Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “Agreement”) is dated as of December
21, 2009, by and between Bluefly, Inc., a Delaware corporation (the “Company”),
and Rho Ventures VI, L.P., a Delaware limited partnership (the “Purchaser”).
 
 
RECITALS
 
A.           The Company and the Purchaser 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.           The Purchaser wishes to purchase, and the Company wishes to sell,
upon the terms and conditions stated in this Agreement, an aggregate of
8,823,529 shares (the “Shares”) of common stock, par value $0.01 per share (the
“Common Stock”), of the Company.
 
C.           Subject to the terms and conditions set forth herein, 2,786,337
shares of Common Stock (the “Initial Shares”) will be issued and sold to the
Purchaser on the Initial Closing Date (as defined below) for a purchase price of
$1.70 (the “Initial Purchase Price”).
 
D.           Subject to the terms and conditions set forth herein, 6,037,192
shares of Common Stock (the “Remaining Shares”) will be issued and sold to the
Purchaser on the Second Closing Date (as defined below) for a purchase price of
$1.70 (the “Remaining Purchase Price”)
 
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 Purchaser 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.
 
“Acquisition Agreement” has the meaning set forth in Section 4.3(d).
 
“Acquisition Proposal” means any, inquiry, indication of interest, proposal or
offer for any transaction or series of related transactions involving (i) a
merger, tender offer, recapitalization, reorganization, liquidation,
dissolution, business combination or consolidation, or any similar transaction,
involving the Company, (ii) a sale, lease, license, exchange, mortgage, pledge,
transfer or other acquisition of assets that constitute at least 15% of the
assets of the Company, or (iii) a purchase, tender offer or other acquisition
(including by way of merger, consolidation, stock exchange or otherwise) of
beneficial ownership (the term “beneficial ownership” for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the Exchange
Act and the rules and regulations thereunder) of securities representing 15%
 

 
 

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or more of the voting power of the Company; provided, however, that the term
“Acquisition Proposal” shall not include the transactions contemplated by this
Agreement and the Transaction Documents.
 
“Adverse Recommendation Change” has the meaning set forth in Section 4.3(c).
 
“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 to the
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as the Purchaser will be
deemed to be an Affiliate of the Purchaser.
 
“Agreement” shall have the meaning ascribed to such term in the Preamble.
 
“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.
 
“Closing Capitalization Table” has the meaning set forth in Section 2.2(a)(ix).
 
“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 4.9(b).
 
“Company Recommendation” has the meaning set forth in Section 4.2(a).
 
“Company Stockholder Meeting” has the meaning set forth in Section 4.2(a).
 
“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.
 

 
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“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(l).
 
“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 Capital
Partners, LP, a Delaware limited partnership, Prentice Capital Partners QP, LP,
a Delaware  limited partnership, Prentice Capital Offshore, Ltd., a Cayman
Islands corporation, GPC XL III, LLC, a Delaware limited liability company, PEC
I, LLC, a Delaware limited liability company, and S.A.C. Capital Associates,
LLC, an Anguillan limited liability company.
 
“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 4.9(c).
 
“Indemnifying Person” has the meaning set forth in Section 4.9(c).
 
“Information Statement” has the meaning set forth in Section 4.2(a).
 
“Initial Closing” has the meaning set forth in Section 2.1(b).
 
“Initial Closing Date” has the meaning set forth in Section 2.1(b).
 
“Initial Filing Date” has the meaning set forth in Section 4.2(a).
 
“Initial Purchase Price” has the meaning set forth in the Recitals.
 

 
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“Initial Shares” has the meaning set forth in the Recitals.
 
“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).
 
“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 in the
form attached hereto as Exhibit D executed and delivered by the current officers
and directors of the Company.
 
“Management Rights Letter” means the management rights letter dated the date
hereof and attached hereto as Exhibit E.
 
“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), 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.
 
“Notes” means, collectively, (i) the Convertible Promissory Note, dated as of
July 23, 2008, issued by the Company in favor of Maverick Fund USA Ltd., (ii)
the Convertible Promissory Note, dated as of July 23, 2008, issued by the
Company in favor of Maverick Fund, L.D.C., (iii) the Convertible Promissory
Note, dated as of July 23, 2008, issued by the Company in favor of Maverick Fund
II, Ltd., (iv) the Convertible Promissory Note, dated as of July 23, 2008,
issued by the Company in favor of Quantum Industrial Partners, LDC and (v) the
Convertible Promissory Note, dated as of July 23, 2008, issued by the Company in
favor of SFM Domestic Investments, LLC.
 
“Outside Date” means the third day following the date of this Agreement;
provided that if such day is not a Business Day, the first day following such
day that is a Business Day.
 
“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 4.8.
 

 
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“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 Initial 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).
 
“Purchaser” 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 4.9(a).
 
“Qualified Bidder” has the meaning set forth in Section 4.3(b).
 
“Registration Rights Agreement” means the registration rights agreement dated
the date hereof and attached hereto as Exhibit B.
 
“Registration Statement” means a registration statement covering the resale by
the Purchaser of the Shares.
 
“Regulation D” has the meaning set forth in the Recitals.
 
“Remaining Purchase Price” has the meaning set forth in the Recitals.
 
“Remaining Shares” has the meaning set forth in the Recitals.
 
“Representatives” has the meaning set forth in Section 4.3.
 
“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).
 
“Second Closing” has the meaning set forth in Section 2.1(c).
 
“Second Closing Date” has the meaning set forth in Section 2.1(c).
 
“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.
 

 
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“Stockholder Approval Date” has the meaning set forth in Section 4.3(b).
 
“Stockholder Approval Condition” has the meaning set forth in Section 5.3(a).
 
“Stockholder Meeting Date” has the meaning set forth in Section 4.2(a).
 
“Subsequent Determination Notice” has the meaning set forth in Section 4.3(d).
 
“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.
 
“Superior Proposal” shall mean any written Acquisition Proposal (with all
references to 15% in the definition of Acquisition Proposal being treated as
references to “all or substantially all” for these purposes) made by a third
party that the Company’s Board of Directors determines in good faith, after
consultation with its outside legal counsel and financial advisors, is fully
financed or that has committed financing, is reasonably capable of being
consummated, and if consummated would be more favorable from a financial point
of view to the Company’s stockholders than the transactions contemplated by this
Agreement, taking into account all financial, regulatory, legal and other
aspects of such Acquisition Proposal, including, without limitation, the
likelihood of consummation.
 
“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 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, the
Management Rights Letter, the Voting Agreement, 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 the amended and restated voting agreement dated the
date hereof and attached hereto as Exhibit C.
 
ARTICLE II
PURCHASE AND SALE
 
2.1        Purchase and Sale of Shares.
 

 
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(a)           Amount.  Subject to the terms and conditions set forth in this
Agreement, at the Initial Closing (as defined below) the Company shall issue and
sell to the Purchaser, and the Purchaser shall purchase from the Company, the
Initial Shares.  In addition, the Purchaser agrees to purchase at the Second
Closing (as defined below), contingent solely upon the satisfaction of the
conditions to the Second Closing contained in Section 5.3 of this Agreement, and
the Company agrees to sell and issue to the Purchaser at the Second Closing, the
Remaining Shares.
 
(b)           Initial Closing.  The closing of the purchase and sale of the
Initial Shares (the “Initial 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 “Initial Closing Date”).
 
(c)           Second Closing.  The closing of the purchase and sale of the
Remaining Shares (the “Second Closing”) shall be take place at the offices of
Company Counsel or at such other locations or remotely by facsimile transmission
or other electronic means as the parties may mutually agree, no later than three
Trading Days following the satisfaction of the Stockholder Approval Condition
(the “Second Closing Date”).
 
2.2        Initial Closing Deliveries.
 
.   
(a)           On or prior to the Initial Closing, the Company shall issue,
deliver or cause to be delivered to the Purchaser 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 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 Initial Shares subscribed for by Purchaser hereunder,
registered in the name of the Purchaser as set forth on the Stock Certificate
Questionnaire included as Exhibit A-2 hereto, with the original stock
certificates sent to the Purchaser within three (3) Business Days of the Initial
Closing;
 
(iii)            a legal opinion of Company Counsel, dated as of the Initial
Closing Date, executed by such counsel and addressed to the Purchaser;
 
(iv)            a certificate of the Secretary of the Company (the “Secretary’s
Certificate”), dated as of the Initial 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
Initial Closing Date;
 

 
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(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 Initial 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 Initial 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 Initial Closing Date (the “Closing Capitalization
Table”);
 
(x)             a fully executed Registration Rights Agreement;
 
(xi)            a fully executed Voting Agreement;
 
(xii)            fully executed Lock Up Agreements; and
 
(xiii)           the Management Rights Letter, duly executed by the Company.
 
(b)           At the Initial Closing, the Purchaser shall deliver or cause to be
delivered to the Company the following (the “Purchaser Deliverables”):
 
(i)              this Agreement, duly executed by the Purchaser;
 
(ii)             the Initial Purchase Price in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing to the Purchaser 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 in the forms attached hereto as Exhibits A-1 and A-2,
respectively.
 
2.3           Second Closing Deliveries.
 
(a)           On or prior to the Second Closing, the Company shall issue,
deliver or cause to be delivered to the Purchaser a copy of the Company’s
irrevocable instructions to the Transfer Agent, acknowledged by the Transfer
Agent, instructing the Transfer Agent to deliver, on 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 Remaining Shares
subscribed for by Purchaser hereunder, registered in the name of the Purchaser
as set forth on the Stock Certificate Questionnaire included as Exhibit A-2
hereto, with the original stock certificates sent to the Purchaser within three
(3) Business Days of the Second Closing.
 
(b)           At the Second Closing, the Purchaser shall deliver or cause to be
delivered to the Company the following:
 
(i)           the Remaining Purchase Price in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing to the Purchaser by the Company for such purpose; and
 

 
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(ii)           a fully completed and duly executed Accredited Investor
Questionnaire, reasonably satisfactory to the Company, and Stock Certificate
Questionnaire in the forms attached hereto as Exhibits A-1 and A-2,
respectively, to the extent that the information provided by the Purchaser in
any of Exhibits A-1 and A-2 pursuant to Section 2.2(b)(iii) is no longer
correct.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
3.1           Representations and Warranties of the Company. The Company hereby
represents and warrants as of the date hereof and as of the Initial Closing Date
(as though made then and as though the Initial Closing Date were substituted for
the date of this Agreement, except for the representations and warranties that
speak as of a specific date, which shall be made as of such date), to the
Purchaser 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.
 
(b)           Organization and Qualification.  The Company is an entity duly
incorporated, 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.  The Company is not in violation of any of the provisions of its
certificate of incorporation or, in any material respects, its by-laws or other
organizational or charter documents.  The Company 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 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.  Except as set forth in Schedule 3.1(d) hereto, the
execution, delivery and performance by the Company of the Transaction Documents
to which
 

 
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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 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 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 Purchaser 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 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.  Except as set forth in Schedule
3.1(e) hereto, 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 4.8 of this Agreement, (vi) the satisfaction of the
Stockholder Approval Condition for the Second Closing, 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 warranties of the Purchaser 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 Initial Closing Date, is as set forth in the Closing 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 Closing Capitalization Table
delivered pursuant to Section 2.2(a)(ix) is true and accurate as of the Initial
Closing Date.  Except as disclosed in the Closing
 

 
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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 Closing 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, antidilution 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 Purchaser) 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 Closing
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) hereto, 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 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
Initial 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
Initial 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
 

 
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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 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 (i) has 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) has 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 and (iii) has 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 or as set forth
in Schedule 3.1(k) hereto, (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, and (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 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 Initial Closing, after giving
effect to transactions contemplated hereby to occur at the
 

 
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Initial 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, the Company
(i) is not 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) does not own or
operate any real property contaminated with any substance that is in violation
of any Environmental Laws, (iii) is not liable for any off-site disposal or
contamination pursuant to any Environmental Laws, or (iv) is not 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.  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, 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 is a party or subject or
by which it is 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.
 
(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 which would reasonably be expected to have a Material Adverse
Effect.  The Company is 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.  The Company is not a party to any collective
bargaining agreement.  The Company believes that its relations with its
employees are as disclosed in the SEC Reports.  Except as disclosed in the SEC
Reports, 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 is 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,
 

 
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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 Purchaser, 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 (other than the employment agreements
filed with the Commission), any loan to or from the Company or any interest in
any assets (whether real, personal or mixed, tangible or intangible) used in or
pertaining to the business of the Company (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 in any Person from whom or to whom the Company leases
any property, or in any other Person with whom the Company otherwise transacts
business of any nature, other than transactions entered into in the ordinary
course of business on the Company’s web site.
 
(t)           Compliance.  The Company (i) is not 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
under), nor has the Company 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 has been made aware in writing of any court,
arbitrator or governmental body having jurisdiction over the Company or its
properties or assets, or (iii) is not 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, 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 possesses or has 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)  the Company has not
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.  The Company does not own any real property.  The
Company 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 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.  Any real property and facilities held under lease by
the Company are held by it under valid, subsisting and
 

 
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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.
 
(w)           Insurance.  The Company 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
is engaged.
 
(x)           Patents and Trademarks.  The Company 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; (b) to the Company’s Knowledge, there is no pending or
threatened Action by others challenging the Company’s rights in or to any such
Company Intellectual Property that could reasonably be expected 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 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 Purchaser 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 nor, to the
Company’s Knowledge, any director, officer, agent, employee or other Person
acting on behalf of the Company has, in the course of its actions for, or on
behalf of, the Company (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
 

 
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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 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 since September 30, 2009, the Company (i) does not have any outstanding
Indebtedness, and (ii) is not 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.
 
(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 Purchaser 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 the 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.
 
(ff)           Private Placement.  Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2 of this Agreement and
the accuracy of the information disclosed in the Accredited Investor
Questionnaires, no registration under the Securities Act is required for the
offer and sale of the Shares by the Company to the Purchaser 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 Purchaser’s
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
 

 
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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 Purchaser as a result of the Purchaser and the Company
fulfilling their 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 Purchaser’s 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 4.8.  The Company
acknowledges and agrees that the Purchaser has 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 Purchaser.  The Purchaser
hereby represents and warrants as of the date hereof to the Company as follows:
 
(a)           Organization; Authority.  The Purchaser is a limited partnership
duly formed, validly existing and in good standing under the laws of the State
of Delaware with the requisite partnership 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 the 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 partnership action on the part of the Purchaser, and no further
partnership action is required by the Purchaser or its General Partner Board in
connection therewith.  This Agreement and the other Transaction Documents to
which Purchaser is a party have been duly executed by the Purchaser, and when
delivered by the Purchaser in accordance with the terms hereof and thereof, each
will constitute the valid and legally binding obligation of the 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.
 

 
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(b)           No Conflicts.  The execution, delivery and performance by the
Purchaser of this Agreement and the other Transaction Documents to which it is a
party and the consummation by the Purchaser of the transactions contemplated
hereby and thereby will not (i) result in a violation of the formation documents
of the 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 which the 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 the
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 the Purchaser to perform its obligations hereunder.
 
(c)           Filings, Consents and Approvals.  The 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 the Purchaser of the Transaction
Documents.
 
(d)           Investment Intent.  The  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,
the 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.  The Purchaser is acquiring the Shares hereunder in the
ordinary course of its business.  The 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; the 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 the 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.  The 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 the Purchaser.  The 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.  The 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.  The Purchaser acknowledges that it has had
the opportunity to review the Disclosure Materials and has been afforded (i) the
opportunity to
 

 
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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 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 the Purchaser or its representatives
or counsel shall modify, amend or affect the 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.  The
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.  The 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 the Purchaser was first
contacted by the Company or any other Person regarding the transactions
contemplated hereby, neither the Purchaser nor any Affiliate of the Purchaser
which (i) had knowledge of the transactions contemplated hereby, (ii) has or
shares discretion relating to the Purchaser’s investments or trading or
information concerning the Purchaser’s investments, including in respect of the
Shares, and (iii) is subject to the 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 the 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 the Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Purchaser.  The 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.  The Purchaser has independently
evaluated the merits of its decision to purchase Shares pursuant to the
Transaction Documents.  The Purchaser understands that nothing in this Agreement
or any other materials presented by or on behalf of the Company to the Purchaser
in connection with the purchase of the Shares constitutes legal, tax or
investment advice.  The 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.  The 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 the
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgements and understandings of the Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Shares.
 

 
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(m)           No Governmental Review.  The 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.  The Purchaser’s office in which its investment decision
with respect to the Shares was made is located at 152 West 57th Street, 23rd
Floor, New York, New York 10019.
 
(o)           Adequate Funds.  The Purchaser has sufficient funds available to
consummate the transactions contemplated by this Agreement and the other
Transaction Documents to which it is a party.
 
The Company and the 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, the Purchaser covenants 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 the 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 the Purchaser to an Affiliate of the 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 STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT
 

 
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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 the Purchaser
is selling pursuant to the effective Registration Statement registering the
Shares for resale, the 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
the Purchaser by crediting the account of the Purchaser’s prime broker with DTC
as directed by the 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 the
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 the 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 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.
 

 
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(d)           Acknowledgement.  The Purchaser hereunder acknowledges 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, the 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.  The Purchaser agrees 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, the Purchaser will refrain from selling such Shares until such
time as the 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 the 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)           The Company shall, as soon as reasonably practicable following the
execution of this Agreement, duly call, give notice of, convene, and hold a
meeting of its stockholders (the “Company Stockholder Meeting”) for the purpose
of satisfying the Stockholder Approval Condition.  The Company shall, as soon as
practicable following the execution of this Agreement (but in no event later
than the thirtieth (30th) day following the Initial Closing Date) (the “Initial
Filing Date”), prepare and file with the Commission a preliminary information
statement or proxy statement relating to the Stockholder Approval Condition and
will use its reasonable best efforts to respond to any comments of the
Commission and to cause the definitive information statement or proxy statement
relating to the Company Approval Condition (the “Information Statement” and the
“Proxy Statement”, respectively) 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 satisfy the Stockholder Approval
Condition, as soon as practicable, but in any event, within forty-five (45) days
after the Initial Filing Date (the “Stockholder Meeting Date”), provided that if
the Company receives comments from the Commission on the Proxy Statement or
Information Statement (as applicable), the Stockholder Meeting Date shall be
extended by an additional thirty (30) days or such longer period of time as is
reasonably necessary to resolve such comments.  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 Recommendation”).  Subject to Section
4.3(c), the Company’s obligations pursuant to this Section 4.2 shall not be
affected by (i) the commencement, public proposal, public disclosure, or
communication to the Company of any Acquisition Proposal or (ii) an Adverse
Recommendation Change.
 
(b)           The Company will notify the Purchaser 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 Information Statement (as
applicable) or for additional information, and will supply the Purchaser 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 or Information Statement (as applicable).  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 or Information
Statement (as
 

 
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applicable), the Company will promptly prepare and mail to its stockholders such
an amendment or supplement.  The Company will not mail any Proxy Statement or
Information Statement, or any amendment or supplement thereto, to which the
Purchaser reasonably objects after being afforded the opportunity to review the
same.  The Purchaser shall cooperate with the Company in the preparation of the
Proxy Statement or Information Statement (as applicable) and in responding to
comments of the Commission, and the Purchaser shall promptly notify the Company
if any information supplied by it for inclusion in the Proxy Statement or
Information Statement (as applicable) shall have become false or misleading, and
shall cooperate with the Company in disseminating the Proxy Statement or
Information Statement (as applicable), as so amended or supplemented, to correct
any such false or misleading information.
 
4.3           No Solicitation.
 
(a)           Except as authorized or permitted in this Section 4.3, the Company
agrees that it shall not, and that it shall cause its and its directors,
officers, Existing Stockholders, employees and agents (the “Representatives”)
not to, directly or indirectly, (i) initiate, solicit, or knowingly encourage or
knowingly facilitate the submission of any inquiry, indication of interest,
proposal or offer that constitutes, or would reasonably be expected to lead to,
an Acquisition Proposal, (ii) participate in any discussions or negotiations
regarding, or furnish any non-public information to any Person (other than the
Purchaser) in connection with an Acquisition Proposal, (iii) enter into any
letter of intent or agreement related to an Acquisition Proposal (other than a
confidentiality agreement as contemplated by Section 4.3(b)(b), or (iv) approve
or recommend an Acquisition Proposal.
 
(b)           Notwithstanding Section 4.3(a), after the Initial Closing Date and
prior to the date on which the Stockholder Approval Condition is satisfied (the
“Stockholder Approval Date”), if the Company or its Representatives receive an
unsolicited bona fide written Acquisition Proposal that the Board of Directors
of the Company determines in good faith, after consultation with its outside
legal counsel and financial advisors, constitutes, or is reasonably likely to
lead to, a Superior Proposal and the Company’s Board of Directors determines in
good faith, after consultation with the Company’s outside legal counsel and
financial advisors, that failure to do so would result in a breach of its
fiduciary obligations under applicable law, the Company may take the following
actions: (i) furnish information to the third party making such Acquisition
Proposal (a “Qualified Bidder”), provided the Company receives from the
Qualified Bidder an executed confidentiality agreement (the terms of which are
no less favorable to the Company than those contained in the confidentiality
agreement between the Company and Purchaser), and (ii) engage in discussions or
negotiations with the Qualified Bidder and its Representatives with respect to
the Acquisition Proposal.
 
(c)           Except as otherwise provided in Section 4.3(d), neither the
Company’s Board of Directors nor any committee thereof may withdraw or change in
a manner adverse to the Purchaser the Company Recommendation or propose publicly
to approve, adopt or recommend any Acquisition Proposal (an “Adverse
Recommendation Change”).
 
(d)           Notwithstanding Section 4.3(c), at any time after the Initial
Closing date and prior to the Stockholder Approval Date, the Company’s Board of
Directors may in response to a Superior Proposal that did not result from a
breach by the Company of this Section 4.3, (i) effect an Adverse Recommendation
Change, and/or (ii) enter into a definitive agreement with respect to such
Superior Proposal (an “Acquisition Agreement”) if the Company’s Board of
Directors determines in good faith, after consultation with the
 

 
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Company’s outside legal counsel and financial advisors, that failure to do so
would result in a breach of its fiduciary obligations under applicable law;
provided, however, that such actions may only be taken at a time that is (A)
after the fifth (5th) Business Day following the Purchaser’s receipt of written
notice from the Company that the Company’s Board of Directors is prepared to
take such action (the “Subsequent Determination Notice”), which notice will
specify the material terms of the applicable Acquisition Proposal and identify
the Person making such Superior Proposal (it being understood and agreed that
any material amendment to such Superior Proposal, including the financial terms
of such Superior Proposal, shall require the delivery of a new Subsequent
Determination Notice and the commencement of a new five (5) Business-Day
period), and (B) at the end of such period, the Company’s Board of Directors
determines in good faith, after taking into account all amendments or revisions
irrevocably committed to by the Purchaser and after consultation with its
outside legal counsel and financial advisors, that such Acquisition Proposal
remains a Superior Proposal.  During any such five (5) Business-Day period, the
Purchaser shall be entitled to deliver to the Company one or more
counterproposals to such Acquisition Proposal, and the Company shall give the
Purchaser the opportunity to meet and negotiate with the Company and its
Representatives.
 
(e)           Any Adverse Recommendation Change shall not change the approval of
this Agreement or any other related approval of the Company’s Board of
Directors, nor shall any Adverse Recommendation Change have the effect of
causing any state (including Delaware) corporate takeover statute or other
similar statute to be applicable to the transactions contemplated hereby or
thereby.
 
(f)           From and after the execution of this Agreement, the Company shall
notify the Purchaser promptly (but in any event within one (1) Business Day) of
the receipt of any inquiries, discussions, negotiations, proposals or
expressions of interest with respect to an Acquisition Proposal (including a
summary of the material terms and conditions thereof).
 
4.4           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.
 
4.5           Furnishing of Information.  In order to enable the Purchaser 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.
 
4.6           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 Initial 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 Purchaser at the Initial 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 Initial Closing Date.
 

 
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4.7           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 Purchaser, 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.
 
4.8           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 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)).  The Purchaser covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as
described in this Section 4.8, the Purchaser will maintain the confidentiality
of all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction), provided however that the
Confidentiality Agreement between the Purchaser and the Company shall continue
in full force and effect in accordance with the terms thereof.
 
4.9           Indemnification.
 
(a)           Indemnification of the Purchaser.  The Company will indemnify and
hold the Purchaser 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 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 the 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 any Purchaser Party’s breach of any of
the representations, warranties, covenants or agreements made by the Purchaser
Party in this Agreement or in the other Transaction Documents.
 
(b)           The Purchaser will 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’
 

 
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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 the
Purchaser in this agreement or (ii) any failure by the 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 4.9(a) or (b), such Indemnified Person shall promptly
notify the Company or the Purchaser, as applicable (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.
 
4.10           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.
 
4.11           Use of Proceeds.  The Company intends to use the net proceeds
from the sale of the Shares hereunder for ordinary working capital purposes.
 
4.12           Short Sales After The Date Hereof.  The Purchaser will not 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.
 
4.13           Inspection Rights.  The Purchaser agrees 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 the Purchaser may obtain from
the Company pursuant to financial statements, reports and other materials
submitted by the Company to the Purchaser pursuant to this Agreement granted
hereunder, unless such information is known to the public through no fault of
the Purchaser or his or its employees or representatives; provided, however,
that the Purchaser may disclose such information (i) to its attorneys,
accountants and other professionals in
 

 
26

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connection with their representation of the Purchaser in connection with the
Purchaser’s investment in the Company, (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 4.13, or (iii) to any
general partner or affiliate of the Purchaser.
 
4.14           Election of the Purchaser’s Board Nominees.  Each of the
Purchaser’s two nominees for election to the Company’s Board of Directors
pursuant to the Voting Agreement shall be elected to the Company’s Board of
Directors after the Initial Closing Date.  One such nominee shall be elected to
the Company’s Board of Directors immediately after the Initial Closing Date and
the other such nominee shall be elected to the Company’s Board of Directors in
January 2010.
 
ARTICLE V
CONDITIONS PRECEDENT TO INITIAL CLOSING AND SECOND CLOSING
 
5.1           Conditions Precedent to the Obligations of the Purchaser at the
Initial Closing.  The obligation of the Purchaser to purchase the Shares at the
Initial Closing is subject to the fulfillment, on or prior to the Initial
Closing Date, of each of the following conditions, any of which may be waived by
the Purchaser:
 
(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 date when made and as of the Initial Closing Date,
as though made on and as of such date, except for such representations and
warranties that speak as of a specific 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 Initial 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 Initial 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 Initial 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 Initial 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
Purchaser a certificate, dated as of the Initial Closing Date and signed by its
Chief Executive

 
27

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Officer or its Chief Financial Officer, certifying to the fulfillment of the
conditions specified in Sections 5.1(a) and 5.1(b).

(h)           Conversion of Notes.  The Notes shall have been converted into
shares of Common Stock pursuant to their respective terms; provided, however,
that the interest due and payable on the Notes shall be paid by the Company in
cash.
 
(i)           Registration Rights, Lock Up Agreements, Management Rights Letter
and Voting Agreement.  The Registration Rights Agreement, Lock Up Agreements,
Management Rights Letter and Voting Agreement shall have been executed and
delivered by the parties thereto other than the Purchaser.
 
(j)           Company Board Approval.  The Company’s Board of Directors shall
have approved the transactions contemplated in this Agreement and the
Transaction Documents such that the Purchaser is not subject to the restrictions
of an “interested stockholder” as such term is defined in Section 203 of the
Delaware General Corporation Law.
 
(k)           Termination.  This Agreement shall not have been terminated as to
the Purchaser in accordance with Section 6.16 herein.
 
5.2           Conditions Precedent to the Obligations of the Company at the
Initial Closing.  The Company’s obligation to sell and issue the Shares at the
Initial Closing is subject to the fulfillment to the satisfaction of the Company
on or prior to the Initial 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 Purchaser in Section 3.2 hereof shall be true and correct
in all material respects as of the date when made, and as of the Initial 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 Purchaser 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 Purchaser at or prior to the Initial 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.  The Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b).
 
(f)           Termination.  This Agreement shall not have been terminated as to
the Purchaser in accordance with Section 6.16 herein.
 

 
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5.3           Conditions to the Second Closing.  The obligations of the
Purchaser to accept delivery of and to make payments for, and the Company’s
obligation to sell and issue, the Remaining Shares are subject to the
fulfillment of the following conditions:
 
(a)           Stockholder Approval Condition.  The Company’s receipt and
effectiveness of stockholder approval (the “Stockholder Approval Condition”) for
(i) the issuance of the Remaining Shares, (ii) the purchase by the Purchaser or
another new investor of shares of Common Stock from certain current stockholders
of the Company, as may be required pursuant to the rules and regulations of the
Nasdaq Capital Market, the Commission or otherwise, if the Company (a) receives
written notice of the material terms thereof and the identity of the purchaser
at least ten (10) days prior to the filing of the Proxy Statement or Information
Statement (as applicable) and (b) agrees to the terms and the purchaser
identified in such notice, (iii) of the issuance of any warrants pursuant to
Section 2.2.3 of the Registration Rights Agreement, and (iv) the amendment to
the Company’s certificate of incorporation to classify its Board of Directors.
 
(b)           Board Restructuring.  The restructuring of the Company’s Board of
Directors shall be completed pursuant to the terms of the Voting Agreement
simultaneously with the Second Closing.
 
Upon the satisfaction of the foregoing conditions, the Company will issue to the
Purchaser the Remaining Shares and the Purchaser shall deliver, or cause to be
delivered, to the Company, in accordance with the terms of this Agreement, the
Remaining Purchase Price in United States dollars and in immediately available
funds, by wire transfer to an account designated in writing to the Purchaser by
the Company for such purpose.
 
ARTICLE VI
MISCELLANEOUS
 
6.1           Fees and Expenses.  At the Initial Closing, the Company shall
reimburse the Purchaser for its reasonable legal fees in the amount of up to
$100,000 in connection with the transactions contemplated by this Agreement and
the Transaction Documents; provided, however, that the Purchaser provides the
Company with a reasonably detailed invoice for such services.  Other than the
Purchaser’s legal fees provided above, the Company and the 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 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 Purchaser.
 
6.2           Entire Agreement.  The Transaction Documents, together with the
Exhibits and Schedules thereto, and the Confidentiality Agreement 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 or after the Initial Closing, and without further consideration,
the Company and the Purchaser 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.
 

 
29

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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 o the Purchaser:  
Rho Ventures VI, L.P.

Carnegie Hall Tower
152 West 57th Street, 23rd Floor
New York, New York 10019
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.

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
 

 
30

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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 the Purchaser.  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.
 
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 the Purchaser
without the prior written consent of the other party.
 
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 Second Closing and the delivery of the Remaining Shares.

 
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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 Purchaser
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 Purchaser pursuant to any Transaction Document or the
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.
 
6.15           Adjustments in Common Stock Numbers and Prices.  In the event of
any stock split, subdivision, dividend or distribution payable in shares of
Common Stock (or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly shares of Common Stock),
combination or other similar recapitalization or event occurring after the date
hereof and prior to the Initial Closing, each reference in any Transaction
Document to a number of shares or a price per share shall be deemed to be
amended to appropriately account for such event.

 
 
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6.16           Termination.  This Agreement may be terminated and the sale and
purchase of the Shares abandoned at any time prior to the Initial Closing by
either the Company or the Purchaser upon written notice to the other, if the
Initial Closing has not been consummated on or prior to 5:00 p.m., Eastern
Standard Time, on the Outside Date; provided, however, that the right to
terminate this Agreement under this Section 6.16 shall not be available to any
Person whose failure to comply with its obligations under this Agreement has
been the cause of or resulted in the failure of the Initial Closing to occur on
or before such time.  In addition, after the Initial Closing date, either party
may terminate the parties’ obligation to effect the Second Closing upon two (2)
Business Days prior written notice to the other party hereto if, the Stockholder
Approval Condition is not satisfied on or before April 30, 2010.  The Purchaser
shall have the right to terminate this Agreement upon two (2) Business Days
prior written notice to the Company subsequent to an Adverse Recommendation
Change.  Nothing in this Section 6.16 shall be deemed to release any party from
any liability for any intentional breach by such party of the terms and
provisions of this Agreement or the other Transaction Documents or to impair the
right of any party to compel specific performance by any other party of its
obligations under this Agreement or the other Transaction Documents.  Upon a
termination in accordance with this Section, the Company and the Purchaser shall
not have any further obligation or liability (including arising from such
termination) to the other.
 
6.17           Rescission and Withdrawal Right.  Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever the 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 the
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.
 
6.18           Limitation of Liability.  Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of the
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 the Purchaser, and that no trustee, officer, other investment vehicle or any
other affiliate of the Purchaser  or any investor, shareholder or holder of
shares of beneficial interest of the Purchaser shall be personally liable for
any liabilities of the Purchaser.
 

 
[remainder of page intentionally left blank]
 

 
33

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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       Name:  Kara B. Jenny       Title:   Chief Financial
Officer          

 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE OF THE PURCHASER 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      
Name:  Habib Kairouz
     
Title:    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.: ____________________________
 

 

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EXHIBITS
 
A-1:
Accredited Investor Questionnaire
A-2:
Stock Certificate Questionnaire
B:
Registration Rights Agreement
C:
Voting Agreement
D:
Lock Up Agreements
E:
Management Rights Letter

 
SCHEDULES
 
3.1(d)
No Conflicts
3.1(e)
Filings; Consents and Approvals
3.1(g):
Capitalization
3.1(k)
Material Changes; Undisclosed Events, Liabilities or Developments; Solvency
3.1(n):
Contracts

 

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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: (___)
         

 
If a corporation, partnership, limited liability company, trust or other entity:
       
Type of entity:
         
State of formation:
 
Approximate Date of 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 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;
       
___(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:

 
 

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Date
 
By
         
Print Name:
         
Title:
   

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

 

     
Entity Name:
                             
Date
 
By
         
Print Name:
         
Title:
   

 

     
Entity Name:
                             
Date
 
By
         
Print Name:
         
Title:
   

 

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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:
 

 

 

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