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VALUE AMERICA, INC.
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PREFERRED STOCK PURCHASE AGREEMENT
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5,000,000 SHARES OF 5% CUMULATIVE CONVERTIBLE
SERIES A PREFERRED STOCK
Dated as of December 17, 1997
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TABLE OF CONTENTS
Page
1. Authorization of Securities 1
2. Sale and Purchase of Preferred Stock. 1
3. Closing 1
4. Register of Securities; Restrictions on Transfer
of Securities; Removal of Restrictions on Transfer of
Securities 1
4.1 Register of Securities 1
4.2 Restrictions on Transfer 2
4.3 Removal of Transfer Restrictions 3
5. Representations and Warranties by the Company 3
5.1 Organization, Standing, etc 3
5.2 Qualification 4
5.3 Capital Stock 4
5.4 Preferred Stock 5
5.5 Indebtedness for Borrowed Money 5
5.6 Shareholder List 5
5.7 Corporate Acts and Proceedings 5
5.8 Compliance with Laws and Other Instruments 6
5.9 Binding Obligations 6
5.10 Securities Laws 7
5.11 No Brokers or Finders 7
5.12 Financial Statements 7
5.13 Absence of Undisclosed Liabilities 7
5.14 Changes 7
5.15 Material Agreements of the Company 8
5.16 Employees 9
5.17 Tax Returns and Audits 10
5.18 Patents and Other Intangible Assets 10
5.19 Employment Benefit Plans--ERISA 12
5.20 Title to Property and Encumbrances; Leases 12
5.21 Condition of Properties 12
5.22 Insurance Coverage 12
5.23 Litigation 12
5.24 Business Plan 13
5.25 Registration Rights 13
5.26 Licenses 13
5.27 Interested Party Transactions 13
5.28 Minute Books and Check Authorizations 13
5.29 Computer Software 14
5.30 Value America Web Site and Systems 14
5.31 Disclosure 15
5A. Investor Representations and Warranties 15
6. Conditions of Parties' Obligations 15
6.1 Conditions of Investor's Obligations at the Closing 15
6.2 Conditions of Company's Obligations 17
7. Affirmative Covenants 17
7.1 Maintain Corporate Rights and Facilities 17
7.2 Maintain Insurance 18
7.3 Pay Taxes and Other Liabilities 18
7.4 Records and Reports 18
7.5 Preparation of Budget 20
7.6 Notice of Litigation and Disputes 20
7.7 Directors' Meetings 20
7.8 Conduct of Business 20
7.9 Replacement of Certificates 21
7.10 Compliance with Section 6 21
7.11 Special Adjustment of Conversion Price 21
7.12 Securities Law Filings 22
7.13 Composition of the Board of Directors;
Compensation Committee 22
7.14 Compliance With Certificate and Bylaws 23
7.15 Internal Accounting Controls 23
7.16 Use of Proceeds 23
7.17 Union Matters 23
8. Negative Covenants 24
8.1 Senior or Parity Securities 24
8.2 Private Offerings 24
8.3 Changes in Type of Business 24
8.4 Loans; Guarantees 24
8.5 Restrictive Agreements 24
8.6 Buyout Option 25
9. Enforcement 25
9.1 Remedies at Law or in Equity 25
9.2 Cumulative Remedies 25
9.3 No Implied Waiver 25
10. Rights of First Refusal 26
10.1 Subsequent Offerings 26
10.2 Exercise of Rights 26
10.3 Issuance of Equity Securities to Other Persons 26
10.4 Termination of Right of First Refusal 26
10.5 Excluded Securities 26
10.6 Strategic Investor Exception 27
11. Definitions 27
12. Miscellaneous 31
12.1 Waivers and Amendments 31
12.2 Effect of Waiver or Amendment 32
12.3 Rights of Holders Inter Se 32
12.4 Notices 32
12.5 Survival of Representations and Warranties, etc 33
12.6 Severability 33
12.7 Parties in Interest 33
12.8 Headings 34
12.9 Choice of Law 34
12.10 Expenses 34
12.11 Counterparts 35
12.12 Authorship 35
12.13 Entire Agreement 35
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is entered
into as of December 17, 1997 between VALUE AMERICA, INC., a Virginia corporation
(the "Company"), and UNION LABOR LIFE INSURANCE COMPANY, a Maryland corporation
acting on behalf of its Separate Account P (which is not a separate entity)
("Ullico" or the "Investor").
THE PARTIES hereby agree as follows:
1. Authorization of Securities. The Company has authorized the
issue and sale of 5,000,000 shares of its 5% Cumulative Convertible Series A
Preferred Stock, without par value (the "Preferred Stock"), having the rights,
preferences and privileges set forth in the Company's Articles of Amendment of
Articles of Incorporation (hereinafter referred to as the "Certificate"), a copy
of which is attached hereto as Annex A. The Preferred Stock is convertible into
the Company's common stock, without par value, which class of shares is
sometimes referred to herein as the "Common Stock"; the Common Stock into which
the Preferred Stock is convertible is sometimes referred to herein as the
"Conversion Stock"; and the Preferred Stock and the Conversion Stock are
sometimes referred to herein individually and collectively as the "Securities".
2. Sale and Purchase of Preferred Stock. Upon the terms and
subject to the conditions herein contained, the Company agrees to sell to
Investor, and Investor agrees to Purchase from Company, at the Closing (as
hereinafter defined) on the Closing Date (as hereinafter defined) 5,000,000
shares of Preferred Stock at a price of $2.00 per share (the "Purchase
Payment").
3. Closing. The closing of the sale to and purchase by Investor of
the Preferred Stock (the "Closing") shall occur at the offices of Paul,
Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, 1299 Pennsylvania Avenue, N.W., Tenth Floor,
Washington, D.C., at the hour of 10:00 A.M., Eastern time, on December 18, 1997
or at such different time or day as the Investor and the Company shall agree
(the "Closing Date"). At the Closing, the Company will deliver to Investor a
certificate evidencing the Preferred Stock which shall be registered in
Investor's name, against delivery to the Company of payment by check or wire
transfer in an amount equal to the Purchase Payment.
4. Register of Securities; Restrictions on Transfer of Securities;
Removal of Restrictions on Transfer of Securities.
4.1 Register of Securities. The Company or its
duly appointed agent shall maintain a separate register for the shares of
Preferred Stock and Common Stock, in which it shall register the issue and sale
of all such shares. All transfers of the Securities shall be recorded on the
register maintained by the Company or its agent, and the Company shall be
entitled to regard the registered holder of the Securities as the actual holder
of the Securities so registered until the Company or its agent is required to
record a transfer of such Securities on its register. Subject to Section 4.2(c)
hereof, the Company or its agent shall be required to record any such transfer
when it receives the Security to be transferred duly and properly endorsed by
the registered holder thereof or by its attorney duly authorized in writing.
4.2 Restrictions on Transfer.
(a) Investor understands and agrees
that the Securities it will be acquiring have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and that accordingly
they will not be fully transferable except as permitted under various exemptions
contained in the Securities Act or applicable state securities laws, or upon
satisfaction of the registration and prospectus delivery requirements of the
Securities Act or registration or qualification requirements under applicable
state securities laws. Investor acknowledges that it must bear the economic risk
of its investment in the Securities for an indefinite period of time (subject,
however, to the Company's obligation to redeem the Preferred Stock in accordance
with the Certificate and to the Company's obligation to effect the registration
of the Conversion Stock under the Securities Act in accordance with the
Registration Rights Agreement (as hereinafter defined)) since they have not been
registered under the Securities Act and therefore cannot be sold unless they are
subsequently registered or an exemption from registration is available.
(b) (i) Investor hereby
represents and warrants to the Company that it (i) is acquiring the Securities
it has agreed to purchase for investment purposes only, for its own account, and
not as nominee or agent for any other Person, and not with the view to, or for
resale in connection with, any distribution thereof within the meaning of the
Securities Act, (ii) it is an "accredited investor" within the meaning of Rule
501(a) of the Commission under the Securities Act, (iii) it is a Maryland
corporation headquartered in Washington, D.C., and (iv) has had the opportunity
to review information provided to it by the Company and ask questions about and
received answers regarding the same.
(c) Investor hereby agrees with the Company
as follows:
(i) Subject to Section 4.3
hereof, the certificates evidencing the Securities it has agreed to purchase,
and each certificate issued in transfer thereof, will bear the following legend:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933 and have been taken
for investment purposes only and not with a view to the
distribution thereof, and, except as stated in an agreement
between the holder of this certificate, or its predecessor in
interest, and the issuer corporation, such securities may not be
sold or transferred unless there is an effective registration
statement under such Act covering such securities or the issuer
corporation receives an opinion of counsel (which may be counsel
for the issuer corporation) stating that such sale or transfer is
exempt from the registration and prospectus delivery requirements
of such Act."
(ii) The certificates representing such
Securities, and each certificate issued in transfer thereof, will also bear any
legend required under any applicable state securities law.
(iii) Absent an effective registration
statement under the Securities Act, covering the disposition of the Securities
which Investor acquires, Investor will not sell, transfer, assign, pledge,
hypothecate or otherwise dispose of any or all of the Securities without first
providing the Company with an opinion of counsel (which may be counsel for the
Company) to the effect that such sale, transfer, assignment, pledge,
hypothecation or other disposition will be exempt from the registration and the
prospectus delivery requirements of the Securities Act and the registration or
qualification requirements of any applicable state securities laws, except that
no such registration or opinion shall be required with respect to (A) a transfer
not involving a change in beneficial ownership, or (B) the distribution of
Securities by such Investor to any of its partners, or retired partners, or to
the estate of any of its partners or retired partners, (C) the distribution of
Securities by Ullico to the participants in its Separate Account P, or (D) a
sale to be effected in accordance with Rule 144 of the Commission under the
Securities Act (or any comparable exemption).
(iv) Investor consents to the Company's
making a notation on its records or giving instructions to any transfer agent of
the Common Stock or Preferred Stock in order to implement the restrictions on
transfer of the Securities mentioned in this subsection (c).
4.3 Removal of Transfer Restrictions. Any
legend endorsed on a certificate evidencing a Security pursuant to Section
4.2(c)(i) hereof and the stop transfer instructions and record notations with
respect to such Security shall be removed and the Company shall issue a
certificate without such legend to the holder of such Security (a) if such
Security is registered under the Securities Act, or (b) if such Security may be
sold under Rule 144(k) of the Commission under the Securities Act or (c) if such
holder provides the Company with an opinion of counsel (which may be counsel for
the Company) reasonably acceptable to the Company to the effect that a public
sale or transfer of such Security may be made without registration under the
Securities Act.
5. Representations and Warranties by the Company. In order to
induce Investor to enter into this Agreement and to purchase the Preferred
Stock, the Company hereby covenants with, and represents and warrants to, the
Investor as follows:
5.1 Organization, Standing, etc. (a) The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia, and has all requisite power and authority to carry on
its business, to own and hold its properties and assets, to enter into this
Agreement and the Registration Rights Agreement, to issue the Securities and to
carry out the provisions hereof and thereof, and the terms of the Certificate
and the Securities. The copies of the Certificate of Incorporation and Bylaws of
the Company which have been delivered to Investor prior to the execution of this
Agreement are true and complete and have not been amended or repealed, except
for the amendments to the Articles of Incorporation which have been or will be
accomplished by the filing of the Certificate with the State Corporation
Commission of the Commonwealth of Virginia. The Company has no Subsidiaries (as
hereinafter defined) or direct or indirect interest (by way of stock ownership
or otherwise) in any firm, partnership, corporation, association or business
enterprise.
(b) (i) On October 23, 1997 the
Company effected a statutory merger (the "Nevada Merger") with Value America,
Inc., a Nevada corporation ("Nevada Company"), the sole stockholders of which
were ▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇ (the "Reincorporation Merger") pursuant to a
Plan and Agreement of Merger dated as of October 21, 1997 between the Company
and Nevada Company (the "Merger Agreement"). All references in this Agreement to
the Company are to the Company and Nevada Company unless the context otherwise
requires.
(ii) The Reincorporation
Merger and the execution, delivery and performance of the Merger Agreement were
duly authorized by all required corporate, director and stockholder action by
each of the Company and the Nevada Company and did not violate any applicable
law, rule or regulation and did not result in the creation or imposition of any
Lien and did not cause either Person (a) to violate or breach (i) any order,
writ, judgment, injunction, decree, determination or award, or (ii)any provision
of the Articles of Incorporation or Bylaws of either Person, or (b) to violate,
be in conflict with, breach or default under any indenture, loan or credit
agreement, note agreement, deed of trust, mortgage, security agreement or other
agreement, lease or instrument, commitment or arrangement, to which either
Person was a party or by which the properties, assets or rights of either Person
was bound or affected.
5.2 Qualification. The Company is duly
qualified, licensed or domesticated as a foreign corporation in good standing in
each jurisdiction wherein the nature of its activities or its properties owned
or leased makes such qualification, licensing or domestication necessary.
5.3 Capital Stock. The authorized capital stock
of the Company consists of 50,000,000 shares of Common Stock, and 5,000,000
shares of Preferred Stock, and the Company has no authority to issue any other
capital stock. No shares of Preferred Stock have been issued prior to the
Closing; only 7,692,500 shares of Common Stock are issued and outstanding, and
such shares are duly authorized, validly issued, fully paid and nonassessable.
The offer, issuance and sale of such shares of Common Stock were (a) exempt from
the registration and prospectus delivery requirements of the Securities Act, (b)
registered or qualified (or were exempt from registration or qualification)
under the registration or qualification requirements of all applicable state
securities laws, and (c) accomplished in conformity with all other federal and
applicable state securities laws, rules and regulations. The Company has (A)
reserved a total of 1,250,000 shares of Common Stock for issuance under the
Company's 1997 Stock Incentive Plan (the "Stock Plan"), under which options to
purchase a total of 860,375 shares have been granted, (B) reserved a total of
71,250 shares for issuance upon exercise of outstanding Stock Purchase Warrants
issued by the Company and (C) is obligated to issue 25,000 shares of Common
Stock to ▇▇▇▇▇ ▇▇▇▇▇▇. Except as expressly provided in this Agreement or the
Certificate, the Company has no outstanding subscription, option, warrant, call,
contract, demand, commitment, convertible security or other instrument,
agreement or arrangement of any character or nature whatsoever under which the
Company is or may be obligated to issue Common Stock, preferred stock or other
Equity Security (as hereinafter defined) of any kind. Neither the offer nor the
issuance or sale of the Securities constitutes or will constitute an event,
under any Equity Security or any anti-dilution or similar provision of any
agreement or instrument to which the Company is a party or by which it is bound
or affected, which shall either increase the number of shares or units of Equity
Securities issuable upon conversion of any securities (whether stock or
Indebtedness for Borrowed Money (as hereinafter defined)) or upon exercise of
any warrant or right to subscribe to or purchase any stock or similar security
(including Indebtedness for Borrowed Money), or decrease the consideration per
share or unit of Equity Security to be received by the Company upon such
conversion or exercise.
5.4 Preferred Stock. The Preferred Stock is
duly authorized and, when issued and paid for pursuant to the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, will have the rights, preferences and privileges specified in the
Certificate and will be free and clear of all Liens (as hereinafter defined) and
restrictions, other than Liens that might have been created by Investor and
restrictions on transfer imposed by (i) Sections 4.2 and 4.3 hereof, (ii)
applicable state securities laws and (iii) the Securities Act; and the
Conversion Stock is duly authorized and has been reserved for issuance upon
conversion of the Preferred Stock and, when issued upon conversion in accordance
with the terms of the Certificate, will be duly authorized, validly issued,
fully paid and nonassessable Common Stock and free and clear of all Liens and
restrictions, other than Liens that might have been created by Investors and
restrictions imposed by (i) Sections 4.2 and 4.3 hereof, (ii) applicable state
securities laws and (iii) the Securities Act.
5.5 Indebtedness for Borrowed Money. The
Company has no Indebtedness for Borrowed Money except as disclosed on the
Balance Sheet (as hereinafter defined) or on Annex 5.5 hereto.
5.6 Shareholder List. Annex 5.6 hereto contains
a true and complete list of the names and addresses of the beneficial holders of
all of the outstanding Common Stock and of the holders of all outstanding
options, warrants or other rights to purchase Common Stock. With respect to
holders of Common Stock, Annex 5.6 contains a true and complete description of
the number of shares held by each such holder, the date such shares were
purchased, the price paid per share and the form of payment therefor. With
respect to each outstanding option, Annex 5.6 sets forth the date of grant, the
number of shares subject thereto, the exercise price, vesting schedule and
expiration date. With respect to warrants, Annex 5.6 sets forth the date of
issue of each warrant, the number of shares of Common Stock subject to the
warrant, the exercise price and expiration date. No holder of Common Stock or
any other security of the Company or any other Person is entitled to any
preemptive right, right of first refusal or similar right as a result of the
issuance of the Securities or otherwise. Except as disclosed in Annex 5.6, there
is no voting trust, agreement or arrangement among any of the beneficial holders
of Common Stock of the Company affecting the exercise of the voting rights of
such stock.
5.7 Corporate Acts and Proceedings. All
corporate acts and proceedings required for the authorization, execution and
delivery of this Agreement and the Registration Rights Agreement, the offer,
issuance and delivery of the Securities and the performance of this Agreement,
the Registration Rights Agreement (except to the extent that additional Board
action may be required to effect a Securities Act registration) and the terms of
the Certificate have been lawfully and validly taken or will have been so taken
prior to the Closing.
5.8 Compliance with Laws and Other Instruments.
The business and operations of the Company have been and are being conducted in
accordance with all applicable federal, state and local laws, rules and
regulations, except to the extent that noncompliance with laws, rules and
regulations would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. The execution and delivery by the Company of this
Agreement and the Registration Rights Agreement and the performance of this
Agreement and the Registration Rights Agreement and the terms of the Certificate
(a) will not require from the Board or stockholders of the Company any consent
or approval that has not been validly and lawfully obtained (except to the
extent that additional Board action may be required to effect a Securities Act
registration), (b) will not require any authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality of government,
except such as shall have been lawfully and validly obtained prior to the
Closing (except for filing a Form D with the Commission within 15 days of the
Closing Date and proceedings under the Securities Act or state blue sky laws to
register Common Stock under the Securities Act), (c) will not cause the Company
to violate or contravene (i) any provision of law, (ii) any rule or regulation
of any agency or government, domestic or foreign, (iii) any order, writ,
judgment, injunction, decree, determination or award, or (iv) any provision of
the Articles of Incorporation or Bylaws of the Company, (d) will not violate or
be in conflict with, result in a breach of or constitute (with or without notice
or lapse of time or both) a default under, any indenture, loan or credit
agreement, note agreement, deed of trust, mortgage, security agreement or other
agreement, lease or instrument, commitment or arrangement to which the Company
is a party or by which the Company or any of its properties, assets or rights is
bound or affected, to the extent that such violation, conflict breach or default
would (individually or in the aggregate) have a Material Adverse Effect and (e)
will not result in the creation or imposition of any Lien. The Company is not in
material violation of, or (with or without notice or lapse of time or both) in
default under, any term or provision of its Articles of Incorporation or Bylaws
or of any indenture, loan or credit agreement, note agreement, deed of trust,
mortgage, security agreement or other agreement, lease or other instrument,
commitment or arrangement to which the Company is a party or by which any of the
Company's properties, assets or rights is bound or affected. The Company is not
subject to any restriction of any kind or character which has or may have a
Material Adverse Effect on the Company or which prohibits the Company from
entering into this Agreement or would prevent or make burdensome its performance
of or compliance with all or any part of this Agreement, the Registration Rights
Agreement or the Certificate or the consummation of the transactions
contemplated hereby or thereby.
5.9 Binding Obligations. This Agreement, the
Registration Rights Agreement and the Certificate constitute the legal, valid
and binding obligations of the Company and are enforceable against the Company
in accordance with their respective terms, except as such enforcement is limited
by bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally.
5.10 Securities Laws. Subject to the accuracy of
Investor's representations and warranties in Section 4.2(b), the offer, issue
and sale of the Securities are and will be exempt from the registration and
prospectus delivery requirements of the Securities Act, and have been registered
or qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
5.11 No Brokers or Finders. Except as provided
in Annex 5.11, no Person has, or as a result of the transactions contemplated
herein will have, any right or valid claim against the Company or any Investor
for any commission, fee or other compensation as a finder or broker, or in any
similar capacity.
5.12 Financial Statements. Attached hereto as
Annex 5.12 are the Company's unaudited balance sheet (the "Balance Sheet") as of
August 31, 1997 (the "Balance Sheet Date") and the unaudited statements of
income and shareholders' equity for the eight-month period then ended, and no
more current financial statements have been prepared. These financial statements
(i) are in accordance with the books and records of the Company, and (ii)
accurately present the financial condition of the Company at the Balance Sheet
Date and the results of its operations for the period therein specified.
Specifically, but not by way of limitation, the Balance Sheet discloses all of
the debts, liabilities and obligations of any nature (whether absolute, accrued,
contingent or otherwise and whether due or to become due) of the Company at the
Balance Sheet Date which must be disclosed on an accurate balance sheet.
5.13 Absence of Undisclosed Liabilities. Except
as disclosed on Annex 5.13 hereto, the Company has no material obligation or
liability (whether accrued, absolute, contingent, liquidated or otherwise,
whether due or to become due, whether or not known to the Company) arising out
of any transaction entered into at or prior to the Closing, or any act or
omission to act at or prior to the Closing, or any state of facts existing at or
prior to the Closing, including taxes with respect to or based upon the
transactions or events occurring at or prior to the Closing, and including
without limitation unfunded past service liabilities under any pension, profit
sharing or similar plan, except (a) to the extent set forth on or reserved
against in the Balance Sheet, and (b) current liabilities incurred and
obligations under agreements entered into, in the usual and ordinary course of
business, since the Balance Sheet Date, none of which (individually or in the
aggregate) has a Material Adverse Effect on the Company.
5.14 Changes. Since the Balance Sheet Date as to
clauses (a) and (c) below and since one year prior to the Balance Sheet Date as
to the remaining clauses of this Section 5.14, except as disclosed on Annex 5.14
hereto, the Company has not (a) incurred any debts, obligations or liabilities,
absolute, accrued, contingent or otherwise, whether due or to become due, except
current liabilities incurred in the usual and ordinary course of business, none
of which (individually or in the aggregate) materially and adversely affects the
business, finances, properties or prospects of the Company, (b) made or suffered
any changes in its contingent obligations by way of guaranty, endorsement (other
than the endorsement of checks for deposit in the usual and ordinary course of
business), indemnity, warranty or otherwise, (c) discharged or satisfied any
Liens other than those securing, or paid any obligation or liability other than,
current liabilities shown on the Balance Sheet and current liabilities incurred
since the Balance Sheet Date, in each case in the usual and ordinary course of
business, (d) mortgaged, pledged or subjected to Lien any of its assets,
tangible or intangible, (e) sold, transferred or leased any of its assets except
in the usual and ordinary course of business, (f) canceled or compromised any
debt or claim, or waived or released any right, of material value, (g) suffered
any physical damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting the properties, business or prospects of the
Company, (h) entered into any transaction other than in the usual and ordinary
course of business except for this Agreement, (i) encountered any labor
difficulties or labor union organizing activities, (j) except in the usual and
ordinary course of business, made or granted any wage or salary increase or
entered into any employment agreement, (k) issued or sold any shares of capital
stock or other securities or granted any options with respect thereto, or
modified any Equity Security, except to the extent disclosed on Annex 5.6
hereto, (l) declared or paid any dividends on or made any other distributions
with respect to, or purchased or redeemed, any of its outstanding Equity
Securities, (m) suffered or experienced any change in, or condition affecting,
its condition (financial or otherwise), properties, assets, liabilities,
business operations, results of operations or prospects other than changes,
events or conditions in the usual and ordinary course of its business, none of
which (either by itself or in conjunction with all such other changes, events
and conditions) has been materially adverse, (n) made any change in the
accounting principles, methods or practices followed by it or depreciation or
amortization policies or rates theretofore adopted, or (o) entered into any
agreement, or otherwise obligated itself, to do any of the foregoing.
5.15 Material Agreements of the Company. Except
as expressly set forth in this Agreement, the Balance Sheet or as disclosed on
Annex 5.15 hereto, the Company is not a party to any written or oral agreement,
instrument or arrangement not made in the ordinary course of business that is
material to the Company and the Company is not a party to any written or oral
(a) agreement with any labor union, (b) agreement for the purchase of fixed
assets or for the purchase of materials, supplies or equipment in excess of
normal operating requirements, (c) agreement for the employment of any officer,
individual employee or other Person on a full time basis or any agreement with
any Person for consulting services, (d) bonus, pension, profit sharing,
retirement, stock purchase, stock option, deferred compensation, medical,
hospitalization or life insurance (other than group medical, hospitalization or
insurance plans applicable to all employees in which benefit levels are not
related to compensation) or similar plan, contract or understanding with respect
to any or all of the employees of the Company or any other Person, (e)
indenture, loan or credit agreement, note agreement, deed of trust, mortgage,
security agreement, promissory note or other agreement or instrument relating to
or evidencing Indebtedness for Borrowed Money or subjecting any asset or
property of the Company to any Lien or evidencing any Indebtedness, (f) guaranty
of any Indebtedness, (g) lease or agreement under which the Company is lessee of
or holds or operates any property, real or personal, owned by any other Person
under which payments to such Person exceed $ 75,000 per annum, (h) lease or
agreement under which the Company is lessor or permits any Person to hold or
operate any granting any preemptive right, right of first refusal or similar
right to any Person, (j) agreement or arrangement with any Affiliate (as
hereinafter defined) or any "associate" (as this term is defined in Rule 405 of
the Commission under the Securities Act) of the Company or any officer, director
or shareholder of the Company, (k) agreement obligating the Company to pay any
royalty or similar charge for the use or exploitation of any tangible or
intangible property, (l) agreement or license under which the Company has
granted or transferred to any Person , or under which any Person has granted or
transferred to the Company, the right to exploit or otherwise use any patent,
trademark, service ▇▇▇▇, copyright, trade name, trade secret, software,
intellectual property (as hereinafter defined) or other intangible asset, (m)
covenant not to compete or other restriction on its ability to conduct a
business or engage in any other activity, (n) agreement to register securities
under the Securities Act, or (o) agreement, instrument or other commitment or
arrangement with any Person continuing for a period of more than three months
from the Closing Date which involves an expenditure or receipt by the Company in
excess of $75,000. For purposes of the next preceding sentence, "material" shall
mean an obligation which by its terms calls for aggregate payments by the
Company in excess of $75,000. The Company has furnished to Investor true and
complete copies of all agreements and other documents requested by Investor or
its authorized representative. All parties having material contractual
arrangements with the Company are in substantial compliance therewith, and none
is in default in any material respect thereunder. The Company does not have
outstanding any power of attorney.
5.16 Employees. The following individuals
(collectively, "Designated Key Employees") are in the full-time employ of the
Company: ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Page and ▇▇▇▇▇▇
▇▇▇▇▇▇. To the best of the Company's knowledge, no Designated Key Employee of
the Company has any plans to terminate his or her employment with the Company,
and the Company has no intention of terminating the employment of any Designated
Key Employee. To the best of the Company's knowledge after reasonable inquiry,
no Designated Key Employee or any other employee of the Company is a party to or
is otherwise bound by any agreement or arrangement (including, without
limitation, any license, covenant, or commitment of any nature), or subject to
any judgment, decree, or order of any court or administrative agency, (a) that
would conflict with such employee's obligation diligently to promote and further
the interests of the Company or (b) that would conflict with the Company's
business as now conducted or as proposed to be conducted. No Designated Key
Employee has any direct or indirect equity interest (by way of stock ownership
or otherwise) in any firm, partnership, corporation, association or business
enterprise, other than any such interest (i) in a corporation which is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act and
(ii) which does not, alone or in the aggregate with other such interests, exceed
one percent (1%) of the equity of such corporation. The Company has complied in
all material respects with all laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity, collective
bargaining and payment of Social Security and other taxes, and the Company has
encountered no material labor difficulties. Except as disclosed on Annex 5.15
hereto or pursuant to ordinary arrangements for employment compensation, the
Company is not under any obligation or liability to any officer, director,
employee or Affiliate of the Company.
5.17 Tax Returns and Audits. Except as disclosed
on Annex 5.13, all required federal, state and local tax returns of the Company
have been accurately prepared and duly and timely filed, and all federal, state
and local taxes required to be paid with respect to the periods covered by such
returns have been paid. Except as disclosed on Annex 5.13, the Company is not
and has not been delinquent in the payment of any tax, assessment or
governmental charge. The Company has never had any tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
None of the Company's federal income tax returns nor any state income or
franchise tax returns has ever been audited by governmental authorities. Except
as disclosed on Annex 5.13, the reserves for taxes, assessments and governmental
charges reflected on the Balance Sheet are and will be sufficient for the
payment of all unpaid taxes, assessments and governmental charges payable by the
Company with respect to the period ended on the Balance Sheet Date. Except as
disclosed on Annex 5.13, since the Balance Sheet Date, the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations for
such period. The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositaries.
5.18 Patents and Other Intangible Assets.
(a) The Company (i) owns or has the
right to use, free and clear of all Liens, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to the foregoing, used in or necessary for the conduct of its business
as now conducted or proposed to be conducted, (ii) is not infringing upon or
otherwise acting adversely to the right or claimed right of any Person under or
with respect to any patent, trademark, service ▇▇▇▇, trade name, copyright or
license with respect thereto, and (iii) except for the obligation to pay $7,000
to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ pursuant to a December 3, 1997 agreement with the Company,
is not obligated or under any liability whatsoever to make any payments by way
of royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service ▇▇▇▇, 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 ▇▇▇▇, trade name, copyright,
trade secret, proprietary right, process or other intellectual property of any
other Person.
5.19 Employment Benefit Plans--ERISA. The
Company does not maintain or make contributions to any pension, profit sharing
or other employee retirement benefit plan. The Company has no material liability
with respect to any such plan (including, without limitation, any unfunded
liability or any accumulated funding deficiency) or any material liability to
the Pension Benefit Guaranty Corporation or under Title IV of the Employee
Retirement Income Security Act of 1974, as amended, with respect to a
multi-employer pension benefit plan, nor would the Company have any such
liability if any such plan were terminated or if the Company withdrew, in whole
or in part, from any multi-employer plan.
5.20 Title to Property and Encumbrances; Leases.
The Company has good and marketable title to all of its properties and assets,
including without limitation the properties and assets reflected in the Balance
Sheet and the properties and assets used in the conduct of its business, except
for properties disposed of in the ordinary course of business since the Balance
Sheet Date and except for properties held under valid and subsisting leases
which are in full force and effect and which are not in default, subject to no
Lien, except those which are shown and described on the Balance Sheet and except
for Permitted Liens (as hereinafter defined) and except for Liens disclosed on
Annex 5.20. All material leases under which the Company is lessee of any real or
personal property are valid, enforceable and effective in accordance with their
terms (subject to the laws of bankruptcy, insolvence and other similar laws
affecting the enforcement of creditors' rights generally); there is not under
any such lease any existing or claimed default by the Company or event or
condition which with notice or lapse of time or both would constitute a default
by the Company. No lease under which the Company is lessee of any real property
contains any provision which either (i) treats a sale or transfer of any or all
of the outstanding stock of the Company or a merger of the Company with another
Person as an assignment of the Company's leasehold interest, or (ii) otherwise
requires the consent of the lessor in the event of any such sale, transfer or
merger.
5.21 Condition of Properties. All facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased or
used by the Company are in good operating condition and repair and are adequate
and sufficient for the Company's business.
5.22 Insurance Coverage. The Company has in full
force and effect the insurance coverage specified in Appendix 5.22. The Company
has not been refused any insurance coverage sought or applied for, and the
Company has no reason to believe that it will be unable to renew its existing
insurance coverage as and when the same shall expire upon terms at least as
favorable as those presently in effect, other than possible increases in
premiums that do not result from any act or omission of the Company.
5.23 Litigation. Except as disclosed on Annex
5.23 hereto, there is no legal action, suit, arbitration or other legal,
administrative or other governmental investigation, inquiry or proceeding
(whether federal, state, local or foreign) pending or threatened against or
affecting (i) the Company or its properties, assets or business (existing or
contemplated), or (ii) any Designated Key Employee, before any court or
governmental department, commission, board, bureau, agency or instrumentality or
any arbitrator. After reasonable investigation, except as disclosed in Annex
5.23, neither the Company nor any Designated Key Employee of nor attorney for
the Company is aware of any fact which might result in or form the basis for any
such action, suit, arbitration, investigation, inquiry or other proceeding.
Neither the Company nor any Designated Key Employee is in default with respect
to any order, writ, judgment, injunction, decree, determination or award of any
court or of any governmental agency or instrumentality (whether federal, state,
local or foreign).
5.24 Business Plan. In November 1997, the
Company furnished to Investor a Business Plan (which has been amended by a
memorandum from the Company to the Investor dated December 10, 1997 (which
Business Plan as so amended is referred to herein as the "Plan"), copies of
which have been initialed by the Company and Investor for purposes of
identification. While the Company does not warrant that it will achieve the
financial projections appearing in the Plan, the Plan discloses all material
assumptions used in the preparation of these projections; all such assumptions
are reasonable; the Company has a reasonable basis for making these projections;
the Company has no reason to believe that the Company will be unable to meet
these projections; and these projections fairly present the information which
they purport to show.
5.25 Registration Rights. Other than under the
Registration Rights Agreement, the Company has not agreed to register under the
Securities Act any of its authorized or outstanding securities.
5.26 Licenses. Except as disclosed on Annex
5.26, the Company possesses from the appropriate agency, commission, board and
governmental body and authority, whether state, local or federal, all material
licenses, permits, authorizations, approvals, franchises and rights which are
necessary for the Company to engage in the business currently conducted by it
and proposed to be conducted, including without limitation the development,
manufacture, use, sale and marketing of its existing and proposed products and
services; and all such certificates, licenses, permits, authorizations and
rights are in full force and effect, and, to the best of the Company's
knowledge, will not be revoked, canceled, withdrawn, terminated or suspended.
5.27 Interested Party Transactions. Except as
disclosed on Annex 5.27 hereto, no officer, director or shareholder of the
Company or any Affiliate or "associate" (as this term is defined in Rule 405 of
the Commission under the Securities Act) of any such Person or the Company has
or has had, either directly or indirectly, (a) an interest in any Person which
(i) furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (ii) purchases from or sells
or furnishes to the Company any goods or services, or (b) a beneficial interest
in any transaction, contract or agreement to which the Company is a party or by
which it may be bound or affected.
5.28 Minute Books and Check Authorizations. The
minute books of the Company provided to Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
special counsel for the Investor, contain all resolutions adopted by directors
and shareholders since the incorporation of the Company and fairly and
accurately reflect, in all material respects, all matters and transactions
referred to in such minutes. The Board has adopted, and there is in full force
and effect, a policy which prohibits the issuance of any check or draft by the
Company in any amount in excess of $10,000 on any deposit account of the Company
unless the same has been signed by two officers of the Company who have been so
authorized by action of the Board.
5.29 Computer Software.
(a) Attached as Annex 5.29A hereto is
a true and complete list of all material computer software used by the Company
in the conduct of its business as presently conducted or as proposed to be
conducted (the "Fully Operational Software"), together with a brief description
of each principal function thereof. All Fully Operational Software is fully
functional, complete and operational, has been fully documented and, except for
software licensed to the Company as shown on Annex 5.29A ("third-party
software"), both source code and object code versions thereof are in the
Company's possession and control, and, except for third-party software, no
Person outside the Company has possession of or access to the source code for
any Fully Operational Software.
(b) Attached as Annex 5.29B hereto is a true
and complete list of all computer software that the Company can reasonably
foresee it will need to conduct its business as conducted and as proposed to be
conducted that is not Fully Operational Software (the "Developing Software"),
together with a brief description of the principal intended functions thereof.
Annex 5.29B also contains a schedule to complete the development of each
category of Developing Software (the "Completion Schedule"), and each principal
system or element within each such category as well as the name of each employee
and consultant of the Company who is responsible for writing, documenting and
completing each identified category, system and element. The Company and each
Designated Employee has carefully examined the Completion Schedule for each
category, system and element of the Developing Software and believes, after
conducting a reasonable investigation sufficient to reach an informed view, that
the Company will be able to achieve completion of the Developing Software by the
scheduled completion dates appearing in the Completion Schedule and without the
Company being required to incur any material expense beyond that shown in the
projections appearing in the Plan.
5.30 Value America Web Site and Systems
(a) The Company owns and has the
unrestricted right to communicate and publish its "Value America" Internet
product offering (the "Web Site") and conduct business on the World Wide Web at
the Internet address "▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇" and in connection therewith to use the
registered service ▇▇▇▇ and trade name "Value America" and in so doing is not
acting in conflict with any patent, trademark, service ▇▇▇▇, 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 ▇▇▇▇, trade name, copyright, trade secret, license or
other proprietary right with respect thereto.
(c) Annex 5.30(c) attached hereto contains a
true and complete list of all complaints received by the Company from persons
who have ordered products using the Web Site.
(d) Except as disclosed on Annex 5.30(d)
attached hereto, no Person whose product or products have been offered for sale
on the Web Site has terminated or materially modified (or communicated an
intention to terminate or materially modify) its relationship with the Company.
5.31 Disclosure. There is no fact which the
Company has not disclosed to the Investor in writing which materially and
adversely affects nor, insofar as the Company can now foresee, will materially
and adversely affect, the properties, business, prospects, results of operation
or condition (financial or other) of the Company or the ability of the Company
to perform this Agreement or the Registration Rights Agreement or observe the
terms of the Certificate. The information contained in the Plan, in this
Agreement and in any writing furnished pursuant hereto or in connection herewith
is true, complete and correct, and such information does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or herein or necessary to make the statements therein or herein
not misleading.
5A. Investor Representations and Warranties. Investor
hereby represents and warrants to the Company as follows:
(1) Investor is a corporation duly organized,
validly existing and in good standing under the laws of the state of Maryland
and has all requisite power and authority to enter into this Agreement, the
Registration Rights Agreement, to purchase the Securities and carry out the
provisions of this Agreement and the Registration Rights Agreement.
(2) All corporate acts and proceedings required for the
authorization, execution and delivery of this Agreement, the Stockholders
Agreement, the Buyout Agreement and the Registration Rights Agreement and the
purchase of the Securities by Investor have been lawfully and validly taken or
will have been so taken prior to the Closing.
(3) This Agreement, the Registration Rights
Agreement, the Buyout Agreement and the Stockholders Agreement are the legal,
valid and binding obligations of Investor and are enforceable against Investor
in accordance with their respective terms, except that such enforcement is
limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally.
6. Conditions of Parties' Obligations.
6.1 Conditions of Investor's Obligations at the Closing.
The obligation of Investor to purchase and pay for the Preferred Stock is
subject to the fulfillment prior to or on the Closing Date of the following
conditions, any of which may be waived in whole or in part by Investor.
(a) No Errors, etc. The
representations and warranties of the Company under this Agreement shall be
deemed to have been made again on the Closing Date and shall then be true and
correct.
(b) Compliance with Agreement. The Company
shall have performed and complied with all agreements and conditions required by
this Agreement to be performed or complied with by it on or before the Closing
Date.
(c) No Default. There shall not
exist on the Closing Date any Default (as hereinafter defined) or Event of
Default (as hereinafter defined) or any event or condition which, with the
giving of notice or lapse of time or both, would constitute a Default or Event
of Default.
(d) Certificate of Officer. The Company
shall have delivered to Investor a certificate dated the Closing Date, executed
by its President, certifying the satisfaction of the conditions specified in
subsections (a), (b) and (c) of this Section 6.1.
(e) Certificate of Principal
Shareholders. The Company shall have delivered to Investor a certificate dated
the Closing Date, executed by the Designated Key Employees, certifying, to the
best of their knowledge, upon having made a reasonable investigation sufficient
to express an informed view, the satisfaction of the conditions specified in
subsections (a), (b) and (c) of this Section 6.1.
(f) Opinion of the Company's Counsel. The
Investors shall have received from ▇▇▇▇▇▇▇ ▇▇▇▇, a professional corporation,
counsel for the Company, a favorable opinion dated the Closing Date
substantially in the form of Annex 6.1(f) hereto.
(g) Certificate. The Certificate shall have
been filed with the State Corporation Commission of the Commonwealth of Virginia
and a copy of the Certificate of Amendment issued by the State Corporation
Commission of the Commonwealth of Virginia shall have been delivered to special
counsel for the Investor, Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP.
(h) Qualification Under State
Securities Laws. All registrations, qualifications, permits and approvals
required under applicable state securities laws shall have been obtained for the
lawful execution, delivery and performance of this Agreement and the performance
of the Certificate, including without limitation the offer, sale, issue and
delivery of the Securities.
(i) Supporting Documents. Investor
shall have received the following:
(1) Copies of resolutions
of the Board, certified by the Secretary of the Company, authorizing and
approving the amendments to the Articles of Incorporation of the Company
reflected in the Certificate and, as to the Board, the execution, delivery and
performance of this Agreement and the Registration Rights Agreement and the
performance of the Certificate, and all other documents and instruments to be
delivered pursuant hereto and thereto;
(2) A certificate of
incumbency executed by the Secretary of the Company certifying the names, titles
and signatures of the officers authorized to execute the documents referred to
in subparagraph (2) above and further certifying that the Certificate of
Incorporation and Bylaws of the Company delivered to the Investors at the time
of the execution of this Agreement have been validly adopted and have not been
amended or modified, except to the extent provided in the Certificate; and
(3) Such additional supporting
documentation and other information with respect to the transactions
contemplated hereby as the Investor or its special counsel, Paul, Hastings,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, may reasonably request.
(j) Proceedings and Documents. All
corporate and other proceedings and actions taken in connection with the
transactions contemplated hereby and all certificates, opinions, agreements,
instruments and documents mentioned herein or incident to any such transactions,
shall be satisfactory in form and substance to Investor and to its special
counsel, Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP.
(k) Stockholders Agreement. ▇▇▇▇▇ ▇.
▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇ (the "Senior Executives"), Investor and the Company shall
have entered into a Stockholders Agreement, substantially in the form of Annex
6.1(k) hereto (the "Stockholders Agreement") and the certificates evidencing the
Common Stock held by the Senior Executives shall have been endorsed with the
legend required by the Stockholders Agreement.
(l) Registration Rights Agreement.
The Company and the Investor shall have entered into a Registration Rights
Agreement substantially in the form of Annex 6.1(l) hereto (the "Registration
Rights Agreement").
(m) Buyout Option Agreement. The
Company, Investor and the holders of the outstanding Common Stock shall have
entered into a Buyout Option Agreement substantially in the form of Annex 6.1(m)
(the "Buyout Agreement").
6.2 Conditions of Company's Obligations. The
Company's obligation to issue and sell the Preferred Stock to Investor on the
Closing Date and the Subsequent Closing Date is subject to the fulfillment prior
to or at the Closing Date of the conditions precedent specified in paragraphs
(g) and (h) of Section 6.1 hereof.
7. Affirmative Covenants. The Company agrees that unless the
Holders of a Majority of the Restricted Stock (as hereinafter defined) otherwise
agree in writing, so long as Investor is a Holder of Restricted Stock, the
Company (and each of its Subsidiaries unless the context otherwise requires)
will do the following:
7.1 Maintain Corporate Rights and Facilities.
Maintain and preserve its corporate existence and all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; and conduct its
business in an orderly manner without voluntary interruption.
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 ▇▇▇▇▇ ▇. ▇▇▇▇ and $1 million each on the
lives of ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ Page and ▇▇▇▇▇▇ ▇▇▇▇▇▇ in each case
with the Company as the sole beneficiary and so long as they are employees of
the Company.
7.3 Pay Taxes and Other Liabilities. Pay and
discharge, before the same become delinquent and before penalties accrue
thereon, all taxes, assessments and governmental charges upon or against it or
any of its properties, and all its other material liabilities at any time
existing, except to the extent and so long as (i) the same are being contested
in good faith and by appropriate proceedings in such manner as not to cause any
materially adverse effect upon its financial condition or the loss of any right
of redemption from any sale thereunder, and (ii) it shall have set aside on its
books reserves (segregated to the extent required by generally accepted
accounting principles) deemed by it adequate with respect thereto.
7.4 Records and Reports. Accurately and fairly
maintain its books of account in accordance with generally accepted accounting
principles, as approved from time to time by a majority of the Board and its
independent certified public accountants; employ a firm of independent certified
public accountants, which firm is either one of the five largest national
accounting firms or which is approved by the Holders of the Majority of the
Restricted Stock, to make annual audits of its accounts in accordance with
generally accepted auditing standards; permit Investor and its representatives
to have access to and to examine its properties, books and records (and to copy
and make extracts therefrom) at such reasonable times and intervals as Investor
may request and to discuss its affairs, finances and accounts with its officers
and auditors, all to such reasonable extent and at such reasonable times and
intervals as Investor may request; and the Company shall also furnish each
Holder of Preferred Stock:
(a) As soon as available, and in any
event within thirty (30) days after the close of each monthly accounting period,
financial statements prepared on a consolidated basis (together with
consolidating statements in support thereof) consisting of a balance sheet of
the Company as of the end of such monthly accounting period and statements of
income, shareholders' equity and cash flow for such monthly accounting period,
and for the portion of the Company's fiscal year ending with the last day of
such monthly accounting period, setting forth in comparative form (i) the
figures for such period, figures for the corresponding periods of the previous
fiscal year and the budgeted figures for such periods prepared and submitted
pursuant to Section 7.5 hereof, and (ii) as of the end of each fiscal quarter,
the figures for such quarter, the figures for the corresponding quarter of the
preceding fiscal year and the budgeted figures for such current quarter prepared
and submitted pursuant to Section 7.5 hereof, all in reasonable detail, prepared
and certified by the chief executive officer or the chief financial officer of
the Company as fairly presenting the financial condition as of the balance sheet
date and results of operations and cash flows for the period then ended in
accordance with generally accepted accounting principles consistently applied,
subject to normal year end adjustments which in the aggregate shall not be
material;
(b) As soon as available, and in any
event within ninety (90) days after the close of each fiscal year of the Company
(commencing with 1997), financial statements prepared on a consolidated basis
(together with consolidating statements in support thereof) consisting of a
balance sheet of the Company, as of the end of such fiscal year, together with
statements of income, shareholders' equity and cash flow for such fiscal year,
setting forth in comparative form the figures for such fiscal year and for the
previous fiscal year, all in reasonable detail, and duly certified by an opinion
unqualified as to scope of a firm of independent certified public accountants,
which firm is one of the four or five largest national accounting firms;
(c) So long as any Preferred Stock remains
outstanding, promptly upon learning of the occurrence of a Default or an Event
of Default or a condition or event which with the giving of notice or the lapse
of time, or both, would constitute a Default or an Event of Default, a
certificate signed by the chief executive officer or chief financial officer of
the Company describing such Default, Event of Default or condition or event and
stating what steps are being taken to remedy or cure the same;
(d) Promptly upon the receipt thereof
by the Company or the Board, copies of all reports, all management letters and
other detailed information submitted to the Company or the Board by independent
accountants in connection with each annual or interim audit or review of the
accounts or affairs of the Company made by such accountants;
(e) Promptly after the same are available,
copies of all such proxy statements, financial statements and reports as the
Company shall send to its stockholders, and promptly upon the transmission
thereof copies of all registration statements, notifications, proxy statements,
reports and other documents and writings which the Company may file with or
furnish to the Commission or any governmental authority at any time substituted
therefor; and
(f) With reasonable promptness, such
other information relating to the finances, properties, business and affairs of
the Company and each Subsidiary, as Investor reasonably may request from time to
time.
In addition to the foregoing, the Company
shall promptly select an independent accounting firm from one of the current
five largest nationally recognized accounting firms to conduct an audit of the
Company's financial statements for the fiscal year ending December 31, 1996 and
engage such firm to conduct an audit of such financial statements in accordance
with generally accepted auditing standards. The Company shall deliver such
audited financial statements to Investor together with an unqualified opinion of
such accounting firm covering such financial statements no later than March 31,
1998.
7.5 Preparation of Budget. Within sixty (60)
days after the Closing Date, for the Company's partial fiscal year ending after
the Closing Date, and at least thirty (30) days prior to the beginning of each
subsequent fiscal year, prepare and submit to the Board, and furnish to Investor
a copy of, an annual plan for such year which shall include monthly capital and
operating expense budgets, cash flow statements and profit and loss and
quarterly balance sheet projections, itemized in such detail as the Board may
request. A majority of the members of the Board shall approve such budgets,
statements and projections. Each annual plan shall be modified as often as
necessary, but in any event every six (6) months, to reflect material changes
required as a result of operating results and other events that occur, or may be
reasonably expected to occur, during the year covered by the annual plan, and
copies of these modifications shall be submitted to and approved by the Board
and furnished to Investor. The Company may dispense with any six-month
modification if the Board reasonably determines that no material change is
required in the budget for that six-month fiscal period.
7.6 Notice of Litigation and Disputes. Promptly
notify Investor of each legal action, suit, arbitration or other administrative
or governmental investigation or proceeding (whether federal, state, local or
foreign) instituted or threatened against the Company which could materially and
adversely affect its condition (financial or otherwise), properties, assets,
liabilities, business, operations or prospects, or of any occurrence or dispute
which involves a reasonable likelihood of any such action, suit, arbitration,
investigation or proceeding being instituted.
7.7 Directors' Meetings. Hold meetings of the
Board at least once every two (2) months; give Investor at least five (5) days'
notice of, and permit an officer or other representative of Investor or any
Person designated by Investor to attend as an observer, all meetings of the
Board and all meetings of committees of the Board; furnish Investor and its
designated representative with a complete and accurate copy of the minutes and
other records of all meetings and other proceedings of the Board and its
committees as well as of the written consents of members of the Board by which
action is taken by the Board or any committee without a meeting, and minutes and
written consents relating to action taken by the shareholders of the Company;
provided, that, if a meeting of the Board or any committee thereof is required
to be held on shorter notice than five (5) days, waiver of the notice contained
in this Section 7.7 shall not be unreasonably withheld; and also furnish
Investor and its designated representative with a complete and accurate copy of
the minutes of the meetings and the written consents with respect to action
taken without a meeting of the board of directors and committees of each
Subsidiary and of the stockholders of each Subsidiary. The Company will pay the
reasonable out-of-pocket expenses of such Persons in attending such meetings.
7.8 Conduct of Business. Conduct its business
in accordance with all applicable provisions of federal, state, local and
foreign law.
7.9 Replacement of Certificates. Upon receipt
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of any certificate representing any of the
Securities, issue a new certificate representing such Securities in lieu of such
lost, stolen, destroyed, or mutilated certificate.
7.10 Compliance with Section 6. Use its best
efforts to cause the conditions specified in Sections 6.1 and 6.2 hereof to be
met by the Closing Date and Section 6.3 to be met by the Subsequent Closing
Date.
7.11 Special Adjustment of Conversion Price.
(a) Within forty-five (45) days after
the Closing Date, the Company, together with its counsel and representatives of
its accounting firm, Price Waterhouse, shall hold a pre-filing conference with
the staff accountants of the Division of Corporation Finance of the Commission
with respect to the Securities Act registration statement for its proposed
initial public offering. In preparation for this meeting, the Company and Price
Waterhouse will prepare a memorandum of facts to be submitted to the staff
describing the Company's methods of doing business and accounting for the sale
of merchandise; and prior to such meeting will deliver a copy of such memorandum
to Investor. Among the matters the Company will submit to the staff at the
pre-filing conference is a request as to whether the staff would object to the
Company's proposed method of accounting for the sale of merchandise by the
Company, including, without limitation, merchandise as to which the Company does
not have possession prior to delivery to the purchaser. If the staff does not
state to the Company and its auditors at the pre-filing conference (as
memorialized in a memorandum of the meeting prepared by Price Waterhouse and
delivered to Investor) that based upon the facts presented to it it has no
objection to the Company including in revenues the full sales price (net of
reasonable and customary reserves for returns, defective merchandise and the
like) of substantially all merchandise to be sold by the Company (the "Desired
Accounting Treatment") in the financial statements for its proposed initial
public offering, the Company may have until seventy-five (75) days after the
Closing Date to obtain written confirmation (or, in the alternative, oral
confirmation memorialized in a memorandum of the oral conversation prepared by
Price Waterhouse and delivered to Investor) that the staff has no objection to
the Desired Accounting Treatment for the financial statements for the proposed
public offering. In addition, after the pre-filing conference through the end of
the seventy-five (75th) day after the Closing Date, the Company may seek the
staff's written confirmation (or oral confirmation memorialized by Price
Waterhouse) that it has no objection to of the Desired Accounting Treatment on
the basis of a different method or methods of conducting business suggested by
the Company so long as the Company advises Investor in writing of its intended
change in methods and discusses them with Investor prior to submitting such
suggestions to the staff and provided further that such different method or
methods of doing business would not materially reduce the potential for the
Company to effect a Qualified Offering no later than the end of the second
calendar quarter of 1998.
(b) If by no later than the end of
such seventy-five (75) day period, the Company has not delivered to Investor
written confirmation from the staff (or oral confirmation memorialized in a
memorandum prepared by Price Waterhouse and delivered to Investor) stating that
the staff has no objection to the Desired Accounting Treatment for the Company's
financial statements to be included in the registration statement for its
initial public offering, then the Company shall promptly take all steps
necessary to cause Section 7(b) of Article III A of its Articles of
Incorporation to be amended to reduce the Conversion Price (as that term is
defined in such Article) then in effect by multiplying the same by the following
decimal fraction: 0.400 (four-tenths); and ▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇, by
signing this Agreement in their individual capacities as stockholders of the
Company, agree to take all action necessary to cause such amendment to be
effected promptly. The Investor hereby consents to such amendment. If there is
any dispute or controversy whether Section 7(b) of Article III A should be so
amended to reduce the Conversion Price, then the Company, Investor and Messrs.
▇▇▇▇ and ▇▇▇▇▇▇▇ agree to have this dispute or controversy resolved by binding
arbitration and, for this limited purpose, the provisions of Section 15(l) of
the Buyout Agreement are incorporated herein by reference mutatis mutandis.
7.12 Securities Law Filings. Make all filings
necessary to perfect in a timely fashion exemptions from (i) the registration
and prospectus delivery requirements of the Securities Act and (ii) the
registration or qualification requirements of all applicable securities or blue
sky laws of any state or other jurisdiction, for the issuance of the Securities
to Investor.
7.13 Composition of the Board of Directors;
Compensation Committee.
(a) At all times cause at least two
Persons designated by the Holders of a Majority of the Restricted Stock to be
elected as and remain directors of the Company, and reimburse all such Persons
so designated for their out-of-pocket expenses in connection with attending
meetings of the Board and all committees thereof and all expenses otherwise
incurred in fulfilling their duties as directors.
(b) The Board shall establish a compensation
committee of three directors (the "Compensation Committee"), one member of which
shall be selected by the Holders of a Majority of the Preferred Stock, one
member of which shall be selected by the holders of a majority of the other
Voting Stock, and the third member of which shall be selected by agreement of
the other two members; provided that if the member selected by the Holders of a
majority of the Series A Preferred Stock so approves, the Compensation Committee
shall consist of two members, one appointed by such holders and the other by the
holders of a majority of the other Voting Stock. All action taken by the
Compensation Committee shall require the unanimous vote or written consent of
all of the members. All matters affecting compensation of any officer or
director of the Corporation or any Subsidiary or any employee of or consultant
to the Corporation or any Subsidiary whose base compensation is at an annual
rate of at least $75,000 shall require approval of the Compensation Committee in
order to be effective. No option or warrant to purchase Common Stock, stock
appreciation right or stock issuance to any officer, director or employee of the
Corporation shall be granted, effected, modified or accelerated unless the same
has been approved by the Compensation Committee. In addition, the Compensation
Committee shall have the exclusive authority to administer and take all action
permitted or required to be taken by the Board or any committee of the Board
under all stock option plans of the Company and under any other plan or
arrangement that provides for the issuance of Common Stock, stock appreciation
rights, phantom stock or other similar benefits to any employee of or any
advisor or consultant to the Corporation.
7.14 Compliance With Certificate and Bylaws.
Perform and observe all requirements of the Company's Bylaws, Articles of
Incorporation and the Certificate, including without limitation its obligations
to the Holders of Securities set forth in the Certificate and the Company's
Articles of Incorporation and Bylaws.
7.15 Internal Accounting Controls. Devise and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (a) transactions are executed in accordance with
management's general or specific authorization, (b) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles or any other criteria applicable to
such statements, and to maintain accountability for assets, (c) access to assets
is permitted only in accordance with management's general or specific
authorization, and (d) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
7.16 Use of Proceeds. Use the proceeds from the
sale of the Preferred Stock hereunder substantially as set forth in Annex 7.16
hereof.
7.17 Union Matters.(a) So long as Investor is a
Holder of Securities, the Company will cause all products ordered by its
customers to be shipped by shippers that have recognized one or more unions as
the collective bargaining representative of some or all of its workers.
(a) So long as Investor is a Holder
of Securities:
(1) In the event of any
attempt by any union to organize or seek to represent employees of the Company
or any of its Affiliates, the Company will recognize the union as the
representative of its workers upon a showing of majority support through a
formal gathering of cards for the union in an appropriate unit.
(2) In connection with any
organizing done by a union, the Company recognizes the right of its employees to
choose their bargaining representative without interference from their employer
(the Company or its Affiliates). Accordingly, the Company and its officers,
directors, employees and agents shall refrain, and shall cause its Affiliates to
refrain, from its or their support of or opposition to the union and from
actively campaigning in opposition to the designation of such union as the
representative of such employees.
(3) The Company will cause
all merchandise ordered by its customers to be shipped by shippers that have
recognized one or more unions as collective bargaining representatives of some
or all of its workers; provided, however, that exceptions to this requirement
will be permitted if installation of purchased items requires set up and it is
impracticable to obtain union labor for on-site installation and set-up or there
is no viable union transportation option available.
Upon completion of a Qualified Offering, the Company
shall no longer be obligated to comply with the requirements of this Section 7,
other than Sections 7.4, 7.9 and 7.17. Investor acknowledges its
responsibilities under the Federal securities laws with respect to information
furnished to it that has not been publicly disclosed.
8. Negative Covenants. The Company agrees that unless the Holders
of a Majority of the Restricted Stock otherwise agree in writing, so long as
Investor is a Holder of Securities, the Company (and each of its Subsidiaries
unless the context otherwise requires) will not do any of the following:
8.1 Senior or Parity Securities. So long as any
Preferred Stock remains outstanding, issue, assume or suffer to exist (a) any
security that is senior to or on a parity with the Preferred Stock, or (b) any
Indebtedness for Borrowed Money that is an Equity Security or is issued with an
Equity Security.
8.2 Private Offerings. Except in a public
offering registered under the Securities Act, issue or sell any Equity Security
unless each issuee and purchaser agrees in writing with the Company not to offer
to sell, sell, make any short sale of, loan, grant any option for the purpose
of, or otherwise dispose of, any Equity Security for at least the same period as
shall be required of officers and directors of the Company prior to and after
the closing of any public offering of securities of the Company registered under
the Securities Act, except that (i) the Board shall have the right to dispense
with this requirement in the case of sales of Common Stock to individuals who
are not directors or officers of the Company and who purchase less than one
percent (1%) of the then fully diluted Common Stock outstanding, and (ii) the
Company need not obtain such standstill agreements from current holders of the
Common Stock or holders of options or warrants to purchase Common Stock if they
have already given standstill agreements restricting their right to sell as
requested by the managing underwriter in an offering for up to 270 days (in the
case of outstanding stock and stock purchase warrants) and 180 days (in the case
of options granted under the Stock Plan).
8.3 Changes in Type of Business. Make any substantial
change in the character of its business.
8.4 Loans; Guarantees. Make any loan or advance
to any Person, including, without limitation any employee or director of the
Company or any Subsidiary, except advances for travel and entertainment expenses
and similar expenditures in the ordinary course of business or under the terms
of a stock option plan or stock purchase agreement approved by the Compensation
Committee; or guarantee, directly or indirectly, any Indebtedness except for
trade accounts of the Company or any Subsidiary arising in the ordinary course
of business.
8.5 Restrictive Agreements. Enter into or
become a party to any agreement or instrument which by its terms would violate
or be in conflict with or restrict the Company's performance of, its obligations
under this Agreement, the Certificate, the Registration Rights Agreement, the
Stockholders Agreement or the Buyout Agreement.
8.6 Buyout Option. Until the buyout option
provided for in the Buyout Agreement has expired by its terms without being
exercised, issue any Common Stock or any other Equity Securities other than (i)
upon conversion of Preferred Stock if and to the extent that the conversion
privilege is exercised, (ii) upon the exercise of stock options that are
outstanding on the Closing Date, (iii) upon the exercise of Stock Purchase
Warrants outstanding on the Closing Date and (iv) 25,000 shares issued to ▇▇▇▇▇
▇▇▇▇▇▇ for services rendered.
Upon completion of a Qualified Offering, the Company
shall no longer be obligated to comply with the requirements of this Section 8.
9. Enforcement.
9.1 Remedies at Law or in Equity. If any
Default shall occur or if any representation or warranty made by or on behalf of
the Company in this Agreement or in any certificate, report or other instrument
delivered under or pursuant to any term hereof shall be untrue or misleading in
any material respect as of the date of this Agreement or as of the Closing Date
or the Subsequent Closing Date or as of the date it was made, furnished or
delivered, the Holder of any Security may proceed to protect and enforce its
rights by suit in equity or action at law, whether for the specific performance
of any term contained in this Agreement or the Certificate or for an injunction
against the breach of any such term or in aid of the exercise of any power
granted in this Agreement or the Certificate, or to enforce any other legal or
equitable right of such Holder of any such Securities, or to take any one or
more of such actions. In the event a Holder brings such an action against the
Company, the Holder shall be entitled to recover from the Company all fees,
costs and expenses of enforcing any right of such Holder under or with respect
to this Agreement or the Certificate, including without limitation such
reasonable fees and expenses of attorneys, advisors, accountants and expert
witnesses, which shall include, without limitation, all fees, costs and expenses
of appeals; provided, however, that such Holder shall be required to pay the
reasonable out-of-pocket expenses of defense of the Company (including without
limitation such reasonable fees and expenses of attorneys, advisors, accountants
and expert witnesses, including without limitation, the fees, costs and expenses
of appeals) if the Company is the prevailing party in such actions, and in such
case, the Holder shall not be entitled to receive its litigation expenses from
the Company.
9.2 Cumulative Remedies. None of the rights,
powers or remedies conferred upon any Holder of Preferred Stock or Common Stock
shall be mutually exclusive, and each such right, power or remedy shall be
cumulative and in addition to every other right, power or remedy, whether
conferred hereby or by the Certificate or now or hereafter available at law, in
equity, by statute or otherwise.
9.3 No Implied Waiver. Except as expressly
provided in this Agreement, no course of dealing between the Company and
Investor or the Holder of any Security and no delay in exercising any such
right, power or remedy conferred hereby or by the Certificate or now or
hereafter existing at law in equity, by statute or otherwise, shall operate as a
waiver of, or otherwise prejudice, any such right, power or remedy.
10. Rights of First Refusal.
10.1 Subsequent Offerings. Investor shall have
the right of first refusal to purchase all (or any part of all) Equity
Securities that the Company may, from time to time, propose to sell and issue
after the Closing Date, other than the Equity Securities excluded by Section
10.5 hereof.
10.2 Exercise of Rights. If and each time the
Company proposes to issue any Equity Securities, it shall give Investor written
notice of its intention, describing the Equity Securities, the price, and the
general terms and conditions upon which the Company proposes to issue the same.
Investor shall have thirty-five (35) days from the giving of such notice to
agree to purchase Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
10.3 Issuance of Equity Securities to Other
Persons. If Investor fails to exercise in full the rights of first refusal
within such thirty-five (35)-day period by giving the agreement referred to in
Section 10.2, the Company shall have sixty (60) days thereafter to complete the
sale of the Equity Securities in respect of which Investor's rights were not
exercised, at a price and upon general terms and conditions no more favorable to
the purchasers thereof than specified in the Company's notice to the Investors
pursuant to Section 10.2 hereof. If the Company has not sold all of these Equity
Securities within such sixty (60) days, the Company shall not thereafter issue
or sell any of such Equity Securities, without first offering such securities to
Investor in the manner provided above.
10.4 Termination of Right of First Refusal. The
rights of first refusal established by this Section 10 shall terminate upon the
closing of an underwritten public offering of Common Stock made pursuant to an
effective registration statement under the Securities Act in which the
obligation of the underwriters is to take all of such stock being offered if any
is taken. Such a firmly underwritten public offering that raises at least $25
million of gross proceeds for the account of the Company and has a per share
price to the public for the Common Stock of at least 110% of the "Conversion
Price" of the Preferred Stock (as this quoted term is defined in the
Certificate) immediately prior to the closing of such public offering, is herein
called a "Qualified Offering."
10.5 Excluded Securities. The rights of first
refusal established by this Section 10 shall have no application to any of the
following Equity Securities: (a) the first 1,250,000 shares of Common Stock sold
pursuant to the Stock Plan to persons who are or were employees or directors of
or consultants or advisors to the Company upon the exercise of stock options or
pursuant to stock purchase agreements, which options and agreements are approved
by the Board and, as to options granted after the Closing Date, the Compensation
Committee, and the options to purchase such shares, (b) 71,250 shares issuable
upon exercise of the Warrants to Purchase Common Stock referred to in Section
5.3, (c) the Conversion Stock, (d) stock issued pursuant to any rights or
agreements including, without limitation, convertible securities, options and
warrants, provided that the rights of first refusal established by this Section
10 applied with respect to the initial sale or grant by the Company of such
rights or agreements, (e) each Equity Security issued for a consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination, (f) any Equity Security that is issued by the Company as part of an
underwritten public offering referred to in Section 10.4 hereof, (g) shares of
Common Stock issued in connection with any stock split, stock dividend or
reverse stock split, (h) 25,000 shares of Common Stock to ▇▇▇▇▇ ▇▇▇▇▇▇ for
services rendered and (i) any Equity Security which the Holders of a Majority of
the Restricted Stock agree in writing shall not be subject to this Section 10.
10.6 Strategic Investor Exception.
Notwithstanding Sections 10.1 and 10.2, in the event the Company proposes to
issue Equity Securities (other than those excluded under Section 10.5) to a
Strategic Investor primarily for the purpose of establishing a business
relationship that would benefit the growth or profitability of the Company's
business (as contrasted with obtaining capital as a primary purpose), then
rather than have the right to purchase all of such Equity Securities Investor's
right shall be limited to purchasing such portion of such Equity Securities to
be issued that will enable Investor to maintain, after giving effect to the full
issuance of such Equity Securities, its fully-diluted Common Stock ownership
percentage interest of the Company determined immediately prior to giving effect
to the issuance of such Equity Securities. "Strategic Investor" means a Person
whose primary activity is other than investing in securities or business
enterprises and that the Board has concluded, reasonably and in good faith,
would be likely as a result of its business activities to provide opportunities
for the Company to increase its revenues and profitability substantially.
11. Definitions. Unless the context otherwise requires, the terms
defined in this Section 11 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined. All accounting terms defined in this Section 11
and those accounting terms used in this Agreement not defined in this Section 11
shall, except as otherwise provided for herein, be construed in accordance with
those generally accepted accounting principles that the Company is required to
employ by the terms of this Agreement. If and so long as the Company has any
Subsidiary, the accounting terms defined in this Section 11 and those accounting
terms appearing in this Agreement but not defined in this Section 11 shall be
determined on a consolidated basis for the Company and each of its Subsidiaries,
and the financial statements and other financial information to be furnished by
the Company pursuant to this Agreement shall be consolidated and presented with
consolidating financial statements of the Company and each of its Subsidiaries.
"Affiliate" shall mean any Person which directly or
indirectly controls, is controlled by, or is under common control with, the
indicated Person.
"Agreement" shall mean this Agreement, as the same may
be amended, modified or restated from time to time.
"Balance Sheet" and "Balance Sheet Date" shall have the
meanings assigned to these terms in Section 5.12 hereof.
"Board" shall mean the Board of Directors of the
Company.
"Buyout Agreement" shall have the meaning assigned to it
in Section 6.1(m).
"Certificate" shall have the meaning assigned to it in
Section 1 hereof.
"Closing" and "Closing Date" shall have the meaning
assigned to these terms in Section 3.1.
"Common Stock" shall have the meaning assigned to it in
Section 1 hereof.
"Commission" shall mean the Securities and Exchange
Commission.
"Compensation Committee" shall have the meaning assigned
to it in Section 7.13(b).
"Conversion Stock" shall have the meaning assigned to it
in Section 1 hereof.
"Default" shall mean a material default or failure in
the due observance or performance of any covenant, condition or agreement on the
part of the Company or any of its Subsidiaries to be observed or performed under
the terms of this Agreement or the Certificate, if such default or failure in
performance shall remain unremedied for ten (10) days; provided, however, that
the Company's failure to pay dividends on Preferred Stock shall not be a Default
unless such dividends have been declared by the Board or unless the Company has
failed to pay dividends payable in cash or Common Stock upon conversion of any
Preferred Stock.
"Designated Investor" shall have the meaning assigned to
it in Section 3.2.
"Developing Software" shall have the meaning assigned to
it in Section 5.29(b).
"Employee Stock Agreement" shall have the meaning
assigned to it in Section 6.1(k) hereof.
"Equity Security" shall mean any stock or similar
security of the Company or any security (whether stock or Indebtedness for
Borrowed Money) convertible or exchangeable, with or without consideration, into
or for any stock or similar security, or any security (whether stock or
Indebtedness for Borrowed Money) carrying any warrant or right to subscribe to
or purchase any stock or similar security, or any such warrant or right.
"Event of Default" shall mean (a) the failure of either
the Company or any Subsidiary to pay any Indebtedness for Borrowed Money, or any
interest or premium thereon, within ten (10) days after the same shall become
due, whether such Indebtedness shall become due by scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise, (b) an event of
default under any agreement or instrument evidencing or securing or relating to
any such Indebtedness, or (c) the failure of either the Company or any
Subsidiary to perform or observe any material term, covenant, agreement or
condition on its part to be performed or observed under any agreement or
instrument evidencing or securing or relating to any such Indebtedness when such
term, covenant or agreement is required to be performed or observed.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Fully Operating Software" shall have the meaning
assigned to it in Section 5.29(a).
"Holder" of any Security shall mean the record or
beneficial owner of such Security. A Holder of Preferred Stock shall be treated
as the Holder of the Restricted Stock underlying the Preferred Stock.
"Holders of a Majority of the Restricted Stock" shall
mean the Person or Persons who are the Holders of greater than 50% of the
Restricted Stock.
"Indebtedness" shall mean any obligation of the Company
or any Subsidiary which under generally accepted accounting principles is
required to be shown on the balance sheet of the Company or such Subsidiary as a
liability. Any obligation secured by a Lien on, or payable out of the proceeds
of production from, property of the Company or any Subsidiary shall be deemed to
be Indebtedness even though such obligation is not assumed by the Company or
Subsidiary.
"Indebtedness for Borrowed Money" shall mean (a) all
Indebtedness in respect of money borrowed including, without limitation,
Indebtedness which represents the unpaid amount of the purchase price of any
property and is incurred in lieu of borrowing money or using available funds to
pay such amounts and not constituting an account payable or expense accrual
incurred or assumed in the ordinary course of business of the Company or any
Subsidiary, (b) all Indebtedness evidenced by a promissory note, bond or similar
written obligation to pay money, or (c) all such Indebtedness guaranteed by the
Company or any Subsidiary or for which the Company or any Subsidiary is
otherwise contingently liable.
"Investor" shall have the meaning assigned to it in the
introductory paragraph of this Agreement and in Section 3.2 hereof.
"Lien" shall mean any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind, including, without
limitation, any conditional sale or other title retention agreement, any lease
in the nature thereof and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction and including
any lien or charge arising by statute or other law.
"Material Adverse Effect" on any Person means a material
adverse effect, or any condition, situation or set of circumstances that could
reasonably be expected to have a material adverse effect, on such Person and its
Subsidiaries, taken as a whole, or the business, assets, properties, condition
(financial and other), operations or prospects of such Person and its
Subsidiaries taken as a whole.
"Permitted Liens" shall mean (a) Liens for taxes and
assessments or governmental charges or levies not at the time due or in respect
of which the validity thereof shall currently be contested in good faith by
appropriate proceedings; (b) Liens in respect of pledges or deposits under
workers' compensation laws or similar legislation, carriers', warehousemen's,
mechanics', laborers' and materialmen's and similar Liens, if the obligations
secured by such Liens are not then delinquent or are being contested in good
faith by appropriate proceedings; and (c) Liens incidental to the conduct of the
business of the Company or any Subsidiary which were not incurred in connection
with the borrowing of money or the obtaining of advances or credits and which do
not in the aggregate materially detract from the value of its property or
materially impair the use thereof in the operation of its business.
"Person" shall include any natural person, corporation,
trust, association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
"Preferred Stock" shall have the meaning assigned to it
in Section 1 hereof.
"Qualified Offering" shall have the meaning assigned to
it in Section 10.4.
"Registration Rights Agreement" shall have the meaning
assigned to it in Section 6.1(l) hereof.
"Restricted Stock" shall mean (a) all Common Stock owned
now or in the future by the Investors, (b) the Common Stock issued or issuable
upon conversion of the Preferred Stock, whether owned by the Investors or not,
and (c) any securities issued or issuable with respect to such Common Stock by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger or consolidation or reorganization; provided,
however, that shares of Common Stock shall only be treated as Restricted Stock
if and so long as they have not been (i) sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, or
(ii) sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect to such Common Stock
are removed upon the consummation of such sale and the seller and purchaser of
such Common Stock receive an opinion of counsel for the Company, which shall be
in form and content reasonably satisfactory to the seller and buyer and their
respective counsel, to the effect that such Common Stock in the hands of the
purchaser is freely transferable without restriction or registration under the
Securities Act in any public or private transaction.
"Securities" shall have the meaning assigned to it in
Section 1 hereof.
"Securities Act" shall mean the Securities Act of 1933,
as amended.
"Senior Executive" has the meaning assigned to it in
Section 6.1(k).
"Stock Plan" shall have the meaning assigned to it in
Section 5.3 hereof.
"Subsidiary" shall mean any corporation, association or
other business entity at least 50% of the outstanding voting stock of which is
at the time owned or controlled directly or indirectly by the Company or by one
or more of such subsidiary entities or both, where "voting stock" means any
shares of stock having general voting power in electing the board of directors
(irrespective of whether or not at the time stock of any other class or classes
has or might have voting power by reason of any contingency).
"Web Site" shall have the meaning assigned to it in
Section 5.30(a).
12. Miscellaneous.
12.1 Waivers and Amendments. With the written
consent of the Holders of a Majority of the Restricted Stock, the obligations of
the Company and the rights of the Holders of the Securities under this Agreement
may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely), and with the same consent the Company, when authorized by
resolution of its Board, may enter into a supplementary agreement for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of any supplemental agreement or
modifying in any manner the rights and obligations hereunder of the Holders of
the Securities and the Company; provided, however, that no such waiver or
supplemental agreement shall (a) affect any of the rights of any Holder of a
Security created by the Certificate or by the statutory corporate law of the
state of incorporation of the Company without compliance with all applicable
provisions of the Certificate and such statutory corporate law, or (b) reduce
the aforesaid proportion of Restricted Stock, the Holders of which are required
to consent to any waiver or supplemental agreement, without the consent of the
Holders of all of the Restricted Stock. Upon the effectuation of each such
waiver, consent or agreement of amendment or modification, the Company shall
promptly give written notice thereof to the Holders of the Restricted Stock who
have not previously consented thereto in writing. Neither this Agreement nor the
Certificate, nor any provision hereof or thereof, may be amended, waived,
discharged or terminated orally or by course of dealing, but only by a statement
in writing signed by the party n 12.1. Specifically, but without limiting the
generality of the foregoing, the failure of Investor at any time or times to
require performance of any provision hereof or of the Certificate by the Company
shall in no manner affect the right of Investor at a later time to enforce the
same. No waiver by any party of the breach of any term or provision contained in
this Agreement or the Certificate, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in the Agreement or
Certificate.
12.2 Effect of Waiver or Amendment. Investor and
each Holder of Securities acknowledge that by operation of Section 12.1 hereof
the Holders of a Majority of the Restricted Stock will, subject to the
limitations contained in such Section 12.1, have the right and power to diminish
or eliminate certain rights of such Investor under this Agreement.
12.3 Rights of Holders Inter Se. Each Holder of
Securities shall have the absolute right to exercise or refrain from exercising
any right or rights which such Holder may have by reason of this Agreement or
any Security, including, without limitation, the right to consent to the waiver
of any obligation of the Company under this Agreement and to enter into an
agreement with the Company for the purpose of modifying this Agreement or any
agreement effecting any such modification, and such Holder shall not incur any
liability to any other Holder or Holders of Securities with respect to
exercising or refraining from exercising any such right or rights.
12.4 Notices. All notices, requests, consents
and other communications required or permitted hereunder shall be in writing
(including telecopy or similar writing) and shall be given,
if to the Company to:
Value America, Inc.
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Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇, Chairman and Chief Executive Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ ▇▇▇▇, A Professional Corporation
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Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
if to Investor to:
Union Labor Life Insurance Company
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Attention: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Senior Vice President
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇ ▇▇▇▇▇
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Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
if to any other Holder of Securities to such Holder at
the address or to the telecopier number as such Holder
may specify by notice to the Company from time to time,
or to such other address or telecopier number as such party may specify for the
purpose by notice to the other party or parties to this Agreement, as the case
may be. A copy of any notice to the Company or to Investor or any other Holder
of Securities shall also be given to each other Holder of Securities. Any
notice, request, consent or other communication hereunder shall be deemed to
have been given and received on the day on which it is delivered (by any means
including personal delivery, overnight air courier, United States mail) or
telecopied (or, if such day is not a business day or if the notice, request,
consent or communication is not telecopied during business hours of the intended
recipient, at the place of receipt, on the next following business day).
12.5 Survival of Representations and Warranties,
etc. All representations and warranties made in, pursuant to or in connection
with this Agreement shall survive the execution and delivery of this Agreement,
any investigation at any time made by or on behalf of Investor, and the sale and
purchase of the Securities and payment therefor. All statements contained in any
certificate, instrument or other writing delivered by or on behalf of the
Company pursuant hereto or in connection with or contemplation of the
transactions herein contemplated shall constitute representations and warranties
by the Company hereunder. Any claim against the Company based upon any
inaccuracy in any of the representations or breach of any of the warranties
hereunder must be asserted against the Company, either by written notice given
to the Company specifying with reasonable particularity the claimed inaccuracy
or breach or by institution of an action at law or suit in equity against the
Company and the serving of the process and complaint with respect thereto upon
the Company, within thirty (30) months from the Closing Date.
12.6 Severability. Should any one or more of the
provisions of this Agreement or of any agreement entered into pursuant to this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement and of each other agreement entered into pursuant to this
Agreement, shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
12.7 Parties in Interest. All the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto, whether so expressed or not, and, in particular, shall inure to the
benefit of and be enforceable by the Holder or Holders at the time of any of the
Securities. Subject to the immediately preceding sentence, this Agreement shall
not run to the benefit of or be enforceable by any Person other than a party to
this Agreement and its successors and assigns.
12.8 Headings. The headings of the Sections and
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
12.9 Choice of Law. It is the intention of the parties
that the internal substantive laws, and not the laws of conflicts, of Virginia
should govern the enforceability and validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties.
12.10 Expenses. The Company agrees, whether or not the
transactions contemplated hereby are consummated, to pay, and hold Investor and
the Holders of the Securities harmless from liability for the payment of, (i)
the fees and expenses of their special counsel arising in connection with the
negotiation and execution of this Agreement and the Certificate and consummation
of the transactions contemplated hereby, (ii) the fees and expenses incurred
with respect to any amendments to this Agreement or the Certificate proposed by
the Company (whether or not the same become effective), (iii) if Investor or
other Holder of Securities desires to sell or otherwise transfer any or all of
the Securities held by it and counsel for the Company declines to render a legal
opinion to Investor or such holder, without cost or expense to such Investor or
Holder, whether or not registration under the Securities Act will be required
for such sale or transfer, the fees and expenses of counsel for Investor or such
Holder in rendering such an opinion, (iv) the fees and expenses of one firm of
counsel for any Holder or Holders of Securities who may be deemed to be
Affiliates of the Company for reviewing any registration statement or prospectus
to be filed under the Securities Act, or any amendments or supplements thereto,
unless such registration statement is being prepared and effected in accordance
with the Registration Rights Agreement and such Holder or Holders are
participating as selling shareholders in such registration, (v) the fees and
expenses incurred in connection with any requested waiver of the right of any
Holder of Securities or the consent of any Holder of Securities to contemplated
acts of the Company not otherwise permissible by the terms of this Agreement or
the Certificate, (vi) stamp and other taxes, excluding income taxes, which may
be payable with respect to the execution and delivery of this Agreement or the
issuance, delivery or acquisition of the Preferred Stock or upon the conversion
of the Preferred Stock, (vii) the fees and expenses incurred in respect of the
enforcement of the rights granted under this Agreement or the Certificate, and
(viii) all costs of the Company's performance of and compliance with this
Agreement and the Certificate.
12.11 Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, with the same effect as if all parties had signed the same
document. All such counterparts shall be deemed an original, shall be construed
together and shall constitute one and the same instrument.
12.12 Authorship. This Agreement shall
not be construed for or against any party by reason of the authorship or claimed
authorship of any provision of this Agreement or by reason of the status of the
respective parties.
12.13 Entire Agreement. This Agreement and any
agreement, document or instrument referred to herein constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof, and supersede all other prior agreements or undertakings with respect
thereto, both written and oral.
[SIGNATURE PAGE OF PREFERRED STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed by their respective duly
authorized officers as of the day and year first above written.
VALUE AMERICA, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇, Chairman and
Chief Executive Officer
UNION LABOR LIFE INSURANCE COMPANY
Acting for its Separate Account P
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Senior Vice President
[STOCKHOLDER SIGNATURE PAGE]
The undersigned hereby became parties to this Preferred
Stock Purchase Agreement solely for the purpose of
Section 7.11(b) hereof.
Dated as of December 17, 1997
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
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/s/ ▇▇▇ ▇▇▇▇▇▇▇
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LIST OF ANNEXES
Tab grid changed here.
Annex 5.5 Schedule of Indebtedness for Borrowed Money
Annex 5.6 Schedule of Holders of Common Stock, Options and
Warrants
Annex 5.11 Brokers and Finders
Annex 5.12 Financial Statements
Annex 5.13 Schedule of Special Liabilities
Annex 5.14 Schedule of Changes
Annex 5.15 Schedule of Material Agreements
Annex 5.17 Taxes
Annex 5.18 Patents and Other Intangible Assets
Annex 5.20 Title to Property and Encumbrances: Leases
Annex 5.22 Insurance
Annex 5.23 Schedule of Litigation
Annex 5.26 Licenses
Annex 5.27 Schedule of Interested Party Transactions
Annex 5.29A Schedule of Fully Operational Software
Annex 5.29B Schedule of Developing Software
Annex 5.30(c) Schedule of Customer Complaints
Annex 5.30(d) Schedule of Manufacturer Communications
Annex 6.1(k) Stockholders Agreement
Annex 6.1(l) Registration Rights Agreement
Annex 6.1(m) Buyout Option Agreement
Annex 7.16 Use of Proceeds