Sample Business Contracts

Fulfillment Services Agreement - Harrison Fulfillment Services Inc. and Alloy Designs Inc.

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                                AGREEMENT BETWEEN



                               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

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     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

<PAGE>   4


     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

                               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


     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

<PAGE>   5


     During the Term and subject to the terms hereof, HFS shall provide to the
     Company the Services set forth in EXHIBIT A hereto.


     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.


     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.

<PAGE>   6


     In consideration for performance of the Services during the Term (as
     defined hereinafter), the Company shall pay to HFS the following fees and

     (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

     (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

<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

<PAGE>   8

     basis. [All close down activities shall be completed within thirty (30)
     days following termination. ]


     (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

<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.


     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

<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.


     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

<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

<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.


     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.


     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.

<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,

<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

     (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

     (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

<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.


     (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

     (b)  Notwithstanding anything contained herein to the contrary, the parties
     acknowledge that HFS shall not be required to make any collection efforts
     on the

<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.


     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

<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.


     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.


     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,

<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.


     (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.


          (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

<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.


     (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.

<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

<PAGE>   21

     patents, trademarks, service marks, trade names, copyrights, licenses,
     trade secrets or other intellectual property rights of any other person or

          (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").


     (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.


     (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

<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.

<PAGE>   23


     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

          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.


     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.


     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.

<PAGE>   24


     (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


     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

<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.


     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.

<PAGE>   26


     This Agreement shall not be modified or amended except by a written
     agreement signed by authorized representatives of HFS and the Company.


     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.


     (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.

<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.


     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.


     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.


     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

<PAGE>   28


     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.


     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.


     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


     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.


     This Agreement may be executed in one or more counterparts, all of which
     taken together shall be deemed one original.

<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.


                                    ALLOY DESIGNS, INC.

                                    By:    /s/ Sam Gradess
                                    Name:  Sam Gradess
                                    Title: Corporate Secretary


                                    HARRISON FULFILLMENT SERVICES, INC.

                                    By:    /s/ Bruce Godfray
                                    Name:  Bruce Godfray
                                    Title: President

<PAGE>   30

                               ALLOY DESIGNS, INC.

                                    EXHIBIT A


     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

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.

<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

     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.

<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.

<PAGE>   33

                               ALLOY DESIGNS, INC.

                            ATTACHMENT 1 TO EXHIBIT A
                              SAMPLE REPORT PACKAGE

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

<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

<PAGE>   35

commences when the call is entered in the HFS telephone switch and ends upon
commencement of call handling.

<PAGE>   36

                               ALLOY DESIGNS, INC.

                                    EXHIBIT C

                                START-UP SERVICES

<PAGE>   37

                              ALLOY DESIGNS, INC.

                                   EXHIBIT D

                               TRANSACTION RATES

<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)

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)
                                      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
                                      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
                                      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
                                      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

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

<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

SPECIAL PROJECTS FEES                 Special Projects Fees:
                                      Special projects include physical
                                      inventory, customer
                                      service/telemarketing operator
                                      training special inventory processing
                                      (assembly, rework, refurbishment,
                                      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
                                      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

<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

ASSUMPTIONS                           The following assumptions were made in
                                      compiling the transaction rates:
                                              (Positive Option)            [          ]*
                                              Telephone Percent            [          ]%*       Non-Order Call      [          ]%*
                                              Mail Percentage              [          ]%*       Non-Order Call in   [          ]%*
                                              Transmittal Percent          [          ]%*       Catalog Request     [          ]%*
                                              Shipments per order          [          ]*        Non-Order           [          ]%*
                                              Items per order              [          ]*        Call Tags           [          ]%*
                                              Return/exchanges             [          ]%*       Tracers             [          ]%*
                                              Returns Electronic           [          ]%*       Drop Ship %         [          ]%*
                                              Receiving                    [          ]%*
                                              Gift Wrap Percentage         [          ]%*       Catalog Request     [          ]%*
                                              Gift Wrap Percentage         [          ]%*       Advances (Neg.      [          ]%*

                                      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

<PAGE>   43

                               ALLOY DESIGNS, INC.

                                    EXHIBIT F

                            CERTIFICATE OF INSURANCE

<PAGE>   44

                               ALLOY DESIGNS, INC.

                                    EXHIBIT G

                            CERTIFICATE OF INSURANCE

<PAGE>   45

                               ALLOY DESIGNS, INC.

                                   SCHEDULE 1



<PAGE>   46

                               ALLOY DESIGNS, INC.

                                   SCHEDULE 2