UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 000-25689
VALUE AMERICA, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 33-0712568
(State or other jurisdiction of (I.R.S.Employee
incorporation or organization) Identification No.)
337 Rio Road, Charlottesville, Virginia 22902
(Address or principal executive offices) (Zip code)
(804) 817-7700
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the registrant
as of February 29, 2000 was $72,328,400.
Number of shares of common stock outstanding as of March 29, 2000 was 45,332,859
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
The undersigned registrant hereby amends Part III and Part IV, Item 14,
Paragraph (a) (3) of its Annual Report on Form 10-K for the year ended December
31, 1999, previously filed with the Securities and Exchange Commission on March
30, 2000, as follows:
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information on the directors of the Company is provided below:
William J. Bennett
Director since 1999
Dr. Bennett, age 56, is currently the Distinguished Fellow in Cultural
Policy Studies at the Heritage Foundation and co-director of Empower America, a
non-profit public policy organization. Dr. Bennett is also an author and editor
of books. From 1981 to 1985, he served as Chairman of the National Endowment for
the Humanities. From 1985 to 1988, he served as Secretary of the U.S. Department
of Education and he served as the "Drug Czar" from 1989 until 1990.
Thomas J. Casey
Director since 1999
Mr. Casey, age 48, has served as 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
been Managing Director of Global Crossing since September 1998. Since September
1998, Mr. Casey has been President 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. 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 serves on the Board of Directors of Global
Crossing Ltd.
Glenda M. Dorchak
Director since 2000
Ms. Dorchak, age 45, has been Chief Executive Officer of Value America
since November 1999. From October 1998 until her appointment as Chief Executive
Officer, Ms. Dorchak served as President and Chief Operating Officer. She served
as Senior Vice President -- Marketing and Advertising of Value America from
August 1998 to October 1998. From December 1995 until August 1998, Ms. Dorchak
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, she served as the Director of Sales and
Service of AMBRA, a build-to-order, telemarketing PC business.
Leroy Keith
Director since 1999
Mr. Keith, age 61, has served as Chairman of Carson, Inc., a
publicly-traded manufacturer and marketer of ethnic hair care products for
people of color since 1995. From August 1995 to June 1998, Mr. Keith also served
as Carson's Chief Executive Officer.
Gary D. LeClair
Director since 1997
Mr. LeClair, age 44, has served as Chairman of the law firm of LeClair
Ryan, A Professional Corporation, legal counsel to Value America, since 1988.
Gerard R. Roche
Director since 1999
Mr. Roche, age 68, has served as Chairman of Heidrick & Struggles, Inc.
since 1981and Senior Chairman of Heidrick & Struggles International, Inc. since
February 1999. Heidrick & Struggles, is an executive recruiting firm with
offices worldwide.
<PAGE>
William D. Savoy
Director since 1999
Mr. Savoy, age 35, has served as Vice President of Vulcan Ventures
Incorporated, a venture capital fund, since November 1990. He 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 as a director of Charter
Communications, Inc., drugstore.com, Go2Net, Inc., Harbinger Corporation, High
Speed Access Corporation, Metricom, Inc., Telescan Inc., Ticketmaster Online --
CitySearch and USA Networks, Inc.
Wolfgang R. Schmitt
Director since 1999
Mr. Schmitt, age 56, has been Chairman of the Company since November
1999. Until his retirement in 1999, he served as Chairman (from September 1993)
and Chief Executive Officer (from November 1992) of Rubbermaid, Inc., a
manufacturer of plastic products for the consumer, commercial, industrial and
other markets. Mr. Schmitt was Rubbermaid's President and Chief Operating
Officer from May 1991 until November 1993. He was employed by Rubbermaid in
various marketing and research and development assignments from 1966 until 1999.
Mr. Schmitt is also director of Kimberly Clark Corporation and Parker Hannifin
Corporation.
Frederick W. Smith
Director since 1999
Mr. Smith, age 55, is Chairman, President and Chief Executive Officer of
FedEx 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. Mr. Smith is responsible for providing strategic
direction for all FedEx Corporation business units, including Federal Express,
FedEx Ground, FedEx Logistics, FedEx Custom Critical, and FedEx Trade Networks.
Michael R. Steed
Director since 1997
Mr. Steed, age 50, has been a Managing Director of Pacific Capital
Group, a venture capital firm, since December 1999. From November 1992 until
December 1999 he was Senior Vice President of Investments for The Union Labor
Life Insurance Company ("ULLICO"), a financial services holding company, and
President of ULLICO's investment subsidiary, Trust Fund Advisors. Before 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 is also a
director of Global Crossing, Ltd., and VR-1.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Information on the executive officers of the Company who are not directors is
provided below:
Paul F. Ewert
Mr. Ewert, age 51, has served as Executive Vice President --
Merchandising/Sales of the Company since January 2000. He joined Value America
in March 1999 as its Senior Vice President and President -- Technology Products
Division. From May 1991 to February 1997, Mr. Ewert served as Senior Vice
President -- Merchandising of CompUSA. From February 1996 to May 1997, he served
as CompUSA's President -- Merchandising and General Merchandise Manager.
William A. Pusey, Jr.
Mr. Pusey, age 34, joined Value America as its Senior Vice President
and General Counsel in July 1999. From June 1997 to July 1999, he served as Vice
President and General Counsel of Home Account Network, Inc., an Internet
financial services software development and services company. Before June 1997,
Mr. Pusey was a partner in Ten State Street, LLP, an international business law
firm which he co-founded in March 1995.
Thomas J. Starnes
Mr. Starnes, age 40, has been Chief Marketing Officer of the Company
since December 1999. He joined Value America in April 1999 as an Executive Vice
President. From September 1997 to April 1999, he served as Senior Vice President
of Sales and Marketing and Senior Vice President of Business Development of U.S.
Office Products Co., an office and educational product supplier. From August
1993 to September 1997, Mr. Starnes was a Vice President of Barnes, Morris,
Pardoe & Foster (now Insignia/ESG), a commercial property firm.
<PAGE>
John A. Steele
Mr. Steele, age 44, has been Chief Operating Officer of Value America since
November 1999. He joined Value America in April 1999 as Senior Vice President --
Operations and in October 1999 became Executive Vice President -- Operations.
From October 1993 to April 1999, Mr. Steele served as Vice President --
Operations Support for Genuine Parts Company, an auto and industrial replacement
parts and office products company.
Michael J. Waide
Mr. Waide, age 52, has been Chief Financial Officer of Value America since
February 2000. From 1997 until 1999 he was Senior Vice President, Chief
Financial Officer of Digital Video Express (DIVX). From 1995 until 1997 he
served as Senior Vice President-Finance, Chief Financial Officer of Natural
Wonders, Inc. From 1987 until 1995 he was Senior Vice President-Finance and
Administration, Chief Financial Officer and Corporate Secretary of Inmac Corp.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon review of records received by the Company, all reports required
to be filed pursuant to Section 16(a) of the Securities Exchange Act of 1934
were filed on a timely basis in 1999 except that Messrs. Bennett, Casey, Keith,
Roche and Schmitt and Ms. Dorchak were each late in filing a report with respect
to an August 1999 transaction.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Summary Compensation
The following table provides information on the total compensation paid or
accrued during the fiscal years indicated below to the Company's Chief Executive
Officer and to its three next most highly compensated executive officers serving
at fiscal year end. The table also lists two former chief executive officers and
two other former executive officers who would have been included had they still
been executive officers of Value America at December 31, 1999.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Summary Compensation Table
Long-Term
Compensation
Securities
Name and Annual Compensation (1) Underlying All Other
-----------------------
Principal Position(s) Year Salary ($) Bonus ($) Options (#)(2) Compensation ($)
--------------------- ---- ---------- --------- -------------- ----------------
Glenda M. Dorchak 1999 $266,020 $442,500 75,000 -
Chief Executive Officer 1998 57,780 (3) 62,364 325,000 $266,042 (4)
Paul F. Ewert 1999 $256,539 $50,000 200,000 -
Executive Vice President -
Merchandising/Sales
Thomas J. Starnes 1999 $215,521 $23,344 200,000 -
Chief Marketing Officer
John A. Steele 1999 $159,005 $70,231 150,000 $200,000 (5)
Chief Operating Officer
Neal Harris (6) 1999 $227,514 $67,500 375,000 $250,000 (7)
Former Executive Vice President
Dean M. Johnson (8) 1999 $227,914 $58,013 61,690 -
Former Chief Financial Officer 1998 146,074 - - -
1997 - - 225,000 -
Thomas Morgan (9) 1999 $401,191 $133,223 400,000 -
Former Chief Executive Officer
Craig A. Winn (10) 1999 $295,000 - - -
Former Chairman of the 1998 233,718 - - -
Board and Chief Executive 1997 45,000 (11) - - -
Officer
(1) No officer received perquisites in an amount greater than the lesser of (a) $50,000 or (b) 10% of such
officer's total salary plus bonus.
(2) Represents options granted pursuant to the Company's stock incentive plan.
(3) Represents salary earned by Ms. Dorchak from August 1998 through December 1998.
(4) This amount represents $16,042 for relocation expenses and a $250,000 loan from Value America at an
interest rate of 6% per year. The loan was subsequently forgiven by the Compensation Committee of the
Board.
(5) Represents a $200,000 loan from Value America at an interest rate of 6.75% per year.
(6) Mr. Harris resigned as an Executive Vice President in December 1999.
(7) Represents a $250,000 loan from Value America at an interest rate of 6.75% per year.
(8) Mr. Johnson resigned as Chief Financial Officer in November 1999,
(9) Mr. Morgan resigned as Chief Executive Officer in December 1999.
(10) Mr. Winn resigned as Chief Executive Officer in March 1999 and Chairman of the Board in December 1999.
(11) Represents salary earned by Mr. Winn from October 1, 1997 to December 31, 1997. Mr. Winn served without
compensation during the first nine months of 1997.
</TABLE>
<PAGE>
Option Grants
The following table shows stock options grants during 1999 to each of the
executive officers named in the Summary Compensation Table. In accordance with
the rules of the Securities and Exchange Commission, also shown below is the
potential realizable value over the term of the option (the period from the
grant date to the expiration date). This is calculated assuming that the fair
market value of common stock on the date of grant appreciates at the indicated
annual rate, 5% and 10% compounded annually, for the entire term of the option
and that the option is exercised and sold on the last day of its term for the
appreciated stock price. These amounts are based on certain assumed rates of
appreciation and do not represent the Company's estimate of future stock price.
Actual gains, if any, on stock option exercises will be dependent on the future
performance of the Company's common stock.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Option Grants in Last Fiscal Year
Individual Grants
-----------------------------------------------------------------
Percent of Potential Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options Employees Price Per Expiration For Option Term
---------------
Name Granted (#) in 1999 Share ($) Date 5% 10%
---- ----------- ------- --------- ---- -- ---
Glenda M. Dorchak 75,000 2.0% $ 6.03 12/29/09 $ 284,420 $ 720,751
Paul Ewert 200,000 5.2 15.00 03/01/09 1,886,700 4,781,100
Thomas J. Starnes 200,000 5.2 15.00 04/05/09 1,886,700 4,781,100
John A. Steele 100,000 2.6 15.00 04/05/09 943,350 2,390,550
50,000 1.3 6.03 12/29/09 189,613 480,501
Neal Harris (1) 325,000 8.5 15.00 03/26/09 3,065,888 7,769,288
50,000 1.3 5.06 12/31/09 159,112 403,206
Dean M. Johnson (1) 50,000 1.3 15.00 03/22/09 471,675 1,195,275
11,690 0.3 22.00 04/05/09 161,741 409,868
Thomas Morgan (1) 400,000 10.5 15.00 03/01/09 3,773,400 9,562,200
Craig A. Winn (1) - - - - - -
- -----------------
(1) Former executive officer.
</TABLE>
Option Exercises and Year-End Option Values
The following table shows information with respect to exercises of options
to purchase the Company's common stock by each executive officer named in the
Summary Compensation Table during 1999 and with respect to the aggregate value
of options held by each executive officer named in the Summary Compensation
Table as of December 31, 1999. The value of the unexercised in-the-money options
at fiscal year end is based on a value of $5.0625 per share, the closing price
of Value America's common stock on the Nasdaq National Market on December 31,
1999 (the last trading day prior to the year end), less the per share exercise
price.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate Option Exercises in Last Year and
At Year-End Option Values
Number of Shares Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired on Value at Fiscal Year-End at Fiscal Year-End
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Glenda M. Dorchak 45,000 $ 90,000 - 355,000 - -
Paul F. Ewert - - 40,000 160,000 - -
Thomas J. Starnes - - 20,000 180,000 - -
John A. Steele - - 10,000 140,000 - -
Neal Harris - - 50,000 325,000 - -
Dean M. Johnson 165,000 2,113,050 - - - -
Thomas Morgan (1) - - 80,000 320,000 - -
Craig A. Winn (1) - - - - - -
(1) Former executive officer.
</TABLE>
<PAGE>
Compensation of Directors
Under a director stock option policy adopted on June 15, 1999, upon
election to Value America's Board of Directors, individuals who are not salaried
employees of Value America will receive automatic grants of non-qualified stock
options to purchase 15,000 shares of common stock pursuant to the Company's
stock incentive plan. Each option granted pursuant to this policy:
o has a term of ten years;
o has an exercise price equal to the fair market value of the common
stock on the date of grant; and
o is exercisable immediately.
Stock Incentive Plan
Value America adopted its 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.
Stock Options. Stock options granted under the plan may be "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or non-qualified stock 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. A stock option entitles the employee to purchase
shares of common stock at the option price. The Committee will fix the option
price at the time the stock option is granted, but in the case of an incentive
stock option the exercise price cannot be less than 100% of the shares' fair
market value on the date of grant (or, in the case of an incentive stock option
granted to a 10% shareholder of Value America, 110% of the shares fair market
value on the date of grant). The value in incentive stock options, based on the
exercise price, that can be exercisable for the first time in any calendar year
under the plan or any other similar plan maintained by Value America is limited
to $100,000. The option price may be paid in cash or with shares of common
stock, or a combination of cash and common stock. Stock options may be exercised
at such times and subject to such conditions as may be prescribed by the
Committee, including the requirement that they will not be exercisable after 10
years from the grant date.
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.
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.
<PAGE>
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 Taxes. 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, the participant
will be considered to have made a taxable disposition of the statutory option
stock. The applicable holding periods are two years from grant and one year from
exercise.
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.
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:
o provide for the assumption of incentive awards granted under the stock
incentive plan,
o provide for substitution of appropriate new incentive awards covering
the stock of a successor corporation to Value America or an affiliate
thereof or
o 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.
<PAGE>
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:
o 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,
o approval by the stockholders of a complete liquidation or dissolution
of Value America,
o approval by the stockholders of the sale or transfer of substantially
all of the assets of Value America or
o 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 Code, certain highly-compensated employees would likely be subject
to payment of a 20% excise tax on their incremental gain, as defined.
Employment Contracts and Termination and Change-In-Control Arrangements
Glenda M. Dorchak, Chief Executive Officer
Value America and Glenda M. Dorchak, Chief Executive Officer of Value
America, entered into an employment agreement as of October 5, 1998. Under the
agreement, Ms. Dorchak received an annual salary of $250,000 until December 31,
1999 and will receive an annual salary of $300,000 every year thereafter,
subject to increases. The term of the agreement continues through December 31,
2001 and then renews automatically for 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. In each remaining 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 not to exceed $390,000 in an amount equal to
the product of (a) $6.50 multiplied by (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
granted by Value America, will be deemed earned on and will be paid on the date
of the exercise of such stock option. 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:
o her annual salary at the time and
o a pro rata portion of any bonus she may have earned under the agreement
if she had been employed for a full calendar year.
<PAGE>
Paul F. Ewert, Executive Vice President - Merchandising/Sales
Value America and Paul F. Ewert, Executive Vice President -
Merchandising/Sales of Value America, entered into an employment agreement as of
March 1, 1999. Under the agreement, Mr. Ewert has an annual salary of $280,000,
subject to increases. The term of the agreement continues through December 31,
2003 and then renews automatically for additional periods of one year until
either party gives notice of non-renewal at least three months before the
expiration date of the agreement. Mr. Ewert is also eligible for quarterly
incentive compensation. During each year of his employment, and based upon
achieving corporate and individual performance and other criteria as established
by the Compensation Committee, Mr. Ewert may earn quarterly bonuses amounting
to, in the aggregate, a minimum of $100,000 per year. Mr. Ewert is generally
entitled to participate in any employee benefit plans from time to time in
effect for all employees. Mr. Ewert may voluntarily terminate his employment at
any time under the agreement. Value America may terminate Mr. Ewert's employment
with or without due cause by giving him written notice of termination. If Mr.
Ewert is terminated by Value America for due cause, he will receive his salary
through the date of termination. If Value America terminates his employment
other than for due cause, Mr. Ewert will be entitled to the sum of:
o his annual salary at the time and
o a pro rata portion of any bonus he may have earned under the agreement
if he had been employed for a full calendar year.
Thomas J. Starnes, Chief Marketing Officer
Value America and Thomas J. Starnes, Executive Vice President of Value
America, entered into an employment agreement as of April 5, 1999. Under the
agreement, Mr. Starnes receives an annual salary of $250,000 every year, subject
to increases. The term of the agreement continues through December 31, 2004 and
then renews automatically for additional periods of one year until either party
gives notice of non-renewal at least three months before the expiration date of
the agreement. Mr. Starnes is also eligible for quarterly incentive
compensation. During each year of his employment, and based on achieving
corporate and individual performance and other criteria as established by the
Compensation Committee, Mr. Starnes may earn a quarterly bonus amounting to, in
the aggregate, a minimum of $125,000 for 2000. Mr. Starnes is generally entitled
to participate in any employee benefit plans from time to time in effect for all
employees. Mr. Starnes may voluntarily terminate his employment at any time
under the agreement. If Mr. Starnes is terminated by Value America for due
cause, he will receive his salary through the date of termination. If Value
America terminates his employment for other than due cause, Mr. Starnes will be
entitled to the sum of:
o his annual salary at the time and
o a pro rata portion of any bonus he may have earned under the agreement
if he had been employed for a full calendar year.
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 its stock incentive plan. The Compensation Committee is currently
composed of Messrs. Messrs. Roche, Casey, Savoy, Schmitt and Smith. During 1999,
Messrs. LeClair and Steed also served on the Compensation Committee. 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.
Mr. LeClair also serves as the Chairman of LeClair Ryan, A Professional
Corporation, Value America's legal counsel. In 1999, LeClair Ryan received fees
of $1,233,378 for legal services rendered to the Company.
Mr. Steed, served as the Senior Vice President of ULLICO until December
1999, which is the record holder of 3,544,229 shares of Value America's common
stock.
<PAGE>
Report of Compensation Committee on Executive Compensation
The following Report of the Compensation Committee on Executive
Compensation and the graph of Shareholder Return shall not be deemed
incorporated by reference by any general statement incorporating this Form 10-K
into any filing under the Securities Act of 1933 or under the Securities
Exchange Act of 1934, except to the extent Value America specifically
incorporates this information by reference, and shall not otherwise by deemed
filed under such acts.
This report is submitted by the Compensation Committee, which is
responsible for establishing and administering Value America's executive
compensation policies and its stock incentive plans. The Committee is composed
of Messrs. Roche, Casey, Savoy, Schmitt and Smith, none of whom is an employee
of Value America. This report addresses the compensation policies for 1999 as
they affected Craig A. Winn, Thomas Morgan and Glenda M. Dorchak, each of whom
served as the Chief Executive Officer of Value America in 1999, and the other
executive officers of Value America.
General Compensation Policy
Value America's compensation policy for executive officers is designed to
achieve the following objectives: (a) to enhance profitability of Value America
and increase stockholder value; (b) to reward executives consistent with Value
America's annual and long-term performance goals; (c) to recognize individual
initiative, leadership and achievement; and (d) to provide competitive
compensation that will attract and retain qualified executives.
Executive Officer Compensation Program
The Committee performs annual reviews of executive compensation to confirm
the competitiveness of the overall executive compensation packages as compared
with companies who compete with Value America for prospective employees.
The compensation program for executive offices consists of three elements:
(1) base salary, which is set on an annual basis; (2) annual incentive
compensation, in the form of cash bonuses, which is based on achievement of
predetermined financial objectives of Value America and individual objectives;
and (3) long-term incentive compensation, in the form of stock options or
restricted stock, granted when the executive officer joins Value America and on
occasion thereafter with the objective of aligning the executive officers'
long-term interests with those of the stockholders and encouraging the
achievement of superior results over an extended period.
Base Salary
Base salaries for executive officers are targeted at competitive market
levels for their respective positions, levels of responsibility and experience.
In addition to external market data, the Committee also reviews Value America's
financial performance and individual performance when adjusting base salary
annually.
Bonus Compensation
Bonus compensation is based on Value America's achievement of predetermined
financial, operational and strategic objectives. Giving greatest weight to
attainment of financial targets (EPS, gross margin, and gross revenue), the
Committee also awards bonuses based on various operational and strategic
objectives, such as management efficiency, and the ability to motivate others
and build a strong management team, develop and maintain the skills necessary to
work in a high-growth company, recognize and pursue new business opportunities
and initiate programs to enhance Value America's growth and successes. Bonuses
are awarded on a quarterly basis.
Long Term Incentive Compensation
Long-term incentive compensation, in the form of stock options and
restricted stock grants, allows the executive officers to share in any
appreciation in the value of Value America's common stock. The Committee
believes that equity participation aligns executive officers' interests with
those of the stockholders. In addition, the Committee believes that equity
ownership by executive officers helps to balance the short term focus of annual
incentive compensation with a longer term view and may help to retain key
executive officers.
When establishing stock option grant levels, the Committee considers
general corporate performance, the Chief Executive Officer's recommendations,
level of seniority and experience, existing levels of stock ownership, previous
grants of stock options, vesting schedules of outstanding options and the
current stock price.
It is the standard policy of Value America to grant an initial stock option
grant to all executive officers at the time they commence employment consistent
with the number of options granted to executive officers in the e-commerce
industry at similar levels of seniority. In addition, the Committee may also
make performance-based grants throughout the year. In making such
performance-based grants, the Committee considers individual contributions to
Value America's financial, operational and strategic objectives.
<PAGE>
Chief Executive Officer Compensation
In 1999, the individuals serving as the Chief Executive Officer received
base salaries as indicated in the Summary Compensation Table. This is consistent
with the range of salary levels received by their counterparts in e-commerce
companies of comparable size and stage of development. In addition, in 1999, Mr.
Morgan and Ms. Dorchak were granted options to purchase 400,000 and 75,000
shares of common stock under Value America's the stock incentive plans.
Certain Tax Considerations
Value America does not believe Section 162(m) of the Internal Revenue Code,
as amended, which generally disallows a tax deduction for compensation in excess
of $1 million to any of the executive officers appearing in the Summary
Compensation Table above will have an effect on it. The Committee has considered
the requirements of Section 162(m) of the Code and its related regulations. It
is the Committee's present intention that, so long as it is consistent with its
overall compensation objections, substantially all executive compensation will
be deductible for Federal income tax purposes.
The Compensation Committee:
Gerard R. Roche (Chairman)
Thomas J. Casey
William D. Savoy
Wolfgang Schmitt
Frederick W. Smith
Performance Graph
The following graph compares the annual cumulative total stockholder
return (assuming reinvestment of dividends) from investing $100 on April 9, 1999
(the date of our initial public offering), and plotted at December 31, 1999, in
each of (a) Value America's common stock, (b) the S&P 500 stock index, and (c) a
peer group consisting of internet retail companies similar to Value America:
Beyond.com Corporation, Buy.com, Inc., Cyberian Outpost, Inc., and Egghead.com,
Inc. It should be noted that the Company has not paid any dividends on its
common stock, and no dividends are included in the representation of the
Company's performance. The stock price performance on the graph below is not
necessarily indicative of future price performance.
April 9, 1999 December 31, 1999
------------- -----------------
Value America Inc. $100.00 $ 22.01
S&P 500 Stock Index $100.00 $115.30
Peer Group Index $100.00 $ 63.49
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Value America's common stock as of March 31, 2000 for
(a) the executive officers named in the Summary Compensation Table in Item 11 of
this Form 10-K, (b) each of the Company's directors, (c) all of the Company's
current directors and executive officers as a group and (d) each stockholder
known by us to own beneficially more than 5% of Value America's common stock.
Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to the securities. The
information on the shares indicated below, other than common stock underlying
warrants, as beneficially owned by each of Vulcan Ventures Incorporated and The
Union Labor Life Insurance Company, separately, was obtained from Schedule 13G
filings made by the parties as of March 31, 2000.
Shares of common stock that may be acquired by an individual or group
within 60 days of March 31, 2000, pursuant to the exercise of options or
warrants are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person shown in the table. Except as indicated in footnotes to this table, we
believe that the stockholders named in this table have sole voting and
investment power with respect to all shares of common stock shown to be
beneficially owned by them based on information provided to us by such
stockholders. Percentage of ownership is based on 45,425,170 shares of common
stock outstanding on March 31, 2000.
Amount and Nature
of Beneficial Percent
Name of Beneficial Owner Ownership (1) of Class
- ------------------------- ------------------- --------
Craig A. Winn (1)
740 Woodlands Road
Charlottesville, VA 22901..................... 10,705,650 23.6%
Vulcan Ventures Incorporated (2)
110 110th Avenue N.E.
Bellevue, WA 98004............................ 8,012,338 17.6%
Rex Scatena (1)
380 Mildrod Road
Earlysville, VA 22936......................... 3,796,700 8.4%
The Union Labor Life Insurance Company (3)
111 Massachusetts Avenue, N.W.
Washington, D.C. 20001........................ 3,752,604 8.3%
Directors and Executive Officers:
William J. Bennett (4)........................ 15,000 *
Thomas J. Casey (5)........................... 71,000 *
Glenda M. Dorchak (6)......................... 13,000 *
Leroy Keith (7)............................... 15,000 *
Gary D. LeClair (8)........................... 170,000 *
Gerard R. Roche (9)........................... 15,000 *
William D. Savoy (10)......................... 65,146 *
Wolfgang R. Schmitt (11)...................... 165,000 *
Frederick W. Smith (12)....................... 665,000 1.5%
Michael R. Steed.............................. 1,900 *
All current directors and executive
officers as a group (14 persons)........... 1,291,046 2.8%
- -----------------
* Less than one percent (1%).
(1) Former executive officer.
(2) Includes 1,535,477 shares of common stock underlying warrants held of by
Vulcan Ventures Incorporated ("Vulcan"). Mr. Savoy is Vice President of
Vulcan.
(3) Includes 208,375 shares of common stock underlying warrants held of by
the Union Labor Life Insurance Company.
(4) Includes 15,000 shares of common stock underlying options held by
Mr. Bennett.
<PAGE>
(5) Includes 15,000 shares of common stock underlying options and 6,000
shares of common stock underlying warrants held by Mr. Casey.
(6) Includes 3,000 shares of common stock underlying warrants held by
Ms. Dorchak.
(7) Includes 15,000 shares of common stock underlying options held by
Mr. Keith.
(8) Includes 80,000 shares of common stock underlying options and 30,000
shares of common stock underlying warrants held by Mr. LeClair.
(9) Includes 15,000 shares of common stock underlying options held by
Mr. Roche.
(10) Includes 15,000 shares of common stock underlying options held by
Mr. Savoy.
(11) Includes 165,000 shares of common stock underlying options held by
Mr. Schmitt.
(12) Includes 15,000 shares of common stock underlying options and 150,000
shares of common stock underlying warrants held by Mr. Smith. Mr. Smith
disclaims beneficial ownership of the 500,000 shares of common stock held
by FDX Corporation.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 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 of Value America for an
aggregate purchase price of $60,000,000. In connection with its initial public
offering, Value America issued warrants to purchase an aggregate of 511,567 to
certain existing stockholders, including Vulcan Ventures Incorporated, a holder
of Series B preferred stock, and William D. Savoy, a director of Value America.
Gary D. LeClair, a director of Value America, serves as the Chairman of
LeClair Ryan, A Professional Corporation, Value America's legal counsel. In
1999, LeClair Ryan received fees of $1,233,378 for legal services rendered to
the Company.
In 1999, Value America paid approximately $388,000 on behalf of Craig A.
Winn and Rex Scatena, former executive officers and directors of Value America,
to cover a portion of its allocated share of the operating and maintenance
expenses of a Hawker 800A aircraft acquired by Messrs. Winn and Scatena in their
individual capacity that they made available to Value America for its business
use. Value America also paid $200,000 towards a deposit required under a
trade-up agreement entered into by Messrs. Winn and Scatena to acquire, in
exchange for the aircraft then in use, two additional and more advanced Hawker
aircraft that were scheduled for delivery in December 1999 and December 2002,
respectively. In December, 1999, the manufacturer repurchased the Hawker 800A
aircraft and agreed to terminate and release Messrs. Winn and Scatena from their
obligations under the trade-up arrangement to acquire the two additional
aircraft in exchange for the forfeiture of the deposits made for each aircraft.
Messrs. Winn and Scatena have claimed they are owed an additional $400,000 by
Value America in connection with the acquisition and use of the aircraft. While
Value America vigorously disputes their claim for this amount, it nevertheless
accrued in 1999 a reasonable reserve against any further obligations it may have
in connection with this matter. Value America is negotiating with Messrs. Winn
and Scatena to resolve the dispute over this additional amount and certain other
amounts Value America paid to or on behalf of Messrs. Winn and Scatena in
connection with the aircraft matter.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (3) Exhibits - The following documents are filed as exhibits to the Form
10-K pursuant to Item 601 of Regulation S-K:
Exhibit Number
- --------------
Description of Exhibit
- -------------- -------------------------------------------------------------
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*
10.1 Consent Agreement, dated as of December 3, 1997, by and
between Stephen S. Freedman and Value America relating to the
mark "Value America" [filed as Exhibit 10.1 to the Company's
Form S-1]*
10.2 Employment Agreement, dated as of October 5, 1998, by and
between Value America and Glenda M. Dorchak [filed as Exhibit
10.21 to the Company's Form S-1]*
10.3 Employment Agreement, dated as of March 1, 1999, by and
between Value America and Paul F. Ewert [filed as Exhibit
10.41 to the Company's Form S-1]*
10.4 Value America, Inc. 1997 Stock Incentive Plan [filed as
Exhibit 10.25 to the Company's Form S-1]*
10.5 Form of Type A warrant to purchase shares of common stock of
Value America [filed as Exhibit 10.14 to the Company's Form
S-1]*
10.6 Form of Type B warrant to purchase shares of common stock of
Value America [filed as Exhibit 10.15 to the Company's Form
S-1]*
10.7 Form of Type C warrant to purchase shares of common stock of
Value America [filed as Exhibit 10.16 to the Company's Form
S-1]*
10.8 Form of Type F warrant to purchase shares of common stock of
Value America [filed as Exhibit 10.17 to the Company's Form
S-1]*
10.9 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 [filed as Exhibit 10.7 to the
Company's Form S-1]*
10.10 Assignment, Pledge and Subordination Agreement, dated as of
April 16, 1998, by and among First Data Merchant Services
Corp. Wachovia Bank, N.A. and Value America [filed as Exhibit
10.8 to the Company's Form S-1]*
10.11 Employment Agreement, dated as of April 5, 1999, by and
between Value America and Thomas J. Starnes
23.1 Consent of PricewaterhouseCoopers LLP**
27.1 Financial Data Schedule**
27.2 Restated Financial Date Schedule for the year ended December
31, 1998**
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*
- ----------
* Incorporated herein by reference from the Company's Registration Statement on
Form S-1, as amended, filed with the Commission on January 21, 1999. **
Incorporated herein by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1999, as filed with the Commission on March 30,
2000.
(b) On December 30, 1999, Value America filed a Form 8-K dated December 29,
1999, attaching as an exhibit its press release announcing the December 29, 1999
plan of restructuring. No financial statements were filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Amendment No. 1 to the Annual
Report on Form 10-K to be signed on its behalf by the undersigned thereunto duly
authorized.
VALUE AMERICA, INC.
By: /s/ Wolfgang R. Schmitt
- -------------------------------------------------------
(Wolfgang R. Schmitt, Chairman of the Board)
Dated: April 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment No. 1 to the Annual Report on Form 10-K has been signed below by the
following persons on behalf of the registrant and in the capacities indicated as
of April, 28, 2000.
Signature Title
- --------------------------------------------------------------------------------
/s/ Glenda M. Dorchak Chief Executive Officer and President
(Glenda M. Dorchak) (Principal Executive Officer), Director
/s/ Michael J. Waide Chief Financial Officer (Principal
(Michael J. Waide) Financial Officer)
/s/ M. Kathlene FitzPatrick Vice President & Controller,
(M. Kathlene FitzPatrick) Chief Accounting Officer
/s/ John Steele Chief Operating Officer
(John Steele)
/s/ Wolfgang R. Schmitt Chairman of the Board
(Wolfgang R. Schmitt)
/s/ William J. Bennett Director
(William J. Bennett)
/s/ Thomas J. Casey Director
(Thomas J. Casey)
/s/ Leroy Keith Director
(Leroy Keith)
/s/ Gary D. LeClair Director
(Gary D. LeClair)
/s/ Gerard R. Roche Director
(Gerard R. Roche)
/s/ William D. Savoy Director
(William D. Savoy)
/s/ Frederick W. Smith Director
(Frederick W. Smith)
/s/ Michael R. Steed Director
(Michael R. Steed)
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
AGREEMENT (the "Agreement"), dated as of April 5, 1999, between Value
America, Inc., a Virginia corporation (the "Company"), and Tom Starnes (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 Executive Vice
President. 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 April 5, 1999 and shall continue through December 31, 2004 and then
renew for an additional one year term on January 1, 2005 and each subsequent
annual anniversary thereof unless at least 3 months prior to January 1, 2005 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, 2004 or the day
before such subsequent anniversary, as the case may be (the "Term").
2. Duties. The Executive throughout the Term shall devote his full time
and undivided professional 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 his 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 his personal investments, provided
that such activities do not materially interfere with the performance of his
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 for-profit 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, which approval shall not be unreasonably
withheld. The Executive shall report directly to the Chief Executive Officer, or
in his or her absence, the Board.
3. Compensation.
(a) Salary. During the Term, the Company shall pay to the Executive a salary of
$250,000 per annum 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. The Compensation Committee may not reduce the salary
below $250,000 per year.
<PAGE>
(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 each calendar quarter
beginning on or after April 1, 1999, 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
Chief Executive Officer, the Executive and, if considered appropriate by the
Committee, a compensation consultant, which bonus shall be paid within ten days
after the end of the calendar quarter, provided Executive is employed hereunder
on the last day of such quarter, and provided further that (i) the minimum bonus
potential for the calendar year ending December 31, 1999 shall be at least
$93,750.00 and (ii) the minimum bonus potential for the calendar year ending
December 31, 2000 shall be at least $125,000 and (iii) the minimum bonus paid
for calendar years ending December 31, 1999 and December 31, 2000 shall be
$23,437.50 and $31,250.00, respectively, subject only to Executive remaining
employed by Company through September 30, 1999 and June 30, 2000, respectively.
(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. Executive shall be entitled to 20 days of paid
vacation (in addition to eight paid holidays), six sick days, and two personal
days per full calendar year, which shall accrue ratably on a biweekly basis
throughout the year starting on the first day of the month following the
effective date of this Agreement. Unused vacation shall not be carried over from
one calendar year to another and Executive shall not be entitled to a cash
payment for any unused vacation. The Company shall also pay to Executive an
additional W-2 compensation up to $286.00 per month during the term, which
Executive agrees to use to pay the premium on disability insurance covering
Executive.
(d) Relocation Expenses. The Company will reimburse the Executive for the
reasonable out-of-pocket expenses incurred by Executive for (i) moving van
expenses to Charlottesville, Virginia and (ii) reasonable, temporary living
expenses in Charlottesville, Virginia for a period of up to 12 months. The
Company shall also reimburse the Executive up to $579.00 per month for the
premium cost to Executive to maintain his current COBRA health care and dental
insurance coverage until the earlier of the date Executive is covered by the
Company's health care plan or September 30, 1999.
(e) 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. (f) Indemnity. As an officer 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.
<PAGE>
4. Termination.
-----------
(a) Death. In the event of the death of the Executive during the Term, his
employment shall be terminated as of the date of death and his salary for the
month in which his death occurs shall be paid to his 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 his 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,
effective upon the Disability Termination Date (as defined below). After the
Disability Termination Date, 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 his complete
and full-time absence from his 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 (provided that Company shall not be required to
provide Executive any compensation or benefits after the determination by the
Board unless the arbitration results in a determination that Executive is not
disabled, in which case the Company shall pay to Executive within 10 days after
such arbitration decision all compensation due through the date of such
arbitration decision, and further provided that Company shall not be deemed to
have breached its obligations related to such compensation and benefits under
this Agreement if it makes such payment within 10 days after such arbitration
decision). The Disability Termination Date shall be the date on which the Board
makes such determination of Executive's Disability unless the arbitration, if
any, results in a determination that Executive is not disabled.
(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 he 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.
<PAGE>
The term "Due Cause," as used herein, shall mean (i) repeated material
violation by the Executive of the Executive's obligations hereunder, the DNN
Agreement (as defined in Paragraph 10 below) or a written directive from the
Chairman of the Board, the Chief Executive Officer, 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 his 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. If the Company terminates the Executive's employment for other than
death, Disability or Due Cause, the term "Termination Payment" shall mean (i) if
such termination occurs within two years of the effective date of this
Agreement, a cash payment equal to the sum of an amount equal to his annual
salary, as in effect immediately prior to such termination, and a pro rata
portion of any bonus that would have been payable to the Executive under
Paragraph 3(b) for such calendar year if he had been employed for the full
calendar year, provided the criteria for such bonus other than the Executive's
continued employment are satisfied, or (ii) if such termination occurs more than
two years after the effective date of this Agreement, an amount equal to
one-half of the amount determined pursuant to clause (i) of this sentence. Such
Termination Payment shall be payable in 12 equal monthly installments beginning
30 days after the date of termination if such Termination Payment is determined
in accordance with clause (i) of the immediately preceding sentence, or, if
determined in accordance with clause (ii) of the immediately preceding sentence,
such Termination Payment shall be payable in six 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
<PAGE>
COBRA coverage. 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 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 his 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 his
employment at his 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 and Release. 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).
<PAGE>
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 or expiration of the Executive's employment, in addition to
fulfilling all other conditions precedent to such receipt, the Executive (if he
has the legal capacity to do so and if not, his legal representative) must
within 10 days after the termination date (i) resign as a member of the Board,
if applicable, and as an officer and employee of the Company and its Affiliates
and (ii) on behalf of the Executive and his 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 (provided that Executive's post-termination of employment obligations
under Section 5 shall cease upon the Company's failure to make any such payments
when due if within 15 days after written notice of such failure, Company does
not make the required payment). In the event the Company fails to make when due
any payment under Section 3 or 4 related to the termination of Executive's
employment hereunder, if Executive gives written notice of such failure to
Company and the Company fails to make such payment within 15 days after the
receipt of such written notice, then Executive shall be entitled to interest on
such payment at 10% per annum from the date due plus all reasonable costs of
collection (including attorney's fees) and all such payments that are not yet
due shall accelerate and become immediately due and payable.
(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 he 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 Executive elects not to renew
pursuant to Paragraph 1 above (the "Non-Compete Period"), he shall not:
(a) compete with any business that is conducted by the Company or any of its
Affiliates during the Non-Compete Period. For purposes of this Agreement, the
term "compete" shall mean engaging in an activity on behalf of himself 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 both (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 (i.e., more
than 20% of revenue) and (ii) the location in which the Executive conducts such
activities is within 50 miles of Charlottesville, Virginia;
<PAGE>
(b) on behalf of himself or any other person or entity solicit for employment
any employee of Company or its Affiliates who was such at any time during the 6
months immediately preceding and the 6 months after the date of termination or
expiration of the Term or cause such an employee to terminate him or his
employment by the Company or its Affiliates; (e.g., Executive shall not be
liable if a close friend or assistant leaves as the result of the Company
terminating Executive), or
(c) intentionally cause any significant vendor of the Company (i.e., more than
5% of the Company's sales) 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 (i) cease doing business with or (ii) decrease
significantly (i.e., reduce by more than 50% compared to the monthly average of
the 6 (or such months less than 6 (representing the number of months in such
period in which business was done) months with the highest amount of business in
such period)) 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 his employment by the Company will, throughout the Term of this Agreement,
bring him 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 Company
acknowledges that Executive comes to the Company with his own information,
skills and talents 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 his 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, court order or administrative or other
governmental compulsory process, 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 his
duties as an executive of the Company (e.g., disclosure to the
<PAGE>
Company's outside consultants, independent contractors, lawyers,
accountants or bankers of financial data properly requested by such
persons) any confidential information obtained by him while in the
employ of the Company and not known by Executive prior to his
employment by 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
reasonably available to a diligent researcher not in the Company's
employ of publicly available information (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) he will deliver promptly to the Company on termination of
his 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 he may possess or have under his control other than any
agreements or plans related to the Executive's employment by the
Company; and
(iii) he will transfer and assign to the Company, all rights
of every kind and character, in perpetuity, in and to any written
material and/or ideas created and reduced to writing during the Term
which were suggested or submitted by the Executive and 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. The prevailing party in any such injunctive
relief proceeding shall be entitled to recover from the other party its costs in
such proceeding, including reasonable attorney fees.
<PAGE>
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 his legal incompetency or his death and shall not preclude the
legal representative of his estate from assigning any right hereunder to the
person or persons entitled thereto under his will or, in the case of intestacy,
to the person or persons entitled thereto under the laws of intestacy applicable
to his 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 his incompetency) or the Executive's estate.
9. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Virginia, without
-------------
reference to the choice of law provisions of any jurisdiction.
10. Entire Agreement. This Agreement, the Developments, Noncompete,
Nondisclosure Agreement between Executive and Company dated April 5, 1999 (the
"DNN Agreement"), the Incentive Stock Option Agreement pursuant to the Notice of
Grant dated April 5, 1999, and the Non-Qualified Stock Option Agreement pursuant
to the Notice of Grant dated April 5, 1999, 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. 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 inter-dependent
agreements such that any provision contained in the DNN Agreement shall be of no
further force and effect to the extent it conflicts with a term or provision of
this Agreement and this Agreement shall supersede any conflicting provision of
the DNN Agreement, including, without limitation, any conflicting provisions
included in Sections 1 (not including Section 1.5, without limitation), 2, 3, 4
and 6 and all subsections thereof. 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.
<PAGE>
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.
1550 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:
Tom Starnes
1000 Kimberly Place
Great Falls, Virginia 22066
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 shall be borne 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 his 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.
<PAGE>
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.
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 he is fully aware of his 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 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 him, that he has been advised of the
importance of seeking independent counsel with respect to such consequences, and
that he had obtained independent counsel with respect to such consequences. By
executing this Agreement, the Executive represents that he has, after being
advised of the potential conflicts between him 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.
19. Authority. Subject to obtaining Compensation Committee approval,
Company represents that this
Agreement has been duly authorized by all appropriate corporate actions
and duly executed and delivered by an officer of the Company on its behalf.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
VALUE AMERICA, INC.
By:___________________
Its:______________________
Tom Starnes
