Exhibit 10.1
Execution Copy
 
SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “Agreement”) is dated as of September
7, 2011, by and among Bluefly, Inc., a Delaware corporation (the “Company”), and
each of the Purchasers named on Schedule 1 hereto (the “Purchasers”).
 
RECITALS
 
A.           The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “Commission”) under the
Securities Act.
 
B.           Each of the Purchasers wish to purchase, and the Company wishes to
sell, upon the terms and conditions stated in this Agreement, the number of
shares opposite such Purchaser’s name on Schedule 1 (the shares to be purchased
in the aggregate are referred to as the “Shares”) of common stock, par value
$0.01 per share (the “Common Stock”), of the Company on the Closing Date for a
purchase price per share of $1.80 (the “Purchase Price”) for an aggregate
purchase price of six million, six hundred thousand dollars ($6,600,000).
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers hereby
agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
1.1           Definitions.  In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:
 
“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or threatened in writing against the Company or any of its properties or any
officer, director or employee of the Company acting in his or her capacity as an
officer, director or employee before or by any federal, state, county, local or
foreign court, arbitrator, governmental or administrative agency, regulatory
authority, stock market, stock exchange or trading facility.
 
 “Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, Controls, is controlled by or
is under common control with such Person, as such terms are used in and
construed under Rule 405 under the Securities Act.  With respect any Purchaser,
any investment fund or managed account that is managed on a discretionary basis
by the same investment manager as such Purchaser will be deemed to be an
Affiliate of such Purchaser.
 
“Agreement” shall have the meaning ascribed to such term in the Preamble.

 
 

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“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.
 
“Capitalization Table” has the meaning set forth in Section 2.2(a)(ix).
 
“Closing” has the meaning set forth in Section 2.1(b).
 
“Closing Date” has the meaning set forth in Section 2.1(b).
 
“Commission” has the meaning set forth in the Recitals.
 
“Common Stock” has the meaning set forth in the Recitals, and also includes any
securities into which the Common Stock may hereafter be reclassified or changed.
 
“Company” shall have the meaning ascribed to such term in the Preamble.
 
“Company Counsel” means Dechert LLP.
 
“Company Deliverables” has the meaning set forth in Section 2.2(a).
 
“Company Intellectual Property” has the meaning set forth in Section 3.1(x).
 
“Company’s Knowledge” means with respect to any statement made to the knowledge
of the Company, that the statement is based upon the knowledge of the executive
officers of the Company having responsibility for the matter or matters that are
the subject of the statement.
 
“Company Party” has the meaning set forth in Section 4.8(b).
 
 “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
 
“Contract” has the meaning set forth in Section 3.1(n).
 
“Control” (including the terms “controls”, “controlling”, “controlled by” or
“under common control with”) means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
 
“Disclosure Materials” has the meaning set forth in Section 3.1(h).
 
“DTC” has the meaning set forth in Section 4.1(c).
 
“Environmental Laws” has the meaning set forth in Section 3.1(1).

 
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“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
 
“Existing Stockholder” means each of Quantum Industrial Partners LDC, a Cayman
Islands limited duration company, SFM Domestic Investments LLC, a Delaware
limited liability company, Maverick Fund USA, Ltd., a Texas limited partnership,
Maverick Fund, L.D.C., a Cayman Islands exempted limited duration company,
Maverick Fund II, Ltd., a Cayman Islands exempted company, Prentice Consumer
Partners, LP, a Delaware limited partnership and Rho Ventures VI, L.P.
 
“GAAP” means U.S. generally accepted accounting principles, as applied by the
Company.
 
“Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade payables
entered into in the ordinary course of business), (C) all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, Lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above.
 
“Indemnified Person” has the meaning set forth in Section 4.8(c).
 
“Indemnifying Person” has the meaning set forth in Section 4.8(c).
 
“Information Statement” has the meaning set forth in Section 4.2(a).
 
“Insider” means (i) any Existing Stockholder, (ii) any existing officer or
director of the Company, (iii) any Member of the Immediate Family of any
Existing Stockholder or (iv) any entity in which any of the Persons described in
clause (i), (ii) or (iii) owns any beneficial interest (other than less than one
percent of the outstanding shares of capital stock of any corporation whose
stock is listed on a Trading Market).
 
“Intellectual Property” has the meaning set forth in Section 3.1(x).

 
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“Lien” means any lien, charge, claim, encumbrance, security interest, right of
first refusal, preemptive right or other restrictions of any kind.
 
“Lock Up Agreements” means the lock up agreements dated the date hereof (i) in
the form attached hereto as Exhibit C-1 executed and delivered by each of the
directors and certain current officers of the Company listed on Schedule 2 and
(ii) in the form of Exhibit C-2 executed and delivered by each of the Existing
Stockholders listed on Schedule 2.
 
 “Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, business,
condition (financial or otherwise) or liabilities (including contingent
liabilities) of the Company or the Company and its Subsidiary, taken as a whole,
or (iii) any adverse impairment to the Company’s ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document.
 
“Material Contract” means any contract of the Company that was filed or required
to be filed as an exhibit to the SEC Reports pursuant to Item 601(b)(4) or Item
601(b)(10) of Regulation S-K, other than any contract which has expired by its
terms and does not provide for the continuation of any material obligation on
the part of the Company following the date hereof.
 
“Material Permits” has the meaning set forth in Section 3.1(u).
 
“Member of the Immediate Family” of a Person means a spouse, parent, child,
sibling, mother- or father-in-law, son- or daughter-in-law, and brother- or
sister-in-law of such Person.
 
“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.
 
“Press Release” has the meaning set forth in Section 4.7.
 
“Principal Trading Market” means the Trading Market on which the Common Stock is
primarily listed on and quoted for trading, which, as of the date of this
Agreement and the Closing Date, shall be the NASDAQ Capital Market.
 
“Proceeding” means an Action, whether commenced or threatened.
 
“Proxy Statement” has the meaning set forth in Section 4.2(a).
 
“Purchase Price” has the meaning set forth in the Recitals.
 
“Purchasers” shall have the meaning ascribed to such term in the Preamble.
 
“Purchaser Deliverables” has the meaning set forth in Section 2.2(b).
 
“Purchaser Party” has the meaning set forth in Section 4.8(a).

 
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“Registration Rights Penalty Warrants” has the meaning given such term in the
Registration Rights Agreement.
 
“Registration Rights Agreement” means the amended and restated registration
rights agreement dated the date hereof and attached hereto as Exhibit B.
 
“Registration Statement” means a registration statement covering the resale by
the Purchasers of the Shares.
 
“Regulation D” has the meaning set forth in the Recitals.
 
“Required Approvals” has the meaning set forth in Section 3.1(e).
 
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
 
“SEC Reports” has the meaning set forth in Section 3.1(h).
 
“Secretary’s Certificate” has the meaning set forth in Section 2.2(a)(iv).
 
“Securities Act” has the meaning set forth in the Recitals.
 
“Shares” has the meaning set forth in the Recitals.
 
“Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Exchange Act, whether or not
against the box, and all types of direct and indirect stock pledges, forward
sale contracts, options, puts, calls, short sales, swaps, “put equivalent
positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar
arrangements (including on a total return basis), and sales and other
transactions through non-U.S. broker dealers or foreign regulated brokers.
 
“Stockholder Approval Condition” means the Company’s receipt and effectiveness
of stockholder approval for the issuance of the Registration Rights Penalty
Warrants.
 
“Stockholder Meeting Date” has the meaning set forth in Section 4.2(a).
 
“Subsidiary” means, with respect to any Person, any other Person of which at
least a majority of the securities or ownership interests having by their terms
ordinary voting power to elect a majority of the board of directors or other
Persons performing similar functions is directly or indirectly owned or
controlled by such Person and/or by one or more of its Subsidiaries.
 
 “Trading Affiliate(s)” has the meaning set forth in Section 3.2(i).
 
“Trading Day” means (i) a day on which the Common Stock is listed or quoted and
traded on its Principal Trading Market (other than the OTC Bulletin Board), or
(ii) if the Common Stock is not listed on a Trading Market (other than the OTC
Bulletin Board), a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC

 
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Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over- the-counter
market as reported in the “pink sheets” by Pink Sheets LLC (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.
 
“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or the OTC Bulletin Board on which the Common Stock is
listed or quoted for trading on the date in question.
 
“Transaction Documents” means this Agreement, the schedules and exhibits
attached hereto, the Registration Rights Agreement, the Lock Up Agreements and
any other documents or agreements executed in connection with the transactions
contemplated hereunder.
 
“Transfer Agent” means American Stock Transfer and Trust Company, or any
successor transfer agent for the Company.
 
“Voting Agreement” means that certain amended and restated voting agreement
dated December 21, 2009.
 
ARTICLE II
 
PURCHASE AND SALE
 
2.1           Purchase and Sale of Shares.
 
(a)          Amount.  Subject to the terms and conditions set forth in this
Agreement, on the Closing Date (as defined below) at the Closing (as defined
below) the Company shall issue and sell to the Purchasers, and each Purchaser
shall purchase from the Company, the number of Shares opposite such Purchaser’s
name on Schedule 1.  Each Purchaser’s agreement to purchase Shares hereunder
shall be several and not joint.
 
(b)          Closing.  The closing of the purchase and sale of the Shares (the
“Closing”) shall be take place at the offices of Company Counsel, 1095 Avenue of
the Americas, New York, New York or at such other locations or remotely by
facsimile transmission or other electronic means as the parties may mutually
agree at 10:00 a.m., Eastern Standard Time, on the date hereof (the “Closing
Date”).
 
2.2           Closing Deliveries.
 
(a)          On or prior to the Closing, the Company shall issue, deliver or
cause to be delivered to the Purchasers the following (the “Company
Deliverables”):
 
(i)           this Agreement, duly executed by the Company;
 
(ii)          a copy of the Company’s irrevocable instructions to the Transfer
Agent, acknowledged by the Transfer Agent, instructing the Transfer Agent to
deliver, on

 
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an expedited basis, one or more stock certificates, free and clear of all
restrictive and other legends (except as provided in Section 4.1(b) hereof),
evidencing the Shares subscribed for by each Purchaser hereunder, registered in
the name of each respective Purchaser, with the original stock certificates sent
to the respective Purchasers within three (3) Business Days of the Closing;
 
(iii)         a legal opinion of Company Counsel, dated as of the Closing Date,
executed by such counsel and addressed to the Purchasers;
 
(iv)         a certificate of the Secretary of the Company (the “Secretary’s
Certificate”), dated as of the Closing Date, (a) certifying the resolutions
adopted by the Board of Directors of the Company or a duly authorized committee
thereof approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Shares, (b) certifying the current
versions of the certificate of incorporation, as amended, and by-laws, as
amended, of the Company and (c) certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on behalf of the
Company;
 
(v)          the Compliance Certificate referred to in Section 5.1(g);
 
(vi)         a certificate evidencing the formation and good standing of the
Company in the State of Delaware issued by the Secretary of State (or comparable
office) of such jurisdiction, as of a date within two (2) Business Days of the
Closing Date;
 
(vii)        a certificate evidencing the Company’s qualification as a foreign
corporation and good standing issued by the States of New York and Ohio, as of a
date within three (3) Business Days of the Closing Date;
 
(viii)       a certified copy of the certificate of incorporation, as certified
by the Secretary of State of the State of Delaware, as of a date within three
(3) Business Days of the Closing Date;
 
(ix)          a true and accurate pro forma capitalization table of the Company
in Microsoft Excel format setting forth the aggregate number of shares and type
of all authorized, issued and outstanding classes of capital stock, options,
warrants and other securities of the Company (whether or not presently
convertible into or exercisable or exchangeable for shares of capital stock of
the Company) as of the Closing Date (the “Capitalization Table”);
 
(x)          a fully executed Registration Rights Agreement; and
 
(xi)         fully executed Lock Up Agreements.
 
(b)          At the Closing, each Purchaser shall deliver or cause to be
delivered to the Company the following (the “Purchaser Deliverables”):
 
(i)           this Agreement, duly executed by such Purchaser;

 
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(ii)          the Purchase Price set forth opposite such Purchaser’s name on
Schedule 1 in United States dollars and in immediately available funds, by wire
transfer to an account designated in writing to the Purchasers by the Company
for such purpose; and
 
(iii)         a fully completed and duly executed Accredited Investor
Questionnaire, reasonably satisfactory to the Company, and Stock Certificate
Questionnaire, each in the form attached hereto as Exhibits A-1 and A-2,
respectively.
 
ARTICLE III
 
REPRESENTATIONS AND WARRANTIES
 
3.1           Representations and Warranties of the Company.  The Company hereby
represents and warrants as of the date hereof (except for the representations
and warranties that speak as of a specific date, which shall be made as of such
date), to the Purchasers that the following representations and warranties are
true and complete, except as set forth in the Schedules delivered herewith.  The
Schedules shall be arranged in sections corresponding to the lettered
subsections contained in this Section 3.1, and the disclosures in any subsection
of the schedules shall qualify other subsections in this Section 3.1 to the
extent it is reasonably apparent from a reading of the disclosure that such
disclosure is applicable to such other subsections.
 
(a)          Subsidiaries.  The Company has no direct or indirect Subsidiaries,
other than Eyefly, LLC, a Delaware limited liability company in which it has a
52% membership interest.
 
(b)          Organization and Qualification.  The Company and its Subsidiary are
each an entity duly incorporated or organized (as applicable), validly existing
and in good standing under the laws of the State of Delaware, with the requisite
corporate power and authority to own or lease and use its properties and assets
and to carry on its business as currently conducted.  Neither the Company nor
its Subsidiary is in violation of any of the provisions of its certificate of
incorporation or certificate of formation or, in any material respects, its
by-laws, operating agreement or other organizational or charter documents.  Each
of the Company and its Subsidiary is duly qualified to conduct business and is
in good standing as a foreign corporation or other entity in each jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not reasonably be expected to have a
Material Adverse Effect.
 
(c)          Authorization; Enforcement; Validity.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents to which it is a
party and otherwise to carry out its obligations hereunder and thereunder.  The
Company’s execution and delivery of each of the Transaction Documents to which
it is a party and the consummation by it of the transactions contemplated hereby
and thereby (including, but not limited to, the sale and delivery of the Shares)
have been duly authorized by all necessary corporate action on the part of the
Company, and no further corporate action is required by the Company, its Board
of Directors or its stockholders in connection therewith other than in
connection with the Required Approvals.  Each of the Transaction Documents to
which it is a party has been (or upon delivery will have been) duly executed by
the Company and is, or when delivered in accordance with the terms hereof, will
constitute the legal, valid and binding obligation

 
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of the Company enforceable against the Company in accordance with its terms,
except (i) as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.
 
(d)          No Conflicts.  The execution, delivery and performance by the
Company of the Transaction Documents to which it is a party and the consummation
by the Company of the transactions contemplated hereby or thereby (including,
without limitation, the issuance of the Shares) do not and will not (i) conflict
with or violate any provisions of the Company’s certificate of incorporation,
by-laws or otherwise result in a violation of the organizational documents of
the Company, (ii) conflict with, result in any breach of any provision of, or
constitute a default (or an event that with notice or lapse of time or both
would result in a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or its Subsidiary or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any Material Contract, or (iii) subject to
the Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or its Subsidiary is
subject (including federal and state securities laws and regulations and the
rules and regulations, assuming the correctness of the representations and
warranties made by the Purchasers herein, of any self-regulatory organization to
which the Company or its securities are subject, including all applicable
Trading Markets), or by which any property or asset of the Company or its
Subsidiary is bound or affected, except in the case of clauses (ii) and (iii)
such as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
 
(e)          Filings, Consents and Approvals.  The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents
(including, without limitation, the issuance of the Shares), other than (i) the
filing with the Commission of one or more Registration Statements, (ii) filings
required by applicable state securities laws, (iii) the filing of a Notice of
Sale of Securities on Form D with the Commission under Regulation D of the
Securities Act, (iv) the filing of any requisite notices and/or application(s)
to the Principal Trading Market for the issuance and sale of the Common Stock
and the listing of the Common Stock for trading or quotation, as the case may
be, thereon in the time and manner required thereby, (v) the filings required in
accordance with Section 4.7 of this Agreement, (vi) the satisfaction of the
Stockholder Approval Condition for the Registration Rights Penalty Warrants, and
(vii) those that have been made or obtained prior to the date of this Agreement
(collectively, the “Required Approvals”).
 
(f)          Issuance of the Shares.  The Shares have been duly authorized and,
when issued and paid for in accordance with the terms of the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable and
free and clear of all Liens, other than restrictions on transfer provided for in
the Transaction Documents or imposed by applicable securities laws, and shall
not be subject to preemptive or similar rights.  Assuming the accuracy of the
representations and

 
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warranties of the Purchasers in this Agreement, the Shares will be issued in
compliance with all applicable federal and state securities laws.
 
(g)          Capitalization.  The aggregate number of shares and type of all
authorized, issued and outstanding classes of capital stock, options, warrants
and other securities of the Company (whether or not presently convertible into
or exercisable or exchangeable for shares of capital stock of the Company) as of
the Closing Date, is as set forth in the Capitalization Table delivered pursuant
to Section 2.2(a)(ix).  All issued and outstanding shares of capital stock are
duly authorized, validly issued, fully paid and non-assessable and have been
issued in compliance in all material respects with all applicable federal and
state securities laws and none of such outstanding securities were issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase any capital stock of the Company.  The Capitalization Table delivered
pursuant to Section 2.2(a)(ix) is true and accurate as of the Closing
Date.  Except as disclosed in the Capitalization Table delivered pursuant to
Section 2.2(a)(ix), as of the Closing Date, the Company did not have outstanding
any other options, warrants, securities convertible into Common Stock, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or entered into any agreement giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or securities
or rights convertible or exchangeable into shares of Common Stock.  Except as
set forth in the Capitalization Table delivered pursuant to Section 2.2(a)(ix),
and except for customary adjustments as a result of stock dividends, stock
splits, combinations of shares, reorganizations, recapitalizations,
reclassifications or other similar events, there are no preemptive rights,
anti-dilution or price adjustment provisions contained in any security issued
and outstanding by the Company (or in any agreement providing rights to security
holders) and the issuance and sale or the Shares will not obligate the Company
to issue shares of Common Stock or other securities to any Person (other than
the Purchasers) and will not result in a right of any holder of securities to
adjust the exercise, conversion, exchange or reset price under such
securities.  Except as set forth in the Capitalization Table delivered pursuant
to Section 2.2(a)(ix), and except for the Registration Rights Agreement and the
Voting Agreement, (A) there are no agreements or arrangements under which the
Company is obligated to register the sale of any of its securities under the
Securities Act, (B) there are no agreements or arrangements pursuant to which
any Person has any co-sale rights, subscription rights, rights of first refusal,
rights of first offer, tag along rights, or drag along rights, and (C) there are
no agreements or arrangements relating to the voting of securities of the
Company, nor are there any other similar rights relating to the, registration,
transfer, sale or voting of the securities of the Company.  To the Company’s
Knowledge, except as disclosed in the SEC Reports and any Schedules 13D or 13G
filed with the SEC pursuant to Rule 13d-1 of the Exchange Act by reporting
persons or in Schedule 3.1(g), as of the date hereof no Person or group of
related Persons beneficially owns (as determined pursuant to Rule 13d-3 under
the Exchange Act), or has the right to acquire, by agreement with or by
obligation binding upon the Company, beneficial ownership of in excess of 5% of
the outstanding Common Stock.
 
(h)          SEC Reports: Disclosure Materials.  The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the twelve months preceding the date hereof on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension and has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof.  Such reports required to

 
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be filed by the Company under the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, together with any materials filed or furnished by the
Company under the Exchange Act, whether or not any such reports were required
being collectively referred to herein as the “SEC Reports” and, together with
this Agreement and the Schedules to this Agreement, the “Disclosure
Materials”.  As of their respective dates (or, if amended or superseded by a
filing prior to the Closing Date, then on the date of such filing), the SEC
Reports filed by the Company complied in all material respects with the
requirements of the Securities Act and the Exchange Act (as applicable) and the
rules and regulations of the Commission promulgated thereunder, and none of the
SEC Reports, when filed (or, if amended or superseded by a filing prior to the
Closing Date, then on the date of such filing)by the Company, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.  All
material agreements to which the Company is a party or to which the property or
assets of the Company are subject are included as part of or identified in the
SEC Reports, to the extent such agreements are required to be included or
identified pursuant to the rules and regulations of the Commission.
 
(i)          Financial Statements.  The financial statements of the Company
included in the SEC Reports comply (or, to the extent corrected by a subsequent
restatement that is filed with the Commission prior to the date hereof, as
corrected do comply) in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing.  Such financial statements have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved, except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present in all
material respects the financial position of the Company and its Subsidiary as of
and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
year-end audit adjustments.
 
(j)          Tax Matters.  The Company and its Subsidiary have each (i) prepared
and filed all foreign, federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject,
(ii) paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith, with respect to which
adequate reserves have been set aside on the books of the Company or its
Subsidiary (as applicable) and (iii) set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply, except, in the
case of clauses (i) and (ii) above, where the failure to so pay or file any such
tax, assessment, charge or return would not reasonably be expected to have a
Material Adverse Effect.  There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction and the officers
of the Company know of no basis for any such claim.
 
(k)         Material Changes; Undisclosed Events, Liabilities or Developments;
Solvency.  Since the date of the latest financial statements included within the
SEC Reports, except as specifically disclosed in the SEC Reports, (i) there have
been no events, occurrences or developments that have had or would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, (ii) there has not been any material change or amendment to, or any
waiver of any material right by the Company under, any Material Contract, (iii)
all Material Contracts are in

 
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full force and effect except those that have expired by their terms or as
otherwise set forth in the SEC Reports and, to the Company’s Knowledge, no party
to any Material Contract is in breach thereof in any material respect, (iv) the
Company’s business has been operated in the ordinary course, (v) the Company has
not incurred any material liabilities other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (vi) the Company has not altered its method of
accounting or changed its auditors, except as disclosed in its SEC Reports,
(vii) the Company has not declared or made any dividend or distribution of cash
or other property to its stockholders, in their capacities as such, or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock, and (viii) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company
stock-based plans.  The Company has not taken any steps to seek protection
pursuant to any bankruptcy law and, to the Company’s Knowledge, none of its
creditors intends to initiate involuntary bankruptcy proceedings and there does
not exist any fact which would reasonably lead a creditor to do so.  Based on
the financial condition of the Company as of the Closing, after giving effect to
transactions contemplated hereby to occur at the Closing, the Company reasonably
expects to have sufficient cash on hand to pay all of its currently foreseeable
expenses for the next twelve months.
 
(l)          Environmental Matters.  To the Company’s Knowledge, neither the
Company nor its Subsidiary (i) is in violation of any statute, rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, “Environmental
Laws”), (ii) owns or operates any real property contaminated with any substance
that is in violation of any Environmental Laws, (iii) is liable for any off-site
disposal or contamination pursuant to any Environmental Laws, or (iv) is subject
to any claim relating to any Environmental Laws; which, in the case of any of
the matters described in clauses (i) — (iv), has had or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect;
and, to the Company’s Knowledge, there is no pending or threatened investigation
that might lead to such a claim.
 
(m)         Litigation.  Except as set forth in Schedule 3.1(m), there is no
Action (and in the case of any inquiry or investigation, to the Company’s
Knowledge) before or by any court, public board, government agency,
self-regulatory organization or body pending against or affecting the Company or
its Subsidiary, and no such Action is currently threatened that could reasonably
be expected to lead to the commencement of an Action.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company under the Exchange Act or the
Securities Act.
 
(n)          Contracts.  Schedule 3.1(n) lists the following contracts,
agreements, commitments or binding understanding, whether oral or written
(collectively, the “Contracts”), to which the Company or its Subsidiary is a
party or subject or by which either the Company or its Subsidiary are bound: (i)
each employment related Contract, (ii) each Contract (A) with any Insider or (B)
between or among any Insiders relating in any way to the Company; and (iii) each
Material Contract.

 
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(o)          Employment Matters.  No material labor dispute exists or, to the
Company’s Knowledge, is imminent with respect to any of the employees of the
Company or its Subsidiary which would reasonably be expected to have a Material
Adverse Effect.  The Company and its Subsidiary are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment
and employment practices, terms and conditions of employment and wages and
hours, except where the failure to be in compliance would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
 
(p)          Employee Relations.  Neither the Company, nor its Subsidiary, is a
party to any collective bargaining agreement.  To the Company’s Knowledge, the
Company’s and its Subsidiary’s relations with their respective employees are as
disclosed in the SEC Reports.  Except as disclosed in the SEC Reports or as the
Purchasers have otherwise been made aware, no current executive officer of the
Company has notified the Company that such officer intends to leave the Company
or otherwise terminate such officer’s employment with the Company.  To the
Company’s Knowledge, no executive officer of the Company is in violation of any
material term of any employment Contract, confidentiality, disclosure or
proprietary information agreement, non- competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company to any liability
with respect to any of the foregoing matters.
 
(q)          Labor Matters.  The Company and its Subsidiary are each in
compliance in all material respects with all federal, state, local and foreign
laws and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
 
(r)          Minute Books.  The minute books of the Company for the period from
2001 to present, all of which have been made available to the Purchasers, are
complete and correct.  The minute books of the Company contain, in all material
respects, accurate records of all meetings held and actions taken by the Board
of Directors and committees of the Board of Directors of the Company during such
period, and no meeting of the Board of Directors or committees has been held for
which minutes are not contained in such minute books, other than meetings held
within the last sixty (60) days for which minutes have not yet been prepared
and/or approved by the Board of Directors or applicable committee.
 
(s)          Affiliate Transactions.  Except as disclosed in the SEC Reports, no
Insider has any agreement, contract, commitment or binding understanding,
whether oral or written, with the Company or its Subsidiary (other than the
employment agreements filed with the Commission), any loan to or from the
Company or its Subsidiary or any interest in any assets (whether real, personal
or mixed, tangible or intangible) used in or pertaining to the business of the
Company or its Subsidiary (other than ownership of capital stock of the
Company).  To the Company’s Knowledge, except as set forth in the SEC Reports,
no director or officer has any direct or indirect interest in any supplier of
the Company or its Subsidiary or in any Person from whom or to whom the Company
or its Subsidiary leases any property, or in any other Person with whom the
Company or its Subsidiary otherwise transacts business of any nature, other than
transactions entered into in the ordinary course of business on the Company’s
web site.

 
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(t)          Compliance.  Neither the Company nor its Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or its Subsidiary under), nor has the Company or its Subsidiary
received written notice of a claim that it is in default under or that it is in
violation of, any Material Contract (whether or not such default or violation
has been waived), (ii) is not in violation of any order of which the Company or
its Subsidiary has been made aware in writing of any court, arbitrator or
governmental body having jurisdiction over the Company, its Subsidiary or their
respective properties or assets, or (iii) is in violation of, or in receipt of
written notice that it is in violation of, any statute, rule or regulation of
any governmental authority applicable to the Company or its Subsidiary, except
in each case as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
 
(u)          Regulatory Permits.  The Company and its Subsidiary each possess or
have applied for all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary to
conduct its business as currently conducted and as described in the SEC Reports,
except where the failure to possess such permits, individually or in the
aggregate, has not and would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect (“Material Permits”), and (i)
neither the Company nor its Subsidiary has received any notice in writing of
proceedings relating to the revocation or material adverse modification of any
such Material Permits and (ii) to the Company’s Knowledge, there do not exist
any facts or circumstances that would give rise to the revocation or material
adverse modification of any Material Permits.
 
(v)          Title to Assets.  Neither the Company nor its Subsidiary owns any
real property.  Each of the Company and its Subsidiary has good and marketable
title to all tangible personal property owned by it which is material to the
business of the Company, taken as a whole, free and clear of all Liens (other
than liens under the Company’s senior credit facility) except 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 or its
Subsidiary.  Any real property and facilities held under lease by the Company or
its Subsidiary are held by it 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 or its
Subsidiary (as applicable).
 
(w)         Insurance.  Each of the Company and its Subsidiary is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses and locations
in which the Company or its Subsidiary is engaged.
 
(x)          Patents and Trademarks.  The Company and its Subsidiary each owns,
possesses, licenses or has other rights to use all foreign and domestic patents,
patent applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, inventions, trade secrets, technology,
Internet domain names, know-how and other intellectual property (collectively,
the “Intellectual Property”) necessary for the conduct of its business as now
conducted, as described in the SEC Reports (the “Company Intellectual
Property”).  Except as set forth in the SEC Reports, (a) to the Company’s
Knowledge, there are no rights of third parties to any such Company Intellectual
Property that is owned by the Company or its Subsidiary; (b) to the Company’s
Knowledge, there is no pending or threatened Action by others challenging the
Company’s or its Subsidiary’s rights in or to any such Company Intellectual
Property that could reasonably be expected

 
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to have a Material Adverse Effect; and (c) to the Company’s Knowledge, there is
no pending or threatened Action by others that the Company or its Subsidiary
infringes or otherwise violates any Intellectual Property of others that could
reasonably be expected to have a Material Adverse Effect.
 
(y)          Internal Accounting Controls; Disclosure Controls.  Except as has
not had or would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, the Company (i) has established and
maintained disclosure controls and procedures and internal control over
financial reporting (as such terms are defined in paragraphs (e) and (f),
respectively, of Rule 13a-15 under the Exchange Act) as required by Rule 13a-15
under the Exchange Act, and (ii) has disclosed, based on its most recent
evaluations, to its outside auditors and the Audit Committee of the Board of
Directors of the Company (A) all significant deficiencies and material
weaknesses in the design or operation of internal controls over financial
reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are reasonably
likely to adversely affect the Company’s ability to record, process, summarize
and report financial data, and (B) any fraud known to the Company, whether or
not material, that involves management or other employees who have a significant
role in the Company’s internal controls over financial reporting.
 
(z)          Form S-3 Eligibility.  As of the date hereof, the Company is
eligible to register the Shares for resale by the Purchasers using Form S-3
promulgated under the Securities Act.
 
(aa)        Sarbanes-Oxley.  The Company is in compliance in all material
respects with all of the provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it, except where such noncompliance would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
 
(bb)       Foreign Corrupt Practices.  Neither the Company, not its Subsidiary,
nor, to the Company’s Knowledge, any director, officer, agent, employee or other
Person acting on behalf of the Company or its Subsidiary has, in the course of
its actions for, or on behalf of, the Company or its Subsidiary (i) used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee or to any foreign or domestic political parties or campaigns from
corporate funds; (iii) violated or is in violation in any material respect of
any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or
(iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
 
(cc)        Off Balance Sheet Arrangements.  There is no transaction,
arrangement, or other relationship between the Company or its Subsidiary and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its SEC Filings and is not so disclosed or that
otherwise would reasonably be expected to have a Material Adverse Effect.
 
(dd)       Indebtedness.  Except as disclosed in the SEC Reports or as incurred
pursuant to transactions entered into in the ordinary course of business
including draws under the senior credit facility, since June 30, 2011, neither
the Company nor its Subsidiary (i) has any outstanding Indebtedness, and (ii) is
in violation of any term of or is in default under any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not reasonably be expected to result, individually or in the
aggregate, in a Material Adverse Effect.

 
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(ee)        Certain Fees.  No person or entity will have, as a result of the
transactions contemplated by this Agreement and the Transaction Documents, any
valid right, interest or claim against or upon the Company or the Purchasers for
any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company.  The Company shall
indemnify, pay, and hold each Purchaser harmless against, any liability, loss or
expense (including, without limitation, attorneys’ fees and out-of-pocket
expenses) arising in connection with any such right, interest or claim, except
to the extent that such liability, loss or expense results from a breach by such
Purchaser of the representations made in Section 3.2(j).
 
(ff)         Private Placement.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2 of this Agreement, no
registration under the Securities Act is required for the offer and sale of the
Shares by the Company to the Purchasers under the Transaction Documents.
 
(gg)       Registration Rights.  Other than as set forth in the SEC Reports and
the Transaction Documents, no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company other than those securities which are currently registered on an
effective registration statement on file with the Commission.
 
(hh)       No Integrated Offering.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company
nor, to the Company’s Knowledge, any of its Affiliates or any Person acting on
its behalf has, directly or indirectly, at any time within the past six months,
made any offers or sales of any Company security or solicited any offers to buy
any security under circumstances that would (i) eliminate the availability of
the exemption from registration under Regulation D under the Securities Act in
connection with the offer and sale by the Company of the Shares as contemplated
hereby or (ii) cause the offering of the Shares pursuant to the Transaction
Documents to be integrated with prior offerings by the Company for purposes of
any applicable law, regulation or stockholder approval provisions, including,
without limitation, under the rules and regulations of any Trading Market on
which any of the securities of the Company are listed or designated.
 
(ii)          Listing and Maintenance Requirements.  The Company’s Common Stock
is registered pursuant to Section 12(b) of the Exchange Act, and the Company has
taken no action designed to terminate the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration.  The Company has not,
in the twelve months preceding the date hereof, received written notice from any
Trading Market on which the Common Stock is listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance requirements of
such Trading Market.  The Company is in compliance in all material respects with
the listing and maintenance requirements for continued trading of the Common
Stock on the Principal Trading Market.
 
(jj)          Application of Takeover Protections.  The Company and its Board of
Directors have taken all necessary action, if any, to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s charter documents or the laws of the State of Delaware that
is applicable to the Purchasers as a result of the Purchasers and the Company
fulfilling their

 
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obligations or exercising their rights under the Transaction Documents,
including, without limitation, as a result of the Company’s issuance of the
Shares and the Purchasers’ ownership of the Shares.
 
(kk)        Disclosure.  To the Company’s Knowledge, no event or circumstance
has occurred or information exists with respect to the Company or its business,
properties, operations, financial conditions or prospects, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company’s reports filed under the Exchange
Act are being incorporated into an effective registration statement filed by the
Company under the Securities Act), except for the announcement of this Agreement
and related transactions contemplated hereby and as may be disclosed on the
Current Report on Form 8-K filed pursuant to Section 4.7.  The Company
acknowledges and agrees that the Purchasers have not made any representations or
warranties with respect to the transactions contemplated hereby other than those
set forth in the Transaction Documents.
 
(ll)          No General Solicitation.  The Company did not offer the Shares as
a general solicitation in the form of an advertisement, article, notice or other
communication regarding the Shares published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general advertisement.
 
3.2          Representations and Warranties of the Purchasers.  Each Purchaser
hereby represents and warrants, severally as to itself and not jointly, as of
the date hereof to the Company as follows:
 
(a)          Organization; Authority.  Such Purchaser is a an entity duly
formed, validly existing and in good standing under the laws of the jurisdiction
set forth next to its name on Schedule 1, with the requisite power and authority
to enter into and to consummate the transactions contemplated by this Agreement
and the other Transaction Documents to which it is a party and otherwise to
carry out its obligations hereunder and thereunder.  The execution, delivery and
performance by such Purchaser of the transactions contemplated by this Agreement
and the other Transaction Documents to which it is a party have been duly
authorized by all necessary action on the part of such Purchaser, and no further
action is required by such Purchaser (or its respective managing member or
general partner, if applicable) in connection therewith.  This Agreement and the
other Transaction Documents to which such Purchaser is a party have been duly
executed by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof and thereof, each will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors’ rights and
remedies or by other equitable principles of general application.
 
(b)          No Conflicts.  The execution, delivery and performance by such
Purchaser of this Agreement and the other Transaction Documents to which it is a
party and the consummation by such Purchaser of the transactions contemplated
hereby and thereby will not (i) result in a violation of the formation documents
of such Purchaser, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to

 
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which such Purchaser is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Purchaser, except in the case of clauses
(ii) and (iii) above, for such conflicts, defaults, rights or violations which
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Purchaser to perform its
obligations hereunder.
 
(c)          Filings, Consents and Approvals.  Such Purchaser is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by such Purchaser of the Transaction
Documents.
 
(d)          Investment Intent.  Such Purchaser understands that the Shares are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Shares for its own
account and not with a view to, or for distributing or reselling such Shares or
any part thereof in violation of the Securities Act or any applicable state
securities laws, provided, however, that by making the representations herein,
such Purchaser does not agree to hold any of the Shares for any minimum period
of time and reserves the right, subject to the provisions of this Agreement, at
all times to sell or otherwise dispose of all or any part of the Shares pursuant
to an effective Registration Statement under the Securities Act or under an
exemption from such registration and in compliance with applicable federal and
state securities laws.  Such Purchaser is acquiring the Shares hereunder in the
ordinary course of its business.  Such Purchaser does not presently have any
agreement, plan or understanding, directly or indirectly, with any Person to
distribute or effect any distribution of any of the Shares to or through any
person or entity; such Purchaser is not a registered broker- dealer under
Section 15 of the Exchange Act or an entity engaged in a business that would
require it to be so registered as a broker-dealer.
 
(e)          Purchaser Status.  At the time such Purchaser was offered the
Shares, it was, and at the date hereof it is, an “accredited investor” as
defined in Rule 501(a) under the Securities Act.
 
(f)          General Solicitation.  Such Purchaser is not purchasing the Shares
as a result of any advertisement, article, notice or other communication
regarding the Shares published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general advertisement.
 
(g)          Experience of such Purchaser.  Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares, and has so
evaluated the merits and risks of such investment.  Such Purchaser is able to
bear the economic risk of an investment in the Shares and, at the present time,
is able to afford a complete loss of such investment.
 
(h)          Access to Information.  Such Purchaser acknowledges that it has had
the opportunity to review the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Shares and the merits and risks of investing in the
Shares; (ii) access to information about the Company and its financial
condition, results of operations, business, properties, management and prospects
sufficient to enable it to evaluate its

 
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investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment.  Neither such inquiries nor any other investigation conducted by or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser’s right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company’s representations and
warranties contained in the Transaction Documents.  Such Purchaser has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed decision with respect to its acquisition of the Shares.  Such Purchaser
acknowledges and agrees that the Company has not made any representations or
warranties with respect to the transactions contemplated hereby other than those
set forth in the Transaction Documents.
 
(i)           Certain Trading Activities.  Other than with respect to the
transactions contemplated herein, since the time that such Purchaser was first
contacted by the Company or any other Person regarding the transactions
contemplated hereby, neither such Purchaser nor any Affiliate of such Purchaser
which (i) had knowledge of the transactions contemplated hereby, (ii) has or
shares discretion relating to such Purchaser’s investments or trading or
information concerning such Purchaser’s investments, including in respect of the
Shares, and (iii) is subject to such Purchaser’s review or input concerning such
Affiliate’s investments or trading (collectively, “Trading Affiliates”), has
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Purchaser or Trading Affiliate, effected or agreed
to effect any purchases or sales of the securities of the Company (including,
without limitation, any Short Sales involving the Company’s securities).
 
(j)          Brokers and Finders.  No Person will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or such Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of such Purchaser.  Such Purchaser shall indemnify, pay,
and hold the Company harmless against, any liability, loss or expense
(including, without limitation, attorneys’ fees and out-of-pocket expenses)
arising in connection with any such right, interest or claim.
 
(k)          Independent Investment Decision.  Such Purchaser has independently
evaluated the merits of its decision to purchase Shares pursuant to the
Transaction Documents.  Such Purchaser understands that nothing in this
Agreement or any other materials presented by or on behalf of the Company to
such Purchaser in connection with the purchase of the Shares constitutes legal,
tax or investment advice.  Such Purchaser has consulted such legal, tax and
investment advisors as it, in its sole discretion, has deemed necessary or
appropriate in connection with its purchase of the Shares.
 
(l)          Reliance on Exemptions.  Such Purchaser understands that the Shares
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Shares.

 
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(m)         No Governmental Review.  Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Shares or the
fairness or suitability of the investment in the Shares nor have such
authorities passed upon or endorsed the merits of the offering of the Shares.
 
(n)          Office.  Such Purchaser’s office in which its investment decision
with respect to the Shares was made is located at the address set forth opposite
its name on Schedule 1.
 
The Company and each Purchaser acknowledge and agree that no party to this
Agreement has made or makes any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
this Article III and the Transaction Documents.
 
ARTICLE IV
 
OTHER AGREEMENTS OF THE PARTIES
 
4.1          Transfer Restrictions.
 
(a)          Compliance with Laws.  Notwithstanding any other provision of this
Article IV, each Purchaser covenants as to itself that the Shares may be
disposed of only pursuant to an effective Registration Statement under, and in
compliance with the requirements of, the Securities Act, or pursuant to an
available exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, and in compliance with any applicable state,
federal or foreign securities laws.  In connection with any transfer of the
Shares other than (i) pursuant to an effective Registration Statement or (ii) to
the Company, the Company may require the transferor thereof to provide to the
Company and the Transfer Agent, at the transferor’s expense, an opinion of
counsel selected by the transferor and reasonably acceptable to the Company and
the Transfer Agent, the form and substance of which opinion shall be reasonably
satisfactory to the Company and the Transfer Agent, to the effect that such
transfer does not require registration of such transferred Shares under the
Securities Act.  As a condition of transfer (other than pursuant to clauses (i)
or (ii) of the preceding sentence), any such transferee shall agree in writing
to be bound by the terms of this Agreement and shall have the rights of a
Purchaser under this Agreement with respect to such transferred Shares to the
extent explicitly set forth in the Transaction Documents.  Notwithstanding the
foregoing, the Company hereby consents to and agrees to register on the books of
the Company and with its Transfer Agent, without any such legal opinion, except
to the extent that the Transfer Agent requests such legal opinion, any transfer
of Shares by a Purchaser to an Affiliate of such Purchaser, provided that the
transferee certifies to the Company that it is an “accredited investor” as
defined in Rule 501(a) under the Securities Act and provided that such Affiliate
does not request any removal of any existing legends on any certificate
evidencing the Shares.
 
(b)         Legends.  Certificates evidencing the Shares shall bear any legend
as required by the “blue sky” laws of any state and a restrictive legend in
substantially the following form, until such time as they are not required under
Section 4.1(c) or applicable law:
 
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE

 
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STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE OFFER AND SALE OF THE SECURITIES UNDER THE SECURITIES ACT OR
(B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT
OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT, IN WHICH CASE THE
COMPANY IS ENTITLED TO REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
IT TO THE EFFECT THAT SUCH SECURITIES CAN BE SOLD OR TRANSFERRED PURSUANT TO
RULE 144 UNDER THE 1933 ACT.  NO REPRESENTATION IS MADE BY THE ISSUER AS TO THE
AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR
RESALES OF THESE SECURITIES.
 
(c)          Removal of Legends.  The restrictive legend set forth in Section
4.1(b) above shall be removed and the Transfer Agent or the Company, as the case
may be, shall issue a certificate without such restrictive legend or any other
restrictive legend to the holder of the applicable Shares upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at the Depository Trust Company (“DTC”), if (i) such Shares are
registered for resale under the Securities Act (provided that, if a Purchaser is
selling pursuant to the effective Registration Statement registering the Shares
for resale, such Purchaser agrees to only sell such Shares during such time that
such Registration Statement is effective and not withdrawn or suspended, and
only as permitted by such Registration Statement), (ii) such Shares are sold or
transferred pursuant to Rule 144, (iii) such Shares are eligible for sale under
Rule 144, without the requirement for the Company to be in compliance with the
current public information required under Rule 144 as to such securities and
without volume or manner-of-sale restrictions, or (iv) if the holder provides
the Company with a legal opinion (and the documents upon which the legal opinion
is based) reasonably acceptable to the Company to the effect that the legend is
not required under applicable requirements of the Securities Act (including
controlling judicial interpretations and pronouncements issued by the Staff of
the Commission).  Certificates for Shares subject to legend removal hereunder
may be transmitted by the Transfer Agent to a Purchaser by crediting the account
of such Purchaser’s prime broker with DTC as directed by such
Purchaser.  Following the effective date that the Registration Statement is
first declared effective by the Commission, and provided the Registration
Statement referred to in clause (i) above is then in effect, or at such earlier
time as a legend is no longer required for certain Shares, the Company will no
later than three Trading Days following the delivery by a Purchaser to the
Company or the Transfer Agent (if delivery is made to the Transfer Agent a copy
shall be contemporaneously delivered to the Company) of (i) a legended
certificate representing such Shares (and, in the case of a requested transfer,
endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect transfer), and (ii) an opinion of counsel to the extent
required by Section 4.1, deliver or cause to be delivered to such Purchaser a
certificate representing such Shares that is free from all restrictive and other
legends.  The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section, provided, however that, notwithstanding anything to the
contrary contained herein, if for any reason the Registration Statement ceases
to be available for any period of

 
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time for the resale of the Shares, the Company may instruct the Transfer Agent
not to permit transfers of the Shares, except for transfers otherwise made in
accordance with the provisions of this Section 4.1.
 
(d)          Acknowledgement.  Each Purchaser hereunder acknowledges as to
itself its primary responsibilities under the Securities Act and accordingly
will not sell or otherwise transfer the Shares or any interest therein without
complying with the requirements of the Securities Act.  Except as otherwise
provided below, while any Registration Statement remains effective, each
Purchaser hereunder may sell the Shares in accordance with the plan of
distribution contained in such Registration Statement and if it does so it will
comply therewith and with the related prospectus delivery requirements unless an
exemption therefrom is available.  Each Purchaser agrees as to itself that if it
is notified by the Company in writing at any time that the Registration
Statement registering the resale of the Shares is not effective or that the
prospectus included in such Registration Statement no longer complies with the
requirements of Section 10 of the Securities Act, such Purchaser will refrain
from selling such Shares until such time as such Purchaser is notified by the
Company that such Registration Statement is effective or such prospectus is
compliant with Section 10 of the Securities Act, unless such Purchaser is able
to, and does, sell such Shares pursuant to an available exemption from the
registration requirements of Section 5 of the Securities Act.  Both the Company
and its Transfer Agent, and their respective directors, officers, employees and
agents, may rely on this Section 4.1(d).
 
4.2           Stockholder Meeting.
 
(a)          Unless it shall have been determined by such date pursuant to the
terms of the Registration Rights Agreement that the Company shall not be
required to deliver the Registration Rights Penalty Warrants, the Company shall
include in the proxy statement for its next annual meeting of stockholders of
the Company (but in no event shall the meeting date in respect of such proxy be
later than December 31, 2012) an item on the ballot for approval by the
stockholders of the Company, of a proposal that satisfies  the Stockholder
Approval Condition and will use its reasonable best efforts to respond to any
comments of the Commission and to cause the definitive proxy statement relating
to the Stockholder Approval Condition (the “Proxy Statement”) to be mailed to
the Company’s stockholders as promptly as reasonably practicable after
responding to all such comments to the satisfaction of the SEC.  The Company
shall, through its Board of Directors, recommend to its stockholders that the
Stockholder Approval Condition be satisfied by stockholders of the Company
entitled to vote at the Company Stockholder Meeting.  The Company may elect to
satisfy its obligations under this Section 4.2(a) through an action by majority
written consent of the stockholders, effective not later than December 31, 2012,
in which case an information statement shall be substituted for any reference to
a proxy statement in this Section 4.2.
 
(b)          The Company will notify the Purchasers promptly of the receipt of
any comments from the Commission and of any request by the Commission for
amendments or supplements to the Proxy Statement or for additional information,
and will supply the Purchasers with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the Commission, on
the other hand, with respect to the Proxy Statement.  If at any time prior to
the Company Stockholder Meeting there shall occur any event that should be set
forth in an amendment or supplement to the Proxy Statement, the Company will
promptly prepare and mail to its stockholders such an amendment or
supplement.  The Company will not mail any Proxy Statement, or
 
 
22

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any amendment or supplement thereto, to which any Purchaser reasonably objects
after being afforded the opportunity to review the same.  The Purchasers shall
cooperate with the Company in the preparation of the Proxy Statement or and in
responding to comments of the Commission, and the Purchasers shall promptly
notify the Company if any information supplied by it for inclusion in the Proxy
Statement shall have become false or misleading, and shall cooperate with the
Company in disseminating the Proxy Statement, as so amended or supplemented, to
correct any such false or misleading information.
 
4.3           Acknowledgment of Dilution.  The Company acknowledges that the
issuance of the Shares may result in dilution of the outstanding shares of
Common Stock.  The Company further acknowledges that its obligations under the
Transaction Documents, including without limitation its obligation to issue the
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against the Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
 
4.4           Furnishing of Information.  In order to enable the Purchasers to
sell the Shares under Rule 144 of the Securities Act, the Company shall use its
commercially reasonable efforts to maintain the registration of the Shares under
Section 12(b) of the Exchange Act for as long as the Company is required to
under applicable law and to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act for as long as
the Company is subject to the reporting requirements of the Exchange Act.
 
4.5           Form D and Blue Sky.  The Company agrees to timely file a Form D
with respect to the Shares as required under Regulation D.  The Company, on or
before the Closing Date, shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Shares for sale to the Purchasers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification).  The Company shall
make all filings and reports relating to the offer and sale of the Shares
required under applicable securities or “Blue Sky” laws of the states of the
United States following the Closing Date.
 
4.6           No Integration.  The Company shall not, and shall use its
commercially reasonable efforts to ensure that no Affiliate of the Company
shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act) that
will be integrated with the offer or sale of the Shares in a manner that would
require the registration under the Securities Act of the sale of the Shares to
the Purchasers, or that will be integrated with the offer or sale of the Shares
for purposes of the rules and regulations of any Trading Market such that it
would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.
 
4.7           Securities Laws Disclosure: Publicity.  By 9:00 a.m., New York
City time, on the Trading Day immediately following the execution of this
Agreement, the Company shall issue a press release (“Press Release”) disclosing
all material terms of the transactions contemplated

 
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hereby.  On or before 9:00 a.m., Eastern Standard Time, on or before the fourth
Trading Day immediately following the execution of this Agreement, the Company
will file a Current Report on Form 8-K with the Commission describing the terms
of the Transaction Documents (and including as exhibits to such Current Report
on Form 8-K the material Transaction Documents (including, without limitation,
this Agreement)).  Each Purchaser covenants, as to itself, that until such time
as the transactions contemplated by this Agreement are publicly disclosed by the
Company as described in this Section 4.7, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction),.
 
4.8          Indemnification
 
(a)          Indemnification of the Purchasers.  The Company will indemnify and
hold each Purchaser and its respective directors, officers, stockholders,
members, partners, employees and agents (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title), each Person who controls such Purchaser
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, stockholders, agents, members,
partners or employees (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title) of such controlling person (each, a “Purchaser Party”) harmless
from any and all losses, liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys’ fees and costs of
investigation that such Purchaser Party may suffer or incur arising from or
relating to any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in the other Transaction Documents.  The
Company will not be liable to any Purchaser Party under this Agreement to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to such Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by such Purchaser Party in this
Agreement or in the other Transaction Documents.
 
(b)          Each Purchaser will severally and not jointly indemnify and hold
the Company and its directors, officers, stockholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, stockholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling person (each, a “Company Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that the Company Party may suffer
arising from or relating to (i) any of the representations and warranties made
by such Purchaser in this agreement or (ii) any failure by such Purchaser to
comply with the covenants and agreements contained in Section 4.1 hereof
respecting transfers of the Shares.
 
(c)          Conduct of Indemnification Proceedings.  Promptly after receipt by
any Person (the “Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 4.8(a) or (b), such Indemnified Person shall

 
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promptly notify the Company and the other Purchasers or if the Indemnified
Person is the Company, shall notify the Purchasers, as applicable (the party
against whom indemnity may be sought hereinafter referred to as the
“Indemnifying Person”), in writing and the Indemnifying Person shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such Indemnified Person, and shall assume the payment of all fees and expenses;
provided, however, that the failure of any Indemnified Person to so notify the
Indemnifying Person shall not relieve the Indemnifying Person of its obligations
hereunder except to the extent that the Indemnifying Person is actually and
materially and adversely prejudiced by such failure to notify.  In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed to the retention of such counsel; (ii) the
Indemnifying Person shall have failed promptly to assume the defense of such
proceeding and to employ counsel reasonably satisfactory to the Indemnified
Person in such proceeding; or (iii) in the reasonable judgment of counsel to the
Indemnified Person, there exists or shall exist a conflict of interest that
would make it inappropriate for the same counsel to represent both the
Indemnified Person and the Indemnifying Person.  The Indemnifying Person shall
not be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, delayed or
conditioned unless the Indemnifying Person fails to defend any proceeding or
fails to promptly respond to a settlement offer.  Without the prior written
consent of the Indemnified Person, which consent shall not be unreasonably
withheld, delayed or conditioned, the Indemnifying Person shall not effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Person from all liability arising out
of such proceeding.
 
4.9           Listing of Common Stock.  To the extent required by the Principal
Trading Market, the Company shall prepare and file with the Principal Trading
Market an additional shares listing application covering all of the Shares in
the time and manner required by the Principal Trading Market.
 
4.10           Use of Proceeds.  The Company intends to use the net proceeds
from the sale of the Shares hereunder for working capital purposes.
 
4.11           Short Sales After The Date Hereof.  Each Purchaser agrees, as to
itself, not to use any of the restricted Shares acquired pursuant to this
Agreement to cover any Short Sales in the Common Stock of the Company if doing
so would be in violation of applicable securities laws in the holding and sale
of the Shares.
 
4.12           Inspection Rights.  Each Purchaser agrees, as to itself, that it
and its employees, agents and representatives will keep confidential and will
not disclose, divulge or use (other than for purposes of monitoring its
investment in the Company) any confidential information which such Purchaser may
obtain from the Company pursuant to financial statements, reports and other
materials submitted by the Company to such Purchaser pursuant to this Agreement
granted hereunder, unless such information is known to the public through no
fault of such Purchaser or its employees or representatives; provided, however,
that such Purchaser may disclose such information (i) to its attorneys,
accountants and other professionals in connection with their representation of
such Purchaser in connection with the Purchasers’ investment in the Company,

 
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(ii) to any prospective permitted transferee of the Shares, so long as the
prospective transferee agrees in writing to be bound by the provisions of this
Section 4.12, or (iii) to any general partner or affiliate of such Purchaser.
 
ARTICLE V
 
CONDITIONS PRECEDENT TO CLOSING
 
5.1           Conditions Precedent to the Obligations of the Purchasers at the
Closing.  The obligation of each Purchaser to purchase the Shares opposite its
respective name on Schedule 1 at the Closing is subject to the fulfillment, on
or prior to the Closing Date, of each of the following conditions, any of which
may be waived by a Purchaser as with respect to its obligations:
 
(a)          Representations and Warranties.  The representations and warranties
of the Company contained herein shall be true and correct in all material
respects as of the Closing Date, except for such representations and warranties
that speak as of a specific date in which case such representations and
warranties shall have been true and correct in all material respects as of such
date.
 
(b)          Performance.  The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing.
 
(c)          No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
 
(d)          Consents.  The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Shares at the Closing, all of which
shall be and remain so long as necessary in full force and effect.
 
(e)          No Suspensions of Trading in Common Stock; Listing.  The Common
Stock (i) shall be designated for quotation or listed on the Principal Trading
Market and (ii) shall not have been suspended, as of the Closing Date, by the
Commission or the Principal Trading Market from trading on the Principal Trading
Market nor shall suspension by the Commission or the Principal Trading Market
have been threatened, as of the Closing Date, either (A) in writing by the
Commission or the Principal Trading Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Trading Market.
 
(f)          Company Deliverables.  The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a).
 
(g)          Compliance Certificate.  The Company shall have delivered to the
Purchasers a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, certifying to the fulfillment
of the conditions specified in Sections 5.1(a) and 5.1(b).

 
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(h)        Registration Rights Agreement and Lock Up Agreements.  The
Registration Rights Agreement and Lock Up Agreements shall have been executed
and delivered by the parties thereto other than such Purchaser.
 
(i)          Company Board Approval.  The Company’s Board of Directors shall
have approved the transactions contemplated in this Agreement and the
Transaction Documents such that each of the Purchasers is not subject to the
restrictions of an “interested stockholder” as such term is defined in Section
203 of the Delaware General Corporation Law.
 
5.2      Conditions Precedent to the Obligations of the Company at the
Closing.  The Company’s obligation to sell and issue the Shares at the Closing
is subject to the fulfillment to the satisfaction of the Company on or prior to
the Closing Date of the following conditions, any of which may be waived by the
Company:
 
(a)          Representations and Warranties.  The representations and warranties
made by the Purchasers in Section 3.2 hereof shall be true and correct in all
material respects as of the Closing Date as though made on and as of such date,
except for representations and warranties that speak as of a specific date.
 
(b)          Performance.  The Purchasers shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing Date.
 
(c)          No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
 
(d)          Consents.  The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Shares, all of which shall be and
remain so long as necessary in full force and effect.
 
(e)          Purchaser Deliverables.  Each Purchaser shall have delivered its
respective Purchaser Deliverables in accordance with Section 2.2(b).
 
ARTICLE VI
 
MISCELLANEOUS
 
6.1           Fees and Expenses.  At the Closing, the Company shall reimburse
Rho Ventures VI, L.P. (“Rho”) for its reasonable legal fees of one law firm in
the aggregate of up to $30,000 in connection with the transactions contemplated
by this Agreement and the Transaction Documents; provided, however, that Rho
provides the Company with reasonably detailed invoices for such services.  Other
than Rho’s legal fees provided above, the Company and each Purchaser shall each
pay the fees and expenses of their respective advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement.  The Company

 
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shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
in connection with the sale and issuance of the Shares to the Purchasers.
 
6.2           Entire Agreement.  The Transaction Documents, together with the
Exhibits and Schedules thereto contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.  At the Closing, and without further
consideration, the Company and the Purchasers will execute and deliver to the
other such further documents as may be reasonably requested in order to give
practical effect to the intention of the parties under the Transaction
Documents.
 
6.3           Notices.  Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile
(provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section prior to 5:00
p.m., Eastern Standard Time, on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that is not
a Trading Day or later than 5.00 p.m., Eastern Standard Time, on any Trading
Day, (c) the Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service with next day delivery
specified, or (d) upon actual receipt by the party to whom such notice is
required to be given.  The address for such notices and communications shall be
as follows:
 
 
If to the Company:
Bluefly, Inc.

 
42 West 39th Street

 
New York, New York 10018

 
Telephone No.:  (212) 944-8000

 
Facsimile No.:  (212) 354-3400

 
Attention: Chief Financial Officer

 
With a copy to (which shall not constitute notice):
 
 
Dechert LLP

 
1095 Avenue of the Americas

 
New York, NY 10036

 
Telephone No.:  (212) 698-3500

 
Facsimile No.:  (212) 698-3599

 
Attention:  Richard A. Goldberg, Esq.

 
If to the Purchasers:
 
 
If to Rho:
Rho Ventures VI, L.P.

 
Carnegie Hall Tower

 
152 West 57th Street, 23rd Floor

 
New York, New York 10019

 
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Telephone No.:  (212) 751-6677

 
Facsimile No.:  (212) 751-3613

 
Attention:  Jeffrey I. Martin, Esq.

 
With a copy to (which shall not constitute notice):
 
 
Goodwin Procter LLP

 
The New York Times Building

 
620 Eighth Avenue

 
New York, New York

 
Telephone No.:  (212) 813-8800

 
Facsimile No.:  (212) 355-3333

 
Attention:  Stephen M. Davis, Esq.

 
 
If to Soros:
Quantum Industrial Partners LDC

 
c/o Soros Fund Management LLC

 
888 Seventh Avenue

 
New York, New York 10106

 
Telephone No.:  (212) 320-5584

 
Facsimile No.:  (646) 731-5584

 
Attention:  Jay Schoenfarber

 
 
If to Prentice:
Prentice Consumer Partners, LP

 
623 Fifth Avenue, 32nd Floor

 
New York, New York 10022

 
Facsimile No.:  (212) 756-1480

 
Attention:  Michael Zimmerman

 
With a copy to (which shall not constitute notice):
 
 
Lowenstein Sandler PC

 
1251 Avenue of the Americas

 
New York, New York 10020

 
Facsimile No.:  (212) 422-6807

 
Attention:  Matthew B. Hoffman

 
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
 
6.4           Amendments; Waivers; No Additional Consideration.  No provision of
this Agreement may be waived or amended except in a written instrument signed by
the Company and each of the Purchasers.  No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

 
29

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6.5           Construction.  The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any
party.  This Agreement shall be construed as if drafted jointly by the parties,
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Agreement or any of
the Transaction Documents.
 
6.6           Successors and Assigns.  The provisions of this Agreement shall
inure to the benefit of and be binding upon the parties and their successors and
permitted assigns.  Except as otherwise provided in the Transaction Documents,
neither this Agreement, nor any rights or obligations hereunder or under any of
the other Transaction Documents, may be assigned by the Company or any Purchaser
without the prior written consent of the other parties.
 
6.7           No Third-Party Beneficiaries.  This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and, except as set forth in Section 4.1(d) hereof, is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
 
6.8           Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof.  Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the
applicable courts located in the State of New York.  Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the applicable courts
located in the County of New York, State of New York for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such courts located in the County of New York, State of New
York, or that such Proceeding has been commenced in an improper or inconvenient
forum.  Each party hereto hereby irrevocably waives personal service of process
and consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof.  Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by
law.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
 
6.9           Survival.  Subject to applicable statute of limitations, the
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Shares.

 
30

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6.10         Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission, or by e-mail delivery of a “.pdf’ format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.
 
6.11         Severability.  If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
6.12         Replacement of Shares.  If any certificate or instrument evidencing
any Shares is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company and the Transfer Agent of such loss, theft or destruction and the
execution by the holder thereof of a customary lost certificate affidavit of
that fact and an agreement to indemnify and hold harmless the Company and the
Transfer Agent for any losses in connection therewith or, if required by the
Transfer Agent, a bond in such form and amount as is required by the Transfer
Agent.  The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third- party costs associated with
the issuance of such replacement Shares.  If a replacement certificate or
instrument evidencing any Shares is requested due to a mutilation thereof, the
Company may require delivery of such mutilated certificate or instrument as a
condition precedent to any issuance of a replacement.
 
6.13         Remedies.  In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
and the Company will be entitled to specific performance under the Transaction
Documents.  The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agree to waive in any action for
specific performance of any such obligation (other than in connection with any
action for a temporary restraining order) the defense that a remedy at law would
be adequate.
 
6.14         Payment Set Aside.  To the extent that the Company makes a payment
or payments to the Purchasers pursuant to any Transaction Document or any
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

 
31

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6.15         Rescission and Withdrawal Right.  Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
 
6.16         Limitation of Liability.  Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of each
Purchaser arising directly or indirectly under any of the Transaction Documents
of any and every nature whatsoever shall be satisfied solely out of the assets
of such Purchaser, and that no trustee, officer, other investment vehicle or any
other affiliate of such Purchaser or any investor, shareholder or holder of
shares of beneficial interest of such Purchaser shall be personally liable for
any liabilities of such Purchaser.
 
[remainder of page intentionally left blank]

 
32

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 

 
BLUEFLY, INC.
         
By:
/s/ Kara B. Jenny
     
Kara B. Jenny
     
Chief Financial Officer
 

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE OF THE PURCHASERS FOLLOWS]

 
 

--------------------------------------------------------------------------------

 

 
RHO VENTURES VI, L.P.
     
By: RMV VI, L.L.C., its General Partner
     
By:
Rho Capital Partners LLC, its Managing
Member
       
By:
/s/ Habib Kairouz
   
Habib Kairouz
   
Managing Member

 
Tax ID No.:
 

 
Delivery Instructions:
 
(if different than address for notice set forth in Section 6.3 above)
 
c/o
   

Street:
   

City/State/Zip:
   

Attention:
   

Telephone No.:
   

 
 

--------------------------------------------------------------------------------

 

 
QUANTUM INDUSTRIAL PARTNERS LDC
         
By:
/s/ Jay A. Schoenfarber
     
Jay. A. Schoenfarber
     
Attorney-in-fact
 

Delivery Instructions:
 
(if different than address for notice set forth in Section 6.3 above)
 
c/o
   

Street:
   

City/State/Zip:
   

Attention:
   

Telephone No.:
   

 
 

--------------------------------------------------------------------------------

 

 
PRENTICE CONSUMER PARTNERS, LP
       
By
Prentice Consumer Partners GP, LLC
         
By:
/s/ Mario Ciampi
     
Name: Mario Ciampi
     
Title:   Managing Partner
 

Delivery Instructions:
 
(if different than address for notice set forth in Section 6.3 above)
 
c/o
   

Street:
   

City/State/Zip:
   

Attention:
   

Telephone No.:
   

 
 

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EXHIBITS
 
A-1:
Accredited Investor Questionnaire

A-2:
Stock Certificate Questionnaire

B:
Registration Rights Agreement

C-1:
Lock Up Agreement – Officers and Directors

C-2:
Lock Up Agreement – Existing Shareholders

 
SCHEDULES
 
1
Purchasers, Shares

2
Officers and Directors of the Company subject to Lock Up Agreements

3.1(g):
Capitalization

3.1(k)
Material Changes; Undisclosed Events, Liabilities or Developments; Solvency

3.1(m)
Litigation

3.1(n)
Contracts

 
 

--------------------------------------------------------------------------------

 

EXHIBIT A-1
 
ACCREDITED INVESTOR QUESTIONNAIRE
 
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
 
To:         Bluefly, Inc.
 
This Investor Questionnaire (“Questionnaire”) must be completed by each
potential investor in connection with the offer and sale of shares of common
stock, par value $0.01 per share (the “Securities”), of Bluefly, Inc., a
Delaware corporation (the “Corporation”).  The Securities are being offered and
sold by the Corporation without registration under the Securities Act of 1933,
as amended (the “Act”), and the securities laws of certain states, in reliance
on the exemptions contained in Section 4(2) of the Act and on Regulation D
promulgated thereunder and in reliance on similar exemptions under applicable
state laws.  The Corporation must determine that a potential investor meets
certain suitability requirements before offering or selling Securities to such
investor.  The purpose of this Questionnaire is to assure the Corporation that
each investor will meet the applicable suitability requirements.  The
information supplied by you will be used in determining whether you meet such
criteria, and reliance upon the private offering exemptions from registration is
based in part on the information herein supplied.
 
This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security.  Your answers will be kept strictly
confidential.  However, by signing this Questionnaire, you will be authorizing
the Corporation to provide a completed copy of this Questionnaire to such
parties as the Corporation deems appropriate in order to ensure that the offer
and sale of the Securities will not result in a violation of the Act or the
securities laws of any state and that you otherwise satisfy the suitability
standards applicable to purchasers of the Securities.  All potential investors
must answer all applicable questions and complete, date and sign this
Questionnaire.  Please print or type your responses and attach additional sheets
of paper if necessary to complete your answers to any item.
 
PART A.
BACKGROUND INFORMATION

 
Name of Beneficial Owner of the
Securities:
     
Business
 
Address:
   
Number and Street)

     
(City)
(State)
(Zip Code)

Telephone
Number: (_)
 

 
Ex. A-1-1

--------------------------------------------------------------------------------

 

If a corporation, partnership, limited liability company, trust or other entity:

Type of entity:
 

State of
   
Approximate Date of
formation:
   
formation:
 

Were you formed for the purpose of investing in the securities being offered?

 
Yes ______
No _____

If an individual:

Residence Address:
 

(Number and Street)

     
(City)
(State)
(Zip Code)

Telephone
 
Number: (_)
 

Age:  ____________
     Citizenship:
 
_________________
Where registered to vote:
 

Set forth in the space provided below the state(s), if any, in the United States
in which you maintained your residence during the past two years and the dates
during which you resided in each state:

Are you a director or executive officer of the Corporation?

 
Yes ______
No _____

Social Security or Taxpayer
 
Identification No.
 

PART B.
ACCREDITED INVESTOR QUESTIONNAIRE

In order for the Company to offer and sell the Securities in conformance with
state and federal securities laws, the following information must be obtained
regarding your investor status.  Please initial each category applicable to you
as a Purchaser of Securities of the Company.
 

 
____
(1)
 
A bank as defined in Section 3(a)(2) of the Securities Act, or any savings and
loan association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or

 
Ex. A-1-2

--------------------------------------------------------------------------------

 

     
fiduciary capacity;
         
____
(2)
 
A broker or dealer registered pursuant to Section 15 of the Securities Exchange
Act of 1934;
         
____
(3)
 
An insurance company as defined in Section 2(13) of the Securities Act;
         
____
(4)
 
An investment company registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of that Act;
         
____
(5)
 
A Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958;
         
____
(6)
 
A plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of $5,000,000;
         
____
(7)
 
An employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors;
         
____
(8)
 
A private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940;
         
____
(9)
 
An organization described in Section 501(c)(3) of the Internal Revenue Code, a
corporation, Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the Securities, with total assets in
excess of $5,000,000;
         
____
(10)
 
A trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the Securities, whose purchase is directed by a
sophisticated person who has such knowledge and experience in financial and
business matters that such person is capable of evaluating the merits and risks
of investing in the Company;
         
____
(11)
 
A natural person whose individual net worth, or joint net worth with that
person’s spouse, at the time of his purchase exceeds $1,000,000;

 
Ex. A-1-3

--------------------------------------------------------------------------------

 

 
____
(12)
 
A natural person who had an individual income in excess of $200,000 in each of
the two most recent years, or joint income with that person’s spouse in excess
of $300,000, in each of those years, and has a reasonable expectation of
reaching the same income level in the current year;
         
____
(13)
 
An executive officer or director of the Company;
         
____
(14)
 
An entity in which all of the equity owners qualify under any of the above
subparagraphs.  If the undersigned belongs to this investor category only, list
the equity owners of the undersigned, and the investor category which each such
equity owner satisfies.

A.
FOR EXECUTION BY AN INDIVIDUAL:

         
Date
 
By
       
Print
       
Name:
   

B.
FOR EXECUTION BY AN ENTITY:

   
Entity
       
Name:
             
Date
 
By
       
Print
       
Name:
       
Title:
   

C.
ADDITIONAL SIGNATURES (if required by partnership, corporation or trust
document):

   
Entity
       
Name:
             
Date
 
By
       
Print
       
Name:
   

 
Ex. A-1-4

--------------------------------------------------------------------------------

 
.

   
Entity
       
Name:
             
Date
 
By
       
Print
       
Name:
   

 
Ex. A-1-5

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EXHIBIT A-2
 
Stock Certificate Questionnaire
 
Pursuant to Section 2.2(b) of the Agreement, please provide us with the
following information:
 
1.
The exact name that the Securities are to be registered in (this is the name
that will appear on the stock certificate(s)).  You may use a nominee name if
appropriate:
           
2.
The relationship between the Purchaser of the Securities and the Registered
Holder listed in response to Item 1 above:
           
3.
The mailing address, telephone and telecopy number of the Registered Holder
listed in response to Item 1 above:
                                           
4.
The Tax Identification Number (or, if an individual, the Social Security Number)
of the Registered Holder listed in response to Item 1 above:
   

 
Ex. A-2-1

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EXHIBIT B
 
REGISTRATION RIGHTS AGREEMENT

 
Schedule 1

--------------------------------------------------------------------------------

 

EXHIBIT C-1
 
FORM OF LOCK UP AGREEMENT – OFFICER AND DIRECTOR
 
Lock-Up Agreement

September [  ], 2011

Rho Ventures VI, L.P.
Carnegie Hall Tower
152 West 57th Street, 23rd Floor
New York, New York 10019

Quantum Industrial Partners LDC
c/o Soros Fund Management LLC
888 Seventh Avenue
New York, New York 10106

Prentice Consumer Partners, LP
623 Fifth Avenue, 32nd Floor
New York, New York 10022

Dear Sirs:
 
As an inducement to Rho Ventures VI, L.P. (“Rho”), Quantum Industrial Partners
LDC (“Soros”) and Prentice Consumer Partners, LP (“Prentice”; and together with
Rho and Soros, the “Purchasers”) to execute a securities purchase agreement (the
“Securities Purchase Agreement”) with Bluefly, Inc., a Delaware Corporation (the
“Company”), providing for the purchase of common stock (the “Common Stock”) of
the Company, the undersigned hereby agrees that without, in each case, the prior
written consent of the Company and each of the Purchasers during the period
specified in the second succeeding paragraph (the “Lock-Up Period”), the
undersigned will not (1) offer, pledge, announce the intention to sell, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, make any
short sale or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into, exercisable or
exchangeable for or that represent the right to receive Common Stock (including
without limitation, Common Stock which may be deemed to be beneficially owned by
the undersigned in accordance with the rules and regulations of the Securities
and Exchange Commission (subject to the last sentence of this paragraph) and
securities which may be issued upon exercise of a stock option or warrant)
whether now owned or hereafter acquired (the “Undersigned’s Securities”) or (2)
enter into any swap or other agreement that transfers, in whole or in part, any
of the economic consequences of ownership of the Undersigned’s Securities,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise.  The foregoing restriction is expressly agreed to preclude the
undersigned from engaging in any hedging or other transaction which is designed
to or which reasonably could be expected to lead to or result in a sale or
disposition of the Undersigned’s Securities even if such Securities would be
disposed of by someone other than the undersigned.  Such prohibited hedging or
other transactions would include without limitation any short sale or any
purchase, sale or grant of any right (including without limitation any put or
call option) with respect to any of the Undersigned’s Securities or with respect
to any security that includes, relates to, or derives any significant part of
its value from such Securities.  Notwithstanding the foregoing, the term
“Undersigned’s Securities” shall not include shares of, exercisable or
exchangeable for or that represent the right to receive Common Stock or
securities convertible into Common Stock held

 
Ex. C-1-1

--------------------------------------------------------------------------------

 

by venture capital or hedge funds, the ultimate controlling party of which the
undersigned is affiliated with through a management or other controlling
position.

In addition, the undersigned agrees that, without the prior written consent of
each of the Purchasers, it will not, during the Lock-Up Period, make any demand
for or exercise any right with respect to, the registration of any Common Stock
or any security convertible into or exercisable or exchangeable for Common
Stock.

The Lock-Up Period will commence on the date of this Agreement and continue
until the earlier of (a) the date on which the undersigned ceases to be an
officer or director of the Company or (b) 365 days after the date hereof
(including the 365th day).
 
Notwithstanding the foregoing, the undersigned may transfer the Undersigned’s
Securities (i) as a bona fide gift or gifts and (ii) to any trust for the direct
or indirect benefit of the undersigned or the immediate family of the
undersigned; provided, in each case, that (x) such transfer shall not involve a
disposition for value, (y) the transferee agrees in writing with each of the
Purchasers to be bound by the terms of this Lock-Up Agreement, and (z) no filing
by any party under Section 16(a) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), shall be required or shall be made voluntarily in
connection with such transfer.  For purposes of this Agreement, “immediate
family” shall mean any relationship by blood, marriage or adoption, nor more
remote than first cousin.
 
In addition, the foregoing restrictions shall not apply to (i) the exercise of
stock options granted pursuant to the Company’s equity incentive plans; provided
that such restrictions shall apply to any of the Undersigned’s Securities issued
upon such exercise, (ii) the cashless exercise or net exercise of any equity
compensation award granted pursuant to the Company’s equity incentive plans;
provided that such restrictions shall apply to any of the Undersigned’s
Securities issued upon such exercise, or (iii) the establishment of any
contract, instruction or plan (a “Plan”) that satisfies all of the requirements
of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act; provided that no sales of the
Undersigned’s Securities shall be made pursuant to such a Plan prior to the
expiration of the Lock-Up Period, and such a Plan may only be established if no
public announcement of the establishment or existence thereof and no filing with
the Securities and Exchange Commission or other regulatory authority in respect
thereof or transactions thereunder or contemplated thereby, by the undersigned,
the Company or any other person, shall be required, and no such announcement or
filing is made voluntarily, by the undersigned, the Company or any other person,
prior to the expiration of the Lock-Up Period (as such may have been extended
pursuant to the provisions hereof).
 
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Common Stock if such transfer would constitute a violation or breach of this
Agreement.
 
The undersigned hereby represents and warrants that the undersigned has full
power and authority to enter into this Agreement. All authority herein conferred
or agreed to be conferred and any obligations of the undersigned shall be
binding upon the successors, assigns, heirs or personal representatives of the
undersigned.
 
The undersigned understands that the Purchasers are entering into the Securities
Purchase Agreement in reliance upon this Agreement.
 
This Agreement shall be governed by, and construed in accordance with, the laws
of the State of New York.
 

 
Very truly yours,

 
Ex. C-1-2

--------------------------------------------------------------------------------

 
 

         
Printed Name of Holder
       
By:
     
Signature

 
Ex. C-1-3

--------------------------------------------------------------------------------

 

EXHIBIT C-2
 
FORM OF LOCK UP AGREEMENT – EXISTING SHAREHOLDER

LOCK UP AND SUPPORT AGREEMENT
 
THIS LOCK UP AGREEMENT (this “Agreement”) dated as of September [ ], 2011, by
and among Bluefly, Inc. (the “Company”), Quantum Industrial Partners LDC
(“Soros”), Maverick Fund USA, Ltd., Maverick Fund, L.D.C., Maverick Fund II,
Ltd. (collectively, the “Maverick Parties”), Prentice Consumer Partners, LP,
(“Prentice”) and Rho Ventures VI, LP (“Rho”; Soros, the Maverick Parties,
Prentice and Rho, collectively, the “Stockholders”)

WHEREAS, the Company, Soros, Prentice and Rho (the “2011 Purchasers”) have
entered into a Securities Purchase Agreement, dated as of September [ ], 2011
(the “2011 Securities Purchase Agreement”), pursuant to which the Company has
agreed to sell, and the 2011 Purchasers have agreed to purchase, an aggregate of
[  ] shares of the Company’s common stock, par value $0.01 per share (the
“Common Stock”); and

WHEREAS, it is a condition to the parties’ obligations under the Securities
Purchase Agreement that the Company and the Stockholders enter into this
Agreement.

NOW, THEREFORE, in consideration for the mutual covenants contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
 
II.
Lock Up
 
(i)           Until the date that is 365 days from the date hereof (including
the 365th day), the 2011 Purchasers will not, without the prior written consent
of each other 2011 Purchaser and the Company, (1) sell, offer to sell, contract
or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise
dispose of or agree to dispose of, directly or indirectly, any shares of capital
stock of the Company, (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of any shares of capital stock of the Company, or any securities
exchangeable for or any other rights to purchase any shares of capital stock of
the Company or (3) publicly announce an intention to effect any transaction
specified in clause (1) or (2).
 
(ii)          (A) Until the date that is 90 days from the date hereof (including
the 90th day) (or such earlier date as one of the 2011 Purchasers is permitted
to sell securities that are subject to the lock up set forth in clause (i)), the
Maverick Parties will not, without the prior written consent of each 2011
Purchaser and the Company, (1) sell, offer to sell, contract or agree to sell,
hypothecate, pledge, grant any option to purchase or otherwise dispose of or
agree to dispose of, directly or indirectly, any shares of capital stock of the
Company, (2) enter into any swap or other arrangement that transfers to another,
in whole or in part, any of the economic consequences of ownership of any shares
of capital stock of the Company, or any securities exchangeable for or any other
rights

 
Ex. C-2-1

--------------------------------------------------------------------------------

 

to purchase any shares of capital stock of the Company or (3) publicly announce
an intention to effect any transaction specified in clause (ii)(A)(1) or
(ii)(A)(2).

(B)  From and after the date that is 91 days from the date hereof until the date
that is 180 days from the date hereof (including the 180th day) (or such earlier
date as one of the 2011 Purchasers is permitted to sell securities that are
subject to the lock up set forth in clause (i)), the Maverick Parties will not,
without the prior written consent of each 2011 Purchaser and the Company, (1)
sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any
option to purchase or otherwise dispose of or agree to dispose of, directly or
indirectly, any shares of capital stock of the Company in an aggregate amount
for all such transactions during such period (taken together with any
transactions pursuant to clause (ii)(B)(2) below) that exceeds a number of
shares equal to 50% of the shares of capital stock of the Company owned by the
Maverick Parties on the date hereof, (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of any shares of capital stock of the Company in an
aggregate amount for all such transactions during such period (taken together
with any transactions pursuant to clause (ii)(B)(1) above) that exceeds a number
of shares equal to 50% of the shares of capital stock of the Company owned by
the Maverick Parties on the date hereof, or any securities exchangeable for or
any other rights to purchase any shares of capital stock of the Company or (3)
publicly announce an intention to effect any transaction specified in clause
(ii)(B)(1) or (ii)(B)(2) (such restrictions in clauses (i)(1), (i)(2), (i)(3),
(ii)(A)(1), (ii)(A)(2), (ii)(A)(3), (ii)(B)(1), (ii)(B)(2) and (ii)(B)(3) being
referred to herein as the “Lock-Up Restrictions”).

Notwithstanding anything to the contrary contained herein, the Lock-Up
Restrictions shall not apply to any sale or other transfer of Common Stock by
each Stockholder to its respective affiliates, provided that the transferee
agrees in writing to be bound by the terms of this Agreement as a condition to
such sale or transfer.
 
For purposes of this Paragraph II, affiliates of Soros shall include (1) any of
Soros Fund Management LLC or George Soros or any of their respective affiliates,
(2) any person or entity that is managed (x) by Soros Fund Management LLC or (y)
by any person or entity that is an affiliate of Soros Fund Management LLC or (3)
any person or entity that is a charitable organization established by George
Soros or any of the members of George Soros’ family.

III.
Support
 
The Stockholders hereby agree that at any meeting of the stockholders of the
Company, however called, or at any adjournment or postponement thereof or in any
other circumstances upon which a vote, consent or other approval (including by
written consent) of the Stockholder Approval Condition (as such term is defined
in the 2011 Securities Purchase Agreement) is sought (a “Company Stockholders’
Vote”), the Stockholders shall (a) when a Company Stockholders’ Vote is held,
appear at such Company Stockholders’ Vote or otherwise cause all Eligible Vote
Shares to be counted as present thereat for the purpose of establishing a quorum
and (b) vote (or cause to be voted) all Eligible Vote Shares in favor of the
Stockholder Approval Condition.  “Eligible Vote Shares” means, with respect to a
particular Stockholder, the aggregate number of shares of

 
Ex. C-2-2

--------------------------------------------------------------------------------

 
 

Common Stock held by such Stockholder, less the number of 2011 Shares (as
defined in the 2011 Securities Purchase Agreement) owned by such Stockholder.
 
IV.
Governing Law; Choice of Forum; Jury Waiver
 
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS LAW,
PROVIDED THAT THE PROVISIONS SET FORTH HEREIN AND ANY CLAIMS OR DISPUTES ARISING
OUT OF OR RELATED TO SUCH PROVISIONS OR THE SUBJECT MATTER THEREOF THAT ARE
REQUIRED TO BE GOVERNED BY THE DELAWARE GENERAL CORPORATION LAW SHALL BE
GOVERNED BY THE DELAWARE GENERAL CORPORATION LAW.  The parties hereto agree that
any suit, action or proceeding seeking to enforce any provision of, or based on
any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby may only be brought in the United States
District Court for the Southern District of New York or any New York State court
sitting in the Borough of Manhattan in New York City, and each of the parties
hereby consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by Law (as defined in the
Investment Agreement), any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum.  Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court.
 
V.
Counterparts; Facsimile Signatures

 
This Agreement may be executed in one or more counterparts, all of which shall
be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party, it being understood that all parties need not sign the same
counterpart.  This Agreement may be executed by facsimile, and a facsimile
signature shall have the same force and effect as an original signature on this
Agreement. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
 
VI.
Independent Nature of Stockholders’ Obligations and Rights

 
The obligations of each Stockholder this Agreement are several and not joint
with the obligations of any other Stockholder, and no Stockholder shall be
responsible in any way for the performance of the obligations of any other
Stockholder under this Agreement.  Nothing contained herein, and no action taken
by any party hereto, shall be deemed to constitute any Stockholder as a
partnership, an association, a joint venture or any other kind of entity with
any other Stockholder, or create a presumption that the Stockholders are in any
way acting in concert or as a group with respect to such obligations.  Each
Stockholder shall be entitled to independently protect and

 
Ex. C-2-3

--------------------------------------------------------------------------------

 

enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Stockholder to be joined
as an additional party in any proceeding for such purpose.  Each Stockholder has
been represented by its own separate legal counsel in their review and
negotiation of this Agreement.
 
VII.
Specific Performance

 
Each of the parties hereto, in addition to being entitled to exercise all of its
rights hereunder, including recovery of damages, shall be entitled to specific
performance of its rights under this Agreement.  Each party agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
 
VIII.
No Violations
 
Each of the parties hereto agree that no party hereto shall be obligated to
comply with any provisions of this Agreement relating to the voting of shares of
capital stock of the Company if doing so would constitute a violation of law or
public policy.
 
IX.
Enforcement Fees and Costs
 
In the event legal action is taken or commenced by any of the parties hereto
against any other party hereto for the enforcement of any of the covenants,
terms or conditions of this Agreement, the non-prevailing party shall be liable
for all reasonable fees and costs (including legal fees and costs) incurred by
the prevailing party in connection with such legal action.

[Signature pages follow]

 
Ex. C-2-4

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, this Agreement has been duly executed on the date first set
forth above.

 

 
BLUEFLY, INC.
     
By:
 
   
Name:
   
Title:
       
QUANTUM INDUSTRIAL PARTNERS LDC
     
By:
 
   
Name:
   
Title:

 
Ex. C-2-5

--------------------------------------------------------------------------------

 
 

 
MAVERICK FUND USA, LTD
     
By: MAVERICK CAPITAL, LTD.,
 
as its Investment Manager
     
By:
 
   
Name:
   
Title:
        MAVERICK FUND L.D.C.       By: MAVERICK CAPITAL, LTD.,  
as its Investment Manager
       
By:
 
   
Name:
   
Title:
        MAVERICK FUND II, LTD       By: MAVERICK CAPITAL, LTD.,  
as its Investment Manager
     
By:
 
   
Name:
   
Title:
     

 
Ex. C-2-6

--------------------------------------------------------------------------------

 

 

 
PRENTICE CONSUMER PARTNERS, LP
 
By:  Prentice Consumer Partners GP, LLC
     
By:
 
 
 
Name:  
 
Title: 

 
Ex. C-2-7

--------------------------------------------------------------------------------

 

 

 
RHO VENTURES VI, L.P.
     
By: RMV VI, L.L.C., its General Partner
     
By: Rho Capital Partners LLC, its Managing
Member
       
By:
 
   
Name:
   
Title:

 
 
Ex. C-2-8

--------------------------------------------------------------------------------

 

Schedule 1

Purchasers

Name
 
Shares
Purchased
   
Purchase
Price Per
Share
 
Office Address
 
Type of
Entity
 
Jurisdiction of
Organization
Rho Ventures VI, L.P.
  2,777,777     $ 1.80  
152 West 57th Street, 23rd Floor
New York, NY 10019
 
Limited partnership
 
Delaware
Quantum Industrial Partners LDC
  555,555     $ 1.80  
888 Seventh Avenue
New York, NY
10106
 
Limited Duration Company
 
Cayman Islands
Prentice Consumer Partners, LP
  333,333     $ 1.80  
623 Fifth Avenue, 32nd Floor, New York, NY 10022
 
Limited Partnership
 
Delaware

 
 

--------------------------------------------------------------------------------

 

Schedule 2

Shareholders, Officers and Directors of the Company subject to Lock Up
Agreements

Existing Shareholders:

Rho Ventures VI, L.P.
Quantum Industrial Partners LDC
Prentice Consumer Partners, LP
Maverick Fund USA, Ltd.
Maverick Fund, L.D.C.
Maverick Fund II, Ltd.

Officers and Directors of the Company:

Melissa Payner
Joseph Park
Kara Jenny
David Wassong
David Janke
Habib Kairouz
Mario Ciampi
Martin Miller
Anthony Plesner
Michael Helfand
Andy Russell
Denise Seegal

 
 

--------------------------------------------------------------------------------

 
 
Execution Copy
 
LOCK UP AND SUPPORT AGREEMENT
 
THIS LOCK UP AGREEMENT (this “Agreement”) dated as of September 7, 2011, by and
among Bluefly, Inc. (the “Company”), Quantum Industrial Partners LDC (“Soros”),
Maverick Fund USA, Ltd., Maverick Fund, L.D.C., Maverick Fund II, Ltd.
(collectively, the “Maverick Parties”), Prentice Consumer Partners, LP,
(“Prentice”) and Rho Ventures VI, LP (“Rho”; Soros, the Maverick Parties,
Prentice and Rho, collectively, the “Stockholders”)

WHEREAS, the Company, Soros, Prentice and Rho (the “2011 Purchasers”) have
entered into a Securities Purchase Agreement, dated as of September 7, 2011 (the
“2011 Securities Purchase Agreement”), pursuant to which the Company has agreed
to sell, and the 2011 Purchasers have agreed to purchase, an aggregate of
3,666,665 shares of the Company’s common stock, par value $0.01 per share (the
“Common Stock”); and

WHEREAS, it is a condition to the parties’ obligations under the Securities
Purchase Agreement that the Company and the Stockholders enter into this
Agreement.

NOW, THEREFORE, in consideration for the mutual covenants contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
 
X.
Lock Up
 
(i)           Until the date that is 365 days from the date hereof (including
the 365th day), the 2011 Purchasers will not, without the prior written consent
of each other 2011 Purchaser and the Company, (1) sell, offer to sell, contract
or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise
dispose of or agree to dispose of, directly or indirectly, any shares of capital
stock of the Company, (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of any shares of capital stock of the Company, or any securities
exchangeable for or any other rights to purchase any shares of capital stock of
the Company or (3) publicly announce an intention to effect any transaction
specified in clause (1) or (2).
 
(ii)           (A) Until the date that is 90 days from the date hereof
(including the 90th day) (or such earlier date as one of the 2011 Purchasers is
permitted to sell securities that are subject to the lock up set forth in clause
(i)), the Maverick Parties will not, without the prior written consent of each
2011 Purchaser and the Company, (1) sell, offer to sell, contract or agree to
sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of
or agree to dispose of, directly or indirectly, any shares of capital stock of
the Company, (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
any shares of capital stock of the Company, or any securities exchangeable for
or any other rights to purchase any shares of capital stock of the Company or
(3) publicly announce an intention to effect any transaction specified in clause
(ii)(A)(1) or (ii)(A)(2).

 
 

--------------------------------------------------------------------------------

 

(B)  From and after the date that is 91 days from the date hereof until the date
that is 180 days from the date hereof (including the 180th day) (or such earlier
date as one of the 2011 Purchasers is permitted to sell securities that are
subject to the lock up set forth in clause (i)), the Maverick Parties will not,
without the prior written consent of each 2011 Purchaser and the Company, (1)
sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any
option to purchase or otherwise dispose of or agree to dispose of, directly or
indirectly, any shares of capital stock of the Company in an aggregate amount
for all such transactions during such period (taken together with any
transactions pursuant to clause (ii)(B)(2) below) that exceeds a number of
shares equal to 50% of the shares of capital stock of the Company owned by the
Maverick Parties on the date hereof, (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of any shares of capital stock of the Company in an
aggregate amount for all such transactions during such period (taken together
with any transactions pursuant to clause (ii)(B)(1) above) that exceeds a number
of shares equal to 50% of the shares of capital stock of the Company owned by
the Maverick Parties on the date hereof, or any securities exchangeable for or
any other rights to purchase any shares of capital stock of the Company or (3)
publicly announce an intention to effect any transaction specified in clause
(ii)(B)(1) or (ii)(B)(2) (such restrictions in clauses (i)(1), (i)(2), (i)(3),
(ii)(A)(1), (ii)(A)(2), (ii)(A)(3), (ii)(B)(1), (ii)(B)(2) and (ii)(B)(3) being
referred to herein as the “Lock-Up Restrictions”).

Notwithstanding anything to the contrary contained herein, the Lock-Up
Restrictions shall not apply to any sale or other transfer of Common Stock by
each Stockholder to its respective affiliates, provided that the transferee
agrees in writing to be bound by the terms of this Agreement as a condition to
such sale or transfer.
 
For purposes of this Paragraph II, affiliates of Soros shall include (1) any of
Soros Fund Management LLC or George Soros or any of their respective affiliates,
(2) any person or entity that is managed (x) by Soros Fund Management LLC or (y)
by any person or entity that is an affiliate of Soros Fund Management LLC or (3)
any person or entity that is a charitable organization established by George
Soros or any of the members of George Soros’ family.

XI.
Support
 
The Stockholders hereby agree that at any meeting of the stockholders of the
Company, however called, or at any adjournment or postponement thereof or in any
other circumstances upon which a vote, consent or other approval (including by
written consent) of the Stockholder Approval Condition (as such term is defined
in the 2011 Securities Purchase Agreement) is sought (a “Company Stockholders’
Vote”), the Stockholders shall (a) when a Company Stockholders’ Vote is held,
appear at such Company Stockholders’ Vote or otherwise cause all Eligible Vote
Shares to be counted as present thereat for the purpose of establishing a quorum
and (b) vote (or cause to be voted) all Eligible Vote Shares in favor of the
Stockholder Approval Condition.  “Eligible Vote Shares” means, with respect to a
particular Stockholder, the aggregate number of shares of Common Stock held by
such Stockholder, less the number of 2011 Shares (as defined in the 2011
Securities Purchase Agreement) owned by such Stockholder.

 
 

--------------------------------------------------------------------------------

 

XII.
Governing Law; Choice of Forum; Jury Waiver
 
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS LAW,
PROVIDED THAT THE PROVISIONS SET FORTH HEREIN AND ANY CLAIMS OR DISPUTES ARISING
OUT OF OR RELATED TO SUCH PROVISIONS OR THE SUBJECT MATTER THEREOF THAT ARE
REQUIRED TO BE GOVERNED BY THE DELAWARE GENERAL CORPORATION LAW SHALL BE
GOVERNED BY THE DELAWARE GENERAL CORPORATION LAW.  The parties hereto agree that
any suit, action or proceeding seeking to enforce any provision of, or based on
any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby may only be brought in the United States
District Court for the Southern District of New York or any New York State court
sitting in the Borough of Manhattan in New York City, and each of the parties
hereby consents to the jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by Law (as defined in the
Investment Agreement), any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient forum.  Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court.
 
XIII.
Counterparts; Facsimile Signatures

 
This Agreement may be executed in one or more counterparts, all of which shall
be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other party, it being understood that all parties need not sign the same
counterpart.  This Agreement may be executed by facsimile, and a facsimile
signature shall have the same force and effect as an original signature on this
Agreement. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
 
XIV.
Independent Nature of Stockholders’ Obligations and Rights

 
The obligations of each Stockholder this Agreement are several and not joint
with the obligations of any other Stockholder, and no Stockholder shall be
responsible in any way for the performance of the obligations of any other
Stockholder under this Agreement.  Nothing contained herein, and no action taken
by any party hereto, shall be deemed to constitute any Stockholder as a
partnership, an association, a joint venture or any other kind of entity with
any other Stockholder, or create a presumption that the Stockholders are in any
way acting in concert or as a group with respect to such obligations.  Each
Stockholder shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement, and it
shall not be necessary for any other Stockholder to be joined as an additional
party in any proceeding for

 
 

--------------------------------------------------------------------------------

 

such purpose.  Each Stockholder has been represented by its own separate legal
counsel in their review and negotiation of this Agreement.
 
XV.
Specific Performance

 
Each of the parties hereto, in addition to being entitled to exercise all of its
rights hereunder, including recovery of damages, shall be entitled to specific
performance of its rights under this Agreement.  Each party agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
 
XVI.
No Violations
 
Each of the parties hereto agree that no party hereto shall be obligated to
comply with any provisions of this Agreement relating to the voting of shares of
capital stock of the Company if doing so would constitute a violation of law or
public policy.
 
XVII.
Enforcement Fees and Costs
 
In the event legal action is taken or commenced by any of the parties hereto
against any other party hereto for the enforcement of any of the covenants,
terms or conditions of this Agreement, the non-prevailing party shall be liable
for all reasonable fees and costs (including legal fees and costs) incurred by
the prevailing party in connection with such legal action.

[Signature pages follow]

 
 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, this Agreement has been duly executed on the date first set
forth above.

 

 
BLUEFLY, INC.
     
By:
/s/ Kara B. Jenny
   
Name:
Kara B. Jenny
   
Title:
CFO
         
QUANTUM INDUSTRIAL PARTNERS LDC
     
By:
/s/ Jay A. Schoenfarber
   
Name:
Jay A. Schoenfarber
   
Title:
Attorney-in-Fact

 
 

--------------------------------------------------------------------------------

 

 
MAVERICK FUND USA, LTD
     
By: MAVERICK CAPITAL, LTD.,
 
as its Investment Manager
     
By:
/s/ John T. McCafferty
   
Name:
John T. McCafferty
   
Title:
Limited Partner and General Counsel
     
MAVERICK FUND L.D.C.
     
By: MAVERICK CAPITAL, LTD.,
 
as its Investment Manager
     
By:
/s/ John T. McCafferty
   
Name:
John T. McCafferty
   
Title:
Limited Partner and General Counsel
         
MAVERICK FUND II, LTD
     
By: MAVERICK CAPITAL, LTD.,
 
as its Investment Manager
     
By:
/s/ John T. McCafferty
   
Name:
John T. McCafferty
   
Title:
Limited Partner and General Counsel

 
 
 

--------------------------------------------------------------------------------

 
 

 
PRENTICE CONSUMER PARTNERS, LP
 
By:  Prentice Consumer Partners GP, LLC
     
By:
/s/ Mario Ciampi
 
 
Name:
Mario Ciampi  
 
Title:
Managing Partner

 
 

--------------------------------------------------------------------------------

 
  

 
RHO VENTURES VI, L.P.
       
By: RMV VI, L.L.C., its General Partner
     
By: Rho Capital Partners LLC, its Managing
Member
         
By:
/s/ Habib Kairouz
 
 
Name:
Habib Kairouz
 
 
Title:
Managing Member

 
 
 

--------------------------------------------------------------------------------