Unassociated Document


     

    


    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%

     

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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.

     

    


    
      
        
           


        

        
          2

          
            

          

        

        
           


        

      

    

    


    “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.

     

    


    
      
        
           


        

        
          3

          
            

          

        

        
           


        

      

    

    


    “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.

     

    


    
      
        
           


        

        
          4

          
            

          

        

        
           


        

      

    

    


    “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.

     

    


    
      
        
           


        

        
          5

          
            

          

        

        
           


        

      

    

    


    “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.


     

    


    
      
        
           


        

        
          6

          
            

          

        

        
           


        

      

    

    


    (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;

     

    


    
      
        
           


        

        
          7

          
            

          

        

        
           


        

      

    

    


    (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

     

    


    
      
        
           


        

        
          8

          
            

          

        

        
           


        

      

    

    


    (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

     

    


    
      
        
           


        

        
          9

          
            

          

        

        
           


        

      

    

    


    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

     

    


    
      
        
           


        

        
          10

          
            

          

        

        
           


        

      

    

    


    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

     

    


    
      
        
           


        

        
          11

          
            

          

        

        
           


        

      

    

    


    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

     

    


    
      
        
           


        

        
          12

          
            

          

        

        
           


        

      

    

    


    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,

     

    


    
      
        
           


        

        
          13

          
            

          

        

        
           


        

      

    

    


    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

     

    


    
      
        
           


        

        
          14

          
            

          

        

        
           


        

      

    

    


    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 

     

    


    
      
        
           


        

        
          15

          
            

          

        

        
           


        

      

    

    


    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

     

    


    
      
        
           


        

        
          16

          
            

          

        

        
           


        

      

    

    


    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.

     

    


    
      
        
           


        

        
          17

          
            

          

        

        
           


        

      

    

    


    (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

     

    


    
      
        
           


        

        
          18

          
            

          

        

        
           


        

      

    

    


    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.

     

    


    
      
        
           


        

        
          19

          
            

          

        

        
           


        

      

    

    


    (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

     

    


    
      
        
           


        

        
          20

          
            

          

        

        
           


        

      

    

    


    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.

     

    


    
      
        
           


        

        
          21

          
            

          

        

        
           


        

      

    

    


    (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

     

    


    
      
        
           


        

        
          22

          
            

          

        

        
           


        

      

    

    


    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

     

    


    
      
        
           


        

        
          23

          
            

          

        

        
           


        

      

    

    


    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.

     

    


    
      
        
           


        

        
          24

          
            

          

        

        
           


        

      

    

    


    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’

     

    


    
      
        
           


        

        
          25

          
            

          

        

        
           


        

      

    

    


    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

          
            

          

        

        
           


        

      

    

    


    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

          
            

          

        

        
           


        

      

    

     

    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.

    
       

      


      
        
          
             


          

          
            28

            
              

            

          

          
             


          

        

      

       

    

    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

            
              

            

          

          
             


          

        

      

       

    

    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

            
              

            

          

          
             


          

        

      

       

    

    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.

    
      


      
        
          
             


          

          
            31

            
              

            

          

          
             


          

        

      

      


    

    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.

    
 

    
      
        
           


        

        
          32

          
            

          

        

        
           


        

      

    

     

    
      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

          
            

          

        

        
           


        

      

    

    


    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.:
____________________________

     

    


    
      
        
           


        

        
          
          

          
            

          

        

        
           


        

      

    

    


    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

            


    

    


    
      
        
           


        

        
          
          

          
            

          

        

        
           


        

      

    

    


    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:

              	
              


      

       

    

    
      
        
           


        

        
          
          

          
            

          

        

        
           


        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              	 	 
      	 	 
      	 
      	 
	 	 
      	 	 
      	 
      	 
	 	
                                      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:

                                  	 
      	 


                          

                        

                      

                    

                  

                

              

            

          

        




    

    
      
        
           


        

        
          
          

          
            

          

        

        
           


        

      

    

    


    


    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: