Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as of November 28,
2012, by and between Bluefly, Inc., a Delaware corporation (the “Company”), and
James Gallagher (“Gallagher”).

 

RECITALS

 

WHEREAS, the Company wishes to hire Gallagher to serve as its Chief Financial
Officer, and Gallagher wishes to serve in such capacity, on the terms and
conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Gallagher agree as
follows:

 

1.       TERM

 

The Company hereby agrees to employ Gallagher as Chief Financial Officer of the
Company, and Gallagher hereby agrees to serve in such capacity, for a term
commencing on November 28, 2012 or such other date as may mutually be agreed by
the parties (the “Starting Date”) and ending on December 31, 2015 (as the same
may be earlier terminated pursuant to the terms of this Agreement, the
“Employment Term”), upon the terms and subject to the conditions contained in
this Agreement. Notwithstanding the foregoing, in the event that a Change of
Control (as hereinafter defined) occurs during the last six months of the
Employment Term, the Employment Term shall automatically be extended until the
six month anniversary of the date of such Change of Control, provided that
nothing contained herein shall preclude either party from terminating this
Agreement pursuant to Section 7 during such extension.

 

2.       DUTIES

 

During the Employment Term, Gallagher shall serve as Chief Financial Officer of
the Company, and shall be responsible for the duties attendant to such office
and such other managerial duties and responsibilities with the Company
consistent with such office as may be reasonably assigned to him from time to
time.

 

The principal location of Gallagher’s employment shall be in the New York City
vicinity (i.e., within a 20 mile radius), although Gallagher understands and
agrees that he will be required to travel from time to time for business
reasons. Gallagher shall diligently and faithfully perform his obligations under
the Agreement and shall devote his full professional and business time to the
performance of his duties as Chief Financial Officer of the Company during the
Employment

 

 

 

 

 

Term. Gallagher shall not, directly or indirectly, render business services to
any other person or entity, without the consent of the Company's Chief Executive
Officer.

 

Gallagher will be entitled to four (4) weeks’ vacation per year in accordance
with the Company’s standard paid time-off policies and procedures.

 

3.            BASE SALARY

 

For services rendered by Gallagher to the Company during the Employment Term,
the Company shall pay him a base salary of $275,000 per year, payable in
accordance with the standard payroll practices of the Company, subject to annual
increases in the sole discretion of the Chief Executive Officer and the
Company's Board of Directors, taking into account the financial and operating
performance of the Company's business and divisions and a qualitative assessment
of Gallagher’s performance during such year.

 

4.             BONUS; OPTIONS

 

a.     During the Employment Term, Gallagher shall be eligible to receive (i) a
performance bonus of up to thirty percent (30%) of his then current annual
salary as set by the Company’s Board of Directors in its sole discretion and
based on the achievement of one or more targets set for the fiscal year by the
Compensation Committee of the Board of Directors, and subject to pro rata
adjustment for underachievement or overachievement of targets within limits
determined by the Committee in its sole discretion; and (ii) such additional
performance bonus for each fiscal year as may be determined by the Compensation
Committee in its sole discretion. Any bonus payable under this section shall be
paid no later than March 15th of the fiscal year following the fiscal year to
which such bonus relates. Notwithstanding the foregoing, Gallagher' s bonus for
the 2012 fiscal year will be pro-rated based upon the number of days during the
year in which he was employed by the Company. All bonuses shall be paid in
accordance with the Company’s standard payroll practices, net of any applicable
withholding.

 

b.    As of the last day of the calendar month in which the Starting Date
occurs, the Company will issue to Gallagher options (“Options”) to purchase
400,000 shares of the Company's common stock, $.01 par value (“Common Stock”)
pursuant to, and in accordance with, the Company's 2005 Stock Incentive Plan
(the “Plan”). The Options will be Incentive Stock Options (as defined in the
Plan) to the extent allowed by law, and will be exercisable at a price equal to
the Fair Market Value (as defined in the Plan) of the Common Stock on the date
of issuance. The Options will vest over a forty-eight (48) month period as
follows: (i) 12.5% of the Options shall vest on the six month anniversary of the
date of grant, and (ii) 2.0833% of the Options shall vest each month thereafter
until all such Options shall have vested. The Term of the Options will be 10
years from the date of grant, and will otherwise be granted in accordance with
the terms of the Plan and the Company’s standard stock option agreement.

 

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c.     In the event that a Change of Control (as defined below) occurs during
the Employment Term, one half of any unvested stock options granted to Gallagher
which are outstanding as of the date of that Change of Control and have not yet
vested (“Unvested Options”) shall be deemed to be fully vested as of that date.
Subject to paragraph 7(c), the remaining one half of the Unvested Options shall
vest on the earliest to occur of (x) the scheduled vesting date and (y) twelve
(12) months from the date of such Change of Control, subject, in each case, to
Gallagher’s continued employment with the Company on such dates.

 

d.     For purposes of this Agreement, “Change of Control” shall be deemed to
occur upon:

 

(i)         the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent
(50%) or more (on a fully diluted basis) of either (A) the then outstanding
shares of common stock of the Company, taking into account as outstanding for
this purpose such common stock issuable upon the exercise of options or
warrants, the conversion of convertible stock or debt, and the exercise of any
similar right to acquire such common stock (the “Outstanding Company Common
Stock”) or (B) the combined voting power of the then outstanding voting
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 Agreement, the following acquisitions shall not constitute
a Change of Control: (I) any acquisition by the Company or any “Affiliate” (as
defined below), (II) any acquisition by any employee benefit plan sponsored or
maintained by the Company or any Affiliate, (III) any acquisition by Quantum
Industrial Partners LDC, Soros Fund Management LLC, and/or SFM Domestic
Investments LLC and/or any of their affiliates (collectively, “Soros”), (IV) any
acquisition by Rho Ventures VI, L.P. and/or any of its affiliates (collectively,
“Rho”) or (V) any acquisition which complies with clauses (A), (B) and (C) of
sub-paragraph (d)(v) hereof ;

 

(ii)        Individuals who, on the date hereof, constitute the Board (the
“Incumbent Directors”) cease for any reason to constitute at least a majority of
the Board, provided that any person becoming a director subsequent to the date
hereof, whose election or nomination for election was approved by a vote of at
least two-thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided, however, that no
individual initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to directors or
as a result of any other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the Board shall be deemed to
be an Incumbent Director;

 

(iii)        the dissolution or liquidation of the Company;

 

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(iv)        the sale of all or substantially all of the business or assets of
the Company; or

 

(v)         the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the Company that
requires the approval of the Company’s stockholders, whether for such
transaction or the issuance of securities in the transaction (a “Business
Combination”), unless immediately following such Business Combination: (A) more
than fifty percent (50%) of the total voting power of (x) the corporation
resulting from such Business Combination (the “Surviving Corporation”), or (y)
if applicable, the ultimate parent corporation that directly or indirectly has
beneficial ownership of sufficient voting securities eligible to elect a
majority of the directors of the Surviving Corporation (the “Parent
Corporation”), is represented by the Outstanding Company Voting Securities that
were outstanding immediately prior to such Business Combination (or, if
applicable, is represented by shares into which the Outstanding Company Voting
Securities were converted pursuant to such Business Combination), and such
voting power among the holders thereof is in substantially the same proportion
as the voting power of the Company’s Voting Securities among the holders thereof
immediately prior to the Business Combination, (B) no Person (other than Soros,
Rho or any employee benefit plan sponsored or maintained by the Surviving
Corporation or the Parent Corporation), is or becomes the beneficial owner,
directly or indirectly, of thirty percent (30%) or more of the total voting
power of the outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) and (C) at least a majority of the members of the board of
directors of the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) following the consummation of the Business Combination
were Board members at the time of the Board’s approval of the execution of the
initial agreement providing for such Business Combination.

 

For purposes of this Agreement, the term “Affiliate” shall mean any entity that
directly or indirectly is controlled by, controls or is under common control
with the Company.

 

5.             EXPENSE REIMBURSEMENT AND PERQUISITES

 

a.        During the Term of this Agreement, Gallagher shall be entitled to
reimbursement of all reasonable and actual out-of-pocket expenses incurred by
him in the performance of his services to the Company consistent with corporate
policies, provided that the expenses are properly accounted for. Any such
reimbursement will be made to Gallagher as soon as administratively feasible
following submission of such documentation of such expense, but shall be made no
later than the calendar year following the calendar year in which such expense
is incurred by Gallagher. In the event that any such reimbursement is taxable to
Gallagher, such reimbursement shall be made as soon practical upon Gallagher’s
submission of a request to be reimbursed, but in all events such reimbursement
will be made prior to the end of the calendar year next following the calendar
year in which the applicable expense was incurred.

 

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b.        During the Employment Term, Gallagher shall be entitled to participate
in all health insurance, dental insurance, long-term disability insurance, life
insurance , vacation, sick leave, and other employee benefit plans instituted by
the Company from time to time on the same terms and conditions as other
similarly situated employees of the Company, to the extent permitted by law.

 

6.           NON-COMPETITION; NON-SOLICITATION

 

a.        In consideration of the offer of employment, severance benefits and
Options to be granted to Gallagher hereunder, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
during the Non-Competition Term, Gallagher shall not, without the prior written
consent of the Company, anywhere in the world, directly or indirectly, (i) enter
into the employ of or render any services to any Competitive Business; (ii)
engage in any Competitive Business for his own account; (iii) become associated
with or interested in any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent, employee, trustee,
consultant, advisor or in any other relationship or capacity; (iv) employ or
retain, or have or cause any other person or entity to employ or retain, any
person who was employed or retained by the Company while Gallagher was employed
by the Company; or (v) solicit, interfere with, or endeavor to entice away from
the Company, for the benefit of a Competitive Business, any of its customers or
other persons with whom the Company has a contractual relationship. For purposes
of this Agreement, a “Competitive Business” shall mean any person, corporation,
partnership, firm or other entity which sells or has plans to sell ten (10) or
more brands of luxury or high-end designer apparel and/or fashion accessories at
prices that are consistently discounted to manufacturer’s suggested retail
prices. However, nothing in this Agreement shall preclude Gallagher from
investing his personal assets in the securities of any corporation or other
business entity which is engaged in a Competitive Business if such securities
are traded on a national stock exchange or in the over-the-counter market and if
such investment does not result in him beneficially owning, at any time, more
than three percent (3%) of the publicly-traded equity securities of such
Competitive Business. For purposes of this agreement, the “Non-Competition Term”
shall mean a period beginning upon the commencement of the Employment Term and
ending on the one (1) year anniversary of the end of the Employment Term.

 

b.        Gallagher and the Company agree that the covenants of non-competition
and non-solicitation contained in this paragraph 6 are reasonable covenants
under the circumstances, and further agree that if, in the opinion of any court
of competent jurisdiction, such covenants are not reasonable in any respect,
such court shall have the right, power and authority to excise or modify such
provision or provisions of these covenants as to the court shall appear not
reasonable and to enforce the remainder of these covenants as so amended.
Gallagher agrees that any breach of the covenants contained in this paragraph 6
would irreparably injure the Company. Accordingly, Gallagher agrees that the
Company, in addition to pursuing any other remedies it may have in law or in
equity, may obtain an injunction against Gallagher from any court having
jurisdiction over the matter, restraining any further violation of this
paragraph

 

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6.

 

 

7.             TERMINATION

 

a.          This Agreement, the employment of Gallagher, and Gallagher’s
position as Chief Financial Officer of the Company shall terminate upon the
first to occur of:

 

(i)          his death;

 

(ii)          his "permanent disability," due to injury or sickness for a
continuous period of four (4) months, or a total of eight months in a
twenty-four month period (vacation time excluded), during which time Gallagher
is unable perform his ordinary and regular duties;

 

(iii)         a "Constructive Termination" by the Company during the Employment
Term, which, for purposes of this Agreement, shall be deemed to have occurred
upon (A) the removal of Gallagher without his consent from his position as Chief
Financial Officer of the Company, or (B) the material breach by the Company of
this Agreement; provided that no such breach shall be considered a Constructive
Termination unless (1) Gallagher gives the Company written notice within ninety
(90) days after an event or occurrence that he believes constitutes a
Constructive Termination, specifying the event or occurrence that he believes
constitutes a Constructive Termination, and (2) the Company has failed to cure
such breach within such ninety (90) day period;

 

(iv)         the termination of this Agreement at any time without cause by the
Company, which shall occur on not less than thirty (30) days prior written
notice from the Company (“Termination Date”);

 

(v)          the termination of this Agreement for cause, which, for purposes of
this Agreement, shall mean that (1) Gallagher has been convicted of a felony or
any serious crime involving moral turpitude, or engaged in materially fraudulent
or materially dishonest actions in connection with the performance of his duties
hereunder, or (2) Gallagher has willfully and materially failed to perform his
duties hereunder, provided that the Company shall provide Gallagher with at
least ten (10) business days’ prior written notice of any such failure to
perform and an opportunity to cure such failure, to the extent curable, or (3)
Gallagher has willfully or negligently breached the terms and provisions of this
Agreement in any material respect, provided that the Company shall provide
Gallagher with at least ten (10) business days’ prior written notice of any such
breach and an opportunity to cure such breach, to the extent curable, or (4)
Gallagher

 

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has failed to comply in any material respect with the Company's policies of
conduct that have been communicated to her, including with respect to trading in
securities, provided that the Company shall provide Gallagher with at least ten
(10) business days’ prior written notice of any such failure to comply and an
opportunity to cure such failure, to the extent curable; or

 

(vi)        the termination of this Agreement by Gallagher, which shall occur on
not less than thirty (30) days prior written notice from Gallagher.

 

b.          In the event that this Agreement is terminated during the Employment
Term pursuant to paragraphs 7(a)(i), 7(a)(ii), 7(a)(v) or 7(a)(vi), the Company
shall pay Gallagher his base salary only through the date of termination. In the
event that this Agreement is terminated during the Employment Term pursuant to
paragraphs 7(a)(iii) or 7(a)(iv), the Company shall pay Gallagher, in lieu of
all salary, compensation payments and perquisites set forth in paragraphs 3, 4
and 5 (including bonus payments, related benefits and unvested option grants,
but excluding vested option grants) and contingent upon his continued
performance of his obligations under Section 6, severance payments (the
"Severance Payments") from the Termination Date equal to the then-current base
salary for a period of four (4) months. The Severance Payments shall be payable
in periodic installments in accordance with the Company's standard payroll
practices and will be subject to any applicable withholding, and shall be
conditioned upon Gallagher executing a full release of any claims against the
Company, in a form reasonably satisfactory to the Company, which becomes
effective within 60 days of such termination. The Severance Payments will
commence when such release becomes effective; notwithstanding the foregoing, if
such 60 day period begins in one calendar year and ends in a subsequent calendar
year, the Severance Payments will not commence until the second calendar year.

 

c.        Notwithstanding anything herein to the contrary, if any payments due
under this Agreement (including, but not limited to any payments related to the
Options) would subject Gallagher to any tax imposed under Section 409A of the
Code if such payments were made at the time otherwise provided herein, then the
payments that cause such taxation shall be payable in a single lump sum on the
first day which is at least six (6) months after the date of Gallagher’s
"separation from service" as set forth in Code Section 409A(2)(A)(i) and the
official guidance issued thereunder.

 

8.           CONFIDENTIALITY

 

a.        Gallagher recognizes that the services to be performed by him are
special, unique and extraordinary in that, by reason of his employment under
this Agreement, he may acquire or has acquired confidential information and
trade secrets concerning the operation of the Company, its predecessors, and/or
its affiliates, the use or disclosure of which could cause the Company, or its
affiliates substantial loss and damages which could not be readily calculated
and for which no remedy at law would be adequate. Accordingly, Gallagher
covenants and agrees

 

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with the Company that he will not at any time during the Term of this Agreement
or thereafter, except in the performance of his obligations to the Company or
with the prior written consent of the Board of Directors or as otherwise
required by court order, subpoena or other government process, directly or
indirectly, disclose any secret or confidential information that he may learn or
has learned by reason of his association with the Company. If Gallagher shall be
required to make such disclosure pursuant to court order, subpoena or other
government process, he shall notify the Company of the same, by personal
delivery or electronic means, confirmed by mail, within twenty-four (24) hours
of learning of such court order, subpoena or other government process and, at
the Company's expense (such expenses to be advanced by the Company as reasonably
required by Gallagher), shall (i) take all necessary and lawful steps reasonably
required by the Company to defend against the enforcement of such subpoena,
court order or government process, and (ii) permit the Company to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof. The term "confidential information" includes, without
limitation, information not in the public domain and not previously disclosed to
the public or to the trade by the Company's management with respect to the
Company's or its affiliates' facilities and methods, trade secrets and other
intellectual property, designs, manuals, confidential reports, supplier names
and pricing, customer names and prices paid, financial information or business
plans.

 

Notwithstanding the preceding paragraph, “confidential information” shall not
include any information which

 

(i)    was publicly known and made generally available in the public domain
prior to the time of disclosure by the Company to Gallagher;

 

(ii)   becomes publicly known and made generally available after disclosure by
the Company to Gallagher through no action of Gallagher; or

 

(iii)  was known to Gallagher prior to its disclosure by the Company or is
obtained by Gallagher from a third party without a breach of such third party’s
obligations of confidentiality.

 

b.        Gallagher confirms that all confidential information is and shall
remain the exclusive property of the Company. All memoranda, notes, reports,
software, sketches, photographs, drawings, plans, business records, papers or
other documents or computer-stored or disk-stored information kept or made by
Gallagher relating to the business of the Company shall be and will remain the
sole and exclusive property of the Company and all such materials containing
confidential information shall be promptly delivered and returned to the Company
immediately upon the termination of his employment with the Company.

 

c.      Gallagher shall make full and prompt disclosure to the Company of all
inventions, improvements, ideas, concepts, discoveries, methods, developments,
software and works of authorship, whether or not copyrightable, trademarkable or
licensable, which are

 

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created, made, conceived or reduced to practice by Gallagher while performing
his services hereunder to the Company, whether or not during normal working
hours or on the premises of the Company and which relate in any manner to the
business of the Company (all of which are collectively referred to in this
Agreement as "Developments"). All Developments shall be the sole property of the
Company, and Gallagher hereby assigns to the Company, without further
compensation, all of his rights, title and interests in and to the Developments
and any and all related patents, patent applications, copyrights, copyright
applications, trademarks and trade names in the United States and elsewhere.

 

d.        At the Company’s expense, Gallagher shall assist the Company in
obtaining, maintaining and enforcing patent, copyright and other forms of legal
protection for intellectual property in any country. Upon the request of the
Company and at its expense, Gallagher shall sign all applications, assignments,
instruments and papers and perform all acts necessary or desired by the Company
in order to protect its rights and interests in any Developments.

 

e.        Gallagher agrees that any breach of this paragraph 8 will cause
irreparable damage to the Company and that, in the event of such breach, the
Company will have, in addition to any and all remedies of law, including rights
which the Company may have to damages, the right to equitable relief including,
as appropriate, all injunctive relief or specific performance or other equitable
relief. Gallagher understands and agrees that the rights and obligations set
forth in paragraph 8 shall survive the termination or expiration of this
Agreement.

 

9.            REPRESENTATIONS AND WARRANTIES

 

a.        Gallagher represents and warrants to the Company that he was advised
to consult with an attorney of Gallagher's own choosing concerning this
Agreement.

 

b.        Each party represents and warrants to the other that, the execution,
delivery and performance of this Agreement by such party complies with all laws
applicable to it or to which such party’s properties are subject and does not
violate, breach or conflict with any agreement by which such party or its assets
are bound or affected, including (without limitation) any non-competition or
similar agreement to which such party is bound. Each party hereby agrees to
indemnify and hold the other harmless from any loss, claim or damages
(including, without limitation, attorneys’ fees) incurred as a result of any
actual or alleged breach of any of the foregoing representations and warranties.

 

10.          GOVERNING LAW

 

This Agreement shall be deemed a contract made under, and for all purposes shall
be construed in accordance with, the internal laws of the State of New York,
without giving effect to its conflict of law provisions. Any dispute arising
hereunder shall be subject to the exclusive jurisdiction of the federal and
State courts located in New York, New York, and each of the

 

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parties hereto hereby irrevocably submits to such jurisdiction and waives any
objection to such venue.

 

11.         ENTIRE AGREEMENT

 

This Agreement contains all of the understandings between Gallagher and the
Company pertaining to Gallagher’s employment with the Company, and it supersedes
all undertakings and agreements, whether oral or in writing, previously entered
into between them.

 

11.         AMENDMENT OR MODIFICATION; WAIVER

 

No provision of this Agreement may be amended or modified unless such amendment
or modification is agreed to in writing, signed by Gallagher and by an officer
of the Company duly authorized to do so. Except as otherwise specifically
provided in this Agreement, no waiver by either party of any breach by the other
party of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time.

 

12.         NOTICES

 

Any notice to be given hereunder shall be in writing and delivered personally or
sent by overnight delivery or certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such other address as such party may subsequently designate by like notice:

 

If to the Company, to:

 

Bluefly, Inc.

42 West 39th Street

New York, NY 10018

Attn: Chief Executive Officer

 

If to Gallagher, to:

 

at the address then on file in the Company’s payroll system

 

Any such notice shall be deemed given upon receipt.

 

13.         SEVERABILITY

 

In the event that any provision or portion of this Agreement shall be determined
to be invalid or unenforceable for any reason, the remaining provisions or
portions of this

 

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Agreement shall be unaffected thereby and shall remain in full force and effect
to the fullest extent permitted by law.

 

14.         TITLES

 

Titles of the paragraphs of this Agreement are intended solely for convenience
of reference and no provision of this Agreement is to be construed by reference
to the title of any paragraphs.

 

15.         COUNTERPARTS

 

This Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.

 

  BLUEFLY, INC.         By: / s / Joseph Park     Joseph Park     Chief
Executive Officer

 

  EMPLOYEE       / s / James Gallagher   James Gallagher