Exhibit 10.4
SUBSCRIPTION AGREEMENT dated as of the 2nd day of March, 1999, between
Xxxxxx Xxxxxx, with his principal place of business at 000 Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000 ("Buyer"), and Internet Fashion Mall LLC, a Delaware
limited liability company, with its principal place of business at 000 Xxxxxxx
Xxxxxx, Xxx Xxxx, XX 00000 (the "Company").
W I T N E S S E T H:
WHEREAS, Xxxxxxxx Xxxxxxx and Grant Narasin (collectively "Narasin") and
Xxxxxxx X. Xxxxxx & Company, LLP ("RAE") are the sole members of, and the sole
owners of membership interests in, the Company (all such membership interests in
the Company being hereinafter referred to singly as a "Membership Interest" and
collectively as the "Membership Interests"), of which Narasin owns an 80%
Membership Interest and RAE owns a 20% Membership Interest; and
WHEREAS, Buyer wishes to accept options to purchase a 3% Membership
Interest of the Company in consideration for his execution and delivery of the
Consulting Agreement between him and the Company of even date herewith (the
"Consulting Agreement"); and
WHEREAS, the Company desires to sell, grant, assign and transfer such
options to Buyer; and
WHEREAS, upon receipt of $2,000,000 by the Company from FM/CCP Investment
Partners, LLC ("FM/CCP"), Buyer, after giving PRO FORMA effect to the exercise
of such options (but not his options to purchase certain shares calculated by
reference to an additional 2% Membership Interest), shall hold options entitling
him to become a member of the Company with a 3% membership interest, FM/CCP
shall be a member with a 5% membership interest in accordance with the letter of
even date herewith from the Company to Buyer and FM/CCP Investment Partners, LLC
("FM/CCP") concerning the capitalization of the Company (the "Capitalization
Side Letter") and the membership interests of Narasin and RAE shall be reduced
to 73.6% and 18.4%, respectively.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. The Company hereby sells, grants, assigns and transfers to Buyer and
Buyer, in reliance on the representations, warranties and covenants of the
Company contained herein, hereby purchases and accepts, five-year options to
purchase membership interests of the Company (or, if converted to common stock,
such common stock) (the "Securities") equal to a membership interest (or number
of shares of common stock) calculated by reference to a 3% membership interest
of the Company received as of the date hereof, in consideration for services to
be rendered pursuant to the Consulting Agreement, at the exercise price and upon
the other terms set forth in the Consulting Agreement.
2. The Buyer hereby agrees upon and after any exercise of options to be
bound by the terms and conditions of the Amended and Restated Limited Liability
Company Agreement by and among Narasin and RAE, a copy of which is annexed
hereto as Exhibit A (the "LLC Agreement")
and Narasin and RAE hereby consent to the admission of Buyer as a member of the
Company as of the date of the initial such exercise.
3. The Buyer hereby agrees that for twelve (12) months following the
consummation of an initial public offering ("IPO") of the common stock of the
Company or the IPO Company (as defined below) (the "Lock Up Period"), he shall
not, without the prior written consent of the Company or the IPO Company, as the
case may be, directly or indirectly, including by entering into any Hedging
Transaction (as defined below), offer, sell, contract to sell, grant any option
for the sale of, or otherwise dispose of ("Dispose of"), any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of common stock or other equity securities of the
Company or the IPO Company. As used herein, (a) the term "IPO Company" means any
corporation or other entity, the shares or other equity securities of which are
issued to the members of the Company in consideration for the conversion,
exchange or cancellation of the Membership Interests and/or the transfer of the
Membership Interests to the IPO Company; and (b) the term "Hedging Transaction"
shall mean any short sale or grant of any right (including, without limitation,
any put or call option) with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from the common stock or other equity securities.
Notwithstanding the foregoing provisions of this Section 3, (i) Buyer shall have
the right to transfer all or any portion of his options or Membership Interest
in the Company or his shares of common stock of the IPO Company to a Family
Donee which transfer, upon the closing of the IPO, shall be subject to the
agreement of the managing underwriter for the IPO, and (ii) if Narasin or XXX
xxxxx any of his or its securities of the Company during the Lock-up Period,
Buyer shall not be restricted under this Section 3 from selling the same
percentage of his securities of the Company as the securities being sold by
Narasin or RAE represent of the securities of the Company held by him or it, as
the case may be, and if Narasin or RAE is released from his or its "lock-up"
agreement, Buyer shall be similarly released from the restrictions contained in
this Section 3. For purposes of this Agreement, the term "Family Donee" shall
mean: (A) any parent, child, lineal descendant or sibling of Buyer, the spouse
of any of the foregoing, or the spouse of Buyer; (B) any trust established by
Buyer, or any trustee, custodian, fiduciary or foundation which will hold such
shares for charitable purposes or for the benefit of Buyer or any of the persons
described in clause (A) above; PROVIDED, that Buyer or any person described in
clause (A) above shall exercise a deciding influence over the voting of the
shares held by a Family Donee described in this clause (B).
4. The Buyer hereby agrees, represents, and warrants, as of the date hereof
and as of the Closing Date (as defined in the Subscription Agreement of even
date between FM/CCP and the Company (the "FM/CCP Subscription Agreement")),
that:
(a) He is acquiring the Securities for his own account (and not for
the account of others) for investment and not with a view to the distribution or
resale thereof; provided that, notwithstanding such intention, Buyer shall be
free to transfer his securities in the Company in compliance with applicable
legal requirements and the provisions of this Agreement and the LLC Agreement;
(b) By virtue of his position, he has access to the same kind of
information which would be available in a registration statement filed under the
Securities Act of 1933, as amended (the "Act"), including, without limitation,
access to cash and barter contracts, the Company's books and records and
summaries of cash and barter clients;
(c) He is a sophisticated investor;
(d) He understands that he may not sell or otherwise dispose of the
Securities in the absence of either a registration statement under the Act or an
exemption from the registration provisions of the Act; and
(e) The certificates representing his Company securities may contain a
Legend thereon to the effect of (d) above.
5. The Company hereby agrees, represents and warrants to Buyer, as of the
date hereof and as of the Closing Date, that:
(a) The Company (i) is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(ii) has all requisite limited liability company power and authority to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently engaged; (iii) is duly qualified as a
foreign limited liability company and in good standing under the laws of each
jurisdiction in which it maintains physical facilities, except to the extent
that the failure to do so or be so would not in the aggregate have a material
adverse effect on the business, financial condition, results of operations or
prospects of the Company ("Material Adverse Effect"); and (iv) has the requisite
limited liability company power and authority to execute, deliver and perform
its obligations under this Agreement, the Registration Rights Agreement referred
to in Section 6 of this Agreement, the Capitalization Side Letter, the LLC
Agreement and the Consulting Agreement (collectively, the "Transaction
Documents").
(b) The execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents to which it is a party and the
transactions contemplated hereby and thereby (i) have been (or, in the case of
the Registration Rights Agreement, will be) duly authorized by all necessary
action of the Company or its Members; (ii) do not contravene the terms of the
Certificate of Formation or LLC Agreement or any contribution agreement or
retention agreement to which the Company and any member is a party, or any other
governing document of the Company, in each case which has previously been
delivered to Buyer and which are herein annexed; and (iii) except for such
violations, conflicts, breaches, contraventions or Liens (as hereinafter
defined) which would not in the aggregate have a Material Adverse Effect, do not
violate, conflict with or result in any breach or contravention of or result in
the creation of any lien, charge,
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pledge, security interest, mortgage or other encumbrance (each, a "Lien") under,
any contractual obligation of the Company, or any requirement of any federal,
state or foreign law, rule or regulation (each, a "Requirement of Law"),
applicable to the Company; provided, however, that no representation, warranty
or agreement is made in this clause (iii) concerning any state securities laws,
rules or regulations as they relate to publicly-offered securities or rules or
regulations of the National Association of Securities Dealers, Inc., Nasdaq or
any exchange upon which the securities of the Company (or the IPO Company) are
proposed to be listed.
(c) No approval, consent, compliance, exemption, authorization, or
other action by, or notice to, or filing with, any federal, state or foreign
governmental agency, instrumentality, court or administrative authority
("Governmental Authority") or any other person in respect of any Requirement of
Law applicable to the Company and no lapse of a waiting period under a
Requirement of Law, is necessary or required in connection with the execution,
delivery or performance by the Company of this Agreement or any other
Transaction Documents to which it is a party or the transactions contemplated
hereby or thereby, except for any of the foregoing required under federal or
state securities laws, the rules and regulations promulgated by the National
Association of Securities Dealers, Inc., Nasdaq and any exchange upon which
securities of the Company (or the IPO Company) are proposed to be listed.
(d) This Agreement and the other Transaction Documents to which the
Company is a party have been, or in the case of the Registration Rights
Agreement will be, duly executed and delivered by the Company and each
constitutes, or in the case of the Registration Rights Agreement will
constitute, the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
(e) Except for matters materially reflected in the Company's bad debt
reserve in the approximate amount of $105,000 as of December 31, 1998, subject
to audit adjustments, there are no legal actions, suits, proceedings, claims,
material complaints, material disputes or investigations pending, or to the
knowledge of the Company threatened, at law, in equity, in arbitration or before
any Governmental Authority against the Company, Narasin or their respective
property or assets ("Judgments") which in the aggregate would have a material
adverse effect. No injunction, writ, temporary restraining order, decree or
order of any nature has been issued by any court or other Governmental Authority
against the Company, Narasin or their respective property or assets, purporting
to enjoin or restrain the execution, delivery or performance of this Agreement
or any of the other Transaction Documents.
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(f) The Membership Interests in the Company as of the date hereof
consist solely of the Membership Interests of RAE and Narasin described in the
preamble hereto. Except for this Agreement, any of the other Transaction
Documents and the other agreements and instruments being made by the Company
with or in favor of Buyer or FM/CCPChazen, and except for the Company's
agreements with Wit Capital, there are no options, warrants, conversion
privileges or other rights (collectively "Rights") presently outstanding to
purchase or otherwise acquire any Membership Interests in the Company and all
such rights are correctly reflected in the Capitalization Side Letter. The
issued and outstanding Membership Interests are duly authorized and validly
issued.
(g) The Company has delivered to Buyer its unaudited financial
statements (balance sheet and statements of operations) for the fiscal years
ended on, and as at December 31, 1996, 1997 and 1998 (the "FINANCIAL
STATEMENTS"). The Financial Statements fairly present the financial condition
and operating results of the Company in accordance with GAAP as of the
respective dates and for the respective periods indicated, subject to audit
adjustments.
(h) (i) As used herein, the term "Intellectual Property" shall mean
all worldwide intellectual property rights, including, without limitation, any
patent, trademark, service xxxx, trade name, copyright or any registration or
application therefor; and any know-how, trade secret, customer list, technology,
process, formula or other proprietary information; and any source code, object
code, flowchart, algorithm, display screen, layout, system architecture,
development tool or other software; and any license to any of the foregoing; and
all documents or other information in any machine or human understandable media
related to any of the foregoing. Intellectual Property which is used in or is
otherwise material to the business of the Company as currently conducted and as
it is expected to be conducted in the future is referred to as "Intellectual
Property Assets."
(ii) The Company directly owns, or is licensed or otherwise
possesses rights to use all Intellectual Property Assets that are necessary for
the operation of its business as presently conducted, with such exceptions as
have not had and are not reasonably likely to have a material adverse effect on
the business of the Company. To the knowledge of the Company, there is no
unauthorized use, infringement or misappropriation of any Intellectual Property
Assets by any third party, except for such use, infringement or
misappropriation, individually or in the aggregate as have not had and are not
reasonably likely to have a material adverse effect on the business of the
Company. To the knowledge of the Company, no Intellectual Property Assets are
subject to any outstanding Judgment restricting in any manner the use or
licensing thereof by the Company or infringes on or misappropriates any
Intellectual Property owned or used by any other person, except to the extent
any such Judgment, infringement or misappropriation, individually or in the
aggregate, has not had and is not reasonably likely to have a material adverse
effect on the business of the Company. The Company is the sole and exclusive
owner of, free of any Liens, and is registered with, Network Solutions, Inc.
with respect to the "Xxxxxxxxxxx.xxx" domain name and has submitted to Network
Solutions, Inc. with respect to the "Xxxxxxxxxx.xxx" domain name.
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(i) Since December 31, 1998, the operations of the Company have been
conducted, in all material respects, in a manner consistent with past practice
and in accordance with the business plan presented heretofore to Buyer, taking
into account additional expenses incurred by the Company in preparing for the
IPO.
(j) The Company is not an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(k) No form of general solicitation or general advertising was used by
the Company or its representatives in connection with the offer or sale of the
5% Membership Interests. Assuming the accuracy of the representations and
warranties of Buyer set forth in Section 4, no registration, pursuant to the
provisions of the Securities Act or any state securities or "blue sky" laws, is
or will be required in connection with the offer, sale or issuance of the 5%
Membership Interest.
(l) Except for the finder's fee to be paid by the Company to Wit
Capital, there are no brokerage commissions, finder's fees or similar fees or
commissions payable by the Company in connection with the transactions
contemplated hereby based on any agreement, arrangement or understanding with or
known to the Company.
(m) Upon payment of the exercise price for the options, the Membership
Interests underlying the same will be duly authorized and validly issued, fully
paid and non assesable and clear of all Liens or any adverse claims,
preferential arrangements or restrictions of any kind that were granted or
otherwise created by the Company (other than any of the foregoing set forth in
the LLC Agreement), including, without limitation, any restrictions on the
exercise of any attributes of ownership. Except as may be otherwise required by
law or as may be agreed to by Buyer (or any Family Donee), ownership of the
Membership Interest or shares underlying the options will not obligate Buyer (or
any Family Donee), to make any contribution to the capital of, or any loans or
advances to, the Company.
(n) Neither this Agreement nor any other document, certificate,
instrument or written statement furnished or made available to Buyer, or to
counsel to Buyer, by or on behalf of the Company pursuant to this Agreement or
any of the other Transaction Agreements, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein, viewing all of the foregoing documents,
certificates, instruments and written statements in the aggregate, not
misleading. To the best of the Company's knowledge, there is no fact which
materially adversely affects the business, operations, prospects, affairs,
conditions (financial or otherwise), properties or assets of the Corporation
which has not been set forth in this Agreement or in the other Transaction
Agreements, certificates, instruments
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or written statements furnished to Buyer and its counsel by or on behalf of the
Company pursuant to this Agreement.
6. The Company hereby grants the following registration rights to Buyer:
Buyer, together with FM/CCP, shall have the right to register the resale of
their respective shares of common stock of the IPO Company, (or other equity
interests issued to the public in the IPO of the Company or the IPO Company)
(collectively, the "Registrable Securities"), as follows: (i) on one occasion,
on Form S-3 (or an equivalent form), on a demand basis, at the Company's sole
expense (other than commissions, discounts and broker's fees and legal fees and
expenses of FM/CCP and Buyer, which shall be borne by FM/CCP and Buyer,
respectively), commencing upon the Company's eligibility to utilize such form
for offerings by selling security holders and ending on February 25, 2004,
subject to agreed-upon "blackout" periods; and (ii) on an unlimited number of
occasions, on a "piggyback" basis with respect to any registration by the IPO
Company of its common stock (other than on Form S-4, Form S-8 or equivalent
forms) and subject to customary exceptions (E.G., underwriter's cutbacks and
"blackout" periods), commencing upon the termination of Buyer's obligations
pursuant to Section 3 of this Agreement and ending on February 25, 2004. In
furtherance of such grant, the Company for itself and the IPO Company, as
applicable and Buyer shall as soon as practicable after the date hereof, use
their respective reasonable efforts to promptly enter into the Registration
Rights Agreement among the Company as aforesaid, FM/CCP and Buyer, which shall
contain customary, mutually agreeable terms applicable to the Company or the IPO
Company (whichever first consummates an IPO). Notwithstanding the foregoing, if
the Company or the IPO Company is ineligible to utilize Form S-3 (or an
equivalent form) as a result of a failure to comply with the requirements of
such Form, then the Company or the IPO Company shall register the Registrable
Securities on Form S-1 or such other form as may be available.
7. With respect to the Options issuable to Buyer, Buyer shall be entitled
to the same anti-dilution protection for (i) stock splits, dividends,
distributions, combinations or reclassifications as set forth in Section 5 of
the Warrant of even date herewith issued by the Company to FM/CCP and (ii)
Reorganization as set forth in Section 6 of such Warrant.
8. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, sent by overnight courier or facsimile transmission or
delivered against receipt to the party to whom it is to be given at the address
of such party set forth in the preamble to this Agreement (or to such other
address as the party shall have furnished in writing in accordance with the
provisions of this Section 8). Any notice or other communication given by
certified mail shall be deemed given at the time of certification thereof; any
notice sent by overnight courier shall be deemed given on the next business day
after delivery to the courier; any notice sent by facsimile transmission shall
be deemed given upon receipt (electronically or otherwise); and any notice
delivered against receipt shall be deemed
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given upon receipt, except in each case for a notice changing a party's address
which shall be deemed given at the time of receipt thereof.
9. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, the successors and assigns of the Company, including, without
limitation, any IPO Company, and the successors and assigns of Buyer that become
such successors and assigns in connection with a transfer of all or any portion
the Options (or the shares or other equity interests underlying the Options) in
compliance with the provisions of this Agreement, the Consulting Agreement and
the LLC Agreement.
10. (a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to principles
governing conflicts of laws.
(b) The Company irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State, in each
case sitting in New York County, in connection with any action or proceeding
arising out of or relating to this Agreement, any document or instrument
delivered pursuant to, in connection with, or simultaneously with, this
Agreement, or a breach of this Agreement or any such document or instrument. In
any such action or proceeding, the Company waives personal service of any
summons, complaint or other process and agrees that service thereof may be made
in accordance with Section 8 hereof.
11. This Agreement, together with the Consulting Agreement, the
Registration Rights Agreement referred to in Section 6 and the Capitalization
Side Letter, represents the entire agreement with respect to the subject matter
thereof, supersedes any prior oral or written agreements or undertakings between
the parties with respect there to and may not be modified or amended except in a
writing duly executed by each of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
date first written above.
/s/ Xxxxxx Xxxxxx
----------------------------
Xxxxxx Xxxxxx
Consented and agreed to by:
INTERNET FASHION MALL LLC
By: /s/ Xxxxxxxx Xxxxxxx
-------------------------
Xxxxxxxx Xxxxxxx
Member
XXXXXXX X. XXXXXX & COMPANY,
LLP, as a Member
By: /s/ Xxxxxx Xxxxxxxxx
-------------------------
Principal
/s/ Xxxxxxxx Xxxxxxx
---------------------------
Xxxxxxxx Xxxxxxx
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