Series A Convertible Preferred Stock Purchase Agreement - Alloy Designs Inc.
ALLOY DESIGNS, INC.
Series A Convertible Preferred Stock Purchase Agreement
Dated as of November 24, 1998
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ALLOY DESIGNS, INC.
Series A Convertible Preferred Stock Purchase Agreement
Dated as of November 24, 1998
Table of Contents
Page
ARTICLE I.....................................................................1
PURCHASE, SALE AND TERMS OF SHARES..........................................1
1.01. The Purchased Shares................................................1
1.02. The Additional Preferred Shares.....................................1
1.03. The Converted Shares................................................2
1.04. The Shares..........................................................2
1.05. Purchase Price and Closing..........................................2
1.06. Use of Proceeds.....................................................3
1.07. Representations and Warranties by the Purchasers....................3
ARTICLE II....................................................................4
CONDITIONS TO PURCHASERS' OBLIGATION........................................4
2.01. Representations and Warranties......................................4
2.02. Documentation at Initial Closing....................................4
2.03. Consents, Waivers, Etc..............................................5
2.04 Conditions Precedent to Additional Closing..........................6
ARTICLE III...................................................................6
REPRESENTATIONS AND WARRANTIES..............................................6
3.01. Organization and Standing of the Company............................6
3.02. Corporate Action....................................................6
3.03. Governmental Approvals..............................................7
3.04. Litigation..........................................................7
3.05. Certain Agreements of Officers and Key Employees....................7
3.06. Compliance with Other Instruments...................................8
3.07. ERISA...............................................................8
3.08. Transactions with Affiliates........................................8
3.09. Assumptions or Guarantees of Indebtedness of Other Persons..........8
3.10. Investments in Other Persons........................................9
3.11. Securities Act of 1933..............................................9
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3.12. Disclosure..........................................................9
3.13. Brokers or Finders..................................................9
3.14. Capitalization; Status of Capital Stock.............................9
3.15. Registration Rights................................................10
3.16. Insurance..........................................................10
3.17. Books and Records..................................................10
3.18 Title to Assets, Patents...........................................10
3.19. Compliance with Law; Permits.......................................11
3.20. Financial Information..............................................12
3.21. Taxes..............................................................12
3.22. Other Agreements...................................................12
3.23. License Agreement..................................................14
3.24. Year 2000 Compliance...............................................14
ARTICLE IV...................................................................14
COVENANTS OF THE COMPANY...................................................14
4.01. Affirmative Covenants of the Company Other Than Reporting
Requirements.......................................................15
(a) Payment of Taxes and Trade Debt....................................15
(b) Maintenance of Insurance...........................................15
(c) Preservation of Corporate Existence................................15
(d) Compliance with Laws...............................................16
(e) Inspection.........................................................16
(f) Keeping of Records and Books of Account............................16
(g) Maintenance of Properties..........................................16
(h) Compliance with ERISA..............................................16
(i) Budgets Approval...................................................17
(j) The Board of Directors.............................................17
(k) Stockholders and Voting Agreement..................................18
(l) Agreements of Officers and Employees...............................18
(m) By-laws............................................................18
4.02. Negative Covenants of the Company..................................19
(a) Indebtedness.......................................................19
(a) Merger.............................................................19
(b) Assumptions or Guarantees of Indebtedness of Other Persons.........20
(c) Vesting of Reserved Employee Shares................................20
(d) Consideration for Issuances of Common Stock........................20
(e) Chief Executive Officer............................................20
4.03. Reporting Requirements.............................................20
(a) Monthly Reports....................................................21
(b) Quarterly Reports..................................................21
(c) Annual Reports.....................................................21
(d) Budgets............................................................21
(e) Notice of Adverse Changes..........................................21
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(f) Written Reports....................................................21
(g) Notice of Proceedings..............................................22
(h) Stockholders' and SEC Reports......................................22
(i) Other Information..................................................22
ARTICLE V. ..................................................................22
RIGHT OF FIRST REFUSAL....................................................22
5.01. Right of First Refusal.............................................22
5.02. Notice of Acceptance...............................................22
5.03. Conditions to Acceptances and Purchase.............................23
(a) Permitted Sales of Refused Securities..............................23
(b) Reduction in Amount of Offered Securities..........................23
(c) Closing............................................................23
5.04. Further Sale.......................................................24
5.05. Termination of Right of First Refusal..............................24
5.06 Exception..........................................................24
ARTICLE VI...................................................................24
DEFINITIONS AND ACCOUNTING TERMS...........................................24
6.01. Certain Defined Terms..............................................24
6.02. Accounting Terms...................................................27
ARTICLE VII..................................................................27
MISCELLANEOUS..............................................................27
7.01. No Waiver; Cumulative Remedies.....................................28
7.02. Amendments, Waivers and Consents...................................28
7.03. Addresses for Notices..............................................28
7.04. Costs, Expenses and Taxes..........................................28
7.05. Binding Effect; Assignment.........................................29
7.06. Survival of Representations and Warranties.........................29
7.07. Prior Agreements...................................................29
7.08. Severability.......................................................29
7.09. Governing Law......................................................29
7.10. Headings...........................................................29
7.11. Counterparts.......................................................29
7.12. Further Assurances.................................................30
7.13 Indemnification.....................................................30
7.14 Changes in Common Stock or Preferred Stock..........................30
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EXHIBITS
1.01 List of Purchasers
1.01A Description of Preferred Stock
2.02B Form of Opinion Letter
2.02F Stockholders' Agreement
2.02J Registration Rights Agreement
2.02K By-Laws
2.02M Form of Non-Competition Agreement
SCHEDULES
3.04 Litigation
3.08 Transactions with Affiliates
3.10 Investments in Other Persons
3.13 Brokers or Finders
3.14 Capitalization
3.15 Registration Rights
3.18 Patents
3.19 Permits
3.20 Financial Information
3.22 Agreements
iv
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Alloy Designs, Inc.
115 West 30th Street, #304
New York, NY 10001
As of November 24, 1998
TO: The Persons listed on Exhibit 1.01 hereto
Re: Series A Preferred Stock
Gentlemen:
Alloy Designs, Inc., (the "Company"), a Delaware corporation, agrees with
each of you as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01. The Initial Purchased Shares. The Company has authorized the
issuance and sale of up to 1,487,843 shares (the "Initial Preferred Shares") of
its previously authorized but unissued shares of Series A Convertible Preferred
Stock, $.01 par value (the "Series A Preferred Stock") at a purchase price of
$3.391 per share to the persons (collectively, the "Purchasers" and,
individually, a "Purchaser") and in the respective amounts set forth in Exhibit
1.01 hereto. The designation, rights, preferences and other terms and conditions
relating to the Series A Preferred Stock shall be as set forth on Exhibit 1.01A
hereto.
1.02. The Additional Preferred Shares. Subject to the terms and conditions
hereof, the Company has authorized the issuance to the Purchasers at the
Additional Closing (as hereinafter defined) of up to an additional number of
shares of Series A Preferred Stock equal to 1,487,843 less the number of shares
sold at the Initial Closing (as defined below) (said additional number of shares
of Series A Preferred Stock being sometimes collectively referred to in this
Agreement as the "Additional Preferred Shares;" and the Initial Preferred Shares
and the Additional Preferred Shares being sometimes collectively referred to as
the "Purchased Shares") at a price of $3.391 per share and in the respective
amounts set forth in Exhibit 1.01 hereto provided that, without the consent of
the Purchasers of a majority of the Initial Preferred Shares, no Purchaser shall
be entitled to purchase more Additional Preferred Shares than the number of
Initial Preferred Shares purchased by such Purchaser.
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1.03. The Converted Shares. The Company has authorized and has reserved
and covenants to continue to reserve, free of preemptive rights and other
preferential rights, a sufficient number of its previously authorized but
unissued shares of Common Stock, $.01 par value, to satisfy the rights of
conversion of the holders of the Purchased Shares. Any shares of Common Stock
issuable upon conversion of the Purchased Shares, and such shares when issued,
are herein referred to as the "Converted Shares."
1.04. The Shares. The Purchased Shares and the Converted Shares are
sometimes collectively referred to herein as the "Shares."
1.05. Purchase Price and Closings.
(a) Initial Closing. The Company agrees to issue and sell to the
Purchasers and, subject to and in reliance upon the representations, warranties,
covenants, terms and conditions of this Agreement, the Purchasers, severally but
not jointly, agree to purchase that number of the Initial Preferred Shares set
forth opposite their respective names in Exhibit 1.01. The aggregate purchase
price of the Initial Preferred Shares being purchased by each Purchaser is set
forth opposite such Purchaser's name in Exhibit 1.01. The initial purchase and
sale shall take place at a closing (the "Initial Closing") to be held at the
offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, High Street Tower,
Boston, Massachusetts 02110 on November 24, 1998, at 10:00 A.M., or at such
other location, on such other date and at such time as may be mutually agreed
upon. At the Initial Closing, the Company will issue and deliver certificates
evidencing the Initial Preferred Shares to be sold at such Initial Closing to
each of the Purchasers (or its nominee) against payment of the full purchase
price therefor by (i) wire transfer of immediately available funds to an account
designated by the Company, (ii) check payable to the order of the Company or its
designees or (iii) any combination of (i) and (ii) above.
(b) The Additional Closing. On February 1, 1999, the Company shall
sell and each Purchaser shall purchase, upon the terms and conditions
hereinafter set forth, that number of shares of Additional Preferred Shares set
forth opposite the name of such Purchaser on Exhibit 1.01 attached hereto in the
aggregate being all of the Additional Preferred Shares. The per share purchase
price for each Additional Preferred Share (as constituted on the date hereof) to
be purchased pursuant to this Agreement at the Additional Closing shall be
$3.391. Such purchase and sale of Additional Preferred Shares, if any, shall
take place at a closing (the "Additional Closing") at the offices of Testa,
Hurwitz & Thibeault, High Street Tower, 125 High Street, Boston, Massachusetts
02110, on February 1, 1999, or on such other date or dates as the Company and
the Purchasers may agree. At the Additional Closing the Company will issue and
deliver the certificates evidencing the Additional Preferred Shares sold at the
Additional Closing to each of the Purchasers (or its nominee) against payment of
the full purchase price therefor by wire transfer or check payable to the order
of the Company. Notwithstanding the foregoing, in no event shall the Company
sell less than an aggregate of 737,286 Additional Preferred Shares hereunder
(subject to Section 2.04 herein). Further notwithstanding the foregoing, unless
and until an aggregate of 737,286 Additional Preferred Shares are sold
hereunder, the Company shall provide each Purchaser with at least 20 days' prior
written notice of the occurrence of any of (i) a Qualified Public Offering, (ii)
an Organic Change (as such term is defined in Exhibit 1.01A
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hereto), or (iii) a Change in Ownership (as such term is defined in Exhibit
1.01A hereto) (each a "Triggering Event"). Each Purchaser shall thereupon have
the right, but not the obligation, exercisable upon written notice to the
Company, to require that the Company sell to such Purchaser any or all of the
previously unsold Additional Preferred Shares set forth opposite such
Purchaser's name in Exhibit 1.01. Such purchase and sale shall take place at an
Additional Closing which shall occur no later than the date of Triggering Event,
and shall otherwise be on the same terms and conditions as set forth above.
(c) If any Purchaser fails to purchase their Additional Preferred
Shares in accordance with Section 1.05(b) hereof at the Additional Closing, he
or it shall have twenty (20) days from the date of the Additional Closing in
which to cure such default and purchase his or its Additional Preferred Shares.
If the Purchaser fails to purchase his or its Additional Preferred Shares in
such cure period he or it shall be required to forfeit to the Company 50% of his
or its Initial Preferred Shares. If a Purchaser becomes obligated to forfeit any
Preferred Shares to the Company under this section and fails to deliver such
shares, the Company may, upon written notice to such Purchaser, cancel on its
books the certificate or certificates representing such shares of Initial
Preferred Shares and thereupon all said Purchaser's rights in and to such
Initial Preferred Shares shall terminate. Furthermore, if a Purchaser so fails
to purchase the Additional Preferred Shares, the Company shall no longer be
obligated to sell such shares to the Purchaser.
1.06. Use of Proceeds. The Company shall use the proceeds from the sale of
the Purchased Shares for working capital and general corporate purposes.
1.07. Representations and Warranties by the Purchasers. Each of the
Purchasers represents and warrants to the Company severally, but not jointly,
that (a) it will acquire the Purchased Shares to be acquired by it for its own
account and that the Purchased Shares are being and will be acquired by it for
the purpose of investment and not with a view to distribution or resale thereof;
subject, nevertheless, to the condition that the disposition of the property of
each Purchaser shall at all times be within its control; (b) the execution of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary action (if any) on the part of the
Purchaser, and this Agreement has been duly executed and delivered, and
constitutes a valid, legal, binding and enforceable agreement of the Purchasers;
(c) it is an "accredited investor" within the meaning of Rule 501 of Regulation
D promulgated under the Securities Act; and (d) it has taken no action which
would give rise to any claim by any other person for any other person for any
brokerage commissions, finders' fees or the like relating to this Agreement or
the transaction contemplated hereby. The acquisition by each Purchaser of the
Purchased Shares acquired by it shall constitute a confirmation of the
representations and warranties made by each such Purchaser. Each of the
Purchasers further represents that it understands and agrees that, until
registered under the Securities Act or transferred pursuant to the provisions of
Rule 144 as promulgated by the Securities and Exchange Commission, all
certificates evidencing any of the Shares, whether upon initial issuance or upon
any transfer thereof, shall bear a legend, prominently stamped or printed
thereon, reading substantially as follows:
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"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state securities laws.
These securities have been acquired for investment and not with a view to
distribution or resale, and may not be mortgaged, pledged, hypothecated or
otherwise transferred without an effective registration statement for such
securities under the Securities Act of 1933 and applicable state securities
laws, or the availability of an exemption from the registration provisions of
the Securities Act of 1933."
ARTICLE II
CONDITIONS TO PURCHASERS' OBLIGATION
The obligation of each Purchaser to purchase and pay for the Purchased
Shares to be purchased by it at the Initial Closing is subject to the following
conditions:
2.01. Representations and Warranties. Each of the representations and
warranties of the Company set forth in Article III hereof shall be true and
correct on the date of the Initial Closing.
2.02. Documentation at Initial Closing. The Purchasers shall have received
prior to or at the Initial Closing all of the following documents or
instruments, or evidence of completion thereof, each in form and substance
satisfactory to the Purchasers and their counsel:
(a) A certified copy of the Certificate of Incorporation of the
Company, a copy of the resolutions of the Board of Directors and, if required,
the stockholders of the Company evidencing, as applicable, the adoption of the
Company's Restated Certificate of Incorporation, the approval of this Agreement,
the issuance of the Purchased Shares and the other matters contemplated hereby,
and a certified copy of the By-laws of the Company, and certified copies of all
documents evidencing other necessary corporate or other action and governmental
approvals, if any, with respect to this Agreement and the Shares.
(b) An opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC,
counsel for the Company, in the form set forth on Exhibit 2.02B.
(c) A certificate of the Secretary or an Assistant Secretary of the
Company which shall certify the names of the officers of the Company authorized
to sign this Agreement, the certificates for the Purchased Shares and the other
documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers. The Purchasers may conclusively rely on such
certificate until they shall receive a further certificate of the Secretary or
an Assistant Secretary of the Company cancelling or amending the prior
certificate and submitting the signatures of the officers named in such further
certificate.
(d) A certificate of the President of the Company stating that the
representations and warranties of the Company contained in Article III hereof
and otherwise made by the Company in writing pursuant hereto are true and
correct and that all conditions
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required to be performed prior to or at the Initial Closing have been performed
as of the Initial Closing.
(e) The Restated Certificate of Incorporation of the Company shall
provide for the designation of the rights and preferences of the Series A
Preferred Stock in the form set forth in Exhibit 1.01A attached hereto.
(f) A Stockholders' Agreement in the form set forth in Exhibit 2.02F
shall have been executed by the parties named therein.
(g) A Certificate of Good Standing for the Company shall have been
provided to the Purchasers and their counsel.
(h) Payment for the costs, expenses, taxes and filing fees
identified in Section 7.04.
(i) The Board of Directors of the Company following the Initial
Closing shall consist of seven (7) members of which the current members shall be
James K. Johnson, Jr., Matthew C. Diamond, Samuel A. Gradess, Peter Graham,
Robert Kerson (or his designee), David Yarnell and such other person designated
in accordance with the Stockholders' Agreement.
(j) The Company, the Purchasers and the Founders shall have entered
into a Registration Rights Agreement in the form set forth in Exhibit 2.02J.
(k) The Company's By-laws shall be in form set forth in Exhibit
2.02K and shall include the provisions set forth in Section 4.01(l) hereof.
(l) Participation of all Purchasers specified on Exhibit 1.01
hereto.
(m) Each Founder shall have entered into a Non-Competition Agreement
in the form of Exhibit 2.02M.
(n) The Company shall have reserved 871,352 shares of Common Stock
for issuance pursuant to an employee, director and consultant stock option plan.
2.03. Consents, Waivers, Etc. Prior to the Initial Closing, the Company
shall have obtained all consents or waivers, if any, necessary to execute and
deliver this Agreement, issue the Purchased Shares and to carry out the
transactions contemplated hereby and thereby, and all such consents and waivers
shall be in full force and effect. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement, the
Purchased Shares and other agreements and instruments executed and delivered by
the Company in connection herewith shall have been made or taken, except for any
post-sale filing that may be required under federal or state securities laws. In
addition to the documents set forth above, the Company
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shall have provided the Purchasers any other information or copies of documents
that they may reasonably request.
2.04 Conditions Precedent to Additional Closing. Subject to the provisions
of Section 1.05(b), there shall be no conditions precedent to the respective
several obligations of the Purchasers to purchase and pay for the Additional
Preferred Shares to be purchased at the Additional Closing, provided, however,
that in no event shall the Company sell (or request the purchase of) any
Additional Preferred Shares, and the Purchasers shall not be required to
purchase any Additional Preferred Shares, if prior to the Additional Closing (a)
the Company has filed a petition in bankruptcy (or performs the equivalent act
under relevant law), (b) a receiver and/or administrator (or equivalent) has
been appointed in respect of the whole of the Company's assets, (c) the Company
has ceased doing business in the normal course, (d) the Company has sought to
make a compromise, assignment, or other arrangement for the benefit of its
creditors, or (e) there has been filed any complaint, application or petition
against the Company seeking an order for relief or adjudication of bankruptcy
under the Bankruptcy Code with respect to the Company which complaint,
application or petition is not timely contested or, if timely contested, is not
dismissed within sixty (60) days of when filed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants as follows to the
Purchasers that, except as set forth in the Disclosure Schedule attached hereto
as Schedule III (the "Disclosure Schedules"):
3.01. Organization and Standing of the Company . The Company is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its organization and has all requisite corporate power and
authority for the ownership and operation of its properties and for the carrying
on of its business as now conducted or as now proposed to be conducted. The
Company is duly licensed or qualified and in good standing as a foreign
corporation authorized to do business in all jurisdictions wherein the character
of the property owned or leased, or the nature of the activities conducted, by
it makes such licensing or qualification necessary except where the failure to
be so qualified would not have a material adverse effect on the business and
operating results of the Company taken as a whole (a "Material Adverse Effect").
3.02. Corporate Action. The Company has all necessary corporate power and
has taken all corporate action required to make all the provisions of this
Agreement, the Shares and any other agreements and instruments executed in
connection herewith and therewith be the valid and enforceable obligations of
the Company, enforceable in accordance with their terms. Sufficient authorized
but unissued shares of Common Stock have been reserved by appropriate corporate
action in connection with the prospective conversion of the Preferred
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Shares at the initial conversion price, and the issuance of the Preferred Shares
is not, and the issuance of the Converted Shares upon the conversion of the
Preferred Shares will not be, subject to preemptive rights or other preferential
rights in any present or future stockholders of the Company and will not
conflict with any provision of any agreement or instrument to which the Company
is a party or by which it or its property is bound.
3.03. Governmental Approvals. Except for the filing of any notice
subsequent to the Initial Closing that may be required under applicable state
and/or Federal securities laws (which, if required, shall be filed on a timely
basis), no authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for the execution and delivery by the Company of this Agreement, for the offer,
issue, sale and delivery of the Preferred Shares, or for the performance by the
Company of its obligations under this Agreement or the Shares.
3.04. Litigation. Except as set forth in Schedule 3.04, there is no
litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company affecting any of its
respective properties or assets, or, to the knowledge of the Company, against
any officer, Key Employee or the holder of more than 3% of the capital stock of
the Company relating to such person's performance of duties in his capacities as
such or relating to his stock ownership in the Company or otherwise relating to
the business of the Company, nor, to the knowledge or belief of the Company, has
there occurred any event or does there exist any condition on the basis of which
any such litigation, proceeding or investigation might properly be instituted.
The Company is not in default, and, to the knowledge of the Company, no officer,
Key Employee or holder of more than 3% of the capital stock of the Company is in
default, with respect to any order, writ, injunction, decree, ruling or decision
of any court, commission, board or other government agency that could reasonably
be expected to result in a Material Adverse Effect. There are no actions or
proceedings pending or, to the knowledge of the Company, threatened (or any
basis therefor known to the Company) which could reasonably be expected to
result, either in any case or in the aggregate, in a Material Adverse Effect on
the business, operations, affairs or condition of the Company or in its
properties or assets taken as a whole, or which might call into question the
validity of this Agreement, any of the Shares, or any action taken or to be
taken pursuant hereto or thereto. The foregoing sentences include, without
limiting their generality, actions pending or threatened (or any basis therefor
known to the Company) involving the prior employment of any of the Company's
officers or employees or their use in connection with the Company's respective
businesses of any information or techniques allegedly proprietary to any of
their former employers.
3.05. Certain Agreements of Officers and Key Employees.
(a) To the Company's knowledge, no officer or Key Employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement, proprietary information agreement, noncompetition
agreement, or any other contract or agreement or any restrictive covenant
relating to the right of any such officer or Key
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Employee to be employed by the Company because of the nature of the business
conducted or to be conducted by the Company or relating to the use of trade
secrets or proprietary information of others, and to the Company's knowledge,
the continued employment of the Company's officers and Key Employees does not
subject the Company or any Purchaser to any claim of any third party.
(b) To the knowledge of the Company, no officer of the Company nor
any Key Employee of the Company whose termination, either individually or in the
aggregate, would have a Material Adverse Effect, has expressed any present
intention of terminating his employment in such capacity.
3.06. Compliance with Other Instruments. The Company is in compliance in
all respects with the terms and provisions of this Agreement and of its
Certificate of Incorporation and By-laws, and in all material respects with the
terms and provisions of all material mortgages, indentures, leases, agreements
and other instruments, if any, by which it is bound or to which it or any of its
respective properties or assets are subject. The Company is in compliance in all
material respects with all judgments, decrees, governmental orders, statutes,
rules or regulations by which it is bound or to which any of its respective
properties or assets are subject. Neither the execution, issuance and delivery
of this Agreement or the Shares, nor the consummation of any transaction
contemplated hereby or thereby, has constituted or resulted in or will
constitute or result in a default or violation of any term or provision of any
of the foregoing documents, instruments, judgments, agreements, decrees, orders,
statutes, rules and regulations.
3.07. ERISA. The Company makes no contributions to any employee pension
benefit plans for its respective employees which are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
3.08. Transactions with Affiliates. Except (i) as contemplated hereby or
consented to by the Purchasers in accordance with this Agreement, (ii) as set
forth on Schedule 3.08 and (iii) for employment agreements in the ordinary
course of business, there are no loans, leases, royalty agreements or other
continuing transactions between any officer, employee or director of the Company
or any Person owning 5% or more of any class of capital stock of the Company or
any member of the immediate family of such officer, employee, director or
stockholder or any corporation or other entity controlled by such officer,
employee, director or stockholder or a member of the immediate family of such
officer, employee, director or stockholder.
3.09. Assumptions or Guarantees of Indebtedness of Other Persons. Except
as contemplated hereby or consented to by the Purchasers in accordance with this
Agreement, the Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss), any Indebtedness of any other Person.
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3.10. Investments in Other Persons. Except (i) as contemplated hereby or
consented to by the Purchasers in accordance with this Agreement, (ii) as set
forth on Schedule 3.10 and (iii) for advances for employee expenses in the
ordinary course of business, the Company has not made any loan or advance to any
Person which is outstanding on the date of this Agreement, nor is it committed
or obligated to make any such loan or advance, nor does the Company own any
capital stock, assets comprising the business of, obligations of, or any
interest in, any Person except as disclosed in this Agreement. The Company has
no Subsidiaries.
3.11. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Shares. Neither the Company nor anyone acting on
its behalf has or will sell, offer to sell or solicit offers to buy the Shares
or similar securities to, or solicit offers with respect thereto from, or enter
into any preliminary conversations or negotiations relating thereto with, any
Person, so as to bring the issuance and sale of the Shares under the
registration provisions of the Securities Act and applicable state securities
laws.
3.12. Disclosure. Neither this Agreement nor any other agreement,
document, certificate or written statement furnished to the Purchasers or their
counsel by or on behalf of the Company in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading. There is no fact within the knowledge of the Company
which has not been disclosed herein or in writing by it to the Purchasers and
which materially adversely affects, or in the future in the Company's opinion
may reasonably be expected to materially adversely affect the business,
properties, assets or condition, financial or otherwise, of the Company.
3.13. Brokers or Finders. Except as set forth on Schedule 3.13, no Person
has or will have, as a result of the transactions contemplated by this
Agreement, any right, interest or valid claim against or upon the Company for
any commission, fee or other compensation as a finder or broker because of any
act or omission by the Company or any of its agents.
3.14. Capitalization; Status of Capital Stock. The Company has a total
authorized capitalization consisting of (i) 11,500,000 shares of Common Stock,
$.01 par value, of which 7,517,505 shares are issued and outstanding and (ii)
1,487,843 shares of Preferred Stock, $.01 par value, all of which shares are
designated as Series A Convertible Preferred Stock, of which no shares are
issued and outstanding on the date hereof, without giving effect to the
transactions contemplated hereby. A complete list of the capital stock of the
Company which has been previously issued and the names in which such capital
stock is registered on the stock transfer books of the Company is set forth in
Schedule 3.14 hereto. All the outstanding shares of capital stock of the Company
have been duly authorized, are validly issued and are fully paid and
non-assessable. The Preferred Shares, when issued and delivered in accordance
with the terms hereof and after payment of the purchase price therefor, and the
Converted Shares, when issued and delivered upon conversion of the Preferred
Shares, will be duly authorized, validly issued, fully-paid and non-assessable.
Except as otherwise set forth in Schedule 3.14,
<PAGE> 15
10
no options, warrants, subscriptions or purchase rights of any nature to acquire
from the Company shares of capital stock or other securities are authorized,
issued or outstanding, nor is the Company obligated in any other manner to issue
shares of its capital stock or other securities except as contemplated by this
Agreement. Except as set forth in Schedule 3.14, there are no restrictions on
the transfer of shares of capital stock of the Company other than those imposed
by relevant federal and state securities laws and as otherwise contemplated by
this Agreement, the Stockholders' Agreement referred to in Section 2.02(f) and
the Registration Rights Agreement referred to in Section 2.02(j). Except as set
forth in Schedule 3.14, to the Company's knowledge and other than as provided in
the above-referenced Stockholders' Agreement, there are no agreements,
understandings, trusts or other collaborative arrangements or understandings
concerning the voting of the capital stock of the Company. Except as set forth
in Schedule 3.14, to the Company's knowledge, there are no agreements,
understandings, trusts or other understandings concerning transfers of the
capital stock of the Company except for the aforementioned Stockholders'
Agreement, the aforementioned Registration Rights Agreement and except as
contemplated by this Agreement. The offer and sale of all capital stock and
other securities of the Company issued before the Initial Closing complied with
or were exempt from all applicable federal and state securities laws and no
stockholder has a right of rescission with respect thereto.
3.15. Registration Rights. Except for (i) the rights granted to the
Purchasers pursuant to Registration Rights Agreement referred to in Section
2.02(j) hereof and (ii) as set forth in Schedule 3.15, no Person has demand or
other rights (which such rights shall be effective subsequent to the Initial
Closing) to cause the Company to file any registration statement under the
Securities Act relating to any securities of the Company or any right to
participate in any such registration statement.
3.16. Insurance. The Company carries insurance covering its properties and
businesses customary for the type and scope of its properties and businesses,
but in any event in amounts sufficient to prevent the Company from becoming a
co-insurer.
3.17. Books and Records The books of account, ledgers, order books,
records and documents of the Company accurately and completely reflect all
material information relating to its business, the location and collection of
its assets, and the nature of all transactions giving rise to the obligations or
accounts receivable of the Company.
3.18 Title to Assets, Patents. The Company has good and marketable title
in fee to such of its fixed assets, if any, as are real property, and good and
merchantable title to all of its other material assets, free of any mortgages,
pledges, charges, liens, security interests or other encumbrances, except those
indicated in Schedule 3.18. The Company enjoys peaceful and undisturbed
possession under all leases under which it is operating, and all said leases are
valid and subsisting and in full force and effect. The Company knows of no
adverse claim that would interfere with the Company's right to use the patents,
patent rights, permits, licenses, trade secrets, trademarks, trademark rights,
trade names or trade name rights or franchises, copyrights, inventions, software
and intellectual property rights being used to conduct its business as now
operated and as now proposed to be operated (a list of the patent and
<PAGE> 16
11
trademark applications made by the Company is attached hereto as Schedule 3.18);
and the Company has no reason to believe that the conduct of the Company's
business as now operated and as now proposed to be operated conflicts or will
conflict with valid patents, patent rights, permits, licenses, trade secrets,
trademarks, trademark rights, trade names or trade name rights or franchises,
copyrights, inventions, and intellectual property rights of any other Person,
except as noted in Schedule 3.18. To the Company's knowledge, no product or
process presently used or proposed to be manufactured, marketed, offered, sold
or used by the Company will violate any license or infringe on any intellectual
property rights of any other person; and the Company's intellectual property
rights and the operation or proposed operation of the Company's business is not
known by the Company to conflict with the asserted rights of others, and there
does not exist any known basis for any such conflict, except as noted in
Schedule 3.18. The Company owns or has the right to use all of the back office
and graphic user interface software necessary to run its website and any graphic
or textual content thereof and has the right to use and include any graphic or
text on such website. No claim is known by the Company to be pending or
threatened to the effect that any such intellectual property owned or licensed
by the Company, or which the Company otherwise has the right to use, is invalid
or unenforceable by the Company, as applicable, and the Company has no reason to
believe that any patents or intellectual property rights owned or used by the
Company may be invalid. Except as set forth on Schedule 3.18, the Company has no
obligation known by the Company to compensate any Person for the use of any such
patents or rights, and the Company has not granted any Person any license or
other rights to use in any manner any of the patents or rights of the Company,
whether requiring the payment of royalties or not.
3.19. Compliance with Law; Permits.
(a) Except as set forth on Schedule 3.19, the Company (i) is in
compliance in all material respects with all applicable federal, state and local
laws, rules, regulations, ordinances and policies; and (ii) is not in default
under any applicable order, writ injunction or decree of any court or
governmental authority or having jurisdiction over the Company.
(b) Schedule 3.19 sets forth a true and complete list of each
material permit, license, order or other authorization of federal, state, local
or foreign governmental or regulatory bodies held by the Company (other than
state corporation qualifications) in the conduct of its business (collectively
the "Permits"), together with the issuing authority and the date of expiration.
To the knowledge of the Company, the Permits constitute all of the permits,
licenses, orders and other authorizations and approvals required to permit the
Company to own and lease its properties and assets and to conduct its business
as it is currently conducted, except where the failure to obtain any such
permit, license, order or other authorization would not have a Material Adverse
Effect on the Company. All of the Permits are in full force and effect and the
Company currently operates within the limits thereof except where the failure to
so operate would not have a Material Adverse Effect, and there are no
proceedings pending or, to the knowledge of the Company, threatened, which could
reasonably be expected to result in the revocation, cancellation, suspension,
non-renewal or any material adverse modification of any of the Permits. The
Company has filed all reports
<PAGE> 17
12
and has paid all fees required to obtain and maintain the Permits except where
the failure to so file or pay such fees would not have a Material Adverse
Effect.
3.20. Financial Information. Except as set forth on Schedule 3.20, the
reviewed financial statements of the Company as of January 31, 1998 and the
unaudited financial statements of the Company as of July 31, 1998, attached
hereto as Schedule 3.20, present fairly the financial position of the Company as
of the dates thereof and the results of operations for the periods covered
thereby (subject, in the case of such unaudited financial statements, to normal
year-end audit adjustments) and have been prepared in accordance with generally
accepted accounting principles consistently applied, except, in the case of
unaudited financial statements, for normal year-end adjustments and the absence
of footnotes not customarily included in such statements. The Company does not
know of any liability, contingent or otherwise, not adequately reflected in or
reserved against in the aforesaid financial statements or in the notes thereto.
Except as set forth in Schedule 3.20, since July 31, 1998, (i) there has been no
material adverse change in the business, assets or conditions, financial or
otherwise, operations or prospects of the Company; (ii) the business,
conditions, operations or prospects of the Company and its properties or assets
have not been adversely affected as the result of any legislative or regulatory
changes, no revocation or change in any franchise, permit, license or right to
do business, or no other event or occurrence, whether or not insured against;
and (iii) the Company has not entered into any material transaction other than
in the ordinary course of business, made any distribution on its capital stock
or redeemed or repurchased any of its capital stock.
3.21. Taxes. The Company has completely and correctly prepared and timely
filed all federal, state, foreign and other tax returns required under the laws
of any applicable jurisdiction to be filed by them, have paid or made provision
for the payment of all taxes due from the Company, and all additional
assessments (whether or not shown on such returns), and adequate provisions have
been made and are reflected in the Company's financial statements for all
current taxes and other charges to which the Company is subject and which are
not currently due and payable. None of the federal income tax returns of the
Company have been audited by the Internal Revenue Service. The Company knows of
no additional assessments or adjustments pending or threatened against the
Company for any period, nor of any basis for any such assessment or adjustment.
3.22. Other Agreements. Except as set forth in Schedule 3.22, the Company
is not a party to any written or oral:
(a) distributor, dealer or manufacturer's representative contract or
agreement which is not terminable on less than ninety (90) days' notice without
cost or other liability to the Company (except for contracts which, in the
aggregate, are not material to the business of the Company);
(b) sales contract which entitles any customer to a rebate or right
of set-off or which varies in any material respect from the Company's standard
form contracts;
<PAGE> 18
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(c) contract with any labor union (and, to the knowledge of the
Company, no organizational effort is being made with respect to any of its
employees);
(d) contract or other commitment with any supplier containing any
provision permitting any party other than the Company to renegotiate the price
or other terms, or containing any pay-back or other similar provision, upon the
occurrence of a failure by the Company to meet its respective obligations under
the contract when due or the occurrence of any other event;
(e) contract for the future purchase of fixed assets or for the
future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(f) contract for the employment of any officer, individual, employee
or other person (whether of a legally binding nature or in the nature of
informal understandings) on a full-time or consulting basis which is not
terminable on notice without cost or other liability to the Company except
accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or similar plan, contract or
understanding pursuant to which benefits are provided to any employee of the
Company (other than group insurance plans applicable to employees generally);
(h) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or security interest
on, any asset of the Company;
(i) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company has advanced or agreed
to advance money or has agreed to lease any property as lessee or lessor;
(j) agreement or obligation (contingent or otherwise) to issue or
sell or to repurchase or otherwise acquire or retire any share of its capital
stock or any of its other equity securities (other than listed in Schedule
3.14);
(k) assignment, license or other agreement with respect to any form
of intangible property;
(l) other contract or group of related contacts with the same party
involving more than $50,000 or continuing over a period of more than six months
from the date or dates thereof (including renewals or extensions of options with
another party), which contract or group of contracts is not terminable by the
Company without penalty upon notice of thirty (30) days or less, but excluding
any contract or group of contracts with a customer of the Company for the sale,
lease or rental of the Company's products or services if such contract or group
of contracts was entered into by the Company in the ordinary course of business;
or
<PAGE> 19
14
(m) other Material Agreement.
Except as set forth on Schedule 3.22, the Company has in all material respects
performed all the actions required to be performed by it to date, has received
no notice of default and is not in default under any lease, agreement or
contract now in effect to which the Company is a party or by which it or its
property may be bound, except for any such breach the effect of which is not
material to the business or financial condition of the Company. The Company has
no present expectation or intention of not fully performing all its respective
obligations under each such lease, contract or other agreement, and the Company
has no knowledge of any breach or anticipated breach by the other party to any
contract or commitment to which the Company is a party.
3.23. License Agreement. The Company owns or possesses (or has the right
to possess) adequate licenses or other rights to use all trademarks, trade
names, trademark applications, service marks, service mark applications and
other proprietary rights currently used in the business of the Company.
3.24. Year 2000 Compliance. Each system, comprised of software, hardware,
databases or embedded control systems (microprocessor controlled or controlled
by any robotic or other device) (collectively, a "System") that constitutes any
material part of, or is used in connection with the use, operation or enjoyment
of, any material tangible or intangible asset or real property of the Company
(with the exception of third party systems used by the Company's suppliers of
merchandise and vendors) will not be materially adversely affected by the advent
of the year 2000, the advent of the twenty-first century or the transition from
the twentieth century through the year 2000 and into the twenty-first century.
The Company has no reason to believe that it may incur material expenses arising
from or relating to the failure of any of its Systems (with the exception of
third party systems used by the Company's suppliers of merchandise and vendors)
as a result of the advent of the year 2000, the advent of the twenty-first
century or the transition from the twentieth century through the year 2000 and
into the twenty-first century. Each material System of the Company (with the
exception of third party systems used by the Company's suppliers of merchandise
and vendors) is able to accurately process date data, including, but not limited
to, calculating, comparing and sequencing from, into and between the twentieth
century (through year 1999), the year 2000 and the twenty-first century,
including leap year calculations. Furthermore, the Company shall use its
commercially reasonable efforts to ensure that its "Call and Fulfillment Center"
will not be materially adversely affected by the advent of the year 2000 and
shall use its best efforts to contact all of its suppliers of merchandise and
vendors to assess whether or not they will be materially adversely affected by
the advent of the year 2000.
ARTICLE IV
COVENANTS OF THE COMPANY
<PAGE> 20
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4.01. Affirmative Covenants of the Company Other Than Reporting
Requirements. Without limiting any other covenants and provisions hereof, the
Company covenants and agrees that until the consummation of a Qualified Public
Offering, it will perform and observe the following covenants and provisions,
and will cause each Subsidiary, if and when such Subsidiary exists, to perform
and observe such of the following covenants and provisions as are applicable to
such Subsidiary:
(a) Payment of Taxes and Trade Debt. Pay and discharge, and cause
each Subsidiary to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income, profits
or business, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid,
might become a lien or charge upon any properties of the Company or any
Subsidiary, provided that neither the Company nor any Subsidiary shall be
required to pay any such tax, assessment, charge, levy or claim which is
being contested in good faith and by appropriate proceedings if the
Company or any Subsidiary shall have set aside on its books sufficient
reserves, if such reserve is required by generally accepted accounting
practices. Pay and cause each Subsidiary to pay, when due, or in
conformity with customary trade terms, all lease obligations, all trade
debt, and all other Indebtedness incident to the operations of the Company
or its Subsidiaries, except such as are being contested in good faith and
by proper proceedings and the Company or Subsidiary concerned shall have
set aside on its books sufficient reserves, if such reserve is required by
generally accepted accounting practices.
(b) Maintenance of Insurance. Obtain and maintain and cause each
Subsidiary to maintain, from responsible and reputable insurance companies
or associations term life insurance policies on the lives of any Key
Employee as may be determined (with respect to identity, amount and terms)
by Brand Equity Ventures I, L.P. ("Brand Equity"), with the proceeds
thereof payable to the order of the Company. Maintain, and cause each
Subsidiary to maintain, insurance with reputable insurance companies or
associations in such amounts and covering such risks as is customarily
carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Company or such
Subsidiary operates, but in any event in amounts sufficient to prevent the
Company or Subsidiary from becoming a co-insurer.
(c) Preservation of Corporate Existence. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its corporate existence,
rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each Subsidiary
to qualify and remain qualified, as a foreign corporation in each
jurisdiction in which such qualification is necessary or desirable in view
of its business and operations or the ownership or lease of its
properties; provided, however, that nothing in this Section 4.01(c) shall
be deemed to preclude any merger, consolidation, liquidation or sale
(subject to it not being a sale of all of the assets of the Company and
its Subsidiaries, taken as a whole) of any Subsidiary if such action is
approved by the Board of Directors as being in the best interests of the
Company. Preserve and maintain, and cause each Subsidiary to preserve and
maintain, all licenses and other rights to use patents, processes,
licenses, permits, trademarks, trade names, inventions, intellectual
property rights or
<PAGE> 21
16
copyrights owned or possessed by it and deemed by the Company to be
necessary to the conduct of its business or the business of any
Subsidiary.
(d) Compliance with Laws. Comply, and cause each Subsidiary to
comply, with the requirements of all applicable laws, rules, regulations
and orders of any governmental authority, noncompliance with which could
materially adversely affect its business or condition, financial or
otherwise.
(e) Inspection. Permit, during normal business hours following
reasonable request and notice, each of the Purchasers or any agents or
representatives thereof, to examine and make copies of and extracts from
the records and books of account of, and visit and inspect the properties
of the Company and any Subsidiary, to discuss the affairs, finances and
accounts of the Company and any Subsidiary with any of its officers,
directors or Key Employees and independent accountants, and consult with
and advise the management of the Company and any Subsidiary as to their
affairs, finances and accounts, during normal business hours. Each
Purchaser agrees that it will use its best efforts to maintain the
confidentiality of any information so obtained by it which is not
otherwise available from other sources, subject to the disclosure of
information of a non-technical nature, including financial information,
which such Purchaser discloses to its partners and/or shareholders
generally.
(f) Keeping of Records and Books of Account. Keep, and cause each
Subsidiary to keep, adequate records and books of account in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all material
financial transactions of the Company and any Subsidiary, and in which,
for each fiscal year, all proper reserves for depreciation, depletion,
returns of merchandise, obsolescence, amortization, taxes, bad debts and
other purposes in connection with its business and in accordance with
industry practice shall be made.
(g) Maintenance of Properties. Maintain and preserve, and cause each
Subsidiary to maintain and preserve, all of its properties and assets,
necessary or useful in the proper conduct of its business, in working
order and condition, ordinary wear and tear excepted; provided, however,
that nothing in this Section 4.01(g) shall prevent the Company or any
Subsidiary from discontinuing the operation and maintenance of any such
properties, if such discontinuance, in the judgment of the Board of
Directors of the Company, is desirable in the conduct of its business.
(h) Compliance with ERISA. Comply, and cause each Subsidiary to
comply, with all minimum funding requirements applicable to any pension,
employee benefit plans or employee contribution plans which are subject to
ERISA or to the Internal Revenue Code of 1986 (the "Code"), and comply,
and cause each Subsidiary to comply, in all other material respects with
the provisions of ERISA and the Code, and the rules and regulations
thereunder, which are applicable to any such plan. Neither the Company nor
any Subsidiary will permit any event or condition to exist which could
permit any such plan
<PAGE> 22
17
to be terminated under circumstances which would cause the lien provided
for in Section 4068 of ERISA to attach to the assets of the Company or any
Subsidiary.
(i) Budgets Approval. Not later than 60 days prior to the
commencement of each fiscal year, prepare and submit to, and obtain the
approval of a majority of the Board of Directors, a business plan and
monthly operating budgets in reasonable detail for each fiscal year,
including capital and operating expense budgets, cash flow projections and
profit and loss projections, all itemized in reasonable detail (including
itemization of provisions for officers' compensation). The budget and
business plan shall be reviewed by the Company periodically, and all
changes therein and all material deviations therefrom shall be resubmitted
to the Board of Directors.
(j) The Board of Directors. Hold meetings of the Company's Board of
Directors on a monthly basis unless otherwise determined by a majority of
the Board of Directors, but in any event not less than on a quarterly
basis. Subject to the terms of the Stockholders' Agreement, use its best
efforts to cause the size of the Company's Board of Directors to be
maintained at seven (7) directors, consisting of: (i) three (3) nominees
designated by the holders of a majority of the Common Stock (one of whom
shall be the Chief Executive Officer of the Company), who shall initially
be James K. Johnson, Jr., Matthew C. Diamond and Samuel A. Gradess (the
"Common Stock Directors"); (ii) one nominee designated by Brand Equity and
elected by the holders of the Series A Preferred Stock, voting as a
separate class, who initially shall be David Yarnell (the "Purchasers'
Representative"); and (iii) three (3) nominees designated by (x) the
Founders (provided that each such Founder remains employed by the Company
and continues to own at least seventy-five percent (75%) of the securities
of the Company owned by him as of the date of this Agreement) and (y)
Brand Equity (each an "Outside Director"), (a) one of whom shall be a
representative of the holders of the Company's outstanding notes and
warrants issued in the May 1998 financing of the Company, who shall
initially be Peter Graham, for the first three (3) years following the
date of this Agreement and, after such period, shall be a person
unaffiliated with the Company, (b) one of whom shall be experienced in the
Internet/"e-commerce" field and unaffiliated with the Company, and (c) one
of whom shall be a non-employee with relevant industry experience who
shall initially be Robert Kerson or an individual (reasonably acceptable
to the other Directors and Brand Equity) referred by Robert Kerson for the
first three (3) years following the date of this Agreement and, after such
period, shall be a non-employee with relevant industry experience. Permit
Brand Equity to designate two representatives who may attend meetings of
the Board of Directors as observers (each an "Observer"). Establish a
Compensation Committee of the Board of Directors, consisting of the
Purchasers' Representative and an Outside Director and an observer, who
shall be one of the Common Stock Directors and who may attend meetings of
the Compensation Committee as an observer unless the Compensation
Committee is discussing any of the Common Stock Directors in their
respective capacities with the Company. Establish an Audit Committee of
the Board of Directors, consisting of the Purchasers' Representative and
an Outside Director, which will review the annual financial statements of
the Company with its independent auditors.
<PAGE> 23
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Promptly pay all direct out-of-pocket expenses reasonably incurred by each
director of the Company and each Observer in attending each meeting of the
Board of Directors or any committee thereof.
(k) Stockholders and Voting Agreement. Not permit or allow any
additional Persons to become parties to that certain Stockholders and
Voting Agreement dated as of June 30, 1997, as amended, with the exception
of those certain option and/or warrant holders specified on Schedule 3.14
hereto who have already become contractually obligated to join such
agreement, so that such agreement shall not govern the issuance of any
other new shares of capital stock of the Company.
(l) Agreements of Officers and Employees. Cause each Key Employee of
the Company and each of its Subsidiaries to execute and deliver a
Non-Competition Agreement in form and substance of Exhibit 2.02M.
(m) By-laws. The Company shall at all times cause its By-laws to
provide (i) that, unless otherwise required by the laws of the State of
Delaware, (x) any two directors or (y) any holder or holders of at least
25% of the outstanding shares of Purchased Shares, shall have the right to
call a meeting of the Board of Directors or stockholders and (ii) that
upon the occurrence of an Event of Default the Board of Directors shall
remove the Chief Executive Officer of the Company and the Purchasers'
Representative shall have the right to designate a new Chief Executive
Officer, subject to the approval of the Common Stock Directors, provided,
however, that such Common Stock Directors shall only have the right to
veto two (2) such candidates for the position of Chief Executive Officer
at the time of an Event of Default. The Company shall at all times
maintain provisions in its By-laws or Certificate of Incorporation
indemnifying all directors against liability to the maximum extent
permitted under the laws of the State of Delaware.
(n) Children's Online Privacy Protection Act. The Company shall
comply with the Children's Online Privacy Protection Act of 1998 when such
act becomes effective.
(o) Brokers or Finders. The Company shall send notice by December 1,
1998 to Ladenburg Thalmann & Co. Inc. "Ladenburg" of the termination of
the Company's letter agreement, dated October 12, 1998, with Ladenburg.
4.02. Negative Covenants of the Company. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that, until
the consummation of a Qualified Public Offering, it will comply with and observe
the following covenants and provisions, and will cause each Subsidiary, if and
when such Subsidiary exists, to comply with and observe such of the following
covenants and provisions as are applicable to such Subsidiary, and will not,
without the consent of seventy-five percent (75%) in interest of the holders of
the Purchased Shares (in connection with such covenants and provisions, if
consent of the Purchasers or the Purchasers' Representative is needed, the
Purchasers shall use their reasonable efforts to either respond in a timely
fashion or cause the Purchasers' Representative to respond in a timely fashion):
<PAGE> 24
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(a) Indebtedness. Create, incur, assume or suffer to exist, or
permit any Subsidiary to create, incur, assume or suffer to exist, any
liability with respect to Indebtedness (excluding letters of credit or
indemnities for letters of credit issued by others) for money borrowed
which exceeds in the aggregate $1,000,000 with the exception of (i) those
certain notes issued in May, 1998 for a total of $3,810,000, (ii)
Indebtedness to a commercial bank or commercial lender of up to $3,000,000
which is collateralized solely by the inventory or accounts receivable of
the Company and (iii) up to $2,000,000 of Indebtedness for capital
expenditures which shall be secured by the specific assets of such capital
expenditure and no other assets, shall be non-recourse in nature and not
guaranteed by the Company.
(b) Merger. Merge with or into any other entity where the Company is
the surviving entity, or agree to do or permit any Subsidiary to do so
unless: (i) such merger occurs (x) prior to December 24, 1999 and any
shares of the capital stock of the Company issued as consideration in
connection with such merger have a fair market value, as reasonably
determined by the Board of Directors, which is greater than $4.00 per
share, (y) on or after December 24, 1999 and prior to December 24, 2000
and any shares of the capital stock of the Company issued as consideration
in connection with such merger have a fair market value, as reasonably
determined by the Board of Directors, which is greater than $5.00 per
share, or (z) on or after December 24, 2000 and any shares of the capital
stock of the Company issued as consideration in connection with such
merger have a fair market value, as reasonably determined by the Board of
Directors, which is greater than $6.00 per share; (ii) no more than ten
percent (10%) of the voting power of the Company is transferred to
stockholders who where not stockholders of the Company prior to such
merger and such merger is approved by the Company's Board of Directors; or
(iii) over ten percent (10%) and not more than thirty percent (30%) of the
voting power of the Company is transferred to stockholders who where not
stockholders of the Company prior to such merger and (x) at least a
majority of the Board of Directors, including the Purchasers'
Representative has approved such merger or (y) the affirmative vote of all
members of the Board of Directors with the exception of the Purchasers'
Representative has been received for the merger provided, that if there
are less than six (6) members of the Board of Directors at any time only
subsection (x) hereof shall apply to this section (iii).
(c) Assumptions or Guarantees of Indebtedness of Other Persons.
Assume, guarantee, endorse or otherwise become directly or contingently
liable on, or permit any Subsidiary to assume, guarantee, endorse or
otherwise become directly or contingently liable on (including, without
limitation, liability by way of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or otherwise
invest in the debtor or otherwise to assure the creditor against loss) any
Indebtedness of any other Person, except for (i) guarantees by endorsement
of negotiable instruments for deposit or collection in the ordinary course
of business, or guarantees for the benefit of any wholly-owned Subsidiary
and (ii) guarantees in an aggregate amount of not more than $100,000,
unless approved by the Board of Directors, including the Purchasers'
Representative.
<PAGE> 25
20
(d) Vesting of Reserved Employee Shares. Grant to any of its
employees options or other rights to purchase Reserved Employee Shares
which will become exercisable or vest, as the case may be, at a rate in
excess of 25% per annum from the date of such grant (i) unless otherwise
authorized by the Purchasers' Representative or (ii) with the exception of
grants of up to 100,000 Reserved Employee Shares (outstanding or exercised
at any one time), in the aggregate, provided, further, that none of such
100,000 Reserved Employee Shares shall be granted to the Founders of the
Company.
(e) Consideration for Issuances of Common Stock. Except as approved
by the Purchasers' Representative, issue, sell or exchange, agree to
issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange, shares of its Common Stock without consideration or for non-cash
consideration; except for (i) Common Stock or upon any subdivision or
combination of shares of Common Stock or (ii) the issuance of any shares
of Common Stock upon conversion of the Purchased Shares.
(f) Chief Executive Officer. Hire a Chief Executive Officer of the
Company who has not received the prior approval of (i) at least a majority
of the Board of Directors, including the Purchasers' Representative or
(ii) the affirmative vote of all members of the Board of Directors with
the exception of the Purchasers' Representative provided, however, that if
there are less than six (6) members of the Board of Directors at any time
only subsection (i) hereof shall apply.
4.03. Reporting Requirements. Until the consummation of a Qualified Public
Offering, the Company will furnish the following to each Person who holds at
least 50,000 of the Shares issued pursuant to this Agreement; provided, however
that the Company will furnish the information and reports described in
subsections (b), (c) and (h) below to each Person who holds any of the Shares
issued pursuant to this Agreement; provided, further, however, that any
transferee that receives information pursuant to this section and is not a
Purchaser hereunder shall be subject to the provisions contained in the last
sentence of Section 4.01(e):
(a) Monthly Reports. As soon as available and in any event within 30
days after the end of each calendar month, consolidated balance sheets of the
Company and its Subsidiaries as of the end of such month and consolidated
statements of income and retained earnings of the Company and its Subsidiaries
for such month and for the period commencing at the end of the previous fiscal
year and ending with the end of such month, setting forth in each case in
comparative form the corresponding figures for the corresponding period of the
preceding fiscal year, and including comparisons to monthly budgets, a summary
of the aging of the Company's accounts receivable and accounts payable, a cash
flow analysis for such month, a schedule showing each expenditure of a capital
nature in excess of $50,000 during such month, all in reasonable detail and duly
certified (subject to year-end audit adjustments) by the chief financial officer
of the Company as having been prepared consistent with the financial records of
the Company and in accordance with its past practices;
<PAGE> 26
21
(b) Quarterly Reports. As soon as available and in any event within
45 days after the end of each of the first three quarters of each fiscal year of
the Company, consolidated balance sheets of the Company and its Subsidiaries as
of the end of such quarter and consolidated statements of income and retained
earnings and of changes in financial position of the Company and its
Subsidiaries for such quarter and for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
period of the preceding fiscal year, and including comparisons to quarterly
budgets, all in reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer of the Company as having been
prepared in accordance with generally accepted accounting principles
consistently applied (except that such interim financial statements may be
without notes and subject to year-end adjustments);
(c) Annual Reports. As soon as available and in any event within 90
days after the end of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company and its Subsidiaries, including
therein consolidated balance sheets of the Company and its Subsidiaries as of
the end of such fiscal year and consolidated statements of income and retained
earnings and of changes in financial position of the Company and its
Subsidiaries for such fiscal year, setting forth in each case in comparative
form the corresponding figures for the preceding fiscal year, reported on by,
and accompanied by an opinion of independent certified public accountants of
recognized national standing approved by a majority of the Board of Directors;
(d) Budgets. As soon as available after approval by the Board of
Directors, a business plan and monthly operating budgets for the forthcoming
fiscal year, which shall have been submitted to the Board of Directors at least
60 days prior to such fiscal year for approval;
(e) Notice of Adverse Changes. Promptly after the occurrence thereof
and in any event within 10 days after the Company has knowledge of each
occurrence, notice of any material adverse change in the operations or financial
condition of the Company or any default in any material agreement to which the
Company is a party;
(f) Written Reports. Promptly upon receipt or publication thereof,
any written reports submitted to the Company by independent certified public
accountants in connection with an annual or interim audit of the books of the
Company and its Subsidiaries made by such accountants or by consultants or other
experts in connection with such consultant's or other expert's review of the
Company's operations or industry, and written reports prepared by the Company to
comply with other investment or loan agreements;
(g) Notice of Proceedings. Promptly after the commencement thereof,
notice of all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Company or any Subsidiary of the type described in
Section 3.04;
<PAGE> 27
22
(h) Stockholders' and SEC Reports. Promptly upon sending, making
available, or filing the same, such reports and financial statements as the
Company or any Subsidiary shall send or make available to the stockholders of
the Company or file with the Securities and Exchange Commission; and
(i) Other Information. Such other information respecting the
business, properties or the condition or operations, financial or other, of the
Company or any of its Subsidiaries as any such holder may from time to time
reasonably request.
ARTICLE V
RIGHT OF FIRST REFUSAL
5.01. Right of First Refusal. The Company shall not issue, sell or
exchange, agree or obligate itself to issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange, any (i) shares of Common Stock, (ii) any
other equity security of the Company, including without limitation, shares of
Series A Preferred Stock, (iii) any debt security of the Company (other than a
bank line of credit with no equity feature) including without limitation, any
debt security which by its terms is convertible into or exchangeable for any
equity security of the Company, (iv) any security of the Company that is a
combination of debt and equity, or (v) any option, warrant or other right to
subscribe for, purchase or otherwise acquire any such equity security or any
such debt security of the Company, unless in each case the Company shall have
first offered to sell such securities (the "Offered Securities") to the
Purchasers as follows: The Company shall offer to sell to each Purchaser (a)
that portion of the Offered Securities as the number of shares of Common Stock
(including all shares of capital stock convertible into Common Stock on a fully
diluted basis) then held by such Purchaser bears to the total number of shares
of Common Stock outstanding (including all shares of capital stock convertible
into Common Stock on a fully-diluted basis) immediately prior to the subsequent
offering in question (the "Basic Amount"), provided, that for purposes of this
calculation the conversion price of each share of Series A Preferred Stock, as
set forth in Paragraph 5 of Article Fourth of the Company's Certificate of
Incorporation shall be deemed to be the lesser of $2.402 or the then applicable
conversion price of each share of Series A Preferred Stock, and (b) to each
Purchaser such additional portion of the Offered Securities as such Purchaser
shall indicate it will purchase should the other Purchasers subscribe for less
than their respective Basic Amounts (the "Undersubscription Amount"), at a price
and on such other terms as shall have been specified by the Company in writing
delivered to such Purchaser, as the case may be, (the "Offer"), which Offer by
its terms shall remain open and irrevocable for a period of thirty (30) days
from receipt of the offer.
5.02. Notice of Acceptance. Notice of each Purchaser's intention to
accept, in whole or in part, any Offer made pursuant to Section 5.01 shall be
evidenced by a writing signed by such Purchaser and delivered to the Company
prior to the end of the 30-day period of such offer, setting forth such of the
Purchaser's Basic Amount as such Purchaser elects to purchase and, if such
Purchaser shall elect to purchase all of its Basic Amount, such
Undersubscription Amount
<PAGE> 28
23
as such Purchaser shall elect to purchase (the "Notice of Acceptance"). If the
Basic Amounts subscribed for by all Purchasers are less than the aggregate Basic
Amounts the Purchasers are entitled to purchase pursuant to Section 5.01, then
each Purchaser who has set forth Undersubscription Amounts in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, all Undersubscription Amounts it has subscribed for; provided,
however, that should the Undersubscription Amounts subscribed for exceed the
difference between the aggregate of the Basic Amounts and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Purchaser who
has subscribed for any Undersubscription Amount shall be entitled to purchase
only that portion of the Available Undersubscription Amount as the
Undersubscription Amount subscribed for by such Purchaser bears to the total
Undersubscription Amounts subscribed for by all Purchasers, subject to rounding
by the Board of Directors to the extent it reasonably deems necessary.
5.03. Conditions to Acceptances and Purchase.
(a) Permitted Sales of Refused Securities. In the event that Notices
of Acceptance are not given by the Purchasers in respect of all the Offered
Securities, the Company shall not be obligated to sell the part of such Offered
Securities as to which a Notice of Acceptance has not been given by the
Purchaser (the "Refused Securities"), and the Company shall have 90 days from
the expiration of the period set forth in Section 5.01 to sell all or any part
of the Refused Securities to any person or persons pursuant to the terms of the
Offer, but only in all respects upon terms and conditions, including, without
limitation, unit price and interest rates, which are no more favorable, in the
aggregate, to such other Person or Persons or less favorable to the Company than
those set forth in the Offer.
(b) Reduction in Amount of Offered Securities. In the event the
Company shall propose to sell less than all the Refused Securities (any such
sale to be in the manner and on the terms specified in Section 5.03(a) above),
then each Purchaser may, at its sole option and in its sole discretion, reduce
the number of, or other units of the Offered Securities specified in its
respective Notices of Acceptance to any amount which shall be less than the
amount of the Offered Securities which the Purchaser elected to purchase
pursuant to Section 5.02. In the event that any Purchaser so elects to reduce
the number or amount of Offered Securities specified in its respective Notices
of Acceptance, the Company may not sell or otherwise dispose of more than the
reduced amount of the Offered Securities until such securities have again been
offered to the Purchasers in accordance with Section 5.01.
(c) Closing. Upon the closing of the sale to such other Person or
Persons of all or less than all the Refused Securities, the Purchasers shall
purchase from the Company, and the Company shall sell to the Purchasers (upon
full payment for such shares), the number of Offered Securities specified in the
Notices of Acceptance, as reduced pursuant to Section 5.03(b) if the Purchasers
have so elected, upon the terms and conditions specified in the Offer. The
purchase by the Purchasers of any Offered Securities is subject in all cases to
the preparation, execution and delivery by the Company and the Purchasers of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Purchasers and their respective counsel.
<PAGE> 29
24
5.04. Further Sale. In each case, any Offered Securities not purchased by
the Purchasers or other Person or Persons in accordance with Section 5.03 may
not be sold or otherwise disposed of until they are again offered to the
Purchasers under the procedures specified in Sections 5.01, 5.02 and 5.03.
5.05. Termination of Right of First Refusal. The rights of the Purchasers
under this Article V shall terminate immediately prior to the consummation of a
Qualified Public Offering.
5.06 Exception. The rights of the Purchasers under this Article V shall
not apply to:
(a) Common Stock issued as a stock dividend to holders of Common
Stock or upon any subdivision or combination of shares of Common Stock or issued
upon conversion of the Series A Preferred Stock into Common Stock,
(b) Series A Preferred Stock issued as a dividend to holders of
Series A Preferred Stock upon any subdivision or combination of shares of Series
A Preferred Stock,
(c) Series A Preferred Stock issued at the Additional Closing;
(d) the Converted Shares,
(e) up to 871,352 shares of Common Stock, or options exercisable
therefor, issued or issuable to officers, employees, directors or consultants
for the Company or any Subsidiary pursuant to a stock option plan approved by
the Board of Directors of the Company for the benefit of the Company's or a
Subsidiary's officers, employees, directors and/or consultants,
(f) Common Stock issued pursuant to the acquisition of another
corporation by the Company by merger (whereby the Company owns no less than
fifty-one percent (51%) of the voting power of such corporation) or purchase of
substantially all of its stock or assets, or
(g) up to 448,581 shares of Common Stock issuable to the holders of
those certain Warrants issued in May, 1998.
(h) up to 10,000 shares of Common Stock issuable to Ronald Demer
pursuant to a warrant dated March 11, 1998.
ARTICLE VI
DEFINITIONS AND ACCOUNTING TERMS
6.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
<PAGE> 30
25
"Agreement" means this Series A Preferred Stock Purchase Agreement as from
time to time amended and in effect between the parties, including all Exhibits
hereto.
"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Brand Equity" means Brand Equity Ventures I, L.P.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock
of the Company, $.01 par value, having the rights, powers, privileges and
preferences set forth in Exhibit 1.01A hereto.
"Initial Closing" shall have that meaning attributable to it in Section
1.05 of this Agreement.
"Additional Closing" shall have the meaning attributable to it in Section
1.05 of this Agreement.
"Common Stock" includes (a) the Company's Common Stock, $.01 par value, as
authorized on the date of this Agreement, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after the
date hereof, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies or in the absence of any provision to the contrary in
the Company's Certificate of Incorporation, be entitled to vote for the election
of a majority of directors of the Company (even though the right so to vote has
been suspended by the happening of such a contingency or provision), and (c) any
other securities into which or for which any of the securities described in (a)
or (b) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Company" means and shall include Alloy Designs, Inc., a Delaware
corporation and its successors and assigns.
"Consolidated" when used with reference to any term defined herein means
that term as applied to the accounts of the Company and its Subsidiaries
consolidated in accordance with generally accepted accounting principles.
"Converted Shares" shall have that meaning attributable to it in Section
1.03 of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means the occurrence of (i) an additional financing
round initially priced at a per share price below $1.413, (ii) a default under
any material bank or debt obligation that
<PAGE> 31
26
has caused the acceleration of such indebtedness or the termination of the bank
or debt agreement, subject to a reasonable cure period, or (iii) any material
violation of this Agreement, subject to a cure within 20 days of notice of such
default.
"Founders" means James K. Johnson, Jr., Matthew C. Diamond and Samuel A.
Gradess.
"Indebtedness" means all liabilities, contingent and otherwise, which
should, in accordance with generally accepted accounting principles, be
classified upon the obligor's balance sheet (or the notes thereto) as
liabilities, but in any event including liabilities secured by any mortgage on
property owned or acquired subject to such mortgage, whether or not the
liability secured thereby shall have been assumed, and also including (i) all
guarantees, endorsements and other contingent obligations, in respect of
Indebtedness of others, whether or not the same are or should be so reflected in
said balance sheet (or the notes thereto), except guarantees by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and (ii) the present value of any lease payments due
under leases required to be capitalized in accordance with applicable Statements
of Financial Accounting Standards, determined by discounting all such payments
at the interest rate determined in accordance with applicable Statements of
Financial Accounting Standards.
"Key Employee" means and includes the Chief Executive Officer, the Chief
Operating Officer, the President, any Vice-President and the Treasurer of the
Company, the president or Chief Executive Officer of any division or Subsidiary
of the Company, or any other individual so designated by the Board of Directors
of the Company, including without limitation each Founder.
"Material Agreement" means every contract not made in the Company's
ordinary course of business which is material to the Company and is to be
performed in whole or in part at or after the date of this Agreement including,
without limitation, (i) any contract to which directors, officers, employees or
security holders are parties other than contracts involving only the purchase or
sale of current assets having determinable market prices, at such market price;
(ii) any contract upon which the Company's business is substantially dependent,
as in the case of continuing contracts to sell the major part of the Company's
products or services or to purchase the major part of the Company's requirements
of goods, services or raw materials or any franchise or license or other
agreement to use a patent, formula, trade secret, process or trade name upon
which the Company's business depends to a material extent; (iii) any contract
calling for the acquisition or sale of any property, plant or equipment for a
consideration exceeding 15 percent of such fixed assets of the Company on a
consolidate basis; (iv) any material lease; and (v) any management contract or
any compensatory plan, contract or arrangement, including but not limited to
plans relating to options, warrants or rights, pension, retirement or deferred
compensation or bonus, incentive or profit sharing (or if not set forth in any
formal document, a written description thereof) in which any director or any of
the officers of the Company participates shall be deemed material and any other
management contract or any other compensatory plan, contract, or arrangement in
which any other officer of the Company participates unless immaterial in amount
or significance.
<PAGE> 32
27
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Purchased Shares" shall have that meaning attributable to it in Section
1.01 of this Agreement.
"Purchaser" and "Purchasers" shall have the meanings attributable to such
terms in Section 1.01 of this Agreement and shall include the original
Purchasers and also any other holder of any of the Shares.
"Qualified Public Offering" means a fully underwritten, firm commitment
public offering pursuant to an effective registration under the Securities Act
covering the offer and sale by the Company of its Common Stock in which the
aggregate net proceeds to the Company exceed $15,000,000, in which the price per
share of such Common Stock equals or exceeds a price per share representing a
valuation of the Company of not less than $75 million.
"Reserved Employee Shares" means shares of Common Stock, not to exceed in
the aggregate 871,352 shares (appropriately adjusted to reflect stock splits,
stock dividends, combinations of shares and the like with respect to the Common
Stock) reserved by the Company for issuance pursuant to stock option
arrangements for employees, directors or consultants of the Company, all under
arrangements approved by the Board of Directors.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations of the Securities and Exchange Commission (or of any other Federal
agency then administering the Securities Act) thereunder, all as the same shall
be in effect at the time.
"Shares" shall have that meaning attributable to it in Section 1.04 of
this Agreement.
"Subsidiary" or "Subsidiaries" means any corporation or trust of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time at least fifty percent (50%) of the outstanding
capital stock of such corporation or trust other than directors' qualifying
shares.
6.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistently applied, and all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
ARTICLE VII
MISCELLANEOUS
<PAGE> 33
28
7.01. No Waiver; Cumulative Remedies. No failure or delay on the part of
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
7.02. Amendments, Waivers and Consents. Any provision in this Agreement to
the contrary notwithstanding, and except as hereinafter provided, changes in or
additions to this Agreement may be made, and compliance with any covenant or
provision set forth herein may be omitted or waived, if the Company (i) shall
obtain consent thereto in writing from the holder or holders of seventy-five
percent (75%) in interest of the Purchased Shares, and (ii) shall deliver copies
of such consent in writing to any holders who did not execute such consent. Any
waiver or consent may be given subject to satisfaction of conditions stated
therein and any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
7.03. Addresses for Notices. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and mailed, telegraphed or delivered to each applicable party at
the address set forth in Exhibit 1.01 hereto or at such other address as to
which such party may inform the other parties in writing in compliance with the
terms of this Section.
If to any other holder of the Shares: at such holder's address for notice
as set forth in the register maintained by the Company, or, as to each of the
foregoing, at the addresses set forth on Exhibit 1.01 hereto or at such other
address as shall be designated by such Person in a written notice to the other
parties complying as to delivery with the terms of this Section.
If to the Company: at the address set forth on page 1 hereof, or at such
other address as shall be designated by the Company in a written notice to the
other parties complying as to delivery with the terms of this Section, with a
copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC, One Financial
Center, Boston, MA 02111, attention Michael Balfe.
All such notices, requests, demands and other communications shall, when
mailed (which mailing must be accomplished by first class mail, postage prepaid;
express overnight courier service; or registered mail, return receipt requested)
or telegraphed, be effective three days after deposited in the mails or
delivered to the telegraph company, respectively, addressed as aforesaid, unless
otherwise provided herein.
7.04. Costs, Expenses and Taxes. The Company agrees to pay (i) the
reasonable fees and out-of-pocket expenses of Testa, Hurwitz & Thibeault, LLP,
counsel for the Purchasers, with respect to the preparation, execution and
delivery of this Agreement and (ii) the reasonable out-of-pocket expenses with
respect to certain due diligence matters incurred by the Purchasers in
connection with their investment hereto (not to exceed $50,000 in the aggregate
for Sections (i) and (ii) hereof). In addition, the Company shall pay any and
all stamp and other taxes payable or determined to be payable in connection with
the execution and delivery of this Agreement, the
<PAGE> 34
29
issuance of the Purchased Shares and the other instruments and documents to be
delivered hereunder or thereunder, and agrees to save the Purchasers harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes.
7.05. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Company and the Purchasers and their respective
heirs, successors and assigns, except that the Company shall not have the right
to delegate any of its respective obligations hereunder or to assign its
respective rights hereunder or any interest herein without the prior written
consent of the holders of at least seventy-five percent (75%) in interest of the
Purchased Shares.
7.06. Survival of Representations and Warranties. All representations and
warranties made in this Agreement, the Shares, or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof until the delivery by the Company of
the audited financial statements for the year ended January 31, 2000.
7.07. Prior Agreements. This Agreement, together with the Exhibits and
Schedules hereto, constitutes the entire agreement between the parties and
supersedes any prior understandings or agreements concerning the purchase and
sale of the Shares.
7.08. Severability. The provisions of this Agreement and the terms of the
Series A Preferred Stock are severable and, in the event that any court of
competent jurisdiction shall determine that any one or more of the provisions or
part of a provision contained in this Agreement or the Series A Preferred Stock
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement or the terms of the
Series A Preferred Stock; but this Agreement and the terms of the Series A
Preferred Stock shall be reformed and construed as if such invalid or illegal or
unenforceable provision, or part of a provision, had never been contained
herein, and such provisions or part reformed so that it would be valid, legal
and enforceable to the maximum extent possible.
7.09. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the General Corporation Law of the State of
Delaware as to matters within the scope thereof and as to all other matters
shall be governed by and construed in accordance with the internal law of The
Commonwealth of Massachusetts.
7.10. Headings. Article, Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
7.11. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
<PAGE> 35
30
7.12. Further Assurances. From and after the date of this Agreement, upon
the request of any Purchaser or the Company, the Company and the Purchasers
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the Shares.
7.13 Indemnification. The Company shall, with respect to the
representations, warranties and agreement made by it herein, indemnify, defend
and hold the Purchasers harmless against all liability, loss or damage, together
with all reasonable costs and expenses related thereto (including legal and
accounting fees and expenses), arising from the untruth, inaccuracy or breach of
any such representations, warranties or agreements of the Company. Without
limiting the generality of the foregoing, the Purchasers shall be deemed to have
suffered liability, loss or damage as a result of the untruth, inaccuracy or
breach of any such representations or warranties if such liability, loss or
damage shall be suffered by the Company as a result of, or in connection with,
such untruth, inaccuracy or breach of any facts or circumstances constituting
such untruth, inaccuracy or breach.
7.14 Changes in Common Stock or Preferred Stock. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof including without
limitation an equitable adjustment of all per share prices herein, so that the
right and privileges granted hereby shall continue with respect to the Common
Stock, the Preferred Stock or the price per share as so changed.
[Remainder of Page Intentionally Left Blank]
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ALLOY DESIGNS, INC.,
a Delaware Corporation
By:
------------------------------
Title:
---------------------------
PURCHASERS:
BRAND EQUITY VENTURES I, L.P.
By: BRAND EQUITY PARTNERS I, LLC
By:
------------------------------
Member Manager
---------------------------------
J. Edward Diamond
<PAGE> 37
Exhibit 1.01
Schedule of Purchasers
Initial Closing Additional Closings
--------------- -------------------
Name Initial Additional Aggregate
Preferred Shares Purchase Price Preferred Shares Purchase Price Purchase Price
---------------- -------------- ---------------- -------------- --------------
Brand Equity Ventures I, L.P. 737,287 $2,500,140.22 737,286 $2,500,136.83 $5,000,277.05
Three Pickwick Plaza
Greenwich, CT 06830
Attn: Mr. David Yarnell
J. Edward Diamond 13,270 $44,998.57 0 $0.00 $44,998.57
P.O. Box 9187
Canton, OH 44711
------------ ------------- ---------- ------------- -------------
TOTAL: 750,557 $2,545,138.79 737,286 $2,500,136.83 $5,045,275.62