Exhibit 10.5
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FURNITURESITE, INC.
Series A Preferred Stock and Class A Common Stock Purchase Agreement
Dated as of June 19, 1998
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FURNITURESITE, INC.
SERIES A PREFERRED STOCK AND CLASS A COMMON STOCK PURCHASE AGREEMENT
Dated as of June 19, 1998
TABLE OF CONTENTS
ARTICLE I - PURCHASE, SALE AND TERMS OF SHARES...........................................................2
1.01. The Purchased Shares...........................................................................2
1.02. Purchase Price and Closing.....................................................................2
1.03. Use of Proceeds................................................................................3
1.04. Representations and Warranties by the Purchasers...............................................3
ARTICLE II - CONDITIONS TO PURCHASERS' OBLIGATION........................................................5
2.01. Representations and Warranties.................................................................5
2.02. Documentation at Closing or Additional Closing.................................................5
2.03. Consents, Waivers, Etc.........................................................................7
2.04. Employment Agreement...........................................................................7
2.05. Sale of Class B Common Stock...................................................................7
2.06. Financial Statements...........................................................................6
2.07. Acquisition of Empire..........................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES.............................................................7
3.01. Organization and Standing of the Company and Each of Its Subsidiaries..........................7
3.02. Corporate Action...............................................................................8
3.03. Governmental Approvals.........................................................................7
3.04. Litigation.....................................................................................7
3.05. Certain Agreements of Officers and Key Employees...............................................9
3.06. Compliance with Other Instruments..............................................................9
3.07. Sales and Marketing Information...............................................................10
3.08. Taxes.........................................................................................10
3.09. ERISA..........................................................................................9
3.10. Transactions with Affiliates..................................................................10
3.11. Assumptions or Guaranties of Indebtedness of Other Persons....................................10
3.12. Investments in Other Persons..................................................................10
3.13. Securities Act................................................................................11
3.14. Disclosure....................................................................................10
3.15. Brokers or Finders............................................................................11
3.16. Capitalization; Status of Capital Stock.......................................................11
3.16A. Capital Stock of Subsidiaries.................................................................11
3.17. Registration Rights...........................................................................12
3.18. Insurance.....................................................................................12
3.19. Books and Records.............................................................................12
3.20. Title to Assets, Patents......................................................................12
3.21. Real Property Holding Corporation Status......................................................13
3.22. Labor Relations...............................................................................13
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3.23. Other Agreements..............................................................................14
3.24. Environmental Protection......................................................................16
3.25. Compliance with Law, Permits..................................................................17
ARTICLE IV - COVENANTS OF THE COMPANY...................................................................17
4.01. Affirmative Covenants of the Company Other Than Reporting Requirements........................17
4.02. Negative Covenants of the Company.............................................................20
4.03. Reporting Requirements........................................................................23
ARTICLE V. RIGHT OF FIRST REFUSAL......................................................................24
5.01. Right of First Refusal.......................................................................24
5.02. Notice of Acceptance.........................................................................25
5.03. Conditions to Acceptances and Purchase.......................................................25
(a) Permitted Sales of Refused Securities.......................................................25
(b) Reduction in Amount of Offered Securities...................................................25
(c) Closing.....................................................................................26
5.04. Further Sale.................................................................................26
5.05. Termination of Right of First Refusal........................................................26
5.06. Exception....................................................................................26
ARTICLE VI - DEFINITIONS AND ACCOUNTING TERMS...........................................................26
6.01. Certain Defined Terms.........................................................................26
6.02. Accounting Terms..............................................................................29
ARTICLE VII - MISCELLANEOUS.............................................................................29
7.01. No Waiver; Cumulative Remedies................................................................29
7.02. Amendments, Waivers and Consents..............................................................29
7.03. Addresses for Notices.........................................................................30
7.04. Costs, Expenses and Taxes.....................................................................30
7.05. Binding Effect; Assignment....................................................................30
7.06. Survival of Representations and Warranties....................................................31
7.07. Prior Agreements..............................................................................31
7.08. Severability..................................................................................31
7.09. Governing Law.................................................................................31
7.10. Headings......................................................................................31
7.11. Counterparts..................................................................................31
7.12. Further Assurances............................................................................31
7.13. Indemnification...............................................................................32
7.14. Aggregation of Stock..........................................................................32
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EXHIBITS
1.01 List of Purchasers
1.01A Description of Class A Common Stock, Class B Common Stock and Series A
Preferred Stock
2.02B Form of Opinion of Counsel.
2.02F Stockholders' Agreement
2.02J Registration Rights Agreement
2.02O ▇▇▇▇▇ ▇▇▇▇ Non-Competition and Non-Solicitation, Assignment, and Invention and
Non-Disclosure Agreement
2.04 Rothschild Employment Agreement
3.04 Litigation
3.06 Compliance with Other Instruments
3.07 Financial Statements
3.08 Taxes
3.09 ERISA
3.10 Transactions with Affiliates
3.11 Assumptions or Guaranties of Indebtedness of Other Persons
3.12A Loans or Advances
3.12B Subsidiaries
3.15 Brokers or Finders
3.16 Capitalization
3.16A Capital Stock of Subsidiaries
3.17 Registration Rights
3.18 Insurance - Officer's Life
3.20 Title to Assets, Patents
3.22 Labor Relations
3.23(a) Other Agreements - Distributors/Vendors
3.23(b) Other Agreements - Sales Contracts with Rebate/Right of Set-Off
3.23(c) Other Agreements - Contracts with Labor Unions
3.23(d) Other Agreements - Contracts Permitting Renegotiation of Price
3.23(e) Other Agreements - Purchase of Fixed Assets
3.23(f) Other Agreements - Employment
3.23(g) Employee Benefit Plans
3.23(h) Schedule of Loans with Security Interest
3.23(i) Guaranty of Obligation for Borrowed Money
3.23(j) Voting, Stockholder, Pledge or Buy Sell Agreements
3.23(k)(A) Agreements to Lease Real Property as Lessee or Lessor
3.23(k)(B) Other Agreements - Equipment Leases
3.23(l) Agreements to Acquire or Retire Equity Securities
3.23(m) Intangible Property
3.23(n) Consulting and Professional Agreements
3.23(o) Required to be Filed with the SEC with Registration Statement
3.23(p) Agreements to Exercise Buyout Provision of any Lease
3.23A Present Expectations or Intentions of Non-Performance
3.24 Environmental Protection
3.25 Compliance with Law; Permits
4.02(h) Dealings with Affiliates and Others
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FurnitureSite, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
As of June 19, 1998
TO: The Persons listed on EXHIBIT 1.01 hereto
Re: PURCHASE OF SERIES A PREFERRED STOCK
AND CLASS A COMMON STOCK
Gentlemen:
FurnitureSite, Inc. (the "Company"), a Delaware corporation, agrees with
each of you as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01 THE PURCHASED SHARES.
(a) The Company has authorized the issuance and sale of 3,009,600
shares of its authorized but unissued shares of Series A Preferred Stock, $.01
par value, at a purchase price of $1.00 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 set forth
on EXHIBIT 1.01A hereto.
(b) The Company has authorized the issuance and sale of 3,040,000
shares of its authorized but unissued shares of Class A Common Stock, $.01 par
value, at a purchase price of $.01 per share to the Purchasers and in the
respective amounts set forth in EXHIBIT 1.01 hereto. The designations, rights,
preferences and other terms and conditions relating to the Class A Common Stock
shall be set forth on EXHIBIT 1.01A hereto.
The Series A Preferred Stock and the Class A Common Stock as now held or as
hereafter acquired are sometimes collectively referred to herein as the
"Purchased Shares" and the Purchased Shares and the Converted Shares (as defined
in Article VI hereof) are sometimes collectively referred to herein as the
"Shares".
1.02 PURCHASE PRICE AND CLOSING.
(a) CLOSING. Subject to and in reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Company
agrees to issue and sell to the Purchasers, and the Purchasers, severally but
not jointly, agree to purchase that number of
Purchased Shares set forth opposite their respective names in EXHIBIT 1.01. The
aggregate purchase price of the Purchased Shares being purchased by each
Purchaser is set forth opposite such Purchaser's name in EXHIBIT 1.01. The
purchase and sale shall take place at a closing (the "Closing") to be held at
the offices of ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP on June 19, 1998, at 10:00 A.M.,
or at such other location, on such other date and at such time as the Company
and the Purchasers may mutually agree upon. At the Closing, the Company will
issue and deliver certificates evidencing the Purchased Shares to be sold at
such Closing to each of the Purchasers against payment to the Company of the
full purchase price therefor by (i) wire transfer, (ii) certified bank or
cashier's check payable to the order of the Company, or (iii) any combination of
(i) and (ii) above.
(b) ADDITIONAL CLOSING. After the Closing Date, the Company may,
without obtaining the consent of any Purchaser, hold an additional closing (the
"Additional Closing"), if any, at which the Company may issue and sell (i) up to
the number of shares of Series A Preferred Stock as is equal to the difference
between 3,009,600 and the aggregate number of shares of Series A Preferred Stock
previously sold at the Closing and (ii) up to the number of shares of Class A
Common Stock as is equal to the difference between 3,040,000 and the aggregate
number of shares of Class A Common Stock previously sold at the Closing. Such
shares purchased at the Additional Closing are referred to as the "Additional
Shares". The sale of the Additional Shares shall be on the same terms and
conditions as the sale of the Purchased Shares pursuant to Section 1.02(a) above
and shall be effected by execution by any investor of a counterpart signature
page to this Agreement. Upon execution, each such investor shall be deemed to be
a Purchaser for all purposes of this Agreement and EXHIBIT 1.01 shall be amended
to include such Purchaser. Such Purchaser will then be considered a holder of
Purchaser Restricted Stock (as defined in the Registration Rights Agreement) for
purposes of the Registration Rights Agreement and an Investor (as defined in the
Stockholders' Agreement) for purposes of the Stockholders' Agreement.
1.03 USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Purchased Shares to purchase all of the outstanding capital stock of Empire
Furniture Warehouse, Inc. ("Empire"), for working capital and general corporate
purposes, marketing and, upon the approval and at the sole discretion of the
Company's Board of Directors, for the purchase of additional furniture
showrooms.
1.04 REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each of the
Purchasers represents and warrants severally, but not jointly, that (a) it is
acquiring the Shares, for its own account and that the Shares are being and will
be acquired by it for the purpose of investment and not with a view to, or in
connection with, subdivision, distribution or resale thereof in violation of any
State or Federal securities laws; (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 Purchaser; (c) except for the Trustees
of Amherst College for the ▇▇▇▇▇▇▇ ▇. and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Charitable Remainder
Unitrust, the Trustees of Amherst College for the ▇▇▇▇▇▇▇ ▇. and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Charitable Remainder Unitrust II and ▇▇▇ ▇▇▇▇▇▇▇, it is an "accredited investor"
within the
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meaning of Rule 501 of Regulation D promulgated under the Securities Act (as
defined in Article VI hereof); (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
transactions contemplated hereby; (e) the individual executing this Agreement
has appropriate authority to act on behalf of such Purchaser; (f) it was not
specifically formed to acquire the Shares subscribed for hereby; (g) it
understands that there is no market for the Shares and that there is no
assurance that such a market will develop and the Purchaser has no present need
for liquidity with respect to its investment; (h) it is able to bear the
economic risk of its investment for an indefinite period of time and can afford
a complete loss of its investment; (i) it has sufficient knowledge and
experience investing in companies similar to the Company in terms of the
Company's early stage of development and it understands that an investment in
the Company involves a very high degree of risk and it has taken full cognizance
of and understands such risks; (j) it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of an investment in the Company, has evaluated such risks and has
determined that the Shares are a suitable investment for it; (k) it understands
that no Federal or State agency has made any finding or determination as to the
fairness for investment in, or any recommendation or endorsement of, the Shares;
(l) it has had an opportunity to discuss the Company's business, management and
financial affairs with the Company's management and has received from the
Company all such information concerning the Company as it has requested; (m) it
has consulted its own attorney, accountant or investment advisor with respect to
the investment contemplated hereby and its suitability for the Purchaser; (n)
its overall commitment to investments which are not readily marketable is not
disproportionate to the net worth of the Purchaser, and the Purchaser's
investment in the Shares will not cause such overall commitment to become
excessive; and (o) it received an offer concerning the Shares and first learned
of this investment in the state or other jurisdiction listed in the address of
such Purchaser on the attached Exhibit 1.01 hereto. The Purchasers'
representations under this Section 1.04, however, shall not limit or modify the
representations and warranties of the Company in Article III of this Agreement
or the right of the Purchasers to rely thereon. The acquisition by each
Purchaser of the Shares acquired by it shall constitute a confirmation as of the
date of such acquisition of the representations and warranties made herein by
each such Purchaser.
Each Purchaser understands that the Shares have not been registered under
the Securities Act, or the securities laws of any State by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, and applicable State securities laws.
Each of the Purchasers further represents that it understands and agrees
that Company has no current obligation to register the Shares and 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 sold,
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, unless
the holder shall have obtained an opinion of counsel satisfactory to
the issuer of these securities as to the availability of an exemption
from the registration provisions of the Securities Act of 1933 and
applicable State securities laws."
Such opinion of counsel referred to in the foregoing legend shall be at the
sole expense of the Company. The foregoing representations, warranties,
agreements, undertakings and acknowledgments are made by each Purchaser with the
intent that they be relied upon in determining its suitability as a purchaser of
the Shares.
ARTICLE II
CONDITIONS TO PURCHASERS' OBLIGATION
The obligation of each Purchaser to purchase and pay for the Shares to be
purchased by it at the Closing or Additional Closing, as the case may be, is
subject to the following conditions, all of which shall be deemed satisfied or
waived in the event that the transactions contemplated herein to be effected at
the Closing or Additional Closing, as the case may be, are consummated:
2.01 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company and its Subsidiaries (as defined in Article VI hereof)
set forth in Article III hereof shall be true and correct on the date of the
Closing or Additional Closing, as the case may be.
2.02 DOCUMENTATION AT CLOSING OR ADDITIONAL CLOSING. The Purchasers shall
have received prior to or at the Closing or Additional Closing, as the case may
be, , all of the following documents or instruments, or evidence of completion
thereof, each in form and substance satisfactory to the Purchasers and their
counsel, or each of the following events shall have occurred prior to or at the
Closing or Additional Closing, as the case may be.
(a) A certified copy of the Certificate of Incorporation of the
Company and Articles of Organization of each of its Subsidiaries, a copy of the
resolutions of the Board of Directors and, if required, the stockholders of the
Company evidencing the adoption of the Certificate of Incorporation, the
approval of this Agreement, the issuance of the Shares and the other matters
contemplated hereby, a copy of the Bylaws of the Company and of each of the
Company's Subsidiaries, all of which have been certified by the Secretary of the
Company to be true, complete and correct in every particular, 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.
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(b) An opinion of ▇▇▇▇ and ▇▇▇▇ LLP, counsel to the Company, in the
form of EXHIBIT 2.02B attached hereto.
(c) A certificate of the 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.
(d) A certificate of the President of the Company stating that the
representations and warranties of the Company and its Subsidiaries contained in
Article III hereof and otherwise made by the Company in writing in connection
with the transactions contemplated hereby are true and correct and that all
conditions required to be performed by the Company and its Subsidiaries prior to
or at the Closing or Additional Closing, as the case may be, have been performed
or waived as of the Closing or Additional Closing, as the case may be.
(e) The Certificate of Incorporation of the Company shall provide for
the designation of the rights and preferences of the Series A Preferred Stock,
Class A Common Stock and Class B Common 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
(the "Stockholders' Agreement") shall have been executed by such of the parties
named therein as requested by the Purchasers.
(g) Certificates of Good Standing for the Company and each of its
Subsidiaries (i) from the jurisdiction of their respective organization and (ii)
from any other jurisdiction in which the character of the property owned or
leased, or the nature of the activities conducted, by the Company or any of its
Subsidiaries makes such licensing or qualification necessary, 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 By-Laws of the Company shall provide for a Board of Directors
consisting of five (5) members.
(j) The Company and the Purchasers shall have entered into a
Registration Rights Agreement (the "Registration Rights Agreement") in the form
set forth in EXHIBIT 2.02J.
(k) The Company's Bylaws shall be in form and substance reasonably
satisfactory to the Purchasers and their counsel.
(l) Participation of all Purchasers specified on EXHIBIT 1.01 hereto
in the transactions.
(m) The Company shall have reserved 829,000 shares of Class B Common
Stock as Reserved Management Shares (as defined in Article VI).
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(n) The Company shall have reserved 3,040,000 shares of Class B Common
Stock as Converted Shares.
(o) ▇▇▇▇▇ ▇▇▇▇ shall have executed a Non-Competition and
Non-Solicitation, Assignment, and Invention and Non-Disclosure Agreement
substantially in the form attached hereto as EXHIBIT 2.02O.
2.03 CONSENTS, WAIVERS, ETC. Prior to the Closing or Additional Closing, as
the case may be, the Company shall have obtained all consents or waivers, if
any, necessary to execute and deliver this Agreement, issue the Shares and to
carry out the transactions contemplated hereby and thereby, and all such
consents and waivers shall be in full force and effect at the Closing or
Additional Closing, as the case may be. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement, the
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.
2.04 EMPLOYMENT AGREEMENT. Prior to the Closing or Additional Closing, as
the case may be, , the Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ shall have executed an
employment agreement substantially in the form of EXHIBIT 2.04 hereto.
2.05 SALE OF CLASS B COMMON STOCK. Prior to the Closing or Additional
Closing, as the case may be, , the Company shall have sold 165,800 shares of
Class B Common Stock to each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇.
2.06 FINANCIAL STATEMENTS. Prior to the Closing or Additional Closing, as
the case may be, the Company shall have provided the Purchasers with financial
statements and tax returns for the Company's Subsidiaries for the past five (5)
years.
2.07 ACQUISITION OF EMPIRE. Simultaneously with the consummation of the
investment contemplated hereby, the Company shall purchase all of the
outstanding capital stock of Empire from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ for the sum of
$250,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants as follows as of the date of the
Closing or Additional Closing, as the case may be (it being understood and
agreed that the representations and warranties herein relate to the business of
the Company and each of its Subsidiaries, including, but not limited to Empire):
3.01 ORGANIZATION AND STANDING OF THE COMPANY AND EACH OF ITS SUBSIDIARIES.
The Company and each of its Subsidiaries is a duly organized and validly
existing corporation in good standing under the laws of the State of its
incorporation and has all requisite corporate power and authority for the
ownership and operation of its properties and for the carrying on of
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its business as now conducted or as proposed to be conducted. The Company and
each of its Subsidiaries 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 licensed or qualified would not have a Material Adverse
Effect (as defined in Article VI).
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 (including the Stockholders'
Agreement and Registration Rights Agreement) and instruments executed in
connection herewith and therewith be the valid and binding obligations of the
Company, enforceable in accordance with their respective terms. The issuance of
the Purchased Shares, and the issuance of the Converted Shares upon conversion
of the Class A Common Stock will not be, subject to preemptive rights or other
preferential rights in any present or future shareholders 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 Closing or Additional Closing, as the case may be, 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 Shares, or for
the performance by the Company of its obligations under this Agreement or the
Shares.
3.04 LITIGATION. Except as set forth on EXHIBIT 3.04 hereto, there is no
litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries affecting any of its respective properties or assets, or, to the
best knowledge of the Company, against any Key Employee (as defined in Article
VI hereof) affecting such person's performance of duties for the Company, his
share ownership in the Company or any of its Subsidiaries or otherwise relating
to the business of the Company or any of its Subsidiaries, nor, to the best
knowledge 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, which if adversely determined would result in a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries, nor,
to the knowledge of the Company, Key Employee or holder of the capital stock of
the Company (other than any Purchaser) or any of its Subsidiaries is in default
with respect to any order, writ, injunction, decree, ruling or decision of any
court, commission, board or other government agency that might result in any
case, or in the aggregate, in any Material Adverse Effect. Except as set forth
on EXHIBIT 3.04 hereto, there are no actions or proceedings pending or, to the
knowledge of the Company, threatened (or any basis therefor known to the
Company) which might result, either in any case or in the aggregate, in any
material adverse effect on the business, operations, affairs or condition of the
Company or any of its Subsidiaries or in their properties or assets taken as a
whole, or which might call into question the validity of this Agreement, any of
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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 officers or employees of the Company or any of its
Subsidiaries or their use in connection with the business of the Company or any
of its Subsidiaries 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, except in instances which will not
result in a Material Adverse Effect, no officer or Key Employee of the Company
or any of its Subsidiaries is, or is now expected to be, 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 Employee to be employed by the Company or any of its Subsidiaries because
of the nature of the business conducted or to be conducted by the Company or any
of its Subsidiaries or relating to the use of trade secrets or proprietary
information of others, and to the Company's knowledge and belief, the continued
employment of the officers and Key Employees of the Company or any of its
Subsidiaries does not subject the Company, any of its Subsidiaries or any
Purchaser to any liability arising out of the foregoing contracts or agreements.
(b) To the knowledge of the Company, no officer of the Company or any
of its Subsidiaries, nor any Key Employee of the Company or any of its
Subsidiaries whose termination, either individually or in the aggregate, would
have an adverse effect on the Company, has expressed any present intention of
terminating his employment in such capacity.
3.06 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on EXHIBIT
3.06, the Company and each of its Subsidiaries is in compliance in all respects
with the terms and provisions of this Agreement and of its Certificate of
Incorporation (or Articles of Organization, as the case may be) and Bylaws, 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, except where noncompliance would not result in a Material Adverse
Effect. Except as set forth on EXHIBIT 3.06, the Company and each of its
Subsidiaries 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 properties or assets are subject, except where such
noncompliance would not result in a Material Adverse Effect. The Company and
each of its Subsidiaries possesses all authorizations, approvals, orders,
licenses, registrations, certificates and permits of and from all governmental
regulatory officials and bodies necessary to conduct their respective
businesses, except where such failure would not have a Material Adverse Effect.
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 material term or provision of any of the foregoing documents,
instruments, judgments, agreements, decrees, orders, statutes, rules and
regulations, except where such default or violation would not, in the best
knowledge of the Company, result in a Material Adverse Effect.
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3.07 SALES AND MARKETING INFORMATION. The written internet sales figures
and marketing expenses attached hereto as EXHIBIT 3.07 (the "Sales Figures")
which have been provided to the Purchasers represent fairly the operations of
the Company with respect to those operations to which such Sales Figures refer
3.08 TAXES. Except as set forth on EXHIBIT 3.08, the Company and each of
its Subsidiaries have prepared correctly in all material respects 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, including sales taxes, due from the Company and
each of its Subsidiaries, respectively, and all additional assessments (whether
or not shown on such returns) except where such nonpayment or lack or provision
would not result in a Material Adverse Effect. Except as set forth on EXHIBIT
3.08, none of the Federal income tax returns of the Company or any of its
Subsidiaries have been audited by the Internal Revenue Service. The Company does
not know of any additional assessments or adjustments pending or threatened
against the Company or any of its Subsidiaries, as the case may be, for any
period, nor of any basis for any such assessment or adjustment.
3.09 ERISA. Except as set forth in EXHIBIT 3.09, neither the Company nor
any of its Subsidiaries makes or has any present intention to make any
contributions to or has incurred any liability with respect to any employee
pension benefit plans for its employees which are subject to ERISA.
3.10 TRANSACTIONS WITH AFFILIATES. Except as contemplated hereby and except
as set forth on EXHIBIT 3.10, there are no loans, leases, royalty agreements or
other continuing transactions between any officer, employee or director of the
Company or any of its Subsidiaries or any Person (as defined in Article VI
hereof) owning capital stock of the Company or any of its Subsidiaries 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.
3.11 ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER PERSONS. Except as
contemplated hereby and except as set forth in EXHIBIT 3.11, neither the Company
nor any of its Subsidiaries have 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), which remains currently
outstanding, any Indebtedness (as defined in Article VI hereof) of any other
Person, including any of its Subsidiaries.
3.12 INVESTMENTS IN OTHER PERSONS. Except as contemplated hereby and except
as set forth in EXHIBIT 3.12A, neither the Company nor any of its Subsidiaries
have made any loan or advance to any Person which is outstanding on the date of
this Agreement, nor are the Company or any of its Subsidiaries committed or
obligated to make any such loan or advance, nor does the Company or any of its
Subsidiaries own any capital shares, assets comprising the business of,
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obligations of, or any interest in, any Person except as disclosed in this
Agreement. Except as set forth in EXHIBIT 3.12B, the Company has no
Subsidiaries.
3.13 SECURITIES ACT. To the best knowledge of the Company, 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.
3.14 DISCLOSURE. This Agreement, including all Schedules and Exhibits
hereto, including but not limited to the Sales Figures referred to in Section
3.07 and attached hereto as SCHEDULE 3.07, does not contain 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 in light of the
circumstances under which they are or were made. There is no fact within the
knowledge of the Company which has not been disclosed herein or in writing or
orally by it to the Purchasers and which materially adversely affects, or in the
future in its opinion may, insofar as it can now foresee, materially adversely
affect the business, properties, assets or condition, financial or otherwise, of
the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has, and the Company has no reasonable grounds to know of, any
liability, contingent or otherwise, other than outstanding payables to furniture
vendors, in an amount exceeding $300,000, other than the leases described on
EXHIBIT 3.10. The projections contained in the Business Plan (as defined in
Article VI) were prepared in good faith and are believed to be reasonable, but
the Company cannot and does not assure or guarantee the attainment of such
projections.
3.15 BROKERS OR FINDERS. Except as set forth in EXHIBIT 3.15, 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 or any of its
Subsidiaries for any commission, fee or other compensation as a finder or broker
because of any act or omission by the Company, any of its Subsidiaries or any of
their respective agents.
3.16 CAPITALIZATION; STATUS OF CAPITAL STOCK. The Company has a total
authorized capitalization consisting of (i) 8,290,000 shares of Class B Common
Stock, $.01 par value, of which 4,421,000 shares are issued and outstanding on
the date hereof, (ii) 3,040,000 shares of Class A Common Stock, of which no
shares are issued and outstanding on the date hereof and (iii) 3,009,600 shares
of Series A Preferred Stock, of which no shares are issued and outstanding on
the date hereof, in each case without giving effect to the transactions
contemplated hereby. A complete list of the capital shares of the Company which
has been previously issued and the names in which such capital shares are
registered on the stock transfer books of the Company is set forth in EXHIBIT
3.16 hereto. All the outstanding capital shares of the Company have been duly
authorized, are validly issued and are fully paid and non-assessable. The
Purchased 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 Class A Common Stock will be duly
authorized, validly issued, fully paid and non-assessable.
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Except as otherwise set forth in EXHIBIT 3.16, 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 its
capital shares or other securities except as contemplated by this Agreement.
Except as set forth in EXHIBIT 3.16, there are no restrictions on the transfer
of capital shares of the Company other than those imposed by relevant Federal
and State securities laws and as otherwise contemplated by this Agreement, the
Stockholders' Agreement and the Registration Rights Agreement. Except as set
forth in EXHIBIT 3.16 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 shares of the Company. Except as set forth in EXHIBIT 3.16, there are no
agreements, understandings or trusts concerning transfers of the capital shares
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 shares and other securities of the
Company issued before the Closing or Additional Closing, as the case may be,
complied with or were exempt from all applicable Federal and State securities
laws and no stockholder has a right of rescission with respect thereto.
3.16A CAPITAL STOCK OF SUBSIDIARIES. EXHIBIT 3.16A sets forth a list of
each Subsidiary of the Company (or a Subsidiary) and its jurisdiction of
incorporation or organization. Except as set forth on EXHIBIT 3.16A attached
hereto, the Company owns all of the outstanding capital stock of each of the
Subsidiaries, beneficially and of record, free and clear of all liens,
encumbrances, restrictions (other than those under applicable securities laws)
and claims of every kind. All the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized, are validly issued and are fully
paid and non-assessable. There are no options, warrants or rights to purchase
shares of capital stock or other securities of any of the Subsidiaries
authorized, issued or outstanding, nor is any Subsidiary obligated in any other
manner to issue shares of its capital stock or other securities.
3.17 REGISTRATION RIGHTS. Except as set forth in EXHIBIT 3.17 and except
for the rights granted pursuant to the Registration Rights Agreement, no Person
has demand or other rights (which such rights shall be effective subsequent to
the Closing or Additional Closing, as the case may be, ) to cause the Company or
any of its Subsidiaries to file any registration statement under the Securities
Act relating to any securities of the Company or any of its Subsidiaries or any
right to participate in any such registration statement.
3.18 INSURANCE. The Company maintains, and has caused each Subsidiary to
maintain, insurance with responsible and 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. The Company
maintains life insurance on certain Key Employees, as set forth in EXHIBIT 3.18.
3.19 BOOKS AND RECORDS. The books of account, ledgers, order books, records
and documents of the Company and each of its Subsidiaries reflect in all
material respects, all material information relating to the business of the
Company and each of its Subsidiaries, the
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location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company and each of
its Subsidiaries.
3.20 TITLE TO ASSETS, PATENTS. The Company and each of its Subsidiaries 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 assets, free
of any mortgages, pledges, charges, liens, security interests or other
encumbrances, except where such failure to so have would not have a Material
Adverse Effect, or except as indicated in EXHIBIT 3.20. The Company and each of
its Subsidiaries enjoys peaceful and undisturbed possession under all leases
under which it is operating, and all such leases are valid and subsisting and in
full force and effect. Except as set forth in EXHIBIT 3.20, the Company knows of
no adverse claim that would interfere with its right or the right of any of its
Subsidiaries to use the patents, patent rights, permits, licenses, trade
secrets, trademarks, trademark rights, trade names or trade name rights or
franchises, copyrights, inventions, 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 trademark applications made by the Company and each of
its Subsidiaries is attached hereto as EXHIBIT 3.20); and the Company has no
reason to believe that the conduct of its business or the conduct of the
business of any of its Subsidiaries 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 EXHIBIT 3.20. To the Company's
knowledge, no product or process presently used or proposed to be manufactured,
marketed, offered, sold or used by the Company or any of its Subsidiaries will
violate any license or infringe on any intellectual property rights of any other
Person; and neither the intellectual property rights of the Company or any of
its Subsidiaries nor the operation or proposed operation of the business of the
Company or any of its Subsidiaries is known to conflict with the asserted rights
of others, nor does there exist any known basis for any such conflict, except as
noted in EXHIBIT 3.20. 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 free and clear of the intellectual property
rights of any third party. No claim is known to be pending or threatened to the
effect that any such intellectual property owned or licensed by the Company or
any of its Subsidiaries, or which the Company or any of its Subsidiaries
otherwise has the right to use, is invalid or unenforceable by the Company or
any of its Subsidiaries, and the Company has no reason to believe that any
patents or intellectual property rights owned or used by the Company or any of
its Subsidiaries may be invalid. Except as set forth on EXHIBIT 3.20, neither
the Company nor any of its Subsidiaries has any obligation to compensate any
Person for the use of any such patents or rights, and neither the Company nor
any of its Subsidiaries has granted any Person any license or other rights to
use in any manner any of the patents or rights of the Company or any of its
Subsidiaries, whether requiring the payment of royalties or not.
3.21 REAL PROPERTY HOLDING CORPORATION STATUS. Since its date of
incorporation, neither the Company nor any of its Subsidiaries has been, and as
of the date of the Closing or Additional Closing, as the case may be, shall not
be, a "United States real property holding corporation," as defined in Section
897(c)(2) of the Internal Revenue Code, and in Section 1.897-2(b) of the
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Treasury Regulations issued thereunder. Neither the Company nor any of its
Subsidiaries have any current plans or intentions which would cause the Company
or any of its Subsidiaries to become a "United States real property holding
corporation," and the Company and each of its Subsidiaries have filed with the
IRS all statements, if any, with its United States income tax returns which are
required under Section 1.897-2(h) of the Treasury Regulations.
3.22 LABOR RELATIONS. Except as set forth in the attached EXHIBIT 3.22, (i)
there is no labor strike, lock-out, slowdown, or work stoppage actually pending,
or threatened against or affecting the business of the Company or any of its
Subsidiaries; (ii) no labor organization claims to represent the employees of
the Company or any of its Subsidiaries; (iii) neither the Company nor any of its
Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to the employees of
the Company or any of its Subsidiaries; (iv) the Company does not have any
knowledge of any current union organizing activities among its employees nor has
there been filed at the National Labor Relations Board any petition regarding
any question concerning representation of such employees; (v) other than as set
forth in the Company's employee handbook (if any) heretofore provided to the
Purchasers or their counsel, there are no written personnel policies, rules or
procedures applicable to the employees of the Company or any of its
Subsidiaries; (vi) the Company and each of its Subsidiaries is, and has at all
times been, in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, and is not engaged in any
unfair labor practices as defined in the National Labor Relations Act or other
analogous applicable law, ordinance or regulation; (vii) neither the Company nor
any of its Subsidiaries has received notice of any pending or threatened unfair
labor practice charge or complaint against the Company or any of its
Subsidiaries before the National Labor Relations Board or any similar State or
foreign agency; (viii) there is no grievance arising out of any collective
bargaining agreement; (ix) no charges are pending against the Company or any of
its Subsidiaries before the Equal Employment Opportunity Commission or any other
agency responsible for the prevention of unlawful employment practices; (x)
neither the Company nor any of its Subsidiaries has received notice of the
intent of any Federal, State, local or foreign agency responsible for the
enforcement of labor or employment laws to conduct an investigation nor that any
investigation is in progress; and (xi) neither the Company nor any of its
Subsidiaries has received notice of any pending or threatened complaints,
lawsuits or other proceedings in any forum by or on behalf of any present or
former employee, any applicant for employment or classes of the foregoing
alleging breach of any express or implied contract of employment, any law or
regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship, except where such notice would not have a Material Adverse Effect.
Except as set forth in the attached EXHIBIT 3.23(f), there are no employment
contracts or severance agreements with any employees of the Company or any of
its Subsidiaries.
3.23 OTHER AGREEMENTS. Except as set forth in the attached EXHIBITS 3.23
(a) - (p) or in other Exhibits hereto, neither the Company nor any Subsidiary is
a party to any written or oral contract or instrument or other corporate
restriction which, to the best knowledge of the
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Company, individually or in the aggregate, could materially adversely affect the
business, prospects, financial condition, operation, property or affairs of the
Company or its Subsidiaries. The Company is not in violation of the terms of any
of the agreements listed on Exhibits 3.23 (a) - (p), except where such violation
would not result in a Material Adverse Effect. Neither the Company nor any
Subsidiary is a party to any written or oral:
(a) distributor, vendor, franchise, dealer or manufacturer's
representative contract or agreement which is not terminable on less than in
ninety (90) days' notice without cost or other liability to the Company or any
Subsidiary (except for contracts which, in the aggregate, are not material to
the business of the Company or Subsidiary, as the case may be), except as set
forth in EXHIBIT 3.23(a);
(b) sales contract which entitles any customer to a rebate or right of
set-off, to return any product to the Company or any Subsidiary after acceptance
thereof or to delay the acceptance thereof, or which varies in any material
respect from the Company's standard form contracts or policies, except as set
forth in EXHIBIT 3.23(b);
(c) contract with any labor union (and no organizational effort is
being made with respect to any of its employees), except as set forth in EXHIBIT
3.23(c);
(d) contract or other commitment with any supplier containing any
provision permitting any party other than the Company or any Subsidiary to
renegotiate the price or other terms, or containing any pay-back or other
similar provision, upon the occurrence of a failure by either the Company or any
Subsidiary to meet its respective obligations under the contract when due or the
occurrence of any other event, except as set forth in EXHIBIT 3.23(d);
(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, except as set forth in EXHIBIT 3.23(e);
(f) contract for the employment (or separation) 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 or
any Subsidiary, except accrued vacation pay, except as set forth in EXHIBIT
3.23(f);
(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 or any Subsidiary (other than group insurance plans applicable to
employees generally), except as set forth in EXHIBIT 3.23(g);
(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 or any Subsidiary, except as set forth in EXHIBIT
3.23(h);
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(i) guaranty of any obligation for borrowed money or otherwise (other
than in the ordinary course of business), except as set forth in EXHIBIT
3.23(i);
(j) voting trust, stockholders' agreement, pledge agreement or
buy-sell agreement relating to any securities of the Company or any Subsidiary
which shall be in effect after the Closing or Additional Closing, as the case
may be, except as set forth in EXHIBIT 3.23(j);
(k) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company or any Subsidiary has
advanced or agreed to advance money or has agreed to lease any property as
lessee or lessor, except as set forth in EXHIBIT 3.23(k);
(l) 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, except as set forth in EXHIBIT 3.23(l);
(m) assignment, license or other agreement with respect to any form of
intangible property, except as set forth in EXHIBIT 3.23(m);
(n) other contract or group of related contracts with the same party
involving more than $50,000 or continuing over a period of more than six (6)
months from the date or dates thereof (including renewals or extensions optional
with another party), which contract or group of contracts is not terminable by
the Company or any Subsidiary without penalty upon notice of thirty (30) days or
less, but excluding any contract or group of contracts with a customer of the
Company or any Subsidiary for the sale, lease or rental of the Company's or
Subsidiary's products or services if such contract or group of contracts was
entered into by the Company or any Subsidiary in the ordinary course of
business, except as set forth in EXHIBIT 3.23(n);
(o) other contract, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and Exchange
Commission as an exhibit to a registration statement on Form S-1 if the Company
or any of its Subsidiaries were registering securities under the Securities Act,
except as set forth in EXHIBIT 3.23(o); or
(p) agreement to exercise a buy-out provision of any of the leases of
the Company or any of its Subsidiaries, nor to the Company's knowledge, is any
such agreement or the exercise of any such buy-out provision presently
contemplated, except as set forth in EXHIBIT 3.23(p).
The Company and each of its Subsidiaries, to the knowledge of the Company,
have in all material respects performed all the obligations required to be
performed by them to date, have received no notice of default and are not in
default under any lease, agreement or contract now in effect to which the
Company or any Subsidiary is a party or by which it or its property may be
bound, except where such noncompliance or default would not result in a Material
Adverse Effect. Neither the Company nor any Subsidiary has any present
expectation or intention of not
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fully performing all its respective material obligations under each such lease,
contract or other agreement, and neither the Company nor any Subsidiary has any
knowledge of any material breach or anticipated breach by the other party to any
contract or commitment to which the Company or any Subsidiary is a party.
3.24 ENVIRONMENTAL PROTECTION. Except as set forth on EXHIBIT 3.24, the
Company and each of its Subsidiaries, the operation of its business, and any
real property that the Company or any Subsidiary owns, leases or otherwise
occupies or uses (the "Premises") are to the best of the Company's knowledge in
material compliance with all applicable environmental laws and, to the best of
the Company's knowledge, neither the Company nor any Subsidiary is subject to
any liability on account of any environmental laws. To the best of the Company's
knowledge neither the Company nor any Subsidiary has caused or allowed a
release, or a threat of release, of any hazardous substance or petroleum
substance onto, at or near the Premises or any other real property, and, to the
best of the Company's knowledge, the Premises has never been subject to a
release, or a threat of release, of any hazardous substance or petroleum
substance.
3.25 COMPLIANCE WITH LAW; PERMITS.
(a) The Company and each of its Subsidiaries (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 having jurisdiction over the Company or any of its Subsidiaries,
except where such default would not result in a Material Adverse Effect.
(b) EXHIBIT 3.25 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 and each of its
Subsidiaries (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 material permits, licenses, orders and other authorizations and
approvals required to permit the Company and each of its Subsidiaries to own and
lease its properties and assets and to conduct its business as it is currently
conducted. All of the Permits are in full force and effect and the Company and
each of its Subsidiaries currently operates within the limits thereof and there
are no proceedings pending or 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, except in cases that would not
result in a Material Adverse Effect. The Company and each of its Subsidiaries
has filed all reports and has paid all fees required to obtain and maintain the
Permits.
ARTICLE IV
COVENANTS OF THE COMPANY
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 (as defined in Article VI hereof), it
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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) MAINTENANCE OF INSURANCE. Obtain and maintain and cause each
Subsidiary to maintain, from responsible and reputable insurance companies or
associations key person life insurance policies on the lives of any Key Employee
as may be determined (with respect to identity, amount and terms) by the Board
of Directors, with the proceeds thereof payable to the order of the Company.
Maintain, and cause each Subsidiary to maintain, insurance with responsible and
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. The Company will not cause or
permit any assignment of the proceeds of any of the life insurance policies
specified in the first sentence of this paragraph and will not borrow against
such policies.
(b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its corporate existence, rights
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. Secure, preserve and maintain, and cause each
Subsidiary to secure, preserve and maintain, all licenses and other rights to
use patents, processes, licenses, permits, trademarks, trade names, inventions,
intellectual property rights or 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, as the case may be.
(c) INSPECTION. Permit, upon reasonable request and notice, during
normal business hours and without disruption of the Company's business, 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, all at reasonable times. 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 (and will use its best efforts to prevent such confidential information
from becoming known to the Company's competitors), 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.
(d) 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
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made in accordance with generally accepted accounting principles consistently
applied, reflecting all financial transactions of the Company and any
Subsidiary.
(e) BUDGETS APPROVAL. Not later than thirty (30) 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, an annual budget with monthly
operating budgets in detail for such 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).
(f) STOCK RESTRICTION AGREEMENTS. If any officer, employee or
consultant (including each Key Employee) receives any shares of Class B Common
Stock or rights or options to purchase shares of Class B Common Stock pursuant
to a stock purchase or option plan or other employee stock incentive program,
cause each such officer, employee and consultant to execute and deliver an
agreement in a form as deemed appropriate by the affirmative vote of a majority
of the members of the Board of Directors.
(g) THE BOARD OF DIRECTORS. Call and, to the extent a quorum can be
maintained, hold meetings of the Company's Board of Directors on a monthly basis
unless otherwise determined by the Board of Directors, but in any event not less
than on a quarterly basis, during the first 12-month period after the date of
this Agreement and on at least a quarterly basis thereafter. Promptly pay all
out-of-pocket expenses reasonably incurred by each director and Observer (as
defined in paragraph (p) below) of the Board of Directors of the Company in
attending each meeting of the Board of Directors or any committee thereof. The
Company shall cause each of the Subsidiaries to maintain the composition of its
Board of Directors, any committees thereof and its officers such that the
composition of each Subsidiary is identical in person and number to that of the
Company.
(h) CHECK SIGNING. Require the signature of at least two officers of
the Company on any single check equal to or greater than $25,000 or such larger
amount as is set by the Company's Board of Directors from time to time.
(i) COMPENSATION. Provide to the Board of Directors information
regarding proposed (i) option grants to employees, consultants and directors;
and (ii) compensation and fringe benefits, both direct and indirect, of all Key
Employees, consultants and directors of the Company and each Subsidiary, for
advance approval by the Board of Directors prior to so informing those
employees, consultants, or directors of such proposed option grant, compensation
or fringe benefit.
(j) OBSERVER RIGHTS. Permit each Purchaser who holds of record or
beneficially more than 30% of the shares originally purchased pursuant to this
Agreement (as appropriately adjusted for stock splits, recombinations and the
like) to have one observer representative (in addition to any other Board of
Directors representative) (an "Observer") attend each meeting of the Board of
Directors of the Company and each meeting of any committee thereof and to
participate in all discussions during each such meeting. The Company shall bear
the expense of one (1) Observer traveling to and attending such meetings, it
being agreed and
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understood that any such attendance and participation shall be solely on an
observer basis. The Purchasers agree that each Observer shall be bound by the
confidentiality, non-disclosure and limitations on use provisions contained in
Section 4.01(e) hereof with respect to any information received at such meetings
and that in the event an Observer violates such provisions, the Purchaser
represented by such Observer agrees to reimburse the Company for the costs of
any direct harm to the Company arising from such violation. The Company reserves
the right to exclude such Observer from any meeting or portion thereof if a
determination has been made by legal counsel to the Company that attendance by
such Observer could adversely affect the attorney-client privilege between the
Company and its counsel. The Company shall send to each Observer the notice of
the time and place of meetings in the same manner and at the same time as it
shall send such notice to its directors or committee members, as the case may
be. The Company shall also provide to each Observer copies of all notices,
reports, minutes and consents at the time and in the manner as they are provided
to the Board of Directors or committee members.
(k) At all times, reserve and keep available out of its authorized but
unissued shares of Class B Common Stock, for the purpose of effecting the
conversion of the Class A Common Stock, such number of its duly authorized
shares of Class B Common Stock as shall be sufficient to effect the conversion
of the Class A Common Stock from time to time outstanding. If at any time the
number of authorized but unissued shares of Class B Common Stock shall not be
sufficient to effect the conversion of the Class A Common Stock, the Company
shall take such corporate action as may be necessary to increase its authorized
but unissued shares of Class B Common Stock as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body which may be
required under applicable state securities laws in connection with the issuance
of shares of Class B Common Stock upon conversion of the Class A Common Stock.
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 the holders of at least 60% in interest of the Series A
Preferred Stock:
(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 (i) 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, and (ii) without the prior approval of a majority of the
members of the Board of Directors, Indebtedness in respect of lease obligations
which exceeds in the aggregate $300,000.
(b) MERGER OR SALE. Merge with or into any other entity, sell to any
person or entity any assets constituting all or substantially all of the assets
of the Company, or agree to do
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or permit any Subsidiary to do any of the foregoing, except that any Subsidiary
may merge into the Company or with or into any other Subsidiary.
(c) ASSUMPTIONS OR GUARANTIES 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 guaranties by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business and except for the guaranties of
the permitted obligations of any wholly owned Subsidiary.
(d) DISTRIBUTIONS. Except as specifically provided for and allowed in
the Company's Certificate of Incorporation, declare or pay any dividends,
purchase, redeem, retire, or otherwise acquire for value any of its capital
stock (or rights, options or warrants to purchase such shares) now or hereafter
outstanding, return any capital to its stockholders as such, or make any
distribution of assets to its stockholders as such, or permit any Subsidiary to
do any of the foregoing (such transactions being hereinafter referred to as
"Distributions"), EXCEPT that any such Subsidiary may declare and make payment
of cash and stock dividends, return capital and make distributions of assets to
the Company, PROVIDED, HOWEVER, that nothing herein contained shall prevent the
Company from:
(i) effecting a stock split (except for a reverse stock
split), or
(ii) redeeming any shares of a deceased stockholder out of
insurance held by the Company on that stockholder's life, or
(iii) repurchasing, at the original purchase price of such
shares, any shares of the Company's capital stock held by officers,
employees, directors or consultants of the Company which are subject
to restrictive stock purchase agreements under which the Company is
required to repurchase such shares upon the occurrence of certain
events, including the termination of employment,
if in the case of any such transaction the payment can be made in compliance
with the other terms of this Agreement.
(e) CHANGE IN NATURE OF BUSINESS. Make or permit any Subsidiary to
make, any material change in the nature of its business as contemplated in
written materials delivered to the Purchasers prior to the date hereof.
(f) OWNERSHIP OF SUBSIDIARIES. Without the prior approval of the Board
of Directors, purchase or hold beneficially any stock, other securities or
evidences of Indebtedness in, or make any investment in or provide any extension
of credit to any other Person, excluding a wholly-owned or controlled subsidiary
of the Company.
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(g) CAPITAL EXPENDITURES. Incur any Capital Expenditures (as defined
in Article VI hereof) with respect to a single item, asset, store, commissary or
project in excess of $250,000 or exceed the projections for Capital Expenditures
contained in the Business Plan by more than twenty-five percent (25%).
(h) DEALINGS WITH AFFILIATES AND OTHERS. Other than as contemplated by
this Agreement or set forth in EXHIBIT 4.02(h), and other than transactions in
the ordinary course of business involving less than $5,000, enter into any
transaction, including, without limitation, any loans or extensions of credit or
royalty agreements, with any officer or director of the Company or any
Subsidiary or holder of any class of capital shares of the Company, or any
member of their respective immediate families or any corporation or other entity
directly or indirectly affiliated with one or more of such officers, directors
or stockholders or members of their immediate families unless such transaction
is approved in advance by a majority of the members of the Board of Directors
who have no interest in such transaction, or absent such Board of Directors
approval, by all of the Purchasers.
(i) COMPENSATION. Unless approved by a majority of the members of the
Board of Directors, issue or authorize for issuance any Reserved Management
Shares (including options for the purchase thereof), or increase by more than
ten percent (10%) in any calendar year the salary and/or bonus of any Key
Employee.
(j) INVESTMENT IN OTHER CORPORATIONS. Make or permit any Subsidiary to
make, any loan or advance to any Person in excess of $250,000, or purchase,
otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire,
the capital stock, assets comprising the business of, obligations of, or any
interest in, any other corporation or entity.
(k) VESTING OF RESERVED MANAGEMENT SHARES. Grant to any of its
employees options or other rights to purchase Reserved Management Shares which
will become exercisable or vest, as the case may be, at a rate in excess of 20%
per annum from the date of such grant unless otherwise authorized by the Board
of Directors.
(l) ISSUANCE OF RESERVED MANAGEMENT SHARES. Issue any shares (or any
options to purchase shares) of Class B Common Stock which are Reserved
Management Shares in excess of 829,000 shares.
(m) CONSIDERATION FOR ISSUANCES OF COMMON STOCK. 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, or any securities
convertible into Common Stock, without consideration or for non-cash
consideration; except for (i) Common Stock issued upon any subdivision or
combination of shares of Common Stock or (ii) the issuance of any Converted
Shares.
(n) FURNITURE SHOWROOMS. Without the consent of a majority of the
Board of Directors, purchase any additional furniture showrooms.
(o) KEY EMPLOYEES. Terminate the employment of any Key Employee of the
Company without the prior approval of a majority of the Board of Directors.
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4.03. REPORTING REQUIREMENTS. Until the consummation of a Qualified Public
Offering, the Company will furnish the following to each person who holds any of
the Shares:
(a) MONTHLY REPORTS: as soon as available and in any event within
thirty (30) days after the end of each calendar month, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such month and consolidated and consolidating 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 Company's aging 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, detail of sales and profits for such month and the year-to-date, all in
reasonable detail and duly certified by the chief financial officer of the
Company as having been prepared in accordance with generally accepted accounting
principles consistently applied (except for year-end adjustments and the absence
of footnotes);
(b) QUARTERLY REPORTS: as soon as available and in any event within
sixty (60) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, consolidated and consolidating balance sheets of the
Company and its Subsidiaries as of the end of such quarter and consolidated and
consolidating statements of income and retained earnings and cash flows 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 and a summary discussion of the Company's principal functional
areas, all in reasonable detail and duly certified (subject to year-end audit
adjustments and the absence of footnotes) by the chief financial officer of the
Company as having been prepared in accordance with generally accepted accounting
principles consistently applied;
(c) ANNUAL REPORTS: as soon as available and in any event within 120
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 and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income and retained earnings and of changes in the
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, all such consolidated statements to be duly certified by
the chief financial officer of the Company and by such independent public
accountants of recognized national standing as have been 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;
(e) NOTICE OF ADVERSE CHANGES: promptly after the occurrence thereof
and in any event within thirty (30) Business Days after such occurrence is known
to the Company,
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notice of any material adverse change in the operations or financial condition
of the Company or any default in any other 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 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;
(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 otherwise, of the
Company or any of its Subsidiaries as any holder of the Shares 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 Class A Common Stock,
(ii) shares of Class B Common Stock, (iii) 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 or other
Indebtedness for borrowed money from an institutional lender, in each case 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 number of such securities so
that, after giving effect to such issuance, such Purchaser will continue to
maintain its same proportionate equity ownership in the Company as of the date
of such notice on a fully diluted basis assuming the shares reserved for
issuance upon the exercise of options have been issued (the "Basic Amount"), and
(b) such additional portion of the Offered Securities as such Purchaser shall
indicate it will purchase should the other Purchasers subscribe for less than
their Basic Amounts (the "Undersubscription Amount"), at a price and on such
other terms
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as shall have been specified by the Company in writing delivered to such
Purchaser (the "Offer"), which Offer by its terms shall remain open and
irrevocable for a period of twenty (20) 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 20-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, any Undersubscription Amount as such
Purchaser shall elect to purchase (the "Notice of Acceptance"). If the Basic
Amounts subscribed for by all Purchasers are less than the total Offered
Securities, 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 Offered Securities 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
Purchasers (the "Refused Securities"), and the Company shall have 120 days from
the expiration of the period set forth in Section 5.01 to sell all or any part
of the Refused Securities to the Person or Persons specified in 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 an amount which shall be less than the
amount of the Offered Securities which the Purchaser elected to purchase
pursuant to Section 5.02 multiplied by a fraction, (i) the numerator of which
shall be the amount of Offered Securities which the Company actually proposes to
sell, and (ii) the denominator of which shall be the amount of all Offered
Securities. 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.
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(c) CLOSING. Upon the closing of the sale to such other Person or
Persons of all or less than all of 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 counsel.
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) up to 829,000,000 shares of Class B Common Stock (as adjusted for
a stock splits and the like) or options exercisable therefor, issued or issuable
to officers, employees 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, and/or
consultants which each Purchaser shall cause its affiliated Board of Directors
member to approve;
(b) equity securities of the Company 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
(c) the Converted Shares.
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):
"Agreement" means this Series A Preferred Stock and Class A Common Stock
Purchase Agreement as from time to time amended and in effect between the
parties, including all Exhibits hereto.
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"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Business Plan" means the Company's Business Plan dated as of ,
1998, together with all Exhibits thereto, as submitted to the Purchasers.
"Capital Expenditures" for any period shall mean all amounts debited or
required to be debited to the fixed asset accounts on the balance sheet of the
Company during such period in accordance with generally accepted accounting
principles in respect of (a) the acquisition, development or improvement of any
computer hardware, software or equipment, (b) the acquisition, construction,
improvement, replacement or betterment of land, buildings, machinery, equipment
or of any other fixed assets or leaseholds, and (b) to the extent related to and
not included in (a) or (b) above, materials, contract labor and direct labor
(excluding expenditures properly chargeable to repairs or maintenance in
accordance with generally accepted accounting principles).
"Class A Common Stock" means the Company's Class A Common Stock, $.01 par
value, as authorized as of the date of this Agreement, having the rights,
powers, privileges and preferences set forth in EXHIBIT 1.01A hereto.
"Class B Common Stock" includes (a) the Company's Class B Common Stock,
$.01 par value, as authorized as of the date of this Agreement, (b) any other
capital shares 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 FurnitureSite, Inc., a Delaware
corporation, and its successors and assigns.
"Consolidated" and "consolidating" when used with reference to any term
defined herein mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles.
"Converted Shares" means those shares of Class B Common Stock into which
shares of Class A Common Stock are convertible pursuant to the terms of the
Company's Certificate of Incorporation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"GAAP" means in accordance with generally accepted accounting principles,
consistently applied.
"Indebtedness" means all obligations, 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
guaranties, 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 guaranties 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 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ or any other individual
as may be reasonably designated by the Board of Directors of the Company.
"Knowledge," "to the best of knowledge," "known," and any other words of
similar import as used with respect to representations and warranties by the
Company shall mean those matters or facts which are actually known or, upon
reasonable investigation should be known, by any Key Employee.
"Material Adverse Effect" means a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company or any Subsidiary.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Purchaser" and "Purchasers" shall have that meaning attributable to it in
Section 1.01 of this Agreement.
"Purchaser Director" means a member of the Company's Board of Directors who
was nominated by 60% in interest of the holders of Series A Preferred Stock.
"Qualified Public Offering" means a fully underwritten, firm commitment
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale by the Company of any of its Class B
Common Stock in which the aggregate gross proceeds to the Company equal or
exceed $5,000,000.
"Reserved Management Shares" means shares of Class B Common Stock, not to
exceed in the aggregate 829,000 shares (appropriately adjusted to reflect stock
splits, stock dividends, combinations of shares and the like with respect to the
Class B Common Stock) reserved by the Company for issuance pursuant to stock
purchase, stock grant or stock option arrangements for
-27-
employees, directors or consultants of the Company, all under arrangements
approved by the Board of Directors.
"Securities Act" means the Securities Act of 1933, or any similar Federal
statute, 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.
"Series A Preferred Stock" means the Series A Preferred Stock of the
Company, $.01 par value, having the rights, powers, privileges and preferences
set forth in Exhibit 1.01A hereto.
"Shares" shall have that meaning attributable to it in Section 1.01 of this
Agreement.
"Subsidiary" or "Subsidiaries" includes Empire and any other 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 shares of every class 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.
ARTICLE VII
MISCELLANEOUS
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 at least 60% in
interest of the Series A Preferred Stock, 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. Notwithstanding anything to the contrary
contained herein, any amendment which (x) increases any Purchaser's obligations
hereunder, (y) alters or amends the percentage stated in Section 4.02 hereof, or
(z) grants to any one or more Purchasers any rights more favorable than any
rights granted to all other Purchasers or otherwise treats any one or more
Purchasers differently than all
-28-
other Purchasers, must be approved by each Purchaser so as to be effective
against such Purchaser.
7.03. ADDRESSES FOR NOTICES.
(a) All notices, requests, demands and other communications provided
for hereunder shall be in writing and mailed, sent by facsimile transmission 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.
All such notices, requests, demands and other communications shall, when
mailed (which mailing must be accomplished by express overnight courier service
or registered mail, return receipt requested) or sent by facsimile, be effective
two days after deposited in the mails or when sent by facsimile, respectively,
addressed as aforesaid, unless otherwise provided herein.
7.04. COSTS, EXPENSES AND TAXES. The Company agrees to pay in connection
with the preparation, execution and delivery of this Agreement and the issuance
of the Shares all of the reasonable out-of-pocket fees and other expenses the
Investors incur and up to $35,000 of the reasonable fees and out-of-pocket
expenses of ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, counsel for the Purchasers. In
addition, the Company shall pay any and all stamp and other similar taxes
payable or determined to be payable in connection with the execution and
delivery of this Agreement, the issuance of the Shares, and the other
instruments and documents to be delivered hereunder or thereunder, and agrees to
hold 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 60% in interest of the Series A Preferred
Stock.
7.06. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Agreement or any other instrument or document delivered
in connection herewith or therewith, shall survive the execution and delivery
hereof or thereof for a period of three years.
-29-
7.07. PRIOR AGREEMENTS. This Agreement 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, Class A Common Stock and Class B Common 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 terms of the Series A Preferred Stock, Class
A Common Stock and Class B Common 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, Class A Common
Stock and Class B Common Stock; but this Agreement and the terms of the Series A
Preferred Stock, Class A Common Stock and Class B Common 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.
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.
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 and warranties made by the Company 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 or warranties of the Company. Without limiting the
generality of the foregoing, the Purchasers shall be deemed to have suffered
liability, loss or damage (to the extent of their ownership interest in the
Company) 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 or any facts or circumstances constituting such untruth,
inaccuracy or breach.
-30-
7.14. AGGREGATION OF STOCK. All securities of the Company held or acquired
by an affiliate of any Purchaser shall be aggregated with those held or acquired
by such Purchaser for the purpose of determining the availability of or
discharge of any rights of such Purchaser under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-31-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
FURNITURESITE, INC., PURCHASERS:
a Delaware corporation ----------
BRAND EQUITY VENTURES I, L.P.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ By: Brand Equity Partners I, LLC,
Its Chief Executive Officer Its General Partner
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its Managing Member
BESSEMER VENTURE INVESTORS L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Manager
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Manager
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Manager
TRUSTEES OF AMHERST COLLEGE FOR THE
▇▇▇▇▇▇▇ ▇. AND ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ CHARITABLE
REMAINDER UNITRUST
-32-
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Treasurer
TRUSTEES OF AMHERST COLLEGE FOR THE
▇▇▇▇▇▇▇ ▇. AND ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ CHARITABLE
REMAINDER UNITRUST II
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Treasurer
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
▇▇▇ ▇▇▇▇▇▇▇
-33-
ADDITIONAL PURCHASERS - SECOND CLOSING
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-34-
EXHIBIT 1.01
---------------------------------------- --------------- ----------------- ---------------- -------------------
Name and Address Series A Purchase Class A Purchase
of Purchasers Preferred Price Common Price
Stock Stock
---------------------------------------- --------------- ----------------- ---------------- -------------------
Brand Equity Ventures I, L.P. 1,485,000 $1,485,000 1,500,000 $15,000
Three Pickwick ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Bessemer Venture Partners IV L.P. 422,631 $422,631 426,900 $4,269
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ , ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Bessemer Ventures IV L.P. 249,579 $249,579 252,100 $2,521
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Bessemer Venture Investors L.P. 70,290 $70,290 71,000 $710
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 425,700 $425,700 430,000 $4,300
▇/▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Partners
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Trustees of Amherst College for the 66,000 $66,000 66,666 $666.66
▇▇▇▇▇▇▇ ▇. and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Charitable Remainder Unitrust
Campus Box 2203
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
-35-
Trustees of Amherst College for the 33,000 $33,000 33,334 $333.34
▇▇▇▇▇▇▇ ▇. and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Charitable Remainder Unitrust II
Campus Box 2203
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ 9,900 $9,900 10,000 $100
▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 148,500 $148,500 150,000 $1,500
▇▇▇▇▇▇▇ River Associates
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇. ▇▇▇▇ ▇▇.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 99,000 $99,000 100,000 $1,000
K.I.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇
---------------------------------------- --------------- ----------------- ---------------- -------------------
Totals: 3,009,6000 $3,009,600 3,040,000 $30,400
---------------------------------------- --------------- ----------------- ---------------- -------------------
-36-
