Exhibit 10.2

 

This instrument is subject to the terms of aN Intercreditor Agreement, dated
AUGUST 13, 2012, between Wells Fargo BANK, NATIONAL ASSOCIATION, PRENTICE
CONSUMER PARTNERS, LP, A DELAWARE LIMITED PARTNERSHIP AND RHO VENTURES VI, L.P.,
A DELAWARE LIMITED PARTNERSHIP (the “INTERCREDITOR AGREEMENT”). payor shall
furnish a copy of THE intercreditor agreement upon written request and without
charge.

 

THE OFFER AND SALE OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE
MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

  

BLUEFLY, INC.

 

SECURED SUBORDINATED PROMISSORY NOTE

 

$1,500,000

New York, New York August 13, 2012

 

FOR VALUE RECEIVED, the undersigned, BLUEFLY, INC., a Delaware corporation (the
“Payor” or the “Company”), promises to pay to the order of Prentice Consumer
Partners, LP, a Delaware limited partnership, or its registered assign (the
“Payee”), the principal sum of One Million Five Hundred Thousand Dollars
($1,500,000) and interest on the outstanding principal balance as set forth
herein.

 

1.          Interest Rate; Payment.

 

(a)          The outstanding principal balance of this Secured Subordinated
Promissory Note (this “Note”) shall bear interest at an annual rate equal to 15%
per annum, with interest accruing, from and including the date hereof, on a
cumulative, compounding basis. Interest shall be computed on the basis of a 365-
or 366-day year, as the case may be, and the actual number of days elapsed, and
shall be payable quarterly in cash, with any accrued but unpaid interest payable
upon repayment of the principal on any Repayment Date (as defined below) in
cash.

 

(b)          The outstanding principal and all accrued and unpaid interest shall
be paid in full upon the earliest to occur of (i) August 13, 2013, (ii) a Change
of Control (as defined below) and (iii) the date on which the Company
consummates a debt or equity financing (other than a Permitted Refinancing)
resulting in proceeds to the Company of at least $7,500,000 (excluding for this
purpose any proceeds received by the Company on account of the conversion

 

 

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of any notes or the exercise of any warrants, in each case, whether currently
outstanding or hereafter issued) (the “Maturity Date”), unless repaid earlier
pursuant to the provisions of Section 2 (the date of any payment pursuant to
Section 2 and the Maturity Date, collectively referred to as a “Repayment
Date”). On a Repayment Date, the Payor shall pay the applicable amount of
principal and interest in lawful money of the United States of America by wire
or bank transfer of immediately available funds to an account designated by the
Payee in writing from time to time. “Change of Control” means (1) the Company
consummating a transaction or series of related transactions to effectuate any
sale or other disposition of all or substantially all of its assets, (2) the
Company consummating a consolidation or merger with or into another entity
(other than a merger of the Company with and into one of its wholly-owned
subsidiaries), (3) any “Person” (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) or “group” (as defined in
Rule 13d-5, promulgated under the Exchange Act) other than Payee and/or its
affiliates and one or more of Quantum Industrial Partners, LDC, SFM Domestic
Investments, LLC, Maverick Capital, Ltd., Prentice Capital Management, LP, Rho
Ventures, L.P. and/or their affiliates or any group that includes any such
Person, becoming the beneficial owner (as determined by Rule 13d-3, promulgated
under the Exchange Act), directly or indirectly, of outstanding shares of stock
of the Company entitling such Person or Persons to exercise 50% or more of the
total votes entitled to be cast at a regular or special meeting, or by action by
written consent, of the stockholders of the Company in the election of
directors, or (4) any other sale of a majority of the outstanding equity of the
Company, in one transaction or in a series of transactions. “Permitted
Refinancing” means the incurrence of any indebtedness of the Company or any of
its subsidiaries in exchange for, or the net proceeds of which are used to
refinance indebtedness of the Company or any of its subsidiaries incurred
pursuant to the Credit Agreement (as defined below), provided that the aggregate
amount committed by the lenders in any such refinancing indebtedness is not
greater than 110% of the aggregate amount committed by the lenders under the
Credit Agreement that is being so refinanced, plus the amount of any fees and
expenses associated therewith.

 

2.          Prepayment.

 

(a)           Prepayment Upon Event of Default.

 

(i)          Upon the occurrence of an Event of Default (under Section 3(d) or
(e)), the outstanding principal of and all accrued interest on this Note shall
be accelerated and shall automatically become immediately due and payable,
without presentment, demand, protest or notice of any kind, all of which are
expressly waived by the Payor, notwithstanding anything contained herein to the
contrary.

 

(ii)          Subject to the terms of the Intercreditor Agreement, the Payee
shall, at their sole option, have the right to require Payor to pay the
outstanding principal of and all accrued interest on this Note upon the
occurrence of any Event of Default under Section 3(a), (b), (c), (f), (g) or
(h).

 

(iii)          Any prepayment under this Section 2(a) shall include payment of
reasonable costs and expenses, if any, of the Payee associated with such
prepayment.

 

 

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(b)          Optional Prepayment. The Company may, at its option, without
premium or penalty, upon five (5) days’ prior written notice to the Payee, repay
the unpaid principal amount of this Note, at any time in whole or from time to
time in part, together with interest accrued thereon to the date of prepayment.
Any such prepayment shall be applied first to the payment of accrued interest
and then to repayment of principal. Upon any partial prepayment of the unpaid
principal amount of this Note, the Holder shall make notation on this Note of
the portion of the principal so prepaid.

 

3.          Events of Default. An “Event of Default” shall occur if:

 

(a)          the Payor shall default in the payment of the principal of or
interest payable on this Note, when and as the same shall become due and
payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise and such default with respect to the payment of
interest shall continue unremedied for two days;

 

(b)          the Payor shall fail to observe or perform any covenant or
agreement contained in this Note, and such failure shall continue for ten
business days after Payor receives notice of such failure;

 

(c)          any representation, warranty, certification or statement made by or
on behalf of the Payor in this Note or in any certificate, writing or other
document delivered pursuant hereto shall prove to have been incorrect in any
material respect when made;

 

(d)          an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (A) relief
in respect of Payor or of a substantial part of Payor's respective property or
assets, under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law (any such law, a “Bankruptcy Law”), (B) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for a substantial part of the property or assets of any Payor,
(C) the winding up or liquidation of any Payor; and such proceeding or petition
shall continue undismissed for 60 days, or an order or decree approving or
ordering any of the foregoing shall be entered;

 

(e)          the Payor shall (A) voluntarily commence any proceeding or file any
petition seeking relief under a Bankruptcy Law, (B) consent to the institution
of or the entry of an order for relief against it, or fail to contest in a
timely and appropriate manner, any proceeding or the filing of any petition
described in clause (d), above, (C) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
a substantial part of the property or assets of the Payor, (D) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (E) make a general assignment for the benefit of creditors,
(F) become unable, admit in writing its inability or fail generally to pay its
debts as they become due or (G) take any action for the purpose of effecting any
of the foregoing;

 

(f)          one or more judgments or orders for the payment of money in excess
of $250,000 in the aggregate shall be rendered against the Payor and such
judgment(s) or order(s) shall continue unsatisfied and unstayed for a period of
30 days;

 

 

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(g)          the Payor shall default in the payment of any principal, interest
or premium, or any observance or performance of any covenants or agreements,
with respect to indebtedness (excluding trade payables and other indebtedness
entered into in the ordinary course of business) in excess of $125,000 in the
aggregate for borrowed money or any obligation which is the substantive
equivalent thereof and such default shall continue for more than the period of
grace, if any, or of any such indebtedness or obligation shall be declared due
and payable prior to the stated maturity thereof;

 

(h)          any material provisions of this Note shall terminate or become void
or unenforceable or the Payor shall so assert in writing.

 

4.          Security.

 

(a)          Grant of Security. Subject to the terms of the Intercreditor
Agreement, the Company hereby grants to and creates in favor of Payee a
continuing security interest and lien under the UCC (as defined below) and all
other applicable laws in and to all Collateral (as defined below), as security
for the full and timely payment, observance and performance of this Note.
“Collateral” means any and all of the now existing and hereafter acquired
personal property assets of the Company and its subsidiaries.

 

(b)          Rights in Collateral. Company represents, warrants and covenants
that it has and shall have at all times good and valid title to all of the
Collateral, free and clear of all Liens (as such term is defined in that certain
Amended and Restated Credit Agreement, dated as of June 17, 2011, by and between
Bluefly, Inc. and Wells Fargo Bank, National Association, as amended, restated
or refinanced from time to time (the “Credit Agreement”)), other than (i) Liens
in favor of Wells Fargo Bank, National Association under the Credit Agreement
and (ii) Permitted Encumbrances (as such term is defined in the Credit
Agreement). Company represents and warrants that this Note creates a valid
security interest in the Collateral and, upon the filing of financing statements
in the State of Delaware, such security interest shall constitute a perfected
lien on and security interest in all Collateral in which a security interest may
be perfected by filing a financing statement pursuant to the Uniform Commercial
Code (the “UCC”).

 

(c)          Preservation of Security Interest. Company shall diligently
preserve and protect Payee’s security interest in the Collateral and shall, at
its expense, cause such security interest to be and remain perfected so long as
this Note or any portion thereof or obligation hereunder remains outstanding and
unpaid and, for such purposes, Company shall, from time to time at Payee’s
reasonable request and at Company’s expense, file or record, or cause to be
filed or recorded, such instruments, documents and notices (including, without
limitation, financing statements and continuation statements) as may be
necessary to perfect and continue such security interests. Company shall do all
such other acts and things and shall execute and deliver all such other
instruments and documents as Payee may reasonably request from time to time to
protect and preserve the priority of Payee’s security interest in the
Collateral, as a perfected security interest in the Collateral.

 

5.          Financial Covenant. For so long as this Note remains outstanding,
the Company shall at all times maintain Total Current Assets (as reflected in
the financial statements

 

 

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of the Company filed from time to time with the United States Securities and
Exchange Commission and prepared in accordance with GAAP) in excess of
$20,000,000. “Total Current Assets” means cash, marketable securities, accounts
receivable, inventory (including prepaid inventory), prepaid expenses and other
current items as reflected in the line item entitled “Total Current Assets” on
the consolidated balance sheet of the Company and its subsidiaries that will be
converted into cash within 12 months of the date of such consolidated balance
sheet, calculated on a net basis consistent with the Company’s past practice
with respect to calculation of “Total Current Assets.”

 

6.          Suits for Enforcement.

 

(a)          Upon the occurrence of any one or more Events of Default, subject
to the Intercreditor Agreement, the holder of this Note may proceed to protect
and enforce its rights by suit in equity, action at law or by other appropriate
proceeding in aid of the exercise of any power granted in this Note, or may
proceed to enforce the payment of this Note, or to enforce any other legal or
equitable right it may have as a holder of this Note.

 

(b)          The holder of this Note may direct the time, method and place of
conducting any proceeding for any remedy available to itself.

 

(c)          In case of any Event of Default, the Payor will pay to the holder
of this Note such amounts as shall be sufficient to cover the reasonable costs
and expenses of such holder due to such Event of Default, including without
limitation, costs of collection and reasonable fees, disbursements and other
charges of counsel incurred in connection with any action in which the holder
prevails.

 

7.          Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in accordance with the provisions of the
Note and Warrant Purchase Agreement, dated as of the date hereof, by and among
the Payor and the investors party thereto.

 

8.          Successors and Assigns. This Note shall inure to the benefit of and
be binding upon the successors and permitted assigns of the parties hereto. The
Payor may not assign any of its rights or obligations under this Note without
the prior written consent of Payee. The Payee may assign all or a portion of
their rights or obligations under this Note to an affiliate without the prior
written consent of the Payor.

 

9.          Amendment and Waiver.

 

(a)          No failure or delay on the part of the Payor or Payee in exercising
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the Payor or Payee at law, in equity or
otherwise.

 

(b)          Any amendment, supplement or modification of or to any provision of
this Note, any waiver of any provision of this Note and any consent to any
departure by the

 

 

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Payor from the terms of any provision of this Note, shall be effective (i) only
if it is made or given in writing and signed by the Payor and the Payee and (ii)
only in the specific instance and for the specific purpose for which made or
given.

 

10.          Headings. The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

 

11.          GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.

 

12.          Costs and Expenses. The Payor hereby agrees to pay on demand all
reasonable out-of-pocket costs, fees, expenses, disbursements and other charges
(including but not limited to the reasonable fees, expenses, disbursements and
other charges of counsel to the Payee) of the Payee arising in connection with
any consent or waiver granted or requested hereunder or in connection herewith,
and any renegotiation, amendment, work-out or settlement of this Note or the
indebtedness arising hereunder.

 

13.          Waiver of Jury Trial and Setoff. The Payor hereby waives trial by
jury in any litigation in any court with respect to, in connection with, or
arising out of this Note or any instrument or document delivered pursuant to
this Note, or the validity, protection, interpretation, collection or
enforcement thereof, or any other claim or dispute howsoever arising, between
any Payor and the Payee; and the Payor hereby waives the right to interpose any
setoff or counterclaim or cross-claim in connection with any such litigation,
irrespective of the nature of such setoff, counterclaim or cross-claim except to
the extent that the failure so to assert any such setoff, counterclaim or
cross-claim would permanently preclude the prosecution of the same.

 

14.          Consent to Jurisdiction. The Payor hereby irrevocably consents to
the nonexclusive jurisdiction of the courts of the State of New York and of any
federal court located in such State in connection with any action or proceeding
arising out of or relating to this Note or any document or instrument delivered
pursuant to this Agreement.

 

15.          Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.

 

16.          Entire Agreement. This Note is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Note
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.

 

17.          Further Assurances. The Payor shall execute such documents and
perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations or other actions by, or giving any notices
to, or making any filings with, any

 

 

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governmental authority or any other Person) as may be reasonably required or
desirable to carry out or to perform the provisions of this Note.

 

 

 

 

IN WITNESS WHEREOF, the Payor has executed and delivered this Secured
Subordinated Promissory Note on the date first above written.

 

  BLUEFLY, INC.             By: / s / Joseph Park     Name: Joseph Park    
Title: CEO  

 

Agreed to and accepted as of the date
first written above:

 

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