Fulfillment Services Agreement - Harrison Fulfillment Services Inc. and Alloy Designs Inc.
AGREEMENT BETWEEN
HARRISON FULFILLMENT SERVICES, INC.
AND
ALLOY DESIGNS, INC.
JULY 23, 1997
<PAGE> 2
TABLE OF CONTENTS
Section Page
------- ----
1. APPOINTMENT...............................................................1
2. SERVICES..................................................................2
3. SERVICE LEVELS............................................................2
4. PLACE OF PERFORMANCE......................................................2
5. FEES AND CHARGES..........................................................3
6. PAYMENTS..................................................................5
7. IMPREST FUND..............................................................6
8. FORECASTS.................................................................7
9. SPECIAL SERVICES..........................................................9
11. RISK OF LOSS............................................................12
12. TAXES...................................................................13
13. MONETARY DEFAULT........................................................13
14. OTHER DEFAULTS..........................................................14
15. FORCE MAJEURE...........................................................14
16. TERM AND TERMINATION....................................................15
17. REPRESENTATIONS AND WARRANTIES..........................................16
18. COVENANTS OF THE COMPANY................................................18
19. INDEMNITY & LIABILITY...................................................19
20. INSURANCE...............................................................20
21. COMPLIANCE WITH LAWS....................................................20
22. RECORD INSPECTION.......................................................20
23. CONFIDENTIALITY.........................................................21
24. NOTICES.................................................................21
25. ASSIGNMENT..............................................................22
26. AMENDMENTS..............................................................23
27. GOVERNING LAW...........................................................23
28. ARBITRATION.............................................................23
29. COMPUTER PROGRAMS.......................................................24
30. BUSINESS DAY............................................................24
31. RELATIONSHIP............................................................24
32. HEADINGS................................................................25
33. SEVERABILITY............................................................25
34. NO WAIVER...............................................................25
35. FULL AGREEMENT..........................................................25
36. COUNTERPARTS............................................................26
Exhibit A - Services..........................................Attached
- Attachment 1 - Sample Report Package Contents.....Attached
Exhibit B - Service Levels....................................Attached
Exhibit C - Start-Up Services.................................Attached
i
<PAGE> 3
Exhibit D - Transaction Rates.................................Attached
Exhibit E - Sales Tax Jurisdictions...........................Attached
Exhibit F - Company's Certificate of Insurance................Attached
Exhibit G - HFS's Certificate of Insurance....................Attached
Schedule 1 - HFS Representation and Warranty Exceptions.......Attached
Schedule 2 - Company Representation and Warranty Exceptions...Attached
ii
<PAGE> 4
FULFILLMENT SERVICES AGREEMENT
This Fulfillment Services Agreement (the "AGREEMENT") dated as of July 23,
1997, by and between Harrison Fulfillment Services, Inc., a Tennessee
corporation ("HFS"), and Alloy Designs, Inc., a Delaware corporation (the
"COMPANY").
W I T N E S S E T H
WHEREAS, the Company has a direct marketing program for the sale of various
merchandise sold through the Alloy Catalog (respectively, the "MERCHANDISE" and
the "CATALOG"); and
WHEREAS, HFS is a provider of various services to the direct response
industry, including, but not limited to, order entry; data processing; inbound
and outbound telemarketing; customer service; pick, pack and ship; order
fulfillment; warehousing and storage; and returns processing, and HFS will
provide some or all of these services to the Company as more particularly
described herein (the "SERVICES"); and
WHEREAS, the Company desires that HFS provide Services in connection with
the operation of its direct response business and HFS desires to provide such
Services to the Company.
NOW, THEREFORE, in consideration of the mutual promises and conditions
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. APPOINTMENT.
The Company hereby appoints HFS as the primary provider of Services in
connection with the Catalog upon the terms and conditions set forth in this
Agreement.
<PAGE> 5
2. SERVICES.
During the Term and subject to the terms hereof, HFS shall provide to the
Company the Services set forth in EXHIBIT A hereto.
3. SERVICE LEVELS.
Certain of the Services set forth in EXHIBIT A are subject to the Service
Levels set forth in EXHIBIT B (the "SERVICE LEVELS"). Such Service Levels
define certain minimum standards of performance which HFS shall maintain in
the rendering of the Services so long as the Company is not in Default (as
defined in Section 14 hereof) hereunder. However, in circumstances in which
this Agreement does not stipulate a certain Service Level to determine the
minimum standard of performance HFS shall maintain with respect to any
particular Service, HFS and the Company shall jointly agree upon the scope
of HFS's obligations regarding such Service, and, in any event, HFS shall
use its reasonable best efforts to provide the highest service levels
reasonably possible under the circumstances. HFS shall deliver reports to
the Company on a weekly basis to enable the Company to determine whether
HFS is meeting the Service Levels.
4. PLACE OF PERFORMANCE.
The Services shall be performed at HFS's place of business in Chattanooga,
Tennessee and at such other business locations as HFS may maintain from
time to time; provided, however, that HFS shall not be precluded from
out-sourcing certain Services, if necessary, on a temporary basis to
providers which HFS determines to be reasonably acceptable so long as HFS
remains primarily responsible for the providing of such out-sourced
Services at the Service Levels. HFS will use its reasonable best efforts to
notify the Company of its intent to utilize outsource providers prior to
commencing any outsourcing.
2
<PAGE> 6
5. FEES AND CHARGES.
In consideration for performance of the Services during the Term (as
defined hereinafter), the Company shall pay to HFS the following fees and
charges:
(a) INITIAL START-UP FEE. The Company has paid HFS an initial start-up fee
of $[ ]* (the "INITIAL START-UP FEE") in consideration of the start-up
services agreed upon by the parties hereto as set forth in EXHIBIT C (the
"START-UP SERVICES").
(b) TRANSACTION FEES. (i) The Company shall pay HFS transaction fees
("TRANSACTION FEES") at the transaction rates set forth in EXHIBIT D, as
such rates may be adjusted from time to time by the C.P.I. Adjustment and
Forecast Adjustment described below (the "TRANSACTION RATES");
(ii) The Transaction Rates shall be subject to adjustment as follows:
A. The Transaction Rates shall be increased annually, effective
January 1, 1998 and on January 1 of each year thereafter during the Term,
by an amount equal to the percentage increase in the Urban Wage Earners and
Clerical Workers-South-All Items consumer price index published by the U.S.
Department of Labor for the most recent twelve (12) month period for which
statistics are available on such dates determined by comparing such index
to the index quoted for the immediately prior twelve month period (the
"C.P.I. ADJUSTMENT").
B. From and after the expiration of the sixth calendar month
following the date that the first mailing of Catalogs is launched (the
"FIRST MAILING"), the Transaction Rates shall also be subject to adjustment
(the "FORECAST ADJUSTMENT") as follows:
1. In the event that the number of phone orders, items shipped
or units received (each a "COMPONENT") during any calendar month varies
above or below the amount forecasted for such Component in the applicable
Quarterly Forecast (or a Revised Quarterly Forecast which has been
delivered to HFS by no later than least fifteen
3
<PAGE> 7
(15) days prior to the commencement of such month) by more than ten percent
(10%) but less than twenty-five percent (25%), then the Transaction Rates
for such month shall be increased by ten percent (10%).
2. In the event that a Component level during any calendar
month varies above or below the amount forecasted for such Component in the
applicable Quarterly Forecast (or a Revised Quarterly Forecast which has
been delivered to HFS by no later than least fifteen (15) days prior to the
commencement of such month) by more than twenty-five percent (25%), then
the Transaction Rates for such month shall be increased by twenty percent
(20%). The "First Mailing" shall be deemed to have been launched on the
date that the preponderant portion of the catalogs shall have been mailed
from the printer for distribution to consumers.
C. The Transaction Rates assume two lines per order and two item
units per shipment. Additional charges will apply for more than two lines
per order or more than two item units per shipment.
(c) SPECIAL SERVICES FEES. If the Company requests that HFS provide
Special Services (as defined and discussed in Section 9 hereinafter), the
Company shall pay HFS such amount in respect of such Special Services as
shall be agreed between the Company and HFS, which amount may include
charges for setting up the required Special Service as well as for the
performance thereof (the "SPECIAL SERVICES FEES").
(d) CLOSE DOWN FEE. Upon any termination, including termination for
Default as provided for in Sections 13 and 14, the Company shall pay
termination charges relating to all close-down activities for all
deprogramming for the HFS computer system and for such other activities as
shall be agreed upon between HFS and the Company (the "CLOSE DOWN FEE"),
including such activities as removal of Merchandise from racks, packing for
shipment (if necessary), preparing freight documents for shipment to the
Company's designated destination and loading on the trucks of the Company's
designated carrier, together with the cost of any necessary supplies. The
Company shall have the right to specify whether any required labor shall be
performed on regular time or an overtime
4
<PAGE> 8
basis. [All close down activities shall be completed within thirty (30)
days following termination. ]
6. PAYMENTS.
(a) INITIAL START-UP FEE. The initial start-up fee has been paid prior to
the date of this Agreement.
(b) TRANSACTION FEES. HFS shall, on a weekly basis, issue to the Company
an invoice for estimated transaction fees (the "ESTIMATED TRANSACTION
AMOUNT") in the amount equal to the product of (i) the number of orders
taken by HFS during that week (the "PROCESSED ORDERS") and (ii) $[ ]* per
order (the "ASSUMED PER ORDER PRICE"). Such invoice shall be due and
payable within ten (10) Business Days. Commencing January 1, 1998, the
Assumed Per Order Price for any calendar quarter shall be adjusted on a
quarterly basis to reflect the greater of (i) the actual average
Transaction Fee per order or (ii) the forecasted average Transaction Fee
per order set forth in the Quarterly Forecast (as defined in Section 8
hereinafter) for the current calendar quarter. HFS shall, on a monthly
basis, issue to the Company an invoice setting forth the difference between
the Estimated Transaction Fees paid during the previous month and the
actual Transaction Fees incurred in respect of Services performed by HFS
(the "ACTUAL TRANSACTION FEES") during the prior month. Any payments owing
to HFS pursuant to such reconciliation of the Estimated Transaction Amount
with the Actual Transaction Fees shall be due and payable within ten (10)
Business Days following receipt of such invoice issued by HFS. If at the
end of the applicable month there is a balance due the Company, HFS shall
offset such balance against the following month's invoice.
(c) SPECIAL SERVICES FEES. Special Services Fees shall be due and payable
by the Company as agreed between the Company and HFS.
(d) CLOSE DOWN FEE. Upon any termination, HFS will issue to the Company an
invoice for the reasonably estimated Close Down Fee (except for that
portion of the Close Down Fee relating to telecommunication charges and
costs addressed hereinbelow), and
5
<PAGE> 9
such invoices shall be due and payable no later than ten (10) Business Days
from the date of such invoice. After completion of the close-down
activities, HFS shall submit a final adjusted bill to the Company
reflecting agreed charges pursuant to Section 5(d) hereof and an
appropriate credit or charge with respect to any difference from the
previously invoiced amount, and HFS or the Company, as applicable, shall
pay within ten (10) Business Days any resulting amount owing to the other
that is not otherwise credited. HFS shall not be required to release any of
the Company assets in HFS's possession (other than customer billing and
order history) prior to payment in full of the Close Down Fee (except for
the portion of the Close Down Fee relating to charges and costs of AT&T
and/or such other telecommunications carrier used by HFS ); provided,
however, that the Company shall be allowed to substitute collateral
acceptable to HFS in place of Company assets in HFS's possession. The
portion of the Close Down Fee relating to the transfer of portable 800
numbers and estimated cost for calls not billed will be reconciled and
billed monthly until all such telephone activity has been billed. These
billings shall be payable on a net ten (10) day basis.
7. IMPREST FUND.
At all times during the term of this Agreement, the Company shall maintain
with HFS an imprest fund (the "IMPREST FUND") sufficient to cover certain
expenses paid by HFS on behalf of the Company, including all UPS, U.S.P.S.,
common carrier and other delivery service shipping costs, packing
materials, stationery and other similar expenses, and HFS shall pay such
expenses therefrom so long as and to the extent that a balance remains
therein. The Company and HFS shall agree in advance upon which costs and
charges are to be paid from the Imprest Fund, it being understood that such
list of charges may change from time to time according to the Company's
business needs and HFS's operations. The Imprest Fund shall (at a minimum)
be funded by the Company on a weekly basis to bring the balance of the fund
to an amount which would cover forecasted expenses for the ensuing two (2)
week period after taking into consideration such factors as forecasted
order volume, seasonality and other applicable factors. If the Imprest Fund
is insufficient to cover such expenses, HFS may, in its sole discretion:
(a) upon request
6
<PAGE> 10
of the Company, pay the expenses and immediately invoice the Company for
the amount of expenses incurred plus a fifteen percent (15%) mark-up and
such invoice amount shall be payable within ten (10) Business Days of
receipt; or (b) following ten (10) Business Days after providing the
Company with written notice of insufficient funds in the Imprest Fund (and
the Imprest Fund has not during such time been restored in full), not pay
the expenses, and if HFS so elects not to pay the expenses, it shall have
no liability whatsoever for any losses or liabilities incurred by the
Company for such nonpayment. HFS shall provide the Company with a weekly
statement setting forth the balance of, and accounting for disbursements
from, the Imprest Fund.
8. FORECASTS.
The parties acknowledge that orders for Merchandise may not be uniform from
month to month as a result of various factors, including the seasonal
nature of the demand for Merchandise and circulation plans and mailing
schedules which reflect such seasonality and which are subject to constant
changes, and that the inability of the Company to accurately predict the
volume of orders to be processed or the inventory to be received and
warehoused on a weekly basis may have a detrimental effect on HFS's ability
to provide the Services in accordance with the Service Levels.
The Company recognizes and understands the importance of keeping HFS
informed at all times of forecasted order volumes, schedule changes, fast
and slow selling items, Merchandise or vendor problems and all other
material business issues which might have an effect upon the performance by
HFS of its obligations hereunder and shall provide HFS with reasonable
notice after the Company is aware of any changes in any such forecasted
items. Specifically, but without limiting the generality of the foregoing,
the Company agrees as follows:
(a) The Company shall deliver to HFS a complete set of projections on or
before November 15, 1997 for the partial 1998 calendar year commencing on
the first day following the expiration of the sixth month following the
First Mailing and thereafter at least three months prior to the
commencement of each successive calendar year thereafter
7
<PAGE> 11
during the Term in respect of such calendar year, covering the operation of
its business for such calendar year, including, by month and quarter, mail
dates and quantities mailed, the forecasted number of telephone orders and
mail orders, the forecasted number of units received and shipped,
forecasted initial fill rates, forecasted inventory levels in dollars and
units, the Forecasted Inventory Turn, inbound telephone contacts-to-total
orders ratio, talk time per contact, the number of catalog requests, the
estimated returns percentage, the number of items per order and the number
of outbound telephone contacts and correspondence per order (such
projections being hereinafter referred to as the "ANNUAL FORECASTS").
(b) Four (4) weeks prior to the first day of each calendar quarter,
commencing with the first calendar quarter after the expiration of the
sixth month following the First Mailing, the Company shall deliver to HFS a
complete set of projections covering the operation of its business for the
next succeeding two calendar quarters, including, by week, mail dates and
quantities mailed, the forecasted number of telephone orders and mail
orders and forecasted inventory in dollars and units to be shipped each
week, forecasted initial fill rates, inbound telephone contacts to total
orders ratio, talk time per contact, the number of catalog requests, the
estimated returns percentage, the number of items per order, the number of
outbound telephone contacts and correspondence per order (such quarterly
projections being hereinafter referred to as the "QUARTERLY FORECASTS").
(c) The Company shall deliver to HFS a revised Quarterly Forecast (a
"REVISED QUARTERLY FORECAST") whenever it believes that any business
condition of which it is aware may have the effect of changing any item of
the previous Quarterly Forecast furnished to HFS. In the event that the
Company experiences an increase in telephone calls for any week of more
than ten percent (10%) over projected telephone calls for such week, as set
forth in any applicable Quarterly Forecast (or a Revised Quarterly Forecast
which has been delivered to HFS at least four (4) weeks prior to such
week), and has not advised HFS in writing at least four (4) weeks prior to
the week that the Company experiences such increase in telephone call
volume that such increase is forecasted, then HFS shall use its reasonable
best efforts but be under no obligation to meet those Service
8
<PAGE> 12
Levels directly or indirectly affected by telephone call volume for so long
as the Company's telephone call volume exceeds by more than ten percent
(10%) the call volume projected on the most recent Quarterly Forecast or
Revised Quarterly Forecast.
(d) The information contained in Quarterly Forecasts, Revised Quarterly
Forecasts and Annual Forecasts provided by the Company to HFS shall be
reasonably related to and consistent with the actual operating history of
the Company, subject to deviations therefrom as reasonably required by
changes in circumstances.
9. SPECIAL SERVICES.
The Company may at any time during the Term hereof request HFS to perform
services on its behalf not covered by this Agreement or to change any
Service Level ("SPECIAL SERVICES"). The Company shall notify HFS in writing
of its particular requirements with respect to such Special Services, and
HFS shall use its best efforts to comply with such requirements provided
that the written notification is given in a timely manner and the
requirements and procedures are reasonable and not economically burdensome.
HFS shall charge the Company for such Special Services such amount as set
forth in Section 5(c) hereof or, with respect to any upselling services to
be performed by HFS, at an agreed upon rate or amount, as applicable.
10. INVENTORY
Merchandise inventory shall be handled and processed as follows:
(a) The Company shall, at its own expense, supply HFS at its places of
business in Chattanooga, Tennessee, or such other places of business
designated by HFS, and maintain there, an inventory of Merchandise which
the Company reasonably believes is adequate in the ordinary course of
business to fill orders received for its Merchandise in line with its
Quarterly Forecasts or Revised Quarterly Forecasts. HFS shall use its
reasonable best efforts to preserve and maintain Merchandise received for
the Company in good and marketable condition.
9
<PAGE> 13
(b) HFS shall use its reasonable best efforts but is under no obligation
to receive Merchandise on behalf of the Company unless the Company has
transmitted to HFS, at least two (2) Business Days prior to the receipt of
such Merchandise, a copy of the purchase order by which the Company ordered
such Merchandise, or all requisite details of the purchase order to permit
HFS to identify the Merchandise as that of the Company.
(c) For inbound shipments, the Company shall advise its vendors that motor
carriers must contact HFS at least one (1) Business Day prior to delivery
and make a delivery appointment prior to arrival. Inbound shipments
arriving at an HFS warehouse without one Business Day's prior notice may be
refused or delayed depending on the space and manpower available at the
time of arrival. Each inbound shipment must have a packing slip and each
carton must be marked with the purchase order number and SKU number.
(d) For purposes of this Agreement, "PROBLEM MERCHANDISE" means
Merchandise shipped to HFS which in its sole reasonable discretion cannot
be processed by HFS without imposing an unreasonable hardship on HFS. For
illustrative purposes and without limiting the definition thereof, Problem
Merchandise shall include all Merchandise which (i) arrives with
insufficient paperwork, (ii) is delivered to HFS in the absence of a
delivery appointment or (iii) is faulty or damaged. HFS shall use its best
efforts to comply with the Company's written instructions regarding
handling and disposing of Problem Merchandise as set forth in the Service
Levels on EXHIBIT B and shall submit to the Company a report of Problem
Merchandise within two (2) Business Days of having received it. HFS shall
not include Problem Merchandise in the inventory of items available for
shipment to customers. The Company acknowledges that Problem Merchandise
cannot be stored indefinitely and that all Problem Merchandise shall be
removed within thirty (30) days of HFS notifying the Company of all
specific details relevant to the reasons for the classification of the
Merchandise as Problem Merchandise. HFS has the right to dispose of the
Problem Merchandise by returning the Merchandise to the Company on a
freight collect basis (provided that the Company has not provided HFS with
other directions within thirty (30) days following notice of such specific
details) or taking any other actions which are reasonable under the
circumstances; provided,
10
<PAGE> 14
however, that HFS shall follow the Company's reasonable directions with
respect to any other disposition (at the Company's expense) of the Problem
Merchandise.
(e) HFS acknowledges and the Company agrees that the Company shall be
solely responsible for selecting, purchasing, paying for and arranging for
the shipment to HFS of Merchandise, and HFS agrees that it shall not have
and shall not represent that it has any authority to undertake any of such
activities on the Company's behalf.
(f) In the event that items shipped by HFS to customers are damaged or
lost in shipment, HFS agrees to notify the Company, store damaged and
returned Merchandise pending inspection by the carrier and file tracers for
the lost shipments and claims for damaged and lost shipments which
originated from HFS.
(g) HFS reserves the right to refuse, without liability of any kind,
acceptance of Merchandise which, because of its condition, might cause, in
HFS's reasonable sole judgment, infestation, contamination, or damage to
the warehouse facility or to other goods in the custody of HFS. HFS shall
notify the Company of its refusal to accept any such Merchandise and the
reason for its refusal within two (2) Business Days of such refusal. If HFS
believes that any Merchandise has caused or may cause damage to the
warehouse facility or to any other goods in the custody of HFS or has
characteristics which make its storage illegal, HFS, after giving
reasonable notice to the Company, may dispose of the Merchandise in any
lawful manner and will incur no liability by reason of such disposal, and
the Company shall pay HFS any costs incurred by HFS in connection with such
disposal.
(h) All Merchandise in the possession of HFS shall be and remain the
exclusive property of the Company except as noted in Sections 13, 16 and 18
herein, and HFS acknowledges and agrees that it shall acquire no right,
title or interest in or to any Merchandise by reason of this Agreement
except as set forth in Sections 13, 16 and 18 herein. HFS shall not
transfer, assign, exchange, lease, encumber, pledge, or create a security
interest in or otherwise dispose of the Merchandise and shall not subject
the
11
<PAGE> 15
Merchandise to attachment, levy, or seizure by or on behalf of any creditor
of HFS, except as set forth in Sections 13, 16 and 18 hereof.
11. RISK OF LOSS.
(a) All risk of loss and damage to Merchandise from any cause prior to
receipt by HFS into, and from and after the removal by common carrier from,
the inventory at the HFS facility shall be borne by the Company. HFS shall
reimburse the Company at the Company's net Merchandise cost (i) [ ]* of all
Inventory Shrinkage which is equal to or less than [ ]*, (ii) [ ]* of all
Inventory Shrinkage which exceeds [ ]* but is equal to or less than [ ]*,
and (iii) [ ]* of all Inventory Shrinkage which exceeds [ ]*. For purposes
of this Agreement "INVENTORY SHRINKAGE" means the quotient which results
from dividing (A) the cumulative Variance (as defined below) between the
value of the Merchandise inventory as determined from the perpetual
inventory report on the requisite Count Date (as defined below) and the
value of the Merchandise inventory based upon a physical inventory or cycle
count (exclusive of markdowns and price adjustments) by (B) the total
Merchandise inventory receipts processed by HFS during the prior twelve
(12) months (or if such Count Date occurs prior to the first anniversary of
the date of the first mailing of the Catalog, the denominator of such
quotient shall be an amount equal to twelve (12) times the average monthly
Merchandise inventory receipts prior to such Count Date). For purposes of
this Section 11(a), "VARIANCE" shall mean the difference between the value
of the Merchandise inventory as determined from the perpetual inventory
report on any Count Date and the value of the Merchandise inventory
established by a cycle count or physical inventory on such date (the "COUNT
DATE"). The value of any adjustment made at any time to the perpetual
inventory report shall be added to or subtracted from, as the case may be,
the Variance for the purpose of calculating Inventory Shrinkage. HFS shall
make reasonable efforts to take reasonable care of the Merchandise
inventory.
(b) Notwithstanding anything contained herein to the contrary, the parties
acknowledge that HFS shall not be required to make any collection efforts
on the
12
<PAGE> 16
Company's behalf and shall share no risk with respect to any failure of the
Company to collect on any order.
12. TAXES.
All fees, costs, charges and other amounts payable to HFS hereunder for
Services rendered by HFS to the Company are exclusive of applicable taxes,
if any, which (other than income taxes of HFS) are the responsibility of
the Company. In addition, HFS shall calculate for each customer sale all
applicable sales taxes based on information supplied by the Company.
Attached hereto as EXHIBIT E is a list prepared by the Company of all
jurisdictions in which the Company is required to collect sales taxes,
which the Company shall promptly update as required to keep such
information current during the term of this Agreement, and the Company
shall be solely responsible for the accuracy of such information. All sales
tax funds and the accompanying forms shall be transmitted by the Company to
the appropriate state authorities. The Company shall be responsible for the
collection and payment of all sales taxes, the preparation and filing of
all sales tax documentation and the compliance with all sales tax laws. HFS
shall have no such responsibilities for payment or collection of any such
taxes unless otherwise required by law in which event payment thereof shall
be timely made. The Company shall indemnify HFS for all claims, suits,
actions, debts, damages, costs, charges and expenses, including court costs
and attorneys' fees, incurred by HFS due to the Company's failure to
properly and timely file and pay applicable sales, use and tangible
personal property taxes.
13. MONETARY DEFAULT.
If the Company defaults on the payment of any fees, charges, invoices or
other amounts due to HFS, except and only for portions of invoices disputed
in good faith by the Company, HFS shall (i) charge a finance charge of 1.5%
per month of such past due fees, charges, invoices or other amounts and
(ii) if such default is continuing, upon ten (10) days prior written notice
stop providing Services and performing its obligations under this Agreement
and/or terminate this Agreement. Amounts disputed in good faith by the
Company and the reasons therefor shall be reported to HFS in writing within
twenty one
13
<PAGE> 17
(21) days of receipt of the applicable invoice. HFS and the Company agree
to work diligently to resolve the dispute within thirty (30) days of the
receipt of such written notice by HFS. Once such dispute is resolved and to
the extent the Company owes any amount to HFS, if payment of such amount is
not made to HFS within ten (10) Business Days of the resolution of such
dispute, HFS will have the right to stop providing Services and/or
terminate this Agreement whereupon HFS shall have the right to institute
foreclosure proceedings against the Merchandise inventory or such other
collateral held by it and securing unpaid amounts owing to HFS under this
Agreement as well as any other rights available to HFS under the Uniform
Commercial Code.
14. OTHER DEFAULTS.
If either the Company or HFS believes the other party is in breach of any
of its non-monetary obligations under this Agreement due to any reason
other than force majeure, the party believing that such a breach by the
other party has occurred shall give written notice to the other party
specifying the nature of the breach (any such breach and any default in
payment under Section 13 hereof are sometimes referred to herein as a
"DEFAULT"). Such breaching party shall have fifteen (15) Business Days in
which to cure such breach or, if such breach cannot be completely cured
within fifteen (15) Business Days, a reasonable time to cure such breach as
long as the breaching party is diligently pursuing the cure of the breach;
provided, however, that with respect to a material breach relating to the
taking of telephone orders, the processing of mail orders, the receiving of
Merchandise into inventory or timely delivery of Merchandise to common
carriers for shipment, HFS shall have seven (7) days to cure such breach
or, if such breach cannot be completely cured within seven (7) days, a
reasonable time to cure such breach so long as the HFS is diligently
pursuing the cure of the breach.
15. FORCE MAJEURE.
Neither HFS nor the Company shall be liable for any delay or failure in
performance under this Agreement or interruption of service resulting,
directly or indirectly, from acts of God, civil or military authority, act
of public enemies, war, accidents, fire, explosions,
14
<PAGE> 18
earthquakes, floods, the elements, strikes or any similar cause beyond the
reasonable control of such party (a "FORCE MAJEURE"), so long as, following
the cessation of such cause, such party uses its reasonable efforts to
resume its performance hereunder. If HFS is unable to perform the Services
due to a Force Majeure, then HFS may out-source Services on a temporary
basis pursuant Section 4 hereof.
16. TERM AND TERMINATION.
(a) TERM. The initial term of this Agreement shall commence on August 1,
1997 (the "COMMENCEMENT Date") and shall expire on July 31, 2000 unless
earlier terminated in accordance with this Section or elsewhere in this
Agreement (the "INITIAL TERM"). This Agreement shall automatically be
renewed for one year terms commencing after the expiration of the Initial
Term and, thereafter, after the expiration of any renewal term unless HFS
or the Company provides the other with at least one hundred twenty (120)
days prior written notice of its election to terminate this Agreement at
the end of the then current term (the Initial Term and all renewal terms
are collectively referred to as the "TERM"). In addition to any other
rights which HFS may have under this Agreement or as a matter of law, in
the event of termination by either the Company or HFS, HFS shall be
entitled to all amounts owing to it under this Agreement and may hold the
Company assets and Merchandise in its possession until all sums owed to HFS
by the Company pursuant to this Agreement are paid to HFS; provided,
however, that the Company shall be allowed to substitute collateral
acceptable to HFS in place of Company assets in HFS's possession.
(b) EARLY TERMINATION.
(i) MONETARY DEFAULT. HFS shall have the termination rights described
in Section 13 hereof.
(ii) NON-MONETARY DEFAULT. If there occurs a non-monetary Default by a
party under this Agreement that is not cured within the applicable time
periods set forth in
15
<PAGE> 19
Section 14 hereof, then the non-defaulting party may terminate this
Agreement upon not less than forty-five (45) days prior written notice.
(iii) BANKRUPTCY. Either party may terminate this Agreement, effective
immediately upon giving written notice if the other party files a petition
in bankruptcy or files for a reorganization or for the appointment of a
receiver or trustee of all or substantially all of such party's property,
or makes an assignment or petitions for or enters into an arrangement for
the benefit of creditors, or if a petition in bankruptcy is filed against
the other party which is not discharged within ninety (90) days thereafter.
(iv) FORCE MAJEURE. In the event that following a Force Majeure, HFS
(with out-sourcing) is unable to perform at the Service Levels for a period
in excess of twenty (20) Business Days, the Company shall have the right to
terminate this Agreement.
(v) OTHER COMPANY TERMINATION RIGHTS. The Company shall have the
right to terminate this Agreement by providing HFS with written notice
thereof at least ninety (90) days prior to the second anniversary of the
Commencement Date in the event that the parties have not agreed upon
revised Transaction Rates prior to the date of such notice.
17. REPRESENTATIONS AND WARRANTIES.
(a) HFS AND THE COMPANY. HFS and the Company each hereby individually
represent and warrant that: (i) it has the full authority and legal right
to carry out the terms of this Agreement; (ii) the terms of this Agreement
will not violate the terms of any agreement, contract or other instrument
to which it is a party and no consent or authorization of any other person,
firm or corporation is a condition precedent to this Agreement; (iii) it
has taken all action necessary to authorize the execution and delivery of
this Agreement; and (iv) this Agreement is a legal, valid, and binding
obligation of HFS and the Company, as the case may be, enforceable in
accordance with its terms, except as limited by bankruptcy and other laws
of general application relating to or affecting the enforcement of
creditors' rights.
16
<PAGE> 20
(b) HFS. HFS hereby warrants and represents that, except to the extent set
forth in SCHEDULE 1:
(i) to its knowledge, HFS is in compliance in all material respects
with all applicable laws relating to employment and employment practices,
terms and conditions of employment, wages and hours and occupational safety
and health and is not engaged in any unfair labor practice within the
meaning of any applicable law; there is no unfair labor practice, charge or
complaint or any other matter against or involving HFS pending or, to the
knowledge of the HFS, threatened before any labor relations board (or
equivalent agency having jurisdiction), any court of law or any arbitration
board; there is no labor strike, dispute, slowdown, or stoppage actually
pending or, to its knowledge, threatened against HFS; and HFS has not
experienced any organized work stoppage or other labor difficulty; and
(ii) there are no disputes with underwriters under HFS's insurance
policies; each such policy is valid and enforceable in accordance with its
terms and is in full force and effect; there exists no Default by HFS under
any such policy, and there has been no misrepresentation or inaccuracy in
any application therefor, which Default, misrepresentation or inaccuracy
would give the insurer the right to terminate such policy, binder or
fidelity bond or to refuse to pay a claim thereunder; and HFS has received
no notice of cancellation or non-renewal of any such policy.
(c) THE COMPANY. The Company hereby warrants and represents that except as
otherwise set forth on SCHEDULE 2:
(i) it has, to the best of its knowledge, and will use its best
efforts to continue to have for the Term of this Agreement, all necessary
authority from all of the corporations, partnerships and individuals whose
products are offered for sale in any of the Company's catalogs, to use
their trademarks, service marks and other intellectual property for the
purposes of conducting the Company's business. The Company's business as
conducted or as currently proposed to be conducted does not and will not,
to the best of the Company's knowledge, cause the Company to infringe or
violate any
17
<PAGE> 21
patents, trademarks, service marks, trade names, copyrights, licenses,
trade secrets or other intellectual property rights of any other person or
entity.
(ii) it owns the initial Merchandise inventory free and clear of all
liens, restrictions, claims, charges, security interests or other
encumbrances of any nature whatsoever, including any chattel mortgages,
conditional sales contracts, collateral security arrangements and other
title or interest retention arrangements (a "LIEN").
18. COVENANTS OF THE COMPANY.
(a) CATALOG AND ORDER BLANK NOTATIONS. Unless otherwise agreed upon by the
parties, the Company shall conspicuously note in the Catalog and in all
order blanks separate telephone numbers for telemarketing and customer
service or an alternative mutually agreeable to the parties. In addition,
for all editions subsequent to the first Catalog edition, the Company shall
maintain two (2) colored blocks on the back of each Catalog and on the
order blanks within which an account number and a source code number (i.e.,
one number per block ) can be printed.
(b) LIENS. The Company hereby grants to HFS a first priority security
interest in the Merchandise held from time to time by HFS to secure the
obligations of the Company hereunder; provided, however, that HFS agrees to
release such security interest upon the reasonable request of the Company
in the event that the Company provides HFS collateral in substitution
therefore which is acceptable to HFS in HFS's sole discretion. The Company
shall execute all documents reasonably requested by HFS's legal counsel for
the perfection of such security interest. The Company shall not grant any
Lien to any third party on any Merchandise inventory without the prior
written consent of HFS which will not be unreasonably withheld.
19. INDEMNITY & LIABILITY.
(a) HFS agrees to indemnify and hold the Company harmless against any and
all claims, suits, actions, debts, damages, costs, charges, and expenses,
including without limitation court costs and reasonable attorneys' fees),
which the Company may at any
18
<PAGE> 22
time incur by reason of a material breach of this Agreement by HFS (a
"COMPANY LOSS"); provided, however, that any Company Loss that is covered
by either party's insurance shall be limited to applicable insurance
proceeds; and further provided that the Company shall not be entitled to
payment in respect of any Company Loss resulting from a claim not covered
in whole or in part by either party's insurance except to the extent that
Company Losses exceed $25,000 in the aggregate and then in an aggregate
amount not to exceed the aggregate Transaction Fees payable for the
calendar quarter in which the Default occurs.
(b) The Company agrees to indemnify and hold HFS harmless against any and
all claims (including claims by third party providers engaged by the
Company), suits, actions, debts, damages, costs, charges, and expenses,
including without limitation court costs and reasonable attorneys fees,
which HFS may at any time incur by reason of (i) a defect or claimed defect
in any Merchandise or (ii) a material breach of this Agreement by the
Company (an "HFS LOSS") other than a monetary Default covered by Section 13
hereof; provided, however, that HFS shall not be entitled to payment in
respect of any HFS Loss except to the extent that HFS Losses exceed $25,000
in the aggregate.
(c) The indemnifications set forth in Sections 19(a) and 19(b) shall apply
only to claims made against the respective indemnified party by third
parties. Either party hereto seeking indemnification by the other pursuant
to Section 19(a) or 19(b) shall promptly notify the other party of any
indemnifiable claim, and indemnifying party shall have the right to select
counsel and control the defense of the claim.
(d) Notwithstanding any other provision of this Agreement, neither party
shall be liable to the other for any lost profits, loss of goodwill or any
other special, incidental or consequential damages of any nature whatsoever
to the extent that any claims relating thereto are not payable from
insurance proceeds.
19
<PAGE> 23
20. INSURANCE.
The Company agrees to maintain insurance, at its sole cost and expense,
against loss or damage by fire or other casualty to the Company's inventory
on the premises of HFS, and against any claims and liability growing out of
either product liability, advertising liability or trademark or service
mark, patent or copyright infringement, and to list HFS as an additional
insured thereunder. Such insurance will be maintained with insurers
qualified to do business in the state of Tennessee. Attached hereto, as
EXHIBIT F, is a Certificate of Insurance for the Company reflecting such
coverage.
HFS shall not be responsible for the provision or maintenance of any
insurance coverage for the Merchandise or other inventory or for the
Company or its subsidiaries or respective businesses, products, goods and
property. HFS agrees to maintain at all times during the Term insurance
coverage at the levels set forth in the Certificate of Insurance for HFS
attached hereto as EXHIBIT G.
21. COMPLIANCE WITH LAWS.
The Company and HFS shall comply with all laws, rules and regulations,
whether local, state, or federal, applicable to the sale of Merchandise and
to the providing of Services, but only to the extent such laws, rules and
regulations are applicable to it, including without limitation the
applicable postal regulations and the Federal Trade Commission Rules on
Mail Order Merchandise.
22. RECORD INSPECTION.
The Company or its agents shall, during normal business hours, have the
right to inspect the Merchandise located at HFS's place of business, and
the Company shall, during normal business hours, have the right to inspect
the books and records of HFS pertaining to Merchandise and the Services
rendered by HFS to the Company pursuant to this Agreement.
20
<PAGE> 24
23. CONFIDENTIALITY.
(a) In the course of its performance of this Agreement, it is anticipated
that HFS and the Company will come into possession of certain proprietary
information belonging to the other, including but not limited to (i) in the
case of the Company, marketing records, merchandising records, customer
records and mailing lists and (ii) in the case of HFS, its financial
condition, cost structures, allocation and pass through procedures,
staffing levels, systems information and general business plans (all such
information relating to the Company or HFS being "CONFIDENTIAL INFORMATION"
and the party to whom such Confidential Information relates being the
"PROPRIETARY PARTY"). HFS and the Company agree that each will not, during
the Term hereof or thereafter, willfully or through gross negligence
divulge, furnish, disclose, or make accessible to any third party any of
the other's Confidential Information unless otherwise instructed by the
Proprietary Party in writing; provided, however, that Confidential
Information shall not include any information which (i) at the time of
disclosure by the other party or thereafter is generally available to and
known by the public other than as a result of its disclosure by such party,
(ii) was available to the other party on a non-confidential basis from a
source other than the Proprietary Party, provided that such source is not
bound by a confidentiality agreement, or contractual or fiduciary
obligation with the Proprietary Party, or (iii) has been independently
acquired or developed by the other party without violating any obligations
under this Agreement, or of any other agreement between the Company and HFS
or by which either party is bound for the benefit of the other party.
(b) HFS agrees that the Company's mailing list will not be made available
for use by HFS, its affiliates or anyone else without the Company's
specific prior written permission for each occurrence of such use
24. NOTICES.
Any and all notices and all communication provided for in this Agreement
shall be given in writing. Such notices and other communications shall be
deemed given when received, when delivered by hand, by confirmed facsimile
transmission or when
21
<PAGE> 25
deposited in the United States Mail, Registered or Certified, with proper
postage prepaid, and addressed as follows:
(a) If to HFS:
Harrison Fulfillment Services, Inc.
P.O. Box 23057
2515 East 43rd Street
Chattanooga, TN 37422-3057
Attn: Bruce G. Godfray, President
Facsimile: (615) 867-8495
with a copy to:
Witt, Gaither & Whitaker, P.C.
1100 American National Bank Building
Chattanooga, TN 37402
Attn: Ralph M. Killebrew, Jr.
Facsimile: (615) 266-4138
(b) If to the Company:
Alloy Designs, Inc.
444 Washington Blvd. Suite 6549
Jersey City, NJ 07310
Attn: Sam Gradess
Facsimile: (201) 420-1907
or to such other address as HFS or the Company may designate to the other
in writing.
25. ASSIGNMENT.
This Agreement shall inure to the benefit of and be binding upon the
parties and their successors and permitted assigns. This Agreement may not
be assigned by either party without the prior written consent of the other
party; provided, however, that, it may be assigned to any person, firm or
corporation which purchases all or substantially all of the assets of
either party or to any person, firm or corporation into which or with which
either party consolidates or merges.
22
<PAGE> 26
26. AMENDMENTS.
This Agreement shall not be modified or amended except by a written
agreement signed by authorized representatives of HFS and the Company.
27. GOVERNING LAW.
This Agreement has been entered into and shall be governed, construed, and
interpreted in accordance with the laws of the State of Tennessee without
reference to any conflicts of law principles.
28. ARBITRATION.
(a) Any controversy or claim arising out of or relating to this Agreement
or the breach thereof, whether common law or statutory, shall be settled
exclusively by arbitration in Chattanooga, Tennessee, using in either case
the American Arbitration Association. The arbitration shall be heard before
three arbitrators, one to be chosen by the Company, one to be chosen by
HFS, and the third to be chosen by those two arbitrators.
(b) The arbitrators shall apply the internal law of Tennessee in
determining the rights, obligations, and liabilities of the parties. The
arbitrators shall not have the power to alter, modify, amend, add to or
subtract from any term or provision to this Agreement, nor to grant
injunctive relief, including interim relief, of any nature. Such injunctive
relief may be pursued by HFS or the Company, as the case may be, from the
federal and state courts of the state of Tennessee. The availability of
such relief shall depend upon proofs and showings required under the
applicable law. In all other respects, the commercial rules of the American
Arbitration Association shall govern the arbitration. Judgment on the award
of the arbitrators may be entered by any court having jurisdiction to do
so, and the parties to the Agreement hereby irrevocably consent and submit
to the personal jurisdiction of the federal and state courts of the State
of Tennessee for this purpose as well as for any and all other purposes in
connection with this Agreement.
23
<PAGE> 27
(c) The failure or refusal of either party to submit to arbitration as
provided in this Agreement shall constitute a breach of this Agreement. If
judicial action is commenced in order to compel arbitration, and if
arbitration is in fact compelled, the party that shall have resisted
arbitration shall be required to pay to the other party all costs and
expenses, including reasonable attorneys' fees, that it incurs in
compelling arbitration. All other fees and charges of the American
Arbitration Association shall be borne as the arbitrators shall determine
in their award.
29. COMPUTER PROGRAMS.
The Company acknowledges that all computer programs used by HFS in
connection with the performance of its obligations under this Agreement are
the property of HFS (including but not limited to those developed by HFS
and modifications or new programs developed by HFS for the Company) and the
Company has no rights or interests whatsoever in such programs: provided,
however, that the Company is the owner of the data contained in such
programs which relate to the Merchandise and the sale thereof and HFS shall
provide such data to the Company or its representative in mutually
acceptable formats.
30. BUSINESS DAY.
For purposes hereof, "BUSINESS DAY" shall mean any day other than (1) a
Saturday or Sunday or (2) a day when the Federal Reserve Bank of Atlanta is
not open.
31. RELATIONSHIP.
Nothing contained in this Agreement shall be construed to imply a joint
venture, partnership or principal/agent relationship between the parties,
except where specifically provided for in this Agreement, and then only for
the limited purposes thereof. Except as specifically set forth herein,
neither party by virtue of this Agreement shall have any right, power or
authority to act or create any obligations, express or implied on behalf of
or for the use of any other party, and HFS and the Company shall not be
obligated, separately or jointly, to any third party by virtue of this
Agreement.
24
<PAGE> 28
32. HEADINGS.
The headings and section numbers appearing in this Agreement are inserted
only as a matter of convenience and in no way define, limit, construe or
otherwise describe the scope or intent of the sections of this Agreement.
33. SEVERABILITY.
If any one or more provisions of this Agreement shall be invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability
of the remaining provisions contained herein shall not in any way be
affected or impaired; provided, however, that in such case the parties
agree to use their best efforts to achieve the purpose of the invalid
provision by a new legally valid provision.
34. NO WAIVER.
No failure or delay on the part of any party in the exercise of any right
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or of any other right. All rights and remedies under this Agreement
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
35. FULL AGREEMENT.
This Agreement, and any exhibits and addenda attached hereto, contain and
embody the entire agreement of the parties hereto, and no representations,
inducements, or agreements, oral or otherwise made at any time between the
parties or with any third party relating to the subject matter hereof which
are not contained in this Agreement or in the exhibits or addenda, if any,
shall be of any force or effect.
36. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, all of which
taken together shall be deemed one original.
25
<PAGE> 29
IN WITNESS WHEREOF, the Company has executed this Agreement effective the
date first above written and HFS has executed and accepted this Agreement
effective the same date.
COMPANY:
ALLOY DESIGNS, INC.
By: /s/ Sam Gradess
-----------------
Name: Sam Gradess
Title: Corporate Secretary
HFS:
HARRISON FULFILLMENT SERVICES, INC.
By: /s/ Bruce Godfray
-----------------
Name: Bruce Godfray
Title: President
26
<PAGE> 30
ALLOY DESIGNS, INC.
EXHIBIT A
SERVICES
--------
The Services shall include the following services plus any Special Services
and other services for which the parties shall have agreed upon the Transaction
Fees or other Fees therefor:
1. Access to, and interface with the HFS proprietary order entry fulfillment
system (the "SYSTEM").
2. Order Entry.
A. Telephone.
B. Mail.
C. Faxed orders.
D. Internet orders.
3. Respond to all order and non-order inquiries.
4. Open and sort mail.
5. Prepare and make bank deposits into accounts maintained solely in the name
of ______________________. All payments received by HFS from customers of
the Company are to be payable to the order of the Company and deposited
directly into such accounts.
6. Answer customer service telephone inquiries and resolve customer problems
during days and hours of operation specified in EXHIBIT B:
7. Make staff available for merchandise and catalog training at the Company's
reasonable request.
8. Make available to the Company an agreed set of reports and information (the
"Reports") (Attachment 1 to this Exhibit) via a telecommunications link at
such times and at such schedule as the parties shall agree (the "REPORTS
SCHEDULE").
9. Receive merchandise against purchase orders provided by the Company either
electronically or by hard copy as agreed between the parties.
A. Sign for the number of cartons received.
27
<PAGE> 31
B. Perform quantity checks, quality assurance checks and inspection.
a. Non-problem merchandise: process into active, reserve or
backorder status
b. Problem Merchandise:
1. Segregate
2. Notify Company, in such form and at such times as agreed
between the parties.
10. Pick/Pack/Ship Backordered Merchandise according to specifications set
forth by the Company.
11. Pick/Pack/Ship Active or Reserve Merchandise according to specifications
set forth by the Company.
12. Write Gift Cards.
13. Gift wrap.
14. Insert additional materials (package inserts) into outbound shipments per
Company's instructions.
15. Process customer exchanges.
16. Process Customer returns:
A. Receive returned Merchandise.
B. Inspect returned Merchandise.
C. Process returned Merchandise in accordance with mutually agreed upon
specifications with respect to (i) refurbishment, (ii) holding it
pending receipt of RA number, (iii) returning it to active or reserve
inventory, and (iv) setting it aside for liquidated or special
handling.
D. Notify Company of returned Merchandise in such form and such times as
agreed between the parties.
17. Fulfill Catalog Requests according to the Company's specifications.
18. Provide warehouse security.
19. Batch and process credit orders to Credit Card Processor at times as
specified by HFS to meet Service Levels. Deposit receipts to Company
designated accounts.
28
<PAGE> 32
20. Maintain and operate a Drop Ship program as agreed between the parties.
21. Apply policies and procedures for catalog fulfillment operation as agreed
between the Company and HFS.
22. On behalf of the Company, make payments from the Imprest Fund for invoices
approved by the Company for fulfillment related expenses.
23. Generate refund checks and credit card credits in accordance with the
Company's written instructions.
24. Issue gift certificates, discount coupons or other purchase incentives in
accordance with the Company's lawful written instructions.
25. Maintain sales tax schedules in accordance with the Company's lawful
written instructions.
26. Create and dispatch customer notices in accordance with legal requirements
or the Company's lawful written instructions.
27. Maintain customer file records on tape and remit such files to the
Company's service bureau or other parties in accordance with the Company's
lawful written instructions.
28. Maintain a backup and "disaster recovery" system and procedures in
accordance with HFS specifications. On an annual basis, perform tests of
these systems and procedures to Company satisfaction.
29. Provide new program start-up services as agreed between the parties.
30. Provide close-down services as described herein.
31. Provide for computer programming and system design on a mutually agreed
upon basis.
32. Weekly performance measurement of all activities listed in EXHIBIT B.
33. Weekly performance measurements of (i) abandon rate for calls in queue
between 20 and 45 seconds (after new telephone software implementation) and
(ii) percent of incoming calls that go on hold/that go into queue.
34. Respond to credit card charge backs after such charge backs are forwarded
to HFS by the Company.
35. Screen incoming checks for potential fraud. (It being understood that HFS
shall have no liability for failure to detect any such fraud.)
36. Establish e-mail based and web page based catalog request and order
fulfillment mechanisms.
29
<PAGE> 33
ALLOY DESIGNS, INC.
ATTACHMENT 1 TO EXHIBIT A
SAMPLE REPORT PACKAGE
CONTENTS
REPORT # TITLE FREQUENCY
-------- ----- ---------
5030R1 Order/Shipment Analysis Daily
1010R1 Accum. Order/Shipment Analysis Daily
1240R1 Media File Listing Daily
1260R1 Source Code Total Response Analysis Daily
10Y0R1 Purchase Orders with Receipts Daily
11W0R1 Reports Analysis As required
11D0R1 Order Profit Analysis Daily
11L0R1 Purchase Order Requirements Weekly
1030R1 Summary Backorder Status Weekly
10W0R1 True Back Order Report Daily
11A0R1 Return/Exchange Analysis by Item Weekly/monthly
1080R1 Daily Sales & Cash Control Daily
20R0R1 Order Summary Weekly
20S0R1 Shipment Summary by Document Type Monthly
2010R1 Perpetual Inventory Monthly
4800R1 Inventory Transaction Register Weekly
1530R1-R3 Check Register Weekly
20P9R1 Sales Tax Report Monthly
30
<PAGE> 34
ALLOY DESIGNS, INC.
EXHIBIT B
SERVICE LEVELS
TELEMARKETING AND CUSTOMER SERVICE - will operate order entry on a 24 hour
basis seven (7) days per week except that if customers call between the hours of
12:00 midnight and 8:00 a.m. daily or on Christmas Eve or Christmas Day such
calls will be electronically prompted and answered.
It is HFS's policy to have all incoming customer calls answered by an
associate (except as noted above). However, HFS reserves the right to "block"
calls during certain peak hours of peak days.
TRANSACTION TYPE NON PEAK DAYS PEAK DAYS
---------------- ------------- ---------
1. Abandon rate for calls in queue greater than 45 sec. less than [ ]*% less than [ ]*%
2. Average time to answer less than [ ]* sec. less than [ ]* sec.
3. In stock order shipment from index (index
4. = clean order by noon) less than [ ]* hrs less than [ ]* hrs.
5. Mdse. dock to inspect (index = clean
6. receipt by noon) less than [ ]* hrs. less than [ ]* hrs.
7. Mdse inspect to stock (index = clean
8. receipt by noon) less than [ ]* hrs. less than [ ]* hrs.
9. Returns processing to monetary trans
10. (index = receipt by noon) less than [ ]* hrs. less than [ ]* hrs.
11. Mail orders through entry (index =
12. clean receipt by noon) less than [ ]* hrs. less than [ ]* hrs.
13. Non order mail inquires (index =
14. clean inquiries received by noon) less than [ ]* hrs. less than [ ]* hrs.
15. Catalog request mailed (index =
16. clean receipt by noon) less than [ ]* hrs. less than [ ]* hrs.
Peak Days shall be deemed to be the Company's eighty (80) highest telephone
order volume days during a calendar year as determined from the Annual Forecast
for such year as updated by Quarterly Forecasts and Revised Quarterly Forecasts,
provided that any such Revised Quarterly Forecast shall have been received by
HFS at least four (4) weeks prior to such Peak Day. Abandon rate for calls in
queue for a day shall be determined by dividing the number of Abandoned Calls
experienced in a day by the total calls entered into the system on such day. An
"Abandoned Call" means an incoming call with respect to which the caller hangs
up at least 45 seconds after the call enters the system. The average time to
answer is the time which
31
<PAGE> 35
commences when the call is entered in the HFS telephone switch and ends upon
commencement of call handling.
32
<PAGE> 36
ALLOY DESIGNS, INC.
EXHIBIT C
START-UP SERVICES
33
<PAGE> 37
ALLOY DESIGNS, INC.
EXHIBIT D
TRANSACTION RATES
34
<PAGE> 38
ALLOY DESIGNS, INC.
EXHIBIT D
TRANSACTION RATES
--------------------------------------------------------
this sheet sent to alloy Alloy
Transaction Rates
--------------------------------------------------------
-------------------------------------
revised date 07/23/97 7/23/97 12:04 PM
revised time 12:00 PM
-------------------------------------
-------------------
MINIMUM INVOICE FIRST YEAR $ [ ]*
-------------------
MINIMUM INVOICE SECOND YEAR $ [ ]*
-------------------
MINIMUM INVOICE THIRD YEAR $ [ ]*
------------------------------------------------------------------------------------------------------------------
SYSTEM DEVELOPMENT AND START UP Basic Fulfillment System Set up $ [ ]* 80 hours
-------------------
Compare Systems and Develop detailed designed (Systems $ [ ]* 40 hours
Requirements Documents)
-------------------
Customized Software Changes and File Conversions (Data $ [ ]* per hour
Base Creation/Selection)
(Detailed costing to be estimated from systems
requirements document)
------------------------------------------------------------------------------------------------------------------
FEES
------------------------------------------------------------------------------------------------------------------
ORDERS Phone orders (includes two (2) line items/Order) $ [ ]* each
(Assumes 4 minute call)
-------------------
Phone Order Call Time in excess of a monthly average
of 240 seconds per call will be billed at a rate of $.[ ]* per second.
-------------------
Mail orders (includes two 2) lines times/order $ [ ]*
-------------------
review order time in 90 days from Transmittal orders (includes two (2) line $ [ ]* each
start up (first orders) items/order)(Email or Web)
-------------------
each
-------------------
Additional line item per order $ [ ]* each
-------------------
Credit card Authorization $ [ ]* each
-------------------
Check/Cash/Money Order processing $ [ ]* each
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
SHIPMENTS Shipments (ups, usps) (includes two (2) unit $ [ ]* each
items/shipment)
-------------------
Shipments of freighted items (per shipment) $ [ ]* each
-------------------
Additional line items per shipment $ [ ]* each
-------------------
Drop ship items $ [ ]* each
-------------------
Create Automated Shipment Invoices (Automated From $ [ ]* each
Negative Option Order Files)
-------------------
Drop shipment Confirmation (Confirms order and creates $ [ ]* each
AR)
-------------------
Guaranteed same-day shipment (optional) $ [ ]* each
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
RECEIVING/STOCKING Receiving/inspecting $ [ ]* each
-------------------
Stocking/recording into inventory $ [ ]* each
-------------------
Inventory storage Reserve Warehouse (Calculated from $ [ ]* per cubic foot/m
peak day of month on actual space utilized)
-------------------
Inventory Storage Active Pick (Calculated on cubic foot $ [ ]* per cubic foot/m
of pick location)
------------------------------------------------------------------------------------------------------------------
<PAGE> 39
------------------------------------------------------------------------------------------------------------------
RETURNS/EXCHANGES Returns Electronic $ [ ]* each
-------------------
Returns to Harrison Fulfillment Services $ [ ]* each
-------------------
Exchange processing $ [ ]* each
-------------------
Returns/Exchanges on freighted items additional $ [ ]* each
-------------------
Return to sender $ [ ]* each
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
CALL TAGS/TRACERS UPS call tags $ [ ]* each
-------------------
Tracers $ [ ]* each
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
GIFTS Gift Wrap $ [ ]* each
-------------------
Gift Cards $ [ ]* each
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
CUSTOMER SERVICE Marketing lead calls (inbound) (Assumes 3 min calls) $ [ ]* each
-------------------
Non-order calls (inbound) (Assumes 3 min call) $ [ ]* each
-------------------
In bound Catalog Request (assumes 1.5 min call) $ [ ]* each
(separate 800 number needed)
-------------------
Inbound Catalog Request Voice mail Transcription $ [ ]* each
(separate 800 number needed)
-------------------
Requests are transcribed from
voice mail and keyed into
system Includes mailing the
catalog request
-------------------
Non-order calls (outbound) (Assumes 3 min call) $ [ ]* each
-------------------
Customer Service Call Time in excess of a monthly
average of 130 seconds will be billed at a rate of
$[ ]* per second. Inbound Catalog Request Call Time
in excess of a monthly average of 90 seconds per
call will be billed at rate of $[ ]* per second.
-------------------
Remote Monitoring $ [ ]* hour
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
MAIL ROOM Non-order Correspondence $ [ ]* each
-------------------
Customer Service Research (Chargebacks, NSF or Returned $ [ ]* each
Checks)
-------------------
Catalog Request Mail $ [ ]* each
-------------------
Fax transmissions $ [ ]* each
-------------------
Copies $ [ ]* each
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
FIXED FEES Dedicated Services Management Fee (DSG) $ [ ]*
-------------------
Weekly Administrative fee First Year $ [ ]* week
-------------------
Weekly Administrative fee Second Year $ [ ]* week
-------------------
Weekly Administrative fee Third Year $ [ ]* week
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE BILLING Invoices Manual (institutional purchase order billing) $ [ ]* each
-------------------
Credit card statement processing (manual) $ [ ]* each
-------------------
Credit card automated processing (Authorizations $ [ ]* each
payments)
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
PRINT MAIL Marketing lead package (announcement/advances) $ [ ]* each
-------------------
Monthly news letters $ [ ]* each
-------------------
Automated Statement/past due notices $ [ ]* each
-------------------
Automated FTC Notices and Correspondence $ [ ]* each
-------------------
Automated Shipments Invoices $ [ ]* each
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
BANKING Lock Box Check processing US (regular) $ [ ]* each
-------------------
Lock Box Check processing CAN (us funds) $ [ ]* each
-------------------
Canadian Checks drawn on Canadian Bank $ [ ]* each
-------------------
PO Box Rental $ [ ]* per year
-------------------
Returned Checks/Recleared Checks and Cash Payments $ [ ]* each
-------------------
Research $ [ ]* per request
-------------------
Deposits and Deposits balancing $ [ ]* each
----------------------------------------------------------------------------
FDIC DDA Maintenance $ [ ]* monthly
-------------------
Additional DDA Statements $ [ ]* each
-------------------
Foreign collection Expense $ [ ]* each
-------------------
Wire Transfers (debit) $ [ ]* each
-------------------
ASH transfers (debit) $ [ ]* each
-------------------
2
<PAGE> 40
These fees are based on charges by the Federal Reserve,
FDIC and/or other depository Institutions and are
subject to change when the respective expense is
changed. You will be notified promptly of any changes
in prices for these services.
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
OPTIONAL SERVICES Optional Services:
-------------------
Weekly Customer Satisfaction Survey: $ [ ]* per month
-------------------
Survey Insertion into shipment Report
analysis compilation & distribution
Weekly report provided to client and
reviewed by HFS management team Plus
postage and supplies cost
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
INTERACTIVE VOICE RESPONSE (Interactive Voice Response Scriptings):
-------------------
1 to 5,000 $ [ ]* per minute
-------------------
5,001 to 10,000 $ [ ]* per minute
-------------------
10,001 to 20,000 $ [ ]* per minute
-------------------
20,001 to 30,000 $ [ ]* per minute
-------------------
30,001+ $ [ ]* per minute
-------------------
Above IVR equipment rates are charged on per minute $ [ ]* per call
basis
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
SPECIAL PROJECTS FEES Special Projects Fees:
Special projects include physical
inventory, customer
service/telemarketing operator
training special inventory processing
(assembly, rework, refurbishment,
etc.)
and close down service.
All special projects are estimated by
HFS and must be approved in writing by
client before project commencement.
Labor PER HOUR
-------------------
Office, Regular $ [ ]* hour
-------------------
Office, Overtime $ [ ]* hour
-------------------
Office, Sunday/Holiday $ [ ]* hour
-------------------
Warehouse/Regular $ [ ]* hour
-------------------
Warehouse/Overtime $ [ ]* hour
-------------------
Warehouse/Sunday/Holiday $ [ ]* hour
-------------------
Supervisory, Regular $ [ ]* hour
-------------------
Supervisory, Overtime $ [ ]* hour
-------------------
Supervisory, Sunday/Holiday $ [ ]* hour
-------------------
Consulting Services $ [ ]* hour
-------------------
Executive Consulting Services $ [ ]* day
Approved HFS travel [ ]*
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
DATA BASE SELECTION Initial Customer file/order file load per thousand $ [ ]* per thousand
records
-------------------
Selection Table Set Up (Source Codes) (output id) $ [ ]*
-------------------
Test Selection With no Output $ [ ]*
-------------------
Live Execution of Data Base $ [ ]*
-------------------
Build Negative Option Order File $ [ ]*
-------------------
Interface to third party data base and drop shippers $ [ ]*
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
DATA PROCESSING Data processing support $ [ ]* order
-------------------
Computer programming services $ [ ]* per hour
-------------------
Computer script changes (report distribution changes, $ [ ]* per hour
tape set-up, job changes, etc.)
-------------------
Orders transmitted via Email (Base rate) $ [ ]*
-------------------
Orders transmitted via Web page (Base rate) $ [ ]* per month
-------------------
Email and Web Page Price Ranges (cost per order)
0 to 5000 Per Month $ [ ]* each
-------------------
5001 to 10,000 Per Month $ [ ]* each
-------------------
10,001 to 20,000 Per Month $ [ ]* each
-------------------
20,001 to 30,000 Per Month $ [ ]* each
-------------------
30,001 to > Per Month $ [ ]* each
-------------------
3
<PAGE> 41
Data Storage:
-------------------
Record storage fees - House file account record with $ [ ]* per month
inactivity > 12 months
-------------------
Order record (includes supplementary detail records) $ [ ]* per month
completed > 12 months
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
OTHER Other:
-------------------
Supplies $ [ ]*
-------------------
Materials $ [ ]*
-------------------
Stationary $ [ ]*
-------------------
Special Packaging Materials $ [ ]*
-------------------
Postage and Courier $ [ ]*
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS Remote communications lines and hardware $ [ ]*
-------------------
Telephone hardware (Voicemail Catalog Request) $ [ ]* each line
-------------------
(This rate is calculated by dividing the peak hour in a
month by 60 calls per hour)
-------------------
Telephone hardware (orders) $ [ ]* each line
-------------------
(This rate is calculated by dividing the peak hour in a
month by 15 calls per hour)
-------------------
Outbound long distance usage $ [ ]* hour
-------------------
Toll free 800 usage (WATS charges) $ [ ]* hour
-------------------
Canadian toll free usage (WATS charges) Costs varies on usage and
province
------------------------------------------------------------------------------------------------------------------
ASSUMPTIONS The following assumptions were made in
compiling the transaction rates:
Orders
(Positive Option) [ ]*
----------------
Telephone Percent [ ]%* Non-Order Call [ ]%*
outs
----------------
Mail Percentage [ ]%* Non-Order Call in [ ]%*
----------------
Transmittal Percent [ ]%* Catalog Request [ ]%*
Phone
----------------
Shipments per order [ ]* Non-Order [ ]%*
correspondence
----------------
Items per order [ ]* Call Tags [ ]%*
----------------
Return/exchanges [ ]%* Tracers [ ]%*
----------------
Returns Electronic [ ]%* Drop Ship % [ ]%*
----------------
Receiving [ ]%*
----------------
Gift Wrap Percentage [ ]%* Catalog Request [ ]%*
Mail
----------------
Gift Wrap Percentage [ ]%* Advances (Neg. [ ]%*
Option)
----------------
The pricing was developed to these base assumptions and is subject
to change if the assumptions change.
Transaction rates are double for the following holidays:
Christmas Eve, Christmas Day, New Year's Day, Memorial Day
Easter, July 4th, Labor day, Thanksgiving
APPROVED CARRIERS Approved Carriers: UPS, USPS, RPS, FEDX
Non Approved Carriers: Airborne Express, Burlington
Any Business Partner non-approved carriers will result in an
additional charge of $[ ]* a shipment
Any Business Partner requesting freight shipments will be charged a
per-shipment charge.
<PAGE> 42
ALLOY DESIGNS, INC.
EXHIBIT E
SALES TAX JURISDICTIONS
35
<PAGE> 43
ALLOY DESIGNS, INC.
EXHIBIT F
COMPANY'S
CERTIFICATE OF INSURANCE
36
<PAGE> 44
ALLOY DESIGNS, INC.
EXHIBIT G
HFS'
CERTIFICATE OF INSURANCE
37
<PAGE> 45
ALLOY DESIGNS, INC.
SCHEDULE 1
HFS REPRESENTATION AND WARRANTY EXCEPTIONS
None
38
<PAGE> 46
ALLOY DESIGNS, INC.
SCHEDULE 2
COMPANY REPRESENTATION AND WARRANTY EXCEPTIONS
39