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, Xxxxxxxx & Xxxxxx 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
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:
"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.
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.
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 Xxxxx Xxxxxx. 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.
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.
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.
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 (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 xxxx, 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.
5.16 Employees. The following individuals (collectively,
"Designated Key Employees") are in the full-time employ of the Company: Xxxxx
X. Xxxx, Xxx Xxxxxxx, Xxxx Xxxxxxx, Xxxxxx Page and Xxxxxx Xxxxxx. 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 xxxx, 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 xxxx, 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 xxxx, 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.
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.
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
(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 "xxxxxxxxxxxx.xxx" and in connection therewith to use the registered
service xxxx and trade name "Value America" and in so doing is not acting in
conflict with any patent, trademark, service xxxx, 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 xxxx, 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.
(2) All corporate acts and proceedings required
for the authorization, execution and delivery of this Agreement and the
Ancillary Agreements and the purchase of the Securities by the Series B
Investors have been lawfully and validly taken or will have been so
taken prior to the Closing.
(3) This Agreement and the Ancillary Agreements
are the legal, valid and binding obligations of the Series B Investors
and are enforceable against the Series B Investors in accordance
with their respective terms, except that such enforcement is limited by
bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally.
(4) Such Series B Investor acknowledges that
he or it has received and reviewed a copy of the Registration Statement.
Such Series B Investor acknowledges that the terms of the IPO may
differ from those included in the Registration Statement and that the
IPO may be delayed or terminated at any time.
(5) Such Series B Investor recognizes that
the purchase of shares of Preferred Stock pursuant to this Agreement
involves a high degree of risk and acknowledges that it understands
such risks, including those set forth in the section titled "Risk
Factors" in the Registration Statement.
60 Conditions of Parties' Obligations.
6.1 Conditions of the Series B Investors'
Obligations at the Closing. The obligation of the Series B Investors to
purchase and pay for the Preferred Stock is subject to the fulfillment
prior to or on the Closing Date of the following conditions, any of
which may be waived in whole or in part by the Series B Investors.
(a) No Errors, etc. The
representations and warranties of the Company under this Agreement shall
be deemed to have been made again on the Closing Date and shall then be
true and correct.
(b) Compliance with Agreement. The
Company shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied with
by it on or before the Closing Date.
(c) No Default. There shall not
exist on the Closing Date any Default (as hereinafter defined) or Event
of Default (as hereinafter defined) or any event or condition which,
with the giving of notice or lapse of time or both, would constitute
a Default or Event of Default.
(d) Certificate of Officer. The
Company shall have delivered to the Series B Investors a certificate
dated the Closing Date, executed by its Chairman, certifying the
satisfaction of the conditions specified in subsections (a), (b) and (c)
of this Section 6.1.
(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 XxXxxxx Xxxx, 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.
(k) Amended and Restated
Stockholders Agreement. Xxxxx X. Xxxx and Xxx Xxxxxxx (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.
Xxxxx Xxxx and Xxx 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. Xxxxx Xxxx,
Xxx 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;
(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 Xxxxx X.
Xxxx and $1 million each on the lives of Xxx Xxxxxxx, Xxxx Xxxxxxx,
Xxxxxx Page and Xxxxxx Xxxxxx 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;
(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.
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.
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.
7.16 Union Matters. So long as Ullico is a Holder
of Securities (as hereinafter defined):
(a) In the event of any attempt by
any union to organize or seek to represent employees of the Company or
any of its Affiliates, the Company will recognize the union as the
representative of its workers upon a showing of majority support
through a formal gathering of cards for the union in an appropriate
unit.
(b) In connection with any organizing
done by a union, the Company recognizes the right of its employees to
choose their bargaining representative without interference from
their employer (the Company or its Affiliates). Accordingly, the Company
and its officers, directors, employees and agents shall refrain, and
shall cause its Affiliates to refrain, from its or their support of or
opposition to the union and from actively campaigning in opposition to
the designation of such union as the representative of such employees.
(c) The Company will cause all
merchandise ordered by its customers to be shipped by shippers that have
recognized one or more unions as collective bargaining representatives
of some or all of its workers; provided, however, that exceptions
to this requirement will be permitted if installation of purchased
items requires set up and it is impracticable to obtain union labor
for on-site installation and set-up or there is no viable union
transportation option available.
Upon completion of a Qualified Offering, the
Company shall no longer be obligated to comply with the requirements of
this Section 7, other than Sections 7.4, 7.9 and 7.16. The Series B
Investors acknowledge their responsibilities under the Federal
securities laws with respect to information furnished to them that has
not been publicly disclosed.
80 Negative Covenants. The Company agrees that unless the
Holders of a Majority of the Restricted Stock (as hereinafter defined)
otherwise agree in writing, so long as the Series B Investors are
Holders of Securities, the Company (and each of its Subsidiaries
unless the context otherwise requires) will not do any of the
following:
8.1 Senior or Parity Securities. So long as any
Preferred Stock remains outstanding, issue, assume or suffer to exist
(a) any security that is senior to or on a parity with the Preferred
Stock, or (b) any Indebtedness for Borrowed Money (as hereinafter
defined) that is an Equity Security (as hereinafter defined) or is
issued with an Equity Security.
8.2 Private Offerings. Except in a public offering
registered under the Securities Act, issue or sell any Equity Security
unless each issuee and purchaser agrees in writing with the Company
not to offer to sell, sell, make any short sale of, loan, grant any
option for the purpose of, or otherwise dispose of, any Equity
Security for at least the same period as shall be required of officers
and directors of the Company prior to and after the closing of any
public offering of securities of the Company registered under the
Securities Act, except that (i) the Board shall have the right to
dispense with this requirement in the case of sales of Common Stock to
individuals who are not directors or officers of the Company and who
purchase less than one percent (1%) of the then fully diluted Common
Stock outstanding, and (ii) the Company need not obtain such
standstill agreements from current holders of the Common Stock or
holders of options or warrants to purchase Common Stock if they have
already given standstill agreements restricting their right to sell as
requested by the managing underwriter in an offering for up to 270
days (in the case of outstanding stock and stock purchase
warrants) and 180 days (in the case of options granted under the Stock
Plan).
8.3 Changes in Type of Business. Make any
substantial change in the character of its business.
8.4 Loans; Guarantees. Make any loan or advance to
any Person, including, without limitation any employee or director of
the Company or any Subsidiary, except advances for travel and
entertainment expenses and similar expenditures in the ordinary course
of business or under the terms of a stock option plan or stock purchase
agreement approved by the Compensation Committee; or guarantee,
directly or indirectly, any Indebtedness except for trade accounts of
the Company or any Subsidiary arising in the ordinary course of
business.
8.5 Restrictive Agreements. Enter into or become a
party to any agreement or instrument which by its terms would violate or
be in conflict with or restrict the Company's performance of, its
obligations under this Agreement, the Certificate or any Ancillary
Agreement.
Upon completion of a Qualified Offering, the
Company shall no longer be obligated to comply with the requirements of
this Section 8.
90 Enforcement.
9.1 Remedies at Law or in Equity. If any Default
shall occur or if any representation or warranty made by or on behalf of
the Company in this Agreement or in any certificate, report or other
instrument delivered under or pursuant to any term hereof shall be
untrue or misleading in any material respect as of the date of this
Agreement or as of the Closing Date or as of the date it was made,
furnished or delivered, the Holder of any Security may proceed to
protect and enforce its rights by suit in equity or action at law,
whether for the specific performance of any term contained in this
Agreement or the Certificate or for an injunction against the breach
of any such term or in aid of the exercise of any power granted in this
Agreement or the Certificate, or to enforce any other legal or
equitable right of such Holder of any such Securities, or to take
any one or more of such actions. In the event a Holder brings such an
action against the Company, the Holder shall be entitled to recover
from the Company all fees, costs and expenses of enforcing any right of
such Holder under or with respect to this Agreement or the
Certificate, including without limitation such reasonable fees and
expenses of attorneys, advisors, accountants and expert witnesses,
which shall include, without limitation, all fees, costs and expenses
of appeals; provided, however, that such Holder shall be required to
pay the reasonable out-of-pocket expenses of defense of the Company
(including without limitation such reasonable fees and expenses of
attorneys, advisors, accountants and expert witnesses, including
without limitation, the fees, costs and expenses of appeals) if the
Company is the prevailing party in such actions, and in such case, the
Holder shall not be entitled to receive its litigation expenses from the
Company.
9.2 Cumulative Remedies. None of the rights,
powers or remedies conferred upon any Holder of Preferred Stock or
Common Stock shall be mutually exclusive, and each such right, power or
remedy shall be cumulative and in addition to every other right, power
or remedy, whether conferred hereby or by the Certificate or now or
hereafter available at law, in equity, by statute or otherwise.
9.3 No Implied Waiver. Except as expressly
provided in this Agreement, no course of dealing between the Company and
the Series B Investors or the Holder of any Security and no delay in
exercising any such right, power or remedy conferred hereby or by
the Certificate or now or hereafter existing at law in equity, by
statute or otherwise, shall operate as a waiver of, or otherwise
prejudice, any such right, power or remedy.
100 Rights of First Refusal.
10.1 Subsequent Offerings. Each Series B Investor
shall have the right of first refusal to purchase all (or any part of
all) of its pro rata share of Equity Securities that the Company may,
from time to time, propose to sell and issue after the Closing Date,
other than the Equity Securities excluded by Section 10.5 hereof.
Each Series B Investor's pro rata share is equal to the ratio of (i)
the number of shares of the Company's Common Stock issued or
issuable upon conversion of the shares of Series B Preferred Stock
which such Series B Investor is deemed to be a Holder immediately
prior to the issuance of such Equity Securities, (ii) the total
number of shares of the Company's outstanding Common Stock issued or
issuable upon conversion of the shares of Preferred Stock held by
the Holders of Preferred Stock immediately prior to the issuance of
the Equity Securities.
10.2 Exercise of Rights. If and each time the
Company proposes to issue any Equity Securities, it shall give each
Series B Investor written notice of its intention, describing the
Equity Securities, the price, and the general terms and conditions
upon which the Company proposes to issue the same. Each Series B
Investor shall have thirty-five (35) days from the giving of such
notice to agree to purchase its pro rata share of the Equity
Securities for the price and upon the terms and conditions specified
in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased.
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 Xxxxx Xxxxxx 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.
10.6 Strategic Investor Exception. Notwithstanding
Sections 10.1 and 10.2, in the event the Company proposes to issue
Equity Securities (other than those excluded under Section 10.5) to a
Strategic Investor primarily for the purpose of establishing a
business relationship that would benefit the growth or profitability
of the Company's business (as contrasted with obtaining capital as a
primary purpose), then rather than have the right to purchase all of
such Equity Securities the Series B Investors' rights shall be
limited to purchasing such portion of such Equity Securities to be
issued that will enable the Series B Investors to maintain, after
giving effect to the full issuance of such Equity Securities, their
fully-diluted Common Stock ownership percentage interest of the
Company determined immediately prior to giving effect to the
issuance of such Equity Securities. "Strategic Investor" means a
Person whose primary activity is other than investing in securities or
business enterprises and that the Board has concluded, reasonably and
in good faith, would be likely as a result of its business activities to
provide opportunities for the Company to increase its revenues and
profitability substantially.
110. Definitions. Unless the context otherwise requires,
the terms defined in this Section 11 shall have the meanings herein
specified for all purposes of this Agreement, applicable to both the
singular and plural forms of any of the terms herein defined. All
accounting terms defined in this Section 11 and those accounting
terms used in this Agreement not defined in this Section 11 shall,
except as otherwise provided for herein, be construed in accordance
with those generally accepted accounting principles that the Company is
required to employ by the terms of this Agreement. If and so long
as the Company has any Subsidiary, the accounting terms defined in
this Section 11 and those accounting terms appearing in this Agreement
but not defined in this Section 11 shall be determined on a consolidated
basis for the Company and each of its Subsidiaries, and the financial
statements and other financial information to be furnished by the
Company pursuant to this Agreement shall be consolidated and presented
with consolidating financial statements of the Company and each of its
Subsidiaries.
"Affiliate" shall mean any Person which directly or
indirectly controls, is controlled by, or is under common control with,
the indicated Person.
"Agreement" shall mean this Agreement, as the
same may be amended, modified or restated from time to time.
"Balance Sheet" and "Balance Sheet Date" shall
have the meanings assigned to these terms in Section 5.12 hereof.
"Board" shall mean the Board of Directors of the
Company.
"Certificate" shall have the meaning assigned
to it in Section 1 hereof.
"Closing" and "Closing Date" shall have the
meaning assigned to these terms in Section 3.
"Common Stock" shall have the meaning assigned
to it in Section 1 hereof.
"Common Stock Purchase Agreement" shall have the
meaning assigned to it in Section 6.1(m) hereof.
"Commission" shall mean the Securities and
Exchange Commission.
"Compensation Committee" shall have the meaning
assigned to it in Section 7.12(b).
"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
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.
"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).
"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.
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.
0000 Xxxxxxxxxxxx Xxxxx
Xxxxxxxxxxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxx X. Xxxx, Chairman and Chief Executive Officer
Telecopier: (000) 000-0000
with a copy to:
Xxxx X. XxXxxxx, Esq.
XxXxxxx Xxxx, A Professional Corporation
000 Xxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, XX 00000
Telecopier: (000) 000-0000
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).
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.
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.
12.15 Counsel. In connection with the transactions
contemplated by this Agreement, the Company has been represented by
XxXxxxx Xxxx, 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, Xxxxxxxx & Xxxxxx LLP, in entering into or in
connection with this Agreement or the transactions contemplated
hereby.
[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:____________________________________
Xxxxx X. Xxxx, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By:____________________________________
An Authorized Officer
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
VULCAN VENTURES INCORPORATED
By:____________________________________
Name:___________________________
Title:__________________________
THE UNITED ASSOCIATION OF JOURNEYMEN
AND APPRENTICES OF THE PLUMBING AND
PIPEFITTING INDUSTRY OF THE UNITED
STATES AND CANADA, GENERAL FUND
By:____________________________________
Name:___________________________
Title:__________________________
THE XXXXXXX X. AND XXXXXXXX X. XXXXXX
FAMILY FOUNDATION
By:____________________________________
Name:___________________________
Title:__________________________
RYMAC JOINT VENTURE
By:____________________________________
Name:___________________________
Title:__________________________
XXXXXX FAMILY INVESTMENT LIMITED PARTNERSHIP
By:____________________________________
Name:___________________________
Title:__________________________
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
XXXXXX INVESTMENTS LIMITED
PARTNERSHIP, a Maryland limited partnership
By: Moloreaux, Inc., its general partner
By:___________________________________
An Authorized Officer
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
-------------------------------------
Xxxxxxx X. Xxxxx
-------------------------------------
Xxxxxx XxXxxx
-------------------------------------
Xxxxx Xxxxxxxxx
-------------------------------------
Xxxxxxx X. XxXxxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxx
-------------------------------------
Xxxxxx X. X. Xxxxxx
-------------------------------------
Xxxxxx Xxxxxxxx
-------------------------------------
Xxxx Xxxxxxx
DAVIDSON FAMILY LIMITED PARTNERSHIP
By: ___________________________________
Xxxxxx X. Xxxxxxxx, General Partner
-------------------------------------
C. Xxxxxxx Xxxxxx
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
YAGEMANN REVOCABLE TRUST,
DATED NOVEMBER 13, 1992
By: ___________________________________
Name: ____________________________
Title: ____________________________
[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
-------------
Xxxxx X. Xxxx
-------------
Xxx Xxxxxxx
ANNEX A
SCHEDULE OF INVESTORS
Name/Address Number of
Shares
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Union Labor Life Insurance Company 7,801
000 Xxxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000
Attention: Xx. Xxxxxxx X. Xxxxx,
Senior Vice President
Telecopier: (000) 000-0000
Vulcan Ventures Incorporated 492,287
000 000xx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, XX 00000
Telecopier: (000) 000-0000
The United Association of Journeymen and Apprentices of the 8,979
Plumbing and Pipefitting Industry of the United States and
Canada,
General Fund
000 Xxxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000
Telecopier: (000) 000-0000
The Xxxxxxx X. and Xxxxxxxx X. Xxxxxx 3,891
Family Foundation, Inc.
00000 Xxxx Xxxxx
Xxxxx Xxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxx, Partner
Telecopier: (000) 000-0000
Rymac Joint Venture 9,846
0000 Xxx Xxxxx
Xxxxxxxx, XX 00000
Attention: Xxxx XxXxxxxx
Telecopier: (000) 000-0000
Xxxxxx Family Investment Limited Partnership 6,563
0000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxx, XX 00000
Telecopier: (000) 000-0000
Davidson Family Limited Partnership 13,127
c/o Mr. Xxxxxx Xxxxxxxx
Xxxxxx Xxxxx
0000 Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Telecopier: (000) 000-0000
Xxxxxxx X. Xxxxx 16,411
c/o Vulcan Ventures Incorporated
000 000xx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, XX 00000
Telecopier: (000) 000-0000
Xxxxxx XxXxxx 1,641
0000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Telecopier: (000) 000-0000
Xxxxx Xxxxxxxxx 6,563
0000 Xxxxxxxx Xxxxx
Xxxxxxxxx, XX 00000-0000
Telecopier: (000) 000-0000
Xxxxxxx X. XxXxxxxxx 3,282
0000 Xxx Xxxxxxxx Xxxxx
XxXxxx, XX 00000
Telecopier: (000) 000-0000
Xxxxxxx X. Xxxxxx 1,641
Manatt Xxxxxx & Xxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000
Telecopier: (000) 000-0000
Xxxxxx X.X. Xxxxxx 3,282
c/o Hawkes Xxxxxxx Xxxxxxx & Co., Ltd.
00000 Xxx Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
(000) 000-0000
Xxxxxx Xxxxxxxx 3,282
c/o X.X. Xxxxxxxxxx & Co., Inc.
00 Xxxx Xxxxx, Xxxxxx Xxxxx
Xxxxxx, XX 00000
Telecopier: (000) 000-0000
Xxxx Xxxxxxx 3,282
0000 Xxxxxxxx Xxxxx, XX
Xxxxxxxxxx, X.X. 00000
Telecopier: (000) 000-0000
C. Xxxxxxx Xxxxxx 13,127
0000 Xxxxx Xxxx
XxXxxx, XX 00000
Telecopier: (000) 000-0000
Yagemann Revocable Trust, 16,411
Dated November 13, 1992
0 Xxxx Xxxxxx Xxxxx
Xxxxxxxxx, XX 00000
ANNEX B
ANNEX 4.4
LOCK-UP AGREEMENT FOR
DIRECTORS, OFFICERS AND SECURITYHOLDERS
OF VALUE AMERICA, INC.
BANCAMERICA XXXXXXXXX XXXXXXXX
As Lead Representative of the several Underwriters
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
The undersigned understands that you, as lead
representative of the several underwriters (the "Underwriters"),
propose to enter into an Underwriting Agreement (the "Underwriting
Agreement") with Value America, Inc. (the "Company") and certain Selling
Stockholders (as defined in the Underwriting Agreement) providing for
the initial public offering (the "Public Offering") by the Underwriters,
including yourselves, of the Company's common stock, no par value,
(the "Common Stock") pursuant to a Registration Statement of Form S-1
(the "Registration Statement") to be filed with the Securities and
Exchange Commission. This letter agreement shall terminate and be of no
further force and effect either (i) upon a decision by BancAmerica
Xxxxxxxxx Xxxxxxxx or the Company not to proceed with the Public
Offering, or (ii) if the Registration Statement is not filed with the
Securities and Exchange Commission by July 15, 1998.
Page
In consideration of the Underwriters' agreement to
purchase and make the Public Offering of the Common Stock, and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the undersigned hereby agrees that the
undersigned will not, for a period commencing on the date hereof and
continuing thereafter until 180 days after the date of the final
prospectus for the Public Offering (the "Lock-Up Period"), offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to (collectively, a "Disposition") any
shares of Common Stock, any options or warrants to purchase any
shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock (collectively,
"Securities") now owned or hereafter acquired directly by the
undersigned or with respect to which the undersigned has or hereafter
acquires the power of disposition, otherwise than (a) as a bona
fide gift or a distribution to limited partners, members or
shareholders of the undersigned, provided that the donees or
distributees thereof (as the case may be) agree in writing to be bound
by the terms of this Lock-Up Agreement, (b) as a bona fide pledge or,
upon foreclosure of such pledge, to the pledgee, provided that the
pledgee agrees to be subject to the transfer restrictions herein to
the same extent as the undersigned, or (c) with the prior written
consent of BancAmerica Xxxxxxxxx Xxxxxxxx. The foregoing restriction
is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of
securities during the Lock-Up Period, even if such Securities would
be disposed of by someone other than the undersigned. Such
prohibited hedging or other transactions include, without
limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation,
any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or
index) that includes, relates to or derives any significant part of
its value from the Securities. Notwithstanding the foregoing, this
Lock-Up Agreement does not prohibit (i) the sale of shares of
Common Stock by the undersigned to the Underwriters in the Public
Offering or (ii) resales of shares of Common Stock acquired by the
undersigned in the Public Offering or in subsequent open-market
purchases. The undersigned hereby agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent
against the transfer of the Securities held by the undersigned
except in compliance with this Lock-Up Agreement.
Date: _____________________, 1998
Very truly yours,
-------------------------------------------------------------------------------
VALUE AMERICA, INC.
----------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
-----------------------------------
617,979 SHARES OF 5% CUMULATIVE CONVERTIBLE
SERIES B PREFERRED STOCK
Dated as of June 26, 1998
-------------------------------------------------------------------------------
LIST OF ANNEXES
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
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 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
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
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
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
