Sample Business Contracts


Non-Qualified Stock Option Agreement - Alloy Designs Inc. and Robert E. Kerson


                      NON-QUALIFIED STOCK OPTION AGREEMENT

                               ALLOY DESIGNS, INC.

      AGREEMENT made as of the 14th day of August 1998, between Alloy Designs,
Inc. (the "Company"), a Delaware corporation having a principal place of
business in New York, New York and Robert E. Kerson (the "Participant").

      WHEREAS, the Company desires to grant to the Participant an Option to
purchase shares of its common stock, $.01 par value per share (the "Shares"),
under and for the purposes set forth in the Company's 1997 Employee, Director
and Consultant Stock Option Plan (the "Plan");

      WHEREAS, the Company and the Participant understand and agree that any
terms used and not defined herein have the same meanings as in the Plan; and

      WHEREAS, the Company and the Participant each intend that the Option
granted herein shall be a Non-Qualified Option.

      NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:

      1. GRANT OF OPTION.

      The Company hereby grants to the Participant the right and option to
purchase all or any part of Two Hundred Fifty Thousand (250,000) shares of
Common Stock of the Company, on the terms and conditions and subject to all the
limitations set forth herein and in the Plan, which is incorporated herein by
reference. The Participant acknowledges receipt of a copy of the Plan.

      The Company and the Participant acknowledge and agree that the Option
granted herein replaces in its entirety the options granted to the Participant
pursuant to the Non-Qualified Stock Option Agreements dated August 19, 1997 and
June 26, 1998 which shall be null and void and of no further force or effect.
The Company and the Participant further acknowledge and agree that the execution
and delivery of this Agreement shall terminate any and all obligations of the
Company under the Letter Agreement between the Company and the Participant dated
August 19, 1997 which shall be null and void and of no further force or effect.

      2. PURCHASE PRICE.

      The aggregate purchase price of the Shares covered by the Option shall be
two hundred thousand dollars ($200,000). Upon partial exercise of the Option,
the purchase price shall be determined by multiplying two hundred thousand
dollars ($200,000) by a fraction, the numerator of which shall equal the number
of shares being issued to the Participant pursuant to such

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exercise and the denominator of which shall equal 250,000. Payment shall be made
in accordance with Paragraph 7 of the Plan.


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      3. EXERCISE OF OPTION.

      Subject to the terms and conditions set forth in this Agreement and the
Plan, the Option granted hereby is exercisable immediately.

      4. TERM OF OPTION.

      The Option shall terminate upon the earlier to occur of (i) August 14th,
2008 or (ii) the closing of the sale of the Company by stock purchase, exchange,
merger, sale of all or substantially all of the Company's assets, dissolution
and liquidation, or otherwise.

      5. METHOD OF EXERCISING OPTION.

      Subject to the terms and conditions of this Agreement, the Option may be
exercised by written notice to the Company at its principal executive office, in
substantially the form of Exhibit A attached hereto. Such notice shall state the
number of Shares with respect to which the Option is being exercised and shall
be signed by the person exercising the Option. Payment of the purchase price for
such Shares shall be made in accordance with Paragraph 7 of the Plan. The
Company shall deliver a certificate or certificates representing such Shares as
soon as practicable after the notice shall be received, provided, however, that
the Company may delay issuance of such Shares until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including, without limitation, state securities or "blue sky" laws). The
certificate or certificates for the Shares as to which the Option shall have
been so exercised shall be registered in the name of the person or persons so
exercising the Option (or, if the Option shall be exercised by the Participant
and if the Participant shall so request in the notice exercising the Option,
shall be registered in the name of the Participant and another person jointly,
with right of survivorship) and shall be delivered as provided above to or upon
the written order of the person or persons exercising the Option. In the event
the Option shall be exercised by any person or persons other than the
Participant, such notice shall be accompanied by appropriate proof of the right
of such person or persons to exercise the Option. All Shares that shall be
purchased upon the exercise of the Option as provided herein shall be fully paid
and nonassessable.

      6. PARTIAL EXERCISE.

      Exercise of this Option to the extent above stated may be made in part at
any time and from time to time within the above limits, except that no
fractional share shall be issued pursuant to this Option. Upon any partial
exercise of this Option, the aggregate amount of shares for which this Option is
exercisable shall be reduced by the number of shares issued to the Optionee
pursuant to such exercise and the aggregate purchase price payable pursuant to
Section 2 hereof shall be reduced by the portion of the purchase price paid upon
such exercise.


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<PAGE>   4

      7. NON-ASSIGNABILITY.

      The Option shall not be transferable by the Participant otherwise than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act or the rules thereunder. Except as provided in
the previous sentence, the Option shall be exercisable, during the Participant's
lifetime, only by the Participant (or, in the event of legal incapacity or
incompetency, by the Participant's guardian or representative) and shall not be
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Any attempted transfer, assignment, pledge, hypothecation or other disposition
of the Option or of any rights granted hereunder contrary to the provisions of
this Section 7, or the levy of any attachment or similar process upon the Option
shall be null and void.

      8. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE.

      The Participant shall have no rights as a stockholder with respect to
Shares subject to this Agreement until registration of the Shares in the
Company's share register in the name of the Participant. Except as is expressly
provided in the Plan with respect to certain changes in the capitalization of
the Company, no adjustment shall be made for dividends or similar rights for
which the record date is prior to the date of such registration.

      9. CAPITAL CHANGES AND BUSINESS SUCCESSIONS.

      The Plan contains provisions covering the treatment of Options in a number
of contingencies such as stock splits and mergers. Provisions in the Plan for
adjustment with respect to stock subject to Options and the related provisions
with respect to successors to the business of the Company are hereby made
applicable hereunder and are incorporated herein by reference, subject to the
provisions of Section 4 of this Agreement.

      10. TAXES.

      The Participant acknowledges that upon exercise of the Option the
Participant will be deemed to have taxable income measured by the difference
between the then fair market value of the Shares received upon exercise and the
price paid for such Shares pursuant to this Agreement. The Participant
acknowledges that any income or other taxes due from him or her with respect to
this Option or the Shares issuable pursuant to this Option shall be the
Participant's responsibility.

      The Participant agrees that the Company may withhold from the
Participant's remuneration, if any, the appropriate amount of federal, state and
local withholding attributable to such amount that is considered compensation
includable in such person's gross income. At the Company's discretion, the
amount required to be withheld may be withheld in cash from such remuneration,
or in kind from the Shares otherwise deliverable to the Participant on exercise
of the Option. The Participant further agrees that, if the Company does not
withhold an amount from the Participant's remuneration sufficient to satisfy the
Company's income tax withholding 


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obligation, the Participant will reimburse the Company on demand, in cash, for
the amount under-withheld.

11. PURCHASE FOR INVESTMENT.

      Unless the offering and sale of the Shares to be issued upon the
particular exercise of the Option shall have been effectively registered under
the Securities Act of 1933, as now in force or hereafter amended (the "1933
Act"), the Company shall be under no obligation to issue the Shares covered by
such exercise unless and until the following conditions have been fulfilled:

      (a)   The person(s) who exercise the Option shall warrant to the Company,
            at the time of such exercise, that such person(s) are acquiring such
            Shares for their own respective accounts, for investment, and not
            with a view to, or for sale in connection with, the distribution of
            any such Shares, in which event the person(s) acquiring such Shares
            shall be bound by the provisions of the following legend which shall
            be endorsed upon the certificate(s) evidencing the Shares issued
            pursuant to such exercise:

                  "The shares represented by this certificate have been taken
                  for investment and they may not be sold or otherwise
                  transferred by any person, including a pledgee, unless (1)
                  either (a) a Registration Statement with respect to such
                  shares shall be effective under the Securities Act of 1933, as
                  amended, or (b) the Company shall have received an opinion of
                  counsel satisfactory to it that an exemption from registration
                  under such Act is then available, and (2) there shall have
                  been compliance with all applicable state securities laws;"
                  and

      (b)   If the Company so requires, the Company shall have received an
            opinion of its counsel that the Shares may be issued upon such
            particular exercise in compliance with the 1933 Act without
            registration thereunder. Without limiting the generality of the
            foregoing, the Company may delay issuance of the Shares until
            completion of any action or obtaining of any consent, which the
            Company deems necessary under any applicable law (including without
            limitation state securities or "blue sky" laws).

      12. RESTRICTIONS ON TRANSFER OF SHARES.

      12.1 The Shares acquired by the Participant pursuant to the exercise of
the Option granted hereby shall not be transferred by the Participant except as
permitted in the Stockholders and Voting Agreement dated August 19, 1997 between
the Company and the Participant (the "Stockholders and Voting Agreement").

      12.2 If, in connection with a registration statement filed by the Company
pursuant to the Securities Act, the Company or its underwriter so requests, the
Participant will agree not to 


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sell any Shares for a period not to exceed 180 days following the effectiveness
of such registration.

      12.3 The Participant acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Participant any material information regarding the business of
the Company or affecting the value of the Shares before, at the time of, or
following a termination of the employment of the Participant by the Company,
including, without limitation, any information concerning plans for the Company
to make a public offering of its securities or to be acquired by or merged with
or into another firm or entity.

      13. NO OBLIGATION TO MAINTAIN RELATIONSHIP.

      The Company is not by the Plan or this Option obligated to continue the
Participant as an employee, director or consultant of the Company.

      14. NOTICES.

      Any notices required or permitted by the terms of this Agreement or the
Plan shall be given by recognized courier service, facsimile, registered or
certified mail, return receipt requested, addressed as follows:

If to the Company:
                         Alloy Designs, Inc.
                         115 West 30th Street, No. 304
                         New York, NY  10001
                         Facsimile: (212) 244-4311

If to the Participant:
                         Robert E. Kerson
                         29 Haviland Road
                         Harrison, NY  10528

or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been given upon
the earlier of receipt, one business day following delivery to a recognized
courier service or three business days following mailing by registered or
certified mail.

      15. GOVERNING LAW.

      This Agreement shall be construed and enforced in accordance with the law
of the State of Delaware, without giving effect to the conflict of law
principles thereof.


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<PAGE>   7

      16. BENEFIT OF AGREEMENT.

      Subject to the provisions of the Plan and the other provisions hereof,
this Agreement shall be for the benefit of and shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.

      17. ENTIRE AGREEMENT.

      This Agreement, together with the Plan, embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation, warranty,
covenant or agreement not expressly set forth in this Agreement shall affect or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement, provided, however, in any event, this Agreement shall be subject
to and governed by the Plan.

      18. MODIFICATIONS AND AMENDMENTS.

      The terms and provisions of this Agreement may be modified or amended as
provided in the Plan.

      19. WAIVERS AND CONSENTS.

      Except as provided in the Plan, the terms and provisions of this Agreement
may be waived, or consent for the departure therefrom granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.

      IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer, and the Participant has hereunto set his or her
hand, all as of the day and year first above written.

                                    ALLOY DESIGNS, INC.

                                    By:
                                        -----------------------------------
                                      Name
                                      Title


                                   ----------------------------------------
                                   Participant


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<PAGE>   8

                                                                       Exhibit A

                NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION

                         [Form For Unregistered Shares]

To:  ALLOY DESIGNS, INC.

Ladies and Gentlemen:

      I hereby exercise my Non-Qualified Stock Option to purchase ___shares (the
"Shares") of the common stock, $.01 par value, of Alloy Designs, Inc. (the
"Company"), at the exercise price of $___ per share, pursuant to and subject to
the terms of that certain Non-Qualified Stock Option Agreement between the
undersigned and the Company dated August 19, 1997.

      I am aware that the Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act"), or any state securities laws. I
understand that the reliance by the Company on exemptions under the 1933 Act is
predicated in part upon the truth and accuracy of the statements by me in this
Notice of Exercise.

      I hereby represent and warrant that (1) I have been furnished with all
information which I deem necessary to evaluate the merits and risks of the
purchase of the Shares; (2) I have had the opportunity to ask questions
concerning the Shares and the Company and all questions posed have been answered
to my satisfaction; (3) I have been given the opportunity to obtain any
additional information I deem necessary to verify the accuracy of any
information obtained concerning the Shares and the Company; and (4) I have such
knowledge and experience in financial and business matters that I am able to
evaluate the merits and risks of purchasing the Shares and to make an informed
investment decision relating thereto.

      I hereby represent and warrant that I am purchasing the Shares for my own
personal account for investment and not with a view to the sale or distribution
of all or any part of the Shares.

      I understand that because the Shares have not been registered under the
1933 Act, I must continue to bear the economic risk of the investment for an
indefinite time and the Shares cannot be sold unless the Shares are subsequently
registered under applicable federal and state securities laws or an exemption
from such registration requirements is available.

      I agree that I will in no event sell or distribute or otherwise dispose of
all or any part of the Shares unless (1) there is an effective registration
statement under the 1933 Act and applicable state securities laws covering any
such transaction involving the Shares or (2) the Company receives an opinion of
my legal counsel (concurred in by legal counsel for the 


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Company) stating that such transaction is exempt from registration or the
Company otherwise satisfies itself that such transaction is exempt from
registration.

      I consent to the placing of a legend on my certificate for the Shares
stating that the Shares have not been registered and setting forth the
restriction on transfer contemplated hereby and to the placing of a stop
transfer order on the books of the Company and with any transfer agents against
the Shares until the Shares may be legally resold or distributed without
restriction.

      I understand that at the present time Rule 144 of the Securities and
Exchange Commission (the "SEC") may not be relied on for the resale or
distribution of the Shares by me. I understand that the Company has no
obligation to me to register the sale of the Shares with the SEC and has not
represented to me that it will register the sale of the Shares.

      I understand the terms and restrictions on the right to dispose of the
Shares set forth in the 1997 Employee, Director and Consultant Stock Option Plan
and the Non-Qualified Stock Option Agreement, both of which I have carefully
reviewed. I consent to the placing of a legend on my certificate for the Shares
referring to such restrictions and the placing of stop transfer orders until the
Shares may be transferred in accordance with the terms of such restrictions.

      I have considered the Federal, state and local income tax implications of
the exercise of my Option and the purchase and subsequent sale of the Shares.

      I am paying the option exercise price for the Shares as follows:

                     ________________________________________________

      Please issue the stock certificate for the Shares (check one):

      |_| to me; or

      |_| to me and     ________________, as joint tenants with right of
                        survivorship

      and mail the certificate to me at the following address:

      ____________________________

      ____________________________

      ____________________________


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<PAGE>   10

      My mailing address for shareholder communications, if different from the
address listed above is:

____________________________

____________________________

____________________________

                                    Very truly yours,


                                    --------------------------------------------
                                    Participant (signature)


                                    --------------------------------------------
                                    Print Name


                                    --------------------------------------------
                                    Date


                                    --------------------------------------------
                                    Social Security Number


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                                                                       Exhibit A

                NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION

                          [Form For Registered Shares]

TO: ALLOY DESIGNS, INC.

IMPORTANT NOTICE: This form of Notice of Exercise may only be used at such time
as the Company has filed a Registration Statement with the Securities and
Exchange Commission under which the issuance of the Shares for which this
exercise is being made is registered and such Registration Statement remains
effective.

Ladies and Gentlemen:

      I hereby exercise my Non-Qualified Stock Option to purchase _________
shares (the "Shares") of the common stock, $.01 par value of Alloy Designs, Inc.
(the "Company"), at the exercise price of $________ per share, pursuant to and
subject to the terms of that certain Non-Qualified Stock Option Agreement
between the undersigned and the Company dated August 19, 1997.

      I understand the nature of the investment I am making and the financial
risks thereof. I am aware that it is my responsibility to have consulted with
competent tax and legal advisors about the relevant national, state and local
income tax and securities laws affecting the exercise of the Option and the
purchase and subsequent sale of the Shares.

      I am paying the option exercise price for the Shares as follows:

                     ________________________________________________

      Please issue the stock certificate for the Shares (check one):

      |_| to me; or

      |_| to me and     ________________, as joint tenants with right of
                        survivorship,

      and mail the certificate to me at the following address:

      ____________________________


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<PAGE>   12

      ____________________________

      ____________________________

      My mailing address for shareholder communications, if different from the
address listed above, is:

      ____________________________________________

      ____________________________________________

      ____________________________________________

                                    Very truly yours,


                                    --------------------------------------------
                                    Participant (signature)


                                    --------------------------------------------
                                    Print Name


                                    --------------------------------------------
                                    Date


                                    --------------------------------------------
                                    Social Security Number


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