Exhibit 10.6
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FURNITURESITE, INC.
Series B Preferred Stock Purchase Agreement
Dated as of December 29, 1998
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FURNITURESITE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Dated as of December 29, 1998
TABLE OF CONTENTS
Article I PURCHASE, SALE AND TERMS OF SHARES.......................................................................1
1.01. The Purchased Shares.....................................................................................1
1.02. Purchase Price and Closing...............................................................................1
1.03. Use of Proceeds..........................................................................................1
1.04. Representations and Warranties by the Purchasers.........................................................2
1.05. Permitted Transfers......................................................................................3
Article II CONDITIONS TO PURCHASERS' OBLIGATION.....................................................................4
2.01. Representations and Warranties...........................................................................4
2.02. Documentation at Closing.................................................................................4
2.03. Consents, Waivers, Etc...................................................................................5
2.04. Employment Agreement.....................................................................................6
2.05. Due Diligence............................................................................................6
Article III REPRESENTATIONS AND WARRANTIES...........................................................................6
3.01. Organization and Standing of the Company and Each of Its Subsidiaries....................................6
3.02. Corporate Action.........................................................................................6
3.03. Governmental Approvals...................................................................................6
3.04. Litigation...............................................................................................6
3.05. Certain Agreements of Officers and Key Employees.........................................................7
3.06. Compliance with Other Instruments........................................................................7
3.07. Sales and Marketing Information..........................................................................8
3.08. Taxes....................................................................................................8
3.09. ERISA....................................................................................................8
3.10. Transactions with Affiliates.............................................................................8
3.11. Assumptions or Guarantees of Indebtedness of Other Persons...............................................9
3.12. Investments in Other Persons.............................................................................9
3.13. Securities Act...........................................................................................9
3.14. Disclosure...............................................................................................9
3.15. Brokers or Finders.......................................................................................9
3.16. Capitalization; Status of Capital Stock.................................................................10
3.16A. Capital Stock of Subsidiaries...........................................................................10
3.17. Registration Rights.....................................................................................11
3.18. Insurance...............................................................................................11
3.19. Books and Records.......................................................................................11
3.20. Title to Assets, Patents................................................................................11
3.21. Real Property Holding Corporation Status................................................................12
3.22. Labor Relations.........................................................................................12
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3.23. Other Agreements........................................................................................13
3.24. Environmental Protection................................................................................15
3.25. Compliance with Law; Permits............................................................................15
Article IV COVENANTS OF THE COMPANY................................................................................16
4.01. Affirmative Covenants of the Company Other Than Reporting Requirements..................................16
4.02. Negative Covenants of the Company.......................................................................18
4.03. Reporting Requirements..................................................................................21
Article V RIGHT OF FIRST REFUSAL..................................................................................22
5.01. Right of First Refusal..................................................................................22
5.02. Notice of Acceptance....................................................................................23
5.03. Conditions to Acceptances and Purchase..................................................................23
5.04. Further Sale............................................................................................24
5.05. Termination of Right of First Refusal...................................................................24
5.06. Exception...............................................................................................24
Article VI DEFINITIONS AND ACCOUNTING TERMS........................................................................25
6.01. Certain Defined Terms...................................................................................25
6.02. Accounting Terms........................................................................................27
Article VII MISCELLANEOUS...........................................................................................27
7.01. No Waiver; Cumulative Remedies..........................................................................27
7.02. Amendments, Waivers and Consents........................................................................28
7.03. Addresses for Notices...................................................................................28
7.04. Costs, Expenses and Taxes...............................................................................28
7.05. Binding Effect; Assignment..............................................................................29
7.06. Survival of Representations and Warranties..............................................................29
7.07. Prior Agreements........................................................................................29
7.08. Severability............................................................................................29
7.09. Governing Law...........................................................................................29
7.10. Headings................................................................................................29
7.11. Counterparts............................................................................................29
7.12. Further Assurances......................................................................................29
7.13. Indemnification.........................................................................................30
7.14. Aggregation of Stock....................................................................................30
7.15. Acknowledgment..........................................................................................30
7.16. Confidentiality.........................................................................................30
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EXHIBITS
1.01 List of Purchasers
1.01A Restated Certificate of Incorporation
2.02B Form of Opinion of Counsel
2.02F Stockholders' Agreement
2.02J Registration Rights Agreement
2.02O(i) Form of Non-Competition and Non-Solicitation, Assignment of
Inventions and Non-Disclosure Agreement
2.02O(ii) Form of Non-Competition and Non-Solicitation, Assignment of
Inventions and Non-Disclosure Agreement with Xxxxx Xxxxxxx
3.04 Litigation
3.05 Certain Agreements of Officers and Key employees
3.06 Compliance with Other Instruments
3.07 Sales and Marketing Information
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
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3.23A Present Expectations or Intentions of Non-Performance
3.24 Environmental Protection
3.25 Compliance with Law; Permits
4.02(a) Indebtedness
4.02(h) Dealings with Affiliates and Others
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As of December 29, 1998
TO: The Persons listed on EXHIBIT 1.01 hereto
Re: Purchase of Series B Preferred 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. The Company has authorized the issuance and
sale of 7,042,254 shares of its authorized but unissued shares of Series B
Preferred Stock, $.01 par value (the "Series B Preferred"), at a purchase price
of $1.42 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 B Preferred shall be as set forth on the Restated
Certificate of Incorporation of the Company, attached hereto as EXHIBIT 1.01A.
The Series B Preferred as now held or as hereafter acquired is sometimes
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. 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 Xxxxxxxx,
Xxxxxxx & Xxxxxxx on December 29, 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.
1.03. USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Purchased Shares for working capital and general corporate purposes.
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) it is an "accredited
investor" within the 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
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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:
"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.
1.05. PERMITTED TRANSFERS. The Company agrees that it will permit (i) a
distribution of Purchased Shares or Converted Shares by a partnership or limited
liability company to one or more of its partners, members or investors, where no
consideration is exchanged therefor by such partners, or to a retired or
withdrawn partner who retires or withdraws after the date hereof in full or
partial distribution of his interest in such partnership or limited liability
company, or to the estate of any such partner or member or the transfer by gift,
will or intestate succession of any partner or member to his spouse or to the
siblings, lineal descendants or ancestors of such partner or member or his
spouse, or to a trust created for the benefit of one or more of the foregoing,
if the transferee agrees in writing to be subject to the terms hereof to the
same extent as if it were an original Purchaser hereunder and (ii) a sale or
other transfer of any of the Purchased Shares or Converted Shares upon obtaining
assurance satisfactory to the Company that such transaction is exempt from the
registration requirements of, or is covered by an effective registration
statement under, the Act and applicable state securities or "blue-sky" laws,
including, without limitation, receipt of an unqualified opinion to such effect
of counsel reasonably satisfactory to the Company; PROVIDED, HOWEVER, that the
Company hereby acknowledges and agrees that each of @Ventures III, L.P. and
CMG@Ventures III, LLC (the "@Ventures Purchasers") shall be permitted to
transfer (without the need to deliver a legal opinion) any portion of its
Purchased Shares to @Ventures Investors, LLC and/or @Ventures Foreign Fund III,
L.P. (collectively, the "Investor Funds"), in accordance with that certain
Allocation and Stock Purchase Agreement, dated September 11, 1998 by and among
the @Ventures Purchasers and the Investor Funds, so long as in the case of a
transfer to an Investor Fund, such Investor Fund shall agree in writing to be
subject to the terms hereof to the same extent as if it were an original
Purchaser.
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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 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 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.
2.02. DOCUMENTATION AT CLOSING. The Purchasers shall have received prior to
or at the Closing all of the following documents or instruments, or evidence of
completion thereof, each in form and substance satisfactory to the Purchasers
and their counsel, or each of the following events shall have occurred prior to
or at the Closing.
(a) A certified copy of the Restated 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 Restated 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.
(b) An opinion of Xxxx and Xxxx 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 have been performed or waived as of the Closing.
(e) The Restated Certificate of Incorporation of the Company shall
provide for the designation of the rights and preferences of the Class A Common
Stock, the Class B Common Stock, the Series A Preferred Stock and the Series B
Preferred in the form set forth in EXHIBIT 1.01A, attached hereto.
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(f) An Amended and Restated 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 seven (7) members designated in accordance with the Stockholders'
Agreement.
(j) The Company and the Purchasers shall have entered into an Amended
and Restated 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 a total of 2,400,000 shares of
Class B Common Stock as Reserved Management Shares (as defined in Article VI),
which such number shall include the Reserved Management Shares that have been
previously been reserved.
(n) The Company shall have reserved 7,246,036 shares of Class B Common
Stock as Converted Shares.
(o) Each of Xxxxx Xxxx, Xxxxxxx Xxxx, Xxx Xxxxxxxx, Xxxxxxx Xxxxx,
Xxxxxxx Xxxxxxxx and Xxxx Xxxxxxx shall have executed a Non-Competition and
Non-Solicitation, Assignment of Inventions and Non-Disclosure Agreement
substantially in the form attached hereto as EXHIBIT 2.02O(i). Xxxxx Xxxxxxx
shall have executed a Non-Competition and Non-Solicitation, Assignment of
Inventions and Non-Disclosure Agreement, substantially in the form attached
hereto as EXHIBIT 2.02O(ii).
2.03. CONSENTS, WAIVERS, ETC. Prior to the Closing 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 all such consents and waivers shall be in full force and effect at
the Closing. 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.
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2.04. EMPLOYMENT AGREEMENT. Prior to the Closing Xxxxx Xxxxxxxxxx'x
employment agreement with the Company shall have been amended in a manner
satisfactory to the Purchasers.
2.05. DUE DILIGENCE. The Purchasers shall have completed due diligence
investigation of the Company and its Subsidiaries to their satisfaction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants as follows as of the date of the
Closing (it being understood and agreed that the representations and warranties
herein relate to the business of the Company and each of its Subsidiaries):
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 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 Purchased Shares 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 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,
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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 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) Except as set forth on EXHIBIT 3.05, 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) Except as set forth on EXHIBIT 3.05, 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 a Material 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
7
provisions of this Agreement and of its Restated 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.
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 deferred revenue
and marketing expense of the Company for the respective periods.
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
8
stockholder or a member of the immediate family of such officer, employee,
director or stockholder; PROVIDED that the term "continuing transactions" shall
not be deemed to include ongoing employment arrangements between the Company and
its employees or officers that are consistent with, and entered into in, the
ordinary course of business.
3.11. ASSUMPTIONS OR GUARANTEES 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, 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 nor does it omit 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 by it
to the Purchasers and which would have a Material Adverse Effect. 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
9
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) 17,250,000 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, $.01 par value,
of which 3,040,000 shares are issued and outstanding on the date hereof, (iii)
3,009,600 shares of Series A Preferred Stock, of which 3,009,600 shares are
issued and outstanding on the date hereof, and (iv) 7,246,036 shares of Series B
Preferred Stock, of which no shares are issued or outstanding, 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 Purchased Shares, will be duly authorized, validly issued, fully paid and
non-assessable. 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, to the Company's knowledge, 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, to the Company's knowledge,
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, to the Company's knowledge,
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 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 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.
10
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) 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 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, 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, registered 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, registered 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, except as set forth in EXHIBIT 3.20, has the right to use and include any
graphic or text on such
11
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, 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 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
12
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 Company, individually or in the
aggregate, could materially adversely affect the business, prospects, financial
condition, operations, properties or affairs of the Company or its Subsidiaries,
taken as a whole. 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
13
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);
(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 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
14
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 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.
15
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 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 (except as approved by the
Board of Directors). 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
16
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 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 a meeting of the Company's Board of Directors at least every
six weeks, with the first meeting after the date hereof to be held during the
month of February, 1999; provided that, if approved by the Board of Directors
after July 1, 1999, the frequency of Board meetings may be reduced to once each
fiscal quarter. 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. At the first meeting of the Company's Board of Directors
held after the date of Closing, the Company shall cause each of the Subsidiaries
to adjust the composition of its Board of Directors, any committees thereof and
its officers such that they are either (i) identical in person and number to
that of the Company, or (ii) composed of such persons as is determined by the
Company's Board of Directors.
(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, all vice presidents, all consultants (other than consultants to whom
total consideration during any year does not exceed $50,000) and all directors
of the Company and each Subsidiary, for advance approval by the Board of
Directors prior to or at the next scheduled Board meeting thereafter, so
informing those employees, consultants, or directors of such proposed option
grant, compensation or fringe
17
benefit; provided that all such proposed compensation and fringe benefits
offered prior to Board approval shall be contingent upon such Board approval.
(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 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) AVAILABLE SHARES. 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 Purchased Shares, such number of its duly
authorized shares of Class B Common Stock as shall be sufficient to effect the
conversion of the Purchased Shares 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 Purchased Shares, 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 Purchased Shares.
(l) XXXXXX XXXXXX EMPLOYMENT AGREEMENT. Use commercially reasonable
best efforts to Include in any employment agreement executed by the Company with
Xxxxxx Xxxxxx, covenants regarding non-competition, non-solicitation, assignment
of inventions and non-disclosure which are substantially similar to those set
forth in EXHIBIT 2.02O(i) hereto.
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 and the Series B Preferred, voting together as a single class:
18
(a) INDEBTEDNESS. Except as set forth on EXHIBIT 4.02(a), 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, or (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 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 Restated 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.
19
(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.
(g) CAPITAL EXPENDITURES. Except as set forth on EXHIBIT 4.02(g),
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 arms-length
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 or any vice president of the Company or any Subsidiary.
(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 25%
per annum from the date of hire by the Company or any Subsidiary 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 2,400,000 shares.
(m) CONSIDERATION FOR ISSUANCES OF COMMON STOCK. Except as set forth
in EXHIBIT 4.02(m), 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
20
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 or any vice president of the Company or any Subsidiary without the prior
approval of a majority of the Board of Directors.
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 (excluding fiscal quarter
and year ending months addressed in subparagraphs (b) and (c) below),
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
21
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, notice of any material adverse change in the operations or
financial condition of the Company or any material 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 or Series B
Preferred, (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,
22
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 holders of the Series A
Preferred Stock and the Purchasers (together, the "Investors") as follows: The
Company shall offer to sell to each Investor (a) that number of such securities
so that, after giving effect to such issuance, such Investor 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 Investor shall
indicate it will purchase should the other Investor subscribe for less than
their Basic Amounts (the "Undersubscription Amount"), at a price and on such
other terms as shall have been specified by the Company in writing delivered to
such Investor (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 Investor'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 Investor and delivered to the Company prior to the
end of the 20-day period of such offer, setting forth such of the Investor's
Basic Amount as such Investor elects to purchase and, if such Investor shall
elect to purchase all of its Basic Amount, any Undersubscription Amount as such
Investor shall elect to purchase (the "Notice of Acceptance"). If the Basic
Amounts subscribed for by all Investors are less than the total Offered
Securities, then each Investor 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 Investor 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 Investor bears to the total Undersubscription
Amounts subscribed for by all Investor, 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 Investors 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
Investors (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 Investor may, at its sole option and in its sole discretion, reduce
the number of, or other units of the Offered Securities specified in its
23
respective Notices of Acceptance to an amount which shall be less than the
amount of the Offered Securities which the Investor 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 Investor 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
Investors in accordance with Section 5.01.
(c) CLOSING. Upon the closing of the sale to such other Person or
Persons of all or less than all of the Refused Securities, the Investors shall
purchase from the Company, and the Company shall sell to the Investors (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 Investors
have so elected, upon the terms and conditions specified in the Offer. The
purchase by the Investors of any Offered Securities is subject in all cases to
the preparation, execution and delivery by the Company and the Investors of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Investors and their counsel.
5.04. FURTHER SALE. In each case, any Offered Securities not purchased by
the Investors 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 Investors
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 Investors
under this Article V shall terminate immediately prior to the consummation of a
Qualified Public Offering.
5.06. EXCEPTION. The rights of the Investors under this Article V shall not
apply to:
(a) up to 2,400,000 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 the Company's 1998 Stock Incentive Plan;
(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;
(c) the Converted Shares;
(d) the issuance of the Comdisco Warrants, the issuance of shares of
Series B Preferred Stock upon exercise of the Comdisco Warrants, or the issuance
of shares of Class B Common Stock upon conversion of the shares of Series B
Preferred Stock issued upon exercise of the Comdisco Warrants; or
(e) the issuance of shares of Class B Common Stock upon conversion of
the shares of Class A Common Stock outstanding as of the date of this Agreement.
24
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 B Preferred Stock Purchase Agreement as from
time to time amended and in effect between the parties, including all Exhibits
hereto.
"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Business Plan" means the Company's Operating Plan delivered to
representatives of the Purchasers on December 18, 1998, together with all
Exhibits thereto.
"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, having the
rights, powers, privileges and preferences set forth in Exhibit 1.01A, (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 Restated 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.
"Comdisco Warrants" means the warrants to purchase up to 202,465 shares of
Series B Preferred Stock which the Company may issue to Comdisco, Inc. in
connection with subordinated debenture financing and capital lease transactions
consistent with the term sheet
25
approved by the Company's Board of Directors prior to the date hereof and
previously provided to the Purchasers.
"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 Series B Preferred are convertible pursuant to the terms of the
Company's Restated Certificate of Incorporation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"GAAP" means in accordance with United States 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 Xxxxxx Xxxxxxxxxx, Xxxxxx Xxxxxx and
Xxxxxxx Xxxxx, and 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, taken as a whole.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
26
"Purchaser" and "Purchasers" shall have that meaning attributable to it in
Section 1.01 of this Agreement.
"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 $15,000,000 and in which the price per share of Class B Common Stock is
equal to or greater than $5.00 (appropriately adjusted to reflect stock splits,
stock dividends, combinations of shares and the like with respect to the Class B
Common Stock).
"Reserved Management Shares" means shares of Class B Common Stock, not to
exceed in the aggregate 2,400,000 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 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" 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.
"Series B Preferred" means the Series B Participating Convertible 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 any corporation or trust of which
the Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time at least fifty percent (50%) of the outstanding
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 GAAP.
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.
27
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 B 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 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.
(b) 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.
(c) If to the Company: at 00 Xxxxxxx Xxxxxx, Xxxxxxxxx, XX 00000-0000,
or via facsimile at (000) 000-0000, Attention: Xxxxxx Xxxxxx, 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
Purchasers incur and up to $35,000 of the reasonable fees and out-of-pocket
expenses of legal counsel to the Purchasers. In addition, the Company shall pay
any and all stamp and other similar taxes payable or determined to be
28
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 B 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.
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 B Preferred 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 B Preferred
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 B Preferred; but this Agreement and the terms of the Series B Preferred
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.
29
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.
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.
7.15. ACKNOWLEDGMENT. The Company hereby acknowledges and agrees that
certain limited partners of @Ventures III, L.P. may (i) engage in the same or
similar activities or lines of business as the Company, or develop or market any
products or services that compete, directly or indirectly, with those of the
Company, (ii) consider or evaluate any opportunities in similar or related
activities or lines of business as, or otherwise in competition with, the
Company, (iii) invest or own any interest publicly or privately in, or develop a
business relationship with, any person engaged in the same or similar activities
or lines of business as, or otherwise in competition with, the Company, (iv) do
business with any client or customer of the Company, (v) employ or otherwise
engage a former officer, director or employee of the Company and (vi) receive
from its General Partner certain information regarding such Company as part of
its ongoing reporting to its limited partners; and the Company shall not have
any right by virtue of any investment made by @Ventures III, L.P. in the
Company, in or to, or to be offered any opportunity to participate or invest in,
any venture or investment engaged or to be engaged in by any limited partner or
any of its affiliates or any right by virtue of any investment made by @Ventures
III, L.P. in the Company, in or to any income or profits derived therefrom.
7.16. CONFIDENTIALITY. Each Purchaser agrees that it will use its
commercially reasonable best efforts to maintain the confidentiality of any
proprietary information obtained by it from the Company regarding the Company
which is not otherwise available from other sources, provided that the Company
(i) may disclose information if required by law and (ii) may disclose
non-technical information regarding the Company's business and financial
performance which such Purchaser discloses to its partners and/or shareholders
generally.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
30
FURNITURESITE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
THE COMPANY: PURCHASERS:
----------- ----------
FURNITURESITE, INC., @VENTURES III, L.P.
By: @Ventures Partners III, LLC
By: /s/ Xxxxxx Xxxxxx
________________________
Name: Xxxxxx Xxxxxx By: /s/
Title: President/CEO ______________________
Managing Member
CMG@VENTURES III, LLC
By: /s/
______________________
Member
@VENTURES INVESTORS, LLC
By: /s/
______________________
Managing Member
@VENTURES FOREIGN FUND III, L.P.
By: @VENTURES PARTNERS III, LLC,
its General Partner
By: /s/
______________________
Managing Member
S-1
FURNITURESITE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PURCHASERS:
----------
BESSEMER VENTURE INVESTORS L.P.
By: Deer IV & Co. LLC,
General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________
Xxxxxx X. Xxxxxxxx, Manager
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. LLC,
General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________
Xxxxxx X. Xxxxxxxx, Manager
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC,
General Partner
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________
Xxxxxx X. Xxxxxxxx, Manager
S-2
FURNITURESITE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PURCHASERS:
----------
BRAND EQUITY VENTURES I, L.P.
By: Brand Equity Partners I, LLC,
its General Partner
By: /s/ Xxxxxxxxxxx X. Xxxxxxx
__________________________
Xxxxxxxxxxx X. Xxxxxxx
Its Managing Member
S-3
FURNITURESITE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PURCHASERS:
----------
COMDISCO, INC.
By: /s/ Xxxxx X. Xxxx
------------------------------
Name: Xxxxx X. Xxxx, President
Title: Comdisco Ventures Division
S-4
FURNITURESITE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PURCHASERS:
----------
SHAD RUN INVESTMENTS, L.P.
By: /s/ Xxxx X. Xxxxxxxxxxx
__________________________
Name: Xxxx X. Xxxxxxxxxxx
Title: President,
Shad Run Investments, Inc.
General Partner
S-5
FURNITURESITE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
INVESTORS:
---------
/s/ Xxxxxx X. Xxxxxxxx
________________________________
Xxxxxx X. Xxxxxxxx, Individually
S-6
FURNITURESITE, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under SEAL as of the date first above written.
INVESTORS:
---------
/s/ Xxxxxxxx X. Xxxxxxxx
__________________________________
Xxxxxxxx X. Xxxxxxxx, individually
S-7
EXHIBIT 1.01
---------------------------------------- ----------------------- -------------------- ------------------------
SERIES B
NAME AND ADDRESS PREFERRED PURCHASE
OF PURCHASERS STOCK PRICE
---------------------------------------- ----------------------- -------------------- ------------------------
@Ventures III, L.P. 2,750,000 $3,905,000
000 Xxxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxxx
---------------------------------------- ----------------------- -------------------- ------------------------
CMG@Ventures III, LLC 771,127 $1,095,000
000 Xxxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxx
---------------------------------------- ----------------------- -------------------- ------------------------
@Ventures Investors, LLC * 0 0
000 Xxxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxxx
---------------------------------------- ----------------------- -------------------- ------------------------
@Ventures Foreign Fund III, L.P. * 0 0
000 Xxxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxxx
---------------------------------------- ----------------------- -------------------- ------------------------
Brand Equity Ventures I, L.P.
Three Pickwick Plaza 1,056,338 $1,500,000
Xxxxxxxxx, XX 00000
Attn: Xxxxxxxxxxx Xxxxxxx
---------------------------------------- ----------------------- -------------------- ------------------------
Bessemer Venture Investors L.P. 140,845 $200,000
0000 Xxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, XX 00000
---------------------------------------- ----------------------- -------------------- ------------------------
Bessemer Ventures IV L.P. 774,648 $1,100,000
0000 Xxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, XX 00000
---------------------------------------- ----------------------- -------------------- ------------------------
Bessec Venture IV L.P. 492,958 $700,000
0000 Xxx Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxxx, XX 00000
---------------------------------------- ----------------------- -------------------- ------------------------
Shad Run Investments, L.P. 528,169 $750,000
0000 Xxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxxxxxx
---------------------------------------- ----------------------- -------------------- ------------------------
Comdisco, Inc. 352,113 $500,000
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn:
---------------------------------------- ----------------------- -------------------- ------------------------
Xxxxxx X. Xxxxxxxx 88,028 $125,000
00 Xxxxxxxxx Xxx
Xxxx Xxxxxx, XX 00000
---------------------------------------- ----------------------- -------------------- ------------------------
Xxxxxxxx X. Xxxxxxxx 88,028 $125,000
Xxxxx Xxxxxxxx Plaza
00 Xxxxx 0xx Xxxxxx
Xxxxxxxxxxx, XX 00000-0000
---------------------------------------- ----------------------- -------------------- ------------------------
Totals: 7,042,254 $10,000,000
---------------------------------------- ----------------------- -------------------- ------------------------
* Shares may be acquired subsequent to the Closing as permitted by Section
1.05 of this Agreement.
S-8
