its assets to another corporation or
entity, then and in each such case Holder, upon the exercise hereof as provided
in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and property receivable upon the exercise of this
Warrant prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if Holder had
exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in Sections 5.A, 5.B, 5.C, 5.D and 5.E; in each such
case, the terms of this Warrant shall be applicable to the shares of stock or
other securities or property receivable upon the exercise of this Warrant after
such consummation.
C. Adjustment for Certain Dividends and Distributions. If the Company at
any time or from time to time 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
(1) the Purchase Price 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 Purchase Price
then in effect by a fraction (A) 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 (B)
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 as the case may be, 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 Purchase Price shall be recomputed accordingly as
of the close of business on such record date, and thereafter the Purchase
Price shall be adjusted pursuant to this Section 5.C as of the time of
actual payment of such dividends or distributions; and
(2) the number of shares of Common Stock theretofore receivable upon
the exercise of this Warrant shall be increased, 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, in inverse proportion to the decrease in the
Purchase Price.
D. Stock Split and Reverse Stock Split. If the Company at any time or from
time to time effects a stock split or subdivision of the outstanding Common
Stock, the Purchase Price then in effect immediately before that stock split or
subdivision shall be proportionately decreased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant shall be
proportionately increased. If the Company at any time or from time to time
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Purchase Price then in effect immediately
before that reverse stock split or combination shall be proportionately
increased and the number of shares of Common Stock theretofore receivable upon
the exercise of this Warrant shall be proportionately decreased. Each adjustment
under this Section 5.D shall become effective at the close of business on the
date the stock split, subdivision, reverse stock split or combination becomes
effective.
E. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Warrants, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any share of stock
receivable upon the exercise of the Warrants above the amount payable therefor
upon such exercise, and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares upon the exercise of all Warrants at the time
outstanding.
F. Accountants' Certificate as to Adjustment. In each case of an adjustment
in the number of shares of Common Stock or the number or type of other stock,
securities or property receivable on the exercise of the Warrants, the Company
at its expense shall cause independent public accountants of recognized standing
selected by the Company (who may be the independent public accountants then
auditing the books of the Company) to compute such adjustment in accordance with
the terms of the Warrants and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company will forthwith mail a copy of each such certificate to each holder
of a Warrant at the time outstanding.
G. Notices of Record Date. In case
(1) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the exercise of
the Warrants) for the purpose of entitling them to receive any dividend or
other distribution, or any right to subscribe for or purchase any shares of
stock of any class or any other securities, or to receive any other right,
or
(2) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation, or any conveyance of all or
substantially all of the assets of the Company to another corporation, or
(3) of any voluntary dissolution, liquidation or winding-up of the
Company,
then, and in each such case, the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (a) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (b) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is expected to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or such stock or securities at the
time receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up, such
notice shall be mailed at least 30 days prior to the date therein specified.
H. Stock Purchase Rights. If at any time or from time to time, the Company
grants or issues Stock Purchase Rights to the record holders of the Common
Stock, the Holder shall be entitled to acquire, upon the terms applicable to
such Stock Purchase Rights, the aggregate Stock Purchase Rights which Holder
could have acquired if Holder had been the record holder of the maximum number
of shares of Common Stock issuable upon exercise of this Warrant on both (x) the
record date for such grant or issuance of such Stock Purchase Rights, and (y)
the date of the grant or issuance of such Stock Purchase Rights.
6. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it (in the exercise of reasonable discretion) of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and (in the case of loss,
theft or destruction) of indemnity satisfactory to it (in the exercise of
reasonable discretion), and (in the case of mutilation) upon surrender and
cancellation thereof, the Company will execute and deliver in lieu thereof a new
Warrant of like tenor.
7. Reservation of Common Stock. The Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants.
8. Purchase Agreement. This Warrant has been issued pursuant to the
Purchase Agreement and the transferability of this Warrant and the Common Stock
issuable upon the exercise hereof are subject to the Purchase Agreement.
9. Notices. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
10. Change; Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
11. Headings. The headings in this Warrant are for purposes of convenience
in reference only, and shall not be deemed to constitute a part hereof.
12. Law Governing. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the Commonwealth of
Virginia without reference to the choice of law provisions of any jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this warrant as of
December 31, 1998
VALUE AMERICA, INC.
By: /s/ Dean M. Johnson
Name: Dean M. Johnson
Title: EVP & CFO
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant and purchases _______ of the number of shares of Common Stock of Value
America, Inc., purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
DATED:__________________
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip)
<PAGE>
EXHIBIT B TO WARRANT
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint __________________________
Attorney to make such transfer on the books of Value America, Inc., maintained
for the purpose, with full power of substitution in the premises.
DATED:__________________
-------------------------------
(Signature)
-------------------------------
(Witness)
Exhibit 10.13
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITES LAWS OF ANY
STATE, AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO
THE DISTRIBUTION THEREOF. EXCEPT AS STATED IN THE PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT DATED JANUARY 12, 1999, PURSUANT TO WHICH SUCH SECURITIES
WERE ISSUED. SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM
AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND APPLICABLE
STATE SECURITES LAWS.
VALUE AMERICA, INC.
No. SC-D-1
WARRANT TO PURCHASE
473,724 SHARES OF
COMMON STOCK
This certifies that for value received VULCAN VENTURES INCORPORATED, a
Washington corporation ("Vulcan"), or its registered assigns (Vulcan or its
registered assigns, collectively, the "Holder") is entitled, subject to the
terms set forth below, at any time from and after the Vesting Date (as defined
below) and before 5:00 P.M., Eastern Time, on the Termination Date (as such term
is defined below) to purchase from VALUE AMERICA, INC., a Virginia corporation
(the "Company"), up to 473,724 shares of the common stock, without par value per
share (the "Common Stock"), of the Company, as constituted on the Vesting Date,
upon surrender hereof, at the principal office of the Company referred to below,
with a duly executed subscription form in the form attached hereto as Exhibit A
and simultaneous payment therefor in lawful money of the United States or
otherwise as hereinafter provided, of the Purchase Price (as such term is
defined below). Notwithstanding anything herein to the contrary, this Warrant
shall only be exercisable by Holder if, on the Evaluation Date (as defined
herein), the Company Value (as defined herein) shall be less than $600 million.
The number and character of such shares of Common Stock are subject to further
adjustment as provided below.
<PAGE>
1. Definitions. As used herein, the terms indicated below shall have the
following meaning:
"Act" shall mean the Securities Act of 1933, as amended.
"Change-in-Control Transaction" shall mean (i) the acquisition by any
unrelated person of beneficial ownership (as that term is used for purposes of
the Act) of 50% or more of the then outstanding shares of Common Stock of the
Company or the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors ("Voting
Securities") or (ii) approval by the shareholders of the Company of (x) a
reorganization, merger or consolidation with respect to which the individuals
and entities who were the respective beneficial owners of the Voting Securities
immediately before such reorganization, merger or consolidation do not following
such transaction 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; (y) a complete liquidation or
dissolution of the Company, or (z) any sale, lease, exchange or other
disposition of all or substantially all of the Company's assets to any entity
other than a wholly-owned subsidiary of the Company. The term "unrelated person"
means any person other than (x) the Company and its subsidiaries, (y) an
employee benefit plan or related trust of the Company, and (z) a person who
acquires stock of the Company pursuant to an agreement with the Company that is
approved by the Company's Board of Directors in advance of the acquisition. For
purposes of this subsection, a "person" means an individual, entity or group, as
that term is used for purposes of the Act.
"Common Stock" shall mean the common stock, without par value, of the
Company, and, unless the context otherwise requires, the stock and other
securities and property at the time receivable upon the exercise of this
Warrant.
"Company" shall mean Value America, Inc., a Virginia corporation.
"Company Value" shall mean the aggregate Fair Market Value of all
outstanding Shares of the Company's capital stock. Notwithstanding the
foregoing, however, in the case of a Change-in-Control Transaction, the Company
Value shall be the implied value of the Company utilized in determining the
terms of such acquisition.
"Evaluation Date" shall mean the earliest of (i) December 31, 1999, or (ii)
the closing date of the first Change-in-Control Transaction occurring after
December 31, 1998, or (iii) if the Company's Common Stock is listed on a
national securities exchange, traded on the Nasdaq National Market ("NNM") or
traded over-the-counter as quoted on the National Association of Securities
Dealers Automated Quotation System, the date on which the Company Value is
determined to exceed $600,000,000 as provided in the definition of "Fair Market
Value" below.
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<PAGE>
"Fair Market Value" shall mean, as of any date, (i) if a security is listed
on a national securities exchange, the closing or opening price as reported for
composite transactions for such date, (ii) if a security is not so listed but is
traded on the NNM, the closing or opening price as reported on the NNM on such
date or, if no sale occurred on a trading day, then the mean between the highest
bid and lowest asked prices as of the close of business on such trading day, as
reported on the NNM, (iii) if a security is not traded on a national securities
exchange or the NNM otherwise traded over-the-counter, the arithmetic average of
the highest bid and lowest asked prices on such date as quoted on the National
Association of Securities Dealers Automated Quotation System or an equivalent
generally accepted reporting service, or (iv) the price at which a security is
offered for sale to the public in an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended.
If none of (i), (ii), (iii), or (iv) of the preceding sentence applies, "Fair
Market Value" shall mean, as of the date in question, the fair market value of a
security as determined in accordance with the following provisions (with the
Company bearing all expenses relating to such valuation, including, without
limitation, all expenses of each appraiser or investment banking firm provided
for below):
(a) The Company, Vulcan Ventures Incorporated, a Washington
corporation ("Vulcan") and The Union Labor Life Insurance Company, a
Maryland corporation acting on behalf of its Separate Account P
("Ullico"), shall jointly appoint a qualified appraiser or investment
banking firm of recognized international standing (the "Joint
Appraiser") to determine the Fair Market Value. If the Company, Vulcan
and Ullico are unable to agree upon the joint selection of a Joint
Appraiser within ten (10) days following the Evaluation Date, the
Company shall appoint a qualified appraiser or investment banking firm
of recognized national standing (the "Company Appraiser"), Vulcan shall
appoint a qualified appraiser or investment banking firm of recognized
national standing (the "Vulcan Appraiser") and Ullico shall appoint a
qualified appraiser or investment banking firm of recognized national
standing (the "Ullico Appraiser"), each to determine the Fair Market
Value. Each of the Joint Appraiser, if any, and the Company Appraiser,
the Vulcan Appraiser and the Ullico Appraiser, if any, shall enter into
an appropriate and reasonable confidentiality agreement with the
Company in a form approved by the Company, Vulcan and Ullico.
(b) In establishing the Fair Market Value, the Joint Appraiser
or the Company Appraiser, the Vulcan Appraiser and the Ullico
Appraiser, as the case may be, shall consider the Company and its
subsidiaries on a consolidated basis. The Joint Appraiser or the
Company Appraiser, the Vulcan Appraiser and the Ullico Appraiser, as
the case may be, shall determine the Fair Market Value which shall be
the price as of the Evaluation Date that an unrelated willing third
party would pay in cash in an arm's-length transaction for the security
in question, assuming that (1) the purchaser was in possession of all
material information specifically concerning the Company and its
subsidiaries and (2) the holders of such security are willing sellers
and the Company is being sold in a reasonable
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<PAGE>
manner (with the hypothetical costs of such sale being deducted for
purposes of calculating fair market value hereunder).
(c) Without in any way limiting the obligation any party has
to provide information to the other party or any party's access thereto
under this Warrant or otherwise, Vulcan and Ullico shall have
reasonable access to all books, records, financial statements, business
plans, management, appraisals (whether by Ullico, an affiliate of
Ullico, Vulcan, an affiliate of Vulcan or by a third party), and other
information relating to the Company and its subsidiaries, their
respective businesses and prospects and all other information relating
to the Company and its subsidiaries that are reasonably requested by
Vulcan or Ullico to assist in the appraisal procedures provided hereby;
and the Company shall promptly provide Vulcan and Ullico with such
information as Vulcan and Ullico may reasonably request relating to the
Company and its subsidiaries including reasonable access to the
Company's auditors and executives and personnel who have responsibility
with respect to the management of the Company and its subsidiaries.
(d) The Company, Vulcan and Ullico shall exchange with one
another the information it or its respective affiliates or
representatives will provide to the Joint Appraiser or the Company
Appraiser, the Vulcan Appraiser and Ullico Appraiser, as the case may
be, for the purpose of establishing the Fair Market Value. The Company,
Vulcan and Ullico shall have equal access to the Joint Appraiser or the
Company Appraiser, the Vulcan Appraiser and the Ullico Appraiser, as
the case may be, to provide such Joint Appraiser or the Company
Appraiser, the Vulcan Appraiser and the Ullico Appraiser with all
information each deems pertinent to such Joint Appraiser's or the
Company Appraiser's, the Vulcan Appraiser's and the Ullico Appraiser's
determination.
(e) Within 30 days after the first date (the "Initiation
Date") by which the Joint Appraiser or each of the Company Appraiser,
the Vulcan Appraiser and the Ullico Appraiser have been selected, the
Joint Appraiser or the Company Appraiser, the Vulcan Appraiser and the
Ullico Appraiser, as the case may be, will each determine its initial
view as to the Fair Market Value and consult with one another with
respect thereto. By the 45th day after the Initiation Date, the Joint
Appraiser or the Company Appraiser, the Vulcan Appraiser and the Ullico
Appraiser will each have determined its final view as to the Fair
Market Value, and their respective written reports with respect to such
appraisals shall be delivered to the Company, Vulcan and Ullico.
(f) If the appraised amount of the Fair Market Value shall
have been determined by the Joint Appraiser, the Fair Market Value
shall be such appraised amount.
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<PAGE>
(g) If the appraised amount of the Fair Market Value shall
have been determined by the Company Appraiser, the Vulcan Appraiser and
the Ullico Appraiser, then the Fair Market Value shall be the average
of such three appraised amounts; provided that the highest of the three
appraised amounts of the Fair Market Value (the "Highest Appraised
Amount") is not more than 125% of the lowest appraised amount of the
Fair Market Value (the "Lowest Appraised Amount").
(h) If neither paragraph (f) or (g) applies, the Company
Appraiser, the Vulcan Appraiser and the Ullico Appraiser will agree
upon and jointly designate a fourth appraiser or investment banking
firm of recognized national standing (the "Mutually Designated
Appraiser") to participate in the determination of the Fair Market
Value. The Mutually Designated Appraiser will, no later than the 45th
day after the date it is designated, determine its view as to the Fair
Market Value (the "Mutually Appraised Amount"); and the Fair Market
Value will be (x) the Mutually Appraised Amount, if such amount falls
within the range of values that is greater than one-fourth and less
than two-fourths of the way between the Lowest Appraised Amount and the
Highest Appraised Amount, (y) the average of the Mutually Appraised
Amount and the other Appraised Amount (Lowest or Highest) that is
closest to the Mutually Appraised Amount, if the Mutually Appraised
Amount does not fall within that range but does fall between the Lowest
Appraised Amount and the Highest Appraised Amount and (z) the Appraised
Amount (Lowest or Highest) that is nearest to the Mutually Appraised
Amount, if the Mutually Appraised Amount falls outside the range
between the Highest and Lowest Appraised Amounts.
"Holder" shall mean Vulcan Ventures, Incorporated or its registered
assigns.
"Issuance Date" shall mean January 15, 1999.
"Purchase Agreement" shall mean that certain Preferred Stock and Warrant
Purchase Agreement, dated as of January 12, 1999, by and among the Company,
Vulcan, FDX Corporation, a Delaware corporation headquartered in Tennessee, and
Frederick W. Smith, a resident of the state of Tennessee.
"Purchase Price" shall mean $0.01 per share of Common Stock.
"Stock Purchase Rights" shall mean any options, warrants or subscription
rights entitling a holder to purchase Common Stock or any security convertible
into or exchangeable for Common Stock or to purchase any other stock or security
of the Company.
5
<PAGE>
"Termination Date" shall mean the earlier of (i) January 15, 2009 or (ii)
the date that is three calendar years following the closing of the Company's
firmly-underwritten, initial public offering of Common Stock.
"Vesting Date" shall mean the Evaluation Date.
"Warrant" or "Warrants" shall mean this warrant and any warrants delivered
in substitution or exchange therefor as provided herein.
2. Exercise. This Warrant may be exercised at any time or from time to time
from and after the Vesting Date and before 5:00 P.M., Eastern Time, on the
Termination Date on any business day, for the full number of shares of Common
Stock called for hereby, by surrendering it at the principal office of the
Company, at 1550 Insurance Lane, Charlottesville, Virginia 22911, with the
subscription form duly executed, together with payment in an amount equal to (a)
the number of shares of Common Stock called for on the face of this Warrant
(without giving effect to any further adjustment herein) multiplied by (b) the
Purchase Price. Payment of this amount may be made (1) by payment in cash or by
corporate check, payable to the order of the Company, or (2) by the Company not
issuing that number of shares of Common Stock subject to this Warrant having a
Fair Market Value on the date of exercise equal to such sum, as Holder may
determine. This Warrant may be exercised for less than the full number of shares
of Common Stock at the time called for hereby, except that the number of shares
receivable upon the exercise of this Warrant as a whole, and the sum payable
upon the exercise of this Warrant as a whole, shall be proportionately reduced.
Upon a partial exercise of this Warrant in accordance with the terms hereof,
this Warrant shall be surrendered, and a new Warrant of the same tenor and for
the purchase of the number of such shares not purchased upon such exercise shall
be issued by the Company to Holder without any charge therefor. A 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 such shares of record as of the
close of business on such date. As soon as practicable on or after such date,
the Company shall issue and deliver to the person or persons entitled to receive
the same a certificate or certificates for the number of full shares of Common
Stock issuable upon such exercise, together with cash, in lieu of any fraction
of a share, equal to such fraction of the then Fair Market Value on the date of
exercise of one full share of Common Stock.
3. Payment of Taxes. All shares of Common Stock issued upon the exercise of
a Warrant shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges (other than any
application income taxes to be paid by Holder) that may be imposed in respect of
the issue or delivery thereof.
4. Transfer and Exchange. This Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company maintained for
such
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<PAGE>
purpose at its principal office referred to above by Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with a
completed and executed assignment form in the form attached as Exhibit B and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer, the Company will issue and
deliver to Holder a new Warrant or Warrants with respect to the shares of Common
Stock not so transferred. Each taker and holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant when endorsed in blank
shall be deemed negotiable and that when this Warrant shall have been so
endorsed, the holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered Holder hereof as the owner for all purposes.
This Warrant is exchangeable at such office for Warrants for the same
aggregate number of shares of Common Stock, each new Warrant to represent the
right to purchase such number of shares as the Holder shall designate at the
time of such exchange.
5. A. Adjustment for Dividends in Other Stock and Property;
Reclassifications. In case at any time or from time to time the holders of the
Common Stock (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or property
(other than cash) by way of dividend,
(2) any cash or other property paid or payable out of any
source other than retained earnings (determined in accordance
with generally accepted accounting principles), or
(3) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification,
combination of shares or similar corporate rearrangement,
(other than (x) additional shares of Common Stock or any other stock or
securities into which such Common Stock shall have been changed, (y) any other
stock or securities convertible into or exchangeable for such Common Stock or
such other stock or securities or (z) any Stock Purchase Rights (as hereinafter
defined), issued as a stock dividend or stock-split, adjustments in respect of
which shall be covered by the terms of Section 5.C, 5.D, 5.E or 5.H), then and
in each such case Holder, upon the exercise hereof as provided in Section 1,
shall be entitled to receive the amount of stock and other
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<PAGE>
securities and property (including cash in the cases referred to in clauses (2)
and (3) above) which such Holder would hold on the date of such exercise if on
the Vesting Date Holder had been the holder of record of the number of shares of
Common Stock called for on the face of this Warrant, as adjusted in accordance
with the first paragraph of this Warrant, and had thereafter, during the period
from the Issuance Date to and including the date of such exercise, retained such
shares and/or all other or additional stock and other securities and property
(including cash in the cases referred to in clause (2) and (3) above) receivable
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by Sections 5.A and 5.B.
B. Adjustment for Reorganization, Consolidation and Merger. In case of any
reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
after the Issuance Date, or in case, after such date, the Company (or any such
other corporation) shall consolidate with or merge into another corporation or
entity or convey all or substantially all its assets to another corporation or
entity, then and in each such case Holder, upon the exercise hereof as provided
in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and property receivable upon the exercise of this
Warrant prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if Holder had
exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in Sections 5.A, 5.B, 5.C, 5.D and 5.E; in each such
case, the terms of this Warrant shall be applicable to the shares of stock or
other securities or property receivable upon the exercise of this Warrant after
such consummation.
C. Adjustment for Certain Dividends and Distributions. If the Company at
any time or from time to time 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
(1) the Purchase Price 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 Purchase Price then in effect
by a fraction (A) 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 (B) 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 as the case may be, 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 Purchase Price
shall be recomputed accordingly as of the close of business on such record date,
and thereafter the Purchase Price shall be adjusted pursuant to this Section 5.D
as of the time of actual payment of such dividends or distributions; and
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<PAGE>
(2) the number of shares of Common Stock theretofore receivable upon
the exercise of this Warrant shall be increased, 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, in inverse proportion to the decrease in the Purchase Price.
D. Stock Split and Reverse Stock Split. If the Company at any time or from
time to time effects a stock split or subdivision of the outstanding Common
Stock, the Purchase Price then in effect immediately before that stock split or
subdivision shall be proportionately decreased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant shall be
proportionately increased. If the Company at any time or from time to time
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Purchase Price then in effect immediately
before that reverse stock split or combination shall be proportionately
increased and the number of shares of Common Stock theretofore receivable upon
the exercise of this Warrant shall be proportionately decreased. Each adjustment
under this Section 5.E shall become effective at the close of business on the
date the stock split, subdivision, reverse stock split or combination becomes
effective.
E. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Warrants, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any share of stock
receivable upon the exercise of the Warrants above the amount payable therefor
upon such exercise, and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares upon the exercise of all Warrants at the time
outstanding.
F. Accountants' Certificate as to Adjustment. In each case of an adjustment
in the number of shares of Common Stock or the number or type of other stock,
securities or property receivable on the exercise of the Warrants, the Company
at its expense shall cause independent public accountants of recognized standing
selected by the Company (who may be the independent public accountants then
auditing the books of the Company) to compute such adjustment in accordance with
the terms of the Warrants and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company will forthwith mail a copy of each such certificate to each holder
of a Warrant at the time outstanding.
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G. Notices of Record Date. In case
(1) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the exercise of
the Warrants) for the purpose of entitling them to receive any dividend or
other distribution, or any right to subscribe for or purchase any shares of
stock of any class or any other securities, or to receive any other right,
or
(2) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation, or any conveyance of all or
substantially all of the assets of the Company to another corporation, or
(3) of any voluntary dissolution, liquidation or winding-up of the
Company,
then, and in each such case, the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (a) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (b) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is expected to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or such stock or securities at the
time receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up, such
notice shall be mailed at least 30 days prior to the date therein specified.
H. Stock Purchase Rights. If at any time or from time to time, the Company
grants or issues Stock Purchase Rights to the record holders of the Common
Stock, the Holder shall be entitled to acquire, upon the terms applicable to
such Stock Purchase Rights, the aggregate Stock Purchase Rights which Holder
could have acquired if Holder had been the record holder of the maximum number
of shares of Common Stock issuable upon exercise of this Warrant on both (x) the
record date for such grant or issuance of such Stock Purchase Rights, and (y)
the date of the grant or issuance of such Stock Purchase Rights.
6. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it (in the exercise of reasonable discretion) of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and (in the case of loss,
theft or destruction) of indemnity satisfactory to it (in the exercise of
reasonable discretion), and
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(in the case of mutilation) upon surrender and cancellation thereof, the Company
will execute and deliver in lieu thereof a new Warrant of like tenor.
7. Reservation of Common Stock. The Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants.
8. Preferred Stock and Warrant Purchase Agreement. This Warrant has been
issued pursuant to the Purchase Agreement and the transferability of this
Warrant and the Common Stock issuable upon the exercise hereof are subject to
the Purchase Agreement.
9. Notices. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
10. Change; Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
11. Headings. The headings in this Warrant are for purposes of convenience
of reference only, and shall not be deemed to constitute a part hereof.
12. Law Governing. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws the Commonwealth of Virginia
without reference to the choice of law provisions of any jurisdiction.
11
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this warrant as of
January 15, 1999.
VALUE AMERICA, INC.
By: /s/ Dean M. Johnson
---------------------------------
Name: Dean M. Johnson
---------------------------------
Title: EVP & CFO
---------------------------------
12
<PAGE>
EXHIBIT A
---------
SUBSCRIPTION FORM
-----------------
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant and purchases _______ of the number of shares of Common
Stock of Value America, Inc., purchasable with this Warrant, and herewith makes
payment therefor, all at the price and on the terms and conditions specified in
this Warrant.
DATED:__________________
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip)
<PAGE>
EXHIBIT B
---------
FORM OF ASSIGNMENT
------------------
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- -------- -------------
and does hereby irrevocably constitute and appoint __________________________
Attorney to make such transfer on the books of Value America, Inc., maintained
for the purpose, with full power of substitution in the premises.
DATED:__________________
-------------------------------
(Signature)
-------------------------------
(Witness)
Exhibit 10.14
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR
INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND,
EXCEPT AS STATED IN THE WARRANT PURCHASE AGREEMENT DATED , 199 ,
PURSUANT TO WHICH SUCH SECURITIES WERE ISSUED, SUCH SECURITIES MAY NOT BE SOLD,
PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR
REGULATION A NOTIFICATION UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY),
REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT.
VALUE AMERICA, INC.
No. A-
FORM OF
WARRANT TO PURCHASE
_________ SHARES (SUBJECT TO ADJUSTMENT) OF
COMMON STOCK
This certifies that for value received
or registered assigns ("Holder") is
entitled, subject to the terms set forth below, at any time from and after the
Vesting Date (as hereinafter defined) and before 5:00 P.M., Eastern Standard
Time, on , 200_ to purchase from VALUE AMERICA, INC., a Virginia
corporation (the "Company"), ( ) shares (subject to
adjustment as described herein), of the Common Stock, without par value per
share (which authorized class of shares is herein called the "Common Stock") of
the Company, as constituted on the Issue Date (as hereinafter defined), upon
surrender hereof, at the principal office of the Company referred to below, with
a duly executed subscription form in the form attached hereto as Exhibit A and
simultaneous payment therefor in lawful money of the United States or otherwise
as hereinafter provided, at the price of one cent ($.01) per share (the
"Purchase Price"). The number and character of such shares of Common Stock are
subject to further adjustment as provided below, and the term "Common Stock"
shall include, unless the context otherwise requires, the stock and other
securities and property at the time receivable upon the exercise of this
Warrant.
<PAGE>
The term "Warrants" as used herein shall include this Warrant and any
warrants delivered in substitution or exchange therefor as provided herein. As
used herein, "Issue Date" shall mean , 199 . The term "Vesting Date" as
used herein shall mean the earlier to occur of (i) , , (ii) 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 (an "IPO"), (iii) the sale of all or
substantially all of the assets of the Company, (iv) any consolidation or merger
involving the Company, or (v) the acquisition by a single Person or group of
Persons, in a single or series of transactions, of in excess of a majority of
the issued and outstanding shares of capital stock of the Company having general
voting power in electing the Board of Directors of the Company (irrespective of
whether or not at the time such capital stock has or might have voting power by
reason or the happening of any contingency). As used herein, "Person" shall mean
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.
1. Exercise. This Warrant may be exercised at any time or from time to time
from and after the Vesting Date and before 5:00 P.M., Eastern Standard Time, on
, 200 on any business day, for the full number of shares of Common
Stock called for hereby, by surrendering it at the principal office of the
Company, at 2300 Commonwealth Drive, Charlottesville, Virginia 22901, with the
subscription form duly executed, together with payment in an amount equal to (a)
the number of shares of Common Stock called for on the face of this Warrant, as
adjusted in accordance with the preceding paragraph of this Warrant (without
giving effect to any further adjustment herein) multiplied (b) by the Purchase
Price. Payment of this amount may be made (1) by payment in cash or by corporate
check, payable to the order of the Company, or (2) by the Company not issuing
that number of shares of Common Stock subject to this Warrant having a Fair
Market Value (as hereinafter defined) on the date of exercise equal to such sum,
as Holder may determine. This Warrant may be exercised for less than the full
number of shares of Common Stock at the time called for hereby, except that the
number of shares receivable upon the exercise of this Warrant as a whole, and
the sum payable upon the exercise of this Warrant as a whole, shall be
proportionately reduced. Upon a partial exercise of this Warrant in accordance
with the terms hereof, this Warrant shall be surrendered, and a new Warrant of
the same tenor and for the purchase of the number of such shares not purchased
upon such exercise shall be issued by the Company to Holder without any charge
therefor. A 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 such
shares of record as of the close of business on such date. As soon as
practicable on or after such date, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of full shares of Common Stock issuable upon such exercise, together
with cash, in lieu of any fraction of a share, equal to such
-2-
<PAGE>
fraction of the then Fair Market Value on the date of exercise of one full share
of Common Stock.
"Fair Market Value" shall mean, as of any date, (i) if shares of the Common
Stock are listed on a national securities exchange, the average of the closing
prices as reported for composite transactions during the 20 consecutive trading
days preceding the trading day immediately prior to such date or, if no sale
occurred on a trading day, then the mean between the closing bid and asked
prices on such exchange on such trading day; (ii) if shares of the Common Stock
are not so listed but are traded on the Nasdaq National Market ("NNM"), the
average of the closing prices as reported on the NNM during the 20 consecutive
trading days preceding the trading day immediately prior to such date or, if no
sale occurred on a trading day, then the mean between the highest bid and lowest
asked prices as of the close of business on such trading day, as reported on the
NNM; or (iii) if the shares of the Common Stock are not traded on a national
securities exchange or the NNM but are otherwise traded over-the-counter, the
arithmetic average (for consecutive trading days) of the mean between the
highest bid and lowest asked prices as of the close of business during the 20
consecutive trading days preceding the trading day immediately prior to such
date as quoted on the National Association of Securities Dealers Automated
Quotation system or an equivalent generally accepted reporting service. If none
of (i), (ii) or (iii) of the preceding sentence applies, "Fair Market Value"
shall mean, as of the date in question, the fair market value of the Common
Stock as determined by the Board of Directors of the Company, provided, that if
the Holder does not agree with such value, the fair market value shall be that
price established by an investment banking firm of national repute selected by
both the Company and Holder (with the Company bearing the expenses of such
investment banking firm).
2. Payment of Taxes. All shares of Common Stock issued upon the exercise of
a Warrant shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery thereof.
3. Transfer and Exchange. This Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company maintained for
such purpose at its principal office referred to above by Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with a
completed and executed assignment form in the form attached as Exhibit B and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer, the Company will issue and
deliver to Holder a new Warrant or Warrants with respect to the shares of Common
Stock not so transferred. Each taker and holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant when endorsed in blank
shall be deemed negotiable and that when this Warrant shall have been so
endorsed, the holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the
-3-
<PAGE>
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented hereby, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered Holder hereof as the owner for
all purposes.
This Warrant is exchangeable at such office for Warrants for the same
aggregate number of shares of Common Stock, each new Warrant to represent the
right to purchase such number of shares as the Holder shall designate at the
time of such exchange.
4. A. Adjustment for Dividends in Other Stock and Property;
Reclassifications. In case at any time or from time to time the holders of the
Common Stock (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or
property (other than cash) by way of dividend,
(2) any cash or other property paid or payable out of
any source other than retained earnings (determined in accordance
with generally accepted accounting principles), or
(3) other or additional stock or other securities or
property (including cash) by way of stock-split, spin-off,
reclassification, combination of shares or similar corporate
rearrangement,
(other than (x) additional shares of Common Stock or any other stock or
securities into which such Common Stock shall have been changed, (y) any other
stock or securities convertible into or exchangeable for such Common Stock or
such other stock or securities or (z) any Stock Purchase Rights (as hereinafter
defined), issued as a stock dividend or stock-split, adjustments in respect of
which shall be covered by the terms of Section 4.C, 4.D or 4.H), then and in
each such case Holder, upon the exercise hereof as provided in Section 1, shall
be entitled to receive the amount of stock and other securities and property
(including cash in the cases referred to in clauses (2) and (3) above) which
such Holder would hold on the date of such exercise if on the Issue Date Holder
had been the holder of record of the number of shares of Common Stock called for
on the face of this Warrant, as adjusted in accordance with the first paragraph
of this Warrant, and had thereafter, during the period from the Issue Date to
and including the date of such exercise, retained such shares and/or all other
or additional stock and other securities and property (including cash in the
cases referred to in clause (2) and (3) above) receivable by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by Sections 4.A and 4.B.
-4-
<PAGE>
B. Adjustment for Reorganization, Consolidation and Merger. In case of any
reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
after the Issue Date, or in case, after such date, the Company (or any such
other corporation) shall consolidate with or merge into another corporation or
entity or convey all or substantially all its assets to another corporation or
entity, then and in each such case Holder, upon the exercise hereof as provided
in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and property receivable upon the exercise of this
Warrant prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if Holder had
exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in Sections 4.A, 4.B, 4.C and 4.D; in each such case, the
terms of this Warrant shall be applicable to the shares of stock or other
securities or property receivable upon the exercise of this Warrant after such
consummation.
C. Adjustment for Certain Dividends and Distributions. If the Company at
any time or from time to time 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 number of shares of Common Stock theretofore receivable
upon the exercise of this Warrant shall be increased 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 number of shares of Common Stock
theretofore receivable upon exercise of this Warrant immediately prior to the
time of such issuance or the close of business on such record date by a fraction
(A) 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, as the case may be, plus the number of shares of
Common Stock issuable in payment of such dividend or distribution, and (B) 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, as the case may be; 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 number of shares
of Common Stock theretofore receivable upon exercise of this Warrant shall be
recomputed accordingly as of the close of business on such record date, and
thereafter the number of shares of Common Stock theretofore receivable upon
exercise of this Warrant shall be adjusted pursuant to this Section 4.C as of
the time of actual payment of such dividends or distributions.
D. Stock Split and Reverse Stock Split. If the Company at any time or from
time to time effects a stock split or subdivision of the outstanding Common
Stock, the number of shares of Common Stock theretofore receivable upon the
exercise of this Warrant shall be proportionately increased. If the Company at
any time or from time to
-5-
<PAGE>
time effects a reverse stock split or combines the outstanding shares of Common
Stock into a smaller number of shares, the number of shares of Common Stock
theretofore receivable upon the exercise of this Warrant shall be
proportionately decreased. Each adjustment under this Section 4.D shall become
effective at the close of business on the date the stock split, subdivision,
reverse stock split or combination becomes effective.
E. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Warrants, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any share of stock
receivable upon the exercise of the Warrants above the amount payable therefor
upon such exercise, and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares upon the exercise of all Warrants at the time
outstanding.
F. Accountants' Certificate as to Adjustment. In each case of an adjustment
in the number of shares of Common Stock or the number or type of other stock,
securities or property receivable on the exercise of the Warrants, the Company
at its expense shall cause independent public accountants of recognized standing
selected by the Company (who may be the independent public accountants then
auditing the books of the Company) to compute such adjustment in accordance with
the terms of the Warrants and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company will forthwith mail a copy of each such certificate to each holder
of a Warrant at the time outstanding.
G. Notices of Record Date. In case
(1) the Company shall take a record of the
holders of its Common Stock (or other stock or
securities at the time receivable upon the exercise
of the Warrants) for the purpose of entitling them to
receive any dividend or other distribution, or any
right to subscribe for or purchase any shares of
stock of any class or any other securities, or to
receive any other right, or
(2) of any capital reorganization of the
Company, any reclassification of the capital stock of
the Company, any consolidation or merger of the
Company with or into another corporation, or any
conveyance of all or substantially all of the assets
of the Company to another corporation, or
-6-
<PAGE>
(3) of any voluntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (a) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (b) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is expected to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or such stock or securities at the
time receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up, such
notice shall be mailed at least 30 days prior to the date therein specified.
H. Stock Purchase Rights. If at any time or from time to time, the Company
grants or issues to the record holders of the Common Stock any options, warrants
or subscription rights (collectively, the "Stock Purchase Rights") entitling a
holder to purchase Common Stock or any security convertible into or exchangeable
for Common Stock or to purchase any other stock or securities of the Company,
the Holder shall be entitled to acquire, upon the terms applicable to such Stock
Purchase Rights, the aggregate Stock Purchase Rights which Holder could have
acquired if Holder had been the record holder of the maximum number of shares of
Common Stock issuable upon exercise of this Warrant on both (x) the record date
for such grant or issuance of such Subscription Rights, and (y) the date of the
grant or issuance of such Stock Purchase Rights.
5. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it (in the exercise of reasonable discretion) of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and (in the case of loss,
theft or destruction) of indemnity satisfactory to it (in the exercise of
reasonable discretion), and (in the case of mutilation) upon surrender and
cancellation thereof, the Company will execute and deliver in lieu thereof a new
Warrant of like tenor.
6. Reservation of Common Stock. The Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants.
7. Warrant Purchase Agreement and Registration Rights Agreement. This
Warrant has been issued pursuant to the Warrant Purchase Agreement dated as of
, 199 (the "Purchase Agreement") between the Company and
-7-
<PAGE>
, and
the transferability of this Warrant and the Common Stock issuable upon the
exercise hereof are subject to the Purchase Agreement. In addition, the Holder
of this Warrant and the Common Stock issuable upon the exercise hereof are
entitled to have such Common Stock registered under the Securities Act of 1933,
as amended, in accordance with that certain Registration Rights Agreement dated
as of , 199 among the Company and .
8. Notices. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
9. Change; Waiver. Neither this Warrant nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
10. Headings. The headings in this Warrant are for purposes of convenience
in reference only, and shall not be deemed to constitute a part hereof.
11. Law Governing. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws, and not the law of conflicts
of laws, of the Commonwealth of Virginia.
DATED: , 199
VALUE AMERICA, INC.
By:_______________________________
Name: ____________________________
Title: ___________________________
-8-
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
-----------------
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant and purchases _______ of the number of shares of Common Stock of Value
America, Inc., purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
DATED:__________________
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip)
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
------------------
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint __________________________
Attorney to make such transfer on the books of Value America, Inc., maintained
for the purpose, with full power of substitution in the premises.
DATED:__________________
-------------------------------
(Signature)
-------------------------------
(Witness)
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE BEEN TAKEN FOR
INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND,
EXCEPT AS STATED IN THE WARRANT PURCHASE AGREEMENT DATED , 199 ,
PURSUANT TO WHICH SUCH SECURITIES WERE ISSUED, SUCH SECURITIES MAY NOT BE SOLD,
PLEDGED OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT OR
REGULATION A NOTIFICATION UNDER THE ACT COVERING SUCH SECURITIES OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY),
REASONABLY SATISFACTORY IN FORM AND CONTENT TO THE COMPANY, STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE ACT.
VALUE AMERICA, INC.
No. B-
FORM OF
WARRANT TO PURCHASE
_______ SHARES (SUBJECT TO ADJUSTMENT) OF
COMMON STOCK
This certifies that for value received
or registered assigns
("Holder") is entitled, subject to the terms set forth below, at any time from
and after the time immediately prior to the Vesting Date (as hereinafter
defined) and before 5:00 P.M., Eastern Standard Time, on , 200 to
purchase from VALUE AMERICA, INC., a Virginia corporation (the "Company"),
( ) shares (subject to adjustment as described
herein), of the Common Stock, without par value per share (which authorized
class of shares is herein called the "Common Stock") of the Company, as
constituted on the Issue Date (as hereinafter defined), upon surrender hereof,
at the principal office of the Company referred to below, with a duly executed
subscription form in the form attached hereto as Exhibit A and simultaneous
payment therefor in lawful money of the United States or otherwise as
hereinafter provided, at the price of Ten Dollars ($10) per share, subject to
adjustment as described herein (the "Purchase Price"). The number and character
of such shares of Common Stock are subject to further adjustment as provided
below, and the term "Common Stock" shall include, unless the context otherwise
<PAGE>
requires, the stock and other securities and property at the time receivable
upon the exercise of this Warrant.
The term "Warrants" as used herein shall include this Warrant and any
warrants delivered in substitution or exchange therefor as provided herein. As
used herein, "Issue Date" shall mean , 199 . The term "Vesting Date" as
used herein shall mean the earlier to occur of (i) , , (ii) an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, in which the offering price per
share of the Common Stock of the Company equals or exceeds the Purchase Price
then in effect (an "IPO"), (iii) the sale of all or substantially all of the
assets of the Company, (iv) any consolidation or merger involving the Company,
or (v) the acquisition by a single Person or group of Persons, in a single or
series of transactions, of in excess of a majority of the issued and outstanding
shares of capital stock of the Company having general voting power in electing
the Board of Directors of the Company (irrespective of whether or not at the
time such capital stock has or might have voting power by reason or the
happening of any contingency). As used herein, "Person" shall mean 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.
1. Exercise. Subject to the provisions of Section 2 hereof, this Warrant
may be exercised at any time or from time to time from and after the time
immediately prior to the Vesting Date and before 5:00 P.M., Eastern Standard
Time, on , 200 on any business day, for the full number of shares of
Common Stock called for hereby, by surrendering it at the principal office of
the Company, at 2300 Commonwealth Drive, Charlottesville, Virginia 22901, with
the subscription form duly executed, together with payment in an amount equal to
(a) the number of shares of Common Stock called for on the face of this Warrant,
as adjusted in accordance with the first paragraph of this Warrant (without
giving effect to any further adjustment herein) multiplied (b) by the Purchase
Price. Payment of this amount may be made (1) by payment in cash or by corporate
check, payable to the order of the Company, or (2) by the Company not issuing
that number of shares of Common Stock subject to this Warrant having a Fair
Market Value (as hereinafter defined) on the date of exercise equal to such sum,
as Holder may determine. This Warrant may be exercised for less than the full
number of shares of Common Stock at the time called for hereby, except that the
number of shares receivable upon the exercise of this Warrant as a whole, and
the sum payable upon the exercise of this Warrant as a whole, shall be
proportionately reduced. Upon a partial exercise of this Warrant in accordance
with the terms hereof, this Warrant shall be surrendered, and a new Warrant of
the same tenor and for the purchase of the number of such shares not purchased
upon such exercise shall be issued by the Company to Holder without any charge
therefor. A 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
-2-
<PAGE>
issuable upon such exercise shall be treated for all purposes as the holder of
such shares of record as of the close of business on such date. As soon as
practicable on or after such date, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of full shares of Common Stock issuable upon such exercise, together
with cash, in lieu of any fraction of a share, equal to such fraction of the
then Fair Market Value on the date of exercise of one full share of Common
Stock.
"Fair Market Value" shall mean, as of any date, (i) if shares of the Common
Stock are listed on a national securities exchange, the average of the closing
prices as reported for composite transactions during the 20 consecutive trading
days preceding the trading day immediately prior to such date or, if no sale
occurred on a trading day, then the mean between the closing bid and asked
prices on such exchange on such trading day; (ii) if shares of the Common Stock
are not so listed but are traded on the Nasdaq National Market ("NNM"), the
average of the closing prices as reported on the NNM during the 20 consecutive
trading days preceding the trading day immediately prior to such date or, if no
sale occurred on a trading day, then the mean between the highest bid and lowest
asked prices as of the close of business on such trading day, as reported on the
NNM; or (iii) if the shares of the Common Stock are not traded on a national
securities exchange or the NNM but are otherwise traded over-the-counter, the
arithmetic average (for consecutive trading days) of the mean between the
highest bid and lowest asked prices as of the close of business during the 20
consecutive trading days preceding the trading day immediately prior to such
date as quoted on the National Association of Securities Dealers Automated
Quotation system or an equivalent generally accepted reporting service. If none
of (i), (ii) or (iii) of the preceding sentence applies, "Fair Market Value"
shall mean, as of the date in question, the fair market value of the Common
Stock as determined by the Board of Directors of the Company, provided, that if
the Holder does not agree with such value, the fair market value shall be that
price established by an investment banking firm of national repute selected by
both the Company and Holder (with the Company bearing the expenses of such
investment banking firm).
2. Mandatory Exercise. This Warrant has been issued in connection with that
certain Amended and Restated Revolving Loan Agreement dated as of November 17,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Revolving Loan Agreement") by and between The Union Labor Life Insurance
Company, acting on behalf of its Separate Account P ("ULLICO"), and the Company
and each Participation Agreement (collectively, the "Participation Agreements")
entered into by and between ULLICO and various individuals and entities
(collectively, the "Participants") in connection with the Revolving Loan
Agreement.
A. By acceptance of this Warrant, the Holder agrees that upon the closing
of the IPO, the Holder shall be deemed to have exercised this Warrant, to the
extent
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provided in Section 2.C, automatically without any further action by the Holder
(the "Automatic Exercise").
B. Upon the Automatic Exercise, Holder shall surrender this Warrant to the
Company, at its principal executive office or at the office of any transfer
agent for the Common Stock, and shall pay the Purchase Price for shares of
Common Stock subject to this Warrant, to the extent provided in Section 2.C, by
the cancellation of indebtedness of the Company then outstanding under the
Revolving Loan Agreement equal to the difference between (i) the principal
amount of all indebtedness of the Company then outstanding under the Revolving
Loan Agreement and (ii) the aggregate indebtedness of the Company then
outstanding under the Revolving Loan Agreement that is held by the Participants,
directly or indirectly, as a participant through ULLICO in such indebtedness (as
to Holder, the "Canceled Indebtedness").
C. The number of shares of Common Stock issuable to the Holder upon the
Automatic Exercise shall be equal to the quotient of (i) the principal amount of
the Canceled Indebtedness, divided by (ii) the Purchase Price then in effect.
The Company shall issue a new Warrant to Holder for the difference, if any,
between the number of shares subject to this Warrant and the number of shares
issued as provided in the immediately preceding sentence.
D. The cancellation of the Canceled Indebtedness and the Automatic Exercise
shall be deemed to have occurred automatically upon the closing of the IPO,
provided, that upon the closing of the IPO the Company pays to Holder (i) the
accrued interest in the Canceled Indebtedness and (ii) Holder's direct or
indirect interest in the unpaid principal amount of the indebtedness of the
Company, if any, that arises under the Revolving Loan Agreement and that is not
canceled upon an IPO under this Warrant or any similar Warrant issued by the
Company to any other direct or indirect holder of such indebtedness.
E. Holder shall deliver, or shall direct ULLICO to deliver, an instrument
evidencing the Canceled Indebtedness to the Company, marked "Paid in Full,"
against delivery to ULLICO of a cashier's check payable to Holder representing
the payment described in Section 2.D.
F. PRIOR TO THE IPO, HOLDER SHALL NOT SELL, TRANSFER, ASSIGN OR PLEDGE THIS
WARRANT TO ANY PERSON UNLESS SUCH SALE, TRANSFER, ASSIGNMENT OR PLEDGE
CONSTITUTES A SALE, TRANSFER, ASSIGNMENT OR PLEDGE OF THIS WARRANT TO SUCH
PERSON IN ITS ENTIRETY. ANY SALE, TRANSFER, ASSIGNMENT OR PLEDGE OR ATTEMPTED
SALE, TRANSFER, ASSIGNMENT OR PLEDGE OF THIS WARRANT IN VIOLATION OF THIS
RESTRICTION SHALL BE NULL AND VOID.
3. Payment of Taxes. All shares of Common Stock issued upon the exercise of
a Warrant shall be validly issued, fully paid and non-assessable, and the
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<PAGE>
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery thereof.
4. Transfer and Exchange. This Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company maintained for
such purpose at its principal office referred to above by Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with a
completed and executed assignment form in the form attached as Exhibit B and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer, the Company will issue and
deliver to Holder a new Warrant or Warrants with respect to the shares of Common
Stock not so transferred. Each taker and holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant when endorsed in blank
shall be deemed negotiable and that when this Warrant shall have been so
endorsed, the holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered Holder hereof as the owner for all purposes.
This Warrant is exchangeable at such office for Warrants for the same
aggregate number of shares of Common Stock, each new Warrant to represent the
right to purchase such number of shares as the Holder shall designate at the
time of such exchange.
5. A. Adjustment for Dividends in Other Stock and Property;
Reclassifications. In case at any time or from time to time the holders of the
Common Stock (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or
property (other than cash) by way of dividend,
(2) any cash or other property paid or payable out of
any source other than retained earnings (determined in accordance
with generally accepted accounting principles), or
(3) other or additional stock or other securities
or property (including cash) by way of stock-split, spin-off,
reclassification, combination of shares or similar
corporate rearrangement,
(other than (x) additional shares of Common Stock or any other stock or
securities into which such Common Stock shall have been changed, (y) any other
stock or securities convertible
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<PAGE>
into or exchangeable for such Common Stock or such other stock or securities or
(z) any Stock Purchase Rights (as hereinafter defined), issued as a stock
dividend or stock-split, adjustments in respect of which shall be covered by the
terms of Section 5.C, 4.D or 4.H), then and in each such case Holder, upon the
exercise hereof as provided in Section 1 or Section 2, shall be entitled to
receive the amount of stock and other securities and property (including cash in
the cases referred to in clauses (2) and (3) above) which such Holder would hold
on the date of such exercise if on the Issue Date Holder had been the holder of
record of the number of shares of Common Stock called for on the face of this
Warrant, as adjusted in accordance with the first paragraph of this Warrant, and
had thereafter, during the period from the Issue Date to and including the date
of such exercise, retained such shares and/or all other or additional stock and
other securities and property (including cash in the cases referred to in clause
(2) and (3) above) receivable by it as aforesaid during such period, giving
effect to all adjustments called for during such period by Sections 5.A and 4.B.
B. Adjustment for Reorganization, Consolidation and Merger. In case of any
reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
after the Issue Date, or in case, after such date, the Company (or any such
other corporation) shall consolidate with or merge into another corporation or
entity or convey all or substantially all its assets to another corporation or
entity, then and in each such case Holder, upon the exercise hereof as provided
in Section 1 or Section 2 at any time after the consummation of such
reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property receivable upon
the exercise of this Warrant prior to such consummation, the stock or other
securities or property to which such Holder would have been entitled upon such
consummation if Holder had exercised this Warrant immediately prior thereto, all
subject to further adjustment as provided in Sections 5.A, 4.B, 4.C and 4.D; in
each such case, the terms of this Warrant shall be applicable to the shares of
stock or other securities or property receivable upon the exercise of this
Warrant after such consummation.
C. Adjustment for Certain Dividends and Distributions. If the Company at
any time or from time to time 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
(1) the Purchase Price 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 Purchase Price then in effect
by a fraction (A) 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 (B) the denominator of which
shall be the total number of shares of
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<PAGE>
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date as the case may be, 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 Purchase Price shall be recomputed accordingly as of the
close of business on such record date, and thereafter the Purchase Price shall
be adjusted pursuant to this Section 5.C as of the time of actual payment of
such dividends or distributions; and
(2) the number of shares of Common Stock theretofore receivable upon the
exercise of this Warrant shall be increased, 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, in inverse proportion to the decrease in the Purchase Price.
D. Stock Split and Reverse Stock Split. If the Company at any time or from
time to time effects a stock split or subdivision of the outstanding Common
Stock, the Purchase Price then in effect immediately before that stock split or
subdivision shall be proportionately decreased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant shall be
proportionately increased. If the Company at any time or from time to time
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Purchase Price then in effect immediately
before that reverse stock split or combination shall be proportionately
increased and the number of shares of Common Stock theretofore receivable upon
the exercise of this Warrant shall be proportionately decreased. Each adjustment
under this Section 5.D shall become effective at the close of business on the
date the stock split, subdivision, reverse stock split or combination becomes
effective.
E. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Warrants, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any share of stock
receivable upon the exercise of the Warrants above the amount payable therefor
upon such exercise, and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares upon the exercise of all Warrants at the time
outstanding.
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<PAGE>
F. Accountants' Certificate as to Adjustment. In each case of an adjustment
in the number of shares of Common Stock or the number or type of other stock,
securities or property receivable on the exercise of the Warrants, the Company
at its expense shall cause independent public accountants of recognized standing
selected by the Company (who may be the independent public accountants then
auditing the books of the Company) to compute such adjustment in accordance with
the terms of the Warrants and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company will forthwith mail a copy of each such certificate to each holder
of a Warrant at the time outstanding.
G. Notices of Record Date. In case
(1) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the
exercise of the Warrants) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or
purchase any shares of stock of any class or any other securities, or
to receive any other right, or
(2) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
(3) of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each such case, the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (a) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (b) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is expected to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or such stock or securities at the
time receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up, such
notice shall be mailed at least 30 days prior to the date therein specified.
H. Stock Purchase Rights. If at any time or from time to time, the Company
grants or issues to the record holders of the Common Stock any options,
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<PAGE>
warrants or subscription rights (collectively, the "Stock Purchase Rights")
entitling a holder to purchase Common Stock or any security convertible into or
exchangeable for Common Stock or to purchase any other stock or securities of
the Company, the Holder shall be entitled to acquire, upon the terms applicable
to such Stock Purchase Rights, the aggregate Stock Purchase Rights which Holder
could have acquired if Holder had been the record holder of the maximum number
of shares of Common Stock issuable upon exercise of this Warrant on both (x) the
record date for such grant or issuance of such Subscription Rights, and (y) the
date of the grant or issuance of such Stock Purchase Rights.
6. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it (in the exercise of reasonable discretion) of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and (in the case of loss,
theft or destruction) of indemnity satisfactory to it (in the exercise of
reasonable discretion), and (in the case of mutilation) upon surrender and
cancellation thereof, the Company will execute and deliver in lieu thereof a new
Warrant of like tenor.
7. Reservation of Common Stock. The Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants.
8. Warrant Purchase Agreement and Registration Rights Agreement. This
Warrant has been issued pursuant to the Warrant Purchase Agreement dated as of
, 199_ (the "Purchase Agreement") between the Company and
and
the transferability of this Warrant and the Common Stock issuable upon the
exercise hereof are subject to the Purchase Agreement. In addition, the Holder
of this Warrant and the Common Stock issuable upon the exercise hereof are
entitled to have such Common Stock registered under the Securities Act of 1933,
as amended, in accordance with that certain Registration Rights Agreement dated
as of November 17, 1998 among the Company and , as amended.
9. Notices. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
10. Change; Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
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<PAGE>
11. Headings. The headings in this Warrant are for purposes of convenience
in reference only, and shall not be deemed to constitute a part hereof.
12. Law Governing. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws, and not the law of conflicts
of laws, of the Commonwealth of Virginia.
DATED: , 199
VALUE AMERICA, INC.
By:_______________________________
Name: ____________________________
Title: ___________________________
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<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
-----------------
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant and purchases _______ of the number of shares of Common Stock of Value
America, Inc., purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
DATED:__________________
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip)
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
------------------
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint __________________________
Attorney to make such transfer on the books of Value America, Inc., maintained
for the purpose, with full power of substitution in the premises.
DATED:__________________
-------------------------------
(Signature)
-------------------------------
(Witness)
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITES LAWS OF ANY
STATE, AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO
THE DISTRIBUTION THEREOF EXCEPT AS STATED IN THE
PURCHASE AGREEMENT DATED , 199 , PURSUANT TO WHICH SUCH SECURITIES
WERE ISSUED. SUCH SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM
AND CONTENT TO THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND APPLICABLE
STATE SECURITES LAWS.
VALUE AMERICA, INC.
NO. __-__
FORM OF
WARRANT TO PURCHASE
_________ SHARES OF
COMMON STOCK
This certifies that for value received
, or its registered assigns ( or its
registered assigns, collectively, the "Holder") is entitled, subject to the
terms set forth below, at any time from and after the Vesting Date (as defined
below) and before 5:00 P.M., Eastern Time, on the Termination Date (as such term
is defined below) to purchase from VALUE AMERICA, INC., a Virginia corporation
(the "Company"), shares of the common stock, without par value per
share (the "Common Stock"), of the Company, as constituted on the Vesting Date,
upon surrender hereof, at the principal office of the Company referred to below,
with a duly executed subscription form in the form attached hereto as Exhibit A
and simultaneous payment therefor in lawful money of the United States or
otherwise as hereinafter provided, of the Purchase Price (as such term is
defined below). The number and character of such shares of Common Stock are
subject to further adjustment as provided below.
1
<PAGE>
1. Definitions. As used herein, the terms indicated below shall have the
following meaning:
"Act" shall mean the Securities Act of 1933, as amended.
"Change-in-Control Transaction" shall mean (i) the acquisition by any
unrelated person of beneficial ownership (as that term is used for purposes of
the Act) of 50% or more of the then outstanding shares of Common Stock of the
Company or the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors ("Voting
Securities") or (ii) approval by the shareholders of the Company of (x) a
reorganization, merger or consolidation with respect to which the individuals
and entities who were the respective beneficial owners of the Voting Securities
immediately before such reorganization, merger or consolidation do not following
such transaction 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; (y) a complete liquidation or
dissolution of the Company, or (z) any sale, lease, exchange or other
disposition of all or substantially all of the Company's assets to any entity
other than a wholly-owned subsidiary of the Company. The term "unrelated person"
means any person other than (x) the Company and its subsidiaries, (y) an
employee benefit plan or related trust of the Company, and (z) a person who
acquires stock of the Company pursuant to an agreement with the Company that is
approved by the Company's Board of Directors in advance of the acquisition. For
purposes of this subsection, a "person" means an individual, entity or group, as
that term is used for purposes of the Act.
"Common Stock" shall mean the common stock, without par value, of the
Company, and, unless the context otherwise requires, the stock and other
securities and property at the time receivable upon the exercise of this
Warrant.
"Company" shall mean Value America, Inc., a Virginia corporation.
"Company Value" shall mean the aggregate Fair Market Value of all
outstanding Shares of the Company's capital stock. Notwithstanding the
foregoing, however, in the case of a Change-in-Control Transaction, the Company
Value shall be the implied value of the Company utilized in determining the
terms of such acquisition.
"Evaluation Date" shall mean the earliest of (i) December 31, 1999, or (ii)
the closing date of the first Change-in-Control Transaction occurring after
December 31, 1998, or (iii) if the Company's Common Stock is listed on a
national securities exchange, traded on the Nasdaq National Market ("NNM") or
traded over-the-counter as quoted on the National Association of Securities
Dealers Automated Quotation System, the date on which the Company Value is
determined to exceed $600,000,000 as provided in the definition of "Fair Market
Value" below.
2
<PAGE>
"Fair Market Value" shall mean, as of any date, (i) if a security is listed
on a national securities exchange, the closing or opening price as reported for
composite transactions for such date, (ii) if a security is not so listed but is
traded on the NNM, the closing or opening price as reported on the NNM on such
date or, if no sale occurred on a trading day, then the mean between the highest
bid and lowest asked prices as of the close of business on such trading day, as
reported on the NNM, (iii) if a security is not traded on a national securities
exchange or the NNM otherwise traded over-the-counter, the arithmetic average of
the highest bid and lowest asked prices on such date as quoted on the National
Association of Securities Dealers Automated Quotation System or an equivalent
generally accepted reporting service, or (iv) the price at which a security is
offered for sale to the public in an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended.
If none of (i), (ii), (iii), or (iv) of the preceding sentence applies, "Fair
Market Value" shall mean, as of the date in question, the fair market value of a
security as determined in accordance with the following provisions (with the
Company bearing all expenses relating to such valuation, including, without
limitation, all expenses of each appraiser or investment banking firm provided
for below):
(a) The Company, Vulcan Ventures Incorporated, a Washington
corporation ("Vulcan") and The Union Labor Life Insurance Company, a
Maryland corporation acting on behalf of its Separate Account P
("Ullico"), shall jointly appoint a qualified appraiser or investment
banking firm of recognized international standing (the "Joint
Appraiser") to determine the Fair Market Value. If the Company, Vulcan
and Ullico are unable to agree upon the joint selection of a Joint
Appraiser within ten (10) days following the Evaluation Date, the
Company shall appoint a qualified appraiser or investment banking firm
of recognized national standing (the "Company Appraiser"), Vulcan shall
appoint a qualified appraiser or investment banking firm of recognized
national standing (the "Vulcan Appraiser") and Ullico shall appoint a
qualified appraiser or investment banking firm of recognized national
standing (the "Ullico Appraiser"), each to determine the Fair Market
Value. Each of the Joint Appraiser, if any, and the Company Appraiser,
the Vulcan Appraiser and the Ullico Appraiser, if any, shall enter into
an appropriate and reasonable confidentiality agreement with the
Company in a form approved by the Company, Vulcan and Ullico.
(b) In establishing the Fair Market Value, the Joint Appraiser
or the Company Appraiser, the Vulcan Appraiser and the Ullico
Appraiser, as the case may be, shall consider the Company and its
subsidiaries on a consolidated basis. The Joint Appraiser or the
Company Appraiser, the Vulcan Appraiser and the Ullico Appraiser, as
the case may be, shall determine the Fair Market Value which shall be
the price as of the Evaluation Date that an unrelated willing third
party would pay in cash in an arm's-length transaction for the security
in question, assuming that (1) the purchaser was in possession of all
material information specifically concerning the Company and its
subsidiaries and (2) the
3
<PAGE>
holders of such security are willing sellers and the Company is being
sold in a reasonable manner (with the hypothetical costs of such sale
being deducted for purposes of calculating fair market value
hereunder).
(c) Without in any way limiting the obligation any party has
to provide information to the other party or any party's access thereto
under this Warrant or otherwise, Vulcan and Ullico shall have
reasonable access to all books, records, financial statements, business
plans, management, appraisals (whether by Ullico, an affiliate of
Ullico, Vulcan, an affiliate of Vulcan or by a third party), and other
information relating to the Company and its subsidiaries, their
respective businesses and prospects and all other information relating
to the Company and its subsidiaries that are reasonably requested by
Vulcan or Ullico to assist in the appraisal procedures provided hereby;
and the Company shall promptly provide Vulcan and Ullico with such
information as Vulcan and Ullico may reasonably request relating to the
Company and its subsidiaries including reasonable access to the
Company's auditors and executives and personnel who have responsibility
with respect to the management of the Company and its subsidiaries.
(d) The Company, Vulcan and Ullico shall exchange with one
another the information it or its respective affiliates or
representatives will provide to the Joint Appraiser or the Company
Appraiser, the Vulcan Appraiser and Ullico Appraiser, as the case may
be, for the purpose of establishing the Fair Market Value. The Company,
Vulcan and Ullico shall have equal access to the Joint Appraiser or the
Company Appraiser, the Vulcan Appraiser and the Ullico Appraiser, as
the case may be, to provide such Joint Appraiser or the Company
Appraiser, the Vulcan Appraiser and the Ullico Appraiser with all
information each deems pertinent to such Joint Appraiser's or the
Company Appraiser's, the Vulcan Appraiser's and the Ullico Appraiser's
determination.
(e) Within 30 days after the first date (the "Initiation
Date") by which the Joint Appraiser or each of the Company Appraiser,
the Vulcan Appraiser and the Ullico Appraiser have been selected, the
Joint Appraiser or the Company Appraiser, the Vulcan Appraiser and the
Ullico Appraiser, as the case may be, will each determine its initial
view as to the Fair Market Value and consult with one another with
respect thereto. By the 45th day after the Initiation Date, the Joint
Appraiser or the Company Appraiser, the Vulcan Appraiser and the Ullico
Appraiser will each have determined its final view as to the Fair
Market Value, and their respective written reports with respect to such
appraisals shall be delivered to the Company, Vulcan and Ullico.
(f) If the appraised amount of the Fair Market Value shall
have been determined by the Joint Appraiser, the Fair Market Value
shall be such appraised amount.
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<PAGE>
(g) If the appraised amount of the Fair Market Value shall
have been determined by the Company Appraiser, the Vulcan Appraiser and
the Ullico Appraiser, then the Fair Market Value shall be the average
of such three appraised amounts; provided that the highest of the three
appraised amounts of the Fair Market Value (the "Highest Appraised
Amount") is not more than 125% of the lowest appraised amount of the
Fair Market Value (the "Lowest Appraised Amount").
(h) If neither paragraph (f) or (g) applies, the Company
Appraiser, the Vulcan Appraiser and the Ullico Appraiser will agree
upon and jointly designate a fourth appraiser or investment banking
firm of recognized national standing (the "Mutually Designated
Appraiser") to participate in the determination of the Fair Market
Value. The Mutually Designated Appraiser will, no later than the 45th
day after the date it is designated, determine its view as to the Fair
Market Value (the "Mutually Appraised Amount"); and the Fair Market
Value will be (x) the Mutually Appraised Amount, if such amount falls
within the range of values that is greater than one-fourth and less
than two-fourths of the way between the Lowest Appraised Amount and the
Highest Appraised Amount, (y) the average of the Mutually Appraised
Amount and the other Appraised Amount (Lowest or Highest) that is
closest to the Mutually Appraised Amount, if the Mutually Appraised
Amount does not fall within that range but does fall between the Lowest
Appraised Amount and the Highest Appraised Amount and (z) the Appraised
Amount (Lowest or Highest) that is nearest to the Mutually Appraised
Amount, if the Mutually Appraised Amount falls outside the range
between the Highest and Lowest Appraised Amounts.
"Holder" shall mean or its registered assigns.
"Issuance Date" shall mean January 15, 1999.
"Purchase Agreement" shall mean that certain
Purchase Agreement, dated as of , 199 , by and between the Company and
.
"Purchase Price" shall mean $10.00 per share of Common Stock; provided,
however, that if the Company Value as of the close of business on the Evaluation
Date is less than $600,000,000, the Purchase Price shall thereafter be $.01 per
share of Common Stock.
"Stock Purchase Rights" shall mean any options, warrants or subscription
rights entitling a holder to purchase Common Stock or any security convertible
into or exchangeable for Common Stock or to purchase any other stock or security
of the Company.
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<PAGE>
"Termination Date" shall mean the earlier of (i) January 15, 2009 or (ii)
the date that is three calendar years following the closing of the Company's
firmly-underwritten, initial public offering of Common Stock.
"Vesting Date" shall mean the Issuance Date.
"Warrant" or "Warrants" shall mean this warrant and any warrants delivered
in substitution or exchange therefor as provided herein.
2. Exercise. This Warrant may be exercised at any time or from time to time
from and after the Vesting Date and before 5:00 P.M., Eastern Time, on the
Termination Date on any business day, for the full number of shares of Common
Stock called for hereby, by surrendering it at the principal office of the
Company, at 1550 Insurance Lane, Charlottesville, Virginia 22911, with the
subscription form duly executed, together with payment in an amount equal to (a)
the number of shares of Common Stock called for on the face of this Warrant
(without giving effect to any further adjustment herein) multiplied by (b) the
Purchase Price. Payment of this amount may be made (1) by payment in cash or by
corporate check, payable to the order of the Company, or (2) by the Company not
issuing that number of shares of Common Stock subject to this Warrant having a
Fair Market Value on the date of exercise equal to such sum, as Holder may
determine. This Warrant may be exercised for less than the full number of shares
of Common Stock at the time called for hereby, except that the number of shares
receivable upon the exercise of this Warrant as a whole, and the sum payable
upon the exercise of this Warrant as a whole, shall be proportionately reduced.
Upon a partial exercise of this Warrant in accordance with the terms hereof,
this Warrant shall be surrendered, and a new Warrant of the same tenor and for
the purchase of the number of such shares not purchased upon such exercise shall
be issued by the Company to Holder without any charge therefor. A 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 such shares of record as of the
close of business on such date. As soon as practicable on or after such date,
the Company shall issue and deliver to the person or persons entitled to receive
the same a certificate or certificates for the number of full shares of Common
Stock issuable upon such exercise, together with cash, in lieu of any fraction
of a share, equal to such fraction of the then Fair Market Value on the date of
exercise of one full share of Common Stock.
3. Payment of Taxes. All shares of Common Stock issued upon the exercise of
a Warrant shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges (other than any
application income taxes to be paid by Holder) that may be imposed in respect of
the issue or delivery thereof.
6
<PAGE>
4. Transfer and Exchange. This Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company maintained for
such purpose at its principal office referred to above by Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with a
completed and executed assignment form in the form attached as Exhibit B and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer, the Company will issue and
deliver to Holder a new Warrant or Warrants with respect to the shares of Common
Stock not so transferred. Each taker and holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant when endorsed in blank
shall be deemed negotiable and that when this Warrant shall have been so
endorsed, the holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered Holder hereof as the owner for all purposes.
This Warrant is exchangeable at such office for Warrants for the same
aggregate number of shares of Common Stock, each new Warrant to represent the
right to purchase such number of shares as the Holder shall designate at the
time of such exchange.
5. A. Adjustment for Dividends in Other Stock and Property;
Reclassifications. In case at any time or from time to time the holders of the
Common Stock (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or property
(other than cash) by way of dividend,
(2) any cash or other property paid or payable out of any source
other than retained earnings (determined in accordance with generally
accepted accounting principles), or
(3) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification,
combination of shares or similar corporate rearrangement,
(other than (x) additional shares of Common Stock or any other stock or
securities into which such Common Stock shall have been changed, (y) any other
stock or securities convertible into or exchangeable for such Common Stock or
such other stock or securities or (z) any Stock Purchase Rights (as hereinafter
defined), issued as a stock
7
<PAGE>
dividend or stock-split, adjustments in respect of which shall be covered by the
terms of Section 5.C, 5.D, 5.E or 5.H), then and in each such case Holder, upon
the exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in clauses (2) and (3) above) which such Holder would hold on the
date of such exercise if on the Vesting Date Holder had been the holder of
record of the number of shares of Common Stock called for on the face of this
Warrant, as adjusted in accordance with the first paragraph of this Warrant, and
had thereafter, during the period from the Issuance Date to and including the
date of such exercise, retained such shares and/or all other or additional stock
and other securities and property (including cash in the cases referred to in
clause (2) and (3) above) receivable by it as aforesaid during such period,
giving effect to all adjustments called for during such period by Sections 5.A
and 5.B.
B. Adjustment for Reorganization, Consolidation and Merger. In case of any
reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
after the Issuance Date, or in case, after such date, the Company (or any such
other corporation) shall consolidate with or merge into another corporation or
entity or convey all or substantially all its assets to another corporation or
entity, then and in each such case Holder, upon the exercise hereof as provided
in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and property receivable upon the exercise of this
Warrant prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if Holder had
exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in Sections 5.A, 5.B, 5.C, 5.D and 5.E; in each such
case, the terms of this Warrant shall be applicable to the shares of stock or
other securities or property receivable upon the exercise of this Warrant after
such consummation.
C. Adjustment for Certain Dividends and Distributions. If the Company at
any time or from time to time 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
(1) the Purchase Price 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 Purchase Price then in effect
by a fraction (A) 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 (B) 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 as the case may be, 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
8
<PAGE>
not fully paid or if such distribution is not fully made on the date fixed
therefor, the Purchase Price shall be recomputed accordingly as of the close of
business on such record date, and thereafter the Purchase Price shall be
adjusted pursuant to this Section 5.D as of the time of actual payment of such
dividends or distributions; and
(2) the number of shares of Common Stock theretofore receivable upon the
exercise of this Warrant shall be increased, 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, in inverse proportion to the decrease in the Purchase Price.
D. Stock Split and Reverse Stock Split. If the Company at any time or from
time to time effects a stock split or subdivision of the outstanding Common
Stock, the Purchase Price then in effect immediately before that stock split or
subdivision shall be proportionately decreased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant shall be
proportionately increased. If the Company at any time or from time to time
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Purchase Price then in effect immediately
before that reverse stock split or combination shall be proportionately
increased and the number of shares of Common Stock theretofore receivable upon
the exercise of this Warrant shall be proportionately decreased. Each adjustment
under this Section 5.E shall become effective at the close of business on the
date the stock split, subdivision, reverse stock split or combination becomes
effective.
E. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Warrants, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any share of stock
receivable upon the exercise of the Warrants above the amount payable therefor
upon such exercise, and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares upon the exercise of all Warrants at the time
outstanding.
F. Accountants' Certificate as to Adjustment. In each case of an adjustment
in the number of shares of Common Stock or the number or type of other stock,
securities or property receivable on the exercise of the Warrants, the Company
at its expense shall cause independent public accountants of recognized standing
selected by the Company (who may be the independent public accountants then
auditing the books of the Company) to compute such adjustment in accordance with
the terms of the Warrants and prepare a certificate setting forth such
adjustment and showing in detail
9
<PAGE>
the facts upon which such adjustment is based. The Company will forthwith mail a
copy of each such certificate to each holder of a Warrant at the time
outstanding.
G. Notices of Record Date. In case
(1) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the exercise of
the Warrants) for the purpose of entitling them to receive any dividend or
other distribution, or any right to subscribe for or purchase any shares of
stock of any class or any other securities, or to receive any other right,
or
(2) of any capital reorganization of the Company, any reclassification
of the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation, or any conveyance of all or
substantially all of the assets of the Company to another corporation, or
(3) of any voluntary dissolution, liquidation or winding-up of the
Company,
then, and in each such case, the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (a) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (b) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is expected to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or such stock or securities at the
time receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up, such
notice shall be mailed at least 30 days prior to the date therein specified.
H. Stock Purchase Rights. If at any time or from time to time, the Company
grants or issues Stock Purchase Rights to the record holders of the Common
Stock, the Holder shall be entitled to acquire, upon the terms applicable to
such Stock Purchase Rights, the aggregate Stock Purchase Rights which Holder
could have acquired if Holder had been the record holder of the maximum number
of shares of Common Stock issuable upon exercise of this Warrant on both (x) the
record date for such grant or issuance of such Stock Purchase Rights, and (y)
the date of the grant or issuance of such Stock Purchase Rights.
6. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it (in the exercise of reasonable discretion) of the ownership of and the
10
<PAGE>
loss, theft, destruction or mutilation of any Warrant and (in the case of loss,
theft or destruction) of indemnity satisfactory to it (in the exercise of
reasonable discretion), and (in the case of mutilation) upon surrender and
cancellation thereof, the Company will execute and deliver in lieu thereof a new
Warrant of like tenor.
7. Reservation of Common Stock. The Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants.
8. Purchase Agreement. This Warrant has been issued pursuant to the
Purchase Agreement and the transferability of this Warrant and the Common Stock
issuable upon the exercise hereof are subject to the Purchase Agreement.
9. Notices. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
10. Change; Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
11. Headings. The headings in this Warrant are for purposes of convenience
of reference only, and shall not be deemed to constitute a part hereof.
12. Law Governing. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws the Commonwealth of Virginia
without reference to the choice of law provisions of any jurisdiction.
11
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this warrant as of
January 15, 1999.
VALUE AMERICA, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
12
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant and purchases _______ of the number of shares of Common
Stock of Value America, Inc., purchasable with this Warrant, and herewith makes
payment therefor, all at the price and on the terms and conditions specified in
this Warrant.
DATED:__________________
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip)
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- --------------
and does hereby irrevocably constitute and appoint __________________________
Attorney to make such transfer on the books of Value America, Inc., maintained
for the purpose, with full power of substitution in the premises.
DATED:__________________
-------------------------------
(Signature)
-------------------------------
(Witness)
Exhibit 10.17
THE SECURITIES EVIDENCED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE, AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY, AND NOT WITH A VIEW TO
THE DISTRIBUTION THEREOF. EXCEPT AS STATED IN THE SUBSCRIPTION AGREEMENT DATED
AS OF JANUARY 15, 1999, PURSUANT TO WHICH SUCH SECURITIES WERE ISSUED, SUCH
SECURITIES MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THERE ARE EFFECTIVE
REGISTRATION STATEMENTS UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH
MAY BE COUNSEL FOR THE COMPANY), REASONABLY SATISFACTORY IN FORM AND CONTENT TO
THE COMPANY, STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND APPLICABLE STATE SECURITIES
LAWS.
VALUE AMERICA, INC.
No. ____
WARRANT TO PURCHASE
____________ SHARES OF
COMMON STOCK
This certifies that for value received ____________, a ____________
____________ , or its registered assigns ("Holder") is entitled, subject to the
terms set forth below, at any time from and after the Vesting Date (as defined
below) and before 5:00 P.M., Eastern Time, on the Termination Date (as such term
is defined below) to purchase from VALUE AMERICA, INC., a Virginia corporation
(the "Company"), ____________ shares of the common stock, without par value per
share (the "Common Stock"), of the Company, as constituted on the Vesting Date,
upon surrender hereof, at the principal office of the Company referred to below,
with a duly executed subscription form in the form attached hereto as Exhibit A
and simultaneous payment therefor in lawful money of the United States or
otherwise as hereinafter provided, at the Purchase Price (as such term is
defined below). The number and character of such shares of Common Stock are
subject to further adjustment as provided below.
1. Definitions. As used herein, the terms indicated below shall have the
following meaning:
"Act" shall mean the Securities Act of 1933, as amended.
<PAGE>
"Common Stock" shall mean the common stock, without par value, of the
Company, and, unless the context otherwise requires, the stock and other
securities and property at the time receivable upon the exercise of this
Warrant.
"Company" shall mean Value America, Inc., a Virginia corporation.
"Fair Market Value" shall mean, as of any date, (i) if a security is listed
on a national securities exchange, the average of the closing prices as reported
for composite transactions during the 20 consecutive trading days preceding the
trading day immediately prior to such date or, if no sale occurred on a trading
day, then the mean between the closing bid and asked prices on such exchange on
such trading day, (ii) if a security is not so listed but is traded on the
Nasdaq National Market ("NNM"), the average of the closing prices as reported on
the NNM during the 20 consecutive trading days preceding the trading day
immediately prior to such date or, if no sale occurred on a trading day, then
the mean between the highest bid and lowest asked prices as of the close of
business on such trading day, as reported on the NNM or (iii) if a security is
not traded on a national securities exchange or the NNM otherwise traded
over-the-counter, the arithmetic average (for consecutive trading days) of the
mean between the highest bid and lowest asked prices as of the close of business
during the 20 consecutive trading days preceding the trading day immediately
prior to such date as quoted on the National Association of Securities Dealers
Automated Quotation system or an equivalent generally accepted reporting
service. If none of (i), (ii) or (iii) of the preceding sentence applies, "Fair
Market Value" shall mean, as of the date in question, the fair market value of a
security as determined by an investment banking firm of national repute selected
by the Company (with the Company bearing the expenses of such investment banking
firm).
"Holder" shall mean the initial purchaser of this Warrant or its registered
assigns.
"Issuance Date" shall mean January 15, 1999.
"Purchase Agreement" shall mean that certain Subscription Agreement, dated
as of January 15, 1999, by and between the Company and the initial holder of
this Warrant.
"Purchase Price" shall mean $.01 per share of Common Stock.
"Stock Purchase Rights" shall mean any options, warrants or subscription
rights entitling a holder to purchase Common Stock or any security convertible
into or exchangeable for Common Stock or to purchase any other stock or security
of the Company.
"Termination Date" shall mean January 15, 2009.
"Vesting Date" shall be the Issuance Date.
<PAGE>
"Warrant" or "Warrants" shall mean this warrant and any warrants delivered
in substitution or exchange therefor as provided herein.
2. Exercise. This Warrant may be exercised at any time or from time to time
from and after the Vesting Date and before 5:00 P.M., Eastern Time, on the
Termination Date on any business day, for the full number of shares of Common
Stock called for hereby, by surrendering it at the principal office of the
Company, at 1550 Insurance Lane, Charlottesville, Virginia 22911, with the
subscription form duly executed, together with payment in an amount equal to (a)
the number of shares of Common Stock called for on the face of this Warrant
(without giving effect to any further adjustment herein) multiplied (b) by the
Purchase Price. Payment of this amount may be made (1) by payment in cash or by
corporate check, payable to the order of the Company, or (2) by the Company not
issuing that number of shares of Common Stock subject to this Warrant having a
Fair Market Value (as hereinafter defined) on the date of exercise equal to such
sum, as Holder may determine. This Warrant may be exercised for less than the
full number of shares of Common Stock at the time called for hereby, except that
the number of shares receivable upon the exercise of this Warrant as a whole,
and the sum payable upon the exercise of this Warrant as a whole, shall be
proportionately reduced. Upon a partial exercise of this Warrant in accordance
with the terms hereof, this Warrant shall be surrendered, and a new Warrant of
the same tenor and for the purchase of the number of such shares not purchased
upon such exercise shall be issued by the Company to Holder without any charge
therefor. A 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 such
shares of record as of the close of business on such date. As soon as
practicable on or after such date, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of full shares of Common Stock issuable upon such exercise, together
with cash, in lieu of any fraction of a share, equal to such fraction of the
then Fair Market Value on the date of exercise of one full share of Common
Stock.
3. Payment of Taxes. All shares of Common Stock issued upon the exercise of
a Warrant shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges (other than any
application income taxes to be paid by Holder) that may be imposed in respect of
the issue or delivery thereof.
4. Transfer and Exchange. This Warrant and all rights hereunder are
transferable, in whole or in part, on the books of the Company maintained for
such purpose at its principal office referred to above by Holder in person or by
duly authorized attorney, upon surrender of this Warrant together with a
completed and executed assignment form in the form attached as Exhibit B and
upon payment of any necessary transfer tax or other governmental charge imposed
upon such transfer. Upon any partial transfer, the Company will issue and
deliver to Holder a new Warrant or Warrants with
<PAGE>
respect to the shares of Common Stock not so transferred. Each taker and holder
of this Warrant, by taking or holding the same, consents and agrees that this
Warrant when endorsed in blank shall be deemed negotiable and that when this
Warrant shall have been so endorsed, the holder hereof may be treated by the
Company and all other persons dealing with this Warrant as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented hereby, or to the transfer hereof on the books of the Company, any
notice to the contrary notwithstanding; but until such transfer on such books,
the Company may treat the registered Holder hereof as the owner for all
purposes.
This Warrant is exchangeable at such office for Warrants for the same
aggregate number of shares of Common Stock, each new Warrant to represent the
right to purchase such number of shares as the Holder shall designate at the
time of such exchange.
5. A. Adjustment for Dividends in Other Stock and Property;
Reclassifications. In case at any time or from time to time the holders of the
Common Stock (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received, or, on or after the
record date fixed for the determination of eligible shareholders, shall have
become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or property
(other than cash) by way of dividend,
(2) any cash or other property paid or payable out of any source
other than retained earnings (determined in accordance with generally
accepted accounting principles), or
(3) other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification,
combination of shares or similar corporate rearrangement,
(other than (x) additional shares of Common Stock or any other stock or
securities into which such Common Stock shall have been changed, (y) any other
stock or securities convertible into or exchangeable for such Common Stock or
such other stock or securities or (z) any Stock Purchase Rights (as hereinafter
defined), issued as a stock dividend or stock-split, adjustments in respect of
which shall be covered by the terms of Section 5.C, 5.D, 5.E or 5.H), then and
in each such case Holder, upon the exercise hereof as provided in Section 1,
shall be entitled to receive the amount of stock and other securities and
property (including cash in the cases referred to in clauses (2) and (3) above)
which such Holder would hold on the date of such exercise if on the Vesting Date
Holder had been the holder of record of the number of shares of Common Stock
called for on the face of this Warrant, as adjusted in accordance with the first
paragraph of this Warrant, and had thereafter, during the period from the
Issuance Date to and including
<PAGE>
the date of such exercise, retained such shares and/or all other or additional
stock and other securities and property (including cash in the cases referred to
in clause (2) and (3) above) receivable by it as aforesaid during such period,
giving effect to all adjustments called for during such period by Sections 5.A
and 5.B.
B. Adjustment for Reorganization, Consolidation and Merger. In case of any
reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
after the Issuance Date, or in case, after such date, the Company (or any such
other corporation) shall consolidate with or merge into another corporation or
entity or convey all or substantially all its assets to another corporation or
entity, then and in each such case Holder, upon the exercise hereof as provided
in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and property receivable upon the exercise of this
Warrant prior to such consummation, the stock or other securities or property to
which such Holder would have been entitled upon such consummation if Holder had
exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in Sections 5.A, 5.B, 5.C, 5.D and 5.E; in each such
case, the terms of this Warrant shall be applicable to the shares of stock or
other securities or property receivable upon the exercise of this Warrant after
such consummation.
C. Adjustment for Certain Dividends and Distributions. If the Company at
any time or from time to time 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
(1) the Purchase Price 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 Purchase Price then in effect
by a fraction (A) 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 (B) 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 as the case may be, 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 Purchase Price
shall be recomputed accordingly as of the close of business on such record date,
and thereafter the Purchase Price shall be adjusted pursuant to this Section 5.C
as of the time of actual payment of such dividends or distributions; and
(2) the number of shares of Common Stock theretofore receivable upon the
exercise of this Warrant shall be increased, 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, in inverse proportion to the decrease in the Purchase Price.
<PAGE>
D. Stock Split and Reverse Stock Split. If the Company at any time or from
time to time effects a stock split or subdivision of the outstanding Common
Stock, the Purchase Price then in effect immediately before that stock split or
subdivision shall be proportionately decreased and the number of shares of
Common Stock theretofore receivable upon the exercise of this Warrant shall be
proportionately increased. If the Company at any time or from time to time
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Purchase Price then in effect immediately
before that reverse stock split or combination shall be proportionately
increased and the number of shares of Common Stock theretofore receivable upon
the exercise of this Warrant shall be proportionately decreased. Each adjustment
under this Section 5.D shall become effective at the close of business on the
date the stock split, subdivision, reverse stock split or combination becomes
effective.
E. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of the Warrants, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any share of stock
receivable upon the exercise of the Warrants above the amount payable therefor
upon such exercise, and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares upon the exercise of all Warrants at the time
outstanding.
F. Accountants' Certificate as to Adjustment. In each case of an adjustment
in the number of shares of Common Stock or the number or type of other stock,
securities or property receivable on the exercise of the Warrants, the Company
at its expense shall cause independent public accountants of recognized standing
selected by the Company (who may be the independent public accountants then
auditing the books of the Company) to compute such adjustment in accordance with
the terms of the Warrants and prepare a certificate setting forth such
adjustment and showing in detail the facts upon which such adjustment is based.
The Company will forthwith mail a copy of each such certificate to each holder
of a Warrant at the time outstanding.
<PAGE>
G. Notices of Record Date. In case
(1) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time
receivable upon the exercise of the Warrants) for the purpose
of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to
receive any other right, or
(2) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of
the assets of the Company to another corporation, or
(3) of any voluntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to each
holder of a Warrant at the time outstanding a notice specifying, as the case may
be, (a) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (b) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is expected to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or such stock or securities at the
time receivable upon the exercise of the Warrants) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up, such
notice shall be mailed at least 30 days prior to the date therein specified.
H. Stock Purchase Rights. If at any time or from time to time, the Company
grants or issues Stock Purchase Rights to the record holders of the Common
Stock, the Holder shall be entitled to acquire, upon the terms applicable to
such Stock Purchase Rights, the aggregate Stock Purchase Rights which Holder
could have acquired if Holder had been the record holder of the maximum number
of shares of Common Stock issuable upon exercise of this Warrant on both (x) the
record date for such grant or issuance of such Stock Purchase Rights, and (y)
the date of the grant or issuance of such Stock Purchase Rights.
6. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it (in the exercise of reasonable discretion) of the ownership of and the
loss, theft, destruction or mutilation of any Warrant and (in the case of loss,
theft or destruction) of indemnity satisfactory to it (in the exercise of
reasonable discretion), and
<PAGE>
(in the case of mutilation) upon surrender and cancellation thereof, the Company
will execute and deliver in lieu thereof a new Warrant of like tenor.
7. Reservation of Common Stock. The Company shall at all times reserve and
keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants.
8. Purchase Agreement. This Warrant has been issued pursuant to the
Purchase Agreement and the transferability of this Warrant and the Common Stock
issuable upon the exercise hereof are subject to the Purchase Agreement.
9. Notices. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first-class registered or certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
10. Change; Waiver. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
11. Headings. The headings in this Warrant are for purposes of convenience
in reference only, and shall not be deemed to constitute a part hereof.
12. Law Governing. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the Commonwealth of
Virginia without reference to the choice of law provisions of any jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this warrant as of January
15, 1999.
VALUE AMERICA, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE>
EXHIBIT A TO WARRANT
- --------------------
SUBSCRIPTION FORM
-----------------
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant and purchases _______ of the number of shares of Common
Stock of Value America, Inc., purchasable with this Warrant, and herewith makes
payment therefor, all at the price and on the terms and conditions specified in
this Warrant.
DATED:__________________
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip)
<PAGE>
EXHIBIT B TO WARRANT
--------------------
FORM OF ASSIGNMENT
------------------
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint __________________________
Attorney to make such transfer on the books of Value America, Inc., maintained
for the purpose, with full power of substitution in the premises.
DATED:__________________
-------------------------------
(Signature)
-------------------------------
(Witness)
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 1st day of April, 1996, by
and between VALUE AMERICA, INC., a Nevada corporation (the "Company"), and
Joseph L. Page (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. 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 April 1, 1996 (the "Commencement Date"). Subject to the provisions
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
agreed to from time to time through September 30, 1997; at the rate of $85,000
per year effective October 1, 1997 through December 31, 1997; and at the rate of
<PAGE>
$100,000 per year beginning January 1, 1998, subject to increase or decrease at
any time and, from time to time, in sole discretion of the Company.
(b) Bonus. The Executive shall also be eligible to receive a cash
bonus on each of the dates specified below (each a "Bonus Date") in the amount
("Bonus Amount") specified next to the corresponding Bonus Date, provided that
(i) the Executive continues to be employed by the Company on the specified Bonus
Date and (ii) the Executive shall have previously exercised (by providing any
required notice and paying the exercise price) in full all options ("Vested
Options") to purchase shares of the Company's common stock then held by the
Executive and which shall have become subject to exercise pursuant to any
Incentive Stock Option Agreement between the Executive and the Company. In the
event the Executive shall not have, as of any specified Bonus Date on which he
continues to be employed by the Company, previously exercised all Vested
Options, the specified Bonus amount shall be paid to the Executive upon the
Executive's complete exercise of all such Vested Options. In the event the
Executive's employment with the Company is terminated for any reason (including
without limitation by the Employee or by the Company, with or without Cause)
prior to any specified Bonus Date, the Company shall be under no further
obligation to pay any Bonus Amount to the Executive, other than the Bonus Amount
to which he would otherwise have been eligible on the Bonus Date immediately
Following the date of termination of his employment (the "Missed Bonus Date")
had his employment not been terminated (and provided all Vested Options shall
have been completely exercised to the extent permitted by their terms prior to
the Missed Bonus Date), which Bonus Amount shall be paid upon the Employee's
complete exercise of all Vested Options in accordance with their terms; provided
further, however, that the Company shall be under no obligation to pay such
Bonus Amount to which the Executive would otherwise have been eligible in the
event the Executive's employment is terminated by the
2
<PAGE>
Executive pursuant to Section 6(c) below or by the Company with Cause pursuant
to Section 6(b) below.
Bonus Date Bonus Amount
- ---------- ------------
April 1, 1997 $66,562.50
December 31, 1997 $19,150.50
January 15, 1998 $85,713.00
January 1, 1999 $85,713.00
January 1, 2000 $85,713.00
January 1, 2001 $63,213.00
April 1, 2001 $22,500.00
January 1, 2002 $ 3,622.50
(c) 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.
(d) 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.
(e) 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.
3
<PAGE>
(f) Other Incentives. The Company may, but shall not be obligated to,
provide the Executive with such other performanced-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
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 non-profit
activities which do not impair his ability to fulfill his duties and
responsibilities under this Agreement.
4
<PAGE>
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
5
<PAGE>
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 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.
(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.
6
<PAGE>
(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), or 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 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.
7
<PAGE>
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 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
8
<PAGE>
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 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
9
<PAGE>
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 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.
10
<PAGE>
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.
By: /s/ Rex Scatena
---------------
Title: President
Date: 4-1-96
/s/ Joseph Page
------------------
Executive
Date: 4-1-96
Address:
11
EXHIBIT 10.19
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
EXHIBIT 10.20
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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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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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
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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
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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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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
Exhibit 10.21
EMPLOYMENT AGREEMENT
AGREEMENT (the "Agreement"), dated as of October 5, 1998, between Value
America, Inc., a Virginia corporation (the "Company") and Glenda Dorchak,
residing at 3290 Sandown Place, Keswick, Virginia (the "Executive").
The Company and the Executive agree as follows:
1. Position; Term of Employment. The Company agrees to employ the
Executive, and the Executive agrees to serve the Company, as its President and
Chief Operating Officer. The parties intend that the Executive shall continue to
so serve in the aforesaid capacity throughout the Term (as such term is defined
below).
Subject to earlier termination under the provisions of Paragraph 4
below, the term of Executive's employment by the Company hereunder shall
commence on October 5, 1998 and shall continue through December 31, 2001 and
then renew for an additional one year term on January 1, 2002 and each
subsequent annual anniversary thereof unless at least 3 months prior to January
1, 2002 or a subsequent annual anniversary thereof either Executive or Company
gives to the other written notice that the term shall not be renewed at such
annual anniversary, in which case the term shall expire on December 31, 2001 or
the day before such subsequent anniversary, as the case may be (the "Term").
This Agreement shall replace the existing employment letter dated
August 18, 1998 (the "Prior Letter") between Company and the Executive, and
effective upon the execution and delivery of this Agreement, the Prior Letter
shall terminate and be of no further force and effect.
2. Duties. The Executive throughout the Term shall devote her full time
and undivided attention during normal business hours to the business and affairs
of the Company and its affiliates, if any ("Affiliates"), except for holidays
and vacations consistent with applicable Company policy and except for illness
or incapacity, but nothing in this Agreement shall preclude the Executive from
serving as a director or a member of an advisory committee of any organization
involving no conflict of interest with the Company (subject to prior approval of
her appointment to such position in certain cases as provided in the next to
last sentence of this Paragraph 2), from engaging in charitable and community
activities, and from managing her personal investments, provided that such
activities do no materially interfere with the performance of her duties and
responsibilities under this Agreement. The Executive shall not accept any
proposed appointment to serve as a director, trustee or the equivalent of any
business organization of which the Executive is not a director, trustee, or the
equivalent on the date hereof, without the prior approval of the Chairman of the
Company's Board. The Executive shall report directly to the Chairman of the
Board, or in his absence, the Board.
3. Compensation.
(a) Salary. During the Term, the Company shall pay to the Executive a
salary at the minimum rate of $250,000 per year until December 31, 1999 and
$300,000 per year thereafter, payable in equal installments not less frequently
than monthly. Such salary shall be reviewed by the Compensation Committee of the
Board at least annually, with any increases taking into account, among other
factors, corporate and individual performance and increases, if any, in relevant
cost of living indices.
(b) Bonus. During the Term, the Executive shall be entitled to
participate in such bonus programs as the Compensation Committee of the Board
from time to time shall approve. Notwithstanding the foregoing, for the period
beginning on (i) the date hereof and ending December 31 1999, Executive shall be
entitled to a guaranteed bonus of $37,500 per full calendar quarter of
employment hereunder (the period from the date hereof through December 31, 1998
shall be considered a full calendar quarter), which bonus shall be paid within
10 business days after the end of the calendar quarter, provided, Executive is
employed hereunder on the last day of such quarter, and (ii) January 1, 2000 and
each anniversary thereof and ending on December 31, 2000 and each anniversary
thereof, Executive shall be entitled to a bonus per full calendar quarter of
employment hereunder in such amounts and based upon achievement of such
corporate and individual performance and other criteria as shall be established
by the Compensation Committee of the Board from time to time, considering among
other items input from the Chairman of the Board, the Executive and, if
considered appropriate by the Committee, a compensation consultant (provided
that the minimum bonus potential for each such calendar year shall be at least
$150,000), which bonus shall be paid within 10 days after the end of the
calendar quarter provided Executive is employed hereunder on the last day of
such quarter. As an additional bonus, the Company agrees that it will pay to
Executive an amount (which amount shall not exceed $390,000) equal to the
product of (i) $6.50 and (ii) up to an aggregate of no more than 60,000 shares
of stock purchased by Executive from Company pursuant to her Incentive Stock
Option Agreement dated January 13, 1999 and her Non-Qualified Stock Option
Agreement dated January 13, 1999. Such bonus payment will be made upon the due
exercise of the option to purchase such shares and such bonus will be deemed
earned upon such exercise. The $6.50 and 60,000 amounts will be subject to
proportional adjustment upon a stock split or similar capital stock adjustment,
as determined in good faith by the Company's Board of Directors.
(c) Benefit Plans. During the Term, the Executive shall be entitled to
participate in all retirement and employment benefit plans of the Company that
are generally available to senior executives of the Company. Such participation
shall be pursuant to the terms and conditions of such plans, as the same shall
be amended from time to time. In addition, beginning in January 1999 and ending
on the earlier of December 31, 2000 or the date of termination of employment
hereunder, Company shall pay to Executive as additional compensation on the 15th
of each month (i) $215, which Executive will use to pay the premium on life
insurance covering her life (provided that $250,000 of the proceeds payable
under such policy shall be payable to the Company in repayment of the Promissory
Note described in Section 4(h) until such note is repaid in full) and (ii)
$781.31, which Executive will use to pay the premiums on a disability insurance
covering her. The Executive shall be entitled to no less than three weeks' paid
vacation per year.
(d) Business Expenses. During the Term, the Company shall, in
accordance with policies then in effect with respect to payments of expenses,
pay or reimburse the Executive for all reasonable out-of-pocket travel and other
expenses (other than ordinary commuting expenses) incurred by the Executive in
performing services hereunder. All such expenses shall be accounted for in such
reasonable detail as the Company may require.
(e) Indemnity. As an officer and Director of Company, Executive shall
be entitled to indemnity as provided in the Company's Articles of Incorporation,
as the same shall be amended from time to time.
4. Termination.
(a) Death. In the event of the death of the Executive during the Term,
her employment shall be terminated as of the date of death and her salary for
the month in which her death occurs shall be paid to her designated beneficiary,
or in the absence of such designation, to the estate or other legal
representative of the Executive. Except in accordance with the terms of the
Company's benefit programs and plans then in effect, after her date of death,
Executive shall not be entitled to any other compensation or benefits from the
Company or hereunder. (b) Disability. In the event of the Executive's
Disability, as hereinafter defined, the employment of the Executive may be
terminated by the Company. After termination of employment for Disability,
except in accordance with the Company's benefit programs and plans then in
effect, Executive shall not be entitled to any compensation or benefits from the
Company or hereunder.
"Disability," for purposes of this Agreement, shall mean the
Executive's incapacity due to physical or mental illness causing her complete
and full-time absence from her duties, as defined in Paragraph 2, for either a
consecutive period of more than six months or at least 180 days within any
270-day period. Any determination of the Executive's Disability made in good
faith by the Board shall be conclusive and binding on the Executive, unless
within 10 days after written notice to Executive of such determination,
Executive elects by written notice to Company to challenge such determination,
in which case the determination of Disability shall be made by arbitration
pursuant to Section 13 below.
(c) Termination by the Company for Due Cause. Nothing herein shall
prevent the Company from terminating the Executive's employment for Due Cause.
The Executive shall continue to receive the salary provided for in this
Agreement only through the period ending with the date of such termination. Any
rights and benefits she may have under employee benefit plans and programs of
the Company shall be determined in accordance with the terms of such plans and
programs. Except as provided in the two immediately preceding sentences, after
termination of employment for Due Cause, Executive shall not be entitled to any
compensation or benefits from the Company or hereunder.
The term "Due Cause," as used herein, shall mean (i) repeated material
violation by the Executive of the Executive's obligations hereunder, the DDN
Agreement (as defined in Paragraph 10 below) or a written directive from either
the Chairman of the Board or the Board (1) which are willful and deliberate on
the Executive's part, (2) which are not due to the Disability of the Executive
(within the meaning of Paragraph 4(b) but without regard to the requirement that
it continue for more than six months or 180 days within a 270-day period) and
(3) which have not been cured by the Executive within 15 business days after
written notice to the Executive specifying the nature of such violations, (ii)
an act or acts of dishonesty on the Executive's part which are intended to or do
result in either the Executive's personal enrichment or material adverse affect
upon the Company's assets, business, prospects or reputation, or (iii)
conviction of a felony or a misdemeanor involving fraud, breach of trust, or
misappropriation. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Due Cause without (1) written notice to the
Executive setting forth the reasons for the Company's intention to terminate for
Due Cause, (2) an opportunity for the Executive, together with her counsel, to
be heard before the Board, and (3) delivery to the Executive of a Notice of
Termination from the Board finding that in the good faith opinion of at least
three-quarters (3/4) of the Board (not counting the Executive in either the
numerator or the denominator), the Executive was guilty of conduct set forth
above in clause (i), (ii) or (iii) hereof, and specifying the particulars
thereof in detail.
(d) Termination by the Company Other than for Due Cause. The foregoing
notwithstanding, the Company may terminate the Executive's employment for
whatever reasons it deems appropriate; provided, however, that in the event such
termination is not due to death, Disability or Due Cause, the Executive shall
(i) be entitled to a Termination Payment as hereinafter defined and (ii) be sent
written notice stating the termination is not due to death, Disability or Due
Cause. The term "Termination Payment" shall mean a cash payment equal to the sum
of (i) her annual salary, as in effect immediately prior to such termination,
and (ii) if the effective date of termination is on or before December 31, 1999,
then $150,000; if the effective date of termination is after December 31, 1999,
then a pro rata portion of any bonus that would have been payable to Executive
under 3(b) for such calendar year if she had been employed for the full calendar
year, provided the criteria for such bonus other than Executive's continued
employment are satisfied. Such Termination Payment shall be payable in 12 equal
monthly installments beginning 30 days after the date of termination. In
addition, the Company will pay the premium cost for the Executive to receive any
group health coverage that the Company provides under Section 4980B of the
Internal Revenue Code of 1986 ("COBRA Coverage") for the period in which the
Executive is eligible for such COBRA coverage. In the event that such
Termination by the Company Without Due Cause occurs prior to December 31, 1999,
the Company also shall reduce by $150,000 the amount the Executive owes the
Company pursuant to the Promissory Note described in Section 4(h). Following the
Executive's termination of employment under this Paragraph 4(d), the Executive
will have no further obligation to provide services to the Company pursuant to
Paragraphs 1 and 2. Except for the Termination Payment, the loan forgiveness,
the COBRA coverage, and as otherwise provided in accordance with the terms of
the Company's benefit programs and plans then in effect, after termination by
the Company of employment for other than death, Disability or Due Cause,
Executive shall not be entitled to any other compensation or benefits from the
Company or hereunder.
(e) Constructive Termination of Employment by the Company Without Due
Cause. Termination by the Company without Due Cause under Paragraph 4 (d) shall
be deemed to have occurred if the Executive elects to terminate her employment
as a result of a material breach by the Company of Section 3 of this Agreement
(which breach is not cured within 10 days after written notice thereof by
Executive to each of the Directors of the Company, which notice shall
specifically describe such alleged breach).
(f) Voluntary Termination. In the event that the Executive terminates
her employment at her own volition prior to the expiration of the Term (except
as provided in Paragraph 4(e) above), such termination shall constitute a
"Voluntary Termination" and in such event the Executive shall be limited to the
same rights and benefits as provided in connection with a termination for Due
Cause under Paragraph 4 (c) above.
(g) Election Not to Renew. An election by either Company or Executive
pursuant to Paragraph 1 above not to renew the Term shall not be deemed a
termination of employment by either party. After the expiration of the Term
because of either Company's or Executive's election not to renew, except in
accordance with the terms of the Company's benefit plans and programs then in
effect, Executive shall not be entitled to any other compensation or benefits
from the Company or hereunder.
(h) Notice of Termination; Resignation, Release and Repayment of
Promissory Note. Any termination under Section 4(c) by the Company for Due Cause
or Section 4(b) for Disability or by the Executive pursuant to a constructive
termination under Section 4(e) shall be communicated by Notice of Termination to
the other party thereto given in accordance with Paragraph 12. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated and (iii) if the termination date is other than the date of receipt of
such Notice, specifies the termination date (which date shall not be prior to
the date of such notice or more than 15 days after the giving of such Notice).
Notwithstanding anything in this Agreement to the contrary, in
order to be eligible to receive any payments or benefits hereunder as a result
of the termination of the Executive's employment, in addition to fulfilling all
other conditions precedent to such receipt, the Executive (if she has the legal
capacity to do so and if not, her legal representative) must within 10 days
after the termination date (i) resign as a member of the Board and as an officer
and employee of the Company and its Affiliates, (ii) in behalf of the Executive
and her estate, heirs and representatives, execute a release in form and
substance reasonably satisfactory to the Company and its legal counsel releasing
the Company, its Affiliates and each of the Company's and such Affiliate's
respective officers, Directors, employees, members, managers, agents,
independent contractors, representatives, shareholders, successors and assigns
(all of which persons and entities shall be third party beneficiaries of such
release with full power to enforce the provisions thereof) from any and all
claims related to any payments or benefits under Section 3 or 4 of this
Agreement related to the termination of Executive's employment, and (iii) repay
in full all amounts due Company under that certain promissory note dated January
14, 1999 from Executive to Company in the original amount of $250,000 (the
"Promissory Note"), it being agreed that Company may elect in its sole
discretion to offset against amounts owed pursuant to such Promissory Note any
amounts owed to Executive by Company.
(i) Earned and Accrued Payments. The foregoing notwithstanding, upon
the termination of the Executive's employment at any time, for any reason, the
Executive shall be paid all amounts that had already been earned and accrued as
of the time of termination, including but not limited to (i) pay for any accrued
and unused vacation; (ii) any bonus that had been earned but not yet paid; and
(iii) reimbursement for any business expenses accrued in accordance with Section
3(d).
5. Non-Compete and Non-Solicitation. The Executive agrees that during
the Term which she is employed by the Company, and during the period ending two
years after a Voluntary Termination, a termination by the Company for Disability
or Due Cause or an expiration of the Term because either Executive or Company
elects not to renew pursuant to Paragraph 1 above (the "Non-Compete Period"),
she shall not:
(a) compete with any business that is conducted by the Company or any
of its Affiliates at any time during the two years immediately preceding and the
6 months after the date of termination or expiration of the Term. For purposes
of this Agreement, the term "compete" shall mean engaging in an activity on
behalf of herself or as a more than 5% equity holder, an officer, a director, an
employee, a partner, a member, a manager, an agent, a consultant, a sole
proprietor, or any other individual or representative capacity if (i) it
involves a business which sells or distributes consumer and business products
primarily (more than 50%) through the Internet or which develops or distributes
convergence technology products or which uses interactive multimedia to sell its
products and (ii) the location in which the Executive conducts such activities
is within 50 miles of Charlottesville, Virginia provided, however, that nothing
in this Agreement will prohibit or restrict the Executive from working as an
employee of or consultant to International Business Machines Corporation, any of
its affiliates, or any other manufacturer of computers or related technology or
equipment.
(b) in behalf of herself or any other person or entity solicit for
employment any employee of Company or its Affiliates who was such at any time
during the two years immediately preceding and the 6 months after the date of
termination or expiration of the Term or cause such an employee to terminate his
or her employment by the Company or its Affiliates; or
(c) intentionally cause any vendor of the Company who was such at any
time during the two years immediately preceding and within six months after the
date of termination or expiration of the Term to cease doing business with or
decrease the amount of business done with the Company.
In the event the restrictions contained in this Paragraph 5
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of extending for too great a period of time or over too great a
geographic area or by reason of being too extensive in any other respect, such
restrictions shall be interpreted to extend only over the maximum period of time
for which they may be enforceable, and over the maximum geographic area as to
which they may be enforceable and to the maximum extent in all other respects as
to which they may be enforceable, all as determined by such court in such
action.
6. Protection of Confidential Information, Etc. The Executive
acknowledges that her employment by the Company will, throughout the Term of
this Agreement, bring her into close contact with many confidential affairs of
the Company, including information about costs, profits, markets, sales,
products, key personnel, pricing policies, operational methods, technical
processes and know-how and other business affairs and methods and other
information not readily available to the public, and plans for future
developments. The Executive further acknowledges that the services to be
performed under this Agreement are of a special and unique character. In
recognition of the foregoing, the Executive covenants and agrees that except as
required in connection with enforcing or defending any rights or claims in a
legal proceeding or arbitration pursuant to Section 13 below related to her
employment by the Company, this Agreement or any other agreement between the
Executive and the Company:
(i) during the Term which the Executive is employed
by the Company and thereafter, regardless of the reasons for
termination of employment, the Executive shall not, without
the prior written consent of the Board or a person authorized
thereby, disclose to any person other than as required by law
or court order, or other than to an employee of the Company or
its Affiliates, or to a person to which disclosure is
appropriate in connection with the performance by the
Executive of her duties as an executive of the Company (e.g.,
disclosure to the Company's outside lawyers, accountants or
bankers of financial data properly requested by such persons)
any confidential information obtained by her while in the
employ of the Company with respect to any of the Company's
products, services, customers, suppliers, marketing
techniques, methods, or future plans, the disclosure of which
will be damaging to the Company; provided, however, that
confidential information known generally to the public (other
than as a result of unauthorized disclosure by the Executive)
shall not be subject to the provisions of this Section 6 (i)
after the time it becomes generally known to the public;
(ii) she will deliver promptly to the Company on
termination of her employment, or at any other time the
Company may reasonably so request, at its expense, all
memoranda, notes, records, reports, and other documents (and
all copies thereof) relating to the Company's business, which
she may possess or have under her control other than any
agreements or plans related to the Executive's employment by
the Company; and
(iii) she will transfer and assign to the Company,
all rights of every kind and character, in perpetuity, in and
to any material and/or ideas written, suggested or submitted
by the Executive which relate to the business of the Company
and all other results and proceeds of the Executive's service
hereunder. The Executive agrees to execute and deliver to the
Company such assignments or other instruments as the Company
may require from time to time to evidence its ownership of the
results and proceeds of the Executive's service.
7. Injunctive Relief. The Executive acknowledges that a breach of the
restrictions against engaging in a competitive activity contained in Paragraph 5
and the disclosure of confidential information contained in Paragraph 6 will
cause irreparable damage to the Company, the exact amount of which will be
difficult to ascertain, and that the remedies at law for any such breach will be
inadequate. Accordingly, the Executive and the Company agree that if the
Executive breaches the restrictions on engaging in a competitive activity, on
solicitations, on the disclosure of confidential information or on any other
matter or action contained in Paragraphs 5 and 6, then the Company shall be
entitled to injunctive relief, without posting bond or other security.
8. Successors and Assigns.
(a) Assignment by the Company. This Agreement shall be binding upon and inure to
the benefit of the Company or any corporation or other entity to which the
Company may transfer all or substantially all of its assets and business and to
which the Company may assign this Agreement, in which case the term "Company,"
as used herein, shall mean such corporation or other entity, provided that no
such assignment shall relieve the Company from any obligations hereunder,
whether arising prior to or after such assignment. (b) Assignment by the
Executive. The Executive may not assign this Agreement or any part hereof
without the prior written consent of the Company; provided, however, that
nothing herein shall preclude the Executive from designating one or more
beneficiaries to receive any amount that may be payable following occurrence of
her legal incompetency or her death and shall not preclude the legal
representative of her estate from assigning any right hereunder to the person or
persons entitled thereto under her will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to her
estate. The term "beneficiaries," as used in this Agreement, shall mean a
beneficiary or beneficiaries so designated to receive any such amount or, if no
beneficiary has been so designated, the legal representative of the Executive
(in the event of her incompetency) or the Executive's estate.
9. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia.
10. Entire Agreement. This Agreement, the Promissory Note, the
Incentive Stock Option Agreement between the Company and Executive dated January
13, 1999, the Non-Qualified Stock Option Agreement between the Executive and the
Company dated January 13, 1999 and the Developments, Noncompete, Nondisclosure
Agreement between Executive and Company dated ________, 1998 (the "DNN
Agreement") contain all of the understandings and representations between the
parties hereto pertaining to the matters referred to herein, and supersede all
undertakings and agreements, whether oral or in writing, previously entered into
by them with respect thereto, including, without limitation, the Prior Agreement
and the Incentive Stock Option Agreements between the Company and Executive
pursuant to Notices of Grants of Stock Options and Option Agreements dated
December 2, 1998 and numbered 226, 225 and 135. This Agreement may only be
modified by an instrument in writing. The terms of this Agreement and the DNN
Agreement shall be interpreted to be independent agreements such that Executive
must comply with the terms of each such agreement (provided that effective upon
execution of this Agreement, Section 6 of the DNN Agreement shall be of no
further force and effect and Section 5 of this Agreement shall supersede any
conflicting provision of the DNN Agreement). To the extent such terms are deemed
to be inconsistent in any given circumstance, Executive may request in writing a
determination by the Board as to how such inconsistency shall be resolved.
11. Waiver of Breach. The waiver by any party of a breach of any
condition or provision of this Agreement to be performed by such other party
shall not operate or be construed to be a waiver of a similar or dissimilar
provision or condition at the same or any prior or subsequent time.
12. Notices. Any notice to be given hereunder shall be in writing and
delivered personally, or sent by certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such other address as such party may subsequently give notice of hereunder in
writing:
If to the Company:
Value America, Inc.
1560 Insurance Lane
Charlottesville, Virginia 22911
Attn: Corporate Secretary
With a copy to:
Gary D. LeClair, Esquire
LeClair Ryan, A Professional Corporation
707 E. Main Street
11th Floor
Richmond, Virginia 23219
If to the Executive:
Glenda Dorchak
3290 Sandown Place
Keswick, Virginia 22947
13. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or any breach thereof, shall be settled by arbitration in
accordance with the rules of the American Arbitration Association then in effect
in the Commonwealth of Virginia and judgment upon such award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. The board
of arbitrators shall consist of one arbitrator to be appointed by the Company,
one by the Executive, and one by the two arbitrators so chosen. The arbitration
shall be held at such place as may be agreed upon at the time by the parties to
the arbitration. The cost of arbitration as determined by the arbitrators.
14. Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Executive or her estate or
beneficiaries shall be subject to the withholding of such amounts relating to
taxes as the Company may reasonably determine it should withhold pursuant to any
applicable law or regulation. In lieu of withholding such amounts, in whole or
in part, the Company may, in its sole discretion, accept other provisions for
payment of taxes and withholdings as required by law, provided it is satisfied
that all requirements of law affecting its responsibilities to withhold have
been satisfied.
15. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions or portions of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
law.
16. Titles. Titles to the paragraphs in this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any paragraph.
17. Legal Fees. Company agrees to pay the reasonable fees and expenses
of Executive's legal counsel in connection with the negotiation and execution of
this Agreement, not to exceed $3,000.
18. Counsel. This Agreement has been prepared by LeClair Ryan, A
Professional Corporation, 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 Executive. The Executive has reviewed the
contents of this Agreement and fully understands its terms. The Executive
acknowledges that she is fully aware of her right to the advice of counsel
independent from that of the Company, that Counsel has advised her of such right
and disclosed to her the risks in not seeking such independent advice, and that
she fully understands the potentially adverse interests of the parties with
respect to this Agreement. The Executive further acknowledges that neither the
Company nor its Counsel has made representations or given any advice with
respect to the tax or other consequences of this Agreement or any transactions
contemplated by this Agreement to her, that she has been advised of the
importance of seeking independent counsel with respect to such consequences, and
that she had obtained independent counsel with respect to such consequences. By
executing this Agreement, the Executive represents that she has, after being
advised of the potential conflicts between her and the Company with respect to
the future consequences of this Agreement, either consulted independent legal
counsel or elected, notwithstanding the advisability of seeking such independent
legal counsel, not to consult with such independent legal counsel.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
VALUE AMERICA, INC.
By: /s/ Rex Scatena
Title: President
Date: 10/5/98
/s/ Glenda Dorchak, Executive
----------------------------
GLENDA DORCHAK
Date: 10-5-98
EXHIBIT 10.22
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 19th of January, 1999, by and
between VALUE AMERICA, INC., a Virginia corporation (the "Company"), and Craig
Winn (the "Employee").
In consideration of the mutual covenants contained herein, the Company and
the Employee agree as follows:
1. Employment. The Company agrees to employ the Employee and the Employee
agrees to continue in the employ of the Company on the terms and conditions
hereinafter set forth.
2. Capacity. The Employee 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 January 19, 1999 (the "Commencement Date"). Subject to the provisions of
Section 6, the term of the Employee'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 Employee 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 Employee under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee a total annual salary as agreed to
subject to increase or decrease at any time and, from time to time, in the sole
discretion of the Company. The Employee's salary shall be payable in periodic
installments in accordance with the Company's usual payroll practices.
(b) Regular Benefits. The Employee 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.
<PAGE>
(c) Business Expenses. The Company shall reimburse the Employee 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 Employee shall be entitled to such number of weeks
of vacation per year as shall be provided for in Company's employee handbooks,
or as otherwise agreed to, as modified from time to time, to be taken at such
times and intervals as shall be determined by the Employee with the approval of
the Company.
(e) Other Incentives. The Company may, but shall not be obligated
to, provide the Employee with such other performanced-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
Employee's performance, productivity and contribution to the Company's
profitability.
5. Extent of Service. During his employment hereunder, the Employee
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
Employee shall not engage in any other business activity during normal business
hours, except as may be approved by the President, Chief Employee Officer or
Board of the Company.
6. Termination.
Notwithstanding the provisions of Section 3, the Employee's
employment hereunder shall terminate under the following circumstances and shall
be subject to the following provisions:
(a) Death. In the event of the Employee's death during the
Employee's employment hereunder, the Employee's employment shall terminate on
the date of his death and the Employee 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 Employee's salary to
the Employee'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 Employee'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 Employee had he not died.
<PAGE>
(b) Termination by the Company for Cause. The Employee'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 Employee setting
forth in reasonable detail the nature of such Cause. Upon termination of
employment by the Company for Cause, the Employee 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 Employee of a material term
of this Agreement or any other agreement between the Employee 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 Employee; or unauthorized use or disclosure of Confidential Information or
trade secrets of the Company; or
(iv) dishonesty or fraud of the Employee with respect to the
Company, or any subsidiary or affiliate thereof.
(c) Termination by the Employee. The Employee may terminate his
employment hereunder by written notice to the President, Chief Executive Officer
or Board. Upon termination of employment by the Employee, the Employee shall be
entitled to no further compensation or benefits under this Agreement.
(d) Termination by the Company Without Cause. The Employee'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 Employee. Upon termination of employment by
the Company without Cause, the Company shall pay to the Employee within fifteen
(15) days after the date of termination cash in the amount of (i) any unpaid
salary due to the Employee hereunder through the date of the termination, plus
(ii) any accrued but unpaid vacation pay due to the Employee.
<PAGE>
(e) No Termination Benefits. In the event of any termination of the
Employee'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
Employee shall not be entitled to any salary, bonus, severance pay or benefits
not otherwise specified herein.
(f) Litigation and Regulatory Cooperation. The Employee 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 Employee was employed by the Company. The Employee'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 Employee 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 Employee was employed by the
Company. If such cooperation is required after the Employee ceases to be
employed by the Company, the Company shall pay the Employee for such cooperation
a fee of twenty five dollars ($25.00) per hour, payable monthly in arrears, and
will reimburse the Employee 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 Employee
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.
8. Conflicting Agreements. The Employee 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 Employee 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 Employee 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. Each party shall bear their
own costs and attorney's fees.
<PAGE>
11. Assignment; Successors and Assigns, etc. Neither the Company nor the
Employee 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 Employee 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 Employee, their respective successors,
subsidiaries, affiliates, executors, administrators, heirs and permitted
assigns. In the event of the Employee'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 Employee'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 Employee at the last address the Employee 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 Employee and by a duly authorized representative of the
Company.
<PAGE>
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 8, and any Incentive Stock Option
Agreement entered into by the Company and the Employee 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. Employee has reviewed the contents of this Agreement
and fully understands its terms. Employee acknowledges that he/she is fully
aware of his right to the advice of counsel independent from that of the
Company, that the Company has advised him/her of such right and disclosed to
him/her the risks in not seeking such independent advice, and that he/she
understands the potentially adverse interests of the parties with respect to
this Agreement. Employee further acknowledges that no representations have been
made with respect to the income or estate tax or other consequences of this
Agreement to him/her and that he/she has been advised of the importance of
seeking independent advice of counsel with respect to such consequences.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, and by the Employee, as of the date first above
written.
VALUE AMERICA, INC.
By: Glenda Dorchak
--------------------------------
Title: Chief Operating Officer
Date: 9/20/98
Craig A. Winn, Employee
--------------
Date: 1/19/99
Address: 741 Woodlands
Charlottesville, Virginia
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made as of the 19th day of January, 1999, by
and between VALUE AMERICA, INC., a Virginia corporation (the "Company"), and Rex
Scantena (the "Employee").
In consideration of the mutual covenants contained herein, the Company and
the Employee agree as follows:
1. Employment. The Company agrees to employ the Employee and the Employee
agrees to continue in the employ of the Company on the terms and conditions
hereinafter set forth.
2. Capacity. The Employee 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 January 19, 1999 (the "Commencement Date"). Subject to the provisions of
Section 6, the term of the Employee'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 Employee 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 Employee under this Agreement shall be as follows:
(a) Salary. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee a total annual salary as agreed to
subject to increase or decrease at any time and, from time to time, in the sole
discretion of the Company. The Employee's salary shall be payable in periodic
installments in accordance with the Company's usual payroll practices.
(b) Regular Benefits. The Employee 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.
<PAGE>
(c) Business Expenses. The Company shall reimburse the Employee 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 Employee shall be entitled to such number of weeks
of vacation per year as shall be provided for in Company's employee handbooks,
or as otherwise agreed to, as modified from time to time, to be taken at such
times and intervals as shall be determined by the Employee with the approval of
the Company.
(e) Other Incentives. The Company may, but shall not be obligated
to, provide the Employee with such other performanced-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
Employee's performance, productivity and contribution to the Company's
profitability.
5. Extent of Service. During his employment hereunder, the Employee
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
Employee shall not engage in any other business activity during normal business
hours, except as may be approved by the President, Chief Employee Officer or
Board of the Company.
6. Termination.
Notwithstanding the provisions of Section 3, the Employee's
employment hereunder shall terminate under the following circumstances and shall
be subject to the following provisions:
(a) Death. In the event of the Employee's death during the
Employee's employment hereunder, the Employee's employment shall terminate on
the date of his death and the Employee 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 Employee's salary to
the Employee'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 Employee'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 Employee had he not died.
<PAGE>
(b) Termination by the Company for Cause. The Employee'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 Employee setting
forth in reasonable detail the nature of such Cause. Upon termination of
employment by the Company for Cause, the Employee 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 Employee of a material term
of this Agreement or any other agreement between the Employee 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 Employee; or unauthorized use or disclosure of Confidential Information or
trade secrets of the Company; or
(iv) dishonesty or fraud of the Employee with respect to the
Company, or any subsidiary or affiliate thereof.
(c) Termination by the Employee. The Employee may terminate his
employment hereunder by written notice to the President, Chief Executive Officer
or Board. Upon termination of employment by the Employee, the Employee shall be
entitled to no further compensation or benefits under this Agreement.
(d) Termination by the Company Without Cause. The Employee'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 Employee. Upon termination of employment by
the Company without Cause, the Company shall pay to the Employee within fifteen
(15) days after the date of termination cash in the amount of (i) any unpaid
salary due to the Employee hereunder through the date of the termination, plus
(ii) any accrued but unpaid vacation pay due to the Employee.
<PAGE>
(e) No Termination Benefits. In the event of any termination of the
Employee'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
Employee shall not be entitled to any salary, bonus, severance pay or benefits
not otherwise specified herein.
(f) Litigation and Regulatory Cooperation. The Employee 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 Employee was employed by the Company. The Employee'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 Employee 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 Employee was employed by the
Company. If such cooperation is required after the Employee ceases to be
employed by the Company, the Company shall pay the Employee for such cooperation
a fee of twenty five dollars ($25.00) per hour, payable monthly in arrears, and
will reimburse the Employee 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 Employee
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.
8. Conflicting Agreements. The Employee 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 Employee 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 Employee 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. Each party shall bear their
own costs and attorney's fees.
<PAGE>
11. Assignment; Successors and Assigns, etc. Neither the Company nor the
Employee 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 Employee 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 Employee, their respective successors,
subsidiaries, affiliates, executors, administrators, heirs and permitted
assigns. In the event of the Employee'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 Employee'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 Employee at the last address the Employee 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 Employee and by a duly authorized representative of the
Company.
<PAGE>
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 8, and any Incentive Stock Option
Agreement entered into by the Company and the Employee 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. Employee has reviewed the contents of this Agreement
and fully understands its terms. Employee acknowledges that he/she is fully
aware of his right to the advice of counsel independent from that of the
Company, that the Company has advised him/her of such right and disclosed to
him/her the risks in not seeking such independent advice, and that he/she
understands the potentially adverse interests of the parties with respect to
this Agreement. Employee further acknowledges that no representations have been
made with respect to the income or estate tax or other consequences of this
Agreement to him/her and that he/she has been advised of the importance of
seeking independent advice of counsel with respect to such consequences.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, and by the Employee, as of the date first above
written.
VALUE AMERICA, INC.
By: Glenda Dorchak
-----------------------
Title: Chief Operating Officer
Date: 9/20/98
Rex Scatena, Employee
------------------------
Date: 1/19/99
Address: 580 Milford Road
Earlysville, VA 22936
EXHIBIT 10.24
VALUE AMERICA, INC.
FORM OF DEVELOPMENTS, NONCOMPETE AND NONDISCLOSURE
AGREEMENT
This DEVELOPMENTS, NONCOMPETE AND NONDISCLOSURE AGREEMENT is made as of
this day of 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
EXHIBIT 10.25
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 unless the Compensation Committee otherwise unanimously
consents.
(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
EXHIBIT 10.26
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as
of June 3, 1998, by and between VALUE AMERICA, INC. (the "Company"), a Virginia
corporation, and CAPITAL ADVISERS, L.L.C., a Virginia limited liability company
("Investor").
R E C I T A L S
A. Concurrently with entering into this Agreement, the Company and
Investor are entering into a Stock Purchase Agreement as defined below bearing
the same date as this Agreement under which Investor is agreeing to purchase
48,054 shares of the Company's Common Stock, as defined below (the "Shares"),
from Craig A. Winn, a resident of the Commonwealth of Virginia and the Chairman
and Chief Executive Officer of the Company, on the terms and subject to the
conditions appearing therein, and under which Craig A. Winn is granting Investor
an option to purchase an additional 48,053 shares of Common Stock.
B. The execution and delivery of this Agreement by the parties
hereto are a condition to Investor's obligation to purchase the Shares from
Craig A. Winn.
C. The Company is entering into this Agreement in consideration for the
Investor's assistance to the Company in securing investors in the Company's
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 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.
"Holder" of any security means the record or beneficial owner of such
security.
"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.
<PAGE>
"Initiating Holders" means with respect to each registration pursuant to
Section 2 the Holder or Holders of at least 100% of the shares of Registrable
Securities then outstanding.
"Investor" 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.
"Stock Purchase Agreement" means the Stock Purchase Agreement dated as
of June 3, 1998 between Craig A. Winn and Investor.
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.
"Registrable Securities" means (1) 48,054 shares of Common Stock purchased
by Investor pursuant to the Stock Purchase Agreement, and, if Investor has
exercised the Option, as defined in the Stock Purchase Agreement, the 48,053
shares of Common Stock representing the Option Shares, as defined in the Stock
Purchase Agreement, and (2) any securities issued or issuable with respect to
the Common Stock referred to in clause (1) 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 sold or transferred to any
Person other than the Investor, 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 one Form S-3 registration statements pursuant to
this Section 2.
2
<PAGE>
(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.
(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 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 shares to be included pursuant to demand registration rights granted
by the Company in accordance with Section 7 of the December 17, 1997
Agreement, as may be amended and restated from time to time, as defined in
Section 7 hereof, in an offering initiated upon the exercise of such
rights, and except for 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 (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. 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
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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.
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
promptly 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, subject to a maximum of two such
written requests, 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 shares to be included pursuant to demand
registration rights granted by the Company in an offering initiated upon
the exercise of such rights, and except for 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 (ii) such reduced number
of shares shall be allocated among all participating Holders of
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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.
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;
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(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
(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
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<PAGE>
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.
(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
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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.
(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
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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.
(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
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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 obligation 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. Limitation on Registration Rights. The Investor hereby acknowledges and
agrees that the rights granted under this Agreement are subject to and
restricted by Section 7 of that certain Registration Rights Agreement, by and
between the Company and The Union Labor Life Insurance Company, a Maryland
Corporation acting on behalf of its Separate Account P (which is not a separate
entity) dated as of December 17, 1997 (the "December 17, 1997 Agreement"), as
may be amended and restated from time to time, which Section 7 is incorporated
herein by reference and which December 17, 1997 Agreement is attached hereto as
Appendix A.
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
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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.
11. Miscellaneous.
(a) Waivers and Amendments. With the written consent of the Holders
of a Majority of the Registrable Securities, the obligations of the
Company and the rights of Investor 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 Investor
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
promptly 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 12(a). 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 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, 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.
(b) Effect of Waiver or Amendment. Investor acknowledges that by
operation of Section 12(a) hereof the Holders of a Majority of the
Registrable Securities will, subject to the limitations contained in such
Section 12(a), have the right and power to diminish or eliminate certain
rights of Investor under this Agreement.
(c) Rights of Investor Inter Se. Investor shall have the absolute
right to exercise or refrain from exercising any right or rights which
Investor 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
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any agreement effecting any such modification; and Investor 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.
(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.
Commonwealth Drive
Charlottesville, Virginia 22901
Attention: 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:
CAPITAL ADVISERS, L.L.C.
c/o Timothy S. Driscoll
The Driscoll Companies
7200 Wisconsin Avenue
Suite 200
Bethesda, MD 20814
Telecopier: (301) 907-8808
with a copy to:
Terence P. Quinn, Esq.
Steptoe & Johnson LLP
1330 Connecticut Avenue, N.W.
Washington, D.C. 20036
Telecopier: (202) 429-3902
if to any other Holder of Registrable 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
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<PAGE>
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).
(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) 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.
(g) 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.
(h) Choice of Law. It is the intention of the parties that the
internal substantive laws of the Commonwealth of Virginia, without
reference to the conflicts of law provisions of any jurisdiction, 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.
(i) Expenses. The Company agrees to pay and hold Investor 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 Investor or the consent of Investor 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.
(j) 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.
(k) 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.
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<PAGE>
(l) Entire Agreement. This Agreement, the 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.
(m) Variations in Pronouns. All pronouns shall be deemed to refer to
masculine, feminine, neuter, singular or plural, as the identity of the
person(s) or entity(ies) may require.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
14
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[SIGNATURE PAGE TO 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.
VALUE AMERICA, INC.
By:/s/ Craig A. Winn
_______________________
Craig A. Winn, Chairman and
Chief Executive Officer
CAPITAL ADVISERS, L.L.C.
By:/s/ Timothy S. Driscoll
________________________
Timothy S. Driscoll
Its:_______________________
EXHIBIT 10.27
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered
into as of November 17, 1998, by and among VALUE AMERICA, INC. (the "Company"),
a Virginia corporation, and The Union Labor Life Insurance Company, acting on
behalf of its Separate Account P (the "Investor").
R E C I T A L
WHEREAS, concurrently with entering into this Agreement, the
Company and the Investor are entering into a Warrant Purchase Agreement of even
date herewith (the "Warrant Purchase Agreement"), pursuant to which the Investor
agrees to purchase from the Company warrants (each, a "Warrant" and,
collectively, the "Warrants") to purchase up to 1,445,000 shares of Common Stock
(as hereinafter defined) of 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 Investor's obligation to purchase
such warrants.
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 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 Warrant
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.
"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 $2.5 million
at the time the demand for registration is given under Section 2.
"Investor" 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.
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.
"Registrable Securities" means (1) all Common Stock owned now or
in the future by the Investor, (2) the Common Stock issued or issuable upon
exercise of the Warrants issued and sold pursuant to the Warrant Purchase
Agreement, whether owned by the Investor or not and (3) any securities issued or
issuable with respect to the Common Stock referred to in clauses (1) and (2)
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.
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Warrant" shall have the meaning assigned to it in the Recital
hereof.
"Warrant Purchase Agreement" shall have the meaning assigned to
it in the Recital hereof.
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 prompt 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.
<PAGE>
(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 $2.5
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.
(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
<PAGE>
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.
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.
<PAGE>
(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, and (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, 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.
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
<PAGE>
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;
(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
<PAGE>
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
<PAGE>
to supply all information reasonably requested by any such Holder, underwriter,
attorney, accountant or agent in connection with such registration statement;
and
(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
<PAGE>
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.
(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
<PAGE>
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.
(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
<PAGE>
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.
(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
<PAGE>
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
<PAGE>
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.
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.
<PAGE>
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.
11. Miscellaneous.
(a) 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 Investor 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 Investor 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(a)
Specifically, but without limiting the generality of the foregoing, the failure
of the Investor at any time or times to require performance of any provision
hereof by the Company shall in no manner affect the right of the 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, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any
<PAGE>
such breach, or a waiver of the breach of any other term or covenant contained
in this Agreement.
(b) Effect of Waiver or Amendment. The Investor
acknowledges that by operation of Section 11(a) hereof the Holders of a Majority
of the Registrable Securities will, subject to the limitations contained in such
Section 11(a), have the right and power to diminish or eliminate certain rights
of the Investor under this Agreement.
(c) Rights of the Investor Inter Se. The Investor shall
have the absolute right to exercise or refrain from exercising any right or
rights which the Investor 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 Investor 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.
(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, VA 23219
Telecopier: (804) 783-2294
if to Investor:
<PAGE>
The Union Labor Life Insurance Company
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attention: Mr. Michael Steed, Senior Vice President,
Investments
Telecopier: (202) 682-7970
with a copy to:
Alan J. Barton, Esq.
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
23rd Floor
Los Angeles, California 90071
Telecopier: (213) 627-0705
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 Investor 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).
(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) 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,
<PAGE>
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.
(g) 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.
(h) 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.
(i) Expenses. The Company agrees to pay and hold the
Investor 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 Investor or the consent of the Investor 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.
(j) 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.
(k) 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.
(l) Entire Agreement. This Agreement, the Warrant
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.
<PAGE>
[SIGNATURE PAGE TO 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.
VALUE AMERICA, INC.
By: /s/ Craig A. Winn
---------------------------------
Name: Craig A. Winn, Chairman and
Title: Chief Executive Officer
THE UNION LABOR LIFE INSURANCE COMPANY,
Acting on behalf of its Separate Account P
By: /s/ Michael R. Steed
--------------------------
An Authorized Officer
<PAGE>
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT dated as
of December 14, 1998 (this "Amendment") is hereby entered into by and between
Value America, Inc., a Virginia corporation (the "Company"), and The Union Labor
Life Insurance Company, acting on behalf of its Separate Account P (the
"Investor").
RECITALS
A. WHEREAS, the Company and the Investor have executed and
delivered that certain Registration Rights Agreement dated as of November 17,
1998 (as the same may be amended, restated, supplemented or otherwise modified
from time to time, the "Registration Rights Agreement"); and
B. WHEREAS, the parties hereto have agreed to amend the
provisions of the Registration Rights Agreement, among other things, to amend
the definition of "Registrable Securities."
NOW, THEREFORE, for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and the Investor do
hereby agree as follows:
1. Relation to Registration Rights Agreement; Definitions.
1.1 Relation to Registration Rights Agreement.
This Amendment constitutes an integral part of the Registration Rights
Agreement.
1.2 Capitalized Terms. For all purposes of this
Amendment, capitalized terms used herein without definition shall have the
meanings specified in the Registration Rights Agreement, as said agreement shall
be in effect on the Effective Date after giving effect to this Agreement.
2. AMENDMENTS TO THE REGISTRATION RIGHTS AGREEMENT.
2.1 Amendment to Recital of the Registration Rights
Agreement. The Recital of the Registration Rights Agreement is amended by
deleting it in its entirety and replacing it with the following:
<PAGE>
RECITALS
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of November 17, 1998 (the
"First Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "First Warrant"
and, collectively, the "First Warrants") to purchase up to 1,445,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and Investor are parties to that
certain Warrant Purchase Agreement dated as of December 14, 1998 (the
"Second Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Second Warrant"
and, collectively, the "Second Warrants") to purchase up to 840,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
2.2 Amendment to Section 1 of the Registration Rights
Agreement.
(a) Section 1 of the Registration Rights Agreement
is amended by deleting each of the definitions of "Registrable Securities" and
"Warrants" in its entirety and replacing it with the following:
"Registrable Securities" means (1) all Common Stock owned
now or in the future by the Investor, (2) the Common Stock issued or
issuable upon exercise of the Warrants issued and sold pursuant to the
Warrant Purchase Agreement, whether owned by the Investor or not, (3)
the Common Stock issued or issuable upon exercise of the Second Warrants
issued and sold pursuant to the Second Warrant Purchase Agreement,
whether owned by the Investor or not, and (3) 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.
"Warrants" shall mean the First Warrants and the
Second Warrants.
(b) Section 1 of the Registration Rights Agreement
is amended by deleting the definition of "Warrant Purchase Agreement" in its
entirety.
(c) Section 1 of the Registration Rights Agreement
is amended by adding the following definitions, in alphabetical order:
"First Warrant Purchase Agreement" shall have the meaning
assigned to it in the Recitals of this Agreement.
"Second Warrant Purchase Agreement" shall have the meaning
assigned to it in the Recitals of this Agreement.
2.3 Amendment to Section 11(l) of the Registration Rights
Agreement. Section 11(l) of the Registration Rights Agreement is amended by
deleting it in its entirety and replacing it with the following:
(l) Entire Agreement. This Agreement, the First Warrant
Purchase Agreement, the Second Warrant 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.
<PAGE>
3. Representations and Warranties of the Company.
3.1 Representations and Warranties. To induce the
Investor to execute and deliver this Amendment (which representations shall
survive the execution and deliver of this Amendment), the Company represents and
warrants to the Investor that:
(a) Authority. This Amendment has been duly
authorized, executed and delivered by it and this Amendment constitutes the
legal, valid and binding obligation, contract and agreement of the Company
enforceable against it in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
or equitable principles relating to or limiting creditors' rights generally.
(b) Validity of Amendment. The Registration Rights
Agreement, as amended by this Amendment, constitutes the legal, valid and
binding obligation, contract and agreement of the Company enforceable against it
in accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally.
(c) Authorization; No Violation. The execution,
delivery and performance by the Company of this Amendment (i) will not require
from the Board (as defined in the Loan Agreement) or stockholders of the Company
any consent or approval that has not been validly and lawfully obtained, (ii)
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, (iii) will not cause the
Company to violate or contravene (A) any provision of law, (B) any rule or
regulation of any agency or government, domestic or foreign, (C) any order,
writ, judgment, injunction, decree, determination or award, or (D) any provision
of the Articles of Incorporation or Bylaws of the Company, (iv) except as
disclosed in Annex 3.1, 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,
promissory note, 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 (as defined in
the Loan Agreement) and (e) except as contemplated by the Amended and Restated
Security Agreement (as defined in the Loan Agreement), will not result in the
creation or imposition of any Lien (as defined in the Loan Agreement). Except as
disclosed in Annex 3.1, 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, promissory note, 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 (as defined in the Loan Agreement) or which prohibits the Company
from entering into this Amendment or would prevent or make burdensome its
performance of or compliance with all or any part of this Amendment or the
consummation of the transactions contemplated hereby.
4. Conditions to Effectiveness of this Amendment.
4.1 Effective Date. This Amendment shall not become
effective until, and shall become effective when, each and every one of the
following conditions shall have been satisfied or waived by the Investor (the
"Effective Date").
(a) Execution of Counterparts. Counterparts of
this Amendment shall have been executed and delivered by each of the Company and
the Investor.
(b) Ratification and Confirmation of Registration
Rights Agreement. The Registration Rights Agreement and all representations,
warranties, terms and conditions therein remain in full force and effect, and
the Company hereby confirms and ratifies each of the provisions of the
Registration Rights Agreement.
(c) Consents. All necessary consents, waivers,
approvals, authorizations, registrations, filings and notifications in
connection with the authorization, execution and delivery of this Amendment have
been obtained or made and are in full force and effect.
(e) Proceedings, Instruments, etc. All proceedings
and actions taken on or prior to the Effective Date in connection with the
transactions contemplated by this Amendment and all instruments incident thereto
shall be in form and substance satisfactory to the Investor and its special
counsel, and the Investor and its special counsel shall have received copies of
all documents that it or they may request in connection with such proceedings,
actions and transactions (including, without limitation, copies of court
documents, certifications, and evidence of the correctness of the
representations and warranties contained herein and certifications and evidence
of the compliance with the terms and the fulfillment of the conditions of this
Amendment) in the form and substance satisfactory to the Investor and its
special counsel.
5. Miscellaneous.
5.1 Cross-References. References in this Amendment to any
Section are, unless otherwise specified, to such Section of this Amendment.
5.2 Instrument Pursuant to Existing Registration Rights
Agreement; Limited Amendment. This Amendment is executed pursuant to Section
11(a) of the Registration Rights Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered, and applied in accordance with all
of the terms and provisions of the Registration Rights Agreement, including
Section 11(a) thereof. Except as expressly amended, any conditions of the
Registration Rights Agreement shall remain unamended and unwaived. The
amendments set forth herein shall be limited precisely as provided for herein to
the provisions expressly amended herein and shall not be deemed to be a waiver
of, amendment of, consent to or modification of any other term or provision of
any other document or of any transaction or further action on the part of the
Company which would require the consent of the Investor under the Registration
Rights Agreement.
5.3. Successors and Assigns. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
5.4 Counterparts. This Amendment may be executed
simultaneously in two or more counterparts, each of which shall be deemed to be
an original but all of which shall constitute together but one and the same
instrument.
5.5 Governing Law. This Amendment and the notes shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia.
5.6 Expenses. The Company agrees to pay all expenses of
the Investor in connection with the transactions contemplated by this Amendment
(including, without limitation, the reasonable fees and expenses of counsel for
the Investor).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and 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
THE UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By: /s/ Michael R. Steed
-----------------------
An Authorized Officer
<PAGE>
SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT dated as
of December 23, 1998 (this "Amendment") is hereby entered into by and between
Value America, Inc., a Virginia corporation (the "Company"), and The Union Labor
Life Insurance Company, acting on behalf of its Separate Account P (the
"Investor").
RECITALS
A. WHEREAS, the Company and the Investor have executed and
delivered that certain Registration Rights Agreement dated as of November 17,
1998 (as amended by that certain First Amendment to Registration Rights
Agreement dated as of December 14, 1998 and as the same may be further amended,
restated, supplemented or otherwise modified from time to time, the
"Registration Rights Agreement"); and
B. WHEREAS, the parties hereto have agreed to amend the
provisions of the Registration Rights Agreement, among other things, to amend
the definition of "Registrable Securities."
NOW, THEREFORE, for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and the Investor do
hereby agree as follows:
1. Relation to Registration Rights Agreement; Definitions.
1.1 Relation to Registration Rights Agreement. This
Amendment constitutes an integral part of the Registration Rights Agreement.
1.2 Capitalized Terms. For all purposes of this
Amendment, capitalized terms used herein without definition shall have the
meanings specified in the Registration Rights Agreement, as said agreement shall
be in effect on the Effective Date after giving effect to this Agreement.
2. AMENDMENTS TO THE REGISTRATION RIGHTS AGREEMENT.
2.1 Amendment to Recital of the Registration Rights
Agreement. The Recital of the Registration Rights Agreement is amended by
deleting it in its entirety and replacing it with the following:
RECITALS
<PAGE>
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of November 17, 1998 (the
"First Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "First Warrant"
and, collectively, the "First Warrants") to purchase up to 1,445,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and Investor are parties to that
certain Warrant Purchase Agreement dated as of December 14, 1998 (the
"Second Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Second Warrant"
and, collectively, the "Second Warrants") to purchase up to 840,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of December 23, 1998 (the
"Third Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Third Warrant"
and, collectively, the "Third Warrants") to purchase up to 448,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
2.2 Amendment to Section 1 of the Registration Rights
Agreement.
(a) Section 1 of the Registration Rights Agreement
is amended by deleting each of the definitions of "Registrable Securities" and
"Warrants" in its entirety and replacing it with the following:
"Registrable Securities" means (1) all Common Stock owned
now or in the future by the Investor, (2) the Common Stock issued or
issuable upon exercise of the Warrants issued and sold pursuant to the
Warrant Purchase Agreement, whether owned by the Investor or not, (3)
the Common Stock issued or issuable upon exercise of the Second Warrants
issued and sold pursuant to the Second Warrant Purchase Agreement,
whether owned by the Investor or not, (4) the Common Stock issued or
issuable upon exercise of the Third Warrants issued and sold pursuant to
the Third Warrant Purchase Agreement, whether owned by the Investor or
not, and (5) any securities issued or issuable with respect to the
<PAGE>
Common Stock referred to in clauses (1), (2), (3), and (4) 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.
"Warrants" shall mean the First Warrants, the Second
Warrants and the Third Warrants.
(b) Section 1 of the Registration Rights Agreement
is amended by deleting the definition of "Warrant Purchase Agreement" in its
entirety.
(c) Section 1 of the Registration Rights Agreement
is amended by adding the following definitions, in alphabetical order:
"First Warrant Purchase Agreement" shall have the meaning
assigned to it in the Recitals of this Agreement.
"Second Warrant Purchase Agreement" shall have the meaning
assigned to it in the Recitals of this Agreement.
<PAGE>
"Third Warrant Purchase Agreement" shall have the meaning
assigned to it in the Recitals of this Agreement.
2.3 Amendment to Section 11(l) of the Registration
Rights Agreement. Section 11(l) of the Registration Rights Agreement is amended
by deleting it in its entirety and replacing it with the following:
(l) Entire Agreement. This Agreement, the First Warrant
Purchase Agreement, the Second Warrant Purchase Agreement, the Third
Warrant 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.
3. Representations and Warranties of the Company.
3.1 Representations and Warranties. To induce the
Investor to execute and deliver this Amendment (which representations shall
survive the execution and deliver of this Amendment), the Company represents and
warrants to the Investor that:
(a) Authority. This Amendment has been duly
authorized, executed and delivered by it and this Amendment constitutes the
legal, valid and binding obligation, contract and agreement of the Company
enforceable against it in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
or equitable principles relating to or limiting creditors' rights generally.
(b) Validity of Amendment. The Registration Rights
Agreement, as amended by this Amendment, constitutes the legal, valid and
binding obligation, contract and agreement of the Company enforceable against it
in accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally.
(c) Authorization; No Violation. The execution,
delivery and performance by the Company of this Amendment (i) will not require
from the Board (as defined in the Loan Agreement) or stockholders of the Company
any consent or approval that has not been validly and lawfully obtained, (ii)
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
<PAGE>
of government, (iii) will not cause the Company to violate or contravene (A) any
provision of law, (B) any rule or regulation of any agency or government,
domestic or foreign, (C) any order, writ, judgment, injunction, decree,
determination or award, or (D) any provision of the Articles of Incorporation or
Bylaws of the Company, (iv) except as disclosed in Annex 3.1, 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, promissory note, 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 (as defined in the Loan Agreement) and (e) except as
contemplated by the Amended and Restated Security Agreement (as defined in the
Loan Agreement), will not result in the creation or imposition of any Lien (as
defined in the Loan Agreement). Except as disclosed in Annex 3.1, 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,
promissory note, 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 (as defined in the Loan
Agreement) or which prohibits the Company from entering into this Amendment or
would prevent or make burdensome its performance of or compliance with all or
any part of this Amendment or the consummation of the transactions contemplated
hereby.
4. Conditions to Effectiveness of this Amendment.
4.1 Effective Date. This Amendment shall not become
effective until, and shall become effective when, each and every one of the
following conditions shall have been satisfied or waived by the Investor (the
"Effective Date").
(a) Execution of Counterparts. Counterparts of
this Amendment shall have been executed and delivered by each of the Company and
the Investor.
(b) Ratification and Confirmation of Registration
Rights Agreement. The Registration Rights Agreement and all representations,
warranties, terms and conditions therein remain in full force and effect, and
the Company hereby confirms and ratifies each of the provisions of the
Registration Rights Agreement.
<PAGE>
(c) Consents. All necessary consents, waivers,
approvals, authorizations, registrations, filings and notifications in
connection with the authorization, execution and delivery of this Amendment have
been obtained or made and are in full force and effect.
(e) Proceedings, Instruments, etc. All proceedings
and actions taken on or prior to the Effective Date in connection with the
transactions contemplated by this Amendment and all instruments incident thereto
shall be in form and substance satisfactory to the Investor and its special
counsel, and the Investor and its special counsel shall have received copies of
all documents that it or they may request in connection with such proceedings,
actions and transactions (including, without limitation, copies of court
documents, certifications, and evidence of the correctness of the
representations and warranties contained herein and certifications and evidence
of the compliance with the terms and the fulfillment of the conditions of this
Amendment) in the form and substance satisfactory to the Investor and its
special counsel.
5. Miscellaneous.
5.1 Cross-References. References in this Amendment to any
Section are, unless otherwise specified, to such Section of this Amendment.
5.2 Instrument Pursuant to Existing Registration Rights
Agreement; Limited Amendment. This Amendment is executed pursuant to Section
11(a) of the Registration Rights Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered, and applied in accordance with all
of the terms and provisions of the Registration Rights Agreement, including
Section 11(a) thereof. Except as expressly amended, any conditions of the
Registration Rights Agreement shall remain unamended and unwaived. The
amendments set forth herein shall be limited precisely as provided for herein to
the provisions expressly amended herein and shall not be deemed to be a waiver
of, amendment of, consent to or modification of any other term or provision of
any other document or of any transaction or further action on the part of the
Company which would require the consent of the Investor under the Registration
Rights Agreement.
5.3. Successors and Assigns. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
5.4 Counterparts. This Amendment may be executed
simultaneously in two or more counterparts, each of which shall be deemed to be
an original but all of which shall constitute together but one and the same
instrument.
<PAGE>
5.5 Governing Law. This Amendment and the notes shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia.
5.6 Expenses. The Company agrees to pay all expenses of
the Investor in connection with the transactions contemplated by this Amendment
(including, without limitation, the reasonable fees and expenses of counsel for
the Investor).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and 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
THE UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By: /s/ Michael R. Steed
--------------------------
An Authorized Officer
<PAGE>
THIRD AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This THIRD AMENDMENT TO REGISTRATION RIGHTS AGREEMENT dated as of
December 31, 1998 (this "Amendment") is hereby entered into by and between Value
America, Inc., a Virginia corporation (the "Company"), and The Union Labor Life
Insurance Company, acting on behalf of its Separate Account P (the "Investor").
RECITALS
A. WHEREAS, the Company and the Investor have executed and
delivered that certain Registration Rights Agreement dated as of November 17,
1998 (as amended by that certain First Amendment to Registration Rights
Agreement dated as of December 14, 1998 and that certain Second Amendment to
Registration Rights Agreement dated as of December 23, 1998 and as the same may
be further amended, restated, supplemented or otherwise modified from time to
time, the "Registration Rights Agreement"); and
B. WHEREAS, the parties hereto have agreed to amend the
provisions of the Registration Rights Agreement, among other things, to amend
the definition of "Registrable Securities."
NOW, THEREFORE, for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and the Investor do
hereby agree as follows:
1. Relation to Registration Rights Agreement; Definitions.
1.1 Relation to Registration Rights Agreement. This
Amendment constitutes an integral part of the Registration Rights Agreement.
1.2 Capitalized Terms. For all purposes of this
Amendment, capitalized terms used herein without definition shall have the
meanings specified in the Registration Rights Agreement, as said agreement shall
be in effect on the Effective Date after giving effect to this Agreement.
<PAGE>
2. AMENDMENTS TO THE REGISTRATION RIGHTS AGREEMENT.
2.1 Amendment to Recital of the Registration Rights
Agreement. The Recital of the Registration Rights Agreement is amended by
deleting it in its entirety and replacing it with the following:
RECITALS
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of November 17, 1998 (the
"First Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "First Warrant"
and, collectively, the "First Warrants") to purchase up to 1,445,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and Investor are parties to that
certain Warrant Purchase Agreement dated as of December 14, 1998 (the
"Second Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Second Warrant"
and, collectively, the "Second Warrants") to purchase up to 840,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of December 23, 1998 (the
"Third Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Third Warrant"
and, collectively, the "Third Warrants") to purchase up to 448,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of December 31, 1998 (the
"Fourth Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Fourth Warrant"
and, collectively, the "Fourth Warrants") to purchase up to 840,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
2.2 Amendment to Section 1 of the Registration Rights
Agreement.
<PAGE>
(a) Section 1 of the Registration Rights Agreement
is amended by deleting each of the definitions of "Registrable Securities" and
"Warrants" in its entirety and replacing it with the following:
"Registrable Securities" means (1) all Common Stock owned
now or in the future by the Investor, (2) the Common Stock issued or
issuable upon exercise of the First Warrants issued and sold pursuant to
the First Warrant Purchase Agreement, whether owned by the Investor or
not, (3) the Common Stock issued or issuable upon exercise of the Second
Warrants issued and sold pursuant to the Second Warrant Purchase
Agreement, whether owned by the Investor or not, (4) the Common Stock
issued or issuable upon exercise of the Third Warrants issued and sold
pursuant to the Third Warrant Purchase Agreement, whether owned by the
Investor or not, (5) the Common Stock issued or issuable upon exercise
of the Fourth Warrants issued and sold pursuant to the Fourth Warrant
Purchase Agreement, whether owned by the Investor or not, and (6) any
securities issued or issuable with respect to the Common Stock referred
to in clauses (1), (2), (3), (4), or (5) 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.
<PAGE>
"Warrants" shall mean the First Warrants, the Second
Warrants, the Third Warrants and the Fourth Warrants.
(b) Section 1 of the Registration Rights Agreement
is amended by adding the following definitions, in alphabetical order:
"Fourth Warrant Purchase Agreement" shall have the
meaning assigned to it in the Recitals of this Agreement.
2.3 Amendment to Section 11(l) of the Registration Rights
Agreement. Section 11(l) of the Registration Rights Agreement is amended by
deleting it in its entirety and replacing it with the following:
(l) Entire Agreement. This Agreement, the First Warrant
Purchase Agreement, the Second Warrant Purchase Agreement, the Third
Warrant Purchase Agreement, the Fourth Warrant 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.
3. Representations and Warranties of the Company.
3.1 Representations and Warranties. To induce the
Investor to execute and deliver this Amendment (which representations shall
survive the execution and deliver of this Amendment), the Company represents and
warrants to the Investor that:
(a) Authority. This Amendment has been duly
authorized, executed and delivered by it and this Amendment constitutes the
legal, valid and binding obligation, contract and agreement of the Company
enforceable against it in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
or equitable principles relating to or limiting creditors' rights generally.
(b) Validity of Amendment. The Registration Rights
Agreement, as amended by this Amendment, constitutes the legal, valid and
binding obligation, contract and agreement of the Company enforceable against it
in accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally.
<PAGE>
(c) Authorization; No Violation. The execution,
delivery and performance by the Company of this Amendment (i) will not require
from the Board (as defined in the Loan Agreement) or stockholders of the Company
any consent or approval that has not been validly and lawfully obtained, (ii)
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, (iii) will not cause the
Company to violate or contravene (A) any provision of law, (B) any rule or
regulation of any agency or government, domestic or foreign, (C) any order,
writ, judgment, injunction, decree, determination or award, or (D) any provision
of the Articles of Incorporation or Bylaws of the Company, (iv) except as
disclosed in Annex 3.1, 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,
promissory note, 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 (as defined in
the Loan Agreement) and (e) except as contemplated by the Amended and Restated
Security Agreement (as defined in the Loan Agreement), will not result in the
creation or imposition of any Lien (as defined in the Loan Agreement). Except as
disclosed in Annex 3.1, 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, promissory note, 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 (as defined in the Loan Agreement) or which prohibits the Company
from entering into this Amendment or would prevent or make burdensome its
performance of or compliance with all or any part of this Amendment or the
consummation of the transactions contemplated hereby.
4. Conditions to Effectiveness of this Amendment.
4.1 Effective Date. This Amendment shall not become
effective until, and shall become effective when, each and every one of the
following conditions shall have been satisfied or waived by the Investor (the
"Effective Date").
(a) Execution of Counterparts. Counterparts of
this Amendment shall have been executed and delivered by each of the Company and
the Investor.
<PAGE>
(b) Ratification and Confirmation of Registration
Rights Agreement. The Registration Rights Agreement and all representations,
warranties, terms and conditions therein remain in full force and effect, and
the Company hereby confirms and ratifies each of the provisions of the
Registration Rights Agreement.
(c) Consents. All necessary consents, waivers,
approvals, authorizations, registrations, filings and notifications in
connection with the authorization, execution and delivery of this Amendment have
been obtained or made and are in full force and effect.
(e) Proceedings, Instruments, etc. All proceedings
and actions taken on or prior to the Effective Date in connection with the
transactions contemplated by this Amendment and all instruments incident thereto
shall be in form and substance satisfactory to the Investor and its special
counsel, and the Investor and its special counsel shall have received copies of
all documents that it or they may request in connection with such proceedings,
actions and transactions (including, without limitation, copies of court
documents, certifications, and evidence of the correctness of the
representations and warranties contained herein and certifications and evidence
of the compliance with the terms and the fulfillment of the conditions of this
Amendment) in the form and substance satisfactory to the Investor and its
special counsel.
5. Miscellaneous.
5.1 Cross-References. References in this Amendment to any
Section are, unless otherwise specified, to such Section of this Amendment.
5.2 Instrument Pursuant to Existing Registration Rights
Agreement; Limited Amendment. This Amendment is executed pursuant to Section
11(a) of the Registration Rights Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered, and applied in accordance with all
of the terms and provisions of the Registration Rights Agreement, including
Section 11(a) thereof. Except as expressly amended, any conditions of the
Registration Rights Agreement shall remain unamended and unwaived. The
amendments set forth herein shall be limited precisely as provided for herein to
the provisions expressly amended herein and shall not be deemed to be a waiver
of, amendment of, consent to or modification of any other term or provision of
any other document or of any transaction or further action on the part of the
Company which would require the consent of the Investor under the Registration
Rights Agreement.
5.3. Successors and Assigns. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
<PAGE>
5.4 Counterparts. This Amendment may be executed
simultaneously in two or more counterparts, each of which shall be deemed to be
an original but all of which shall constitute together but one and the same
instrument.
5.5 Governing Law. This Amendment and the notes shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia.
5.6 Expenses. The Company agrees to pay all expenses of
the Investor in connection with the transactions contemplated by this Amendment
(including, without limitation, the reasonable fees and expenses of counsel for
the Investor).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and 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
THE UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By: /s/ Michael R. Steed
---------------------
An Authorized Officer
<PAGE>
FOURTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This FOURTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT dated as
of January 6, 1999 (this "Amendment") is hereby entered into by and between
Value America, Inc., a Virginia corporation (the "Company"), and The Union Labor
Life Insurance Company, acting on behalf of its Separate Account P (the
"Investor").
RECITALS
A. WHEREAS, the Company and the Investor have executed and
delivered that certain Registration Rights Agreement dated as of November 17,
1998 (as amended by that certain First Amendment to Registration Rights
Agreement dated as of December 14, 1998, that certain Second Amendment to
Registration Rights Agreement dated as of December 23, 1998 and that certain
Third Amendment to Registration Rights Agreement dated as of December 31, 1998
and as the same may be further amended, restated, supplemented or otherwise
modified from time to time, the "Registration Rights Agreement"); and
B. WHEREAS, the parties hereto have agreed to amend the
provisions of the Registration Rights Agreement, among other things, to amend
the definition of "Registrable Securities."
NOW, THEREFORE, for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and the Investor do
hereby agree as follows:
1. Relation to Registration Rights Agreement; Definitions.
1.1 Relation to Registration Rights Agreement. This
Amendment constitutes an integral part of the Registration Rights Agreement.
1.2 Capitalized Terms. For all purposes of this
Amendment, capitalized terms used herein without definition shall have the
meanings specified in the Registration Rights Agreement, as said agreement shall
be in effect on the Effective Date after giving effect to this Agreement.
<PAGE>
2. AMENDMENTS TO THE REGISTRATION RIGHTS AGREEMENT.
2.1 Amendment to Recital of the Registration Rights
Agreement. The Recital of the Registration Rights Agreement is amended by
deleting it in its entirety and replacing it with the following:
RECITALS
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of November 17, 1998 (the
"First Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "First Warrant"
and, collectively, the "First Warrants") to purchase up to 1,445,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and Investor are parties to that
certain Warrant Purchase Agreement dated as of December 14, 1998 (the
"Second Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Second Warrant"
and, collectively, the "Second Warrants") to purchase up to 840,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of December 23, 1998 (the
"Third Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Third Warrant"
and, collectively, the "Third Warrants") to purchase up to 448,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of December 31, 1998 (the
"Fourth Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Fourth Warrant"
and, collectively, the "Fourth Warrants") to purchase up to 840,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
WHEREAS, the Company and the Investor are parties to that
certain Warrant Purchase Agreement dated as of January 6, 1999 (the
"Fifth
<PAGE>
Warrant Purchase Agreement"), pursuant to which the Investor has
agreed to purchase from the Company warrants (each, a "Fifth Warrant"
and, collectively, the "Fifth Warrants") to purchase up to 560,000
shares of Common Stock (as hereinafter defined) of the Company on the
terms and subject to the conditions appearing therein.
2.2 Amendment to Section 1 of the Registration Rights
Agreement.
(a) Section 1 of the Registration Rights Agreement
is amended by deleting each of the definitions of "Registrable Securities" and
"Warrants" in its entirety and replacing it with the following:
"Registrable Securities" means (1) all Common Stock owned
now or in the future by the Investor, (2) the Common Stock issued or
issuable upon exercise of the First Warrants issued and sold pursuant to
the First Warrant Purchase Agreement, whether owned by the Investor or
not, (3) the Common Stock issued or issuable upon exercise of the Second
Warrants issued and sold pursuant to the Second Warrant Purchase
Agreement, whether owned by the Investor or not, (4) the Common Stock
issued or issuable upon exercise of the Third Warrants issued and sold
pursuant to the Third Warrant Purchase Agreement, whether owned by the
Investor or not, (5) the Common Stock issued or issuable upon exercise
of the Fourth Warrants issued and sold pursuant to the Fourth Warrant
Purchase Agreement, whether owned by the Investor or not, (6) the Common
Stock issued or issuable upon exercise of the Fifth Warrants issued and
sold pursuant to the Fifth Warrant Purchase Agreement, whether owned by
the Investor or not, and (7) any securities issued or issuable with
respect to the Common Stock referred to in clauses (1), (2), (3), (4),
(5) or (6) 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
<PAGE>
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.
"Warrants" shall mean the First Warrants, the Second
Warrants, the Third Warrants, the Fourth Warrants and the Fifth Warrants.
(b) Section 1 of the Registration Rights Agreement
is amended by adding the following definitions, in alphabetical order:
"Fifth Warrant Purchase Agreement" shall have the meaning
assigned to it in the Recitals of this Agreement.
2.3 Amendment to Section 11(l) of the Registration Rights
Agreement. Section 11(l) of the Registration Rights Agreement is amended by
deleting it in its entirety and replacing it with the following:
(l) Entire Agreement. This Agreement, the First Warrant
Purchase Agreement, the Second Warrant Purchase Agreement, the Third
Warrant Purchase Agreement, the Fourth Warrant Purchase Agreement, the
Fifth Warrant 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.
<PAGE>
3. Representations and Warranties of the Company.
3.1 Representations and Warranties. To induce the
Investor to execute and deliver this Amendment (which representations shall
survive the execution and deliver of this Amendment), the Company represents and
warrants to the Investor that:
(a) Authority. This Amendment has been duly authorized,
executed and delivered by it and this Amendment constitutes the legal, valid and
binding obligation, contract and agreement of the Company enforceable against it
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles relating to or limiting creditors' rights generally.
(b) Validity of Amendment. The Registration Rights
Agreement, as amended by this Amendment, constitutes the legal, valid and
binding obligation, contract and agreement of the Company enforceable against it
in accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws or
equitable principles relating to or limiting creditors' rights generally.
(c) Authorization; No Violation. The execution, delivery
and performance by the Company of this Amendment (i) will not require from the
Board (as defined in the Loan Agreement) or stockholders of the Company any
consent or approval that has not been validly and lawfully obtained, (ii) 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, (iii) will not cause the
Company to violate or contravene (A) any provision of law, (B) any rule or
regulation of any agency or government, domestic or foreign, (C) any order,
writ, judgment, injunction, decree, determination or award, or (D) any provision
of the Articles of Incorporation or Bylaws of the Company, (iv) except as
disclosed in Annex 3.1, will not violate or be in conflict with, result in a
breach of or constitute (with or without notice or
<PAGE>
lapse of time or both) a default under, any indenture, loan or credit agreement,
note agreement, promissory note, 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 (as defined in the Loan Agreement) and (e) except as contemplated by the
Amended and Restated Security Agreement (as defined in the Loan Agreement), will
not result in the creation or imposition of any Lien (as defined in the Loan
Agreement). Except as disclosed in Annex 3.1, 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, promissory note, 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 (as defined in the Loan Agreement) or
which prohibits the Company from entering into this Amendment or would prevent
or make burdensome its performance of or compliance with all or any part of this
Amendment or the consummation of the transactions contemplated hereby.
4. Conditions to Effectiveness of this Amendment.
4.1 Effective Date. This Amendment shall not become
effective until, and shall become effective when, each and every one of the
following conditions shall have been satisfied or waived by the Investor (the
"Effective Date").
(a) Execution of Counterparts. Counterparts of
this Amendment shall have been executed and delivered by each of the Company and
the Investor.
(b) Ratification and Confirmation of Registration
Rights Agreement. The Registration Rights Agreement and all representations,
warranties, terms and conditions therein remain in full force and effect, and
the Company hereby confirms and ratifies each of the provisions of the
Registration Rights Agreement.
(c) Consents. All necessary consents, waivers,
approvals, authorizations, registrations, filings and notifications in
connection with the authorization, execution and delivery of this Amendment have
been obtained or made and are in full force and effect.
(e) Proceedings, Instruments, etc. All proceedings
and actions taken on or prior to the Effective Date in connection with the
transactions contemplated by this Amendment and all instruments incident thereto
shall be in form and substance satisfactory to the Investor and its special
counsel, and the Investor and its special counsel shall have received copies of
all documents that it or they may request in connection with such proceedings,
actions and transactions (including, without limitation, copies of court
documents, certifications, and evidence of the correctness of the
representations and warranties contained herein and certifications and evidence
of the compliance with the terms and the fulfillment of the conditions of this
Amendment) in the form and substance satisfactory to the Investor and its
special counsel.
5. Miscellaneous.
5.1 Cross-References. References in this Amendment to any
Section are, unless otherwise specified, to such Section of this Amendment.
5.2 Instrument Pursuant to Existing Registration Rights
Agreement; Limited Amendment. This Amendment is executed pursuant to Section
11(a) of the Registration Rights Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered, and applied in accordance with all
of the terms and provisions of the Registration Rights Agreement, including
Section 11(a) thereof. Except as expressly amended, any conditions of the
Registration Rights Agreement shall remain unamended and unwaived. The
amendments set forth herein shall be limited precisely as provided for herein to
the provisions expressly amended herein and shall not be deemed to be a waiver
of, amendment of, consent to or modification of any other term or provision of
any other document or of any transaction or further action on the part of the
Company which would require the consent of the Investor under the Registration
Rights Agreement.
5.3. Successors and Assigns. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
5.4 Counterparts. This Amendment may be executed
simultaneously in two or more counterparts, each of which shall be deemed to be
an original but all of which shall constitute together but one and the same
instrument.
5.5 Governing Law. This Amendment and the notes shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia.
5.6 Expenses. The Company agrees to pay all expenses of
the Investor in connection with the transactions contemplated by this Amendment
(including, without limitation, the reasonable fees and expenses of counsel for
the Investor).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
VALUE AMERICA, INC.
By: /s/ Dean M. Johnson
--------------------------------------
Dean M. Johnson, Executive Vice President
and Chief Financial Officer
THE UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By: /s/ Michael R. Steed
--------------------------
An Authorized Officer
EXHIBIT 10.28
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is entered into as of January 12, 1999, by and among VALUE AMERICA,
INC., a Virginia corporation (the "Company"), 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 an Amended and Restated Registration Rights Agreement, dated
as of June 26, 1998 (the "Prior Registration Rights Agreement"), by and between
the Company and the parties indicated on Annex A thereto (the "Prior Agreement
Parties"), the Company granted the Prior Agreement Parties certain rights
regarding registration of the Company's securities.
B. Concurrently with entering into this Agreement, the Company, Vulcan
Ventures, Incorporated, a Washington corporation, FDX Corporation, a Delaware
corporation ("FDX"), and Frederick W. Smith ("Smith") (Vulcan, FDX and Smith
being collectively referred to as the "Series C Parties") are entering in to a
Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement") of
even date herewith, pursuant to which Series C Parties are purchasing 6,000,000
shares of the Company's Series C Preferred Stock, without par value, from the
Company on the terms and subject to the conditions appearing therein.
C. In connection with the Purchase Agreement, the Company has agreed to
grant the Series C Parties certain rights regarding registration of the
Company's securities.
D. Pursuant to Section 11.1 of the Prior Registration Rights Agreement, the
Company and the holders of a majority of the securities described in each of
clauses (1), (2), and (3) of the definition of the term Registrable Securities
in Section 1 thereof hereby amend the Prior Registration Rights Agreement to
include the Series C Parties.
E. The Series C Parties hereby accept the rights created pursuant hereto.
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 Second 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 Purchase
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"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
5% of the shares of Registrable Securities then outstanding, or any one or more
of the parties listed in Section 2(b) hereof, 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. Please refer to Section 2(b)
for certain limitations on required registration of securities.
"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 C Preferred Stock, without par
value, of the Company.
"Purchase Agreement" has the meaning assigned to it in the Recitals of
this Agreement.
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 Registration Rights Agreement" has the meaning assigned to it in
the Recitals of this Agreement.
"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
or exercise of the Preferred Stock and warrants issued and sold pursuant to the
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 , whether owned by the Investors or not, (4) the Common
Stock issued or issuable upon conversion of the Series B Preferred Stock,
without par value, of the Company, whether owned by the Investors or not and (5)
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 eight registration statements pursuant to this Section
2, excluding registration statements on Form S-3 which shall not count for
statement purposes of this limitation. Notwithstanding anything in this
Agreement to the contrary, of these eight registration statements, the right to
exercise this Section 2 shall be allocated among the Investors as follows: (i)
The Union Labor Life Insurance Company, acting on behalf of its Separate Account
P - two registration statements, (ii) Vulcan Ventures Incorporated - two
registration statements, (iii) FDX Corporation - two registration statements,
(iv) Frederick W. Smith - one registration statement; and (v) any other
Initiating Holders - one registration statement. 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.
(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.
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.
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;
(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
(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.
(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.
(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.
(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.
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.
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. Notwithstanding anything in this Agreement to the contrary,
Section 2 hereof shall not be amended, and the rights of FDX or Smith shall not
be waived, without the prior written consent of FDX and Smith.
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:
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, 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.
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, the Series C Parties, 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 The Union Labor Life
Insurance Company, acting on behalf of its Separate Account P or its' special
counsel, Paul, Hastings, Janofsky & Walker LLP, in entering into or in
connection with this Agreement or the transactions contemplated hereby.
11.15 Parties. In the event that either FDX or Smith do not
execute this agreement, this Agreement shall be fully enforceable and binding on
the remaining parties hereto.
[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.
THE COMPANY
VALUE AMERICA, INC.
By: /s/ Craig A. Winn
------------------------------------
Craig A. Winn, Chairman and
Chief Executive Officer
HOLDERS OF A MAJORITY OF THE REGISTRABLE
SECURITIES VULCAN VENTURES, INC.
By: /s/ William D. Savoy
------------------------------------
An Authorized Officer
UNION LABOR LIFE INSURANCE COMPANY
Acting on behalf of its Separate Account P
By: /s/ Harold F. Brown
------------------------------------
An Authorized Officer
REMAINING SERIES C PARTIES
FDX CORPORATION
By: /s/ Alan B. Graf, Jr.
------------------------------------
An Authorized Officer
/s/ Frederick W. Smith
------------------------------------
Frederick W. Smith
<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
Thomas Davidson
c/o Thomas Walsh
1600 Wilson Boulevard, Suite 800
Arlington, VA 22209
Telecopier: (703) 312-6419
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
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
FDX Corporation
6075 Poplar Avenue
Memphis, Tennessee 38119
Frederick W. Smith
c/o FDX Corporation
6075 Poplar Avenue
Memphis, Tennessee 38119
EXHIBIT 10.29
VALUE AMERICA, INC.
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AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
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Dated as of June 26, 1998
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TABLE OF CONTENTS
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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>
<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: /s/ Craig A. Winn
---------------------------
Craig A. Winn, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE COMPANY
Acting on behalf of its Separate Account P
By: /s/ Michael R. Steed
---------------------------
Authorized Officer
<PAGE>
[SIGNATURE PAGE TO AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT]
VULCAN VENTURES INCORPORATED
By: /s/ William D. Savoy
-------------------------------
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:
/s/ Craig A. Winn
--------------------------------------
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>
FIRST AMENDMENT TO
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated
as of January 12, 1999 (the "Amendment"), is entered into by and among Value
America, Inc., a Virginia corporation (the "Company"), The Union Labor Life
Insurance Company, a Maryland corporation acting on behalf of its Separate
Account P ("ULLICO"), Vulcan Ventures Incorporated, a Washington corporation
("Vulcan"), and Craig A. Winn, a resident of the Commonwealth of Virginia
("Winn").
WHEREAS, the parties hereto are parties to an Amended and Restated
Stockholders Agreement dated as of June 26, 1998 (the "Stockholders Agreement");
and
WHEREAS, Section 7(b) of the Stockholders Agreement provides that the
Company, Winn, who holds more than 50% of the Holder Shares (as defined in the
Stockholders Agreement) held by the Holders (as defined in the Stockholders
Agreement), ULLICO, which holds more than 50% of the Company's Series A
Preferred Stock (as defined in the Company's Articles of Incorporation), and
Vulcan, which holds more than 50% of the Company's Series B Preferred Stock (as
defined in the Company's Articles of Incorporation), may amend the Stockholders
Agreement; and
WHEREAS, the parties hereto wish to approve this Amendment in connection
with the Company's offering of Series C Preferred Stock to Vulcan (the "Series C
Transaction") and will benefit from the consummation of the Series C
Transaction.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Each of the parties hereto agree that the first sentence of Section 4(a)(ii)
of the Stockholders Agreement shall be deleted and replaced with the following:
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, the Series B Preferred Stock, and the Series C
Preferred Stock (as defined in the Company's Articles of Incorporation) of
the Company, as well as all shares of Common Stock issuable upon exercise
of the Warrants and the Ullico Replacement Warrants (as defined in that
certain Preferred Stock and Warrant Purchase Agreement dated as of January
<PAGE>
12, 1999 by and among the Company, Vulcan Ventures Incorporated, a
Washington corporation ("Vulcan"), and certain other purchasers), and,
with respect to Vulcan, any warrants issued to Vulcan pursuant to that
certain Agreement to Issue Warrants (as defined in the Series C Purchase
Agreement) 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").
2. Each of the parties hereto agrees that Section 7(b)(ii) of the Stockholders
Agreement shall be amended by adding the following as subpart "(c)" thereof:
(c) the Investors holding more than fifty percent (50%) in interest
of the Series C Preferred Stock (as defined in the Company's
Articles of Incorporation), and any Common Stock issued as a result
of all or any portion thereof, voting as a separate class, and
3. This Amendment may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which shall constitute
together one and the same instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT
VALUE AMERICA, INC.
By: /s/ Craig A. Winn
Print Name: Craig A. Winn
Title: Chairman and Chief Executive Officer
THE UNION LABOR LIFE INSURANCE COMPANY, a Maryland
corporation acting on behalf of its Separate Account P
By: /s/ Michael R. Steed
Print Name: Michael R. Steed
Title: Senior Vice President
VULCAN VENTURES INCORPORATED
By: /s/ William D. Savoy
Print Name: William D. Savoy
Title: Vice President
/s/ Craig A. Winn
------------------
Craig A. Winn
EXHIBIT 10.30
CONSULTING AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of November 18, 1998, between
Value America, Inc., a Virginia corporation (the "Company"), and the Union Labor
Life Insurance Company, a Maryland corporation acting on behalf of its Separate
Account P (which is not a separate entity) (the "Consultant"), recites and
provides as follows:
W I T N E S S E T H:
WHEREAS, the Company wishes to secure the services of the Consultant of the
Company upon the terms and conditions hereinafter set forth, and the Consultant
wishes to render such services to the Company upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. Consulting Relationship. The Company agrees to retain the Consultant as
an independent consultant of the Company and the Consultant accepts such
retention and agrees to perform such duties that the Company's President,
Executive Vice President, or Board of Directors may from time to time assign
related to (i) affinity programs, (ii) the establishment of new markets and
(iii) analysis of employee compensation and benefits in comparison to entities
in which the Consultant holds an equity ownership interest, provide however,
that the services to be provided by the Consultant to the Company shall in no
event require the Consultant's employees to spend more than four man-hour in any
calendar month providing consulting services to the Company an further provided
that the services to be provided by the Consultant pursuant to this Agreement
shall in no event be provided in connection with or related in any way to the
offer and sale of securities in any capital-raising transaction.
2. Term of Consulting Agreement. The term of this Agreement shall be for
the commencing on the date hereof and ending on the date that the Consultant
ceases to hold shares of the Company's Series A Preferred Stock or Series
Preferred Stock, as defined in the Company's Articles of Incorporation as of the
date hereof (the "Term").
3. Compensation. As full compensation for all services to be rendered by
the Consultant to the Company and its subsidiaries and Affiliates (a defined in
Section 6 hereof) in all capacities during the Term, the Consultan shall receive
the following action and benefits:
3.1 Fee. The compensation for the consulting services to be rendered
hereunder, which the Company agrees to pay or cause to be paid an Consultant
agrees to accept, shall be as set forth on Exhibit A hereto.
3.2 Expenses. Subject to such policies as may from time to time be
established by the Company's Board of Directors and the limitations on
reimbursement of expenses set forth on Exhibit A hereto, the Company shall pay
or reimburse the Consultant for all reasonable and necessary expense actually
incurred or paid by the Consultant during the Term in the performance of the
Consultant's duties under this Agreement, upon submission of expense statements,
vouchers or other supporting information in accordance with the then customary
practices of the Company.
<PAGE>
3.3 Withholding of Taxes. The Company may withhold from any
compensation or benefits payable under this Agreement all federal, state, city
and other taxes as shall be required pursuant to any law or governmental
regulation or ruling.
3.4 Stock Option. As a part of the Consultant's compensation
hereunder, the Company shall grant an option to purchase up to 22,500 shares o
the Company's common stock, without par value (such number of share constituting
post-split shares after taking the Company's 3:1 stock split effective September
1, 1998 into account), subject to the terms and condition of a Stock Option
Agreement substantially in the form of Exhibit B hereto.
4.Termination.
4.1 No Termination by Company. The Company shall not terminate this
Agreement for any reason during the Term
4.2 Termination by Consultant. The Consultant may terminate this
Agreement for Good Reason upon 30 days' written notice by the Consultant to the
Company. For purposes of this Agreement, "Good Reason" means: (i) the failure of
the Company to provide compensation and benefits to the Consultant pursuant to
Section 3 hereof, which breach is not cured within 30 days after notice thereof,
or (ii) the failure of the Company to adhere in any substantial manner to any of
its other covenants contained herein which breach is not cured within 30 days
after notice thereof. Except as provided in Section 5 hereof, the Consultant
shall have no right to receive any compensation or benefit hereunder after such
termination.
5. Severance Payments. If this Agreement is terminated by the Consultant
pursuant to Section 4.2 hereof, all compensation payable to the Consultant under
Section 3 hereof shall cease as of the date of termination and the Company
shall, subject to compliance by the Consultant with the covenants contained
herein, pay to the Consultant a lump sum equal to all previously earned and
accrued unpaid compensation and benefits from the Company.
6. Certain Definitions. For purposes of this Agreement, the term
"Affiliates" means all Persons directly or indirectly controlling, controlled by
or under common control with the Company, where control may be by management
authority, equity interest or otherwise, and the term "Person" means an
individual, a corporation, an association, a partnership, a limited liability
company, an estate, a trust and any other entity or organization, other than the
Company or any of its Affiliates.
<PAGE>
7. Other Provisions.
7.1 Independent Contractor. The Consultant shall be deemed for all
purposes an independent contractor and not an employee of the Company. Nothing
in this Agreement shall establish an agency, partnership, joint venture or
employee relationship between the Company and the Consultant.
7.2 Notices. Any notice or other communication required or which may
be given hereunder shall be in writing and shall be delivered personally,
telecopied, sent by overnight courier service, such as Federal Express, or sent
by certified, registered or express mail, postage prepaid, to the parties at the
following addresses, or at such other addresses as shall be specified by the
parties by like notice, and shall be deemed given when so delivered personally
or telecopied, or if sent by overnight courier, one day following the delivery
to such overnight courier, or if mailed, three days after the date of mailing,
as follows:
(i) if to the Company, to:
Value America, Inc.
2300 Commonwealth Drive
Charlottesville, VA 22901
Attn: Dean M. Johnson, Executive Vice President and CFO
with a copy (which shall not constitute notice) to:
LeClair Ryan, A Professional Corporation
707 East Main Street, 11th Floor
Richmond, Virginia 23219
Attention: Gary D. LeClair, Esquire
(ii) if to the Consultant, to:
The Union Labor Life Insurance Company
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001
Attention: Mr. Michael R. Steed, Senior Vice President of Investments
with a copy (which shall not constitute notice) to:
Paul, Hastings, Janofsky & Walker LLP
Twenty-third Floor, 555 South Flower Street
Los Angeles, California 90071-2371
Attention: Alan J. Barton, Esquire
<PAGE>
7.3 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior contracts and other agreements, written or oral, with respect thereto.
7.4 Waivers and Amendments. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in execising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
7.5 Governing Law: Venue. This Agreement shall be governed by, and
construed in accordance with and subject to, the laws of the Commonwealth of
Virginia applicable to agreements made and to be performed entirely within such
Commonwealth, without reference to the choice of law provisions of any
jurisdiction. The parties hereto 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.
7.6 Binding Effect: Benefit. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and any successors and assigns
permitted by Section 7.7 hereof. Nothing in this Agreement, expressed or
implied, is intended to confer on any Person other than the parties hereto or
their successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
7.7 Assignment. This Agreement, and the Consultant's rights and
obligations hereunder, may not be assigned by the Consultant. The Company may
assign this Agreement and its rights, together with its obligations, hereunder
in connection with any sale, transfer or other disposition of all or
substantially all of its assets or business, whether by sale of capital stock,
merger, consolidation or otherwise.
7.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.9 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY
VALUE AMERICA, INC.
By: /s/ Dean M. Johnson
-------------------
(Signature)
Print Name: Dean M. Johnson
Title: EVP & CFO
Date: 12/19/98
CONSULTANT
THE UNION LABOR LIFE INSURANCE COMPANY,
a Maryland corporation acting on behalf of its Separate Account P
By: /s/ Harold F. Brown
-------------------
(Signature)
Print Name: Harold F. Brown
Title: V.P., Private Capital
Date: 12/31/98
<PAGE>
Exhibit A - Compensation of Consultant
Compensation
During the Term of this Agreement, the Consultant shall receive a fee which
shall be calculated at the rate of (i) $244.50 per day for the period commencing
June 26, 1998 and ending June 30, 1998 and (ii) $22,005 per calendar quarter
commencing July 1, 1998 and ending on the last day of the Term, payable in
arrears commencing on December 31, 1998, with a final payment to be made within
10 business days of the last day of the Term.
Limitations on Reimbursement of Expenses
Unless otherwise determined by the Company's Board of Directors, all
reimbursable expenses beyond the first $2,000 expenses must be pre-approved by
an Executive Vice President of the Company, the President of the Company, or the
Company's Board of Directors.
Exhibit B - Non-qualified Stock Option Agreement
The form of Non-qualified Stock Option Agreement is attached hereto.
EXHIBIT 10.31
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>
(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.
/s/ Craig A. Winn
---------------------------
Craig A. Winn, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE
COMPANY Acting on behalf of its
Separate Account P
By: /s/ Michael R. Steed
--------------------------
An Authorized Officer
<PAGE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
VULCAN VENTURES INCORPORATED
By: /s/ William D. Savoy
-------------------------
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:
/s/ Craig A. Winn
------------------------------
Craig A. Winn
/s/ Rex Scatena
------------------------------
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>
EXHIBIT 10.32
========================================================================
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>
FIRST AMENDMENT TO
PREFERRED STOCK PURCHASE AGREEMENTS
This FIRST AMENDMENT TO PREFERRED STOCK PURCHASE AGREEMENTS, dated as of
January 12, 1999 (the "Amendment"), is entered into by and among Value America,
Inc., a Virginia corporation (the "Company"), The Union Labor Life Insurance
Company, a Maryland corporation acting on behalf of its Separate Account P
("ULLICO") and Vulcan Ventures Incorporated, a Washington corporation
("Vulcan").
WHEREAS, the Company and ULLICO are parties to a Preferred Stock Purchase
Agreement dated as of December 17, 1997 (the "Series A Stock Purchase
Agreement"); and
WHEREAS, Section 12.1 of the Series A Stock Purchase Agreement provides
that the Company and ULLICO, which holds a Majority of the Restricted Stock (as
defined in the Stock Purchase Agreement) may amend the Series A Stock Purchase
Agreement; and
WHEREAS, the Company, ULLICO, and Vulcan are parties to a Preferred Stock
Purchase Agreement dated as of June 26, 1998 (the "Series B Stock Purchase
Agreement"); and
WHEREAS, Section 12.1 of the Series B Stock Purchase Agreement provides
that the Company, ULLICO and Vulcan, which holds a Majority of the Restricted
Stock (as defined in the Stock Purchase Agreement) may amend the Series B Stock
Purchase Agreement; and
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. The Company and ULLICO agree that Section 10.1 of the Series A Stock
Purchase Agreement shall be deleted and replaced with the following:
10.1 Subsequent Offerings. 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. 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 A Preferred Stock of which the Investor is deemed to be a
Holder immediately prior to the issuance of such Equity Securities, over (ii)
the total number of shares of the Company's outstanding Common Stock issued or
issuable upon exercise or conversion of the Warrants and the ULLICO Replacement
Warrants, as defined in that certain Stock Purchase Agreement (the "Series C
Purchase Agreement") dated as of January 12, 1999 by and among the Company,
Vulcan Ventures Incorporated, a Washington corporation ("Vulcan") and certain
other purchasers and, with respect to Vulcan, any warrants issued to Vulcan
pursuant to that certain Agreement to Issue Warrants, as defined in the Series C
Purchase Agreement, and the shares of (a) Series A Preferred Stock, (b) Series B
Preferred Stock, as defined in the Company's Articles of Incorporation, as
amended, and (c) Series C Preferred Stock, as defined in the Company's Articles
of Incorporation, as amended, and (d) any other Equity Security convertible into
or exercisable for Common Stock authorized and issued subsequent to the Closing
of the Series C Purchase Agreement which carries a right of first refusal
similar to that provided to the Investor herein.
2. The Company and Vulcan agree that Section 10.1 of the Series B Stock
Purchase Agreement shall be deleted and replaced with the following:
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 of which such
Series B Investor is deemed to be a Holder immediately prior to the issuance of
such Equity Securities, over (ii) the total number of shares of the Company's
outstanding Common Stock issued or issuable upon exercise or conversion of the
Warrants and ULLICO Replacement Warrants, as defined in that certain Stock
Purchase Agreement (the "Series C Purchase Agreement") dated as of January 12,
1999 by and among the Company, Vulcan Ventures Incorporated, a Washington
corporation ("Vulcan"), and certain other purchasers, and, with respect to
Vulcan, any warrants issued to Vulcan pursuant to that certain Agreement to
Issue Warrants, as defined in the Series C Purchase Agreement, and the shares of
(a) Series A Preferred Stock, (b) Series B Preferred Stock and (c) Series C
Preferred Stock, as defined in the Company's Articles of Incorporation, as
amended, and (d) any other Equity Security convertible into or exercisable for
Common Stock authorized and issued subsequent to the Closing of the Series C
Purchase Agreement which carries a right of first refusal similar to that
provided to the Series B Investor herein.
3. This Amendment may be executed in two or more counterparts, each of which
shall be deemed to be an original and all of which shall constitute
together one and the same instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO PREFERRED STOCK PURCHASE AGREEMENTS
VALUE AMERICA, INC.
By: /s/ Craig A. Winn
---------------------------------------
Print Name: Craig A. Winn
---------------------------------------
Title: Chairman and Chief Executive Officer
---------------------------------------
THE UNION LABOR LIFE INSURANCE COMPANY, a Maryland
corporation acting on behalf of its Separate Account P
By: /s/ Michael R. Steed
---------------------------------------
Print Name: Michael R. Steed
---------------------------------------
Title: Senior Vice President
---------------------------------------
VULCAN VENTURES INCORPORATED
By: /s/ William D. Savoy
---------------------------------------
Print Name: William D. Savoy
---------------------------------------
Title: Vice President
---------------------------------------
EXHIBIT 10.33
- -------------------------------------------------------------------------------
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>
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>
<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>
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.
6. 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.
8. 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.
9. 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.
10. 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.
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.
"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: /s/ Craig A. Winn
----------------------------
Craig A. Winn, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By: Michael R. Steed
-------------------------
An Authorized Officer
<PAGE>
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
<TABLE>
<CAPTION>
<S> <C>
VULCAN VENTURES INCORPORATED
By:_/s/ William D. Savoy
---------------------------
Name: William D. Savoy
Title: Vice President
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
/s/ Craig A. Winn
-----------------
Craig A. Winn
/s/ Rex Scatena
------------------
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>
FIRST AMENDMENT TO
PREFERRED STOCK PURCHASE AGREEMENTS
This FIRST AMENDMENT TO PREFERRED STOCK PURCHASE AGREEMENTS, dated as of
January 12, 1999 (the "Amendment"), is entered into by and among Value America,
Inc., a Virginia corporation (the "Company"), The Union Labor Life Insurance
Company, a Maryland corporation acting on behalf of its Separate Account P
("ULLICO") and Vulcan Ventures Incorporated, a Washington corporation
("Vulcan").
WHEREAS, the Company and ULLICO are parties to a Preferred Stock Purchase
Agreement dated as of December 17, 1997 (the "Series A Stock Purchase
Agreement"); and
WHEREAS, Section 12.1 of the Series A Stock Purchase Agreement provides
that the Company and ULLICO, which holds a Majority of the Restricted Stock (as
defined in the Stock Purchase Agreement) may amend the Series A Stock Purchase
Agreement; and
WHEREAS, the Company, ULLICO, and Vulcan are parties to a Preferred Stock
Purchase Agreement dated as of June 26, 1998 (the "Series B Stock Purchase
Agreement"); and
WHEREAS, Section 12.1 of the Series B Stock Purchase Agreement provides
that the Company, ULLICO and Vulcan, which holds a Majority of the Restricted
Stock (as defined in the Stock Purchase Agreement) may amend the Series B Stock
Purchase Agreement; and
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. The Company and ULLICO agree that Section 10.1 of the Series A Stock
Purchase Agreement shall be deleted and replaced with the following:
10.1 Subsequent Offerings. 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. 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 A Preferred Stock of which the Investor is deemed to be a
Holder immediately prior to the issuance of such Equity Securities, over (ii)
the total number of shares of the Company's outstanding Common Stock issued or
issuable upon exercise or conversion of the Warrants and the ULLICO Replacement
Warrants, as defined in that certain Stock Purchase Agreement (the "Series C
Purchase Agreement") dated as of January 12, 1999 by and among the Company,
Vulcan Ventures Incorporated, a Washington corporation ("Vulcan") and certain
other purchasers and, with respect to Vulcan, any warrants issued to Vulcan
pursuant to that certain Agreement to Issue Warrants, as defined in the Series C
Purchase Agreement, and the shares of (a) Series A Preferred Stock, (b) Series B
Preferred Stock, as defined in the Company's Articles of Incorporation, as
amended, and (c) Series C Preferred Stock, as defined in the Company's Articles
of Incorporation, as amended, and (d) any other Equity Security convertible into
or exercisable for Common Stock authorized and issued subsequent to the Closing
of the Series C Purchase Agreement which carries a right of first refusal
similar to that provided to the Investor herein.
2. The Company and Vulcan agree that Section 10.1 of the Series B Stock
Purchase Agreement shall be deleted and replaced with the following:
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 of which such
Series B Investor is deemed to be a Holder immediately prior to the issuance of
such Equity Securities, over (ii) the total number of shares of the Company's
outstanding Common Stock issued or issuable upon exercise or conversion of the
Warrants and ULLICO Replacement Warrants, as defined in that certain Stock
Purchase Agreement (the "Series C Purchase Agreement") dated as of January 12,
1999 by and among the Company, Vulcan Ventures Incorporated, a Washington
corporation ("Vulcan"), and certain other purchasers, and, with respect to
Vulcan, any warrants issued to Vulcan pursuant to that certain Agreement to
Issue Warrants, as defined in the Series C Purchase Agreement, and the shares of
(a) Series A Preferred Stock, (b) Series B Preferred Stock and (c) Series C
Preferred Stock, as defined in the Company's Articles of Incorporation, as
amended, and (d) any other Equity Security convertible into or exercisable for
Common Stock authorized and issued subsequent to the Closing of the Series C
Purchase Agreement which carries a right of first refusal similar to that
provided to the Series B Investor herein.
3. This Amendment may be executed in two or more counterparts, each of which
shall be deemed to be an original and all of which shall constitute
together one and the same instrument.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
<PAGE>
SIGNATURE PAGE TO FIRST AMENDMENT TO PREFERRED STOCK PURCHASE AGREEMENTS
VALUE AMERICA, INC.
By: /s/ Craig A. Winn
---------------------------------------
Print Name: Craig A. Winn
---------------------------------------
Title: Chairman and Chief Executive Officer
---------------------------------------
THE UNION LABOR LIFE INSURANCE COMPANY, a Maryland
corporation acting on behalf of its Separate Account P
By: /s/ Michael R. Steed
---------------------------------------
Print Name: Michael R. Steed
---------------------------------------
Title:
---------------------------------------
VULCAN VENTURES INCORPORATED
By: /s/ William D. Savoy
---------------------------------------
Print Name: William D. Savoy
---------------------------------------
Title: Vice President
---------------------------------------
EXHIBIT 10.34
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT ("Agreement") is
entered into as of January 12, 1999 by and among VALUE AMERICA, INC., a Virginia
corporation (the "Company"), VULCAN VENTURES INCORPORATED, a Washington
Corporation, FDX CORPORATION, a Delaware corporation ("FDX"), and FREDERICK W.
SMITH, a resident of the State of Tennessee ("Smith") (each a "Series C
Investor" and collectively, the "Series C Investors").
THE PARTIES hereby agree as follows:
1. Authorization of Securities. The Company is authorizing the issue and
sale of 6,000,000 shares of its 5% Cumulative Convertible Series C Preferred
Stock, without par value (the "Preferred Stock"), and Warrants (the "Warrants")
to purchase (i) an aggregate of 1,800,000 shares of the Company's common stock,
without par value ("Common Stock") subject to the terms of warrants
substantially in the form attached hereto as Annex 1(a) (1) - (3) (the "Vulcan
Primary Warrant" to purchase 1,500,000 Shares of Common Stock, the "FDX Primary
Warrant" to purchase 150,000 Shares of Common Stock, and the "Smith Primary
Warrant" to purchase 150,000 Shares of Common Stock, respectively, and
collectively, "Primary Warrants") and (ii) an aggregate of 473,724 shares of
Common Stock subject to the terms of a warrant substantially in the form
attached hereto as Annex 1(b) (the "Antidilution Warrant"). The Preferred Stock
has the rights, preferences and privileges set forth in the Company's Articles
of Amendment of Articles of Incorporation (hereinafter referred to as the
"Certificate"), substantially in the form attached hereto as Annex 1(c). The
Preferred Stock is convertible into and the Warrants are exercisable for shares
of the Company's Common Stock; the Common Stock into which the Preferred Stock
and the Warrants is convertible into and exercisable for are sometimes referred
to herein as the "Conversion Stock"; and the Preferred Stock, Warrants and the
Conversion Stock are sometimes referred to herein individually and collectively
as the "Securities".
2. Sale and Purchase of Preferred Stock and Warrants. Upon the terms and
subject to the conditions herein contained, the Company agrees to issue and sell
at the Closing (as hereinafter defined) on the Closing Date (as hereinafter
defined), (i) to Vulcan, and Vulcan will purchase from the Company, 5,000,000
shares of Preferred Stock, the Vulcan Primary Warrant and the Antidilution
Warrant, at an aggregate purchase price of $50,000,000 (the "Vulcan Purchase
Price") (ii) to FDX, and FDX will purchase from the Company, 500,000 shares of
Preferred Stock and the FDX Primary Warrant, at an aggregate purchase price of
$5,000,000 (the "FDX Purchase Price") and (iii) to Smith, and Smith will
purchase from the Company, 500,000 shares of Preferred Stock and the Smith
Primary Warrant, at an aggregate purchase price of $5,000,000 (the "Smith
Purchase Price"), at the Closing (as hereinafter defined) on the Closing Date
(as hereinafter defined). The aggregate purchase price of $60,000,000 payable by
all of the Series C Investors is sometimes referred to herein as the "Purchase
Payment".
Notwithstanding anything in this Agreement to the contrary, (i) Smith
shall have, simultaneously with his execution of this Agreement, delivered an
executed Subscription Agreement to purchase 500,000 shares of Common Stock and a
warrant to purchase 150,000 shares of Common Stock, substantially in the form
attached hereto as Annex 2 (the "Smith Contingent Subscription Agreement"), to
the Company, which Smith Contingent Subscription Agreement shall be held in
escrow by the Company until the satisfaction of the contingency in Part "(ii)"
of this Section 2 has been satisfied, (ii) if the Closing of this Agreement has
not occurred by the time that the Company notifies Smith by telephone,
voicemail, in writing, or by facsimile, such notice to be deemed made when given
irrespective of Smith's receipt thereof, that the Company is prepared to file a
Registration Statement on Form S-1 with the Securities Exchange Commission in
connection with a Qualified Offering, as defined herein (the "IPO Filing"), then
Smith shall be removed as a party to this Agreement and shall be considered to
be a party to the Smith Contingent Subscription Agreement, which the Company
shall then execute, but if no such notice of the IPO Filing is given to Smith
prior to the Closing of this Agreement, then the Company shall return the Smith
Contingent Subscription Agreement marked cancelled, and Smith shall remain a
party to this Agreement, (iii) if the Company gives Smith notice of the IPO
Filing as provided in Part "(ii)" of this Section 2, Smith agrees to pay the
Smith Purchase Price by wire transfer within two hours of such notice of the IPO
Filing in exchange for the securities he shall receive pursuant to the Smith
Contingent Subscription Agreement, (iv) if the Company and one or more but not
all of the Series C Investors execute and remain parties to this Agreement, the
Agreement shall be fully enforceable and binding on the Company and any Series C
Investor who has so executed and remained a party to the Agreement, irrespective
of the fact that one or more of the remaining Series C Investors has either not
executed this Agreement or does not remain a party to this Agreement by
operation of Part "(ii)" of this Section 2, and (v) the Company agrees that it
will not, without Vulcan's prior written consent, offer or sell any shares of
Preferred Stock to any party other than FDX or Smith.
3. Closing. The closing of the sale to and purchase by the Series C
Investors of the Preferred Stock and the Warrants (the "Closing") shall occur at
the offices of LeClair Ryan, A Professional Corporation, 707 East Main Street,
11th Floor, Richmond, Virginia 23219, at the hour of 10:00 A.M., Eastern time,
on January 18, 1999 or at such different time or day as the Series C Investors
and the Company shall agree (the "Closing Date"). At the Closing, the Company
will deliver to the Series C Investors (i) certificates evidencing the Preferred
Stock which shall be registered in the Series C Investors' names, and (ii) the
Warrants, against delivery to the Company of payment of the Purchase Price
therefor by wire transfer or a check made payable to the Company.
4. Register of Securities; Restrictions on Transfer of Securities;
Removal of Restrictions on Transfer of Securities
4.1 Register of Securities. The Company or its duly appointed
agent shall maintain a separate register for the shares of Preferred Stock, the
shares of Common Stock, and the Warrants, in which it shall register the issue
and sale of all such shares and Warrants. 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 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 C 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") or the securities laws
of any State, 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. Each Series C 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) Each Series C Investor hereby represents and warrants
to the Company that the Series C Investor (i) is acquiring the Securities 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) with respect to Vulcan, is a Washington corporation headquartered in the
State of Washington, with respect to FDX, is a Delaware corporation
headquartered in the State of Tennessee, and with respect to Smith, is an
individual residing in Tennessee, 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 C Investor hereby agrees with the Company
as follows:
(i) Subject to Section 4.3 hereof, the certificates
evidencing the Preferred Stock and the Conversion Stock, and each certificate
issued upon transfer thereof, will bear the following legends:
"The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act") or the
securities laws of any state, 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 and such state securities laws 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 and such state securities laws.
The sale or transfer of the securities represented by this certificate
are subject to the terms and conditions of a Preferred Stock and Warrant
Purchase Agreement (as such agreement may be amended), by and among
Value America, Inc., a Virginia corporation, Vulcan Ventures
Incorporated, a Washington corporation, and certain other purchasers,
dated as of January 12, 1999, and no transfer of the interests
represented by this certificate shall be valid or effective without
compliance with the terms and conditions of such agreement. A copy of
such agreement is on file in the principal office of Value America,
Inc., and will be sent without charge to each stockholder who so
requests. Such requests must be made to the secretary of the Company at
its principal office.
Information regarding the designations, relative rights, preferences and
limitations applicable to each class or series of capital stock of Value
America, Inc., the variations therein and the authority of the Board of
Directors to determine variations for future classes or series may be
obtained at no cost by written request made by the holder of record
hereof to the secretary of Value America, Inc. at the principal
executive offices of such Company."
(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 C Investor acquires, each Series C Investor agrees not to sell, transfer,
assign, pledge, hypothecate or otherwise dispose of any or all of its 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, (B) the
transfer of any or all of the Securities by a Series C Investor to any of its
affiliates or related entities provided that (i) such affiliates or related
entities are "accredited investors," as defined in Rule 501(a) prescribed by the
Securities and Exchange Commission pursuant to the Act, (ii) the Company is not,
at the time of the transfer, "in registration" as contemplated by Rule 152 as
prescribed and interpreted by the Securities and Exchange Commission pursuant to
the Act, and (iii) the transferee executes a transfer certificate in form
reasonably satisfactory to the Company, or (C) a sale to be effected in
accordance with Rule 144 or 144A of the Commission under the Securities Act (or
any comparable exemption).
(iv) Each Series C 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 legends 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.
4.4 Lock-Up Agreement. Each Series C Investor agrees to execute a
Lock-Up Agreement, materially in the form attached as Annex 4.4 hereto, in
connection with any 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 and, to the extent that the Company should
change lead underwriters prior to the effective date of such initial public
offering, each Series C Investor agrees to execute a Lock-Up Agreement with such
lead underwriter, so long as such agreement is materially in the form attached
as Annex 4.4 hereto.
5. Representations and Warranties by the Company. In order to induce the
Series C Investors to enter into this Agreement and to purchase the Preferred
Stock and the Warrants, the Company hereby covenants with and represents and
warrants to the Series C Investors, as of the Closing Date unless otherwise
specified herein, 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 or issue, as applicable,
this Agreement, the Warrants and, if the Company is a party thereto, the Waiver
of Right of First Refusal (as defined in Section 6.1), the Waiver of
Anti-Dilution Effect (as defined in Section 6.1), the Waiver of Registration
Rights (as defined in Section 6.1), the Agreement to Issue Warrants (as defined
in Section 6.1), the First Amendment of Series A and Series B Preferred Stock
Purchase Agreements (as defined in Section 6.1), the Second Amended and Restated
Registration Rights Agreement (as defined in Section 6.1), the Voting Agreement
(as defined in Section 6.1), and the First Amendment of Amended and Restated
Stockholders Agreement (as defined in Section 6.1), (each individually, an
"Ancillary Agreement" and collectively, the "Ancillary Agreements"), to issue
the Securities and to carry out the provisions hereof and of the Ancillary
Agreements 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 C Investors or their counsel prior to the execution of
this Agreement are true, correct and complete and contain all amendments through
the Closing Date, 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, business enterprise, joint venture, or similar arrangement.
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 (a) 500,000,000 shares of Common Stock, of which that number of
shares as is set forth on Annex 5.6 hereto are issued and outstanding, (b)
5,000,000 shares of Series A Preferred Stock, of which 5,000,000 shares are
issued and outstanding, (c) 617,979 shares of Series B Preferred Stock of which
617,979 shares are issued and outstanding and (d) 6,000,000 shares of Series C
Preferred Stock, of which either 5,500,000 or 6,000,000 shares will be issued
and outstanding upon the Closing of this Agreement (depending on the resolution
of the contingency in Section 2). 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, Series B
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) except as disclosed in Annex 5.3, accomplished in conformity with
all other federal and applicable state securities laws, rules and regulations.
The Company has (A) pending the execution by all shareholders of the Company of
a unanimous consent distributed prior to the Closing Date, reserved a total of
6,250,000 shares of Common Stock for issuance under the Company's 1997 Stock
Incentive Plan (the "Stock Plan"), (B) reserved or is contemplating reserving
such number of shares of Common Stock for issuance upon exercise of outstanding
warrants to purchase Common Stock as is set forth on Annex 5.6 hereto, (C)
reserved a total of 2,883,230 shares of Common Stock upon conversion of the
Series A Preferred Stock, and (D) reserved a total of 1,853,937 shares of
Common Stock upon conversion of the Series B Preferred Stock. Except as
expressly provided in this Agreement (including without limitation Section 5.6
hereof), the Annexes hereto, or the Company's Articles of Incorporation, as
amended, 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. Except as set forth on
Annex 5.3 hereto, no stock plan, stock purchase, stock option or other
agreement or understanding between the Company and any holder of any Equity
Securities or rights to purchase Equity Securities provides for acceleration or
other changes in the vesting provisions or other terms of such agreement or
understanding as the result of any merger, consolidated sale of stock or
assets, change in control or other similar transaction by the Company.
5.4 Preferred Stock and the Warrants. Subject to the approval of
the transactions contemplated hereby and the Certificate by the Company's Board
of Directors and shareholders by Closing as provided in Section 6.1(m) hereof,
(a) the Preferred Stock and the Warrants are 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 defined in Section 11 hereof) and restrictions, other than Liens that
might have been created by the Series C 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, and (b) the Conversion Stock is duly
authorized and has been reserved for issuance upon conversion of the Preferred
Stock and exercise of the Warrants and, when issued upon such conversion or
exercise in accordance with the terms of the Certificate or the Warrants, 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 C Investors and restrictions imposed by (i)
Sections 4.2 and 4.3 hereof, (ii) applicable state securities laws and (iii) the
Securities Act. Except as disclosed on Annex 5.4 hereto, the sale of the
Preferred Stock and the Warrants and the subsequent conversion of the Preferred
Stock into and the exercise of the Warrants for Conversion Stock are not and
will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
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, Series A Preferred Stock, and Series B Preferred
Stock, and of the holders of all outstanding options, warrants or other rights
to purchase Common Stock. With respect to holders of Common Stock, Series A
Preferred Stock, and Series B Preferred 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. Subject to the approval of the
transactions contemplated hereby and the Certificate by the Company's Board of
Directors and shareholders by Closing as provided in Section 6.1(m) hereof, all
corporate acts and proceedings on the part of the Company, its officers,
directors, and shareholders, 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 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 (as hereinafter
defined). 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) subject to the approval of the
transactions contemplated hereby and the Certificate by the Company's Board of
Directors and shareholders by Closing as provided in Section 6.1(m) hereof, will
not require from the Board or shareholders 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 (and except for such filings and actions that may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, filing a Form D with the
Commission within 15 days of the Closing Date and related filings with state
securities administrators, and proceedings under the Securities Act or state
blue sky laws to register Common Stock under the Securities Act or state blue
sky laws), (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,
promissory note, 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, promissory note,
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 or which prohibits the Company from
entering into this Agreement or any Ancillary 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 C
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 the Series C 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 as of December 31, 1997 and the audited
statements of operation, changes in shareholders' equity and cash flow for the
Company's twelve-month period then ended, together with the opinion of
PricewaterhouseCoopers LLP thereon, and the Company's unaudited balance sheet
(the "Balance Sheet") as of September 30, 1998 (the "Balance Sheet Date") and
the unaudited statements of operation, changes in shareholders' equity and cash
flows for the nine-month period then ended. These financial statements (i) are
in accordance with the books and records of the Company, and (ii) fairly and
accurately present the financial condition of the Company at the respective
dates of the balance sheets and the results of its operations for the
twelve-month and nine-month periods therein specified. 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 prepared in accordance with generally accepted accounting
principles.
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
or the audited financial statements attached as Annex 5.12 to this Agreement,
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.
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 (as hereinafter defined), (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 the audited financial statement
attached as Annex 5.12 to this Agreement, 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 defined in Section 11) or subjecting any
asset or property of the Company to any Lien or evidencing any Indebtedness (as
defined in Section 11), (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
$150,000 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 defined in Section 11) 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 $150,000. For purposes of this Section 5.15 and Section 5.20,
"material" shall mean an obligation which by its terms calls for aggregate
expenditures or receipts by the Company in excess of $150,000. The Company has
furnished to each Series C Investor true and complete copies of all material
agreements and other documents requested by each Series C Investor 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.
5.16 Employees. The following individuals (collectively,
"Designated Key Employees") are in the full-time employ of the Company: Craig A.
Winn, Glenda Dorchak, Dean Johnson, Joseph Page and Jerry Goode. 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, 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 or Annex 5.16 hereto, the Company is not under
any obligation or liability to any officer, director, employee or Affiliate of
the Company, and no employee has any agreement or contract, written or verbal,
regarding his or her employment.
5.17 Tax Returns and Audits. Except as disclosed on Annex 5.17,
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 5.17, 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 and the Company has
not been advised (a) that any of its returns, federal, state, or other, have
been or are being audited, or (b) of any deficiency in assessment or proposed
judgment to its federal, state, or other taxes. Except as disclosed on Annex
5.17, the reserves for taxes, assessments and governmental charges reflected on
the Balance Sheet or the audited financial statements attached as Annex 5.12 to
this agreement 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 5.17, 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 depositories.
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) 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 defined in Section 11), 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.
Except as disclosed on Annex 5.18 hereto, no employee or officer of the Company
has excluded works or inventions made prior to his or her employment with the
Company from such written agreement. 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) Except as disclosed on Annex 5.18 hereto, the Company
has not received any communication alleging or stating that the Company or any
director, officer, employee, or agent 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 or the
audited financial statements attached as Annex 5.12 to this agreement 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, in each case subject to no Lien,
except those which are shown and described on the Balance Sheet or the audited
financial statements attached as Annex 5.12 to this Agreement, except for
Permitted Liens (as defined in Section 11 hereof), 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 material 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.
5.22 Insurance Coverage. The Company has in full force and effect
the insurance coverage specified in Annex 5.22. Such insurance coverage has been
issued by insurers of recognized responsibility, and insures the Company and its
properties 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. 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 which the Company intends to
initiate, affecting (i) the Company or its properties, assets or business
(existing or contemplated), or the ability of the Company to consummate the
transactions contemplated hereby, or (ii) any Designated Key Employee, before
any court or governmental department, commission, board, bureau, agency or
instrumentality or any arbitrator. 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. The foregoing
includes, without limitation, actions pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or technologies allegedly proprietary to any of their former
employers or their obligations under agreements with former employers. 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 Environmental and Safety Laws. To its knowledge, the Company
is not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
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
presently authorized or outstanding securities or any of its securities that may
hereafter be issued.
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, or, if not so provided, made available to, each Series
C 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) [Intentionally Ommitted]
(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; Exceptions in Annexes. There is no fact which the
Company has not disclosed to the Series C 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 its obligations under this Agreement or under any Ancillary
Agreement or observe the terms of the Certificate. The information contained 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. The parties hereto agree that, when the
context so indicates, the Annexes to this Agreement and, prior to the Closing of
this Agreement, the Draft Disclosure Annexes (as defined in Section 6.1(c))
shall be deemed to constitute exceptions to the Company's representations and
warranties under the corresponding sections of this Agreement as of the Closing
Date, regardless of whether the corresponding section of this Agreement
specifically references an exception to be made in the Annexes to the Agreement.
5.33 Assumptions in Waiver of Anti-Dilution Effect. The Company
covenants with and represents to Vulcan, as of the date Vulcan executes the
Waiver of Anti-Dilution Effect, as defined in Section 6.1, that the number of
shares of Common Stock equivalents, Common Stock, and the warrants to purchase
the numbers of shares of Common Stock issued or to be issued by the Company, as
set forth in Exhibit A to the Waiver of Anti-Dilution Effect, are true and
correct. However, the Company makes no covenants, representations, or warranties
as to the correctness, accuracy, or appropriateness of the formulas,
computations, or calculations contained in Exhibit A to the Waiver of
Anti-Dilution Effect.
5A. Series C Investor Representations and Warranties. Each Series C
Investor hereby represents and warrants to the Company, as of the Closing Date,
as follows:
(1) Each Series C Investor (other than Smith) is a corporation
duly organized or formed, validly existing and in good standing under the laws
of its state of incorporation 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.
(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 C Investor 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 C Investor and are enforceable
against the Series C Investor in accordance with their respective terms, except
that such enforcement is limited by (a) bankruptcy, insolvency and other similar
laws affecting the enforcement of creditors' rights generally, and (b) general
principles of equity that restrict the availability of equitable remedies.
(4) Each Series C Investor recognizes that the purchase of shares
of Preferred Stock and the Warrants pursuant to this Agreement involves a high
degree of risk and acknowledges that it understands such risks.
6. Conditions of Parties' Obligations.
6.1 Conditions of the Series C Investors' Obligations at the
Closing. The obligation of the Series C Investors to purchase and pay for the
Preferred Stock and the Warrants 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 C Investors.
(a) No Errors, etc. The representations and warranties
of the Company under this Agreement shall be deemed to have been made on the
Closing Date and shall then be true and correct. The parties hereto agree that,
when the context so indicates, the Annexes to this Agreement shall be deemed to
constitute exceptions to the Company's representations and warranties under the
corresponding sections of this Agreement as of the Closing Date, regardless of
whether the corresponding section of this Agreement specifically references an
exception to be made in the Annexes to the Agreement.
(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; No Material Adverse Effect. There
shall not exist on the Closing Date any Default (as defined in Section 11) or
Event of Default (as defined in Section 11) 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. There shall not exist on the Closing Date any Material
Adverse Effect (as defined in Section 11). Notwithstanding anything to the
contrary in this Section 6.1(c), no event or condition disclosed to Vulcan or
its counsel in the draft Annexes to this Agreement or the exhibits thereto on or
before January 12, 1999 (the "Draft Disclosure Annexes") shall constitute a
Default, an Event of Default, or a Material Adverse Effect, unless Vulcan or its
counsel asserts the existence of a Default, an Event of Default, or a Material
Adverse Effect on or prior to January 13, 1999.
(d) Certificate of Officers. The Company shall have
delivered to the Series C Investors a certificate dated the Closing Date,
executed by its Chairman and Chief Financial Officer, 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 the Series C Investors a certificate dated the Closing
Date, executed by Craig A. Winn and Rex Scatena, 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 C
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 the Series C Investors or
their counsel.
(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 but excluding any filings required to be made with the Commission
or state securities law administrators subsequent to Closing.
(i) Supporting Documents. The Series C 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 (1)
above and further certifying that the Articles of Incorporation and Bylaws of
the Company delivered to the Series C Investors at the time of the execution of
this Agreement or prior to Closing 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 C Investors or their counsel may reasonably request.
(j) Waiver of Right of First Refusal. The Company (if
applicable), holders of a majority of the Series A Preferred Stock and holders
of a majority of the Series B Preferred Stock shall have executed a Waiver of
Right of First Refusal substantially in the form of Annex 6.1(j) hereto (the
"Waiver of Right of First Refusal").
(k) Waiver of Anti-Dilution Effect. The Company (if
applicable), holders of a majority of the Series A Preferred Stock and Holders
of a majority of the Series B Preferred Stock shall have executed a Waiver of
Anti-Dilution Effect substantially in the form of Annex 6.1(k) hereto (the
"Waiver of Anti-Dilution Effect"), counsel to the Series C Investor shall have
been provided an opportunity to review and comment on a notice to the Holders of
Series B Preferred Stock concerning the Waiver of Anti-Dilution Effect (the
"Series B Notice"), and the Company shall have mailed the Series B Notice to all
Holders of Series B Preferred Stock.
(l) Waiver of Registration Rights. The Company (if
applicable), holders of a majority of the Series A Preferred Stock and holders
of a majority of the Series B Preferred Stock shall have executed a Waiver of
Registration Rights substantially in the forms of Annex 6.1(l) hereto (the
"Waiver of Registration Rights").
(m) Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby, including without limitation the approval of the transactions
contemplated hereby and the Certificate by the Company's Board of Directors and,
as applicable, by the Company's shareholders, and all certificates, opinions,
agreements, instruments and documents mentioned herein or incident to any such
transactions, shall be completed and shall be satisfactory in form and substance
to the Series C Investors and to their counsel.
(n) Agreement to Issue Warrants. The Company, Vulcan,
and certain holders of the Company's Series B Preferred Stock shall have entered
into an Agreement to Issue Warrants substantially in the form of Annex 6.1(n)
hereto (the "Agreement to Issue Warrants").
(o) Hart-Scott-Rodino Filings. The Company and Vulcan
shall have completed all filings (the "H-S-R Filings") under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "H-S-R Act") and the
relevant waiting period under the H-S-R Act subsequent to the H-S-R Filings
shall have expired or have been otherwise terminated.
(p) Reissuance of ULLICO Warrants. Warrants numbered C-1,
C-2, and C-3 (the "ULLICO Warrants") were previously granted by the Company to
The Union Labor Life Insurance Company, a Maryland corporation ("ULLICO"),
George Cooney, and Tim Driscoll (the "ULLICO Warrant Holders"). Prior to
Closing, the ULLICO Warrant Holders shall have returned to the Company the
ULLICO Warrants and agreed to allow the Company to cancel the ULLICO Warrants
and issue replacement warrants (the "ULLICO Replacement Warrants") therefor
substantially in the form of Annex 6.1(p) hereto.
(q) Amendment of Series A and Series B Preferred Stock
Purchase Agreements. The parties hereto shall have entered into an agreement
amending (i) that certain Preferred Stock Purchase Agreement dated as of
December 17, 1997 by and between the Company and The Union Labor Life Insurance
Company, a Maryland corporation acting on behalf of its Separate Account P
("ULLICO"), and (ii) the Series B Preferred Stock Purchase Agreement dated as of
June 26, 1998 and to which each of the parties hereto is also a party, and such
agreement of amendment shall be substantially in the form of Annex 6.1(q) hereto
(the "First Amendment of Series A and Series B Preferred Stock Purchase
Agreements").
(r) Amendment of Stockholders Agreement. The parties
hereto shall have entered into an agreement amending the Amended and Restated
Stockholders Agreement dated as of June 26, 1998 and to which each of the
parties hereto is also a party, and such agreement shall be substantially in the
form of Annex 6.1(r) hereto (the "First Amendment of Amended and Restated
Stockholders Agreement").
(s) Amendment of Registration Rights Agreements. The
parties hereto and/or ULLICO, respectively, shall have entered into an agreement
or agreements amending that certain Amended and Restated Registration Rights
Agreement dated as of June 26, 1998 and to which each of the parties hereto is
also a party, and such agreement or agreements of amendment shall be
substantially in the form of Annex 6.1(s) hereto (the "Second Amended and
Restated Registration Rights Agreement").
(t) Voting Agreement. The parties hereto, ULLICO, Craig A.
Winn, a resident of the Commonwealth of Virginia, and Rex Scatena, a resident of
the Commonwealth of Virginia, shall have entered into a Voting Agreement
substantially in the form of Annex 6.1(t) hereto (the "Voting Agreement").
6.2 Conditions of Company's Obligations. The Company's obligation
to issue and sell the Preferred Stock and the Warrants to the Series C Investor
on the Closing Date is subject to the fulfillment prior to or at the Closing
Date of the conditions precedent specified in paragraphs (g), (h), (j), (k),
(l), (m), (n), (o), (p), (q), (r), (s), and (t) of Section 6.1 hereof, any of
which may be waived in whole or in part by the Company.
6.3 Best Efforts. Each Series C Investor agrees that it will use
its best efforts, acting in said faith, to cause the conditions specified in
Sections 6.1 and 6.2 hereof to be met by the Closing Date.
7. Affirmative Covenants. The Company agrees that unless Vulcan
otherwise agrees in writing, so long as Vulcan 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.
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 15 days following the Closing Date have in full
force and effect policies of term life insurance issued by issuers of recognized
responsibility, as follows: (i) in the amount of $10 million on the life of
Craig A. Winn, (ii) in the amount of $3 million on the life of Glenda Dorchak,
(iii) in the amount of $2 million on the life of Dean Johnson and (iii) $1
million each on the lives of Rex Scatena, Joseph Page and Jerry Goode 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 Vulcan 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 Vulcan 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 Vulcan may request; and the Company shall also furnish to Vulcan:
(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
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 and the Warrants remain
outstanding, promptly upon learning of the occurrence of an Event of Default or
a condition or event which with the giving of notice or the lapse of time, or
both, would constitute an Event of Default, a certificate signed by the chief
executive officer or chief financial officer of the Company describing such
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 shareholders, 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 Vulcan reasonably may request from time to time.
7.5 Preparation of Budget. Within thirty (30) 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 Vulcan 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. The 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
Vulcan. 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 Vulcan 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 Vulcan at least five (5) days' notice of, and permit
an officer or other representative of Vulcan or any Person designated by Vulcan
to attend as an observer, all meetings of the Board and all meetings of
committees of the Board; furnish Vulcan 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 Vulcan and its 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 shareholders 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 C Investor.
7.12 [Intentionally omitted]
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 and the Warrants hereunder substantially as set forth in Annex
7.15 hereof.
7.16 Prior Notice of Borrowings. Notify Vulcan of (i) the
Company's intention to borrow funds by means of Indebtedness for Borrowed Money
(as defined in Section 11) in excess of $5,000,000 in the aggregate subsequent
to the Closing of this Agreement, and (ii) the purpose of such borrowing, at
least ten days prior to the Closing of such borrowing.
8. Negative Covenants. The Company agrees that, subsequent to Closing
this Agreement, unless Vulcan otherwise agrees in writing, so long as Vulcan 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, create, incur 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.
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.
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 (except the Draft Disclosure Annexes (as defined in
Section 6.1(c)), which shall be superseded by the Annexes to this Agreement on
the Closing Date) shall be untrue or misleading in any material respect as of
(i) the Closing Date or (ii) except with respect to the exceptions to the
representations and warranties set forth in the Annexes to this Agreement, 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 fees, costs, and expenses from the Company.
9.2 Cumulative Remedies. None of the rights, powers or remedies
conferred upon a Holder of Securities 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 any Series C 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. Each Series C 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 C 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 Preferred Stock and exercise of the
Warrants, and, with respect to Vulcan, any warrants issued to Vulcan pursuant to
the Agreement to Issue Warrants (as defined in Section 6.1(n) hereto), of which
each Series C Investor is deemed to be a Holder immediately prior to the
issuance of such Equity Securities, over (ii) the total number of shares of the
Company's outstanding Common Stock issued or issuable upon exercise or
conversion of the Warrants and the shares of (a) Series A Preferred Stock, (b)
Series B Preferred Stock, (c) Series C Preferred Stock, and (d) any other Equity
Security convertible into or exercisable for Common Stock authorized and issued
subsequent to the Closing of this Agreement which carries a right of first
refusal similar to that provided to the Series C Investor herein.
10.2 Exercise of Rights. If and each time the Company proposes to
issue any Equity Securities, it shall give the Series C Investors 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. The
Series C Investors 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.
10.3 Issuance of Equity Securities to Other Persons. If not all
of the Series C Investors elect to purchase their pro rata of the Equity
Securities, then the Company shall promptly notify in writing the Series C
Investors who do so exercise such rights and shall offer such Series C Investors
the right to acquire such unsubscribed shares. The Series C 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 such unsubscribed shares. If the Series
C 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 C 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 the Series C
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 C Investors in the manner provided above.
In the event that only one of the Series C Investors executes this
Agreement, the immediately preceding paragraph of this Section 10.3 shall not
apply, and the following paragraph shall be substituted in its place:
If the Series C Investor fails 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 C 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 Series C Investor 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 C 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 Series C
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 6,250,000 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 or the
Compensation Committee, and the options to purchase such shares, (b) the
warrants issued pursuant to the Agreement to Issue Warrants, as defined in
Section 6.1(n), (c) the shares issuable upon exercise of the warrants to
purchase Common Stock issued and outstanding or referred to in Exhibit A to the
Waiver of Anti-Dilution Effect, as defined in Section 6.1(l), (d) the
Securities, (e) shares of Common Stock issuable upon conversion of the Company's
Series A Preferred Stock, (f) shares of Common Stock issuable upon conversion of
the Company's Series B Preferred Stock, (g) 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, (h) each Equity Security issued for a consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination, (i) any Equity Security that is issued by the Company as part of an
underwritten public offering referred to in Section 10.4 hereof, (j) shares of
Common Stock issued in connection with any stock split, stock dividend or
reverse stock split, (k) 75,000 shares of Common Stock (as adjusted for any
stock split subsequent to the Closing of this Agreement) to Chris Little, a
former employee of the Company, for services rendered, and (l) any Equity
Security which the Holder or 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 the
Series C Investors' pro rata share of the Equity Securities, the Series C
Investors' rights shall be limited to purchasing such portion of such Equity
Securities to be issued that will enable each Series C 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.
"Ancillary Agreement" and "Ancillary Agreements" shall have the
meaning assigned to them in Section 5.1.
"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.
"Commission" shall mean the Securities and Exchange Commission.
"Compensation Committee" shall have the meaning assigned to it
in Section 7.12(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.
"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.
"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 the Company and its Subsidiaries,
taken as a whole, or the business, assets, properties, condition (financial and
other), operations or prospects of the Company 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, limited liability company, partnership, joint venture and other
entity and any government, governmental agency, instrumentality or political
subdivision.
"Preferred Stock," without any further designation, shall mean
Series C Preferred Stock, without par value, of the Company.
"Qualified Offering" shall have the meaning assigned to it in
Section 10.4.
"Registration Rights Agreement" shall mean that certain Amended
and Restated Registration Rights Agreement, dated as of June 26, 1998, by and
among the Company, the Holders of the Series A Preferred Stock and the Holders
of the Series B Stock and, as the context warrants, such agreement as amended
pursuant to the terms of this Agreement.
"Restricted Stock" shall mean (a) all Common Stock owned now or in
the future by the Series C Investor, (b) the Common Stock issued or issuable
upon conversion of the Preferred Stock, the Warrants, and any warrants issued to
Vulcan pursuant to the Agreement to Issue Warrants, as defined in Section
6.1(n), whether owned by the Series C 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.
"Series A Preferred Stock" shall mean the Series A Preferred
Stock, without par value, of the Company as defined in the Company's Articles of
Incorporation.
"Series B Preferred Stock" shall mean the Series B Preferred
Stock, without par value, of the Company as defined in the Company's Articles of
Incorporation.
"Series C Preferred Stock" shall mean the Series C Preferred
Stock, without par value, of the Company as defined in the Certificate.
"Series C Investor" and "Series C Investors"shall have the meaning
assigned to such term in the introductory paragraph of this Agreement.
"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 or other equity securities 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), general partners or managers.
"Warrants" shall have the meaning assigned to it in Section 1
hereof.
"Waiver of Anti-Dilution Effect" shall have the meaning assigned
to it in Section 6.1(k) hereof.
"Waiver of Right of First Refusal" shall have the meaning assigned
to it in Section 6.1(j) hereof.
"Waivers of Registration Rights" shall have the meaning assigned
in Section 6.1(l) 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
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. 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 C 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 rights of the Series C 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. Each Series C 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 the Series C Investor under this Agreement.
12.3 Rights of Holders Inter Se. The 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.
1550 Insurance Lane
Charlottesville, Virginia 22911
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, 11th Floor
Richmond, Virginia 23219
Telecopier: (804) 783-2294
if to Vulcan:
Vulcan Ventures Incorporated
110 110th Avenue, NE
Bellevue, Washington 98004
Attention: William Savoy
Telecopier: (425) 453-1985
With a copy to:
Christopher W. Wright, Esq.
Cooley Godward LLP
4205 Carillon Point
Kirkland, WA 98033
Telecopier: (425) 893-7777
if to FDX to:
FDX Corporation
6075 Poplar Avenue
Memphis, TN 38119
Attention: Alan B. Graf, Jr.
Executive Vice President and Chief Financial Officer
Telecopier: (901) 395-4519
Telephone: (901) 395-3370
with a copy to:
FDX Corporation
6075 Poplar Avenue
Memphis, TN 38119
Attention: Kenneth R. Masterson
Executive Vice President, General Counsel and Secretary
Telecopier: (901) 395-5034
Telephone: (901) 395-3388
if to Smith to:
Frederick W. Smith
c/o FDX Corporation
6075 Poplar Avenue
Memphis, TN 38119
Telecopier: (901) 398-1111
Telephone: (901) 395-3377
with a copy to:
William T. Mays, Jr. Esq.
Waring Cox, PLC
50 North Front Street, Suite 1300
Memphis, TN 38103-1190
Telecopier: (901) 543-8036
Telephone: (901) 543-8013
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 any Series C 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 the Series C 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.
12.10 Expenses. The Company agrees, whether or not the
transactions contemplated hereby are consummated, to pay, and hold the Series C
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, the
Certificate or any Ancillary Agreement proposed by the Company (whether or not
the same become effective), (iii) if any Series C 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 the
Series C Investor or such Holder, without cost or expense to the Series C
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 the
Series C 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 and
the Warrants or upon the conversion of the Preferred Stock and the Warrants,
(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 AND WARRANT 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
VULCAN VENTURES INCORPORATED
By: /s/ William D.Savoy
________________________________________
William D. Savoy
Vice President
FDX CORPORATION
By: /s/ Alan B. Graf, Jr.
________________________________________
Print Name: Alan B. Graf, Jr.
Title: Executive Vice President and
Chief Financial Officer
FREDERICK W. SMITH
/s/ Frederick W. Smith
____________________________________________
Frederick W. Smith
EXHIBIT 10.35
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: /s/ Michael R. Steed
--------------------------
Michael R. Steed
Senior Vice President
<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:____________________________________
/s/ Craig A. Winn
------------------------------------
Craig A. Winn
Address: 3420 Cesford Grange
Keswick, VA 22947
/s/ Rex Scatena
------------------------------------
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
EXHIBIT 10.36
TOSHIBA AMERICA INFORMATION SYSTEMS
PRODUCT LISTING AGREEMENT
[Value America The Living Store! logo]
- --------------------------------------------------------------------------------
The Living Store:
Value America presents the merits of your products directly to the
consumer. Our dynamic multimedia category demonstrations effectively reveal the
features, benefits, quality, style and value of your products.
PICTURE LISTINGS:
Picture Listings are similar to placing your product on the shelf in a
typical retail store. We use your existing photographs, illustrations and copy
to show an image of the product followed by informative text and bullet points.
With Picture Listings we control the number of items, retail, duration and
product positioning within the store.
<TABLE>
<CAPTION>
Development Cost Participation Quantity
<S> <C>
Composition, Compression & Data Entry $ X $ X 1 (X)
-----
</TABLE>
BASIC - CATEGORY PRESENTATIONS:
Basic Presentations are created entirely from your existing library of
photographs, illustrations and copy. We transform the artwork you have created
for your catalogs and packaging into educational, customer-oriented sales
presentations. We select images, write headlines and craft supportive copy to
reveal each product's features, benefits, applications, style, quality and
value. Up to 10 products may be listed and sold.
Development Cost Participation Quantity
Research & Creative Development $ X $ X
Composition & Copy Selection $ X $ X
Graphic Design of Web Presentation $ X $ X X
Photo & Graphic Compression $ X $ X
Data Entry & Web Site Generation $ X $ X 2
Total Supplier Participation $ X $ X _____
MULTIMEDIA - CATEGORY PRESENTATIONS:
Multimedia Presentations are principally created from your library of
photographs and illustrations. We augment your artwork, with our own, and write
compelling consumer-oriented copy. We script and record a powerful narrative
dialog that speaks directly to the customer, enables automatic pagination, and
compels acquisition. These dynamic feature oriented presentations can include 20
individual products. Multimedia Presentations average ten panels in length and
are paced to present product attributes over five minutes.
Development Cost Participation Quantity
Research & Creative Development $ X $ X
Narrative Scripts, Headlines & Copy $ X $ X
Graphic Design and Illustrations $ X $ X
Multimedia Narrative Audio Streams $ X $ X
Photo & Graphic Processing & Compression $ X $ X
Data Entry & Web Site Generation $ X $ X 3
Total Supplier Participation $ X $ X _____
COMPREHENSIVE VIDEO & MULTIMEDIA - CATEGORY PRESENTATIONS:
Comprehensive Video & Multimedia Presentations integrate your best
photographs and illustrations into dynamic sales presentations. Value America
produces environmental photographs, powerful consumer-oriented copy, and
computer illustrations. We script and record a professional narrative dialog
that impacts the consumer's impression of your company and products. We write,
and produce broadcast-quality video demonstrations to reveal your product's
unique features, style, and quality. Each two to three minute video is
<PAGE>
professionally edited, compressed and streamed for tomorrow's world of enhanced
connectivity. Animation, special effects, and music are used to make these
presentations as entertaining as they are compelling. Each Comprehensive
Presentation can feature up to 40 items. Multimedia segments average twelve
panels in length and are typically paced to present information over seven
minutes. Our two to three minute video demonstrations follow the multimedia
presentation.
<TABLE>
<CAPTION>
Development Cost Participation Quantity
<S> <C>
Research & Creative Development $ X $ X
Narrative Scripts, Video Scripts, Headlines & Copy $ X $ X
Video Cast, Crew, Production & Editing $ X $ X
Graphic Design and Illustrations $ X $ X
Still Photography, Props & Processing $ X $ X
Animation & Special Effects $ X $ X
Multimedia Narrative Audio Streams $ X $ X
Video, Photo & Graphic Compression $ X $ X
Data Entry & Web Site Generation $ X $ X
Video Digitizing, Data Entry & Streaming $ X $ X 0
Total Supplier Participation $ X $ X ____
</TABLE>
Payment Terms:
50% Upon Acceptance. X To be credited as
50% Upon Web Accessibility. on going X% accrual (Monthly) passed through by
fulfillment.
Value America Agrees:
1. To provide product presentation corrections, additions and updates at
cost of $X an hour.
2. To create effective purchasing procedures and host store with sufficient
bandwidth.
3. To implement reasonable MAP or value pricing to maximize revenue.
4. To communicate forecasts, purchase orders and shipping information
electronically using EDI.
5. To be solely responsible for customer payment and outbound freight.
6. To diminish non-defective returns through supportive and integrated customer
service.
7. To reduce sales support and order processing cost by eliminating color
packaging, retail displays, slotting fees, store service, markdowns,
guaranteed sales, rebates, new store allowances, extended payment terms,
prepaid freight, complicated routing, compliance penalties, bills of lading,
and manual order processing.
Supplier and/or Distributor Agree:
1. To provide copies of existing video, photos, illustrations and copy for
integration into presentations.
2. To promptly provide accurate product data, analysis, catalogs, packaging, and
sales training documents.
3. To deliver a sample of each product selected. These will be used in the
creation of product presentations.
4. To provide a sales narrative of each product's features, benefits,
performance capabilities, style, applications, value and competitive
advantages dictated by a knowledgeable spokesperson.
5. To provide a competitive net FOB quotation on all products selected by Value
America.
6. To indemnify Value America against product liability claims arising from
supplier's products.
7. To ship orders promptly using EDI or e-mail with automatic labeling to
minimize cost.
8. To accept defective product returns and issue full credit.
9. To use original content created for the product sales presentations only with
our express written consent.
Agreed:
TOSHIBA AMERICA INFORMATION SYSTEMS
$X
- ------------------------ ------------------------- ---------- -------
Supplier Representative's Name Date Value
/s/ illegible /s/ Craig A. Winn
- ------------------------ -------------------------
Authorized Signature Value America Approval
[Value America The Living Store! logo]
<PAGE>
TOSHIBA AMERICA INFORMATION SYSTEMS
CATEGORIES & PRESENTATIONS
[Value America The Living Store! logo]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Categories: Presentation:
<S> <C>
1. TOSHIBA SATELLITE NOTEBOOK PCs 305 CDS 315 CDS Multimedia Presentation
2. TOSHIBA SATELLITE ACCESSORIES Basic Presentation & Audio
3. TOSHIBA TECRA NOTEBOOK PCs 520,530 Basic Presentation & Audio
4. TOSHIBA LIBRETTO MINI-NOTEBOOKS 70-CT & ACCESSORIES Multimedia Presentation
6. TOSHIBA EQUIUM BUSINESS PCs 2 Models TBD Multimedia Presentation
7. TOSHIBA EQUIUM ACCESSORIES Picture Listing
</TABLE>
TOSHIBA AMERICA: 1 PICTURE LISTING - $ X
2 BASIC PRESENTATIONS - $ X
3 MULTIMEDIA PRESENTATIONS - $ X
0 VIDEO DEMONSTRATIONS - $ X
TOTAL: $ X for 7 Product Presentations, Listing and Sale of All Applicable
Items.
DATE: October 8, 1997
EXHIBIT 10.37
TOSHIBA AMERICA CONSUMER ELECTRONICS
PRODUCT LISTING AGREEMENT
[Value America The Living Store! logo]
- --------------------------------------------------------------------------------
The Living Store:
Value America is the ultimate home shopping retailer. We prevail by
presenting the merits of your products directly to the consumer. Value America's
dynamic multimedia category demonstrations effectively reveal the features,
benefits, style and value of every product we sell.
BASIC - CATEGORY PRESENTATIONS:
Basic Product Category Presentations are created entirely from your
existing library of photographs, illustrations and copy. We transform the
artwork you have created for your catalogs and packaging into educational,
consumer-oriented sales presentations. Each can feature a dozen individual
products. We guarantee to update and host these listings a minimum of one year
at our expense.
Development Participation Quantity
Creative Development & Copy Selection $ X
Graphic Design of Web Presentation $ X
Photo & Graphic Compression $ X
Composition & Data Entry $ X
World Wide Web Site Generation $ X X
Total Supplier Participation $ X _____
MULTIMEDIA - CATEGORY PRESENTATIONS:
Multimedia Category Presentations are principally created from your
existing library of photographs and illustrations. We augment your artwork with
our own and write compelling consumer-oriented copy. We script and produce a
powerful narrative dialog that speaks directly to the consumer, enables
automatic pagination, and compels acquisition. These dynamic feature oriented
presentations can include two dozen individual products. Multimedia
Presentations average ten panels in length and are paced to present product
attributes over five minutes. We guarantee to update and host these listings for
two years at our expense.
Development Participation Quantity
Creative Development, Narrative Scripts & Copy $ X
Graphic Design and Illustrations $ X
Still Photography, Props & Processing $ X
Multimedia Narrative Audio Streams $ X
Photo & Graphic Compression $ X
Composition & Data Entry $ X
World Wide Web Site Generation $ X 2
Total Supplier Participation $ X _____
COMPREHENSIVE VIDEO & MULTIMEDIA - CATEGORY PRESENTATIONS:
Comprehensive Video & Multimedia Category Presentations integrate your best
photographs and illustrations into dynamic sales presentations. Value America
produces powerful consumer-oriented copy, environmental photographs, and
computer illustrations. We script and produce a professional narrative dialog
that powerfully impacts the consumer's impression of your company and products.
We write, and produce broadcast-quality video demonstrations to reveal your
product's unique features, style, and quality. Each two to three minute video is
professionally edited, compressed and streamed for tomorrow's world of enhanced
connectivity. Animation, special effects, and music are used to make these
presentations as entertaining as they are compelling. Each Comprehensive Video &
Multimedia Category Presentation can feature up to three dozen individual items.
Multimedia segments average twelve panels in length and are typically paced to
present information over seven minutes. Our two to three minute video
demonstrations follow the multimedia presentation. We guarantee to update the
multimedia and product segments and host the entire listing and presentation for
a minimum of three years at our expense.
<PAGE>
Development Participation Quantity
Creative Development, Scripts & Copy $ X
Video Cast, Crew, Production & Editing $ X
Graphic Design and Illustrations $ X
Still Photography, Props & Processing $ X
Animation & Special Effects $ X
Multimedia Narrative Audio Streams $ X
Video, Photo & Graphic Compression $ X
Advanced Composition & Data Entry $ X
World Wide Web Site Generation $ X
Broadcast Bandwidth Site Generation $ X 0
Total Supplier Participation $ X _____
Payment Terms:
50% Upon Acceptance.
50% Quarterly @ $X or X% on sales whichever is sooner.
Value America Agrees:
1. To maintain listing, update presentation and sell products for at least the
one to three year term specified unless products are discontinued, or the
supplier fails to perform reasonably.
2. To provide subsequent product presentation updates at cost not to exceed $X
an hour.
3. To complete category presentations within 60 to 90 days with appropriate
supplier support.
4. To create effective purchasing procedures and host retail sites with
sufficient bandwidth.
5. To implement reasonable MAP or value pricing to maximize revenue.
6. To communicate forecasts, purchase orders and shipping information
electronically using EDI.
7. To be solely responsible for customer payment and to reimburse supplier
within 30 days.
8. To be solely responsible for outbound freight and to pay carriers directly.
9. To diminish non-defective returns through supportive and integrated customer
service.
10.To reduce sales support and order processing cost by eliminating color
packaging, retail displays, slotting fees, store service, markdowns,
guaranteed sales, rebates, new store allowances, extended payment terms,
prepaid freight, complicated routing, compliance penalties, bills of lading,
and manual order processing.
Supplier Agrees:
1. To provide copies of existing video, photos, illustrations and copy for
integration into presentations.
2. To provide data, competitive analysis, catalogs, packaging, and sales
training documents on each product.
3. To supply accurate data and to reimburse Value America should we need to
correct inaccuracies.
4. To deliver a sample of each product selected. These will be used in the
creation of product presentations.
5. To provide a sales narrative of each product's features, benefits,
performance capabilities, style, composition, value and competitive
advantages dictated by a knowledgeable spokesperson.
6. To not directly solicit any Value America customer without our express
permission.
7. To provide the lowest net FOB quotation on all products selected by Value
America.
8. To ship orders promptly using two-way EDI with automatic bar code labeling to
minimize cost.
9. To accept defective product returns and issue full credit.
10.To use original content created for the product sales presentations only with
our express written consent.
Agreed:
TOSHIBA CONSUMER ELECTRONICS
/s/ illegible 6/3/97 $X
- --------------------------------- ----------------- ----------- --------
Supplier Representative Date Value
/s/ illegible /s/ Craig A. Winn
- --------------------------------- -----------------
Authorized Signature Value America
[Value America The Living Store! logo]
EXHIBIT 10.38
IBM
CATEGORY PRESENTATION AGREEMENT
[Value America The Living Store! logo]
- --------------------------------------------------------------------------------
The Living Store:
Value America presents the merits of your company directly to the consumer. Our
dynamic multimedia category demonstrations effectively reveal the features,
benefits, quality, style and value of your products.
PICTURE PRESENTATIONS:
Picture Presentations are similar to placing your product on the shelf in a
typical retail store. We use your existing photographs, illustrations and copy
to show an image of the product followed by informative text and bullet points.
With Picture Listings we control the number of items, retail and product
positioning.
Development Quantity
Composition, Compression & Data Entry 5
BASIC CATEGORY PRESENTATIONS:
Basic Presentations are created entirely from your existing library of
photographs, illustrations and copy. We transform the artwork you have created
for your catalogs and packaging into educational customer-oriented sales
presentations. We select images, write headlines and craft supportive copy to
reveal each product's features, benefits, applications, style, quality and
value. Up to 10 products may be presented.
Development Quantity
Research & Creative Development
Composition & Copy Selection
Graphic Design of Web Presentation
Photo & Graphic Compression
Data Entry & Web Site Generation
Total Supplier Participation 0
____
MULTIMEDIA CATEGORY PRESENTATIONS
Multimedia Presentations include your library of photographs and illustrations.
We augment your artwork, with our own, and write compelling consumer-oriented
copy. We script and record a powerful narrative dialog that speaks directly to
the customer, enables automatic pagination, and compels acquisition. These
dynamic feature oriented presentations can include 20 individual products.
Multimedia Presentations average ten panels in length and are paced to present
product attributes over five minutes.
Development Quantity
Research & Creative Development
Narrative Scripts, Headlines & Copy
Graphic Design and Illustrations
Multimedia Narrative Audio Streams
Photo & Graphic Processing & Compression
Data Entry & Web Site Generation 5
Total Supplier Participation
COMPREHENSIVE VIDEO & MULTIMEDIA CATEGORY PRESENTATIONS:
Comprehensive Video & Multimedia Presentations integrate your best photographs
and illustrations into dynamic sales presentations. Value America produces
environmental photographs, powerful consumer-oriented copy, and computer
illustrations. We script and record a professional narrative dialog that impacts
the consumer's impression of your company and products. We write, and produce
broadcast-quality video demonstrations to reveal your product's unique features,
style, and quality. Each two to three minute video is professionally edited,
compressed and streamed for tomorrow's world of enhanced connectivity.
Animation, special effects, and music are used to make these presentations as
entertaining as they are compelling. Each Comprehensive Presentation can feature
up to 40
<PAGE>
products. Multimedia segments average twelve panels in length and are typically
paced to present information over seven minutes. Our two to three minute video
demonstrations follow the multimedia presentation.
Development Quantity
Research & Creative Development
Narrative & Video Scripts, Headlines & Copy
Video Cast, Crew, Production & Editing
Graphic Design and Illustrations
Still Photography, Props & Processing
Animation & Special Effects
Multimedia Narrative Audio Streams
Video, Photo & Graphic Compression
Data Entry & Web Site Generation
Video Digitizing Data Entry & Streaming
Total Supplier Participation 0
Value America Agrees:
1. To list products and provide Internet access for a minimum of 12 months.
Provide substantial presentation corrections and product updates.
Supplier Agrees:
1. To provide copies of existing video, photos, illustrations and copy for
integration into presentations. Provide a sample if/as they are available of
products selected, product data, analysis, catalogs, packaging, and sales
training documents.
2. To provide access to an informed product manager or executive. Writers will
conduct interviews to learn more about product's features, benefits,
performance capabilities, style, applications, value and competitive
advantages.
3. To actively assist Value America to assure that the product assortment is
appropriate and is priced competitively.
Agreed:
IBM /s/ illegible 1/21/98
- -------------------------- ------------------------ --------------
Supplier Representative's Name Date
/s/ Monica Link
- -------------------------- ------------------------
Authorized Signature Value America Approval
[Value America The Living Store! logo]
<PAGE>
IBM
Category Presentations
December 30, 1997
Page 2
Categories: Presentation:
1. Thinkpad Multimedia Presentation
2. Thinkpad Accessories Picture Listing
3. Desktop Multimedia Presentation
4. Desktop Accessories Picture Listing
4. Servers Multimedia Presentation
5. Servers Accessories Picture Listing
5. WordPad Multimedia Presentation
6. WordPad Accessories Picture Listing
6. Printers Multimedia Presentation
7. Printer Accessories Picture Listing
PRESENTATIONS
5 Multimedia Presentation, 5 Picture Listing = $ X
TOTAL: $X for 5 Multimedia Presentations, 5 Picture Listing and Sale of All
Applicable Items for three years.
Exhibit 10.39
HEWLETT-PACKARD
PRODUCT LISTING AGREEMENT
[Value America The Living Store! Logo]
The Living Store:
Value America presents the merits of your products directly to the consumer. Our
dynamic multimedia category demonstrations effectively reveal the features,
benefits, style and value of every product we sell.
BASIC - CATEGORY PRESENTATIONS:
Basic Product Category Presentations are created entirely from your existing
library of photographs, illustrations and copy. We transform the artwork you
have created for your catalogs and packaging into educational, customer-oriented
sales presentations. Each can feature a dozen individual products. We guarantee
to update and host these listings a minimum of one year at our expense.
Development Participation Quantity
Research & Creative Development $ X
Composition & Copy Selection $ X
Graphic Design of Web Presentation $ X
Photo & Graphic Compression $ X
Composition & Data Entry $ X
World Wide Web Site Generation $ X 1
Total Supplier Participation $ X
MULTIMEDIA - CATEGORY PRESENTATIONS:
Multimedia Category Presentations are principally created from your existing
library of photographs and illustrations. We augment your artwork with our own
and write compelling consumer-oriented copy. We script and produce a powerful
narrative dialog that speaks directly to the consumer, enables automatic
pagination, and compels acquisition. These dynamic feature oriented
presentations can include two dozen individual products. Multimedia
Presentations average ten panels in length and are paced to present product
attributes over five minutes. We guarantee to update and host these listings for
two years at our expense.
Development Participation Quantity
Research & Creative Development $ X
Narrative Scripts, Headlines & Copy $ X
Graphic Design and Illustrations $ X
Multimedia Narrative Audio Streams $ X
Photo & Graphic Processing & Compression $ X
Composition & Data Entry $ X
World Wide Web Site Generation $ X 2
Total Supplier Participation $ X
COMPREHENSIVE VIDEO & MULTIMEDIA - CATEGORY PRESENTATIONS:
Comprehensive Video & Multimedia Category Presentations integrate your best
photographs and illustrations into dynamic sales presentations. Value America
produces powerful consumer-oriented copy, environmental photographs, and
computer illustrations. We script and produce a professional narrative dialog
that powerfully impacts the consumer's impression of your company and products.
We write, and produce broadcast-quality video demonstrations to reveal your
product's unique features, style, and quality. Each two to three minute video is
professionally edited, compressed and streamed for tomorrow's world of enhanced
connectivity. Animation, special effects, and music are used to make these
presentations as entertaining as they are compelling. Each Comprehensive Video &
Multimedia Category Presentation can feature up to three dozen individual items.
Multimedia segments average twelve panels in length and are typically paced to
present information over seven minutes. Our two to three minute video
demonstrations follow the multimedia presentation. We guarantee to update the
multimedia and product segments and host the entire listing and presentation for
a minimum of three years at our expense.
<PAGE>
HEWLETT-PACKARD SUPPLIES & ACCESSORIES
Support Packs
Toner
Memory DRAM Cards & SIMM
HP JetDirect EX Print Servers
Optional Languages
Network Interfaces
Documentation
Optional Document Feeder
Optional Transparency Adapter
HEWLETT-PACKARD TOTALS:
1 PICTURE PRESENTATION - $ X
1 BASIC PRESENTATIONS - $ X
2 MULTIMEDIA PRESENTATIONS - $ X
1 VIDEO & MULTIMEDIA PRESENTATION - $ X
Every product HP sells within each of these categories may be included without
impacting HP's participation. Value America will update all presentations for a
minimum of three years to keep each category presentation current. Value America
will maintain, host, provide connectivity and sell existing, and new HP products
for a minimum of three years. Value America will upgrade the Picture Listing to
a Basic Presentation, perhaps even to Multimedia because the value of properly
presenting the full range of HP supplies and accessories is considerable.
Please consider a separate multimedia presentation for the 340 portable printers
and their accessories. We may also wish to consider producing a separate
multimedia presentation on the bundled software packages. These titles make your
printers so much more valuable to the consumer they justify special emphasis.
While we will include a significant presentation of the software applications in
our printer demonstrations the added focus will significantly impact our sales
of hardware and powerfully increase the sales of consumables. We feel so
strongly about this incremental benefit we will produce this application upgrade
at one half of our key vendor sponsorship.
We recognize that Value America's unique multimedia retail product presentations
are important to HP because you must continually compete against lessor quality
and cheaper brands. Likewise, we appreciate the value of the HP brand, and its
favorable impact on our Living Store. As a result, we should be able to form a
lasting and mutually beneficial partnership.
PRODUCT PRESENTATION INVESTMENT: $ X
PRESENTATION INVESTMENT/PRODUCT: $ X
PRESENTATION INVESTMENT/PRODUCT/MONTH: $ X
April 16, 1997
<PAGE>
HEWLETT-PACKARD [Value America The Living Store! Logo]
Categories: Presentation
1. HEWLETT-PACKARD DESK-JET PRINTERS Video & Multimedia
HP DeskJet 340 Portable Printer
HP DeskJet 340CM Portable Printer
HP DeskJet 340 CV Portable Printer
HP DeskJet 400 Printer
HP DeskJet 693C Printer
HP DeskJet 694C Printer
HP DeskJet 820Cse Professional Printer
2. HEWLETT-PACKARD LASER-JET PRINTERS Multimedia
HP LaserJet 5L Xtra
HP LaserJet 6P
3. HEWLETT-PACKARD OFFICE JET PRODUCTS Multimedia
HP OfficeJet 300 Printer-Fax-Copier
HP OfficeJet 350 Printer-Fax-Copier-Scanner
4. HEWLETT-PACKARD SCANNERS Basic
HP ScanJet 4s
HP ScanJet 4c
HP ScanJet 5pse
4. HEWLETT-PACKARD SUPPLIES & ACCESSORIES Picture Listing
HP B&W Print Cartridges
HP Color Print Cartridges
HP Premium Transparency Films
HP Premium Glossy Papers
HP White InkJet Papers
HP Premium InkJet Papers
HP Labels
HP Banner Paper
HP Greeting Card Paper
HP Photo Paper
Cables
<PAGE>
Development Participation Quantity
Research & Creative Development $ X
Narrative Scripts, Video Scripts, Headlines & Copy $ X
Video Cast, Crew, Production & Editing $ X
Graphic Design and Illustrations $ X
Still Photography, Props & Processing $ X
Animation & Special Effects $ X
Multimedia Narrative Audio Streams $ X
Video, Photo & Graphic Compression $ X
Advanced Composition & Data Entry $ X
World Wide Web Site Generation $ X
Broadcast Bandwidth Site Generation $ X 1
Total Supplier Participation $ X
Payment Terms:
50% Upon Acceptance.
50% Upon Web Accessibility.
Value America Agrees:
1. To maintain listing, update presentation and sell products for at least the
one to three year term specified unless products are discontinued, or the
supplier fails to perform reasonably.
2. To provide subsequent product presentation updates after 3 years.
3. To complete category presentations within 30 to 90 days with appropriate
supplier support.
4. To create effective purchasing procedures and host retail sites with
sufficient bandwidth.
5. To implement reasonable MAP or value pricing to maximize revenue.
6. To communicate forecasts, purchase orders and shipping information
electronically using EDI.
7. To be solely responsible for customer payment and to reimburse supplier or
designee within 30 days.*
8. To be solely responsible for outbound freight and to pay carriers directly.*
9. To diminish non-defective returns through supporters and integrated customer
service.
10.To reduce sales support and order processing cost by eliminating color
packaging, retail displays, slotting fees, store service, markdowns,
guaranteed sales, rebates, new store allowances, extended payment terms,
prepaid freight, complicated routing, compliance penalties, bills of lading,
and manual order processing.*
Supplier or Designee Agrees:
1. To provide copies of existing video, photos, illustrations and copy for
integration into presentations.
2. To provide data, competitive analysis, catalogs, packaging, and sales
training documents on each product.
3. To supply accurate data and to reimburse Value America should we need to
correct inaccuracies.
4. To deliver a sample of each product. These will be used in product
presentations and returned.
5. To provide a sales narrative of each product's features, benefits,
performance capabilities, style, composition, value and competitive
advantages dictated by a knowledgeable spokesperson.
6. To not solicit Value America customers without permission (except for
warranty card information).
7. To provide the lowest net FOB quotation on all products selected by Value
America.*
8. To ship orders promptly using two-way EDI with automatic bar code labeling to
minimize cost.*
9. To accept defective product returns and issue full credit.*
10.To use original content created for the product sales presentations only
with our express written consent.
Agreed: *New Age has agreed.
HEWLETT-PACKARD 4-16-97 $ X
- --------------- ------------------------ ------- -----------
Supplier Representative Date Value
/s/ illegible /s/ Craig A. Winn
- -------------------- ------------------------
Authorized Signature Value America
[Value America The Living Store! logo]
<PAGE>
HEWLETT-PACKARD
PAVILION
CATEGORY PRESENTATIONS [Value America The Living Store! logo]
Multimedia Presentation:
1. Recommend Company -- Recommend HP quality, features, innovations, technology
and value.
2. Introduce Category -- Preview category, systems, technology, options,
applications and functionality.
3. Features & Benefits -- Present product features, functions and benefits and
explain why they are important.
4. Use & Performance -- Reveal the best methods of maximizing each system's
performance and value.
5. Coordination -- Explain why selecting an all HP solution will provide
superior results and increased performance.
6. Enduring Quality -- Graphically reveal why HP products consistently perform
better.
7. Present Applications -- Explain and demonstrate each primary and unique
system application.
8. Special Advantages -- Demonstrate how each system is designed to perform
effectively and effortlessly.
9. Warranty -- Detail warranty. Stress reliability, durability and customer
support.
10.Present Specific Items -- Picture and describe each system while listing
unique attributes and special features.
11.Coordination -- Recommend other HP products and accessories that are
available in The Living Store.
12.Narration & Pagination -- Multimedia presentations enlighten by talking
directly to the consumer. Ten or more visual panels paginate automatically.
Presentations last 5 to 7 minutes, uninterrupted, yet each is fully
interactive and may be shortened or repeated. Visual panels contain an array
of photographs, illustrations, headlines and supportive copy. Video
demonstrations follow multimedia presentations.
Video Demonstrations:
1. Video demonstrations are filmed in attractive locations by professional
cinematographers. Actors use teleprompters to effectively convey accurate
product information and compel acquisition.
2. HP's logo appears in the opening sequence and the narrative is set to music.
Our spokespeople endorse your systems because we believe they represent the
best quality, technology, performance and value.
3. Spokespeople share the most important reasons to buy HP products and explain
why we are recommending them.
4. Our spokespeople reveal what to look for when purchasing a quality home PC.
They demonstrate how to select the best products for their application.
5. Features and applications of HP products are demonstrated while spokespeople
explain their benefits.
6. Spokespeople explain how to maximize each product's performance and value.
They elevate perceived and actual value by revealing the results that can be
achieved when HP Pavilion PC's are used to their maximum capability.
7. Special insights are given into applications that make these PC's
particularly beneficial and valuable.
8. Our spokespeople demonstrate how easy HP Pavilion's are to use and install
and recommend a holistic HP solution.
9. The benefits of selecting a quality product are highlighted. Important
components and materials are revealed. Spokespeople discuss warranty and
reliability. They share how to reach your customer support staff.
10.Spokespeople close by reemphasizing the most compelling reasons to buy.
They motivate customers to consider other related HP products. We provide a
corporate benediction to reinforce your firm's leadership position.
11.Video demonstrations integrate selective skills and special effects to make
them informative and compelling.
Purchasing Process:
Product purchasing panels automatically emerge following the category
presentation. Every product in the assortment is shown pictorially with
photographs that expand 400% on command to reveal important detail. The
product's name, is followed by a brief description, copy and bullet points. We
present a MSRP, guest and member prices. Our member price always reflects your
retail strategy or UMAP policy. Customers may hand any listed product to their
servant. He tabulates actual freight cost and sales tax after the customer
selects from a wide variety of delivery and payment options. The purchase is
confirmed with a password and swift on-line credit card approval follows. Value
America purchase orders are instantly generated and sent to the proper factory
or distribution center using standard EDI protocols.
<PAGE>
HEWLETT-PACKARD
PAVILION
CATEGORIES & PRESENTATIONS [Value America The Living Store! logo]
<TABLE>
<CAPTION>
Categories: Presentation:
<S> <C>
1. HP PAVILION 7410P & 3100 (Q4 1997) Basic Presentation & Audio
2. HP PAVILION 82XX SERIES (Q1 & Q2 1998) Video & Multimedia Presentation
3. HP PAVILION 32XX (Q1 & Q2 1998) Multimedia Presentation
4. HP PAVILION ACCESSORIES Multimedia Presentation
5. HP INTEGRATED SOLUTIONS FOR HOME & HOME OFFICE Video & Multimedia Presentation
</TABLE>
HP PAVILION: 1 BASIC PRESENTATION & AUDIO - $ X
2 MULTIMEDIA PRESENTATIONS - $ X
2 VIDEO & MULTIMEDIA DEMONSTRATION - $ X
TOTAL $ X for 5 Product Presentations, Listing and Sale of All Applicable
Items.
DISTRIBUTOR: New Age (Subject to Change at HP's Discretion)
DATE: Revised November 21, 1997
<PAGE>
HEWLETT-PACKARD
INFORMATION STORAGE & TRANSFER
CATEGORIES & PRESENTATIONS [Value America The Living Store! logo]
Categories: Presentation:
1. HP COLORADO QIC TAPES Basic Presentation
2. HP DAT DRIVES, DDS CARTRIDGES & TAPES Multimedia Presentation
3. HP DLT DRIVE, CARTRIDGES & TAPE Basic Presentation
4. HP SURE-STORE CD-WRITER & CD-R MEDIA Multimedia Presentation
5. HP OPTICAL DRIVES, DISKS & ACCESSORIES Multimedia Presentation
HP INFORMATION STORAGE & TRANSFER:
2 BASIC PRESENTATION - $ X
3 MULTIMEDIA PRESENTATION - $ X
0 VIDEO DEMONSTRATIONS -
TOTAL: $ X for 5 Product Presentations, Listing and Sale of All Applicable
Items for 3 Years.
DATE: July 5, 1997
EXHIBIT 23.1
EXHIBIT 23.1
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 2, 1998, except as
to the stock split described in Note 12, which is as of September 1, 1998,
relating to the financial statements of Value America, Inc., which appears in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
- -----------------------------------
McLean, Virginia
January 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,556
<SECURITIES> 0
<RECEIVABLES> 3,858
<ALLOWANCES> 771
<INVENTORY> 1,145
<CURRENT-ASSETS> 9,626
<PP&E> 2,056
<DEPRECIATION> 444
<TOTAL-ASSETS> 13,995
<CURRENT-LIABILITIES> 14,790
<BONDS> 0
33,232
0
<COMMON> 239
<OTHER-SE> (35,373)
<TOTAL-LIABILITY-AND-EQUITY> (35,135)
<SALES> 22,483
<TOTAL-REVENUES> 22,483
<CGS> 22,153
<TOTAL-COSTS> 50,661
<OTHER-EXPENSES> 229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (27,948)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,948)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,948)
<EPS-PRIMARY> (1.49)
<EPS-DILUTED> (1.49)
</TABLE>
EXHIBIT 99.1
[Value America logo]
January 21, 1998
Mr. Robert A. Bayless
Chief Accountant
Division of Corporation Finance
Securities and Exchange Commission
450 5th Street, N.W.
Mail Stop 4-10
Washington, D.C. 20549
Dear Mr. Bayless:
I am writing on behalf of Value America, Inc., a Virginia corporation, which is
contemplating a public offering of equity securities. We would like to receive
advance clearance from the SEC Staff regarding our Company's revenue recognition
policy pertaining to product sales to be included in an initial registration
statement on Form S-1.
This letter presents relevant background information about Value America, Inc.,
and explains the rationale for the proposed revenue recognition policy for
product sales.
The Company
Value America, Inc. (Value America or the Company) was founded and commenced
operations in April 1996. The Company is an Internet retailer of consumer and
office products. The Company's product mix includes high quality, brand name
office products, consumer electronics, software, computers and peripherals,
building products, housewares and jewelry. The Company generates revenues
primarily from two sources: (1) the development of multimedia online product
presentations on behalf of suppliers; and (2) product sales. The Company expects
that in 1998 and for the foreseeable future, product sales will provide the vast
majority of revenues. This letter addresses revenue recognition for product
sales.
Value America sells its products through its Internet store and through direct
response. Nearly all purchases from the store are made electronically. Direct
response sales are made through the mail and over the telephone. Customers
provide credit
2300 Commonwealth Drive, Charlottesville, VA 22901
<PAGE>
Mr. Robert A. Bayless
Page 2
January 21, 1998
card and shipping information, and the Company uses the CyberCash(TM) software
to transfer data to the customer's credit card company for verification and
authorization. The Company bears the credit risk of customer purchases and
credit card fraud not covered by the CyberCash(TM) arrangement. The Company
expects to offer consumer and business credit for purchases for which the
customer does not wish to use credit cards. The price paid by the customer
includes delivery costs and sales tax, as calculated and subsequently processed
by Value America.
Principal Sales -- Consignment
Most of the Company's business is conducted on consignment. In most cases, the
vendor has physical possession of the merchandise and the Company is not
obligated to take title to the merchandise before the merchandise is sold to
Value America customers.
Typically, when a customer places an order with Value America and the credit
card company approves payment for the order, Value America places an order with
the manufacturer or distributor (collectively referred to herein as "the
manufacturer") telephonically, by fax or by electronic data interchange. In the
future, the Company expects to have the capability to process nearly all orders
electronically using electronic data interchange. The manufacturer ships the
product directly to the customer and bills Value America for the goods shipped.
Value America's cost for the goods is based upon previously negotiated
arrangements with the manufacturer. The freight carrier also invoices for the
shipping cost. Orders are typically filled by the manufacturer, shipped from the
manufacturer and ultimately received by the Value America customer within four
days from the date of the original customer order placed with Value America.
Value America is solely responsible to the manufacturer and freight carrier for
payment. The manufacturer and freight carrier have no recourse to Value
America's customer for payment or return of the product in the event of Value
America's default.
Value America takes title to the goods from the time of shipment until
successful delivery to the customer, at which point title passes. In case of
major appliances, Value America takes ownership of the item, contracts with a
trucking company for over the road transportation, and contracts for the
appliances installation with a local
2300 Commonwealth Drive, Charlottesville, VA 22901
<PAGE>
Mr. Robert A. Bayless
Page 3
January 21, 1998
delivery and installation service. The Company pays for insurance on the goods
and is the name insured on the shipping insurance policy. The Company bears all
risk of loss for (i) collecting all of the sale proceeds, (ii) delivery of the
merchandise and (iii) returns from customers. To compensate for these risks,
however, this business model substantially reduces the Company's exposure to
inventory risk and keeps the fixed portion of distribution costs as low as
possible.
Principal Sales -- Purchases
A small amount of merchandise inventory may be owned and held by the Company as
the result of certain types of sales returns, or in the event that a
particularly favorable product purchase opportunity arises. The process of order
fulfillment is the same, except that no outside manufacturer is involved and
the goods are shipped directly from Value America.
Recognition of Revenue
In both purchase and consignment sales, the Company recognizes the full sales
amount as revenue upon verification of the credit card transaction authorization
and shipment of the merchandise. The Company records revenue from product sales
and the related cost of goods, net of a reserve for estimated returns and a
reserve for the average lag between shipment date and date of customer receipt.
The manner of shipping (i.e., directly from the manufacturer or from Value
America) alters neither the method of recognition nor the amounts.
Returns
To date, the Company has experienced few sales returns. The Company anticipates
that sales returns will eventually be in the range of 2% to 3% of selling price,
consistent with other non-apparel catalogue and mail-order retailers. All
product returns and authorizations will be coordinated and approved by Value
America. Wherever permitted by the manufacturer, customers will return goods
directly to the manufacturer. The Company's warranty protection on any item
generally mirrors that of the manufacturer, thereby mitigating the risk of
having to take defective returned items into inventory. In cases where Value
America's policy is more lenient than the manufacturer's, or when the Company
makes special exceptions to its return policy, the returned merchandise will be
inventoried by the Company. The Company's return policy is "satisfaction
guaranteed".
2300 Commonwealth Drive, Charlottesville, VA 22901
<PAGE>
Mr. Robert Bayless
Page 4
January 21, 1998
For highly priced jewelry and other "high end" goods, it may be necessary for
the Company to verify the merchandise prior to shipping to the customer and
returning to the manufacturer. Returns will be made to Value America, allowing
the Company to authenticate metals and jewels before returning the goods to the
manufacturer.
The Offering
Value America anticipates issuing shares of common stock to the public in the
first half of 1998. The Company intends to use the proceeds for working capital,
advertising and other general corporate purposes. The Company currently
anticipates filing its initial registration statement on Form S-1 in February
1998.
Accounting Method to be Confirmed--The Issue
The Company seeks confirmation from the Staff that its revenue recognition
policy for product sales is appropriate. The revenue recognition policy should
be evaluated in light of the Company's shipping arrangements for most of its
product sales, whereby goods are shipped directly from the manufacturer. This
system renders it logical that revenue be recognized on a gross basis rather
than a margin only basis, as is the case for a commission based sales agent. A
very small percentage of products sold will generate a commission or fee, and
in such cases only the commission or fee will be recognized. The Company
believes that this accounting is appropriate based upon the facts outlined above
and is consistent with the concepts provided in Statement of Financial
Accounting Concepts No. 5, Recognition and Measurement in Financial Statements
of Business Enterprises (Con 5), particularly paragraphs 83-84, and Statement of
Financial Accounting Standards No. 48, Revenue Recognition when Right of Return
Exists (FAS 48). Furthermore, recognizing revenue on a gross basis is consistent
with the guidance in paragraph 60 of SOP 81-1, Accounting for Performance of
Construction - Type and Certain Production - Type Contracts, and paragraphs
3.46-3.48 of Audits Federal Government Contractors, which are applicable in
somewhat analogous situations.
Management's Position
We believe the revenue recognition policy for product sales, described above,
most fairly reflects the facts and circumstances surrounding these sale
transactions and is in accordance with generally accepted accounting principles.
2300 Commonwealth Drive, Charlottesville, VA 22901
<PAGE>
Mr. Robert A. Bayless
Page 5
January 21, 1998
Our rationale is based on the following key points:
o Although payment for goods provided by Value America is typically received in
advance of the shipment of merchandise from the supplier, the Company bears
all credit risk related to the ultimate customer. Credit card fraud,
verification problems or failure by the customer to pay do not relieve Value
America of its liability to the manufacturer or freight carrier. Further, the
manufacturer has no recourse for payment or return of the product from the
Value America customer in the event that Value America fails to meet its
contractual obligations to the manufacturer. All shipments are F.O.B. at the
manufacturer. Value America takes title to the product from the time of
shipment until successful delivery to the customer. The Company must secure
replacements for items lost or damaged during shipment. Furthermore, the
Company bears the cost of shipping and insuring the product.
o Value America is at risk for the full value of product returns, although in
most cases such risk is mitigated by the Company's agreements with
manufacturers. Initially, Value America will have to build its specific
experience base for sales returns, although the Company expects to experience
industry-average sales returns for non-apparel retailers of 2% to 3%, and
accordingly anticipates recording revenue net of an allowance for sales
returns (in accordance with FAS 48).
o Value America plans very limited agency sales transactions whereby it would
sell products or services on behalf of a manufacturer or service provider on
a commission basis. (In such instances, Value America would not take title to
assets or bear any credit or return risk, and would plan to report these
sales on a margin basis only.)
o Having products shipped directly from a manufacturer, instead of operating a
significant in-house shipping facility, should have no impact on revenue
recognition as long as the seller (i.e., Value America) bears the risks and
rewards of ownership. There are various distribution business models for the
Staff to consider in assessing the appropriateness of the Company's
accounting policy. For instance, Amazon.com, Inc. and SkyMall, Inc. have
almost all their products shipped directly from the manufacturer or
distributor to the customer, while Shop at Home, Inc. and OnSale, Inc. have
goods shipped from both manufacturers and
2300 Commonwealth Drive, Charlottesville, VA 22901
<PAGE>
Mr. Robert A. Bayless
Page 6
January 21, 1998
their own warehouses. The revenue recognition policy for all of these
entities is essentially the same: sales are recognized on a "gross" basis,
regardless of how products are distributed.
For these reasons, management believes that recognizing revenue and the related
cost of goods sold, as described above, is appropriate and preferable under
generally accepted accounting principles. Please be advised that we have
reviewed this information with our independent accountants, Price Waterhouse LLP
(including review by their National Office Accounting and SEC Services
professionals), and have obtained their concurrence on this proposed accounting
treatment.
If, after considering the above information, you believe the Staff will require
additional information or clarification, please call me at (804) 964-2166.
Yours very truly,
/s/ Dean M. Johnson
- -------------------
Dean McWhorter Johnson
Chief Financial Officer
Value America, Inc.
cc: Mr. Lawrence M. Alleva, Price Waterhouse LLP
Mr. H. John Dirks, Price Waterhouse LLP - National Office
2300 Commonwealth Drive, Charlottesville, VA 22901
