FURNITURE COM INC - S-1 - 20000127 - SUBJECT_STOCK_INFO
SUBJECT TO COMPLETION. DATED JANUARY 27, 2000.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
Shares
[LOGO] FURNITURE.COM, INC.
Common Stock
----------------
This is an initial public offering of shares of common stock of
Furniture.com, Inc. All of the shares of common stock are being
sold by Furniture.com.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . Furniture.com has applied for
quotation of the common stock on the Nasdaq National Market under the symbol
"FURN".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Per Share Total
--------- -----------
Initial public offering price............................ $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Furniture.com.............. $ $
In connection with this offering, the underwriters have reserved up to
shares of common stock being sold by Furniture.com for sale at the
initial public offering price to directors, officers, employees, stockholders
and friends of Furniture.com.
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Furniture.com at the initial public offering price less the
underwriting discount.
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
E*OFFERING
Prospectus dated , 2000.
DESCRIPTION OF ARTWORK
[Artwork on inside of front cover page]
On the top of the artwork is the caption "Before Furniture.com, decorating
and furnishing your home had its 'limitations' ..."
In the middle of the artwork is a picture of a woman sitting in a chair in a
living room with a table in front of her. Surrounding the woman are various home
furnishings (sofa, chair, lamp, rug, entertainment center and drapes). The
following are call-outs surrounding the woman:
- Three stores for lamps, five stores for rugs, two more stores for
furniture. Who has time for this?
- I dragged my husband to 10 stores ... this is the compromise.
- The sales person got 15% ... I got stuck with this rug.
- Too embarrassed to have a dinner party, too annoyed to try shopping again.
- I ordered my sofa 12 weeks ago.
- In the store, I was sure this would fit.
[Artwork on the left page of fold-out following the front cover page]
On the top of the artwork is the caption "The Furniture.com Solution".
Center of the page is a picture of the home page on the Furniture.com Web
site. To the top left of the picture is the caption "Browsing and Finding".
Superimposed on the bottom of the page is a picture of the Room Planner
page on the Furniture.com Web site. Superimposed on the middle of this picture
is the caption "Planning & Getting Advice".
Superimposed on the bottom left of the page is a picture of a woman wearing
a telephone headset.
Superimposed on the bottom right of the page is a picture with a man and a
woman viewing a laptop computer screen. The man is seated and the woman is
leaning over him. The laptop is placed on a desk in a living room. Above this
picture is the caption "Request a Chat".
[Artwork on the right page of fold-out following the front cover page]
Six pictures are displayed on this page. On the upper left of the page is a
picture of a page on the Furniture.com Web site showing a sofa.
Superimposed to the right of this picture is the caption "Gathering
Information".
Subimposed on the middle of the page is a larger picture of a page on the
Furniture.com Web site. This picture displays a larger picture of the same sofa.
To the left of the picture is a description of the sofa's manufacturer, retail
price, Furniture.com's price, dimensions, materials and available fabric
options.
Superimposed on the left hand side of the middle of the page is a picture of
a fabric swatch sample contained in a Furniture.com wrapper.
Superimposed on the right hand side of the middle of the page is a picture
of a magazine entitled "Your Home Magazine".
Superimposed on the left hand side of the bottom of the page is a picture
that is a collage of three pictures under the caption "Online Financing". The
left most picture shows a document entitled "Loans". The middle picture is of
three one hundred dollar bills. The right most picture shows a man and a woman.
The man is lying on a sofa and holding a newspaper. The woman is sitting at a
table in front of a laptop computer. Superimposed to the right of this picture
is the caption "Purchase & Delivery".
Superimposed on the right hand side of the bottom of the page is a picture
of a man carrying a box.
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING FURNITURE.COM AND FURNITURE.COM'S CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS.
FURNITURE.COM, INC.
OUR BUSINESS
Furniture.com is a leading online retailer of furniture and home
accessories. Our goal is to revolutionize the home furnishing and decorating
experience by offering a comprehensive, personalized and service-oriented
solution for consumers. Our initial product focus has been furniture, the
foundation of home furnishings and the category around which we build customer
relationships. We offer furniture for every room of the home, including beds,
tables, desks, entertainment centers and upholstered sofas and chairs. As part
of our complete home solution, we also sell accessories, including lamps, wall
art, rugs, mattresses and linens. We offer more than 20,000 selections from more
than 200 manufacturers. We believe this represents one of the largest selections
of home furnishings available at any single destination.
Our net sales have grown to $10.9 million in the year ended December 31,
1999. In addition, as of December 31, 1999, our customers had placed orders for
$7.5 million of home furnishings that are being manufactured or are already in
transit. The number of unique visitors to our Web site reached approximately
2,000,000 during December 1999, according to our internal database. According to
Media Metrix, Furniture.com had greater than four times the number of unique
visitors than the next most visited home furnishings shopping Web site for the
month of December 1999.
The home furnishings industry is large and highly fragmented. According to
Furniture Today, the top 10 furniture retailers accounted for less than 15% of
the retail furniture market in 1998. According to the U.S. Census Bureau, in
1998 the home furnishings market exceeded $150 billion, and the market for
household furniture and home accessories was $72 billion. The home furnishings
manufacturing industry is also extremely fragmented. According to the most
recent U.S. Department of Commerce Economic Census, there were more than 5,500
manufacturers of household furniture in 1997, 95% of which had annual sales of
less than $10 million.
Given the structure and limitations of the home furnishings industry, we
believe that consumers face significant challenges furnishing and decorating
their homes through traditional retail channels. These challenges include
inconvenience, limited information and decorating advice and poor customer
service follow through.
We intend to make Furniture.com the leading destination for finding all the
comforts of home. Through our easy to use Web site, we provide consumers a
destination to receive personalized decorating advice, purchase our products and
services, and access a wide variety of information and resources. We believe
that Furniture.com provides:
- superior convenience through our broad product selection, simplified
searching capabilities and QuickShip program;
- personalized customer experiences through our Design Consultants, personal
shopping service, tailored product selections, individualized online
showrooms and targeted editorial content and promotional offers;
- detailed product information and decorating advice to empower customers to
make confident home furnishing and decorating decisions;
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- enhanced visualization of room solutions through our dedicated photography
studio, Web site tools to experiment with room layout and fabric options,
and free swatch samples to enable customers to see and feel fabrics;
- superior customer service throughout the Furniture.com experience; and
- compelling value to our customers through lower prices and a favorable
shopping experience as compared to traditional retail stores.
We capitalize on the features and functionality of the Internet to provide a
comprehensive home furnishing and decorating solution. Forrester Research
estimates that online revenues from home furnishings sales will grow from
approximately $518 million in 1999 to $6.4 billion in 2003, a compound annual
growth rate of approximately 87%. Our solution combines Internet technology with
our superior merchandising and marketing expertise and key strategic
relationships to create a compelling customer experience.
OUR GROWTH STRATEGY
We strive to be the first nationally branded home furnishing and decorating
online destination. To implement our growth strategy we intend to:
- ESTABLISH A POWERFUL BRAND. Capitalize on the lack of established
national brands in the home furnishings industry to further develop
Furniture.com as a nationally recognized brand.
- REVOLUTIONIZE SUPPLY CHAIN DYNAMICS. Develop an Internet-based network
that will serve as a communications platform connecting us with our
product manufacturers and freight carriers. We believe that this network
will enable us to shorten the time between a customer's order submission
and product delivery.
- LEVERAGE DATA-DRIVEN MERCHANDISING. Leverage our database of customer
browsing and shopping behavior to continually optimize product selection
and presentation and to identify products best suited to be offered on a
QuickShip basis.
- ENHANCE PRIVATE LABEL PROGRAM. Rapidly expand our private label business,
which we believe will enable us to enhance customer loyalty and realize
higher margins over time.
- OFFER UNPARALLELED VISUALIZATION. Utilize rapidly evolving technologies
to enable customers to more vividly and realistically create room
solutions online.
- EXPAND INTO OTHER PRODUCT CATEGORIES AND CHANNELS. Leverage our brand,
operating infrastructure and customer relationships to expand into other
home furnishings categories and channels.
CORPORATE INFORMATION AND HISTORY
Furniture.com was incorporated in Delaware under the name
FurnitureSite, Inc. on June 18, 1998. On January 14, 1999, we changed our name
to Furniture.com, Inc. We have one wholly owned subsidiary, Empire Furniture
Warehouse, Inc., which we purchased on June 18, 1998. Empire Furniture
Warehouse, Inc. was incorporated in Massachusetts on January 2, 1959. Our
principal executive offices are located at 1881 Worcester Road, Framingham,
Massachusetts 01701. Our telephone number at that location is (800) 687-0939.
Our Internet address is WWW.FURNITURE.COM. The information contained on our Web
site is not incorporated by reference in this prospectus.
Furniture.com, FurnitureSite, Furniture Finder, My Selections, QuickShip,
Room Planner and Style Guide are trademarks of Furniture.com, Inc. All other
brand names or trademarks appearing in this prospectus are the property of their
respective holders.
3
THE OFFERING
Shares offered by Furniture.com
Shares to be outstanding after the (1)
offering....................................
Use of proceeds............................. For capital expenditures relating to
advertising, technology and system upgrades,
the redemption of shares of our Series A
preferred stock and general corporate
purposes, principally working capital and
other capital expenditures. See"Use of
Proceeds".
Nasdaq National Market symbol............... "FURN"
(1) The number of shares of common stock to be outstanding after the closing of
this offering is based on 6,253,027 shares of common stock outstanding on
December 31, 1999 plus 17,850,799 shares of common stock issuable upon
conversion of outstanding convertible common stock and our preferred stock
as of such date, except for our Series A preferred stock which we will
redeem upon the closing of this offering. This number does not include
4,500,000 shares of common stock reserved for issuance under our stock plan,
of which 2,242,810 shares were subject to options outstanding on
December 31, 1999 with a weighted average exercise price of $5.60 per share.
This number also does not include 202,464 shares issuable upon the exercise
of warrants outstanding on December 31, 1999. See "Management-Stock Plan"
and Note 9 to notes to financial statements.
Throughout this prospectus, we use both "Class B common stock" and "common
stock" to refer to our Class B common stock, which will be renamed common stock
upon completion of the offering described in this prospectus. Unless otherwise
specifically stated, information in this prospectus:
- assumes the underwriters do not exercise their over-allotment option;
- does not reflect a reverse stock split of common stock that we plan to
effect prior to the closing of this offering; and
- assumes our Series C preferred stock converts into common stock on a
one-for-one basis. In the event that the initial public offering price per
share is less than $11.10, the number of shares of common stock into which
a single share of Series C preferred stock will convert shall increase
until such number of shares multiplied by the initial public offering
price per share in this offering equals $11.10.
4
SUMMARY FINANCIAL INFORMATION
The following table summarizes our statement of operations data. This
financial information reflects the results of operations of Empire Furniture
Warehouse, Inc. (Predecessor Company) from January 1, 1995 to June 17, 1998 and
the results of operations of Furniture.com, Inc. and Empire Furniture
Warehouse, Inc. (together, the Company) on a consolidated basis since June 18,
1998, the date we acquired Empire Furniture Warehouse and commenced operations.
PREDECESSOR COMPANY THE COMPANY
---------------------------------------------------- ---------------------------------
YEAR ENDED PERIOD FROM
DECEMBER 31, PERIOD FROM JUNE 18, 1998 TO YEAR ENDED
--------------------------------- JANUARY 1, 1998 DECEMBER 31, DECEMBER 31,
1995 1996 1997 TO JUNE 17, 1998 1998 1999
----------- -------- -------- ---------------- ---------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net revenues........................... $1,314 $1,389 $1,728 $ 1,511 $ 2,180 $ 10,904
Cost of revenues....................... 812 895 1,082 1,498 1,827 8,837
------ ------ ------ ------- --------- ----------
Gross profit........................... 502 494 646 13 353 2,067
Operating expenses (1)................. 474 485 639 369 4,138 46,430
------ ------ ------ ------- --------- ----------
Operating income (loss)................ 28 9 7 (356) (3,785) (44,363)
Net income (loss)...................... $ 13 $ 7 $ 5 $ (361) $ (3,733) $ (43,710)
====== ====== ====== ======= ========= ==========
Net income (loss) attributable to
common stockholders.................. $ 13 $ 7 $ 5 $ (361) $ (3,733) $ (46,460)
====== ====== ====== ======= ========= ==========
Basic and diluted net income (loss) per
common share......................... $ 1.73 $ .93 $ .67 $(48.13) $ (.50) $ (6.01)
Shares used to compute basic and
diluted net income (loss) per common
share................................ 7,500 7,500 7,500 7,500 7,472,020 7,730,413
Pro forma basic and diluted net loss
per common share..................... $ (.49) $ (2.53)
Shares used to compute pro forma basic
and diluted net loss per common
share................................ 7,543,880 17,254,833
(1) Includes non-cash compensation expense relating to deferred compensation of
$65,000 in the period from June 18, 1998 to December 31, 1998 and $463,000
for the year ended December 31, 1999.
The following table is a summary of our balance sheet data as of
December 31, 1999 on an actual basis and on a pro forma as adjusted basis after
giving effect to the conversion of all outstanding shares of our convertible
common stock and our preferred stock into shares of common stock, except for our
Series A preferred stock which we will redeem upon the closing of this offering,
and adjusted to reflect the sale of shares of common stock in this
offering at an assumed initial public offering price of $ per share, after
deducting the underwriters discount and estimated offering expenses. The table
excludes 202,464 shares issuable upon exercise of outstanding warrants.
DECEMBER 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $31,440
Working capital............................................. 27,240
Total assets................................................ 43,811
Long-term debt, net of current portion...................... 348
Redeemable preferred stock.................................. 3,010
Redeemable convertible preferred stock...................... 76,337
Total stockholders' equity (deficit)........................ (49,185)
5
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND ALL OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS WERE TO
OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY
SUFFER. IN THAT EVENT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND
YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISK RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR POTENTIAL FOR
FUTURE SUCCESS.
We were formed in June 1998 to acquire Empire Furniture Warehouse and to
pursue an online furniture retail business. We therefore have a limited
operating history upon which you may evaluate our operations and future
prospects. Because of the recent emergence of the Internet-based home
furnishings industry, none of our executives has significant experience in the
industry. This limited operating history and management experience means it is
difficult for us to predict future operating results.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT NET LOSSES FOR THE FORESEEABLE
FUTURE. IF WE CONTINUE TO LOSE MONEY, OUR OPERATIONS WILL NOT BE FINANCIALLY
VIABLE.
We have incurred net losses every quarter since our inception in June 1998
and expect to continue to incur net losses for the foreseeable future. We had
incurred cumulative net losses of $47.4 million from June 18, 1998 (inception)
through December 31, 1999, $43.7 million of which was our net operating loss for
the year ended December 31, 1999. Our potential for future profitability must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in the early stages of development,
particularly companies in new and rapidly evolving markets, such as the market
for online commerce. To achieve profitability, we must, among other things:
- generate increased home furnishings buyer traffic to our Web site;
- successfully introduce new products and services;
- increase our brand name awareness;
- continue to upgrade and enhance our Web site, transaction-processing
systems and fulfillment delivery capabilities to accommodate expanded
product and service offerings and increased customer traffic;
- continue to manage our operating expenses;
- strengthen and expand our relationships with manufacturers and third-party
suppliers;
- successfully manage our delivery channels;
- respond to competitive developments; and
- continue to attract, retain and motivate qualified personnel.
Our business strategy may not be successful or we may not be able to
successfully address these and other challenges, risks and uncertainties.
WE HAVE BEEN UNABLE TO FUND OUR OPERATING REQUIREMENTS WITH THE CASH GENERATED
FROM OUR BUSINESS. WE MAY NEED ADDITIONAL FINANCING TO CONTINUE OUR GROWTH.
To date, we have funded our operations primarily from the sale of equity
securities. We expect the net proceeds from this offering, our current cash and
cash equivalents and borrowings to be sufficient to meet our operating and
capital requirements and service our debt for at least the next
6
12 months. After that, we may need to raise additional funds. We may not be able
to obtain additional financing on favorable terms, if at all. If we cannot raise
funds when needed, on acceptable terms, we may not be able to develop or enhance
our services, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. This could seriously harm our business,
financial condition and results of operations.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS WHICH
MAY MAKE IT DIFFICULT FOR INVESTORS TO PREDICT OUR FUTURE PERFORMANCE. OUR STOCK
PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS.
Our quarterly operating results may fluctuate because of many factors. We
plan our business operations based on our expectations of increased revenues and
if our revenues do not increase more than our expenses, our business may be
harmed. Other factors that may adversely affect our quarterly operating results
include:
- our inability to maintain customer satisfaction;
- our failure to obtain new customers at a reasonable cost or to encourage
existing customers to make additional purchases;
- the announcement or introduction of new or enhanced sites, services and
products by our competitors;
- our ability to upgrade and develop our systems and infrastructure and to
attract new personnel in a timely and effective manner;
- the level of traffic on our Web site and other sites that refer traffic to
our Web site;
- technical difficulties or system downtime;
- unexpected increases in shipping costs and delivery times;
- the amount and timing of operating costs and capital expenditures relating
to expansion of our business, operations and infrastructure;
- any failure by us to maintain good relationships with our business
partners and suppliers;
- general economic conditions and economic conditions specific to the
Internet, online commerce or the home furnishings industry;
- a decline in the usage levels and consumer acceptance of the Internet for
the purchase of consumer products such as those offered by us; and
- governmental regulation.
In addition, we expect our business to experience seasonality as it matures.
If this occurs, investors may not be able to predict our annual operating
results based on a quarter to quarter comparison of our operating results.
Seasonality in the home furnishings industry and online commerce industry is
likely to cause fluctuations in our operating results and could negatively
impact our business. Orders for our products could experience seasonality and
may increase during the first and third quarters and decline during the second
and fourth quarters. Revenue for these orders may be recognized in the same or
subsequent quarters. Internet usage and the growth rate of such usage typically
declines during the summer. Furniture demand typically slows in the summer and
during the holiday season, while home accessories demand typically increases
during the holidays.
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INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE. OUR MARKET IS COMPETITIVE NOT ONLY BECAUSE THE INTERNET HAS MINIMAL
BARRIERS TO ENTRY, BUT ALSO BECAUSE WE COMPETE DIRECTLY WITH OTHER COMPANIES IN
THE TRADITIONAL RETAIL CHANNEL.
We compete against a variety of Internet and traditional furniture and home
furnishings retailers as well as catalog merchandisers. Therefore, we are
affected by the competitive factors faced by online commerce companies as well
as by traditional, offline companies within the home furnishings industry. The
market for Internet-based home furnishings is new, and competition among
commercial Web sites is expected to increase significantly in the future. In
general, online businesses are characterized by minimal barriers to entry. New
competitors can enter this market with little difficulty and can launch new Web
sites at a relatively low cost. To compete successfully as an Internet-based
commercial company, we must significantly increase awareness of our products,
services and brand name. Failure to achieve these objectives will cause our
revenues to decline and would harm our business.
We believe that the principal competitive factors in the online market are:
- selection;
- retailer brand recognition;
- quality of customer experience from shopping through delivery;
- site features and ease of use;
- product information and content; and
- price and value.
We may not be able to compete successfully against current or future
competitors. Many of our competitors have longer operating histories, larger
customer or user bases, greater brand recognition and significantly greater
financial, marketing and other resources than we do. Many of these competitors
can devote substantially more resources to Web site development than we can. In
addition, larger, well-established and well-financed entities may affiliate with
online competitors as the use of the Internet and other online services
increases.
Our competitors may be able to secure home furnishings from a wider variety
of suppliers or on more favorable terms, fulfill customer orders more
efficiently and adopt more aggressive pricing or inventory availability policies
than we can. New technologies and the expansion of existing technologies, such
as price comparison programs, may increase competition. Traditional store-based
retailers also enable consumers to see and feel products in a manner that is not
possible over the Internet. Some of our competitors have significantly greater
experience in selling home furnishings. Moreover, we may face competition from
our suppliers if they decide to create their own online businesses. Competitive
pressures may also increase our marketing costs, decrease our Web site traffic,
result in a loss of our market share or otherwise harm our business.
The market for online home furnishings has only recently begun to develop
and is rapidly evolving. While many online commerce companies have grown in
terms of revenue, few are profitable. We may not be able to become profitable.
As is typical for a new and rapidly evolving industry, demand and market
acceptance for recently introduced products and services over the Internet are
subject to a high level of uncertainty, and there are few proven products and
services. Moreover, since an Internet-based market for our products and services
is new and evolving, it is difficult to predict the future growth rate, if any,
and the size of this market.
8
BECAUSE WE DO NOT HAVE LONG-TERM OR EXCLUSIVE CONTRACTS WITH OUR SUPPLIERS AND
BECAUSE OF THE RELUCTANCE OF FURNITURE SUPPLIERS TO COMMUNICATE AND SELL
FURNITURE OVER THE INTERNET, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT QUANTITIES
OF POPULAR HOME FURNISHINGS IN A TIMELY MANNER. AS A RESULT, WE COULD LOSE
POTENTIAL SALES AND CUSTOMERS.
If we are not able to offer our customers sufficient quantities of home
furnishings in a timely manner, we could lose customers and our net sales could
suffer. We do not have long-term or exclusive arrangements with any manufacturer
or reseller of home furnishings that guarantee the availability of such products
for resale. With many of our manufacturers, we currently rely on traditional,
offline means of communication. There can be no guarantee that they will be
willing to transact business with us electronically. As a result, our ability to
obtain sufficient quantities of products in a timely manner may be hindered. In
addition, many traditional furniture manufacturers have policies prohibiting or
limiting Internet sales or place limiting conditions on such sales. Some
furniture manufacturers are prohibited from permitting Internet sales of their
products as a result of an agreement or understanding of geographic exclusivity
with the furniture distributors or retailers with which they do business. If we
are unable to obtain a predictable and timely supply of home furnishings, it may
harm our business.
WE WOULD LOSE CUSTOMERS AND OUR SALES MAY SUFFER IF WE DO NOT SUCCESSFULLY
EXPAND OUR FULFILLMENT OPERATIONS OR IF OUR SUPPLIERS AND THIRD-PARTY CARRIERS
FAIL TO DELIVER OUR PRODUCTS IN A TIMELY AND CONSISTENT MANNER.
We must be able to quickly and efficiently fill customer orders. If we do
not successfully expand our fulfillment operations to accommodate increases in
demand, we will not be able to increase our net sales. We rely upon third-party
carriers, such as GeoLogistics Network Solutions, Inc., for product shipments,
tracking and furniture set up in customers' homes. We are therefore subject to
risks associated with such carriers' ability to provide delivery services to
meet our shipping and service needs, including employee strikes, union
difficulties, inclement weather and the ability to handle increased volume as
our business grows, which may disrupt our business and increase our costs.
Failure to deliver products to our customers in a timely manner could damage our
reputation and brand. In addition, if employees of our third-party carriers that
deliver and set up furniture are not competent, courteous and professional, our
reputation and brand could be damaged. Employees of our suppliers and
third-party carriers may be represented by unions, which could make it more
difficult for the suppliers and third-party carriers to comply with requests we
may make to enhance our fulfillment operations.
IF ANY OF OUR RELATIONSHIPS WITH INTERNET PORTALS AND SEARCH ENGINES TERMINATE,
OUR TRAFFIC COULD DECLINE, WHICH COULD CAUSE REVENUES TO DECLINE.
We have relationships with major Internet portals such as America Online,
Yahoo!, Excite@Home, Lycos and AltaVista. The termination of any of these
relationships or any significant reduction in traffic to Web sites on which
Furniture.com is advertised, or the failure to develop additional referral
sources, would reduce our sales volume. We periodically negotiate revisions to
and renewals of the agreements governing these relationships. These revisions
and renewals could increase our costs in future periods. Our agreements with
Internet portals and search engines may be terminated without cause. We may not
be able to continue all of our relationships as they currently exist in the
future.
WE MAY SPEND MORE ON ADVERTISING AND STRATEGIC RELATIONSHIPS THAN WE GAIN IN
INCREASED REVENUES.
We rely on advertising and strategic relationships to attract customers to
our Web site. We intend to increase our advertising and marketing expenditures
dramatically to promote Furniture.com through online advertising and through
newspaper, television and radio advertising.
9
Our advertising efforts may also include strategic relationships that require
costly, long-term commitments. This advertising may not attract a significant
number of customers to our Web site or generate a substantial amount of
revenues.
IF WE CANNOT BUILD STRONG BRAND LOYALTY AND ACCURATELY FORECAST CONSUMER
PREFERENCES, OUR BUSINESS MAY SUFFER.
We believe that the importance of brand recognition will increase as more
companies engage in online commerce. Development and awareness of the
Furniture.com brand will depend largely on our ability to obtain a leadership
position in online commerce, particularly for quality home furnishings. If
consumers do not perceive us as offering high quality products and reliable
information concerning home furnishings in a user-friendly manner that provides
consumers with a superior shopping experience, we will be unsuccessful in
promoting and maintaining our brand. Our brand may not gain widespread
acceptance among consumers. Our failure to develop our brand sufficiently would
harm our business.
IF WE FAIL TO MANAGE OUR GROWTH AND EXPANSION EFFECTIVELY, INCLUDING THE
IMPROVEMENT OF FINANCIAL AND MANAGERIAL CONTROLS AND THE IMPLEMENTATION OF
REPORTING SYSTEMS AND PROCEDURES, OUR BUSINESS AND PROSPECTS COULD BE SERIOUSLY
HARMED.
Our rapid growth in personnel and operations has placed, and will continue
to place, a significant strain on our management, information systems and
resources. In order to manage this growth effectively, we need to continue to
improve our financial and managerial controls and reporting systems and
procedures. If we continue to experience a significant increase in the number of
our personnel, our existing management team may not be able to effectively
train, supervise and manage all of our personnel. In addition, our existing
financial reporting and information systems may not be able to handle adequately
the increased volume of information and transactions that would result from
increased growth. If we fail to successfully implement and integrate new
financial reporting and information systems with our existing systems or if we
are not able to expand these systems to accommodate our growth, we may not have
adequate, accurate or timely financial information, which could harm our results
of operations.
IF WE DO NOT SUCCESSFULLY MANAGE OUR GROWTH AND ENTRY INTO NEW BUSINESS AREAS,
WE COULD INCUR INCREASED EXPENSES WITHOUT GENERATING ADDITIONAL REVENUES, WHICH
WOULD IMPAIR OUR RESULTS OF OPERATIONS.
We are expanding our operations and introducing new products and services to
consumers in order to establish ourselves as a leader in the evolving
Internet-based home furnishings industry. The growth of our operations requires
us to increase expenditures before we generate revenues. These activities will
require additional employees to source, buy and promote these products and will
require our Customer Care Representatives and other employees to undergo
additional training.
We believe establishing industry leadership also requires us to:
- develop, test and introduce technology that will enhance our Web site;
- expand the breadth of products and services offered;
- expand our market presence through relationships with third parties;
- acquire new or complementary businesses, products or technologies; and
- provide superior customer service.
We may not successfully manage these tasks. Our inability to generate
revenues from such expanded products and services could harm our business.
10
SALES OF HOME FURNISHINGS ARE SUSCEPTIBLE TO GENERAL ECONOMIC DOWNTURNS. IF
GENERAL ECONOMIC CONDITIONS DETERIORATE, OUR REVENUES COULD SUFFER.
Purchases of home furnishing products are often discretionary for consumers
and may be particularly affected by negative trends in the general economy. The
success of our operations depends to a significant extent on a number of factors
relating to discretionary consumer spending and affecting disposable consumer
income, such as employment rates, wage and salary trends, business conditions,
interest rates, availability of credit and changes in the tax laws. In addition,
because the purchase of home furnishings may be largely discretionary, any
reduction in disposable income in general may affect us more significantly than
companies in other industries. Home furnishing sales are also influenced by a
number of macroeconomic factors, including home sales, housing starts, consumer
confidences, interest rates and demographic trends.
WE ARE VULNERABLE TO COMMUNICATIONS SYSTEM INTERRUPTIONS. IF COMMUNICATIONS WERE
INTERRUPTED, OUR OPERATIONS COULD BE HARMED.
We host our Web site at NaviSite, Inc.'s facilities in Andover,
Massachusetts. Although we maintain redundant backup servers, all of our
production servers are located in the same physical facility and are vulnerable
to interruption by damage from fire, earthquake, flood, power loss,
telecommunications failure, break-ins and other events beyond our control. In
the event that we experience significant system disruptions, our business would
be harmed. To date, we have had various interruptions to our service as a result
of loss of power and telecommunications connections. We currently do not
maintain business interruption insurance which would reimburse us for all losses
that may occur as a result of any future service interruptions. Although we have
implemented network security measures and firewall security, our servers are
also vulnerable to computer viruses, physical or electronic break-ins, attempts
by third parties to overload our systems and similar disruptive problems. Any of
these disruptions could lead to interruptions, delays and loss of data or
interruptions in delivery of service to our customers.
IF WE ARE UNABLE TO HANDLE AN UNEXPECTEDLY LARGE INCREASE IN VOLUME OF CUSTOMERS
USING OUR WEB SITE, WE MAY NOT BE ABLE TO PROCESS EFFICIENTLY PURCHASE REQUESTS
AND OUR BUSINESS MAY SUFFER.
An unexpectedly large increase in the volume or pace of traffic on our Web
site or the number of orders placed by customers may require us to expand and
further upgrade our technology, transaction-processing systems and network
infrastructure. We may not be able to accurately project the rate or timing of
increases, if any, in the use of our Web site or expand and upgrade our systems
and infrastructure to accommodate such increases. In addition, our suppliers may
not be able to process efficiently an increased order volume.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT, TRAIN AND RETAIN
ADDITIONAL HIGHLY QUALIFIED MARKETING, MANAGERIAL AND TECHNICAL PERSONNEL, OUR
BUSINESS MAY SUFFER.
Our future success depends on our ability to identify, hire, train and
retain highly qualified marketing, managerial and technical personnel. In
addition, as we expand we will need to hire a significant number of personnel.
Competition for such personnel is intense, and we may not be able to attract,
train or retain such personnel in the future. The inability to attract and
retain the necessary marketing, managerial and technical personnel could harm
our business.
Our business and operations depend to a great degree on the performance of
our executive officers and key employees, all of whom are employed on an at-will
basis and all of whom have worked together for only a short period of time. The
loss of the services of Andrew Brooks, our President and Chief Executive
Officer, or one or more of our other executive officers or key employees could
harm our business.
11
PROJECTIONS INCLUDED IN THIS PROSPECTUS RELATING TO THE GROWTH OF THE HOME
FURNISHINGS INDUSTRY, THE INTERNET AND ONLINE COMMERCE ARE BASED ON ASSUMPTIONS
THAT COULD BE INCORRECT AND ACTUAL RESULTS COULD BE MATERIALLY DIFFERENT FROM
THE PROJECTIONS.
This prospectus contains various third-party data and projections, including
those relating to the home furnishings industry revenue generated by online
commerce and the number of United States online shopping households. See
"Business--Industry Overview" on pages 34 and 35. These data and projections
have been included in studies prepared by independent market research firms, and
the projections are based on surveys, financial reports and models used by these
firms. These data and projections are inherently imprecise and you are cautioned
not to place undue reliance on them. Actual results or circumstances may be
materially different from the projections.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS, WHICH COULD IMPAIR OUR COMPETITIVE POSITION.
Our ability to compete depends upon our proprietary systems and technology.
While we rely on trademark, trade secret and copyright law, confidentiality
agreements and technical measures to protect our proprietary rights, we believe
that the technical and creative skills of our personnel, continued development
of our proprietary systems and technology, brand name recognition and reliable
Web site maintenance are more essential in establishing and maintaining a
leadership position and strengthening our brand. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy aspects of our
services or to obtain and use information that we regard as proprietary.
Policing unauthorized use of our proprietary rights is difficult. The steps we
take may not prevent misappropriation of technology. The agreements we have
entered into to prevent misappropriation of technology may not be enforceable.
Misappropriation of our intellectual property or related potential litigation
would harm our business, financial condition and results of operations.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are made
available online in the future. In addition, litigation may be necessary in the
future to enforce or protect our intellectual property rights or to defend
against claims or infringement or invalidity. As part of our confidentiality
procedures, we generally enter into confidentiality agreements with our
employees and consultants and limit access to our trade secrets and technology.
WE MAY FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS WHICH COULD DISRUPT OUR
BUSINESS AND HARM OUR FINANCIAL CONDITION.
We may acquire other businesses that will complement our existing business.
These acquisitions will likely involve some or all of the following risks:
- the difficulty of assimilating the acquired operations and personnel;
- the potential disruption of our ongoing business;
- the diversion of resources, including the attention of our management;
- the possible inability of management to maintain uniform standards,
controls, procedures and policies;
- the possible difficulty of managing our growth and information systems;
- the risks of entering markets in which we have little experience; and
- the potential impairment of relationships with employees or customers.
12
These transactions may be required for us to remain competitive. We may be
unable to obtain the required financing for such transactions and such
transactions may not occur.
WE HAVE NO SPECIFIC PLAN FOR THE PROCEEDS OF THE OFFERING AND OUR MANAGEMENT MAY
ALLOCATE THE PROCEEDS TO USES THAT COULD ADVERSELY AFFECT OUR STOCKHOLDERS.
We currently have no specific plans for the net proceeds of the offering
(other than in connection with the redemption of our Series A preferred stock
for approximately $3.0 million). As a result, our management will have the
discretion to allocate the net proceeds of this offering to uses that the
stockholders may not deem desirable. We may not be able to invest these proceeds
to yield a significant return. Substantially all of the proceeds of the offering
will be invested in short-term, interest-bearing, investment grade securities
for an indefinite period of time.
OUR COMPUTER SYSTEMS AND THOSE OF OUR SUPPLIERS AND SERVICE PROVIDERS MAY NOT BE
YEAR 2000 COMPLIANT, WHICH MAY DISRUPT OUR OPERATIONS.
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
recent change in the century. If not corrected, many computer software
applications could fail or create erroneous results during or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon. For example, we are dependent on the financial institutions involved
in processing our customers' credit card payments for our products and on a
third party that hosts our servers. We are also dependent on telecommunications
vendors to maintain our network and on GeoLogistics Network Solutions, Inc. and
other carriers to deliver orders to customers.
We have reviewed the proprietary aspects of our internally developed
software and we believe it to be year 2000 compliant. All third parties whose
systems are material to our operations have posted their year 2000 compliance
statements on their Web sites, where they have given assurances that their
systems are year 2000 compliant or that they would become year 2000 compliant by
the end of 1999. We assessed the year 2000 readiness of our third party supplied
software, computer technology and other services and those of GeoLogistics, our
primary distribution services provider.
The failure of our carriers, software or computer systems or of our
third-party suppliers to be year 2000 compliant would harm our business.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. We also depend on the
year 2000 compliance of the computer systems and financial services used by
consumers. A significant disruption in the ability of consumers to reliably
access the Internet or portions of it or to use their credit cards would have an
adverse effect on demand for our products and would harm our business.
RISKS RELATED TO THE INTERNET
WE DEPEND ON INCREASING USE OF THE INTERNET, THE GROWTH OF ONLINE COMMERCE AND
THE ACCEPTANCE OF OUR ONLINE SOLUTION.
Our future revenues substantially depend upon the increased acceptance and
use of the Internet and other online services as a medium of commerce. Rapid
growth in the use of the Internet, the Web and online services is a recent
phenomenon. As a result, acceptance and use may not continue to develop at
historical rates, and a sufficiently broad base of customers may not adopt or
continue to use the Internet and other online services as a medium of commerce.
Demand
13
and market acceptance for recently introduced services and products over the
Internet are subject to a high level of uncertainty and few proven services and
products exist.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. If the Internet continues to
experience significant expansion in the number of users, frequency of use or
bandwidth requirements, the infrastructure for the Internet may be unable to
support the demands placed upon it. In addition, the Internet could lose its
viability as a commercial medium due to delays in the development or adoption of
new standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in, or
insufficient availability of, telecommunications services to support the
Internet also could result in slower response times and adversely affect usage
of the Internet generally.
Our business, financial condition and results of operations would be
seriously harmed if:
- use of the Internet, the Web and other online services does not continue
to increase or increases more slowly than expected;
- the infrastructure for the Internet, the Web and other online services
does not effectively support expansion that may occur;
- the Internet, the Web and other online services do not become a viable
commercial marketplace; or
- traffic to our Web site decreases or fails to increase as expected or if
we spend more than we expect in order to attract visitors to our Web site.
To be successful, we must attract and retain a significant number of
consumers to our Web site at a reasonable cost. In addition, consumers who have
historically relied on traditional means of commerce to purchase home
furnishings will have to accept new methods of conducting business and
exchanging information. If the market for Internet-based home furnishings fails
to develop, develops slower than expected or becomes saturated with competitors,
or if our services do not achieve market acceptance, our business will be
harmed.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH ONLINE COMMERCE SECURITY AND CREDIT CARD
FRAUD, WHICH MAY REDUCE COLLECTIONS AND DISCOURAGE ONLINE TRANSACTIONS.
Consumer concerns about the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To securely transmit confidential information, such as customer
credit card numbers, and to detect fraudulent use of confidential information,
we rely on encryption and authentication technology that we license from third
parties. Events or developments may cause or result in a compromise or breach of
the algorithms we use to protect customer transaction data. A failure to
adequately control fraudulent credit card transactions would reduce our results
of operations because we do not carry insurance against this risk. Furthermore,
under current credit card practices, a merchant is liable for fraudulent credit
card transactions where, as in the case of the transactions we process, the
merchant does not obtain a cardholder's signature.
Our servers may be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. We may need to expend significant additional
capital and other resources in order to protect against a security breach or to
alleviate problems caused by any breaches. A party who is able to circumvent our
security measures could misappropriate proprietary information, jeopardize the
confidential nature of information transmitted over the Internet or cause
interruptions in our
14
operations. Our insurance does not currently protect against these losses. If
our security measures are not able to prevent all security breaches, our
business may be harmed.
WE COULD FACE LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED THROUGH
OUR WEB SITE, WHICH COULD RESULT IN HIGH LITIGATION OR INSURANCE COSTS.
As a publisher and distributor of online content, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute. Although we carry general liability insurance,
our insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. Any imposition of liability,
particularly liability that is not covered by insurance or is in excess of
insurance coverage, could negatively impact our reputation and result in
litigation costs or increased insurance costs.
FUTURE GOVERNMENT REGULATIONS OF THE INTERNET COULD DECREASE DEMAND FOR OUR
PRODUCT OR INCREASE OUR COSTS OF CONDUCTING BUSINESS.
New Internet legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to the Internet
and online commerce, or the application of existing laws and regulations to the
Internet and online commerce could harm our business, financial condition and
results of operations. We are subject to regulations applicable to businesses
generally and laws or regulations directly applicable to communications over the
Internet and access to online commerce. Although there are currently few laws
and regulations directly applicable to the Internet and online commerce, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet covering issues such as user privacy, pricing, content, copyrights,
distribution, antitrust, taxation and the characteristics and quality of
products and services. For example, the United States Congress recently enacted
Internet laws regarding copyrights and taxation. Furthermore, the growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. The adoption of any additional laws or
regulations regarding Internet commerce and communications may decrease the
growth of the Internet or commercial online services, which could, in turn,
decrease the demand for our product and services and increase our cost of doing
business.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve. If
we were alleged to have violated federal, state or foreign civil or criminal
law, we would be subject to liability, and even if we could successfully defend
such claims, they may involve significant legal compliance and litigation costs.
The expansion of our operations to foreign countries may require us to
comply with additional, yet undetermined, laws and regulations. Compliance may
require obtaining appropriate business licenses, filing of bonds, appointment of
foreign agents and periodic business reporting activity. The failure to
adequately comply with these future laws and regulations may delay or possibly
prevent some of our products or services from being offered in a particular
foreign country. This may harm our business.
OUR REVENUES COULD DECREASE IF WE ARE REQUIRED TO COLLECT SALES AND OTHER TAXES.
We do not currently collect sales or other similar taxes for physical
shipments of goods into states other than Massachusetts. However, one or more
local, state, federal or foreign jurisdictions may seek to impose sales tax
collection obligations on us. In addition, any new operation in states outside
Massachusetts could subject our shipments in such states to state sales taxes
under
15
current or future laws. A number of legislative proposals have been made at the
federal, state and local level and by foreign governments, that would impose
additional taxes on the sale of goods and services over the Internet and certain
states have taken measures to tax Internet-related activities. Although Congress
recently placed a three-year moratorium on new state and local taxes on Internet
access or on discriminatory taxes on online commerce, existing state or local
laws were expressly excepted from this moratorium. Further, once this moratorium
expires, some type of federal or state taxes or both may be imposed upon online
commerce. The moratorium is presently scheduled to expire on October 20, 2001.
Such legislation or other attempts at regulating commerce over the Internet may
substantially impair the growth of commerce on the Internet and, as a result,
adversely affect our opportunity to derive financial benefit from such
activities. If one or more states or any foreign country successfully asserts
that we should collect sales or other taxes on the sale of our products, we will
need to update our system that processes customer orders to calculate the
appropriate sales tax for each customer order and to remit the collateral sales
taxes to the appropriate authorities. These upgrades will increase our operating
expenses. In addition, if we are required to collect sales tax or our customers
are required to pay such taxes directly, our customers may be discouraged from
purchasing products from us, which may require us to lower prices to retain
these customers.
IF A SIGNIFICANT NUMBER OF INTERNET USERS BLOCK ONLINE ADVERTISING, OUR BUSINESS
AND PROSPECTS COULD DECLINE MATERIALLY.
Software programs exist that limit or prevent Internet advertising from
being delivered to a user's computer and permit Internet users to block online
advertising. Widespread adoption of this software by Internet users would
significantly undermine the commercial viability of our Internet advertising and
marketing and therefore we may not generate the expected level of sales. These
developments could harm our business.
GROWING CONCERNS ABOUT THE USE OF "COOKIES" AND DATA COLLECTION MAY LIMIT OUR
ABILITY TO DEVELOP USER PROFILES.
Our technology currently uses small files of information, commonly known as
"cookies", on a user's hard drive to collect information about our customers'
movement through our Web site. Most Internet browsers allow users to modify
their browser settings to prevent cookies from being stored on their hard drive,
and a small minority of users are currently choosing to do so. Users can also
delete cookies from their hard drive at any time.
Some Internet commentators and privacy advocates have suggested limiting or
eliminating the use of cookies. The reduction or limitation in the use of
cookies could:
- reduce the effectiveness of our technology to gather data on our
customers;
- require us to switch to other potentially less effective technology in
order to gather demographic or behavioral information; and
- require us to expend financial and technological resources, originally
allocated to other purposes, to create alternatives that might be
unsuccessful.
CHANGES IN THE REGULATION SURROUNDING REGISTRATION OF DOMAIN NAMES MAY RESULT IN
THE LOSS OF OR A CHANGE IN OUR DOMAIN NAME AND A REDUCTION IN BRAND AWARENESS
AMONG OUR CUSTOMERS.
Domain names are typically registered by regulatory bodies. The regulation
of domain names in the United States and abroad is subject to change. Regulatory
bodies could establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names. As a
result, we may not acquire or maintain the FURNITURE.COM domain
16
name in every jurisdiction in which we conduct business. The relationship
between regulations governing domain names and laws protecting trademarks and
similar proprietary rights is unclear. As a result, we could be unable to
prevent third parties from acquiring domain names that infringe upon or
otherwise decrease the value of our trademarks and other proprietary rights.
OUR SUCCESS IS DEPENDENT ON OUR KEEPING PACE WITH ADVANCES IN TECHNOLOGY. IF WE
ARE UNABLE TO KEEP PACE WITH ADVANCES IN TECHNOLOGY, CONSUMERS MAY STOP
PURCHASING PRODUCTS ON OUR WEB SITE.
The Internet and online commerce markets are characterized by rapid
technological change, changes in user and customer requirements, frequent new
product and service introductions embodying new technologies and the emergence
of new industry standards and practices that could render our existing Web site
and technology obsolete. If we are unable to adapt to changing technologies, our
business could be harmed. Our performance will depend, in part, on our ability
to continue to enhance our existing services, develop new technology that
addresses the increasingly sophisticated and varied needs of our prospective
customers, license leading technologies and respond to technological advances
and emerging industry standards and practices on a timely and cost-effective
basis. The development of our Web site and other proprietary technology entails
significant technical and business risks. We may not be successful in using new
technologies effectively or adapting our Web site or other proprietary
technology to customer requirements or to emerging industry standards. New
services or features that we introduce on our Web site may contain errors, and
we may need to modify the design of these services and features to correct
errors. If customers encounter difficulty with or do not accept new services or
features, they may buy from our competitors and our sales may decline.
RISKS RELATED TO THE SECURITIES MARKET
THE PUBLIC MARKET FOR OUR COMMON STOCK MAY BE VOLATILE, ESPECIALLY BECAUSE
MARKET PRICES FOR INTERNET-RELATED AND TECHNOLOGY STOCKS HAVE OFTEN BEEN
UNRELATED TO OPERATING PERFORMANCE.
Prior to this offering, there has been no public market for our common
stock. An active trading market may not develop or be sustained or the market
price of the common stock may decline. Even if an active trading market does
develop, the market price of the common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors such as:
- actual or anticipated variations in our quarterly operating results;
- announcements of new products and services;
- technological innovations;
- competitive developments;
- changes in financial estimates by securities analysts;
- conditions and trends in the Internet and online commerce industries; and
- general market conditions and other factors.
Further, the stock markets, and in particular the Nasdaq National Market on
which we have made application for quotation of our shares, have experienced
extreme price and volume fluctuations that have particularly affected the market
prices of equity securities of many Internet and technology companies and have
often been unrelated or disproportionate to the operating performance of such
companies. The trading prices of many Internet and technology companies' stocks
are at or near historical highs. Such high trading prices may not be sustained.
These broad
17
market factors may adversely affect the market price of our common stock. In
addition, general economic, political and market conditions such as recessions,
interest rates or international currency fluctuations, may adversely affect the
market price of our common stock. In the past, following periods of volatility
in the market price of a company's securities, securities class action
litigation has often been instituted against companies with publicly traded
securities. Such litigation, if instituted, could result in substantial costs
and a diversion of management's attention and resources, which would harm our
business, financial condition and results of operations.
CONCENTRATION OF OWNERSHIP WILL LIMIT YOUR ABILITY TO INFLUENCE CORPORATE
MATTERS.
Immediately following this offering, our directors, executive officers and
their affiliates will beneficially own approximately % of our outstanding
common stock. These stockholders could determine the outcome of actions taken by
us that require stockholder approval. For example, these stockholders could
elect all of our directors, delay or prevent a transaction in which stockholders
might receive a premium over the prevailing market price for their shares and
control changes in management.
PROVISIONS OF OUR CHARTER AND BY-LAWS MAY DELAY OR PREVENT TRANSACTIONS THAT
MANY STOCKHOLDERS MAY FAVOR.
Provisions of our certificate of incorporation and by-laws may discourage,
delay or prevent a merger or acquisition that stockholders may consider
favorable, including transactions in which you might otherwise receive a premium
for your shares. These provisions include:
- authorizing the issuance of "blank check" preferred stock without any need
for action by stockholders;
- providing for a classified board of directors with staggered three-year
terms;
- requiring supermajority stockholder voting to effect certain amendments to
our certificate of incorporation and by-laws;
- eliminating the ability of stockholders to call special meetings of
stockholders;
- prohibiting stockholder action by written consent; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Some provisions of Delaware law may also discourage, delay or prevent
someone from acquiring us or merging with us.
YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC
OFFERING PRICE.
We will determine the initial public offering price of our common stock,
together with the underwriters, based on an assessment of the value of our
stock. The public market may not agree with or accept this valuation. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have affected the market prices for the securities
of technology companies, particularly software and Internet companies. After
this offering, therefore, you might not be able to resell your shares at or
above the initial public offering price.
18
YOU WILL EXPERIENCE IMMEDIATE DILUTION IN THE BOOK VALUE OF YOUR SHARES.
The initial public offering price per share of our common stock is expected
to be substantially higher than the book value per share of the outstanding
common stock immediately after this offering. Accordingly, if you purchase
common stock in the offering, you will incur immediate dilution of approximately
$ in the book value per share of the common stock from the price you pay
for the common stock.
A SUBSTANTIAL NUMBER OF ADDITIONAL SHARES OF OUR COMMON STOCK COULD BE SOLD INTO
THE PUBLIC MARKET SOON AFTER THIS OFFERING, WHICH COULD DEPRESS OUR STOCK PRICE.
Once a trading market develops for our common stock, many of our current
stockholders will have an opportunity to sell their stock for the first time.
More than shares, or times the number of shares sold in this
offering, assuming no exercise of the underwriters' over-allotment option, will
become eligible for sale in the public market at various dates beginning
180 days after the date of this prospectus. Sales of a substantial number of
shares of common stock in the public market, or the threat that substantial
sales might occur, could cause the market price of our stock to decrease
significantly. These factors could also make it difficult for us to raise
additional capital by selling stock. For additional information, please refer to
the section entitled "Shares Eligible for Future Sale".
IF OUR STOCK PRICE IS VOLATILE, WE COULD FACE A SECURITIES CLASS ACTION LAWSUIT.
In the past, following periods of volatility in the market price of their
stock, many companies have been the subject of securities class action
litigation. If we were sued in a securities class action, it could result in
substantial costs and a diversion of management's attention and resources and
could cause our stock price to fall.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business" and elsewhere in this prospectus constitute
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expects", "plans",
"anticipates", "believes", "estimated", "predicts", "potential" or "continue" or
the negative of such terms or other comparable terminology. These statements are
only predictions and involve known and unknown risks, uncertainties, and other
factors that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by
forward-looking statements. These factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe the expectations reflected in the forward-looking
statements to be reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements as of the date of this prospectus to conform
forward-looking statements to actual results.
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USE OF PROCEEDS
We estimate the net proceeds to us from the sale of shares of
common stock in this offering to be approximately $ at an
assumed initial public offering price of $ per share, after deducting the
underwriting discount and estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate net proceeds will be
$ .
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to create a public market for our common stock, to
facilitate our future access to the public capital markets, and to increase our
visibility in the retail marketplace.
We expect to use the net proceeds of this offering for advertising to
increase brand awareness, capital expenditures associated with technology and
system upgrades, the redemption of shares of our Series A preferred stock for
approximately $3.0 million (as required by its terms) and general corporate
purposes, principally working capital and other capital expenditures. We may
also use a portion of the net proceeds to acquire businesses, products and
technologies that are complementary to our business. The net proceeds of this
offering will be invested in short-term, interest-bearing, investment-grade
securities or money market funds until allocated for specific use.
DIVIDEND POLICY
We have never paid any cash dividends on our capital stock and do not
anticipate paying any cash dividends in the foreseeable future. We presently
intend to retain future earnings, if any, to finance the expansion and operation
of our business. Payment of future dividends, if any, will be at the discretion
of our Board of Directors after taking into account various factors, including
our financial condition, operating results, current and anticipated cash needs
and plans for expansion.
20
CAPITALIZATION
The following table sets forth the capitalization of Furniture.com as of
December 31, 1999:
- on an actual basis;
- on a pro forma basis after giving effect to the automatic conversion of
all outstanding shares of our Class A common stock and our preferred stock
into 17,850,799 shares of common stock, except for our Series A preferred
stock which we will redeem upon the closing of this offering; and
- on a pro forma as adjusted basis after giving effect to the above pro
forma adjustments, receipt of estimated net proceeds of $ from the
sale of shares of common stock at an assumed initial public offering price
of $ per share and the filing of an amendment to our Certificate of
Incorporation to provide for authorized capital stock of shares of
common stock and 5,000,000 shares of undesignated preferred stock.
None of the columns reflect (i) the 4,500,000 shares of common stock
reserved for issuance under our stock plan, of which 2,242,810 shares were
subject to outstanding options as of December 31, 1999 or (ii) an aggregate of
202,464 shares of common stock issuable upon the exercise of warrants
outstanding as of December 31, 1999. See "Management--Stock Plan" and Note 9 to
notes to the financial statements.
You should read this information together with Furniture.com's consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus.
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- ------------
(IN THOUSANDS)
Long-term portion of capital lease obligations.............. $ 348 $ 348 $
Redeemable preferred stock:
Series A preferred stock, par value $0.01; 3,009,600
shares authorized, issued and outstanding (actual); no
shares authorized, issued or outstanding (pro forma and
as adjusted)............................................ 3,010 --
Redeemable convertible preferred stock
Series B preferred stock, par value $0.01; 7,246,036
shares authorized, 7,042,254 issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and as adjusted)............................. 11,000 --
Series C preferred stock, par value $0.01; 4,727,786
shares authorized, issued and outstanding (actual); no
shares authorized, issued or outstanding (pro forma and
as adjusted)............................................ 36,754 --
Series D preferred stock, par value $0.01; 3,200,000
shares authorized, issued and outstanding (actual); no
shares authorized, issued or outstanding (pro forma and
as adjusted)............................................ 28,583 --
Stockholders' equity (deficit):
Preferred stock, par value $0.01; no shares authorized,
issued or outstanding (actual); 5,000,000 shares
authorized and no shares issued or outstanding (pro
forma and as adjusted)..................................
Common stock:
Convertible Class A common stock, par value $0.01;
3,040,000 shares authorized, issued and outstanding
(actual); no shares authorized, issued or outstanding
(pro forma and as adjusted)........................... 30 --
Common stock, par value $0.01; 33,000,000 shares
authorized, 6,253,027 shares issued and outstanding
(actual); 33,000,000 shares authorized, 24,103,826
shares issued and outstanding (pro forma);
shares authorized, shares issued
and outstanding (pro forma as adjusted)............... 63 241
Additional paid-in capital.................................. 5,590 79,029
Deferred compensation....................................... (4,505) (4,505)
Notes receivable............................................ (170) (170)
Retained earnings (accumulated deficit)..................... (50,193) (47,443)
-------- -------- -----
Total stockholders' equity (deficit)...................... (49,185) 27,152
-------- -------- -----
Total capitalization.................................... $ 30,510 $ 27,500
======== ======== =====
21
DILUTION
Furniture.com's net tangible book value per share immediately after this
offering will be substantially less than the assumed initial public offering
price. Furniture.com's pro forma net tangible book value as of December 31, 1999
was $27,152,000, or $1.13 per share of common stock. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by the total number of shares of common stock outstanding
after giving effect to the automatic conversion of all outstanding shares of our
Class A common stock and our preferred stock upon the closing of this offering,
except for our Series A preferred stock which we will redeem upon the closing of
this offering. After giving effect to the sale by us of the shares
of common stock in this offering at an assumed initial public offering price of
$ per share, after deducting the underwriting discount and estimated
offering expenses, the pro forma net tangible book value of Furniture.com as of
December 31, 1999 would have been $ million, or approximately $ per
share. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to investors purchasing common stock in this offering. The
following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before this
offering............................................... $
Increase per share attributable to new investors in this
offering...............................................
------
Pro forma net tangible book value per share after this
offering (as adjusted)....................................
------
Dilution per share to new investors......................... $
======
The following table summarizes, on a pro forma basis, as of December 31,
1999, the difference between the number of shares of common stock purchased from
Furniture.com, the total consideration paid to Furniture.com, and the average
price per share paid by existing stockholders and by new investors purchasing
shares of common stock at an assumed initial public offering price of $ per
share, before deducting the estimated underwriting discount and offering
expenses:
TOTAL
SHARES PURCHASED CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- --------- -------- --------------
Existing stockholders.............. % % $
New investors......................
-------- ----- -------- -----
Total............................ 100.0% 100.0%
======== ===== ======== =====
The discussions and the tables exclude (1) an aggregate of 202,464 shares of
common stock issuable upon the exercise of warrants outstanding as of
December 31, 1999 and (2) 4,500,000 shares of common stock reserved for issuance
under our stock plan, of which 2,242,810 shares were subject to outstanding
options as of December 31, 1999 at a weighted average exercise price of $5.60
per share. To the extent these warrants and options are exercised, there will be
further dilution to new investors. The discussions and the tables assume that
our Series C preferred stock converts into common stock on a one-for-one basis.
See "Capitalization", "Management--Stock Plan", "Principal Stockholders" and
"Description of Capital Stock".
22
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Furniture.com's consolidated financial statements and notes to
those statements and other financial information included elsewhere in this
prospectus. The consolidated statement of operations data for the period from
June 18, 1998 to December 31, 1998 and for the year ended December 31, 1999 and
the consolidated balance sheet data as of December 31, 1998 and 1999 are derived
from the consolidated financial statements of Furniture.com which have been
audited by Arthur Andersen LLP, our independent public accountants, and are
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1996 and 1997 and for the period from January 1, 1998
to June 17, 1998 are derived from financial statements of Empire Furniture
Warehouse, Inc. (Predecessor Company), which have been audited by Arthur
Andersen LLP, our independent public accountants. The statement of operations
data for the year ended December 31, 1995 are unaudited. The historical results
presented herein are not necessarily indicative of future results.
THE COMPANY
PREDECESSOR COMPANY ---------------------------------
---------------------------------------------------- PERIOD FROM
YEAR ENDED DECEMBER 31, PERIOD FROM JUNE 18, 1998 TO YEAR ENDED
--------------------------------- JANUARY 1, 1998 DECEMBER 31, DECEMBER 31,
1995 1996 1997 TO JUNE 17, 1998 1998 1999
----------- -------- -------- ---------------- ---------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net revenues......................... $1,314 $1,389 $1,728 $ 1,511 $ 2,180 $ 10,904
Cost of revenues..................... 812 895 1,082 1,498 1,827 8,837
------ ------ ------ --------- ---------- ---------
Gross profit......................... 502 494 646 13 353 2,067
------ ------ ------ --------- ---------- ---------
Operating expenses: (2)
Selling and marketing.............. 80 148 269 181 1,245 33,949
Product development................ -- -- -- -- 1,081 6,685
General and administrative......... 394 337 370 188 1,812 5,796
------ ------ ------ --------- ---------- ---------
Total operating expenses......... 474 485 639 369 4,138 46,430
------ ------ ------ --------- ---------- ---------
Operating income (loss).............. 28 9 7 (356) (3,785) (44,363)
Interest, net........................ (14) (1) (1) (4) 52 653
------ ------ ------ --------- ---------- ---------
Net income (loss) before income
taxes.............................. 14 8 6 (360) (3,733) (43,710)
Provision for income taxes........... 1 1 1 1 -- --
------ ------ ------ --------- ---------- ---------
Net income (loss).................... 13 7 5 (361) (3,733) (43,710)
Accretion of preferred stock
dividends.......................... -- -- -- -- -- 2,750
------ ------ ------ --------- ---------- ---------
Net income (loss) attributable to
common stockholders................ $ 13 $ 7 $ 5 $ (361) $ (3,733) $ (46,460)
====== ====== ====== ========= ========== =========
Basic and diluted net income (loss)
per common share................... $ 1.73 $ .93 $ .67 $ (48.13) $ (.50) $ (6.01)
Shares used to compute basic and
diluted net income (loss) per
common share....................... 7,500 7,500 7,500 7,500 7,472,020 7,730,413
Pro forma basic and diluted net loss
per common share (1)............... $ (.49) $ (2.53)
Shares used to compute pro forma
basic and diluted net loss per
common share (1)................... 7,543,880 17,254,833
23
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------- -------------------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $10,759 $31,440
Working capital............................................. 9,166 27,240
Total assets................................................ 11,834 43,811
Redeemable preferred stock.................................. 3,010 3,010
Redeemable convertible preferred stock...................... 10,000 76,337
Total stockholders' (deficit) equity........................ (3,602) (49,185)
(1) See Note 1 of Notes to the consolidated financial statements for an
explanation of the number of shares and share equivalents used in computing
pro forma share amounts.
(2) Includes non-cash compensation expense relating to deferred compensation of
$65,000 in the period from June 18, 1998 to December 31, 1998 and $463,000
for the year ended December 31, 1999.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH FURNITURE.COM'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS AND OTHER
FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO
HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION AND OTHER PARTS OF THIS
PROSPECTUS CONTAIN FORWARD-LOOKING INFORMATION THAT INVOLVES RISKS AND
UNCERTAINTIES. FURNITURE.COM'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED BY SUCH FORWARD-LOOKING INFORMATION DUE TO VARIOUS FACTORS,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Furniture.com is a leading online retailer of furniture and home
accessories. Our goal is to revolutionize the home furnishing and decorating
experience by offering a comprehensive, personalized and service-oriented
solution for consumers. We believe we offer one of the largest selections of
home furnishings available at any single destination. This broad selection,
together with our focus on all aspects of the customer experience, positions
Furniture.com as a leading destination for all the comforts of home.
We were incorporated as FurnitureSite, Inc. on June 18, 1998, the date on
which we acquired all of the outstanding shares of Empire Furniture
Warehouse, Inc., an existing furniture retail showroom that did not have any
online sales. We changed our name to Furniture.com, Inc. on January 14, 1999.
We began offering furniture for sale on our Web site in June 1998. Since
launching our Web site our operating activities have focused on the following:
- building sales momentum;
- promoting our brand;
- extending our product offerings;
- forming supplier relationships;
- establishing distribution and customer service operations; and
- enhancing our Web site and systems infrastructure.
We have grown rapidly since launching our Web site. Our net revenues during
the year ended December 31, 1999 were $10.9 million and during the quarter ended
December 31, 1999 were $5.4 million. Our net revenues increased in each
successive quarter in 1999.
We derive our revenues primarily from the sale of home furnishings. We
report our revenues net of discounts and allowance for returns. We recognize our
net revenues at the time that products are delivered to customers. We do not
charge our customers for delivery of their purchases or the shipping costs of
returned merchandise since we consider free delivery and returns to be a
significant sales motivator and an ongoing marketing program to acquire and
maintain customers. We, therefore, treat freight expenditures as a selling and
marketing expense. When a customer places an order on our Web site, it is
classified as a written order. We do not base our revenue recognition on written
orders as customers may cancel or change orders prior to delivery. The period of
time between a customer placing an order and receiving the order is generally
less than four weeks for QuickShip items and accessories and ranges between four
and twelve weeks for the majority of our other home furnishings products. Timing
of product shipments will affect the period of revenue recognition and,
therefore, will influence quarterly revenues and margins. As of
25
December 31, 1999, our customers had placed written orders for $7.5 million of
home furnishings that are being manufactured or are already in transit.
At the time that a customer places an order, we collect a deposit, generally
through a credit card payment. For certain furniture purchases and all purchases
less than $300 the entire purchase price is collected at the time that the
customer places an order. Otherwise, 33% of the purchase price is collected when
the customer places an order and the balance of the purchase price is collected
immediately prior to delivery. We take title to products at the time that they
are shipped from our suppliers. Accordingly, we maintain an inventory position
of purchased products for the approximately one- to two-week period between the
time of shipment from our suppliers and the time of delivery to our customers.
In addition, our inventory includes merchandise we purchased to be photographed
for our Web site and returned merchandise. We periodically evaluate inventory
levels and expected usage and provide a valuation allowance or write off damaged
and surplus inventory.
Since our inception, we have incurred significant net losses. Through
December 31, 1999, we had incurred cumulative net losses of $47.4 million. We
expect to experience operating losses and negative cash flow for the foreseeable
future. We expect operating expenses and net losses to continue to rise as we
pursue a marketing campaign to attract new customers and strengthen our brand
identity, develop new strategic relationships, invest in our technology
infrastructure and recruit new employees. As a result, we will need to generate
significant revenues to achieve and maintain profitability. Although our
revenues have grown significantly in recent quarters, we cannot be certain that
we can sustain these growth rates or that we will achieve sufficient revenues
and manage operating expenses to achieve profitability.
In connection with the grant of stock options and the issuance of restricted
stock, we recorded total deferred compensation through December 31, 1999 of
$5.0 million which will be amortized to expense over the four-year vesting
periods generally applicable to the options. This amount represents the
difference between the exercise price of the stock options granted or the
purchase price of restricted stock and the deemed fair value of our common stock
at the time of the grants. Non-cash compensation expense included in operating
expenses during the year ended December 31, 1999 was $463,000 and for the period
from June 18, 1998 through December 31, 1998 was $65,000.
26
RESULTS OF OPERATIONS
The following table sets forth our results of operations as a percentage of
net revenues. The historical results are not necessarily indicative of results
to be expected for any future period.
PERIOD FROM
JUNE 18, 1998 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
---------------- --------------
Net revenues.............................. 100.0% 100.0%
Cost of revenues.......................... 83.8 81.0
------ ------
Gross margin.............................. 16.2 19.0
Operating expenses:
Selling and marketing................... 57.1 311.3
Product development..................... 49.6 61.3
General and administrative.............. 83.1 53.2
------ ------
Total operating expenses.............. 189.8 425.8
------ ------
Operating loss............................ (173.6) (406.8)
Interest income, net...................... 2.4 6.0
Provision for income taxes................ -- --
------ ------
Net loss.................................. (171.2)% (400.8)%
====== ======
Since we were incorporated mid-year on June 18, 1998, the results of
operations include the period from June 18, 1998 through December 31, 1998
compared to the year ended December 31, 1999. Consequently, the increases in net
revenues and expenses over this period are partially due to the full year
measurement period.
NET REVENUES
Net revenues consist of product sales, net of discounts and an allowance for
returns. Net revenues increased to $10.9 million for the year ended
December 31, 1999 from $2.2 million for the period from June 18, 1998 through
December 31, 1998. The increase in net revenues in the year ended December 31,
1999 is primarily the result of significant growth in our customer base,
increased traffic due to expanded marketing efforts, ongoing enhancements to our
Web site and the increase in the number and variety of products available on our
Web site.
COST OF REVENUES
Cost of revenues consists primarily of the costs of products sold to
customers. Cost of revenues increased to $8.8 million for the year ended
December 31, 1999 from $1.8 million for the period from June 18, 1998 through
December 31, 1998. The increase is primarily attributable to increased volume
and, as such, we expect the cost of revenues to increase in the future to the
extent that sales volume increases. Gross margin was 19.0% for the year ended
December 31, 1999 compared to 16.2% for the period from June 18, 1998 through
December 31, 1998. The increase in the gross margin during the year ended
December 31, 1999 is primarily attributable to the mix of products sold.
OPERATING EXPENSES
SELLING AND MARKETING. Selling and marketing expenses consist primarily of
expenditures associated with advertising, promotional and strategic
relationships, payroll and related expenses for personnel engaged in marketing,
design consulting and customer service, product shipping
27
costs and certain customer acquisition costs. Selling and marketing expenses
increased to $33.9 million for the year ended December 31, 1999 from
$1.2 million for the period from June 18, 1998 through December 31, 1998. The
increase is primarily attributable to our increased online and offline
advertising, including a comprehensive print, radio and television advertising
campaign, and increased product shipping costs. We do not charge our customers
for the delivery of their purchases or the shipping costs of returned
merchandise since we consider free delivery and returns to be a significant
sales motivator and an ongoing marketing program to acquire and maintain
customers. We therefore treat freight expenditures as a selling and marketing
expense. Our freight expense for delivery of purchases to customers and shipping
costs of returns in the year ended December 31, 1999 was $3.6 million and in the
period from June 18, 1998 through December 31, 1998 was $223,000. The increase
in freight for the year ended December 31, 1999 resulted from increased sales
volume, a change in our freight carrier, a change in product mix and an increase
in customer returns. In addition, we increased the number of our design
consultants and customer care representatives to support our increased order
volume. We expect to continue to invest significantly in marketing for the
foreseeable future. We also expect to incur additional payroll and related
expenses for additional design consultants and customer care representatives to
the extent that sales volume increases in future periods. Accordingly, we expect
that the absolute dollar amount of sales and marketing expenses will increase in
future periods.
PRODUCT DEVELOPMENT. Product development expenses consist primarily of
payroll and related expenses for personnel engaged in merchandising, Web site
development and information technology, Internet access and hosting charges and
Web site content and design expenses. Product development expenses increased to
$6.7 million for the year ended December 31, 1999 from $1.1 million for the
period from June 18, 1998 through December 31, 1998. The increase is primarily
attributable to increased payroll and related expenses for merchandising
personnel, costs of expanding our product offerings, increased payroll and
related expenses for information technology personnel engaged in enhancing the
features, functionality and content of our Web site and costs of increasing the
capacity of systems used to process customers' orders and payments. We expect to
continue to invest significantly in product development and, accordingly, we
expect that the absolute dollar amount of product development expenses will
increase in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of payroll and related expenses for personnel engaged in executive,
finance, human resource and administrative functions, legal and accounting
services and facility related expenses. General and administrative expenses
increased to $5.8 million for the year ended December 31, 1999 from
$1.8 million for the period from June 18, 1998 through December 31, 1998. The
increase is primarily attributable to payroll and related expenses for
additional personnel necessary to support the expansion of our operations. We
expect that the absolute dollar amount of general and administrative expenses
will increase in future periods as a result of the continued expansion of our
administrative staff and facilities needed to support our growing operations and
general expenses associated with being a public company.
STOCK-BASED COMPENSATION. In connection with the grant of stock options and
the issuance of restricted stock, we recorded total deferred compensation
through December 31, 1999 of $5.0 million, which will be amortized to expense
over the four-year vesting periods generally applicable to the options and
restricted stock. This amount represents the difference between the exercise
price of the stock options granted or the purchase price of restricted stock and
the deemed fair value of our common stock at the time of the grants. Non-cash
compensation expense included in operating expenses in the year ended
December 31, 1999 was $463,000 and for the period from June 18, 1998 through
December 31, 1998 was $65,000. Compensation expense resulting from currently
outstanding option grants and restricted stock is expected to be $1.6 million
for 2000, $1.4 million for 2001, $1.2 million for 2002 and $302,000 for 2003.
28
INTEREST INCOME, NET
Interest income, net consists of interest earned on cash deposited in money
market accounts and other short-term investments, net of interest expense
incurred on capital leases. Interest income, net increased to $653,000 for the
year ended December 31, 1999 from $52,000 for the period from June 18, 1998
through December 31, 1998. The increase resulted primarily from higher average
cash and cash equivalents and short-term investment balances in the year ended
December 31, 1999 as compared to the period from June 18, 1998 through
December 31, 1998, due primarily to the receipt of proceeds from the sale of
preferred stock in June 1998, December 1998, June 1999 and December 1999.
PROVISION FOR INCOME TAXES
We have incurred net losses since inception and, accordingly, no provision
for income taxes was recorded in any period. As of December 31, 1999, we had
$43.7 million of net operating loss carryforwards, which begin to expire in
2019. We have provided a full valuation allowance for the deferred tax asset,
consisting primarily of the net operating loss carryforwards, as realization of
the tax benefit is not assured.
29
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly information for the
six quarters ended December 31, 1999. The unaudited quarterly information is
derived from financial statements and has been prepared on the same basis as our
audited financial statements which appear elsewhere in this prospectus. In the
opinion of our management, this data reflects all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
information for the periods presented. This information should be read in
conjunction with the consolidated financial statements and notes to those
statements presented elsewhere in this prospectus. The operating results for any
quarter are not necessarily indicative of the operating results for any future
period.
(1) Non-cash compensation expense relating to deferred compensation included in
operating expenses was $35,000 in the quarter ended September 30, 1998,
$30,000 in the quarter ended December 31,1998, $3,000 in the quarter ended
March 31, 1999, $34,000 in the quarter ended June 30, 1999, $309,000 in the
quarter ended September 30, 1999 and $117,000 in the quarter ended
December 31, 1999.
Our net revenues increased in each successive quarter in 1999. The increase
in net revenues in the year ended December 31, 1999 is primarily the result of
significant growth in our customer
30
base, increased traffic due to expanded marketing efforts, ongoing enhancements
to our Web site and the increase in the number and variety of products available
on our Web site. Gross margins have fluctuated due to price discounts, the mix
of products sold and, in the first three quarters of 1999, the write-off of
inventory. Our selling and marketing expenses have generally increased to
generate and facilitate increased sales volume. We also increased our spending
on promotional activities to attract new customers. Product development and
general and administrative expenses have generally increased as we have built
our operational infrastructure. General and administrative expenses in the
quarter ended December 31, 1998 include an expense of $480,000 for the
impairment of goodwill resulting from the acquisition of Empire Furniture
Warehouse, Inc.
Our quarterly operating results have fluctuated in the past and may
fluctuate significantly in the future due to a variety of factors, many of which
are outside of our control. Any seasonality in our business may have been
obscured due to our net revenue growth in each successive quarter in 1999 and
the number of new customers added during each period. See "Risk Factors" for a
discussion of other factors affecting our quarterly results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Since inception our operations have not generated sufficient cash flow to
satisfy our current obligations. We have financed our operations primarily
through private sales of preferred stock that through December 31, 1999 totaled
approximately $76.5 million, net of issuance costs.
Net cash used in operating activities was $40.6 million during the year
ended December 31, 1999 and $1.9 million during the period from June 18, 1998
through December 31, 1998. Net cash used in operating activities during the year
ended December 31, 1999 primarily consisted of operating losses and increases in
inventories, prepaid expenses and other current assets, partially offset by
increases in accounts payable, customer deposits and accrued expenses. The
increase in inventories is primarily attributable to an increase in the amount
of inventory in transit from our vendors to our customers and an increase in the
number of products acquired to be photographed for presentation on our Web site.
The increase in prepaid expenses relates primarily to the prepayment of certain
marketing related expenses. The increase in accounts payable is attributable to
the increased sales volume and related purchase of merchandise. The increase in
customer deposits is the result of the increase in the cash collected from
customers as deposits on orders. Cash collected from a customer is classified as
a customer deposit for the time period between customer order and product
delivery.
Net cash used in investing activities was $2.1 million during the year ended
December 31, 1999 and $274,000 during the period from June 18, 1998 through
December 31, 1998. Net cash used in investing activities consisted primarily of
purchases of fixed assets to support the expansion and growth of the business.
Net cash provided by financing activities was $63.4 million during the year
ended December 31, 1999 and $12.9 million during the period from June 18, 1998
through December 31, 1998. Net cash provided by financing activities consisted
primarily of the net proceeds from the sale of our preferred stock.
As of December 31, 1999, we had approximately $31.4 million in cash and cash
equivalents. We have entered into a number of marketing and other strategic
relationship agreements under which there are existing commitments of
approximately $11.4 million in the year ended December 31, 2000 and
$3.8 million in the year ended December 31, 2001. We may expand these existing
agreements and enter into additional marketing and strategic relationships which
could increase future expenditures. In addition, we have obligations under
capital and operating leases. Although we have no material commitments for
capital expenditures, we anticipate a substantial increase in our capital
expenditures consistent with anticipated growth in operations, infrastructure
and personnel.
31
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least the next 12 months.
Depending on our rate of growth and cash requirements, we may require additional
equity or debt to meet future capital or capital expenditure needs. Such
additional financing may not be available or, if available, such financing may
not be obtained on terms satisfactory to us.
YEAR 2000 COMPLIANCE
Our failure or the failure of our key service providers or suppliers to be
year 2000 compliant could harm our business and results of operations. Such
consequences could include difficulties in operating our Web site effectively,
taking product orders, shipping products, delivering products and conducting
other essential and fundamental business operations.
The year 2000 computer issue creates a significant risk for us in at least
two areas:
- systems we use to run our business; and
- systems used by our suppliers and service providers.
A failure in any of these areas to be year 2000 compliant may seriously harm
our operations.
BACKGROUND OF YEAR 2000 ISSUES. Many currently installed computer and
communications systems and software and hardware products are unable to
distinguish 21(st) century dates from 20(th) century dates. This inability could
result in system failures due to miscalculations, causing business disruptions.
As a result, many software, computer, communications and other systems need to
be upgraded or replaced to become year 2000 compliant.
OUR WEB SITE TESTING. We have reviewed the year 2000 compliance of our
externally and internally developed proprietary software that shapes and
controls a customer's experience while he or she interacts with our Web site.
This review included testing to determine how our systems will function at and
beyond the year 2000. Since inception, we have internally developed or reviewed
the development of most of the systems for the operation of our Web site. These
systems include the software used to provide our Web site's search, customer
interaction, and transaction processing functions. Based upon our assessment to
date, we believe that our internally developed proprietary software is year 2000
compliant.
OUR EXTERNAL VENDORS AND THIRD PARTY SUPPLIED SOFTWARE. The systems and
software of third parties on which we rely may contain errors or faults with
respect to the year 2000. For example, we depend on GeoLogistics to deliver our
customers' larger orders, financial institutions to process credit card
transactions, telecommunications vendors to maintain our network and to host our
Web site. In addition, we rely on software, hardware and other systems for use
in our administrative, communications, accounting, database, security, network,
electronic mail, Web site operations, telephone and other systems. All third
parties whose systems are material to our operations have posted their year 2000
compliance statements on their Web sites, where they have given assurances that
their systems are year 2000 compliant or that they would become year 2000
compliant by the end of 1999. As part of our continuing year 2000 preparations,
we intend to pursue year 2000 related corrections or updates offered by our
vendors.
The failure of software and computer systems used by GeoLogistics or our
manufacturers or suppliers to be year 2000 compliant could harm our business.
Known or unknown errors or defects that affect the operation of our software and
systems and those of third parties could result in delay or loss of revenue,
interruption of services, cancellation of customer orders, diversion of
management and development resources, damage to our reputation and litigation
costs.
32
OUR INTERNAL SYSTEMS. We periodically review our internally developed
management information and other systems to identify any systems that may not be
year 2000 compliant and to take corrective action when required. We believe we
have reviewed all relevant systems. We have not identified any material year
2000 problems with our internally developed computer systems.
COSTS OF ADDRESSING YEAR 2000 COMPLIANCE. Based on our preliminary
evaluations, we do not believe we will incur significant expenses or be required
to invest heavily in computer system improvements to be year 2000 compliant.
Through December 31, 1999, we have spent approximately $200,000, including
approximately 1,200 person-hours, on year 2000 issues. However, significant
uncertainty exists concerning the potential costs and effects associated with
year 2000 compliance. Any year 2000 compliance problem experienced by our
vendors, GeoLogistics or us could reduce demand for our products, which could
harm our business.
CONTINGENCY PLANNING. Our contingency plan is focused on those activities
and functions specifically related to processing customer orders. It addresses
only those types of failures for which contingency operation is possible. Our
contingency plan does not address any types of failures for which contingency
operations would be impossible. For example, any significant disruption in the
Internet would prevent customers from placing orders via the Internet. The
failure of our credit card processors would prevent customers from making
payments.
It is possible that some types of failures were omitted from our analysis
and our contingency plan. We believe the reasonably likely worst case scenario
would involve year 2000 issues preventing a significant number of users from
accessing our Web site and the loss of critical services to our business. A
prolonged failure of critical systems or functions could prevent us from
operating our business, prevent users from accessing our Web site, or prevent
visitors to our Web site from placing orders. We believe that some of the
business consequences of such a failure would include:
- lost revenue;
- increased operating costs;
- loss of customers or visitors to our Web site; and
- claims of mismanagement, misrepresentation or breach of contract.
Any of these consequences would likely harm our business results of
operation, financial condition and operating results. As of January 27, 2000, we
have not experienced any failures that we believe can be attributed to the year
2000 issue.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. As issued, SFAS No. 133 is effective
for all fiscal quarters of all fiscal years beginning after June 15, 1999, with
earlier application encouraged. In May 1999, the FASB delayed the effective date
of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. We
do not currently, nor do we intend in the future, to issue or purchase
derivative instruments and, therefore, we do not expect the adoption of SFAS
No. 133 to have any impact on our financial position or results of operations.
33
BUSINESS
FURNITURE.COM
Furniture.com is a leading online retailer of furniture and home
accessories. Our goal is to revolutionize the home furnishing and decorating
experience by offering a comprehensive, personalized and service-oriented
solution for consumers. Our initial product focus has been furniture, the
foundation of home furnishings and the category around which we build customer
relationships. We offer furniture for every room of the home, including beds,
tables, desks, entertainment centers and upholstered sofas and chairs. As part
of our complete home solution, we also sell accessories, including lamps, wall
art, rugs, mattresses and linens. We offer more than 20,000 selections with a
broad range of styles and prices from more than 200 manufacturers. We believe
this represents one of the largest selections of home furnishings available at
any single destination. This broad selection, together with our focus on all
aspects of the customer experience, positions Furniture.com as a leading
destination for finding all the comforts of home.
Furniture.com has experienced rapid growth in both visitor traffic and
sales. The number of unique visitors to our Web site grew from approximately
600,000 during August 1999 to approximately 2,000,000 during December 1999
according to our internal database. Our net sales have grown to $10.9 million in
the year ended December 31, 1999. In addition, as of December 31, 1999, our
customers had placed orders for $7.5 million of home furnishings that are being
manufactured or are already in transit. According to Media Metrix, Furniture.com
had greater than four times the number of unique visitors than the next most
visited home furnishings shopping Web site for the month of December 1999.
INDUSTRY OVERVIEW
HOME FURNISHINGS MARKET
The home furnishings market exceeded $150 billion in 1998, according to the
U.S. Census Bureau. This figure does not include retail sales generated by
department stores. Of this broad market, which ranges from household furniture
and appliances to draperies and glassware, approximately $72 billion was
household furniture and home accessories. We believe that growth in both home
ownership and house size will further increase demand for home furnishings.
According to the U.S. Census Bureau, home ownership is currently at a record
high of 67% and the size of an average house has increased 25% since 1980.
TRADITIONAL RETAIL CHANNEL FOR HOME FURNISHINGS
Home furnishings retailing is highly fragmented and, to date, no dominant
national home furnishings retailer has emerged. According to FURNITURE TODAY,
the top 10 furniture retailers accounted for less than 15% of the retail
furniture market in 1998. Traditional retail channels include:
- national and regional store-based retailers;
- catalog retailers that sell primarily through direct mail;
- manufacturers that sell directly to consumers; and
- North Carolina and other discount showrooms.
HOME FURNISHINGS MANUFACTURING
Home furnishings manufacturing is highly fragmented and few meaningful
brands exist. Based on the most recent U.S. Department of Commerce Economic
Census, in 1997 there were more
34
than 5,500 manufacturers of household furniture, 95% of which had annual sales
under $10 million. Competition is intense, with manufacturers focused on gaining
access to retail distribution rather than building consumer awareness of brands
through marketing and advertising. In this environment, few meaningful
manufacturer brands have developed. According to a 1998 study sponsored by the
Home Furnishings Council, a majority of customers across all demographic groups
could not recall the manufacturer brand name of the most expensive piece of
furniture that they purchased in the last five years.
GROWTH OF CONSUMER ONLINE COMMERCE
Consumer online commerce continues to grow rapidly. According to Forrester
Research, there were approximately 17.4 million online shopping households in
the U.S. in 1999. This number is projected to grow to more than 46 million,
representing approximately 44% of total U.S. households, by 2003. This
represents approximately a 28% compound annual growth rate. U.S. online sales
were estimated to be more than $20 billion in 1999 and are projected to grow to
more than $143 billion by 2003, a compound annual growth rate of approximately
64%. In addition, the average dollar amount of annual online purchases per U.S.
online household during 1999 was estimated to be more than $1,100 and is
projected to increase to more than $3,000 by 2003, a compound annual growth rate
of approximately 29%.
GROWTH OF ONLINE HOME FURNISHINGS SALES
Consumers regularly purchase furniture and home accessories without actually
viewing the merchandise. In stores, many consumers buy from binders containing
product images and swatches. Consumers are also buying an increasing amount of
home furnishings through direct marketing channels. According to the Direct
Marketing Association, in 1998, catalogs featuring home furnishings and
housewares represent approximately 20% of approximately $87 billion in catalog
retail sales.
We believe this trend will translate rapidly to online purchases. Forrester
Research estimates that online revenues from home furnishings sales will grow
from $518 million in 1999 to $6.4 billion in 2003, a compound annual growth rate
of approximately 87%. Forrester estimates that online revenues from the
household furniture component of home furnishings sales will grow from
$268 million in 1999 to $2.8 billion in 2003, a compound annual growth rate of
approximately 80%.
LIMITATIONS OF THE TRADITIONAL RETAIL EXPERIENCE
We believe that consumers face significant challenges furnishing and
decorating their homes. In the 1998 Home Furnishings Council survey, consumers
described the home furnishings retail experience as one of frustration and
confusion. The study also found that approximately 80% of consumers purchasing
new furniture disliked shopping for furniture. We believe the dissatisfaction
with the shopping experience has resulted in significant pent-up demand for home
furnishings by consumers who have avoided the traditional retail experience.
Consumers buying home furnishings through traditional retail channels are
frustrated and dissatisfied by the following:
LACK OF CONVENIENCE
Traditional retailers generally fail to meet consumers' desires to
conveniently furnish and decorate their homes.
NO COMPREHENSIVE ONE-STOP SOLUTION. Traditional retailers must limit their
product offerings, primarily due to space constraints and inventory carrying
costs, which forces consumers to visit several stores to meet all their home
furnishings needs. According to the 1998 Home Furnishings Council survey,
consumers make an average of 5.9 shopping trips to 3.7 store-based retailers
before buying a single piece of furniture.
35
DIFFICULT SEARCH PROCESS. At traditional retail stores, consumers must
often search through cumbersome binders provided by manufacturers containing
product images and swatches. These binders are often poorly arranged, require a
significant investment of time to sort through and typically provide little, if
any, information regarding the quality, construction and care of the items being
considered.
TIME CONSUMING SHOPPING EXPERIENCE. Many busy consumers are not willing or
able to take the time it has traditionally taken to furnish and decorate their
homes. This problem is compounded by the fact that furnishing and decorating is
often a process involving multiple decision-makers, who can shop together only
at night or on weekends.
LIMITED INFORMATION AND DECORATING ADVICE
Given the structure and limitations of the traditional home furnishings
industry, we believe that consumers face significant challenges furnishing and
decorating their homes through traditional retail channels.
FEW MEANINGFUL MANUFACTURER BRANDS. The absence of manufacturer brand
awareness in the home furnishings industry leaves consumers without a credible
indicator for style, quality or value. In many other considered purchases,
consumers can rely on brand identities to aid in their decision-making process.
INEFFECTIVE SALES ASSISTANCE. According to the 1998 Home Furnishings
Council survey, 74% of consumers would prefer to shop for home furnishings
without a salesperson. Dissatisfaction with salespeople results from their
inability to provide decorating advice, their lack of product knowledge and
perceived biases resulting from their commission-based pay structure.
LIMITED PRODUCT INFORMATION. Many retail stores do not provide consumers
with written product information or fabric or finish samples. The lack of
information, together with the absence of an authoritative resource rating home
furnishings products, makes it difficult for consumers to compare and assess the
value of items under consideration.
INABILITY TO VISUALIZE DECORATING SOLUTIONS. In a typical retail
environment consumers are unable to visualize how their new selections will fit
into their homes. Most consumers find it difficult to imagine layouts, color
schemes or furniture scale, making it a challenge to design an integrated room
solution.
POOR CUSTOMER-SERVICE FOLLOW THROUGH
We believe the traditional home furnishings experience is characterized by
poor customer service. Traditional retailers devote only limited resources to
customer care from purchase through delivery. Delivery can take months and, as a
result of limited tracking capabilities, consumers are usually unable to obtain
information regarding order status. In addition, retailers often charge
customers for delivery and, if a customer returns an order, the customer is
typically charged a restocking fee.
THE FURNITURE.COM SOLUTION
Given consumer dissatisfaction with the traditional retail experience,
Furniture.com's goal is to revolutionize the home furnishing and decorating
experience by offering a comprehensive, personalized and service-oriented
solution for our customers. We believe we offer one of the largest selections of
home furnishings available at any single destination. This broad selection,
together with our focus on all aspects of the customer experience, positions
Furniture.com as a leading destination for all the comforts of home.
36
Key elements of the Furniture.com solution include:
CONVENIENCE
Furniture.com enables customers to conveniently furnish and decorate their
homes.
BROAD SELECTION. We offer a broad selection of home furnishings that would
be economically or physically impractical for a traditional retail store to
display. Our product selection comprises more than 20,000 items, representing
approximately 200 manufacturers, including private label brands found
exclusively at Furniture.com. Our extensive selection enables customers to
furnish and decorate their homes without having to go elsewhere.
SIMPLIFIED SEARCHING. We allow customers to quickly find products that meet
their needs. Customers can choose to search using the criteria most relevant to
them, including piece, style, fabric or finish, price range, dimensions and
delivery time.
QUICKSHIP PROGRAM. We offer selected popular items on a QuickShip basis.
Our QuickShip program allows customers to receive custom home furnishings items
within 3 weeks, which is significantly faster than the traditional retail
experience. We intend to significantly expand this program.
PERSONALIZED EXPERIENCE. We deliver a highly personalized shopping
experience, including:
- Our Design Consultants provide customers with real-time personalized
guidance through online chat, e-mail or over our toll free telephone
number.
- Through our Personal Shopper service, our Design Consultants recommend
specific items to customers based on submitted preferences and needs.
- We tailor the products featured on our Web site based on an individual
customer's browsing and shopping history at Furniture.com.
- The My Selections area of the FURNITURE.COM Web site allows customers to
create and save a personal showroom containing products under
consideration.
- We provide targeted editorial features, product offerings and promotions
to our electronic newsletter subscribers by e-mail.
FLEXIBILITY. We enable customers to shop for home furnishings from their
home or office 24 hours a day, seven days a week. We facilitate collaborative
shopping by providing customers the ability to e-mail product descriptions and
images to others and by allowing multiple shoppers to review product selections
stored in their personalized My Selections area.
RESOURCES
Furniture.com empowers customers to make confident home furnishing and
decorating decisions.
PRODUCT INFORMATION AND DECORATING ADVICE. We provide the information and
advice needed to select home furnishings.
- We offer detailed product information, including an item's style,
dimensions, finish and fabric options and construction materials. In
addition, for more than half of our furniture products we include even
more detailed Fact Tags which describe origin, construction details,
special features, hardware and recommended care. We intend to provide Fact
Tags on all of our furniture products.
37
- We feature content and information about home furnishings and decorating.
Our weekly online magazine, YOUR HOME, includes articles on styles,
trends, decorating ideas and relevant how-to advice. We also feature third
party content from ELLE DECOR, METROPOLITAN HOME, HOME MAGAZINE and HAVEN.
- Our Design Consultants provide product information and actively
collaborate with customers to develop home decorating solutions. They are
not commissioned and are trained to provide unbiased design assistance and
product information.
ENHANCED VISUALIZATION. We allow customers to visualize room solutions.
- We have a dedicated in-house photography studio which allows us to
photograph our products in stylized room settings and to capture close-ups
of product features and finishes.
- Customers can view enlarged photographs of our products, fabrics and
finishes to assist them in selecting their home furnishings.
- Our proprietary Room Planner allows customers to recreate their rooms
online, add their new furniture selections and experiment with layouts to
evaluate scale, size and overall look.
- We enable customers to apply available fabric options in real time to
images of our more popular upholstered sofas and chairs.
- We send fabric swatches free of charge to customers upon request to enable
customers to see and feel their fabric options.
CUSTOMER SERVICE
Furniture.com devotes significant resources to providing superior customer
service after an order is placed. Our Customer Care Representatives provide
order status updates and answer customer inquiries. We provide our free Red
Carpet delivery service, including in-home set-up, for larger pieces. Customers
can also take advantage of a range of services including online financing,
extended warranties and our customer satisfaction guarantee.
COMPELLING VALUE
Furniture.com's prices for home furnishings are generally below those
available at traditional retail stores for similar products. We also provide
free delivery and we are not required to collect sales tax from our customers in
any state except Massachusetts. We believe that our lower prices, combined with
our superior shopping experience, provide compelling value to our customers.
GROWTH STRATEGY
Furniture.com strives to be the first national, branded, furnishing and
decorating destination. By offering a superior shopping experience, we believe
we will become the preferred destination for customers furnishing and decorating
their homes. To implement our growth strategy we intend to:
ESTABLISH A POWERFUL BRAND
Furniture.com intends to capitalize on the lack of established national
brands in the home furnishings industry and to continue developing Furniture.com
as a nationally recognized brand. We are building the Furniture.com brand to be
synonymous with a new home furnishing and decorating experience characterized by
broad selection, a high degree of personalization and strong customer focus. Our
brand positioning is communicated through the tagline "All the Comforts of
Home". We will continue to develop customer awareness through targeted
advertising and marketing, both online and through traditional media including
television, radio, print and direct marketing.
38
REVOLUTIONIZE SUPPLY CHAIN DYNAMICS
Furniture.com is developing an Internet-based network that will serve as a
communication platform connecting us with our product manufacturers and freight
carriers in this highly fragmented industry. This network is designed to shorten
the time between order submission and product delivery. The timely flow of
aggregated customer preferences, product availability and in-transit and
delivery status will allow us to optimize our product mix, pricing and promotion
strategy and product distribution. In addition, this network will make it easier
for manufacturers and third-party carriers to coordinate their business
activities with ours.
LEVERAGE DATA-DRIVEN MERCHANDISING
Furniture.com will leverage our database of customer browsing and shopping
behavior to continuously optimize product selection and presentation. The home
furnishings industry does not currently have a broad-based, independent source
of data to track customer preferences and purchases, such as those that exist in
other industries (E.G., A.C. Nielsen, UPC scanner data). We intend to continue
to expand our proprietary database to support our marketing and promotional
activities, enable us to develop private label products responsive to customer
needs and identify products best suited to be offered through our QuickShip
program.
EXPAND PRIVATE LABEL PROGRAM
Furniture.com will continue to capitalize on the lack of product brand
awareness in the home furnishings industry by rapidly expanding our private
label program. Our private label program allows us to respond to customer
preferences by collaborating with our manufacturers to develop collections of
products exclusive to Furniture.com. We intend to develop private label products
for many of our product offerings across all style and price categories. We
believe that we will be able to enhance customer loyalty and realize higher
margins selling private label products. For the six months ended December 31,
1999, sales of private label home furnishings represented more than half of our
net sales.
OFFER UNPARALLELED VISUALIZATION
Furniture.com will continue to leverage rapidly evolving technologies to
enable customers to more vividly and realistically create room solutions online.
For example, we are developing the capabilities for customers to provide us with
room photographs, from which we will create true-to-life, three-dimensional room
settings online. Customers would then be able to visualize the transformation of
their existing rooms by rearranging existing furniture, adding new pieces and
experimenting with fabric, finish and color options. Customers would also be
able to experiment with different wall and floor coverings and window treatments
and ultimately take a virtual walk through their finished room.
EXPAND PRODUCT CATEGORIES AND CHANNELS
Furniture.com intends to leverage our brand, operating infrastructure and
customer relationships to expand into other relevant categories and channels. We
believe, for example, that significant expansion opportunities exist through:
- expanding into related home and decorating categories;
- pursuing additional channels of distribution such as interior designers
and professional showrooms;
- exploring international market opportunities; and
- forming alliances with or acquiring complementary businesses, products or
technologies.
39
THE FURNITURE.COM EXPERIENCE
Furniture.com is a complete online home furnishing and decorating
destination, offering an engaging, enjoyable experience from browsing through
delivery.
BROWSING AND FINDING
Furniture.com enables customers to quickly find merchandise that meets their
needs, whether they are searching for a specific piece of furniture or
redecorating an entire home.
BROWSING BY ROOM OR ACCESSORY. Customers seeking to furnish a room or find
a particular accessory can easily browse our broad selection. Room and accessory
searches can be performed for any room in the home, based on simplified,
intuitive criteria including piece, style, finish and price range.
FURNITURE FINDER. For those customers searching for a particular piece, our
Furniture Finder allows them to quickly sort through our more than 20,000
product offerings using highly specific criteria, including category, style and
piece, manufacturer or collection, material, fabric or finish, price range,
available delivery times and dimensions. Customers choose only those criteria
that are important to their search and can then quickly browse items matching
those criteria.
STYLE GUIDE. Our interactive Style Guide is a valuable tool for customers
who want to learn more about style or who have difficulty identifying furnishing
styles by name. Customers can view images representing home furnishings styles,
such as Traditional, Country, Casual Contemporary and Modern. Each of these
style categories is divided into narrower styles, also represented through
images. Once a customer finds a style that he or she likes, the customer can
view a wide selection of pieces available in that style.
PERSONAL SHOPPER. Our Personal Shopper Service is an effective way for
time-constrained customers to obtain tailored product recommendations and
complementary product suggestions. Customers answer a few questions about the
solution they are seeking and our Design Consultants place suggested product
recommendations in the customer's My Selections area for review at their
convenience.
GATHERING INFORMATION
We provide our customers access to a broad array of information to support
home decorating and furnishing decisions.
MY SELECTIONS. As customers browse our products, they can easily gather
items of interest in their My Selections area, creating their own personal
showroom. My Selections allows customers to store pictures and descriptions of
products under consideration by room. My Selections facilitates the creation of
room solutions and the sharing of ideas among multiple decision makers, who can
view products being considered at different times.
HOME FURNISHING AND DESIGN RESOURCES. We provide compelling editorial
content and information about home furnishings and decorating. Our weekly online
magazine, YOUR HOME, features articles on styles, trends, decorating ideas and
relevant how-to advice. Our editorial content is currently developed internally.
We have also entered into agreements with established publishers such as
Hachette Filipacchi Magazines, Inc. (publisher of ELLE DECOR, METROPOLITAN HOME
and HOME MAGAZINE) and Home Enterprises, Inc. (producer of Joy Philbin's Haven
TV show and publisher of HAVEN magazine) to expand content offerings available
on Furniture.com. We also provide reading suggestions and other resource
materials in the Furniture.com Reading Room, which are available for purchase
through a link to Amazon.com.
40
FACT TAGS. We offer detailed product information, including an item's
style, dimensions, finish and fabric options and construction materials. In
addition, more than half of our furniture products include Fact Tags which
describe origin, construction details, special features, hardware and
recommended care. We intend to provide Fact Tags for all of our furniture
products.
SWATCH PROGRAM. Our swatch program addresses the need of some customers to
feel fabric options before completing a purchase. Customers requesting swatches
receive free fabric samples within two business days of their request. We have
experienced a significantly higher success rate selling upholstered furniture to
customers participating in our swatch program. We also provide a swatch sample
of the requested fabric to each customer who orders upholstered furniture to
ensure that any discrepancies between customer expectations and the actual
product can be addressed before manufacturing has begun.
PLANNING AND GETTING ADVICE
Furniture.com provides advice and planning tools to create complete room
solutions.
DESIGN CONSULTANTS. Our Design Consultants are available to assist
customers free of charge. Design Consultants can be reached by a toll free
telephone number, by e-mail or through interactive one-on-one chat. In addition,
our Design Consultants can participate in the shopping process with customers by
displaying images of suggested products on a real time basis on customers'
computer screens. Our Design Consultants undergo ongoing training to remain
abreast of trends and informed about our products. Many of our Design
Consultants have backgrounds in interior design. We have experienced a higher
level of purchases from customers that utilize the services of our Design
Consultants. Our Design Consultants are employed on a non-commissioned basis.
ROOM PLANNER. Our proprietary Room Planner allows customers to recreate
their rooms online, add new furniture selections, and experiment with layouts to
evaluate scale, size and overall look. Customers can modify the dimensions of
rooms, add architectural elements such as doors, windows and fireplaces, and
graphically replicate their existing home furnishings. Customers can then drag
and drop selections into the room, perfect the design, and order all new items
in their Room Planner with just one click. We believe that once customers have
invested the time to recreate their homes on Furniture.com, they will be likely
to return to our Web site. In addition, Room Planner provides us with valuable
information regarding customer preferences and needs. Upon request, Design
Consultants can review a customer's room plan and provide design suggestions. We
also use aggregated information about customers' house sizes, room needs and
style preferences to enhance our marketing and merchandising programs.
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The following picture illustrates a room being planned using our Room
Planner:
[Artwork on page 42]
Picture of the Room Planner page on the Furniture.com Web site with the
following call-outs:
- Customers recreate their existing rooms, adding architectural elements and
furnishings they already own
- Customers drag and drop new pieces they find on Furniture.com
- When the design is complete, Customers order the new items in their room
plan with just one click
COMPLETING THE PURCHASE
Furniture.com makes it easy to complete a purchase online.
ONLINE FINANCING PROGRAM. Our customers may apply online to have their
purchases financed through a third-party financing company. Customers receive
instant notification of their credit line and this financing can be immediately
used to complete orders online. Our financed orders are significantly larger
than other orders. Currently, approximately 10% of our orders are financed
through the online financing program.
IN-HOME PROTECTION PROGRAM. Furniture.com offers a furniture protection
plan through a third party that provides comprehensive repair or replacement
coverage for our customers' entire home furnishings order for five years.
Coverage protects against normal household mishaps, including stains, water
marks, gouges and dents. We currently charge $99 for this plan.
GUARANTEED SATISFACTION. To maximize customer satisfaction, all of our home
furnishings are backed by our satisfaction guarantee. If for any reason
customers are not satisfied with their purchases, they may contact us within
thirty days and we will arrange for a replacement of equal value or provide a
full refund. Our customers are not charged any restocking, handling or return
fees. In addition to our satisfaction guarantee and manufacturer warranties, we
offer free additional warranty protection on all wood furniture, upholstered
furniture, outdoor furniture, lighting, rugs, bedding and accessories. We also
engage the services of Furniture Medic, a national repair service, to touch up
minor blemishes.
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DELIVERY
Furniture.com believes that timely and reliable furniture delivery is
critical to a superior customer experience.
QUICKSHIP PROGRAM. We are committed to reducing the traditional lengthy
delivery times in the furniture industry. Delivery times for our QuickShip
program are generally three weeks, which is less than half the usual seven to
twelve weeks for not-in-stock furniture to be delivered by traditional retail
stores. To provide QuickShip service, we leverage relationships with our
manufacturers to identify customized home furnishings that can be delivered to
customers within three weeks of ordering. We analyze aggregated customer
preference data to identify popular products, finishes and fabrics and share
this information with selected manufacturers to enable them to create inventory
positions in these products. Normally, furniture manufacturers do not produce
custom pieces until an order is received. We intend to significantly expand our
QuickShip program.
FREE DELIVERY. We offer free delivery for all orders within the continental
United States. We currently use third-party carriers, principally GeoLogistics
Network Solutions, Inc., to deliver larger items. Our carriers pick up items
from our manufacturers for delivery to our customers. When the components of a
customer's order come from two or more suppliers, our carriers aggregate the
order in their own warehouses and deliver the order when it is complete. If
requested by a customer, we will also arrange to deliver the components of an
order as they become available. In order to keep our customers fully informed,
our carriers maintain tracking capabilities that allow us to determine the
location and status of all orders. For the convenience of our customers, our
carriers provide delivery during a prearranged four-hour time slot. For smaller
items (including most accessories), UPS is used to ship from our suppliers to
our customers.
FREE IN-HOME SET UP. As part of our Red Carpet delivery service, two
carrier representatives will unpack, assemble, inspect and place larger
furniture items in our customers' homes. All packaging is then removed. To
maximize customer satisfaction, we have implemented a post-delivery customer
satisfaction survey. We are also implementing a national incentive program for
delivery personnel to further promote customer satisfaction.
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MERCHANDISING STRATEGY
Furniture.com leverages the flexibility and data-rich aspects of online
retailing to create a comprehensive merchandise offering.
COMPELLING SELECTION
We offer an extensive selection of home furnishings comprising a broad range
of styles and pieces for all rooms of the home.
We sell furniture in each of the following style categories:
TRADITIONAL COUNTRY CASUAL CONTEMPORARY MODERN
----------- ------------------ --------------------- ----------
Queen Anne Cottage Shaker Retro
Chippendale American Country Mission/Arts & Crafts Modernist
Neo Classical European Country Lifestyle Eclectic
Oriental Rustic Leisure
Transitional
Formal Upholstery
KITCHEN LIVING ROOM SUNROOM/PATIO
------- ---------------------------------------------------------- ---------------
Bakers' racks Chairs* Chests Bookcases Cocktail tables
Buffets Loveseats* Cocktail tables Cabinets Chairs
Cupboards Ottomans* Consoles CD racks Dining tables
Islands Recliners* End tables Curios End tables
Servers Sectionals* Plant stands Entertainment centers Lounge chairs
Tables Sleeper sofas* Sideboards Hutches Ottomans
Wine racks Sofas* Sofa tables Storage units Sofas
Examples of our accessories offerings include:
TABLE TOP
LIGHTING RUGS WALL ART ACCESSORIES LINENS MATTRESSES
-------- ---------- ----------- -------------------- ------------- ------------
Chandeliers Area rugs Framed art Candles and holders Duvet covers Mattresses
Floor lamps Rug pads Mirrors Clocks Pillows Foundations
Table lamps Runners Screens Vases Sheets Bed frames
* available in leather and upholstery
During the three months ended December 31, 1999, we estimate that wooden
furniture represented 78% of the value of our written orders, upholstery and
leather sofas and chairs represented 15%, accessories represented 4% and other
items (E.G., outdoor furniture) represented 3%.
44
DATA-DRIVEN PRODUCT OFFERINGS
We believe we have a significant advantage over store-based retailers in
that we are able to compile preference information on all customers who browse
our Web site, not just purchasers. Our online retailing environment allows us to
gather significant quantifiable data on customer browsing and shopping
preferences. We use the preference information to dynamically enhance and change
our product offerings to meet changing consumer needs and to forge new supplier
relationships. Furthermore, our Web site gives us the flexibility to feature or
promote specific furniture and home furnishings without having to alter the
physical layout of a store. We are also able to provide our suppliers with
valuable information about consumer demand so they are able to optimize
production planning.
UNIQUE PRIVATE LABEL COLLECTIONS
Manufacturer brands are historically unimportant to the majority of
purchasers of home furnishings. We take advantage of this lack of manufacturer
brand awareness by offering many private label collections which are available
only at Furniture.com. For these collections we select products, sometimes from
a number of manufacturers, to create unique, style-driven offerings. We believe
that these offerings will facilitate the creation of powerful relationships with
our customers. Currently, more than half of our revenue is derived from the sale
of private label products.
PRICING
The furniture industry is highly fragmented and offers little product
information. This has resulted in a lack of strong manufacturing brands and the
inability to easily comparison shop, which gives us significant pricing
flexibility. We think this gives us an advantage over the many online retailers
selling more "commoditized" products. Our prices for home furnishings are
generally below those available at traditional retail stores for similar
products.
MARKETING AND PROMOTION
Furniture.com has implemented a comprehensive campaign to market and promote
Furniture.com. Our marketing and promotion strategy is designed to:
- build Furniture.com brand recognition;
- increase consumer traffic to our Web site;
- convert browsers into buyers; and
- build loyal customer relationships and maximize repeat purchases.
We intend to continue our targeted advertising and marketing campaign to
increase awareness of the Furniture.com brand and to acquire new customers
through multiple channels, including traditional and online advertising, direct
marketing and expanding the scope of our strategic relationships. We believe
that the use of multiple marketing channels reduces reliance on any one source
of customers and maximizes our brand awareness. We believe that the direct
marketing knowledge and expertise of our management team provides us with a
competitive advantage.
In addition to the specific strategies discussed below, we intend to
maximize the lifetime value of our customers by focusing on customer care,
satisfaction and retention.
ONLINE ADVERTISING
We engage in targeted online advertising to promote the Furniture.com brand
name and product offerings. We have agreements with major portals, including
AOL, AltaVista, Excite@Home,
45
Lycos, MSN and Yahoo! to feature Furniture.com in the shopping, home and other
relevant areas on these portals. These agreements provide us with a prominent
position in the home-related shopping areas of five of these six major portals
and access to the majority of "furniture" search keyword inventory. For example,
we believe that approximately 75% of the time that a keyword search for the word
"furniture" is executed on these major portals, a Furniture.com advertising
banner appears with the search results.
TRADITIONAL ADVERTISING
We have benefited significantly by being the first online furniture retailer
to launch an offline advertising campaign. Our offline campaigns have not only
significantly increased awareness of Furniture.com, but have also increased the
productivity of our online and direct marketing efforts as well. Our integrated
multimedia advertising campaign includes television, radio, print, outdoor and
event-based advertising. We target family, home, garden, lifestyle and other
relevant media that we believe are viewed by likely purchasers of home
furnishings.
DIRECT MARKETING AND PROMOTION
As an online retailer in the home furnishings category we have a unique
opportunity to direct market to customers in several ways.
LIFE STAGE MARKETING. We believe that there is a strong correlation between
purchasing home furnishings and certain life stage events such as graduating
from school, purchasing a home, getting married and having a child. We have
focused on moving as a proxy for these events. According to Imagitas, the U.S.
Postal Service's marketing agent, more than 20% of the U.S. population,
representing more than 21 million households, moves each year. To capitalize on
the home furnishing needs created by moving, we have entered into multi-year
agreements to advertise in the United States Postal Service Change of Address
materials and with Cendant, owner of the Century 21, Coldwell Banker and ERA
national realtor firms, to promote Furniture.com throughout its network. Through
these relationships we intend to reach most of the U.S. moving population on a
timely basis. We plan to continue to develop and refine our life-stage
advertising strategy by finding additional ways to target customers passing
through relevant life stages.
DATABASE MARKETING. We engage in ongoing database marketing using our
registered customer database, which currently includes more than 260,000
members. Using segmentation and customer profiling techniques, we target product
and promotional offers designed to convert browsers into buyers, and first time
customers into repeat purchasers. We use contests, coupons and other promotional
techniques to encourage sales and to up-sell and cross-sell products. We also
intend to continue our practice of purchasing e-mail lists from third parties,
which we use for new customer acquisition programs.
RETENTION AND LOYALTY. Our customer retention and loyalty efforts include:
a bi-monthly e-mail newsletter to our subscribers that features targeted
information and special offers; customized e-mails highlighting private sales
events; "sticky" site features such as Room Planner and My Selections; and
weekly alterations to our online magazine, all of which are intended to generate
repeat visits to Furniture.com.
PUBLIC RELATIONS
We regularly seek to leverage our industry expertise and style leadership to
obtain product placement opportunities in major consumer media, including
relevant television programming, magazines and newspapers. For example, our
products were recently showcased on "The Oprah Winfrey Show". We have also been
featured in magazines, including REDBOOK and ELLE, and have had prominent
placements on two episodes of "The View" on ABC Television and on two episodes
of "Awesome Interiors", a decorating show on HGTV.
46
AFFILIATES PROGRAM
In order to increase our exposure on the Internet and to generate sales, we
have an affiliates program which currently includes more than 11,000 registered
Web sites. Under this program, affiliates' Web sites contain inbound links that
connect consumers directly to our Web site. We pay our affiliates for customer
registrations on our Web site as well as a commission on sales generated through
their initial link to Furniture.com.
STRATEGIC MARKETING AND DISTRIBUTION RELATIONSHIPS
Furniture.com has strategic relationships designed to build our brand,
acquire new customers and expand our editorial content. Current strategic
relationships include:
U.S. POSTAL SERVICE MOVER PRODUCTS
We have obtained the exclusive right to promote household furniture through
the U.S. Postal Service's Welcome Kit, which is mailed to movers in the United
States with their change of address confirmation. In addition, we have obtained
the exclusive right to advertise in the U.S. Postal Service's Official Movers'
Guide for select metropolitan areas, including New York, Seattle and San
Francisco. The Movers' Guide is a booklet that accompanies the Postal Service's
official change of address card. These exclusive agreements are for a period of
one year ending August 2000, with an option to renew for an additional two
years.
CENDANT REAL ESTATE
Our strategic relationship with Cendant Real Estate allows us to reach new
movers through their website and through broker networks including Century 21,
ERA and Coldwell Banker. We have the right to be the "Premier Furniture
Provider" on Cendant's real estate portal. Cendant will also promote us to the
brokers who are part of the Coldwell Banker, Century 21 and ERA networks as a
"Premier Alliance Provider" and has agreed to promote no other online furniture
retailer under the Premier Alliance Program for a period of six months. As
members of the Premier Alliance Program, Cendant brokers are provided incentives
to refer customers to Furniture.com. Cendant Real Estate owns the following real
estate and moving service companies: Century 21, ERA, Coldwell Banker, Welcome
Wagon, Rent.net, Cendant Mobility and Cendant Mortgage.
ELLE DECOR, METROPOLITAN HOME AND HOME MAGAZINE
Our relationship with Hachette Filipacchi Magazines, Inc., the publisher of
ELLE DECOR, METROPOLITAN HOME and HOME MAGAZINE, provides us unique access to
home furnishings customers and editorial content. Hachette will provide
Furniture.com with one full page of advertising per issue of these magazines. In
addition, Hachette will provide editorial content from these magazines for use
on our Web site and in e-mail campaigns. As Hachette creates online versions of
these magazines, their Web sites will feature links to Furniture.com. In
December 1999, these three magazines had a combined monthly circulation of more
than 2 million.
HOME ENTERPRISES, INC.
Our relationship with Home Enterprises, Inc. extends our brand and provides
unique multimedia content. Home Enterprises, Inc. produces Joy Philbin's Haven
TV show. As part of this relationship, Home Enterprises provides archival and
new videos and print content for use on Furniture.com, allows us access to
subscriber databases and gives us the opportunity to sponsor Furniture.com
branded editorials in the HAVEN magazine and newsletter. Furniture.com and our
furniture experts will be featured on periodic segments of Joy Philbin's Haven
TV show.
47
REALNAMES CORPORATION
We have an agreement with RealNames which gives us exclusive control of the
"furniture" Internet keyword in the RealNames Internet addressing system. The
RealNames system is integrated into search engines, directories and portals
across the Web, including Microsoft Internet Explorer and AltaVista, and
provides simplified navigation through proprietary keywords. Under this
agreement, we also have the right to create additional keywords using
"furniture" as a prefix.
CUSTOMER COMMUNICATION OPERATIONS
Furniture.com believes that an important part of retaining and expanding our
loyal customer base is extended availability by phone, e-mail or live chat. Our
Design Consultants and Customer Care Representatives are currently available
from 8:00 a.m. to 1:00 a.m. (E.S.T.) from Monday through Friday, from 9:00 a.m.
to 8:00 p.m. on Saturday and from 10:00 am to midnight on Sunday. We will expand
our hours of operation as demand requires.
Our customer communication operations center is staffed by Design
Consultants and Customer Care Representatives. As of December 31, 1999, we had
31 Design Consultants and 40 Customer Care Representatives.
We use Lucent Technologies software to increase the efficiency of our
telephone-based activities and to match our resources to customer demand,
maintaining high levels of service. For the six months ended December 31, 1999,
our average time to answer a call has been less than 25 seconds and our call
abandonment rate was approximately 3% of calls. For e-mail, we use the Kana
Communications e-mail management software to efficiently route in-bound e-mails,
generate automated responses to standard inquiries and improve turnaround times.
Our goal is to respond to customer e-mails within 48 hours.
TECHNOLOGY AND SYSTEM OPERATIONS
Our systems are based on industry standard architecture and have been
developed to be secure and scaleable and to reduce downtime in the event of
outages or catastrophic events. Our Web site is hosted by a third-party Internet
hosting service, which provides redundancy and emergency power backup. Our
systems run in parallel on multiple servers, which allows the system to balance
the workload among the servers. Our systems provide availability 24 hours a day,
seven days a week. The system also includes redundant hardware on critical
components, which we believe would enable us to endure potential failures of any
single server with minimal downtime. In addition, we believe our architecture
will enable us to add additional servers to expand existing capacity without
incurring significant development costs.
Furniture.com has implemented a broad array of Web site management, search,
customer interaction, transaction processing, fulfillment and supplier
relationship management systems using a combination of proprietary and
commercially-available, licensed technologies. We have implemented and enhanced
a set of third-party applications to support our business operations:
AKAMAI TECHNOLOGIES
Furniture.com was the first online commerce user of Akamai technology, which
increases the download speed of our graphically intensive Web site. Akamai's
software and server network pushes Web content closer to users, which results in
faster delivery of content.
EXTRICITY SOFTWARE
We are building an Internet-based supply-chain management system using both
internal technology and software supplied by Extricity Software, Inc. This will
result in a simple but efficient
48
communications network among Furniture.com, our suppliers and our shipping
partners and will enable us to automate key business processes.
NET PERCEPTIONS
We have introduced collaborative filtering and one-on-one personalization
features using the Net Perceptions engine to provide product recommendations to
our customers based on Web site browsing and purchasing behavior.
KANA COMMUNICATIONS.
We have implemented the Kana e-mail management systems to route and
facilitate responses to customer e-mail inquiries.
The market in which we compete is characterized by rapidly changing
technology, evolving industry standards, frequent new services, product
announcements and enhancements and changing supplier and customer demands.
Evolving standards and practices could render our Web site and proprietary
technology obsolete. Our future performance will depend, in part, on our ability
to license or acquire leading technologies, enhance our existing services and
respond to technological advances and emerging industry standards and practices
on a timely and cost-effective basis. In addition, the widespread adoption of
new Internet, networking or telecommunication technologies or other
technological changes could require substantial expenditures by us to modify or
adapt our services or infrastructure. This could have a harmful effect on our
business, results of operations and financial condition.
COMPETITION
The online home furnishing and decorating category is relatively new,
rapidly evolving and competitive, with several well-funded participants seeking
category leadership. We expect to face competition in our existing product
categories as well as other product categories we enter. Barriers to entry are
low, and current and new competitors can launch Web sites at minimal cost.
Furniture.com currently or potentially competes with:
- traditional retailers of home furnishings in both their physical store and
online operations, including furniture stores such as Ethan Allen,
Heilig-Myers and Levitz Furniture, department stores such as Dayton
Hudson, Federated Department Stores, J.C. Penney Company, May Department
Stores Company and Sears, Roebuck and Company and specialty retailers such
as Bed Bath & Beyond, Linens 'n Things and Pier 1 Imports;
- other online retailers of home furnishings such as FurnitureFind.com,
HomePoint.com and BeHome.com;
- catalog and multichannel retailers of home furnishings such as Fingerhut,
Pottery Barn and Spiegel;
- manufacturers of home furnishings that sell directly to end-customers,
either through physical retail or online channels;
- Internet portals and online service providers that feature shopping
services, such as AltaVista, AOL, Excite@Home, Lycos and Yahoo!; and
- North Carolina and other discount showrooms.
We believe that the following are the principal competitive factors in our
category:
- selection;
49
- retailer brand recognition;
- quality of customer experience from shopping through delivery;
- product information and content; and
- price and value.
Many of our current and potential competitors, particularly the traditional
store-based retailers, have longer operating histories and greater financial and
other resources than Furniture.com, which they may devote to online enterprise
development. In addition, larger, well-established and well-financed entities
may acquire, invest in or form joint ventures with online competitors.
Our current and potential competitors may be able to secure products from
vendors on more favorable terms, fulfill customer orders more efficiently and
adopt more aggressive pricing or inventory availability policies than we do.
Traditional store-based retailers also have the advantage of allowing customers
to physically see and feel products in a manner that is not possible over the
Internet. Given our limited operating history, many of our current and potential
competitors have significantly greater experience selling home furnishing
products than we do. For example, established catalog retailers and North
Carolina showrooms may have greater experience than we do in marketing and
selling home furnishings without in-person customer interaction.
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks, trade
dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have entered into confidentiality and invention
assignment agreements with our key employees and contractors and nondisclosure
agreements with our key suppliers and strategic partners in order to limit
access to and disclosure of our proprietary information. These contractual
arrangements or the other steps taken by us to protect our intellectual property
may not prove sufficient to prevent misappropriation of our technology or to
deter independent third-party development of similar technologies. We pursue the
registration of our trademarks and service marks in the United States. We have
not pursued international protection of our intellectual property. If we expand
our business internationally, effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which we may do
business. We also rely on certain technologies that we license from third
parties, including the suppliers of the operating systems and financial and
reporting systems for our business. These third-party technology licenses may
not continue to be available to us on commercially reasonable terms. The loss of
such technology could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, which could negatively
impact our business, results of operations and financial condition.
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties. Third parties may in the future claim
infringement by us with respect to past, current or future technologies. We
expect that participants in our markets will be increasingly subject to
infringement claims as the number of services and competitors in our industry
segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could impair our business, financial condition and
results of operations.
50
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally or directly applicable
to electronic commerce. However, the Internet is increasingly popular. As a
result, it is possible that a number of laws and regulations may be adopted with
respect to the Internet. These laws may cover issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
Furthermore, the growth of electronic commerce may prompt calls for more
stringent consumer protection laws. Several states have proposed legislation to
limit the uses of personal user information gathered online or require online
services to establish privacy policies. The Federal Trade Commission has also
initiated action against at least one online service regarding the manner in
which personal information is collected from users and provided to third
parties. We do not currently provide personal information regarding our users to
third parties. However, the adoption of such consumer protection laws could
create uncertainty in Web usage and reduce the demand for our products and
services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of such laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address such issues could create uncertainty in the Internet
marketplace. Such uncertainty could reduce demand for our products and services
or increase the cost of doing business as a result of litigation costs or
increased service delivery costs.
In addition, because our products and services are available over the
Internet throughout the United States, jurisdictions may claim that we are
required to qualify to do business in each such state. We are qualified to do
business only in Massachusetts. Our failure to qualify in a jurisdiction where
we are required to do so could subject us to taxes and penalties. It could also
hamper our ability to enforce contracts in such jurisdictions. The application
of laws or regulations from jurisdictions whose laws do not currently apply to
our business could harm our business, financial condition and results of
operations.
EMPLOYEES
As of December 31, 1999, we had 209 full-time employees. None of our
employees are represented by a labor union. We have not experienced any work
stoppages and consider our employee relations to be good.
Our future performance depends in significant part upon the continued
service of our key employees. The loss of services of one or more of our key
employees could harm our business, financial condition and results of
operations. Our future success also depends in part upon our continued ability
to attract, hire, train and retain highly qualified technical, sales and
managerial personnel. Competition for such personnel is intense and we may not
be able to retain our key personnel.
FACILITIES
Our corporate offices are located in Framingham, Massachusetts, where we
lease approximately 64,000 square feet under a lease that expires in December,
2004.
LEGAL PROCEDURES
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would have a materially adverse effect on us.
51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth specific information regarding our executive
officers and directors as of December 31, 1999.
NAME AGE POSITION(S)
---- -------- -----------
Andrew L. Brooks............................. 36 President, Chief Executive Officer and
Director
Edwin T. Derecho............................. 42 Senior Vice President, Chief Financial Officer
and Treasurer
Kirsten A. von Hassel........................ 34 Vice President of Marketing
Carl E. Prindle.............................. 31 Senior Vice President of Product Development
Peter Halunen................................ 32 Vice President of Merchandising
Guangming Lu................................. 35 Chief Technology Officer
Michael A. Sudik............................. 48 Senior Vice President of Operations
Rose R. Mauriello............................ 42 Vice President of Sales
Alex E. Seldin............................... 33 Vice President of Legal and Business Affairs
and Secretary
Michael Barach (2)........................... 41 Director
Christopher P. Kirchen (1)................... 57 Director
Jason G. Olim................................ 30 Director
Marc D. Poirier (1).......................... 35 Director
Steven Rothschild (1) (2).................... 41 Chairman of the Board of Directors
Joanna A. Strober (2)........................ 31 Director
(1) Member of the audit committee
(2) Member of the compensation committee
ANDREW L. BROOKS has served as our President and Chief Executive Officer
since November 1998, after joining Furniture.com in October 1998 as Vice
President of Marketing. From February 1997 to June 1998, Mr. Brooks was the
Chief Operating Officer of Channel One Network, a teen television and online
network. From May 1994 to January 1997, Mr. Brooks was employed by BMG
Direct Ltd., a mail order music company and a division of Bertelsmann AG, an
international media company, first as Senior Director and then as General
Manager. From August 1992 to April 1994, Mr. Brooks was the Director of New
Business Development for BMG Direct Marketing, Inc., a mail order music company,
and from 1989 to 1992 he was a consultant with McKinsey & Co., a global
management consulting firm. Mr. Brooks earned a Master in Business
Administration from Harvard Business School and a Bachelor of Arts from
Haverford College.
EDWIN T. DERECHO has served as our Senior Vice President, Chief Financial
Officer and Treasurer since December 1999. From September 1998 to
December 1999, Mr. Derecho served as Vice President and Treasurer of Office
Depot, Inc., a global retailer of office supplies and office furniture. From
June 1997 to June 1998, Mr. Derecho was Vice President, Finance of Productivity
Point International, Inc., a computer training and technology learning company.
From October 1994 to June 1997, Mr. Derecho was Vice President and Treasurer of
Sunbeam Corporation, a manufacturer of small appliances and outdoor furniture.
From 1992 to 1994, Mr. Derecho was Director, Capital Markets of PepsiCo, Inc.
From 1986 to 1992, Mr. Derecho served in various positions, most recently as
Vice President, in the mergers and acquisitions and multinational corporate
banking divisions of Citibank, N.A. Mr. Derecho earned a Master in Business
Administration from Harvard Business School and a Bachelor of Arts from Stanford
University.
KIRSTEN A. VON HASSEL has served as our Vice President of Marketing since
February 1999. From January 1997 to January 1999, Ms. von Hassel was with the
New York Times, first in the newly created position of Manager of Direct
Marketing and then as Director of New Subscriber
52
Development. From March 1995 to January 1997, Ms. von Hassel headed up member
acquisition efforts at BMG Direct Ltd., a mail order music company and a
division of Bertelsmann A.G., an international media company, and managed mail
and telemarketing programs as Associate Director and then as Director of Member
Acquisition Marketing. From 1992 to March 1995, Ms. von Hassel was the Product
Manager for the Classroom Magazine Division of Scholastic, Inc., a publishing
company. Ms. von Hassel earned a Master of Business Administration from the
Wharton School at the University of Pennsylvania and a Bachelor of Arts from
Columbia University.
CARL E. PRINDLE has served as our Senior Vice President of Product
Development since November 1999. From December 1998 to October 1999,
Mr. Prindle served as our Executive Producer. From September 1995 to
December 1998, Mr. Prindle was a consultant with McKinsey & Co., a global
management consulting firm, where he focused on technology, marketing, strategy
and operations for high-tech markets and retail companies. From June 1995 to
September 1995, Mr. Prindle was the Director of Marketing for Product
Genesis, Inc., a product development consulting firm. From 1991 to 1993,
Mr. Prindle was the Manager, Industrial Design for Design West, Inc., a design
consulting firm specializing in the positioning, development and introduction of
new products. While at Design West Inc., Mr. Prindle also served as the Director
of Design for Oansh Design, Inc., a medical product development firm, from 1992
to 1993. Mr. Prindle earned a Master of Business Administration from the
Massachusetts Institute of Technology Sloan School of Management and a Bachelor
of Science from Stanford University.
PETER HALUNEN has served as our Vice President of Merchandising since
August 1998. From October 1995 to August 1998, Mr. Halunen was a Buyer for
Jordan's Furniture, Inc., a regional retail furniture chain. From 1989 to
October 1995 he was a Merchandise Operations Manager with Jordan's Furniture,
Inc. Mr. Halunen started his career at the age of 14 in a family-owned furniture
store, which grew into a contract furnishings firm serving hotels, condominiums
and time-share properties and has more than 18 years of furniture industry
experience.
GUANGMING LU has served as our Chief Technical Officer since August 1999.
From February 1998 to August 1999, Mr. Lu worked at uBid, Inc., an online
auction company, as Vice President of Information Systems and Chief Technology
Officer. From March 1994 to January 1998, Mr. Lu was Technical Development
Manager for Rand McNally & Company, a map publishing company. Mr. Lu earned a
Master of Science from the University of Memphis and a Bachelor of Science from
Huazhong University (currently known as Central China Normal University).
MICHAEL A. SUDIK has served as our Senior Vice President of Operations since
November 1999. From 1979 to November 1999, Mr. Sudik held positions of
increasing responsibility at various divisions of Bertelsmann A.G., an
international media company. Most recently, from April 1999 to November 1999,
Mr. Sudik was Vice President of Inventory/Production for BMG Direct
Marketing, Inc., a mail order music company. From April 1998 to April 1999, he
was both Vice President of Canadian Operations & Inventory/Production for BMG
Direct Inc., a mail order music company, where he reported to the CEO of BMG
Direct Ltd. and CFO of BMG Direct Inc. From December 1995 to March 1997,
Mr. Sudik was the Vice President of Inventory/Production for BMG Direct Inc.
From September 1994 to November 1995, Mr. Sudik was Vice President Operations
for BMG Direct Ltd. Mr. Sudik earned a Master of Business Administration from
the University of Pittsburgh and a Master and Bachelor of Arts from Duquesne
University.
ROSE R. MAURIELLO has served as our Vice President of Sales and Customer
Care since March 1999. From March 1997 to March 1999, Ms. Mauriello was Vice
President of Telesales at GTE Internetworking Inc. (formerly BBN Planet), an
internet service provider. From 1993 to March 1997, Ms. Mauriello was with
Sybase, Inc. (formerly Powersoft Corporation), a software company, in several
capacities including Vice President of Telesales. From 1991 to 1993,
Ms. Mauriello was an Inside Sales Manager for Lotus Development Corporation, a
software company. Ms. Mauriello
53
earned a Master of Business Administration from Babson College and a Bachelor of
Arts from the University of Massachusetts.
ALEX E. SELDIN has served as our Vice President of Legal and Business
Affairs since November 1999. From January 1997 to November 1999, Mr. Seldin
served as Associate Counsel of Bentley Systems, Inc., a large, privately-held
software company. From 1993 to December 1996, Mr. Seldin was an associate in the
corporate department of the law firm of Ballard Spahr Andrews & Ingersoll, LLP.
From 1992 to 1993, Mr. Seldin was an associate in the corporate department of
the law firm of Cleary, Gottlieb, Steen & Hamilton. Mr. Seldin earned a Juris
Doctorate from the University of Pennsylvania Law School and a Bachelor of Arts
from Princeton University.
MICHAEL BARACH has served as a Director since June 1998. Since June 1998,
Mr. Barach has been the Chief Executive Officer of Mothernature.com, Inc., an
online retail store and information source for natural and healthy living
products. From December 1994 to June 1998, Mr. Barach was a Partner at Bessemer
Venture Partners, a venture capital firm and an investor in Furniture.com.
Mr. Barach is a director of Mothernature.com, Inc. Mr. Barach earned a Juris
Doctorate from Harvard Law School, a Master in Business Administration from
Harvard Business School and a Bachelor of Arts from Amherst College.
CHRISTOPHER P. KIRCHEN has served as a Director since June 1998. Since
March 1997, Mr. Kirchen has been Managing General Partner of Brand Equity
Ventures, a venture capital firm and an investor in Furniture.com. Since 1986,
Mr. Kirchen has also been a General Partner of Consumer Venture Partners, a
venture capital firm. Mr. Kirchen is a director of Select Comfort Corporation.
Mr. Kirchen earned a Master of Business Administration from the Wharton School
at the University of Pennsylvania and a Bachelor of Arts from the University of
the South.
JASON G. OLIM has served as a Director since June 1998. In February 1994,
Mr. Olim co-founded CDNow, Inc., an online music retailer, and has been its
Chief Executive Officer since November 1997. Previously, Mr. Olim was employed
in the Professional Services group of Soft-Switch, Inc., a software concern,
where he designed and built software systems for routing mail and documents for
domestic and international clients. Mr. Olim is a director of
Mothernature.com, Inc. Mr. Olim earned a Bachelor of Arts in Computer Science
from Brown University.
MARC D. POIRIER has served as a Director since December 1998. Since
July 1998, Mr. Poirier has been a Partner at @Ventures, a venture capital firm
and an investor in Furniture.com. From May 1996 to July 1998, Mr. Poirier was
Director, Business Development and then Vice President, Electronic Commerce of
Planet Direct Corporation, which provides Web portals to consumers through
Internet service providers and other co-branding partners. From 1993 to
May 1996, Mr. Poirier was a Senior Manager, Mergers & Acquisitions Group for
Ernst & Young. Mr. Poirier is a director of Mothernature.com, Inc. Mr. Poirier
is a Certified Public Accountant and earned a Master in Business Administration
from Harvard Business School and a Bachelor of Science in Business
Administration from Providence College.
STEVEN ROTHSCHILD has served as Chairman of the Board of Directors since
June 1998. Since January 1999, Mr. Rothschild has been the Chief Executive
Officer of bulbs.com, Inc., a business-to-business light bulb distributor. From
June 1998 to November 1998, Mr. Rothschild served as the Chief Executive Officer
of Furniture.com. From 1980 to May 1998, Mr. Rothschild served as President of
Empire Furniture Showrooms, Inc., a wholesale and retail home furnishings
company. Mr. Rothschild earned a Bachelor of Science in both Business
Administration and Economics from Norwich University.
JOANNA A. STROBER has served as a Director since June 1999. Since
June 1999, Ms. Strober has been a Partner at Bessemer Venture Partners, a
venture capital firm and investor in
54
Furniture.com. From March 1996 to June 1999, Ms. Strober was a Principal at
Bessemer Venture Partners. From August 1994 to February 1996, Ms. Strober was an
associate at the Venture Law Group, a law firm. Ms. Strober earned a Juris
Doctorate from the UCLA Law School and a Bachelor of Arts from the University of
Pennsylvania.
ELECTION OF OFFICERS AND DIRECTORS
Furniture.com currently has authorized seven directors. Currently, each
director is elected pursuant to our Third Amended and Restated Stockholders'
Agreement dated December 30, 1999 among Furniture.com and some of our
stockholders, which agreement will terminate automatically upon the closing of
this offering.
Upon the closing of this offering, the terms of office of the members of the
board of directors will be divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 2001, Class II, whose
term will expire at the annual meeting of stockholders to be held in 2002, and
Class III, whose term will expire at the annual meeting of stockholders to be
held in 2003. The Class I directors are Jason G. Olim and Christopher P.
Kirchen, the Class II directors are Joanna A. Strober and Steven Rothschild, and
the Class III directors are Andrew Brooks, Marc D. Poirier and Michael Barach.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, Furniture.com's amended and restated bylaws
provide that the authorized number of directors may be changed only by
resolution of our board of directors or our stockholders. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This classification
of the board of directors may have the effect of delaying or preventing changes
in control or management of Furniture.com.
Our executive officers serve at the discretion of the Board of Directors.
Each of our officers and directors, other than non-employee directors, devotes
full time to the affairs of Furniture.com. Furniture.com's non-employee
directors devote such time to the affairs of Furniture.com as is necessary to
discharge their duties. There are no family relationships among our directors or
executive officers.
BOARD COMMITTEES
Our Board of Directors has two committees, an audit committee and a
compensation committee.
The audit committee reviews, with our independent auditors, the scope and
timing of the auditor's services, the auditor's report on our financial
statements following completion of the auditors' audit, and our internal
accounting and financial control policies and procedures. In addition, the audit
committee will make annual recommendations to our Board of Directors for the
appointment of independent auditors for the ensuing year. The current members of
our audit committee are Christopher P. Kirchen, Marc D. Poirier and Steven
Rothschild.
The compensation committee reviews and evaluates the compensation and
benefits of all executive officers, reviews general policy matters relating to
compensation and benefits of our employees and makes recommendations concerning
these matters to our Board of Directors. The compensation committee also
administers our stock plan. See "Stock Plan". The current members of the
compensation committee are Michael Barach, Steven Rothschild and Joanna A.
Strober.
55
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Brooks participates in all discussions and decisions regarding salaries
and incentive compensation for all of our employees and consultants, except that
he is excluded from discussions regarding his own salary and incentive
compensation. No executive officer of Furniture.com serves as a member of the
board of directors or compensation committee (or other committee serving an
equivalent function) of any other entity that has one or more executive officers
serving as a member of our Board of Directors or Compensation Committee.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from Furniture.com
for their services as members of the Board of Directors. Directors are
reimbursed for reasonable out-of-pocket expenses incurred in attending meetings
of the Board of Directors and for meetings of any committees of the Board of
Directors on which they serve. Directors are also eligible to participate in our
1998 Stock Incentive Plan. In November 1998, Jason G. Olim was granted 25,000
shares of our common stock subject to a Restricted Stock Agreement for
Non-Employees between Mr. Olim and Furniture.com which provides us a right of
first refusal, with certain exceptions (a transfer of shares to or for the
benefit of a spouse, child or grandchild, a transfer pursuant to an effective
registration statement filed by us or a transfer in connection with the sale of
all or substantially all of our shares of capital stock), in the event that
Mr. Olim wishes to sell his shares.
EXECUTIVE COMPENSATION
The following table sets forth the compensation received for services
rendered to Furniture.com by our Chief Executive Officer and each of our four
other most highly compensated executive officers during the fiscal year ended
December 31, 1999.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------------- -------------------------------------------------------------
NAME AND PRINCIPAL RESTRICTED STOCK SECURITIES UNDERLYING ALL OTHER
POSITION SALARY ($) BONUS ($) AWARDS (#)(1) OPTIONS (#) COMPENSATION ($)
------------------ ---------- ---------- ---------------- --------------------- ------------------
Andrew L. Brooks........... $212,885 $ -- 644,403 464,310 --
Carl E. Prindle............ 159,449 -- -- 100,000 --
Kirsten A. von Hassel
(2)...................... 132,693 2,500 -- 25,000 --
Peter Halunen.............. 75,000 60,000 -- 25,000 --
Rose R. Mauriello (3)...... 108,174 35,000 -- -- --
(1) All of our restricted stock awards are subject to a right of repurchase at
cost in our favor which vests over time.
(2) Ms. von Hassel joined us in February 1999. Her current salary is $150,000
per year.
(3) Ms. Mauriello joined us in March 1999. Her current salary is $125,000 per
year.
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OPTION GRANTS
The following table provides summary information regarding stock options
granted to our Chief Executive Officer and our four other most highly
compensated executive officers during the fiscal year ended December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM ($)(3)
-------------------------------------------------------- -------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES PRICE
OPTIONS IN FISCAL PER SHARE EXPIRATION
NAME GRANTED (#) YEAR (%)(1) ($/SHARE)(2) DATE 0% 5% 10%
---- ------------ ------------- ------------ ---------- --------- --------- ----------
Andrew L. Brooks............ 229,335(4) 9.47 6.50 8/11/09 0 937,481 2,375,757
234,975(5) 9.70 1.00(6) 12/21/09 1,292,363 2,252,899(7) 3,726,546(7)
Carl E. Prindle............. 50,000(8) 2.06 6.50 8/4/09 0 204,391 517,967
50,000(9) 2.06 6.50 12/20/09 0 204,391 517,967
Kirsten A. von Hassel....... 150,000(10) 6.19 0.14 2/1/09 0 13,208 33,468
25,000(11) 1.03 6.50 12/20/09 0 102,196 258,984
Peter Halunen............... 25,000(12) 1.03 6.50 12/20/09 0 102,196 258,984
Rose R. Mauriello........... 150,000(13) 6.19 0.50 3/16/09 0 47,168 119,531
(1) We granted options for an aggregate of 2,422,310 shares to our employees and
consultants under the 1998 Stock Incentive Plan during the fiscal year ended
December 31, 1999. See "Stock Plan".
(2) Options were granted at an exercise price equal to the fair market value of
the common stock on the date of grant, as determined by the Board of
Directors, except as indicated.
(3) The potential realizable value is calculated assuming the fair market value
on the date of grant appreciates at the indicated rate for the entire term
of the option and that the option is exercised at the exercise price and
sold on the last day of its term at the appreciated price. All options
listed have a term of 10 years. Stock price appreciation of 0%, 5% and 10%
is assumed pursuant to the rules of the Securities and Exchange Commission.
The actual stock price may not appreciate over the 10-year option term at
the assumed 0%, 5% and 10% levels or at any other defined level. Unless the
market price of the common stock appreciates over the option term, no value
will be realized from the option grants made to the named executive
officers.
(4) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on August 11,
2000 and 1/48 of the total number of shares on the last business day of each
month following August 12, 2000 until August 12, 2003. In the event that
Mr. Brooks is terminated without cause prior to the first anniversary of his
grant date, the right to repurchase at cost in our favor will be deemed to
have lapsed at a rate of 1/48 of the total number of shares on the last
business day of each month following his grant date.
(5) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on August 11,
2000 and 1/48 of the total number of shares on the last business day of each
month following August 12, 2000 until August 12, 2003. In the event that
Mr. Brooks is terminated without cause prior to the first anniversary of his
grant date, the right to repurchase at cost in our favor will be deemed to
have lapsed at a rate of 1/48 of the total number of shares on the last
business day of each month following his grant date.
(6) The fair market value of the common stock on the date of this grant was
$6.50 per share.
(7) This appreciation assumes growth from the fair market value of the common
stock on the date of grant.
57
(8) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on August 3,
2000 and 1/48 of the total number of shares on the last business day of each
month following August 4, 2000 until August 4, 2003.
(9) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on
December 19, 2000 and 1/48 of the total number of shares on the last
business day of each month following December 20, 2000 until
December 20, 2003.
(10) The options have been exercised, however, the underlying shares are subject
to a right of repurchase at cost in our favor which lapses at the rate of
1/4 of the total number of shares on January 31, 2000 and 1/48 of the total
number of shares on the last business day of each month following
February 1, 2000 until February 1, 2003.
(11) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on
December 19, 2000 and 1/48 of the total number of shares on the last
business day of each month following December 20, 2000 until
December 20, 2003.
(12) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on
December 19, 2000 and 1/48 of the total number of shares on the last
business day of each month following December 20, 2000 until
December 20, 2003.
(13) The options have been exercised, however, the underlying shares are subject
to a right of repurchase at cost in our favor which lapses at the rate of
1/4 of the total number of shares on March 15, 2000 and 1/48 of the total
number of shares on the last business day of each month following March 16,
2000 until March 16, 2003.
OPTION EXERCISES AND HOLDINGS
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by our Chief
Executive Officer and our four other most highly compensated executive officers
as of December 31, 1999.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999 (1)
ACQUIRED ON VALUE ------------------------------- ------------------------------
NAME EXERCISE REALIZED EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ --------- -------------- -------------- ------------- --------------
Andrew L. Brooks....... 200,000(3) -- 229,335(4) -- $ 1,940,174 --
234,975(5) -- $ 1,987,888 --
Carl E. Prindle........ 150,000(6) -- 50,000(7) -- $ 423,000 --
50,000(8) -- $ 423,000 --
Kirsten A. von 150,000(9) -- 25,000(10) -- $ 211,500 --
Hassel...............
Peter Halunen.......... 100,000(11) -- 25,000(12) -- $ 211,500 --
Rose R. Mauriello...... 150,000(13) -- -- -- -- --
(1) Based on the estimated fair market value of $8.46 of our common stock on
December 31, 1999.
(2) All option grants are immediately exercisable into shares of restricted
stock which are subject to certain rights of repurchase at cost in our favor
as described in the footnotes accompanying the specific grants in this
column.
(3) The shares are subject to a right of repurchase at cost in our favor which
lapsed at the rate of 1/4 of the total number of shares on September 16,
1999 and has lapsed and will continue to lapse at a rate of 1/48 of the
total number of shares on the last business day of each month following
September 17, 1999 until September 17, 2002.
(4) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on August 11,
2000 and 1/48 of the total number of shares on the last business day of each
month following August 12, 2000 until August 12, 2003. In the event that
Mr. Brooks is terminated without cause prior to the first anniversary of his
grant date, the right to repurchase at cost in our favor will be deemed to
have lapsed at a rate of 1/48 of the total number of shares on the last
business day of each month following his grant date.
58
(5) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on August 11,
2000 and 1/48 of the total number of shares on the last business day of each
month following August 12, 2000 until August 12, 2003. In the event that
Mr. Brooks is terminated without cause prior to the first anniversary of his
grant date, the right to repurchase at cost in our favor will be deemed to
have lapsed at a rate of 1/48 of the total number of shares on the last
business day of each month following his grant date.
(6) The shares are subject to a right of repurchase at cost in our favor which
lapsed at the rate of 1/4 of the total number of shares on December 16, 1999
and has lapsed and will continue to lapse at a rate of 1/48 of the total
number of shares on the last business day of each month following
December 17, 1999 until December 17, 2002.
(7) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on August 3,
2000 and 1/48 of the total number of shares on the last business day of each
month following August 4, 2000 until August 4, 2003.
(8) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on
December 19, 2000 and 1/48 of the total number of shares on the last
business day of each month following December 20, 2000 until
December 20, 2003.
(9) The shares are subject to a right of repurchase at cost in our favor which
lapses at the rate of 1/4 of the total number of shares on January 31, 2000
and 1/48 of the total number of shares on the last business day of each
month following February 1, 2000 until February 1, 2003.
(10) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on
December 19, 2000 and 1/48 of the total number of shares on the last
business day of each month following December 20, 2000 until
December 20, 2003.
(11) The shares are subject to a right of repurchase at cost in our favor which
lapsed at the rate of 1/4 of the total number of shares on August 12, 1999
and has lapsed and will continue to lapse at a rate of 1/48 of the total
number of shares on the last business day of each month following
August 12, 1999 until August 12, 2002.
(12) The options are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on
December 19, 2000 and 1/48 of the total number of shares on the last
business day of each month following December 20, 2000 until
December 20, 2003.
(13) The shares are subject to a right of repurchase at cost in our favor which
lapses at the rate of 1/4 of the total number of shares on March 15, 2000
and 1/48 of the total number of shares on the last business day of each
month following March 16, 2000 until March 16, 2003
STOCK PLAN
1998 STOCK INCENTIVE PLAN
The Board of Directors adopted our 1998 Stock Incentive Plan, referred to as
the Incentive Plan, in September 1998 and our stockholders approved it in
December 1998. The Incentive Plan was amended in December 1998, June 1999 and
November 1999. We have reserved a total of 4,500,000 shares of common stock for
issuance under the Incentive Plan. As of December 31, 1999, options to purchase
3,608,310 shares of common stock with a weighted average exercise price equal to
$3.66 have been granted, of which 1,210,477 have been exercised and are now
restricted shares subject to certain rights of repurchase by us under the
Incentive Plan. In addition, as of December 31, 1999, 1,938,341 shares of
restricted stock, including those received as a result of exercising option
grants as discussed in the previous sentence, with a weighted average purchase
price equal to $0.18, have been awarded under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended, non-statutory stock options, restricted stock awards and other
stock-based awards, collectively referred to as Awards.
59
All of our officers, employees, directors, consultants and advisors and all
of the officers, employees, directors, consultants and advisors of our
subsidiary are eligible to receive Awards under the Incentive Plan. Under
present law, however, incentive stock options may only be granted to employees.
We may grant options at an exercise price less than, equal to or greater
than the fair market value of the common stock on the date of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
may not be granted at an exercise price less than the fair market value of the
common stock on the date of grant (or less than 110% of the fair market value in
the case of incentive stock options granted to optionees holding more than 10%
of our voting power). The Incentive Plan permits the Board of Directors to
determine how optionees may pay the exercise price of their options, including
by cash, check or in connection with a "cashless exercise" through a broker, by
surrender to us of shares of common stock, by delivery to us of a promissory
note, or by any combination of the permitted forms of payment.
The Board of Directors has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the Incentive Plan.
It may delegate authority under the Incentive Plan to one or more committees of
the Board of Directors and, subject to certain limitations, to one or more of
our executive officers. The Board of Directors has authorized the Compensation
Committee to administer the Incentive Plan, including the granting of options to
executive officers. Subject to any applicable limitations contained in the
Incentive Plan, the Board of Directors, the Compensation Committee or any other
committee or executive officer to whom the Board of Directors delegates
authority, as the case may be, selects the recipients of awards and determines:
- the number of shares of common stock covered by options and the dates upon
which such options become exercisable;
- the exercise price of options;
- the duration of options; and
- the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase price.
In the event of a merger or other acquisition event, the Board of Directors
is authorized to provide for outstanding option Awards to be assumed or
substituted for by the acquirer. If the acquisition event also results in a
change in our control, any assumed or substituted options become exercisable in
full unless otherwise provided in the instrument evidencing the option. If an
option is not so assumed or substituted, the Board shall provide that all
options then outstanding become exercisable in full and shall terminate if not
exercised prior to the merger or other acquisition event. In the event of a
change in our control not in connection with a merger or other acquisition
event, all options then outstanding will become immediately exercisable in full
except to the extent specifically provided to the contrary in the instrument
evidencing the option. Our standard form of option agreement provides that, upon
the occurrence of certain events (such as constructive termination of
employment) after a change in our control, such options become exercisable in
full.
In the event of a merger or other acquisition event that does not result in
a change in our control, the acquiring company may repurchase restricted stock
awarded under the Incentive Plan on the same terms on which we could repurchase
such stock prior to the acquisition event. In the event of a change in our
control, all restrictions on restricted stock awarded under the Incentive Plan
terminate except to the extent specifically provided to the contrary in the
instrument evidencing the Award. No Award may be granted under the Incentive
Plan after September 2008, but the
60
vesting and effectiveness of Awards previously granted may extend beyond that
date. The Board of Directors may amend, suspend or terminate the Incentive Plan
or any portion thereof at any time.
401(K) PLAN
We have a Section 401(k) Profit Sharing Plan. The 401(k) plan is a
tax-qualified plan covering all of our full-time employees who are over
21 years of age and who have completed one month of service with us. Under the
401(k) plan, participants may elect to defer a portion of their compensation. In
addition, at the discretion of the Board of Directors, we may make matching
contributions into the 401(k) plan for all eligible employees. We have not made
any contributions to the 401(k) plan to date.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of directors for monetary damages for breach
of their fiduciary duties as directors, except for liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation
Law; or
- any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under
federal securities laws and does not affect the availability of equitable
remedies, such as injunctive relief or recission.
Our certificate of incorporation provides that we shall indemnify our
directors, officers and employee benefit plan fiduciaries to the fullest extent
permitted by law. We believe that indemnification under our certificate of
incorporation covers at least negligence and gross negligence on the part of
indemnified parties. Our certificate of incorporation also permits us to advance
expenses incurred by an indemnified director, officer or employee benefit plan
fiduciary in connection with the defense of any action or proceeding arising out
of such director's, officer's or fiduciary's status or service as one of our
directors or officers or a fiduciary of one of our employee benefit plans upon
an undertaking by such person to repay such advances if it is ultimately
determined that such person is not entitled to such indemnification. Our bylaws
also permit us to secure insurance on behalf of any director, officer, employee
or other agent for any liability arising out of his or her actions in such
capacity, regardless of whether our certificate of incorporation or bylaws would
permit indemnification.
We have purchased a general liability insurance policy that covers certain
liabilities of our directors and officers arising out of claims based on acts
and omissions in their capacity as directors and officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer or employee benefit plan fiduciary in
which indemnification would be required or permitted. We are not aware of any
threatened or pending litigation or proceeding that might result in a claim for
such indemnification.
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CERTAIN TRANSACTIONS
EQUITY FINANCINGS
The following table summarizes private placement, equity financing
transactions in which we sold shares of Class A common stock and shares of
preferred stock to our directors and 5% stockholders and persons and entities
associated with them. The purchasers included Arkaro Holding B.V.,
Covestco-AtEura, LLC and Munder NetNet Fund and venture capital funds affiliated
with @Ventures, Bessemer Venture Partners and Brand Equity Ventures. Each of
these venture capital funds holds more than 5% of our outstanding capital stock
and/or has designated a member of our Board of Directors.
DIRECTORS AND 5%
STOCKHOLDERS AND CLASS A SERIES A SERIES B SERIES C SERIES D
AFFILIATED ENTITIES COMMON PREFERRED PREFERRED PREFERRED PREFERRED
------------------- --------- --------- --------- --------- ---------
Arkaro Holding B.V................. -- -- -- 1,350,795 244,949
@Ventures.......................... -- -- 3,521,127 540,318 478,723
Bessemer Venture Partners.......... 750,000 742,500 1,408,451 67,540 106,383
Brand Equity Ventures.............. 1,500,000 1,485,000 1,056,338 67,540 --
Covestco-AtEura, LLC............... -- -- -- 1,080,635 265,957
Munder NetNet Fund................. -- -- -- -- 1,595,744
CLASS A AND SERIES A FINANCING
On June 19 and 25, 1998, we issued 3,040,000 shares of Class A common stock
and 3,009,600 shares of Series A preferred stock to entities associated with
Bessemer Venture Partners, as a group, and entities associated with Brand Equity
Ventures, as a group, each 5% or greater stockholders of Furniture.com, and
others, for aggregate consideration of approximately $3,040,000. The shares of
Class A common stock were sold at $0.01 per share and the shares of Series A
preferred stock were sold at $1.00 per share. Each share of Class A common stock
converts into one share of our common stock upon the closing of this offering.
We will redeem each share of Series A preferred stock for $1.00 upon the closing
of this offering.
SERIES B FINANCING
On December 29, 1998, we issued 7,042,254 shares of Series B preferred stock
to entities associated with Bessemer Venture Partners, as a group, entities
associated with Brand Equity Ventures, as a group, and entities associated with
@Ventures, as a group, each 5% or greater stockholders of Furniture.com, and
others, for aggregate consideration of approximately $10,000,000. The shares of
Series B preferred stock were sold at $1.42 per share. Each share of Series B
preferred stock converts into one share of our common stock upon the closing of
this offering.
SERIES C FINANCING
On June 25, 1999, we issued a total of 4,727,786 shares of Series C
preferred stock to Arkaro Holding B.V., Covestco-AtEura, LLC, entities
associated with Bessemer Venture Partners, as a group, entities associated with
Brand Equity Ventures, as a group, and entities associated with @Ventures, as a
group, each 5% or greater stockholders of Furniture.com, and others, for
aggregate consideration of approximately $35,000,000. The shares of Series C
preferred stock were sold at $7.40305 per share. Each share of Series C
preferred stock converts into one share of our common stock upon the closing of
this offering. In the event that the initial public offering price per share of
this offering is less than $11.10, the number of shares of common stock into
which a
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single share of Series C preferred stock will convert shall be increased until
that number multiplied by the initial public offering per share price of this
offering equals $11.10. The Series C Stock Purchase Agreement provides each
holder of Series C preferred stock with a limited right of first refusal in this
offering to purchase that number of shares of common stock that would be
required to be sold to that Series C stockholder to maintain its pre-offering
percentage ownership, up to an aggregate of 8% of this offering for all of the
holders of Series C preferred stock as a group. The underwriters may reduce or
eliminate the number of shares of common stock to be offered to the holders of
Series C preferred stock as part of this offering to the extent necessary to
ensure the success of this offering or to comply with applicable law or stock
exchange rules.
SERIES D FINANCING
On December 30, 1999, we issued 3,040,759 shares of Series D preferred stock
to Arkaro Holding B.V., Covestco-AtEura, LLC, Munder NetNet Fund, entities
associated with Bessemer Venture Partners, as a group, entities associated with
Brand Equity Ventures, as a group, and entities associated with @Ventures, as a
group, each a 5% or greater stockholder of Furniture.com, and others, for
aggregate consideration of approximately $28,583,134. The shares of Series D
preferred stock were sold at $9.40 per share. Each share of Series D preferred
stock converts into one share of our common stock upon the closing of this
offering.
STOCKHOLDERS AGREEMENT
Furniture.com has entered into a Third Amended and Restated Stockholders'
Agreement, dated as of December 30, 1999 (the "Stockholders' Agreement"), with
Steven Rothschild, Andrew Brooks and certain other of our officers, and each of
the holders of our preferred stock. The Stockholders' Agreement contains
provisions with respect to the election of directors of Furniture.com and
restrictions on the transfer of shares of Furniture.com's capital stock. Each of
these provisions will automatically terminate upon the completion of this
offering.
LEASES
In June 1998, we entered into a lease with Brick by Brick Realty, LLC for
100 Beacon Street, Worcester, Massachusetts. The term of the lease expires,
notwithstanding certain options to extend, in June 30, 2003. We are obligated to
pay under the lease $129,500 per year until July 1, 2001; $138,750 from July 1,
2001 until July 1, 2002; and $148,000 from July 1, 2002 through June 30, 2003.
Steven Rothschild is a manager of, and owns 100% of the interests in, Brick by
Brick Realty, LLC and is also Chairman of the Board of Directors and a
stockholder of Furniture.com.
In June 1998, we entered into a lease with More Bricks Realty Trust for 40
Jackson Street, Worcester, Massachusetts. The term of the lease expires,
notwithstanding certain options to extend, in June 30, 2003. We are obligated to
pay under the lease $80,500 per year until July 1, 2001; $86,250 from July 1,
2001 until July 1, 2002; and $92,000 from July 1, 2002 through June 30, 2003.
Steven Rothschild is a trustee and beneficiary of More Bricks Realty Trust and
is also Chairman of the Board of Directors and a stockholder of Furniture.com.
Effective December 30, 1999, we agreed with both Brick by Brick Realty, LLC
and More Bricks Realty Trust to terminate our leases for the properties at 100
Beacon Street, Worcester, Massachusetts and 40 Jackson Street, Worcester,
Massachusetts. In exchange for these early terminations we paid $200,000 to More
Bricks Realty Trust (including rent for February and March 2000 for the property
at 40 Jackson Street, Worcester, Massachusetts) and $400,000 to Brick by Brick
Realty LLC (including rent for February and March 2000 for the property at 100
Beacon Street, Worcester, Massachusetts). Furthermore, we agreed to vacate both
properties by March 31, 2000.
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EMPLOYMENT AGREEMENTS
In June 1998, we entered into an employment agreement with Steven
Rothschild, which was amended in December 1998. This agreement was terminated in
May 1999, although Mr. Rothschild continues to serve as Chairman of our Board of
Directors. Although the agreement was terminated, we are obligated to continue
to pay to Mr. Rothschild an amount equal on an annual basis to $100,000 for, and
benefits during, each of the 12 months ending June 2000 and June 2001 as well as
an additional amount equal to six months salary at the highest salary rate in
effect during the twelve months prior to termination. Mr. Rothschild has agreed
to certain confidentiality, disclosure of developments, noncompetition and
nonsolicitation provisions in the agreement, with certain exceptions for the
business of selling light bulbs and electrical components for lamps and lighting
fixtures by direct marketing or by use of the Internet. These provisions of the
agreement continue in effect for various periods after the agreement's
termination.
In November 1998, we entered into an employment agreement with Andrew Brooks
for Mr. Brooks to serve as our President and Chief Executive Officer. The
employment agreement provides for a period of employment commencing on
November 7, 1998 and continuing until terminated in accordance with the
agreement. The employment agreement provides for an annual base salary of
$175,000 for the first year of the agreement after which the salary is reviewed
annually, and may be increased, but not decreased without the written consent of
Mr. Brooks, by our Board of Directors. In August 1999, our Board of Directors
approved an increase in Mr. Brooks' annual base salary to $225,000. In the event
that we terminate Mr. Brooks without cause or his employment is constructively
terminated or is terminated by death or disability, we are required to pay him
an amount equal to six months salary at the highest salary rate in effect during
the then previous twelve months. In the event that we terminate Mr. Brooks with
cause, we are required to pay him such compensation and provide him such
benefits as he is then entitled to receive until the last day of his actual
employment. Mr. Brooks has also agreed to certain confidentiality, disclosure of
developments, noncompetition and nonsolicitation provisions.
SEVERANCE AGREEMENT
In December 1999, we entered into a Severance Agreement, with a term of one
year, with Peter Halunen, our Vice President of Merchandising, in which we
agreed to pay Mr. Halunen, in the event that his employment is terminated
without cause, an aggregate amount equal to six (6) months salary at his base
salary rate (excluding any bonuses and other forms of compensation) in effect at
the time of termination. Such aggregate amount shall be paid in twelve equal
bi-weekly installments commencing two weeks after the date of Mr. Halunen's
termination.
STOCK PURCHASE AGREEMENT
In June 1998, we purchased from Steven Rothschild, a director and
stockholder of Furniture.com, all the outstanding shares of capital stock of
Empire Furniture Warehouse, Inc., a Massachusetts corporation, for an aggregate
purchase price of $250,000.
STOCK AND OPTION ISSUANCES AND LOANS
On January 20, 1999, we loaned $132,463 to Andrew Brooks, our President and
Chief Executive Officer and member of our Board of Directors, pursuant to a full
recourse, promissory note that bears interest at 4.64% per year. Mr. Brooks used
this loan to purchase approximately 473,082 shares of our common stock at a
price of $0.28 per share. Mr. Brooks is required to pay us principal and
interest, without demand, in four equal installments of $37,044 on January 20 in
the years 2000, 2001, 2002 and 2003. Mr. Brooks' obligations under the
promissory note are secured by 473,083 shares of our common stock, valued at
$0.28 per share, pursuant to a pledge
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agreement to us dated January 20, 1999. Mr. Brooks paid the first installment of
$37,044 on January 20, 2000.
On January 3, 2000, we loaned $176,448 to Mr. Brooks, pursuant to a full
recourse promissory note that bears interest at 6.21% per year. Mr. Brooks is
required to pay us principal and interest, without demand, in a single payment
on the earlier to occur of January 2, 2005 and the second anniversary of the
date that common shares of our capital stock are listed for trading on a
securities exchange or trade in the over-the-counter market. Mr. Brooks'
obligations under the promissory note are secured by 58,744 shares of our common
stock pursuant to a pledge agreement with us dated January 3, 2000.
On January 14, 1999, we loaned $200,000 to Steven Rothschild, the Chairman
of our Board of Directors, pursuant to a non-recourse promissory note that bears
interest at 7.00% per year. Mr. Rothschild is required to pay us principal and
interest, without demand, in a single payment on January 13, 2004.
Mr. Rothschild's obligations under the promissory note are secured by 714,286
shares of our Class B common stock, valued at $0.28 per share, pursuant to a
pledge agreement with us dated January 14, 1999.
AGREEMENTS WITH SUBSIDIARIES OF CMGI, INC.
CMG@Ventures III, LLC, an investor in Furniture.com and an affiliated fund
of @Ventures, is a subsidiary of CMGI, Inc. We have business agreements with
NaviSite, Inc. and AltaVista, both of which are also subsidiaries of CMGI, Inc.
We entered into an Insertion Order with AltaVista through Double Click, Inc. on
January 1, 2000 which terminates on December 31, 2000. We entered into a
SiteHarbor Services Agreement with NaviSite, Inc. on July 31, 1998 with an
initial term of one year. However, the agreement renews automatically on
July 31 of each subsequent year unless either we or NaviSite provide to the
other a written notice of termination ninety days prior to such renewal. The
SiteHarbor Services Agreement with NaviSite is still in effect. We believe that
these agreements were entered into on commercially reasonable terms and are no
less favorable to us than comparable agreements with unaffiliated third-parties.
OTHER TRANSACTIONS
All future transactions, including loans from us to our officers, directors
and principal stockholders and their affiliates will be approved by a majority
of our Board of Directors, including a majority of the independent and
disinterested directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of December 31, 1999, as adjusted to
reflect the sale of the common stock offered hereby under this prospectus, by:
- each stockholder known by us to own beneficially more than 5% of the
common stock;
- each director;
- each executive officer named in the Summary Compensation Table; and
- all directors and executive officers as a group.
Shares beneficially owned includes shares of common stock resulting from
conversion of Series B, Series C and Series D preferred stock and Class A common
stock into our common stock and reflects redemption of our Series A preferred
stock upon the completion of the offering described in this prospectus.
Unless otherwise indicated, the address for those listed below is c/o
Furniture.com, Inc., 1881 Worcester Road, Framingham, Massachusetts 01701.
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(%) (1)
--------------------------------
NAME AND ADDRESS OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OFFERING OFFERING (2)
------------------------------------ ----------------------- ------------ -------------
5% STOCKHOLDERS
Arkaro Holding B.V.................. 1,595,744 6.01
Locatellikade 1
1076 AZ Amsterdam
The Netherlands
@Ventures (3)....................... 4,540,168 17.10
100 Brickstone Square, 5(th) Floor
Andover, MA 01810
Bessemer Venture Partners I, L.P. 2,332,374 8.79
(4)...............................
1400 Old Country Road, Suite 407
Westbury, NY 11590
Brand Equity Ventures (5)........... 2,623,878 9.88
Three Pickwick Plaza
Greenwich, CT 06830
Covestco-AtEura, LLC................ 1,346,592 5.07
c/o Jura Trust
Mitteldorf 1
Vaduz, Liechtenstein, FL-9490
Munder NetNet Fund.................. 1,595,744 6.01
480 Pierce Street, Ste. 300
Birmingham, MI 48009
No Bricks L.P. (6).................. 2,000,000 7.53
4 Lantern Lane
Worcester, MA 01609
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PERCENTAGE OF SHARES
BENEFICIALLY OWNED(%) (1)
--------------------------------
NAME AND ADDRESS OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OFFERING OFFERING (2)
------------------------------------ ----------------------- ------------ -------------
EXECUTIVE OFFICERS AND DIRECTORS
Andrew L. Brooks (7)................ 1,348,713 5.08
Carl E. Prindle (8)................. 250,000 *
Kirsten A. von Hassel (9)........... 175,000 *
Peter Halunen (10).................. 125,000 *
Rose R. Mauriello (11).............. 150,000 *
Michael Barach (12)................. 664,800 2.50
Christopher P. Kirchen (13)......... 2,623,878 9.88
Jason G. Olim (14).................. 25,000 *
Joanna A. Strober (15).............. 2,225,991 8.38
Marc D. Poirier (16)................ 4,061,445 15.30
Steven Rothschild (17).............. 4,089,400 15.40
All directors and executive officers 16,539,227 62.30
as a group (15 persons)...........
* Less than 1% of the outstanding shares of common stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that
person, shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within
60 days after December 31, 1999 are deemed outstanding, while such shares
are not deemed outstanding for computing percentage ownership of any other
person. Except pursuant to applicable community property laws or as
indicated in the footnotes to this table, to our knowledge, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by such
stockholder. The above table assumes the Series C preferred stock will
convert on a one-for-one basis into shares of our Class B common stock. In
the event that the initial public offering price per share in this offering
is less than $11.10, the number of shares of Class B common stock into which
a single share of Series C preferred stock will convert shall be increased
until that number multiplied by the initial public offering price per share
in this offering equals $11.10.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) Consists of 2,727,565 shares held of record by @Ventures III, LP, 818,306
shares held of record by @Ventures Foreign Fund III, LP, 903,493 shares held
of record by CMG@Ventures III, LLC and 90,804 shares held of record by
@Ventures Investors, LLC, all of which are affiliated funds of @Ventures.
@Ventures Partners III, LLC is the General Partner of @Ventures III, LP and
@Ventures Foreign Fund III, LP and a managing member of CMG@Ventures III,
LLC. Marc Poirier, a director of Furniture.com, is a Managing Member of
@Ventures Partners III, LLC, a Member of @Ventures Investors, LLC and a
partner of @Ventures. Mr. Poirier disclaims beneficial ownership of the
4,061,445 shares held by the affiliated funds of @Ventures except to the
extent of his pecuniary interests therein.
(4) Consists of 211,845 shares held of record by Bessemer Venture Investors
L.P., 1,305,902 shares held of record by Bessemer Venture Partners IV L.P.
and 814,627 shares held of record by Bessec Ventures IV L.P., all of which
are affiliated funds of Bessemer Venture Partners. Joanna Strober, a
director of Furniture.com, is a partner of Bessemer Venture Partners.
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Ms. Strober disclaims beneficial ownership of the 2,968,491 shares held by
the affiliated funds of Bessemer Venture Partners except to the extent of
her pecuniary interests therein.
(5) Brand Equity Ventures I, L.P. is an affiliated fund of Brand Equity
Ventures. Brand Equity Partners I, LLC is the General Partner of Brand
Equity Ventures I, L.P. Christopher Kirchen, a director of Furniture.com, is
a Managing Member of Brand Equity Partners I, LLC and a partner of Brand
Equity Ventures. Mr. Kirchen disclaims beneficial ownership of the shares
held by Brand Equity Ventures I, L.P. except to the extent of his pecuniary
interest therein.
(6) No Bricks L.L.C. is the General Partner of No Bricks L.P. Steven Rothschild,
Chairman of the Board of Directors of Furniture.com, is the sole Manager of
No Bricks L.L.C. Mr. Rothschild disclaims beneficial ownership of the shares
held by No Bricks L.P. except to the extent of his pecuniary interest
therein.
(7) 200,000 of the shares are subject to a right of repurchase at cost in our
favor which lapsed at the rate of 1/4 of the total number of shares on
September 16, 1999 and has lapsed and will continue to lapse at a rate of
1/48 of the total number of shares on the last business day of each month
following September 17, 1999 until September 17, 2002. 644,403 of the shares
are subject to a right of repurchase at cost in our favor which lapsed at
the rate of 1/4 of the total number of shares on November 6, 1999 and has
lapsed and will continue to lapse at a rate of 1/48 of the total number of
shares on the last business day of each month following November 7, 1999
until November 7, 2002. 229,335 of the shares represent options which are
immediately exercisable. However, if exercised, the underlying shares are
subject to a right of repurchase at cost in our favor which lapses at the
rate of 1/4 of the total number of shares on August 11, 2000 and 1/48 of the
total number of shares on the last business day of each month following
August 12, 2000 until August 12, 2003. 234,975 of the shares are subject to
options which are immediately exercisable. However, if exercised, the
underlying shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on August 11,
2000 and 1/48 of the total number of shares on the last business day of each
month following August 12, 2000 until August 12, 2003. 473,083 of the shares
have been pledged by Mr. Brooks as security for a loan made to Mr. Brooks by
Furniture.com, in the amount of $132,463, dated January 20, 1999. Please see
"Certain Transactions--Stock and Option Issuances and Loans".
(8) 150,000 of the shares are subject to a right of repurchase at cost in our
favor which lapsed at the rate of 1/4 of the total number of shares on
December 16, 1999 and has lapsed and will continue to lapse at a rate of
1/48 of the total number of shares on the last business day of each month
following December 17, 1999 until December 17, 2002. 50,000 of the shares
are subject to options which are immediately exercisable. However, if
exercised, the underlying shares are subject to a right of repurchase at
cost in our favor which lapses at the rate of 1/4 of the total number of
shares on August 3, 2000 and 1/48 of the total number of shares on the last
business day of each month following August 4, 2000 until August 4, 2003.
50,000 of the shares represent options which are immediately exercisable.
However, if exercised, the underlying shares are subject to a right of
repurchase at cost in our favor which lapses at the rate of 1/4 of the total
number of shares on December 19, 2000 and 1/48 of the total number of shares
on the last business day of each month following December 20, 2000 until
December 20, 2003.
(9) 150,000 of the shares are subject to a right of repurchase at cost in our
favor which lapses at the rate of 1/4 of the total number of shares on
January 31, 2000 and 1/48 of the total number of shares on the last business
day of each month following February 1, 2000 until February 1, 2003. 25,000
of the shares represent options which are immediately exercisable. However,
if exercised, the underlying shares are subject to a right of repurchase at
cost in our favor which lapses at the rate of 1/4 of the total number of
shares on December 19, 2000 and 1/48 of the total
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number of shares on the last business day of each month following
December 20, 2000 until December 20, 2003.
(10) 100,000 of the shares are subject to a right of repurchase at cost in our
favor which lapsed at the rate of 1/4 of the total number of shares on
August 12, 1999 and has lapsed and will continue to lapse at a rate of 1/48
of the total number of shares on the last business day of each month
following August 12, 1999 until August 12, 2002. 25,000 of the shares
represent options which are immediately exercisable. However, if exercised,
the underlying shares are subject to a right of repurchase at cost in our
favor which lapses at the rate of 1/4 of the total number of shares on
December 19, 2000 and 1/48 of the total number of shares on the last
business day of each month following December 20, 2000 until December 20,
2003.
(11) All of the shares are subject to a right of repurchase at cost in our favor
which lapses at the rate of 1/4 of the total number of shares on March 15,
2000 and 1/48 of the total number of shares on the last business day of each
month following March 16, 2000 until March 16, 2003.
(12) Consists of 565,800 shares, 66,000 shares held in the name of the Trustees
of Amherst College for the Michael I. and Holly H. Barach Charitable
Remainder Unitrust and 33,000 shares held in the name of the Trustees of
Amherst College for the Michael I. and Holly H. Barach Charitable Remainder
Unitrust II. Mr. Barach disclaims beneficial ownership of the shares held by
the Trustees of Amherst College for the Michael I. and Holly H. Barach
Charitable Remainder Unitrust and the Trustees of Amherst College for the
Michael I. and Holly H. Barach Charitable Remainder Unitrust II except to
the extent of his pecuniary interest therein.
(13) Consists of 2,623,878 shares held of record by Brand Equity Ventures I,
L.P., an affiliated fund of Brand Equity Ventures. Brand Equity Partners I,
LLC is the General Partner of Brand Equity Ventures I, L.P. Mr. Kirchen is a
Managing Member of Brand Equity Partners I, LLC. Mr. Kirchen disclaims
beneficial ownership of the 4,108,878 shares held by the affiliated funds of
Brand Equity Ventures except to the extent of his pecuniary interest
therein.
(14) All of the shares are held subject to a Restricted Stock Agreement for
Non-Employees, dated November 3, 1998, between Mr. Olim and Furniture.com
which provides us a right of first refusal, with certain exceptions (a
transfer of shares to or for the benefit of a spouse, child or grandchild, a
transfer pursuant to an effective registration statement filed by us or a
transfer in connection with the sale of all or substantially all of our
shares of capital stock), in the event that Mr. Olim wishes to sell his
shares.
(15) Consists of 2,332,374 shares held of record by affiliates of Bessemer
Venture Partners (see Note 4 to this table). Ms. Strober is a partner of
Bessemer Venture Partners. Ms. Strober disclaims beneficial ownership of the
shares held by affiliated funds of Bessemer Venture Partners except to the
extent of her pecuniary interests therein.
(16) Consists of 4,540,168 shares held of record by affiliated funds of
@Ventures (see Note 3 to this table). Mr. Poirier is a partner of @Ventures.
Mr. Poirier disclaims beneficial ownership of the shares held by the
affiliated funds of @Ventures except to the extent of his pecuniary
interests therein.
(17) Includes 2,000,000 shares held by No Bricks L.P. No Bricks L.L.C. is the
General Partner of No Bricks L.P. Mr. Rothschild is the sole Manager of No
Bricks L.L.C. 714,286 of such shares have been pledged by Mr. Rothschild as
security for a loan made to Mr. Rothschild by Furniture.com in the amount of
$200,000, dated January 14, 1999.
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DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
shares of common stock, $0.01 par value, and 5,000,000 shares of
undesignated preferred stock, $0.01 par value. (Throughout this prospectus, we
use both "Class B common stock" and "common stock" to refer to our Class B
common stock which will be renamed common stock upon completion of the offering
described in this prospectus.) The following description of our capital stock
does not purport to be complete and is subject to and qualified in its entirety
by our certificate of incorporation and bylaws, which are included as exhibits
to the registration statement of which this prospectus forms a part, and by the
provisions of applicable Delaware law.
COMMON STOCK
As of December 31, 1999 there were 6,253,027 shares of common stock
outstanding, held of record by approximately 61 stockholders and options to
purchase 2,242,810 shares of common stock outstanding. Upon completion of this
offering, there will be shares of common stock outstanding,
assuming no exercise of (1) the warrants to purchase 202,464 shares of our
Series B preferred stock which shall become exercisable for shares of common
stock upon the conversion of the Series B preferred stock at the completion of
the offering described in this prospectus, (2) the underwriter's over allotment
option and (3) outstanding options.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of common stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available for that purpose. See "Dividend
Policy". In the event of our liquidation, dissolution or winding up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding
preferred stock. The common stock has no preemptive or conversion rights, other
subscription rights or redemption or sinking fund provisions. All outstanding
shares of common stock are fully paid and non-assessable, and the shares of
common stock to be issued upon completion of this offering will be fully paid
and non-assessable.
CLASS A COMMON STOCK
Our Class A common stock has the rights, preferences and privileges set
forth in our current certificate of incorporation, which is included as an
exhibit to the registration statement of which this prospectus forms a part. As
of December 31, 1999, we had 3,040,000 outstanding shares of Class A common
stock. Upon the closing of the offering, all outstanding shares of our Class A
common stock will be converted on a share-by-share basis into 3,040,000 shares
of Class B common stock and the Class A common stock will be automatically
retired.
PREFERRED STOCK
As of December 31, 1999, we had four series of preferred stock: Series A
preferred stock, Series B preferred stock, Series C preferred stock and
Series D preferred stock. Each series of preferred stock has the rights,
preferences and privileges set forth in our current certificate of
incorporation, which is included as an exhibit to the registration statement of
which this prospectus forms a part. As of December 31, 1999, the number of
outstanding shares for each series of our preferred stock was:
- 3,009,600 shares of Series A preferred stock;
- 7,042,254 shares of Series B preferred stock;
- 4,727,786 shares of Series C preferred stock; and
- 3,040,759 shares of Series D preferred stock.
70
Upon the closing of the offering, all outstanding shares of our preferred
stock will be converted into shares of common stock (assuming a public
offering price of $ ) and automatically retired, except for our Series A
preferred stock which we will redeem and retire at the closing of this offering.
Thereafter, the Board of Directors will have the authority, without further
action by the stockholders, to issue up to 5,000,000 shares of preferred stock
in one or more series and to designate the rights, preferences, privileges and
restrictions of each such series. The issuance of preferred stock could have the
effect of restricting dividends on the common stock, diluting the voting power
of the common stock, impairing the liquidation rights of the common stock or
delaying or preventing our change in control without further action by the
stockholders. We have no present plans to issue any shares of preferred stock
after the completion of this offering.
WARRANTS
On February 24, 1999, we issued two warrants to purchase an aggregate of
202,464 shares of Series B preferred stock at a purchase price of $1.42 per
share to Comdisco, Inc. in connection with a subordinated loan facility and a
capitalized lease arrangement. The Series B preferred stock warrants may be
exercised at any time until the earlier of February 24, 2009 or five years from
the effective date of our initial public offering. Upon conversion of the Series
B preferred stock to common stock, these warrants will be exercisable for common
stock.
REGISTRATION RIGHTS
Each of the holders of our Class A common stock, Series B preferred stock,
Series C preferred stock and Series D preferred stock may demand, upon a
majority vote of the particular class, that their shares be registered by us,
provided that the aggregate price of the offering to the public exceeds
$5,000,000. Such demand may be made only once by each class. The Class A common
stock, Series B preferred stock, Series C preferred stock and Series D preferred
stock may demand, upon a majority vote of all of such shares voting together as
a class, that their shares be registered by us, provided that the aggregate
price of the offering to the public exceeds $5,000,000. Such collective demand
may be made only once. All such demands may be made only in the event that we
are not eligible to file a Registration Statement on Form S-3 and may not be
made within 180 days after the effective date of a registration statement filed
by us covering a firm commitment underwritten public offering. The amounts of
shares to be registered in all such registrations are subject to underwriter
cutbacks.
If we are eligible to file a Registration Statement on Form S-3, then any
holder of Class A common stock, Series B preferred stock, Series C preferred
stock and Series D preferred stock may demand that we register shares pursuant
to a Registration Statement on Form S-3. There is no limit to the number of such
demands that the holders of Class A common stock, Series B preferred stock,
Series C preferred stock and Series D preferred stock may make, provided,
however, that shares so registered must have a value in the aggregate of at
least $1,000,000.
If we at any time (other than pursuant to the "demand rights" described in
the preceding two paragraphs) propose to register any of our securities, whether
for our own account or for the account of other security holders or both, we
must allow the holders of Class A common stock, Series B preferred stock,
Series C preferred stock, Series D preferred stock and Michael Barach and Steven
Rothschild, both members of our board, and Misha Katz, a holder of Class B
common stock and co-founder of Furniture.com, to join in the registration
statement on a PRO RATA basis. In the event that such registration is pursuant
to an underwritten public offering, such participation is subject to underwriter
cutbacks.
71
DELAWARE ANTI-TAKEOVER LAW AND OUR CERTIFICATE OF INCORPORATION AND BYLAW
PROVISIONS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make more difficult our acquisition by a third party and the removal of
our incumbent officers and directors. These provisions, summarized below, are
expected to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to acquire control of Furniture.com to first
negotiate with us. We believe that the benefits of increased protection of our
ability to negotiate with the proponent of an unfriendly or unsolicited
acquisition proposal outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation could improve their terms.
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless:
- the board of directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
began, excluding shares owned by persons who are directors and also
officers; or
- on or after such date, the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders.
A "business combination" generally includes a merger, asset or stock sale or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with his or her affiliates and associates, owns, or within three years prior to
the determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
Our certificate of incorporation permits the Board of Directors to issue
preferred stock with voting or other rights without any stockholder action. Our
certificate of incorporation provides for the Board of Directors to be divided
into three classes, with staggered three-year terms. As a result, only one class
of directors will be elected at each annual meeting of stockholders. Each of the
two other classes of directors will continue to serve for the remainder of its
respective three-year term. These provisions, which require the vote of
stockholders holding at least a majority of the outstanding common stock to
amend, may have the effect of deterring hostile takeovers or delaying changes in
our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is . The
transfer agent's address is and telephone number is .
72
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no market for our common stock. Future
sales of substantial amounts of common stock in the public market could
adversely affect the market price of our common stock. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the market price and impair our ability to raise equity
capital in the future.
Upon completion of the offering, we will have outstanding
shares of common stock and options to purchase 2,242,810 shares of common stock,
assuming no additional option grants or exercises after December 31, 1999 and no
exercise of warrants, and assuming the conversion or redemption of our preferred
stock. Of these shares, the shares sold in the offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act. In general, affiliates include officers, directors or 10% stockholders.
The remaining 22,271,799 shares of common stock outstanding and 2,242,810
shares of common stock subject to outstanding options are "restricted
securities" within the meaning of Rule 144. Restricted securities may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which are summarized below. Sales of the restricted securities in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.
Our directors, officers and security holders have entered into lock-up
agreements in connection with this offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock owned by them for a period of 180 days after the date of
this prospectus without the prior written consent of Goldman, Sachs & Co.
Notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements will not be
salable until such agreements expire or are waived by Goldman, Sachs & Co.
Taking into account the lock-up agreements, and assuming Goldman, Sachs & Co.
does not further release stockholders from these agreements, the following
shares will be eligible for sale in the public market at the following times:
- Beginning on the effective date of this prospectus, the shares sold in the
offering and shares subject to fully vested options will be
immediately available for sale in the public market.
- Beginning 180 days after the effective date, approximately
shares will be eligible for sale pursuant to Rule 701,
approximately additional shares will be eligible for sale
pursuant to Rule 144(k), and approximately additional shares
will be eligible for sale pursuant to Rule 144. In addition, approximately
shares subject to options will be eligible for sale pursuant
to Rule 701, of which are subject to vesting which will lapse
at various times over a four-year period. All but of such
shares and of such shares subject to options are held by
affiliates.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus (or, if longer, after the expiration of the
applicable lock-up agreements), a person who
73
has beneficially owned restricted securities for at least one year would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
- one percent of the number of shares of common stock then outstanding
(which will equal approximately shares immediately after the
closing of the offering); or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice, and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. Accordingly, unless
otherwise restricted, Rule 144(k) shares may be sold immediately upon completion
of this offering.
RULE 701
Rule 701 permits our employees, officers, directors or consultants and
advisors who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144 but without compliance
with specific restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirement and that non-affiliates may sell such shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date to register shares to be
issued pursuant to our employee benefit plans. As a result, any options or
rights exercised under the 1998 Stock Incentive Plan or any other benefit plan
after the effectiveness of the registration statement will also be freely
tradable in the public market. However, such shares held by affiliates will
still be subject to the volume limitation, manner of sale, notice and public
information requirements of Rule 144 unless otherwise resalable under Rule 701.
As of December 31, 1999 there were outstanding options for the purchase of
2,242,810 shares of common stock, all of which were exercisable to purchase
shares of restricted common stock which, upon purchase, would be subject to
certain rights of repurchase, at the exercise price, in our favor.
74
UNDERWRITING
Furniture.com and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Salomon Smith
Barney Inc., William Blair & Company, L.L.C. and E*OFFERING Corp. are the
representatives of the underwriters.
Number of
Shares
Underwriters -----------
Goldman, Sachs & Co.........................................
Salomon Smith Barney Inc....................................
William Blair & Company, L.L.C..............................
E*OFFERING Corp.............................................
---------
Total...................................................
=========
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Furniture.com to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the underwriters will severally purchase shares in approximately the same
proportion as presented in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Furniture.com. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
Paid by Furniture.com
---------------------
No Exercise Full Exercise
------------ -------------
Per Share...................................... $ $
Total.......................................... $ $
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
Furniture.com and its officers, directors and holders of approximately __%
of its capital stock have agreed with the underwriters not to dispose of or
hedge any of their common stock or securities convertible into or exchangeable
for shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of the representatives. See "Shares Eligible for
Future Sale" for a discussion of certain transfer restrictions.
The Series C Stock Purchase Agreement provides each holder of Series C
preferred stock with a limited right of first refusal to purchase in this
offering shares of common stock sufficient to allow that Series C stockholder to
maintain its pre-offering percentage ownership. This right is limited to an
aggregate of 8% of the shares offered in this offering for all of the holders of
Series C preferred stock as a group. The underwriters may reduce or eliminate
the number of shares of common stock to be offered to the holders of Series C
preferred stock as part of this offering to the extent
75
necessary to ensure the success of this offering or to comply with applicable
law or stock exchange rules. The Series C stockholders are not obligated to
purchase these shares. The number of shares of common stock available for sale
to the general public in the public offering will be reduced to the extent the
Series C stockholders purchase these shares. Any shares not so purchased will be
offered to the general public on the same basis as the other shares offered
hereby. In the event that the initial public offering price per share of this
offering is less than $11.10, the number of shares of common stock into which a
single share of Series C preferred stock will convert shall be increased until
that number multiplied by the initial public offering per share price in this
offering equals $11.10.
At the request of Furniture.com, the underwriters have reserved up to
shares of the common stock offered hereby for sale, at the initial public
offering price, to directors, officers, employees of Furniture.com and other
persons that Furniture.com believes have contributed to its success and growth.
Directors and officers who purchase the reserved shares are subject to resale
restrictions promulgated by the Securities and Exchange Commission. The number
of shares available for sale to the general public will be reduced to the extent
such persons purchase these reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
basis as other shares offered hereby.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be negotiated among Furniture.com
and the representatives. Furniture.com and the representatives expect that the
primary factors they will consider in determining the initial public offering
price of the shares, in addition to prevailing market conditions, will be
Furniture.com's historical performance, estimates of the business potential and
earnings prospects of Furniture.com, an assessment of Furniture.com's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
Furniture.com has applied for quotation of the common stock on the Nasdaq
National Market under the symbol "FURN".
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Furniture.com estimates that its share of the total expenses of the
offering, excluding underwriting discounts and commissions, will be
approximately $ .
Furniture.com has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
76
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Furniture.com by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Ropes & Gray, Boston, Massachusetts.
EXPERTS
The financial statements and schedules of Empire Furniture Warehouse, Inc.
(the Predecessor Company) for the year ended December 31, 1997 and the period
January 1, 1998 through June 17, 1998 and of Furniture.com as of December 31,
1998 and 1999 and for the period June 18, 1998 through December 31, 1998 and the
year ended December 31, 1999, included in this prospectus and elsewhere in this
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
77
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act registering the common stock
offered in this offering. As permitted by the rules and regulations of the
Securities and Exchange Commission, this prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules filed as part of the registration statement. For further information
concerning us and the common stock offered in this offering, we refer you to the
registration statement and to the exhibits and schedules filed as part of the
registration statement. Statements made in this prospectus concerning the
contents of any agreement or document referred to in this prospectus are not
necessarily complete. With respect to each such agreement and document filed as
an exhibit to the registration statement, we refer you to the exhibit for a more
complete description of the matter involved.
You may inspect our registration statement, including the exhibits and
schedules filed as part of the registration statement, without charge at the
public reference facilities maintained by the Securities and Exchange Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Securities and Exchange Commission located at
Seven World Trade Center, 13th Floor, New York, NY 10048, and the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You
may obtain copies of all or any part of our registration statement from the
Securities and Exchange Commission upon payment of prescribed fees. Upon
effectiveness of the registration statement, we will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended. As a
reporting company, we will be filing quarterly, annual and other periodic and
current reports and proxy statements with the Securities and Exchange
Commission. You may call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms, and you can request copies of the documents upon payment of a duplicating
fee by writing to the Securities and Exchange Commission. In addition, the
Securities and Exchange Commission maintains a website that contains reports,
proxy and information statements and other information regarding registrants
(including us) that file electronically with the Securities and Exchange
Commission which can be accessed at HTTP://WWW.SEC.GOV.
78
INDEX
PAGE
--------
Reports of Independent Public Accountants................... F-2
Consolidated Balance Sheets as of December 31, 1998, 1999
and 1999 Pro Forma (unaudited)............................ F-4
Consolidated Statements of Operations for the Year Ended
December 31, 1997 and the Period January 1, 1998 through
June 17, 1998 (Predecessor Company), and the Period June
18, 1998 through December 31, 1998 and the Year Ended
December 31, 1999......................................... F-5
Consolidated Statements of Redeemable and Convertible
Preferred Stock and Stockholders' Equity (Deficit) for the
Years Ended December 31, 1997 and the Period January 1,
1998 through June 17, 1998 (Predecessor Company), and the
Period June 18, 1998 through December 31, 1998 and the
Year Ended December 31, 1999.............................. F-6
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1997 and the Period January 1, 1998 through
June 17, 1998 (Predecessor Company), and the Period June
18, 1998 through December 31, 1998 and the Year Ended
December 31, 1999......................................... F-7
Notes to Consolidated Financial Statements.................. F-9
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Furniture.com, Inc.:
We have audited the accompanying consolidated balance sheets of
Furniture.com, Inc. (a Delaware corporation) as of December 31, 1998 and 1999,
and the related consolidated statements of operations, redeemable and
convertible preferred stock and stockholders' equity (deficit) and cash flows
for the period June 18, 1998 (date of inception) through December 31, 1998 and
the year ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Furniture.com, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the period June 18, 1998 (date of inception) through December 31, 1998 and
the year ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 14, 2000
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Furniture.com, Inc.:
We have audited the accompanying statements of operations, stockholders'
equity (deficit) and cash flows of Empire Furniture Warehouse, Inc. (Predecessor
Company) for the year ended December 31, 1997 and the period January 1, 1998
through June 17, 1998. These financial statements are the responsibility of the
Predecessor Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Predecessor Company's operations
and cash flows for the year ended December 31, 1997 and the period January 1,
1998 through June 17, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 16, 1999
F-3
FURNITURE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
THE COMPANY
------------------------------------------------
PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
-------------- -------------- --------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents................................. $10,759 $31,440 $28,430
Inventories............................................... 689 3,913 3,913
Accounts receivable, net of allowance for doubtful
accounts of $75 and $100 in 1998 and 1999,
respectively............................................ 6 451 451
Prepaid advertising expenses.............................. -- 3,237 3,237
Other current assets...................................... 111 1,500 1,500
------- ------- -------
Total current assets.................................. 11,565 40,541 37,531
Fixed assets, net........................................... 209 2,608 2,608
Other assets................................................ 60 662 662
------- ------- -------
$11,834 $43,811 $40,801
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of note payable........................... $ 12 $ -- $ --
Current portion of capital lease obligations.............. -- 223 223
Accounts payable.......................................... 573 4,951 4,951
Customer deposits......................................... 806 3,884 3,884
Accrued advertising costs................................. -- 1,653 1,653
Accrued payroll and employee benefits..................... 96 758 758
Accrued expenses and other current liabilities............ 912 1,832 1,832
------- ------- -------
Total current liabilities............................. 2,399 13,301 13,301
Long-term portion of note payable........................... 27 -- --
Long-term portion of capital lease obligations.............. -- 348 348
Commitments (Note 10)
Redeemable Preferred Stock, $0.01 par value:
Series A shares--
Authorized--3,009,600 shares in 1998 and 1999, and 0
shares in 1999, Pro Forma
Issued and outstanding--3,009,600 shares in 1998 and 1999
and 0 in 1999, Pro Forma (entitled to $3,010 in
liquidation)............................................ 3,010 3,010 --
Redeemable Convertible Preferred Stock, $0.01 par value:
Series B, Series C, and Series D shares--
Authorized--7,246,036, 15,173,822, and 0 shares in 1998,
1999 and 1999, Pro Forma, respectively
Issued and outstanding--7,042,254, 14,810,799, and 0
shares in 1998, 1999 and 1999, Pro Forma, respectively
(entitled to $76,337 in liquidation).................... 10,000 76,337 --
Stockholders' Equity (Deficit):
Common Stock
Class A, $0.01 par value
Authorized--3,040,000 shares in 1998 and 1999, and 0
shares in 1999, Pro Forma
Issued and outstanding--3,040,000 shares in 1998 and
1999, and 0 shares in 1999, Pro Forma.................. 30 30 --
Class B, $0.01 par value
Authorized--17,250,000 shares in 1998 and 33,000,000
shares in 1999 and 1999, Pro Forma
Issued and outstanding--4,496,000, 6,253,027, and
24,103,826 shares in 1998, 1999, and 1999, Pro Forma,
respectively........................................... 45 63 241
Additional paid-in capital................................ 1,273 5,590 79,029
Deferred compensation..................................... (1,217) (4,505) (4,505)
Notes receivable from officers, secured by stock.......... -- (170) (170)
Retained earnings (accumulated deficit)................... (3,733) (50,193) (47,443)
------- ------- -------
Total stockholders' equity (deficit).................. (3,602) (49,185) 27,152
------- ------- -------
$11,834 $43,811 $40,801
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
FURNITURE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
PREDECESSOR COMPANY THE COMPANY
------------------------------- -------------------------------
PERIOD FROM
PERIOD FROM JUNE 18,
YEAR ENDED JANUARY 1, 1998 TO YEAR ENDED
DECEMBER 31, 1998 TO DECEMBER 31, DECEMBER 31,
1997 JUNE 17, 1998 1998 1999
-------------- -------------- -------------- --------------
Net revenues..................... $1,728 $ 1,511 $ 2,180 $ 10,904
Cost of revenues................. 1,082 1,498 1,827 8,837
------ ------- --------- ----------
Gross profit................. 646 13 353 2,067
Operating Expenses:
Selling and marketing.......... 269 181 1,245 33,949
Product development............ -- -- 1,081 6,685
General and administrative..... 370 188 1,812 5,796
------ ------- --------- ----------
Total operating expenses..... 639 369 4,138 46,430
------ ------- --------- ----------
Operating income (loss)...... 7 (356) (3,785) (44,363)
Interest income, net............. (1) (4) 52 653
------ ------- --------- ----------
Net income (loss) before
income taxes............... 6 (360) (3,733) (43,710)
Provision for income taxes....... 1 1 -- --
------ ------- --------- ----------
Net income (loss)............ $ 5 $ (361) $ (3,733) $ (43,710)
====== ======= ========= ==========
Accretion of preferred stock
dividends...................... -- -- -- 2,750
Net income (loss)
attributable to common
stockholders............... $ 5 $ (361) $ (3,733) $ (46,460)
====== ======= ========= ==========
Basic and diluted net income
(loss) per common share........ $ 0.67 $(48.13) $ (0.50) $ (6.01)
====== ======= ========= ==========
Shares used to compute basic and
diluted net income (loss) per
common share................... 7,500 7,500 7,472,020 7,730,413
====== ======= ========= ==========
Pro forma basic and diluted net
loss per common share.......... $ (0.49) $ (2.53)
========= ==========
Shares used to compute pro forma
basic and diluted net loss per
common share................... 7,543,880 17,254,833
========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
FURNITURE.COM, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE AND CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share information)
REDEEMABLE AND
CONVERTIBLE
PREFERRED
STOCK COMMON STOCK
--------------------- -------------------- ADDITIONAL PAID- TREASURY
SHARES AMOUNT SHARES AMOUNT IN CAPITAL STOCK
---------- -------- --------- -------- ---------------- ---------
PREDECESSOR COMPANY
Balance, January 1, 1997..................... -- $ -- 7,500 $25 $ 25 $(224)
Net income................................... -- -- -- -- -- --
---------- ------- --------- --- ------ -----
Balance, December 31, 1997................... -- -- 7,500 25 25 (224)
Net loss..................................... -- -- -- -- -- --
---------- ------- --------- --- ------ -----
Balance, June 17, 1998....................... -- -- 7,500 25 25 (224)
========== ======= ========= === ====== =====
THE COMPANY
Balance, June 18, 1998
Issuance of Class B Common Stock at
inception.................................. -- -- 4,421,000 44 -- --
Issuance of Class A Common Stock in
connection with the Series A financing..... -- -- 3,040,000 30 -- --
Issuance of Series A Redeemable Preferred
stock, net of issuance costs............... 3,009,600 3,010 -- -- (32) --
Issuance of Series B Redeemable Convertible
Preferred stock, net of issuance costs..... 7,042,254 10,000 -- -- (60) --
Compensation expense related to the issuance
of Class B Common Stock.................... -- -- 75,000 1 83 --
Deferred compensation related to stock
options.................................... -- -- -- -- 1,282 --
Amortization of deferred compensation........ -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ------- --------- --- ------ -----
Balance, December 31, 1998................... 10,051,854 13,010 7,536,000 75 1,273 --
Issuance of Series C Redeemable Convertible
Preferred stock, net of issuance costs..... 4,727,786 35,004 -- -- (25) --
Issuance of Series D Redeemable Convertible
Preferred stock, net of issuance costs..... 3,040,759 28,583 -- -- (25) --
Exercise of stock options.................... -- -- 1,210,477 12 152 --
Repurchase of restricted stock............... -- -- (106,314) (1) (7) --
Issuance of detachable warrants for Series B
Preferred stock............................ -- -- -- -- 233 --
Compensation expense related to the issuance
of common stock............................ -- -- 8,461 -- 65 --
Issuance of restricted stock to officer...... -- -- 644,403 7 727 --
Deferred compensation related to stock
options (net of forfeitures)............... -- -- -- -- 3,197 --
Amortization of deferred compensation........ -- -- -- -- -- --
Accretion of Series B and C preferred stock
dividends.................................. -- 2,750 -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ------- --------- --- ------ -----
Balance, December 31, 1999................... 17,820,399 $79,347 9,293,027 $93 $5,590 $ --
========== ======= ========= === ====== =====
NOTES RECEIVABLE
DEFERRED FROM OFFICERS, RETAINED STOCKHOLDERS'
COMPENSATION SECURED BY STOCK EARNINGS (DEFICIT) EQUITY (DEFICIT)
-------------- ----------------- ------------------ ----------------
PREDECESSOR COMPANY
Balance, January 1, 1997..................... $ -- $ -- $ 197 $ 23
Net income................................... -- -- 5 5
------- ----- -------- --------
Balance, December 31, 1997................... -- -- 202 28
Net loss..................................... -- -- (361) (361)
------- ----- -------- --------
Balance, June 17, 1998....................... -- -- (159) (333)
======= ===== ======== ========
THE COMPANY
Balance, June 18, 1998
Issuance of Class B Common Stock at
inception.................................. -- -- -- 44
Issuance of Class A Common Stock in
connection with the Series A financing..... -- -- -- 30
Issuance of Series A Redeemable Preferred
stock, net of issuance costs............... -- -- -- (32)
Issuance of Series B Redeemable Convertible
Preferred stock, net of issuance costs..... -- -- -- (60)
Compensation expense related to the issuance
of Class B Common Stock.................... -- -- -- 84
Deferred compensation related to stock
options.................................... (1,282) -- -- --
Amortization of deferred compensation........ 65 -- -- 65
Net loss..................................... -- -- (3,733) (3,733)
------- ----- -------- --------
Balance, December 31, 1998................... (1,217) -- (3,733) (3,602)
Issuance of Series C Redeemable Convertible
Preferred stock, net of issuance costs..... -- -- -- (25)
Issuance of Series D Redeemable Convertible
Preferred stock, net of issuance costs..... -- -- -- (25)
Exercise of stock options.................... -- (38) -- 126
Repurchase of restricted stock............... -- -- -- (8)
Issuance of detachable warrants for Series B
Preferred stock............................ -- -- -- 233
Compensation expense related to the issuance
of common stock............................ -- -- -- 65
Issuance of restricted stock to officer...... (554) (132) -- 48
Deferred compensation related to stock
options (net of forfeitures)............... (3,197) -- -- --
Amortization of deferred compensation........ 463 -- -- 463
Accretion of Series B and C preferred stock
dividends.................................. -- -- (2,750) (2,750)
Net loss..................................... -- -- (43,710) (43,710)
------- ----- -------- --------
Balance, December 31, 1999................... $(4,505) $(170) $(50,193) $(49,185)
======= ===== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
FURNITURE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
PREDECESSOR COMPANY THE COMPANY
------------------------------- -------------------------------
PERIOD FROM
PERIOD FROM JUNE 18, 1998
YEAR ENDED JANUARY 1, TO YEAR ENDED
DECEMBER 31, 1998 TO DECEMBER 31, DECEMBER 31,
1997 JUNE 17, 1998 1998 1999
-------------- -------------- -------------- --------------
Operating Activities:
Net income (loss)...................................... $ 5 $(361) $(3,733) $(43,710)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation and amortization........................ 7 10 640 417
Loss on disposal of equipment........................ -- -- 18 1
Compensation expense related to common stock......... -- -- 189 528
Provision for doubtful accounts...................... -- -- 75 130
Changes in operating assets and liabilities, net of
acquisition..........................................
Accounts receivable.................................. (27) 28 (81) (575)
Inventories.......................................... (102) (24) (164) (3,224)
Prepaid advertising expenses......................... -- -- -- (3,237)
Other current assets................................. (31) 36 (111) (1,389)
Other assets......................................... (31) (51) 22 (216)
Accounts payable..................................... (42) (11) 449 4,378
Customer deposits.................................... 331 544 (186) 3,078
Accrued advertising costs............................ -- -- -- 1,653
Accrued payroll and employee benefits................ -- -- 96 662
Accrued expenses and other current liabilities....... -- -- 912 920
----- ----- ------- --------
Net cash provided by (used in) operating
activities....................................... 110 171 (1,874) (40,584)
Investing Activities:
Acquisition, net of cash acquired (Note 2)........... -- -- (107) --
Proceeds from sale of equipment...................... -- -- 6 --
Capital expenditures................................. (39) (52) (173) (2,093)
----- ----- ------- --------
Net cash used in investing activities.............. (39) (52) (274) (2,093)
Financing Activities:
Payments on notes payable............................ (44) (3) (44) (39)
Proceeds from issuance of common stock at
inception.......................................... -- -- 3 --
Proceeds from issuance of common stock in connection
with the Series A financing........................ -- -- 30 --
Proceeds from Series A Redeemable Preferred stock,
net of issuance costs.............................. -- -- 2,978 --
Proceeds from Series B Redeemable Convertible
Preferred Stock, net of issuance costs............. -- -- 9,940 --
Proceeds from Series C Redeemable Convertible
Preferred Stock, net of issuance costs............. -- -- -- 34,979
Proceeds from Series D Redeemable Convertible
Preferred Stock, net of issuance costs............. -- -- -- 28,558
Exercise of stock options, net of repurchases........ -- -- -- 118
Issuance of restricted stock to officer.............. -- -- -- 48
Issuance of notes to related party................... -- -- -- (200)
Payment on capital leases............................ -- -- -- (106)
----- ----- ------- --------
Net cash (used in) provided by financing
activities....................................... (44) (3) 12,907 63,358
Net increase in cash and cash equivalents.......... 27 116 10,759 20,681
Cash and cash equivalents, beginning of period....... -- 27 -- 10,759
----- ----- ------- --------
Cash and cash equivalents, end of period............. $ 27 $ 143 $10,759 $ 31,440
===== ===== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements
F-7
FURNITURE.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
PREDECESSOR COMPANY THE COMPANY
------------------------------- -------------------------------
PERIOD FROM
PERIOD FROM JUNE 18, 1998
YEAR ENDED JANUARY 1, TO YEAR ENDED
DECEMBER 31, 1998 TO DECEMBER 31, DECEMBER 31,
1997 JUNE 17, 1998 1998 1999
-------------- -------------- -------------- --------------
Supplemental Disclosure of cash flow information:
Cash paid during the period for interest............. $ 1 $ 1 $ 2 $ 27
===== ===== ======= ========
Supplemental Disclosure of non-cash transactions:
Notes receivable from officers to purchase restricted
stock and to exercise stock options................ $ -- $ -- $ -- $ 170
===== ===== ======= ========
Fixed assets acquired under capital leases........... $ -- $ -- $ -- $ 686
===== ===== ======= ========
Issuance of warrants in connection with debt
financing.......................................... $ -- $ -- $ -- $ 233
===== ===== ======= ========
Accretion of Series B and C preferred stock
dividends.......................................... $ -- $ -- $ -- $ 2,750
===== ===== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements
F-8
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Furniture.com, Inc. (Furniture.com or the Company) is an online retailer of
furniture and home accessories. The Company was incorporated as
FurnitureSite, Inc. on June 18, 1998. The name of the Company was changed to
Furniture.com, Inc. on January 14, 1999. On June 18, 1998, the Company purchased
all of the outstanding stock of Empire Furniture Warehouse, Inc. (the
Predecessor Company), an existing furniture showroom that did not have any
online sales (Note 2). The accompanying financial statements reflect the
operations of the Predecessor Company for the year ended December 31, 1997, and
for the period January 1, 1998 through June 17, 1998.
The Company has incurred significant losses through December 31, 1999. The
Company has incurred costs to develop and enhance its technology, to create,
introduce and enhance its Web site, to establish marketing and distribution
relationships and to build its administrative organization. The Company intends
to continue to invest heavily in marketing and promotion, strategic alliances,
Web site development and technology, and development of its administrative
organization. As a result, the Company believes that it will incur substantial
operating losses for the foreseeable future. There can be no assurance that the
Company will be able to generate sufficient revenues to achieve or sustain
profitability in the future.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Furniture.com, Inc. and its wholly owned subsidiary, Empire Furniture
Warehouse, Inc. All material intercompany accounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents are carried at cost plus accrued interest, which
approximates fair value. The Company considers all highly liquid investments
with an original maturity date of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market, and are valued using
the first-in, first-out (FIFO) method.
F-9
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Net revenue, which consists primarily of the sale of furniture and home
accessories, is recognized at the time that products are delivered to the
customer. The Company provides an allowance for sales returns in the period of
the sale, based upon historical experience. The Company generally does not
extend credit to customers. The Company's agreements with third-party credit
card companies provide for the electronic processing of credit approvals and the
electronic submission of transactions. Upon the submission of these transactions
to the credit card companies, payment is transmitted to the Company's bank
accounts. Payment from the credit card companies usually occurs within three to
five days and the obligations are reflected in accounts receivable. For the year
ended December 31, 1997 and the period January 1, 1998 through June 17, 1998,
credit card fees were $17,000 and $23,000, respectively. For the period
June 18, 1998 through December 31, 1998 and the year ended December 31, 1999,
credit card fees were $33,000 and $142,000. Credit card fees are included in
general and administrative expenses in the accompanying consolidated statements
of operations. The Company provides an allowance for doubtful accounts, which
may result from disputes with its third-party credit card companies or its
customers.
SELLING AND MARKETING
Selling and marketing expenses consist primarily of expenditures associated
with advertising, promotional and strategic relationships, payroll and related
expenses for personnel engaged in marketing, design consulting and customer
service, product shipping costs and certain customer acquisition costs.
Advertising expenditures are expensed as incurred as such efforts historically
have not met the direct response criteria required for capitalization.
Advertising to date has related primarily to building brand awareness, including
traditional media advertising such as television, radio and promotions. Total
advertising and promotion costs for the year ended December 31, 1997 and the
period from January 1, 1998 through June 17, 1998 were $108,000 and $90,000,
respectively. Total advertising and promotion costs for the period June 18, 1998
through December 31, 1998 and the year ended December 31, 1999 were $310,000 and
$23,743,000, respectively.
The Company has not historically charged its customers for freight. These
expenditures are promotional in nature and, as such, have been classified as
selling and marketing costs. The Company incurred approximately $223,000 and
$3,563,000 in promotional freight expenditures for the period June 18, 1998
through December 31, 1998 and for the year ended December 31, 1999,
respectively.
PRODUCT DEVELOPMENT
Product development expenses consist primarily of payroll and related
expenses for personnel engaged in merchandising, Web site development and
information technology, Internet access and hosting charges and Web site content
and design expenses.
F-10
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, requires that stock awards granted subsequent to
January 1, 1995 be recognized as compensation expense based on their fair value
at the date of grant. Alternatively, a company may use Accounting Principles
Board Opinion (APB) No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
disclose pro forma income amounts which would have resulted from recognizing
such awards at their fair value. The Company has elected to account for
stock-based compensation expense under APB No. 25 and make the required pro
forma disclosures for compensation (Note 9).
INCOME TAXES
The Company records income taxes in accordance with SFAS No. 109, ACCOUNTING
FOR INCOME TAXES. Under SFAS No. 109, the liability method is used in accounting
for income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using enacted tax rates. A valuation
allowance is established against deferred tax assets unless the Company believes
it is more likely than not that the benefit will be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents,
accounts receivable, obligations under capital leases, notes payable and
accounts payable, and are carried at cost or carrying value. These amounts were
not materially different from their fair value. The Company uses a discounted
cash flow methodology to calculate the fair value of the notes payable and
capital leases.
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in net assets of a business
enterprise during a period from transactions generated from non-owner sources.
It includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company had no material
comprehensive income in the periods presented.
PRO FORMA DECEMBER 31, 1999 (UNAUDITED)
Upon completion of a qualified pubic offering (Note 8), the Company's
Series A Redeemable Preferred Stock will be redeemed at its carrying value. The
Company's Class A Common Stock will convert into an equal number of shares of
the Company's Class B Common Stock. The Company's Series B and Series D
Redeemable Convertible Preferred Stock will convert on a one-for-one basis into
shares of the Company's Class B Common Stock. After the conversion, the
Company's Class B Common Stock will be the only class of common stock. The
Company's Series C Redeemable Convertible Preferred Stock will convert on a
one-for-one basis into shares of the Company's Class B Common Stock. In the
event that the initial public offering price per share is less than $11.10, the
number of shares of Class B Common Stock into which a single share of Series C
Redeemable Convertible Preferred Stock will convert shall increase until such
number of
F-11
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shares multiplied by the initial public offering price per share equals $11.10.
Upon such a conversion, any accrued and unpaid dividends on the Series B and
Series C Preferred Stock will be waived.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding for all periods
presented. Diluted net income (loss) per share reflects the dilutive effect of
shares under option plans, warrants, outstanding unvested restricted stock and
convertible preferred stock unless the effect is antidilutive. Potentially
dilutive shares outstanding during the period have been excluded from diluted
net loss per share because the effect would be antidilutive.
PREDECESSOR COMPANY THE COMPANY
----------------------------------- ------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JUNE 18,
YEAR ENDED 1998 TO 1998 TO YEAR ENDED
DECEMBER 31, JUNE 17, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
-------------- ------------------ ------------- --------------
Weighted average common
shares used in basic and
diluted EPS calculations... 7,500 7,500 7,472,020 7,730,413
===== ===== ========= ==========
Shares under option plan,
warrants, outstanding
unvested restricted stock
and convertible preferred
stock excluded in
computation of diluted
earnings per share due to
antidilutive effects....... -- -- 8,228,254 18,507,474
===== ===== ========= ==========
PRO FORMA NET LOSS PER SHARE
The information contained herein pertains only to the calculation of pro
forma net loss per share. Pro forma net loss per share is computed using the
weighted average number of common shares outstanding, including the pro forma
effects of the automatic conversion of the Company's convertible Class A Common
Stock and Series B, Series C and Series D Preferred Stock into shares of the
Company's Class B Common Stock, effective upon the closing of the Company's
initial public offering, as if such conversion occurred on the issuance date.
F-12
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The calculation of the numerator of the Company's pro forma net loss per
common share for the year ended December 31, 1999 is as follows:
THE COMPANY
--------------
YEAR ENDED
DECEMBER 31,
1999
--------------
Net loss attributable to common stockholders................ $(46,460)
Waiver of accretion of Series B and C preferred stock
dividends................................................. 2,750
--------
Adjusted pro forma net loss attributable to common
stockholders.............................................. $(43,710)
========
The weighted average common shares outstanding, including the dilutive
effect of outstanding stock options and warrants, and the pro forma weighted
average number of common shares outstanding for the period June 18, 1998 to
December 31, 1998 and the year ended December 31, 1999 are as follows:
THE COMPANY
-------------------------------
PERIOD FROM
JUNE 18,
1998 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- --------------
Weighted average common shares used in basic
and diluted EPS calculations.............. 7,472,020 7,730,413
Weighted average convertible preferred
shares assumed to convert to common
shares.................................... 71,860 9,524,420
--------- ----------
Weighted average number of common shares
used in pro forma basic and diluted EPS
calculations.............................. 7,543,880 17,254,833
========= ==========
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
As issued, SFAS No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999, with earlier application encouraged. In
May 1999, the FASB delayed the effective date of SFAS No. 133 for one year, to
fiscal years beginning after June 15, 2000. The Company does not currently nor
does it intend in the future to issue or purchase derivative instruments and,
therefore, does not expect the adoption of SFAS No. 133 to have any impact on
its financial position or results of operations.
F-13
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. This statement requires companies to report
information about operating segments consistent with management's internal view
of the Company. The Company adopted SFAS No. 131 effective for its fiscal year
ended December 31, 1998. The Company operates in a single segment: sale of
furniture and home accessories. The net revenues of the Predecessor Company were
generated from the sale of furniture in a discount showroom retail environment.
For the period June 18, 1998 through December 31, 1998, the Company had net
revenues of $400,000 and $1,780,000 related to the showroom and online business,
respectively. The Company closed its only showroom in December 1998 (Note 2).
For the year ended December 31, 1999, all of the Company's net revenue was
generated from its online business.
(2) BUSINESS ACQUISITION
On June 18, 1998, the Company acquired all of the outstanding shares of the
Predecessor Company, an existing furniture showroom, for $250,000. The Company
funded this acquisition through cash provided by the Series A Financing. This
acquisition has been accounted for as a purchase, and the results of operations
of the acquired business have been included in the consolidated financial
statements since the date of acquisition. The excess of the purchase price over
the net assets of the Predecessor Company was $583,000, which was recorded as an
intangible asset (goodwill) in the consolidated balance sheets. The goodwill was
being amortized over its estimated useful life (three years) on a straight-line
basis.
The excess of the purchase price over the fair value of assets acquired and
liabilities assumed (goodwill) was computed as follows (in thousands):
Purchase price.............................................. $ 250
Less--
Fair market value assigned to assets and liabilities--
Cash.................................................... 143
Inventories............................................. 525
Property and equipment.................................. 116
Intangible and other assets............................. 82
Accounts payable........................................ (124)
Customer deposits....................................... (992)
Accrued expenses and other liabilities.................. (83)
-----
(333)
-----
Excess of purchase price over fair value of net assets
acquired.................................................. $ 583
=====
The carrying value of long-lived assets was reviewed periodically for facts
and circumstances that suggested it may be permanently impaired. In December,
1998, the Predecessor Company closed its only showroom and all operations; as
such, the goodwill resulting from the acquisition of the Predecessor Company was
deemed permanently impaired as the carrying value of the goodwill
F-14
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(2) BUSINESS ACQUISITION (CONTINUED)
will not be recoverable, as determined by the undiscounted cash flow method. The
Company recorded an impairment charge for the carrying value of $480,000 in the
period ending December 31, 1998, which is included in depreciation and
amortization expense in the accompanying consolidated statements of operations.
(3) FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Expenditures
that significantly improve or extend the life of an asset are capitalized.
Maintenance and repairs are charged to expense when incurred. Depreciation of
fixed assets is calculated on the straight-line basis over an estimated useful
life of three and five years. Leasehold improvements and equipment under capital
leases are amortized over the shorter of the related lease term or the useful
life of the asset. For the year ended December 31, 1999, the Company capitalized
$314,000 of purchased software costs in accordance with SOP 98-1, ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE.
Fixed assets consist of the following (in thousands):
THE COMPANY
-------------------------------
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- --------------
Computer equipment and software............. $110 $1,514
Office equipment and furniture.............. 34 560
Leasehold improvements...................... 90 967
---- ------
234 3,041
Less--Accumulated depreciation and
amortization.............................. (25) (433)
---- ------
$209 $2,608
==== ======
The net book value of fixed assets under capital leases was $572,000 at
December 31, 1999. Amortization expense related to these assets has been
combined with depreciation expense for the year ended December 31, 1999.
For the year ended December 31, 1997 and the period January 1, 1998 through
June 17, 1998, depreciation expense related to fixed assets was $7,000 and
$10,000, respectively. For the period June 18, 1998 through December 31, 1998
and the year ended December 31, 1999, depreciation expense was $25,000 and
$417,000, respectively. Depreciation expense is included in operating expenses
in the accompanying consolidated statements of operations.
F-15
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(4) ACCRUED EXPENSES
Accrued expenses and other current liabilities consist of the following (in
thousands):
THE COMPANY
---------------------------
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
Accrued professional services..................... $139 $ 100
Accrued freight costs............................. 120 382
Accrued warranty.................................. 57 294
Accrued sales returns............................. 45 190
Accrued lease obligations (Note 12)............... -- 565
Other accrued expenses............................ 551 301
---- ------
$912 $1,832
==== ======
(5) EMPLOYEE BENEFIT PLANS
The Company has a savings plan, which qualifies as a defined contribution
arrangement under Section 401(a), 401(k) and 501(a) of the Internal Revenue Code
(the 401(k) Plan). Under the 401(k) Plan, participating employees may defer a
percentage (not to exceed 15%) of their eligible pretax earnings up to the
Internal Revenue Service's annual contribution limit. All employees on the
payroll of the Company are eligible to participate in the 401(k) Plan. The
Company, at its discretion, can make contributions; however, no contributions
have been made by the Company since the inception of the 401(k) Plan.
(6) DEBT
SUBORDINATED DEBT AND MASTER LEASE
In February 1999, the Company entered into a subordinated loan and security
agreement (the Subordinated Loan Agreement) with a commercial lender (the
Commercial Lender). The Subordinated Loan Agreement allows the Company to
borrow, during the one-year period beginning February 1999, up to $2 million, in
minimum installments of $250,000 each, at an interest rate of 11.5% per year,
fixed at the time of the advance. The outstanding principal amount of each
advance, together with interest, is due and payable in 36 equal monthly
installments of principal and interest. As a condition to entering into the
Subordinated Loan Agreement, the Commercial Lender required the Company to pay a
commitment fee equal to 1% of the total amount available for borrowing. In 1999,
the Company expensed the commitment fee of $20,000, which is included in
operating expense in the accompanying consolidated statements of operations, as
the Company has never borrowed under the Subordinated Loan Agreement, nor does
the Company intend to borrow prior to the expiration of the Subordinated Loan
Agreement. As security for the loan, the Commercial Lender has a perfected
secondary security interest in the Company's personal property and in all
proceeds and products thereof. As of December 31, 1999, the Company had no
outstanding borrowings under the Subordinated Loan Agreement.
In addition, in 1999 the Company entered into a master lease agreement (the
Lease Agreement) with the Commercial Lender. Pursuant to the Lease Agreement,
the Commercial Lender
F-16
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(6) DEBT (CONTINUED)
has agreed to lease to the Company certain equipment specifically approved by
the Commercial Lender, during the one-year period beginning February 1999, up to
an aggregate purchase price of $525,000. The term of the lease is 36 months, and
the Company will have the option at the expiration of the initial term of the
equipment to purchase all, but not less than all, of the equipment for a
purchase price not to exceed 15% of the equipment cost. The Lease Agreement also
provides for the sale and leaseback of software and tenant improvements
specifically approved by the Commercial Lender, acquired by the Company after
February 1999, up to an aggregate purchase price of $225,000. The term of the
lease of any sale and leaseback transactions is 36 months, and the Company is
required to make a final payment of 15% of the software and tenant improvement
costs. Borrowings under this agreement are accounted for as capital leases. As
of December 31, 1999, the Company had outstanding borrowings of $571,000 under
the lease agreement with interest rates ranging from 7.0% to 9.0%.
In connection with the Subordinated Loan Agreement and Lease Agreement, the
Company issued warrants to purchase 202,464 shares of Series B Preferred with an
exercise price of $1.42. Upon completion of a qualified initial public offering,
the warrants to purchase shares of Series B Preferred will convert into warrants
to purchase shares of Class B Common Stock. These warrants are exercisable for a
period of 10 years from the date of the Lease Agreement or five years from the
effective date of the Company's initial public offering, whichever is earlier.
These warrants were valued using the Black-Scholes option-pricing model
(Note 9).
(7) AUTHORIZED CAPITAL
On June 18, 1998, the Company incorporated in the state of Delaware with
authorized capital of 10,950,000 shares of $0.01 par value common stock and
2,821,500 shares of $0.01 par value preferred stock. Also in June 1998, the
Company increased its authorized common stock to 11,330,000 shares and increased
its authorized preferred stock to 3,009,600 shares. In December 1998, the
Company increased its authorized common stock to 20,290,000 shares and increased
its authorized preferred stock to 10,255,636 shares. In December 1999, the
Company increased its authorized common stock to 36,040,000 shares and increased
its authorized preferred stock to 18,183,422 shares.
(8) PREFERRED STOCK
The Company has authorized Series A Redeemable Preferred Stock (the
Series A Preferred), Series B Redeemable Convertible Preferred Stock (the
Series B Preferred), Series C Redeemable Convertible Preferred Stock (the
Series C Preferred) and Series D Redeemable Convertible Preferred Stock (the
Series D Preferred).
REDEMPTION AND CONVERSION RIGHTS
In June 1998, the Company issued 3,009,600 shares of the Series A Preferred
at a price of $1.00 per share in conjunction with the Series A Financing.
Series A Preferred redemption is mandatory at $1.00 per share upon the sale of
the Company, a Qualified Public Offering (defined below) or on December 29,
2003.
F-17
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(8) PREFERRED STOCK (CONTINUED)
In December 1998, the Company issued 7,042,254 shares of Series B Preferred
at a price of $1.42 per share in conjunction with the Series B Preferred
Financing. The Series B Preferred is subject to redemption, at the option of the
holder, upon a public offering, other than a Qualified Public Offering (defined
below) or after December 29, 2003. The redemption amount is the greater of the
Series B Preferred Liquidation Preference Payment (including all accrued but
unpaid dividends, whether or not declared) or the fair market value on the
redemption date.
In June 1999, the Company issued 4,727,786 shares of Series C Preferred at a
price of $7.40305 per share in conjunction with the Series C Preferred
Financing. The Series C Preferred is subject to redemption, at the option of the
holder, upon a public offering other than a Qualified Public Offering (defined
below) or after June 22, 2004. The redemption amount is the greater of the
Series C Preferred Liquidation Preference Payment (including all accrued but
unpaid dividends, whether or not declared) or the fair market value at the
redemption date. The Series C Preferred contains certain adjustments whereby the
Series C Preferred stockholders will receive additional shares of common stock
upon conversion if the initial public offering price per share does not exceed
$11.10 per common share.
In December 1999, the Company issued 3,040,759 shares of Series D Preferred
at a price of $9.40 per share in conjunction with the Series D Preferred
Financing. The Series D Preferred is subject to redemption, at the option of the
holder, upon a public offering other than a Qualified Public Offering (defined
below) or after June 22, 2004. The redemption amount is the greater of the
Series D Preferred Liquidation Preference Payment (including all accrued but
unpaid dividends, whether or not declared) or the fair market value at the
redemption date.
The Series B, Series C and Series D Preferred are convertible at the option
of the holder, at any time, at a rate of one share of common stock for one share
of Series B, Series C and Series D Preferred, subject to certain antidilution
adjustments. In the event of a public offering of the Company's equity
securities resulting in gross proceeds to the Company of $15,000,000 or greater
and a per share price exceeding $5.00 (Qualified Public Offering), all
outstanding Series B, Series C and Series D Preferred will automatically convert
into Class B Common Stock. The Series C Preferred is mandatorily convertible at
the Company's initial public offering at a rate of one share of common stock for
one share of Series C Preferred. In the event that the initial public offering
price per share is less than $11.10, the number of shares of Class B Common
Stock into which a single share of Series C Preferred will convert shall
increase until such number of shares multiplied by the initial public offering
price per share equals $11.10.
VOTING RIGHTS
The holders of the Series A Preferred are not entitled to vote on actions
taken by the stockholders of the Company. The holders of the Series B, Series C
and Series D Preferred are entitled to the number of votes per share as equals
the number of shares of Class B Common Stock into which each share of preferred
stock is convertible.
DIVIDENDS
The holders of Series A Preferred are not entitled to receive dividends.
F-18
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(8) PREFERRED STOCK (CONTINUED)
The holders of the Series B and Series C Preferred are entitled to receive,
when and if declared by the Board of Directors, annual dividends at the rate of
10% of the original purchase price subject to certain antidilution adjustments.
The preferred dividends are cumulative; however, any accrued but unpaid
dividends are waived upon conversion in a Qualified Public Offering. For the
period ended December 31, 1999, the Company did not declare any dividends, but
the Company accrued $2,750,000 of dividends related to the Series B and
Series C Preferred.
The holders of Series D Preferred are entitled to receive dividends to the
extent that dividends are declared on the Class B Common Stock, and in an amount
equal to the product of the per share amount declared and the number of whole
shares of Class B Common Stock into which such shares of Series D Preferred is
convertible.
LIQUIDATION
Under certain liquidation events, the holders of Series A, Series B,
Series C and Series D Preferred are entitled to receive, prior and in preference
to any distribution of assets of the Company to holders of common stock, $1.00,
$1.42, $7.40305 and $9.40 per share, respectively, plus all accrued but unpaid
dividends, whether or not earned or declared (Liquidation Preference Payments).
In addition, after payment in full of the preferential amounts, the holders of
the Series B, Series C and Series D Preferred are entitled to share ratably with
the holders of common stock in any remaining assets of the Company, based on the
number of shares of common stock into which the preferred stock may be
converted. The holders of Series A Preferred are not entitled to further
participation in the distribution of the assets of the Company.
(9) STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorized Class A Common Stock and Class B Common Stock.
Each share of Class A Common Stock is convertible into one share of Class B
Common Stock, subject to certain anti-dilution adjustments. The Class A Common
Stock will automatically convert into Class B Common Stock upon a Qualified
Public Offering. Once converted, shares of Class A Common Stock cannot be
reissued.
Each share of Class B Common Stock entitles the holder to one vote per
share. Each share of Class A Common Stock entitles the holder to such number of
votes per share equal to the number of shares of Class B Common Stock into which
each share is then convertible.
Upon the closing of a Qualified Public Offering and the conversion of
Class A Common Stock into shares of Class B Common Stock, the Company's Class B
Common Stock will be the only class of common stock.
For the period June 18, 1998 through December 31, 1998 and the year ended
December 31, 1999, the Company granted 75,000 and 8,461 shares of restricted
stock, respectively, with immediate vesting, in consideration for services
rendered. The Company recognized compensation expense in the amount of $84,000
and $65,000, respectively, for the restricted stock grants based
F-19
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(9) STOCKHOLDERS' EQUITY (CONTINUED)
on the fair market value of the common stock at the date of grant, which are
included in operating expenses in the accompanying consolidated statements of
operations.
During 1999, the Company granted 644,403 shares of restricted stock at a
price $0.28 per share to an officer, in exchange for cash and a promissory note
(Note 12). The restricted stock vests over a four-year period from the officer's
date of hire. The Company has recorded deferred compensation expense of $554,000
related to this restricted stock in the year ended December 31, 1999.
STOCK OPTIONS
In June 1998, the Board of Directors reserved up to an aggregate of 829,000
shares of Class B Common stock for issuance pursuant to stock purchase, stock
grant or stock option agreements. In September 1998, the Company adopted the
1998 Stock Incentive Plan (the Plan), which authorizes the Company to grant
options to purchase and issue up to an aggregate of 1,429,000 shares of
Series B Common stock. In December 1998 and November 1999, the Plan was amended
to increase the aggregate number of shares Series B Common stock issuable under
the Plan to 2,400,000 and 4,500,000, respectively. Under the Plan, incentive and
non-qualified stock options, awards of stock and opportunities to make direct
purchases of stock may be granted to employees, officers, directors, independent
contractors and consultants.
Options are granted by the Company's Board of Directors. Each outstanding
option granted under the Plan expires 10 years from the date of grant, and is
exercisable immediately at the date of grant. Shares of common stock issued
under the Plan are subject to certain restrictions and vest over four years from
either the employee's date of hire or the date of grant. Of the 1,210,477
options exercised during 1999, 295,789 and 808,374 shares are vested and
unvested, respectively, as of December 31, 1999. Upon employee termination, the
Company has the right to repurchase any unvested stock at the employee's
original purchase price. For the year ended December 31, 1999, the Company
repurchased 106,314 shares from terminated employees.
The following table summarizes the Company's stock option activity:
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
----------- --------------
Balance, June 18, 1998......................... -- $ --
Options granted.............................. 1,186,000 0.06
Options forfeited............................ -- --
Options exercised............................ -- --
---------- -----
Balance, December 31, 1998..................... 1,186,000 0.06
Options granted.............................. 2,422,310 5.43
Options forfeited............................ (155,023) 3.21
Options exercised............................ (1,210,477) 0.13
---------- -----
Balance, December 31, 1999..................... 2,242,810 $5.60
========== =====
F-20
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(9) STOCKHOLDERS' EQUITY (CONTINUED)
Options granted during fiscal 1998 resulted in total deferred compensation
expense amount of $1,282,000. Options granted during the year ended
December 31, 1999 resulted in a total deferred compensation amount of
$3,197,000, net of $188,000 related to options forfeited during 1999. These
amounts will be recognized as compensation expense over the vesting period. For
the period June 18, 1998 through December 31, 1998 and the year ended
December 31, 1999, such compensation expense amounted to $65,000 and $463,000,
respectively. At December 31, 1998 and December 31, 1999, 1,139,000 and 282,849
shares of common stock were available for future grant under the Plan.
The following table summarizes information about options outstanding and
exercisable at December 31, 1999:
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------------- ----------- ----------- -------- ----------- --------
$0.14 100,000 9.0 years $0.14 100,000 $0.14
$0.50 11,000 9.1 years $0.50 11,000 $0.50
$1.00 234,975 9.9 years $1.00 234,975 $1.00
$2.75 8,000 9.2 years $2.75 8,000 $2.75
$6.50 1,888,835 9.8 years $6.50 1,888,835 $6.50
--------- ---------
$0.14-$6.50 2,242,810 9.8 years $5.60 2,242,810 $5.60
========= =========
If the Company had accounted for these plans in accordance with SFAS
No. 123, the Company's net loss and loss per share would have increased to the
following pro forma amounts (in thousands, except per share data):
PREDECESSOR COMPANY THE COMPANY
--------------------------- ----------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 1, JUNE 18, 1998 YEAR ENDED
DECEMBER 31, 1998 TO JUNE TO DECEMBER DECEMBER 31,
1997 17, 1998 31, 1998 1999
------------ ------------ ------------- ------------
Net income (loss) attributable to common
stockholders, as reported............. $ 5 $ (361) $(3,733) $(46,460)
Net income (loss) attributable to common
stockholders, pro forma for the effect
of SFAS No. 123....................... 5 (361) (3,733) (46,494)
Basic and diluted net income (loss) per
common share, as reported............. 0.67 (48.13) (0.50) (6.01)
Basic and diluted net income (loss) per
common share, pro forma for the effect
of SFAS No. 123....................... 0.67 (48.13) (0.50) (6.01)
F-21
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(9) STOCKHOLDERS' EQUITY (CONTINUED)
PREDECESSOR COMPANY THE COMPANY
--------------------------- ----------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 1, JUNE 18, 1998 YEAR ENDED
DECEMBER 31, 1998 TO JUNE TO DECEMBER DECEMBER 31,
1997 17, 1998 31, 1998 1999
------------ ------------ ------------- ------------
Basic and diluted net income (loss) per
common share, pro forma for the effect
of SFAS No. 123, and for the
convertible preferred shares.......... 0.67 (48.13) (0.49) (2.54)
The fair value of each option grant was calculated using the Black-Scholes
option pricing model. For the period from June 18, 1998 through December 31,
1998 and the year ended December 31, 1999, the weighted average value was
estimated using an expected life of four years, a dividend yield of 0%, a
risk-free interest rate of 5.40% and a volatility of 100%. The weighted-average
fair value of options granted during 1998 and 1999 using the Black-Scholes
option pricing model was $1.10 and $4.00 per share, respectively.
WARRANTS
In February 1999, as consideration for the Subordinated Loan Agreement and
the Lease Agreement, the Commercial Lender received warrants to purchase 202,464
shares of Series B Preferred at a price of $1.42 per share, the fair market
value of preferred stock at date of grant. Upon completion of a qualified
initial public offering, the warrants to purchase shares of Series B Preferred
will convert into warrants to purchase shares of Class B Common Stock. Using the
Black-Scholes option pricing model, the warrants were valued at $233,000 and are
included in other assets, net of accumulated amortization, on the accompanying
consolidated balance sheet at December 31, 1999. The value of the warrants will
be amortized over three years, the term of the Subordinated Loan Agreement and
Lease Agreement.
(10) COMMITMENTS
The Company leases computer equipment and software under capital lease
agreements. The Company also leases warehouse, office space and office equipment
under operating leases (Note 12).
Future minimum commitments as of December 31, 1999 are as follows (in
thousands):
CAPITAL OPERATING
LEASES LEASES
-------- ---------
Year ending December 31,
2000.................................................. $259 $ 806
2001.................................................. 259 890
2002.................................................. 109 761
2003.................................................. -- 761
2004.................................................. -- 377
---- ------
F-22
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(10) COMMITMENTS (CONTINUED)
CAPITAL OPERATING
LEASES LEASES
-------- ---------
627 $3,595
======
Less amount representing interest................... (56)
----
Present value of lease payments..................... $571
====
Rental expense under operating lease agreements for the years ended
December 31, 1997 and the period January 1, 1998 through June 17, 1998 was
$24,000 and $34,000, respectively. Rental expense under operating lease
agreements for the period June 18, 1998 through December 31, 1998 and the year
ended December 31, 1999 was $105,000 and $608,000 respectively.
As of December 31, 1999, the Company has marketing and other strategic
relationship agreements under which there are commitments of approximately
$11,370,000 and $3,758,000, for the years ended December 31, 2000 and 2001,
respectively.
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues for
contingent liabilities when it is probable that future expenditures will be made
and such expenditures can be reasonably estimated. In the opinion of management,
there are no pending claims of which the outcome is expected to result in a
material adverse effect on the financial position or results of operations of
the Company.
(11) INCOME TAXES
Due to losses incurred since inception of the Company, there is no income
tax accrual in the periods presented. As of December 31 1999, the Company had
approximately $43,700,000 of federal net operating loss carryforwards, which
begin to expire in 2019, if not utilized. The net deferred tax asset of the
Company was approximately $1,000,000 and $18,822,000 as of December 31, 1998 and
1999, respectively, and is comprised primarily of net operating loss
carryforwards. A full valuation allowance was established for the deferred tax
asset as realization of the tax benefit is not assured. In addition, the
Company's utilization of its net operating loss carryforwards may be limited
pursuant to the Tax Reform Act of 1986, due to cumulative changes in ownership
in excess of 50% that have occurred or may occur.
The significant items giving rise to deferred tax assets liabilities at
December 31, 1998 and 1999 are as follows:
THE COMPANY
-------------------------------
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- --------------
Deferred tax assets--
Nondeductible accruals.................... $ 40 $ 497
Other deferred tax assets................. 49 608
Net operating loss carryforwards.......... 915 17,809
------- --------
F-23
FURNITURE.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1999
(11) INCOME TAXES (CONTINUED)
THE COMPANY
-------------------------------
DECEMBER 31, DECEMBER 31,
1998 1999
-------------- --------------
Total deferred tax assets............. 1,004 18,914
Deferred tax liabilities.................... (4) (92)
Valuation allowance......................... (1,000) (18,822)
------- --------
Net deferred taxes.......................... $ -- $ --
======= ========
(12) RELATED PARTY TRANSACTIONS
The Company leases warehouse and office space from a stockholder under
noncancelable operating leases. Effective December 30, 1999, the Company entered
into an agreement with the stockholder to buy out the remaining term of the
lease for approximately $565,000, which is included in accrued expenses and
other current liabilities in the accompanying consolidated balance sheets.
Rental expense under these operating lease agreements for the year ending
December 31, 1997 and the period January 1, 1998 through June 17, 1998 was
$24,000 and $34,000, respectively. Rental expense under operating lease
agreements for the period June 18, 1998 through December 31, 1998 and the year
ended December 31, 1999 was $105,000 and $130,000 respectively.
On January 13, 1999, the Company loaned $200,000 to a director, pursuant to
a nonrecourse, promissory note that bears interest at 7% per year and is payable
in full on January 13, 2004. The note is secured by the director's common stock
of the Company.
During 1999, the Company loaned $170,000 to certain officers pursuant to
full-recourse, promissory notes that bear interest at rates ranging from 4.62%
to 4.64%. The loans were issued to purchase restricted stock and to exercise
stock options, and are secured by the officers' underlying stock of the Company.
(13) SUBSEQUENT EVENTS
In January 2000, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public.
F-24
[Artwork on inside of back cover page]
On the top of the artwork is the caption "Furniture.com ... All the Comforts
of Home"
In the middle of the artwork is a picture of a woman sitting in a chair in a
living room with a table in front of her. Surrounding the woman are various home
furnishings (sofa, chair, lamp, rug, entertainment center and drapes). The
following are call-outs surrounding the woman:
- I decorated the whole room in an afternoon.
- My husband approved the new room design, during halftime.
- The Design Consultant furnished great ideas ... free.
- Finally, we'd rather eat in than go out ...
- With QuickShip, they delivered it in three weeks.
- With the room planner, I knew this would fit.
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
TABLE OF CONTENTS
Page
--------
Prospectus Summary.................... 2
Risk Factors.......................... 6
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial Data............... 23
Management's Discussion and
Analysis of Financial Condition and
Results of Operations............... 25
Business.............................. 34
Management............................ 52
Certain Transactions.................. 62
Principal Stockholders................ 66
Description of Capital Stock.......... 70
Shares Eligible for Future Sale....... 73
Underwriting.......................... 75
Legal Matters......................... 77
Experts............................... 77
Additional Information................ 78
Index to Financial Statements......... F-1
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as an underwriter and concerning an unsold allotment or subscription.
Shares
FURNITURE.COM, INC.
Common Stock
[INSERT FURNITURE.COM LOGO]
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
WILLIAM BLAIR & COMPANY
E*OFFERING
Representatives of the Underwriters
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the common stock offered hereby are as
follows:
SEC registration fee........................................ $13,200
NASD filing fee............................................. 5,500
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Directors and officers insurance............................ *
Blue Sky fees and expenses (including legal fees)........... *
Transfer agent and registrar fees and expenses.............. *
Miscellaneous............................................... *
-------
Total....................................................... $ *
=======
* To be added by amendment.
Furniture.com will bear all expenses shown in the above table.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and Furniture.com's charter and by-laws
provide for indemnification of Furniture.com's directors and officers for
liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of Furniture.com and, with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. Reference is made to Furniture.com's charter and by-laws filed as
Exhibits 3.1 and 3.3 hereto, respectively.
The Underwriting Agreement provides that the underwriters are obligated,
under some circumstances, to indemnify directors, officers and controlling
persons of Furniture.com against some liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). Reference is made
to the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since June 18, 1998, Furniture.com has sold and issued the following
securities:
(a) On June 19, 1998 and June 25, 1998, Furniture.com issued an aggregate
of 3,009,600 shares of Series A preferred stock to ten accredited investors for
aggregate consideration of approximately $3,009,600 and an aggregate of
3,040,000 shares of Class A common stock to ten accredited investors for
aggregate consideration of approximately $30,400. The issuances of the shares of
Series A preferred stock and Class A common stock were made in a transaction
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder.
(b) On December 29, 1998, Furniture.com issued a total of 7,042,254 shares
of Series B preferred stock to ten accredited investors for aggregate
consideration of approximately $10,000,000. The issuance of the shares of
Series B preferred stock was made in a transaction
II-1
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder.
(c) On June 23, 1999, Furniture.com issued 4,727,786 shares of Series C
preferred stock to fifteen accredited investors for aggregate consideration of
approximately $35,000,000. The issuance of the shares of Series C preferred
stock was made in a transaction exempt from registration under the Securities
Act in reliance on Section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder.
(d) On December 30, 1999, Furniture.com issued 3,040,759 shares of
Series D preferred stock to sixteen accredited investors for aggregate
consideration of approximately $28,583,134. The issuance of the shares of
Series D preferred stock was made in a transaction exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D thereunder.
(e) On February 24, 1999, we issued warrants to purchase an aggregate of
202,464 shares of Series B preferred stock at a purchase price of $1.42 per
share to Comdisco, Inc. The Series B preferred stock warrants may be exercised
at any time until the earlier of February 24, 2009 or five years from the
effective date of our initial public offering. These warrants have been issued
in transactions exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder.
(f) Since inception, Furniture.com has issued an aggregate of 3,608,310
options to purchase shares of its Class B common stock to a number of our
employees, directors and consultants. Options to purchase 1,210,477 shares of
Class B common stock have been exercised and options to purchase 155,023 shares
of Class B common stock have been forfeited. These options have been issued in
transactions exempt from registration under the Securities Act in reliance upon
Rule 701 promulgated under the Securities Act and other exemptions.
(g) Since inception, Furniture.com has issued 6,359,341 shares of Class B
common stock to a number of our employees, directors and consultants. 1,938,341
of those shares of Class B common stock were issued pursuant to Restricted Stock
Agreements. Pursuant to those Restricted Stock Agreements, we have repurchased
and cancelled 106,314 shares of Class B common stock. These shares have been
issued in transactions exempt from registration under the Securities Act in
reliance upon Rule 701 promulgated under the Securities Act and other
exemptions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
EXHIBIT NO. EXHIBIT
--------------------- -------
1.1 Form of Underwriting Agreement.
3.1 Fourth Amended and Restated Certificate of Incorporation.
3.2* Fifth Amended and Restated Certificate of Incorporation, to
be effective upon the closing of this offering.
3.3 By-laws.
3.4* Amended and Restated By-laws, to be effective upon the
closing of this offering.
4.1* Specimen Certificate for shares of common stock.
II-2
EXHIBIT NO. EXHIBIT
--------------------- -------
4.2 Description of Capital Stock (contained in the Certificate
of Incorporation filed as Exhibit 3.1).
5.1* Opinion of Hale and Dorr LLP.
10.1 1998 Stock Incentive Plan.
10.2 Lease for 100 Beacon Street, dated June 1998, between
Furniture.com, Inc. and Brick by Brick Realty, LLC.
10.3 Lease for 40 Jackson Street dated June 1998,between
Furniture.com, Inc. and Steven Rothschild, as Trustee of
More Bricks Realty Trust.
10.4 Building Lease for 1881 Worcester Road, dated March 1999,
between Furniture.com, Inc. and Framingham--1881 Associates,
as amended December 21, 1999.
10.5 Series A Preferred Stock and Class A Common Stock Purchase
Agreement, dated June 19 and June 25, 1998, between
Furniture.com, Inc. and the persons listed on Exhibit 1.01
therein.
10.6 Series B Preferred Stock Purchase Agreement, dated December
29, 1998, between Furniture.com, Inc. and the persons listed
on Exhibit 1.01 therein.
10.7 Series C Preferred Stock Purchase Agreement, dated June 23,
1999, between Furniture.com, Inc. and the persons listed on
Exhibit 1.01 therein.
10.8 Series D Convertible Preferred Stock Purchase Agreement,
dated December 30, 1999, between Furniture.com, Inc. and the
persons listed on Exhibit 1.01 therein.
10.9 Third Amended and Restated Stockholders' Agreement, dated
December 30, 1999, between Furniture.com, Inc. and the
Holders (as defined therein) and the Investors (as defined
therein).
10.10 Third Amended and Restated Registration Rights Agreement,
dated December 30, 1999, between Furniture.com, Inc. and the
persons listed on Exhibit A therein.
10.11 Employment Agreement, dated June 19, 1998, between
Furniture.com, Inc. and Steven Rothschild.
10.12 Amendment No. 1 to Employment Agreement, dated December 29,
1998, between Furniture.com, Inc. and Steven Rothschild.
10.13 Employment Termination Agreement, dated May 13, 1999,
between Furniture.com, Inc. and Steven Rothschild.
10.14 Employment Agreement, dated November 7, 1998, between
Furniture.com, Inc. and Andrew Brooks.
10.15+ Welcome Kit Sponsor Agreement, dated August 19, 1999,
between Furniture.com, Inc. and Targeted Marketing
Solutions, Inc. (d/b/a Imagitas).
10.16+ Movers' Guide Sponsor Agreement (New York), dated September
9, 1999, between Furniture.com, Inc. and Targeted Marketing
Solutions, Inc. (d/b/a Imagitas), as amended.
10.17+ Movers' Guide Sponsor Agreement (San Francisco and Seattle),
dated August 19, 1999, between Furniture.com, Inc. and
Targeted Marketing Solutions, Inc. (d/b/a Imagitas).
II-3
EXHIBIT NO. EXHIBIT
--------------------- -------
10.18+ Sponsorship Agreement, dated September 1, 1999, between
Furniture.com, Inc. and CompleteHome.com, Inc., as amended.
10.19* Advertising and Content Agreement, dated January 26, 2000,
between Furniture.com, Inc. and Hachette-Filipacchi
Magazines, Inc.
10.20+ Internet Services Agreement, dated September 7, 1999,
between Furniture.com, Inc. and Home Enterprises, Inc.
10.21+ Marketing Agreement, effective as of October 15, 1999,
between Furniture.com, Inc. and RealNames Corporation.
10.22+ Internet Keyword Provider Agreement, effective as of October
15, 1999, between Furniture.com, Inc. and RealNames
Corporation.
10.23 Severance Agreement, dated December 6, 1999, between
Furniture.com, Inc. and Peter Halunen.
10.24 Stock Purchase Agreement, dated June 19, 1998, between
Furniture.com, Inc. and Steven Rothschild.
10.25 Pledge Agreement, dated January 20, 1999, between
Furniture.com, Inc. and Andrew Brooks.
10.26 Promissory Note, dated January 20, 1999, between
Furniture.com, Inc. and Andrew Brooks.
10.27 Pledge Agreement, dated January 14, 1999, between
Furniture.com, Inc. and Steven Rothschild.
10.28 Promissory Note, dated January 14, 1999, between
Furniture.com, Inc. and Steven Rothschild.
10.29* SiteHarbor Services Agreement, dated July 31, 1998, between
Furniture.com, Inc. and NaviSite, Inc.
10.30* Insertion Order Agreement, dated January 1, 2000, between
Furniture.com, Inc. and AltaVista, through DoubleClick, Inc.
10.31 Lease Termination Letter Agreement, dated January 11, 2000,
between Furniture.com, Inc. and More Bricks Realty Trust and
Brick by Brick Realty, LLC.
10.32 Master Lease Agreement, dated February 24, 1998, between
Furniture.com, Inc. and Comdisco, Inc.
10.33 Warrant Agreement, dated February 24, 1999, between
Furniture.com, Inc. and Comdisco, Inc. for 176,056 shares of
Series B Preferred Stock.
10.34 Warrant Agreement, dated February 24, 1999, between
Furniture.com, Inc. and Comdisco, Inc. for 26,408 shares of
Series B Preferred Stock.
10.35 Subordinated Loan and Security Agreement, dated February 24,
1999, between Furniture.com, Inc. and Comdisco, Inc.
10.36 Promissory Note, dated January 3, 2000, between
Furniture.com, Inc. and Andrew Brooks.
10.37 Pledge Agreement, dated January 3, 2000, between
Furniture.com, Inc. and Andrew Brooks.
II-4
EXHIBIT NO. EXHIBIT
--------------------- -------
23.1* Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney of Andrew L. Brooks, Edwin T. Derecho,
Christopher P. Kirchen, Jason Olim, Joanna A. Strober, Marc
D. Poirier, Michael Barach and Steven Rothschild. (Included
on pages II-6 and II-7)
* To be filed by amendment.
+ Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
(b) Financial Statement Schedules.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Framingham,
Massachusetts on January 27, 2000.
FURNITURE.COM, INC.
By: /s/ ANDREW L. BROOKS
----------------------------------------------
Andrew L. Brooks
CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints each of Andrew L. Brooks, Edwin T.
Derecho and Alex E. Seldin such person's true and lawful attorney-in-fact and
agent with full power of substitution and resubstitution, for such person and in
such person's name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement (or to any other registration statement for the same offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act),
and to file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that any said attorney-in-fact
and agent, or any substitute or substitutes of any of them, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
Chief Executive Officer,
By: /s/ ANDREW L. BROOKS President and Director
-------------------------------------- (Principal Executive January 27, 2000
Andrew L. Brooks Officer)
Senior Vice President,
By: /s/ EDWIN T. DERECHO Chief Financial Officer
-------------------------------------- and Treasurer January 27, 2000
Edwin T. Derecho (Principal Financial
and Accounting Officer)
By: /s/ CHRISTOPHER P. KIRCHEN
-------------------------------------- Director January 27, 2000
Christopher P. Kirchen
By: /s/ JASON OLIM
-------------------------------------- Director January 27, 2000
Jason Olim
II-6
SIGNATURE TITLE DATE
--------- ----- ----
By: /s/ JOANNA A. STROBER
-------------------------------------- Director January 27, 2000
Joanna A. Strober
By: /s/ MARC D. POIRIER
-------------------------------------- Director January 27, 2000
Marc D. Poirier
By: /s/ MICHAEL BARACH
-------------------------------------- Director January 27, 2000
Michael Barach
By: /s/ STEVEN ROTHSCHILD
-------------------------------------- Chairman of the Board of January 27, 2000
Steven Rothschild Directors
II-7
TO FURNITURE.COM, INC.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Furniture.com, Inc. included in this registration
statement and have issued our report thereon dated January 14, 2000. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule to follow is the responsibility of the company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules, and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
January 14, 2000
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO BALANCE AT
DESCRIPTION PERIOD EXPENSE DEDUCTIONS END OF PERIOD
----------- ------------- ----------- ----------- --------------
Allowance for Doubtful Accounts*
Period from June 18, 1998 through
December 31, 1998................. -- 75,000 -- 75,000
Year ended December 31, 1999........ 75,000 130,000 (105,000) 100,000
Allowance for Sales Returns*
Period from June 18, 1998 through
December 31, 1998................. -- 81,000 (36,000) 45,000
Year ended December 31, 1999........ 45,000 332,000 (187,000) 190,000
Warranty Reserve*
Period from June 18, 1998 through
December 31, 1998................. -- 75,000 (18,000) 57,000
Year ended December 31, 1999........ 57,000 332,000 (85,000) 294,000
* Information related to the Predecessor Company has been omitted as there was
no activity or amounts in the periods presented.
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
--------------------- -------
1.1 Form of Underwriting Agreement.
3.1 Fourth Amended and Restated Certificate of Incorporation.
3.2 * Fifth Amended and Restated Certificate of Incorporation, to
be effective upon the closing of this offering.
3.3 By-laws.
3.4 * Amended and Restated By-laws, to be effective upon the
closing of this offering.
4.1 * Specimen Certificate for shares of common stock.
4.2 Description of Capital Stock (contained in the Certificate
of Incorporation filed as Exhibit 3.1).
5.1 * Opinion of Hale and Dorr LLP.
10.1 1998 Stock Incentive Plan.
10.2 Lease for 100 Beacon Street, dated June 1998, between
Furniture.com, Inc. and Brick by Brick Realty, LLC.
10.3 Lease for 40 Jackson Street dated June 1998, between
Furniture.com, Inc. and Steven Rothschild, as Trustee of
More Bricks Realty Trust.
10.4 Building Lease for 1881 Worcester Road, dated March 1999,
between Furniture.com, Inc. and Framingham--1881 Associates,
as amended December 21, 1999.
10.5 Series A Preferred Stock and Class A Common Stock Purchase
Agreement, dated June 19 and June 25, 1998, between
Furniture.com, Inc. and the persons listed on Exhibit 1.01
therein.
10.6 Series B Preferred Stock Purchase Agreement, dated December
29, 1998, between Furniture.com, Inc. and the persons listed
on Exhibit 1.01 therein.
10.7 Series C Preferred Stock Purchase Agreement, dated June 23,
1999, between Furniture.com, Inc. and the persons listed on
Exhibit 1.01 therein.
10.8 Series D Convertible Preferred Stock Purchase Agreement,
dated December 30, 1999, between Furniture.com, Inc. and the
persons listed on Exhibit 1.01 therein.
10.9 Third Amended and Restated Stockholders' Agreement, dated
December 30, 1999, between Furniture.com, Inc. and the
Holders (as defined therein) and the Investors (as defined
therein).
10.10 Third Amended and Restated Registration Rights Agreement,
dated December 30, 1999, between Furniture.com, Inc. and the
persons listed on Exhibit A therein.
10.11 Employment Agreement, dated June 19, 1998, between
Furniture.com, Inc. and Steven Rothschild.
10.12 Amendment No. 1 to Employment Agreement, dated December 29,
1998, between Furniture.com, Inc. and Steven Rothschild.
10.13 Employment Termination Agreement, dated May 13, 1999,
between Furniture.com, Inc. and Steven Rothschild.
10.14 Employment Agreement, dated November 7, 1998, between
Furniture.com, Inc. and Andrew Brooks.
10.15+ Welcome Kit Sponsor Agreement, dated August 19, 1999,
between Furniture.com, Inc. and Targeted Marketing
Solutions, Inc. (d/b/a Imagitas).
EXHIBIT NO. EXHIBIT
--------------------- -------
10.16+ Movers' Guide Sponsor Agreement (New York), dated September
9, 1999, between Furniture.com, Inc. and Targeted Marketing
Solutions, Inc. (d/b/a Imagitas), as amended.
10.17+ Movers' Guide Sponsor Agreement (San Francisco and Seattle),
dated August 19, 1999, between Furniture.com, Inc. and
Targeted Marketing Solutions, Inc. (d/b/a Imagitas).
10.18+ Sponsorship Agreement, dated September 1, 1999, between
Furniture.com, Inc. and CompleteHome.com, Inc., as amended.
10.19* Advertising and Content Agreement, dated January 26, 2000,
between Furniture.com, Inc. and Hachette-Filipacchi
Magazines, Inc.
10.20+ Internet Services Agreement, dated September 7, 1999,
between Furniture.com, Inc. and Home Enterprises, Inc.
10.21+ Marketing Agreement, effective as of October 15, 1999,
between Furniture.com, Inc. and RealNames Corporation.
10.22+ Internet Keyword Provider Agreement, effective as of October
15, 1999, between Furniture.com, Inc. and RealNames
Corporation.
10.23 Severance Agreement, dated December 6, 1999, between
Furniture.com, Inc. and Peter Halunen.
10.24 Stock Purchase Agreement, dated June 19, 1998, between
Furniture.com, Inc. and Steven Rothschild.
10.25 Pledge Agreement, dated January 20, 1999, between
Furniture.com, Inc. and Andrew Brooks.
10.26 Promissory Note, dated January 20, 1999, between
Furniture.com, Inc. and Andrew Brooks.
10.27 Pledge Agreement, dated January 14, 1999, between
Furniture.com, Inc. and Steven Rothschild.
10.28 Promissory Note, dated January 14, 1999, between
Furniture.com, Inc. and Steven Rothschild.
10.29* SiteHarbor Services Agreement, dated July 31, 1998, between
Furniture.com, Inc. and NaviSite, Inc.
10.30* Insertion Order Agreement, dated January 1, 2000, between
Furniture.com, Inc. and AltaVista, through DoubleClick, Inc.
10.31 Lease Termination Letter Agreement, dated January 11, 2000,
between Furniture.com, Inc. and More Bricks Realty Trust and
Brick by Brick Realty, LLC.
10.32 Master Lease Agreement, dated February 24, 1998, between
Furniture.com, Inc. and Comdisco, Inc.
10.33 Warrant Agreement, dated February 24, 1999, between
Furniture.com, Inc. and Comdisco, Inc. for 176,056 shares of
Series B Preferred Stock.
10.34 Warrant Agreement, dated February 24, 1999, between
Furniture.com, Inc. and Comdisco, Inc. for 26,408 shares of
Series B Preferred Stock.
10.35 Subordinated Loan and Security Agreement, dated February 24,
1999, between Furniture.com, Inc. and Comdisco, Inc.
10.36 Promissory Note, dated January 3, 2000, between
Furniture.com, Inc. and Andrew Brooks.
10.37 Pledge Agreement, dated January 3, 2000, between
Furniture.com, Inc. and Andrew Brooks.
EXHIBIT NO. EXHIBIT
--------------------- -------
23.1 * Consent of Hale and Dorr LLP (contained in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney of Andrew L. Brooks, Edwin T. Derecho,
Christopher P. Kirchen, Jason Olim, Joanna A. Strober, Marc
D. Poirier, Michael Barach and Steven Rothschild. (Included
on pages II-6 and II-7)
* To be filed by amendment.
+ Confidential treatment has been requested as to certain portions of this
exhibit pursuant to Rule 406 under the Securities Act. Such portions have
been omitted and filed separately with the Securities and Exchange
Commission.
DRAFT OF JANUARY 27, 2000
EXHIBIT 1.1
FURNITURE.COM, INC.
COMMON STOCK
(PAR VALUE $___ PER SHARE)
UNDERWRITING AGREEMENT
__, 2000
Goldman, Sachs & Co.,
Salomon Smith Barney Inc.
William Blair & Company, L.L.C.,
E*OFFERING Corp.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Furniture.com, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
........ shares (the "Firm Shares") and, at the election of the Underwriters, up
to ........ additional shares (the "Optional Shares") of Common Stock (par value
$___ per share) ("Stock") of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other
DRAFT OF DECEMBER 15, 1999
document with respect to the Initial Registration Statement has heretofore been
filed with the Commission; and no stop order suspending the effectiveness of the
Initial Registration
-2-
Statement, any post-effective amendment thereto or the Rule 462(b) Registration
Statement, if any, has been issued and no proceeding for that purpose has been
initiated or threatened by the Commission (any preliminary prospectus included
in the Initial Registration Statement or filed with the Commission pursuant to
Rule 424(a) of the rules and regulations of the Commission under the Act is
hereinafter called a "Preliminary Prospectus"; the various parts of the Initial
Registration Statement and the Rule 462(b) Registration Statement, if any,
including all exhibits thereto and including the information contained in the
form of final prospectus filed with the Commission pursuant to Rule 424(b) under
the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement at the time it
was declared effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule 462(b)
Registration Statement, if any, became or hereafter becomes effective, are
hereinafter collectively called the "Registration Statement"; and such final
prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is
hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock (other than pursuant to the
grant or exercise of options or warrants described in the Prospectus) or
long-term debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change, in
or affecting the general affairs,
-3-
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus;
(e) The Company and its subsidiaries do not own any real property and
have good and marketable title to all personal property owned by them, free and
clear of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, except where the
failure to be so qualified would not be reasonably likely to have a material
adverse effect on the business, financial condition, prospects or results of
operations of the Company and its subsidiaries as a whole (a "Material Adverse
Effect"); and each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and (except for directors' qualifying shares) are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or claims;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, other than breaches or defaults that would not be reasonably likely to
have a Material Adverse Effect, nor will such action result in any violation of
the provisions of the Certificate of Incorporation or By-laws of the Company or,
except for violations that would not be reasonably likely to have a Material
Adverse Effect, violations of any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or
-4-
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(j) Neither the Company nor any of its subsidiaries is (1) in violation
of its Certificate of Incorporation or By-laws or (2) in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which it is a party or by which it or
any of its properties may be bound, except, in the case of clause (2), for such
defaults as are not reasonably likely to have a Material Adverse Effect;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate be reasonably likely to
have a Material Adverse Effect; and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(m) Other than as set forth in the Prospectus, the Company and its
subsidiaries own or have the right to use pursuant to license, sublicense,
agreement, or permission all patents, patent applications, trademarks, service
marks, trade names, copyrights, trade secrets, confidential information,
proprietary rights and processes ("Intellectual Property") necessary for the
operation of the business of the Company and its subsidiaries as described in
the Prospectus and have taken all steps reasonably necessary to secure
assignments of such Intellectual Property from its employees and contractors; to
the knowledge of the Company none of the technology employed by the Company or
its subsidiaries has been obtained or is being used by the Company or its
subsidiaries in violation of any contractual or fiduciary obligation binding on
the Company, its subsidiaries or any of their respective directors or executive
officers or, to the Company's knowledge, any of their respective employees or
consultants; and the Company and its subsidiaries have taken and will maintain
reasonable measures to prevent the unauthorized dissemination or publication of
its confidential information.
To the Company's knowledge, neither the Company nor any of its
subsidiaries have interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of third parties, and
the Company and its subsidiaries have not received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company or any of
its subsidiaries must license or refrain from using any intellectual property
rights of any third party) which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
To the Company's knowledge, there are no legal or governmental
proceedings
-5-
pending relating to trademarks, trade names, patent rights, mask works, copy
rights, licenses, trade secrets or other intellectual property rights of the
Company or any of its subsidiaries other than the prosecution by the Company and
it subsidiaries of their patent applications before the United States Patent
Office and appropriate foreign government agencies, and no proceedings are
threatened or contemplated by governmental authorities or others relating to
trademarks, trade names, patent rights, mask works, copyrights, licenses or
other intellectual property rights of the Company or its subsidiaries;
(n) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(o) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes; and
(p) Arthur Andersen LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(q) The Company has reviewed its operations and that of its
subsidiaries and made inquiries of any third parties with which the Company or
any of its subsidiaries has a material relationship to evaluate the extent to
which the business or operations of the Company or any of its subsidiaries will
be affected by the Year 2000 Problem. As a result of such review, the Company
has no reason to believe, and does not believe, that the Year 2000 Problem will
have a Material Adverse Effect or result in any material loss or interference
with the Company's business or operations. The "Year 2000 Problem" as used
herein means any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
2. Subject to the terms and conditions herein set forth, (a) the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
sales of shares in excess of the number of Firm Shares.
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Any such election to purchase Optional Shares may be exercised only by written
notice from you to the Company, given within a period of 30 calendar days after
the date of this Agreement, setting forth the aggregate number of Optional
Shares to be purchased and the date on which such Optional Shares are to be
delivered, as determined by you but in no event earlier than the First Time of
Delivery (as defined in Section 4 hereof) or, unless you and the Company
otherwise agree in writing, earlier than two or later than ten business days
after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on ............., 2000 or
such other time and date as Goldman, Sachs & Co. and the Company may agree upon
in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time,
on the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7 hereof, will be delivered at the offices of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at
.......p.m., New York City time, on the New York Business Day next preceding
such Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable,
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such earlier time as may be required by Rule 430A(a)(3) under the Act; to make
no further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has been
filed and to furnish you with copies thereof; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop order or
of any order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Shares and if at such time any event shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you and
upon your request to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as you
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its security holders as soon
as practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c) under
the Act), an earnings statement of the Company and its subsidiaries (which need
not be audited) complying with Section 11(a) of the Act and the rules and
regulations thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including
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the date 180 days after the date of the Prospectus, not to offer, sell,
contract to sell or otherwise dispose of, except as provided hereunder any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock
option plans existing on, or upon the conversion or exchange of convertible
or exchangeable securities outstanding as of, the date of this Agreement or
pursuant to option or purchase plans described in the Prospectus), other than
to purchasers who agree to be subject to an agreement covering the matters
addressed in this paragraph (e) for the balance of such 180 day period,
without your prior written consent;
(f)To furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i)To use its best efforts to list for quotation the Shares on
the National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ");
(j)To file with the Commission such information on Form 10-Q or
Form 10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this
-9-
Agreement, the Blue Sky Memorandum, closing documents (including any
compilations thereof) and any other documents in connection with the offering,
purchase, sale and delivery of the Shares; (iii) all expenses in connection with
the qualification of the Shares for offering and sale under state securities
laws as provided in Section 5(b) hereof, including the fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky survey (iv) all fees and expenses in connection
with listing the Shares on the NASDAQ; (v) the filing fees incident to, and the
fees and disbursements of counsel for the Underwriters in connection with,
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Shares; (vi) the cost of preparing stock
certificates; (vii) the cost and charges of any transfer agent or registrar; and
(viii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section. It is understood, however, that, except as provided in this Section,
and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their counsel, stock transfer taxes on
resale of any of the Shares by them, and any advertising expenses connected with
any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order suspending
the effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Ropes & Gray, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such opinion
is attached as Annex II(a) hereto), dated such Time of Delivery, with respect to
the matters covered in paragraphs (i), (ii), (vii), (xi) and (xiii) of
subsection (c) below as well as such other related matters as you may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;
(c) Hale and Dorr LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as
set forth in the
-10-
Prospectus under the caption "Description of Capital Stock", and all of
the issued shares of capital stock of the Company (including the Shares
being delivered at such Time of Delivery) have been duly and validly
authorized and issued and are fully paid and non-assessable; and the
Shares conform in all material respects to the description of the Stock
contained in the Prospectus under the caption "Description of Capital
Stock";
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of the Commonwealth of Massachusetts;
(iv) Each subsidiary of the Company listed on Schedule
A to such opinion has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation; to such counsel's knowledge, based solely on such
counsel's review of the corporate record books of the Company, Empire
Furniture Warehouse, Inc. ("Empire") is the only subsidiary of the
Company; the Company owns all of the record outstanding capital stock
of Empire; based solely upon (A) the stock records of Empire furnished
to such counsel, (B) the ratification vote by the Board of Directors of
Empire voted into office by the stockholder of record of Empire as set
forth in the stock records furnished to such counsel, and (C) the
Officers' Certificate as to the full payment for the outstanding shares
of capital stock of Empire, all of the outstanding shares of capital
stock of Empire have been duly authorized, are validly issued and, to
our knowledge, are fully paid and nonassessable;
(v) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or
of which any property of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate be reasonably
likely to have a Material Adverse Effect; and, to such counsel's
knowledge, no such proceedings are threatened by governmental
authorities or others;
(vi) This Agreement has been duly authorized, executed
and delivered by the Company;
(vii) The issue and sale of the Shares being delivered
at such Time of Delivery by the Company and the compliance by the
Company with all of the provisions of this Agreement and the
consummation by the Company of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument which is filed as an exhibit to the Registration Statement,
nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any federal
or Massachusetts state statute, rule or regulation or any order
specifically naming the Company known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except for (A) the registration under the Act of the Shares,
and (B) such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriters;
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(ix) The statements set forth in the Prospectus under
the captions "Description of Capital Stock" and "Underwriting", insofar
as they purport to constitute matters of law or legal conclusions, are
correct in all material respects;
(x) The Company is not an "investment company", as such
term is defined in the Investment Company Act; and
(xi) The Registration Statement and the Prospectus and
any further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial statements and
related schedules therein, and the other financial data included
in the Prospectus, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Act and the rules and regulations thereunder;
The written opinion shall also include the following
confirmation:
"In connection with the preparation of the Registration Statement
and the Prospectus, we have participated in conferences with officers and
representatives of the Company, counsel for the Underwriters and the independent
accountants of the Company, at which conferences we made inquiries of such
persons and others and discussed the contents of the Registration Statement and
the Prospectus. While the limitations inherent in the independent verification
of factual matters and the character of determinations involved in the
registration process are such that we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, subject to the
foregoing and based on such participation, inquiries and discussions, no facts
have come to our attention which have caused us to believe that the Registration
Statement, as of the Effective Date (but after giving effect to changes
incorporated pursuant to Rule 430A under the Act), contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading (except that we
express no such view with respect to the financial statements, including the
notes and schedules thereto, or any other financial or accounting data included
therein), or that the Prospectus, as of the date it was filed with the
Commission pursuant to Rule 424(b)(4) under the Act or as of the date hereof,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (except that we express no such view with respect to the
financial statements, including the notes and schedules thereto, or any other
financial or accounting data included therein). We do not know of any amendment
to the Registration Statement required to be filed or any contracts or other
documents of a character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration Statement or the
Prospectus which are not filed or described as required."
(d) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of Delivery,
Arthur Andersen LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to you,
to the effect set forth in Annex I hereto (the executed copy of the letter
delivered prior to the execution of this
-12-
Agreement is attached as Annex I(a) hereto and a draft of the form of letter to
be delivered on the effective date of any post-effective amendment to the
Registration Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the Prospectus there shall
not have been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities or preferred stock
by any "nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii)
no such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of any
of the Company's debt securities or preferred stock;
(g) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities on
NASDAQ; (iii) a general moratorium on commercial banking activities declared by
either Federal or New York or Massachusetts State authorities; or (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such event specified in this clause (iv) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have
been duly listed for quotation on NASDAQ;
(i)The Company has obtained and delivered to the Underwriters
executed copies of an agreement from stockholders of the Company holding in
aggregate in excess of 95% of the shares of capital stock outstanding on the
date of this Agreement, substantially to the effect set forth in Subsection 5(e)
hereof in form and substance satisfactory to you;
(j) The Company shall have complied with the provisions of
Section 5(c) hereof with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and warranties of
the Company herein at and as of such Time of Delivery, as to
-13-
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth in
subsections (a) and (e) of this Section and as to such other matters as you may
reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any
-14-
legal expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
PRO RATA allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The
-15-
Underwriters' obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6
-16-
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any
-17-
number of counterparts, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us seven counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
Furniture.com, Inc.
By:
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Salomon Smith Barney Inc.
William Blair & Company, L.L.C.
E*OFFERING Corp.
By:_____________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-18-
SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
Goldman, Sachs & Co...........................................
Salomon Smith Barney Inc......................................
William Blair & Company, L.L.C................................
E*OFFERING Corp...............................................
---------- --------------
Total....................
========== ==============
-19-
DRAFT OF DECEMBER 15, 1999
ANNEX I
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
pro forma financial information) examined by them and included in the
Prospectus or the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited consolidated interim financial statements, selected
financial data, pro forma financial information, and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives") and are
attached hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus as indicated in their reports thereon copies
of which are attached hereto and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility
for financial and accounting matters regarding whether the unaudited
condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that cause them
to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
the years ended December 31, 1996, 1997, 1998 and 1999 and in unaudited
financial information for the year ended December 31, 1995;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K
and on the basis of limited procedures specified in such letter nothing
came to their attention as a result of the foregoing procedures that
caused them to believe that this information does not conform in all
material respects with the disclosure requirements of Items 301, 302,
402 and
F-21
DRAFT OF DECEMBER 15, 1999
503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) any unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and
any such unaudited data and items were not determined on a
basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial
statements included in the Prospectus;
(B) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited income statement data and balance sheet items
included in the Prospectus and referred to in clause (A)
were not determined on a basis substantially consistent with
the basis for the audited consolidated financial statements
included in the Prospectus;
(C) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not
comply as to form in all material respects with the
applicable accounting requirements of the Act and the
published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(D) as of a specified date not more than five days
prior to the date of such letter, there have been any
changes in the consolidated capital stock (other than
issuances of capital stock upon exercise of options and
stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in
each case which were outstanding on the date of the latest
financial statements included in the Prospectus) or any
increase in the consolidated long-term debt of the Company
and its subsidiaries, or any decreases in consolidated net
current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as
compared with amounts shown in the latest balance sheet
included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
and
(E) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in clause (D) there
F-22
DRAFT OF DECEMBER 15, 1999
were any decreases in consolidated net revenues or operating
profit or the total or per share amounts of consolidated net
income or other items specified by the Representatives, or
any increases in any items specified by the Representatives,
in each case as compared with the comparable period of the
preceding year and with any other period of corresponding
length specified by the Representatives, except in each case
for decreases or increases which the Prospectus discloses
have occurred or may occur or which are described in such
letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus, or
in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.
F-23
Exhibit 3.1
FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FURNITURE.COM, INC.
* * * * * *
Furniture.com, Inc. (the "Corporation"), a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
1. The date of filing of the Corporation's original Certificate of
Incorporation with the Secretary of State was June 18, 1998, under the name
FurnitureSite, Inc. The Corporation filed an Amended and Restated Certificate of
Incorporation with the Secretary of State on June 19, 1998, under the name
FurnitureSite, Inc. The Corporation filed a Second Amended and Restated
Certificate of Incorporation with the Secretary of State on December 29, 1998,
under the name FurnitureSite, Inc. The Corporation filed a Certificate of
Amendment with the Secretary of State on January 14, 1999, under the name
Furniture.com, Inc. The Corporation filed a Third Amended and Restated
Certificate of Incorporation with the Secretary of State on June 23, 1999, under
the name Furniture.com, Inc.
2. This Fourth Amended and Restated Certificate of Incorporation
(this "Fourth Restated Certificate"), as filed under Delaware law Section 242
and Section 245, restates, integrates and amends the Certificate of
Incorporation, as amended and restated, of the Corporation to read as herein set
forth in full:
FIRST. The name of the corporation is Furniture.com, Inc.
(the "Corporation").
SECOND. The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, New Castle County, Delaware 19801. The name of its registered agent
at such address is The Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted
or promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH. The total number of shares of all classes of stock
which the Corporation shall have authority to issue is (i) 3,040,000 shares of
Class A Common Stock, $0.01 par value per share ("Class A Common Stock"), (ii)
33,000,000 shares of Class B Common Stock, $0.01 par value per share ("Class B
Common Stock"), (iii) 3,009,600 shares of Series A Preferred Stock, $0.01 par
value per share ("Series A Preferred Stock"), (iv) 7,246,036 shares of Series B
Preferred Stock, $0.01 par value per share ("Series B Preferred Stock"), (v)
4,727,786 shares of Series C Preferred Stock, $0.01 par value per share ("Series
C Preferred Stock") and (vi) 3,200,000 shares of Series D Preferred Stock, $0.01
par value per share ("Series D Preferred Stock"). The Class A Common Stock and
Class B Common Stock are sometimes referred to herein collectively as the
"Common Stock". The Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock are sometimes referred
to herein collectively as the "Preferred Stock".
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. CLASS A COMMON STOCK AND CLASS B COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the
- 2 -
Class A Common Stock and Class B Common Stock are subject to and qualified by
the rights of the holders of the Preferred Stock
2. VOTING.
2A. GENERAL. Except as may be otherwise provided in these
terms of the Class A Common Stock and Class B Common Stock or by law, each share
of Class B Common Stock shall entitle the holder thereof to one vote on all
actions to be taken by the stockholders of the Corporation, and each share of
Class A Common Stock shall entitle the holder thereof to such number of votes
per share on each such action as shall equal the number of shares of Class B
Common Stock (including fractions of a share) into which each share of Class A
Common Stock is then convertible pursuant to the terms herein. There shall be no
cumulative voting.
2B. ELECTION OF DIRECTORS. If, and only if, there are no
shares of Series A Preferred Stock outstanding, the holders of 60% in interest
of the Class A Common Stock, voting separately as a class, (i) shall be entitled
to elect one director of the Corporation and (ii) shall have the right to
nominate one additional director who must be approved by a majority in interest
of the holders of Class B Common Stock. A majority in interest of the holders of
Class B Common Stock shall be entitled to elect two directors of the
Corporation. For any meeting (or written consent in lieu thereof) held for the
purpose of electing directors, if there are no shares of Series A Preferred
Stock outstanding, (x) the presence in person or by proxy (or the written
consent) of the holders of at least 60% in interest of the then outstanding
shares of Class A Common Stock shall constitute a quorum of the Class A common
Stock for the election of directors to be elected solely by the holders of the
Class A Common Stock and (y) a vacancy in any directorship elected by the
holders of the Class A Common Stock or Series A Preferred Stock shall be filled
only by vote or written consent of the holders of at least 60% in interest of
the then outstanding shares of Class A Common Stock.
3. DIVIDENDS. Dividends may be declared and paid (i) pro-rata on
the Class B Common Stock and (ii) pro-rata on the Class A Common Stock at the
same rate as dividends are paid with respect to the Class B Common Stock
(treating each share of Class A Common Stock as being equal to the number of
shares of Class B Common Stock (including fractions of a share) into which each
share of Class A Common Stock is then convertible) from funds lawfully available
therefor as and when determined by the Board of Directors and subject to any
preferential dividend rights of any then outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, immediately after the holders of Series A Preferred Stock have been
paid in full pursuant to subsection B4 below and subject to the preferential
right of the holders of Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock described in subsection B4 below, the remaining assets
of the Corporation available for distribution shall be distributed among the
holders of the shares of Class A Common Stock and Class B Common Stock in an
amount per share as would have been payable had each share of Class A Common
Stock been converted to Class B Common Stock as provided herein.
Each of (i) the consolidation or merger of the Corporation into or
with any other entity or entities which results in the exchange of outstanding
shares of the Corporation for
- 3 -
securities or other consideration issued or paid or caused to be issued or paid
by any such entity or affiliate thereof (except a consolidation or merger into a
Subsidiary or merger in which the Corporation is the surviving Corporation and
the holders of the Corporation's voting stock outstanding immediately prior to
the transaction constitute a majority of the holders of voting stock outstanding
immediately following the transaction), (ii) the sale or transfer by the
Corporation of all or substantially all of its assets and (iii) the sale or
transfer by the Corporation's stockholders of capital stock representing a
majority of the voting power at elections of directors of the Corporation shall
be deemed to be a liquidation, dissolution or winding up of the Corporation.
5. CONVERSIONS. The holders of Class A Common Stock shall have the
following conversion rights:
5A. RIGHT TO CONVERT. Subject to the terms and conditions of
this paragraph 5, the holder of any share or shares of Class A Common Stock
shall have the right, at its option at any time, to convert any such shares of
Class A Common Stock (except that upon any liquidation of the Corporation the
right of conversion shall terminate at the close of business on the business day
fixed for payment of the amount distributable on the Class A Common Stock) into
such number of fully paid and nonassessable shares of Class B Common Stock as is
obtained by (i) multiplying the number of shares of Class A Common Stock so to
be converted by $1.00 and (ii) dividing the result by the conversion price of
$1.00 per share or, in case an adjustment of such price has taken place pursuant
to the further provisions of this paragraph 5, then by the conversion price as
last adjusted and in effect at the date any share or shares of Class A Common
Stock are surrendered for conversion (such price, or such price as last
adjusted, being referred to as the "Class A Conversion Price"). Such rights of
conversion shall be exercised by the holder thereof by giving written notice
that the holder elects to convert a stated number of shares of Class A Common
Stock into Class B Common Stock and by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Class A
Common Stock) at any time during its usual business hours on the date set forth
in such notice, together with a statement of the name or names (with address) in
which the certificate or certificates for shares of Class B Common Stock shall
be issued.
5B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in subparagraph 5A
and surrender of the certificate or certificates for the share or shares of
Class A Common Stock to be converted, the Corporation shall issue and deliver,
or cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Class B Common Stock issuable upon the conversion of such share
or shares of Class A Common Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Class A Conversion
Price shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares of
Class A Common Stock shall cease, and the person or persons in whose name or
names any certificate or certificates for shares of Class B Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
- 4 -
5C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Class A Common Stock into
Class B Common Stock and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Class B Common Stock issued
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to any dividends, accrued and unpaid on the shares of
Class A Common Stock surrendered for conversion to the date upon which such
conversion is deemed to take place as provided in subparagraph 5B. In case the
number of shares of Class A Common Stock represented by the certificate or
certificates surrendered pursuant to subparagraph 5A exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Class A Common Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Class B Common Stock would, except for the provisions of the
first sentence of this subparagraph 5C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Class A Common Stock for conversion an amount in cash
equal to the current market price of such fractional share as determined in good
faith by the Board of Directors of the Corporation.
5D. ADJUSTMENT OF PRICE UPON ISSUANCE OF CLASS B COMMON STOCK.
Except as provided in subparagraph 5E, if and whenever the Corporation shall
issue or sell, or is, in accordance with subparagraphs 5D(1) through 5D(7),
deemed to have issued or sold, any shares of Class B Common Stock for a
consideration per share equal to at least $.05 per share (as adjusted for stock
splits, stock reclassifications and the like) less than the Class A Conversion
Price in effect immediately prior to the time of such issue or sale, then,
forthwith upon such issue or sale, the Class A Conversion Price shall be reduced
to the price (calculated to the nearest cent) determined by dividing (i) an
amount equal, on a fully diluted basis assuming the exercise of all outstanding
Options (as defined below) and Convertible Securities (as defined below) and the
conversion of all Class A Common Stock, to the sum of (a) the number of shares
of Class B Common Stock outstanding immediately prior to such issue or sale
multiplied by the then existing Class A Conversion Price and (b) the
consideration, if any, received by the Corporation upon such issue or sale, by
(ii) the total number of shares of Class B Common Stock outstanding immediately
after such issue or sale.
Notwithstanding anything to the contrary herein, the applicable Class A
Conversion Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $.05, but any such amount shall be
carried forward and the reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $.05 or more.
For purposes of this subparagraph 5D, the following subparagraphs 5D(1) to 5D(7)
shall also be applicable:
5D(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time
the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase,
or any options for the purchase of, Class B Common Stock
or any stock or security convertible into or exchangeable
for Class B Common Stock (such warrants,
- 5 -
rights or options being called "Options" and such
convertible or exchangeable stock or securities being
called "Convertible Securities") whether or not such
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and
the price per share for which Class B Common Stock is
issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any,
received or receivable by the Corporation as consideration
for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to
the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue
or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum
number of shares of Class B Common Stock issuable upon the
exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon
the exercise of such Options) shall be less than the Class
A Conversion Price in effect immediately prior to the time
of the granting of such Options, then the total maximum
number of shares of Class B Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of
the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed
to have been issued for such price per share as of the
date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to
be outstanding. Except as otherwise provided in
subparagraph 5D(3), no adjustment of the Class A
Conversion Price shall be made upon the actual issue of
such Class B Common Stock or of such Convertible
Securities upon exercise of such Options or upon the
actual issue of such Class B Common Stock upon conversion
or exchange of such Convertible Securities.
5D(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether directly or
by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which
Class B Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of
shares of Class B Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Class A Conversion Price in effect
immediately prior to the time of such issue or sale, then
the total maximum number of shares of Class B Common Stock
issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued
for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall
be deemed to be outstanding, provided that (a) except as
otherwise provided in subparagraph 5D(3), no
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adjustment of the Class A Conversion Price shall be made
upon the actual issue of such Class B Common Stock upon
conversion or exchange of such Convertible Securities and
(b) if any such issue or sale of such Convertible
Securities is made upon exercise of any Options to
purchase any such Convertible Securities for which
adjustments of the Class A Conversion Price have been or
are to be made pursuant to other provisions of this
subparagraph 5D, no further adjustment of the Class A
Conversion Price shall be made by reason of such issue or
sale.
5D(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if the
purchase price provided for in any Option referred to in
subparagraph 5D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 5D(1) or 5D(2), or
the rate at which Convertible Securities referred to in
subparagraph 5D(1) or 5D(2) are convertible into or
exchangeable for Class B Common Stock shall change at any
time (including, but not limited to, changes under or by
reason of provisions designed to protect against
dilution), the Class A Conversion Price in effect at the
time of such event shall forthwith be readjusted to the
Class A Conversion Price which would have been in effect
at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or
sold; and on the termination or expiration of any such
Option or any such right to convert or exchange such
Convertible Securities, the Class A Conversion Price then
in effect hereunder shall forthwith be increased to the
Class A Conversion Price which would have been in effect
at the time of such termination or expiration had such
Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never
been issued.
5D(4) STOCK DIVIDENDS. In case the Corporation shall
declare a dividend or make any other distribution upon any
stock of the Corporation (other than the Class A Common
Stock) payable in Class B Common Stock, Options or
Convertible Securities, then any Class B Common Stock,
Options or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without
consideration.
5D(5) CONSIDERATION FOR STOCK. In case any shares of Class
B Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any shares of Class B Common
Stock, Options or Convertible Securities shall be issued
or sold for a consideration other than cash, the amount of
the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such
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consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any Options shall be issued
in connection with the issue and sale of other securities
of the Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto, such
Options shall be deemed to have been issued for such
consideration as determined in good faith by the Board of
Directors of the Corporation.
5D(6) RECORD DATE. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose
of entitling them (i) to receive a dividend or other
distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the
date of the granting of such right of subscription or
purchase, as the case may be.
5D(7) TREASURY SHARES. The number of shares of Class B
Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the
Corporation, and the disposition of any such shares shall
be considered an issue or sale of Class B Common Stock for
the purpose of this subparagraph 5(D).
5E. CERTAIN ISSUES OF COMMON STOCK EXCEPTED. Anything herein to
the contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Class A Conversion Price in the case of the any of the
following:
(i) the issuance of up to 4,500,000 shares of Class B Common Stock
(as adjusted for stock splits and the like) or options exercisable therefor,
issued or issuable to officers, employees or consultants for the Corporation or
any Subsidiary of the Corporation pursuant to a plan or arrangement approved by
the Board of Directors of the Corporation, including without limitation, the
Corporation's 1998 Stock Incentive Plan;
(ii) equity securities of the Corporation issued pursuant to the
acquisition of another corporation by the Corporation by merger (whereby the
Corporation or the stockholders of the Corporation prior to such merger own no
less than fifty-one percent (51%) of the voting power of such corporation) or
purchase of substantially all of its stock or assets; or
(iii) the issuance of any Converted Shares (as defined herein).
5F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Class B Common Stock into a greater number
of shares, the Class A Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, in case
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the outstanding shares of Class B Common Stock shall be combined into a smaller
number of shares, the Class A Conversion Price in effect immediately prior to
such combination shall be proportionately increased.
5G. REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization, reclassification, recapitalization, consolidation, merger, sale
of all or substantially all of the Corporation's assets or other similar
transaction (any such transaction being referred to herein as an "Organic
Change") shall be effected in such a way that holders of Class B Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Class B Common Stock, then, as a condition of such Organic Change,
lawful and adequate provisions shall be made whereby each holder of a share or
shares of Class A Common Stock shall thereupon have the right to receive, upon
the basis and upon the terms and conditions specified herein and in lieu of or
in addition to, as the case may be, the shares of Class B Common Stock
immediately theretofore receivable upon the conversion of such share or shares
of Class A Common Stock, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Class B Common Stock equal to the number of shares of such Class
B Common Stock immediately theretofore receivable upon such conversion had such
Organic Change not taken place, and in the case of a reorganization or
reclassification only, appropriate provisions shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Class A
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights.
5H. NOTICES
5H(1) NOTICE OF ADJUSTMENT. Upon any adjustment of the
Class A Conversion Price, then and in each such case the Corporation shall give
written notice thereof, by delivery in person, certified or registered mail,
return receipt requested, telecopier or telex, addressed to each holder of
shares of Class A Common Stock at the address of such holder as shown on the
books of the Corporation, which notice shall state:
(i) the Class A Conversion Price resulting from such
adjustment;
(ii) the number of shares of Class B Common Stock into
which each share of Class A Common Stock shall be
convertible as a result of such adjustment;
(iii) a brief statement of the facts requiring such
adjustment; and
(iv) the computation by which such adjustment was made.
5H(2) OTHER NOTICES. In case at any time:
(i) the Corporation shall declare any dividend upon its
Class B Common Stock payable in cash or stock or
make any other distribution to the holders of its
Class B Common Stock;
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(ii) the Corporation shall offer for subscription PRO
RATA to the holders of its Class B Common Stock any
additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the
Corporation, or a consolidation or merger of the
Corporation with or into, or a sale of all or
substantially all its assets to, another entity or
entities; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
Corporation,
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile transmission to non-U.S. residents,
addressed to each holder of any shares of Class A Common Stock at the address of
such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
5I. MANDATORY CONVERSION. If at any time (i) the Corporation shall
effect a Qualified Public Offering (as defined herein) or (ii) the holders of at
least a 60% in interest of the outstanding shares of the Class A Common Stock
approve, all outstanding shares of Class A Common Stock shall automatically
convert into such number of fully paid and nonassessable shares of Class B
Common Stock on the basis set forth in this paragraph 5. Holders of shares of
Class A Common Stock so converted may deliver to the Corporation at its
principal office during its usual business hours, the certificate or
certificates for the shares so converted. As promptly as practicable thereafter,
the Corporation shall issue and deliver to such holder a certificate or
certificates for the number of whole shares of Class B Common Stock to which
such holder is entitled, together with any cash dividends and payment in lieu of
fractional shares to which such holder may be entitled. Until such time as a
holder of shares of Class A Common Stock shall surrender his or its certificates
therefor as provided herein, such certificates shall be deemed to represent the
shares of Class B Common Stock to which such holder shall be entitled upon the
surrender thereof.
5J. STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Class B Common Stock, solely
for the purpose of issuance upon the conversion of Class A Common Stock as
herein provided, such number of shares of Class B Common Stock as shall then be
issuable upon the conversion of all outstanding shares of
- 10 -
Class A Common Stock. The Corporation covenants that all shares of Class B
Common Stock which shall be so issued shall be duly and validly issued and fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Class B Common Stock
is at all times equal to or less than the Class A Conversion Price in effect at
the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Class B Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirement of any
national securities exchange upon which the Class B Common Stock may be listed.
The Corporation will not take any action which results in any adjustment of the
Class A Conversion Price if the total number of shares of Class B Common Stock
issued and issuable after such action upon conversion of the Class A Common
Stock would exceed the total number of shares of Class B Common Stock then
authorized by the Corporation's Fourth Restated Certificate.
5K. NO REISSUANCE OF CLASS A COMMON STOCK.Shares of Class
A Common Stock which are converted into shares of Class B Common Stock as
provided herein shall not be reissued.
5L. ISSUE TAX. The issuance of certificates for shares of
Class B Common Stock upon conversion of Class A Common Stock shall be made
without charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Class A Common Stock
which is being converted.
5M. CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Class A Common Stock in any
manner which interferes with the timely conversion of such Class A Common Stock,
except as may otherwise be required to comply with applicable securities laws.
6. RESTRICTIONS. At any time when there are no shares of Series A
Preferred Stock outstanding and there are shares of Class A Common Stock
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the Fourth
Restated Certificate, and in addition to any other vote required by law or the
Fourth Restated Certificate, without the approval of the holders of at least 60%
in interest of the then outstanding shares of Class A Common Stock, given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a class, the Corporation will not amend, alter or repeal its
Fourth Restated Certificate or By-laws in a manner adversely affecting the
rights of the Class A Common Stock.
B. SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK, SERIES C PREFERRED STOCK
AND SERIES D PREFERRED STOCK.
1. NUMBER OF SHARES. The series of Preferred Stock designated and known as
"Series A Preferred Stock" shall consist of 3,009,600 shares. The series of
Preferred Stock designated and known as "Series B Preferred Stock" shall consist
of 7,246,036 shares. The series of Preferred
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Stock designated and known as "Series C Preferred Stock" shall consist of
4,727,786 shares. The series of Preferred Stock designated and known as "Series
D Preferred Stock" shall consist of 3,200,000 shares. The shares of Preferred
Stock shall have the following rights, terms and privileges:
2. VOTING.
2A. GENERAL. Except as may be otherwise provided in these terms of
the Series A Preferred Stock or by law, the Series A Preferred Stock shall not
be entitled to vote on actions to be taken by the stockholders of the
Corporation. Except as otherwise provided in these terms of the Series B
Preferred Stock or by law, each share of Series B Preferred Stock shall entitle
the holder thereof to such number of votes per share on actions to be taken by
the stockholders of the Corporation, as shall equal the number of shares of
Class B Common Stock (including fractions of a share) into which each share of
Series B Preferred Stock is then convertible pursuant to the terms herein.
Except as otherwise provided in these terms of the Series C Preferred Stock or
by law, each share of Series C Preferred Stock shall entitle the holder thereof
to such number of votes per share on actions to be taken by the stockholders of
the Corporation, as shall equal the number of shares of Class B Common Stock
(including fractions of a share) into which each share of Series C Preferred
Stock is then convertible pursuant to the terms herein. Except as otherwise
provided in these terms of the Series D Preferred Stock or by law, each share of
Series D Preferred Stock shall entitle the holder thereof to such number of
votes per share on actions to be taken by the stockholders of the Corporation,
as shall equal the number of shares of Class B Common Stock (including fractions
of a share) into which each share of Series D Preferred Stock is then
convertible pursuant to the terms herein.
2B. BOARD SIZE. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least 60% in interest of (i)
the then outstanding shares of Series A Preferred Stock, (ii) the then
outstanding shares of Series B Preferred Stock, (iii) the then outstanding
shares of Series C Preferred Stock and (iv) the then outstanding shares of
Series D Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) together as a single class, increase the maximum
number of directors constituting the Board of Directors to a number in excess of
eight (8).
2C. ELECTION OF DIRECTORS.
(i) If there are shares of Series A Preferred Stock outstanding,
the holders of Series A Preferred Stock, voting separately as a class, shall (i)
be entitled to elect two directors of the Corporation and (ii) shall have the
right to nominate one additional director who must be approved by a majority in
interest of the holders of Class B Common Stock. A majority in interest of the
holders of Class B Common Stock shall be entitled to nominate two directors of
the Corporation. For any meeting (or written consent in lieu thereof) held for
the purpose of electing directors, the presence in person or by proxy (or the
written consent) of the holders of at least a majority in interest of the then
outstanding shares of Series A Preferred Stock shall constitute a quorum of the
Series A Preferred Stock for the election of directors to be elected solely by
the holders of the Series A Preferred Stock. A vacancy in any directorship
elected by the holders of the Series A Preferred Stock shall be filled only by
vote or written consent of the
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holders of at least a majority in interest of the then outstanding shares of
Series A Preferred Stock.
(ii) If there are shares of Series B Preferred Stock outstanding,
the holders of Series B Preferred Stock, voting separately as a class, shall be
entitled to elect two directors of the Corporation. For any meeting (or written
consent in lieu thereof) held for the purpose of electing directors, the
presence in person or by proxy (or the written consent) of the holders of at
least a majority in interest of the then outstanding shares of Series B
Preferred Stock shall constitute a quorum of the Series B Preferred Stock for
the election of directors to be elected solely by the holders of the Series B
Preferred Stock. A vacancy in any directorship elected by the holders of the
Series B Preferred Stock shall be filled only by vote or written consent of the
holders of at least a majority in interest of the then outstanding shares of
Series B Preferred Stock.
(iii) If there are shares of Series C Preferred Stock or Series D
Preferred Stock outstanding, the holders of Series C Preferred Stock and/or
Series D Preferred Stock, voting together as a single class, shall be entitled
to elect one director of the Corporation. For any meeting (or written consent in
lieu thereof) held for the purpose of electing directors, the presence in person
or by proxy (or the written consent) of the holders of at least a majority of
the votes represented by the then outstanding shares of Series C Preferred Stock
and Series D Preferred Stock shall constitute a quorum of the Series C Preferred
Stock and Series D Preferred Stock for the election of the director to be
elected solely by the holders of the Series C Preferred Stock and Series D
Preferred Stock. A vacancy in the directorship elected by the holders of the
Series C Preferred Stock and Series D Preferred Stock shall be filled only by
vote or written consent of the holders of at least a majority of the votes
represented by the then outstanding shares of Series C Preferred Stock and
Series D Preferred Stock.
3. DIVIDENDS.
(a) The holders of Series A Preferred Stock shall not be entitled
to receive dividends.
The Corporation shall not declare or pay any cash dividends on
shares of Common Stock until the holders of the Series D Preferred Stock then
outstanding shall have first received, or simultaneously receive, a cash
dividend on each outstanding share of Series D Preferred Stock in an amount at
least equal to the product of (i) the per share amount, if any, of the dividends
or other distributions to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Class B Common Stock into which
such share of Series D Preferred Stock is then convertible.
The holders of shares of Series B Preferred Stock shall be
entitled to receive, out of funds legally available therefor, cumulative annual
dividends ("Series B Dividend") when and as they may be declared from time to
time by the Board of Directors of the Corporation at an annual rate per share
equal to ten percent (10%) of the original purchase price of $1.42 paid per
share of the Series B Preferred Stock (which amount shall be subject to
adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series B Preferred Stock).
Such amounts shall be compounded annually such that if the dividend is not paid
for such year the unpaid amount shall be added to the original purchase price
paid per share of the Series B Preferred Stock for purposes of calculating
succeeding years' dividends. The
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Series B Dividend shall be deemed to accrue on the Series B Preferred Stock and
be cumulative, whether or not earned or declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends.
The holders of shares of Series C Preferred Stock shall be
entitled to receive, out of funds legally available therefor, cumulative annual
dividends ("Series C Dividend") when and as they may be declared from time to
time by the Board of Directors of the Corporation at an annual rate per share
equal to ten percent (10%) of the original purchase price of $7.40305 paid per
share of the Series C Preferred Stock (which amount shall be subject to
adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series C Preferred Stock).
Such amounts shall be compounded annually such that if the dividend is not paid
for such year the unpaid amount shall be added to the original purchase price
paid per share of the Series C Preferred Stock for purposes of calculating
succeeding years' dividends. The Series C Dividend shall be deemed to accrue on
the Series C Preferred Stock and be cumulative, whether or not earned or
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for payment of the dividends.
The Series B Dividend and the Series C Dividend shall be paid, out
of funds legally available therefor when and as they may be declared from time
to time by the Board of Directors of the Corporation, PARI PASSU between the
Series B Preferred Stock and the Series C Preferred Stock. If such Series B
Dividend and Series C Dividend in respect of any prior or current annual
dividend period shall not have been declared and paid or if there shall not have
been a sum sufficient for the payment thereof set apart, the deficiency shall
first be fully paid, PARI PASSU between the Series B Preferred Stock and the
Series C Preferred Stock, before any dividend or other distribution shall be
paid or declared and set apart with respect to any class of the Corporation's
capital stock, now or hereafter outstanding. Upon any conversion of the Series B
Preferred Stock under Section 5 hereof, all accumulated and unpaid dividends on
the Series B Preferred Stock, whether or not declared, since the date of issue
up to and including the date of conversion thereof shall be forgiven. Upon any
conversion of the Series C Preferred Stock under Section 6 hereof, all
accumulated and unpaid dividends on the Series C Preferred Stock, whether or not
declared, since the date of issue up to and including the date of conversion
thereof shall be forgiven.
(b) DIVIDENDS IN KIND. In the event the Corporation shall make or
issue, or shall fix a record date for the determination of holders of Class B
Common Stock entitled to receive, a dividend or other distribution with respect
to the Class B Common Stock payable in (i) securities of the Corporation other
than shares of Class B Common Stock or (ii) assets, then and in each such event
the holders of Series B Preferred Stock, the holders of Series C Preferred Stock
and the holders of Series D Preferred Stock shall receive, at the same time such
distribution is made with respect to Class B Common Stock, the number of
securities or such other assets of the Corporation which they would have
received had their Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock been converted into Class B Common Stock immediately prior to
the record date for determining holders of Class B Common Stock entitled to
receive such distribution.
4. LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, each holder of shares of
Preferred Stock shall be entitled to be
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paid, PARI PASSU out of the assets of the Company available for distribution to
holders of the Corporation's capital stock of all classes before any
distribution or payment is made upon any stock ranking on liquidation junior to
the Preferred Stock as follows: the holders of outstanding shares of Series A
Preferred Stock shall receive an amount equal to $1.00 per share (which amount
shall be subject to equitable adjustment whenever there shall occur a stock
split, combination, reclassification or other similar event involving the Series
A Preferred Stock) ("Series A Liquidation Preference Payment"), the holders of
outstanding shares of Series B Preferred Stock shall receive an amount equal to
$1.42 per share (which amount shall be subject to equitable adjustment whenever
there shall occur a stock split, combination, reclassification or other similar
event involving the Series B Preferred Stock) plus all accrued and unpaid
dividends thereon, whether or not earned or declared ("Series B Liquidation
Preference Payment"), the holders of outstanding shares of Series C Preferred
Stock shall receive an amount equal to $7.40305 per share (which amount shall be
subject to equitable adjustment whenever there shall occur a stock split,
combination, reclassification or other similar event involving the Series C
Preferred Stock) plus all accrued and unpaid dividends thereon, whether or not
earned or declared ("Series C Liquidation Preference Payment", and the holders
of outstanding shares of Series D Preferred Stock shall receive an amount equal
to $9.40 per share (which amount shall be subject to equitable adjustment
whenever there shall occur a stock split, combination, reclassification or other
similar event involving the Series D Preferred Stock) plus all declared and
unpaid dividends thereon, whether or not earned ("Series D Liquidation
Preference Payment", together with the Series A Liquidation Preference Payment,
the Series B Liquidation Preference Payment and the Series C Preference
Liquidation Payment, the "Liquidation Preference Payment"). If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Preferred Stock
shall be insufficient to permit payment to the holders of Preferred Stock the
full amount of the Liquidation Preference Payment, then the entire assets of the
Corporation shall be distributed ratably among the holders of the Preferred
Stock, based upon the liquidation preference payable to each such holder. Upon
any such liquidation, dissolution or winding up of the Corporation, after the
holders of Preferred Stock shall have been paid in full the Liquidation
Preference Payment, any remaining assets of the Corporation shall be distributed
among the holders of other classes of capital stock of the Corporation ("Junior
Stock"). The holders of the Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Corporation.
Written notice of such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Preference Payments and
the place where said Liquidation Preference Payments shall be payable, shall be
delivered in person, mailed by certified or registered mail, return receipt
requested, or sent by telecopier or telex, not less than twenty (20) days prior
to the payment date stated therein, to the holders of record of Preferred Stock,
such notice to be addressed to each such holder at its address as shown by the
records of the Corporation.
Each of (i) the consolidation or merger of the Corporation into or
with any other entity or entities which results in the exchange of outstanding
shares of the Corporation for securities or other consideration issued or paid
or caused to be issued or paid by any such entity or affiliate thereof (except a
consolidation or merger into a Subsidiary or merger in which the Corporation is
the surviving Corporation and the holders of the Corporation's voting stock
outstanding immediately prior to the transaction constitute a majority of the
holders of voting
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stock outstanding immediately following the transaction), (ii) the sale or
transfer by the Corporation of all or substantially all of its assets and (iii)
the sale or transfer by the Corporation's stockholders of capital stock
representing a majority of the voting power at elections of directors of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up of
the corporation within the meaning of the provisions of this paragraph 4.
For purposes hereof, the Class A Common Stock and Class B Common
Stock shall rank on liquidation junior to the Preferred Stock.
5. CONVERSIONS OF SERIES B PREFERRED STOCK. The holders of Series B
Preferred Stock shall have the following conversion rights:
5A. RIGHT TO CONVERT. Subject to the terms and
conditions of this paragraph 5, the holder of any share or shares of Series B
Preferred Stock shall have the right, at its option at any time, to convert any
such shares of Series B Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series B
Preferred Stock) into such number of fully paid and nonassessable shares of
Class B Common Stock as is obtained by (i) multiplying the number of shares of
Series B Preferred Stock so to be converted by $1.42 and (ii) dividing the
result by the conversion price of $1.42 per share or, in case an adjustment of
such price has taken place pursuant to the further provisions of this paragraph
5, then by the conversion price as last adjusted and in effect at the date any
share or shares of Series B Preferred Stock are surrendered for conversion (such
price, or such price as last adjusted, being referred to as the "Series B
Conversion Price"). Such rights of conversion shall be exercised by the holder
thereof by giving written notice that the holder elects to convert a stated
number of shares of Series B Preferred Stock into Class B Common Stock and by
surrender of a certificate or certificates for the shares so to be converted to
the Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holders
of the Series B Preferred Stock) at any time during its usual business hours on
the date set forth in such notice, together with a statement of the name or
names (with address) in which the certificate or certificates for shares of
Class B Common Stock shall be issued.
5B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly
after the receipt of the written notice referred to in subparagraph 5A and
surrender of the certificate or certificates for the share or shares of Series B
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Class B Common Stock issuable upon the conversion of such share
or shares of Series B Preferred Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Series B Conversion
Price shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares of
Series B Preferred Stock shall cease, and the person or persons in whose name or
names any certificate or certificates for shares of Class B Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
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5C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series B Preferred Stock
into Class B Common Stock and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Class B Common Stock issued
upon such conversion. In case the number of shares of Series B Preferred Stock
represented by the certificate or certificates surrendered pursuant to
subparagraph 5A exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series B Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional share of Class B
Common Stock would, except for the provisions of the first sentence of this
subparagraph 5C, be delivered upon such conversion, the Corporation, in lieu of
delivering such fractional share, shall pay to the holder surrendering the
Series B Preferred Stock for conversion an amount in cash equal to the current
market price of such fractional share as determined in good faith by the Board
of Directors of the Corporation.
5D. ADJUSTMENT OF PRICE UPON ISSUANCE OF CLASS B COMMON STOCK.
Except as provided in subparagraph 5E, if and whenever the Corporation shall
issue or sell, or is, in accordance with subparagraphs 5D(1) through 5D(7),
deemed to have issued or sold, any shares of Class B Common Stock for a
consideration per share equal to an amount which is less than the Series B
Conversion Price in effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Series B Conversion Price shall be
reduced to the price (calculated to the nearest cent) determined by dividing (i)
an amount equal, on a fully diluted basis assuming the exercise of all
outstanding Options and Convertible Securities and the conversion of all Series
B Preferred Stock, to the sum of (a) the number of shares of Class B Common
Stock outstanding immediately prior to such issue or sale multiplied by the then
existing Series B Conversion Price and (b) the consideration, if any, received
by the Corporation upon such issue or sale, by (ii) the total number of shares
of Class B Common Stock outstanding immediately after such issue or sale.
For purposes of this subparagraph 5D, the following subparagraphs
5D(1) to 5D(7) shall also be applicable:
5D(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time
the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any
Options or Convertible Securities whether or not such
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and
the price per share for which Class B Common Stock is
issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any,
received or receivable by the Corporation as consideration
for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to
the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue
or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum
number of shares of Class B Common Stock issuable upon the
exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon
the exercise of such Options) shall be less than the
Series B Conversion Price in effect immediately prior to
the time of the granting of such Options, then the total
maximum number of shares of Class B Common Stock issuable
upon the exercise of such Options or upon
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the conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued for such
price per share as of the date of granting of such Options
or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except as
otherwise provided in subparagraph 5D(3), no adjustment
of the Series B Conversion Price shall be made upon the
actual issue of such Class B Common Stock or of such
Convertible Securities upon exercise of such Options or
upon the actual issue of such Class B Common Stock upon
conversion or exchange of such Convertible Securities.
5D(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether directly or
by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which
Class B Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of
shares of Class B Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Series B Conversion Price in effect
immediately prior to the time of such issue or sale, then
the total maximum number of shares of Class B Common Stock
issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued
for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall
be deemed to be outstanding, provided that (a) except as
otherwise provided in subparagraph 5D(3), no adjustment of
the Series B Conversion Price shall be made upon the
actual issue of such Class B Common Stock upon conversion
or exchange of such Convertible Securities and (b) if any
such issue or sale of such Convertible Securities is made
upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Series
B Conversion Price have been or are to be made pursuant to
other provisions of this subparagraph 5D, no further
adjustment of the Series B Conversion Price shall be made
by reason of such issue or sale.
5D(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if the
purchase price provided for in any Option referred to in
subparagraph 5D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 5D(1) or 5D(2), or
the rate at which Convertible
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Securities referred to in subparagraph 5D(1) or 5D(2) are
convertible into or exchangeable for Class B Common Stock
shall change at any time (including, but not limited to,
changes under or by reason of provisions designed to
protect against dilution), the Series B Conversion Price
in effect at the time of such event shall forthwith be
readjusted to the Series B Conversion Price which would
have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially
granted, issued or sold; and on the termination or
expiration of any such Option or any such right to convert
or exchange such Convertible Securities, the Series B
Conversion Price then in effect hereunder shall forthwith
be increased to the Series B Conversion Price which would
have been in effect at the time of such termination or
expiration had such Option or Convertible Securities, to
the extent outstanding immediately prior to such
termination, never been issued.
5D(4) STOCK DIVIDENDS. In case the Corporation shall
declare a dividend or make any other distribution upon any
stock of the Corporation (other than the Series B
Preferred Stock) payable in Class B Common Stock, Options
or Convertible Securities, then any Class B Common Stock,
Options or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without
consideration.
5D(5) CONSIDERATION FOR STOCK. In case any shares of Class
B Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any shares of Class B Common
Stock, Options or Convertible Securities shall be issued
or sold for a consideration other than cash, the amount of
the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any Options shall be issued
in connection with the issue and sale of other securities
of the Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto, such
Options shall be deemed to have been issued for such
consideration as determined in good faith by the Board of
Directors of the Corporation.
5D(6) RECORD DATE. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose
of entitling them (i) to receive a dividend or other
distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or
purchase Common Stock,
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Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of
such other distribution or the date of the granting of
such right of subscription or purchase, as the case may
be.
5D(7) TREASURY SHARES. The number of shares of Class B
Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the
Corporation, and the disposition of any such shares shall
be considered an issue or sale of Class B Common Stock for
the purpose of this subparagraph 5(D).
5E. CERTAIN ISSUES OF COMMON STOCK EXCEPTED. Anything herein to
the contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Series B Conversion Price in the case of the any of the
following:
(i) the issuance of up to 4,500,000 shares of Class B Common
Stock (as adjusted for stock splits and the like) or options exercisable
therefor, issued or issuable to officers, employees or consultants for the
Corporation or any Subsidiary of the Corporation pursuant to a plan or
arrangement approved by the Board of Directors of the Corporation, including
without limitation, the Corporation's 1998 Stock Incentive Plan;
(ii) equity securities of the Corporation issued pursuant to the
acquisition of another corporation by the Corporation by merger (whereby the
Corporation or the stockholders of the Corporation prior to such merger own no
less than fifty-one percent (51%) of the voting power of such corporation) or
purchase of substantially all of its stock or assets; or
(iii) the issuance of any Converted Shares.
5F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Class B Common Stock into a greater number
of shares, the Series B Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Class B Common Stock shall be combined into a smaller
number of shares, the Series B Conversion Price in effect immediately prior to
such combination shall be proportionately increased.
5G. REORGANIZATION OR RECLASSIFICATION. If any Organic Change
shall be effected in such a way that holders of Class B Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Class B Common Stock, then, as a condition of such Organic Change, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series B Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of or in
addition to, as the case may be, the shares of Class B Common Stock immediately
theretofore receivable upon the conversion of such share or shares of Series B
Preferred Stock, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Class B Common Stock equal to the number of shares of such Class B Common
Stock
- 20 -
immediately theretofore receivable upon such conversion had such Organic Change
not taken place, and in the case of a reorganization or reclassification only,
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the Series B Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
5H. NOTICES
5H(1). NOTICE OF ADJUSTMENT. So long as any
shares of Series B Preferred Stock are outstanding, upon any adjustment of the
Series B Conversion Price, then and in each such case the Corporation shall
promptly give written notice thereof, by delivery in person, certified or
registered mail, return receipt requested, telecopier or telex, addressed to
each holder of shares of Series B Preferred Stock at the address of such holder
as shown on the books of the Corporation, which notice shall state:
(i) the Series B Conversion Price resulting from such
adjustment;
(ii) the number of shares of Class B Common Stock into
which each share of Series B Preferred Stock shall
be convertible as a result of such adjustment;
(iii) a brief statement of the facts requiring such
adjustment; and
(iv) the computation by which such adjustment was made.
5H(2). OTHER NOTICES. In case at any time:
(i) the Corporation shall declare any dividend upon its
Class B Common Stock payable in cash or stock or
make any other distribution to the holders of its
Class B Common Stock;
(ii) the Corporation shall offer for subscription PRO
RATA to the holders of its Class B Common Stock any
additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the
Corporation, or a consolidation or merger of the
Corporation with or into, or a sale of all or
substantially all its assets to, another entity or
entities; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of
the Corporation,
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile transmission to non-U.S. residents,
addressed to each holder of any shares of Series B Preferred Stock at the
address of such holder as shown on the books of the Corporation, (a) at least 20
days' prior written notice of the date on which the books of the
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Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
5I. MANDATORY CONVERSION. If at any time (i) the Corporation shall
effect a Qualified Public Offering or (ii) the holders of at least a 60% in
interest of the outstanding shares of the Series B Preferred Stock approve, all
outstanding shares of Series B Preferred Stock shall automatically convert into
such number of fully paid and nonassessable shares of Class B Common Stock on
the basis set forth in this paragraph 5. Holders of shares of Series B Preferred
Stock so converted may deliver to the Corporation at its principal office during
its usual business hours, the certificate or certificates for the shares so
converted. As promptly as practicable thereafter, the Corporation shall issue
and deliver to such holder a certificate or certificates for the number of whole
shares of Class B Common Stock to which such holder is entitled, together with
any cash dividends and payment in lieu of fractional shares to which such holder
may be entitled. Until such time as a holder of shares of Series B Preferred
Stock shall surrender his or its certificates therefor as provided herein, such
certificates shall be deemed to represent the shares of Class B Common Stock to
which such holder shall be entitled upon the surrender thereof.
5J. STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Class B Common Stock, solely
for the purpose of issuance upon the conversion of Series B Preferred Stock as
herein provided, such number of shares of Class B Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series B Preferred
Stock. The Corporation covenants that all shares of Class B Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Class B Common Stock
is at all times equal to or less than the Series B Conversion Price in effect at
the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Class B Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirement of any
national securities exchange upon which the Class B Common Stock may be listed.
The Corporation will not take any action which results in any adjustment of the
Series B Conversion Price if the total number of shares of Class B Common Stock
issued and issuable after such action upon conversion of the Series B Preferred
Stock would exceed the total number of shares of Class B Common Stock then
authorized by the Corporation's Fourth Restated Certificate.
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5K. NO REISSUANCE OF SERIES B PREFERRED STOCK. Shares of
Series B Preferred Stock which are converted into shares of Class B Common Stock
as provided herein shall not be reissued.
5L. ISSUE TAX. The issuance of certificates for shares of
Class B Common Stock upon conversion of Series B Preferred Stock shall be made
without charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series B Preferred
Stock which is being converted.
5M. CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Series B Preferred Stock in any
manner which interferes with the timely conversion of such Series B Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
6. CONVERSIONS OF SERIES C PREFERRED STOCK. The holders of Series
C Preferred Stock shall have the following conversion rights:
6A. RIGHT TO CONVERT. Subject to the terms and conditions
of this paragraph 6, the holder of any share or shares of Series C Preferred
Stock shall have the right, at its option at any time, to convert any such
shares of Series C Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series C
Preferred Stock) into such number of fully paid and nonassessable shares of
Class B Common Stock as is obtained by (i) multiplying the number of shares of
Series C Preferred Stock so to be converted by $7.40305 and (ii) dividing the
result by the conversion price of $7.40305 per share or, in case an adjustment
of such price has taken place pursuant to the further provisions of this
paragraph 6, then by the conversion price as last adjusted and in effect at the
date any share or shares of Series C Preferred Stock are surrendered for
conversion (such price, or such price as last adjusted, being referred to as the
"Series C Conversion Price"). Such rights of conversion shall be exercised by
the holder thereof by giving written notice that the holder elects to convert a
stated number of shares of Series C Preferred Stock into Class B Common Stock
and by surrender of a certificate or certificates for the shares so to be
converted to the Corporation at its principal office (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holders of the Series C Preferred Stock) at any time during its usual
business hours on the date set forth in such notice, together with a statement
of the name or names (with address) in which the certificate or certificates for
shares of Class B Common Stock shall be issued.
6B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly
after the receipt of the written notice referred to in subparagraph 6A and
surrender of the certificate or certificates for the share or shares of Series C
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Class B Common Stock issuable upon the conversion of such share
or shares of Series C Preferred Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected and the
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Series C Conversion Price shall be determined as of the close of business on the
date on which such written notice shall have been received by the Corporation
and the certificate or certificates for such share or shares shall have been
surrendered as aforesaid, and at such time the rights of the holder of such
share or shares of Series C Preferred Stock shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Class B Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
6C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series C Preferred Stock
into Class B Common Stock and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Class B Common Stock issued
upon such conversion. In case the number of shares of Series C Preferred Stock
represented by the certificate or certificates surrendered pursuant to
subparagraph 6A exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series C Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional share of Class B
Common Stock would, except for the provisions of the first sentence of this
subparagraph 6C, be delivered upon such conversion, the Corporation, in lieu of
delivering such fractional share, shall pay to the holder surrendering the
Series C Preferred Stock for conversion an amount in cash equal to the current
market price of such fractional share as determined in good faith by the Board
of Directors of the Corporation.
6D. ADJUSTMENT OF PRICE UPON ISSUANCE OF CLASS B COMMON STOCK.
Except as provided in subparagraph 6E or 6I, if and whenever the Corporation
shall issue or sell, or is, in accordance with subparagraphs 6D(1) through
6D(7), deemed to have issued or sold, any shares of Class B Common Stock for a
consideration per share equal to an amount which is less than the Series C
Conversion Price in effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Series C Conversion Price shall be
reduced to the price (calculated to the nearest thousandth of a cent) determined
by dividing (i) an amount equal, on a fully diluted basis assuming the exercise
of all outstanding Options and Convertible Securities and the conversion of all
Series C Preferred Stock, to the sum of (a) the number of shares of Class B
Common Stock outstanding immediately prior to such issue or sale multiplied by
the then existing Series C Conversion Price and (b) the consideration, if any,
received by the Corporation upon such issue or sale, by (ii) the total number of
shares of Class B Common Stock outstanding immediately after such issue or sale.
For purposes of this subparagraph 6D, the following subparagraphs
6D(1) to 6D(7) shall also be applicable:
6D(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time
the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any
Options or Convertible Securities whether or not such
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and
the price per share for which Class B Common Stock is
issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities
(determined by dividing (i) the total
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amount, if any, received or receivable by the Corporation
as consideration for the granting of such Options, plus
the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such
Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue
or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum
number of shares of Class B Common Stock issuable upon the
exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon
the exercise of such Options) shall be less than the
Series C Conversion Price in effect immediately prior to
the time of the granting of such Options, then the total
maximum number of shares of Class B Common Stock issuable
upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the
issuance of such Convertible Securities and thereafter
shall be deemed to be outstanding. Except as otherwise
provided in subparagraph 6D(3), no adjustment of the
Series C Conversion Price shall be made upon the actual
issue of such Class B Common Stock or of such Convertible
Securities upon exercise of such Options or upon the
actual issue of such Class B Common Stock upon conversion
or exchange of such Convertible Securities.
6D(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether directly or
by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which
Class B Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of
shares of Class B Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Series C Conversion Price in effect
immediately prior to the time of such issue or sale, then
the total maximum number of shares of Class B Common Stock
issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued
for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall
be deemed to be outstanding, provided that (a) except as
otherwise provided in subparagraph 6D(3), no adjustment of
the Series C Conversion Price shall be made upon the
actual issue of such Class B Common Stock upon conversion
or exchange of such Convertible Securities and (b) if any
such issue or sale of such Convertible Securities is made
upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Series
C Conversion Price have been or are to be made pursuant to
other provisions of this subparagraph
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6D, no further adjustment of the Series C Conversion Price
shall be made by reason of such issue or sale.
6D(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if the
purchase price provided for in any Option referred to in
subparagraph 6D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 6D(1) or 6D(2), or
the rate at which Convertible Securities referred to in
subparagraph 6D(1) or 6D(2) are convertible into or
exchangeable for Class B Common Stock shall change at any
time (including, but not limited to, changes under or by
reason of provisions designed to protect against
dilution), the Series C Conversion Price in effect at the
time of such event shall forthwith be readjusted to the
Series C Conversion Price which would have been in effect
at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or
sold; and on the termination or expiration of any such
Option or any such right to convert or exchange such
Convertible Securities, the Series C Conversion Price then
in effect hereunder shall forthwith be increased to the
Series C Conversion Price which would have been in effect
at the time of such termination or expiration had such
Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never
been issued.
6D(4) STOCK DIVIDENDS. In case the Corporation shall
declare a dividend or make any other distribution upon any
stock of the Corporation (other than the Series C
Preferred Stock) payable in Class B Common Stock, Options
or Convertible Securities, then any Class B Common Stock,
Options or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without
consideration.
6D(5) CONSIDERATION FOR STOCK. In case any shares of Class
B Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any shares of Class B Common
Stock, Options or Convertible Securities shall be issued
or sold for a consideration other than cash, the amount of
the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any Options shall be issued
in connection with the issue and sale of other securities
of the Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such
- 26 -
Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as
determined in good faith by the Board of Directors of the
Corporation.
6D(6) RECORD DATE. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose
of entitling them (i) to receive a dividend or other
distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the
date of the granting of such right of subscription or
purchase, as the case may be.
6D(7) TREASURY SHARES. The number of shares of Class B
Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the
Corporation, and the disposition of any such shares shall
be considered an issue or sale of Class B Common Stock for
the purpose of this subparagraph 6(D).
6E. CERTAIN ISSUES OF COMMON STOCK EXCEPTED. Anything herein to
the contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Series C Conversion Price in the case of the any of the
following:
(i) the issuance of up to 4,500,000 shares of Class B Common Stock
(as adjusted for stock splits and the like) or options exercisable therefor,
issued or issuable to officers, employees or consultants for the Corporation or
any Subsidiary of the Corporation pursuant to a plan or arrangement approved by
the Board of Directors of the Corporation, including without limitation, the
Corporation's 1998 Stock Incentive Plan;
(ii) equity securities of the Corporation issued pursuant to
the acquisition of another corporation by the Corporation by merger (whereby
the Corporation or the stockholders of the Corporation prior to such merger
own no less than fifty-one percent (51%) of the voting power of such
corporation) or purchase of substantially all of its stock or assets; or
(iii) the issuance of any Converted Shares.
6F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Class B Common Stock into a greater number
of shares, the Series C Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Class B Common Stock shall be combined into a smaller
number of shares, the Series C Conversion Price in effect immediately prior to
such combination shall be proportionately increased.
6G. REORGANIZATION OR RECLASSIFICATION. If any Organic Change
shall be effected in such a way that holders of Class B Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Class B Common Stock, then, as a condition of such
- 27 -
Organic Change, lawful and adequate provisions shall be made whereby each holder
of a share or shares of Series C Preferred Stock shall thereupon have the right
to receive, upon the basis and upon the terms and conditions specified herein
and in lieu of or in addition to, as the case may be, the shares of Class B
Common Stock immediately theretofore receivable upon the conversion of such
share or shares of Series C Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Class B Common Stock equal to the number of shares
of such Class B Common Stock immediately theretofore receivable upon such
conversion had such Organic Change not taken place, and in the case of a
reorganization or reclassification only, appropriate provisions shall be made
with respect to the rights and interests of such holder to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Series C Conversion Price) shall thereafter be applicable, as nearly as may
be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
6H. NOTICES
6H(1). NOTICE OF ADJUSTMENT. So long as any shares
of Series C Preferred Stock are outstanding, upon any adjustment of the
Series C Conversion Price, then and in each such case the Corporation shall
promptly give written notice thereof, by delivery in person, certified or
registered mail, return receipt requested, telecopier or telex, addressed to
each holder of shares of Series C Preferred Stock at the address of such holder
as shown on the books of the Corporation, which notice shall state:
(i) the Series C Conversion Price resulting from such
adjustment;
(ii) the number of shares of Class B Common Stock into
which each share of Series C Preferred Stock shall
be convertible as a result of such adjustment;
(iii) a brief statement of the facts requiring such
adjustment; and
(iv) the computation by which such adjustment was made.
6H(2). OTHER NOTICES. In case at any time:
(i) the Corporation shall declare any dividend upon its
Class B Common Stock payable in cash or stock or
make any other distribution to the holders of its
Class B Common Stock;
(ii) the Corporation shall offer for subscription PRO
RATA to the holders of its Class B Common Stock any
additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the
Corporation, or a consolidation or merger of the
Corporation with or into, or a sale of all or
substantially all its assets to, another entity or
entities; or
- 28 -
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation,
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile transmission to non-U.S. residents,
addressed to each holder of any shares of Series C Preferred Stock at the
address of such holder as shown on the books of the Corporation, (a) at least 20
days' prior written notice of the date on which the books of the Corporation
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least 20 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (a) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and such notice in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
6I. MANDATORY CONVERSION.
6I(1). If at any time the holders of at least a 60% in interest of
the outstanding shares of the Series C Preferred Stock approve, all
outstanding shares of Series C Preferred Stock shall automatically convert
into such number of fully paid and nonassessable shares of Class B Common
Stock on the basis set forth in this paragraph 6.
6I(2). If at any time the Corporation shall effect a fully
underwritten, firm commitment public offering pursuant to an effective
registration statement under the Securities Act covering the offer and
sale by the Corporation of any of its Class B Common Stock in which the
aggregate gross proceeds to the Corporation equal or exceed $15,000,000,
all outstanding shares of Series C Preferred Stock shall automatically
convert into such number of fully paid and nonassessable shares of Class B
Common Stock on the basis set forth in this paragraph 6; PROVIDED,
HOWEVER, in connection with any such public offering, if the product of
(x) the number of shares of Class B Common Stock into which a share of
Series C Preferred Stock is converted and (y) the initial price per share
to the public in such offering is less than $11.10 then the Series C
Conversion Price shall be reduced to such amount as is required to cause
the foregoing product of (x) and (y) to equal $11.10.
Holders of shares of Series C Preferred Stock converted pursuant
to subparagraphs 6I(1) or 6I(2) may deliver to the Corporation at its principal
office during its usual business hours, the certificate or certificates for the
shares so converted. As promptly as practicable thereafter, the Corporation
shall issue and deliver to such holder a certificate or certificates for the
number of whole shares of Class B Common Stock to which such holder is entitled,
together with any cash dividends and payment in lieu of fractional shares to
which such holder may be entitled. Until such time as a holder of shares of
Series C Preferred Stock shall surrender his or its certificates therefor as
provided herein, such certificates shall be deemed to represent the
- 29 -
shares of Class B Common Stock to which such holder shall be entitled upon the
surrender thereof.
6J. STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Class B Common Stock, solely
for the purpose of issuance upon the conversion of Series C Preferred Stock as
herein provided, such number of shares of Class B Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series C Preferred
Stock. The Corporation covenants that all shares of Class B Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Class B Common Stock
is at all times equal to or less than the Series C Conversion Price in effect at
the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Class B Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirement of any
national securities exchange upon which the Class B Common Stock may be listed.
The Corporation will not take any action which results in any adjustment of the
Series C Conversion Price if the total number of shares of Class B Common Stock
issued and issuable after such action upon conversion of the Series C Preferred
Stock would exceed the total number of shares of Class B Common Stock then
authorized by the Fourth Restated Certificate.
6K. NO REISSUANCE OF SERIES C PREFERRED STOCK. Shares of
Series C Preferred Stock which are converted into shares of Class B Common Stock
as provided herein shall not be reissued.
6L. ISSUE TAX. The issuance of certificates for shares of
Class B Common Stock upon conversion of Series C Preferred Stock shall be made
without charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series C Preferred
Stock which is being converted.
6M. CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Series C Preferred Stock in any
manner which interferes with the timely conversion of such Series C Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
7. CONVERSIONS OF SERIES D PREFERRED STOCK. The holders of Series D
Preferred Stock shall have the following conversion rights:
7A. RIGHT TO CONVERT. Subject to the terms and conditions
of this paragraph 7, the holder of any share or shares of Series D Preferred
Stock shall have the right, at its option at any time, to convert any such
shares of Series D Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series D
Preferred Stock) into such number of fully paid and nonassessable shares of
Class B Common Stock as is obtained by (i) multiplying the number of shares of
Series D Preferred Stock so to be converted
- 30 -
by $9.40 and (ii) dividing the result by the conversion price of $9.40 per share
or, in case an adjustment of such price has taken place pursuant to the further
provisions of this paragraph 7, then by the conversion price as last adjusted
and in effect at the date any share or shares of Series D Preferred Stock are
surrendered for conversion (such price, or such price as last adjusted, being
referred to as the "Series D Conversion Price"). Such rights of conversion shall
be exercised by the holder thereof by giving written notice that the holder
elects to convert a stated number of shares of Series D Preferred Stock into
Class B Common Stock and by surrender of a certificate or certificates for the
shares so to be converted to the Corporation at its principal office (or such
other office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Series D Preferred Stock) at any time
during its usual business hours on the date set forth in such notice, together
with a statement of the name or names (with address) in which the certificate or
certificates for shares of Class B Common Stock shall be issued.
7B. ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly
after the receipt of the written notice referred to in subparagraph 7A and
surrender of the certificate or certificates for the share or shares of Series D
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Class B Common Stock issuable upon the conversion of such share
or shares of Series D Preferred Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Series D Conversion
Price shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares of
Series D Preferred Stock shall cease, and the person or persons in whose name or
names any certificate or certificates for shares of Class B Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
7C. FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Series D Preferred Stock
into Class B Common Stock and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Class B Common Stock issued
upon such conversion. In case the number of shares of Series D Preferred Stock
represented by the certificate or certificates surrendered pursuant to
subparagraph 7A exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series D Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted. If any fractional share of Class B
Common Stock would, except for the provisions of the first sentence of this
subparagraph 7C, be delivered upon such conversion, the Corporation, in lieu of
delivering such fractional share, shall pay to the holder surrendering the
Series D Preferred Stock for conversion an amount in cash equal to the current
market price of such fractional share as determined in good faith by the Board
of Directors of the Corporation.
7D. ADJUSTMENT OF PRICE UPON ISSUANCE OF CLASS B COMMON STOCK.
Except as provided in subparagraph 7E, if and whenever the Corporation shall
issue or sell, or is, in accordance with subparagraphs 7D(1) through 7D(7),
deemed to have issued or sold, any shares
- 31 -
of Class B Common Stock for a consideration per share equal to an amount which
is less than the Series D Conversion Price in effect immediately prior to the
time of such issue or sale, then, forthwith upon such issue or sale, the Series
D Conversion Price shall be reduced to the price (calculated to the nearest
cent) determined by dividing (i) an amount equal, on a fully diluted basis
assuming the exercise of all outstanding Options and Convertible Securities and
the conversion of all Series D Preferred Stock, to the sum of (a) the number of
shares of Class B Common Stock outstanding immediately prior to such issue or
sale multiplied by the then existing Series D Conversion Price and (b) the
consideration, if any, received by the Corporation upon such issue or sale, by
(ii) the total number of shares of Class B Common Stock outstanding immediately
after such issue or sale.
For purposes of this subparagraph 7D, the following subparagraphs
7D(1) to 7D(7) shall also be applicable:
7D(1) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time
the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any
Options or Convertible Securities whether or not such
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and
the price per share for which Class B Common Stock is
issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any,
received or receivable by the Corporation as consideration
for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to
the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue
or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum
number of shares of Class B Common Stock issuable upon the
exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon
the exercise of such Options) shall be less than the
Series D Conversion Price in effect immediately prior to
the time of the granting of such Options, then the total
maximum number of shares of Class B Common Stock issuable
upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the
issuance of such Convertible Securities and thereafter
shall be deemed to be outstanding. Except as otherwise
provided in subparagraph 7D(3), no adjustment of the
Series D Conversion Price shall be made upon the actual
issue of such Class B Common Stock or of such Convertible
Securities upon exercise of such Options or upon the
actual issue of such Class B Common Stock upon conversion
or exchange of such Convertible Securities.
7D(2) ISSUANCE OF CONVERTIBLE SECURITIES. In case the
Corporation shall in any manner issue (whether directly or
by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to
- 32 -
exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which
Class B Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration
for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of
shares of Class B Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Series D Conversion Price in effect
immediately prior to the time of such issue or sale, then
the total maximum number of shares of Class B Common Stock
issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued
for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall
be deemed to be outstanding, provided that (a) except as
otherwise provided in subparagraph 7D(3), no adjustment of
the Series D Conversion Price shall be made upon the
actual issue of such Class B Common Stock upon conversion
or exchange of such Convertible Securities and (b) if any
such issue or sale of such Convertible Securities is made
upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Series
D Conversion Price have been or are to be made pursuant to
other provisions of this subparagraph 7D, no further
adjustment of the Series D Conversion Price shall be made
by reason of such issue or sale.
7D(3) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the
happening of any of the following events, namely, if the
purchase price provided for in any Option referred to in
subparagraph 7D(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 7D(1) or 7D(2), or
the rate at which Convertible Securities referred to in
subparagraph 7D(1) or 7D(2) are convertible into or
exchangeable for Class B Common Stock shall change at any
time (including, but not limited to, changes under or by
reason of provisions designed to protect against
dilution), the Series D Conversion Price in effect at the
time of such event shall forthwith be readjusted to the
Series D Conversion Price which would have been in effect
at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or
sold; and on the termination or expiration of any such
Option or any such right to convert or exchange such
Convertible Securities, the Series D Conversion Price then
in effect hereunder shall forthwith be increased to the
Series D Conversion Price which would have been in effect
at the time of such termination or expiration had such
Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never
been issued.
7D(4) STOCK DIVIDENDS. In case the Corporation shall
declare a dividend or make any other distribution upon any
stock of the Corporation (other than the
- 33 -
Series D Preferred Stock) payable in Class B Common Stock,
Options or Convertible Securities, then any Class B Common
Stock, Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without
consideration.
7D(5) CONSIDERATION FOR STOCK. In case any shares of Class
B Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any shares of Class B Common
Stock, Options or Convertible Securities shall be issued
or sold for a consideration other than cash, the amount of
the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any Options shall be issued
in connection with the issue and sale of other securities
of the Corporation, together comprising one integral
transaction in which no specific consideration is
allocated to such Options by the parties thereto, such
Options shall be deemed to have been issued for such
consideration as determined in good faith by the Board of
Directors of the Corporation.
7D(6) RECORD DATE. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose
of entitling them (i) to receive a dividend or other
distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the
date of the granting of such right of subscription or
purchase, as the case may be.
7D(7) TREASURY SHARES. The number of shares of Class B
Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the
Corporation, and the disposition of any such shares shall
be considered an issue or sale of Class B Common Stock for
the purpose of this subparagraph 7(D).
7E. CERTAIN ISSUES OF COMMON STOCK EXCEPTED. Anything herein to
the contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Series D Conversion Price in the case of the any of the
following:
(i) the issuance of up to 4,500,000 shares of Class B Common Stock
(as adjusted for stock splits and the like) or options exercisable therefor,
issued or issuable to officers, employees
- 34 -
or consultants for the Corporation or any Subsidiary of the Corporation pursuant
to a plan or arrangement approved by the Board of Directors of the Corporation,
including without limitation, the Corporation's 1998 Stock Incentive Plan;
(ii) equity securities of the Corporation issued pursuant to the
acquisition of another corporation by the Corporation by merger (whereby the
Corporation or the stockholders of the Corporation prior to such merger own no
less than fifty-one percent (51%) of the voting power of such corporation) or
purchase of substantially all of its stock or assets; or
(iv) the issuance of any Converted Shares.
7F. SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Class B Common Stock into a greater number
of shares, the Series D Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Class B Common Stock shall be combined into a smaller
number of shares, the Series D Conversion Price in effect immediately prior to
such combination shall be proportionately increased.
7G. REORGANIZATION OR RECLASSIFICATION. If any Organic Change
shall be effected in such a way that holders of Class B Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Class B Common Stock, then, as a condition of such Organic Change, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series D Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of or in
addition to, as the case may be, the shares of Class B Common Stock immediately
theretofore receivable upon the conversion of such share or shares of Series D
Preferred Stock, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Class B Common Stock equal to the number of shares of such Class B Common
Stock immediately theretofore receivable upon such conversion had such Organic
Change not taken place, and in the case of a reorganization or reclassification
only, appropriate provisions shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Series D Conversion Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.
7H. NOTICES
7H(1). NOTICE OF ADJUSTMENT. So long as any
shares of Series D Preferred Stock are outstanding, upon any adjustment of the
Series D Conversion Price, then and in each such case the Corporation shall
promptly give written notice thereof, by delivery in person, certified or
registered mail, return receipt requested, telecopier or telex, addressed to
each holder of shares of Series D Preferred Stock at the address of such holder
as shown on the books of the Corporation, which notice shall state:
(i) the Series D Conversion Price resulting from such
adjustment;
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(ii) the number of shares of Class B Common Stock into
which each share of Series D Preferred Stock shall
be convertible as a result of such adjustment;
(iii) a brief statement of the facts requiring such
adjustment; and
(iv) the computation by which such adjustment was made.
7H(2). OTHER NOTICES. In case at any time:
(i) the Corporation shall declare any dividend upon its
Class B Common Stock payable in cash or stock or
make any other distribution to the holders of its
Class B Common Stock;
(ii) the Corporation shall offer for subscription PRO
RATA to the holders of its Class B Common Stock any
additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the
Corporation, or a consolidation or merger of the
Corporation with or into, or a sale of all or
substantially all its assets to, another entity or
entities; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation,
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by facsimile transmission to non-U.S. residents,
addressed to each holder of any shares of Series D Preferred Stock at the
address of such holder as shown on the books of the Corporation, (a) at least 20
days' prior written notice of the date on which the books of the Corporation
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, at least 20 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (a) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and such notice in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
7I. MANDATORY CONVERSION. If at any time (i) the Corporation shall
effect a Qualified Public Offering or (ii) the holders of at least a 60% in
interest of the outstanding shares of the Series D Preferred Stock approve, all
outstanding shares of Series D Preferred Stock shall automatically convert into
such number of fully paid and nonassessable shares of Class B Common Stock on
the basis set forth in this paragraph 7. Holders of shares of Series D Preferred
Stock so converted may deliver to the Corporation at its principal office during
its usual business
- 36 -
hours, the certificate or certificates for the shares so converted. As promptly
as practicable thereafter, the Corporation shall issue and deliver to such
holder a certificate or certificates for the number of whole shares of Class B
Common Stock to which such holder is entitled, together with any cash dividends
and payment in lieu of fractional shares to which such holder may be entitled.
Until such time as a holder of shares of Series D Preferred Stock shall
surrender his or its certificates therefor as provided herein, such certificates
shall be deemed to represent the shares of Class B Common Stock to which such
holder shall be entitled upon the surrender thereof.
7J. STOCK TO BE RESERVED. The Corporation will at all times
reserve and keep available out of its authorized Class B Common Stock, solely
for the purpose of issuance upon the conversion of Series D Preferred Stock as
herein provided, such number of shares of Class B Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series D Preferred
Stock. The Corporation covenants that all shares of Class B Common Stock which
shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Class B Common Stock
is at all times equal to or less than the Series D Conversion Price in effect at
the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Class B Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirement of any
national securities exchange upon which the Class B Common Stock may be listed.
The Corporation will not take any action which results in any adjustment of the
Series D Conversion Price if the total number of shares of Class B Common Stock
issued and issuable after such action upon conversion of the Series D Preferred
Stock would exceed the total number of shares of Class B Common Stock then
authorized by the Corporation's Fourth Restated Certificate.
7K. NO REISSUANCE OF SERIES D PREFERRED STOCK. Shares of
Series D Preferred Stock which are converted into shares of Class B Common Stock
as provided herein shall not be reissued.
7L. ISSUE TAX. The issuance of certificates for shares of
Class B Common Stock upon conversion of Series D Preferred Stock shall be made
without charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series D Preferred
Stock which is being converted.
7M. CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Series D Preferred Stock in any
manner which interferes with the timely conversion of such Series D Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
8. RESTRICTIONS.
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8A. At any time when shares of Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the Fourth
Restated Certificate, and in addition to any other vote required by law or the
Fourth Restated Certificate, without the approval of the holders of at least 50%
in interest of the then outstanding shares of Preferred Stock, given in writing
or by vote at a meeting, voting together as a class, the Corporation will not:
(i) Consent to any liquidation, dissolution or winding up
of the Corporation or consolidate or merge, or permit any Subsidiary to
consolidate or merge into or with any other entity or entities or sell, lease,
abandon, transfer or otherwise dispose of all or substantially all its assets;
(ii) Purchase or redeem, or set aside any sums for the
purchase or redemption of, or pay any dividend or make any distribution on, any
shares of stock other than the Preferred Stock and except for the purchase of
shares of Class B Common Stock from former employees of the Corporation who
acquired such shares directly from the Corporation, if each such purchase is
made pursuant to contractual rights held by the Corporation relating to the
termination of employment of such former employee and the purchase price does
not exceed the original issue price paid by such former employee to the
Corporation for such shares;
(iii) Redeem or otherwise acquire any shares of Preferred
Stock except pursuant paragraph 9 herein or pursuant to a purchase offer made
pro rata to all holders of the shares of Preferred Stock on the basis of the
aggregate number of outstanding shares of Preferred Stock then held by each such
holder; or
(iv) Increase the number of Reserved Management Shares (as
defined herein).
8B. At any time when shares of Series A Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the Fourth
Restated Certificate, and in addition to any other vote required by law or the
Fourth Restated Certificate, without the approval of the holders of at least 60%
in interest of the then outstanding shares of Series A Preferred Stock, given in
writing or by vote at a meeting, voting as a separate class, the Corporation
will not:
(i) Create or authorize the creation of any additional
class or series of shares of stock unless the same ranks junior to the Series A
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or increase the authorized amount of the
Series A Preferred Stock or increase the authorized amount of any additional
class or series of shares of stock unless the same ranks junior to the Series A
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or create or authorize any obligation or
security convertible into shares of Series A Preferred Stock or into shares of
any other class or series of stock unless the same ranks junior to the Series A
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, whether any such creation, authorization or
increase shall be by means of amendment to the Fourth Restated Certificate or by
merger, consolidation or otherwise; or
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(ii) Amend, alter or repeal its Fourth Restated
Certificateor By-laws in a manner adversely affecting the rights of the Series A
Preferred Stock.
8C. At any time when shares of Series B Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the Fourth
Restated Certificate, and in addition to any other vote required by law or the
Fourth Restated Certificate, without the approval of the holders of at least 60%
in interest of the then outstanding shares of Series B Preferred Stock, given in
writing or by vote at a meeting, voting as a separate class, the Corporation
will not:
(i) Create or authorize the creation of any additional
class or series of shares of stock unless the same ranks junior to the Series B
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or increase the authorized amount of the
Series B Preferred Stock or increase the authorized amount of any additional
class or series of shares of stock unless the same ranks junior to the Series B
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or create or authorize any obligation or
security convertible into shares of Series B Preferred Stock or into shares of
any other class or series of stock unless the same ranks junior to the Series B
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, whether any such creation, authorization or
increase shall be by means of amendment to the Fourth Restated Certificate or by
merger, consolidation or otherwise; or
(ii) Amend, alter or repeal its Fourth Restated Certificate
or By-laws in a manner adversely affecting the rights of the Series B
Preferred Stock.
8D. At any time when shares of Series C Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the Fourth
Restated Certificate, and in addition to any other vote required by law or the
Fourth Restated Certificate, without the approval of the holders of at least 60%
in interest of the then outstanding shares of Series C Preferred Stock, given in
writing or by vote at a meeting, voting as a separate class, the Corporation
will not:
(i) Create or authorize the creation of any additional
class or series of shares of stock unless the same ranks junior to the Series C
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or increase the authorized amount of the
Series C Preferred Stock or increase the authorized amount of any additional
class or series of shares of stock unless the same ranks junior to the Series C
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or create or authorize any obligation or
security convertible into shares of Series C Preferred Stock or into shares of
any other class or series of stock unless the same ranks junior to the Series C
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, whether any such creation, authorization or
increase shall be by means of amendment to the Fourth Restated Certificate or by
merger, consolidation or otherwise; or
(ii) Amend, alter or repeal its Fourth Restated
Certificate or By-laws in a manner adversely
affecting the rights of the Series C Preferred
Stock.
- 39 -
8E. At any time when shares of Series D Preferred Stock are
outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the Fourth
Restated Certificate, and in addition to any other vote required by law or the
Fourth Restated Certificate, without the approval of the holders of at least 60%
in interest of the then outstanding shares of Series D Preferred Stock, given in
writing or by vote at a meeting, voting as a separate class, the Corporation
will not:
(i) Create or authorize the creation of any additional
class or series of shares of stock unless the same ranks junior to the Series D
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or increase the authorized amount of the
Series D Preferred Stock or increase the authorized amount of any additional
class or series of shares of stock unless the same ranks junior to the Series D
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or create or authorize any obligation or
security convertible into shares of Series D Preferred Stock or into shares of
any other class or series of stock unless the same ranks junior to the Series D
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, whether any such creation, authorization or
increase shall be by means of amendment to the Fourth Restated Certificate or by
merger, consolidation or otherwise; or
(ii) Amend, alter or repeal its Fourth Restated Certificate
or By-laws in a manner adversely affecting the rights of the Series D Preferred
Stock.
9. REDEMPTION. The shares of Preferred Stock shall be redeemed as follows:
9A. MANDATORY REDEMPTION OF THE SERIES A PREFERRED STOCK. Upon any
of the following events, the Series A Preferred Stock shall be automatically
redeemable at the option of the holder of the Series A Preferred Stock:
(i) A sale of all or substantially all of the assets of
the Corporation or the merger of the Corporation
with or into another entity where the Corporation is
not the surviving entity;
(ii) A Qualified Public Offering;
(iii) On December 30, 2004.
The date upon which redemption occurs pursuant to any of 9A (i) -
(iii) above shall be referred to herein as the "Series A Redemption Date."
Notwithstanding anything to the contrary herein, should the
underwriters of a Qualified Public Offering reasonably object to the redemption
of the Series A Preferred Stock from the proceeds of the Qualified Public
Offering, the Corporation may elect to redeem the Series A Preferred Stock with
shares of newly-issued common stock (valued at the price per share of the
Qualified Public Offering) which will be registered in the offering. The shares
of Series A Preferred Stock to be redeemed shall be redeemed by paying for each
share in cash an amount equal to $1.00 per share (the "Series A Redemption
Price"). Such payment shall be made in full on the applicable Series A
Redemption Date to the holders entitled thereto.
- 40 -
9B. MANDATORY REDEMPTION MECHANICS. At least twenty (20) but not
more than thirty (30) days prior to the Series A Redemption Date, written notice
(the "Series A Redemption Notice") shall be given by the Corporation by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, to each holder of record (at the close of business on the business day
next preceding the day on which the Series A Redemption Notice is given) of
shares of Series A Preferred Stock notifying such holder of the redemption and
specifying the Series A Redemption Price, such Series A Redemption Date, the
number of shares of Series A Preferred Stock to be redeemed from such holder
(computed on a pro rata basis in accordance with the number of such shares held
by all holders thereof) and the place where said Series A Redemption Price shall
be payable. The Series A Redemption Notice shall be addressed to each holder at
his address as shown by the records of the Corporation. From and after the close
of business on a Series A Redemption Date, unless there shall have been a
default in the payment of the Series A Redemption Price, all rights of holders
of shares of Series A Preferred Stock (except the right to receive the Series A
Redemption Price) shall cease with respect to the shares to be redeemed on such
Series A Redemption Date, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever.
If the funds of the Corporation legally available for redemption
of shares of Series A Preferred Stock, Series B Preferred Stock if the holders
of Series B Preferred Stock have made an election to redeem pursuant to Section
9C or 9D below, Series C Preferred Stock if the holders of Series C Preferred
Stock have made an election to redeem pursuant to Section 9E or 9F below, and
Series D Preferred Stock if the holders of Series D Preferred Stock have made an
election to redeem pursuant to Section 9G below, on any Redemption Date are
insufficient to redeem the total number of shares of Series A Preferred Stock,
Series B Preferred Stock if the holders of Series B Preferred Stock have made an
election to redeem pursuant to Section 9C or 9D below, Series C Preferred Stock
if the holders of Series C Preferred Stock have made an election to redeem
pursuant to Section 9E or 9F below, and Series D Preferred Stock if the holders
of Series D Preferred Stock have made an election to redeem pursuant to Section
9G below, to be redeemed on such Redemption Date, the holders of the shares of
Series A Preferred Stock, Series B Preferred Stock if the holders of Series B
Preferred Stock have made an election to redeem pursuant to Section 9C or 9D
below, Series C Preferred Stock if the holders of Series C Preferred Stock have
made an election to redeem pursuant to Section 9E or 9F below, and Series D
Preferred Stock if the holders of Series D Preferred Stock have made an election
to redeem pursuant to Section 9G below, shall share ratably, in accordance with
their respective liquidation preferences, in any funds legally available for
redemption of such shares. The shares of Preferred Stock required to be redeemed
but not so redeemed shall remain outstanding and entitled to all rights and
preferences provided herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of such shares of Preferred
Stock, such funds will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of such shares, or such portion thereof for which
funds are then legally available, on the basis set forth above.
9C. OPTIONAL REDEMPTION OF THE SERIES B PREFERRED STOCK UPON
PUBLIC OFFERING. Effective upon the closing of an initial public offering which
does not constitute a Qualified Public Offering ("Non-Qualified Public
Offering"), each holder of Series B Preferred Stock may request the Corporation
to redeem the shares of Series B Preferred Stock held by such holder at a
redemption price (the "Series B Redemption Price") for each share of Preferred
Stock redeemed
- 41 -
pursuant to this Section 9C equal to the Series B Liquidation Preference Payment
(including all accrued but unpaid dividends, whether or not declared) with the
amount of accrued dividends due thereon to be calculated and paid through the
date payment is actually made to the holders of the Series B Preferred Stock
with respect to such redemption. The Corporation shall give the holders of the
Series B Preferred Stock thirty days' written notice of the pendency of a
Non-Qualified Public Offering. Such notice shall be mailed by the Corporation,
postage prepaid, to each holder of record of Series B Preferred Stock at its
address shown on the records of the Corporation. Each holder of Series B
Preferred Stock shall notify the Corporation in writing within twenty days of
receipt of the Corporation's notice if it intends to have its shares redeemed
under this Section 9C. Failure to so notify by the holder of Series B Preferred
Stock shall constitute a waiver of such holder's optional redemption right with
respect to such Non-Qualified Public Offering. The Series B Redemption Price
shall be paid at the closing of the Non-Qualified Public Offering and shall be
paid in cash.
Nothing contained in this Section 9C shall in any way restrict or
prohibit the holders of the Preferred Stock from exercising their conversion
rights pursuant to Section 5 hereof prior to the effective date of the
redemption to be effected hereunder; PROVIDED, HOWEVER, that any such conversion
under this Section 9C may be subject to the closing of the Non-Qualified Public
Offering.
9D. OPTIONAL REDEMPTION BY HOLDERS OF SERIES B PREFERRED STOCK.
(i) At any time after December 29, 2004, at the election
of each holder of the then outstanding shares of Series B Preferred Stock,
the Corporation shall, to the extent it may do so under applicable law,
redeem PRO RATA from such holder of Series B Preferred Stock in three equal
annual installments one-third (1/3) of the shares of Series B Preferred Stock
held by such holder on the date of the Redemption Request, or such lesser
amount as may be held by the holder on the date of such redemption, with the
first installment to be redeemed within 120 days after the Corporation's
receipt of the Redemption Request and the remaining two installments to be
redeemed on the first and second anniversary, respectively. In the event
shares of Series B Preferred Stock scheduled for redemption are not redeemed
because of a prohibition under applicable law, such shares shall be redeemed
as soon as such prohibition no longer exists and the Series B Optional
Redemption Price (as defined below) will bear interest at the annual rate of
15%. The number of shares to be redeemed shall be cumulative, so that any
shares subject to redemption in one year and not so redeemed shall be carried
forward to each subsequent year through the second anniversary of the
Redemption Request and shall be subject to redemption in addition to the
shares otherwise redeemable in such year.
(ii) The redemption price for each share of Series B
Preferred Stock redeemed pursuant to this Section 9D (the "Series B Optional
Redemption Price") shall be equal to the greater of (i) the Series B Liquidation
Preference Payment (including all accrued and unpaid dividends, whether or not
declared with the amount of all accrued dividends due thereon to be calculated
and paid through the date payment is actually made to the holders of the Series
B Preferred Stock) and (ii) the fair market value of such shares on the
applicable Redemption Date.
(iii) The fair market value of such shares shall be
determined in good faith by the Board of Directors of the Corporation as of each
Redemption Date after taking into
- 42 -
consideration all factors which it deems appropriate, PROVIDED, HOWEVER, that
such fair market value shall take into account the valuations of comparable
companies that are publicly traded or privately held, but not including any
discount attributable to the fact that such shares represent a minority
ownership interest in the Company. The Board of Directors shall notify the
holders of Series B Preferred Stock as to its determination of the fair market
value of such shares not later than 30 days prior to any given Redemption Date.
(iv) The holders of the Series B Preferred Stock have the
right, after receiving notice of such determination, not later than five
business days before any given Redemption Date, to contest such determination.
If the holders disagree with the Corporation's determination of fair market
value, and are unable, within five days of their receipt of the Corporation's
determination, to reach agreement with the Corporation on the fair market value
of the shares, the fair market value shall be determined by appraisal as set
forth below.
(v) All appraisals shall be undertaken by two appraisers,
one selected by the Board of Directors of the Corporation and one selected
by the holders of a majority of the shares of Series B Preferred Stock. The fair
market value shall be the fair market value arrived at by those appraisers
within thirty (30) days following the appointment of the last appraiser to be
appointed. In the event that the two appraisers agree in good faith on such fair
market value within such a period of time, such agreed value shall be used for
these purposes. If the appraisers cannot agree but their valuations are within
10% of each other, the fair market value shall be the mean of the two
valuations. If the appraisers cannot agree and the differences in the valuations
are greater than 10%, the appraisers shall select a third appraiser who will
calculate fair market value independently, and, except as provided in the next
sentence, the fair market value of such shares shall be the average of the two
fair market values arrived at by the appraisers who are closest in amount. If
one appraiser's valuation is the mean of the other two valuations, such mean
valuation shall be the fair market value. In the event that the two original
appraisers cannot agree upon a third appraiser within ten (10) days following
the end of the thirty (30) day period referred to above, then the third
appraiser shall be appointed by the American Arbitration Association in Boston,
Massachusetts. The redemption of the shares shall occur within ten days
following receipt of the results of the appraisal. The expenses of the appraiser
chosen by the Corporation will be borne by it, the expenses of the appraiser
chosen by the holders will be borne by them, PRO RATA based on the number of
shares being redeemed, and the expenses of the third appraiser will be borne 50%
by the Corporation and 50% by the holders, PRO RATA based on the number of
shares being redeemed.
(vi) In the event that the holders of the Series B
Preferred Stock do not elect to have the Preferred Stock redeemed pursuant to
this Section 9D or pursuant to Section 9C hereof, the shares of Preferred Stock
shall remain outstanding and subject to the provisions hereof.
9E. OPTIONAL REDEMPTION OF THE SERIES C PREFERRED STOCK UPON
PUBLIC OFFERING. Effective upon the closing of a Non-Qualified Public Offering,
other than an offering described in paragraph 6I(2) pursuant to which the Series
C Preferred Stock shall automatically convert into Class B Common Stock, each
holder of Series C Preferred Stock may request the Corporation to redeem the
shares of Series C Preferred Stock held by such holder at a redemption price
(the "Series C Redemption Price") for each share of Preferred Stock redeemed
pursuant to this Section 9E equal to the Series C Liquidation Preference Payment
(including all
- 43 -
accrued but unpaid dividends, whether or not declared) with the amount of
accrued dividends due thereon to be calculated and paid through the
date payment is actually made to the holders of the Series C Preferred Stock
with respect to such redemption. The Corporation shall give the holders of the
Series C Preferred Stock thirty days' written notice of the pendency of such a
Non-Qualified Public Offering. Such notice shall be mailed by the Corporation,
postage prepaid, to each holder of record of Series C Preferred Stock at its
address shown on the records of the Corporation. Each holder of Series C
Preferred Stock shall notify the Corporation in writing within twenty days of
receipt of the Corporation's notice if it intends to have its shares redeemed
under this Section 9E. Failure to so notify by the holder of Series C Preferred
Stock shall constitute a waiver of such holder's optional redemption right with
respect to such Non-Qualified Public Offering. The Series C Redemption Price
shall be paid at the closing of such Non-Qualified Public Offering and shall be
paid in cash.
Nothing contained in this Section 9E shall in any way restrict or
prohibit the holders of the Preferred Stock from exercising their conversion
rights pursuant to Section 5 hereof prior to the effective date of the
redemption to be effected hereunder; provided, however, that any such conversion
under this Section 9E may be subject to the closing of such Non-Qualified Public
Offering.
9F. OPTIONAL REDEMPTION BY HOLDERS OF SERIES C PREFERRED STOCK.
(i) At any time after December 29, 2004, at the election
of each holder of the then outstanding shares of Series C Preferred Stock,
the Corporation shall, to the extent it may do so under applicable law,
redeem PRO RATA from such holder of Series C Preferred Stock in three equal
annual installments one-third (1/3) of the shares of Series C Preferred Stock
held by such holder on the date of the Redemption Request, or such lesser
amount as may be held by the holder on the date of such redemption, with the
first installment to be redeemed within 120 days after the Corporation's
receipt of the Redemption Request and the remaining two installments to be
redeemed on the first and second anniversary, respectively. In the event
shares of Series C Preferred Stock scheduled for redemption are not redeemed
because of a prohibition under applicable law, such shares shall be redeemed
as soon as such prohibition no longer exists and the Series C Optional
Redemption Price (as defined below) will bear interest at the annual rate of
15%. The number of shares to be redeemed shall be cumulative, so that any
shares subject to redemption in one year and not so redeemed shall be carried
forward to each subsequent year through the second anniversary of the
Redemption Request and shall be subject to redemption in addition to the
shares otherwise redeemable in such year.
(ii) The redemption price for each share of Series C
Preferred Stock redeemed pursuant to this Section 9F (the "Series C Optional
Redemption Price") shall be equal to the greater of (i) the Series C
Liquidation Preference Payment (including all accrued and unpaid dividends,
whether or not declared with the amount of all accrued dividends due thereon
to be calculated and paid through the date payment is actually made to the
holders of the Series C Preferred Stock) and (ii) the fair market value of
such shares on the applicable Redemption Date.
(iii) The fair market value of such shares shall be
determined in good faith by the Board of Directors of the Corporation as of each
Redemption Date after taking into consideration all factors which it deems
appropriate, PROVIDED, HOWEVER, that such fair market
- 44 -
value shall take into account the valuations of comparable companies that are
publicly traded or privately held, but not including any discount attributable
to the fact that such shares represent a minority ownership interest in the
Company. The Board of Directors shall notify the holders of Series C Preferred
Stock as to its determination of the fair market value of such shares not later
than 30 days prior to any given Redemption Date.
(iv) The holders of the Series C Preferred Stock have the
right, after receiving notice of such determination, not later than five
business days before any given Redemption Date, to contest such determination.
If the holders disagree with the Corporation's determination of fair market
value, and are unable, within five days of their receipt of the Corporation's
determination, to reach agreement with the Corporation on the fair market value
of the shares, the fair market value shall be determined by appraisal as set
forth below.
(v) All appraisals shall be undertaken by two appraisers,
one selected by the Board of Directors of the Corporation and one selected
by the holders of a majority of the shares of Series C Preferred Stock. The fair
market value shall be the fair market value arrived at by those appraisers
within thirty (30) days following the appointment of the last appraiser to be
appointed. In the event that the two appraisers agree in good faith on such fair
market value within such a period of time, such agreed value shall be used for
these purposes. If the appraisers cannot agree but their valuations are within
10% of each other, the fair market value shall be the mean of the two
valuations. If the appraisers cannot agree and the differences in the valuations
are greater than 10%, the appraisers shall select a third appraiser who will
calculate fair market value independently, and, except as provided in the next
sentence, the fair market value of such shares shall be the average of the two
fair market values arrived at by the appraisers who are closest in amount. If
one appraiser's valuation is the mean of the other two valuations, such mean
valuation shall be the fair market value. In the event that the two original
appraisers cannot agree upon a third appraiser within ten (10) days following
the end of the thirty (30) day period referred to above, then the third
appraiser shall be appointed by the American Arbitration Association in Boston,
Massachusetts. The redemption of the shares shall occur within ten days
following receipt of the results of the appraisal. The expenses of the appraiser
chosen by the Corporation will be borne by it, the expenses of the appraiser
chosen by the holders will be borne by them, PRO RATA based on the number of
shares being redeemed, and the expenses of the third appraiser will be borne 50%
by the Corporation and 50% by the holders, PRO RATA based on the number of
shares being redeemed.
(vi) In the event that the holders of the Series C
Preferred Stock do not elect to have the Preferred Stock redeemed pursuant to
this Section 9F or pursuant to Section 9E hereof, the shares of Preferred Stock
shall remain outstanding and subject to the provisions hereof.
9G. OPTIONAL REDEMPTION BY HOLDERS OF SERIES D PREFERRED STOCK.
(i) At any time after December 29, 2004, at the election of
each holder of the then outstanding shares of Series D Preferred Stock, the
Corporation shall, to the extent it may do so under applicable law, redeem PRO
RATA from such holder of Series D Preferred Stock in three equal annual
installments one-third (1/3) of the shares of Series D Preferred Stock held by
such holder on the date of the Redemption Request, or such lesser amount as may
be held by the holder on the date of such redemption, with the first installment
to be redeemed within 120 days
- 45 -
after the Corporation's receipt of the Redemption Request and the remaining two
installments to be redeemed on the first and second anniversary, respectively.
In the event shares of Series D Preferred Stock scheduled for redemption are not
redeemed because of a prohibition under applicable law, such shares shall be
redeemed as soon as such prohibition no longer exists and the Series D Optional
Redemption Price (as defined below) will bear interest at the annual rate of
15%. The number of shares to be redeemed shall be cumulative, so that any shares
subject to redemption in one year and not so redeemed shall be carried forward
to each subsequent year through the second anniversary of the Redemption Request
and shall be subject to redemption in addition to the shares otherwise
redeemable in such year.
(ii) The redemption price for each share of Series D
Preferred Stock redeemed pursuant to this Section 9G (the "Series D Optional
Redemption Price") shall be equal to the Series C Liquidation Preference Payment
(including all declared, but unpaid dividends thereon.
(iii) In the event that the holders of the Series D
Preferred Stock do not elect to have the Preferred Stock redeemed pursuant to
this Section 9G, the shares of Preferred Stock shall remain outstanding and
subject to the provisions hereof.
9H. OPTIONAL REDEMPTION NOTICE. If an election is made pursuant to
Section 9C, 9D, 9E, 9F or 9G hereof, written notice of such election shall be
mailed, postage prepaid, to the Corporation, not later than thirty days before
the date fixed for each redemption pursuant to Section 9C, 9D, 9E, 9F or 9G
(each of the dates fixed for redemption and the extended redemption date is
hereinafter referred to as a "Redemption Date"). If such election is made and
appropriate notice is given then, at least fifteen (15) days before the
Redemption Date, written notice (hereinafter referred to as the "Redemption
Notice") shall be mailed by the Corporation, postage prepaid, to each holder of
record of Preferred Stock at its address shown on the records of the
Corporation; PROVIDED, HOWEVER, that the Corporation's failure to give such
Redemption Notice shall in no way affect its obligation to redeem the shares of
Preferred Stock or the obligation of the holders to redeem their shares of
Preferred Stock as provided in Section 9C, 9D, 9E, 9F or 9G hereof. The
Redemption Notice shall contain the following information:
(i) the number of shares of Preferred Stock held by the
holder and the total number of shares of Preferred Stock held by all holders
subject to redemption as of such Redemption Date; and
(ii) the Redemption Date and the applicable Redemption
Price.
Any holder of Series B Preferred Stock and/or Series C Preferred Stock
who wishes to do so may, in accordance with Section 5 hereof, by giving notice
to the Corporation at least five business days prior to the Redemption Date,
convert into Class B Common Stock any or all of the shares of Series B Preferred
Stock, Series C Preferred Stock and/or Series D Preferred Stock held by it and
scheduled for redemption on such Redemption Date.
9I. SURRENDER OF CERTIFICATES. Each holder of shares of Preferred
Stock to be redeemed under this Section 9 shall surrender the certificate or
certificates representing such shares to the Corporation at the place designated
in the Redemption Notice, and thereupon the Redemption Price for such shares as
set forth in this Section 9 shall be paid to the order of the
- 46 -
person whose name appears on such certificate or certificates. Irrespective of
whether the certificates therefor shall have been surrendered, all shares of
Preferred Stock which are the subject of a Redemption Notice shall be deemed to
have been redeemed and shall be canceled effective as of the Redemption Date,
unless the Corporation shall default in the payment of the applicable Redemption
Price.
9J. REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any
shares of Preferred Stock redeemed pursuant to this paragraph 9 or otherwise
acquired by the Corporation in any manner whatsoever shall be canceled and shall
not under any circumstances be reissued; and the Corporation may from time to
time take such appropriate corporate action as may be necessary to reduce
accordingly the number of authorized shares of Preferred Stock.
10. AMENDMENTS. Except where the vote or written consent of the holders
of a greater number of shares of the Corporation is required herein or by law,
no provision of this Fourth Restated Certificate which affects Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least 60% in interest of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock consenting or voting as a single
class.
11. DEFINITIONS. As used in these terms of Class A Common Stock, Class
B Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock the following terms shall have the
following meanings:
(a) The term "Class B Common Stock" means (a) the Corporation's Class B
Common Stock, $.01 par value, (b) any other capital shares of any class or
classes (however designated) of the Corporation, 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 herein, be entitled to vote for the
election of a majority of directors of the Corporation (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.
(b) The term "Converted Shares" includes any shares of Class B Common
Stock issued upon conversion of Class A Common Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock as provided herein. The
term "Series B Converted Shares" is sometimes used to describe shares of Class B
Common Stock issued upon conversion of Series B Preferred Stock. The term
"Series C Converted Shares" is sometimes used to describe shares of Class B
Common Stock issued upon conversion of Series C Preferred Stock. The term
"Series D Converted Shares" is sometimes used to describe shares of Class B
Common Stock issued upon conversion of Series D Preferred Stock.
(c) The term "Qualified Public Offering" means a fully underwritten,
firm commitment public offering pursuant to an effective registration statement
under the Securities
- 47 -
Act covering the offer and sale by the Corporation of any of its Class B Common
Stock in which the aggregate gross proceeds to the Corporation equal or exceed
$15,000,000 and in which the initial price per share to the public exceeds
$5.00.
(d) The term "Reserved Management Shares" means shares of Class B
Common Stock, not to exceed in the aggregate 4,500,000 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 Corporation
for issuance pursuant to a plan or arrangement approved by the Board of
Directors of the Corporation, including without limitation, the Corporation's
1998 Stock Incentive Plan.
(e) The term "Stockholders' Agreement" shall mean the Third Amended and
Restated Stockholders' Agreement entered into as of December 30, 1999.
(f) The term "Subsidiary" or "Subsidiaries" shall mean any corporation
or trust of which the Corporation and/or any of its other Subsidiaries 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.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the By-Laws of the Corporation, except as
otherwise provided herein.
B. Elections of directors need not be by written ballot unless the
By-Laws of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-Laws of the Corporation may
provide or as may be designated from time to time by the Board of
Directors of the Corporation.
SEVENTH. The Corporation eliminates the personal liability of
each member of its Board of Directors to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided, however,
that, to the extent provided by applicable law, the foregoing shall not
eliminate the liability of a director (i) for any breach of such director's
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duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of Title 8 of the Delaware Code or
(iv) for any transaction from which such director derived an improper personal
benefit. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.
EIGHTH. The Corporation reserves the right to amend or repeal
any provision contained in this Fourth Restated Certificate, in the manner now
or hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
NINTH. Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence
- 49 -
of such compromise or arrangement, the said compromise or arrangement and the
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
TENTH: To the fullest extent permitted by the General
Corporation Law of Delaware, as the same exists or may hereafter be amended, a
director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages for breaches of fiduciary duties as a
director. Notwithstanding the foregoing, a director shall be liable to the
extent provided by applicable law (1) for any breach of the directors' duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the General Corporation Law of the State of
Delaware, or (4) for any transaction from which the director derived any
improper personal benefit. Neither the amendment or repeal of this Article, nor
the adoption of any provision of this Fourth Restated Certificate inconsistent
with this Article shall adversely affect any right or protection of a director
of the Corporation existing at the time of such amendment, repeal or adoption.
IN WITNESS WHEREOF, the Corporation has caused this Fourth
Restated Certificate to be signed by its President this 30th day of December,
1999.
FURNITURE.COM, INC.
By: /s/ Andrew Brooks
-------------------
Name: Andrew Brooks
Title: President & CEO
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Exhibit 3.3
BY-LAWS
OF
FURNITURESITE, INC.
BY-LAWS
TABLE OF CONTENTS
Page
----
- Stockholders.......................................................................1
PLACE OF MEETINGS...........................................................1
ANNUAL MEETING..............................................................1
SPECIAL MEETINGS............................................................1
NOTICE OF MEETINGS..........................................................1
VOTING LIST.................................................................2
QUORUM......................................................................2
ADJOURNMENTS................................................................2
VOTING AND PROXIES..........................................................2
ACTION AT MEETING...........................................................2
ACTION WITHOUT MEETING......................................................3
- Directors..........................................................................3
GENERAL POWERS..............................................................3
NUMBER; ELECTION AND QUALIFICATION..........................................3
ENLARGEMENT OF THE BOARD....................................................3
TENURE......................................................................4
VACANCIES...................................................................4
RESIGNATION.................................................................4
REGULAR MEETINGS............................................................4
SPECIAL MEETINGS............................................................4
NOTICE OF SPECIAL MEETINGS..................................................4
MEETINGS BY TELEPHONE CONFERENCE CALLS......................................5
QUORUM......................................................................5
ACTION AT MEETING...........................................................5
ACTION BY CONSENT...........................................................5
REMOVAL.....................................................................5
COMMITTEES..................................................................5
COMPENSATION OF DIRECTORS...................................................6
- Officers...........................................................................6
ENUMERATION.................................................................6
ELECTION....................................................................6
QUALIFICATION...............................................................6
TENURE......................................................................6
RESIGNATION AND REMOVAL.....................................................7
VACANCIES...................................................................7
CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD........................7
PRESIDENT...................................................................7
VICE PRESIDENTS.............................................................8
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SECRETARY AND ASSISTANT SECRETARIES.........................................8
TREASURER AND ASSISTANT TREASURERS..........................................8
SALARIES....................................................................9
- Capital Stock......................................................................9
ISSUANCE OF STOCK...........................................................9
CERTIFICATES OF STOCK.......................................................9
TRANSFERS..................................................................10
LOST, STOLEN OR DESTROYED CERTIFICATES.....................................10
RECORD DATE................................................................10
- General Provisions................................................................11
FISCAL YEAR................................................................11
CORPORATE SEAL.............................................................11
WAIVER OF NOTICE...........................................................11
VOTING OF SECURITIES.......................................................11
EVIDENCE OF AUTHORITY......................................................11
CERTIFICATE OF INCORPORATION...............................................12
TRANSACTIONS WITH INTERESTED PARTIES.......................................12
SEVERABILITY...............................................................12
PRONOUNS...................................................................13
- Amendments........................................................................13
BY THE BOARD OF DIRECTORS..................................................13
BY THE STOCKHOLDERS........................................................13
-iii-
BY-LAWS
OF
FURNITURESITE, INC.
ARTICLE 1 - Stockholders
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
-1-
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the
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votes cast on a matter) shall decide any matter to be voted upon by the
stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-Laws.
When a quorum is present at any meeting, any election by stockholders shall be
determined by a plurality of the votes cast on the election.
1.10 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
2.1 GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which
shall constitute the whole Board of Directors shall be five or as shall
otherwise be determined by resolution of the stockholders or the Board of
Directors, but in no event shall be less than one. Except as otherwise provided
in the Certificate of Incorporation, the number of directors may be decreased at
any time and from time to time either by the stockholders or by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. Except as otherwise provided in the Certificate of Incorporation, the
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 ENLARGEMENT OF THE BOARD. Except as otherwise provided in the
Certificate of Incorporation, the number of directors may be increased at any
time and from time to time by the stockholders or by a majority of the directors
then in office.
-3-
2.4 TENURE. Except as otherwise provided in the Certificate of
Incorporation, each director shall hold office until the next annual meeting and
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
2.5 VACANCIES. Except as otherwise provided in the Certificate of
Incorporation, unless and until filled by the stockholders, any vacancy in the
Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Except as otherwise provided in the Certificate of Incorporation, a director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next annual
meeting of stockholders and until his successor is elected and qualified, or
until his earlier death, resignation or removal.
2.6 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
-4-
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present. 1.1
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 REMOVAL. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the
-5-
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
By-laws for the Board of Directors.
2.16 COMPENSATION OF DIRECTORS. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
-6-
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of
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Executive Vice President, Senior Vice President or any other title selected by
the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
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3.12 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
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4.3 TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 10 days after the date of adoption of a
record date for a written consent without a meeting, nor more than 60 days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is properly delivered to the corporation. The record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating to such purpose.
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A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
5.1 FISCAL YEAR. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these By-laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest,
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shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or a committee of the Board of Directors which authorizes the contract
or transaction or solely because his or their votes are counted for such
purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 SEVERABILITY. Any determination that any provision of these By-laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.
5.9 PRONOUNS. All pronouns used in these By-laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - Amendments
6.1 BY THE BOARD OF DIRECTORS. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 BY THE STOCKHOLDERS. These By-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a
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majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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Exhibit 10.1
FURNITURESITE, INC.
1998 STOCK INCENTIVE PLAN
1. PURPOSE.
The purpose of this 1998 Stock Incentive Plan (the "Plan") of
FurnitureSite, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any of the Company's present or future subsidiary corporations of as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code").
2. ELIGIBILITY.
All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards, or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".
3. ADMINISTRATION, DELEGATION.
(a) ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) DELEGATION TO EXECUTIVE OFFICERS. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of
the Company the power to make Awards and exercise such other powers under the
Plan as the Board may determine, provided that the Board shall fix the
maximum number of shares subject to Awards and the maximum number of shares
for any one Participant to be made by such executive officers.
(c) APPOINTMENT OF COMMITTEES. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). If and when any class
of common stock of the Company is registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the Board shall appoint one such
Committee of not less than two members, each member of which shall be an
"outside director" within the meaning of Section 162(m) of the Code and a
"non-employee director" as defined in Rule 16b-3 promulgated under the Exchange
Act. All references in the Plan to the "Board" shall mean the Board or a
Committee of the Board or the executive officer referred to in Section 3(b) to
the extent that the Board's powers or authority under the Plan have been
delegated to such Committee or executive officer.
4. STOCK AVAILABLE FOR AWARDS.
Subject to adjustment under Section 8, Awards may be made under the
Plan for up to 1,429,000 shares of Class B common stock, $0.01 par value per
share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
5. STOCK OPTIONS.
(a) GENERAL. The Board may grant options to purchase Common Stock (each, an
"Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) INCENTIVE STOCK OPTIONS. An Option that the Board intends to be an
"incentive stock option@ as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or
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any part thereof) which is intended to be an Incentive Stock Option is not an
Incentive Stock Option.
(c) EXERCISE PRICE. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) DURATION OF OPTIONS. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Board may specify in the applicable
option agreement; PROVIDED, HOWEVER, that no Option will be granted for a term
in excess of 10 years.
(e) EXERCISE OF OPTION. Options may be exercised by delivery to the Company
of a written notice of exercise signed by the proper person or by any other form
of notice (including electronic notice) approved by the Board together with
payment in full as specified in Section 5(f) for the number of shares for which
the Option is exercised.
(f) PAYMENT UPON EXERCISE. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, by (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (ii) delivery by the Participant
to the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price;
(3) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their fair
market value as determined by (or in a manner approved by) the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the Participant at
least six months prior to such delivery;
(4) to the extent permitted by the Board, in its sole discretion by (i)
delivery of a promissory note of the Participant to the Company on terms
determined by the Board or (ii) payment of such other lawful consideration as
the Board may determine; or
(5) by any combination of the above permitted forms of payment.
6. RESTRICTED STOCK.
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(a) GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary").In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. OTHER STOCK-BASED AWARDS.
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS.
(a) CHANGES IN CAPITALIZATION. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the number and class of securities and exercise price per share subject to
each outstanding Option, (iii) the repurchase price per share subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
Award shall be appropriately adjusted by the Company (or substituted Awards may
be made, if applicable) to the extent the Board shall determine, in good faith,
that such an adjustment (or substitution) is necessary and appropriate. If this
Section 8(a) applies and Section 8(c) also applies to any event, Section 8(c)
shall be applicable to such event, and this Section 8(a) shall not be
applicable.
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(b) LIQUIDATION OR DISSOLUTION. In the event of a proposed liquidation
or dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) ACQUISITION AND CHANGE IN CONTROL EVENTS.
(1) DEFINITIONS.
(a) An "Acquisition Event" shall mean:
(i) any merger or consolidation of the Company with or into
another entity as a result of which the Common Stock is
converted into or exchanged for the right to receive
cash, securities or other property; or
(ii) any exchange of shares of the Company for cash,
securities or other property pursuant to a statutory
share exchange transaction.
(b) A "Change in Control Event" shall mean:
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(i) any person or entity (together, a "Person") or any
Persons acting together (other than a Current Holder
(as defined below) or an underwriter engaged in a firm
commitment underwriting on behalf of the Company) that
would constitute a group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, or any
successor provision thereto) shall beneficially own
(within the meaning of Rule 13d-3 under the Exchange
Act, or any successor provision thereto) 50% or more of
either (x) the then-outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock")
or (y) the combined voting power of the
then-outstanding securities of the Company entitled to
vote generally in the election of directors (the
"Outstanding Company Voting Securities"); PROVIDED,
HOWEVER, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change in
Control Event: (A) any acquisition directly from the
Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security
exercisable for, convertible into or exchangeable for
common stock or voting securities of the Company,
unless the Person exercising, converting or exchanging
such security acquired such security directly from the
Company or an underwriter or agent of the Company), (B)
any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (C)
any acquisition by any corporation pursuant to a
Business Combination (as defined below) which complies
with clauses (x) and (y) of subsection (ii) of this
definition. For purposes of this Plan, a Current Holder
shall mean any stockholder of the Company on the date
of the adoption of this Plan; or
(ii) the consummation of a merger, consolidation,
reorganization or statutory share exchange involving
the Company or a sale or other disposition of all or
substantially all of the assets of the Company (a
"Business Combination"), unless, immediately following
such Business Combination, each of the
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following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who
were the beneficial owners of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50%
of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding
securities entitled to vote generally in the election
of directors, respectively, of the resulting or
acquiring corporation in such Business Combination
(which shall include, without limitation, a corporation
which as a result of such transaction owns the Company
or substantially all of the Company's assets either
directly or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to
herein as the "Acquiring Corporation") in substantially
the same proportions as their ownership of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively, immediately
prior to such Business Combination and (y) no Person
(excluding the Acquiring Corporation or any employee
benefit plan (or related trust) maintained or sponsored
by the Company or by the Acquiring Corporation)
beneficially owns, directly or indirectly, 50% or more
of the then-outstanding shares of common stock of the
Acquiring Corporation, or of the combined voting power
of the then-outstanding securities of such corporation
entitled to vote generally in the election of directors
(except to the extent that such ownership existed prior
to the Business Combination).
(2) EFFECT ON OPTIONS.
(a) ACQUISITION EVENT. Upon the occurrence of an Acquisition
Event (regardless of whether such event also constitutes a
Change in Control Event), or the execution by the Company of
any agreement with respect to an Acquisition Event
(regardless of whether such event will result in a Change in
Control Event), the Board shall provide that all outstanding
Options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or
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an affiliate thereof); PROVIDED THAT if such Acquisition
Event also constitutes a Change in Control Event, except to
the extent specifically provided to the contrary in the
instrument evidencing any Option or any other agreement
between a Participant and the Company, such assumed or
substituted options shall be immediately exercisable in full
upon the occurrence of such Acquisition Event. For purposes
hereof, an Option shall be considered to be assumed if,
following consummation of the Acquisition Event, the Option
confers the right to purchase, for each share of Common
Stock subject to the Option immediately prior to the
consummation of the Acquisition Event, the consideration
(whether cash, securities or other property) received as a
result of the Acquisition Event by holders of Common Stock
for each share of Common Stock held immediately prior to the
consummation of the Acquisition Event (and if holders were
offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding
shares of Common Stock); PROVIDED, HOWEVER, that if the
consideration received as a result of the Acquisition Event
is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with
the consent of the acquiring or succeeding corporation,
provide for the consideration to be received upon the
exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate
thereof) equivalent in fair market value to the per share
consideration received by holders of outstanding shares of
Common Stock as a result of the Acquisition Event.
Notwithstanding the foregoing, if the acquiring or
succeeding corporation (or an affiliate thereof) does not
agree to assume, or substitute for, such Options, then the
Board shall, upon written notice to the Participants,
provide that all then unexercised Options will become
exercisable in full as of a specified time prior to the
Acquisition Event and will terminate immediately prior to
the consummation of such Acquisition Event, except to the
extent exercised by the Participants before the consummation
of such Acquisition Event; PROVIDED, HOWEVER, in the event
of an Acquisition Event under the terms of which holders of
Common Stock will receive upon consummation thereof a cash
payment for each share of Common Stock surrendered pursuant
to such
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Acquisition Event (the "Acquisition Price"), then the Board
may instead provide that all outstanding Options shall
terminate upon consummation of such Acquisition Event and
that each Participant shall receive, in exchange therefor, a
cash payment equal to the amount (if any) by which (A) the
Acquisition Price multiplied by the number of shares of
Common Stock subject to such outstanding Options (whether or
not then exercisable), exceeds (B) the aggregate exercise
price of such Options.
(b) CHANGE IN CONTROL EVENT THAT IS NOT AN ACQUISITION EVENT.
Upon the occurrence of a Change in Control Event that does
not also constitute an Acquisition Event, except to the
extent specifically provided to the contrary in the
instrument evidencing any Option or any other agreement
between a Participant and the Company, all Options
then-outstanding shall automatically become immediately
exercisable in full.
(3) EFFECT ON RESTRICTED STOCK AWARDS.
(a) ACQUISITION EVENT THAT IS NOT A CHANGE IN CONTROL EVENT.
Upon the occurrence of an Acquisition Event that is not a
Change in Control Event, the repurchase and other rights of
the Company under each outstanding Restricted Stock Award
shall inure to the benefit of the Company's successor and
shall apply to the cash, securities or other property which
the Common Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same manner and to
the same extent as they applied to the Common Stock subject
to such Restricted Stock Award.
(b) CHANGE IN CONTROL EVENT. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any Restricted Stock Award or any other agreement
between a Participant and the Company, all Company-imposed
restrictions and conditions on all Restricted Stock Awards
then-outstanding shall automatically be deemed terminated or
satisfied.
(4) EFFECT ON OTHER AWARDS.
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(a) ACQUISITION EVENT THAT IS NOT A CHANGE IN CONTROL EVENT. The
Board shall specify the effect of an Acquisition Event that
is not a Change in Control Event on any other Award granted
under the Plan at the time of the grant of such Award.
(b) CHANGE IN CONTROL EVENT. Upon the occurrence of a Change in
Control Event (regardless of whether such event also
constitutes an Acquisition Event), except to the extent
specifically provided to the contrary in the instrument
evidencing any other Award or any other agreement between a
Participant and the Company, all other Awards shall become
exercisable, realizable or vested in full, or shall be free
of all Company-imposed conditions or restrictions, as
applicable to each such Award.
9. GENERAL PROVISIONS APPLICABLE TO AWARDS.
(a) TRANSFERABILITY OF AWARDS. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) DOCUMENTATION. Each Award shall be evidenced by a written instrument in
such form as the Board shall determine. Such written instrument may be in the
form of an agreement signed by the Company and the Participant or a written
confirming memorandum to the Participant from the Company. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) BOARD DISCRETION. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) TERMINATION OF STATUS. The Board shall determine the effect on an Award
of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be
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withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may satisfy such tax obligations in whole or in part by delivery of
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value. The Company may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to a Participant.
(f) AMENDMENT OF AWARD. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(g) CONDITIONS ON DELIVERY OF STOCK. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) ACCELERATION. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
10. MISCELLANEOUS.
(a) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
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(b) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
(c) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on the
date on which it is adopted by the Board. No Awards shall be granted under the
Plan after the completion of ten years from the date on which the Plan was
adopted by the Board, but Awards previously granted may extend beyond that date.
(d) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time.
(e) GOVERNING LAW. The provisions of the Plan and all Awards made hereunder
shall be governed by and interpreted in accordance with the laws of the State of
Delaware, without regard to any applicable conflicts of law.
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Exhibit 10.2
LEASE
ARTICLE I
REFERENCE DATA
1.1 SUBJECTS REFERRED TO.
Each reference in this Lease to any of the following subjects shall be construed
to incorporate the data stated for that subject in this Section 1.1.
(a) Date of this Lease: June 18, 1998
(b) Premises: The land with the building thereon commonly
known as 100 Beacon Street, Worcester,
Massachusetts, legally described on Exhibit A.
(c) Landlord: Brick by Brick Realty, LLC
(d) Original Address of Landlord: 4 Lantern Lane, Worcester,
Massachusetts 01609
(e) Tenant: FurnitureSite, Inc., a Delaware corporation
(f) Original Address of Tenant: 40 Jackson Street, Worcester,
Massachusetts 01608
(g) Term: The period commencing on the Commencement Date and ending at
11:59 p.m. local time June 30, 2003, with options to extend as set
forth in Section 2.3.
(h) Commencement Date: The date hereof
(i) Annual Fixed Rent During the Initial Term: $129,500 per year
until July 1, 2001; $138,750 from July 1, 2001 until July 1, 2002;
and $148,000 from July 1, 2002 through June 30, 2003.
Annual Fixed Rent During the First Extension Term: $157,250 per
year from July 1, 2003 until July 1, 2006; $166,500 from July 1,
2006 until July 1, 2007; and $175,750 from July 1, 2007 through
June 30, 2008.
Annual Fixed Rent During the Second Extension Term: $185,000 per
year.
(j) Permitted Uses: Warehouse and office use
(k) Public Liability Insurance Limits:
The Exhibit listed below in this section is incorporated in this Lease by
reference and is to be construed as a part of this Lease:
EXHIBIT A. Description of Premises.
1.3 TABLE OF ARTICLES AND SECTIONS.
ARTICLE I
Reference Data ................................................ 1
1.1 Subjects Referred To .................................... 1
1.2 Exhibits ................................................ 2
1.3 Table of Articles and Sections .......................... 2
ARTICLE II
Premises and Term ............................................. 5
2.1 Premises ................................................ 5
2.2 Term .................................................... 5
2.3 Option to Extend ........................................ 5
ARTICLE III
Condition of Premises ......................................... 5
3.1 As Is ................................................... 5
ARTICLE IV
Rent .......................................................... 5
4.1 The Fixed Rent .......................................... 5
4.2 Additional Rent ......................................... 5
4.2.1 Real Estate Taxes ................................ 5
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4.2.2 Insurance ........................................ 6
4.2.3 Utilities ........................................ 8
4.3 Late Payment of Rent .................................... 8
ARTICLE V
Landlord's Covenants .......................................... 8
5.1 Delivery of Possession .................................. 8
5.2 Landlord's Representation ............................... 8
5.3 Roof, Exterior Wall, Floor Slab and Structural
Component Repair ...................................... 8
5.4 Quiet Enjoyment ......................................... 8
5.5 Hazardous Materials ..................................... 9
5.6 Indemnity ............................................... 9
ARTICLE VI
Tenant's Additional Covenants ................................. 9
6.1 Affirmative Covenants ................................... 9
6.1.1 Perform Obligations .............................. 10
6.1.2 Use .............................................. 10
6.1.3 Repair and Maintenance ........................... 10
6.1.4 Compliance with Law .............................. 10
6.1.5 Tenant's Work .................................... 10
6.1.6 Indemnity ........................................ 10
6.1.7 Landlord's Right to Enter ........................ 12
6.1.8 Personal Property at Tenant's Risk ............... 12
6.1.9 Yield Up ......................................... 12
6.2 Negative Covenants ...................................... 12
6.2.1 Assignment and Subletting ........................ 12
6.2.2 Overloading and Nuisance ......................... 13
ARTICLE VII
Casualty or Taking ............................................ 13
7.1 Termination ............................................. 13
7.2 Restoration ............................................. 13
ARTICLE VIII
Defaults ...................................................... 13
8.1 Events of Default ....................................... 13
8.2 Remedies ................................................ 14
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8.3 Remedies Cumulative ..................................... 15
8.4 Landlord's and Tenant's Right to Cure Defaults .......... 15
8.5 Effect of Waivers of Default ............................ 15
8.6 No Accord and Satisfaction .............................. 15
ARTICLE IX
Mortgages ..................................................... 16
9.1 Rights of Mortgage Holders .............................. 16
9.2 Lease Superior or Subordinate to Mortgages .............. 16
ARTICLE X
Miscellaneous Provisions ...................................... 17
10.1 Notices from One Party to the Other ..................... 17
10.2 Estoppel Certificate .................................... 17
10.3 Lease not to be Recorded ................................ 17
10.4 Bind and Inure .......................................... 18
10.5 Acts of God ............................................. 18
10.6 Landlord's Default ...................................... 18
10.7 Brokerage ............................................... 18
10.8 Approvals and Consent ................................... 18
10.9 Applicable Law and Construction ......................... 18
10.9.1 Applicable Law .................................. 18
10.9.2 No Other Agreement .............................. 18
10.9.3 Titles .......................................... 19
10.9.4 "Landlord" and "Tenant" ......................... 19
10.10 Submission Not an Offer ................................. 19
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ARTICLE II
PREMISES AND TERM
2.1 PREMISES. Landlord hereby leases and demises to Tenant and Tenant
hereby leases from Landlord, subject to and with the benefit of the terms,
covenants, conditions and provisions of this Lease, the Premises.
2.2 TERM. TO HAVE AND TO HOLD for a term beginning on the Commencement
Date hereof and continuing for the Term, unless sooner terminated as hereinafter
provided.
2.3 OPTION TO EXTEND. Tenant shall have the right and option to extend
the Term for two (2) periods of five (5) years each (the "Extension Terms") by
giving written notice to Landlord of its exercise of its option to extend the
Term on or before that date which is seven (7) months prior to the expiration of
the Term. If either or both of such options are so exercised, all of the terms,
conditions, covenants and agreements contained herein shall apply during the
Extension Terms, except that the Annual Fixed Rent shall be the amounts set
forth in Section 1.1. In the event Tenant exercises the option set forth herein,
references to the Term shall include the relevant Extension Term.
ARTICLE III
CONDITION OF PREMISES
3.1 AS IS. Tenant accepts the Premises in their "as is" condition as of
the date of this Lease, subject to the provisions of Article V.
ARTICLE IV
RENT
4.1 THE FIXED RENT. Tenant covenants and agrees to pay rent to Landlord
at the Original Address of Landlord or at such other place or to such other
person or entity as Landlord may by notice to Tenant from time to time direct,
in equal installments of 1/12th of the Annual Fixed Rent in advance on the first
day of each calendar month included in the Term; and for any portion of a
calendar month at the beginning or end of the Term, at that rate payable in
advance for such portion.
4.2 ADDITIONAL RENT. In order that the Fixed Rent shall be net to
Landlord, Tenant covenants and agrees to pay, as Additional Rent, taxes,
betterment assessments, insurance costs, and utility charges with respect to the
Premises as provided in this Section 4.2 as follows:
4.2.1 REAL ESTATE TAXES. Tenant shall pay, directly to the
authority charged with collection thereof: (i) all real property taxes,
assessments, levies, fees, water and sewer rents and charges which are, at any
time prior to or during the Term hereof, imposed or levied upon or assessed
against the Premises and (ii) all charges for utilities furnished to the
Premises which may become a lien on the Premises (collectively "taxes and
assessments" or if singular "tax or assessment"). If any tax or assessment
levied against the Premises may legally be paid in
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installments, Tenant may elect to pay such tax or assessment in installments.
For each tax or assessment period, or installment period thereof, wholly
included in the Term, all such payments shall be made by Tenant no later than
the last date on which the same may be paid without interest or penalty;
provided that for any fraction of a tax or assessment period, or installment
period thereof, included in the Term at the beginning or end thereof, Tenant
shall pay to Landlord, within 20 days after receipt of invoice therefor, the
fraction of taxes and assessments so levied or assessed or becoming payable
which is allocable to such included period.
If Tenant shall deem itself aggrieved by any such tax or assessment, and shall
elect to contest the payment thereof, Tenant may make such payment under protest
or, if postponement of such payment will not jeopardize Landlord's title to the
Premises nor prejudice Landlord's rights with respect to abatement proceedings,
Tenant may postpone the same.
Either party paying any tax or assessment shall be entitled to recover,
receive and retain for its own benefit all abatements and refunds related
thereto, unless it has previously been reimbursed by the other party. Any
abatement or refund related to a tax or assessment the payment of which was
apportioned between the parties shall be first applied to the costs of securing
such abatement or refund, and the balance shall be apportioned in like manner.
Neither party shall discontinue any abatement proceedings begun by it without
first giving the other party notice of its intent so to do and reasonable
opportunity to be substituted in such proceedings. Notwithstanding any other
provision of this Lease to the contrary, neither party paying any tax or
assessment shall make such payment in such an amount, in such a manner, or at
such a time as would prejudice any abatement proceeding.
Nothing contained in this Lease shall, however, require Tenant to pay any
franchise, corporate, estate, inheritance, succession, capital levy or transfer
tax of Landlord, or any income, profits or revenue tax or charge upon the rent
payable by Tenant under this Lease.
4.2.2 INSURANCE. Tenant shall take out and maintain throughout
the Term the following insurance protecting Landlord as a named insured and
with such additional insureds as Landlord from time to time may designate by
notice to Tenant:
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4.2.2.1 All-risk insurance covering all buildings and
improvements now existing or hereafter erected upon the Premises, and all
equipment and fixtures installed in or used in connection with the Premises,
with such additional endorsements as may be necessary to include coverage for
vandalism and malicious conduct, floods, water damage and debris removal and
demolition, with a co-insurance provision of 80% or an agreed amount clause, in
an amount equal to the replacement cost of all such buildings, improvements,
equipment and fixtures (but not less than the agreed amount if coverage is
pursuant to an agreed amount clause) as such replacement cost may be determined
from time to time.
4.2.2.2 Commercial general liability insurance indemnifying
Landlord and Tenant against all claims and demands for any injury to person or
property which may be claimed to have occurred on or about the Premises or on
the sidewalk or ways adjoining the Premises, in amounts which shall, at the
beginning of the Term, be at least equal to the limits set forth in Section 1.1,
and, from time to time during the Term, shall be for such higher limits, if any,
as are customarily carried in the area in which the Premises are located on
property similar to the Premises and used for similar purposes; and workmen's
compensation insurance with statutory limits covering all of Tenant's employees
working on the Premises.
4.2.2.3 Insurance against loss or damage from sprinklers and
from leakage or explosion or cracking of boilers, pipes carrying steam or water,
or both, pressure vessels or similar apparatus, in the so-called "broad form"
and in such amounts as Landlord may reasonably require.
4.2.2.4 All policies required under this Section 4.2.2 shall be
obtained from responsible companies qualified to do business in the state in
which the Premises are located and in good standing therein, which companies and
the amount of insurance allocated thereto shall be subject to Landlord's
reasonable approval. Tenant agrees to furnish Landlord with certificates
evidencing all such insurance prior to the beginning of the Term hereof and
evidence of each renewal policy at least 20 days prior to the expiration of the
policy it renews. Each such policy shall be non-cancelable with respect to the
interest of Landlord and the holders of any mortgages on the Premises without at
least 20 days' prior written notice thereto.
4.2.2.5 All insurance which is carried by either party with
respect to the Premises or to furniture, furnishings, fixtures or equipment
therein or alterations or improvements thereto, whether or not required, shall
include provisions which either designate the other party as one of the insured
or deny to the insurer acquisition by subrogation of rights of recovery against
the other party to the extent such rights have been waived by the insured party
prior to occurrence of loss or injury, insofar as, and to the extent that such
provisions may be effective without making it impossible to obtain insurance
coverage from responsible companies qualified to do business in the state in
which the Premises are located (even though extra premium may result therefrom).
In the event that extra premium is payable by either party as a result of this
provision, the other party shall reimburse the party paying such premium the
amount of such extra premium. If at the request of one party, this
non-subrogation provision is waived as to such party, then the obligation of
reimbursement by such party shall cease for such period of time as such waiver
shall be effective, but nothing contained in this Section 4.2.2.5 shall derogate
from or otherwise affect releases elsewhere herein contained of either party for
claims. Each party shall be entitled
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to have duplicates or certificates of any policies containing such provisions.
Each party hereby waives all rights of recovery against the other for loss or
injury against which the waiving party is protected by insurance containing said
non-subrogation provisions, reserving, however, any rights with respect to any
excess of loss or injury over the amount recovered by such insurance.
4.2.3 UTILITIES. Tenant shall pay directly to the proper
authorities charged with the collection thereof all charges for water, sewer,
gas, electricity, telephone and other utilities or services used or consumed
on the Premises, whether called charge, tax, assessment, fee or otherwise,
including, without limitation, water and sewer use charges and taxes, if any,
all such charges to be paid as the same from time to time become due.
4.3 LATE PAYMENT OF RENT. If any installment of Fixed Rent or payment
of Additional Rent is paid more than twenty (20) days after the date the same
was due, it shall bear interest from the due date at the prime rate published in
THE WALL STREET JOURNAL, as it may be adjusted from time to time, plus two
percent per annum, but in no event more than the maximum rate of interest
allowed by law, the payment of which shall be Additional Rent.
ARTICLE V
LANDLORD'S COVENANTS
Landlord covenants:
5.1 DELIVERY OF POSSESSION. Landlord covenants and agrees to deliver
possession of the Premises to Tenant on the Commencement Date free and clear
from all tenancies, occupancies, claims or rights to possession of persons other
than the rights of Landlord and Tenant under this Lease.
5.2 LANDLORD'S REPRESENTATION. Landlord represents and warrants that,
both on the date this Lease is executed and on the Commencement Date, the
Premises may be used as of right for a warehouse and office uses and are and
will be in compliance with all applicable federal, state and local environmental
laws and regulations, the Americans with Disabilities Act and the applicable
state or local building code, and free and clear from all orders, notices and
violations filed or entered by any public or quasi-public authority, and from
complaints or reports of violations, noted or existing in or filed with any
federal, state, county or local authority and that the sanitary system serving
the Premises is in good working order and in compliance with all laws and
regulations.
5.3 ROOF, EXTERIOR WALL, FLOOR SLAB AND STRUCTURAL COMPONENT REPAIR. To
make such repairs to the roof, exterior walls, other structural components,
floor slabs, and parking areas and facilities as may be necessary to keep them
in good order, repair and condition and in compliance with applicable laws,
codes and regulations.
5.4 QUIET ENJOYMENT. That Tenant on paying the Fixed Rent and
additional rent and performing the tenant obligations in this Lease shall
peacefully and quietly have, hold and enjoy the Premises, subject to all of the
terms and provisions hereof.
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5.5 HAZARDOUS MATERIALS. Landlord shall defend, indemnify and
hold Tenant harmless from and against all loss, cost, expense or damages Tenant,
its stockholders, officers, directors or employees (herein, "Indemnified
Parties") may suffer or incur as a result of the discharge, release, generation,
storage or disposal of any Hazardous Materials on or about the Premises or on
any property adjacent thereto prior to the commencement of the Term of this
Lease. For purposes of this Lease Hazardous Materials shall mean all oil and
petroleum products and all hazardous or toxic substances, all substances which,
because of their quantitative concentration, or their chemical, radioactive,
flammable, explosive, infectious or other characteristics, constitute or may
reasonably be expected to constitute or contribute to a danger or hazard to
public health, safety or welfare or to the environment, including, without
limitation, any asbestos (whether or not friable) and any asbestos-containing
materials, waste oils, solvents and chlorinated oils, polychlorinated biphenyls
(PCBs) and chemical, biological and radioactive wastes, and any other substances
or any hazardous or toxic wastes or substances which are included under or
regulated by any Environmental Laws.
For purposes of this Lease Environmental Laws shall mean all federal, state or
local laws, rules and regulations (whether now existing or hereafter enacted or
promulgated, as they may be amended from time to time), and all judicial or
decisional law, pertaining to Hazardous Materials, environmental regulations
contamination by Hazardous Materials, clean-up of Hazardous Materials or
disclosures relating to Hazardous Materials, and any judicial or administrative
interpretation thereof, including any judicial or administrative orders or
judgments, including, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq.
("CERCLA"); the Federal Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq. ("RCRA"); Superfund Amendments and Reauthorization Act of
1986, Public Law No. 99-499 ("SARA"); Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq. ("TSCA"); and all state superlien or environmental clean-up
or disclosure statutes in the state in which the Mortgage Property is located.
5.6 INDEMNITY. Landlord shall defend all actions against all
Indemnified Parties with respect to, and shall pay, protect, indemnify and save
harmless, to the extent permitted by law, all Indemnified Parties from and
against any and all liabilities, losses, damages, costs, expenses (including
reasonable attorneys' fees and expenses), causes of action, suits, claims,
demands or judgments of any nature arising from (i) injury to or death or any
person, or damage to or loss of property, on or about the Premises or on
adjoining sidewalks, streets or ways, or connected with the use, condition or
occupancy of any thereof caused by the negligence or willful misconduct of
Landlord or its agents, contractors, licensees or invitees, (ii) violation by
Landlord of this Lease, or (iii) any act, fault, omission, or other misconduct
of Landlord or its agents or contractors.
ARTICLE VI
TENANT'S ADDITIONAL COVENANTS
6.1 AFFIRMATIVE COVENANTS. Tenant covenants at its sole expense at all
times during the Term and for such prior or subsequent time as Tenant occupies
the Premises or any part thereof:
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6.1.1 PERFORM OBLIGATIONS. To perform promptly all of the
obligations of Tenant set forth in this Lease; and to pay when due the Fixed
Rent and Additional Rent and all charges, rates and other sums which by the
terms of this Lease are to be paid by Tenant.
6.1.2 USE. To use the Premises only for the Permitted Uses, and
from time to time to procure all licenses and permits necessary therefor at
Tenant's sole expense.
6.1.3 REPAIR AND MAINTENANCE. Except as otherwise provided in
Articles V and VII, to keep the Premises in good order, condition and repair and
in at least as good order, condition and repair as they are in on the
Commencement Date or may be put in during the Term, reasonable use and wear,
fire and other casualty only excepted; to maintain in good condition all lawns
and planted areas and keep in good repair and clean and neat and free of snow
and ice all surfaced roadways, walks, and parking and loading areas; and to make
all repairs and to do all other work necessary for the foregoing purposes.
Notwithstanding the foregoing, in no event shall Tenant be required to make any
repair or replacement which would be considered capital in nature under
generally accepted accounting principles, and Landlord shall make all such
repairs or replacements promptly after receipt of written notice from Tenant.
6.1.4 COMPLIANCE WITH LAW. To make all non-structural, non-capital
repairs, alterations, additions or replacements to the Premises required by any
law or ordinance or any order or regulation of any public authority; to keep the
Premises equipped with all safety equipment required; to pay all municipal,
county, or state taxes assessed against the leasehold interest hereunder, or
against personal property of any kind on or about the Premises; and to comply
with the orders, regulations, variances, licenses and permits of or granted by
governmental authorities with respect to zoning, building, fire, health and
other codes, regulations, ordinances or laws applicable to the Premises, and the
condition, use or occupancy thereof, except that Tenant may defer compliance so
long as the validity of any such order, regulation, code, ordinance or law shall
be contested by Tenant in good faith and by appropriate legal proceedings.
Notwithstanding the foregoing, Landlord shall make such repairs, alterations or
replacements, shall furnish such safety equipment, and shall otherwise bring the
Premises into compliance with all applicable laws as of the commencement of the
Term of this Lease.
6.1.5 TENANT'S WORK. To procure at Tenant's sole expense all
necessary permits and licenses before undertaking any work on the Premises; to
do all such work in a good and workmanlike manner employing materials of good
quality and so as to conform with all applicable zoning, building, fire, health
and other codes, regulations, ordinances and laws; to pay promptly when due the
entire cost of any work on the Premises undertaken by Tenant so that the
Premises shall at all times be free of liens for labor and materials; to require
such contractors employed by Tenant to carry workmen's compensation insurance in
accordance with statutory requirements; and to save Landlord harmless and
indemnified from all injury, loss, claims or damage to any person or property
occasioned by or growing out of such work.
6.1.6 INDEMNITY. Tenant shall defend all actions against Landlord,
any partner, trustee, stockholder, officer, director, employee or beneficiary of
Landlord, holders of mortgages on the Premises and any other party having an
interest in the Premises (herein, "Indemnified Parties") with respect to, and
shall pay, protect, indemnify and save harmless, to the extent permitted by law,
all Indemnified Parties from and against any and all liabilities, losses,
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damages, costs, expenses (including reasonable attorneys' fees and expenses),
causes of action, suits, claims, demands or judgments of any nature arising from
(i) injury to or death of any person, or damage to or loss of property, on or
about the Premises or on adjoining sidewalks, streets or ways, or connected with
the use, condition or occupancy of any thereof, unless such injury, death or
damage was caused by the negligence or willful misconduct of Landlord or its
agents, contractors, licensees or invitees, (ii) violation by Tenant of this
Lease, or (iii) any act, fault, omission, or other misconduct of Tenant or its
agents, contractors, licensees, sublessees or invitees.
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6.1.7 LANDLORD'S RIGHT TO ENTER. To permit Landlord and its agents
to enter the Premises at reasonable times after reasonable notice to examine the
Premises, to make such repairs and replacements as Landlord may elect or as
Landlord may be required to perform hereunder, and to show the Premises to
prospective purchasers, lenders and tenants, and, during the last six months of
the Term, to keep affixed in suitable places notices of availability of the
Premises.
6.1.8 PERSONAL PROPERTY AT TENANT'S RISK. All of the furnishings,
fixtures, equipment, effects and property of every kind, nature and description
of Tenant and of all persons claiming by, through or under Tenant which, during
the continuance of this Lease or any occupancy of the Premises by Tenant or
anyone claiming under Tenant, may be on the Premises, shall be at the sole risk
and hazard of Tenant and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of water
pipes, steam pipes, or other pipes, by theft or from any other cause, no part of
said loss or damage is to be charged to or to be borne by Landlord, except that
Landlord shall in no event be indemnified or held harmless or exonerated from
any liability to Tenant or to any other person for any injury, loss, damage or
liability caused by Landlord's negligence or willful misconduct.
6.1.9 YIELD UP. At the expiration of the Term or earlier
termination of this Lease: to surrender all keys to the Premises, to remove all
furnishings, fixtures, equipment and other personal property now or hereafter
located in the Premises, and to deliver and yield up the Premises broom-clean
and in the same condition the Premises are in as of the Commencement Date,
reasonable wear and tear, fire and other casualty excepted.
6.2 NEGATIVE COVENANTS. Tenant covenants at all times during the
Term and for such further time as Tenant occupies the Premises or any part
thereof:
6.2.1 ASSIGNMENT AND SUBLETTING. Not to assign, transfer,
mortgage or pledge this Lease or to grant a security interest in Tenant's rights
hereunder, or to sublease (which term shall be deemed to include the granting of
concessions and licenses and the like) or permit anyone other than Tenant to
occupy all or any part of the Premises or suffer or permit this Lease or the
leasehold interest hereby created or any other rights arising under this Lease
to be assigned, transferred or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law, unless, in each instance the
prior written consent of Landlord thereto shall have been obtained, which
consent shall not be unreasonably withheld, conditioned or delayed.
Notwithstanding the foregoing Tenant may assign this Lease or sublet any portion
or all of the Premises to any corporation, partnership, trust, association,
limited liability company or other business or organization (x) directly or
indirectly controlling and beneficially owning Tenant, (y) directly or
indirectly controlled by and beneficially owned by Tenant, or (z) under common
control with Tenant, or to any successor of Tenant by merger, consolidation or
acquisition of substantially all of the stock or assets of Tenant, without the
prior written consent of Landlord.
If for any assignment or sublease or occupancy by another, Tenant receives rent
or other consideration, either initially or over the term of the assignment,
sublease or occupancy, after payment of any expenses incurred in connection
therewith, in excess of the rent called for hereunder, or in case of sublease of
part of the Premises, in excess of such rent fairly allocable to
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the part so subleased, after deducting all expenses of such transaction
including, without limitation, brokerage and legal fees and demising walls and
other leasehold improvements, Tenant shall pay to Landlord, as Additional Rent,
50% of the excess of each such payment of rent or other consideration received
by Tenant promptly after its receipt.
Any attempted assignment, transfer, mortgage, pledge, grant of security
interest, sublease or other encumbrance, except as permitted by this Section
6.2.1, shall be void. No assignment, transfer, mortgage, grant of security
interest, sublease or other encumbrance, whether or not approved, and no
indulgence granted by Landlord to any assignee, sublessee or occupant shall in
any way impair Tenant's continuing primary liability (which after an assignment
or subletting shall be joint and several with the assignee or sublessee) of
Tenant hereunder, and no approval in a particular instance shall be deemed to be
a waiver of the obligation to obtain Landlord's approval in any other case.
6.2.2 OVERLOADING AND NUISANCE. Not to injure, overload, deface or
otherwise harm the Premises; nor commit any nuisance; not to dump, flush, or in
any way introduce any Hazardous Materials or any other toxic substances into the
septic, sewage or other waste disposal system serving the Premises in violation
of law; not to generate, store, use or dispose of Hazardous Materials in or on
the Premises in violation of law, or commit or suffer to be committed in or on
the Premises any act in violation of law.
ARTICLE VII
CASUALTY OR TAKING
7.1 TERMINATION. In the event that the Premises, or any material part
thereof, shall be taken by any public authority or for any public use, or shall
be destroyed or damaged by fire or casualty, or by the action of any public
authority, then this Lease may be terminated at the election of Tenant. Such
election, which may be made notwithstanding the fact that Landlord's entire
interest may have been divested, shall be made by the giving of notice within 30
days after the right of election accrues.
7.2 RESTORATION. If this Lease is not terminated as aforesaid, this
Lease shall continue in force and a just proportion of the rent reserved,
according to the nature and extent of the damages sustained by the Premises,
shall be suspended or abated until the Premises, or what may remain thereof,
shall be put by Landlord in proper condition for use, which Landlord covenants
to do with reasonable diligence.
ARTICLE VIII
DEFAULTS
8.1 EVENTS OF DEFAULT. If (a) Tenant shall default in the performance
of any of its obligations to pay the Fixed Rent or Additional Rent hereunder and
if such default shall continue for 20 days after notice from Landlord
designating such default or if within 30 days after notice from Landlord to
Tenant specifying any other default or defaults Tenant has not commenced
diligently to correct the default or defaults so specified or has not thereafter
diligently pursued such correction to completion, or (b) Tenant becomes
insolvent or fails to pay its debts as they
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fall due, or (c) a trust mortgage or assignment is made by Tenant for the
benefit of creditors, or (d) Tenant proposes a composition, arrangement,
reorganization or recapitalization with creditors, or (e) the leasehold estate
under this Lease or any substantial part of the property of Tenant is taken on
execution, or by other process of law, or is attached or subjected to any other
involuntary encumbrance, or (f) a receiver, trustee, custodian, guardian,
liquidator or similar agent is appointed with respect to Tenant, or if any such
person or a mortgagee, secured party or other creditor takes possession of the
Premises or of any substantial part of the property of Tenant, and, in either
case, if such appointment or taking of possession is not terminated within 90
days after it first occurs, or (g) a petition is filed by or with the consent of
Tenant under any federal or state law concerning bankruptcy, insolvency,
reorganization, arrangement, or relief from creditors, or (h) a petition is
filed against Tenant under any federal or state law concerning bankruptcy,
insolvency, reorganization, arrangement, or relief from creditors, and such
petition is not dismissed within 90 days thereafter, or (i) Tenant dissolves or
is dissolved or liquidates or adopts any plan or commences any proceeding, the
result of which is intended to include dissolution or liquidation, then, and in
any of such cases, Landlord and the agents and servants of Landlord lawfully
may, in addition to and not in derogation of any remedies for any preceding
breach of covenant, immediately or at any time thereafter and without demand or
notice and with or without process of law enter into and upon the Premises or
any part thereof in the name of the whole or mail a notice of termination
addressed to Tenant, and repossess the same as of Landlord's former estate and
expel Tenant and those claiming through or under Tenant and remove its and their
effects without being deemed guilty of any manner of trespass and without
prejudice to any remedies which might otherwise be used for arrears of rent or
prior breach of covenant, and upon such entry or mailing as aforesaid this Lease
shall terminate.
8.2 REMEDIES. In the event that this Lease is terminated under any of
the provisions contained in Section 8.1 or shall be otherwise terminated for
breach of any obligation of Tenant, Tenant covenants to pay forthwith to
Landlord, as compensation, the excess of the total rent reserved for the residue
of the Term over the rental value of the Premises for said residue of the Term,
discounted to present value using the then current discount rate of the Federal
Reserve Bank of Boston. In calculating the rent reserved there shall be
included, in addition to the Fixed Rent and Additional Rent, the value of all
other considerations agreed to be paid or performed by Tenant for said residue.
Tenant further covenants as additional and cumulative obligations after any such
termination to pay punctually to Landlord all the sums and to perform all the
obligations which Tenant covenants in this Lease to pay and to perform in the
same manner and to the same extent and at the same time as if this Lease had not
been terminated. In calculating the amounts to be paid by Tenant pursuant to the
next preceding sentence Tenant shall be credited with the portion of any amount
paid to Landlord as compensation as in this Section 8.2 provided, allocable to
the corresponding portion of the Term and also with the net proceeds of any rent
obtained by Landlord by reletting the Premises, after deducting all Landlord's
reasonable expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for such reletting, it being
agreed that Landlord shall use reasonable efforts to relet the Premises and to
mitigate damages.
Nothing contained in this Lease shall, however, limit or prejudice the right of
Landlord to prove for and obtain in proceedings under any federal or state law
relating to bankruptcy or insolvency or reorganization or arrangement, an amount
equal to the maximum allowed by any statute or
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rule of law in effect at the time when, and governing the proceedings in which,
the damages are to be proved, whether or not the amount be greater than the
amount of the loss or damages referred to above.
8.3 REMEDIES CUMULATIVE. Any and all rights and remedies which Landlord
or Tenant may have under this Lease, and at law and equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
8.4 LANDLORD'S AND TENANT'S RIGHT TO CURE DEFAULTS. Either Landlord or
Tenant may, but shall not be obligated to, cure, at any time, following 10 days'
prior notice to the other party hereto, except in cases of emergency when no
notice shall be required, any default by the other party hereto under this
Lease; and whenever the non-defaulting party so elects, all costs and expenses
incurred by such non-defaulting party, including reasonable attorneys' fees, in
curing a default shall be paid by the defaulting party on demand, together with
interest thereon at the rate provided in Section 4.3. In the event Landlord
fails to reimburse any such amount paid by Tenant within ten (10) days after
demand, Tenant shall have the right to offset such amount against the Fixed Rent
and Additional Rent payable by Tenant hereunder.
8.5 EFFECT OF WAIVERS OF DEFAULT. Any consent or permission by Landlord
or Tenant to any act or omission which otherwise would be a breach of any
covenant or condition herein, or any waiver by Landlord or Tenant of the breach
of any covenant or condition herein, shall not in any way be held or construed
(unless expressly so declared) to operate so as to impair the continuing
obligation of any covenant or condition herein, or otherwise, except as to the
specific instance, operate to permit similar acts or omissions.
The failure of Landlord or Tenant to seek redress for violation of, or to insist
upon the strict performance of, any covenant or condition of this Lease shall
not be deemed a waiver of such violation nor prevent a subsequent act, which
would have originally constituted a violation, from having all the force and
effect of an original violation. The receipt by Landlord of rent with knowledge
of the breach of any covenant of this Lease shall not be deemed to have been a
waiver of such breach by Landlord, or by Tenant, unless such waiver be in
writing signed by the party to be charged. No consent or waiver, express or
implied, by Landlord or Tenant to or of any breach of any agreement or duty
shall be construed as a waiver or consent to or of any other breach of the same
or any other agreement or duty.
8.6 NO ACCORD AND SATISFACTION. No acceptance by Landlord of a lesser
sum than the Fixed Rent, Additional Rent or any other charge then due shall be
deemed to be other than on account of the earliest installment of such rent or
charge due, unless Landlord elects by notice to Tenant to credit such sum
against the most recent installment due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent or other
charge be deemed a waiver, an agreement or an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such installment or pursue any other remedy in this
Lease provided.
ARTICLE IX
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MORTGAGES
9.1 RIGHTS OF MORTGAGE HOLDERS. The word "mortgage" as used herein
includes mortgages, deeds of trust or other similar instruments evidencing other
voluntary liens or encumbrances, and modifications, consolidations, extensions,
renewals, replacements and substitutes thereof. The word "holder" shall mean a
mortgagee, and any subsequent holder or holders of a mortgage. Until the holder
of a mortgage shall enter and take possession of the Premises for the purpose of
foreclosure, such holder shall have only such rights of Landlord as are
necessary to preserve the integrity of this Lease as security. Upon entry and
taking possession of the Premises for the purpose of foreclosure, such holder
shall have all the rights of Landlord. Notwithstanding any other provision of
this Lease to the contrary, including without limitation Section 10.3, no such
holder of a mortgage shall be liable either as mortgagee or as assignee, to
perform, or be liable in damages for failure to perform, any of the obligations
of Landlord unless and until such holder shall enter and take possession of the
Premises for the purpose of foreclosure. Upon entry for the purpose of
foreclosure, such holder shall be liable to perform all of the obligations of
Landlord accruing from and after such entry, provided that a discontinuance of
any foreclosure proceeding shall be deemed a conveyance under said provisions to
the owner of the Premises. No Fixed Rent, Additional Rent or any other charge
shall be paid more than 30 days prior to the due dates thereof and payments made
in violation of this provision shall (except to the extent that such payments
are actually received by a mortgagee in possession or in the process of
foreclosing its mortgage) be a nullity as against such mortgagee and Tenant
shall be liable for the amount of such payments to such mortgagee.
The covenants and agreements contained in this Lease with respect to the rights,
powers and benefits of a holder of a mortgage (including, without limitation,
the covenants and agreements contained in this Section 9.1) constitute a
continuing offer to any person, corporation or other entity, which by accepting
a mortgage subject to this Lease, assumes the obligations herein set forth with
respect to such holder; such holder is hereby constituted a party of this Lease
as an obligee hereunder to the same extent as though its name were written
hereon as such; and such holder shall be entitled to enforce such provisions in
its own name. Tenant agrees on request of Landlord to execute and deliver from
time to time any agreement which may be necessary to implement the provisions of
this Section 9.1.
9.2 LEASE SUPERIOR OR SUBORDINATE TO MORTGAGES. This Lease is and shall
continue to be subject and subordinate to any presently existing mortgage or
mortgages secured by the Premises, and to any and all advances hereafter made
thereunder, and to the interest of the holder or holders thereof in the
Premises. The holder of any such presently existing mortgage shall have the
election to subordinate the same to this Lease, exercisable by filing with the
appropriate recording office a notice of such election, whereupon this Lease
shall have priority over such mortgage. A copy of such filing shall be given to
Tenant. Such election by the holder of any presently existing mortgage shall not
affect priority with respect to this Lease of any other presently existing
mortgage.
Any mortgage or other voluntary lien or other encumbrance recorded subsequent to
the recording of the notice or short form referred to in Section 10.3, or the
date of this Lease if no such notice or short form is required under applicable
law to impart constructive notice to third parties, shall be subject and
subordinate to this Lease unless Landlord and the holder of any such subsequent
mortgage and the holders of all mortgages prior to such subsequent
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mortgage elect to subordinate this Lease to such subsequent mortgage and to any
and all advances thereafter made thereunder and to the interest of the holder
thereof in the Premises, such election to be exercisable by Landlord and all
such holders by filing with the appropriate recording office (a) a notice of
such election and (b) an agreement between the holder of such subsequent
mortgage and Tenant, consented to by holders of all mortgages having priority
over such subsequent mortgage, by the terms of which such holder will agree to
recognize the rights of Tenant under this Lease and to accept Tenant as tenant
of the Premises under the terms and conditions of this Lease in the event of
acquisition of title by such holder through foreclosure proceedings or otherwise
and Tenant will agree to recognize the holder of such subsequent mortgage as
Landlord in such event, which agreement shall be made expressly to bind and
inure to the benefit of the successors and assigns of Tenant and of such holder
and upon anyone purchasing said Premises at any foreclosure sale brought by such
holder. Tenant and Landlord agree to execute and deliver any appropriate
instruments necessary to carry out the agreements contained in this Section 9.2.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 NOTICES FROM ONE PARTY TO THE OTHER. All notices required or
permitted hereunder shall be in writing and addressed, if to the Tenant, at the
Original Address of Tenant or such other address as Tenant shall have last
designated by notice in writing to Landlord and, if to Landlord, at the Original
Address of Landlord or such other address as Landlord shall have last designated
by notice in writing to Tenant. Any notice shall be deemed duly given on the
third day after the same was mailed to such address postage prepaid, registered
or certified mail, return receipt requested, or when delivered to such address
by hand or by nationally recognized overnight courier service.
10.2 ESTOPPEL CERTIFICATE. Each party agrees from time to time, upon
not less than fifteen (15) days' prior written request by the other party, to
execute, acknowledge and deliver to the requesting party a statement in writing
certifying that this Lease is unmodified and in full force and effect and that
there are no uncured defaults of Landlord or Tenant under this Lease, and if
Landlord is the requesting party that Tenant has no defenses, offsets or
counterclaims against its obligations to pay the Annual Fixed Rent and
additional rent and to perform its other covenants under this Lease (or, if
there have been any modifications that the same is in full force and effect as
modified and stating the modifications and, if there are any defenses, offsets,
counterclaims, or defaults, setting them forth in reasonable detail), the dates
to which the Fixed Rent, additional rent and other charges have been paid and
such other matters relating to the Lease as may be reasonably requested. Any
such statement delivered pursuant to this Section 10.2 may be relied upon by a
prospective purchaser or mortgagee of the Premises or any prospective assignee
of any mortgagee of the Premises, or by a prospective assignee of Tenant's
interest in this Lease, as the case may be.
10.3 LEASE NOT TO BE RECORDED. Tenant agrees that it will not record
this Lease. Both parties shall, upon the request of either, execute and deliver
a notice or short form of this Lease in such form, if any, as may be permitted
by applicable statute. If this Lease is terminated before
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the Term expires the parties shall execute, deliver and record an instrument
acknowledging such fact and the actual date of termination of this Lease.
10.4 BIND AND INURE. The obligations of this Lease shall run with the
land, and this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
10.5 ACTS OF GOD. In any case where either party hereto is required to
do any act, delays caused by or resulting from Acts of God, war, civil
commotion, fire, flood or other casualty, labor difficulties, shortages of
labor, materials or equipment, government regulations, unusually severe weather,
or other causes beyond such party's reasonable control shall not be counted in
determining the time during which work shall be completed, whether such time be
designated by a fixed date, a fixed time or a "reasonable time", and such time
shall be deemed to be extended by the period of such delay.
10.6 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
in the performance of any of its obligations hereunder unless it shall fail to
perform such obligations and such failure shall continue for a period of 30 days
following receipt of notice from Tenant, or such additional time as is
reasonably required with the exercise of reasonable diligence to correct any
such default, after notice has been given by Tenant to Landlord specifying the
nature of Landlord's default.
10.7 BROKERAGE. Landlord and Tenant each warrants and represents to the
other party hereto that it has had no dealings with any broker or agent in
connection with this Lease and covenants to defend, hold harmless and indemnify
the other party hereto from and against any and all cost, expense or liability
for any breach of the foregoing representation.
10.8 APPROVALS AND CONSENT. Whenever the consent or approval of either
party is required hereunder, the same shall not be unreasonably withheld or
delayed.
10.9 APPLICABLE LAW AND CONSTRUCTION.
10.9.1 APPLICABLE LAW. This Lease shall be governed by and
construed in accordance with the laws of the state in which the Premises are
located. If any term, covenant, condition or provision of this Lease or the
application thereof to any person or circumstances shall be declared invalid, or
unenforceable by the final ruling of a court of competent jurisdiction having
final review, the remaining terms, covenants, conditions and provisions of this
Lease and their application to persons or circumstances shall not be affected
thereby and shall continue to be enforced and recognized as valid agreements of
the parties, and in the place of such invalid or unenforceable provision, there
shall be substituted a like, but valid and enforceable provision which comports
to the findings of the aforesaid court and most nearly accomplishes the original
intention of the parties.
10.9.2 NO OTHER AGREEMENT. There are no oral or written
agreements between Landlord and Tenant affecting this Lease. This Lease may be
amended, and the provisions hereof may be waived or modified, only by
instruments in writing executed by Landlord and Tenant.
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10.9.3 TITLES. The titles of the several Articles and Sections
contained herein are for convenience only and shall not be considered in
construing this Lease.
10.9.4 "LANDLORD" AND "TENANT". Unless repugnant to the
context, the words "Landlord" and "Tenant" appearing in this Lease shall be
construed to mean those named above and their respective heirs, executors,
administrators, successors and assigns, and those claiming through or under them
respectively.
10.10 SUBMISSION NOT AN OFFER. The submission of a draft of this
Lease or a summary of some or all of its provisions does not constitute an
offer to lease or demise the Premises, it being understood and agreed that
neither Landlord nor Tenant shall be legally bound with respect to the
leasing of the Premises unless and until this Lease has been executed by both
Landlord and Tenant and a fully executed copy delivered.
WITNESS the execution hereof under seal as of the day and year set forth in
Section 1.1.
Landlord:
Brick by Brick Realty, LLC
By: /s/ Steven Rothschild
--------------------------------
Name: Steven Rothschild
Title: Manager
Tenant:
FurnitureSite, Inc.
By: /s/ Steven Rothschild
-----------------------------------
Name: Steven Rothschild
Title: CEO
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Exhibit 10.3
L E A S E
ARTICLE I
REFERENCE DATA
1.1 SUBJECTS REFERRED TO.
Each reference in this Lease to any of the following subjects shall be construed
to incorporate the data stated for that subject in this Section 1.1.
(a) Date of this Lease: June 18, 1998
(b) Premises: The land with the building thereon commonly
known as 40 Jackson Street, Worcester,
Massachusetts, legally described on Exhibit
A.
(c) Landlord: Steven Rothschild, as Trustee of More Bricks Realty
Trust under declaration of trust dated June 11, 1998.
(d) Original Address of Landlord: 4 Lantern Lane, Worcester,
Massachusetts 01609
(e) Tenant: FurnitureSite, Inc., a Delaware corporation
(f) Original Address of Tenant: 40 Jackson Street, Worcester,
Massachusetts 01608
(g) Term: The period commencing on the Commencement Date and
ending at 11:59 p.m. local time June 30, 2003, with options to extend as set
forth in Section 2.3.
(h) Commencement Date: The date hereof
(i) Annual Fixed Rent During the Initial Term: $80,500 per year
until July 1, 2001; $86,250 from July 1, 2001 until July 1,
2002; and $92,000 from July 1, 2002 through June 30, 2003.
Annual Fixed Rent During the First Extension Term: $97,750 per
year from July 1, 2003 until July 1, 2006; $103,500 from July
1, 2006 until July 1, 2007; and $109,250 from July 1, 2007
through June 30, 2008.
Annual Fixed Rent During the Second Extension Term: $115,000
per year.
(j) Permitted Uses: Furniture showroom/salesroom and related
office and storage
The Exhibit listed below in this section is incorporated in this Lease by
reference and is to be construed as a part of this Lease:
EXHIBIT A. Description of Premises.
1.3 TABLE OF ARTICLES AND SECTIONS.
ARTICLE I
Reference Data ................................................ 1
1.1 Subjects Referred To .................................... 1
1.2 Exhibits ................................................ 2
1.3 Table of Articles and Sections .......................... 2
ARTICLE II
Premises and Term ............................................. 5
2.1 Premises ................................................ 5
2.2 Term .................................................... 5
2.3 Option to Extend ........................................ 5
ARTICLE III
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Condition of Premises ......................................... 5
3.1 As Is ................................................... 5
ARTICLE IV
Rent .......................................................... 5
4.1 The Fixed Rent .......................................... 5
4.2 Additional Rent ......................................... 5
4.2.1 Real Estate Taxes ................................ 5
4.2.2 Insurance ........................................ 6
4.2.3 Utilities ........................................ 7
4.3 Late Payment of Rent .................................... 7
ARTICLE V
Landlord's Covenants .......................................... 8
5.1 Delivery of Possession .................................. 8
5.2 Landlord's Representation ............................... 8
5.3 Roof, Exterior Wall, Floor Slab and Structural
Component Repair ...................................... 8
5.4 Quiet Enjoyment ......................................... 8
5.5 Hazardous Materials ..................................... 8
5.6 Indemnity ............................................... 9
ARTICLE VI
Tenant's Additional Covenants ................................. 9
6.1 Affirmative Covenants ................................... 9
6.1.1 Perform Obligations .............................. 9
6.1.2 Use .............................................. 9
6.1.3 Repair and Maintenance ........................... 9
6.1.4 Compliance with Law .............................. 10
6.1.5 Tenant's Work .................................... 10
6.1.6 Indemnity ........................................ 10
6.1.7 Landlord's Right to Enter ........................ 10
6.1.8 Personal Property at Tenant's Risk ............... 11
6.1.9 Yield Up ......................................... 11
6.2 Negative Covenants ...................................... 11
6.2.1 Assignment and Subletting ........................ 11
6.2.2 Overloading and Nuisance ......................... 12
ARTICLE VII
Casualty or Taking ............................................ 12
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7.1 Termination ............................................. 12
7.2 Restoration ............................................. 12
ARTICLE VIII
Defaults ...................................................... 12
8.1 Events of Default ....................................... 12
8.2 Remedies ................................................ 13
8.3 Remedies Cumulative ..................................... 13
8.4 Landlord's and Tenant's Right to Cure Defaults .......... 14
8.5 Effect of Waivers of Default ............................ 14
8.6 No Accord and Satisfaction .............................. 14
ARTICLE IX
Mortgages ..................................................... 14
9.1 Rights of Mortgage Holders .............................. 14
9.2 Lease Superior or Subordinate to Mortgages .............. 15
ARTICLE X
Miscellaneous Provisions ...................................... 16
10.1 Notices from One Party to the Other ..................... 16
10.2 Estoppel Certificate .................................... 16
10.3 Lease not to be Recorded ................................ 16
10.4 Bind and Inure .......................................... 16
10.5 Acts of God ............................................. 17
10.6 Landlord's Default ...................................... 17
10.7 Brokerage ............................................... 17
10.8 Approvals and Consent ................................... 17
10.9 Applicable Law and Construction ......................... 17
10.9.1 Applicable Law .................................. 17
10.9.2 No Other Agreement .............................. 17
10.9.3 Titles .......................................... 17
10.9.4 "Landlord" and "Tenant" ......................... 17
10.10 Submission Not an Offer ................................. 18
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ARTICLE II
PREMISES AND TERM
2.1 PREMISES. Landlord hereby leases and demises to Tenant and Tenant
hereby leases from Landlord, subject to and with the benefit of the terms,
covenants, conditions and provisions of this Lease, the Premises.
2.2 TERM. TO HAVE AND TO HOLD for a term beginning on the Commencement
Date hereof and continuing for the Term, unless sooner terminated as hereinafter
provided.
2.3 OPTION TO EXTEND. Tenant shall have the right and option to extend
the Term for two (2) periods of five (5) years each (the "Extension Terms") by
giving written notice to Landlord of its exercise of its option to extend the
Term on or before that date which is seven (7) months prior to the expiration of
the Term. If either or both of such options are so exercised, all of the terms,
conditions, covenants and agreements contained herein shall apply during the
Extension Terms, except that the Annual Fixed Rent shall be the amounts set
forth in Section 1.1. In the event Tenant exercises the option set forth herein,
references to the Term shall include the relevant Extension Term.
ARTICLE III
CONDITION OF PREMISES
3.1 AS IS. Tenant accepts the Premises in their "as is" condition as of
the date of this Lease, subject to the provisions of Article V.
ARTICLE IV
RENT
4.1 THE FIXED RENT. Tenant covenants and agrees to pay rent to Landlord
at the Original Address of Landlord or at such other place or to such other
person or entity as Landlord may by notice to Tenant from time to time direct,
in equal installments of 1/12th of the Annual Fixed Rent in advance on the first
day of each calendar month included in the Term; and for any portion of a
calendar month at the beginning or end of the Term, at that rate payable in
advance for such portion.
4.2 ADDITIONAL RENT. In order that the Fixed Rent shall be net to
Landlord, Tenant covenants and agrees to pay, as Additional Rent, taxes,
betterment assessments, insurance costs, and utility charges with respect to the
Premises as provided in this Section 4.2 as follows:
4.2.1 REAL ESTATE TAXES. Tenant shall pay, directly to the
authority charged with collection thereof: (i) all real property taxes,
assessments, levies, fees, water and sewer rents and charges which are, at any
time prior to or during the Term hereof, imposed or levied upon or assessed
against the Premises and (ii) all charges for utilities furnished to the
Premises which may become a lien on the Premises (collectively "taxes and
assessments" or if singular "tax or assessment"). If any tax or assessment
levied against the Premises may legally be paid in
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installments, Tenant may elect to pay such tax or assessment in installments.
For each tax or assessment period, or installment period thereof, wholly
included in the Term, all such payments shall be made by Tenant no later than
the last date on which the same may be paid without interest or penalty;
provided that for any fraction of a tax or assessment period, or installment
period thereof, included in the Term at the beginning or end thereof, Tenant
shall pay to Landlord, within 20 days after receipt of invoice therefor, the
fraction of taxes and assessments so levied or assessed or becoming payable
which is allocable to such included period.
If Tenant shall deem itself aggrieved by any such tax or assessment, and shall
elect to contest the payment thereof, Tenant may make such payment under protest
or, if postponement of such payment will not jeopardize Landlord's title to the
Premises nor prejudice Landlord's rights with respect to abatement proceedings,
Tenant may postpone the same.
Either party paying any tax or assessment shall be entitled to recover,
receive and retain for its own benefit all abatements and refunds related
thereto, unless it has previously been reimbursed by the other party. Any
abatement or refund related to a tax or assessment the payment of which was
apportioned between the parties shall be first applied to the costs of securing
such abatement or refund, and the balance shall be apportioned in like manner.
Neither party shall discontinue any abatement proceedings begun by it without
first giving the other party notice of its intent so to do and reasonable
opportunity to be substituted in such proceedings. Notwithstanding any other
provision of this Lease to the contrary, neither party paying any tax or
assessment shall make such payment in such an amount, in such a manner, or at
such a time as would prejudice any abatement proceeding.
Nothing contained in this Lease shall, however, require Tenant to pay any
franchise, corporate, estate, inheritance, succession, capital levy or transfer
tax of Landlord, or any income, profits or revenue tax or charge upon the rent
payable by Tenant under this Lease.
4.2.2 INSURANCE. Tenant shall take out and maintain
throughout the Term the following insurance protecting Landlord as a named
insured and with such additional insureds as Landlord from time to time may
designate by notice to Tenant:
4.2.2.1 All-risk insurance covering all buildings and
improvements now existing or hereafter erected upon the Premises, and all
equipment and fixtures installed in or used in connection with the Premises,
with such additional endorsements as may be necessary to include coverage for
vandalism and malicious conduct, floods, water damage and debris removal and
demolition, with a co-insurance provision of 80% or an agreed amount clause, in
an amount equal to the replacement cost of all such buildings, improvements,
equipment and fixtures (but not less than the agreed amount if coverage is
pursuant to an agreed amount clause) as such replacement cost may be determined
from time to time.
4.2.2.2 Commercial general liability insurance
indemnifying Landlord and Tenant against all claims and demands for any
injury to person or property which may be claimed to have occurred on or
about the Premises or on the sidewalk or ways adjoining the Premises, in
amounts which shall, at the beginning of the Term, be at least equal to the
limits set forth in Section 1.1, and, from time to time during the Term,
shall be for such higher limits, if any, as are customarily carried in the
area in which the Premises are located on property similar
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to the Premises and used for similar purposes; and workmen's compensation
insurance with statutory limits covering all of Tenant's employees working on
the Premises.
4.2.2.3 Insurance against loss or damage from
sprinklers and from leakage or explosion or cracking of boilers, pipes
carrying steam or water, or both, pressure vessels or similar apparatus, in
the so-called "broad form" and in such amounts as Landlord may reasonably
require.
4.2.2.4 All policies required under this Section 4.2.2
shall be obtained from responsible companies qualified to do business in the
state in which the Premises are located and in good standing therein, which
companies and the amount of insurance allocated thereto shall be subject to
Landlord's reasonable approval. Tenant agrees to furnish Landlord with
certificates evidencing all such insurance prior to the beginning of the Term
hereof and evidence of each renewal policy at least 20 days prior to the
expiration of the policy it renews. Each such policy shall be non-cancelable
with respect to the interest of Landlord and the holders of any mortgages on
the Premises without at least 20 days' prior written notice thereto.
4.2.2.5 All insurance which is carried by either party
with respect to the Premises or to furniture, furnishings, fixtures or
equipment therein or alterations or improvements thereto, whether or not
required, shall include provisions which either designate the other party as
one of the insured or deny to the insurer acquisition by subrogation of
rights of recovery against the other party to the extent such rights have
been waived by the insured party prior to occurrence of loss or injury,
insofar as, and to the extent that such provisions may be effective without
making it impossible to obtain insurance coverage from responsible companies
qualified to do business in the state in which the Premises are located (even
though extra premium may result therefrom). In the event that extra premium
is payable by either party as a result of this provision, the other party
shall reimburse the party paying such premium the amount of such extra
premium. If at the request of one party, this non-subrogation provision is
waived as to such party, then the obligation of reimbursement by such party
shall cease for such period of time as such waiver shall be effective, but
nothing contained in this Section 4.2.2.5 shall derogate from or otherwise
affect releases elsewhere herein contained of either party for claims. Each
party shall be entitled to have duplicates or certificates of any policies
containing such provisions. Each party hereby waives all rights of recovery
against the other for loss or injury against which the waiving party is
protected by insurance containing said non-subrogation provisions, reserving,
however, any rights with respect to any excess of loss or injury over the
amount recovered by such insurance.
4.2.3 UTILITIES. Tenant shall pay directly to the proper
authorities charged with the collection thereof all charges for water, sewer,
gas, electricity, telephone and other utilities or services used or consumed
on the Premises, whether called charge, tax, assessment, fee or otherwise,
including, without limitation, water and sewer use charges and taxes, if any,
all such charges to be paid as the same from time to time become due.
4.3 LATE PAYMENT OF RENT. If any installment of Fixed Rent or
payment of Additional Rent is paid more than twenty (20) days after the date
the same was due, it shall bear interest from the due date at the prime rate
published in THE WALL STREET JOURNAL, as it may be adjusted
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from time to time, plus two percent per annum, but in no event more than the
maximum rate of interest allowed by law, the payment of which shall be
Additional Rent.
ARTICLE V
LANDLORD'S COVENANTS
Landlord covenants:
5.1 DELIVERY OF POSSESSION. Landlord covenants and agrees to deliver
possession of the Premises to Tenant on the Commencement Date free and clear
from all tenancies, occupancies, claims or rights to possession of persons other
than the rights of Landlord and Tenant under this Lease.
5.2 LANDLORD'S REPRESENTATION. Landlord represents and warrants that,
both on the date this Lease is executed and on the Commencement Date, the
Premises may be used as of right for a furniture showroom/salesroom facility and
related office and storage uses and are and will be in compliance with all
applicable federal, state and local environmental laws and regulations, the
Americans with Disabilities Act and the applicable state or local building code,
and free and clear from all orders, notices and violations filed or entered by
any public or quasi-public authority, and from complaints or reports of
violations, noted or existing in or filed with any federal, state, county or
local authority and that the sanitary system serving the Premises is in good
working order and in compliance with all laws and regulations.
5.3 ROOF, EXTERIOR WALL, FLOOR SLAB AND STRUCTURAL COMPONENT REPAIR.
To make such repairs to the roof, exterior walls, other structural
components, floor slabs, and parking areas and facilities as may be necessary
to keep them in good order, repair and condition and in compliance with
applicable laws, codes and regulations.
5.4 QUIET ENJOYMENT. That Tenant on paying the Fixed Rent and
additional rent and performing the tenant obligations in this Lease shall
peacefully and quietly have, hold and enjoy the Premises, subject to all of
the terms and provisions hereof.
5.5 HAZARDOUS MATERIALS. Landlord shall defend, indemnify and hold
Tenant harmless from and against all loss, cost, expense or damages Tenant,
its stockholders, officers, directors or employees (herein, "Indemnified
Parties") may suffer or incur as a result of the discharge, release,
generation, storage or disposal of any Hazardous Materials on or about the
Premises or on any property adjacent thereto prior to the commencement of the
Term of this Lease. For purposes of this Lease Hazardous Materials shall mean
all oil and petroleum products and all hazardous or toxic substances, all
substances which, because of their quantitative concentration, or their
chemical, radioactive, flammable, explosive, infectious or other
characteristics, constitute or may reasonably be expected to constitute or
contribute to a danger or hazard to public health, safety or welfare or to
the environment, including, without limitation, any asbestos (whether or not
friable) and any asbestos-containing materials, waste oils, solvents and
chlorinated oils, polychlorinated biphenyls (PCBs) and chemical, biological
and radioactive wastes, and any other substances or any hazardous or toxic
wastes or substances which are included under or regulated by any
Environmental Laws.
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For purposes of this Lease Environmental Laws shall mean all federal, state or
local laws, rules and regulations (whether now existing or hereafter enacted or
promulgated, as they may be amended from time to time), and all judicial or
decisional law, pertaining to Hazardous Materials, environmental regulations
contamination by Hazardous Materials, clean-up of Hazardous Materials or
disclosures relating to Hazardous Materials, and any judicial or administrative
interpretation thereof, including any judicial or administrative orders or
judgments, including, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq.
("CERCLA"); the Federal Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq. ("RCRA"); Superfund Amendments and Reauthorization Act of
1986, Public Law No. 99-499 ("SARA"); Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq. ("TSCA"); and all state superlien or environmental clean-up
or disclosure statutes in the state in which the Mortgage Property is located.
5.6 INDEMNITY. Landlord shall defend all actions against all
Indemnified Parties with respect to, and shall pay, protect, indemnify and save
harmless, to the extent permitted by law, all Indemnified Parties from and
against any and all liabilities, losses, damages, costs, expenses (including
reasonable attorneys' fees and expenses), causes of action, suits, claims,
demands or judgments of any nature arising from (i) injury to or death or any
person, or damage to or loss of property, on or about the Premises or on
adjoining sidewalks, streets or ways, or connected with the use, condition or
occupancy of any thereof caused by the negligence or willful misconduct of
Landlord or its agents, contractors, licensees or invitees, (ii) violation by
Landlord of this Lease, or (iii) any act, fault, omission, or other misconduct
of Landlord or its agents or contractors.
ARTICLE VI
TENANT'S ADDITIONAL COVENANTS
6.1 AFFIRMATIVE COVENANTS. Tenant covenants at its sole expense at all
times during the Term and for such prior or subsequent time as Tenant occupies
the Premises or any part thereof:
6.1.1 PERFORM OBLIGATIONS. To perform promptly all of the
obligations of Tenant set forth in this Lease; and to pay when due the Fixed
Rent and Additional Rent and all charges, rates and other sums which by the
terms of this Lease are to be paid by Tenant.
6.1.2 USE. To use the Premises only for the Permitted Uses,
and from time to time to procure all licenses and permits necessary therefor at
Tenant's sole expense.
6.1.3 REPAIR AND MAINTENANCE. Except as otherwise provided in
Articles V and VII, to keep the Premises in good order, condition and repair and
in at least as good order, condition and repair as they are in on the
Commencement Date or may be put in during the Term, reasonable use and wear,
fire and other casualty only excepted; to maintain in good condition all lawns
and planted areas and keep in good repair and clean and neat and free of snow
and ice all surfaced roadways, walks, and parking and loading areas; and to make
all repairs and to do all other work necessary for the foregoing purposes.
Notwithstanding the foregoing, in no event shall Tenant be required to make any
repair or replacement which would
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be considered capital in nature under generally accepted accounting principles,
and Landlord shall make all such repairs or replacements promptly after receipt
of written notice from Tenant.
6.1.4 COMPLIANCE WITH LAW. To make all non-structural,
non-capital repairs, alterations, additions or replacements to the Premises
required by any law or ordinance or any order or regulation of any public
authority; to keep the Premises equipped with all safety equipment required; to
pay all municipal, county, or state taxes assessed against the leasehold
interest hereunder, or against personal property of any kind on or about the
Premises; and to comply with the orders, regulations, variances, licenses and
permits of or granted by governmental authorities with respect to zoning,
building, fire, health and other codes, regulations, ordinances or laws
applicable to the Premises, and the condition, use or occupancy thereof, except
that Tenant may defer compliance so long as the validity of any such order,
regulation, code, ordinance or law shall be contested by Tenant in good faith
and by appropriate legal proceedings. Notwithstanding the foregoing, Landlord
shall make such repairs, alterations or replacements, shall furnish such safety
equipment, and shall otherwise bring the Premises into compliance with all
applicable laws as of the commencement of the Term of this Lease.
6.1.5 TENANT'S WORK. To procure at Tenant's sole expense all
necessary permits and licenses before undertaking any work on the Premises; to
do all such work in a good and workmanlike manner employing materials of good
quality and so as to conform with all applicable zoning, building, fire, health
and other codes, regulations, ordinances and laws; to pay promptly when due the
entire cost of any work on the Premises undertaken by Tenant so that the
Premises shall at all times be free of liens for labor and materials; to require
such contractors employed by Tenant to carry workmen's compensation insurance in
accordance with statutory requirements; and to save Landlord harmless and
indemnified from all injury, loss, claims or damage to any person or property
occasioned by or growing out of such work.
6.1.6 INDEMNITY. Tenant shall defend all actions against
Landlord, any partner, trustee, stockholder, officer, director, employee or
beneficiary of Landlord, holders of mortgages on the Premises and any other
party having an interest in the Premises (herein, "Indemnified Parties") with
respect to, and shall pay, protect, indemnify and save harmless, to the extent
permitted by law, all Indemnified Parties from and against any and all
liabilities, losses, damages, costs, expenses (including reasonable attorneys'
fees and expenses), causes of action, suits, claims, demands or judgments of any
nature arising from (i) injury to or death of any person, or damage to or loss
of property, on or about the Premises or on adjoining sidewalks, streets or
ways, or connected with the use, condition or occupancy of any thereof, unless
such injury, death or damage was caused by the negligence or willful misconduct
of Landlord or its agents, contractors, licensees or invitees, (ii) violation by
Tenant of this Lease, or (iii) any act, fault, omission, or other misconduct of
Tenant or its agents, contractors, licensees, sublessees or invitees.
6.1.7 LANDLORD'S RIGHT TO ENTER. To permit Landlord and its
agents to enter the Premises at reasonable times after reasonable notice to
examine the Premises, to make such repairs and replacements as Landlord may
elect or as Landlord may be required to perform hereunder, and to show the
Premises to prospective purchasers, lenders and tenants, and, during the last
six months of the Term, to keep affixed in suitable places notices of
availability of the Premises.
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6.1.8 PERSONAL PROPERTY AT TENANT'S RISK. All of the
furnishings, fixtures, equipment, effects and property of every kind, nature and
description of Tenant and of all persons claiming by, through or under Tenant
which, during the continuance of this Lease or any occupancy of the Premises by
Tenant or anyone claiming under Tenant, may be on the Premises, shall be at the
sole risk and hazard of Tenant and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the leakage or bursting
of water pipes, steam pipes, or other pipes, by theft or from any other cause,
no part of said loss or damage is to be charged to or to be borne by Landlord,
except that Landlord shall in no event be indemnified or held harmless or
exonerated from any liability to Tenant or to any other person for any injury,
loss, damage or liability caused by Landlord's negligence or willful misconduct.
6.1.9 YIELD UP. At the expiration of the Term or earlier
termination of this Lease: to surrender all keys to the Premises, to remove all
furnishings, fixtures, equipment and other personal property now or hereafter
located in the Premises, and to deliver and yield up the Premises broom-clean
and in the same condition the Premises are in as of the Commencement Date,
reasonable wear and tear, fire and other casualty excepted.
6.2 NEGATIVE COVENANTS. Tenant covenants at all times during the Term
and for such further time as Tenant occupies the Premises or any part thereof:
6.2.1 ASSIGNMENT AND SUBLETTING. Not to assign, transfer,
mortgage or pledge this Lease or to grant a security interest in Tenant's rights
hereunder, or to sublease (which term shall be deemed to include the granting of
concessions and licenses and the like) or permit anyone other than Tenant to
occupy all or any part of the Premises or suffer or permit this Lease or the
leasehold interest hereby created or any other rights arising under this Lease
to be assigned, transferred or encumbered, in whole or in part, whether
voluntarily, involuntarily or by operation of law, unless, in each instance the
prior written consent of Landlord thereto shall have been obtained, which
consent shall not be unreasonably withheld, conditioned or delayed.
Notwithstanding the foregoing Tenant may assign this Lease or sublet any portion
or all of the Premises to any corporation, partnership, trust, association,
limited liability company or other business or organization (x) directly or
indirectly controlling and beneficially owning Tenant, (y) directly or
indirectly controlled by and beneficially owned by Tenant, or (z) under common
control with Tenant, or to any successor of Tenant by merger, consolidation or
acquisition of substantially all of the stock or assets of Tenant, without the
prior written consent of Landlord.
If for any assignment or sublease or occupancy by another, Tenant receives rent
or other consideration, either initially or over the term of the assignment,
sublease or occupancy, after payment of any expenses incurred in connection
therewith, in excess of the rent called for hereunder, or in case of sublease of
part of the Premises, in excess of such rent fairly allocable to the part so
subleased, after deducting all expenses of such transaction including, without
limitation, brokerage and legal fees and demising walls and other leasehold
improvements, Tenant shall pay to Landlord, as Additional Rent, 50% of the
excess of each such payment of rent or other consideration received by Tenant
promptly after its receipt.
Any attempted assignment, transfer, mortgage, pledge, grant of security
interest, sublease or other encumbrance, except as permitted by this Section
6.2.1, shall be void. No assignment,
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transfer, mortgage, grant of security interest, sublease or other encumbrance,
whether or not approved, and no indulgence granted by Landlord to any assignee,
sublessee or occupant shall in any way impair Tenant's continuing primary
liability (which after an assignment or subletting shall be joint and several
with the assignee or sublessee) of Tenant hereunder, and no approval in a
particular instance shall be deemed to be a waiver of the obligation to obtain
Landlord's approval in any other case.
6.2.2 OVERLOADING AND NUISANCE. Not to injure, overload,
deface or otherwise harm the Premises; nor commit any nuisance; not to dump,
flush, or in any way introduce any Hazardous Materials or any other toxic
substances into the septic, sewage or other waste disposal system serving the
Premises in violation of law; not to generate, store, use or dispose of
Hazardous Materials in or on the Premises in violation of law, or commit or
suffer to be committed in or on the Premises any act in violation of law.
ARTICLE VII
CASUALTY OR TAKING
7.1 TERMINATION. In the event that the Premises, or any material part
thereof, shall be taken by any public authority or for any public use, or shall
be destroyed or damaged by fire or casualty, or by the action of any public
authority, then this Lease may be terminated at the election of Tenant. Such
election, which may be made notwithstanding the fact that Landlord's entire
interest may have been divested, shall be made by the giving of notice within 30
days after the right of election accrues.
7.2 RESTORATION. If this Lease is not terminated as aforesaid, this
Lease shall continue in force and a just proportion of the rent reserved,
according to the nature and extent of the damages sustained by the Premises,
shall be suspended or abated until the Premises, or what may remain thereof,
shall be put by Landlord in proper condition for use, which Landlord covenants
to do with reasonable diligence.
ARTICLE VIII
DEFAULTS
8.1 EVENTS OF DEFAULT. If (a) Tenant shall default in the performance
of any of its obligations to pay the Fixed Rent or Additional Rent hereunder and
if such default shall continue for 20 days after notice from Landlord
designating such default or if within 30 days after notice from Landlord to
Tenant specifying any other default or defaults Tenant has not commenced
diligently to correct the default or defaults so specified or has not thereafter
diligently pursued such correction to completion, or (b) Tenant becomes
insolvent or fails to pay its debts as they fall due, or (c) a trust mortgage or
assignment is made by Tenant for the benefit of creditors, or (d) Tenant
proposes a composition, arrangement, reorganization or recapitalization with
creditors, or (e) the leasehold estate under this Lease or any substantial part
of the property of Tenant is taken on execution, or by other process of law, or
is attached or subjected to any other involuntary encumbrance, or (f) a
receiver, trustee, custodian, guardian, liquidator or similar agent is appointed
with respect to Tenant, or if any such person or a mortgagee, secured party or
other creditor takes possession of the Premises or of any substantial part of
the property of
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Tenant, and, in either case, if such appointment or taking of possession is not
terminated within 90 days after it first occurs, or (g) a petition is filed by
or with the consent of Tenant under any federal or state law concerning
bankruptcy, insolvency, reorganization, arrangement, or relief from creditors,
or (h) a petition is filed against Tenant under any federal or state law
concerning bankruptcy, insolvency, reorganization, arrangement, or relief from
creditors, and such petition is not dismissed within 90 days thereafter, or (i)
Tenant dissolves or is dissolved or liquidates or adopts any plan or commences
any proceeding, the result of which is intended to include dissolution or
liquidation, then, and in any of such cases, Landlord and the agents and
servants of Landlord lawfully may, in addition to and not in derogation of any
remedies for any preceding breach of covenant, immediately or at any time
thereafter and without demand or notice and with or without process of law enter
into and upon the Premises or any part thereof in the name of the whole or mail
a notice of termination addressed to Tenant, and repossess the same as of
Landlord's former estate and expel Tenant and those claiming through or under
Tenant and remove its and their effects without being deemed guilty of any
manner of trespass and without prejudice to any remedies which might otherwise
be used for arrears of rent or prior breach of covenant, and upon such entry or
mailing as aforesaid this Lease shall terminate.
8.2 REMEDIES. In the event that this Lease is terminated under any of
the provisions contained in Section 8.1 or shall be otherwise terminated for
breach of any obligation of Tenant, Tenant covenants to pay forthwith to
Landlord, as compensation, the excess of the total rent reserved for the residue
of the Term over the rental value of the Premises for said residue of the Term,
discounted to present value using the then current discount rate of the Federal
Reserve Bank of Boston. In calculating the rent reserved there shall be
included, in addition to the Fixed Rent and Additional Rent, the value of all
other considerations agreed to be paid or performed by Tenant for said residue.
Tenant further covenants as additional and cumulative obligations after any such
termination to pay punctually to Landlord all the sums and to perform all the
obligations which Tenant covenants in this Lease to pay and to perform in the
same manner and to the same extent and at the same time as if this Lease had not
been terminated. In calculating the amounts to be paid by Tenant pursuant to the
next preceding sentence Tenant shall be credited with the portion of any amount
paid to Landlord as compensation as in this Section 8.2 provided, allocable to
the corresponding portion of the Term and also with the net proceeds of any rent
obtained by Landlord by reletting the Premises, after deducting all Landlord's
reasonable expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for such reletting, it being
agreed that Landlord shall use reasonable efforts to relet the Premises and to
mitigate damages.
Nothing contained in this Lease shall, however, limit or prejudice the right of
Landlord to prove for and obtain in proceedings under any federal or state law
relating to bankruptcy or insolvency or reorganization or arrangement, an amount
equal to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, the damages are to be proved,
whether or not the amount be greater than the amount of the loss or damages
referred to above.
8.3 REMEDIES CUMULATIVE. Any and all rights and remedies which Landlord
or Tenant may have under this Lease, and at law and equity, shall be cumulative
and shall not be
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deemed inconsistent with each other, and any two or more of all such rights and
remedies may be exercised at the same time insofar as permitted by law.
8.4 LANDLORD'S AND TENANT'S RIGHT TO CURE DEFAULTS. Either Landlord or
Tenant may, but shall not be obligated to, cure, at any time, following 10 days'
prior notice to the other party hereto, except in cases of emergency when no
notice shall be required, any default by the other party hereto under this
Lease; and whenever the non-defaulting party so elects, all costs and expenses
incurred by such non-defaulting party, including reasonable attorneys' fees, in
curing a default shall be paid by the defaulting party on demand, together with
interest thereon at the rate provided in Section 4.3. In the event Landlord
fails to reimburse any such amount paid by Tenant within ten (10) days after
demand, Tenant shall have the right to offset such amount against the Fixed Rent
and Additional Rent payable by Tenant hereunder.
8.5 EFFECT OF WAIVERS OF DEFAULT. Any consent or permission by Landlord
or Tenant to any act or omission which otherwise would be a breach of any
covenant or condition herein, or any waiver by Landlord or Tenant of the breach
of any covenant or condition herein, shall not in any way be held or construed
(unless expressly so declared) to operate so as to impair the continuing
obligation of any covenant or condition herein, or otherwise, except as to the
specific instance, operate to permit similar acts or omissions.
The failure of Landlord or Tenant to seek redress for violation of, or to insist
upon the strict performance of, any covenant or condition of this Lease shall
not be deemed a waiver of such violation nor prevent a subsequent act, which
would have originally constituted a violation, from having all the force and
effect of an original violation. The receipt by Landlord of rent with knowledge
of the breach of any covenant of this Lease shall not be deemed to have been a
waiver of such breach by Landlord, or by Tenant, unless such waiver be in
writing signed by the party to be charged. No consent or waiver, express or
implied, by Landlord or Tenant to or of any breach of any agreement or duty
shall be construed as a waiver or consent to or of any other breach of the same
or any other agreement or duty.
8.6 NO ACCORD AND SATISFACTION. No acceptance by Landlord of a lesser
sum than the Fixed Rent, Additional Rent or any other charge then due shall be
deemed to be other than on account of the earliest installment of such rent or
charge due, unless Landlord elects by notice to Tenant to credit such sum
against the most recent installment due, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent or other
charge be deemed a waiver, an agreement or an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such installment or pursue any other remedy in this
Lease provided.
ARTICLE IX
MORTGAGES
9.1 RIGHTS OF MORTGAGE HOLDERS. The word "mortgage" as used herein
includes mortgages, deeds of trust or other similar instruments evidencing other
voluntary liens or encumbrances, and modifications, consolidations, extensions,
renewals, replacements and substitutes thereof. The word "holder" shall mean a
mortgagee, and any subsequent holder or
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holders of a mortgage. Until the holder of a mortgage shall enter and take
possession of the Premises for the purpose of foreclosure, such holder shall
have only such rights of Landlord as are necessary to preserve the integrity of
this Lease as security. Upon entry and taking possession of the Premises for the
purpose of foreclosure, such holder shall have all the rights of Landlord.
Notwithstanding any other provision of this Lease to the contrary, including
without limitation Section 10.3, no such holder of a mortgage shall be liable
either as mortgagee or as assignee, to perform, or be liable in damages for
failure to perform, any of the obligations of Landlord unless and until such
holder shall enter and take possession of the Premises for the purpose of
foreclosure. Upon entry for the purpose of foreclosure, such holder shall be
liable to perform all of the obligations of Landlord accruing from and after
such entry, provided that a discontinuance of any foreclosure proceeding shall
be deemed a conveyance under said provisions to the owner of the Premises. No
Fixed Rent, Additional Rent or any other charge shall be paid more than 30 days
prior to the due dates thereof and payments made in violation of this provision
shall (except to the extent that such payments are actually received by a
mortgagee in possession or in the process of foreclosing its mortgage) be a
nullity as against such mortgagee and Tenant shall be liable for the amount of
such payments to such mortgagee.
The covenants and agreements contained in this Lease with respect to the rights,
powers and benefits of a holder of a mortgage (including, without limitation,
the covenants and agreements contained in this Section 9.1) constitute a
continuing offer to any person, corporation or other entity, which by accepting
a mortgage subject to this Lease, assumes the obligations herein set forth with
respect to such holder; such holder is hereby constituted a party of this Lease
as an obligee hereunder to the same extent as though its name were written
hereon as such; and such holder shall be entitled to enforce such provisions in
its own name. Tenant agrees on request of Landlord to execute and deliver from
time to time any agreement which may be necessary to implement the provisions of
this Section 9.1.
9.2 LEASE SUPERIOR OR SUBORDINATE TO MORTGAGES. This Lease is and shall
continue to be subject and subordinate to any presently existing mortgage or
mortgages secured by the Premises, and to any and all advances hereafter made
thereunder, and to the interest of the holder or holders thereof in the
Premises. The holder of any such presently existing mortgage shall have the
election to subordinate the same to this Lease, exercisable by filing with the
appropriate recording office a notice of such election, whereupon this Lease
shall have priority over such mortgage. A copy of such filing shall be given to
Tenant. Such election by the holder of any presently existing mortgage shall not
affect priority with respect to this Lease of any other presently existing
mortgage.
Any mortgage or other voluntary lien or other encumbrance recorded subsequent to
the recording of the notice or short form referred to in Section 10.3, or the
date of this Lease if no such notice or short form is required under applicable
law to impart constructive notice to third parties, shall be subject and
subordinate to this Lease unless Landlord and the holder of any such subsequent
mortgage and the holders of all mortgages prior to such subsequent mortgage
elect to subordinate this Lease to such subsequent mortgage and to any and all
advances thereafter made thereunder and to the interest of the holder thereof in
the Premises, such election to be exercisable by Landlord and all such holders
by filing with the appropriate recording office (a) a notice of such election
and (b) an agreement between the holder of such subsequent mortgage and Tenant,
consented to by holders of all mortgages having priority over such subsequent
mortgage, by the
-15-
terms of which such holder will agree to recognize the rights of Tenant under
this Lease and to accept Tenant as tenant of the Premises under the terms and
conditions of this Lease in the event of acquisition of title by such holder
through foreclosure proceedings or otherwise and Tenant will agree to recognize
the holder of such subsequent mortgage as Landlord in such event, which
agreement shall be made expressly to bind and inure to the benefit of the
successors and assigns of Tenant and of such holder and upon anyone purchasing
said Premises at any foreclosure sale brought by such holder. Tenant and
Landlord agree to execute and deliver any appropriate instruments necessary to
carry out the agreements contained in this Section 9.2.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 NOTICES FROM ONE PARTY TO THE OTHER. All notices required or
permitted hereunder shall be in writing and addressed, if to the Tenant, at the
Original Address of Tenant or such other address as Tenant shall have last
designated by notice in writing to Landlord and, if to Landlord, at the Original
Address of Landlord or such other address as Landlord shall have last designated
by notice in writing to Tenant. Any notice shall be deemed duly given on the
third day after the same was mailed to such address postage prepaid, registered
or certified mail, return receipt requested, or when delivered to such address
by hand or by nationally recognized overnight courier service.
10.2 ESTOPPEL CERTIFICATE. Each party agrees from time to time, upon
not less than fifteen (15) days' prior written request by the other party, to
execute, acknowledge and deliver to the requesting party a statement in writing
certifying that this Lease is unmodified and in full force and effect and that
there are no uncured defaults of Landlord or Tenant under this Lease, and if
Landlord is the requesting party that Tenant has no defenses, offsets or
counterclaims against its obligations to pay the Annual Fixed Rent and
additional rent and to perform its other covenants under this Lease (or, if
there have been any modifications that the same is in full force and effect as
modified and stating the modifications and, if there are any defenses, offsets,
counterclaims, or defaults, setting them forth in reasonable detail), the dates
to which the Fixed Rent, additional rent and other charges have been paid and
such other matters relating to the Lease as may be reasonably requested. Any
such statement delivered pursuant to this Section 10.2 may be relied upon by a
prospective purchaser or mortgagee of the Premises or any prospective assignee
of any mortgagee of the Premises, or by a prospective assignee of Tenant's
interest in this Lease, as the case may be.
10.3 LEASE NOT TO BE RECORDED. Tenant agrees that it will not record
this Lease. Both parties shall, upon the request of either, execute and deliver
a notice or short form of this Lease in such form, if any, as may be permitted
by applicable statute. If this Lease is terminated before the Term expires the
parties shall execute, deliver and record an instrument acknowledging such fact
and the actual date of termination of this Lease.
10.4 BIND AND INURE. The obligations of this Lease shall run with the
land, and this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
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10.5 ACTS OF GOD. In any case where either party hereto is required to
do any act, delays caused by or resulting from Acts of God, war, civil
commotion, fire, flood or other casualty, labor difficulties, shortages of
labor, materials or equipment, government regulations, unusually severe weather,
or other causes beyond such party's reasonable control shall not be counted in
determining the time during which work shall be completed, whether such time be
designated by a fixed date, a fixed time or a "reasonable time", and such time
shall be deemed to be extended by the period of such delay.
10.6 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
in the performance of any of its obligations hereunder unless it shall fail to
perform such obligations and such failure shall continue for a period of 30 days
following receipt of notice from Tenant, or such additional time as is
reasonably required with the exercise of reasonable diligence to correct any
such default, after notice has been given by Tenant to Landlord specifying the
nature of Landlord's default.
10.7 BROKERAGE. Landlord and Tenant each warrants and represents to the
other party hereto that it has had no dealings with any broker or agent in
connection with this Lease and covenants to defend, hold harmless and indemnify
the other party hereto from and against any and all cost, expense or liability
for any breach of the foregoing representation.
10.8 APPROVALS AND CONSENT. Whenever the consent or approval of either
party is required hereunder, the same shall not be unreasonably withheld or
delayed.
10.9 APPLICABLE LAW AND CONSTRUCTION.
10.9.1 APPLICABLE LAW. This Lease shall be governed by and
construed in accordance with the laws of the state in which the Premises are
located. If any term, covenant, condition or provision of this Lease or the
application thereof to any person or circumstances shall be declared invalid, or
unenforceable by the final ruling of a court of competent jurisdiction having
final review, the remaining terms, covenants, conditions and provisions of this
Lease and their application to persons or circumstances shall not be affected
thereby and shall continue to be enforced and recognized as valid agreements of
the parties, and in the place of such invalid or unenforceable provision, there
shall be substituted a like, but valid and enforceable provision which comports
to the findings of the aforesaid court and most nearly accomplishes the original
intention of the parties.
10.9.2 NO OTHER AGREEMENT. There are no oral or written
agreements between Landlord and Tenant affecting this Lease. This Lease may be
amended, and the provisions hereof may be waived or modified, only by
instruments in writing executed by Landlord and Tenant.
10.9.3 TITLES. The titles of the several Articles and Sections
contained herein are for convenience only and shall not be considered in
construing this Lease.
10.9.4 "LANDLORD" AND "TENANT". Unless repugnant to the
context, the words "Landlord" and "Tenant" appearing in this Lease shall be
construed to mean those named above and their respective heirs, executors,
administrators, successors and assigns, and those claiming through or under them
respectively.
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10.10 SUBMISSION NOT AN OFFER. The submission of a draft of this
Lease or a summary of some or all of its provisions does not constitute an
offer to lease or demise the Premises, it being understood and agreed that
neither Landlord nor Tenant shall be legally bound with respect to the
leasing of the Premises unless and until this Lease has been executed by both
Landlord and Tenant and a fully executed copy delivered.
WITNESS the execution hereof under seal as of the day and year set forth in
Section 1.1.
Landlord:
/S/ Steven Rothschild
----------------------------------
Steven Rothschild, Trustee of More
Bricks Realty Trust, and not
individually
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Tenant:
FurnitureSite, Inc.
By: /s/ Steven Rothschild
------------------------
Name: Steven Rothschild
Title: CEO
-19-
Exhibit 10.4
Building Lease
by and between
FRAMINGHAM - 1881 ASSOCIATES,
As Landlord
and
Furniture.com, Inc., as Tenant
DATED: March __, 1999
TABLE OF CONTENTS
PAGE
ARTICLE I - REFERENCE DATA........................................................................................4
1.1 SUBJECTS REFERRED TO............................................................................4
1.2 EXHIBITS........................................................................................7
ARTICLE II - PREMISES AND TERM....................................................................................7
2.1 PREMISES........................................................................................7
2.1.1 Premises...............................................................................7
2.1.2 Right of First Offer to Lease..........................................................8
2.1.3 Access................................................................................10
2.2 TERM...........................................................................................10
2.2.1 Initial Term..........................................................................10
ARTICLE III - IMPROVEMENTS.......................................................................................10
3.1 INITIAL CONSTRUCTION...........................................................................10
3.1.1 Acceptance of the Premises............................................................10
3.1.2 Tenant Improvements...................................................................10
3.1.3 Tenant Allowance......................................................................11
3.2 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION..................................................12
3.3 REPRESENTATIVES................................................................................12
ARTICLE IV - RENT................................................................................................12
4.1 RENT...........................................................................................12
4.2 ANNUAL FIXED RENT..............................................................................12
4.3 ADDITIONAL RENT -ESCALATION OF OPERATING EXPENSES..............................................13
4.4 ESCALATION OF REAL ESTATE TAXES................................................................16
4.5 AUDIT..........................................................................................18
4.6 UTILITIES......................................................................................18
4.7 LATE PAYMENT OF RENT...........................................................................19
ARTICLE V - LANDLORD'S COVENANTS.................................................................................19
5.1 COVENANTS......................................................................................19
5.1.1 Building Services.....................................................................19
5.1.2 Additional Building Services..........................................................19
5.1.3 Insurance.............................................................................19
5.1.4 Maintenance; Repairs..................................................................19
ARTICLE VI - TENANT'S ADDITIONAL COVENANTS.......................................................................19
6.1 COVENANTS......................................................................................19
6.1.1 Perform Obligations...................................................................19
6.1.2 Occupancy and Use.....................................................................20
6.1.3 Repair and Maintenance................................................................20
6.1.4 Compliance with Law...................................................................20
6.1.5 Tenant's Work.........................................................................21
6.1.6 Indemnity.............................................................................21
6.1.7 Landlord's Right to Enter.............................................................21
6.1.8 Personal Property at Tenant's Risk....................................................22
6.1.9 Payment of Landlord's Cost of Enforcement.............................................22
i
6.1.10 Yield Up..............................................................................22
6.1.11 Estoppel Certificate..................................................................22
6.1.12 Landlord's Expenses Re Consents.......................................................23
6.1.13 Rules and Regulations.................................................................23
6.1.14 Loading...............................................................................23
6.1.15 Holdover..............................................................................23
6.1.16 Assignment and Subletting.............................................................23
6.1.17 Nuisance..............................................................................25
6.1.18 Installation, Alterations or Additions................................................25
6.1.19 Insurance.............................................................................25
6.1.20 Insurance Policies....................................................................26
6.1.21 Labor or Materialmen's Liens..........................................................26
ARTICLE VII - CASUALTY OR TAKING.................................................................................26
7.1 TERMINATION....................................................................................26
7.2 RESTORATION....................................................................................27
7.3 AWARD..........................................................................................27
ARTICLE VIII - DEFAULTS..........................................................................................28
8.1 EVENTS OF DEFAULT..............................................................................28
8.2 REMEDIES.......................................................................................28
8.3 REMEDIES CUMULATIVE............................................................................29
8.4 LANDLORD'S RIGHT TO CURE DEFAULTS..............................................................29
8.5 EFFECT OF WAIVERS OF DEFAULT...................................................................30
8.6 NO ACCORD AND SATISFACTION.....................................................................30
ARTICLE IX - MORTGAGES...........................................................................................30
9.1 RIGHTS OF MORTGAGE HOLDERS.....................................................................30
9.2 SUPERIORITY OF LEASE OPTION TO SUBORDINATE.....................................................31
9.3 NO EXISTING MORTGAGE...........................................................................32
ARTICLE X - MISCELLANEOUS PROVISIONS.............................................................................32
10.1 NOTICES FROM ONE PARTY TO THE OTHER............................................................32
10.2 QUIET ENJOYMENT................................................................................32
10.3 EASEMENTS; CHANGES TO LOT LINES................................................................32
10.4 WAIVER OF SUBROGATION..........................................................................32
10.5 LEASE NOT TO BE RECORDED.......................................................................32
10.6 BIND AND INURE; LIMITATION OF LANDLORD'S LIABILITY.............................................33
10.7 UNAVOIDABLE DELAYS.............................................................................33
10.8 LANDLORD'S DEFAULT.............................................................................33
10.9 BROKERAGE......................................................................................33
10.10 APPLICABLE LAW AND CONSTRUCTION................................................................34
10.11 SUBMISSION NOT AN OFFER........................................................................34
10.12 SECURITY DEPOSIT...............................................................................34
10.13 SIGNAGE........................................................................................35
10.14 CONDITION PRECEDENT............................................................................35
EXHIBIT A Plan of Premises........................................................................37
EXHIBIT B Plan of Land............................................................................38
EXHIBIT C Rules and Regulations...................................................................39
EXHIBIT D Landlord's Services.....................................................................42
ii
EXHIBIT E Form of Landlord's Waiver and Consent...................................................45
iii
DATE OF LEASE EXECUTION: March _____, 1999
(To be completed by Landlord)
ARTICLE I - REFERENCE DATA
1.1. SUBJECTS REFERRED TO.
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1.1:
ANNUAL FIXED RENT RATE: $20.00 p.r.s.f. for Lease Years 1 and 2;
$23.00 p.r.s.f. for Lease Years 3-5.
BROKER(S):........ Boston Real Estate Partners and
Hunneman Commercial Company
BUILDING:......... Two-story office building containing 64,339 rentable square feet
BUILDING ADDRESS: 1881 Worcester Road
Framingham, MA 01701
ELECTRICITY CHARGE: Actual cost for electricity for lights and plugs used or
consumed for the Premises.
INITIAL FISCAL YEAR
FOR OPERATING EXPENSES: Calendar Year 1999
INITIAL TAX YEAR
FOR REAL ESTATE TAXES: Fiscal Tax Year 1999 (July 1, 1998 - June 30, 1999)
LANDLORD:......... FRAMINGHAM - 1881 ASSOCIATES, a Massachusetts general
partnership comprised of
Paine Webber Equity
Partners One Limited
Partnership, Furrose
Associates Limited
Partnership and Spaulding
and Slye Properties Limited
Partnership (formerly known
as Spaulding and Slye
Company).
LANDLORD'S & MANAGING AGENT'S ADDRESS: c/o Spaulding and Slye Services Limited Partnership
125 High Street, 16th Floor
Boston, MA 02110
Attn: Treasurer
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LANDLORD'S REPRESENTATIVE: David A. Neskey
LEASE YEAR: Each consecutive period of twelve (12) months commencing on the
Term Commencement Date if it occurs on the first day of a
calendar month and otherwise commencing on the first day of the
month immediately following the month in which the Term
Commencement Date occurs, and each anniversary of such date,
except that the first Lease Year shall also include the period
from the Term Commencement Date until the first day of the
following month in the event that the Term Commencement Date
does not occur on the first day of a calendar month.
LAND: The parcel of land shown on Site Development Plan SD-1 dated
July 6, 1983 by T&M
Engineering Associates,
Inc., attached hereto as
EXHIBIT B.
MANAGING AGENT: Spaulding and Slye Services Limited Partnership
PARKING FACILITIES: Tenant, its employees, customers, and visitors shall have the
right to use an allocable share of such parking facilities as
may adjoin or be available to the Building in common with
others entitled thereto provided such use does not exceed 3.28
parking spaces per 1,000 r.s.f. of rentable floor area of the
Premises.
PERMITTED USES: General Office Use
PREMISES: Approximately 32,787 r.s.f. comprised of approximately 14,008
r.s.f., located on the second (2nd) floor of the Building (the
"Initial Premises"), and approximately 18,779 r.s.f., located
on the second (2nd) floor of the Building (the "Expanded
Premises"), both spaces as shown on EXHIBIT A. (The Initial
---------
Premises and the Expanded Premises shall hereinafter be
together referred to as the "Premises.")
PUBLIC LIABILITY
INSURANCE LIMITS Bodily Injury: $2,000,000, or such greater amount as
(per occurrence) may be reasonably required by Landlord.
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Property Damage: $1,000,000, or such greater amount as
may be reasonably required by Landlord.
RENTABLE FLOOR AREA OF THE BUILDING:
64,339 rentable square feet
RENT COMMENCEMENT DATE FOR THE INITIAL The Term Commencement Date.
PREMISES:
RENT COMMENCEMENT DATE FOR EXPANDED PREMISES: The date which is ninety (90) days after the Term Commencement
Date.
RIGHT OF FIRST REFUSAL: See Section 2.1.2 hereof
SECURITY DEPOSIT: $150,000.00, as per Section 10.12
TENANT: Furniture.com, Inc.
a Delaware corporation
TENANT'S ADDRESS (FOR NOTICE AND BILLING): 40 Jackson Street
Worcester, Massachusetts 01608
TENANT ALLOWANCE: As defined in Section 3.1 hereof.
TENANT'S PROPORTIONATE SHARE: 51%, such percentage being equal to a fraction, the numerator
of which is the rentable floor area of the Premises
(32,787.r.s.f.) and the denominator of which is the Rentable
Floor Area of the Building (64,339 r.s.f.)
TENANT'S REPRESENTATIVE: Ray Nuzzolo
TERM COMMENCEMENT DATE: The earlier of (a) April 1, 1999, and (b) the date on which
Tenant occupies all or any part of the Premises for Tenant's
use or operations.
TERM EXPIRATION DATE: If the Rent Commencement Date for the Expanded
Premises occurs on the first (1st) day of the month, the Term
Expiration Date shall be the date which is the last day of the
month immediately preceding the fifth (5th) anniversary of the
Rent Commencement Date for the Expanded Premises; otherwise,
the Term Expiration Date shall be the date which is the last
day of the month in which the fifth (5th) anniversary of the
Rent Commencement Date for the Expanded
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Premises occurs.
1.2. EXHIBITS.
The Exhibits listed below in this Section are incorporated in this
Lease by reference and are to be construed as a part of this Lease:
EXHIBIT A. Plan showing the Premises.
EXHIBIT B. Plan showing the Land.
EXHIBIT C. Rules and Regulations.
EXHIBIT D. Landlord's Services.
EXHIBIT E. Form of Landlord's Waiver and Consent.
ARTICLE II - PREMISES AND TERM
2.1. PREMISES.
2.1.1. PREMISES.
(a) Landlord hereby leases and demises to Tenant
and Tenant hereby leases from Landlord,
subject to and with the benefit of the
terms, covenants, conditions and provisions
of this Lease, the Premises.
(b) Tenant shall have, as appurtenant to the
Premises, the right to use in common
with others entitled thereto: (i) the
common facilities included in the
Building or on the Land, including the
Building elevator and the parking spaces
in the parking area (subject to the
limitations set forth in Section 1. 1
hereof), and two (2) common tailboard
loading docks, all on an unreserved,
first-come, first-served basis, and in
the locations from time to time
designated by Landlord, and (ii) the
building service fixtures and equipment
serving the Premises. Notwithstanding
the foregoing, Landlord also reserves
the right to issue parking stickers,
passes or access cards to Tenant in
which case: (A) parking by Tenant, its
employees and agents in the parking
facilities for the Building shall be
restricted solely to vehicles on which a
parking sticker is displayed (in such
location on such vehicle as may be
specified by Landlord), or to one
vehicle for each employee or agent of
Tenant to whom a parking pass or access
card has been issued, as the case may
be; (B) Landlord shall have the right to
tow and remove from the parking area any
vehicle parked in such parking area
without a parking sticker issued by
Landlord and displayed in such specified
location,
-4-
or without a pass or access card issued
by Landlord, at the expense of the owner
of the vehicle; (C) in the event that
Tenant shall at any time during this
Term of this Lease have been issued more
parking stickers, passes or access cards
than the number to which it is entitled
based upon the rentable floor area of
the Premises, as it may be adjusted from
time to time, Tenant shall immediately
return to Landlord so many of such
stickers, passes or access cards as may
be necessary to restore Tenant to the
number of such stickers, passes or
access cards permitted hereunder; and
(D) Landlord shall provide and designate
a sufficient number of parking spaces
for visitor use.
(c) Landlord reserves the right from time to
time, without unreasonable interference
with Tenant's use, to: (i) install,
repair, replace, use, maintain and
relocate for service to the Premises and
to other parts of the Building or
either, building service fixtures and
equipment wherever located in the
Building and (ii) alter or relocate any
common facilities, including, without
limitation, parking and loading
facilities, provided that in all events
substitutions are substantially
equivalent.
(d) Notwithstanding the foregoing provisions
of this Section 2.1.1, Landlord hereby
agrees not to grant any other tenant of
the Building any reserved parking spaces
in such parking area unless Landlord
also grants to Tenant a proportionate
number of reserved parking spaces (based
upon the rentable floor area in the
Building occupied by each such tenant)
in a substantially equivalent location.
2.1.2. RIGHT OF FIRST OFFER TO LEASE.
(a) Subject to the rights of the existing
tenants and to the terms and conditions
hereof, Tenant shall have the right to
add to the Premises some or all of the
space located on the first floor of the
Building (the "Additional Space").
Whenever during the term hereof,
Landlord determines to lease all or any
part of the Additional Space (the phrase
"Available space" shall mean that
portion of the Additional Space which
Landlord has so determined, in its sole
and absolute discretion, to lease),
Landlord shall first offer to lease to
Tenant the Available Space in an "As Is"
condition at the Available Space Annual
Fixed Rent Rate (as hereinafter
defined). Such offer shall be in writing
(the "Offer Notice") and shall specify
the date on which the Available Space
shall be included in the Premises (the
"Available Space Commencement Date").
Tenant shall notify Landlord in writing
whether Tenant elects to lease the
Available Space upon the terms set forth
in the Offer Notice within fourteen (14)
business days after Landlord delivers to
Tenant the Offer Notice.
(b) If Tenant timely elects to lease the
Available Space as aforesaid, then
Landlord and Tenant shall execute an
amendment to this Lease no later than
fourteen (14) days after Tenant notifies
Landlord of Tenant's election to lease
the Available Space, effective as of the
date the Available Space Commencement
Date, on the same terms as this Lease
except that (i) the Rentable Floor Area
of the Premises shall be increased by
the Rentable Floor Area of the Available
Space (and Tenant's Proportionate Share
shall be adjusted accordingly), (ii) the
Annual Fixed Rent shall be equal to the
sum of the Annual Fixed Rent Rate with
respect to the then current Premises
plus the Available Space Annual Fixed
Rent Rate with respect to the Available
Space, (iii) the Initial Fiscal Year for
Operating Expenses and the Initial Tax
Year for Real Estate Taxes with respect
to the Available Space shall be as
specified in the Offer Notice, and (iv)
Landlord shall not provide to Tenant any
allowances (e.g., moving allowance,
construction allowance or the like) or
other tenant inducements.
(c) If Tenant fails or is unable to timely
exercise its rights under this Section
2.1.2 then such rights shall lapse, time
being of the essence with respect to the
exercise thereof, and, subject to the next
two (2) sentences, Landlord may lease the
Available Space to third parties on such
terms as Landlord may elect. If Landlord
fails to enter into any such third party
lease within six (6) months after Tenant
has elected (or is deemed to have elected)
not to lease the Available Space, then the
Available Space shall again be subject to
Tenant's rights under this Section.
-5-
Notwithstanding any of the foregoing to the contrary, Landlord shall
have no obligation to first offer to lease to Tenant any Available Space in
accordance with this Section if at the time Landlord would have sent to Tenant
the Offer Notice Tenant is then in default of any of its monetary obligations
under this Lease or shall have previously assigned this Lease or sublet fifty
percent (50%) or more of the rentable floor area of the Premises (or shall have
agreed to so assign this Lease or sublet the Premises) to any party. If Tenant
is so then in default or shall have so assigned this Lease or sublet the
Premises (or shall have agreed to so assign this Lease or sublet the Premises),
Landlord may proceed to lease the Available Space to any third party without
Tenant having any prior right to lease the Available Space under this Lease.
(d) Any person dealing with the Building may,
without further inquiry, conclusively rely
upon a representation in a certificate of
Landlord as to whether or not the
provisions of this Section have been
satisfied or whether Tenant has waived (or
been deemed to have waived) its rights
hereunder with respect to each Available
Space offered to Tenant in accordance with
the provisions of the foregoing Section
2.1.2(a) or 2.1.2(c). Landlord shall
deliver a copy of such certificate to
Tenant at least ten (10) days prior to the
first occasion that Landlord delivers such
a certificate to any prospective tenant,
purchaser or mortgagee with respect to each
particular Available Space. The parties
hereby agree that a separate certificate
shall apply with respect to each Available
Space separately offered to Tenant under
Section 2.1.2(a) or 2.1.2(c); provided,
however, that Landlord shall not be
required to deliver a copy to Tenant or
otherwise notify Tenant of the delivery by
Landlord to any prospective tenant,
purchaser or mortgagee of any certificate
for any particular Available Space after
the first occasion that Landlord delivers
such a certificate with respect to the
particular Available Space.
(e) The rights of Tenant under this Section
2.1.2 shall not apply to (i) the sale or
conveyance of the Building or the Lot (or
both), or (ii) the granting of a mortgage on
the Building or Lot (or both) or the
foreclosure of or the granting of a deed in
lieu of foreclosure of any such mortgage.
(f) Landlord's failure to notify Tenant of the
availability of any Available Space shall
not relieve Tenant of any of its obligations
under this Lease; provided, however, that
the foregoing provisions of this Subsection
(f) shall not limit or impair Tenant's right
to bring any action at law or in equity,
including, without limitation, any action
for specific performance, against Landlord
in the event Landlord shall fail to notify
Tenant of the availability of any Available
Space as and to the extent required under
this Section 2.1.2.
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(g) As used herein, the term "Available Space
Annual Fixed Rent Rate" shall mean the fair
market rent for the Available Space, as
reasonably determined by Landlord, and set
forth in the Offer Notice.
2.1.3. ACCESS. Tenant shall have access to the Premises 24
hours per day, seven days per week, 52 weeks per year, subject to the Rules and
Regulations, including, without limitation, the provisions of Paragraph 11,
Paragraph 13, and Paragraph 20 of the Rules and Regulations attached hereto.
2.2. TERM.
2.2.1. INITIAL TERM. To have and to hold for a period (the
"Term") commencing on the Term Commencement Date, and continuing through the
Term Expiration Date, unless sooner terminated as provided in Article VII or in
Article VIII.
ARTICLE III - IMPROVEMENTS
3.1. INITIAL CONSTRUCTION.
3.1.1. ACCEPTANCE OF THE PREMISES. Subject to the provisions
of this Article III, and to the extent of Landlord's ongoing maintenance, repair
and service obligations as expressly set forth in this Lease, Tenant hereby
agrees to accept the Initial Premises and the Expanded Premises "AS IS," "AS
SHOWN," and "WITH ALL FAULTS" as of the Term Commencement Date for the Initial
Premises and the Term Commencement Date for the Expanded Premises, respectively.
Tenant further acknowledges that neither Landlord nor any agent of Landlord has
made any representation, express or implied, written, verbal or otherwise as to
the condition of the Premises or the suitability of the Premises for Tenant's
intended use.
3.1.2. TENANT IMPROVEMENTS. Tenant shall prepare or cause to
be prepared (i) on or before March _, 1999 construction plans (the "Initial TI
Plans") of the improvements to be made to the Initial Premises (the "Initial
Tenant Improvements"), and (ii) on or before September 1, 1999 construction
plans (the "Subsequent TI Plans") of the improvements to be made to the Expanded
Premises (the "Subsequent Tenant Improvements"), which Tenant Plans (as
hereinafter defined) shall be approved in writing by Landlord, which approval
shall not be unreasonably withheld or delayed. The Initial TI Plans and the
Subsequent TI Plans shall be hereinafter be together referred to as the "Tenant
Plans"; the Initial Tenant Improvements and the Subsequent Tenant Improvements
shall hereinafter be together referred to as the "Tenant Improvements." Tenant
shall cause the Tenant Improvements to be constructed and installed in
accordance with the Tenant Plans by a general contractor selected by Tenant and
approved by Landlord, which approval shall not be unreasonably withheld or
delayed (the "Approved Contractor"). Tenant shall also use diligent efforts to
cause the Initial Tenant Improvements to be completed no later than one hundred
twenty (120) days after Tenant takes possession of the whole or any part of the
Initial Premises, and the Subsequent Tenant Improvements to be completed no
later than March 1, 2000, it being understood and agreed, however, that the
failure of Tenant to complete such work by such date shall not affect Tenant's
obligations hereunder, including without limitation, the obligation to pay rent
and other amounts provided herein.
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All Tenant Improvements shall be done in a good and workmanlike manner in
accordance with all applicable laws, ordinances and regulations. Prior to
commencing the Tenant Improvements, Tenant shall deliver to Landlord a true,
correct and complete list of all subcontracts and material supply contracts
relating to the Tenant Improvements and shall update such list promptly. Except
as otherwise expressly set forth herein, Tenant shall be responsible for the
total cost of construction, including materials, fees, and all other necessary
and incidental expenses associated with the Tenant Improvements and shall obtain
all necessary licenses and permits therefor. Tenant shall indemnify and hold
Landlord harmless from any and all costs, expenses, losses or damages in
connection with the installation and construction of the Tenant Improvements.
All Tenant Improvements made by Tenant shall be subject to all of the terms and
conditions of this Lease, including without limitation, the provisions of
Sections 6.1.4 - 6.1.6, and 6.1.18 - 6.1.21 hereof.
Without limitation of the foregoing, the Tenant Improvements shall,
include all materials and labor required to: (A) achieve compliance with all
applicable laws, codes, rules and regulations, including the Americans with
Disabilities Act and other handicap accessibility laws, codes, rules and
regulations, but only with respect to the Premises and not with respect to the
common facilities of the Building, and (B) upgrade any HVAC, electrical or other
mechanical systems specifically servicing the Premises as required for Tenant's
use and occupancy thereof.
Landlord will not approve any construction, alterations, or additions
requiring unusual expense to readapt the Premises to normal office use on lease
termination or increasing the cost of construction, insurance or taxes on the
Building or of Landlord's services called for by Section 5.1 unless Tenant first
gives assurances acceptable to Landlord that such readaptation will be made
prior to such termination without expense to Landlord and makes provisions
acceptable to Landlord for payment of such increased cost. All changes and
additions shall be part of the Building except such items as Landlord shall
require Tenant to remove in writing on termination of this Lease.
Notwithstanding the foregoing, Tenant shall not be required to remove the Tenant
Improvements or any other improvements made by Tenant or Landlord in accordance
with any Tenant Plans approved by Landlord (or any other improvements consistent
therewith provided the same are approved by Landlord, such approval not to be
unreasonably withheld or delayed), nor shall any such improvements be removed by
Tenant on termination of this Lease.
3.1.3. TENANT ALLOWANCE. Upon completion of the Initial
Tenant Improvements, as certified to Landlord in writing by the Approved
Contractor and as evidenced by a certificate of occupancy issued by the
applicable municipal authority, Landlord shall pay to Tenant within thirty (30)
days of such completion the lesser of (i) the costs of the Initial Tenant
Improvements, and (ii) $126,072, representing $9.00 p.r.s.f., toward the costs
of the Initial Tenant Improvements (the "Initial Tenant Allowance"). Upon
completion of the Subsequent Tenant Improvements, as certified to Landlord in
writing by the Approved Contractor and as evidenced by a certificate of
occupancy issued by the applicable municipal authority, Landlord shall pay to
Tenant within thirty (30) days of such completion the lesser of (i) the costs of
the Subsequent Tenant Improvements, and (ii) $169,011, representing $9.00
p.r.s.f., toward the costs of the Subsequent Tenant Improvements (the
"Subsequent Tenant Allowance"). (The Initial Tenant Allowance and the Subsequent
Tenant Allowance shall hereinafter be together referred to as the "Tenant
Allowance".) The Tenant Allowance may be used for both "hard costs" and "soft
costs,"
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so-called, approved by Landlord in its reasonable discretion and substantiated
by evidence reasonably satisfactory to Landlord directly related to the
completion of the Tenant Improvements, including reasonable fees to unrelated
third parties for space planning, architectural and engineering services,
license and permit fees related to the Tenant Improvements and painting,
lighting, carpeting and communication cabling expenses. Landlord's obligation to
pay the Tenant Allowance to Tenant shall be expressly conditioned upon
Landlord's receipt of current releases and waivers of liens, in form and
substance acceptable to Landlord in Landlord's sole and absolute discretion,
from all subcontractors, materialmen, mechanics and suppliers engaged in
connection with the construction of the Tenant Improvements.
3.2. GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION.
All construction work required or permitted by this Lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authority and insurers of the Building and shall be
consistent with Building standard finishes, except as otherwise agreed to by
Landlord in writing. Either party may inspect the work of the other at
reasonable times and promptly shall give notice of observed defects. Landlord
shall not be responsible for any loss, damage, or injury resulting from the
installation of any components, fixtures, or equipment provided they were
appropriately specified and installed in accordance with the manufacturer's or
supplier's instructions, and provided that Landlord shall assign any and all
manufacturers' and suppliers' warranties with respect thereto to Tenant for the
Term of this Lease, upon the expiration or sooner termination of which Term such
warranties shall automatically revert to Landlord.
3.3. REPRESENTATIVES.
Each party authorizes the other to rely in connection with their
respective rights and obligations under this Article III upon approval and other
actions on the party's behalf by Landlord's Representative in the case of
Landlord or Tenant's Representative in the case of Tenant or by any person
designated in substitution or addition by notice to the party relying.
ARTICLE IV - RENT
4.1. RENT. Tenant agrees to pay to Landlord as rent for the
Premises, without any offset or reduction whatsoever, Annual Fixed Rent,
Additional Rent and all other additional rent or charges required of Tenant
under this Lease, at the Original Address of Landlord or at such other place or
to such other person or entity as Landlord may by notice to Tenant from time to
time direct.
4.2. ANNUAL FIXED RENT. The Annual Fixed Rent for the Premises
shall be payable in equal installments equal to 1/12th of the product of the
Annual Fixed Rent Rate multiplied by the rentable floor area of the Premises
from time to time, in advance on the first day of each calendar month included
in the Term from and after the Rent Commencement Date; and for any portion of a
calendar month at the beginning or end of the Term, at the proportionate rate
payable for such portion, in advance.
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4.3. ADDITIONAL RENT - ESCALATION OF OPERATING EXPENSES.
4.3.1. For purposes of this paragraph 4.3, the following
definitions apply:
"FISCAL YEAR" shall mean each separate calendar year falling
wholly or partly within the Term.
"INITIAL BASE COST" shall mean all Operating Expenses (as
hereinafter defined) of the Building for the Initial Fiscal Year.
"OPERATING EXPENSES" shall mean all expenses, costs and
disbursements (but no replacement of capital investment items except as provided
below or specific costs especially billed to and paid by specific tenants) of
every kind and nature which Landlord shall pay or become obligated to pay
because of or in connection with ownership, insurance, maintenance, security (to
the extent provided by Landlord) and operation of the Building and Land,
computed on an accrual basis, and including, but not limited to, the following:
(i) Wages and salaries of all employees
directly engaged in operating, maintenance or security of the
Building, including taxes, insurance and benefits relating
thereto.
(ii) All supplies and materials used in
operation and maintenance of the Building.
(iii) Cost of all utilities and any
surcharges for the Building, including cost of water, sewer,
power, heat, light, air conditioning and ventilation for
common facilities of the Building, to the extent not
separately metered to Tenant or any other tenant of the
Building. Tenant expressly acknowledges that Operating
Expenses include the cost of electricity for the common areas
of the Building.
(iv) Cost of all maintenance and service
agreements for the Building and the equipment therein,
including, but not limited to, security and energy management
services, window cleaning, elevator maintenance and janitorial
service.
(v) Cost of all insurance relating to the
Building and Land, and Landlord's personal property used in
connection therewith.
(vi) Cost of repairs and general maintenance
(excluding repairs and general maintenance paid by the
proceeds of insurance or by Tenant or other third parties, and
alterations attributable solely to tenants of the Building
other than Tenant).
(vii) Management fee for the manager of the
Building comparable to the management fee paid to managers of
comparable buildings in the suburban Boston office market.
-10-
(viii) The cost of any additional,
commercially reasonable services not provided to the Building
at the commencement of the Lease Term but thereafter provided
by Landlord in the prudent management of the Building,
consistent with the management of similar first class office
buildings in the area in which the Building is located.
(ix) The cost of any capital improvements
made to the Building after the commencement of the Term that
are intended to reduce other operating expenses or are
required under governmental law or regulation, such cost
thereof to be amortized over said capital improvements' useful
life with interest on the unamortized balance at a floating
rate equal to the so-called prime rate published from time to
time in the WALL STREET JOURNAL (or, if such rate is no longer
published, a comparable rate selected by Landlord) (the "Prime
Rate") plus two (2) percentage points per annum, or such
higher rate as may have been paid by Landlord on funds
borrowed for the purposes of constructing or installing said
capital improvements.
The foregoing items shall be excluded from Operating Expenses:
(a) Charges for depreciation of the Building or
equipment and any mortgage debt service,
interest or other financing charges;
(b) Costs of correcting defects in the building
construction or building equipment except
for ordinary wear and tear;
(c) Costs of repairs due to total or partial
destruction of the Building or condemnation
of a portion of the Building;
(d) Costs of repairs, alterations, additions,
changes, replacements and other items which
under generally accepted accounting
principles are properly classified as
capital expenditures to the extent that they
upgrade the Building versus replace a worn
out item;
(e) Any operating expenses paid to a related
corporation or entity in excess of what
would have been paid in the absence of such
relationship;
(f) The cost of complying with applicable laws
dealing with the handling storage and
disposal of hazardous substances, including
cleanup costs;
(g) Cost of environmental testing;
(h) Compensation for executive or officers and
other employees of Landlord not directly
connected with the operation of the
Property;
(i) Asset Management Fees;
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(j) Expenses incurred in marketing space in the
Building;
(k) Leasing commissions, attorneys' fees, costs
and disbursements and other expenses
incurred in connection with negotiations or
disputes with tenants, other occupants, or
prospective tenants and occupants;
(l) Renovating or otherwise improving,
decorating, painting or redecorating space
for tenants or other occupants of the
Building;
(m) Expenses in connection with services or
other benefits of the type which are not
provided Tenant, but which are provided to
another tenant or occupant;
(n) All items and services for which Tenant is
separately charged, reimburses Landlord or
pays third persons;
(o) Construction or other work performed by
Landlord for other tenants, whether or not
Landlord is entitled to be reimbursed for
the cost of such work;
(p) The cost of any items for which Landlord is
reimbursed by insurance, condemnation,
refund, rebate or otherwise;
(q) Any expenses for repair or maintenance to
the extent covered by warranties, guaranties
and service contracts and for which Landlord
is reimbursed; and
(r) Costs related to maintaining Landlord's
existence as a partnership or other entity.
4.3.2. For and with respect to each Fiscal Year, Tenant
shall pay as Additional Rent (as defined herein) for the Premises Tenant's
Proportionate Share of the increase in Operating Expenses over the Initial Base
Cost, on the following terms and conditions:
(i) After the end of the first Fiscal Year
immediately following the Initial Fiscal Year (the "First Full
Fiscal Lease Year"), if Operating Expenses for such First Full
Fiscal Year exceed the Initial Base Cost, Landlord shall
submit a notice to Tenant reasonably detailing such excess,
and Tenant shall pay Tenant's Proportionate Share of such
excess within thirty (30) days after such notice.
(ii) During each Fiscal Year following the
First Full Fiscal Year, Tenant shall pay to Landlord, in
monthly installments together with monthly Fixed Rent, an
amount estimated by Landlord as one-twelfth of the Tenant's
Proportionate Share of the excess of Operating Expenses for
such Fiscal Year over the Initial Base Cost.
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(iii) Within one hundred twenty (120) days
(or as soon thereafter as possible) following the end of each
Fiscal Year following the First Full Fiscal Year, Landlord
shall provide Tenant a statement of such year's actual
Operating Expenses, showing the actual increase in Operating
Expenses over the Initial Base Cost (the "Annual Operating
Expense Statement"). If such Annual Operating Expense
Statement shows that Tenant's monthly payments exceed Tenant's
Proportionate Share of the actual increase incurred for the
applicable Fiscal Year, then Tenant may deduct such
overpayments from its next payment or payments of monthly rent
unless the Term has expired, in which case Landlord shall
refund such overpayment to Tenant within thirty (30) days
after such Annual Operating Expense Statement. If such Annual
Operating Expense Statement shows that Tenant's Proportionate
Share of the actual increase incurred for the applicable
Fiscal Year exceeds Tenant's monthly payments for the
applicable Fiscal Year, then Tenant shall within thirty (30)
days after such statement pay the total amount of such
deficiency to Landlord.
(iv) Each and every of the aforesaid
projected escalation amounts, as well as any other amounts
which are owed by Tenant to Landlord under this Lease other
than Annual Fixed Rent, whether or not identified as
"Additional Rent" hereunder, and whether requiring lump sum
payment or constituting projected monthly amounts payable with
the Annual Fixed Rent, shall for all purposes be treated and
considered as Additional Rent and the failure of Tenant to pay
the same as and when due in advance and without demand shall
have the same effect as failure to pay any installment of the
Annual Fixed Rent, and shall afford Landlord all remedies
provided in this Lease therefor.
4.3.3. Tenant's obligation for payment of Additional Rent
shall survive any termination of this Lease by the lapse of time or otherwise.
4.3.4. Should this Lease terminate at any time other than
the first day of a calendar year, the Additional Rent referred to in this
paragraph 4.3 shall be calculated for the Fiscal Year in which the expiration of
the Term occurs only by the following formula:
DAYS UNDER LEASE x Additional Rent = Adjusted Additional Rent for the
---------------- Fiscal Year in which termination occurred
365
4.3.5. In any Fiscal Year (including the Initial Fiscal
Year) when the Building has an average annual occupancy rate of less than 95 %,
then, for the purpose of this Section 4.3, the Operating Expenses will be
extrapolated as though the Building were 95% occupied. In any Fiscal Year when
the Building has an average annual occupancy rate of 95% or more, then the
Operating Expenses shall be the actual Operating Expenses. In the case of any
services which are not rendered to all areas on a comparable basis, the
proportion allocable to the Premises shall be in the same proportion such the
floor area of the Premises bears to the total floor area to which such service
is rendered.
4.4. ESCALATION OF REAL ESTATE TAXES.
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4.4.1. For purposes of this paragraph 4.4, the following
definitions apply:
"TAX YEAR" shall mean each separate tax fiscal year falling
wholly or partly within the Term (currently the period commencing July 1 and
ending June 30).
"INITIAL TAX COST" shall mean all Real Estate Taxes (as
hereinafter defined) assessed against the Building and the Land for the Initial
Tax Year.
"REAL ESTATE TAXES" shall mean all real estate taxes
(including special betterment assessments, if any and any other taxes now or
hereinafter imposed which are in the nature of or in substitution for real
estate taxes) levied on the Building and the Land. For purposes of the preceding
sentence, if Landlord can lawful pay any assessment in installments without any
fine, penalty or lien against the Land or Building, the amount of such
assessment shall be limited to the installments lawfully payable from time to
time during the Term plus any accrued interest on the unpaid balance of such
assessment. Real Estate Taxes shall not include any inheritance, gift, transfer,
excise, income, franchise, rental, capital levy or profit tax or any late
payment charges and penalties.
4.4.2. For and with respect to each Tax Year, Tenant shall
pay as Additional Rent for the Premises Tenant's Proportionate Share of the
increase in Real Estate Taxes over the Initial Tax Cost, on the following terms
and conditions:
(i) After the end of the Initial Tax Year,
if Real Estate Taxes exceed the Initial Tax Cost, Landlord
shall submit a notice to Tenant reasonably detailing such
excess, and Tenant shall pay Tenant's Proportionate Share of
such excess within thirty (30) days after such notice.
(ii) During each Tax Year following the
Initial Tax Year, Tenant shall pay to Landlord, in monthly
installments together with monthly Fixed Rent, an amount
estimated by Landlord as one-twelfth of the Tenant's
Proportionate Share of the excess of Real Estate Taxes for
such Tax Year over the Initial Tax Cost.
(iii) Within one hundred twenty (120) days
(or as soon thereafter as possible) following the end of each
Tax Year, Landlord shall provide Tenant a statement of such
year's actual Real Estate Taxes, showing the actual increase
in Real Estate Taxes over the Initial Tax Cost. If such
statement shows that Tenant's monthly payments exceed Tenant's
Proportionate Share of the actual increase incurred for the
applicable Tax Year, then Tenant may deduct such overpayments
from its next payment or payments of monthly rent unless the
Term has expired, in which case Landlord shall refund such
overpayment to Tenant within thirty (30) days after such
statement. If such statement shows that Tenant's Proportionate
Share of the actual increase incurred for the applicable Tax
Year exceeds Tenant's monthly payments for the applicable Tax
Year, then Tenant shall within thirty (30) days after such
statement pay the total amount of such deficiency to Landlord.
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(iv) Each and every of the aforesaid
projected escalation amounts shall for all purposes be treated
and considered as Additional Rent.
4.4.3. Should this Lease terminate at any time other than
the first day of a tax year, the Additional Rent referred to in this paragraph
4.4 shall be calculated for the Tax Year in which the expiration of the Term
occurs only by the following formula:
DAYS UNDER LEASE x Additional Rent = Adjusted Additional Rent for the
---------------- Tax Year in which termination occurred
365
4.4.4. In any Fiscal Year when the Building has an average
annual occupancy rate of less than 95% then, for the purpose of this Section
4.4, the Real Estate Taxes will be extrapolated as though the Building were 95 %
occupied. In any Fiscal Year when the Building has an average annual occupancy
rate of 95 % or more, then the Real Estate Taxes shall be the actual Real Estate
Taxes. Landlord shall credit against Tenant's next ensuing payment of Additional
Rent any excess payments made by Tenant to reflect any abatement in Real Estate
Taxes obtained by Landlord with respect to any Tax Year. Expenditures for legal
fees and other expenses incurred in obtaining any abatement may be charged
against the amount of Real Estate Taxes abated.
4.5. AUDIT. Subject to the provisions of this Section, Tenant shall
have the right, at Tenant's cost and expense, to examine all Landlord's books
and records, documentation and calculations prepared in the determination of
excess Operating Expenses.
(a) Such documentation and calculation shall be
made available to Tenant at the offices
where Landlord keeps such records during
normal business hours within a reasonable
time after Landlord receives a written
request from Tenant to make such
examination.
(b) Tenant shall have the right to make such
examination no more than once in respect of
any period in which Landlord has given
Tenant a statement of the actual amount of
Operating Costs.
(c) Any request for examination in respect of
any Fiscal Year may be made no more than
sixty (60) days after Landlord advises
Tenant of the actual amount of Operating
Costs in respect of such period.
(d) Such examination may be made only by an
independent certified public accounting firm
reasonably approved by Landlord.
(e) In the event that Tenant's audit discloses
that Tenant paid an amount in excess of its
proper contribution, Landlord shall credit
such excess against Tenant's next ensuing
payment for Additional Rent.
4.6. UTILITIES. Tenant shall pay directly to the proper authorities
charged with the collection thereof all charges for any utilities or services
separately metered to Tenant used or
-15-
consumed on the Premises, including, without limitation, the Electricity Charge.
It is understood and agreed that Landlord shall not be liable for any
interruption or failure in the supply of any such utilities to the Premises.
4.7. LATE PAYMENT OF RENT. If any installment of rent is paid ten
(10) days after the date the same was due, at Landlord's election, it shall bear
interest from the due date at the Prime Rate, as it may be adjusted from time to
time, plus 4% per annum, but in no event more than the highest rate of interest
allowed by applicable law (the "Default Rate"), which interest shall be
immediately due and payable as further additional rent. The foregoing provisions
of this Section 4.7 shall not apply to the first installment of rent paid after
the date the same was due during each twelve (12) consecutive month period
during the Term.
ARTICLE V - LANDLORD'S COVENANTS
5.1. COVENANTS. Landlord covenants during the Term:
5.1.1. BUILDING SERVICES. To furnish, through Landlord's
employees or independent contractors, the services listed in EXHIBIT D.
5.1.2. ADDITIONAL BUILDING SERVICES. To furnish, through
Landlord's employees or independent contractors, reasonable additional Building
operation services upon reasonable advance request of Tenant at equitable rates
from time to time established by Landlord to be paid by Tenant.
5.1.3. INSURANCE. To maintain all risk fire and casualty
insurance on a replacement value, agreed amount basis, for the Building in such
amounts as Landlord may consider reasonably appropriate. Landlord shall have no
obligation to insure Tenant's personal property or chattels, including without
limitation, Tenant's trade fixtures.
5.1.4. MAINTENANCE; REPAIRS. Except as otherwise provided in
Article VI, to make such repairs to the roof, exterior walls, floor slabs and
other structural components and common areas and facilities of the Building and
the Land as may be necessary to keep them in good, serviceable condition,
including without limitation, maintenance and repair of the parking area,
including lighting, removal of snow and ice, cleaning, patching pot holes,
landscaping and restriping of parking spaces. Without limitation of the
foregoing, Landlord shall be responsible for the maintenance and repair of the
mechanical, electrical, plumbing and heating and air conditioning systems
serving the Building and the Premises, including the Building elevator.
ARTICLE VI - TENANT'S ADDITIONAL COVENANTS
6.1. COVENANTS. Tenant covenants at its expense at all times during
the Term and for such further time as Tenant occupies the Premises or any part
thereof:
6.1.1. PERFORM OBLIGATIONS. To perform promptly all of the
obligations of Tenant set forth in this Lease; and to pay when due the Fixed
Rent and Additional Rent and all charges, rates and other sums which by the
terms of this Lease are to be paid by Tenant.
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6.1.2. OCCUPANCY AND USE. Continuously from the Commencement
Date, to use and occupy the Premises only for the Permitted Uses, and to timely
procure and maintain all licenses and permits necessary therefor at Tenant's
sole expense.
6.1.3. REPAIR AND MAINTENANCE. Except as otherwise provided
in Article VII, to keep the Premises, including, without limitation, all
plumbing, electrical, and other fixtures and equipment now or hereafter on the
Premises but excluding the exterior of the Premises (exclusive of glass and
doors), the structural elements of the Building, and the grounds and the parking
lot which Landlord shall maintain and repair unless such repairs are required
because of Tenant's misconduct or negligence, in good order, condition and
repair and in at least as good order, condition and repair as they are in on the
Term Commencement Date or may be put in during the Term, reasonable use and wear
only excepted; to maintain the Premises in a clean, orderly and sanitary
condition, including, without limitation, cleaning, repairing or replacing as
needed all floor covering within the Premises; to keep in a safe, secure and
sanitary condition all trash and rubbish temporarily stored at the Premises; and
to make all repairs and replacements and to do all other work necessary for the
foregoing purposes whether the same may be ordinary or extraordinary, foreseen
or unforeseen. It is further agreed that the exception of reasonable use and
wear shall not apply so as to permit Tenant to keep the Premises in anything
less than suitable, tenantlike, and efficient and usable condition considering
the nature of the Premises and the use reasonably made thereof, or in less than
good and tenantlike repair.
6.1.4. COMPLIANCE WITH LAW. To make all repairs,
alterations, additions or replacements to the Premises required by any law or
ordinance or any order or regulation of any public authority required by reason
of Tenant's particular and specific use of the Premises as opposed to legal
requirements applicable generally to office buildings and general business
office uses other than major capital repairs, alterations, additions or
replacements to the foundations and structural elements of the building which
are not required because of Tenant's failure to comply with the provisions of
Article 6.1.3 hereof; to keep the Premises equipped with all safety appliances
so required; to pay all municipal, county, or state taxes assessed against the
leasehold interest hereunder, or against personal property of any kind on or
about the Premises; not to dump, flush, or in any way introduce any hazardous
substances or any other toxic substances into the septic, sewage or other waste
disposal system serving the Premises or the Building, not to generate, store
(except for standard office supplies stored in proper containers in accordance
with law) or dispose of hazardous substances in or on the Premises, the Building
or the Land or dispose of hazardous substances from the Premises, the Building
or the Land to any other location without the prior written consent of Landlord
and then only in compliance with the Resource Conservation and Recovery Act of
1976, as amended, 42 U.S.C. Section 6901 et seq., and all other applicable laws,
ordinances and regulations; to notify Landlord of any incident which would
require the filing of a notice under applicable federal, state, or local law;
not to store (except for standard office supplies stored in proper containers in
accordance with law) or dispose of hazardous substances on the Premises without
first submitting to Landlord a list of all such hazardous substances and all
permits required therefor and thereafter providing to Landlord on an annual
basis Tenant's certification that all such permits have been renewed with copies
of such renewed permits; and to comply with the orders and regulations of all
governmental authorities with respect to zoning, building, fire, health and
other codes, regulations, ordinances or laws applicable to the Premises.
"Hazardous substances" as used in this paragraph shall mean
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"hazardous substances" as defined in the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 and
regulations adopted pursuant to said Act.
6.1.5. TENANT'S WORK. To procure at Tenant's sole expense
all necessary permits and licenses before undertaking any work on the Premises
(including, without limitation, the Tenant Improvements); to do all such work in
compliance with the applicable provisions of this Lease, including, without
limitation, Sections 3.2; to do all such work in a good and workmanlike manner
employing materials of good quality and so as to conform with all applicable
zoning, environmental, building, fire, health and other codes, regulations,
ordinances and laws; to furnish to Landlord prior to the commencement of any
such work a bond or other security reasonably acceptable to Landlord assuring
that any work commenced or continued by Tenant will be completed in accordance
with specifications approved in advance in writing by Landlord; to keep the
Premises at all times free of liens for labor and materials; to employ for such
work one or more responsible contractors whose labor will work without
interference with other labor working on the Building; to require such
contractors employed by Tenant to carry worker's compensation insurance in
accordance with statutory requirements and comprehensive public liability
insurance covering such contractors on or about the Premises in amounts that at
least equal the limits set forth in Section 1.1 and to submit certificates
evidencing such coverage to Landlord prior to the commencement of such work; and
to save Landlord harmless and indemnified from all injury, loss, claims or
damage to any. person or property occasioned by or growing out of such work.
6.1.6. INDEMNITY. To defend, with counsel reasonably
approved by Landlord, all actions against Landlord, any partner, trustee,
stockholder, officer, director, employee or beneficiary of Landlord, holders of
mortgages secured by the Premises or the Building and Land and any other party
having an interest in the Premises ("Indemnified Parties") with respect to, and
to pay, protect, indemnify and save harmless, to the extent permitted by law,
all Indemnified Parties from and against, any and all liabilities, losses,
damages, costs, expenses (including reasonable attorneys' fees and expenses),
causes of action, suits, claims, demands or judgments of any nature (a) to which
any Indemnified Party is subject because of Tenant's estate or interest in the
Premises, or (b) arising from (i) injury to or death of any person, or damage to
or loss of property, on the Premises or on adjoining sidewalks, streets or ways,
connected in any way with the use or occupancy of any thereof by Tenant or any
of Tenant's agents, contractors, licensees, sublessees or invitees, unless due
to the act, fault, omission or misconduct of Landlord, its agents, contractors
or employees or (ii) any act, fault, omission or misconduct of Tenant or its
agents, contractors, licensees, sublessees or invitees.
6.1.7. LANDLORD'S RIGHT TO ENTER. To permit Landlord and its
agents to enter into the Premises at reasonable times and upon reasonable
notice, to examine the Premises, make such repairs and replacements as Landlord
may elect, without however, any obligation to do so, and show the Premises to
prospective purchasers and to lenders, and, during the last twelve (12) months
of the Term, to show the Premises to prospective tenants and to keep affixed in
suitable places notices of availability of the Premises. Landlord shall exercise
its rights under this Section in such a manner as to minimize, to the extent
practicable, interference with Tenant's use and occupancy of the Premises.
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6.1.8. PERSONAL PROPERTY AT TENANT'S RISK. All of the
furnishings, fixtures, equipment, effects and property of every kind, nature and
description of Tenant and of all persons claiming by, through or under Tenant
which, during the continuance of this Lease or any occupancy of the Premises by
Tenant or anyone claiming by, through or under Tenant, may be on the Premises
(collectively "Tenant's Property"), shall, as between the parties, be at the
sole risk and hazard of Tenant and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the leakage or bursting
of water pipes, steam pipes, or other pipes, by theft or from any other cause,
no part of said loss or damage is to be charged to or to be borne by Landlord,
except that Landlord shall in no event be indemnified or held harmless or
exonerated from any liability to Tenant or to any other person, for any injury,
loss, damage or liability to the extent prohibited by law. Landlord waives all
rights in Tenant's Property (except to the extent any portion thereof was
purchased with the Tenant Allowance) and agrees to execute, upon request of
Tenant, a confirmation of such waiver in substantially the form attached hereto
as EXHIBIT E.
6.1.9. PAYMENT OF LANDLORD'S COST OF ENFORCEMENT. To pay on
demand Landlord's expenses, including reasonable attorney's fees, incurred in
successfully enforcing any obligation of Tenant under this Lease or settling any
claim in connection therewith, or in curing any default by Tenant under this
Lease as provided in Section 8.4.
6.1.10. YIELD UP. At the expiration of the Term or earlier
termination of this Lease: to surrender all keys to the Premises, to remove all
of its trade fixtures and personal property in the Premises, to remove such
installations and improvements made by Tenant (other than the Tenant
Improvements) as Landlord may request and all Tenant's signs wherever located,
to repair all damage caused by such removal and to yield up the Premises
(including all installations and improvements made by Tenant except for trade
fixtures and such of said installations or improvements as Landlord shall
request Tenant to remove), broom-clean and in the same good order and repair in
which Tenant is obliged to keep and maintain the Premises by the provisions of
this Lease. Any property not so removed shall be deemed abandoned and may be
removed and disposed of by Landlord in such manner as Landlord shall determine
and Tenant shall pay Landlord the entire cost and expense incurred by Landlord
in effecting such removal and disposition and in making any incidental repairs
and replacements to the Premises and for use and occupancy during the period
after the expiration of the Tenant in and prior to Tenant's performance of its
obligations under this Section 6.1.10. Tenant shall further indemnify Landlord
against all loss, cost and damage resulting from Tenant's failure and delay in
surrendering the Premises as above provided.
6.1.11. ESTOPPEL CERTIFICATE. Upon not less than ten (10)
days' prior notice by Landlord, to execute, acknowledge and deliver to Landlord
a statement in writing certifying that this Lease is unmodified and in full
force and effect and that except as stated therein Tenant has no knowledge of
any defenses, offsets or counterclaims against its obligations to pay the Fixed
Rent and Additional Rent and any other charges and to perform its other
covenants under this Lease (or, if there have been any modifications, that the
Lease is in full force and effect as modified and stating the modifications and,
if there are any defenses, offsets or counterclaims, setting them forth in
reasonable detail), the dates to which the Fixed Rent and Additional Rent and
other charges have been paid and a statement that Landlord is not in default
hereunder (or if
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in default, the nature of such default, in reasonable detail) and such other
matters reasonably required by Landlord or any prospective purchaser or
mortgagee of the Building. Any such statement delivered pursuant to this Section
6.1.11 maybe relied upon by any prospective purchaser or mortgagee of the
Building, or any prospective assignee of any such mortgage.
6.1.12. LANDLORD'S EXPENSES RE CONSENTS. To reimburse
Landlord promptly on demand for all reasonable legal expenses incurred by
Landlord in connection with all requests by Tenant for consent or approval under
this Lease.
6.1.13. RULES AND REGULATIONS. To comply with the Rules and
Regulations set forth in EXHIBIT C, as the same may be amended from time to time
by Landlord to provide for the care and use of the Building and Land and their
facilities and approaches, it being understood that Landlord shall not be liable
to Tenant for the failure of other tenants of the Building to conform to such
Rules and Regulations, provided, however, that to the extent of any conflict
between the provisions of this Lease and any such Rules and Regulations, the
provisions of this Lease shall control.
6.1.14. LOADING. Not to place Tenant's Property, as defined
in Section 6.1.8, upon the Premises so as to exceed a rate of 50 pounds of live
load per square foot and not to move any safe, vault or other heavy equipment
in, about or out of the Premises except in such manner and at such times as
Landlord shall in each instance approve. Tenant's business machines and
mechanical equipment which cause vibration or noise that may be transmitted to
the Building structure or to any other leased space in the Building shall be
placed or maintained by Tenant in settings of cork, rubber, spring, or other
types of vibration eliminators sufficient to eliminate such vibration or noise.
6.1.15. HOLDOVER. To pay to Landlord the greater of twice (a)
the then fair market rent for the Premises as conclusively determined by
Landlord or (b) the total of the Fixed Rent, Additional Rent, and all other
payments then payable hereunder, for each month or portion thereof Tenant shall
retain possession of the Premises or any part thereof after the termination of
this Lease, whether by lapse of time or otherwise, and also to pay all damages
sustained by Landlord on account thereof, the provisions of this subsection
shall not operate as a waiver by Landlord of the right of re-entry provided in
this Lease; if such holding over continues for more than five (5) days after
Landlord's written objection thereto, at the option of Landlord exercised by
notice given to Tenant while such holding over continues, such holding over
shall constitute an extension of this Lease for a period of one year.
6.1.16. ASSIGNMENT AND SUBLETTING.
(a) Not without the prior written consent of
Landlord to assign this Lease, to make any
sublease, or to permit occupancy of the
Premises or any part thereof by anyone
other than Tenant, voluntarily or by
operation of law; as Additional Rent, to
reimburse Landlord promptly for reasonable
legal and other expenses incurred by
Landlord in connection with any request by
Tenant for consent to assignment or
subletting; no assignment or subletting
shall affect the continuing primary
liability of Tenant
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(which, following assignment, shall be
joint and several with the assignee); no
consent to any of the foregoing in a
specific instance shall operate as a waiver
in any subsequent instance.
(b) Notwithstanding any other provision of
this Section 6.1.16, in the event that
Tenant requests Landlord's consent to any
sublease of any portion of the Premises
(said portion of the Premises being
hereinafter referred to as the "Proposed
Sublease Premises"), Landlord shall have
the option, exercisable by notice given to
Tenant within thirty (30) days after
receipt of Tenant's request for consent to
the proposed sublease, to terminate this
Lease with respect to the Proposed Sublease
Premises as of a date specified in such
notice, which shall be not less than thirty
(30) nor more than one hundred twenty (120)
days after such notice, in which event: (i)
this Lease shall continue in full force and
effect with respect to the remainder of the
Premises not included in the Proposed
Sublease Premises, (ii) Tenant shall remove
all of Tenant's trade fixtures and personal
property in the Proposed Sublease Premises,
all of such installations and improvements
made by Tenant therein as Landlord may
request and all of Tenant's signs therein,
and Tenant shall repair all damage caused
by such removal and yield up the Proposed
Sublease Premises (including all
installations and improvements made by
Tenant except for trade fixtures and such
of said installations and improvements as
Landlord may request Tenant to remove),
broom clean and in the same good order and
repair which Tenant is obligated to keep
and maintain the Premises by the provisions
of this Lease.
(c) Notwithstanding any other provision of this
Section 6.1.16, if Tenant requests
Landlord's consent to assign this Lease or
sublet more than twenty-five percent (25 %)
of the Premises, Landlord shall have the
option, exercisable by notice to Tenant
given within thirty (30) days after receipt
of such request, to terminate this Lease as
of a date specified in such notice which
shall be not less than thirty (30) nor more
than one hundred twenty (120) days after the
date of such notice.
(d) Without limitation of any other provision of
this Section 6.1.16, if, at any time during
the Term of this Lease, Tenant is:
(i) a corporation or a trust (whether or not
having shares of beneficial interest) and there shall occur
any change or transfer of the ownership or control of fifty
percent (50%) or more of the persons then having power to
participate in the election or appointment of the directors,
trustees or other persons exercising like functions and
managing the affairs of Tenant; or
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(ii) a partnership or association or
otherwise not a natural person (and is not a corporation or a
trust) and there shall occur any change or transfer of the
ownership or control of fifty percent (50%) or more of the
persons who then are members of such partnership or
association or who comprise Tenant;
Tenant shall so notify Landlord and request Landlord's approval thereto, which
approval shall not be unreasonably withheld or delayed. If Landlord fails to
approve such change or transfer of the ownership or control, Landlord may
terminate this Lease by notice to Tenant given within ninety (90) days
thereafter. This subparagraph shall not apply to any change resulting from the
public offering of Tenant's stock nor to any change in the ownership of such
stock thereafter, if Tenant's stock is listed on a recognized security exchange,
or if at least sixty percent (60%) of its voting stock is owned by another
corporation, the voting stock of which is so listed.
(e) Landlord's consent to any assignment or
subletting by Tenant, or to any occupancy of
the Premises by anyone other than Tenant,
voluntarily or by operation of law, in any
specific instance shall not operate as a
waiver in any subsequent instance.
6.1.17. NUISANCE. Not to injure, deface or otherwise harm the
Premises; nor commit any nuisance; nor permit the emission of any objectionable
noise, vibration or odor; nor make, allow or suffer any Waste; nor make any use
of the Premises which is improper, offensive or contrary to any law or ordinance
or which will invalidate or increase the premiums for any insurance on the
Building or its contents.
6.1.18. INSTALLATION, ALTERATIONS OR ADDITIONS. Not to make
any installations, alterations or additions in, to or on the Premises (other
than the Tenant Improvements but including, without limitation, buildings,
lawns, planted areas, walks, roadways, parking and loading areas) nor to permit
the making of any apertures in the walls, partitions, ceilings or floors without
on each occasion obtaining the prior written consent of Landlord and then only
pursuant to plans and specifications approved by Landlord in advance in each
instance. Landlord will not approve any construction, alterations, or additions
requiring unusual expense to readapt the Premises to normal office use on lease
expiration or termination or increasing the cost of construction, insurance or
taxes on the Premises or the Building or of Landlord's Services called for by
Section 5.1 unless Tenant first gives assurances acceptable to Landlord that
such readaptation will be made prior to such expiration or termination without
expense to Landlord and makes provisions acceptable to Landlord for payment of
such increased cost. All such changes and additions shall be part of the
Building except such items as by writing at the time of approval the parties
agree either shall be removed by Tenant on expiration or termination of this
Lease, or shall be removed or left at Tenant's election.
6.1.19. INSURANCE. To maintain:
(a) Public liability insurance including
contractual liability on the Premises
indemnifying Landlord and Tenant against all
claims and demands for (i) injury to or
death of any person, or damage to or loss of
property, on the Premises or adjoining
walks, streets or
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ways, or connected with the use, condition
or occupancy of any thereof unless caused by
the negligence of Landlord or its servants
or agents or (ii) any act, fault or
omission, or other misconduct of Tenant or
its agents, contractors, licensees,
sublessees or invitees, in amounts which
shall, at the beginning of the Term, be at
least equal to the limits set forth in
Section 1.1, and from time to time during
the Term, shall be for such higher limits,
if any, as are customarily carried in the
area in which the Premises are located on
property similar to the Premises and used
for similar purposes, and shall be written
on the "Occurrence Basis" and include Host
Liquor liability insurance if any liquor or
alcohol is served on the Premises.
(b) Worker's compensation insurance in statutory
amounts covering all of Tenant's employees
working in the Premises.
6.1.20. INSURANCE POLICIES. To obtain all policies for
insurance required under the provisions of Section 6.1.19 from responsible
companies qualified to do business in the state in which the Premises are
located and in good standing therein, which companies and the amount of
insurance allocated thereto shall be subject to Landlord's approval, which
approval shall not be unreasonably withheld or delayed. Tenant agrees to furnish
Landlord with certificates of all such insurance which Tenant is obligated to
obtain pursuant to Section 6.1.19 prior to the beginning of the Term and each
renewal policy at least 30 days' prior to the expiration of the policy it
renews. Each such policy shall prohibit cancellation and reduction of coverage
without at least 30 days' prior written notice to Landlord and to the holders of
any mortgages on the Building and/or Land.
6.1.21. LABOR OR MATERIALMEN'S LIENS. To pay promptly when
due the entire cost of any work done on the Premises by Tenant, its agents,
employees, or independent contractors; not to cause or permit any liens for
labor or materials performed or furnished in connection therewith to attach to
the Premises; and to discharge any such liens which may so attach promptly after
notice of the same but in no event later than thirty (30) days thereafter.
ARTICLE VII - CASUALTY OR TAKING
7.1. TERMINATION. In case during the Term all or any substantial
(meaning at least twenty percent (20%) of the square footage) part of the
Premises or of the Building or of the Land or any one or more of them shall be
taken by any public authority or for any public use, or shall be destroyed or
damaged by fire or casualty, or by the action of any public authority, or
Landlord receives compensable damage by reason of anything lawfully done in
pursuance of public or other authority, then this Lease may be terminated at the
election of Landlord. Such election, which may be made notwithstanding the fact
that Landlord's entire interest may have been divested, shall be made by the
giving of notice by Landlord to Tenant within thirty (30) days after such
destruction or damage or taking.
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If during the Term the whole or more than fifty percent (50%) of the
Premises is damaged or destroyed by fire or other casualty, or if the Building
shall be damaged or destroyed by fire or other casualty in such manner that
Tenant is deprived of reasonably commercial access to the Premises, unless, in
either case, such damage or destruction can, in Landlord's reasonable opinion
asserted in a notice ("Landlord's Notice") delivered within thirty (30) days of
such casualty, be fully repaired within twelve (12) months after such fire or
other casualty, or if, once commenced, such damage or destruction is not in fact
repaired within twelve (12) months of such casualty (plus up to an additional
thirty (30) days required by reason of Unavoidable Delays or as defined in
Section 10.7); Tenant shall have the right, by notice to Landlord given within
thirty (30) days after Landlord's Notice, or as the case may be, within thirty
(30) days after the expiration of said 12-month construction period (as so
extended) if the repairs are not so completed, to terminate this Lease,
effective as of the date of such casualty as if that date were the date set
forth in this Lease for the expiration of the Term, and the Fixed Rent and
Additional Rent payable hereunder shall abate. If Tenant shall fail to give
timely notice of the exercise of its right to terminate, Tenant shall have no
right to so terminate this Lease, time being of the essence of the foregoing
provisions.
7.2. RESTORATION. If neither Landlord or Tenant exercises their
respective right to terminate pursuant to Section 7.1, this Lease shall continue
in force and a just proportion of the rent reserved, according to the nature and
extent of the damages sustained by the Premises, shall be abated from the date
of such casualty or taking until the Premises, or what may remain thereof, shall
be put by Landlord in proper condition for use subject to zoning and building
laws or ordinances then in existence, which, unless Landlord or Tenant has
exercised its right to terminate pursuant to Section 7.1, Landlord covenants to
do with reasonable diligence at Landlord's expense, provided that (and based on
Landlord complying with its obligations under Section 5.1.3 hereof) Landlord's
obligations with respect to restoration shall not require Landlord to expend
more than the net proceeds of insurance recovered or damages awarded for such
casualty or taking. The term "net proceeds of insurance recovered or damages
awarded" refers to the gross amount of such insurance or damages less the
expenses of Landlord in connection with the collection of the same, including,
without limitation, fees and expenses for legal and appraisal services.
7.3. AWARD. Landlord reserves to itself any and all rights to
receive awards made for damages to the Premises, Building or Land and the
leasehold hereby created, or any one or more of them, accruing by reason of
exercise of eminent domain or by reason of anything lawfully done in pursuance
of public or other authority. Tenant hereby releases and assigns to Landlord all
Tenant's rights to such awards, and covenants to deliver such further
assignments and assurances thereof as Landlord may from time to time request,
and hereby irrevocably designates and appoints Landlord its attorney-in-fact to
execute and deliver in Tenant's name and behalf all such further assignments
thereof. It is agreed and understood however, that Landlord does not reserve to
itself, and Tenant does not assign to Landlord, any damages payable for (a)
movable trade fixtures installed by Tenant or anybody claiming under Tenant, at
its own expense or (b) relocation expenses recoverable by Tenant from such
authority in a separate action.
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ARTICLE VIII - DEFAULTS
8.1. EVENTS OF DEFAULT. (a) If any default by Tenant continues
after notice, in case of Fixed Rent, Additional Rent or any other monetary
obligation to Landlord for more than ten (10) days, or in any other case for
more than thirty (30) days and such additional time, if any, as is reasonably
necessary to cure the default if the default is of such a nature that it cannot
reasonably be cured in thirty (30) days and Tenant diligently endeavors to cure
such default, or (b) if any assignment for the benefit of creditors shall be
made by Tenant, or by any guarantor of Tenant, or (c) if Tenant's leasehold
interest shall be taken on execution or other process of law in any action
against Tenant, or (d) if a lien or other involuntary encumbrance is filed
against Tenant's leasehold interest, and is not discharged within thirty (30)
days thereafter, or (e) if a petition is filed by Tenant or any guarantor of
Tenant for liquidation, or for reorganization or an arrangement or any other
relief under any provision of the Bankruptcy Code as then in force and effect,
or (f) if an involuntary petition under any of the provisions of said Bankruptcy
Code is filed against Tenant or any guarantor of Tenant and such involuntary
petition is not dismissed within thirty (30) days thereafter, then, and in any
of such cases, Landlord and the agents and servants of Landlord may, in addition
to and not in derogation of any remedies for any preceding breach of covenant,
immediately or at any time thereafter and without further demand or notice, at
Landlord's election, do any one or more of the following: (i) give Tenant notice
stating that this Lease is terminated, effective upon the giving of such notice
or upon a date stated in such notice, as Landlord may elect, in which event this
Lease shall be irrevocably extinguished and terminated as stated in such notice
without any further action, or (ii) with or without process of law, in a lawful
manner enter and repossess the Premises as of Landlord's former estate, and
expel Tenant and those claiming through or under Tenant, and remove its and
their effects, without being guilty of trespass, in which event this Lease shall
be irrevocably extinguished and terminated at the time of such entry, or (iii)
pursue any other rights or remedies permitted by law. Any such termination of
this Lease shall be without prejudice to any remedies which might otherwise be
used for arrears of rent or prior breach of covenant, and in the event of such
termination Tenant shall remain liable under this Lease as hereinafter provided.
Tenant hereby waives all statutory rights (including without limitation rights
of redemption, if any) to the extent such rights may be lawfully waived, and
Landlord, without notice to Tenant, may store Tenant's effects and those of any
person claiming through or under Tenant, at the expense and risk of Tenant, and,
if Landlord so elects, may sell such effects at public auction or private sale
and apply the net proceeds to the payment of all sums due to Landlord from
Tenant, if any, and pay over the balance, if any, to Tenant.
8.2. REMEDIES. In the event that this Lease is terminated under any
of the provisions contained in Section 8.1 or shall be otherwise terminated for
breach of any obligation of Tenant, Tenant covenants to pay forthwith to
Landlord, as compensation, the excess of the total rent reserved for the residue
of the Term over the rental value of the Premises for said residue of the Term.
In calculating the rent reserved, there shall be included, in addition to the
Fixed Rent and Additional Rent, the value of all other consideration agreed to
be paid or performed by Tenant for said residue. Tenant further covenants as an
additional and cumulative obligation after any such ending to pay punctually to
Landlord all the sums and to perform all the obligations which Tenant covenants
in this Lease to pay and to perform in the same manner and to the same extent
and at the same time as if this Lease had not been terminated. In calculating
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the amounts to be paid by Tenant pursuant to the next preceding covenant, Tenant
shall be credited with any amount paid to Landlord as compensation as provided
in the first sentence of this Section 8.2 and also with the net proceeds of any
rent obtained by Landlord by reletting the Premises, after deducting all of
Landlord's expenses in connection with such reletting, including, without
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for such reletting, it being
agreed by Tenant that Landlord may (i) relet the Premises or any part or parts
thereof for a term or terms which may at Landlord's option be equal to or less
than or exceed the period which would otherwise have constituted the balance of
the Term and may grant such concessions and free rent as Landlord in its sole
judgment considers advisable or necessary to relet the same and (ii) make such
alterations, repairs and decorations in the Premises as Landlord in its sole
judgment considers advisable or necessary to relet the same, and no action of
Landlord in accordance with the foregoing or failure to relet or to collect rent
under reletting shall operate or be construed to release or reduce Tenant's
liability as aforesaid.
In lieu of any other damages or indemnity and in lieu of full recovery
by Landlord of all sums payable under all the foregoing provisions of this
Section 8.2, Landlord may by notice to Tenant, at any time after this Lease is
terminated under any of the provisions contained in Section 8.1 or is otherwise
terminated for breach of any obligation of Tenant and before such full recovery,
elect to recover, and Tenant shall thereupon pay, as liquidated damages, an
amount equal to the aggregate of the Fixed Rent and Additional Rent accrued in
the twelve (12) months ended next prior to such termination (if there is less
than twelve (12) months remaining in the Term, then such amount shall be
prorated upon the number of months and partial months remaining in the Term),
plus the amount of rent of any kind accrued and unpaid at the time of
termination and less the amount of any recovery by Landlord under the foregoing
provisions of this Section 8.2 up to the time of payment of such liquidated
damages.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater than, equal to, or less than the amount of the loss or
damages referred to above.
8.3. REMEDIES CUMULATIVE. Any and all rights and remedies which
Landlord may have under this Lease, and at law and equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or more of all
such rights and remedies may be exercised at the same time insofar as permitted
by law.
8.4. LANDLORD'S RIGHT TO CURE DEFAULTS. Landlord may, but shall not
be obligated to, cure, at any time, following ten (10) days' prior notice to
Tenant, except in cases of emergency when no notice shall be required, any
default by Tenant under this Lease; and whenever Landlord so elects, all costs
and expenses incurred by Landlord, including reasonable attorneys' fees, in
curing a default shall be paid by Tenant to Landlord as Additional Rent on
demand, together with interest thereon at the Default Rate from the date of
payment by Landlord to the date of payment by Tenant.
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8.5. EFFECT OF WAIVERS OF DEFAULT. Any consent or permission by
Landlord to any act or omission which otherwise would be a breach of any
covenant or condition herein, or any waiver by Landlord of the breach of any
covenant or condition herein, shall not in any way be held or construed (unless
expressly so declared) to operate so as to impair the continuing obligation of
any covenant or condition herein, or otherwise, except as to the specific
instance, operate to permit similar acts or omissions.
The failure of Landlord to seek redress for violation of, or to insist
upon the strict performance of, any covenant or condition of this Lease shall
not be deemed a waiver of such violation nor prevent a subsequent act, which
would have originally constituted a violation, from having all the force and
effect of an original violation. The receipt by Landlord of rent with knowledge
of the breach of any covenant of this Lease shall not be deemed to have been a
waiver of such breach by Landlord. No consent or waiver, express or implied, by
Landlord to or of any breach of any agreement or duty shall be construed as a
waiver or consent to or of any other breach of the same or any other agreement
or duty.
8.6. NO ACCORD AND SATISFACTION. No acceptance by Landlord of a
lesser sum than the Fixed Rent, Additional Rent or any other charge then due
shall be deemed to be other than on account of the earliest installment of such
rent or charge due, unless Landlord elects by notice to Tenant to credit such
sum against the most recent installment due, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
or other charge be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such installment or pursue any other remedy in this Lease provided.
ARTICLE IX - MORTGAGES
9.1. RIGHTS OF MORTGAGE HOLDERS. The word "mortgage" as used herein
includes mortgages, deeds of trust or other similar instruments evidencing other
voluntary liens or encumbrances and modifications, consolidations, extensions,
renewals, replacements and substitutes thereof. The word "holder" shall mean a
mortgagee, and any subsequent holder or holders of a mortgage. Until the holder
of a mortgage shall enter and take possession of the Premises for the purpose of
foreclosure, such holder shall have only such rights of Landlord as are
necessary to preserve the integrity of this Lease as security. Upon entry and
taking possession of the Premises for the purpose of foreclosure, such holder
shall have all the rights of Landlord. Notwithstanding any other provision of
this Lease to the contrary, no such holder of a mortgage shall be liable either
as mortgagee or as assignee, to perform, or be liable in damages for failure to
perform, any of the obligations of Landlord unless and until such holder shall
enter and take possession of the Premises for the purpose of foreclosure. Upon
entry for the purpose of foreclosure, such holder shall be liable to perform all
of the obligations of Landlord, subject to and with the benefit of the
provisions of Section 10.6, provided that a discontinuance of any foreclosure
proceeding shall be deemed a conveyance under said provisions to the owner of
the equity of the Premises.
Tenant shall not pay Fixed Rent, Additional Rent or any other charge
more than ten (10) days prior to the due date thereof. No prepayment of Fixed
Rent, Additional Rent or other charge, no assignment of this Lease and no
agreement to modify so as to reduce the rent, change
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the Term, or otherwise materially change the rights of Landlord under this
Lease, or to relieve Tenant of any obligations or liability under this Lease,
shall be valid unless consented to in writing by Landlord's mortgagees of
record, if any.
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release or
termination of such obligations or a termination of this Lease unless (a) Tenant
shall have first given written notice of Landlord's act or failure to act to
Landlord's mortgagees of record, if any, specifying the act or failure to act on
the part of Landlord which could or would give basis to Tenant's rights and (b)
such mortgagees, after receipt of such notice, have failed or refused to correct
or cure the condition complained of within a reasonable time thereafter, but
nothing contained in this Section 9.1 shall be deemed to impose any obligation
on any such mortgagee to correct or cure any such condition. "Reasonable time"
as used above means and includes a reasonable time to obtain possession of the
mortgaged premises, if the mortgagee elects to do so, and a reasonable time to
correct or cure the condition if such condition is determined to exist. Landlord
agrees to use reasonable efforts to notify Tenant of the identity and address of
any mortgagee of record.
The covenants and agreements contained in this Lease with respect to
the rights, powers and benefits of a holder of a mortgage (including, without
limitation, the covenants and agreements contained in this Section 9.1)
constitute a continuing offer to any person, corporation or other entity, which
by accepting or requiring an assignment of this Lease or by entry or foreclosure
assumes the obligations herein set forth with respect to such holder; such
holder is hereby constituted a party of this Lease as an obligee hereunder to
the same extent as though its name were written hereon as such; and such holder
shall be entitled to enforce such provisions in its own name. Tenant agrees on
request of Landlord to execute and deliver from time to time any agreement which
may be necessary to implement the provisions of this Section 9.1.
9.2. SUPERIORITY OF LEASE OPTION TO SUBORDINATE. Unless the option
set forth below in this Section 9.2 shall be exercised, this Lease shall be
superior to and shall not be subordinate to any mortgage or other voluntary lien
or other encumbrance hereafter placed on the mortgaged premises of which the
Premises are a part. The holder of any such mortgage or other voluntary lien or
other encumbrance shall have the option to subordinate this Lease to the same,
provided that such holder enters into an agreement with Tenant by the terms of
which such holder will agree (a) to recognize the rights of Tenant under this
Lease, (b) to perform Landlord's obligations hereunder arising after the date of
such holder's acquisition of title as hereinafter described, expressly
excluding, however, Landlord's obligations under Article III of this Lease, and
(c) to accept Tenant as tenant of the Premises under the terms and conditions of
this Lease in the event of acquisition of title by such holder through
foreclosure proceedings or otherwise and Tenant will agree to recognize the
holder of such mortgage as Landlord in such event, which agreement shall be made
expressly to bind and inure to the benefit of the successors and assigns of
Tenant and of the holder and upon anyone purchasing the mortgaged premises at
any foreclosure sale. Tenant and Landlord agree to execute and deliver any
appropriate instruments necessary to carry out the agreements contained in this
Section 9.2. Any such mortgage to which this Lease shall be subordinated may
contain such terms, provisions and conditions as the holder deems usual or
customary.
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9.3. NO EXISTING MORTGAGE. Landlord represents and warrants that,
as of the date hereof, there are no mortgages or other voluntary liens on the
Building and/or the Land.
ARTICLE X - MISCELLANEOUS PROVISIONS
10.1. NOTICES FROM ONE PARTY TO THE OTHER. All notices required or
permitted hereunder shall be in writing and addressed, if to the Tenant, to the
address set forth in Section 1. 1 or such other address as Tenant shall have
last designated by notice in writing to Landlord and, if to Landlord, to the
address set forth in Section 1.1 or such other address as Landlord shall have
last designated by notice in writing to Tenant. Any notice shall be deemed duly
given if mailed to such address postage prepaid, registered or certified mail,
return receipt requested, when deposited with the U.S. Postal Service, or if
delivered to such address by hand, when so delivered.
10.2. QUIET ENJOYMENT. Landlord agrees that upon Tenant's paying the
rent and performing and observing the terms, covenants, conditions and
provisions on its part to be performed and observed, Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises during the Term without
any manner of hindrance or molestation from Landlord or anyone claiming under
Landlord, subject, however, to the terms of this Lease. Landlord further
represents and warrants that it is the record owner of fee simple title to the
Building and the Land.
10.3. EASEMENTS; CHANGES TO LOT LINES. Landlord reserves the right,
from time to time, to grant easements affecting the Premises or the Building or
the Land and to change or alter existing boundaries of the Land so long as such
easements or such changes or alterations to existing boundaries of the Land do
not unreasonably interfere with Tenant's use of the Premises, and to enter upon
the Premises at reasonable times for purposes of constructing and maintaining
any pipes, wires and other facilities serving any portion of the Land or of the
Building.
10.4. WAIVER OF SUBROGATION. Any casualty insurance carried by
either party with respect to the Premises, the Building or property therein or
occurrences thereon shall include a clause or endorsement denying to the insurer
rights of subrogation against the other party to the extent rights have been
waived by the insured prior to occurrence of injury or loss, provided that such
clause or endorsement is obtainable without payment of an additional premium. If
such clause or endorsement is obtainable upon payment of an additional premium,
then the party benefiting from such clause or endorsement may request the other
party to obtain it and shall reimburse the other party for the cost of such
additional premium. Each party, notwithstanding any provisions of this Lease to
the contrary, hereby waives any rights of recovery against the other for injury
or loss due to hazards covered by such insurance to the extent such party's
policy permits such waiver of subrogation and then only with respect to sums
which are collectible thereunder.
10.5. LEASE NOT TO BE RECORDED. Tenant agrees that it will not
record this Lease. Both parties shall, upon the request of either, execute and
deliver a notice of this Lease in such form, if any, as may be permitted by
applicable statute. If this Lease is terminated before the scheduled expiration
date of the Term of this Lease the parties shall execute,
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deliver and record an instrument acknowledging such fact and the actual date of
termination of this Lease, and Tenant hereby appoints Landlord its
attorney-in-fact, coupled with an interest, with full power of substitution to
execute such instrument.
10.6. BIND AND INURE; LIMITATION OF LANDLORD'S LIABILITY. The
obligations of this Lease shall run with the land, and this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. No owner of the Premises shall be liable under this
Lease except for breaches of Landlord's obligations occurring while owner of the
Premises. The obligations of Landlord shall be binding upon the assets of
Landlord which comprise the Land and Building but not upon other assets of
Landlord. No partner, trustee, stockholder, member, officer, director, employee
or beneficiary (or the partners, trustees, stockholders, officers, directors or
employees of any such beneficiary) of Landlord shall be personally liable under
this Lease and Tenant shall look solely to Landlord's interest in the Premises
in pursuit of its remedies upon an event of default hereunder, and the general
assets of the partners, trustees, stockholders, members, officers, employees or
beneficiaries (and the partners, trustees, stockholders, members, officers,
directors or employees of any such beneficiary) of Landlord shall not be subject
to levy, execution or other enforcement procedure for the satisfaction of the
remedies of Tenant; provided that the foregoing provisions of this sentence
shall not constitute a waiver of any obligation evidenced by this Lease and
provided further that the foregoing provisions of this sentence shall not limit
the right of Tenant to name Landlord or any individual partner or trustee
thereof as party defendant in any action or suit in connection with this Lease
so long as no personal money judgment shall be asked for or taken against any
individual partner, trustee, stockholder, member, officer, employee or
beneficiary of Landlord.
10.7. UNAVOIDABLE DELAYS. In any case where either party hereto is
required to do any act, delays caused by or resulting from Acts of God, war,
civil commotion, fire, flood or other casualty, labor difficulties, shortages of
labor, materials or equipment, government regulations, unusually severe weather,
or other causes beyond such party's reasonable control (collectively,
"Unavoidable Delays") shall not be counted in determining the time during which
work shall be completed, whether such time be designated by a fixed date, a
fixed time or a "reasonable time," and such time shall be deemed to be extended
by the period of such delay.
10.8. LANDLORD'S DEFAULT. Landlord shall not be deemed to be in
default in the performance of any of its obligations hereunder unless it shall
fail to perform such obligations and such failure shall continue for a period of
30 days or such additional time as is reasonably required to correct any such
default after notice has been given by Tenant to Landlord specifying the nature
of Landlord's alleged default. Tenant shall have no right for any such default
to offset or counterclaim against any rent due hereunder. Notwithstanding the
foregoing, if Landlord is unable to perform any of its obligations hereunder in
an emergency situation, Tenant shall be permitted to take such actions as may be
reasonably necessary to prevent or minimize any injury or damage to persons or
property. Upon receipt of documentation reasonably satisfactory to Landlord,
Landlord shall promptly reimburse Tenant for all costs and expenses reasonably
incurred by Tenant in taking such actions.
10.9. BROKERAGE. Each party warrants and represents to the other
that it has had no dealings with any broker or agent in connection with this
Lease other than the Brokers set forth
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in Article I and covenants to defend the other party with counsel approved by
such other party, hold harmless and indemnify Landlord from and against any and
all cost, expense or liability for any compensation, commissions and charges
claimed by any broker or agent other than the Brokers set forth in Article I
with respect to Tenant's dealings in connection with this Lease or the
negotiation thereof. Landlord agrees that it shall be solely responsible for the
payment of any brokerage commission due to the Brokers listed in Article I,
notwithstanding that Hunneman Commercial Company has acted as broker for Tenant.
10.10. APPLICABLE LAW AND CONSTRUCTION. This Lease shall be governed
by and construed in accordance with the laws of the state in which the Premises
are located. If any term, covenant, condition or provision of this Lease or the
application thereof to any person or circumstances shall be declared invalid, or
unenforceable by the final ruling of a court of competent jurisdiction having
final review, the remaining terms, covenants, conditions and provisions of this
Lease and their application to persons or circumstances shall not be affected
thereby and shall continue to be enforced and recognized as valid agreements of
the parties, and in the place of such invalid or unenforceable provision, there
shall be substituted a like, but valid and enforceable provision which comports
to the findings of the aforesaid court and most nearly accomplishes the original
intention of the parties.
There are no prior oral or written agreements between Landlord and
Tenant affecting this Lease. This Lease may be amended, and the provisions
hereof may be waived or modified, only by instruments in writing executed by
Landlord and Tenant.
The titles of the several Articles and Sections contained herein are
for convenience only and shall not be considered in construing this Lease.
Unless repugnant to the context, the words "Landlord" and `Tenant"
appearing in this Lease shall be construed to mean those named above and their
respective heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively. If there be more than one tenant
the obligations imposed by this Lease upon Tenant shall be joint and several.
10.11. SUBMISSION NOT AN OFFER. The submission of a draft of this
Lease or a summary of some or all of its provisions does not constitute an offer
to lease or demise the Premises, it being understood and agreed that neither
Landlord nor Tenant shall be legally bound with respect to the leasing of the
Premises unless and until this Lease has been executed by both Landlord and
Tenant and a fully executed copy delivered to each of them.
10.12. SECURITY DEPOSIT. On or before the date hereof Tenant shall
provide Landlord, as a condition of this Lease, a security deposit in the amount
of $150,000, as security for the performance of the obligations of Tenant
hereunder in accordance with the following requirements.
If Tenant shall fail to perform any of its obligations under this
Lease, Landlord may, but shall not be obligated to, apply the security deposit
to the extent necessary to cure the default, and Tenant shall be obligated to
reinstate the security deposit. Tenant shall not have the right to call upon
Landlord to draw upon all or any part of the security deposit to cure any
default or
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fulfill any obligation of Tenant, but such use shall be solely in the discretion
of Landlord. Provided that Landlord gives Tenant notice of the name of such
grantee or transferee, upon any conveyance by Landlord of its interest under
this Lease, the security deposit may be delivered by Landlord to Landlord's
grantee or transferee. Upon any such delivery, Tenant hereby releases Landlord
herein named of any and all liability with respect to the security deposit, its
application and return, and Tenant agrees to look solely to such grantee or
transferee. It is further understood that this provision shall also apply to
subsequent grantees and transferees.
10.13. SIGNAGE. The name and location of Tenant shall be listed in
building standard format on the building directory furnished by Landlord in the
main lobby of the Building. In addition, the name of Tenant shall be placed by
Landlord in building standard format on Tenant's main entrance door to the
Premises. In addition, Tenant, at Tenant's sole cost and expense, shall replace
the existing backlight sign on the facade of the Building, the location, size,
color and style of which shall be subject to Landlord's prior written approval,
which approval shall not be unreasonably withheld.
10.14. CONDITION PRECEDENT. The parties hereto acknowledge and agree
that the rights and obligations of Landlord and Tenant under this Lease, and the
commencement of the Term hereunder are subject to the vacation of all or a
portion of the Premises by the existing tenant, NetLink, Inc. ("NetLink") and
the early termination of NetLink's lease with Landlord (the "NetLink Lease").
Landlord shall use reasonable efforts to effect the early termination of the
NetLink Lease and the vacation of the Premises by NetLink on or before March 31,
1999, as evidenced by a written agreement to that effect executed and delivered
to Landlord on or before 5:00 p.m. on March 16, 1999 (the "NetLink Termination
Agreement"). If NetLink has not executed and delivered to Landlord the NetLink
Termination Agreement, in a form satisfactory to Landlord, on or before March
16, 1999, then at any time thereafter up to and including March 31, 1999, Tenant
may provide Landlord with a written notice of its election to terminate this
Lease (the "Termination Notice"). If the Termination Notice is given, then this
Lease shall terminate and be null and void and neither party shall have any
further liability to the other hereunder. If a Termination Notice is not given
on or before March 31, 1999, then this Lease shall remain in full force and
effect without any further action by the parties hereto.
WITNESS the execution hereof under seal on the day and year first above
written.
Landlord:
FRAMINGHAM - 1881 ASSOCIATES
by its agent, SPAULDING AND SLYE
SERVICES LIMITED PARTNERSHIP
By: Spaulding and Slye Properties
Company, Inc., its General Partner
By:
Name:
Title:
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Tenant:
FURNITURE.COM, INC.
By: /s/ Richard E. Clark
--------------------
Name: Richard E. Clark
Its: CFO
Hereunto duly authorized
EXHIBIT A
Plan of Premises
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EXHIBIT B
Plan of Land
Map of the Plan of Land not included; however, it is illegible on the
hardcopy of the lease
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EXHIBIT C
Rules and Regulations
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Rules and Regulations
1. The entrances, lobbies, passages, corridors, elevators, halls, courts,
sidewalks, vestibules, and stairways shall not be encumbered or
obstructed by Tenant, Tenant's agents, servants, employees, licensees
or visitors or used by them for any purposes other than ingress or
egress to and from the Premises.
2. The moving in or out of all safes, freight, furniture, or bulky
matter of any description shall take place during the hours which
Landlord may determine from time to time. Landlord reserves the right
to inspect all freight and bulky matter to be brought into the
Building and to exclude from the Building all freight and bulky matter
which violates any of these Rules and Regulations or the Lease of
which these Rules and Regulations are a part. Landlord reserves the
right to have Landlord's structural engineer review Tenant's floor
loads on the Premises. Such review shall be at Landlord's expense,
unless Landlord's structural engineer finds that Tenant has violated
the floor load requirements of this Lease, in which case such review
shall be at Tenant's expense.
3. Tenant, or the employees, agents, servants, visitors or licensees of
Tenant shall not at any time place, leave or discard any rubbish,
paper, articles, or objects of any kind whatsoever outside the doors of
the Premises or in the corridors or passageways of the Building. No
animals or birds shall be brought or kept in or about the Building.
Bicycles shall not be permitted in the Building.
4. Tenant shall not place objects against glass partitions or doors or
windows or adjacent to any common space which would be unsightly from
the Building corridors or from the exterior of the Building and will
promptly remove the same upon notice from Landlord.
5. Tenant shall not make noises, cause disturbances, create vibrations,
odors or noxious fumes or use or operate any electric or electrical
devices or other devices that emit sound waves or are dangerous to
other tenants and occupants of the Building or that would interfere
with the operation of any device or equipment or radio or television
broadcasting or reception from or within the Building or elsewhere, or
with the operation of roads or highways in the vicinity of the
Building, and shall not place or install any projections, antennae,
aerials, or similar devices inside or outside of the Premises, without
the prior written approval of Landlord.
6. Tenant may not (without Landlord's approval therefor, which approval
will be signified on Tenant's Plans submitted pursuant to the Lease)
and Tenant shall not permit or suffer anyone to: (a) cook in the
Premises; (b) place vending or
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dispensing machines of any kind in or about the Premises; (c) at any
time sell, purchase or give away permit the sale, purchase, or gift of
food in any form.
7. Tenant shall not (a) use the Premises for lodging, manufacturing or for
any immoral or illegal purposes; (b) use the Premises to engage in the
manufacture or sale of, or permit the use of spirituous, fermented,
intoxicating or alcoholic beverages on the Premises; (c) use the
Premises to engage in the manufacture or sale of, or permit the use of,
any illegal drugs on the Premises.
8. No awning or other projections shall be attached to the outside walls
or windows. No curtains, blinds, shades, screens or signs other than
those furnished by Landlord shall be attached to, hung in, or used in
connection with any window or door of the Premises without prior
written consent of Landlord.
9. No signs, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or
inside of the Premises if visible from outside of the Premises.
Interior signs on doors shall be painted or affixed for Tenant by
Landlord.
10. Tenant shall not use the name of the Building or use pictures or
illustrations of the Building in advertising or other publicity without
prior written consent of Landlord. Landlord shall have the right to
prohibit any advertising by Tenant which, in Landlord's opinion, tends
to impair the reputation of the Building or its desirability for
offices, and upon written notice from Landlord, Tenant will refrain
from or discontinue such advertising.
11. Door keys for doors in the Premises will be furnished at the
Commencement of the Lease by Landlord. Tenant shall not affix
additional locks on doors and shall purchase duplicate keys only from
Landlord and will provide to Landlord the means of opening of safes,
cabinets, or vaults left on the Premises upon the expiration or sooner
termination of the Term of this lease. In the event of the loss of any
keys so furnished by Landlord, Tenant shall pay to Landlord the cost
thereof.
12. Tenant shall cooperate and participate in all security programs
affecting the Building.
13. Tenant assumes full responsibility for protecting its space from theft,
robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed and secured.
14. Tenant shall not make any room-to-room canvass to solicit business from
other tenants in the Building, and shall not exhibit, sell or offer to
sell, use, rent or exchange any item or services in or from the
Premises unless ordinarily embraced within Tenant's use of the Premises
as specified in its Lease. Canvassing, soliciting and peddling in the
Building are prohibited and Tenant shall cooperate
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to prevent the same. Peddlers, solicitors and beggars shall be
reported to the Management Office.
15. Tenant shall not mark, paint, drill into, or in any way deface any part
of the Building or Premises. No boring, driving of nails, or screws,
cutting or stringing of wires shall be permitted, except with the prior
written consent of Landlord, and as Landlord may direct. Tenant shall
not install any resilient tile or similar floor covering the Premises
except with the prior written approval of Landlord. The use of cement
or other similar adhesive material is expressly prohibited.
16. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and shall refrain from
attempting to adjust controls. Tenant shall keep corridor doors closed
except when being used for access.
17. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed,
and no sweepings, rubbish, rags, or other substances shall be thrown
therein.
18. Building employees shall not be required to perform, and shall not be
requested by any tenant or occupant to perform, any work outside of
their regular duties, unless under specific instructions from the
office of the Managing Agent of the Building.
19. Tenant may request heating and/or air conditioning in the common
areas of the Building during other periods in addition to normal
operating hours (Monday through Friday) from 8:00 a.m. to 6:00 p.m.,
except on holidays recognized by the federal, state or local
government, and Saturdays from 8:00 a.m. to 1:00 by submitting its
request in writing to the office of the Managing Agent of the Building
no later than 2:00 p.m. the preceding work day (Monday through Friday)
on forms available from the office of the Managing Agent. The request
shall clearly state the start and stop hours of the "offhour" service.
Tenant shall submit to the Managing Agent a list of personnel
authorized to make such request. Tenant shall be charged for such
operation in the form of Additional Rent. Such charges are currently
$25 per hour per floor, but may be adjusted on a fair and reasonable
basis from time to time by the Managing Agent to reflect the
additional operating costs involved.
20. Smoking is prohibited in all common areas of the Building.
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EXHIBIT D
Landlord's Services
I CLEANING
A. General
1. All cleaning work will be performed between 6 p.m. and
12 midnight, Monday through Friday, unless otherwise
necessary for stripping, waxing, etc.
2. Abnormal waste removal (e.g. bulk packaging, wood or
cardboard crates, refuse from food operations, etc.)
shall be Tenant's responsibility.
B. Daily Operations (5 times per week)
1. Lavatories
a.Sweep and wash floors with disinfectant.
b. Wash both sides of toilet seats with
disinfectant
c. Wash all mirrors, basins, bowls, urinals.
d. Spot clean toilet partitions.
e. Empty and disinfect sanitary napkin disposal
receptacles.
f. Refill toilet tissue, towel, soap, and
sanitary napkin dispensers.
3. Public Areas
a. Wipe down entrance doors and clean glass
(interior and exterior).
b. Vacuum elevator carpets and wipe down doors
and walls.
c. Clean water coolers.
C. Weekly Operations
1. Lavatories, Public Areas
a. Hand-dust and wipe clean all horizontal
surfaces with treated cloths to include
furniture, office equipment,
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window sills, door ledges, chair rails,
baseboards, convector tops, etc., within
normal reach.
b. Remove finger marks from private entrance
doors, light switches, and doorways.
c. Sweep all stairways.
D. Monthly Operations
1. Public Areas
a.Thoroughly vacuum seat cushions on chairs, sofas,
etc.
b. Vacuum and dust grillwork.
2. Lavatories
a.Wash down interior walls and toilet partitions.
E. As Required and Weather Permitting
1. Entire Building
a. Clean inside of all windows.
b. Clean outside of all windows.
F. Yearly
1. Public Areas
a. Strip and wax all resilient tile floor areas.
2. Maintenance of any additional or special air
conditioning equipment and the associated operating
cost will be at Tenant's expense.
II. WATER
Hot water for lavatory purposes and cold water for drinking,
lavatory and toilet purposes.
III. ELEVATORS (if Building is Elevatored)
Elevators for the use of all tenants and the general public for access to
and from all floors of the building. Programming of elevators (including,
but not limited to, service elevators) shall be as Landlord from time to
time determines best for the Building as a whole.
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IV. CAFETERIA AND VENDING INSTALLATIONS
1. Any space to be used primarily for lunchroom or cafeteria operation
shall be Tenant's responsibility to keep clean and sanitary, it being
understood that Landlord's approval of such use must be first obtained
in writing.
2. Vending machines or refreshment service installations by Tenant must be
approved by Landlord in writing and shall be restricted in use to
employees and business callers. All cleaning necessitated by such
installations shall be at Tenant's expense.
FOR VALUABLE CONSIDERATION, the undersigned, being the owner and
landlord ("LANDLORD") of the above-described Premises, hereby waives any claim
against or lien upon the inventory, equipment and proceeds therefrom (and
replacements, substitutions and additions for or to the foregoing), installed or
to be installed in the aforesaid Premises in which (the "BANK"), its successors
or assigns, now or hereafter holds a security interest; provided such inventory
or equipment does not become part of the real estate.
Landlord further agrees that as long as the lease with Furniture.com,
Inc. for the Premises remains in force and effect, to interpose no objections to
the entry by the Bank, its successors and assigns, upon said Premises for the
purpose of removing and/or liquidating its collateral in the event of default by
Tenant in its obligations to the Bank, provided that (a) the Bank restore any
walls, windows, doors, partitions, roofs, floors or other parts of the Premises
damaged by it in the course of removal to their condition at the time of the
Bank's entry into possession. The undersigned agrees that the Bank shall have
the right to cure any default of Furniture.com, Inc. under said lease.
Landlord represents that a true and correct copy of the lease of said
Premises is attached hereto and acknowledges that to the best of its knowledge,
there are currently no uncured defaults on the part of Tenant. Landlord shall
endeavor to give the Bank a copy of any notice terminating the rights of Tenant
hereunder, but such failure shall not nullify or invalidate any
-42-
notice sent to Tenant or be a default by Landlord under this document. Landlord
agrees that the Bank shall have the right for as long as the lease remains
outstanding to either (a) enter into possession for the purpose of removing and
liquidating its collateral in accordance with the preceding paragraph, or (b)
cure any default which can be cured by the payment or expenditure of money and
thereupon to assume all of the obligations and rights of Tenant under the lease
for as long as the Bank is in possession of such Premises.
The acceptance of such rents or other sums from the Bank will not bar
Landlord's rights against Tenant under the lease.
SIGNED AND SEALED on behalf of the successors and
assigns of the undersigned this ____ day of ______________________, 19__.
(Landlord)
FRAMINGHAM - 1881 ASSOCIATES by its agent,
SPAULDING AND SLYE SERVICES LIMITED
PARTNERSHIP
By: Spaulding and Slye Properties Company,
Inc., its General Partner
By:
Name:
-43-
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("First Amendment") dated as of December 21,
1999, by and between BerTech 1881 LLC, a Delaware limited liability company
("Landlord"), and Furniture.com, Inc., a Delaware corporation ("Tenant").
WITNESSETH:
WHEREAS, Framingham - 1881 Associates, the predecessor in interest
to Landlord, and Tenant entered into that certain lease dated as of March 16,
1999 (the "Lease") for approximately 32,787 rentable square feet (the
"Premises") located on the second (2nd) floor of the building ("Building") known
and numbered as 1881 Worcester Road, Framingham, Massachusetts; and
WHEREAS, Landlord and Tenant wish to (a) expand the Premises to
include the remainder of the rentable square footage of the Building, and (b)
otherwise amend the terms of the Lease in certain particulars, all as more
specifically set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:
1. New Definitions. Capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Lease. The Lease is hereby
amended by adding to Section 1.1 thereof the following defined terms:
a. Additional Premises. "Additional Premises: Approximately 18,387
rentable square feet located on the first (1st) floor of the
Building (the "First Additional Premises") and approximately 13,165
square feet on the first (1st) floor of the Building (the "Second
Additional Premises"), both spaces as shown on Exhibit F (the First
Additional Premises and the Second Additional Premises are sometimes
hereinafter collectively referred to as the "Additional Premises.""
b. Rent Commencement Date for the First Additional Premises. "First
Additional Premises Rent Commencement Date: January 1, 2000."
c. Rent Commencement Date for the Second Additional Premises. "Second
Additional Premises Rent Commencement Date: July 1, 2000."
d. Commencement Date for the Additional Premises. "Commencement Date
for the Additional Premises: January 1, 2000"
e. Initial Fiscal Year for Operating Expenses for the Additional
Premises: "Initial Fiscal Year for Operating Expenses for the
Additional Premises: Calendar Year 2000."
f. Initial Calendar Year for Real Estate Taxes for the Additional
Premises: "Initial Calendar Year for Real Estate Taxes for the
Additional Premises: Calendar Year 2000, meaning the last two (2)
quarters of fiscal real estate tax year 2000 (January 1, 2000 - June
30, 2000) and the first two (2) quarters of fiscal real estate tax
year 2001 (July 1, 2000 - December 31, 2000), such quarters to be
based upon the final tax bill for the respective fiscal real estate
tax years, rather than on estimated quarterly bills."
2. Revised Definitions. Section 1.1 of the Lease is hereby further amended as
follows:
a. Landlord. The definition of Landlord is deleted in its entirety and
shall be replaced by the following text:
"BerTech 1881 LLC, a Delaware limited liability company"
b. Landlord's & Managing Agent's Address: The definition of Landlord's
& Managing Agent's Address is deleted in its entirety and shall be
replaced by the following text:
"c/o Berkeley Investments, Inc.
121 High Street
Boston, MA 02110"
c. Landlord's Representative: The definition of Landlord's
Representative is deleted in its entirety and shall be replaced by
the following text:
"Philip J. Brannigan, Jr."
d. Managing Agent: The definition of Managing Agent is deleted in its
entirety and shall be replaced by the following text:
"Berkeley Management, Inc."
e. Tenant's Address: The definition of Tenant's Address (for Notice and
Billing) is deleted in its entirety and shall be replaced by the
following text:
f. Annual Fixed Rent. The definition of Annual Fixed Rent is deleted in
its entirety and shall be replaced by the following text:
"Term Commencement Date - March 31, 2001: $20.00 p.r.s.f April 1,
2001 - December 31, 2004: $23.00 p.r.s.f."
g. Parking Facilities. The definition of Parking Facilities shall be
deleted in its entirety and replaced with the following text:
"Tenant, its employees, customers and visitors shall have the right
to the exclusive use of all parking facilities as may adjoin or be
available to the Building."
h. Premises. The following text shall be added to the definition of
"Premises":
"From and after the Commencement Date for the Additional Premises,
'Premises' shall also include the Additional Premises, except as
specifically set forth herein."
i. Tenant's Proportionate Share. The definition of Tenant's
Proportionate Share shall be deleted.
j. Term Expiration Date. The definition of "Term Expiration Date" shall
be deleted and the phrase "December 31, 2004" shall be inserted in
place thereof.
k. Right of First Refusal. The definition of Right of First Refusal and
is hereby deleted in its entirety.
3. Premises. Section 2.1.1(b) of the Lease is hereby amended as follows:
(a) The phrase "the right to use in common with others entitled thereto"
in Section 2.1.1(b) shall be deleted and the phrase "the right to
use in common with the Landlord" shall be inserted in place thereof.
(b) The number "two (2)" in the fourth line of Section 2.1.1(b) shall be
deleted and the word "all" shall be inserted in place thereof.
(c) The second sentence of Section 2.1.1(b), which begins with the
phrase "Notwithstanding the foregoing" shall not be applicable under
the Lease unless Tenant (i) assigns any portion of the Premises to a
third party, (ii) sublets any portion of the Premises to a third
party, or (iii) returns any portion of the Premises to Landlord.
4. Right of First Refusal: The Lease is hereby amended by deleting Section
2.1.2 of the Lease in its entirety.
5. Condition of Additional Premises. The Lease shall be amended by inserting
the following text at the end of Section 3.1.1:
"Subject to the provisions of this Article III, and to the extent of
Landlord's ongoing maintenance, repair and service obligations as
expressly set forth in the Lease, Tenant hereby agrees to accept the
Additional Premises "AS IS", "AS SHOWN," and "WITH ALL FAULTS" as of
the Commencement Date for the Additional Premises. Tenant further
acknowledges that neither Landlord nor any agent of Landlord has
made any representation, express or implied, written, verbal or
otherwise as to the condition of the Additional Premises or the
suitability of the Additional Premises for Tenant's intended use.
6. Tenant Allowance. The Lease shall be amended by inserting the following
Section 3.1.4 in the Lease:
"3.1.4. Landlord shall provide Tenant with an allowance equal to the
lesser of (i) the costs of the Additional Tenant Improvements, as
defined below, or (ii) $3.00 per rentable square foot for the
Additional Premises (the "Additional Premises Allowance") which
shall be used exclusively for Tenant Improvements to the Additional
Premises (the "Additional Tenant Improvements"). Tenant will provide
Landlord with reasonable evidence and sufficient back up
documentation of the costs of the Additional Tenant Improvements,
which costs may include those types of costs referred to in Section
3.1.3 of the Lease. Landlord shall remit the Additional Premises
Allowance to Tenant pursuant to the terms of Section 3.1.3 of the
Lease. The Additional Tenant Improvements shall be subject to the
Landlord's approval as set forth in Section 3.1.2 herein and shall
be constructed in a good and workerlike manner in
accordance with all applicable laws, rules, ordinances and
regulations. Tenant shall indemnify and hold Landlord harmless from
any and all costs, expenses, losses or damages in connection with
the installation and construction of the Additional Tenant
Improvements. All Additional Tenant Improvements made by Tenant
shall be subject to all of the terms and conditions of the Lease,
including without limitation, the provisions of 6.1.4 - 6.1.6, and
6.1.18 - 6.1.21 hereof."
7. Operating Expenses. Article IV of the Lease is hereby amended as follows:
a. Initial Base Cost for the Additional Premises: The following text
should be added to the end of Section 4.3.1:
"Initial Base Cost for the Additional Premises" shall mean all
Operating Expenses of the Building for the Initial Fiscal Year for
Operating Expenses for the Additional Premises."
b. Tenant's Proportionate Share: Section 4.3.2 of the Lease shall be
amended by deleting all references to the phrase "Tenant's Proportionate
Share" therein and inserting the phrase "51%" in place thereof.
c. Operating Expenses over the Initial Base Cost for the Additional
Premises. Article IV of the Lease is hereby amended by inserting the
following Section 4.3.2(a):
"4.3.2(a) With respect to the Additional Premises, for and with
respect to each Fiscal Year, Tenant shall pay as Additional Rent for
the Additional Premises 49% of the increase in Operating Expenses
over the Initial Base Cost for the Additional Premises, on the
following terms and conditions:
(i) After the end of the first Fiscal Year immediately following
the Initial Fiscal Year for Operating Expenses for the
Additional Premises (the "First Full Fiscal Lease Year for the
Additional Premises"), if Operating Expenses for such First
Full Fiscal Lease Year for the Additional Premises exceed the
Initial Base Cost for the Additional Premises, Landlord shall
submit a notice to Tenant reasonably detailing such excess,
and Tenant shall pay 49% of such excess within thirty (30)
days after such notice.
(ii) During each Fiscal Year following the First Full Fiscal Lease
Year for the Additional Premises, Tenant shall pay
to Landlord, in monthly installments together with monthly
Fixed Rent, an amount estimated by Landlord as one-twelfth of
49% of the excess of Operating Expenses for such Fiscal Year
over the Initial Base Cost for the Additional Premises.
(iii) Within one hundred twenty (120) days (or as soon thereafter as
possible) following the end of each Fiscal Year following the
First Full Fiscal Year for the Additional Premises, Landlord
shall provide Tenant a statement of such year's actual
Operating Expenses, showing the actual increase in Operating
Expenses over the Initial Base Cost for the Additional
Premises (the "Annual Operating Expense Statement for the
Additional Premises"). If such Annual Operating Expense
Statement for the Additional Premises shows that Tenant's
monthly payments exceed 49% of the actual increase incurred
for the applicable Fiscal Year, then Tenant may deduct such
overpayments from its next payment or payments of monthly rent
unless the Term has expired, in which case Landlord shall
refund such overpayment to Tenant within thirty (30) days
after such Annual Operating Expense Statement for the
Additional Premises. If such Annual Operating Expense
Statement for the Additional Premises shows that 49% of the
actual increase incurred for the applicable Fiscal Year
exceeds Tenant's monthly payments for the applicable Fiscal
Year, then Tenant shall within thirty (30) days after such
statement pay the total amount of such deficiency to Landlord.
(iv) Each and every of the aforesaid projected escalated amounts,
as well as any other amounts which are owed by Tenant to
Landlord under this Lease other than Annual Fixed Rent,
whether or not identified as "Additional Rent" hereunder, and
whether requiring lump sum payment or constituting projected
monthly amounts payable with the Annual Fixed Rent, shall for
all purposes be treated and considered as Additional Rent and
the failure of Tenant to pay the same as and when due in
advance and without demand shall have the same effect as
failure to pay any installment of the Annual Fixed Rent, and
shall afford Landlord all remedies provided in this Lease
therefor."
8. Real Estate Taxes. Article IV of the Lease is hereby further amended as
follows:
a. Initial Tax Cost for the Additional Premises: The following text should
be added to the end of Section 4.4.1:
"Initial Tax Cost for the Additional Premises" shall mean all Real
Estate Taxes assessed against the Building and the Land for the
Initial Calendar Year for Real Estate Taxes for the Additional
Premises."
b. Tenant's Proportionate Share: Section 4.4.2 of the Lease shall be
amended by deleting all references to the phrase "Tenant's Proportionate
Share" therein and inserting the phrase "51%" in place thereof.
c. Escalation of Real Estate Taxes for the Additional Premises. The
following Section 4.4.5 shall be added to Article IV of the Lease:
"4.4.5: With respect to the Additional Premises, for and with
respect to each calendar year, Tenant shall pay as Additional Rent
for the Additional Premises the increase in Real Estate Taxes over
the Initial Calendar Year for Real Estate Taxes for the Additional
Premises over the Initial Tax Cost for the Additional Premises, on
the following terms and conditions:
(i) After the end of the first calendar year following the
Initial Calendar Year for Real Estate Taxes for the
Additional Premises, if Real Estate Taxes exceed the
Initial Tax Cost for the Additional Premises, Landlord
shall submit a notice to Tenant reasonably detailing
such excess and Tenant shall pay such 49% of such excess
within thirty (30) days after such notice.
(ii) During each calendar year following the Initial Calendar
Year for Real Estate Taxes for the Additional Premises,
Tenant shall pay to Landlord, in monthly installments
together with monthly Fixed Rent, an amount estimated by
Landlord as one-twelfth of 49% of the excess of Real
Estate Taxes for such calendar year over the Initial Tax
Cost for the Additional Premises.
(iii) Within one hundred twenty (120) days (or as soon
thereafter as possible) following the end of each
calendar year, Landlord shall provide Tenant with a
statement of such year's actual Real Estate Taxes,
showing the actual increase in Real Estate Taxes
over the Initial Tax Cost for the Additional Premises.
If such statement shows that Tenant's monthly payments
exceed 49% of the actual increase incurred for the
applicable calendar year, then Tenant may deduct such
overpayments from its next payment or payments of
monthly rent unless the Term has expired, in which case
Landlord shall refund such overpayment to Tenant within
thirty (30) days of such statement. If such statement
shows that 49% of the actual increase incurred for the
applicable calendar year exceeds the Tenant's monthly
payments for the applicable calendar year, then Tenant
shall within thirty (30) days after such statement pay
the total amount of such deficiency to Landlord.
(iv) Each and every of the aforesaid projected escalation
amounts shall for all purposes be treated and considered
as Additional Rent.
(v) Inasmuch as the Town of Framingham assesses Real Estate
Taxes on a fiscal tax year basis (July 1 - June 30), the
Real Estate Taxes for each calendar year shall be the
sum of the last two (2) quarters of the Tax Year that
ends on June 30 of said calendar year and the first two
(2) quarters of the Tax Year that ends on June 30 of the
following calendar year, such quarters to be based upon
the final tax bill for the respective fiscal real estate
tax years, rather than on estimated quarterly bills."
d. Calculation of Real Estate Taxes for Partial Calendar Year: The
following Section 4.4.6 shall be added to Article IV of the Lease:
"4.4.6 Should this Lease terminate at any time other than the first
day of a calendar year, the Additional Rent referred to in paragraph 4.4.5 with
respect to the Additional Premises shall be calculated for the calendar year in
which the expiration of the Term occurs only by the following formula:
Days Under Lease x Additional Rent = Adjusted Additional Rent
---------------- for the calendar year in
365 which termination occurred."
e. Occupancy Rate for Building: The following Section 4.4.7 shall be added
to Article IV of the Lease:
"4.4.7 In any calendar year when the Building has an average annual
occupancy rate of less than 95% then, for purposes of Section 4.4.5, the Real
Estate Taxes will be extrapolated as though the Building were 95% occupied. In
any calendar year when the Building has an average annual occupancy rate of 95%
or more, then the Real Estate Taxes for the Additional Premises will be the
actual Real Estate Taxes. Landlord shall credit against Tenant's next ensuing
payment of Additional Rent any excess payments made by Tenant to reflect any
abatement in Real Estate Taxes obtained by Landlord with respect to any calendar
year. Expenditures for legal fees and other expenses incurred in obtaining an
abatement may be charges against the amount of Real Estate Taxes abated."
9. Subletting. Article VI of the Lease is hereby amended as follows:
a. Consent to Sublease. Section 6.1.16 of the Lease is hereby amended by
inserting the following Section 6.1.16(f):
"(f) Notwithstanding any other provision of this Section 6.1.16, in
the event that Tenant requests Landlord's consent to any sublease of
all or a portion of the Premises, such consent shall not be
unreasonably withheld or delayed and Landlord shall grant or
withhold consent in any event within thirty (30) days of such
request. Tenant's written request for Landlord's consent shall
include: (1) financial statements for the proposed subtenant for the
past two (2) years prepared in accordance with generally accepted
accounting principles, (2) a detailed description of the business
the subtenant intends to operate at the Premises, (3) the proposed
effective date of the sublease, (4) a copy of the proposed sublease
agreement which includes all of the terms and conditions of the
proposed sublease, and (5) a detailed description of any ownership
or commercial relationship between Tenant and the proposed
subtenant. If the obligations of the proposed subtenant will be
guaranteed by any person or entity, Tenant's written request shall
not be considered complete until the information described in (1) of
the previous sentence has been provided with respect to each
proposed guarantor.
The following terms and conditions shall be applicable to any
sublease:
(i) Regardless of Landlord's consent, no sublease shall release
Tenant from Tenant's obligations hereunder or alter the primary liability
of Tenant to pay the rent and other sums due Landlord hereunder and to
perform all other obligations to be performed by Tenant hereunder.
(ii) Landlord may accept rent from any person other than Tenant
pending approval or disapproval of a subletting.
(iii) Neither a delay in the approval or disapproval of a sublease,
nor the acceptance of rent, shall constitute a waiver or estoppel of
Landlord's right to exercise its rights and remedies for the breach of any
of the terms or conditions of this Article VI.
(iv) The consent by Landlord to any sublease shall not constitute a
consent to any subsequent sublease by Tenant or to any subsequent or
successive sublease by a subtenant. However, Landlord may consent to
subsequent subleases or any amendments or modifications thereto without
notifying Tenant or anyone else liable on the Lease and without obtaining
their consent, and such action shall not relieve such persons from
liability under this Lease.
(v) In the event of any default under this Lease, Landlord may
proceed directly against Tenant, any guarantors or anyone else responsible
for the performance of this Lease without first exhausting Landlord's
remedies against any other person or entity responsible therefor to
Landlord, or any security held by Landlord.
(vi) Landlord's written consent to any sublease by Tenant shall not
constitute an acknowledgment that no default then exists under this Lease
nor shall such consent be deemed a waiver of any then existing default.
(vii) Landlord shall not be liable under this Lease or under any
sublease to any subtenant.
(viii) No sublease may be modified or amended without Landlord's
prior written consent."
(b) Transfer Premium from Subletting. Section 6.1.16 of the Lease is
hereby amended by inserting the following Section 6.1.16(g):
"(g) Landlord shall be entitled to receive from Tenant (as and when
received by Tenant), as an item of Additional Rent, fifty percent
(50%) of the net rent received by Tenant from any subtenant after
the reduction of any costs incurred by Tenant in subleasing the
space (the "Transfer Premium"). The "reduction of any costs incurred
by Tenant in subleasing the space" shall include (i) all reasonable
costs incurred by Tenant in connection with such sublease,
including, without limitation, reasonable legal fees, brokerage
commissions and construction costs, and (ii) the costs of any
services which Tenant shall supply to such subtenant, such as
electricity, which are not being supplied by
Landlord to Tenant under this Lease. "Transfer Premium" shall mean
all Annual Fixed Rent, Additional Rent or other consideration of any
type whatsoever payable by the subtenant in excess of the Annual
Fixed Rent and Additional Rent payable by Tenant under this Lease.
If less than all of the Premises is transferred, the Annual Fixed
Rent and the Additional Rent shall be determined on a per rentable
square foot basis. "Transfer Premium" shall also include, but not be
limited to, key money and bonus money paid by the subtenant to
Tenant in connection with such sublease, and any payment in excess
of fair market value for services rendered by Tenant to the
subtenant or for assets, fixtures, inventory, equipment, or
furniture transferred by Tenant to the subtenant in connection with
such sublease."
10. Security Deposit. The Lease is hereby amended by deleting the number
"$150,000.00" in the second line of Section 10.12 of the Lease and
inserting the number "$587,160.00" in place thereof. The Tenant has
previously delivered $150,000.00 of the Security Deposit to Landlord. The
remaining $437,160.00 of the Security Deposit (the "Additional Security")
shall be payable to Landlord upon execution of this First Amendment and
Tenant shall have the option of delivering the Additional Security in the
form of cash or letter of credit pursuant to the terms set forth herein.
If Tenant delivers the Additional Security to Landlord in cash, Landlord
shall deposit the same in a separate interest bearing account on behalf of
Tenant. Provided that Tenant has performed all of its obligations under
the Lease, Landlord shall, within 30 days after the expiration of the
Term, return to Tenant the portion of the Additional Security, plus any
accrued interest, which was not applied to satisfy Tenant's obligations.
If Tenant delivers the Additional Security to Landlord in the form of a
letter of credit, Tenant shall deliver to Landlord, in form and substance
reasonably satisfactory to Landlord, an unconditional letter of credit
issued or confirmed by a Massachusetts lending institution satisfactory to
Landlord (the "Bank") in favor of Landlord in the amount of the Additional
Security. Tenant agrees to cause the Bank to renew said unconditional
letter of credit in the same form from time to time during the Term of
this Lease, at least ninety (90) days prior to the expiration of said
letter of credit or any renewal thereof (such letter of credit, as so
renewed, the "Letter of Credit") so that a Letter of Credit shall be in
force and effect throughout the Term of this Lease. The Letter of Credit
shall provide that it is automatically transferable without the Bank's
consent, at no charge to Landlord. In the event Tenant defaults in respect
of any of the terms, conditions or provisions of this Lease or if Tenant
has not presented Landlord with a renewed Letter of Credit at least ninety
(90) days prior to the
expiration of the Letter of Credit or any renewal thereof, (a) upon five
(5) days notice to Tenant, Landlord shall have the right to require the
Bank to make payment to Landlord of the entire proceeds of the Letter of
Credit, (b) Landlord may apply all or part of the proceeds of the Letter
of Credit to the extent required for the payment of any Fixed Rent,
Additional Rent or other sums as to which Tenant is in default or for any
sum which Landlord may expend or may be required to expend by reason of
Tenant's default in respect of any of the terms, covenants and conditions
of this Lease, including, but not limited to, any damages or deficiency in
the reletting of the Premises, whether such damages or deficiency accrue
before or after summary proceedings or other re-entry by Landlord, without
thereby waiving any other rights or remedies of Landlord with respect to
such default, and (c) Landlord shall hold the remainder of the proceeds of
the Letter of Credit, if any, in a separate interest bearing account on
behalf of Tenant as security for the faithful performance and observance
by Tenant of the terms, covenants and conditions of this Lease on Tenant's
part to be observed and performed with the same rights as hereinabove set
forth to apply the same in the event of any further default by Tenant
under this Lease. If Landlord applies any part of the proceeds of the
Letter of Credit, Tenant shall upon demand immediately deposit with
Landlord a sum equal to the amount so applied as security as aforesaid,
failing which Landlord shall have the same rights and remedies as for the
non-payment of Fixed Rent, and Additional Rent beyond the applicable grace
period. If Tenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this Lease, the original Letter of
Credit shall be promptly returned to Tenant after the expiration of this
Lease.
11. Early Occupancy. The Tenant shall have the right to occupy the Additional
Premises upon execution of this First Amendment (the "Early Occupancy").
The Early Occupancy shall be subject to all the terms, covenants and
conditions set forth in the Lease, specifically excepting Tenant's
obligation to pay Rent and Additional Rent.
12. Non Disturbance Agreement. Within thirty (30) days of the execution of
this First Amendment, Landlord shall deliver to Tenant a letter agreement
(the "Letter Agreement") from Anglo Irish Bank Corporation PLC (the
"Lender"), which shall state that the subordination, nondisturbance and
attornment agreement executed by Tenant and Lender as of November 1, 1999
shall be applicable and in full force and effect with respect to the
Additional Premises. The Letter Agreement shall be countersigned by Tenant
and returned to Landlord within five (5) days of Tenant's receipt of the
same.
13. The Tenant shall have exclusive use of the computer room, the liebart
units and the generators within the Building, and shall be solely
responsible for maintenance of the same. All equipment contained within
the computer room and the liebart units shall remain the property of the
Landlord and shall be surrendered to Landlord upon expiration or earlier
termination of this Lease.
All terms which are defined in the Lease shall have the same meanings when
used in this First Amendment.
The Lease is hereby ratified and confirmed and, as modified by this First
Amendment, shall remain in full force and effect.
This First Amendment shall have the effect of an agreement under seal and
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and assigns.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
EXECUTED under seal as of the date first set forth above.
LANDLORD:
BERTECH 1881 LLC
By: Berkeley Investments, Inc.
Its managing member
By: /s/ Charles Anderson
----------------------------------
Name: Charles Anderson
--------------------------------
Title: VP
-------------------------------
Exhibit 10.5
FURNITURESITE, INC.
Series A Preferred Stock and Class A Common Stock Purchase Agreement
Dated as of June 19, 1998
FURNITURESITE, INC.
SERIES A PREFERRED STOCK AND CLASS A COMMON STOCK PURCHASE AGREEMENT
Dated as of June 19, 1998
TABLE OF CONTENTS
ARTICLE I - PURCHASE, SALE AND TERMS OF SHARES...........................................................2
1.01. The Purchased Shares...........................................................................2
1.02. Purchase Price and Closing.....................................................................2
1.03. Use of Proceeds................................................................................3
1.04. Representations and Warranties by the Purchasers...............................................3
ARTICLE II - CONDITIONS TO PURCHASERS' OBLIGATION........................................................5
2.01. Representations and Warranties.................................................................5
2.02. Documentation at Closing or Additional Closing.................................................5
2.03. Consents, Waivers, Etc.........................................................................7
2.04. Employment Agreement...........................................................................7
2.05. Sale of Class B Common Stock...................................................................7
2.06. Financial Statements...........................................................................6
2.07. Acquisition of Empire..........................................................................6
ARTICLE III - REPRESENTATIONS AND WARRANTIES.............................................................7
3.01. Organization and Standing of the Company and Each of Its Subsidiaries..........................7
3.02. Corporate Action...............................................................................8
3.03. Governmental Approvals.........................................................................7
3.04. Litigation.....................................................................................7
3.05. Certain Agreements of Officers and Key Employees...............................................9
3.06. Compliance with Other Instruments..............................................................9
3.07. Sales and Marketing Information...............................................................10
3.08. Taxes.........................................................................................10
3.09. ERISA..........................................................................................9
3.10. Transactions with Affiliates..................................................................10
3.11. Assumptions or Guaranties of Indebtedness of Other Persons....................................10
3.12. Investments in Other Persons..................................................................10
3.13. Securities Act................................................................................11
3.14. Disclosure....................................................................................10
3.15. Brokers or Finders............................................................................11
3.16. Capitalization; Status of Capital Stock.......................................................11
3.16A. Capital Stock of Subsidiaries.................................................................11
3.17. Registration Rights...........................................................................12
3.18. Insurance.....................................................................................12
3.19. Books and Records.............................................................................12
3.20. Title to Assets, Patents......................................................................12
3.21. Real Property Holding Corporation Status......................................................13
3.22. Labor Relations...............................................................................13
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3.23. Other Agreements..............................................................................14
3.24. Environmental Protection......................................................................16
3.25. Compliance with Law, Permits..................................................................17
ARTICLE IV - COVENANTS OF THE COMPANY...................................................................17
4.01. Affirmative Covenants of the Company Other Than Reporting Requirements........................17
4.02. Negative Covenants of the Company.............................................................20
4.03. Reporting Requirements........................................................................23
ARTICLE V. RIGHT OF FIRST REFUSAL......................................................................24
5.01. Right of First Refusal.......................................................................24
5.02. Notice of Acceptance.........................................................................25
5.03. Conditions to Acceptances and Purchase.......................................................25
(a) Permitted Sales of Refused Securities.......................................................25
(b) Reduction in Amount of Offered Securities...................................................25
(c) Closing.....................................................................................26
5.04. Further Sale.................................................................................26
5.05. Termination of Right of First Refusal........................................................26
5.06. Exception....................................................................................26
ARTICLE VI - DEFINITIONS AND ACCOUNTING TERMS...........................................................26
6.01. Certain Defined Terms.........................................................................26
6.02. Accounting Terms..............................................................................29
ARTICLE VII - MISCELLANEOUS.............................................................................29
7.01. No Waiver; Cumulative Remedies................................................................29
7.02. Amendments, Waivers and Consents..............................................................29
7.03. Addresses for Notices.........................................................................30
7.04. Costs, Expenses and Taxes.....................................................................30
7.05. Binding Effect; Assignment....................................................................30
7.06. Survival of Representations and Warranties....................................................31
7.07. Prior Agreements..............................................................................31
7.08. Severability..................................................................................31
7.09. Governing Law.................................................................................31
7.10. Headings......................................................................................31
7.11. Counterparts..................................................................................31
7.12. Further Assurances............................................................................31
7.13. Indemnification...............................................................................32
7.14. Aggregation of Stock..........................................................................32
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EXHIBITS
1.01 List of Purchasers
1.01A Description of Class A Common Stock, Class B Common Stock and Series A
Preferred Stock
2.02B Form of Opinion of Counsel.
2.02F Stockholders' Agreement
2.02J Registration Rights Agreement
2.02O Misha Katz Non-Competition and Non-Solicitation, Assignment, and Invention and
Non-Disclosure Agreement
2.04 Rothschild Employment Agreement
3.04 Litigation
3.06 Compliance with Other Instruments
3.07 Financial Statements
3.08 Taxes
3.09 ERISA
3.10 Transactions with Affiliates
3.11 Assumptions or Guaranties of Indebtedness of Other Persons
3.12A Loans or Advances
3.12B Subsidiaries
3.15 Brokers or Finders
3.16 Capitalization
3.16A Capital Stock of Subsidiaries
3.17 Registration Rights
3.18 Insurance - Officer's Life
3.20 Title to Assets, Patents
3.22 Labor Relations
3.23(a) Other Agreements - Distributors/Vendors
3.23(b) Other Agreements - Sales Contracts with Rebate/Right of Set-Off
3.23(c) Other Agreements - Contracts with Labor Unions
3.23(d) Other Agreements - Contracts Permitting Renegotiation of Price
3.23(e) Other Agreements - Purchase of Fixed Assets
3.23(f) Other Agreements - Employment
3.23(g) Employee Benefit Plans
3.23(h) Schedule of Loans with Security Interest
3.23(i) Guaranty of Obligation for Borrowed Money
3.23(j) Voting, Stockholder, Pledge or Buy Sell Agreements
3.23(k)(A) Agreements to Lease Real Property as Lessee or Lessor
3.23(k)(B) Other Agreements - Equipment Leases
3.23(l) Agreements to Acquire or Retire Equity Securities
3.23(m) Intangible Property
3.23(n) Consulting and Professional Agreements
3.23(o) Required to be Filed with the SEC with Registration Statement
3.23(p) Agreements to Exercise Buyout Provision of any Lease
3.23A Present Expectations or Intentions of Non-Performance
3.24 Environmental Protection
3.25 Compliance with Law; Permits
4.02(h) Dealings with Affiliates and Others
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FurnitureSite, Inc.
1000 Beacon Street
Worcester, MA 01608-2295
As of June 19, 1998
TO: The Persons listed on EXHIBIT 1.01 hereto
Re: PURCHASE OF SERIES A PREFERRED STOCK
AND CLASS A COMMON STOCK
Gentlemen:
FurnitureSite, Inc. (the "Company"), a Delaware corporation, agrees with
each of you as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF SHARES
1.01 THE PURCHASED SHARES.
(a) The Company has authorized the issuance and sale of 3,009,600
shares of its authorized but unissued shares of Series A Preferred Stock, $.01
par value, at a purchase price of $1.00 per share to the persons (collectively,
the "Purchasers" and, individually, a "Purchaser") and in the respective amounts
set forth in EXHIBIT 1.01 hereto. The designation, rights, preferences and other
terms and conditions relating to the Series A Preferred Stock shall be set forth
on EXHIBIT 1.01A hereto.
(b) The Company has authorized the issuance and sale of 3,040,000
shares of its authorized but unissued shares of Class A Common Stock, $.01 par
value, at a purchase price of $.01 per share to the Purchasers and in the
respective amounts set forth in EXHIBIT 1.01 hereto. The designations, rights,
preferences and other terms and conditions relating to the Class A Common Stock
shall be set forth on EXHIBIT 1.01A hereto.
The Series A Preferred Stock and the Class A Common Stock as now held or as
hereafter acquired are sometimes collectively referred to herein as the
"Purchased Shares" and the Purchased Shares and the Converted Shares (as defined
in Article VI hereof) are sometimes collectively referred to herein as the
"Shares".
1.02 PURCHASE PRICE AND CLOSING.
(a) CLOSING. Subject to and in reliance upon the representations,
warranties, covenants, terms and conditions of this Agreement, the Company
agrees to issue and sell to the Purchasers, and the Purchasers, severally but
not jointly, agree to purchase that number of
Purchased Shares set forth opposite their respective names in EXHIBIT 1.01. The
aggregate purchase price of the Purchased Shares being purchased by each
Purchaser is set forth opposite such Purchaser's name in EXHIBIT 1.01. The
purchase and sale shall take place at a closing (the "Closing") to be held at
the offices of Testa, Hurwitz & Thibeault, LLP on June 19, 1998, at 10:00 A.M.,
or at such other location, on such other date and at such time as the Company
and the Purchasers may mutually agree upon. At the Closing, the Company will
issue and deliver certificates evidencing the Purchased Shares to be sold at
such Closing to each of the Purchasers against payment to the Company of the
full purchase price therefor by (i) wire transfer, (ii) certified bank or
cashier's check payable to the order of the Company, or (iii) any combination of
(i) and (ii) above.
(b) ADDITIONAL CLOSING. After the Closing Date, the Company may,
without obtaining the consent of any Purchaser, hold an additional closing (the
"Additional Closing"), if any, at which the Company may issue and sell (i) up to
the number of shares of Series A Preferred Stock as is equal to the difference
between 3,009,600 and the aggregate number of shares of Series A Preferred Stock
previously sold at the Closing and (ii) up to the number of shares of Class A
Common Stock as is equal to the difference between 3,040,000 and the aggregate
number of shares of Class A Common Stock previously sold at the Closing. Such
shares purchased at the Additional Closing are referred to as the "Additional
Shares". The sale of the Additional Shares shall be on the same terms and
conditions as the sale of the Purchased Shares pursuant to Section 1.02(a) above
and shall be effected by execution by any investor of a counterpart signature
page to this Agreement. Upon execution, each such investor shall be deemed to be
a Purchaser for all purposes of this Agreement and EXHIBIT 1.01 shall be amended
to include such Purchaser. Such Purchaser will then be considered a holder of
Purchaser Restricted Stock (as defined in the Registration Rights Agreement) for
purposes of the Registration Rights Agreement and an Investor (as defined in the
Stockholders' Agreement) for purposes of the Stockholders' Agreement.
1.03 USE OF PROCEEDS. The Company shall use the proceeds from the sale of
the Purchased Shares to purchase all of the outstanding capital stock of Empire
Furniture Warehouse, Inc. ("Empire"), for working capital and general corporate
purposes, marketing and, upon the approval and at the sole discretion of the
Company's Board of Directors, for the purchase of additional furniture
showrooms.
1.04 REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each of the
Purchasers represents and warrants severally, but not jointly, that (a) it is
acquiring the Shares, for its own account and that the Shares are being and will
be acquired by it for the purpose of investment and not with a view to, or in
connection with, subdivision, distribution or resale thereof in violation of any
State or Federal securities laws; (b) the execution of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action (if any) on the part of the Purchaser, and this
Agreement has been duly executed and delivered, and constitutes a valid, legal,
binding and enforceable agreement of the Purchaser; (c) except for the Trustees
of Amherst College for the Michael I. and Holly H. Barach Charitable Remainder
Unitrust, the Trustees of Amherst College for the Michael I. and Holly H. Barach
Charitable Remainder Unitrust II and Don Pettini, it is an "accredited investor"
within the
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meaning of Rule 501 of Regulation D promulgated under the Securities Act (as
defined in Article VI hereof); (d) it has taken no action which would give rise
to any claim by any other person for any other person for any brokerage
commissions, finders' fees or the like relating to this Agreement or the
transactions contemplated hereby; (e) the individual executing this Agreement
has appropriate authority to act on behalf of such Purchaser; (f) it was not
specifically formed to acquire the Shares subscribed for hereby; (g) it
understands that there is no market for the Shares and that there is no
assurance that such a market will develop and the Purchaser has no present need
for liquidity with respect to its investment; (h) it is able to bear the
economic risk of its investment for an indefinite period of time and can afford
a complete loss of its investment; (i) it has sufficient knowledge and
experience investing in companies similar to the Company in terms of the
Company's early stage of development and it understands that an investment in
the Company involves a very high degree of risk and it has taken full cognizance
of and understands such risks; (j) it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of an investment in the Company, has evaluated such risks and has
determined that the Shares are a suitable investment for it; (k) it understands
that no Federal or State agency has made any finding or determination as to the
fairness for investment in, or any recommendation or endorsement of, the Shares;
(l) it has had an opportunity to discuss the Company's business, management and
financial affairs with the Company's management and has received from the
Company all such information concerning the Company as it has requested; (m) it
has consulted its own attorney, accountant or investment advisor with respect to
the investment contemplated hereby and its suitability for the Purchaser; (n)
its overall commitment to investments which are not readily marketable is not
disproportionate to the net worth of the Purchaser, and the Purchaser's
investment in the Shares will not cause such overall commitment to become
excessive; and (o) it received an offer concerning the Shares and first learned
of this investment in the state or other jurisdiction listed in the address of
such Purchaser on the attached Exhibit 1.01 hereto. The Purchasers'
representations under this Section 1.04, however, shall not limit or modify the
representations and warranties of the Company in Article III of this Agreement
or the right of the Purchasers to rely thereon. The acquisition by each
Purchaser of the Shares acquired by it shall constitute a confirmation as of the
date of such acquisition of the representations and warranties made herein by
each such Purchaser.
Each Purchaser understands that the Shares have not been registered under
the Securities Act, or the securities laws of any State by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the Securities Act, and applicable State securities laws.
Each of the Purchasers further represents that it understands and agrees
that Company has no current obligation to register the Shares and that, until
registered under the Securities Act or transferred pursuant to the provisions of
Rule 144 as promulgated by the Securities and Exchange Commission, all
certificates evidencing any of the Shares, whether upon initial issuance or upon
any transfer thereof, shall bear a legend, prominently stamped or printed
thereon, reading substantially as follows:
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"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable State
securities laws. These securities have been acquired for investment
and not with a view to distribution or resale, and may not be sold,
mortgaged, pledged, hypothecated or otherwise transferred without an
effective registration statement for such securities under the
Securities Act of 1933 and applicable State securities laws, unless
the holder shall have obtained an opinion of counsel satisfactory to
the issuer of these securities as to the availability of an exemption
from the registration provisions of the Securities Act of 1933 and
applicable State securities laws."
Such opinion of counsel referred to in the foregoing legend shall be at the
sole expense of the Company. The foregoing representations, warranties,
agreements, undertakings and acknowledgments are made by each Purchaser with the
intent that they be relied upon in determining its suitability as a purchaser of
the Shares.
ARTICLE II
CONDITIONS TO PURCHASERS' OBLIGATION
The obligation of each Purchaser to purchase and pay for the Shares to be
purchased by it at the Closing or Additional Closing, as the case may be, is
subject to the following conditions, all of which shall be deemed satisfied or
waived in the event that the transactions contemplated herein to be effected at
the Closing or Additional Closing, as the case may be, are consummated:
2.01 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company and its Subsidiaries (as defined in Article VI hereof)
set forth in Article III hereof shall be true and correct on the date of the
Closing or Additional Closing, as the case may be.
2.02 DOCUMENTATION AT CLOSING OR ADDITIONAL CLOSING. The Purchasers shall
have received prior to or at the Closing or Additional Closing, as the case may
be, , all of the following documents or instruments, or evidence of completion
thereof, each in form and substance satisfactory to the Purchasers and their
counsel, or each of the following events shall have occurred prior to or at the
Closing or Additional Closing, as the case may be.
(a) A certified copy of the Certificate of Incorporation of the
Company and Articles of Organization of each of its Subsidiaries, a copy of the
resolutions of the Board of Directors and, if required, the stockholders of the
Company evidencing the adoption of the Certificate of Incorporation, the
approval of this Agreement, the issuance of the Shares and the other matters
contemplated hereby, a copy of the Bylaws of the Company and of each of the
Company's Subsidiaries, all of which have been certified by the Secretary of the
Company to be true, complete and correct in every particular, and certified
copies of all documents evidencing other necessary corporate or other action and
governmental approvals, if any, with respect to this Agreement and the Shares.
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(b) An opinion of Hale and Dorr LLP, counsel to the Company, in the
form of EXHIBIT 2.02B attached hereto.
(c) A certificate of the Secretary of the Company which shall certify
the names of the officers of the Company authorized to sign this Agreement, the
certificates for the Purchased Shares, and the other documents, instruments or
certificates to be delivered pursuant to this Agreement by the Company or any of
its officers, together with the true signatures of such officers.
(d) A certificate of the President of the Company stating that the
representations and warranties of the Company and its Subsidiaries contained in
Article III hereof and otherwise made by the Company in writing in connection
with the transactions contemplated hereby are true and correct and that all
conditions required to be performed by the Company and its Subsidiaries prior to
or at the Closing or Additional Closing, as the case may be, have been performed
or waived as of the Closing or Additional Closing, as the case may be.
(e) The Certificate of Incorporation of the Company shall provide for
the designation of the rights and preferences of the Series A Preferred Stock,
Class A Common Stock and Class B Common Stock in the form set forth in EXHIBIT
1.01A, attached hereto.
(f) A Stockholders' Agreement in the form set forth in EXHIBIT 2.02F
(the "Stockholders' Agreement") shall have been executed by such of the parties
named therein as requested by the Purchasers.
(g) Certificates of Good Standing for the Company and each of its
Subsidiaries (i) from the jurisdiction of their respective organization and (ii)
from any other jurisdiction in which the character of the property owned or
leased, or the nature of the activities conducted, by the Company or any of its
Subsidiaries makes such licensing or qualification necessary, shall have been
provided to the Purchasers and their counsel.
(h) Payment for the costs, expenses, taxes and filing fees identified
in Section 7.04.
(i) The By-Laws of the Company shall provide for a Board of Directors
consisting of five (5) members.
(j) The Company and the Purchasers shall have entered into a
Registration Rights Agreement (the "Registration Rights Agreement") in the form
set forth in EXHIBIT 2.02J.
(k) The Company's Bylaws shall be in form and substance reasonably
satisfactory to the Purchasers and their counsel.
(l) Participation of all Purchasers specified on EXHIBIT 1.01 hereto
in the transactions.
(m) The Company shall have reserved 829,000 shares of Class B Common
Stock as Reserved Management Shares (as defined in Article VI).
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(n) The Company shall have reserved 3,040,000 shares of Class B Common
Stock as Converted Shares.
(o) Misha Katz shall have executed a Non-Competition and
Non-Solicitation, Assignment, and Invention and Non-Disclosure Agreement
substantially in the form attached hereto as EXHIBIT 2.02O.
2.03 CONSENTS, WAIVERS, ETC. Prior to the Closing or Additional Closing, as
the case may be, the Company shall have obtained all consents or waivers, if
any, necessary to execute and deliver this Agreement, issue the Shares and to
carry out the transactions contemplated hereby and thereby, and all such
consents and waivers shall be in full force and effect at the Closing or
Additional Closing, as the case may be. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement, the
Shares and other agreements and instruments executed and delivered by the
Company in connection herewith shall have been made or taken, except for any
post-sale filing that may be required under Federal or State securities laws.
2.04 EMPLOYMENT AGREEMENT. Prior to the Closing or Additional Closing, as
the case may be, , the Company and Steven Rothschild shall have executed an
employment agreement substantially in the form of EXHIBIT 2.04 hereto.
2.05 SALE OF CLASS B COMMON STOCK. Prior to the Closing or Additional
Closing, as the case may be, , the Company shall have sold 165,800 shares of
Class B Common Stock to each of Michael Barach and Misha Katz.
2.06 FINANCIAL STATEMENTS. Prior to the Closing or Additional Closing, as
the case may be, the Company shall have provided the Purchasers with financial
statements and tax returns for the Company's Subsidiaries for the past five (5)
years.
2.07 ACQUISITION OF EMPIRE. Simultaneously with the consummation of the
investment contemplated hereby, the Company shall purchase all of the
outstanding capital stock of Empire from Steven Rothschild for the sum of
$250,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants as follows as of the date of the
Closing or Additional Closing, as the case may be (it being understood and
agreed that the representations and warranties herein relate to the business of
the Company and each of its Subsidiaries, including, but not limited to Empire):
3.01 ORGANIZATION AND STANDING OF THE COMPANY AND EACH OF ITS SUBSIDIARIES.
The Company and each of its Subsidiaries is a duly organized and validly
existing corporation in good standing under the laws of the State of its
incorporation and has all requisite corporate power and authority for the
ownership and operation of its properties and for the carrying on of
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its business as now conducted or as proposed to be conducted. The Company and
each of its Subsidiaries is duly licensed or qualified and in good standing as a
foreign corporation authorized to do business in all jurisdictions wherein the
character of the property owned or leased, or the nature of the activities
conducted by it, makes such licensing or qualification necessary, except where
the failure to be so licensed or qualified would not have a Material Adverse
Effect (as defined in Article VI).
3.02 CORPORATE ACTION. The Company has all necessary corporate power and
has taken all corporate action required to make all the provisions of this
Agreement, the Shares and any other agreements (including the Stockholders'
Agreement and Registration Rights Agreement) and instruments executed in
connection herewith and therewith be the valid and binding obligations of the
Company, enforceable in accordance with their respective terms. The issuance of
the Purchased Shares, and the issuance of the Converted Shares upon conversion
of the Class A Common Stock will not be, subject to preemptive rights or other
preferential rights in any present or future shareholders of the Company and
will not conflict with any provision of any agreement or instrument to which the
Company is a party or by which it or its property is bound.
3.03 GOVERNMENTAL APPROVALS. Except for the filing of any notice subsequent
to the Closing or Additional Closing, as the case may be, that may be required
under applicable State and/or Federal securities laws (which, if required, shall
be filed on a timely basis), no authorization, consent, approval, license,
exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for the execution and delivery by the Company
of this Agreement, for the offer, issue, sale and delivery of the Shares, or for
the performance by the Company of its obligations under this Agreement or the
Shares.
3.04 LITIGATION. Except as set forth on EXHIBIT 3.04 hereto, there is no
litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries affecting any of its respective properties or assets, or, to the
best knowledge of the Company, against any Key Employee (as defined in Article
VI hereof) affecting such person's performance of duties for the Company, his
share ownership in the Company or any of its Subsidiaries or otherwise relating
to the business of the Company or any of its Subsidiaries, nor, to the best
knowledge of the Company, has there occurred any event or does there exist any
condition on the basis of which any such litigation, proceeding or investigation
might properly be instituted, which if adversely determined would result in a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries, nor,
to the knowledge of the Company, Key Employee or holder of the capital stock of
the Company (other than any Purchaser) or any of its Subsidiaries is in default
with respect to any order, writ, injunction, decree, ruling or decision of any
court, commission, board or other government agency that might result in any
case, or in the aggregate, in any Material Adverse Effect. Except as set forth
on EXHIBIT 3.04 hereto, there are no actions or proceedings pending or, to the
knowledge of the Company, threatened (or any basis therefor known to the
Company) which might result, either in any case or in the aggregate, in any
material adverse effect on the business, operations, affairs or condition of the
Company or any of its Subsidiaries or in their properties or assets taken as a
whole, or which might call into question the validity of this Agreement, any of
-7-
the Shares, or any action taken or to be taken pursuant hereto or thereto. The
foregoing sentences include, without limiting their generality, actions pending
or threatened (or any basis therefor known to the Company) involving the prior
employment of any of the officers or employees of the Company or any of its
Subsidiaries or their use in connection with the business of the Company or any
of its Subsidiaries of any information or techniques allegedly proprietary to
any of their former employers.
3.05 CERTAIN AGREEMENTS OF OFFICERS AND KEY EMPLOYEES.
(a) To the Company's knowledge, except in instances which will not
result in a Material Adverse Effect, no officer or Key Employee of the Company
or any of its Subsidiaries is, or is now expected to be, in violation of any
term of any employment contract, patent disclosure agreement, proprietary
information agreement, noncompetition agreement, or any other contract or
agreement or any restrictive covenant relating to the right of any such officer
or Key Employee to be employed by the Company or any of its Subsidiaries because
of the nature of the business conducted or to be conducted by the Company or any
of its Subsidiaries or relating to the use of trade secrets or proprietary
information of others, and to the Company's knowledge and belief, the continued
employment of the officers and Key Employees of the Company or any of its
Subsidiaries does not subject the Company, any of its Subsidiaries or any
Purchaser to any liability arising out of the foregoing contracts or agreements.
(b) To the knowledge of the Company, no officer of the Company or any
of its Subsidiaries, nor any Key Employee of the Company or any of its
Subsidiaries whose termination, either individually or in the aggregate, would
have an adverse effect on the Company, has expressed any present intention of
terminating his employment in such capacity.
3.06 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on EXHIBIT
3.06, the Company and each of its Subsidiaries is in compliance in all respects
with the terms and provisions of this Agreement and of its Certificate of
Incorporation (or Articles of Organization, as the case may be) and Bylaws, and
in all material respects with the terms and provisions of all material
mortgages, indentures, leases, agreements and other instruments, if any, by
which it is bound or to which it or any of its respective properties or assets
are subject, except where noncompliance would not result in a Material Adverse
Effect. Except as set forth on EXHIBIT 3.06, the Company and each of its
Subsidiaries is in compliance in all material respects with all judgments,
decrees, governmental orders, statutes, rules or regulations by which it is
bound or to which any of its properties or assets are subject, except where such
noncompliance would not result in a Material Adverse Effect. The Company and
each of its Subsidiaries possesses all authorizations, approvals, orders,
licenses, registrations, certificates and permits of and from all governmental
regulatory officials and bodies necessary to conduct their respective
businesses, except where such failure would not have a Material Adverse Effect.
Neither the execution, issuance and delivery of this Agreement or the Shares,
nor the consummation of any transaction contemplated hereby or thereby, has
constituted or resulted in or will constitute or result in a default or
violation of any material term or provision of any of the foregoing documents,
instruments, judgments, agreements, decrees, orders, statutes, rules and
regulations, except where such default or violation would not, in the best
knowledge of the Company, result in a Material Adverse Effect.
-8-
3.07 SALES AND MARKETING INFORMATION. The written internet sales figures
and marketing expenses attached hereto as EXHIBIT 3.07 (the "Sales Figures")
which have been provided to the Purchasers represent fairly the operations of
the Company with respect to those operations to which such Sales Figures refer
3.08 TAXES. Except as set forth on EXHIBIT 3.08, the Company and each of
its Subsidiaries have prepared correctly in all material respects and timely
filed all Federal, State, foreign and other tax returns required under the laws
of any applicable jurisdiction to be filed by them, have paid or made provision
for the payment of all taxes, including sales taxes, due from the Company and
each of its Subsidiaries, respectively, and all additional assessments (whether
or not shown on such returns) except where such nonpayment or lack or provision
would not result in a Material Adverse Effect. Except as set forth on EXHIBIT
3.08, none of the Federal income tax returns of the Company or any of its
Subsidiaries have been audited by the Internal Revenue Service. The Company does
not know of any additional assessments or adjustments pending or threatened
against the Company or any of its Subsidiaries, as the case may be, for any
period, nor of any basis for any such assessment or adjustment.
3.09 ERISA. Except as set forth in EXHIBIT 3.09, neither the Company nor
any of its Subsidiaries makes or has any present intention to make any
contributions to or has incurred any liability with respect to any employee
pension benefit plans for its employees which are subject to ERISA.
3.10 TRANSACTIONS WITH AFFILIATES. Except as contemplated hereby and except
as set forth on EXHIBIT 3.10, there are no loans, leases, royalty agreements or
other continuing transactions between any officer, employee or director of the
Company or any of its Subsidiaries or any Person (as defined in Article VI
hereof) owning capital stock of the Company or any of its Subsidiaries or any
member of the immediate family of such officer, employee, director or
stockholder or any corporation or other entity controlled by such officer,
employee, director or stockholder or a member of the immediate family of such
officer, employee, director or stockholder.
3.11 ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER PERSONS. Except as
contemplated hereby and except as set forth in EXHIBIT 3.11, neither the Company
nor any of its Subsidiaries have assumed, guaranteed, endorsed or otherwise
become directly or contingently liable on (including, without limitation,
liability by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in the debtor or
otherwise to assure the creditor against loss), which remains currently
outstanding, any Indebtedness (as defined in Article VI hereof) of any other
Person, including any of its Subsidiaries.
3.12 INVESTMENTS IN OTHER PERSONS. Except as contemplated hereby and except
as set forth in EXHIBIT 3.12A, neither the Company nor any of its Subsidiaries
have made any loan or advance to any Person which is outstanding on the date of
this Agreement, nor are the Company or any of its Subsidiaries committed or
obligated to make any such loan or advance, nor does the Company or any of its
Subsidiaries own any capital shares, assets comprising the business of,
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obligations of, or any interest in, any Person except as disclosed in this
Agreement. Except as set forth in EXHIBIT 3.12B, the Company has no
Subsidiaries.
3.13 SECURITIES ACT. To the best knowledge of the Company, the Company has
complied and will comply with all applicable Federal and State securities laws
in connection with the offer, issuance and sale of the Shares. Neither the
Company nor anyone acting on its behalf has or will sell, offer to sell or
solicit offers to buy the Shares or similar securities to, or solicit offers
with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Shares under the registration provisions of the Securities Act and
applicable State securities laws.
3.14 DISCLOSURE. This Agreement, including all Schedules and Exhibits
hereto, including but not limited to the Sales Figures referred to in Section
3.07 and attached hereto as SCHEDULE 3.07, does not contain any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances under which they are or were made. There is no fact within the
knowledge of the Company which has not been disclosed herein or in writing or
orally by it to the Purchasers and which materially adversely affects, or in the
future in its opinion may, insofar as it can now foresee, materially adversely
affect the business, properties, assets or condition, financial or otherwise, of
the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has, and the Company has no reasonable grounds to know of, any
liability, contingent or otherwise, other than outstanding payables to furniture
vendors, in an amount exceeding $300,000, other than the leases described on
EXHIBIT 3.10. The projections contained in the Business Plan (as defined in
Article VI) were prepared in good faith and are believed to be reasonable, but
the Company cannot and does not assure or guarantee the attainment of such
projections.
3.15 BROKERS OR FINDERS. Except as set forth in EXHIBIT 3.15, no Person has
or will have, as a result of the transactions contemplated by this Agreement,
any right, interest or valid claim against or upon the Company or any of its
Subsidiaries for any commission, fee or other compensation as a finder or broker
because of any act or omission by the Company, any of its Subsidiaries or any of
their respective agents.
3.16 CAPITALIZATION; STATUS OF CAPITAL STOCK. The Company has a total
authorized capitalization consisting of (i) 8,290,000 shares of Class B Common
Stock, $.01 par value, of which 4,421,000 shares are issued and outstanding on
the date hereof, (ii) 3,040,000 shares of Class A Common Stock, of which no
shares are issued and outstanding on the date hereof and (iii) 3,009,600 shares
of Series A Preferred Stock, of which no shares are issued and outstanding on
the date hereof, in each case without giving effect to the transactions
contemplated hereby. A complete list of the capital shares of the Company which
has been previously issued and the names in which such capital shares are
registered on the stock transfer books of the Company is set forth in EXHIBIT
3.16 hereto. All the outstanding capital shares of the Company have been duly
authorized, are validly issued and are fully paid and non-assessable. The
Purchased Shares, when issued and delivered in accordance with the terms hereof
and after payment of the purchase price therefor, and the Converted Shares, when
issued and delivered upon conversion of the Class A Common Stock will be duly
authorized, validly issued, fully paid and non-assessable.
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Except as otherwise set forth in EXHIBIT 3.16, no options, warrants,
subscriptions or purchase rights of any nature to acquire from the Company
shares of capital stock or other securities are authorized, issued or
outstanding, nor is the Company obligated in any other manner to issue its
capital shares or other securities except as contemplated by this Agreement.
Except as set forth in EXHIBIT 3.16, there are no restrictions on the transfer
of capital shares of the Company other than those imposed by relevant Federal
and State securities laws and as otherwise contemplated by this Agreement, the
Stockholders' Agreement and the Registration Rights Agreement. Except as set
forth in EXHIBIT 3.16 and other than as provided in the above-referenced
Stockholders' Agreement, there are no agreements, understandings, trusts or
other collaborative arrangements or understandings concerning the voting of the
capital shares of the Company. Except as set forth in EXHIBIT 3.16, there are no
agreements, understandings or trusts concerning transfers of the capital shares
of the Company except for the aforementioned Stockholders' Agreement, the
aforementioned Registration Rights Agreement and except as contemplated by this
Agreement. The offer and sale of all capital shares and other securities of the
Company issued before the Closing or Additional Closing, as the case may be,
complied with or were exempt from all applicable Federal and State securities
laws and no stockholder has a right of rescission with respect thereto.
3.16A CAPITAL STOCK OF SUBSIDIARIES. EXHIBIT 3.16A sets forth a list of
each Subsidiary of the Company (or a Subsidiary) and its jurisdiction of
incorporation or organization. Except as set forth on EXHIBIT 3.16A attached
hereto, the Company owns all of the outstanding capital stock of each of the
Subsidiaries, beneficially and of record, free and clear of all liens,
encumbrances, restrictions (other than those under applicable securities laws)
and claims of every kind. All the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized, are validly issued and are fully
paid and non-assessable. There are no options, warrants or rights to purchase
shares of capital stock or other securities of any of the Subsidiaries
authorized, issued or outstanding, nor is any Subsidiary obligated in any other
manner to issue shares of its capital stock or other securities.
3.17 REGISTRATION RIGHTS. Except as set forth in EXHIBIT 3.17 and except
for the rights granted pursuant to the Registration Rights Agreement, no Person
has demand or other rights (which such rights shall be effective subsequent to
the Closing or Additional Closing, as the case may be, ) to cause the Company or
any of its Subsidiaries to file any registration statement under the Securities
Act relating to any securities of the Company or any of its Subsidiaries or any
right to participate in any such registration statement.
3.18 INSURANCE. The Company maintains, and has caused each Subsidiary to
maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is customarily carried
by companies engaged in similar businesses and owning similar properties in the
same general areas in which the Company or such Subsidiary operates. The Company
maintains life insurance on certain Key Employees, as set forth in EXHIBIT 3.18.
3.19 BOOKS AND RECORDS. The books of account, ledgers, order books, records
and documents of the Company and each of its Subsidiaries reflect in all
material respects, all material information relating to the business of the
Company and each of its Subsidiaries, the
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location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company and each of
its Subsidiaries.
3.20 TITLE TO ASSETS, PATENTS. The Company and each of its Subsidiaries has
good and marketable title in fee to such of its fixed assets, if any, as are
real property, and good and merchantable title to all of its other assets, free
of any mortgages, pledges, charges, liens, security interests or other
encumbrances, except where such failure to so have would not have a Material
Adverse Effect, or except as indicated in EXHIBIT 3.20. The Company and each of
its Subsidiaries enjoys peaceful and undisturbed possession under all leases
under which it is operating, and all such leases are valid and subsisting and in
full force and effect. Except as set forth in EXHIBIT 3.20, the Company knows of
no adverse claim that would interfere with its right or the right of any of its
Subsidiaries to use the patents, patent rights, permits, licenses, trade
secrets, trademarks, trademark rights, trade names or trade name rights or
franchises, copyrights, inventions, and intellectual property rights being used
to conduct its business as now operated and as now proposed to be operated (a
list of the patent and trademark applications made by the Company and each of
its Subsidiaries is attached hereto as EXHIBIT 3.20); and the Company has no
reason to believe that the conduct of its business or the conduct of the
business of any of its Subsidiaries as now operated and as now proposed to be
operated conflicts or will conflict with valid patents, patent rights, permits,
licenses, trade secrets, trademarks, trademark rights, trade names or trade name
rights or franchises, copyrights, inventions, and intellectual property rights
of any other Person, except as noted in EXHIBIT 3.20. To the Company's
knowledge, no product or process presently used or proposed to be manufactured,
marketed, offered, sold or used by the Company or any of its Subsidiaries will
violate any license or infringe on any intellectual property rights of any other
Person; and neither the intellectual property rights of the Company or any of
its Subsidiaries nor the operation or proposed operation of the business of the
Company or any of its Subsidiaries is known to conflict with the asserted rights
of others, nor does there exist any known basis for any such conflict, except as
noted in EXHIBIT 3.20. The Company owns or has the right to use all of the back
office and graphic user interface software necessary to run its website and any
graphic or textual content thereof and has the right to use and include any
graphic or text on such website free and clear of the intellectual property
rights of any third party. No claim is known to be pending or threatened to the
effect that any such intellectual property owned or licensed by the Company or
any of its Subsidiaries, or which the Company or any of its Subsidiaries
otherwise has the right to use, is invalid or unenforceable by the Company or
any of its Subsidiaries, and the Company has no reason to believe that any
patents or intellectual property rights owned or used by the Company or any of
its Subsidiaries may be invalid. Except as set forth on EXHIBIT 3.20, neither
the Company nor any of its Subsidiaries has any obligation to compensate any
Person for the use of any such patents or rights, and neither the Company nor
any of its Subsidiaries has granted any Person any license or other rights to
use in any manner any of the patents or rights of the Company or any of its
Subsidiaries, whether requiring the payment of royalties or not.
3.21 REAL PROPERTY HOLDING CORPORATION STATUS. Since its date of
incorporation, neither the Company nor any of its Subsidiaries has been, and as
of the date of the Closing or Additional Closing, as the case may be, shall not
be, a "United States real property holding corporation," as defined in Section
897(c)(2) of the Internal Revenue Code, and in Section 1.897-2(b) of the
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Treasury Regulations issued thereunder. Neither the Company nor any of its
Subsidiaries have any current plans or intentions which would cause the Company
or any of its Subsidiaries to become a "United States real property holding
corporation," and the Company and each of its Subsidiaries have filed with the
IRS all statements, if any, with its United States income tax returns which are
required under Section 1.897-2(h) of the Treasury Regulations.
3.22 LABOR RELATIONS. Except as set forth in the attached EXHIBIT 3.22, (i)
there is no labor strike, lock-out, slowdown, or work stoppage actually pending,
or threatened against or affecting the business of the Company or any of its
Subsidiaries; (ii) no labor organization claims to represent the employees of
the Company or any of its Subsidiaries; (iii) neither the Company nor any of its
Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization, or work rules or practices agreed to with
any labor organization or employee association applicable to the employees of
the Company or any of its Subsidiaries; (iv) the Company does not have any
knowledge of any current union organizing activities among its employees nor has
there been filed at the National Labor Relations Board any petition regarding
any question concerning representation of such employees; (v) other than as set
forth in the Company's employee handbook (if any) heretofore provided to the
Purchasers or their counsel, there are no written personnel policies, rules or
procedures applicable to the employees of the Company or any of its
Subsidiaries; (vi) the Company and each of its Subsidiaries is, and has at all
times been, in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, and is not engaged in any
unfair labor practices as defined in the National Labor Relations Act or other
analogous applicable law, ordinance or regulation; (vii) neither the Company nor
any of its Subsidiaries has received notice of any pending or threatened unfair
labor practice charge or complaint against the Company or any of its
Subsidiaries before the National Labor Relations Board or any similar State or
foreign agency; (viii) there is no grievance arising out of any collective
bargaining agreement; (ix) no charges are pending against the Company or any of
its Subsidiaries before the Equal Employment Opportunity Commission or any other
agency responsible for the prevention of unlawful employment practices; (x)
neither the Company nor any of its Subsidiaries has received notice of the
intent of any Federal, State, local or foreign agency responsible for the
enforcement of labor or employment laws to conduct an investigation nor that any
investigation is in progress; and (xi) neither the Company nor any of its
Subsidiaries has received notice of any pending or threatened complaints,
lawsuits or other proceedings in any forum by or on behalf of any present or
former employee, any applicant for employment or classes of the foregoing
alleging breach of any express or implied contract of employment, any law or
regulation governing employment or the termination thereof or other
discriminatory, wrongful or tortious conduct in connection with the employment
relationship, except where such notice would not have a Material Adverse Effect.
Except as set forth in the attached EXHIBIT 3.23(f), there are no employment
contracts or severance agreements with any employees of the Company or any of
its Subsidiaries.
3.23 OTHER AGREEMENTS. Except as set forth in the attached EXHIBITS 3.23
(a) - (p) or in other Exhibits hereto, neither the Company nor any Subsidiary is
a party to any written or oral contract or instrument or other corporate
restriction which, to the best knowledge of the
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Company, individually or in the aggregate, could materially adversely affect the
business, prospects, financial condition, operation, property or affairs of the
Company or its Subsidiaries. The Company is not in violation of the terms of any
of the agreements listed on Exhibits 3.23 (a) - (p), except where such violation
would not result in a Material Adverse Effect. Neither the Company nor any
Subsidiary is a party to any written or oral:
(a) distributor, vendor, franchise, dealer or manufacturer's
representative contract or agreement which is not terminable on less than in
ninety (90) days' notice without cost or other liability to the Company or any
Subsidiary (except for contracts which, in the aggregate, are not material to
the business of the Company or Subsidiary, as the case may be), except as set
forth in EXHIBIT 3.23(a);
(b) sales contract which entitles any customer to a rebate or right of
set-off, to return any product to the Company or any Subsidiary after acceptance
thereof or to delay the acceptance thereof, or which varies in any material
respect from the Company's standard form contracts or policies, except as set
forth in EXHIBIT 3.23(b);
(c) contract with any labor union (and no organizational effort is
being made with respect to any of its employees), except as set forth in EXHIBIT
3.23(c);
(d) contract or other commitment with any supplier containing any
provision permitting any party other than the Company or any Subsidiary to
renegotiate the price or other terms, or containing any pay-back or other
similar provision, upon the occurrence of a failure by either the Company or any
Subsidiary to meet its respective obligations under the contract when due or the
occurrence of any other event, except as set forth in EXHIBIT 3.23(d);
(e) contract for the future purchase of fixed assets or for the future
purchase of materials, supplies or equipment in excess of its normal operating
requirements, except as set forth in EXHIBIT 3.23(e);
(f) contract for the employment (or separation) of any officer,
individual, employee or other person (whether of a legally binding nature or in
the nature of informal understandings) on a full-time or consulting basis which
is not terminable on notice without cost or other liability to the Company or
any Subsidiary, except accrued vacation pay, except as set forth in EXHIBIT
3.23(f);
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or similar plan, contract or
understanding pursuant to which benefits are provided to any employee of the
Company or any Subsidiary (other than group insurance plans applicable to
employees generally), except as set forth in EXHIBIT 3.23(g);
(h) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or security interest
on, any asset of the Company or any Subsidiary, except as set forth in EXHIBIT
3.23(h);
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(i) guaranty of any obligation for borrowed money or otherwise (other
than in the ordinary course of business), except as set forth in EXHIBIT
3.23(i);
(j) voting trust, stockholders' agreement, pledge agreement or
buy-sell agreement relating to any securities of the Company or any Subsidiary
which shall be in effect after the Closing or Additional Closing, as the case
may be, except as set forth in EXHIBIT 3.23(j);
(k) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company or any Subsidiary has
advanced or agreed to advance money or has agreed to lease any property as
lessee or lessor, except as set forth in EXHIBIT 3.23(k);
(l) agreement or obligation (contingent or otherwise) to issue or sell
or to repurchase or otherwise acquire or retire any share of its capital stock
or any of its other equity securities, except as set forth in EXHIBIT 3.23(l);
(m) assignment, license or other agreement with respect to any form of
intangible property, except as set forth in EXHIBIT 3.23(m);
(n) other contract or group of related contracts with the same party
involving more than $50,000 or continuing over a period of more than six (6)
months from the date or dates thereof (including renewals or extensions optional
with another party), which contract or group of contracts is not terminable by
the Company or any Subsidiary without penalty upon notice of thirty (30) days or
less, but excluding any contract or group of contracts with a customer of the
Company or any Subsidiary for the sale, lease or rental of the Company's or
Subsidiary's products or services if such contract or group of contracts was
entered into by the Company or any Subsidiary in the ordinary course of
business, except as set forth in EXHIBIT 3.23(n);
(o) other contract, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and Exchange
Commission as an exhibit to a registration statement on Form S-1 if the Company
or any of its Subsidiaries were registering securities under the Securities Act,
except as set forth in EXHIBIT 3.23(o); or
(p) agreement to exercise a buy-out provision of any of the leases of
the Company or any of its Subsidiaries, nor to the Company's knowledge, is any
such agreement or the exercise of any such buy-out provision presently
contemplated, except as set forth in EXHIBIT 3.23(p).
The Company and each of its Subsidiaries, to the knowledge of the Company,
have in all material respects performed all the obligations required to be
performed by them to date, have received no notice of default and are not in
default under any lease, agreement or contract now in effect to which the
Company or any Subsidiary is a party or by which it or its property may be
bound, except where such noncompliance or default would not result in a Material
Adverse Effect. Neither the Company nor any Subsidiary has any present
expectation or intention of not
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fully performing all its respective material obligations under each such lease,
contract or other agreement, and neither the Company nor any Subsidiary has any
knowledge of any material breach or anticipated breach by the other party to any
contract or commitment to which the Company or any Subsidiary is a party.
3.24 ENVIRONMENTAL PROTECTION. Except as set forth on EXHIBIT 3.24, the
Company and each of its Subsidiaries, the operation of its business, and any
real property that the Company or any Subsidiary owns, leases or otherwise
occupies or uses (the "Premises") are to the best of the Company's knowledge in
material compliance with all applicable environmental laws and, to the best of
the Company's knowledge, neither the Company nor any Subsidiary is subject to
any liability on account of any environmental laws. To the best of the Company's
knowledge neither the Company nor any Subsidiary has caused or allowed a
release, or a threat of release, of any hazardous substance or petroleum
substance onto, at or near the Premises or any other real property, and, to the
best of the Company's knowledge, the Premises has never been subject to a
release, or a threat of release, of any hazardous substance or petroleum
substance.
3.25 COMPLIANCE WITH LAW; PERMITS.
(a) The Company and each of its Subsidiaries (i) is in compliance in
all material respects with all applicable Federal, State and local laws, rules,
regulations, ordinances and policies; and (ii) is not in default under any
applicable order, writ injunction or decree of any court or governmental
authority having jurisdiction over the Company or any of its Subsidiaries,
except where such default would not result in a Material Adverse Effect.
(b) EXHIBIT 3.25 sets forth a true and complete list of each material
permit, license, order or other authorization of Federal, State, local or
foreign governmental or regulatory bodies held by the Company and each of its
Subsidiaries (other than State corporation qualifications) in the conduct of its
business (collectively the "Permits"), together with the issuing authority and
the date of expiration. To the knowledge of the Company, the Permits constitute
all of the material permits, licenses, orders and other authorizations and
approvals required to permit the Company and each of its Subsidiaries to own and
lease its properties and assets and to conduct its business as it is currently
conducted. All of the Permits are in full force and effect and the Company and
each of its Subsidiaries currently operates within the limits thereof and there
are no proceedings pending or threatened, which could reasonably be expected to
result in the revocation, cancellation, suspension, non-renewal or any material
adverse modification of any of the Permits, except in cases that would not
result in a Material Adverse Effect. The Company and each of its Subsidiaries
has filed all reports and has paid all fees required to obtain and maintain the
Permits.
ARTICLE IV
COVENANTS OF THE COMPANY
4.01 AFFIRMATIVE COVENANTS OF THE COMPANY OTHER THAN REPORTING
REQUIREMENTS. Without limiting any other covenants and provisions hereof, the
Company covenants and agrees that until the consummation of a Qualified Public
Offering (as defined in Article VI hereof), it
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will perform and observe the following covenants and provisions, and will cause
each Subsidiary, if and when such Subsidiary exists, to perform and observe such
of the following covenants and provisions as are applicable to such Subsidiary:
(a) MAINTENANCE OF INSURANCE. Obtain and maintain and cause each
Subsidiary to maintain, from responsible and reputable insurance companies or
associations key person life insurance policies on the lives of any Key Employee
as may be determined (with respect to identity, amount and terms) by the Board
of Directors, with the proceeds thereof payable to the order of the Company.
Maintain, and cause each Subsidiary to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is customarily carried by companies engaged in similar businesses and
owning similar properties in the same general areas in which the Company or such
Subsidiary operates, but in any event in amounts sufficient to prevent the
Company or Subsidiary from becoming a co-insurer. The Company will not cause or
permit any assignment of the proceeds of any of the life insurance policies
specified in the first sentence of this paragraph and will not borrow against
such policies.
(b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its corporate existence, rights
and privileges in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each Subsidiary to qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
or lease of its properties. Secure, preserve and maintain, and cause each
Subsidiary to secure, preserve and maintain, all licenses and other rights to
use patents, processes, licenses, permits, trademarks, trade names, inventions,
intellectual property rights or copyrights owned or possessed by it and deemed
by the Company to be necessary to the conduct of its business or the business of
any Subsidiary, as the case may be.
(c) INSPECTION. Permit, upon reasonable request and notice, during
normal business hours and without disruption of the Company's business, each of
the Purchasers or any agents or representatives thereof, to examine and make
copies of and extracts from the records and books of account of, and visit and
inspect the properties of the Company and any Subsidiary, to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, directors or Key Employees and independent accountants, and consult
with and advise the management of the Company and any Subsidiary as to their
affairs, finances and accounts, all at reasonable times. Each Purchaser agrees
that it will use its best efforts to maintain the confidentiality of any
information so obtained by it which is not otherwise available from other
sources (and will use its best efforts to prevent such confidential information
from becoming known to the Company's competitors), subject to the disclosure of
information of a non-technical nature, including financial information, which
such Purchaser discloses to its partners and/or shareholders generally.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause each
Subsidiary to keep, adequate records and books of account in which complete
entries will be
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made in accordance with generally accepted accounting principles consistently
applied, reflecting all financial transactions of the Company and any
Subsidiary.
(e) BUDGETS APPROVAL. Not later than thirty (30) days prior to the
commencement of each fiscal year, prepare and submit to, and obtain the approval
of a majority of, the Board of Directors, an annual budget with monthly
operating budgets in detail for such fiscal year, including capital and
operating expense budgets, cash flow projections and profit and loss
projections, all itemized in reasonable detail (including itemization of
provisions for officers' compensation).
(f) STOCK RESTRICTION AGREEMENTS. If any officer, employee or
consultant (including each Key Employee) receives any shares of Class B Common
Stock or rights or options to purchase shares of Class B Common Stock pursuant
to a stock purchase or option plan or other employee stock incentive program,
cause each such officer, employee and consultant to execute and deliver an
agreement in a form as deemed appropriate by the affirmative vote of a majority
of the members of the Board of Directors.
(g) THE BOARD OF DIRECTORS. Call and, to the extent a quorum can be
maintained, hold meetings of the Company's Board of Directors on a monthly basis
unless otherwise determined by the Board of Directors, but in any event not less
than on a quarterly basis, during the first 12-month period after the date of
this Agreement and on at least a quarterly basis thereafter. Promptly pay all
out-of-pocket expenses reasonably incurred by each director and Observer (as
defined in paragraph (p) below) of the Board of Directors of the Company in
attending each meeting of the Board of Directors or any committee thereof. The
Company shall cause each of the Subsidiaries to maintain the composition of its
Board of Directors, any committees thereof and its officers such that the
composition of each Subsidiary is identical in person and number to that of the
Company.
(h) CHECK SIGNING. Require the signature of at least two officers of
the Company on any single check equal to or greater than $25,000 or such larger
amount as is set by the Company's Board of Directors from time to time.
(i) COMPENSATION. Provide to the Board of Directors information
regarding proposed (i) option grants to employees, consultants and directors;
and (ii) compensation and fringe benefits, both direct and indirect, of all Key
Employees, consultants and directors of the Company and each Subsidiary, for
advance approval by the Board of Directors prior to so informing those
employees, consultants, or directors of such proposed option grant, compensation
or fringe benefit.
(j) OBSERVER RIGHTS. Permit each Purchaser who holds of record or
beneficially more than 30% of the shares originally purchased pursuant to this
Agreement (as appropriately adjusted for stock splits, recombinations and the
like) to have one observer representative (in addition to any other Board of
Directors representative) (an "Observer") attend each meeting of the Board of
Directors of the Company and each meeting of any committee thereof and to
participate in all discussions during each such meeting. The Company shall bear
the expense of one (1) Observer traveling to and attending such meetings, it
being agreed and
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understood that any such attendance and participation shall be solely on an
observer basis. The Purchasers agree that each Observer shall be bound by the
confidentiality, non-disclosure and limitations on use provisions contained in
Section 4.01(e) hereof with respect to any information received at such meetings
and that in the event an Observer violates such provisions, the Purchaser
represented by such Observer agrees to reimburse the Company for the costs of
any direct harm to the Company arising from such violation. The Company reserves
the right to exclude such Observer from any meeting or portion thereof if a
determination has been made by legal counsel to the Company that attendance by
such Observer could adversely affect the attorney-client privilege between the
Company and its counsel. The Company shall send to each Observer the notice of
the time and place of meetings in the same manner and at the same time as it
shall send such notice to its directors or committee members, as the case may
be. The Company shall also provide to each Observer copies of all notices,
reports, minutes and consents at the time and in the manner as they are provided
to the Board of Directors or committee members.
(k) At all times, reserve and keep available out of its authorized but
unissued shares of Class B Common Stock, for the purpose of effecting the
conversion of the Class A Common Stock, such number of its duly authorized
shares of Class B Common Stock as shall be sufficient to effect the conversion
of the Class A Common Stock from time to time outstanding. If at any time the
number of authorized but unissued shares of Class B Common Stock shall not be
sufficient to effect the conversion of the Class A Common Stock, the Company
shall take such corporate action as may be necessary to increase its authorized
but unissued shares of Class B Common Stock as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body which may be
required under applicable state securities laws in connection with the issuance
of shares of Class B Common Stock upon conversion of the Class A Common Stock.
4.02 NEGATIVE COVENANTS OF THE COMPANY. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that, until
the consummation of a Qualified Public Offering, it will comply with and observe
the following covenants and provisions, and will cause each Subsidiary, if and
when such Subsidiary exists, to comply with and observe such of the following
covenants and provisions as are applicable to such Subsidiary, and will not,
without the consent of the holders of at least 60% in interest of the Series A
Preferred Stock:
(a) INDEBTEDNESS. Create, incur, assume or suffer to exist, or permit
any Subsidiary to create, incur, assume or suffer to exist, any liability with
respect to (i) Indebtedness (excluding letters of credit or indemnities for
letters of credit issued by others) for money borrowed which exceeds in the
aggregate $1,000,000, and (ii) without the prior approval of a majority of the
members of the Board of Directors, Indebtedness in respect of lease obligations
which exceeds in the aggregate $300,000.
(b) MERGER OR SALE. Merge with or into any other entity, sell to any
person or entity any assets constituting all or substantially all of the assets
of the Company, or agree to do
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or permit any Subsidiary to do any of the foregoing, except that any Subsidiary
may merge into the Company or with or into any other Subsidiary.
(c) ASSUMPTIONS OR GUARANTIES OF INDEBTEDNESS OF OTHER PERSONS.
Assume, guarantee, endorse or otherwise become directly or contingently liable
on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become
directly or contingently liable on (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss) any Indebtedness of any other Person, except
for guaranties by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business and except for the guaranties of
the permitted obligations of any wholly owned Subsidiary.
(d) DISTRIBUTIONS. Except as specifically provided for and allowed in
the Company's Certificate of Incorporation, declare or pay any dividends,
purchase, redeem, retire, or otherwise acquire for value any of its capital
stock (or rights, options or warrants to purchase such shares) now or hereafter
outstanding, return any capital to its stockholders as such, or make any
distribution of assets to its stockholders as such, or permit any Subsidiary to
do any of the foregoing (such transactions being hereinafter referred to as
"Distributions"), EXCEPT that any such Subsidiary may declare and make payment
of cash and stock dividends, return capital and make distributions of assets to
the Company, PROVIDED, HOWEVER, that nothing herein contained shall prevent the
Company from:
(i) effecting a stock split (except for a reverse stock
split), or
(ii) redeeming any shares of a deceased stockholder out of
insurance held by the Company on that stockholder's life, or
(iii) repurchasing, at the original purchase price of such
shares, any shares of the Company's capital stock held by officers,
employees, directors or consultants of the Company which are subject
to restrictive stock purchase agreements under which the Company is
required to repurchase such shares upon the occurrence of certain
events, including the termination of employment,
if in the case of any such transaction the payment can be made in compliance
with the other terms of this Agreement.
(e) CHANGE IN NATURE OF BUSINESS. Make or permit any Subsidiary to
make, any material change in the nature of its business as contemplated in
written materials delivered to the Purchasers prior to the date hereof.
(f) OWNERSHIP OF SUBSIDIARIES. Without the prior approval of the Board
of Directors, purchase or hold beneficially any stock, other securities or
evidences of Indebtedness in, or make any investment in or provide any extension
of credit to any other Person, excluding a wholly-owned or controlled subsidiary
of the Company.
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(g) CAPITAL EXPENDITURES. Incur any Capital Expenditures (as defined
in Article VI hereof) with respect to a single item, asset, store, commissary or
project in excess of $250,000 or exceed the projections for Capital Expenditures
contained in the Business Plan by more than twenty-five percent (25%).
(h) DEALINGS WITH AFFILIATES AND OTHERS. Other than as contemplated by
this Agreement or set forth in EXHIBIT 4.02(h), and other than transactions in
the ordinary course of business involving less than $5,000, enter into any
transaction, including, without limitation, any loans or extensions of credit or
royalty agreements, with any officer or director of the Company or any
Subsidiary or holder of any class of capital shares of the Company, or any
member of their respective immediate families or any corporation or other entity
directly or indirectly affiliated with one or more of such officers, directors
or stockholders or members of their immediate families unless such transaction
is approved in advance by a majority of the members of the Board of Directors
who have no interest in such transaction, or absent such Board of Directors
approval, by all of the Purchasers.
(i) COMPENSATION. Unless approved by a majority of the members of the
Board of Directors, issue or authorize for issuance any Reserved Management
Shares (including options for the purchase thereof), or increase by more than
ten percent (10%) in any calendar year the salary and/or bonus of any Key
Employee.
(j) INVESTMENT IN OTHER CORPORATIONS. Make or permit any Subsidiary to
make, any loan or advance to any Person in excess of $250,000, or purchase,
otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire,
the capital stock, assets comprising the business of, obligations of, or any
interest in, any other corporation or entity.
(k) VESTING OF RESERVED MANAGEMENT SHARES. Grant to any of its
employees options or other rights to purchase Reserved Management Shares which
will become exercisable or vest, as the case may be, at a rate in excess of 20%
per annum from the date of such grant unless otherwise authorized by the Board
of Directors.
(l) ISSUANCE OF RESERVED MANAGEMENT SHARES. Issue any shares (or any
options to purchase shares) of Class B Common Stock which are Reserved
Management Shares in excess of 829,000 shares.
(m) CONSIDERATION FOR ISSUANCES OF COMMON STOCK. Issue, sell or
exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange, shares of its Common Stock, or any securities
convertible into Common Stock, without consideration or for non-cash
consideration; except for (i) Common Stock issued upon any subdivision or
combination of shares of Common Stock or (ii) the issuance of any Converted
Shares.
(n) FURNITURE SHOWROOMS. Without the consent of a majority of the
Board of Directors, purchase any additional furniture showrooms.
(o) KEY EMPLOYEES. Terminate the employment of any Key Employee of the
Company without the prior approval of a majority of the Board of Directors.
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4.03. REPORTING REQUIREMENTS. Until the consummation of a Qualified Public
Offering, the Company will furnish the following to each person who holds any of
the Shares:
(a) MONTHLY REPORTS: as soon as available and in any event within
thirty (30) days after the end of each calendar month, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such month and consolidated and consolidating statements of income and
retained earnings of the Company and its Subsidiaries for such month and for the
period commencing at the end of the previous fiscal year and ending with the end
of such month, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, and including
comparisons to monthly budgets, a summary of the Company's aging accounts
receivable and accounts payable, a cash flow analysis for such month, a schedule
showing each expenditure of a capital nature in excess of $50,000 during such
month, detail of sales and profits for such month and the year-to-date, all in
reasonable detail and duly certified by the chief financial officer of the
Company as having been prepared in accordance with generally accepted accounting
principles consistently applied (except for year-end adjustments and the absence
of footnotes);
(b) QUARTERLY REPORTS: as soon as available and in any event within
sixty (60) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, consolidated and consolidating balance sheets of the
Company and its Subsidiaries as of the end of such quarter and consolidated and
consolidating statements of income and retained earnings and cash flows of the
Company and its Subsidiaries for such quarter and for the period commencing at
the end of the previous fiscal year and ending with the end of such quarter,
setting forth in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, and including comparisons to
quarterly budgets and a summary discussion of the Company's principal functional
areas, all in reasonable detail and duly certified (subject to year-end audit
adjustments and the absence of footnotes) by the chief financial officer of the
Company as having been prepared in accordance with generally accepted accounting
principles consistently applied;
(c) ANNUAL REPORTS: as soon as available and in any event within 120
days after the end of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company and its Subsidiaries, including
therein consolidated and consolidating balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income and retained earnings and of changes in the
financial position of the Company and its Subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all such consolidated statements to be duly certified by
the chief financial officer of the Company and by such independent public
accountants of recognized national standing as have been approved by a majority
of the Board of Directors;
(d) BUDGETS: as soon as available after approval by the Board of
Directors, a business plan and monthly operating budgets for the forthcoming
fiscal year;
(e) NOTICE OF ADVERSE CHANGES: promptly after the occurrence thereof
and in any event within thirty (30) Business Days after such occurrence is known
to the Company,
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notice of any material adverse change in the operations or financial condition
of the Company or any default in any other material agreement to which the
Company is a party;
(f) WRITTEN REPORTS: promptly upon receipt or publication thereof, any
written reports submitted to the Company by independent public accountants in
connection with an annual or interim audit of the books of the Company and its
Subsidiaries made by such accountants or by consultants or other experts in
connection with such consultant's or other expert's review of the Company's
operations or industry, and written reports prepared by the Company to comply
with other investment or loan agreements;
(g) NOTICE OF PROCEEDINGS: promptly after the commencement thereof,
notice of all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Company or any Subsidiary of the type described in
Section 3.04;
(h) STOCKHOLDERS' AND SEC REPORTS: promptly upon sending, making
available, or filing the same, such reports and financial statements as the
Company or any Subsidiary shall send or make available to the stockholders of
the Company or file with the Securities and Exchange Commission; and
(i) OTHER INFORMATION: such other information respecting the business,
properties or the condition or operations, financial or otherwise, of the
Company or any of its Subsidiaries as any holder of the Shares may from time to
time reasonably request.
ARTICLE V
RIGHT OF FIRST REFUSAL
5.01. RIGHT OF FIRST REFUSAL. The Company shall not issue, sell or
exchange, agree or obligate itself to issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange, any (i) shares of Class A Common Stock,
(ii) shares of Class B Common Stock, (iii) any other equity security of the
Company, including without limitation, shares of Series A Preferred Stock, (iii)
any debt security of the Company (other than a bank line of credit or other
Indebtedness for borrowed money from an institutional lender, in each case with
no equity feature) including without limitation, any debt security which by its
terms is convertible into or exchangeable for any equity security of the
Company, (iv) any security of the Company that is a combination of debt and
equity, or (v) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any such equity security or any such debt security of the
Company, unless in each case the Company shall have first offered to sell such
securities (the "Offered Securities") to the Purchasers as follows: The Company
shall offer to sell to each Purchaser (a) that number of such securities so
that, after giving effect to such issuance, such Purchaser will continue to
maintain its same proportionate equity ownership in the Company as of the date
of such notice on a fully diluted basis assuming the shares reserved for
issuance upon the exercise of options have been issued (the "Basic Amount"), and
(b) such additional portion of the Offered Securities as such Purchaser shall
indicate it will purchase should the other Purchasers subscribe for less than
their Basic Amounts (the "Undersubscription Amount"), at a price and on such
other terms
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as shall have been specified by the Company in writing delivered to such
Purchaser (the "Offer"), which Offer by its terms shall remain open and
irrevocable for a period of twenty (20) days from receipt of the offer.
5.02. NOTICE OF ACCEPTANCE. Notice of each Purchaser's intention to accept,
in whole or in part, any Offer made pursuant to Section 5.01 shall be evidenced
by a writing signed by such Purchaser and delivered to the Company prior to the
end of the 20-day period of such offer, setting forth such of the Purchaser's
Basic Amount as such Purchaser elects to purchase and, if such Purchaser shall
elect to purchase all of its Basic Amount, any Undersubscription Amount as such
Purchaser shall elect to purchase (the "Notice of Acceptance"). If the Basic
Amounts subscribed for by all Purchasers are less than the total Offered
Securities, then each Purchaser who has set forth Undersubscription Amounts in
its Notice of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, all Undersubscription Amounts it has subscribed for;
PROVIDED, HOWEVER, that should the Undersubscription Amounts subscribed for
exceed the difference between the Offered Securities and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Purchaser who
has subscribed for any Undersubscription Amount shall be entitled to purchase
only that portion of the Available Undersubscription Amount as the
Undersubscription Amount subscribed for by such Purchaser bears to the total
Undersubscription Amounts subscribed for by all Purchasers, subject to rounding
by the Board of Directors to the extent it reasonably deems necessary.
5.03. CONDITIONS TO ACCEPTANCES AND PURCHASE.
(a) PERMITTED SALES OF REFUSED SECURITIES. In the event that Notices
of Acceptance are not given by the Purchasers in respect of all the Offered
Securities, the Company shall not be obligated to sell the part of such Offered
Securities as to which a Notice of Acceptance has not been given by the
Purchasers (the "Refused Securities"), and the Company shall have 120 days from
the expiration of the period set forth in Section 5.01 to sell all or any part
of the Refused Securities to the Person or Persons specified in the Offer, but
only in all respects upon terms and conditions, including, without limitation,
unit price and interest rates, which are no more favorable, in the aggregate, to
such other Person or Persons or less favorable to the Company than those set
forth in the Offer.
(b) REDUCTION IN AMOUNT OF OFFERED SECURITIES. In the event the
Company shall propose to sell less than all the Refused Securities (any such
sale to be in the manner and on the terms specified in Section 5.03(a) above),
then each Purchaser may, at its sole option and in its sole discretion, reduce
the number of, or other units of the Offered Securities specified in its
respective Notices of Acceptance to an amount which shall be less than the
amount of the Offered Securities which the Purchaser elected to purchase
pursuant to Section 5.02 multiplied by a fraction, (i) the numerator of which
shall be the amount of Offered Securities which the Company actually proposes to
sell, and (ii) the denominator of which shall be the amount of all Offered
Securities. In the event that any Purchaser so elects to reduce the number or
amount of Offered Securities specified in its respective Notices of Acceptance,
the Company may not sell or otherwise dispose of more than the reduced amount of
the Offered Securities until such securities have again been offered to the
Purchasers in accordance with Section 5.01.
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(c) CLOSING. Upon the closing of the sale to such other Person or
Persons of all or less than all of the Refused Securities, the Purchasers shall
purchase from the Company, and the Company shall sell to the Purchasers (upon
full payment for such shares), the number of Offered Securities specified in the
Notices of Acceptance, as reduced pursuant to Section 5.03(b) if the Purchasers
have so elected, upon the terms and conditions specified in the Offer. The
purchase by the Purchasers of any Offered Securities is subject in all cases to
the preparation, execution and delivery by the Company and the Purchasers of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Purchasers and their counsel.
5.04. FURTHER SALE. In each case, any Offered Securities not purchased by
the Purchasers or other Person or Persons in accordance with Section 5.03 may
not be sold or otherwise disposed of until they are again offered to the
Purchasers under the procedures specified in Sections 5.01, 5.02 and 5.03.
5.05. TERMINATION OF RIGHT OF FIRST REFUSAL. The rights of the Purchasers
under this Article V shall terminate immediately prior to the consummation of a
Qualified Public Offering.
5.06. EXCEPTION. The rights of the Purchasers under this Article V shall
not apply to:
(a) up to 829,000,000 shares of Class B Common Stock (as adjusted for
a stock splits and the like) or options exercisable therefor, issued or issuable
to officers, employees or consultants for the Company or any Subsidiary pursuant
to a stock option plan approved by the Board of Directors of the Company for the
benefit of the Company's or a Subsidiary's officers, employees, and/or
consultants which each Purchaser shall cause its affiliated Board of Directors
member to approve;
(b) equity securities of the Company issued pursuant to the
acquisition of another corporation by the Company by merger (whereby the Company
owns no less than fifty-one percent (51%) of the voting power of such
corporation) or purchase of substantially all of its stock or assets; or
(c) the Converted Shares.
ARTICLE VI
DEFINITIONS AND ACCOUNTING TERMS
6.01. CERTAIN DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Agreement" means this Series A Preferred Stock and Class A Common Stock
Purchase Agreement as from time to time amended and in effect between the
parties, including all Exhibits hereto.
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"Board of Directors" means the board of directors of the Company as
constituted from time to time.
"Business Plan" means the Company's Business Plan dated as of ,
1998, together with all Exhibits thereto, as submitted to the Purchasers.
"Capital Expenditures" for any period shall mean all amounts debited or
required to be debited to the fixed asset accounts on the balance sheet of the
Company during such period in accordance with generally accepted accounting
principles in respect of (a) the acquisition, development or improvement of any
computer hardware, software or equipment, (b) the acquisition, construction,
improvement, replacement or betterment of land, buildings, machinery, equipment
or of any other fixed assets or leaseholds, and (b) to the extent related to and
not included in (a) or (b) above, materials, contract labor and direct labor
(excluding expenditures properly chargeable to repairs or maintenance in
accordance with generally accepted accounting principles).
"Class A Common Stock" means the Company's Class A Common Stock, $.01 par
value, as authorized as of the date of this Agreement, having the rights,
powers, privileges and preferences set forth in EXHIBIT 1.01A hereto.
"Class B Common Stock" includes (a) the Company's Class B Common Stock,
$.01 par value, as authorized as of the date of this Agreement, (b) any other
capital shares of any class or classes (however designated) of the Company,
authorized on or after the date hereof, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies or in the
absence of any provision to the contrary in the Company's Certificate of
Incorporation, be entitled to vote for the election of a majority of directors
of the Company (even though the right so to vote has been suspended by the
happening of such a contingency or provision), and (c) any other securities into
which or for which any of the securities described in (a) or (b) may be
converted or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
"Company" means and shall include FurnitureSite, Inc., a Delaware
corporation, and its successors and assigns.
"Consolidated" and "consolidating" when used with reference to any term
defined herein mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles.
"Converted Shares" means those shares of Class B Common Stock into which
shares of Class A Common Stock are convertible pursuant to the terms of the
Company's Certificate of Incorporation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"GAAP" means in accordance with generally accepted accounting principles,
consistently applied.
"Indebtedness" means all obligations, contingent and otherwise, which
should, in accordance with generally accepted accounting principles, be
classified upon the obligor's balance sheet (or the notes thereto) as
liabilities, but in any event including liabilities secured by any mortgage on
property owned or acquired subject to such mortgage, whether or not the
liability secured thereby shall have been assumed, and also including (i) all
guaranties, endorsements and other contingent obligations, in respect of
Indebtedness of others, whether or not the same are or should be so reflected in
said balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and (ii) the present value of any lease payments due
under leases required to be capitalized in accordance with applicable Statements
of Financial Accounting Standards, determined by discounting all such payments
at the interest rate determined in accordance with applicable Statements of
Financial Accounting Standards.
"Key Employee" means and includes Steven Rothschild or any other individual
as may be reasonably designated by the Board of Directors of the Company.
"Knowledge," "to the best of knowledge," "known," and any other words of
similar import as used with respect to representations and warranties by the
Company shall mean those matters or facts which are actually known or, upon
reasonable investigation should be known, by any Key Employee.
"Material Adverse Effect" means a material adverse effect on the business,
assets, condition (financial or otherwise) or results of operations of the
Company or any Subsidiary.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Purchaser" and "Purchasers" shall have that meaning attributable to it in
Section 1.01 of this Agreement.
"Purchaser Director" means a member of the Company's Board of Directors who
was nominated by 60% in interest of the holders of Series A Preferred Stock.
"Qualified Public Offering" means a fully underwritten, firm commitment
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale by the Company of any of its Class B
Common Stock in which the aggregate gross proceeds to the Company equal or
exceed $5,000,000.
"Reserved Management Shares" means shares of Class B Common Stock, not to
exceed in the aggregate 829,000 shares (appropriately adjusted to reflect stock
splits, stock dividends, combinations of shares and the like with respect to the
Class B Common Stock) reserved by the Company for issuance pursuant to stock
purchase, stock grant or stock option arrangements for
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employees, directors or consultants of the Company, all under arrangements
approved by the Board of Directors.
"Securities Act" means the Securities Act of 1933, or any similar Federal
statute, and the rules and regulations of the Securities and Exchange Commission
(or of any other Federal agency then administering the Securities Act)
thereunder, all as the same shall be in effect at the time.
"Series A Preferred Stock" means the Series A Preferred Stock of the
Company, $.01 par value, having the rights, powers, privileges and preferences
set forth in Exhibit 1.01A hereto.
"Shares" shall have that meaning attributable to it in Section 1.01 of this
Agreement.
"Subsidiary" or "Subsidiaries" includes Empire and any other corporation or
trust of which the Company and/or any of its other Subsidiaries (as herein
defined) directly or indirectly owns at the time at least fifty percent (50%) of
the outstanding shares of every class of such corporation or trust other than
directors' qualifying shares.
6.02. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistently applied.
ARTICLE VII
MISCELLANEOUS
7.01. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
7.02. AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this Agreement to
the contrary notwithstanding, and except as hereinafter provided, changes in or
additions to this Agreement may be made, and compliance with any covenant or
provision set forth herein may be omitted or waived, if the Company (i) shall
obtain consent thereto in writing from the holder or holders of at least 60% in
interest of the Series A Preferred Stock, and (ii) shall deliver copies of such
consent in writing to any holders who did not execute such consent. Any waiver
or consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. Notwithstanding anything to the contrary
contained herein, any amendment which (x) increases any Purchaser's obligations
hereunder, (y) alters or amends the percentage stated in Section 4.02 hereof, or
(z) grants to any one or more Purchasers any rights more favorable than any
rights granted to all other Purchasers or otherwise treats any one or more
Purchasers differently than all
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other Purchasers, must be approved by each Purchaser so as to be effective
against such Purchaser.
7.03. ADDRESSES FOR NOTICES.
(a) All notices, requests, demands and other communications provided
for hereunder shall be in writing and mailed, sent by facsimile transmission or
delivered to each applicable party at the address set forth in EXHIBIT 1.01
hereto or at such other address as to which such party may inform the other
parties in writing in compliance with the terms of this Section.
If to any other holder of the Shares: at such holder's address for notice
as set forth in the register maintained by the Company, or, as to each of the
foregoing, at the addresses set forth on EXHIBIT 1.01 hereto or at such other
address as shall be designated by such Person in a written notice to the other
parties complying as to delivery with the terms of this Section.
If to the Company: at the address set forth on page 1 hereof, or at such
other address as shall be designated by the Company in a written notice to the
other parties complying as to delivery with the terms of this Section.
All such notices, requests, demands and other communications shall, when
mailed (which mailing must be accomplished by express overnight courier service
or registered mail, return receipt requested) or sent by facsimile, be effective
two days after deposited in the mails or when sent by facsimile, respectively,
addressed as aforesaid, unless otherwise provided herein.
7.04. COSTS, EXPENSES AND TAXES. The Company agrees to pay in connection
with the preparation, execution and delivery of this Agreement and the issuance
of the Shares all of the reasonable out-of-pocket fees and other expenses the
Investors incur and up to $35,000 of the reasonable fees and out-of-pocket
expenses of Testa, Hurwitz & Thibeault, LLP, counsel for the Purchasers. In
addition, the Company shall pay any and all stamp and other similar taxes
payable or determined to be payable in connection with the execution and
delivery of this Agreement, the issuance of the Shares, and the other
instruments and documents to be delivered hereunder or thereunder, and agrees to
hold the Purchasers harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
7.05. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Company and the Purchasers and their respective
heirs, successors and assigns, except that the Company shall not have the right
to delegate any of its respective obligations hereunder or to assign its
respective rights hereunder or any interest herein without the prior written
consent of the holders of at least 60% in interest of the Series A Preferred
Stock.
7.06. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Agreement or any other instrument or document delivered
in connection herewith or therewith, shall survive the execution and delivery
hereof or thereof for a period of three years.
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7.07. PRIOR AGREEMENTS. This Agreement constitutes the entire agreement
between the parties and, supersedes any prior understandings or agreements
concerning the purchase and sale of the Shares.
7.08. SEVERABILITY. The provisions of this Agreement and the terms of the
Series A Preferred Stock, Class A Common Stock and Class B Common Stock are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of a provision
contained in this Agreement or the terms of the Series A Preferred Stock, Class
A Common Stock and Class B Common Stock shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement or the terms of the Series A Preferred Stock, Class A Common
Stock and Class B Common Stock; but this Agreement and the terms of the Series A
Preferred Stock, Class A Common Stock and Class B Common Stock shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of a provision, had never been contained herein, and such provisions or part
reformed so that it would be valid, legal and enforceable to the maximum extent
possible.
7.09. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with and governed by the General Corporation Law of the State of
Delaware.
7.10. HEADINGS. Article, Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
7.11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
7.12. FURTHER ASSURANCES. From and after the date of this Agreement, upon
the request of any Purchaser or the Company, the Company and the Purchasers
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement and the Shares.
7.13. INDEMNIFICATION. The Company shall, with respect to the
representations and warranties made by the Company herein, indemnify, defend and
hold the Purchasers harmless against all liability, loss or damage, together
with all reasonable costs and expenses related thereto (including legal and
accounting fees and expenses), arising from the untruth, inaccuracy or breach of
any such representations or warranties of the Company. Without limiting the
generality of the foregoing, the Purchasers shall be deemed to have suffered
liability, loss or damage (to the extent of their ownership interest in the
Company) as a result of the untruth, inaccuracy or breach of any such
representations or warranties if such liability, loss or damage shall be
suffered by the Company as a result of, or in connection with, such untruth,
inaccuracy or breach or any facts or circumstances constituting such untruth,
inaccuracy or breach.
-30-
7.14. AGGREGATION OF STOCK. All securities of the Company held or acquired
by an affiliate of any Purchaser shall be aggregated with those held or acquired
by such Purchaser for the purpose of determining the availability of or
discharge of any rights of such Purchaser under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-31-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
FURNITURESITE, INC., PURCHASERS:
a Delaware corporation ----------
BRAND EQUITY VENTURES I, L.P.
By: /s/ Steven Rothschild
-----------------------------
Steven Rothschild By: Brand Equity Partners I, LLC,
Its Chief Executive Officer Its General Partner
By: /s/ Christopher P. Kirchen
-------------------------------------
Christopher P. Kirchen
Its Managing Member
BESSEMER VENTURE INVESTORS L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ Robert H. Buescher
-------------------------------------
Robert H. Buescher, Manager
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ Robert H. Buescher
-------------------------------------
Robert H. Buescher, Manager
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC, General Partner
By: /s/ Robert H. Buescher
-------------------------------------
Robert H. Buescher, Manager
TRUSTEES OF AMHERST COLLEGE FOR THE
MICHAEL I. AND HOLLY H. BARACH CHARITABLE
REMAINDER UNITRUST
-32-
By: /s/ Sharon G. Siegel
-------------------------------------
Name: Sharon G. Siegel
Title: Treasurer
TRUSTEES OF AMHERST COLLEGE FOR THE
MICHAEL I. AND HOLLY H. BARACH CHARITABLE
REMAINDER UNITRUST II
By: /s/ Sharon G. Siegel
-------------------------------------
Name: Sharon G. Siegel
Title: Treasurer
/s/ Michael Barach
-------------------------------------
Michael Barach
/s/ Donald Pettini
-------------------------------------
Don Pettini
-33-
ADDITIONAL PURCHASERS - SECOND CLOSING
/s/ Rowland Moriarty
----------------------------------
Rowland Moriarty
/s/ Richard J. Resch
----------------------------------
Richard J. Resch
-34-
EXHIBIT 1.01
---------------------------------------- --------------- ----------------- ---------------- -------------------
Name and Address Series A Purchase Class A Purchase
of Purchasers Preferred Price Common Price
Stock Stock
---------------------------------------- --------------- ----------------- ---------------- -------------------
Brand Equity Ventures I, L.P. 1,485,000 $1,485,000 1,500,000 $15,000
Three Pickwick Plaza
Greenwich, CT 06830
Attn: Christopher Kirchen
Bessemer Venture Partners IV L.P. 422,631 $422,631 426,900 $4,269
1400 Old Country Road,
Suite 407
Westbury , NY 11590
Attn: Robert Buescher
Bessemer Ventures IV L.P. 249,579 $249,579 252,100 $2,521
1400 Old Country Road,
Suite 407
Westbury, NY 11590
Attn: Robert Buescher
Bessemer Venture Investors L.P. 70,290 $70,290 71,000 $710
1400 Old Country Road,
Suite 407
Westbury, NY 11590
Attn: Robert Buescher
Michael Barach 425,700 $425,700 430,000 $4,300
c/o Bessemer Venture Partners
83 Walnut Street
Wellesley, MA 02181
Trustees of Amherst College for the 66,000 $66,000 66,666 $666.66
Michael I. and Holly H. Barach
Charitable Remainder Unitrust
Campus Box 2203
P.O. Box 5000
Amherst, MA 01002-5000
-35-
Trustees of Amherst College for the 33,000 $33,000 33,334 $333.34
Michael I. and Holly H. Barach
Charitable Remainder Unitrust II
Campus Box 2203
P.O. Box 5000
Amherst, MA 01002-5000
Don Pettini 9,900 $9,900 10,000 $100
6 Russett Lane
Andover, MA 01810
Rowland Moriarty 148,500 $148,500 150,000 $1,500
Charles River Associates
200 Clarendon St. 33rd Fl.
John Hancock Building
Boston, MA 02116
Richard J. Resch 99,000 $99,000 100,000 $1,000
K.I.
1330 Bellevue Street
Greenbay WI, 54302
---------------------------------------- --------------- ----------------- ---------------- -------------------
Totals: 3,009,6000 $3,009,600 3,040,000 $30,400
---------------------------------------- --------------- ----------------- ---------------- -------------------
-36-
Exhibit 10.6
FURNITURESITE, INC.
Series B Preferred Stock Purchase Agreement
Dated as of December 29, 1998
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
i
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
ii
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 Peter Halunen
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
iii
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
iv
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 Hutchins,
Wheeler & Dittmar 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
2
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.
3
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 Hale and Dorr 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.
4
(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 Misha Katz, Merrill Blum, Lee Chaissen, Richard Clark,
Charles Anderson and Carl Prindle 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). Peter Halunen
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.
5
2.04. EMPLOYMENT AGREEMENT. Prior to the Closing Steve Rothschild's
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,
6
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) ANDREW BROOKS EMPLOYMENT AGREEMENT. Use commercially reasonable
best efforts to Include in any employment agreement executed by the Company with
Andrew Brooks, 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.
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(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 Steven Rothschild, Andrew Brooks and
Richard Clark, 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 40 Jackson Street, Worcester, MA 01608-2295,
or via facsimile at (508) 770-1596, Attention: Andrew Brooks, 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/ Andrew Brooks
________________________
Name: Andrew Brooks 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/ Robert H. Buescher
___________________________
Robert H. Buescher, Manager
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. LLC,
General Partner
By: /s/ Robert H. Buescher
___________________________
Robert H. Buescher, Manager
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC,
General Partner
By: /s/ Robert H. Buescher
___________________________
Robert H. Buescher, 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/ Christopher P. Kirchen
__________________________
Christopher P. Kirchen
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/ James P. Labe
------------------------------
Name: James P. Labe, 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/ Sara M. Hendrickson
__________________________
Name: Sara M. Hendrickson
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/ Robert J. Reynolds
________________________________
Robert J. Reynolds, 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/ Mitchell P. Bartlett
__________________________________
Mitchell P. Bartlett, 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
100 Brickstone Square
Andover, MA 01810
Attn: Marc Poirier
---------------------------------------- ----------------------- -------------------- ------------------------
CMG@Ventures III, LLC 771,127 $1,095,000
100 Brickstone Square
Andover, MA 01810
Attn: Andrew J. Hajducky
---------------------------------------- ----------------------- -------------------- ------------------------
@Ventures Investors, LLC * 0 0
100 Brickstone Square
Andover, MA 01810
Attn: Marc Poirier
---------------------------------------- ----------------------- -------------------- ------------------------
@Ventures Foreign Fund III, L.P. * 0 0
100 Brickstone Square
Andover, MA 01810
Attn: Marc Poirier
---------------------------------------- ----------------------- -------------------- ------------------------
Brand Equity Ventures I, L.P.
Three Pickwick Plaza 1,056,338 $1,500,000
Greenwich, CT 06830
Attn: Christopher Kirchen
---------------------------------------- ----------------------- -------------------- ------------------------
Bessemer Venture Investors L.P. 140,845 $200,000
1400 Old Country Road, Suite 407
Westbury, NY 11590
---------------------------------------- ----------------------- -------------------- ------------------------
Bessemer Ventures IV L.P. 774,648 $1,100,000
1400 Old Country Road, Suite 407
Westbury, NY 11590
---------------------------------------- ----------------------- -------------------- ------------------------
Bessec Venture IV L.P. 492,958 $700,000
1400 Old Country Road, Suite 407
Westbury, NY 11590
---------------------------------------- ----------------------- -------------------- ------------------------
Shad Run Investments, L.P. 528,169 $750,000
3512 Clay Street
San Francisco, CA 94118
Attn: Sara M. Hendrickson
---------------------------------------- ----------------------- -------------------- ------------------------
Comdisco, Inc. 352,113 $500,000
3000 Sand Hill Road
Building 1, Suite 155
Menlo Park, CA 94025
Attn:
---------------------------------------- ----------------------- -------------------- ------------------------
Robert J. Reynolds 88,028 $125,000
74 Greenwood Way
Mill Valley, CA 94941
---------------------------------------- ----------------------- -------------------- ------------------------
Mitchell P. Bartlett 88,028 $125,000
Daine Rauscher Plaza
60 South 6th Street
Minneapolis, MN 55402-4422
---------------------------------------- ----------------------- -------------------- ------------------------
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
Exhibit 10.7
FURNITURE.COM, INC.
Series C Preferred Stock Purchase Agreement
Dated as of June 23, 1999
FURNITURE.COM, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
Dated as of June 21, 1999
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. 2
1.04. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. 2
ARTICLE II CONDITIONS TO PURCHASERS' OBLIGATION 4
2.01. REPRESENTATIONS AND WARRANTIES 4
2.02. DOCUMENTATION AT CLOSING. 4
2.03. CONSENTS, WAIVERS, ETC. 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. 7
3.04. LITIGATION. 7
3.05. CERTAIN AGREEMENTS OF OFFICERS AND KEY EMPLOYEES 8
3.06. COMPLIANCE WITH OTHER INSTRUMENTS. 8
3.07. SALES AND MARKETING INFORMATION. 8
3.08. TAXES. 9
3.09. ERISA. 9
3.10. TRANSACTIONS WITH AFFILIATES. 9
3.11. ASSUMPTIONS OR GUARANTEES OF INDEBTEDNESS OF OTHER PERSONS. 9
3.12. INVESTMENTS IN OTHER PERSONS. 9
3.13. SECURITIES ACT. 10
3.14. DISCLOSURE. 10
3.15. BROKERS OR FINDERS. 10
3.16. CAPITALIZATION; STATUS OF CAPITAL STOCK. 10
3.16A. CAPITAL STOCK OF SUBSIDIARIES. 11
3.17. REGISTRATION RIGHTS. 11
3.18. INSURANCE. 11
3.19. BOOKS AND RECORDS. 12
3.20. TITLE TO ASSETS, PATENTS. 12
3.21. REAL PROPERTY HOLDING CORPORATION STATUS. 13
3.22. LABOR RELATIONS. 13
3.23. OTHER AGREEMENTS. 14
3.24. ENVIRONMENTAL PROTECTION. 16
3.25. COMPLIANCE WITH LAW; PERMITS. 16
3.26. FINANCIAL STATEMENTS 17
3.27. YEAR 2000 COMPLIANCE 17
3.28. MERGER DISCUSSIONS. 17
ARTICLE IV COVENANTS OF THE COMPANY 18
4.01. AFFIRMATIVE COVENANTS OF THE COMPANY OTHER THAN REPORTING REQUIREMENTS. 18
4.02. NEGATIVE COVENANTS OF THE COMPANY. 20
i
4.03. REPORTING REQUIREMENTS. 23
ARTICLE V RIGHT OF FIRST REFUSAL 25
5.01. RIGHT OF FIRST REFUSAL. 25
5.02. NOTICE OF ACCEPTANCE. 25
5.03. CONDITIONS TO ACCEPTANCES AND PURCHASE. 26
5.04. FURTHER SALE. 26
5.05. TERMINATION OF RIGHT OF FIRST REFUSAL. 26
5.07. FIRST QUALIFIED PUBLIC OFFERING 27
ARTICLE VI DEFINITIONS AND ACCOUNTING TERMS 30
6.01. CERTAIN DEFINED TERMS. 30
6.02. ACCOUNTING TERMS. 33
ARTICLE VII MISCELLANEOUS 33
7.01. NO WAIVER; CUMULATIVE REMEDIES. 33
7.02. AMENDMENTS, WAIVERS AND CONSENTS. 33
7.03. ADDRESSES FOR NOTICES. 34
7.04. COSTS, EXPENSES AND TAXES. 35
7.05. BINDING EFFECT; ASSIGNMENT. 35
7.06. SURVIVAL. 35
7.07. PRIOR AGREEMENTS. 35
7.08. SEVERABILITY. 35
7.09. GOVERNING LAW. 36
7.10. HEADINGS. 36
7.11. COUNTERPARTS. 36
7.12. FURTHER ASSURANCES. 36
7.13. INDEMNIFICATION. 36
7.14. AGGREGATION OF STOCK. 36
7.15 CONFIDENTIALITY 36
ii
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
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
3.14 Material Contracts
3.16 Capitalization
3.17 Registration Rights
3.18 Insurance
3.20 Title to Assets, Patents
3.22 Labor Relations
3.23(a) Other Agreements - Distributors/Vendors
3.23(b) Other Agreements - Sales Contracts with Rebate/Right of Set-Off
3.23(c) Other Agreements - Contracts with Labor Unions
3.23(d) Other Agreements - Contracts Permitting Renegotiation of Price
3.23(e) Other Agreements - Purchase of Fixed Assets
3.23(f) Other Agreements - Employment
3.23(g) Employee Benefit Plans
3.23(h) Schedule of Loans with Security Interest
3.23(i) Guaranty of Obligation for Borrowed Money
3.23(j) Voting, Stockholder, Pledge or Buy Sell Agreements
3.23(k)(A) Agreements to Lease Real Property as Lessee or Lessor
3.23(k)(B) Other Agreements - Equipment Leases
3.23(l) Agreements to Acquire or Retire Equity Securities
3.23(m) Intangible Property
3.23(n) Consulting and Professional Agreements
3.23(o) Required to be Filed with the SEC with Registration Statement
3.23(p) Agreements to Exercise Buyout Provision of any Lease
3.23A Present Expectations or Intentions of Non-Performance
3.24 Environmental Protection
3.25 Compliance with Law; Permits
4.02(a) Indebtedness
4.02(h) Dealings with Affiliates and Others
iii
As of June 23, 1999
TO: The Persons listed on EXHIBIT 1.01 hereto
Re: PURCHASE OF SERIES C PREFERRED STOCK
Gentlemen:
Furniture.com, 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 4,727,786 shares of its authorized but unissued shares of Series C
Preferred Stock, $.01 par value (the "Series C Preferred"), at a purchase price
of $7.40305 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 C Preferred shall be as set forth on the Second Amended
and Restated Certificate of Incorporation of the Company (the "Restated
Certificate of Incorporation"), attached hereto as EXHIBIT 1.01A.
The Series C 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 Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts on June 23, 1999, 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
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 506 promulgated under the Securities Act, and applicable State
securities laws.
Each of the Purchasers further represents that it understands and agrees
that Company has no current obligation to register the Shares and that, until
registered under the Securities Act or transferred pursuant to the provisions of
Rule 144 as promulgated by the Securities and Exchange Commission, all
certificates evidencing any of the Shares, whether upon initial issuance or upon
any transfer thereof, shall bear a legend, prominently stamped or printed
thereon, reading substantially as follows:
"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."
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 (X) a
transfer of Purchased Shares or Converted Shares (i) to one or more of its
partners or members in any Purchaser that is a partnership or limited liability
company or to a retired or withdrawn partner or member who retires or withdraws
after the date hereof in full or partial distribution of his interest in such
partnership or limited liability company, (ii) to any immediate family member
(which shall be deemed to include a spouse, sibling, lineal descendant,
ancestor, mother-in-law, father-in-law, brother-in-law and sister-in-law) of an
individual Purchaser by gift or bequest or through inheritance, or to a trust or
family limited partnership (or other similar entity) created for the benefit of
one or more of the foregoing, (iii) to any shareholder of any Purchaser that is
a corporation or (iv) to any person or entity acquiring at least 250,000 shares
of Series C Preferred (such number being subject to adjustment for any stock
dividend, stock split, subdivision, combination or other recapitalization);
PROVIDED, HOWEVER, that the transferor provides written notice of such transfer
to the Company stating the transferee's name and address and specifying the
number and type of securities to be transferred; and PROVIDED, FURTHER, that the
Company receives a written instrument pursuant to which the transferee agrees to
be subject to the terms hereof to the same extent as if it were an original
Purchaser hereunder and (Y) 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. Any transferee to whom a transfer is made in accordance with the
immediately preceding sentence shall be deemed an Investor for purposes of this
Agreement. Notwithstanding anything herein to the contrary, in no event may any
Purchaser, together with its affiliates and transferees, transfer any Purchased
Shares or Converted Shares to more than 10 persons in the aggregate.
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 copy of the Restated Certificate of Incorporation of the Company
and Articles of Organization of each of its Subsidiaries, in each case certified
by the Secretary of State of the jurisdiction of their respective organization,
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 Hale and Dorr 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 and the Series B
Preferred in the form set forth in EXHIBIT 1.01A, attached hereto.
(f) A Second 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 Bylaws of the Company shall provide for a Board of Directors
consisting of eight (8) members, who shall be designated in accordance with the
Stockholders' Agreement.
(j) The Company and the Purchasers shall have entered into a Second
Amended and Restated Registration Rights Agreement (the "Registration Rights
Agreement") in the form set forth in EXHIBIT 2.02J.
(k) The Purchasers specified on EXHIBIT 1.01 hereto shall purchase at
the Closing at least $20,000,000 in value of shares of Series C Preferred.
(l) The Company shall have reserved a total of not more than 3,500,000
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.
(m) The Company shall have reserved 4,727,786 shares of Class B Common
Stock as Converted Shares.
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.
2.04 DUE DILIGENCE. The Purchasers shall have completed their 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 taken
as a whole):
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 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.
3.04. LITIGATION. Except as set forth on EXHIBIT 3.04 hereto, there is no
litigation or governmental proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries affecting any of its respective properties or assets, or, to the
best knowledge of the Company, against any Key Employee (as defined in Article
VI hereof) affecting such person's performance of duties for the Company, his
share ownership in the Company or any of its Subsidiaries or otherwise relating
to the business of the Company or any of its Subsidiaries, nor, to the best
knowledge of the Company, has there occurred any event nor 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 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, 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 written sales
and on-line media advertising costs 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 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 EXHIBIT 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 $1,000,000, other than those liabilities described on EXHIBIT 3.10 or
EXHIBIT 3.14 or the contracts described in EXHIBIT 3.23. 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. No Person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or valid claim
against or upon the Company or any of its Subsidiaries for any commission, fee
or other compensation as a finder or broker because of any act or omission by
the Company, any of its Subsidiaries or any of their respective agents.
3.16. CAPITALIZATION; STATUS OF CAPITAL STOCK. The Company has a total
authorized capitalization consisting of (i) 24,000,000 shares of Class B Common
Stock, $.01 par value, of which 6,314,880 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, of which 3,009,600 shares are issued and
outstanding on the date hereof, (iv) 7,246,036 shares of Series B Preferred, of
which 7,042,254 shares are issued and outstanding on the date hereof, and (v)
4,727,786 shares of Series C Preferred, 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. The Company owns all of the outstanding capital stock of each of
the Subsidiaries, beneficially and of record, free and clear of all liens,
encumbrances, restrictions (other than those under applicable securities laws)
and claims of every kind. All the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized, are validly issued and are fully
paid and non-assessable. There are no options, warrants or rights to purchase
shares of capital stock or other securities of any of the Subsidiaries
authorized, issued or outstanding, nor is any Subsidiary obligated in any other
manner to issue shares of its capital stock or other securities.
3.17. REGISTRATION RIGHTS. Except as set forth in EXHIBIT 3.17 and except
for the rights granted pursuant to the Registration Rights Agreement, no Person
has demand or other rights (which such rights shall be effective subsequent to
the Closing) 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. EXHIBIT 3.18 sets forth a list (including the name of the
insurer, the name of the policyholder, the periods of coverage and the scope of
coverage) of all material insurance policies under which the Company or any of
its Subsidiaries is a party, a named insured or otherwise the beneficiary of
coverage.
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 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. The
Company has used commercially reasonable efforts to (i) protect and enforce all
copyright, trademark and patent rights of the Company except for those
copyright, trademark and patent rights that, individually or in the aggregate,
would not have a Material Adverse Effect, and (ii) otherwise secure and protect
for the Company's benefit all of its material rights in its material
intellectual property.
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 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 have a Material Adverse Effect. The Company is not in violation
of the terms of any of the agreements listed on EXHIBITS 3.23 (a) - (p), except
where such violation would not result in a Material Adverse Effect. Neither the
Company nor any Subsidiary is a party to any written or oral:
(a) distributor, vendor, franchise, dealer or manufacturer's
representative contract or agreement which is not terminable on less than in
ninety (90) days' notice without cost or other liability to the Company or any
Subsidiary (except for contracts which, in the aggregate, are not material to
the business of the Company or Subsidiary, as the case may be), except as set
forth in EXHIBIT 3.23(a);
(b) sales contract which entitles any customer to a rebate or right of
set-off, to return any product to the Company or any Subsidiary after acceptance
thereof or to delay the acceptance thereof, or which varies in any material
respect from the Company's standard form contracts or policies, except as set
forth in EXHIBIT 3.23(b);
(c) contract with any labor union (and no organizational effort is
being made with respect to any of its employees), except as set forth in EXHIBIT
3.23(c);
(d) contract or other commitment with any supplier containing any
provision permitting any party other than the Company or any Subsidiary to
renegotiate the price or other terms, or containing any pay-back or other
similar provision, upon the occurrence of a failure by either the Company or any
Subsidiary to meet its respective obligations under the contract when due or the
occurrence of any other event, except as set forth in EXHIBIT 3.23(d);
(e) contract for the future purchase of fixed assets or for the future
purchase of materials, supplies or equipment in excess of its normal operating
requirements, except as set forth in EXHIBIT 3.23(e);
(f) contract for the employment (or separation) of any officer,
individual, employee or other person (whether of a legally binding nature or in
the nature of informal understandings) on a full-time or consulting basis which
is not terminable on notice without cost or other liability to the Company or
any Subsidiary, except accrued vacation pay, except as set forth in EXHIBIT
3.23(f);
(g) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or similar plan, contract or
understanding pursuant to which benefits are provided to any employee of the
Company or any Subsidiary (other than group insurance plans applicable to
employees generally), except as set forth in EXHIBIT 3.23(g);
(h) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or security interest
on, any asset of the Company or any Subsidiary, except as set forth in EXHIBIT
3.23(h);
(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 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 material 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.
3.26. FINANCIAL STATEMENTS. The Company has furnished to each of the
Purchasers a complete and correct copy of the audited balance sheet of the
Company at December 31, 1998 and the related audited statements of operations
and cash flows for the fiscal period then ended (collectively, the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects, are in material conformity with the books and records of the Company
and present fairly in all material respects the financial condition and results
of operations of the Company, at the dates and for the periods indicated, and
have been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied.
3.27. YEAR 2000 COMPLIANCE . The Company has undertaken an assessment of
the Information Technology used by the Company and has made inquiry to all
Material Third Parties regarding their Year 2000 Compliance with respect to
their Information Technology used by the Company. The Company is, or is
scheduled for testing before September 30, 1999 to be able to become, Year 2000
Compliant except to the extent any such non-compliance would not have a Material
Adverse Effect. Such Material Third Parties claim they are or will become Year
2000 Compliant with respect to their Information Technology used by the Company.
As used in this
Section 3.27: (a) the words "Year 2000 Compliant" mean, with respect to a
natural or legal person, that all Information Technology used in that person's
business activities will: (i) accurately process all date and time data
(including, but not limited to, calculating, comparing and sequencing)
including, without limiting the foregoing, between the years 1999 and earlier
and the years 2000 and later (in either direction, forward or backward); (ii)
accurately process leap year calculations for date and time data; and (iii) when
used in combination with any other Information Technology, accurately process
date and time data if the other Information Technology properly exchanges date
and time data with it; (b) the words "Information Technology" mean any and all
systems, facilities and devices by which information (including data, text and
images) is generated, stored, processed, displayed, received or communicated,
including computer hardware and computer software; and (c) the words "Material
Third Party" mean any of the Company's information exchange partners, suppliers
and vendors that own any Information Technology which is material to the
Company's business.
3.28. MERGER DISCUSSIONS. The Board of Directors of the Company has not
entertained a merger or acquisition proposal by any Person during the six month
period ended on the date of this Agreement.
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. The Company will,
at its expense, use its best efforts to obtain and maintain directors' and
officers' liability insurance in an amount and for premiums which are on
commercially reasonable terms for comparable companies as determined by the
Board of Directors.
(b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its corporate existence, rights
and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified, and cause
each Subsidiary to qualify and remain qualified, as a foreign corporation in
each jurisdiction in which such qualification is necessary or desirable in view
of its business and operations or the ownership or lease of its properties.
Secure, preserve and maintain, and cause each Subsidiary to secure, preserve and
maintain, all licenses and other rights to use patents, processes, licenses,
permits, trademarks, trade names, inventions, intellectual property rights or
copyrights owned or possessed by it and deemed by the Company to be necessary to
the conduct of its business or the business of any Subsidiary, as the case may
be.
(c) INSPECTION. Permit, upon reasonable request and notice, during
normal business hours and without disruption of the Company's business, each of
the Purchasers or any agents or representatives thereof, to examine and make
copies of and extracts from the records and books of account of, and visit and
inspect the properties of the Company and any Subsidiary, to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, directors or Key Employees and independent accountants, and consult
with and advise the management of the Company and any Subsidiary as to their
affairs, finances and accounts, all at reasonable times. Each Purchaser agrees
that it will use its best efforts to maintain the confidentiality of any
information so obtained by it which is not otherwise available from other
sources (and will use its best efforts to prevent such confidential information
from becoming known to the Company's competitors), subject to the disclosure of
information of a non-technical nature, including financial information, which
such Purchaser discloses to its partners and/or shareholders generally.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause each
Subsidiary to keep, adequate records and books of account in which complete
entries will be 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; 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 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 executive 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 $250,000) 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 benefit; provided that all such proposed
compensation and fringe benefits offered prior to Board approval shall be
contingent upon such Board approval.
(j) 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.
(k) NON-DISCLOSURE AGREEMENTS. The Company shall use its best efforts
to obtain an Assignment of Inventions and Non-Disclosure Agreement in such form
as is approved by the Board of Directors, from all officers, key employees or
other employees who will have access to confidential information of the Company
or any of its Subsidiaries, upon their employment by the Company or any of its
Subsidiaries.
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 50% in interest of the Series A Preferred, the Series B Preferred
and Series C Preferred, voting together as a single class:
(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 or consolidate with or into any other
entity, sell or lease 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 wholly owned Subsidiary
may merge into or consolidate with the Company or with or into any other wholly
owned 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 required by 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 entitled to repurchase such shares
upon the occurrence of certain events, including the termination of
employment,
if in the case of any such transaction the payment can be made in compliance
with the other terms of this Agreement.
(e) CHANGE IN NATURE OF BUSINESS. Make or permit any Subsidiary to
make, any material change in the nature of its business as contemplated in
written materials delivered to the Purchasers prior to the date hereof.
(f) OWNERSHIP OF SUBSIDIARIES. Without the prior approval of the Board
of Directors, purchase or hold beneficially any stock, other securities or
evidences of Indebtedness in, or make any investment in or provide any extension
of credit to any other Person, excluding a wholly-owned or controlled subsidiary
of the Company.
(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 $500,000 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 3,500,000 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 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, (ii) the issuance of any
Converted Shares or (iii) the issuance of Reserved Management 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 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, Series B
Preferred or Series C 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, 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, Series B Preferred 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
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 3,500,000 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 or other 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 shares of Series B Preferred 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 issued upon exercise of the
Comdisco Warrants;
(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;
(f) the issuance of shares of Class B Common Stock upon conversion of
the shares of Series B Preferred outstanding as of the date of this Agreement;
or
(g) the issuance of shares of Class B Common Stock upon conversion of
the shares of Series C Preferred issued pursuant to this Agreement.
5.07. FIRST QUALIFIED PUBLIC OFFERING .
(a) RIGHT OF FIRST REFUSAL. Notwithstanding the provisions of Section
5.05 of this Agreement but subject to the limitations set forth in Section 5.06
and this Section 5.07, the Company hereby grants to Purchasers holding Series C
Preferred a right of first refusal to purchase such Purchaser's Proportionate
Share of the shares of Class B Common Stock from the shares of Class B Common
Stock to be issued at the closing of the Company's first Qualified Public
Offering, if any. The price per share of Class B Common Stock which each such
Purchaser becomes entitled to purchase by reason hereof shall be the public
offering price per share of Class B Common Stock in such Qualified Public
Offering (the "Offering Price").
(b) LIMITATIONS. Subject to the limitations set forth in the following
sentence, the "Proportionate Share" for each such Purchaser shall be that number
of shares of the Class B Common Stock to be issued in such Qualified Public
Offering necessary so that, after giving effect to such issuance, such Purchaser
will continue to maintain its same proportionate equity ownership in the
Company, as of the date immediately prior to the effective date of the
registration statement covering such Qualified Public Offering, on a fully
diluted basis assuming, among other things, the shares reserved for issuance
upon the exercise of options have been issued. Notwithstanding the foregoing
sentence, such Proportionate Share, in the aggregate for
all Purchasers, may not exceed 8% of the number of shares of Class B Common
Stock issued by the Company in such Qualified Public Offering (exclusive of the
number of shares of Class B Common Stock issued pursuant to any underwriter's
overallotment option); PROVIDED, HOWEVER, the managing underwriter of such
offering shall be entitled to reduce in whole or in part the Proportionate Share
to the extent determined necessary by the managing underwriter in its sole
discretion (X) to the success of such offering (including without limitation
that purchase by a Purchaser of its Proportionate Share would adversely affect
any of the offering price, offering size, likelihood of completion or completion
date) for reasons set forth in writing to the Purchasers no less than five days
prior to the anticipated effective date of the registration statement covering
such offering or (Y) to comply with the rules or regulations of the Securities
and Exchange Commission, the National Association of Securities Dealers, Inc.,
the Nasdaq Stock Market, Inc., or other regulatory body or exchange for reasons
set forth in writing to the requesting Purchasers no less than one day prior to
the anticipated effective date of the registration statement covering such
offering. Any reduction (in whole or in part) in any Purchaser's Proportionate
Share shall be PRO RATA among the Purchasers expressing an interest in receiving
an offer from the Company in accordance with subsection 5.07(d) below (the "IPO
Purchasers") based upon the number of Shares then held by the IPO Purchasers.
(c) SOLICITATION OF INTEREST. Except as (and to the extent) prohibited
by law, the Company shall, no less than one day prior to the anticipated
effective date of the registration statement covering such Qualified Public
Offering, deliver by facsimile transmission to the Purchasers holding Series C
Preferred a notice (a "Solicitation of Interest") with respect to such Qualified
Public Offering stating the Company's bona fide intention to offer shares of
Class B Common Stock in such Qualified Public Offering. The Company shall send
the Solicitation of Interest to each such Purchaser at the fax number for such
Purchaser set forth in the Company's corporate records or such other fax number
that such Purchaser shall from time to time specify in writing to the Company.
(d) EXPRESSION OF INTEREST. Each such Purchaser shall, on or before
5:00 p.m. (Boston time) on the immediately succeeding business day after receipt
of the Solicitation of Interest (the "Expression of Interest Deadline"), by
facsimile transmission to the Company and its counsel, notify the Company of its
desire (an "expression of interest") in receiving an offer to purchase (i) all
or part of its Proportionate Share (specifying, if less than its Proportionate
Share, the number of shares it desires to receive an offer to purchase) and (ii)
a number of shares, if any, in excess of such Purchaser's Proportionate Share
that it desires to receive an offer to purchase (the "Excess Shares"), subject
in each case to the limitations set forth in this Section 5.07. A Purchaser
shall be deemed to have waived its right to receive an offer to purchase any of
the shares in such Qualified Public Offering if the Company does not receive the
Purchaser's expression of interest as aforesaid by the Expression of Interest
Deadline. The Company may, during the 60-day period after expiration of the
Expression of Interest Deadline, either solicit expression of interests from any
person or persons with respect to that portion of such Class B Common Stock for
which the such Purchasers have not made an expression of interest or determine
not to offer or sell such portion, in whole or in part; PROVIDED, HOWEVER, if
the Company does not consummate the sale of the Shares in such Qualified Public
Offering within 60 days of the Solicitation of Interest, the right provided
hereunder shall be deemed revived as to
all Purchasers holding Series C Preferred. If any Purchaser expresses an
interest in receiving an offer to purchase a number of shares that is less than
its Proportionate Share (or is deemed to waive its right to receive an offer to
purchase its Proportionate Share in such Qualified Public Offering), each IPO
Purchaser requesting Excess Shares, if any, shall be entitled to receive an
offer from the Company for that number of additional shares equal to the lesser
of (A) the number of Excess Shares with respect to which such IPO Purchaser
expressed an interest and (B) such IPO Purchaser's allocable portion of all
Excess Shares based on the respective equity ownership in the Company
(determined as of the date immediately prior to the effective date of the
registration statement covering such Qualified Public Offering on a fully
diluted basis assuming, among other things, the shares reserved for issuance
upon the exercise of options have been issued) by all IPO Purchasers who
expressed an interest in receiving an offer to purchase Excess Shares.
(e) An IPO Purchaser's notification pursuant to subsection 7.05(d)
shall be deemed an expression of interest in receiving an offer by the Company
to purchase the number of shares of Class B Common Stock indicated by such IPO
Purchaser pursuant to subsection 5.07(d) above (including any Excess Shares), in
each case subject to the limitations set forth in this Section 5.07. The
Company's offer to sell such shares to the IPO Purchasers shall be deemed to
occur automatically two hours after the latest to occur of (A) the effectiveness
of the registration statement covering such Qualified Public Offering and (B)
the Company's determination of the Offering Price (the completion of the last to
occur of the foregoing, the "Offer Commencement"). Each IPO Purchaser shall have
an unconditional right to withdraw its expression of interest by written notice
to the Company on or before the Offer Commencement. Once so withdrawn, the
Company shall have no obligation to offer or to sell, and the IPO Purchaser
shall have no obligation to purchase, any shares. An IPO Purchaser's expression
of interest shall, unless so withdrawn by such IPO Purchaser on or before the
Offer Commencement, automatically be deemed to be a binding commitment to
purchase the shares of Class B Common Stock, including any Excess Shares,
indicated by such IPO Purchaser pursuant to subsection 5.07(d) above, but
subject to the limitations set forth in this Section 5.07) immediately after the
Offer Commencement. The IPO Purchasers' purchase of such shares shall occur
simultaneously with the closing of the purchase and sale of the other shares of
Class B Common Stock distributed in such Qualified Public Offering pursuant to a
stock purchase agreement in form satisfactory to the Company, and each IPO
Purchaser shall thereat pay the purchase price for its shares by wire transfer
to the Company of immediately available funds. As promptly as practicable (and
in any event within ten days) thereafter, the Company shall issue and deliver to
each IPO Purchaser at the Company's principal office a certificate or
certificates for such shares.
(f) Notwithstanding anything in this Agreement to the contrary, the
Company shall not be required to take any actions pursuant to this Section 5.07
that would be inconsistent with any federal or state securities laws, rules,
regulations or interpretations (including without limitation Rule 134 under the
Securities Act) or the rules or regulations of the National Association of
Securities Dealers, Inc., the Nasdaq Stock Market, Inc. or other regulatory body
or exchange.
(g) The rights of the Purchasers under this Section 5.07 shall
terminate upon the earlier of (i) immediately after the Offer Commencement and
(ii) immediately prior to the sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise.
(h) The Purchasers agree that none of the Company or its officers,
directors, employees, shareholders, affiliates, successors, transferees,
assigns, agents or representatives or any underwriter shall have any liability
to the Purchasers arising in connection with any reduction or elimination of any
Proportionate Share taken in accordance with subsection 5.07(b) except to the
extent arising out of the Company's bad faith.
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 C Preferred 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, dated April 24, 1999,
together with all Exhibits thereto, as delivered to representatives of the
Purchasers.
"Capital Expenditures" for any period shall mean all amounts debited or
required to be debited to the fixed asset accounts on the balance sheet of the
Company during such period in accordance with generally accepted accounting
principles in respect of (a) the acquisition, development or improvement of any
computer hardware, software or equipment, (b) the acquisition, construction,
improvement, replacement or betterment of land, buildings, machinery, equipment
or of any other fixed assets or leaseholds, and (b) to the extent related to and
not included in (a) or (b) above, materials, contract labor and direct labor
(excluding expenditures properly chargeable to repairs or maintenance in
accordance with generally accepted accounting principles).
"Class A Common Stock" means the Company's Class A Common Stock, $.01 par
value, as authorized as of the date of this Agreement, having the rights,
powers, privileges and preferences set forth in EXHIBIT 1.01A hereto.
"Class B Common Stock" includes (a) the Company's Class B Common Stock,
$.01 par value, as authorized as of the date of this Agreement, 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 which the Company may issue to Comdisco, Inc. in connection
with subordinated debenture financing and capital lease transactions consistent
with the term sheet approved by the Company's Board of Directors prior to the
date hereof and previously provided to the Purchasers.
"Company" means and shall include Furniture.com, 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 C 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 Andrew Brooks and Richard Clark, 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.
"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.
"Reserved Management Shares" means shares of Class B Common Stock, not to
exceed in the aggregate 3,500,000 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.
"Series C Preferred" means the Series C 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. 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 50% in
interest of the Series C Preferred, 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 (A) 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 or (B)
to Article IV or Article V (other than Section 5.07) must be approved by 50% in
interest of the Series A Preferred, Series B Preferred and Series C Preferred,
voting together as a single class. For purposes of the immediately preceding
sentence as it applies to Article IV or Article V (other than Section 5.07),
holders of Series A Preferred and Series B Preferred shall be treated as
Purchasers.
7.03. ADDRESSES FOR NOTICES.
(a) All notices, requests, demands and other communications provided
for hereunder shall be in writing and mailed, sent by facsimile transmission or
delivered to each applicable party at the address set forth in EXHIBIT 1.01
hereto or at such other address as to which such party may inform the other
parties in writing in compliance with the terms of this Section.
If to any other holder of the Shares: at such holder's address for notice
as set forth in the register maintained by the Company, or, as to each of the
foregoing, at the addresses set forth on EXHIBIT 1.01 hereto or at such other
address as shall be designated by such Person in a written notice to the other
parties complying as to delivery with the terms of this Section.
If to the Company: at 1881 Worcester Road, Suite 2 Framingham, MA 01701,
or via facsimile at (508) 770-1596, Attention: Andrew Brooks, or at such
other address as shall be designated by the Company in a written notice to
the other parties complying as to delivery with the terms of this Section;
with a copy to Hale and Dorr LLP, 60 State Street, Boston, MA 02109, or via
facsimile at (617) 526-5000, Attention: Leonard A. Pierce, Esq.
If to any Purchaser associated with Amerindo Investment Advisors Inc., with
a copy to Buchalter, Nemer, Fields & Younger, 601 South Figueroa Street, Los
Angeles, CA 90017 or via facsimile at (213) 896-0400, Attention: Rick Cohen,
Esq.
If to any Purchaser associated with the @Ventures Purchasers, with a copy
to Hutchens, Wheeler & Dittmar, 101 Federal Street, Boston, MA 02110 or via
facsimile at (617) 951-1295, Attention: James Westra, Esq.
All such notices, requests, demands and other communications shall, (i)
when mailed (which mailing must be accomplished by express overnight courier
service or registered mail, return receipt requested), be effective two days
after deposited in the mails, (ii) when sent by facsimile, be effective one hour
after sending (or as of 8 a.m. Boston time on the following day, if faxed after
the later of 6 p.m. Boston time and the close of business of the recipient) and
(iii) when delivered by hand, upon receipt, in each case addressed as aforesaid,
unless otherwise provided herein.
7.04. COSTS, EXPENSES AND TAXES. The Company, on the one hand, and the
Purchasers, on the other hand, shall each bear its own costs and expenses
(including accounting and legal fees and related expenses) incurred in
connection with the preparation, execution and delivery of this Agreement and
the transactions contemplated hereby; PROVIDED, HOWEVER, the Company agrees to
pay, upon receipt of proper documentation in reasonable detail, up to $35,000 of
the reasonable fees and out-of-pocket expenses of legal counsel to the
Purchasers (which up to $15,000 shall be allocable to legal counsel of Amerindo
Investment Advisors Inc.). In addition, the Company shall pay (i) any and all
stamp and other similar taxes payable or determined to be payable in connection
with the execution and delivery of this Agreement, the issuance of the Shares,
and the other instruments and documents to be delivered hereunder or thereunder,
and
agrees to hold the Purchasers harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes and (ii) upon receipt of proper documentation in reasonable detail, the
reasonable fees and out-of-pocket expenses of counsel to the Purchasers (not to
exceed $2,500 per transaction or $5,000 in the aggregate) incurred in connection
with reviewing any amendments, waivers, consents or approvals requested by the
Company in connection with this Agreement subsequent to the date hereof.
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 C Preferred.
7.06. SURVIVAL. All representations and warranties made in this Agreement,
or any other instrument or document delivered in connection herewith or
therewith, and Section 7.13 shall survive the execution and delivery hereof or
thereof for a period of three years and Section 7.15 shall survive the execution
and delivery hereof or thereof without limitation.
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 C 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 C 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 C Preferred; but this Agreement and the terms of the Series C 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.
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. Each Purchaser shall, severally and not jointly, with
respect to the representations and warranties made by such Purchaser herein,
indemnify, defend and hold the Company 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 such
Purchaser.
7.14. AGGREGATION OF STOCK. All securities of the Company held or acquired
by an affiliate of any Purchaser or entities under common management with or
managed by such 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 CONFIDENTIALITY . Each Purchaser shall, and shall cause its affiliates
(as the term is defined in the Securities Act) (individually, an "Affiliate" and
collectively "Affiliates") to, hold in confidence and shall use its reasonable
best efforts to cause all officers, directors and personnel who continue after
the Closing to be employed by the Purchaser or any Affiliate thereof to hold in
confidence all knowledge and information of a secret or confidential nature with
respect to the business of the Company and its Affiliates and not to disclose,
publish or make use of the same without the consent of the Company, except to
the extent that the information shall have become public knowledge other than by
breach of this Agreement by such Purchaser, and provided that such Purchaser (i)
may disclose information if required by law upon prior written notice to the
Company and (ii) may disclose non-technical information regarding the Company's
business and financial performance which such Purchaser discloses generally to
its partners and/or shareholders. The Purchasers agree that the remedy at law
for any breach of this Section 7.15 would be inadequate and that the Company
shall be entitled to injunctive relief in addition to any other remedy it may
have upon breach of any provision of this Section 7.15.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
FURNITURE.COM, INC.
SERIES C 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:
----------- ----------
FURNITURE.COM, INC., ATGF II
By: /s/ Andrew Brooks By: /s/
----------------------------- ----------------------------
Name: Andrew Brooks Name: _________________________
Title: President/Chief Executive Officer Title: _________________________
@VENTURES III, L.P.
By: @Ventures Partners III, L.L.C.
Its General Partner
By: /s/ Andrew J. Hajducky
------------------------------
TRELLUS PARTNERS, L.P.
By: Trellus Company, LLC,
its General Partner
By /s/ Adam Usdan
------------------------------
Adam Usdan, President
RRE INVESTORS, L.P.
By: /s/ Andrew L. Zalasin
------------------------------
Name: Andrew L. Zalasin
Title: General Partner
FURNITURE.COM, INC.
SERIES C 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.
RRE INVESTORS FUND, L.P.
By: /s/ Andrew L. Zalasin
------------------------------
Name: Andrew L. Zalasin
Title: General Partner
COMDISCO, INC.
By: /s/ Jill C. Hanses
------------------------------
Name: Jill C. Hanses
Title: Senior Vice President
Venture Division
CMG@VENTURES III, L.L.C.
By: /s/ Andrew J. Hajducky
------------------------------
Member
/s/ Matthew Fitzmaurice
---------------------------------
Matthew Fitzmaurice, individually
BRAND EQUITY VENTURES I, L.P.
By: Brand Equity Partners I, LLC,
Its: General Partner
By: /s/ Christopher P. Kirchen
------------------------------
Christopher P. Kirchen
Its: Managing Member
2
FURNITURE.COM, INC.
SERIES C 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:
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC,
General Partner
By: /s/ Robert H. Buescher
------------------------------
Robert H. Buescher, Manager
BESSEMER VENTURE PARTNERS IV, L.P.
By: Deer IV & Co. LLC,
General Partner
By: /s/ Robert H. Buescher
------------------------------
Robert H. Buescher, Manager
/s/ James Stableford
---------------------------------
James Stableford, individually
/s/ Rachel Hyman
------------------------------
Rachel Hyman, individually
3
FURNITURE.COM, INC.
SERIES C 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:
COVESTCO-ATEURA, LLC
By: AtEura, LLC
Its: Manager
By: Venteura Limited
Its: Managing Member
By: /s/ Albin A. Johann
------------------------------
Its: Director
------------------------------
4
FURNITURE.COM, INC.
SERIES C 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:
@VENTURES INVESTORS, LLC
By: /s/
----------------------
Managing Member
@VENTURES FOREIGN FUND III, L.P.
By: /s/
-----------------------
Name:
Title:
5
FURNITURE.COM, INC.
SERIES C 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:
ARKARO HOLDING B.V.
By: /s/ Maria C. Van Der Sluijs-Plantz
----------------------------------
Maria C. van der Sluijs-Plantz
Managing Director
6
EXHIBIT 1.01
SERIES C
NAME AND ADDRESS OF PURCHASERS PREFERRED STOCK PURCHASE PRICE
------------------------------ ---------------- --------------
ARKARO HOLDING B.V. 1,350,795 $10,000,002.92
LOCATELLIKADE 1
PARNASSUSTOREN
1076 AZ AMSSTERDAM
P.O. BOX 75215
1070 AE AMSTERDAM
THE NETHERLANDS
ATTN: MARIA C. VAN DER SLUIJS-PLANTZ
COVESTCO-ATEURA,LLC 1,080,635 $ 7,999,994.94
C/O JURA TRUST
MITTELDORF 1
VADUZ, LIECHTENSTEIN, FL-9490
ATTN: ALBIN A. JOHANN
WITH COPIES TO:
DR. RICHARD J. HAAS PARTNERS
199 PICCADILLY
LONDON WIV 9LE
ATTN: ROBERT HAAS AND MICHAEL RUSSELL
BARNARD & CO., L.L.C.
590 MADISON AVENUE 37TH FLOOR
NEW YORK, NY 10022
ATTN: JOEL KOBLENTZ
ATGF II 726,982 $ 5,381,884.10
C/O AMERINDO INVESTMENT ADVISORS INC.
399 PARK AVENUE, 2ND FLOOR
NEW YORK, NY 10022
ATTN: JESSICA CARUSO
@VENTURES III, L.P. 421,988 $ 3,123,998.26
C/O @VENTURES
100 BRICKSTONE SQUARE
ANDOVER, MA 01810
ATTN: MARC D. POIRIER
TRELLUS PARTNERS, LP 263,405 $ 1,950,000.39
152 W. 57TH STREET, 57TH FLOOR
NEW YORK, NY 10011
RRE INVESTORS, L.P. 261,352 $ 1,934,801.92
126 EAST 56TH STREET
NEW YORK, NY 10022
RRE INVESTORS FUND, L.P. 143,886 $ 1,065,195.25
P.O. BOX 31106 SMB
WEST BAY ROAD
GRAND CAYMAN, CAYMAN ISLANDS, B.W.I.
COMDISCO, INC. 135,079 $ 999,996.59
6111 NORTH RIVER ROAD
ROSEMONT, IL 60018
ATTN: VENTURE GROUP
7
CMG@VENTURES III, L.L.C. 118,330 $ 876,002.91
100 BRICKSTONE SQUARE
ANDOVER, MA 01810
ATTN: MARC D. POIRIER
MATTHEW FITZMAURICE 80,000 $ 592,244
1771 JAMES AVENUE SOUTH
MINNEAPOLIS, MN 55403
BRAND EQUITY VENTURES I, L.P. 67,540 $ 500,002
THREE PICKWICK PLAZA
GREENWICH, CT 06830
ATTN: CHRISTOPHER P. KIRCHEN
BESSEMER VENTURE PARTNERS IV LP 40,524 $ 300,001.20
1400 OLD COUNTRY ROAD, SUITE 407
WESTBURY, NY 11590
BESSEC VENTURES IV LP 27,016 $ 200,000.80
C/O BESSEMER VENTURE PARTNERS
1400 OLD COUNTRY ROAD, SUITE 407
WESTBURY, NY 11590
RACHEL HYMAN 6,754 $ 50,000.20
325 W. 22ND STREET, APT. 3
NEW YORK, NY 10011
JAMES STABLEFORD 3,500 $ 25,910.68
AMERINDO INVESTMENT ADVISORS INC.
43 UPPER GROSVENOR STREET
LONDON W1X 9PG
ENGLAND
TOTALS: 4,727,786 $35,000,036.16
Exhibit 10.8
FURNITURE.COM, INC.
Series D Convertible Preferred Stock Purchase Agreement
Dated as of December 30, 1999
FURNITURE.COM, INC.
SERIES D CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Dated as of December 30, 1999
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.........................................................................2
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..................................................................6
2.04. 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..............................................................................7
3.05. CERTAIN AGREEMENTS OF OFFICERS AND KEY EMPLOYEES........................................7
3.06. COMPLIANCE WITH OTHER INSTRUMENTS.......................................................8
3.07. [RESERVED]..............................................................................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......................................................................10
3.16. CAPITALIZATION; STATUS OF CAPITAL STOCK.................................................10
3.16A. CAPITAL STOCK OF SUBSIDIARIES...........................................................10
3.17. REGISTRATION RIGHTS.....................................................................11
i
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
3.23. OTHER AGREEMENTS........................................................................13
3.24. ENVIRONMENTAL PROTECTION................................................................15
3.25. COMPLIANCE WITH LAW; PERMITS............................................................15
3.26. FINANCIAL STATEMENTS....................................................................16
3.27. YEAR 2000 COMPLIANCE....................................................................16
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. AFFIRMATIVE COVENANTS OF THE COMPANY OTHER THAN REPORTING REQUIREMENTS..................16
4.02. NEGATIVE COVENANTS OF THE COMPANY.......................................................19
4.03. REPORTING REQUIREMENTS..................................................................21
ARTICLE V
RIGHT OF FIRST REFUSAL....................................................................................23
5.01. RIGHT OF FIRST REFUSAL..................................................................23
5.02. NOTICE OF ACCEPTANCE....................................................................23
5.03. CONDITIONS TO ACCEPTANCES AND PURCHASE..................................................24
5.04. FURTHER SALE............................................................................24
5.05. TERMINATION OF RIGHT OF FIRST REFUSAL...................................................24
5.06. EXCEPTION...............................................................................24
5.07. FIRST QUALIFIED PUBLIC OFFERING.........................................................25
ARTICLE VI
DEFINITIONS AND ACCOUNTING TERMS..........................................................................28
6.01. CERTAIN DEFINED TERMS...................................................................28
6.02. ACCOUNTING TERMS........................................................................31
ARTICLE VII
MISCELLANEOUS.............................................................................................31
7.01. NO WAIVER; CUMULATIVE REMEDIES..........................................................31
7.02. AMENDMENTS, WAIVERS AND CONSENTS........................................................31
7.03. ADDRESSES FOR NOTICES...................................................................31
7.04. COSTS, EXPENSES AND TAXES...............................................................32
7.05. BINDING EFFECT; ASSIGNMENT..............................................................32
7.06. SURVIVAL................................................................................33
7.07. PRIOR AGREEMENTS........................................................................33
7.08. SEVERABILITY............................................................................33
7.09. GOVERNING LAW...........................................................................33
ii
7.10. HEADINGS................................................................................33
7.11. COUNTERPARTS............................................................................33
7.12. FURTHER ASSURANCES......................................................................33
7.13. INDEMNIFICATION.........................................................................33
7.14. AGGREGATION OF STOCK....................................................................34
7.15. CONFIDENTIALITY.........................................................................34
iii
EXHIBITS
1.01 List of Purchasers
1.01A Purchaser Signature Page
1.01B Restated Certificate of Incorporation
2.02B Form of Opinion of Counsel
2.02F Stockholders' Agreement
2.02J Registration Rights Agreement
3.04 Litigation
3.05 Certain Agreements of Officers and Key employees
3.06 Compliance with Other Instruments
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
3.14 Material Contracts
3.16 Capitalization
3.17 Registration Rights
3.18 Insurance
3.20 Title to Assets, Patents
3.22 Labor Relations
3.23(a) Other Agreements - Distributors/Vendors
3.23(b) Other Agreements - Sales Contracts with Rebate/Right of
Set-Off
3.23(c) Other Agreements - Contracts with Labor Unions
3.23(d) Other Agreements - Contracts Permitting Renegotiation of Price
3.23(e) Other Agreements - Purchase of Fixed Assets
3.23(f) Other Agreements - Employment
3.23(g) Employee Benefit Plans
3.23(h) Schedule of Loans with Security Interest
3.23(i) Guaranty of Obligation for Borrowed Money
3.23(j) Voting, Stockholder, Pledge or Buy Sell Agreements
3.23(k)(A) Agreements to Lease Real Property as Lessee or Lessor
3.23(k)(B) Other Agreements - Equipment Leases
3.23(l) Agreements to Acquire or Retire Equity Securities
3.23(m) Intangible Property
3.23(n) Consulting and Professional Agreements
3.23(o) Required to be Filed with the SEC with Registration Statement
3.23(p) Agreements to Exercise Buyout Provision of any Lease
3.23A Present Expectations or Intentions of Non-Performance
3.24 Environmental Protection
3.25 Compliance with Law; Permits
4.02(a) Indebtedness
4.02(h) Dealings with Affiliates and Others
iv
As of December 30, 1999
TO: The Persons listed on EXHIBIT 1.01 hereto
Re: PURCHASE OF SERIES D CONVERTIBLE PREFERRED STOCK
Ladies and Gentlemen:
Furniture.com, 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 up to 3,200,000 shares of its authorized but unissued shares of
Series D Convertible Preferred Stock, $.01 par value (the "Series D Preferred"),
at a purchase price of $9.40 per share to the persons (collectively, the
"Purchasers" and, individually, a "Purchaser") and in the respective amounts set
forth in EXHIBIT 1.01 hereto. Each Purchaser shall become a party to this
Agreement by the execution and delivery of signature pages in the form of
EXHIBIT 1.01A hereto (the "Purchaser Signature Page") and to the Stockholders'
Agreement and Registration Rights Agreement (each as defined below). The
designation, rights, preferences and other terms and conditions relating to the
Series D Preferred shall be as set forth in the Fourth Amended and Restated
Certificate of Incorporation of the Company (the "Restated Certificate of
Incorporation"), attached hereto as EXHIBIT 1.01B.
The Series D 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.
(a) 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 Hale and Dorr LLP, 60
State Street, Boston, Massachusetts on December 30, 1999, 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
(b) The Company may sell, at any time prior to January 5,
2000, in one or more closings (each, a "Subsequent Closing"), additional
Purchased Shares (but together with the Purchased Shares sold at the Closing not
more than an aggregate of 3,200,000 Purchased Shares) at a purchase price of
$9.40 per share, to such purchasers (each, an "Additional Purchaser") as may be
approved by the Chief Executive Officer of the Company. At each Subsequent
Closing, (i) the Company and each Additional Purchaser shall execute and deliver
a counterpart Purchaser Signature Page hereto, whereupon such Additional
Purchaser shall become a "Purchaser" hereunder and the Purchased Shares
purchased by such Additional Purchaser shall be deemed "Purchased Shares" for
purposes of this Agreement, and (ii) the Company shall cause EXHIBIT 1.01 hereto
to be amended to reflect the purchases made by the Additional Purchasers at each
Subsequent Closing by such Additional Purchaser, registered in the name of such
Additional Purchaser, against payment to the Company in the manner specified
above. The Company shall deliver to each Purchaser, within 15 days after any
Subsequent Closing, written notice of such Subsequent Closing (which notice
shall specify the names of each Additional Purchaser and the number of shares of
Series D Preferred issued to each).
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
2
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 506 promulgated under
the Securities Act, and applicable State securities laws.
Each of the Purchasers further represents that it understands
and agrees that Company has no current obligation to register the Shares and
that, until registered under the Securities Act or transferred pursuant to the
provisions of Rule 144 as promulgated by the Securities and Exchange Commission,
all certificates evidencing any of the Shares, whether upon initial issuance or
upon any transfer thereof, shall bear a legend, prominently stamped or printed
thereon, reading substantially as follows:
"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."
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
(X) a transfer of Purchased Shares or Converted Shares (i) to one or more of its
partners or members in any Purchaser that is a partnership or limited liability
company or to a retired or withdrawn partner or member who retires or withdraws
after the date hereof in full or partial distribution of his interest in such
partnership or limited liability company, (ii) to any immediate family member
(which shall be deemed to include a spouse, sibling, lineal descendant,
ancestor, mother-in-law, father-in-law, brother-in-law and sister-in-law) of an
individual Purchaser by gift or bequest or through inheritance, or to a trust or
family limited partnership (or other similar entity) created for the benefit of
one or more of the foregoing, (iii) to any shareholder of any Purchaser that is
a corporation or (iv) to any person or entity acquiring at least 250,000 shares
of Series D Preferred
3
(such number being subject to adjustment for any stock dividend, stock split,
subdivision, combination or other recapitalization); PROVIDED, HOWEVER, that the
transferor provides written notice of such transfer to the Company stating the
transferee's name and address and specifying the number and type of securities
to be transferred; and PROVIDED, FURTHER, that the Company receives a written
instrument pursuant to which the transferee agrees to be subject to the terms
hereof to the same extent as if it were an original Purchaser hereunder and (Y)
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.
Notwithstanding anything herein to the contrary, in no event may any Purchaser,
together with its affiliates and transferees, transfer any Purchased Shares or
Converted Shares to more than 10 persons in the aggregate.
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 copy of the Restated Certificate of Incorporation of the
Company and Articles of Organization of each of its Subsidiaries, in each case
certified by the Secretary of State of the jurisdiction of their respective
organization, 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 Hale and Dorr 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
4
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, the Series B
Preferred, the Series C Preferred and the Series D Preferred in the form set
forth in EXHIBIT 1.01A, attached hereto.
(f) A Third 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 Bylaws of the Company shall provide for a Board of
Directors consisting of eight (8) members, who shall be designated in accordance
with the Stockholders' Agreement.
(j) The Company and the Purchasers shall have entered into a
Third Amended and Restated Registration Rights Agreement (the "Registration
Rights Agreement") in the form set forth in EXHIBIT 2.02J.
(k) The Company shall have reserved a total of not more than
4,500,000 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.
(l) The Company shall have reserved 3,200,000 shares of Class
B Common Stock as Converted Shares.
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
5
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.
2.04 DUE DILIGENCE. The Purchasers shall have completed their 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 taken as a whole):
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 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.
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,
6
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 nor 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, 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 [Reserved]
3.08 TAXES. Except as set forth on EXHIBIT 3.08, the Company and
each of its Subsidiaries have prepared correctly in all material respects and
timely filed all Federal, State, foreign and other tax returns required under
the laws of any applicable jurisdiction to be filed by them, have paid or made
provision for the payment of all taxes, including sales taxes, due from the
Company and each of its Subsidiaries, respectively, and all additional
assessments (whether or not shown on such returns) except where such nonpayment
or lack or provision would not result in a Material Adverse Effect. Except as
set forth on EXHIBIT 3.08, none of the Federal income tax returns of the Company
or any of its Subsidiaries have been audited by the Internal Revenue Service.
The Company does not know of any additional assessments or adjustments pending
or threatened against the Company or any of its Subsidiaries, as the case may
be, for any period, nor of any basis for any such assessment or adjustment.
3.09 ERISA. Except as set forth in EXHIBIT 3.09, neither the
Company nor any of its Subsidiaries makes or has any present intention to make
any contributions to or has incurred any liability with respect to any employee
pension benefit plans for its employees which are subject to ERISA.
3.10 TRANSACTIONS WITH AFFILIATES. Except as contemplated hereby
and except as set forth on EXHIBIT 3.10, there are no loans, leases, royalty
agreements or other continuing transactions between any officer, employee or
director of the Company or any of its Subsidiaries or any Person (as defined in
Article VI hereof) owning capital stock of the Company or any of its
Subsidiaries or any member of the immediate family of such officer, employee,
director or stockholder or any corporation or other entity controlled by such
officer, employee, director or stockholder or a member of the immediate family
of such officer, employee, director or stockholder; PROVIDED that the term
"continuing transactions" shall not be deemed to include
8
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, 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 $1,000,000, other than those
liabilities described on EXHIBIT 3.10 or EXHIBIT 3.14 or the contracts described
in EXHIBIT 3.23.
3.15 BROKERS OR FINDERS. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company or any of its Subsidiaries for any commission,
fee or other compensation as a finder or broker because of any act or omission
by the Company, any of its Subsidiaries or any of their respective agents.
3.16 CAPITALIZATION; STATUS OF CAPITAL STOCK. The Company has a
total authorized capitalization consisting of (i) 33,000,000 shares of Class B
Common Stock, $.01 par value, of
9
which 6,208,070 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, of which 3,009,600 shares are issued and outstanding
on the date hereof, (iv) 7,246,036 shares of Series B Preferred, of which
7,042,254 shares are issued and outstanding on the date hereof, (v) 4,727,786
shares of Series C Preferred, of which 4,727,786 shares are issued and
outstanding on the date hereof, and (vi) 3,200,000 shares of Series D
Preferred, none of which are issued and outstanding on the date hereof, in
each case without giving effect to the transactions contemplated hereby. A
complete list of the capital shares of the Company which has been previously
issued and the names in which such capital shares are registered on the stock
transfer books of the Company is set forth in EXHIBIT 3.16 hereto. All the
outstanding capital shares of the Company have been duly authorized, are
validly issued and are fully paid and non-assessable. The Purchased Shares,
when issued and delivered in accordance with the terms hereof and after
payment of the purchase price therefor, and the Converted Shares, when issued
and delivered upon conversion of the 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. The Company owns all of the outstanding capital stock of each of
the Subsidiaries, beneficially and of record, free and clear of all liens,
encumbrances, restrictions (other than those under applicable securities laws)
and claims of every kind. All the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized, are validly issued and are fully
paid and non-assessable. There are no options, warrants or rights to purchase
shares of capital stock or other securities of any of the Subsidiaries
authorized, issued or outstanding, nor is any Subsidiary obligated in any other
manner to issue shares of its capital stock or other securities.
3.17 REGISTRATION RIGHTS. Except as set forth in EXHIBIT 3.17 and
except for the rights granted pursuant to the Registration Rights Agreement, no
Person has demand or other rights (which such rights shall be effective
subsequent to the Closing) to cause the Company or any of its Subsidiaries to
file any registration statement under the Securities Act relating to any
10
securities of the Company or any of its Subsidiaries or any right to participate
in any such registration statement.
3.18 INSURANCE. EXHIBIT 3.18 sets forth a list (including the name
of the insurer, the name of the policyholder, the periods of coverage and the
scope of coverage) of all material insurance policies under which the Company or
any of its Subsidiaries is a party, a named insured or otherwise the beneficiary
of coverage.
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 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
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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. The Company has used commercially reasonable efforts to (i) protect and
enforce all copyright, trademark and patent rights of the Company except for
those copyright, trademark and patent rights that, individually or in the
aggregate, would not have a Material Adverse Effect, and (ii) otherwise secure
and protect for the Company's benefit all of its material rights in its material
intellectual property.
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), there are
no written personnel policies, rules or procedures applicable to the employees
of the Company or any of its Subsidiaries; (vi) the Company and each of its
Subsidiaries is, and has at all times been, in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and is not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other analogous applicable law, ordinance or
regulation; (vii) neither the Company nor any of its Subsidiaries has received
notice of any pending or threatened unfair labor practice charge or complaint
against the Company or any of its Subsidiaries before the National Labor
Relations Board or any similar State or foreign agency; (viii) there is no
grievance arising out of any collective bargaining agreement; (ix) no charges
are pending against the Company or any of its Subsidiaries before the Equal
Employment Opportunity Commission or any other agency responsible for the
prevention of unlawful employment practices; (x) neither the Company nor any of
its Subsidiaries has received notice of the intent of any Federal, State, local
or foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation nor that any investigation is in progress; and (xi)
neither the Company nor any of its Subsidiaries has received notice of any
pending or threatened complaints, lawsuits or other proceedings in
12
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 have a Material Adverse Effect. The Company is not in
violation of the terms of any of the agreements listed on EXHIBITS 3.23 (a) -
(p), except where such violation would not result in a Material Adverse Effect.
Neither the Company nor any Subsidiary is a party to any written or oral:
(a) distributor, vendor, franchise, dealer or manufacturer's
representative contract or agreement which is not terminable on less than in
ninety (90) days' notice without cost or other liability to the Company or any
Subsidiary (except for contracts which, in the aggregate, are not material to
the business of the Company or Subsidiary, as the case may be), except as set
forth in EXHIBIT 3.23(a);
(b) sales contract which entitles any customer to a rebate or
right of set-off, to return any product to the Company or any Subsidiary after
acceptance thereof or to delay the acceptance thereof, or which varies in any
material respect from the Company's standard form contracts or policies, except
as set forth in EXHIBIT 3.23(b);
(c) contract with any labor union (and no organizational
effort is being made with respect to any of its employees), except as set forth
in EXHIBIT 3.23(c);
(d) contract or other commitment with any supplier containing
any provision permitting any party other than the Company or any Subsidiary to
renegotiate the price or other terms, or containing any pay-back or other
similar provision, upon the occurrence of a failure by either the Company or any
Subsidiary to meet its respective obligations under the contract when due or the
occurrence of any other event, except as set forth in EXHIBIT 3.23(d);
(e) contract for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess of its normal
operating requirements, except as set forth in EXHIBIT 3.23(e);
(f) contract for the employment (or separation) of any
officer, individual, employee or other person (whether of a legally binding
nature or in the nature of informal understandings) on a full-time or consulting
basis which is not terminable on notice without cost or other liability to the
Company or any Subsidiary, except accrued vacation pay, except as set forth in
EXHIBIT 3.23(f);
(g) bonus, pension, profit-sharing, retirement,
hospitalization, insurance, stock purchase, stock option or similar plan,
contract or understanding pursuant to which benefits are
13
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 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 material obligations
required to be performed by them to
14
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.
3.26 FINANCIAL STATEMENTS. The Company has furnished to each of the
Purchasers a complete and correct copy of the unaudited balance sheet of the
Company at September 30, 1999 and the related unaudited statements of operations
and cash flows for the nine month period then ended (collectively, the
"Financial Statements"). The Financial Statements are complete and
15
correct in all material respects, are in material conformity with the books and
records of the Company and present fairly in all material respects the financial
condition and results of operations of the Company, at the dates and for the
periods indicated, and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied.
3.27 YEAR 2000 COMPLIANCE. The Company has undertaken an assessment
of the Information Technology used by the Company and has made inquiry to all
Material Third Parties regarding their Year 2000 Compliance with respect to
their Information Technology used by the Company. The Company is Year 2000
Compliant except to the extent any such non-compliance would not have a Material
Adverse Effect. Such Material Third Parties claim they are or will become Year
2000 Compliant with respect to their Information Technology used by the Company.
As used in this Section 3.27: (a) the words "Year 2000 Compliant" mean, with
respect to a natural or legal person, that all Information Technology used in
that person's business activities will: (i) accurately process all date and time
data (including, but not limited to, calculating, comparing and sequencing)
including, without limiting the foregoing, between the years 1999 and earlier
and the years 2000 and later (in either direction, forward or backward); (ii)
accurately process leap year calculations for date and time data; and (iii) when
used in combination with any other Information Technology, accurately process
date and time data if the other Information Technology properly exchanges date
and time data with it; (b) the words "Information Technology" mean any and all
systems, facilities and devices by which information (including data, text and
images) is generated, stored, processed, displayed, received or communicated,
including computer hardware and computer software; and (c) the words "Material
Third Party" mean any of the Company's information exchange partners, suppliers
and vendors that own any Information Technology which is material to the
Company's business.
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
16
the first sentence of this paragraph and will not borrow against such policies.
The Company will, at its expense, use its best efforts to obtain and maintain
directors' and officers' liability insurance in an amount and for premiums which
are on commercially reasonable terms for comparable companies as determined by
the Board of Directors.
(b) PRESERVATION OF CORPORATE EXISTENCE. Preserve and
maintain, and cause each Subsidiary to preserve and maintain, its corporate
existence, rights and privileges in the jurisdiction of its incorporation, and
qualify and remain qualified, and cause each Subsidiary to qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and operations
or the ownership or lease of its properties. Secure, preserve and maintain, and
cause each Subsidiary to secure, preserve and maintain, all licenses and other
rights to use patents, processes, licenses, permits, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or possessed by it
and deemed by the Company to be necessary to the conduct of its business or the
business of any Subsidiary, as the case may be.
(c) INSPECTION. Permit, upon reasonable request and notice,
during normal business hours and without disruption of the Company's business,
each of the Purchasers or any agents or representatives thereof, to examine and
make copies of and extracts from the records and books of account of, and visit
and inspect the properties of the Company and any Subsidiary, to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, directors or Key Employees and independent accountants, and consult
with and advise the management of the Company and any Subsidiary as to their
affairs, finances and accounts, all at reasonable times. Each Purchaser agrees
that it will use its best efforts to maintain the confidentiality of any
information so obtained by it which is not otherwise available from other
sources (and will use its best efforts to prevent such confidential information
from becoming known to the Company's competitors), subject to the disclosure of
information of a non-technical nature, including financial information, which
such Purchaser discloses to its partners and/or shareholders generally.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause
each Subsidiary to keep, adequate records and books of account in which complete
entries will be 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
17
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; unless otherwise approved by the Board of Directors. Promptly
pay all out-of-pocket expenses reasonably incurred by each director of the Board
of Directors of the Company in attending each meeting of the Board of Directors
or any committee thereof.
(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
$250,000) 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 benefit; provided that all
such proposed compensation and fringe benefits offered prior to Board approval
shall be contingent upon such Board approval.
(j) 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.
(k) NON-DISCLOSURE AGREEMENTS. The Company shall use its best
efforts to obtain an Assignment of Inventions and Non-Disclosure Agreement in
such form as is approved by the Board of Directors, from all officers, key
employees or other employees who will have access to confidential information of
the Company or any of its Subsidiaries, upon their employment by the Company or
any of its Subsidiaries.
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,
18
and will not, without the consent of the holders of at least 50% in interest of
the Series A Preferred, the Series B Preferred, Series C Preferred and Series D
Preferred, voting together as a single class:
(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 or consolidate with or into any
other entity, sell or lease 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 wholly owned Subsidiary
may merge into or consolidate with the Company or with or into any other wholly
owned 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 required by 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 entitled
to repurchase such shares upon the occurrence of certain events, including
the termination of employment,
19
if in the case of any such transaction the payment can be made in
compliance with the other terms of this Agreement.
(e) CHANGE IN NATURE OF BUSINESS. Make or permit any
Subsidiary to make, any material change in the nature of its business as
contemplated in written materials delivered to the Purchasers prior to the
date hereof.
(f) OWNERSHIP OF SUBSIDIARIES. Without the prior approval
of the Board of Directors, purchase or hold beneficially any stock, other
securities or evidences of Indebtedness in, or make any investment in or
provide any extension of credit to any other Person, excluding a wholly-owned
or controlled subsidiary of the Company.
(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
$500,000 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 4,500,000 shares.
20
(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 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, (ii) the issuance
of any Converted Shares or (iii) the issuance of Reserved Management 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
21
for the Company and its Subsidiaries, including therein consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such fiscal year and consolidated and consolidating statements of income and
retained earnings and of changes in the financial position of the Company and
its Subsidiaries for such fiscal year, setting forth in each case in comparative
form the corresponding figures for the preceding fiscal year, all such
consolidated statements to be duly certified by the chief financial officer of
the Company and by such independent public accountants of recognized national
standing as have been approved by a majority of the Board of Directors;
(d) BUDGETS: as soon as available after approval by the Board
of Directors, a business plan and monthly operating budgets for the forthcoming
fiscal year;
(e) NOTICE OF ADVERSE CHANGES: promptly after the occurrence
thereof and in any event within thirty (30) Business Days after such occurrence
is known to the Company, 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.
22
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, Series B
Preferred, Series C Preferred or Series D 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, 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, Series B
Preferred, Series C Preferred 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 Investors 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.
23
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
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 4,500,000 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
24
consultants for the Company or any Subsidiary pursuant to the Company's 1998
Stock Incentive Plan or other 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 shares of Series B Preferred 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 issued upon exercise of the
Comdisco Warrants;
(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;
(f) the issuance of shares of Class B Common Stock upon
conversion of the shares of Series B Preferred outstanding as of the date of
this Agreement;
(g) the issuance of shares of Class B Common Stock upon
conversion of the shares of Series C Preferred outstanding as of the date of
this Agreement; or
(h) the issuance of shares of Class B Common Stock upon the
conversion of the shares of Series D Preferred issued pursuant to this
Agreement.
5.07. FIRST QUALIFIED PUBLIC OFFERING.
(a) RIGHT OF FIRST REFUSAL. Notwithstanding the provisions of
Section 5.05 of this Agreement but subject to the limitations set forth in
Section 5.06 and this Section 5.07, Purchasers holding Series C Preferred have
rights of first refusal that were granted to them pursuant to that Series C
Preferred Stock Purchase Agreement, dated as of June 23, 1999, (which right is
restated herein and shall be governed by the terms of this Agreement) to
purchase such Purchaser's Proportionate Share of the shares of Class B Common
Stock from the shares of Class B Common Stock to be issued at the closing of the
Company's first Qualified Public Offering, if any. The price per share of Class
B Common Stock which each such Purchaser becomes entitled to purchase by reason
hereof shall be the public offering price per share of Class B Common Stock in
such Qualified Public Offering (the "Offering Price").
(b) LIMITATIONS. Subject to the limitations set forth in the
following sentence, the "Proportionate Share" for each such Purchaser shall be
that number of shares of the Class B Common Stock to be issued in such Qualified
Public Offering necessary so that, after giving effect to such issuance, such
Purchaser will continue to maintain its same proportionate equity ownership in
the Company, as of the date immediately prior to the effective date of the
registration statement covering such Qualified Public Offering, on a fully
diluted basis assuming, among other things, the shares reserved for issuance
upon the exercise of options have been issued. Notwithstanding the foregoing
sentence, such Proportionate Share, in the aggregate for all Purchasers, may not
exceed 8% of the number of shares of Class B Common Stock issued by
25
the Company in such Qualified Public Offering (exclusive of the number of shares
of Class B Common Stock issued pursuant to any underwriter's overallotment
option); PROVIDED, HOWEVER, the managing underwriter of such offering shall be
entitled to reduce in whole or in part the Proportionate Share to the extent
determined necessary by the managing underwriter in its sole discretion (X) to
the success of such offering (including without limitation that purchase by a
Purchaser of its Proportionate Share would adversely affect any of the offering
price, offering size, likelihood of completion or completion date) for reasons
set forth in writing to the Purchasers no less than five days prior to the
anticipated effective date of the registration statement covering such offering
or (Y) to comply with the rules or regulations of the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc., the Nasdaq
Stock Market, Inc., or other regulatory body or exchange for reasons set forth
in writing to the requesting Purchasers no less than one day prior to the
anticipated effective date of the registration statement covering such offering.
Any reduction (in whole or in part) in any Purchaser's Proportionate Share shall
be PRO RATA among the Purchasers expressing an interest in receiving an offer
from the Company in accordance with subsection 5.07(d) below (the "IPO
Purchasers") based upon the number of Shares then held by the IPO Purchasers.
(c) SOLICITATION OF INTEREST. Except as (and to the extent)
prohibited by law, the Company shall, no less than one day prior to the
anticipated effective date of the registration statement covering such Qualified
Public Offering, deliver by facsimile transmission to the Purchasers holding
Series C Preferred a notice (a "Solicitation of Interest") with respect to such
Qualified Public Offering stating the Company's bona fide intention to offer
shares of Class B Common Stock in such Qualified Public Offering. The Company
shall send the Solicitation of Interest to each such Purchaser at the fax number
for such Purchaser set forth in the Company's corporate records or such other
fax number that such Purchaser shall from time to time specify in writing to the
Company.
(d) EXPRESSION OF INTEREST. Each such Purchaser shall, on or
before 5:00 p.m. (Boston time) on the immediately succeeding business day after
receipt of the Solicitation of Interest (the "Expression of Interest Deadline"),
by facsimile transmission to the Company and its counsel, notify the Company of
its desire (an "expression of interest") in receiving an offer to purchase (i)
all or part of its Proportionate Share (specifying, if less than its
Proportionate Share, the number of shares it desires to receive an offer to
purchase) and (ii) a number of shares, if any, in excess of such Purchaser's
Proportionate Share that it desires to receive an offer to purchase (the "Excess
Shares"), subject in each case to the limitations set forth in this Section
5.07. A Purchaser shall be deemed to have waived its right to receive an offer
to purchase any of the shares in such Qualified Public Offering if the Company
does not receive the Purchaser's expression of interest as aforesaid by the
Expression of Interest Deadline. The Company may, during the 60-day period after
expiration of the Expression of Interest Deadline, either solicit expression of
interests from any person or persons with respect to that portion of such Class
B Common Stock for which the such Purchasers have not made an expression of
interest or determine not to offer or sell such portion, in whole or in part;
PROVIDED, HOWEVER, if the Company does not consummate the sale of the Shares in
such Qualified Public Offering within 60 days of the Solicitation of Interest,
the right provided hereunder shall be deemed revived as to all Purchasers
holding Series C Preferred. If any Purchaser expresses an interest in receiving
an offer to purchase a number of shares that is less than its Proportionate
Share (or is deemed to waive its right to receive an offer to purchase its
Proportionate Share in such Qualified Public
26
Offering), each IPO Purchaser requesting Excess Shares, if any, shall be
entitled to receive an offer from the Company for that number of additional
shares equal to the lesser of (A) the number of Excess Shares with respect to
which such IPO Purchaser expressed an interest and (B) such IPO Purchaser's
allocable portion of all Excess Shares based on the respective equity ownership
in the Company (determined as of the date immediately prior to the effective
date of the registration statement covering such Qualified Public Offering on a
fully diluted basis assuming, among other things, the shares reserved for
issuance upon the exercise of options and warrants have been issued) by all IPO
Purchasers who expressed an interest in receiving an offer to purchase Excess
Shares.
(e) An IPO Purchaser's notification pursuant to subsection
5.07(d) shall be deemed an expression of interest in receiving an offer by the
Company to purchase the number of shares of Class B Common Stock indicated by
such IPO Purchaser pursuant to subsection 5.07(d) above (including any Excess
Shares), in each case subject to the limitations set forth in this Section 5.07.
The Company's offer to sell such shares to the IPO Purchasers shall be deemed to
occur automatically two hours after the latest to occur of (A) the effectiveness
of the registration statement covering such Qualified Public Offering and (B)
the Company's determination of the Offering Price (the completion of the last to
occur of the foregoing, the "Offer Commencement"). Each IPO Purchaser shall have
an unconditional right to withdraw its expression of interest by written notice
to the Company on or before the Offer Commencement. Once so withdrawn, the
Company shall have no obligation to offer or to sell, and the IPO Purchaser
shall have no obligation to purchase, any shares. An IPO Purchaser's expression
of interest shall, unless so withdrawn by such IPO Purchaser on or before the
Offer Commencement, automatically be deemed to be a binding commitment to
purchase the shares of Class B Common Stock, including any Excess Shares,
indicated by such IPO Purchaser pursuant to subsection 5.07(d) above, but
subject to the limitations set forth in this Section 5.07 immediately after the
Offer Commencement. The IPO Purchasers' purchase of such shares shall occur
simultaneously with the closing of the purchase and sale of the other shares of
Class B Common Stock distributed in such Qualified Public Offering pursuant to a
stock purchase agreement in form satisfactory to the Company, and each IPO
Purchaser shall thereat pay the purchase price for its shares by wire transfer
to the Company of immediately available funds. As promptly as practicable (and
in any event within ten days) thereafter, the Company shall issue and deliver to
each IPO Purchaser at the last known address of the IPO Purchaser in the records
of the Company a certificate or certificates for such shares.
(f) Notwithstanding anything in this Agreement to the
contrary, the Company shall not be required to take any actions pursuant to this
Section 5.07 that would be inconsistent with any federal or state securities
laws, rules, regulations or interpretations (including without limitation Rule
134 under the Securities Act) or the rules or regulations of the National
Association of Securities Dealers, Inc., the Nasdaq Stock Market, Inc. or other
regulatory body or exchange.
(g) The rights of the Purchasers under this Section 5.07 shall
terminate upon the earlier of (i) immediately after the Offer Commencement
(assuming the Company has complied with its obligations in this Section 5.07)
and (ii) immediately prior to the sale of all or substantially all of the assets
or business of the Company, by merger, sale of assets or otherwise.
27
(h) The Purchasers agree that none of the Company or its
officers, directors, employees, shareholders, affiliates, successors,
transferees, assigns, agents or representatives or any underwriter shall have
any liability to the Purchasers arising in connection with any reduction or
elimination of any Proportionate Share taken in accordance with subsection
5.07(b) except to the extent arising out of the Company's bad faith.
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):
"Additional Purchaser" shall have that meaning attributable to it in
Section 2(b) of this Agreement.
"Agreement" means this Series D Preferred 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.
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