Document:

exhibit101.htm

EXHIBIT 10.1

 

 

[***]   Represents material information which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

JOINT VENTURE AGREEMENT

 

THIS JOINT VENTURE AGREEMENT (this "Agreement") is made and entered into this 6th day of September, 2011 by and among Allied Moral Holdings, Ltd., a company incorporated under the laws of the British Virgin Islands with its principal place of business located at Huiheng Building, Gaoxin 7 Street South, Keyuannan Road, Nanshan District, Shenzhen Guangdong, P.R. China 518057 (hereinafter “Allied”), Intact Medical Corporation, a Delaware corporation with its principal place of business at 550 Cochituate Road, Suite 25, East Wing, Floor 4, Framingham MA 01701 (hereinafter "Intact"), and  BMG Diamond Holdings Limited, a company incorporated under the laws of the British Virgin Islands with its principal place of business at Flat A, 15/F, Hillier Commercial Building, No. 65-67 Bonham Strand East, Sheung Wan, Hong Kong (hereinafter “BMG”).  Allied, Intact and BMG are sometimes referred to singularly as a “Party” and collectively “Parties.

 

WITNESSETH:

 

WHEREAS, Allied is wholly owned by Huiheng Medical, Inc., a Nevada corporation, and is engaged in the design, manufacture and sale of large-scale radiotherapy equipment and is in the process of manufacturing and distributing a breast brachytherapy system throughout Asia;

 

WHEREAS, Intact is engaged in the design, production and sale of a product known as the Intact Breast Lesion Excision System; and

 

WHEREAS, the parties wish to expand the sales of the Intact Breast Lesion Excision System in the Territory (as defined below) and possibly other markets, it will be useful to establish a manufacturing and development facility in China in order to gain a competitive advantage with regard to costs of developing, manufacturing, delivering and servicing the Breast Lesion Excision System, and intend to establish a new joint venture company  to develop, manufacture and sell the Breast Lesion Excision System in order to achieve this goal;

 

NOW, THEREFORE, in consideration of the mutual premises and obligations set forth herein and the mutual benefits to be derived therefrom, the parties have agreed as follows:

 

Article 1 - Definitions

 

1.1           “Articles of Association” shall mean the official articles of the New Company to be established pursuant to this Agreement.

 

1.2           “Board of Directors” shall mean the Board of Directors of the New Company.

 

1.3           “Confidential Information” means any information disclosed by one Party  to the other Party, either directly or indirectly, in writing, orally, electronically or by inspection of tangible objects (including without limitation (a) intellectual property, such as, but not limited to, patents, patent applications, copyrights, copyright registrations, and trade secrets and/or (b) confidential information, including without limitation ideas, physical, chemical or biological materials, and techniques for their handling and use, assays, techniques, schematics, drawings, designs, inventions, preclinical and clinical data, know-how, technical documentation, processes, equipment, algorithms, software programs, software source documents, formulae, information concerning research and development projects, design details and specifications, financial information, information relating to procurement requirements, purchasing, manufacturing, customer lists, product plans, product ideas, business strategies, marketing or business plans, financial or personnel matters, investors, employees, business and contractual relationships, business forecasts, sales and merchandising, and information regarding third parties, suppliers, customers, employees, investors or facilities).  Confidential Information may also include information previously disclosed to the disclosing Party by third parties.

 

  

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1.4           “Effective Tax Rate” shall mean all taxes (domestic and foreign) paid (or to be paid) by New Company on all taxable income for the applicable period  divided by all taxable income before taxes during such applicable period, express as a percentage.

 

1.5           “BMG Affiliate” shall mean a legal entity (i) at least 50% of whose capital is directly or indirectly owned by BMG, (ii) at least 50% of whose capital is directly or indirectly owned by a company which owns, directly or indirectly, at least 50% of the capital of BMG, or (iii) that owns directly or indirectly at least 50% of the capital of BMG.

 

1.6           “Allied Affiliate” shall mean a legal entity (i) at least 50% of whose capital is directly or indirectly owned by Allied, (ii) at least 50% of whose capital is directly or indirectly owned by a company which owns, directly or indirectly, at least 50% of the capital of Allied, or (iii) that owns directly or indirectly at least 50% of the capital of Allied.

 

1.7           “Intact Affiliate” shall mean a legal entity (i) at least 50% of whose capital is directly or indirectly owned by Intact, (ii) at least 50% of whose capital is directly or indirectly owned by a company which owns, directly or indirectly, at least 50% of the capital of Intact, or (iii) that owns directly or indirectly at least 50% of the capital of Intact.

 

1.8           “Intact Intellectual Property” means all of Intact’s present and future rights in relation to copyright, trade marks, designs, patents, inventions and confidential information whether or not registrable, registered or patentable relating to or connected with the Product;

 

1.9           “License” shall mean the License, Supply Marketing and Distribution Agreement in substantially the form attached hereto as Exhibit A in which  Intact grants an exclusive license to the New Company to manufacture, promote, distribute and sell the Product in the Territory.

 

1.10           “Product” shall mean Intact’s Breast Lesion Excision System and all improvements related thereto including, but not limited to, the Intact RF generator, Intact handles, and Intact wands.

 

1.11           “SFDA Approval” shall mean the approval of the Product by China State Food and Drug Administration for sale in China.

 

1.12           “Territory” shall mean China, including Hong Kong SAR and Macua SAR.

 

1.13           “Year 2” shall mean months 13th – 24th after receipt of SFDA Approval

 

1.14           “Year 3” shall mean months 25th – 36th after receipt of SFDA Approval

 

1.15           “Year 4” shall mean months 37th – 48th after receipt of SFDA Approval

 

 

  

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Article 2 - Establishment of the New Company

 

2.1           As soon as practical following the effective date of this Agreement, the parties shall establish a New Company under the laws of British Virgin Islands in accordance with the Memorandum and Articles of Association (“New Company”) as approved by Intact and Allied in writing. Intact and Allied will have the right to terminate this Agreement by written notice to the other parties to this Agreement if they are unable to agree to the form of Memorandum and Articles of Association..

 

2.2           The corporate name of the New Company shall be H & I Medical China Limited.

 

2.3           The New Company shall be primarily engaged in developing, manufacturing, marketing, selling and supporting of the Product in the Territory pursuant to the License.  New Company will also manufacture all components of the Product including the RF Generator, the reusable handle tool and the disposable wand. New Company, in its sole discretion, shall have the right to subcontract for the manufacturing of the Product and related components.

 

2.4           The New Company may establish a wholly-foreign owned enterprise in China for the purpose of facilitating the developing, manufacturing, marketing, selling and supporting of the Product in the Territory (the “Operating Subsidiary”).  Subject to Intact approval, the Operating Subsidiary’s principal office shall be in China as determined by the New Company.

 

2.5           All costs with respect to the New Company and the Operating Subsidiary incurred after its establishment will be borne by the New Company.  Costs incurred in connection with the organization of the New Corporation will be borne by Allied.

 

2.6           In the event there are any inconsistencies between the terms of New Company’s charter documents, including the Articles of Association, and this Agreement, Allied, as the majority shareholder of the New Company, agrees to vote its shares to amend, modify or change the inconsistent terms of such charter documents, including the Articles of Association, to conform to the terms of this Agreement.

 

Article 3 - Capitalization of the New Company

 

3.1           The New Company will have an initial authorized capital of (1) two thousand (2,000) shares of voting common stock ; (2) 300 shares of non-voting Series A Preferred Stock; and (3) 700 shares of non-voting Series B Preferred Stock; each share having a par value of ($0.001).

 

3.2           The initial shareholders of the New Company, including the number of shares subscribed and paid for shall be as follows:

 

 

  

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Name and Address

 

	
No. of 

Common Shares

	
Consideration

	
Series A

	
Series B

	
Preferred 

Stock 

Consideration

	
Allied Moral Holdings, Ltd.

Huiheng Building,

Gaoxin 7 Street South, Keyuannan Road, Nanshan District, Shenzhen Guangdong, P.R. China 518057

	
650

	
$650

	
0

	
650

	
$650

	 	 	 	 	 	 
	
Intact Medical Corporation

550 Cochituate Road, Suite 25, East Wing, Floor 4,

Framingham MA 01701

	
300

	
$300

	
300

	
0

	
$300

	 	 	 	 	 	 
	
BMG Diamond Holdings Limited

Flat A, 15/F, Hillier Commercial Building

No. 65-67 Bonham Strand East

Sheung Wan, Hong Kong

	
50

	
$50

	
0

	
50

	
$50

 

3.3           New Company may not change its registered capital and share structure without the prior written consent of Allied and Intact, and in accordance with respective shareholders' resolutions and applicable laws.  In the case of any capital increases, each party shall have the right to subscribe to the amount of such additional capital in accordance with its respective proportional equity interest at that time.  If the parties do not subscribe to its pro-rata share of any newly issued shares, the other parties may choose to subscribe to purchase such shares. Any capital increases shall be approved by both Allied and Intact as provided in Section 6.1.3.4.

 

3.4           Each party shall timely subscribe and pay for its shares in accordance with applicable laws.

 

3.5           The holders of Series A preferred stock will be entitled to preference distributions when and as declared by the Board of Directors in an amount equal to (i) $1,100,000 less any proportional taxes accrued by New Company for Year 2 (which tax calculation shall be based on the Effective Tax Rate as determined by the Board of Directors) (“Year 2 Dividend”); (ii) $2,250,000 less any proportional taxes accrued by New Company for Year 3 (which tax calculation shall be based on the Effective Tax Rate as determined by the Board of Directors) (“Year 3 Dividend”); and (iii)$3,250,000 less any proportional taxes accrued by New Company for Year 4 (which tax calculation shall be based on the Effective Tax Rate as determined by the Board of Directors) (“Year 4 Dividend”)(collectively the “Series A Accrued Dividend”).

 

 

  

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3.6           Once the holders of the Series A preferred stock have received their preference distributions for the year indicated, then the holders of Series B preferred stock will be entitled to distributions out of available funds thereof if and when declared by the Board of Directors in amount equal to (i) $3,666,667 - $1,100,000 less any proportional taxes accrued by New Company for Year 2 (which tax calculation shall be based on the Effective Tax Rate as determined by the Board of Directors); (ii) $7,500,000 - $2,250,000 less any proportional taxes accrued by New Company for Year 3 (which tax calculation shall be based on the Effective Tax Rate as determined by the Board of Directors); and (iii) $10,833,333 - $3,250,000 less any proportional taxes accrued by New Company for Year 4 (which tax calculation shall be based on the Effective Tax Rate as determined by the Board of Directors)(collectively the “Series B Accrued Dividend”).  If New Company is unable to make a full distribution to the holders of Series B preferred stock in any given year, any such deficit in distribution will accumulate. In any given year, however, Intact shall receive its preference distribution regardless of any accumulation amount from prior periods owed to the holders of Series B preferred stock and any unpaid accumulated amounts for the account of holders of Series B preferred stock shall continue to accumulate and be paid in subsequent years out of available funds.

 

3.7           Once the holders of Series A and B preferred stock have received their preference distributions, including any accumulated distributions, any further distributions as determined by the Board of Directors of New Company will be made to the holders of common shares.

 

3.8           To the extent permitted under applicable law, the New Company shall pay, out of funds legally available therefor, all accrued and unpaid dividends on common shares and preferred stock, when and as declared by the Board of Directors.  If and to the extent not paid, such dividends shall accrue, accumulate, and shall remain accumulated and unpaid dividends until paid.

 

3.9           Upon (i) payment in full of the Series A Accrued Dividend and Series B Accrued Dividend after Year 4, (ii) upon Intact’s election to terminate the License as a result of New Company not meeting the minimum targets as identified in the License, or (iii) upon New Company’s election to terminate the License pursuant to Section 7.B.(ii) of the License, all of the outstanding shares of Series A and Series B preferred stock will automatically be converted into common shares of the New Company on a one-for-one basis.

 

Article 4 – Loan by Allied

 

4.1           Upon execution of the License, Allied (or Allied’s Affiliate) will advance an amount equal to $150,000.00 (“Loan”) to Intact pursuant to the form of Promissory Note attached hereto as Exhibit B. The Loan will be unsecured, non interest bearing, and will be repaid out of Intact’s distributions of retained earning from the New Company.  Intact will direct New Company to direct its portion of any and all cash distributions to Allied (or Allied’s Affiliate as the case may be) until the Loan is paid in full.

 

Article 5 - Transfers of Shares

 

5.1           The shares of the New Company shall not be transferred by any party without the prior written consent of the other parties.

 

5.2           The shares of the New Company shall not be encumbered or mortgaged by any party without the prior written consent of the other parties.

 

 

  

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5.3           If any party wishes to transfer all or part of its shares, it shall first offer said shares to the other parties in accordance with this Agreement.  It shall be a condition to any transfer of shares that the transferee shall agree in writing to be bound by the provisions of this Agreement.  Any transfer not in accordance with the provisions of this Agreement shall be void.

 

5.4           Notwithstanding any provision of this Agreement to the contrary, Intact may transfer the Intact’s shares in the New Company to an Intact Affiliate, Allied may transfer the Allied’s shares in the New Company to a Allied Affiliate, and BMG may transfer the BMG’s shares in the New Company to a BMG Affiliate without the consent of the other Parties.

 

5.5           The board of directors of the New Company shall have the right to refuse to register in the New Company's shareholder register the shares belonging to any person or entity who owns such shares as a result of a transfer not in conformity with the provisions of this Agreement.

 

5.6           If any party hereto (hereinafter "Offering Shareholder") receives a bona fide third party offer to purchase any or all of its shares in New Company (hereinafter "Offered Shares"), the Offering Shareholder shall, before selling the Offered Shares to said third party, provide the other parties hereto all such information relating to the third party and its principals as the other parties hereto may reasonably request to the extent legally permissible and consistent with any contractual obligations of the disclosing party) as well as with reliable written evidence setting forth the price and other material terms and conditions of the proposed sale (the "Offer Price and Terms"), including but not limited to, written evidence that such offer is firm and irrevocable, provided that this Section 5.6 (including subsections 5.6.1 through 5.6.3) shall not apply to any offer to purchase all or substantially all of the assets of Intact, whether by merger, acquisition, change of control, stock purchase or otherwise.  Upon receipt of all such requested information as well as the Offer Price and Terms in writing, the other parties hereto shall each have the option of purchasing said shares as follows:

 

5.6.1  If Intact is the Offering Shareholder, Allied shall have the right within thirty (30) days after its receipt of the Offer Price and Terms, (hereinafter "Option Period") to purchase all, but not less than all, of the Offered Shares at the Option Price and Terms by giving written notice to each other party within the Option Period specifying a date for the purchase being not more than thirty (30) days after the end of the Option Period.  If Allied does not elect to purchase said shares and (a) the third party to which Intact intends to sell its shares is unacceptable to Allied, or (b) following the sale of such shares it would no longer be possible, in Allied’s opinion, for the New Company to successfully pursue the goals for which it was established, Allied shall have the option of terminating this Agreement and dissolving the New Company following written notice to Intact dispatched during the Option Period.  If Allied fails to purchase the Offered Shares pursuant to this Article 5.6.1 but does not exercise its right to dissolve the New Company, Intact shall have the right, within thirty (30) days following its receipt of written notice of Allied’s decision not to purchase said shares, or from the end of the Option Period, whichever is earlier, to sell all, but not less than all, of the Offered Shares at the Option Price and Terms to said third party offeror. This Section 5 shall not prevent or prohibit the Parties from selling its own shares or transferring substantially all of the assets provided that such transfer does not impair the rights granted to the New Company under the License.

 

  

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5.6.2  If Allied is the Offering Shareholder, Intact shall have the right within thirty (30) days after its receipt of the Offer Price and Terms, (hereinafter "Option Period") to purchase all, but not less than all, of the Offered Shares at the Option Price and Terms by giving written notice to Allied within the Option Period specifying a date for the purchase being not more than thirty (30) days after the end of the Option Period.  If Intact does not elect to purchase said shares and (a) the third party to which Allied intends to sell its shares is unacceptable to Intact, or (b) following the sale of such shares it would no longer be possible, in Intact’s opinion, for the New Company to successfully pursue the goals for which it was established, Intact shall have the option of terminating this Agreement and dissolving the New Company following written notice to Allied dispatched during the Option Period.  If Intact fails to purchase the Offered Shares pursuant to this Article 5.6.2 above but Intact does not exercise its right to dissolve the New Company, Allied shall have the right, within thirty (30) days following its receipt of written notice of Intact’s decision not to purchase said shares or from the end of the Option Period, whichever is earlier, to sell all, but not less than all, of the Offered Shares at the Option Price and Terms to said third party offeror.

 

5.6.3           If BMG is the Offering Shareholder, both Allied and Intact (on a pro-rata basis unless the other parties elects to purchase less than its pro-rata share) shall have the right within thirty (30) days after its receipt of the Offer Price and Terms, (hereinafter "Option Period") to purchase all, but not less than all, of the Offered Shares at the Option Price and Terms by giving written notice to BMG within the Option Period specifying a date for the purchase being not more than thirty (30) days after the end of the Option Period.  If Allied and/or Intact fails to purchase the Offered Shares pursuant to this Article 5.6.3 above, BMG shall have the right, within thirty (30) days following its receipt of written notice of Allied’s and Intact’s decision not to purchase said shares or from the end of the Option Period, whichever is earlier, to sell all, but not less than all, of the Offered Shares at the Option Price and Terms to said third party offeror.

 

5.7           The certificates representing the shares of the New Company shall each bear an inscription notifying third parties that such shares are subject to the restrictions on transfer set forth in this Agreement and that the transferee will be bound to the obligations of this Agreement.

 

Article 6 - Management and Operation of the New Company

 

6.1           Shareholders Meetings.

 

6.1.1           Ordinary Meeting:  An ordinary annual Shareholders Meeting for holders of common shares shall be held at the New Company's head office or at any other location designated by the Board of Directors on a date determined by the Board of Directors in accordance with laws of the place of incorporation; provided, however, that shareholder resolutions which are unanimously approved by the shareholders of common shares may be set forth in minutes signed by all shareholders without the necessity of actually holding a meeting if permitted under the place of incorporation.  The agenda of the meeting shall be established in accordance with the requirements of applicable law and of the Articles of Association.

 

6.1.2           Extraordinary Meetings:  Extraordinary shareholders meeting(s) of common shares may be convened at any time by the Board of Directors or otherwise in accordance with the laws of the place of incorporation.

 

 

  

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6.1.3           Quorum and Voting:

 

6.1.3.1        Only holders of common shares of the New Company shall be entitled to vote.  Each shareholder may be represented by proxy at the shareholders' meeting and such proxy may exercise such shareholder's voting rights in common shares.  It will constitute sufficient authorization if power of attorney is given to such proxy in writing and submitted at the meeting.

 

6.1.3.2       Except as otherwise mandatory under applicable law or under the Articles of Association, the quorum for shareholders meetings consisting of shareholders present and shareholders represented by proxies shall be a simple majority of the New Company's outstanding common shares.

 

6.1.3.3       Except as otherwise provided by laws of the place of incorporation or in the Articles of Association, the majority of the common shares at the shareholders meetings shall be the simple majority of those present and represented by proxy.

 

6.1.3.4  The decisions on the matters listed below shall be reached only by super-majority representing more than seventy-five percent (75%) of the total outstanding common shares:

 

(i)        amendment of the Articles of Association of the New Company;

 

(ii)       the creation of any new series or class of capital stock of New Company, or any securities convertible into or exchangeable for such capital stock, or any increase or decrease in the New Company's capital stock;

 

(iii)      dissolution and liquidation of the New Company, for reasons other than those defined in law or by exercise of the rights set forth in Article 5 hereof;

 

(iv)      decisions or agreements to merge or consolidate, or sell substantially all of New Company’s assets or intellectual property, including without limitation by way of the grant of an exclusive license to such assets or intellectual property, or otherwise reorganize or recapitalize;

 

(v)       changes in the objectives of the New Company;

 

(vi)      issue additional shares of the New Company (after the initial issuance of the New Company)

 

(vii)     the raising of additional capital;

 

 

 

  

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(viii)    a material acquisition, joint venture or partnership;

 

(ix)       authorization of any indebtedness, lease, guaranty, letter of credit or financing arrangement in an amount exceeding $100,000, except as otherwise authorized in a then current Board approved budget;

 

(x)        declare dividend to holders of common stock; or

 

(xi)       the creation of affiliates or subsidiaries;

 

(xii)      the initiation or settlement of any lawsuit, administrative proceeding, tax matter or other legal claim involving in excess of $250,000;

 

(xiii)     any amendment, or modification of, or waiver under, this Agreement; or

 

(xiv)    any other decision that falls outside the ordinary course of business of the New Company.

 

6.1.4  Minutes. The minutes shall be drawn up in English, at the expense of the New Company and without undue delay, following any shareholders resolution and must be signed by all participants in the resolution. The minutes shall be kept in the New Company's minute books.

 

6.2           Board of Directors.

 

6.2.1 Board of Directors.  The New Company shall be governed by a Board of Directors consisting of three (3) members which shall meet a minimum of once each calendar year.  So long as Allied is a shareholder of the New Company, two (2) members of the Board of Directors shall be elected among persons nominated by Allied (or its permitted successors).  So long as Intact is a shareholder of the New Company, one (1) member of the Board of Directors shall be elected among persons nominated by Intact (or its permitted successors).

 

 

  

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6.2.2  Meetings.  Meetings of the Board of Directors shall be held at the New Company's head office or other location in or outside China which may be agreed upon by the Board of Directors.  The proceedings of meetings of the Board of Directors will be in English and the official minutes of meetings and resolutions of the Board of Directors shall be drafted in English and shall be kept in the New Company's minutes book.  Directors shall not be entitled to any compensation or reimbursement of costs or expenses.

 

6.2.3  Quorum for Meeting:    The quorum required for meetings of the Board of Directors shall be all three members of the Board of Directors, provided, however, if any director fails to attend two consecutive meetings after due notice, the quorum requirement for the following meeting shall be reduced to two members of the Board of Directors. Decisions may be taken by the Board of Directors without a meeting if a proposal for action is submitted in writing in turn to each of the members of the Board of Directors and each such member consents in writing to such action, or to vote upon the proposal in writing. A director may by written notice appoint an alternate who need not be a director. The alternate can attend meetings in the absence of the appointing director and vote or consent in his place.

 

6.2.4  Decisions:  All actions by consent (without a call meeting) of the Board of Directors shall be by unanimous written consent.  All corporate actions during a called meeting requiring Board of Directors approval shall be approved by a majority of the members of the Board of Directors with the exception of the following actions which requires unanimous approval of all members of the Board of Directors.

 

6.2.4.1   Any corporate action which, in the reasonable opinion of the Intact designated Board member as communicated to the New Company's Chairman at or before the called meeting, is likely to affect adversely Intact's reputation, Intact Intellectual Property, or its financial performance outside of the Territory and separate from the New Company; provided, however, such Intact Board member shall provide the Board a written statement presenting the basis of his opinion within 15 days after said meeting; 

 

6.2.4.2   Approval of the Company’s annual budget and/or business plan, if any, each year (such approval, to the extent that any member of the Board of Directors deems it necessary, shall be approved within a reasonable time (15 days after presentment of the proposed annual budget and/or business plan), and to the extent that the Board is unable to timely approve the annual budget and/or business plan, the New Company shall continue to operate its business consistent (within 15%) with the prior years excluding extraordinary expenses); and

 

6.2.4.3  Any proposal by New Company to appoint a sub-distributor of the Product pursuant to the License.

 

 

6.2.5  Authority; Delegation:  The administration and representation of the New Company shall be the exclusive authority of the Board of Directors, which may delegate such authority to the officers of the New Company.

 

6.3.           Delegation.  The power to direct and represent the New Company is vested with the Board of Directors, which may delegate that power to the officers or a general manager.

 

 

  

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Article 7 - Fiscal Year

 

7.1           Fiscal Year.  The fiscal year of the New Company shall be the calendar year.

 

Article 8 - Audit

 

8.1           Audit.  The New Company’s financial statement shall be audited by Huiheng Medical, Inc.’s then current auditors.  The books and records of New Company shall be prepared in accordance with US GAAP.

 

8.2.           Expenses of the New Company.  All expenses, including any reasonable expenses incurred by Parties and approved by the Board, related to the developing, manufacturing, marketing and selling of the Product and related accessories will be charged to the New Company. Pursuant to the License, the initial manufacturing, marketing and sale of the Product shall be borne by Allied at its sole cost and expense until the New Company has adequate working capital from operations.

 

Article 9 - Mutual Assistance

 

9.1           Payment of Capital Contributions.  The Parties shall respectively be responsible for timely paying their contribution in full to the registered capital and any additional registered capital in accordance with the provisions herein.

 

9.2           Permits and Approvals.  On behalf of the New Company, Allied will be responsible, at its sole cost and expense, for (i) obtaining the various permits and regulatory approvals required to market the Product in the Territory, including SFDA Approval, (ii) manufacturing the Product in China, including all of the costs associated with manufacturing the Product in China, and (iii) marketing the Product in the Territory, including all of the costs associated with marketing the Product in the Territory.  All of the costs associated with obtaining approvals, and developing, manufacturing and selling the Product will be undertaken by Allied at its sole cost and expense.

 

9.3           License.  Intact will grant to the New Company an exclusive license and rights to develop, manufacture, promote, distribute and sell the Product, including any improvements made thereon, in the Territory.  Intact will make its best efforts to provide Allied with all of the information, including marketing information, and other support necessary to train Allied, on behalf of the New Company, to manufacture the Product in China.

 

9.4           Sales to Intact; Cost of Components.  At Intact’s request, New Company will sell the Product to Intact at New Company’s [***] for the Product that will be sold by Intact in the markets outside of the Territory.  At Intact’s request at any time, New Company will provide Intact with a current component price list for the Product.

 

9.5           Additional Countries.  Intact and New Company agree that they will have further discussions in good faith for the opportunity of New Company to market the Product in Vietnam, and Taiwan, or other countries, where Allied has sales channels.

 

 

  

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Article 10 – Confidentiality

 

10.1           Use, Nondisclosure. With respect to the Confidential Information of the other Party, each Party agrees, during the term of this Agreement and for seven (7) years after this Agreement is terminated: (a) to hold such Confidential Information in confidence and to take reasonable precautions to protect the same (including, without limitation, all precautions such Party employs with respect to its own confidential information), (b) not to divulge any such Confidential Information to any third party or to make any use whatsoever at any time of such Confidential Information, except for the purpose of performing the Party’s obligations under this Agreement, (c) not to use any such Confidential Information as the basis for beginning any new research and development programs; and (d) not to copy or reverse engineer any such Confidential Information.

 

10.2           Termination or Expiry.  At the conclusion of this Agreement, each party shall within thirty (30) days of such termination or expiry, either return the other’s Confidential Information in its possession (including all copies) or shall, at the disclosing party’s direction, destroy such Confidential Information (including all copies) and certify its destruction to the disclosing party.

 

10.3           Exclusions. The term “Confidential Information” shall not include any information which: (a) is in the public domain at the time of disclosure or enters the public domain following disclosure through no fault of the receiving party, (b) is already in the receiving party’s possession prior to disclosure hereunder (as reflected by such party’s written records) or is subsequently disclosed to the receiving party with no obligation of confidentiality by a third party having the right to disclose it, (c) is independently developed by the receiving party without reference to the disclosing party’s Confidential Information, or (d) is required to be disclosed pursuant to an order of any competent court or government agency or rules of a securities exchange with prior notice to disclosing party, or as required by any regulatory authority or for any regulatory filing, but shall notify the other Party prior to disclosing such information, and shall cooperate with the other Party either to enable the disclosing Party to seek protective measures for the Confidential Information, or to seek confidential treatment of such Confidential Information, and will limit any disclosure required to be made to any such agency to the minimum required for to meet the requirements of such order or regulatory filing.

 

10.4           Necessary disclosures.  Each Party may disclose the Confidential Information it receives under this Agreement to (a) its employees, contractors and permitted sublicensees, (b) to a potential or actual acquirer of, or an investor or potential investor in, such Party or the assets of such Party to which this Agreement relates, (c) for the purposes of Patent filing, prosecution and enforcement and (d) to its advisors, provided that in each case the disclosure is limited to the extent required for the performance of either Party’s obligations under this Agreement, and provided that in the case of subsections (a), (b) and (d), the individuals are subject to obligations of confidentiality in relation to such information no less stringent than those contained in this Agreement.

 

10.5           Publicity.  The Parties agree that no public disclosure, publicity release or announcement concerning the transactions contemplated hereby will be issued without the advance written consent of the other Parties except as such disclosure, release or announcement may be required (a) by applicable Laws, (b) for filings with governmental agencies, (c) for prosecuting or defending litigation, and (d) for complying with applicable governmental regulations, court orders, and legal requirements, including filings with the U.S. Securities Exchange Commission and with regulatory authorities, in each of which cases the Party required to make such disclosure, release or announcement will, to the extent reasonably practicable before making any such disclosure, release or announcement, afford the other Party with a reasonable opportunity to review and comment upon such release or announcement and use reasonable efforts to seek confidential treatment of such information.

 

 

  

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10.6           Allied Required Disclosure.  Each party understands that Huiheng Medical, Inc. is a reporting company with the U.S. Securities and Exchange Commission and is required to make disclosure of certain information regarding the New Company.  Each party understands that this Agreement and the contents thereto will be filed as a exhibit to Huiheng Medical, Inc. periodic filings.

 

Article 11 – IP Ownership and Licenses

 

11.1           Licenses.  Upon incorporation of the New Company, Intact and the New Company will promptly (within 20 days from the date of incorporation) enter into the License which will grant the New Company, pursuant to terms of the License, a license to use the Intact Intellectual Property necessary for the New Company to undertake the activities set forth herein.

 

11.2           IP Ownership.  Each of New Company and Allied acknowledge that Intact owns all right, title and interest in and to the Product, and the Intact Intellectual Property and agrees that it does not by this Agreement and will not otherwise have or acquire ownership in the Intact Intellectual Property and further warrants that it will not at any time, either during the term of the Agreement or after termination of this Agreement contest (or assist any third party in contesting) the validity or ownership of the Intact Intellectual Property or any of its constituent elements, including any improvements to the Intact Intellectual Property or the Product.

 

Article 12 - Term and Termination

 

12.1           Term.  Unless earlier terminated or amended in accordance with any applicable provision hereto, this Agreement shall remain in force and binding on the parties for a term equal to the License, including any and all extensions including the Wind Down Period, as that term is defined in the License. 

 

12.2           Material Breach.  In the event of failure or neglect of any party hereto to fulfill any of the provisions hereof to be performed by it, and if any other party gives written notice of such default and such default is not cured within sixty (60) days after the giving of such notice, the party giving such notice shall have the right to terminate this Agreement at any time thereafter by giving a written notice of such termination to the defaulting party.

 

12.3           Mutual Termination.  This Agreement may be terminated by mutual written agreement by Allied and Intact.

 

12.4           Survival.  Articles 10, 11, 12 and 13, and such other Sections as by their nature should survive, and such obligations shall survive any expiration or termination of this Agreement.

 

12.5           Effect of Termination.  Upon the termination or expiration of this Agreement, each Party will immediately cease using all of the Confidential Information of the other Parties, including the Intact Intellectual Property, and return all such Confidential Information to the owning party, or at the owning party’s option, destroy all such Confidential Information.  On request, the Party returning or destroying such Confidential Information will promptly provide the owning party with a  written certification of such return or destruction.

  

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Article 13 - General Provisions

 

13.1           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of Commonwealth of Massachusetts without regard to the conflicts of laws principles thereof.

 

13.2           Arbitration.  All disputes, controversies or differences which may arise between the parties, and/or between a party and the New Company, out of or in relation to or in connection with this Agreement which cannot be settled by full discussion between appropriate senior representatives of the parties will be settled, by arbitration in Boston, Massachusetts, according to the commercial arbitration rules of the American Arbitration Association and applying the procedural laws of the State of Massachusetts. The proceedings shall take place in the local language with provision for simultaneous interpretation at the expense of the party desiring it.  The decision of the arbitrator(s) will be final and binding and enforceable in any court with appropriate jurisdiction.

 

13.3           Attorney Fees.  If any action at law or equity or arbitration is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements in addition to any other relief to which the party may be entitled.

 

13.4           Notices.  Any notice or request which shall or may be given under this Agreement shall be made by airmail, registered mail with return receipt requested or facsimile and shall be directed to the intended recipient at its address set forth below or at such other address as such party may notify the other parties in accordance with this paragraph.  The effective date of delivery of such notice shall, in the case of airmail or registered airmail, be seven (7) business days following dispatch, or in the case of facsimile or e-mail, the date of successful transmission as evidenced by a transmission report.

 

Allied Moral Holdings, Ltd.

Huiheng Building,

Gaoxin 7 Street South,

Keyuannan Road, Nanshan District,

Shenzhen Guangdong, P.R. China 518057

Facsimile: 0755-2674 5291

 

Intact Medical Corporation

550 Cochituate Road, Suite 25, East Wing, Floor 4,

Framingham MA 01701

Facsimile:(508) 655-7822

 

BMG Diamond Holdings Limited

Flat A, 15/F, Hillier Commercial Building

No. 65-67 Bonham Strand East

Sheung Wan, Hong Kong

Facsimile: 949-388-3409

 

  

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13.5           Waiver.  The failure, delay or omission of any party hereto at any time to require due performance by any other party of any provision under this Agreement shall in no way affect the right of such party to require performance which may be due thereafter pursuant to such provision and shall constitute neither a future waiver of the same provision nor a waiver of any subsequent provision on the same matter.  Any failure by any party hereto to protest a breach of any provision under this Agreement shall not constitute waiver of its right to protest any subsequent breach of the same or any other provision.

13.6           Cumulative Remedies.  No remedy conferred by any of the provisions of this Agreement is intended to be exclusive of any other remedy which is otherwise available at law, in equity, by statute or otherwise and each and every other remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law, in equity, by statute or otherwise.  The election of any one or more of such remedies by either of the Parties shall not constitute a waiver by such party of the right to pursue any other available remedy.

 

13.7           Assignment.  Neither Party may assign or otherwise transfer this Agreement without the other Party’s prior, express written consent, except that no such consent shall be required for Intact to assign its rights or transfer its obligations (i) to its Affiliates or (ii) in connection with the sale or transfer of the majority of its stock or all or substantially all of its assets to which this Agreement relates, whether as part of a merger, acquisition, or asset sale.  Any assignment or transfer in violation of this Agreement will be null and void.  This Agreement benefits and binds the parties and their respective successors and permitted assigns.

 

13.8           Language.  This Agreement shall be executed both in the English language and the Chinese language, but in the event of inconsistency or difference between the English language version and the Chinese language version of this Agreement, the English language version shall prevail.

 

13.9           Severability.  If any provision or part of this Agreement is rendered void, illegal or unenforceable in any respect under any enactment or rule of law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

13.10           Construction.  The headings to the clauses, sub-clause and parts of this Agreement are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement.  Any ambiguity in this Agreement shall be interpreted equitably without regard to which party drafted the Agreement or any provision thereof.  The terms “this Agreement,” “hereof,” “hereunder” and any similar expressions refer to this Agreement and not to any particular Section or other portion hereof.  The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party will not be applied in the construction or interpretation of this Agreement.  As used in this Agreement, the words “include” and “including,” and variations thereof, will be deemed to be followed by the words “without limitation” and “discretion” means sole discretion.

 

13.11           Further Assurances.  Each of the parties agrees to take such actions, including but not limited to the execution and/or delivery of additional agreements and other written documents, as may be required to assure that each party to this Agreement enjoys all rights accorded to such party under this Agreement.

 

  

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13.12           Relationships of the Parties.  This Agreement shall not constitute any party the legal agent of any other party.  No party shall have the right or authority to assume, create, or incur any liability of any kind, express or implied, against or on behalf of any other party.

13.13           Limitation of Liability.  Except for breaches of confidentiality obligations, in no event shall either party have any liability to the other, or to any party claiming through or under the other, for any lost profits, or any indirect, incidental, special or consequential damages of any kind in any way arising out of or related to this Agreement and however caused and under any theory of liability, even if such party has been advised of the possibility of such damages.

 

13.14           Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.  Copies of executed counterparts transmitted by telecopy, or other electronic transmission service shall be considered original executed counterparts for purposes of this paragraph, provided that receipt of copies of such counterparts is confirmed.

 

13.15           Entire Agreement; Amendments.  The terms and conditions of this Agreement constitute the entire agreement and understanding between the parties concerning its contents, and supersede all previous communications, whether oral or in writing, between the parties, including any previous agreement or understanding varying or extending the same, and may not be released, discharged, abandoned, changed or modified except by an instrument in writing signed personally or by the duly authorized officers or representatives of the respective parties hereto.

 

 

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in triplicate original counterparts, personally or by their duly authorized officers or representatives, as of the day and year first above written.

 

Allied Moral Holdings, Ltd.

 

 

By:  /s/  Hui Xiaobing                                                           

Name:    Hui Xiaobing

Title:      Chairman

 

 

Intact Medical Corporation

 

 

By:  /s/   John F. Vacha                                                         

Name:    John F. Vacha 

Title:      President and CEO

 

 

BMG Diamond Holdings Limited

 

 

By:   /s/ Michael Walas                                                           

Name:   Michael Walas

Title:     Principal

 

 

 

  

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Exhibit A

 

LICENSE, SUPPLY, MARKETING AND DISTRIBUTION AGREEMENT

 

 

  

  

  

[***]   Represents material information which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

Exhibit A

 

LICENSE, SUPPLY, MARKETING AND DISTRIBUTION AGREEMENT

 

This License, Supply, Marketing and Distribution Agreement (“Agreement”) is entered into as of September___, 2011 (the “Effective Date”) by and between H & I Medical China Limited, a British Virgin Islands company with its principal place of business at Huiheng Building, Gaoxin 7 Street South, Keyuannan Road, Nanshan District, Shenzhen Guangdong, P.R. China 518057 (hereinafter “Newco”), and Intact Medical Corporation, a Delaware corporation with its principal place of business at 550 Cochituate Road, Suite 25, East Wing, Floor 4, Framingham MA 01701 (hereinafter "Intact").  Newco and Intact are sometimes referred to singularly as a “party” and collectively “parties”.

RECITALS

 

WHEREAS, Intact is engaged in the design, production and sale of a product known as the Intact Breast Lesion Excision System, as described in Exhibit A, attached hereto, and Intact owns certain Intellectual Property (as defined below) rights with respect to Product (as defined below);

 

WHEREAS, Newco has been organized and formed to engage in the development, manufacturing, promotion and distribution of the Product in the Territory (as defined below); and

 

WHEREAS, Intact desires to grant to Newco, and Newco desires to receive an exclusive license to manufacture, have manufactured, market, develop, distribute and sell the Product in the Territory, and a limited license thereafter pursuant to the terms of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby covenant and agree as follows:

 

AGREEMENT

 

1.       Definitions.

 

For the purposes of this Agreement the following capitalized terms are defined in this Section 1 and shall have the meaning specified herein.  Other terms that are capitalized but not specifically defined in this Section 1 or in the body of this Agreement shall have the meanings set forth in the Joint Venture Agreement.

 

“Affiliate” means, with respect to an entity, any Person that, directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, that entity.

 

“Acceptance Criteria” means the visual inspection criteria, performance test parameters and other criteria for each Product as set forth in Exhibit B-1, to be met by Newco prior to commercialization of Product in the Territory.

 

 

  

 

  

 

“Confidential Information” means all proprietary, confidential and other non-public information, Know-How and data (oral, written, graphic, demonstrative, machine recognizable or otherwise) relating to the proprietary technology and/or business of (i) the Disclosing Party, and (ii) a third party who has disclosed such information, Know-How, and data to the Disclosing Party under obligations of confidentiality, and which in either case is disclosed by the Disclosing Party to the Receiving Party within the context of this Agreement; provided, that, it shall be explicitly understood that Confidential Information includes, information specifically related to the Product, and “Disclosing Party” means the party disclosing Confidential Information to the other party pursuant to this Agreement and “Receiving Party” means the party receiving Confidential Information from the other party pursuant to this Agreement.

 

“Control” or “Controlled” shall mean with respect to Know-How or Patents, that the applicable Party has licensed (or otherwise obtained rights to or under) such Know-How or Patents from a third party and such Party has the right to grant sublicenses at no additional cost to such Know-How or Patents.

 

“Huiheng” means Allied Moral Holdings, Ltd., a British Virgin Islands company, with its   principal place of business located at Huiheng Building, Gaoxin 7 Street South, Keyuannan Road, Nanshan District, Shenzhen Guangdong, P.R. China 518057 and wholly owned by Huiheng Medical, Inc., a Nevada corporation, with its principal place of business located at Huiheng Building, Gaoxin 7 Street South, Keyuannan Road, Nanshan District, Shenzhen Guangdong, P.R. China 518057.

 

“Improvement” means all improvements, variations, updates, modifications, and enhancements to the Product that is made by either Party in performing activities under this Agreement, in each case whether or not patentable or protectable,

 

“Intact Breast Lesion Excision System” means the system developed by Intact for the purposes of capture of breast tissue for histological review in a human patient using radiofrequency energy.

 

“Intact Handles” means the reusable handle tool known as Intact Handle that is an integral component of the Product.

 

“Intact’s Knowledge” means the actual knowledge of any of the executive officers and board of directors of Intact.

 

 “Intact Wands” means the disposable wand known as Intact Wand that is an integral component of the Product.

 

“Intellectual Property” shall mean a Patent, industrial design, invention (whether patentable or unpatentable and whether or not reduced to practice), design, idea, work, methodology, innovation, creation, concept, development research, copyright, all confidential and/or proprietary assays, substances and materials, Know-How, and any registration, application, right or other grant analogous thereto with respect to any of the foregoing, but excluding trademarks and service mark.

 

“Joint Venture Agreement” means the agreement by and among Huiheng, Intact and BMG Diamond Holdings Limited, a company incorporated under the laws of British Virgin Islands, dated as of September 6, 2011.

 

 

  

 

  

 

“Know-How” shall mean any and all confidential information, trade secrets, technology,  technical information, genetic information (including information relating to any impairment, variance, or mutation thereof) discoveries, formulae, algorithms, developments, improvements, system, techniques, methods, test methods, procedures, processes, data (including development data), instructions, analysis, experiment, drawings and specifications, whether or not patentable or protectable.

 

“Licensed Technology” means (i) the Patents listed on Exhibit C, and other U.S. and international pending Patents Controlled by Intact or its Affiliates related to the Product, including any patents issuing from any of the patent applications included in such Patents and any reissues, re-examinations, confirmations, extensions, renewals, substitutions, continuations, divisions, patent term extensions, and continuation-in-part applications of the foregoing; (ii) Know-How regarding the manufacture and use of the Product; including the Process Technology and (iii) any and all Improvements made or conceived during the term of this Agreement.

 

“Patents” means any and all original (priority-establishing) patents and patent applications filed anywhere in the world, including provisional and non-provisional applications, and all related applications thereafter filed or including a common priority right, including any continuations, continuations-in-part, divisional and substitute applications, any patents issued or granted from any such patent applications, and any reissues, renewals, reexaminations, extensions (including by virtue of any supplementary protection certificates) of any such patents, and any confirmation patents, inventor’s certificates or registration patents or patents of addition based on any such patents, and all foreign counterparts or equivalents in any country or jurisdiction.

 

“Patent Offices” means the United States Patent and Trademark Office, and the equivalents in the Territory.

 

“Process Technology” means the confidential and proprietary process technology, including its family and derivatives, supplied by Intact to Newco hereunder to produce Product pursuant to this Agreement, which includes but is not limited to the instructional DVD videos which provide instructions on how to make the Product.

 

“Product” means Intact’s Breast Lesion Excision System, including all related components, and all Improvements related thereto including, but not limited to, the Intact RF generator, Intact Handles, and Intact Wands.

 

“Qualification” means Intact’s determination that the Product meets the Acceptance Criteria in accordance with the Qualification Plan.

 

“Qualification Plan” means the plan and process determined by Intact at its sole discretion to ascertain whether the Product as manufactured by Newco meets Intact’s reliability and quality specifications, as attached hereto as Exhibit B-2.

 

“SFDA” means China State Food and Drug Administration.

 

“SFDA Approval” means the approval of the Product by China State Food and Drug Administration for sale in China.

 

“Territory” means China, including Hong Kong SAR and Macau SAR.

 

  

 

  

 

“Trademarks” means the trademarks currently used in relation to the Product as listed on Exhibit D attached hereto, including “Intact® ,”n-bloc®, and the trade name “Intact.”

 

“Year 2 Dividend” has the ascribed meaning set forth under the Joint Venture Agreement.

 

“Year 3 Dividend” has the ascribed meaning set forth under the Joint Venture Agreement.

 

“Year 4 Dividend” has the ascribed meaning set forth under the Joint Venture Agreement.

 

2.     License Grant; and First Right of Refusal.

 

A.  License. Subject to the terms and conditions of this Agreement, Intact hereby grants to Newco an exclusive (even as to Intact), fee-bearing, non-transferable license (with the right of sublicense pursuant to the terms of this Agreement) under and to the Licensed Technology to manufacture, have manufactured by subcontracted manufacturers pre-approved in writing by Intact, use, promote, market, have marketed, distribute, have distributed, service, sell, offer for sale, the Product solely in the Territory to end users in the Territory, and to import and export the Product outside the Territory solely to Intact. Newco may appoint one or more sub-distributors and subcontractors to manufacture, market, distribute, offer to sell and sell the Product in the Territory without Intact’s consent, provided that such sub-distributor or subcontractor shall be required to comply with the terms of this Agreement, and Newco shall remain fully liable to Intact for the performance of, and compliance with the terms of this Agreement by, such third parties.

 

B. Trademark and Trade Names License. Subject to the terms and conditions of this Agreement, Intact hereby further grants to Newco an exclusive license to use the Trademarks in the Territory for the purposes of the manufacture, distribution, marketing, use and sale of the Product, subject to the terms of this Agreement, which license shall also include Newco’s right to use the name “Intact Medical Corporation.” “Intact” or other trade names associated with the Product in accordance with the terms of this Agreement, provided that the license to use the names “Intact Medical Corporation” and “Intact” shall be granted solely for the purposes of identifying the Product as having been designed by Intact.  In the event Newco uses such Trademarks in the Territory, Newco shall use such Trademarks at all times in accordance with the specifications and guidelines for use of such Trademarks notified to it in writing by Intact from time to time, and the license granted under this Section 2B may be revoked at any time at Intact’s sole discretion if, in Intact’s reasonable opinion, Newco does any act or omission that may damage the goodwill in, or reputation of, the Trademarks. Newco may not use the Trademarks on any packaging, or on any marketing, promotional, advertising or any other materials in relation to the Product (together the “Branded Materials”) without Intact’s prior consent in writing, which may be withheld at Intact’s sole discretion; provided however, Intact agrees not to withhold consent on Newco’s use of Trademarks on packaging, marketing, promotional, advertising, or any other material relating to the Product currently used or used during the term of this Agreement by Intact so long as they have only been modified to reflect direct translation into Mandarin and to comply with the SFDA and China law.   Intact understands that the Branded Materials will be primarily in Mandarin and Intact’s review of such materials will require Intact to have the resources to have such materials translated in English.   Newco will provide Intact no less than fifteen (15) days in advance with samples of the Branded Materials which

 

  

 

  

 

will be primarily in Mandarin on which Newco proposes to use the Trademarks, and Intact will consider such Branded Materials within fifteen (15) days of receipt, and provide Newco with its consent, rejection, or its suggestions on modifications required to make the Branded Materials suitable for use.   In the event Newco does not receive a written response from Intact within such fifteen (15) days of receipt, Newco may use the Branded Materials.  Newco agrees to use its best efforts to maintain a high standard of quality for any marketing materials, packaging, facilities or goods with which the Product is associated, consistent with the specifications for use. In the event that Intact determines that Newco’s method or manner of use of the Trademarks is inconsistent with Intact’s approved quality standards, Intact shall provide Newco with a written itemization of such defects.  Newco shall use its best efforts to cure any such defects within fifteen (15) days of receipt of such notice, and immediately take all reasonable steps to correct such deficiency.  If Newco does not cure such deficiency within fifteen (15) days, Intact shall have the right to suspend the Trademark license until such deficiency has been cured.  For clarification, Intact retains the right to use the “Intact” trademark on its website and in promotional materials, such as brochures, case studies, white papers, and advertising related to the Product outside the Territory.  As long as Newco maintains its exclusivity under Section 2A, Intact agrees not to otherwise use the Trademarks in the Territory.

 

C. Right of First Offer. Intact hereby grants Newco a first right of first offer to have the sole and exclusive right to manufacture, market, distribute, license, promote, service and sell the Product in Vietnam, and Taiwan. Intact shall first negotiate or commence discussions with Newco regarding such new territories before commencing such discussion with any third parties.  Intact and Newco shall engage in such negotiations in good faith and upon agreement by both parties not to pursue further discussions, or following thirty (30) days good faith negotiation, Intact may then commence discussions with third parties.

 

3.      Assistance from Intact; Commercialization by Newco.

 

A. Delivery of Materials.  Intact will deliver and explain the Process Technology to Newco, or at the written request of Newco, Authorized Manufacturer (as defined in Section 4E) in accordance with an implementation plan to be agreed upon in writing by the Parties.  In addition, Intact agrees to deliver to Newco labels, brochures, packaging, instructions materials, and all other marketing and promotional materials currently being used by Intact for the Product, to be translated and used by Newco in connection with the commercialization of the Product in the Territory.

 

B. Commercialization Plan and Progress Reports. All manufacturing and sales and marketing activities for the Product in the Territory will be the responsibility of Newco.  Newco agrees that it shall use commercially reasonable efforts to carry out the manufacturing, marketing and commercialization of the Product throughout the Territory.

 

C. Technical Support and Training. For no additional consideration, Intact shall, as reasonably requested by Newco, use its commercially reasonable efforts to render the  technical support and training, and advice in connection with familiarizing Newco or its Authorized Manufacturer in the specifications, characteristics and use of the Product to enable Newco to manufacture and commercialize the Product in the Territory as contemplated by this Agreement (For the purpose of this Section 3C, the Parties agree that commercially reasonable efforts shall, at a minimum, be substantially the same effort that Intact provided to other manufacturers and distributors of the Product).  Unless otherwise agreed in writing by the Parties, any assistance and training provided by Intact at Intact’s site in the United States, and all ancillary expenses (including without limitation travel and accommodation) associated with the attendance of any personnel at such training, excluding Intact staff, will be the sole responsibility of

 

 

  

 

  

 

Newco, or its Authorized Manufacturer if the Authorized Manufacturer receives the training.  If initial training requires that Intact personnel visit the operations in China, then Intact shall cover those expenses, so long as those expenses are reasonable.  Such expenses would exclude any expenses associated with the attendance of Huiheng or Newco personnel at such training in China.  Both Parties agree that Newco shall establish a budget to cover reasonable travel expenses for Newco and Intact personnel relating to the business of Newco once Newco is cash flow positive.

 

D. Expenses of Newco. Newco will assume and pay all costs incurred in manufacturing, marketing and commercializing the Product in the Territory, including without limitation all costs associated with set-up of any manufacturing facilities and tooling for production, unless otherwise specifically provided for herein.

 

4.      Manufacture and Supply

 

A. Newco’s Manufacturing Obligation. Newco will have the exclusive right to manufacture or have manufactured and supply the Product, including the Intact RF Generator, the reusable handle tool known as Intact Handle and the disposable wand know as Intact Wand, in the Territory pursuant to the terms of this Agreement. Subject to prior written approval of Intact, which approval will not be unreasonably withheld pursuant to Section 4D, Newco shall have the right to subcontract for the manufacturing of the Product.

 

B. Initial Product Manufacturing and Evaluation.  Prior to any commercialization of the Product in the Territory, Newco will manufacture Product or have it manufactured using the Process Technology, and deliver an initial sample or batch of samples of the Product to Intact for testing.  Upon fifteen (15) days of receipt of the sample(s), using the Qualification Plan, Intact will evaluate the Product and provide written notification to Newco informing Newco of results of its evaluation which will either (i) confirm satisfaction of Acceptance Criteria resulting in approval of Product, or (ii) identify any material deficiencies, by itemizing and describing such deficiencies and corrective measures.  Once the Product receives Qualification, the manufacturing process established by Newco, whether at its own manufacturing facility or at the manufacturing facility of an Authorized Manufacturer, will be deemed qualified. Newco may not market or sell any Product until Intact has given its confirmation that the Product meets the Acceptance Criteria following evaluation of the Product in accordance with the Qualification Plan provided by Intact and agreed upon by Newco.

 

C. Changes to Manufacturing Process or Product.  Newco may not make any material changes to the Product or to the manufacturing process after it has been qualified pursuant to Section 4B, without the prior written consent of Intact on a case-by-case basis which will not be unreasonably withheld

 

D. General Manufacturing.  Upon Qualification, Newco will manufacture the Product to conform to the Acceptance Criteria.  Newco shall not (i) have any third party manufacture the Product, or (ii) source from any third party any component of the Product, for any purpose without Intact’s express prior consent in writing, such consent not to be unreasonably withheld.  Any third party to which Intact gives consent, which consent will not be unreasonable withheld by Intact  if such third party meets current U.S., European and Chinese commonly accepted manufacturing standards,  that is appointed to manufacture the Product or a component of the Product  in the Territory (including pursuant to Section 4E) shall be an “Authorized Manufacturer” for the purposes of this Agreement.

 

  

 

  

 

E. Authorized Manufacturers.  Intact acknowledges that as of the Effective Date, Newco does not currently have the capability to manufacture the Product in the Territory, and that Newco intends to appoint Huiheng as an Authorized Manufacturer.  Intact hereby consents to the appointment of Huiheng as an Authorized Manufacturer, provided that (i) Huiheng agrees to be bound by the terms of this Agreement, and (ii) Huiheng may not subcontract or otherwise delegate any of its manufacturing obligations to any third party without the express consent in writing of Intact, and (iii) Intact shall be an express intended third party beneficiary for any agreement between Huiheng and Newco to enforce the applicable provisions under this Agreement regarding Authorized Manufacturers, including without limitation any provisions regarding protection of Intact’s Intellectual Property, Intact’s inspection rights, and the Qualification of Product.

 

F. Core Components.  Newco acknowledges that the quality of components utilized in the manufacture and assembly of the Product is of critical importance to Intact, and that certain components may not be able to be manufactured or supplied by Newco or an Authorized Manufacturer at the time of commencement of manufacturing operations under this Agreement (the “Core Components”).  A list of such Core Components is attached to this Agreement as Exhibit E.  Newco agrees that it will use its commercially reasonable efforts to purchase, and ensure that its Authorized Manufacturer purchase, the Core Components from third party suppliers identified  by Intact in writing, until such time as Newco evidences that such Core Components meeting the applicable Acceptance Criteria can be manufactured by Newco or an Authorized Manufacturer in the Territory.

 

G. Supply Prices. At Intact’s option, Intact shall have the right to purchase the Product from Newco to sell outside of the Territory.  At Intact’s request and sole discretion, Newco agrees to sell the Product to Intact.  The cost of the Product to Intact shall be [***].  As soon as available, Newco will provide Intact with a current component price list for the Product and a detailed accounting of the parts and labor costs [***]  In addition at Intact’s request, Newco will provide Intact with a current component price list for the Product.  Notwithstanding the generality of the foregoing, Newco will provide Intact at the end of each calendar year and upon a material changes in price list defined as a change in a component price greater than [***], with an updated price list report of its costs for parts and labor, including a breakdown of how those costs have been calculated.  Intact shall have the right, upon reasonable written notice to Newco, to request that Newco provides additional validation of the costs charged or notified to Intact for any component or ancillary costs or combination thereof. [***].  The parties agree that the foregoing costs are estimates only, and are non-binding upon the parties.  Newco agrees to provide Intact with reasonable notice in writing of any material changes in the estimated cost of such components.

 

H. Inspection of Manufacturing Facility.  Upon Intact’s reasonable advance request and at Intact’s sole expense,  Intact shall have the right to perform a reasonable technical audit and inspection of any Newco manufacturing facilities or Authorized Manufacturer manufacturing facilities, as reasonably necessary for Intact to verify Newco’s and its Authorized Manufacturers’ compliance with this Agreement and the Qualification Plan, including an audit and inspection of yields, delivery, performance, and financial and operational records.  In the event an inspection of any manufacturing facility for the Product or any components of the Product reveals any deficiency, Newco shall promptly take action to remedy such deficiency and may not sell any Product affected by such deficiency or manufacture any further Product or Product components at the deficient facility until such Product or Product components have passed Qualification.  Intact’s right to audit and inspect any Product manufacturing facility shall continue for a period of five(5) years after the expiration or termination of this Agreement for the sole purpose of allowing Intact to verify that neither Newco or any of its Authorized Manufacturers possess, or continue to use, Intact’s Confidential Information and Process Technology.

 

 

  

 

  

 

I. Financial Audits.  Intact will also have the right to engage at its own expense an internationally recognized independent auditor reasonably acceptable to Newco to examine Newco’s records from time to time to the extent necessary to verify the costs and financial information to justify the pricing under Section 4G; provided, however, that (i)Intact will provide Newco reasonable prior written notice of such audit and may conduct audits no more than once every twelve (12) months, (ii) no such examination may be of a period previously examined and (iii) such results are provided to Newco.  If any such audit reveals (a) an over-charge of more than five percent (5%) invoiced for the audited period, such audit will be at the expense of Newco and all such over-charges will be, at Intact’s option, either refunded or credited to Intact, or (b) an under-charge of more than five percent (5%), such audit will be at the expense of Intact, and all such under charges will be, at Newco's option, charged to Intact for immediate payment or credited.

 

5. Order and Delivery

 

A.   Orders.  Any such orders placed by Intact shall be evidenced by a written purchase order identifying the number, requested delivery date(s) and any shipping instructions, including preferred carrier and shipping destination.  Upon receipt of an order, Newco shall advise Intact within three (3) days of the acceptance of an order and of the lead time required for the manufacture (not to exceed the standard lead time) and delivery of such order in its entirety.  Unless the Parties otherwise agree in writing, the standard lead time for the Product will be 60-90 days.  Once such delivery date is identified and agreed to by the parties, Newco shall fully comply therewith.

 

B. Rescheduling and Cancellation. Intact may cancel or reschedule all or any part of a purchase order without charge, by providing written notice to Newco at least 45 days prior to the commencement of manufacturing of the Product impacted by such cancellation. Intact may also cancel or reschedule its order for Product that are already in production, provided that if an order is cancelled and not rescheduled within forty-five (45) of the notice of cancellation or rescheduling,  Intact will pay to Newco a cancellation fee equal to the cost of the material and labor costs for the Product already in production.  If the order is rescheduled within forth-five (45) days then no cancellation fee will be due.  Newco will notify Intact promptly if it becomes aware that delivery times cannot be met and advise Intact of its anticipated production and shipping schedules

 

C. Risk of Loss and Title.  Delivery of all Product shall be made F.C.A.. (INCOTERMS 2000) Intact delivery point in China.  Risk of loss for the Product shall pass to Intact at the Intacts delivery point in China.  Title to the Product will pass to Intact at the Intact delivery destination in China.

 

D. Delivery.  Newco shall deliver the Product to Intact in accordance with the shipping instructions in the order with regard to the requested delivery date, ship-to address, carrier and means of transportation or routing.  Intact shall be responsible for paying all freight, handling, shipping and insurance charges to the destination point.   Intact may return any unauthorized under-shipment or any over-shipment or any portions thereof, at Newco’s expense and without charge to Intact.    Newco shall inform Intact immediately if a delivery cannot be made within five (5) days of the scheduled delivery date, in which case Newco shall ship the Product by airfreight or other expedited routing, at Newco’s expense.

 

 

  

 

  

 

E. Payment.  Upon shipment of Product ordered, Newco will submit to Intact an invoice showing invoice number and date, remit to address, the purchase order number, part number and revision, quantity of each Product, unit prices, each applicable tax and totals.  Intact shall pay each invoice by the later of thirty (30) days after the receipt of invoice, or (ii) thirty (30) days after receipt of the shipment by wire transfer.

 

6.      Minimum Requirements and Milestones.

 

A. Year 1 Minimum Milestone Requirements. Within the first twelve (12) months after receipt of SFDA approval (“Term Year 1”), Newco agrees that it shall achieve the following (“Year 1 Milestone”):

 

i.    Install Intact RF generators in no less than [***] different hospitals in the Territory;

 

ii.   Sell a minimum of [***] Intact Handles in the Territory; and

 

iii.  Sell a minimum of [***] Intact Wands in Territory.

 

In the event Newco fails to achieve Year 1 Milestone, this Agreement will automatically terminate within forty-five (45) days after Term Year 1 after Intact gives Newco written notice of termination pursuant to Section 7B, unless [***].

 

B. Year 2-4 Minimum Targets.  In each of the following respective Term Years (referred to as the “Target Milestones”): Intact shall have the right to terminate this Agreement pursuant to 7, if Newco fails to satisfy the following milestones for the respective year:

 

i.   For Term Year 2 (a period of twelve (12) months commencing at end of Term Year 1 (“Term Year 2”)) if Newco fails to pay out the Year 2 Dividend on or before 90 calendar days following the end of Term Year 2 (“Year 2 Dividend Date”), provided. however that Huiheng or an affiliate of Huiheng will have the right, at its sole option, to purchase the balance of the Year 2 Dividend owed to Intact from Intact for cash on a dollar-for-dollar basis on or before the Year 2 Dividend Date to maintain Newco’s rights under this Agreement.  Newco shall make an effort in good faith to declare some portion of the Year 2 Dividend after the end of each quarter, provided that Newco has accumulated available, free cash and provided that distributing that cash will not have a negative effect on Newco’s ability to execute its business plan. The cumulative Year 2 Dividend as ascribed in the Joint Venture Agreement will be the total of the four quarterly dividends in Year 2;

 

ii. For Term Year 3 (a period of twelve (12) months commencing at end of Term Year 2 (“Term Year 2”) if Newco fails to pay out the Year 3 Dividend on or before 90  calendar days following the end of Term Year 3 (“Year 3 Dividend Date”), provided  however that Huiheng  or its affiliate of Huiheng will have the right, at its sole option, to purchase the balance of the Year 3 Dividend owed to Intact from Intact for cash on a dollar-for-dollar basis on or before the Year 3 Dividend Date to maintain Newco’s rights under this Agreement.  Newco shall make an effort in good faith to declare some portion of the Year 3 Dividend after the end of each quarter, provided that Newco has accumulated available, free cash and provided that distributing that cash will not have a negative effect on Newco’s ability to execute its business plan.  The cumulative Year 3 Dividend as ascribed in the Joint Venture Agreement will be the total of the four quarterly dividends in Year 3;

 

  

 

  

 

iii. For Term Year 4 (a period of twelve (12) months commencing at end of Term Year 3 (“Term Year 4”) if Newco fails to pay out the Year 4 Dividend on or before 90 calendar days following the end of Term Year 4 (“Year 4 Dividend Date”), provided  however that Huiheng or its affiliate of Huiheng will have the right, at its sole option, to purchase the balance of the Year 4 Dividend owed to Intact from Intact for cash on a dollar-for-dollar basis on or before the Year 4 Dividend Date to maintain Newco’s rights under this Agreement.  Newco shall make an effort in good faith to declare some portion of the Year 4 Dividend after the end of each quarter, provided that Newco has accumulated available, free cash and provided that distributing that cash will not have a negative effect on Newco’s ability to execute its business plan.  The cumulative Year 4 Dividend as ascribed in the Joint Venture Agreement will be the total of the four quarterly dividends in Year 4.

 

C. Subsequent to Term Year 4.  Following the end of Term Year 4 (and if renewed, each year thereafter), this Agreement will be automatically renewed on its terms for successive one (1) year terms without further conditions until terminated by Newco, or by the terms of this Agreement, provided however, that if in any subsequent Renewal Term Newco’s revenues from Wand sales fall below [***] (“Wand Revenue Milestone”), then Intact shall have the right to terminate this Agreement.

 

7.    Term and Termination

 

A. Term. This Agreement shall commence on the Effective Date and, unless earlier terminated as provided for herein, shall continue in effect for four (4) years from the date of SFDA Approval (the “Initial Term”). Subject to Section 6C, upon expiration of the Initial Term, this Agreement shall automatically extended for additional successive one (1) year terms (each, a “Renewal Term”) until terminated pursuant to Section 7B. The Initial Term and the Renewal Term will be collectively referred to as the “Term”.

 

B. Termination Rights. The parties may terminate this Agreement at any time by mutually agreeing in writing to do so.  In addition, each party shall have the right to terminate as set forth below:

 

i. Intact shall have the right to terminate the Agreement upon forty-five (45) days prior written notice if any of the following occurs:

 

	
  

	
     (a)

	
Newco materially breaches its obligations, representations or warranties under this Agreement and fails to cure such breach within such forty-five (45) day period;

 

	
  

	
     (b)

	
Newco fails to achieve the Target Milestones or Wand Revenue Milestone as set out in Section 6;

 

	
  

	
     (c)

	
Newco is or becomes bankrupt or insolvent, enters into an arrangement, readjustment of debt, general assignment for the benefit of creditors, dissolution or liquidation proceeding; or

 

	
  

	
     (d)

	
if the Joint Venture Agreement is terminated

 

ii. Newco shall have the right to terminate this Agreement upon forty-five (45) days prior written notice under the following:

 

  

 

  

 

	
  

	
    (a)

	
Intact materially breaches its obligations, representation or warranties under this Agreement and fails to cure such breach within such forty-five (45) day period;

 

	
   

	
    (b)

	
in its sole discretion in any Renewal Term; or

 

	
  

	
    (c)

	
The Product ceases to have valid and enforceable patent protection in the United States.

 

	
  

	
    (d)

	
if the Joint Venture Agreement is terminated.

 

C. Effects of Termination. Subject to the remainder of this Section 7D, upon termination or expiration of this Agreement, Newco will have (i) the right to sell the RF generators remaining in its inventory (“Residual Inventory”), (ii) for a period of five (5) years commencing on the expiration or termination of this Agreement (“Wind-Down Period”), Newco will retain and have the non-exclusive right to continue to manufacture the Intact Wands and Intact Handles and the exclusive right to market, distribute, sell and supply to customers who purchased the Residual Inventory in the Territory, or the RF Generators units sold by Newco  prior to the termination or expiration of this Agreement (“Installed Base”), and (iii) a continuing license to the Licensed Technology and Trademarks granted hereunder to supply the Intact Wands and Intact Handles during the Wind-Down Period; provided that if this Agreement has been terminated by Intact for material breach by Newco, Newco shall not have any rights with respect to the Product following such termination during the Wind-Down Period, including the rights set out in (ii) and (iii) above; provided, however, that if this Agreement has been terminated as a result of the termination of the Joint Venture Agreement by Huiheng for material breach by Intact, Newco  (y) will also retain and have the non-exclusive right to continue to manufacture the Product and the Product components, and the exclusive right to market, distribute, and sell the Product and the Product components in the Territory during the Wind Down Period, and (z) will have a continuing license to the Licensed Technology and Trademarks granted hereunder to supply and market the Product and Product components during the Wind-Down Period.  For the purpose of the rights granted to Newco during the Wind-Down Period under this Section 7C, failure to meet the Target Milestone or Wand Revenue Milestone as provided in Section 6 does not constitute as a material breach by Newco. Notwithstanding anything to the contrary in this Agreement, upon termination or expiration of this Agreement all licenses granted by Intact to Newco hereunder, express or implied, shall automatically terminate except to the extent necessary for Newco to sell Product, Intact Wands and Intact Handles after termination as permitted by this Section 7C.

 

D. Survival. Expiration or termination of this Agreement shall not affect the rights or obligations of either party hereto which shall have accrued hereunder prior to such expiration or termination, or the rights and obligations of the parties intended hereunder to survive the expiration or termination of this Agreement.  Without limiting the generality of the foregoing, no expiration or termination of this Agreement, whether by lapse of time or otherwise, shall serve to terminate the obligations of the Parties hereto under Sections 1, 3D, 4H, 4I, 7C, 7D, and 8 through 22.

 

E. Representations and Warranties of Each Party. Each party represents and warrants that:

 

  

 

  

 

(i)     this Agreement has been duly executed and delivered by such party and constitutes a valid and binding obligation of such party, enforceable against such party in accordance with its terms, except as enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and by general equitable principles;

 

(ii)    as of the Effective Date, the execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of such party, its officers and directors and does not conflict with any agreement, instrument or understanding, oral or written, to which such party is a party or by which it may be bound, and, to the best of its knowledge, does not violate any material law or regulation of any court, governmental body or administrative or other agency having authority over it;

 

(iii)   this Agreement and the performance hereunder does not and shall not contravene with any agreement by which such party is bound by; and the consummation of the transactions contemplated hereby and the fulfillment of the terms hereof do not and will not conflict with or result in a violation of or default under the charter or under any agreement, lease, contract, loan agreement, indenture or other instrument or obligation to which such party is a party;

 

(iv)   such party has full power and authority to perform the obligations set forth herein;

 

(v)    such party is not subject to any order, decree or injunction by a court of competent jurisdiction which may prevent or materially delay the consummation of the transactions contemplated by this Agreement; and

 

(vi)   such party is duly organized, validly existing and in good standing under the laws of the jurisdiction where it is organized.

 

F.      Additional Representations of Intact.  Intact represents, warrants and covenants to Newco that  (i) it is the sole owner of the Licensed Technology; (ii) Exhibits C and D lists each Patent, that is included among the Intellectual Property owned by Intact  and Trademarks related to the Product; (iii) Intact has all right, title and interest in and to the Intellectual Property it Controls that is related to the Product (iv) the clinical studies done on the Product prior to the date hereof were conducted in good faith and not in contravention of any applicable laws, rules, regulations or guidelines concerning the performance of such studies and the interpretation of data collected,  (iv) to Intact’s Knowledge as of the Effective Date, Intact has not received any written  claim or notice of infringement of the Intellectual Property rights of any other person pending or threatened in writing against Intact relating to the Product or operation of  Intact’s business, (v) as of the Effective Date, no payments are due to others by reason of the sale of the Product or licensing of the Licensed Technology as contemplated hereunder (vi) to Intact’s Knowledge as of the Effective Date, the granting of the Licensed Technology hereunder does not infringe upon the rights of any other third parties, vii) to Intact’s Knowledge as of the Effective Date, Intact has taken reasonable precautions to protect trade secrets constituting material Intellectual Property owned or used by Intact in connection with Product, including the execution of appropriate agreements, and (xii)to Intact’s Knowledge as of the Effective Date, Intact’s current use of the Licensed Technology does not not infringe, misappropriate or violate any intellectual property rights of any person.

 

  

 

  

 

G.  Additional Representations and Warranties of Newco.

 

i. Performance; Defective Product.  Newco warrants that all Product delivered hereunder shall meet all applicable specifications for the Product provided by Intact and shall be free from defects in material and workmanship under normal use and service for a period of 12 months from the date of shipment from Newco.  Intact shall not be obligated to pay for any Product delivered to it of such Product does not conform to approved sample under Section 4B (“Defective Product”).  Intact may at its sole discretion request that Newco replace or repair such Defective Product, or Intact may return such Defective Product to Newco, at Newco’s sole cost

 

ii. Service Levels; Performance of Third Parties.  Newco will use its best efforts to perform, and as necessary cause its authorized sub-distributors or authorized subcontractors to perform, all manufacturing and other services pursuant to this Agreement in a timely and professional manner and in accordance with industry standards for manufacturing services.

 

iii. Compliance with Laws.  Newco will comply with all applicable federal, state, and local laws and regulations, and will obtain all applicable permits and licenses, necessary to manufacture and sell the Product, provided, however, that Intact shall solely be responsible for all permits and licenses required by any US, state or foreign country or international agency that Intact needs for it’s sales of the Product outside of the Territory.

 

iv. Anticorruption Matters.  Newco represents and warrants that it has not taken and covenants that it will not take during the Term any action in violation of any applicable anticorruption law, including the U.S. Foreign Corrupt Practices Act (“FCPA”) (15 U.S.C. § 78 dd-1 et seq.); or (ii) has corruptly, offered, paid, given, promised to pay or give, or authorized the payment or gift of anything of value, directly or indirectly, to any “Public Official,” as defined in this Section 8C, for purposes of (A) influencing any act or decision of any Public Official in his official capacity; (B) inducing such Public Official to do or omit to do any act in violation of his lawful duty; (C) securing any improper advantage; or (D) inducing such Public Official to use his or her influence with a government, governmental entity, or commercial enterprise owned or controlled by any government (including state-owned or controlled veterinary or medical facilities), in order to assist the business of Newco or any party related in any way to the business of Newco.  For purposes of this Section 8C, “Public Official” means:  (i) any officer, employee or representative of any regional, federal, state, provincial, county or municipal government or government department, agency, or other division; (ii) any officer, employee or representative of any commercial enterprise that is owned or controlled by a government, including any state-owned or controlled medical facility; (iii) any officer, employee or representative of any public international organization, such as the African Union, the International Monetary Fund, the United Nations or the World Bank; (iv) any person acting in an official capacity for any government or government entity, enterprise, or organization identified above; and (v) any political party, party official or candidate for political office.  Newco does not have knowledge of any actual or potential issues under the FCPA or any other applicable anticorruption law involving any of its directors or officers, employee, acting on behalf of Newco in any way relating to its business.

 

  

 

  

 

v.  Export Controls and Sanctions Matters.  Neither Newco nor any of its directors, or officers, employees, nor, to Newco's knowledge, any distributor, agent, representative, sales intermediary or other third party acting on behalf of Newco,  has taken or will take during the Term any action in violation of any applicable export control law, trade or economic sanctions law, or anti-boycott law, in the United States or any other jurisdiction, including:  the Arms Export Control Act (22 U.S.C.A. § 2278), the Export Administration Act (50 U.S.C. App. §§ 2401-2420), the International Traffic in Arms Regulations (22 C.F.R. 120-130), the Export Administration Regulations (15 C.F.R. 730 et seq.), the Office of Foreign Assets Control Regulations (31 C.F.R. Chapter V), the Customs Laws of the United States (19 U.S.C. § 1 et seq.), the International Emergency Economic Powers Act (50 U.S .C. § 1701-1706), the U.S. Commerce Department anti-boycott regulations (15 C.F.R. 560), the U.S. Treasury Department anti-boycott requirements (26 U.S.C. § 999), any other export control regulations issued by the agencies listed in Part 730 of the Export Administration Regulations, or any applicable non-U.S. Laws of a similar nature.

 

vi.  Neither Newco nor, to Newco's knowledge any of its director or officers, employee, distributor, agent, representative, sales intermediary or other third party acting on behalf of Newco, is listed on the U.S. Office of Foreign Assets Control “Specially Designated Nationals and Blocked Persons” (“SDN List”) or any other similar list.

 

vii.  All export licenses, license exceptions and other consents, notices, waivers, approvals, orders, authorizations, registrations, declarations, classifications and filings required for the export, import and re-export of the Product (“Export Approvals”) will be obtained; and to the Knowledge of Newco, no Export Approvals are required by the laws identified in Section 8C(v) for continued export, re-export or import of the Product.

 

viii. Newco has taken and will take during the Term, all reasonable measures, to ensure that its directors, employees, agents, distributors, representatives and sales intermediaries take all reasonable measures, to protect the Confidential Information and any trade secrets included in the Licensed Technology.

 

ix. No Warranty Pass Through  Except for the limited warranty expressly set forth in Section 8C(i) above, Newco shall not be entitled to make or pass through any warranties to any third parties regarding the Product unless specifically authorized in writing by Intact on a case-by-case basis.   Newco shall be responsible for all representations and warranties it makes to customers.

 

9.          Indemnification.

 

A.                      Indemnification by Newco.  Newco agrees to indemnify and hold Intact, its officers, directors, employees, successors and assigns (the “Intact Indemnities”) harmless from and against all losses, damages, action, suit, claim, demand, liability, penalty, expense (including, without limitation, reasonable attorneys’ fees and expenses), bodily injury, death, or property damage (collectively, “Losses”), finally awarded against Intact Indemnitees by a court of competent jurisdiction or agreed upon by Newco in settlement which the Intact Indemnitees, or any of them, resulting from any claims, actions or suits (including a governmental investigation) by third parties to the extent arising from; (i) any gross negligent or wrongful act or omission of Newco or its directors, officers, Affiliates, employees or agents; (ii) violation by Newco (or any of its directors, officers, Affiliates, employees or agents) of any applicable law, rule, regulation or order), or (iii) defects in manufacturing of the Product.

 

  

 

  

 

B.           Indemnification by Intact. Intact agrees to indemnify and hold Newco, its officers, directors, employees, successors and assigns (the “Newco Indemnitees”) harmless from and against all Losses, finally awarded against Newco Indemnitees by a court of competent jurisdiction or agreed upon by Intact in settlement which the Newco Indemnitees, or any of them, resulting from, any claims, actions or suits (including a governmental investigation) by third parties to the extent arising from; (i) any gross negligent or wrongful act or omission of Intact or its directors, officers, Affiliates, employees or agents; (ii) violation by Intact (or any of its directors, officers, Affiliates, employees or agents) of any applicable law, rule, regulation or order; (iii) an inherent defect in the design or functionality of the Product; or (iv) the infringement of intellectual property rights in the Territory by the Product as designed by Intact, but not as a result of any modifications to design or manufacturing by or on behalf of Newco, and not for combinations of the Product with any other products or use of the Product for any other purpose than the use to which the Product is put by Intact as of the Effective Date .

C.           Indemnification Procedure. If indemnification is sought pursuant to Sections 9A or B above, the indemnified party shall: (i) give written notice to the indemnifying party within fifteen (15) days after receipt by the indemnified party of such claim, suit or demand; provided, however, that the failure to give notice within such time period shall not relieve the indemnifying party of its obligation to indemnify, unless it shall be materially prejudiced by such failure; (ii) permit the indemnifying party to assume direction and control of the defense of claims resulting therefrom; and (iii) at its own cost and expense, cooperate fully as requested by the indemnifying party in the defense of the claims. No offer of settlement, settlement or compromise by the indemnifying party shall be binding on an indemnified party without its prior written consent (which consent shall not be unreasonably withheld or delayed), unless such settlement fully releases the indemnified party without any liability, loss, cost or obligation incurred by such indemnified party. No offer of settlement, settlement or compromise by the indemnified party shall be binding on an indemnifying party without its prior written consent (which consent shall not be unreasonably withheld or delayed).

D.           Disclaimer of Warranties. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, EACH PARTY MAKES NO REPRESENTATIONS OR WARRANTIES AS TO ANY MATTER, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND EACH PARTY SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES, INCLUDING, ALL IMPLIED WARRANTIES OF, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE.

E.           Limitation of Liability.  IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR LOSS OF PROFITS OR OTHER COMMERCIAL OR ECONOMIC LOSS, OR LOSS OR INTERRUPTION OF BUSINESS, OR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES OF ANY KIND ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS SECTION 9E IS INTENDED TO LIMIT OR RESTRICT THE AMOUNTS PAYABLE TO THIRD PARTIES TO FULFILL INDEMNITY OBLIGATIONS SECTIONS 9A OR 9B, A BREACH OF LICENSE RESTRICTIONS, OR DAMAGES AVAILABLE FOR A BREACH OF CONFIDENTIALITY OBLIGATIONS IN SECTION 11.  The foregoing provision shall not be construed to limit a party’s indemnification obligation under this Agreement for third party claims which may include consequential, punitive or other types of damages.

 

  

 

  

10.      Dispute Resolution.

 

A.       Negotiation of Parties. In the event of any dispute, claim or controversy arising out of or relating to the interpretation of any provision of this Agreement, to the performance of either party under this Agreement or to any other matter under this Agreement, including any action in tort, contract or otherwise, at equity or at law, and any claims of fraud in the inducement (a “Dispute”), either party may at any time provide the other party written notice specifying the terms of such Dispute in reasonable detail. As soon as practicable after receipt of such notice, the Chief Executive Officers of both Newco and Intact shall meet (in person or otherwise) at a mutually agreed upon time and location for the purpose of resolving such Dispute. They shall engage in good faith discussions and/or negotiations for a period of up to thirty (30) days to resolve the Dispute or negotiate an interpretation or revision of the applicable portion of this Agreement which is mutually agreeable to both parties, without the necessity of formal procedures relating thereto. During the course of such discussion and/or negotiation, the parties shall reasonably cooperate and provide information that is not materially confidential in order so that each of the parties may be fully informed with respect to the issues in Dispute.

 

B.       Arbitration. All disputes, controversies or differences which may arise between the parties, and/or between a party and the Newco, out of or in relation to or in connection with this Agreement which cannot be settled by full discussion between appropriate senior representatives of the parties will be settled, by arbitration in Boston, Massachusetts, according to the commercial arbitration rules of the American Arbitration Association and applying the procedural laws of the State of Massachusetts. The proceedings shall take place in the local language with provision for simultaneous interpretation at the expense of the party desiring it.  The decision of the arbitrator(s) will be final and binding and enforceable in any court with appropriate jurisdiction. Notwithstanding the generality of the foregoing, nothing in this Section 10B shall be construed to limit either Party’s right to apply for injunctive or other equitable relief to which it may be entitled to preserve any of its rights under this Agreement.

 

11.      Confidential Information.

 

A.       Confidentiality.  It has been contemplated that in the course of the negotiation and the performance of this Agreement each party may have access to, or may disclose, Confidential Information of or to the other, as the case may be. Each party agrees that for the Term and for ten (10) years thereafter, the Receiving Party shall keep confidential and shall not publish or otherwise disclose, and will not use any Confidential Information of the Disclosing Party except for the limited purposes set forth in this Agreement; provided, however that if any disclosure of Confidential Information to a third party is authorized by this Agreement, the Receiving Party shall obtain from such third party an agreement to hold such information in strictest confidence, and not to make use of such information for any purpose other than as permitted by this Agreement.  No provision of this Agreement shall be construed to preclude such disclosure of Confidential Information as may be necessary or appropriate (i) to obtain from any governmental agency any necessary approval contemplated by this Agreement, (ii) solely in the case of Intact, to file patent applications or obtain patents that are included in the Licensed Technology consistent with the terms of this Agreement.  If any disclosure of Confidential Information is required under the foregoing subsection (ii), the Receiving Party shall notify as soon as possible the Disclosing Party of such disclosure and the Receiving Party shall, if requested by the Disclosing Party, use reasonable good faith efforts, at the expense of the Disclosing Party, to assist in seeking a protective order (or equivalent) with respect to such disclosure or otherwise avoid making such disclosure, and in each case of (i) or (ii) above, the disclosure by the Receiving Party shall be limited to the minimum required to comply with the requirement to disclose the Confidential Information. The Receiving Party will take all precautions as are reasonably necessary to prevent unauthorized access to, reproduction,

 

 

  

 

  

 

 

 

duplication, disclosure or use of the other party’s Confidential Information and shall only disclose the Confidential Information of the other party to those of its officers, directors and employees, or to officers, directors and employees of its Affiliates, on a “need to know basis” provided each such officer, director, contractor or employees agrees in writing in favor of the Disclosing Party to be bound by the same obligations of secrecy and confidentiality that the Receiving Party is bound to under this Agreement and provided, further, that the Receiving Party shall be strictly responsible to the Disclosing Party for any losses or damages suffered as a result of the breach of such obligations by the Receiving Party’s directors, officers, contractors or employees.

 

B.      Exceptions.  The obligations of confidentiality contained in Section 11 will not apply to the extent that such Confidential Information: (i) was already known to the Receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the Disclosing Party; (ii) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party; (iii) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the Receiving Party in breach of this Agreement; (iv) was disclosed to the Receiving Party, other than under an obligation of confidentiality, by a third party who had no obligation not to disclose such information to others; (v) was developed independently by the Receiving Party without any use of Confidential Information; or (vi) is required to be disclosed publicly by applicable law.

 

12.     Relationship of Parties. Nothing herein shall be deemed to create an agency, joint venture, amalgamation, partnership, franchise or similar relationship between Newco and Intact. Notwithstanding any of the provisions of this Agreement, neither party shall at any time enter into, incur, or hold itself out to third parties as having authority to enter into or incur, on behalf of the other party, any commitment, expense, or liability whatsoever, and all such commitments, expenses and liabilities undertaken or incurred by one party in connection with or relating to the development, manufacture or sale of Product or components thereof shall be undertaken, incurred or paid exclusively by that party, and not as an agent or representative of the other party.

 

13.      Intellectual Property

 

A.       IP Ownership.  The parties agree that Intact is the sole owner of all legal and beneficial right, title and interest in and to the Licensed Technology and any Improvements thereto, and nothing in this Agreement shall be interpreted as granting any rights of ownership to Newco in any Licensed Technology.  Ownership of all inventions and all intellectual property rights therein, relating to the Licensed Technology and, arising out of the activities conducted under this Agreement, including Improvements and other inventions relating to methods of making or using, configuration, performance or other attributes of the Product, that are made by employees, independent contractors, agents or Affiliates of one or both of the Parties (“Inventions”) shall be owned solely by Intact, regardless of creator.  All such Inventions and intellectual property rights shall be included within the scope of the Licensed Technology and are licensed to Newco pursuant to Section 2 of this Agreement.  Notwithstanding the generality of the foregoing, the parties agree that any inventions conceived and reduced to practice solely by or on behalf of Newco that are not derived from the Licensed Technology, or which relate to the manufacturing process (the “Process Improvements”) shall be owned by Newco.

 

Newco hereby grants to Intact, and agrees to cause to be granted by any Authorized Manufacturer to Intact, a worldwide, perpetual, non-exclusive, royalty free, fully paid, transferable license in and to the Process Improvement.

 

  

 

  

 

B.       Further Assurances.  Except as otherwise mutually agreed upon, Intact and Newco agree that without additional consideration, Newco hereby assigns all of its right, title and interest in and to Inventions, excluding Process Improvements, and related intellectual property rights (including enforcement rights) to Intact.  Newco shall promptly notify Intact in writing of all Inventions and if Intact desires to secure protection on such Inventions, Newco will cooperate with Intact for the purpose of filing and prosecuting patent applications, including the execution of any and all legal papers which may be deemed necessary or desirable by Intact to record such assignment or for the filing and prosecution of patent applications and for assignment of such applications to Intact.  Newco hereby designates Intact as its agent for, and grants to Intact a power of attorney, which power of attorney shall be deemed coupled with an interest, solely for the purpose of effecting the foregoing assignment from Newco to Intact.

 

C.        Patents and Related Expenses. Intact shall, at its own expense, apply for, prosecute before the Patent Offices and maintain in the Patent Offices all Patents and all trademark applications and trademarks listed on Exhibit D. Upon request of Newco, Intact may at its own discretion, agree to undertake to apply for, prosecute and maintain all Patents in the Territory at Intact’s sole expense.

 

D.        Infringement of Patents.  Intact shall have the first right, at its sole discretion, but is not obligated, to take any and all action that it deems appropriate, at its expense, to assert any or all of the Licensed Technology against any party(s) deemed by Intact or Newco (by written notice to Intact) to infringe said Licensed Technology (the “Infringing Party”) anywhere in the world.  If Intact elects to enforce or assert its Licensed Technology against an Infringing Party, Newco agrees to cooperate with Intact and shall provide all reasonable assistance reasonably requested by Intact in pursuit of such action(s), at Intact’s sole expense.  If Intact elects not to assert or otherwise enforce the Licensed Technology against any Infringing Party, it shall notify Newco in writing within thirty (30) days of making that decision, and Newco shall be entitled, but shall have no obligation to take any and all action that it deems appropriate, at its expense, to assert any or all of the Licensed Technology against any Infringing Party in the Territory only, and Intact hereby agrees to cooperate with Newco as reasonably requested and reasonably necessary in the pursuit of said action(s), at Newco’s sole expense. Newco shall promptly keep Intact informed of and provide copies of all material correspondence and documents relating to any such actions, and shall consult with Intact on all material decisions regarding such actions, and Intact shall have the right to consent to material decisions which are reasonably likely to affect Intact, which consent shall not be unreasonably withheld, conditioned or delayed.

 

E.         Infringement by Third Party Product.  In the event that an infringement suit is filed in the Territory naming Intact and/or Newco as defendants and alleging that the Product infringes one or more patent(s) held by a third party, then Intact shall be obligated to take any and all action that it deems reasonably appropriate, at its expense, to defend the Licensed Technology against the third party alleging infringement, and Newco hereby agrees to cooperate with Intact as reasonably necessary in the pursuit of said action(s).

 

F.         Force Majeure. Neither party shall be liable for any delay in or failure of performance hereunder due to any contingency beyond its reasonable control. Should the delay or failure continue for more than twelve (12) months, then the other party shall have the right to immediately terminate this Agreement upon written notice to the other party. However, nothing contained herein shall relieve either party from its obligation to make all payments due hereunder when such payments are due.

 

  

 

  

G.        Notices.  Any notice or request which shall or may be given under this Agreement shall be made by airmail, registered mail with return receipt requested or facsimile and shall be directed to the intended recipient at its address set forth below or at such other address as such party may notify the other parties in accordance with this paragraph.  The effective date of delivery of such notice shall, in the case of airmail or registered airmail, be seven (7) business days following dispatch, or in the case of facsimile or e-mail, the date of successful transmission as evidenced by a transmission report.

 

H & I Medical China Limited

Gaoxin 7 Street South,

Keyuannan Road, Nanshan District,

Shenzhen Guangdong, P.R. China 518057

Facsimile: 0755-2674 5291

Intact Medical Corporation

550 Cochituate Road, Suite 25, East Wing, Floor 4,

Framingham MA 01701

Facsimile: (508) 655-7822

 

H.       Assignment; Successor and Assigns. Neither party may assign or otherwise transfer this Agreement without the prior written consent of the other party; provided, however, that Intact may assign this Agreement to a successor in interest to Intact without Newco’s consent upon a merger, acquisition, reorganization, change of control, or sale of all or substantially all of the assets of Intact    Subject to the foregoing, this Agreement is binding upon, and shall inure to the benefit of the parties hereto and their respective permitted successors and assigns. Any purported assignment not in compliance with this Section 16 shall be null and void from the beginning.

 

14.       Governing Law. This Agreement shall be governed by the laws of the State of Massachusetts, without regard to any rules on conflicts of laws.

 

15.       Entire Agreement; Modifications; Waiver. This Agreement, together with all Exhibits hereto, fully expresses the entire understanding between the parties, and supersedes any prior agreements, understandings, or discussions between the parties. It may not be hereafter added to, altered, or modified except by written instrument signed by both parties. No delay, or omission in the exercise of any right, power, or remedy hereunder by either party shall impair such right, power, or remedy or be considered to be a waiver of any default or acquiescence therein by such party.

 

16.        Headings. The section headings contained herein are not part of this Agreement and are included solely for the convenience of the parties.

 

17.        Language.  This Agreement shall be executed both in the English language and the Chinese language, but in the event of inconsistency or difference between the English language version and the Chinese language version of this Agreement, the English language version shall prevail.

 

18.        Further Assurances.  Each of the parties agrees to take such actions, including but not limited to the execution and/or delivery of additional agreements and other written documents, as may be required to assure that each party to this Agreement enjoys all rights accorded to such party under this Agreement.

 

 

  

 

  

 

19.     Execution in Counterpart. This Agreement may be executed in counterpart by the parties, either through original copies or by facsimile or electronic copies. An executed copy of this Agreement delivered by facsimile or electronically will constitute valid execution and delivery of this Agreement.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

 

H & I Medical China Limited

By: ________________________________

Name:______________________________

Title:_______________________________

Intact Medical Corporation

By: ________________________________

Name: ______________________________

Title: _______________________________

 

 

 

 

  

 

  

 

Exhibit A

 

 

Description of Intact Breast Lesion Excision System

 

 

 

 

  

  

  

 

Exhibit B-1

 

Acceptance Criteria

 

 

 

 

 

  

  

  

 

Exhibit B-2

 

Qualification Plan

 

 

 

 

 

 

  

  

  

 

Exhibit C

 

List of Patents

 

 

 

 

  

  

  

 

Exhibit D

Trademarks

 

 

 

 

  

  

  

 

Exhibit E

 

Core Components

 

 

 

 

  

  

  

Exhibit B

 

Form of  Promissory Note

 

 

 

 

 

  

  

  

 

UNSECURED PROMISSORY NOTE

 

	
$150,000.00

	
Made as of __________, 2011

 

For value received, the undersigned, Intact Medical Corporation, a Delaware corporation  (the “Maker”), promises to pay to the order of Allied Moral Holdings, Ltd., a company incorporated under the law of British Virgin Islands (the “Holder”) or its assign, the principal sum of one hundred and fifty thousand dollars ($150,000), without interest.  The principal balance of the Note, which is outstanding and unpaid from time to time, is referred to as the “Principal Amount.”

 

Pursuant to the Joint Venture Agreement, dated _________, 2011, by and between the Maker, the Holder and BMG Diamond Holdings Limited, Maker hereby assign its rights to any and all cash distributions from H&I Medical China Limited (“Newco”), an entity incorporated under the laws of British Virgin Islands, up to the Principal Amount. Holder hereby agrees to take payment(s) up to the Principal Amount from Newco from time to time as declared by Newco’s board of directors. Maker may prepay this Note in whole or in part at any time without penalty.

 

Maker shall waive presentment by Holder for payment, demand, notice of dishonor and nonpayment of this Note, and consent to any and all extensions of time, renewals, waivers or modifications that may be granted by Holder with respect to the payment or other provisions of this Note, with or without substitution.

 

If for any reason one or more of the provisions of this Note or their application to any person or circumstances shall be held to be invalid, illegal or unenforceable in any respect or to any extent, such provisions shall nevertheless remain valid, legal and enforceable in all such other respects and to such extent as may be permissible.  In addition, any such invalidity, illegality or unenforceability shall not affect any other provisions of this Note, but this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained therein.

 

MAKER:

Intact Medical Corporation

a Delaware corporation

 

 

                                                                                              

Name:                                                                                   

Title:                                                                                     

 

Agreed to and accepted by:

 

HOLDER:

Allied Moral Holdings, Ltd.,

 

 

                                                                                          

Name:                                                                                

Title:Exhibit 10.1

Execution Copy

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of September 7, 2011, by and among Bluefly, Inc., a Delaware corporation (the “Company”), and each of the Purchasers named on Schedule 1 hereto (the “Purchasers”).

 

RECITALS

 

A.           The Company and the Purchasers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “Commission”) under the Securities Act.

 

B.           Each of the Purchasers wish to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, the number of shares opposite such Purchaser’s name on Schedule 1 (the shares to be purchased in the aggregate are referred to as the “Shares”) of common stock, par value $0.01 per share (the “Common Stock”), of the Company on the Closing Date for a purchase price per share of $1.80 (the “Purchase Price”) for an aggregate purchase price of six million, six hundred thousand dollars ($6,600,000).

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

1.1           Definitions.  In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

 

“Action” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against the Company or any of its properties or any officer, director or employee of the Company acting in his or her capacity as an officer, director or employee before or by any federal, state, county, local or foreign court, arbitrator, governmental or administrative agency, regulatory authority, stock market, stock exchange or trading facility.

 

 “Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, Controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act.  With respect any Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.

 

“Agreement” shall have the meaning ascribed to such term in the Preamble.

  

 

  

“Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

 

“Capitalization Table” has the meaning set forth in Section 2.2(a)(ix).

 

“Closing” has the meaning set forth in Section 2.1(b).

 

“Closing Date” has the meaning set forth in Section 2.1(b).

 

“Commission” has the meaning set forth in the Recitals.

 

“Common Stock” has the meaning set forth in the Recitals, and also includes any securities into which the Common Stock may hereafter be reclassified or changed.

 

“Company” shall have the meaning ascribed to such term in the Preamble.

 

“Company Counsel” means Dechert LLP.

 

“Company Deliverables” has the meaning set forth in Section 2.2(a).

 

“Company Intellectual Property” has the meaning set forth in Section 3.1(x).

 

“Company’s Knowledge” means with respect to any statement made to the knowledge of the Company, that the statement is based upon the knowledge of the executive officers of the Company having responsibility for the matter or matters that are the subject of the statement.

 

“Company Party” has the meaning set forth in Section 4.8(b).

 

 “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

 

“Contract” has the meaning set forth in Section 3.1(n).

 

“Control” (including the terms “controls”, “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

“Disclosure Materials” has the meaning set forth in Section 3.1(h).

 

“DTC” has the meaning set forth in Section 4.1(c).

 

“Environmental Laws” has the meaning set forth in Section 3.1(1).

  

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“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

“Existing Stockholder” means each of Quantum Industrial Partners LDC, a Cayman Islands limited duration company, SFM Domestic Investments LLC, a Delaware limited liability company, Maverick Fund USA, Ltd., a Texas limited partnership, Maverick Fund, L.D.C., a Cayman Islands exempted limited duration company, Maverick Fund II, Ltd., a Cayman Islands exempted company, Prentice Consumer Partners, LP, a Delaware limited partnership and Rho Ventures VI, L.P.

 

“GAAP” means U.S. generally accepted accounting principles, as applied by the Company.

 

“Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, Lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above.

 

“Indemnified Person” has the meaning set forth in Section 4.8(c).

 

“Indemnifying Person” has the meaning set forth in Section 4.8(c).

 

“Information Statement” has the meaning set forth in Section 4.2(a).

 

“Insider” means (i) any Existing Stockholder, (ii) any existing officer or director of the Company, (iii) any Member of the Immediate Family of any Existing Stockholder or (iv) any entity in which any of the Persons described in clause (i), (ii) or (iii) owns any beneficial interest (other than less than one percent of the outstanding shares of capital stock of any corporation whose stock is listed on a Trading Market).

 

“Intellectual Property” has the meaning set forth in Section 3.1(x).

  

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“Lien” means any lien, charge, claim, encumbrance, security interest, right of first refusal, preemptive right or other restrictions of any kind.

 

“Lock Up Agreements” means the lock up agreements dated the date hereof (i) in the form attached hereto as Exhibit C-1 executed and delivered by each of the directors and certain current officers of the Company listed on Schedule 2 and (ii) in the form of Exhibit C-2 executed and delivered by each of the Existing Stockholders listed on Schedule 2.

 

 “Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, business, condition (financial or otherwise) or liabilities (including contingent liabilities) of the Company or the Company and its Subsidiary, taken as a whole, or (iii) any adverse impairment to the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document.

 

“Material Contract” means any contract of the Company that was filed or required to be filed as an exhibit to the SEC Reports pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation S-K, other than any contract which has expired by its terms and does not provide for the continuation of any material obligation on the part of the Company following the date hereof.

 

“Material Permits” has the meaning set forth in Section 3.1(u).

 

“Member of the Immediate Family” of a Person means a spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law, and brother- or sister-in-law of such Person.

 

“Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

 

“Press Release” has the meaning set forth in Section 4.7.

 

“Principal Trading Market” means the Trading Market on which the Common Stock is primarily listed on and quoted for trading, which, as of the date of this Agreement and the Closing Date, shall be the NASDAQ Capital Market.

 

“Proceeding” means an Action, whether commenced or threatened.

 

“Proxy Statement” has the meaning set forth in Section 4.2(a).

 

“Purchase Price” has the meaning set forth in the Recitals.

 

“Purchasers” shall have the meaning ascribed to such term in the Preamble.

 

“Purchaser Deliverables” has the meaning set forth in Section 2.2(b).

 

“Purchaser Party” has the meaning set forth in Section 4.8(a).

  

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“Registration Rights Penalty Warrants” has the meaning given such term in the Registration Rights Agreement.

 

“Registration Rights Agreement” means the amended and restated registration rights agreement dated the date hereof and attached hereto as Exhibit B.

 

“Registration Statement” means a registration statement covering the resale by the Purchasers of the Shares.

 

“Regulation D” has the meaning set forth in the Recitals.

 

“Required Approvals” has the meaning set forth in Section 3.1(e).

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“SEC Reports” has the meaning set forth in Section 3.1(h).

 

“Secretary’s Certificate” has the meaning set forth in Section 2.2(a)(iv).

 

“Securities Act” has the meaning set forth in the Recitals.

 

“Shares” has the meaning set forth in the Recitals.

 

“Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act, whether or not against the box, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and similar arrangements (including on a total return basis), and sales and other transactions through non-U.S. broker dealers or foreign regulated brokers.

 

“Stockholder Approval Condition” means the Company’s receipt and effectiveness of stockholder approval for the issuance of the Registration Rights Penalty Warrants.

 

“Stockholder Meeting Date” has the meaning set forth in Section 4.2(a).

 

“Subsidiary” means, with respect to any Person, any other Person of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions is directly or indirectly owned or controlled by such Person and/or by one or more of its Subsidiaries.

 

 “Trading Affiliate(s)” has the meaning set forth in Section 3.2(i).

 

“Trading Day” means (i) a day on which the Common Stock is listed or quoted and traded on its Principal Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC

  

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Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over- the-counter market as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or the OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

 

“Transaction Documents” means this Agreement, the schedules and exhibits attached hereto, the Registration Rights Agreement, the Lock Up Agreements and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means American Stock Transfer and Trust Company, or any successor transfer agent for the Company.

 

“Voting Agreement” means that certain amended and restated voting agreement dated December 21, 2009.

 

ARTICLE II

 

PURCHASE AND SALE

 

2.1           Purchase and Sale of Shares.

 

(a)          Amount.  Subject to the terms and conditions set forth in this Agreement, on the Closing Date (as defined below) at the Closing (as defined below) the Company shall issue and sell to the Purchasers, and each Purchaser shall purchase from the Company, the number of Shares opposite such Purchaser’s name on Schedule 1.  Each Purchaser’s agreement to purchase Shares hereunder shall be several and not joint.

 

(b)          Closing.  The closing of the purchase and sale of the Shares (the “Closing”) shall be take place at the offices of Company Counsel, 1095 Avenue of the Americas, New York, New York or at such other locations or remotely by facsimile transmission or other electronic means as the parties may mutually agree at 10:00 a.m., Eastern Standard Time, on the date hereof (the “Closing Date”).

 

2.2           Closing Deliveries.

 

(a)          On or prior to the Closing, the Company shall issue, deliver or cause to be delivered to the Purchasers the following (the “Company Deliverables”):

 

(i)           this Agreement, duly executed by the Company;

 

(ii)          a copy of the Company’s irrevocable instructions to the Transfer Agent, acknowledged by the Transfer Agent, instructing the Transfer Agent to deliver, on

  

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an expedited basis, one or more stock certificates, free and clear of all restrictive and other legends (except as provided in Section 4.1(b) hereof), evidencing the Shares subscribed for by each Purchaser hereunder, registered in the name of each respective Purchaser, with the original stock certificates sent to the respective Purchasers within three (3) Business Days of the Closing;

 

(iii)         a legal opinion of Company Counsel, dated as of the Closing Date, executed by such counsel and addressed to the Purchasers;

 

(iv)         a certificate of the Secretary of the Company (the “Secretary’s Certificate”), dated as of the Closing Date, (a) certifying the resolutions adopted by the Board of Directors of the Company or a duly authorized committee thereof approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance of the Shares, (b) certifying the current versions of the certificate of incorporation, as amended, and by-laws, as amended, of the Company and (c) certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company;

 

(v)          the Compliance Certificate referred to in Section 5.1(g);

 

(vi)         a certificate evidencing the formation and good standing of the Company in the State of Delaware issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within two (2) Business Days of the Closing Date;

 

(vii)        a certificate evidencing the Company’s qualification as a foreign corporation and good standing issued by the States of New York and Ohio, as of a date within three (3) Business Days of the Closing Date;

 

(viii)       a certified copy of the certificate of incorporation, as certified by the Secretary of State of the State of Delaware, as of a date within three (3) Business Days of the Closing Date;

 

(ix)          a true and accurate pro forma capitalization table of the Company in Microsoft Excel format setting forth the aggregate number of shares and type of all authorized, issued and outstanding classes of capital stock, options, warrants and other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) as of the Closing Date (the “Capitalization Table”);

 

(x)          a fully executed Registration Rights Agreement; and

 

(xi)         fully executed Lock Up Agreements.

 

(b)          At the Closing, each Purchaser shall deliver or cause to be delivered to the Company the following (the “Purchaser Deliverables”):

 

(i)           this Agreement, duly executed by such Purchaser;

  

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(ii)          the Purchase Price set forth opposite such Purchaser’s name on Schedule 1 in United States dollars and in immediately available funds, by wire transfer to an account designated in writing to the Purchasers by the Company for such purpose; and

 

(iii)         a fully completed and duly executed Accredited Investor Questionnaire, reasonably satisfactory to the Company, and Stock Certificate Questionnaire, each in the form attached hereto as Exhibits A-1 and A-2, respectively.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of the Company.  The Company hereby represents and warrants as of the date hereof (except for the representations and warranties that speak as of a specific date, which shall be made as of such date), to the Purchasers that the following representations and warranties are true and complete, except as set forth in the Schedules delivered herewith.  The Schedules shall be arranged in sections corresponding to the lettered subsections contained in this Section 3.1, and the disclosures in any subsection of the schedules shall qualify other subsections in this Section 3.1 to the extent it is reasonably apparent from a reading of the disclosure that such disclosure is applicable to such other subsections.

 

(a)          Subsidiaries.  The Company has no direct or indirect Subsidiaries, other than Eyefly, LLC, a Delaware limited liability company in which it has a 52% membership interest.

 

(b)          Organization and Qualification.  The Company and its Subsidiary are each an entity duly incorporated or organized (as applicable), validly existing and in good standing under the laws of the State of Delaware, with the requisite corporate power and authority to own or lease and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor its Subsidiary is in violation of any of the provisions of its certificate of incorporation or certificate of formation or, in any material respects, its by-laws, operating agreement or other organizational or charter documents.  Each of the Company and its Subsidiary is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not reasonably be expected to have a Material Adverse Effect.

 

(c)          Authorization; Enforcement; Validity.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder.  The Company’s execution and delivery of each of the Transaction Documents to which it is a party and the consummation by it of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Shares) have been duly authorized by all necessary corporate action on the part of the Company, and no further corporate action is required by the Company, its Board of Directors or its stockholders in connection therewith other than in connection with the Required Approvals.  Each of the Transaction Documents to which it is a party has been (or upon delivery will have been) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute the legal, valid and binding obligation

  

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of the Company enforceable against the Company in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(d)          No Conflicts.  The execution, delivery and performance by the Company of the Transaction Documents to which it is a party and the consummation by the Company of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Shares) do not and will not (i) conflict with or violate any provisions of the Company’s certificate of incorporation, by-laws or otherwise result in a violation of the organizational documents of the Company, (ii) conflict with, result in any breach of any provision of, or constitute a default (or an event that with notice or lapse of time or both would result in a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or its Subsidiary or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any Material Contract, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or its Subsidiary is subject (including federal and state securities laws and regulations and the rules and regulations, assuming the correctness of the representations and warranties made by the Purchasers herein, of any self-regulatory organization to which the Company or its securities are subject, including all applicable Trading Markets), or by which any property or asset of the Company or its Subsidiary is bound or affected, except in the case of clauses (ii) and (iii) such as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(e)          Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents (including, without limitation, the issuance of the Shares), other than (i) the filing with the Commission of one or more Registration Statements, (ii) filings required by applicable state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (iv) the filing of any requisite notices and/or application(s) to the Principal Trading Market for the issuance and sale of the Common Stock and the listing of the Common Stock for trading or quotation, as the case may be, thereon in the time and manner required thereby, (v) the filings required in accordance with Section 4.7 of this Agreement, (vi) the satisfaction of the Stockholder Approval Condition for the Registration Rights Penalty Warrants, and (vii) those that have been made or obtained prior to the date of this Agreement (collectively, the “Required Approvals”).

 

(f)          Issuance of the Shares.  The Shares have been duly authorized and, when issued and paid for in accordance with the terms of the Transaction Documents, will be duly and validly issued, fully paid and nonassessable and free and clear of all Liens, other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights.  Assuming the accuracy of the representations and

  

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warranties of the Purchasers in this Agreement, the Shares will be issued in compliance with all applicable federal and state securities laws.

 

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

 

(h)          SEC Reports: Disclosure Materials.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension and has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof.  Such reports required to

  

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be filed by the Company under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, together with any materials filed or furnished by the Company under the Exchange Act, whether or not any such reports were required being collectively referred to herein as the “SEC Reports” and, together with this Agreement and the Schedules to this Agreement, the “Disclosure Materials”.  As of their respective dates (or, if amended or superseded by a filing prior to the Closing Date, then on the date of such filing), the SEC Reports filed by the Company complied in all material respects with the requirements of the Securities Act and the Exchange Act (as applicable) and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed (or, if amended or superseded by a filing prior to the Closing Date, then on the date of such filing)by the Company, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  All material agreements to which the Company is a party or to which the property or assets of the Company are subject are included as part of or identified in the SEC Reports, to the extent such agreements are required to be included or identified pursuant to the rules and regulations of the Commission.

 

(i)          Financial Statements.  The financial statements of the Company included in the SEC Reports comply (or, to the extent corrected by a subsequent restatement that is filed with the Commission prior to the date hereof, as corrected do comply) in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its Subsidiary as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments.

 

(j)          Tax Matters.  The Company and its Subsidiary have each (i) prepared and filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, with respect to which adequate reserves have been set aside on the books of the Company or its Subsidiary (as applicable) and (iii) set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply, except, in the case of clauses (i) and (ii) above, where the failure to so pay or file any such tax, assessment, charge or return would not reasonably be expected to have a Material Adverse Effect.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction and the officers of the Company know of no basis for any such claim.

 

(k)         Material Changes; Undisclosed Events, Liabilities or Developments; Solvency.  Since the date of the latest financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there have been no events, occurrences or developments that have had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect, (ii) there has not been any material change or amendment to, or any waiver of any material right by the Company under, any Material Contract, (iii) all Material Contracts are in

  

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full force and effect except those that have expired by their terms or as otherwise set forth in the SEC Reports and, to the Company’s Knowledge, no party to any Material Contract is in breach thereof in any material respect, (iv) the Company’s business has been operated in the ordinary course, (v) the Company has not incurred any material liabilities other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (vi) the Company has not altered its method of accounting or changed its auditors, except as disclosed in its SEC Reports, (vii) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders, in their capacities as such, or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (viii) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock-based plans.  The Company has not taken any steps to seek protection pursuant to any bankruptcy law and, to the Company’s Knowledge, none of its creditors intends to initiate involuntary bankruptcy proceedings and there does not exist any fact which would reasonably lead a creditor to do so.  Based on the financial condition of the Company as of the Closing, after giving effect to transactions contemplated hereby to occur at the Closing, the Company reasonably expects to have sufficient cash on hand to pay all of its currently foreseeable expenses for the next twelve months.

 

(l)          Environmental Matters.  To the Company’s Knowledge, neither the Company nor its Subsidiary (i) is in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), (ii) owns or operates any real property contaminated with any substance that is in violation of any Environmental Laws, (iii) is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or (iv) is subject to any claim relating to any Environmental Laws; which, in the case of any of the matters described in clauses (i) — (iv), has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; and, to the Company’s Knowledge, there is no pending or threatened investigation that might lead to such a claim.

 

(m)         Litigation.  Except as set forth in Schedule 3.1(m), there is no Action (and in the case of any inquiry or investigation, to the Company’s Knowledge) before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company or its Subsidiary, and no such Action is currently threatened that could reasonably be expected to lead to the commencement of an Action.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Exchange Act or the Securities Act.

 

(n)          Contracts.  Schedule 3.1(n) lists the following contracts, agreements, commitments or binding understanding, whether oral or written (collectively, the “Contracts”), to which the Company or its Subsidiary is a party or subject or by which either the Company or its Subsidiary are bound: (i) each employment related Contract, (ii) each Contract (A) with any Insider or (B) between or among any Insiders relating in any way to the Company; and (iii) each Material Contract.

  

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(o)          Employment Matters.  No material labor dispute exists or, to the Company’s Knowledge, is imminent with respect to any of the employees of the Company or its Subsidiary which would reasonably be expected to have a Material Adverse Effect.  The Company and its Subsidiary are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(p)          Employee Relations.  Neither the Company, nor its Subsidiary, is a party to any collective bargaining agreement.  To the Company’s Knowledge, the Company’s and its Subsidiary’s relations with their respective employees are as disclosed in the SEC Reports.  Except as disclosed in the SEC Reports or as the Purchasers have otherwise been made aware, no current executive officer of the Company has notified the Company that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company.  To the Company’s Knowledge, no executive officer of the Company is in violation of any material term of any employment Contract, confidentiality, disclosure or proprietary information agreement, non- competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company to any liability with respect to any of the foregoing matters.

 

(q)          Labor Matters.  The Company and its Subsidiary are each in compliance in all material respects with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

(r)          Minute Books.  The minute books of the Company for the period from 2001 to present, all of which have been made available to the Purchasers, are complete and correct.  The minute books of the Company contain, in all material respects, accurate records of all meetings held and actions taken by the Board of Directors and committees of the Board of Directors of the Company during such period, and no meeting of the Board of Directors or committees has been held for which minutes are not contained in such minute books, other than meetings held within the last sixty (60) days for which minutes have not yet been prepared and/or approved by the Board of Directors or applicable committee.

 

(s)          Affiliate Transactions.  Except as disclosed in the SEC Reports, no Insider has any agreement, contract, commitment or binding understanding, whether oral or written, with the Company or its Subsidiary (other than the employment agreements filed with the Commission), any loan to or from the Company or its Subsidiary or any interest in any assets (whether real, personal or mixed, tangible or intangible) used in or pertaining to the business of the Company or its Subsidiary (other than ownership of capital stock of the Company).  To the Company’s Knowledge, except as set forth in the SEC Reports, no director or officer has any direct or indirect interest in any supplier of the Company or its Subsidiary or in any Person from whom or to whom the Company or its Subsidiary leases any property, or in any other Person with whom the Company or its Subsidiary otherwise transacts business of any nature, other than transactions entered into in the ordinary course of business on the Company’s web site.

  

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(t)          Compliance.  Neither the Company nor its Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or its Subsidiary under), nor has the Company or its Subsidiary received written notice of a claim that it is in default under or that it is in violation of, any Material Contract (whether or not such default or violation has been waived), (ii) is not in violation of any order of which the Company or its Subsidiary has been made aware in writing of any court, arbitrator or governmental body having jurisdiction over the Company, its Subsidiary or their respective properties or assets, or (iii) is in violation of, or in receipt of written notice that it is in violation of, any statute, rule or regulation of any governmental authority applicable to the Company or its Subsidiary, except in each case as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(u)          Regulatory Permits.  The Company and its Subsidiary each possess or have applied for all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct its business as currently conducted and as described in the SEC Reports, except where the failure to possess such permits, individually or in the aggregate, has not and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect (“Material Permits”), and (i) neither the Company nor its Subsidiary has received any notice in writing of proceedings relating to the revocation or material adverse modification of any such Material Permits and (ii) to the Company’s Knowledge, there do not exist any facts or circumstances that would give rise to the revocation or material adverse modification of any Material Permits.

 

(v)          Title to Assets.  Neither the Company nor its Subsidiary owns any real property.  Each of the Company and its Subsidiary has good and marketable title to all tangible personal property owned by it which is material to the business of the Company, taken as a whole, free and clear of all Liens (other than liens under the Company’s senior credit facility) except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its Subsidiary.  Any real property and facilities held under lease by the Company or its Subsidiary are held by it under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company or its Subsidiary (as applicable).

 

(w)         Insurance.  Each of the Company and its Subsidiary is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses and locations in which the Company or its Subsidiary is engaged.

 

(x)          Patents and Trademarks.  The Company and its Subsidiary each owns, possesses, licenses or has other rights to use all foreign and domestic patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, inventions, trade secrets, technology, Internet domain names, know-how and other intellectual property (collectively, the “Intellectual Property”) necessary for the conduct of its business as now conducted, as described in the SEC Reports (the “Company Intellectual Property”).  Except as set forth in the SEC Reports, (a) to the Company’s Knowledge, there are no rights of third parties to any such Company Intellectual Property that is owned by the Company or its Subsidiary; (b) to the Company’s Knowledge, there is no pending or threatened Action by others challenging the Company’s or its Subsidiary’s rights in or to any such Company Intellectual Property that could reasonably be expected

  

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to have a Material Adverse Effect; and (c) to the Company’s Knowledge, there is no pending or threatened Action by others that the Company or its Subsidiary infringes or otherwise violates any Intellectual Property of others that could reasonably be expected to have a Material Adverse Effect.

 

(y)          Internal Accounting Controls; Disclosure Controls.  Except as has not had or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, the Company (i) has established and maintained disclosure controls and procedures and internal control over financial reporting (as such terms are defined in paragraphs (e) and (f), respectively, of Rule 13a-15 under the Exchange Act) as required by Rule 13a-15 under the Exchange Act, and (ii) has disclosed, based on its most recent evaluations, to its outside auditors and the Audit Committee of the Board of Directors of the Company (A) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial data, and (B) any fraud known to the Company, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.

 

(z)          Form S-3 Eligibility.  As of the date hereof, the Company is eligible to register the Shares for resale by the Purchasers using Form S-3 promulgated under the Securities Act.

 

(aa)        Sarbanes-Oxley.  The Company is in compliance in all material respects with all of the provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it, except where such noncompliance would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

 

(bb)       Foreign Corrupt Practices.  Neither the Company, not its Subsidiary, nor, to the Company’s Knowledge, any director, officer, agent, employee or other Person acting on behalf of the Company or its Subsidiary has, in the course of its actions for, or on behalf of, the Company or its Subsidiary (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee or to any foreign or domestic political parties or campaigns from corporate funds; (iii) violated or is in violation in any material respect of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

(cc)        Off Balance Sheet Arrangements.  There is no transaction, arrangement, or other relationship between the Company or its Subsidiary and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its SEC Filings and is not so disclosed or that otherwise would reasonably be expected to have a Material Adverse Effect.

 

(dd)       Indebtedness.  Except as disclosed in the SEC Reports or as incurred pursuant to transactions entered into in the ordinary course of business including draws under the senior credit facility, since June 30, 2011, neither the Company nor its Subsidiary (i) has any outstanding Indebtedness, and (ii) is in violation of any term of or is in default under any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect.

  

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(ee)        Certain Fees.  No person or entity will have, as a result of the transactions contemplated by this Agreement and the Transaction Documents, any valid right, interest or claim against or upon the Company or the Purchasers for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.  The Company shall indemnify, pay, and hold each Purchaser harmless against, any liability, loss or expense (including, without limitation, attorneys’ fees and out-of-pocket expenses) arising in connection with any such right, interest or claim, except to the extent that such liability, loss or expense results from a breach by such Purchaser of the representations made in Section 3.2(j).

 

(ff)         Private Placement.  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2 of this Agreement, no registration under the Securities Act is required for the offer and sale of the Shares by the Company to the Purchasers under the Transaction Documents.

 

(gg)       Registration Rights.  Other than as set forth in the SEC Reports and the Transaction Documents, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company other than those securities which are currently registered on an effective registration statement on file with the Commission.

 

(hh)       No Integrated Offering.  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company nor, to the Company’s Knowledge, any of its Affiliates or any Person acting on its behalf has, directly or indirectly, at any time within the past six months, made any offers or sales of any Company security or solicited any offers to buy any security under circumstances that would (i) eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale by the Company of the Shares as contemplated hereby or (ii) cause the offering of the Shares pursuant to the Transaction Documents to be integrated with prior offerings by the Company for purposes of any applicable law, regulation or stockholder approval provisions, including, without limitation, under the rules and regulations of any Trading Market on which any of the securities of the Company are listed or designated.

 

(ii)          Listing and Maintenance Requirements.  The Company’s Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and the Company has taken no action designed to terminate the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.  The Company has not, in the twelve months preceding the date hereof, received written notice from any Trading Market on which the Common Stock is listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market.  The Company is in compliance in all material respects with the listing and maintenance requirements for continued trading of the Common Stock on the Principal Trading Market.

 

(jj)          Application of Takeover Protections.  The Company and its Board of Directors have taken all necessary action, if any, to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s charter documents or the laws of the State of Delaware that is applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their

  

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obligations or exercising their rights under the Transaction Documents, including, without limitation, as a result of the Company’s issuance of the Shares and the Purchasers’ ownership of the Shares.

 

(kk)        Disclosure.  To the Company’s Knowledge, no event or circumstance has occurred or information exists with respect to the Company or its business, properties, operations, financial conditions or prospects, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the Exchange Act are being incorporated into an effective registration statement filed by the Company under the Securities Act), except for the announcement of this Agreement and related transactions contemplated hereby and as may be disclosed on the Current Report on Form 8-K filed pursuant to Section 4.7.  The Company acknowledges and agrees that the Purchasers have not made any representations or warranties with respect to the transactions contemplated hereby other than those set forth in the Transaction Documents.

 

(ll)          No General Solicitation.  The Company did not offer the Shares as a general solicitation in the form of an advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general advertisement.

 

3.2          Representations and Warranties of the Purchasers.  Each Purchaser hereby represents and warrants, severally as to itself and not jointly, as of the date hereof to the Company as follows:

 

(a)          Organization; Authority.  Such Purchaser is a an entity duly formed, validly existing and in good standing under the laws of the jurisdiction set forth next to its name on Schedule 1, with the requisite power and authority to enter into and to consummate the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder.  The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party have been duly authorized by all necessary action on the part of such Purchaser, and no further action is required by such Purchaser (or its respective managing member or general partner, if applicable) in connection therewith.  This Agreement and the other Transaction Documents to which such Purchaser is a party have been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof and thereof, each will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

 

(b)          No Conflicts.  The execution, delivery and performance by such Purchaser of this Agreement and the other Transaction Documents to which it is a party and the consummation by such Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the formation documents of such Purchaser, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to

  

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which such Purchaser is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Purchaser, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Purchaser to perform its obligations hereunder.

 

(c)          Filings, Consents and Approvals.  Such Purchaser is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by such Purchaser of the Transaction Documents.

 

(d)          Investment Intent.  Such Purchaser understands that the Shares are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Shares for its own account and not with a view to, or for distributing or reselling such Shares or any part thereof in violation of the Securities Act or any applicable state securities laws, provided, however, that by making the representations herein, such Purchaser does not agree to hold any of the Shares for any minimum period of time and reserves the right, subject to the provisions of this Agreement, at all times to sell or otherwise dispose of all or any part of the Shares pursuant to an effective Registration Statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws.  Such Purchaser is acquiring the Shares hereunder in the ordinary course of its business.  Such Purchaser does not presently have any agreement, plan or understanding, directly or indirectly, with any Person to distribute or effect any distribution of any of the Shares to or through any person or entity; such Purchaser is not a registered broker- dealer under Section 15 of the Exchange Act or an entity engaged in a business that would require it to be so registered as a broker-dealer.

 

(e)          Purchaser Status.  At the time such Purchaser was offered the Shares, it was, and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the Securities Act.

 

(f)          General Solicitation.  Such Purchaser is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general advertisement.

 

(g)          Experience of such Purchaser.  Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic risk of an investment in the Shares and, at the present time, is able to afford a complete loss of such investment.

 

(h)          Access to Information.  Such Purchaser acknowledges that it has had the opportunity to review the Disclosure Materials and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its

  

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investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment.  Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company’s representations and warranties contained in the Transaction Documents.  Such Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed decision with respect to its acquisition of the Shares.  Such Purchaser acknowledges and agrees that the Company has not made any representations or warranties with respect to the transactions contemplated hereby other than those set forth in the Transaction Documents.

 

(i)           Certain Trading Activities.  Other than with respect to the transactions contemplated herein, since the time that such Purchaser was first contacted by the Company or any other Person regarding the transactions contemplated hereby, neither such Purchaser nor any Affiliate of such Purchaser which (i) had knowledge of the transactions contemplated hereby, (ii) has or shares discretion relating to such Purchaser’s investments or trading or information concerning such Purchaser’s investments, including in respect of the Shares, and (iii) is subject to such Purchaser’s review or input concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”), has directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser or Trading Affiliate, effected or agreed to effect any purchases or sales of the securities of the Company (including, without limitation, any Short Sales involving the Company’s securities).

 

(j)          Brokers and Finders.  No Person will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or such Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Purchaser.  Such Purchaser shall indemnify, pay, and hold the Company harmless against, any liability, loss or expense (including, without limitation, attorneys’ fees and out-of-pocket expenses) arising in connection with any such right, interest or claim.

 

(k)          Independent Investment Decision.  Such Purchaser has independently evaluated the merits of its decision to purchase Shares pursuant to the Transaction Documents.  Such Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to such Purchaser in connection with the purchase of the Shares constitutes legal, tax or investment advice.  Such Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Shares.

 

(l)          Reliance on Exemptions.  Such Purchaser understands that the Shares being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Purchaser’s compliance with, the representations, warranties, agreements, acknowledgements and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Shares.

  

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(m)         No Governmental Review.  Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Shares or the fairness or suitability of the investment in the Shares nor have such authorities passed upon or endorsed the merits of the offering of the Shares.

 

(n)          Office.  Such Purchaser’s office in which its investment decision with respect to the Shares was made is located at the address set forth opposite its name on Schedule 1.

 

The Company and each Purchaser acknowledge and agree that no party to this Agreement has made or makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Article III and the Transaction Documents.

 

ARTICLE IV

 

OTHER AGREEMENTS OF THE PARTIES

 

4.1          Transfer Restrictions.

 

(a)          Compliance with Laws.  Notwithstanding any other provision of this Article IV, each Purchaser covenants as to itself that the Shares may be disposed of only pursuant to an effective Registration Statement under, and in compliance with the requirements of, the Securities Act, or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with any applicable state, federal or foreign securities laws.  In connection with any transfer of the Shares other than (i) pursuant to an effective Registration Statement or (ii) to the Company, the Company may require the transferor thereof to provide to the Company and the Transfer Agent, at the transferor’s expense, an opinion of counsel selected by the transferor and reasonably acceptable to the Company and the Transfer Agent, the form and substance of which opinion shall be reasonably satisfactory to the Company and the Transfer Agent, to the effect that such transfer does not require registration of such transferred Shares under the Securities Act.  As a condition of transfer (other than pursuant to clauses (i) or (ii) of the preceding sentence), any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement with respect to such transferred Shares to the extent explicitly set forth in the Transaction Documents.  Notwithstanding the foregoing, the Company hereby consents to and agrees to register on the books of the Company and with its Transfer Agent, without any such legal opinion, except to the extent that the Transfer Agent requests such legal opinion, any transfer of Shares by a Purchaser to an Affiliate of such Purchaser, provided that the transferee certifies to the Company that it is an “accredited investor” as defined in Rule 501(a) under the Securities Act and provided that such Affiliate does not request any removal of any existing legends on any certificate evidencing the Shares.

 

(b)         Legends.  Certificates evidencing the Shares shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form, until such time as they are not required under Section 4.1(c) or applicable law:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE

  

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STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE OFFER AND SALE OF THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT, IN WHICH CASE THE COMPANY IS ENTITLED TO REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT TO THE EFFECT THAT SUCH SECURITIES CAN BE SOLD OR TRANSFERRED PURSUANT TO RULE 144 UNDER THE 1933 ACT.  NO REPRESENTATION IS MADE BY THE ISSUER AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THESE SECURITIES.

 

(c)          Removal of Legends.  The restrictive legend set forth in Section 4.1(b) above shall be removed and the Transfer Agent or the Company, as the case may be, shall issue a certificate without such restrictive legend or any other restrictive legend to the holder of the applicable Shares upon which it is stamped or issue to such holder by electronic delivery at the applicable balance account at the Depository Trust Company (“DTC”), if (i) such Shares are registered for resale under the Securities Act (provided that, if a Purchaser is selling pursuant to the effective Registration Statement registering the Shares for resale, such Purchaser agrees to only sell such Shares during such time that such Registration Statement is effective and not withdrawn or suspended, and only as permitted by such Registration Statement), (ii) such Shares are sold or transferred pursuant to Rule 144, (iii) such Shares are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144 as to such securities and without volume or manner-of-sale restrictions, or (iv) if the holder provides the Company with a legal opinion (and the documents upon which the legal opinion is based) reasonably acceptable to the Company to the effect that the legend is not required under applicable requirements of the Securities Act (including controlling judicial interpretations and pronouncements issued by the Staff of the Commission).  Certificates for Shares subject to legend removal hereunder may be transmitted by the Transfer Agent to a Purchaser by crediting the account of such Purchaser’s prime broker with DTC as directed by such Purchaser.  Following the effective date that the Registration Statement is first declared effective by the Commission, and provided the Registration Statement referred to in clause (i) above is then in effect, or at such earlier time as a legend is no longer required for certain Shares, the Company will no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent (if delivery is made to the Transfer Agent a copy shall be contemporaneously delivered to the Company) of (i) a legended certificate representing such Shares (and, in the case of a requested transfer, endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect transfer), and (ii) an opinion of counsel to the extent required by Section 4.1, deliver or cause to be delivered to such Purchaser a certificate representing such Shares that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section, provided, however that, notwithstanding anything to the contrary contained herein, if for any reason the Registration Statement ceases to be available for any period of

  

21

  

time for the resale of the Shares, the Company may instruct the Transfer Agent not to permit transfers of the Shares, except for transfers otherwise made in accordance with the provisions of this Section 4.1.

 

(d)          Acknowledgement.  Each Purchaser hereunder acknowledges as to itself its primary responsibilities under the Securities Act and accordingly will not sell or otherwise transfer the Shares or any interest therein without complying with the requirements of the Securities Act.  Except as otherwise provided below, while any Registration Statement remains effective, each Purchaser hereunder may sell the Shares in accordance with the plan of distribution contained in such Registration Statement and if it does so it will comply therewith and with the related prospectus delivery requirements unless an exemption therefrom is available.  Each Purchaser agrees as to itself that if it is notified by the Company in writing at any time that the Registration Statement registering the resale of the Shares is not effective or that the prospectus included in such Registration Statement no longer complies with the requirements of Section 10 of the Securities Act, such Purchaser will refrain from selling such Shares until such time as such Purchaser is notified by the Company that such Registration Statement is effective or such prospectus is compliant with Section 10 of the Securities Act, unless such Purchaser is able to, and does, sell such Shares pursuant to an available exemption from the registration requirements of Section 5 of the Securities Act.  Both the Company and its Transfer Agent, and their respective directors, officers, employees and agents, may rely on this Section 4.1(d).

 

4.2           Stockholder Meeting.

 

(a)          Unless it shall have been determined by such date pursuant to the terms of the Registration Rights Agreement that the Company shall not be required to deliver the Registration Rights Penalty Warrants, the Company shall include in the proxy statement for its next annual meeting of stockholders of the Company (but in no event shall the meeting date in respect of such proxy be later than December 31, 2012) an item on the ballot for approval by the stockholders of the Company, of a proposal that satisfies  the Stockholder Approval Condition and will use its reasonable best efforts to respond to any comments of the Commission and to cause the definitive proxy statement relating to the Stockholder Approval Condition (the “Proxy Statement”) to be mailed to the Company’s stockholders as promptly as reasonably practicable after responding to all such comments to the satisfaction of the SEC.  The Company shall, through its Board of Directors, recommend to its stockholders that the Stockholder Approval Condition be satisfied by stockholders of the Company entitled to vote at the Company Stockholder Meeting.  The Company may elect to satisfy its obligations under this Section 4.2(a) through an action by majority written consent of the stockholders, effective not later than December 31, 2012, in which case an information statement shall be substituted for any reference to a proxy statement in this Section 4.2.

 

(b)          The Company will notify the Purchasers promptly of the receipt of any comments from the Commission and of any request by the Commission for amendments or supplements to the Proxy Statement or for additional information, and will supply the Purchasers with copies of all correspondence between the Company or any of its representatives, on the one hand, and the Commission, on the other hand, with respect to the Proxy Statement.  If at any time prior to the Company Stockholder Meeting there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company will promptly prepare and mail to its stockholders such an amendment or supplement.  The Company will not mail any Proxy Statement, or

 

  

22

  

any amendment or supplement thereto, to which any Purchaser reasonably objects after being afforded the opportunity to review the same.  The Purchasers shall cooperate with the Company in the preparation of the Proxy Statement or and in responding to comments of the Commission, and the Purchasers shall promptly notify the Company if any information supplied by it for inclusion in the Proxy Statement shall have become false or misleading, and shall cooperate with the Company in disseminating the Proxy Statement, as so amended or supplemented, to correct any such false or misleading information.

 

4.3           Acknowledgment of Dilution.  The Company acknowledges that the issuance of the Shares may result in dilution of the outstanding shares of Common Stock.  The Company further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against the Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

4.4           Furnishing of Information.  In order to enable the Purchasers to sell the Shares under Rule 144 of the Securities Act, the Company shall use its commercially reasonable efforts to maintain the registration of the Shares under Section 12(b) of the Exchange Act for as long as the Company is required to under applicable law and to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act for as long as the Company is subject to the reporting requirements of the Exchange Act.

 

4.5           Form D and Blue Sky.  The Company agrees to timely file a Form D with respect to the Shares as required under Regulation D.  The Company, on or before the Closing Date, shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Shares for sale to the Purchasers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification).  The Company shall make all filings and reports relating to the offer and sale of the Shares required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Date.

 

4.6           No Integration.  The Company shall not, and shall use its commercially reasonable efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that will be integrated with the offer or sale of the Shares in a manner that would require the registration under the Securities Act of the sale of the Shares to the Purchasers, or that will be integrated with the offer or sale of the Shares for purposes of the rules and regulations of any Trading Market such that it would require stockholder approval prior to the closing of such other transaction unless stockholder approval is obtained before the closing of such subsequent transaction.

 

4.7           Securities Laws Disclosure: Publicity.  By 9:00 a.m., New York City time, on the Trading Day immediately following the execution of this Agreement, the Company shall issue a press release (“Press Release”) disclosing all material terms of the transactions contemplated

  

23

  

hereby.  On or before 9:00 a.m., Eastern Standard Time, on or before the fourth Trading Day immediately following the execution of this Agreement, the Company will file a Current Report on Form 8-K with the Commission describing the terms of the Transaction Documents (and including as exhibits to such Current Report on Form 8-K the material Transaction Documents (including, without limitation, this Agreement)).  Each Purchaser covenants, as to itself, that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in this Section 4.7, such Purchaser will maintain the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction),.

 

4.8          Indemnification

 

(a)          Indemnification of the Purchasers.  The Company will indemnify and hold each Purchaser and its respective directors, officers, stockholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, stockholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that such Purchaser Party may suffer or incur arising from or relating to any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents.  The Company will not be liable to any Purchaser Party under this Agreement to the extent, but only to the extent that a loss, claim, damage or liability is attributable to such Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

 

(b)          Each Purchaser will severally and not jointly indemnify and hold the Company and its directors, officers, stockholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, stockholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Company Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that the Company Party may suffer arising from or relating to (i) any of the representations and warranties made by such Purchaser in this agreement or (ii) any failure by such Purchaser to comply with the covenants and agreements contained in Section 4.1 hereof respecting transfers of the Shares.

 

(c)          Conduct of Indemnification Proceedings.  Promptly after receipt by any Person (the “Indemnified Person”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 4.8(a) or (b), such Indemnified Person shall

  

24

  

promptly notify the Company and the other Purchasers or if the Indemnified Person is the Company, shall notify the Purchasers, as applicable (the party against whom indemnity may be sought hereinafter referred to as the “Indemnifying Person”), in writing and the Indemnifying Person shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the payment of all fees and expenses; provided, however, that the failure of any Indemnified Person to so notify the Indemnifying Person shall not relieve the Indemnifying Person of its obligations hereunder except to the extent that the Indemnifying Person is actually and materially and adversely prejudiced by such failure to notify.  In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the retention of such counsel; (ii) the Indemnifying Person shall have failed promptly to assume the defense of such proceeding and to employ counsel reasonably satisfactory to the Indemnified Person in such proceeding; or (iii) in the reasonable judgment of counsel to the Indemnified Person, there exists or shall exist a conflict of interest that would make it inappropriate for the same counsel to represent both the Indemnified Person and the Indemnifying Person.  The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or conditioned unless the Indemnifying Person fails to defend any proceeding or fails to promptly respond to a settlement offer.  Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, delayed or conditioned, the Indemnifying Person shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such proceeding.

 

4.9           Listing of Common Stock.  To the extent required by the Principal Trading Market, the Company shall prepare and file with the Principal Trading Market an additional shares listing application covering all of the Shares in the time and manner required by the Principal Trading Market.

 

4.10           Use of Proceeds.  The Company intends to use the net proceeds from the sale of the Shares hereunder for working capital purposes.

 

4.11           Short Sales After The Date Hereof.  Each Purchaser agrees, as to itself, not to use any of the restricted Shares acquired pursuant to this Agreement to cover any Short Sales in the Common Stock of the Company if doing so would be in violation of applicable securities laws in the holding and sale of the Shares.

 

4.12           Inspection Rights.  Each Purchaser agrees, as to itself, that it and its employees, agents and representatives will keep confidential and will not disclose, divulge or use (other than for purposes of monitoring its investment in the Company) any confidential information which such Purchaser may obtain from the Company pursuant to financial statements, reports and other materials submitted by the Company to such Purchaser pursuant to this Agreement granted hereunder, unless such information is known to the public through no fault of such Purchaser or its employees or representatives; provided, however, that such Purchaser may disclose such information (i) to its attorneys, accountants and other professionals in connection with their representation of such Purchaser in connection with the Purchasers’ investment in the Company,

  

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(ii) to any prospective permitted transferee of the Shares, so long as the prospective transferee agrees in writing to be bound by the provisions of this Section 4.12, or (iii) to any general partner or affiliate of such Purchaser.

 

ARTICLE V

 

CONDITIONS PRECEDENT TO CLOSING

 

5.1           Conditions Precedent to the Obligations of the Purchasers at the Closing.  The obligation of each Purchaser to purchase the Shares opposite its respective name on Schedule 1 at the Closing is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by a Purchaser as with respect to its obligations:

 

(a)          Representations and Warranties.  The representations and warranties of the Company contained herein shall be true and correct in all material respects as of the Closing Date, except for such representations and warranties that speak as of a specific date in which case such representations and warranties shall have been true and correct in all material respects as of such date.

 

(b)          Performance.  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing.

 

(c)          No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

 

(d)          Consents.  The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Shares at the Closing, all of which shall be and remain so long as necessary in full force and effect.

 

(e)          No Suspensions of Trading in Common Stock; Listing.  The Common Stock (i) shall be designated for quotation or listed on the Principal Trading Market and (ii) shall not have been suspended, as of the Closing Date, by the Commission or the Principal Trading Market from trading on the Principal Trading Market nor shall suspension by the Commission or the Principal Trading Market have been threatened, as of the Closing Date, either (A) in writing by the Commission or the Principal Trading Market or (B) by falling below the minimum listing maintenance requirements of the Principal Trading Market.

 

(f)          Company Deliverables.  The Company shall have delivered the Company Deliverables in accordance with Section 2.2(a).

 

(g)          Compliance Certificate.  The Company shall have delivered to the Purchasers a certificate, dated as of the Closing Date and signed by its Chief Executive Officer or its Chief Financial Officer, certifying to the fulfillment of the conditions specified in Sections 5.1(a) and 5.1(b).

  

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(h)        Registration Rights Agreement and Lock Up Agreements.  The Registration Rights Agreement and Lock Up Agreements shall have been executed and delivered by the parties thereto other than such Purchaser.

 

(i)          Company Board Approval.  The Company’s Board of Directors shall have approved the transactions contemplated in this Agreement and the Transaction Documents such that each of the Purchasers is not subject to the restrictions of an “interested stockholder” as such term is defined in Section 203 of the Delaware General Corporation Law.

 

5.2      Conditions Precedent to the Obligations of the Company at the Closing.  The Company’s obligation to sell and issue the Shares at the Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which may be waived by the Company:

 

(a)          Representations and Warranties.  The representations and warranties made by the Purchasers in Section 3.2 hereof shall be true and correct in all material respects as of the Closing Date as though made on and as of such date, except for representations and warranties that speak as of a specific date.

 

(b)          Performance.  The Purchasers shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Purchasers at or prior to the Closing Date.

 

(c)          No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

 

(d)          Consents.  The Company shall have obtained in a timely fashion any and all consents, permits, approvals, registrations and waivers necessary for consummation of the purchase and sale of the Shares, all of which shall be and remain so long as necessary in full force and effect.

 

(e)          Purchaser Deliverables.  Each Purchaser shall have delivered its respective Purchaser Deliverables in accordance with Section 2.2(b).

 

ARTICLE VI

 

MISCELLANEOUS

 

6.1           Fees and Expenses.  At the Closing, the Company shall reimburse Rho Ventures VI, L.P. (“Rho”) for its reasonable legal fees of one law firm in the aggregate of up to $30,000 in connection with the transactions contemplated by this Agreement and the Transaction Documents; provided, however, that Rho provides the Company with reasonably detailed invoices for such services.  Other than Rho’s legal fees provided above, the Company and each Purchaser shall each pay the fees and expenses of their respective advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party in connection with the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company

  

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shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of the Shares to the Purchasers.

 

6.2           Entire Agreement.  The Transaction Documents, together with the Exhibits and Schedules thereto contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.  At the Closing, and without further consideration, the Company and the Purchasers will execute and deliver to the other such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.

 

6.3           Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) at the facsimile number specified in this Section prior to 5:00 p.m., Eastern Standard Time, on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5.00 p.m., Eastern Standard Time, on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service with next day delivery specified, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as follows:

 

	
  

	
If to the Company:

	
Bluefly, Inc.

	
  

	
42 West 39th Street

	
  

	
New York, New York 10018

	
  

	
Telephone No.:  (212) 944-8000

	
  

	
Facsimile No.:  (212) 354-3400

	
  

	
Attention: Chief Financial Officer

 

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

 

	
  

	
Dechert LLP

	
  

	
1095 Avenue of the Americas

	
  

	
New York, NY 10036

	
  

	
Telephone No.:  (212) 698-3500

	
  

	
Facsimile No.:  (212) 698-3599

	
  

	
Attention:  Richard A. Goldberg, Esq.

 

If to the Purchasers:

 

	
  

	
If to Rho:

	
Rho Ventures VI, L.P.

	
  

	
Carnegie Hall Tower

	
  

	
152 West 57th Street, 23rd Floor

	
  

	
New York, New York 10019

  

28

  

 

	
  

	
Telephone No.:  (212) 751-6677

	
  

	
Facsimile No.:  (212) 751-3613

	
  

	
Attention:  Jeffrey I. Martin, Esq.

 

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

 

	
  

	
Goodwin Procter LLP

	
  

	
The New York Times Building

	
  

	
620 Eighth Avenue

	
  

	
New York, New York

	
  

	
Telephone No.:  (212) 813-8800

	
  

	
Facsimile No.:  (212) 355-3333

	
  

	
Attention:  Stephen M. Davis, Esq.

 

	
  

	
If to Soros:

	
Quantum Industrial Partners LDC

	
  

	
c/o Soros Fund Management LLC

	
  

	
888 Seventh Avenue

	
  

	
New York, New York 10106

	
  

	
Telephone No.:  (212) 320-5584

	
  

	
Facsimile No.:  (646) 731-5584

	
  

	
Attention:  Jay Schoenfarber

 

	
  

	
If to Prentice:

	
Prentice Consumer Partners, LP

	
  

	
623 Fifth Avenue, 32nd Floor

	
  

	
New York, New York 10022

	
  

	
Facsimile No.:  (212) 756-1480

	
  

	
Attention:  Michael Zimmerman

 

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

 

	
  

	
Lowenstein Sandler PC

	
  

	
1251 Avenue of the Americas

	
  

	
New York, New York 10020

	
  

	
Facsimile No.:  (212) 422-6807

	
  

	
Attention:  Matthew B. Hoffman

 

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

 

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

  

29

  

6.5           Construction.  The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.  This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

 

6.6           Successors and Assigns.  The provisions of this Agreement shall inure to the benefit of and be binding upon the parties and their successors and permitted assigns.  Except as otherwise provided in the Transaction Documents, neither this Agreement, nor any rights or obligations hereunder or under any of the other Transaction Documents, may be assigned by the Company or any Purchaser without the prior written consent of the other parties.

 

6.7           No Third-Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and, except as set forth in Section 4.1(d) hereof, is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

 

6.8           Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the applicable courts located in the State of New York.  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the applicable courts located in the County of New York, State of New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such courts located in the County of New York, State of New York, or that such Proceeding has been commenced in an improper or inconvenient forum.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

 

6.9           Survival.  Subject to applicable statute of limitations, the representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Shares.

  

30

  

6.10         Execution.  This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission, or by e-mail delivery of a “.pdf’ format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

 

6.11         Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

 

6.12         Replacement of Shares.  If any certificate or instrument evidencing any Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company and the Transfer Agent of such loss, theft or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company and the Transfer Agent for any losses in connection therewith or, if required by the Transfer Agent, a bond in such form and amount as is required by the Transfer Agent.  The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third- party costs associated with the issuance of such replacement Shares.  If a replacement certificate or instrument evidencing any Shares is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

 

6.13         Remedies.  In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchasers and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation (other than in connection with any action for a temporary restraining order) the defense that a remedy at law would be adequate.

 

6.14         Payment Set Aside.  To the extent that the Company makes a payment or payments to the Purchasers pursuant to any Transaction Document or any Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

  

31

  

6.15         Rescission and Withdrawal Right.  Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

6.16         Limitation of Liability.  Notwithstanding anything herein to the contrary, the Company acknowledges and agrees that the liability of each Purchaser arising directly or indirectly under any of the Transaction Documents of any and every nature whatsoever shall be satisfied solely out of the assets of such Purchaser, and that no trustee, officer, other investment vehicle or any other affiliate of such Purchaser or any investor, shareholder or holder of shares of beneficial interest of such Purchaser shall be personally liable for any liabilities of such Purchaser.

 

[remainder of page intentionally left blank]

  

32

  

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

 

	  	
BLUEFLY, INC.

	 
	  	  	 
	  	
By:

	
/s/ Kara B. Jenny

	 
	  	  	
Kara B. Jenny

	 
	  	  	
Chief Financial Officer

	 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[SIGNATURE PAGE OF THE PURCHASERS FOLLOWS]

  

 

  

	  	
RHO VENTURES VI, L.P.

	  	  
	  	
By: RMV VI, L.L.C., its General Partner

	  	  
	  	
By:

	
Rho Capital Partners LLC, its Managing

Member

	  	  	  
	  	
By:

	
/s/ Habib Kairouz

	  	  	
Habib Kairouz

	  	  	
Managing Member

	  	
Tax ID No.:

	  

 

Delivery Instructions:

 

(if different than address for notice set forth in Section 6.3 above)

 

	
c/o

	  	  

	
Street:

	  	  

	
City/State/Zip:

	  	  

	
Attention:

	  	  

	
Telephone No.:

	  	  

  

 

  

	  	
QUANTUM INDUSTRIAL PARTNERS LDC

	 
	  	  	 
	  	
By:

	
/s/ Jay A. Schoenfarber

	 
	  	  	
Jay. A. Schoenfarber

	 
	  	  	
Attorney-in-fact

	 

Delivery Instructions:

 

(if different than address for notice set forth in Section 6.3 above)

 

	
c/o

	  	  

	
Street:

	  	  

	
City/State/Zip:

	  	  

	
Attention:

	  	  

	
Telephone No.:

	  	  

  

 

  

	  	
PRENTICE CONSUMER PARTNERS, LP

	  	  	 
	  	
By

	
Prentice Consumer Partners GP, LLC

	  	  	  	 
	  	
By:

	
/s/ Mario Ciampi

	 
	  	  	
Name: Mario Ciampi

	 
	  	  	
Title:   Managing Partner

	 

Delivery Instructions:

 

(if different than address for notice set forth in Section 6.3 above)

 

	
c/o

	  	  

	
Street:

	  	  

	
City/State/Zip:

	  	  

	
Attention:

	  	  

	
Telephone No.:

	  	  

  

 

  

EXHIBITS

 

	
A-1:

	
Accredited Investor Questionnaire

	
A-2:

	
Stock Certificate Questionnaire

	
B:

	
Registration Rights Agreement

	
C-1:

	
Lock Up Agreement – Officers and Directors

	
C-2:

	
Lock Up Agreement – Existing Shareholders

 

SCHEDULES

 

	
1

	
Purchasers, Shares

	
2

	
Officers and Directors of the Company subject to Lock Up Agreements

	
3.1(g):

	
Capitalization

	
3.1(k)

	
Material Changes; Undisclosed Events, Liabilities or Developments; Solvency

	
3.1(m)

	
Litigation

	
3.1(n)

	
Contracts

  

 

  

EXHIBIT A-1

 

ACCREDITED INVESTOR QUESTIONNAIRE

 

(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)

 

To:         Bluefly, Inc.

 

This Investor Questionnaire (“Questionnaire”) must be completed by each potential investor in connection with the offer and sale of shares of common stock, par value $0.01 per share (the “Securities”), of Bluefly, Inc., a Delaware corporation (the “Corporation”).  The Securities are being offered and sold by the Corporation without registration under the Securities Act of 1933, as amended (the “Act”), and the securities laws of certain states, in reliance on the exemptions contained in Section 4(2) of the Act and on Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws.  The Corporation must determine that a potential investor meets certain suitability requirements before offering or selling Securities to such investor.  The purpose of this Questionnaire is to assure the Corporation that each investor will meet the applicable suitability requirements.  The information supplied by you will be used in determining whether you meet such criteria, and reliance upon the private offering exemptions from registration is based in part on the information herein supplied.

 

This Questionnaire does not constitute an offer to sell or a solicitation of an offer to buy any security.  Your answers will be kept strictly confidential.  However, by signing this Questionnaire, you will be authorizing the Corporation to provide a completed copy of this Questionnaire to such parties as the Corporation deems appropriate in order to ensure that the offer and sale of the Securities will not result in a violation of the Act or the securities laws of any state and that you otherwise satisfy the suitability standards applicable to purchasers of the Securities.  All potential investors must answer all applicable questions and complete, date and sign this Questionnaire.  Please print or type your responses and attach additional sheets of paper if necessary to complete your answers to any item.

 

	
PART A.

	
BACKGROUND INFORMATION

 

	
Name of Beneficial Owner of the

	
Securities:

	  
	  	  
	
Business

	  
	
Address:

	  
	  	
Number and Street)

	  	  	  
	
(City)

	
(State)

	
(Zip Code)

	
Telephone

	
Number: (_)

	  

  

Ex. A-1-1

  

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

	
Type of entity:

	  

	
State of

	  	  	
Approximate Date of

	
formation:

	  	  	
formation:

	  

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

	  	
Yes ______

	
No _____

If an individual:

	

Residence Address:

	
 

(Number and Street)

	  	  	  
	
(City)

	
(State)

	
(Zip Code)

	
Telephone

	  
	
Number: (_)

	  

	
Age:  ____________

	
     Citizenship:

	  
	
_________________

	
Where registered to vote:

	  

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

Are you a director or executive officer of the Corporation?

	  	
Yes ______

	
No _____

	
Social Security or Taxpayer

	  
	
Identification No.

	  

	
PART B.

	
ACCREDITED INVESTOR QUESTIONNAIRE

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

 

	  	
____

(1)

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

  

Ex. A-1-2

  

	  	  	  	
fiduciary capacity;

	  	  	  	  
	  	
____

(2)

	  	
A broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934;

	  	  	  	  
	  	
____

(3)

	  	
An insurance company as defined in Section 2(13) of the Securities Act;

	  	  	  	  
	  	
____

(4)

	  	
An investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act;

	  	  	  	  
	  	
____

(5)

	  	
A Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958;

	  	  	  	  
	  	
____

(6)

	  	
A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000;

	  	  	  	  
	  	
____

(7)

	  	
An employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

	  	  	  	  
	  	
____

(8)

	  	
A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;

	  	  	  	  
	  	
____

(9)

	  	
An organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of $5,000,000;

	  	  	  	  
	  	
____

(10)

	  	
A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of investing in the Company;

	  	  	  	  
	  	
____

(11)

	  	
A natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;

  

Ex. A-1-3

  

	  	
____

(12)

	  	
A natural person who had an individual income in excess of $200,000 in each of the two most recent years, or joint income with that person’s spouse in excess of $300,000, in each of those years, and has a reasonable expectation of reaching the same income level in the current year;

	  	  	  	  
	  	
____

(13)

	  	
An executive officer or director of the Company;

	  	  	  	  
	  	
____

(14)

	  	
An entity in which all of the equity owners qualify under any of the above subparagraphs.  If the undersigned belongs to this investor category only, list the equity owners of the undersigned, and the investor category which each such equity owner satisfies.

	
A.

	
FOR EXECUTION BY AN INDIVIDUAL:

	  	  	  	  	  
	
Date

	  	
By

	  	  
	  	  	
Print

	  	  
	  	  	
Name:

	  	  

	
B.

	
FOR EXECUTION BY AN ENTITY:

	  	  	
Entity

	  	  
	  	  	
Name:

	  	  
	  	  	  	  	  
	
Date

	  	
By

	  	  
	  	  	
Print

	  	  
	  	  	
Name:

	  	  
	  	  	
Title:

	  	  

	
C.

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

	  	  	
Entity

	  	  
	  	  	
Name:

	  	  
	  	  	  	  	  
	
Date

	  	
By

	  	  
	  	  	
Print

	  	  
	  	  	
Name:

	  	  

  

Ex. A-1-4

  

.

	  	  	
Entity

	  	  
	  	  	
Name:

	  	  
	  	  	  	  	  
	
Date

	  	
By

	  	  
	  	  	
Print

	  	  
	  	  	
Name:

	  	  

  

Ex. A-1-5

  

EXHIBIT A-2

 

Stock Certificate Questionnaire

 

Pursuant to Section 2.2(b) of the Agreement, please provide us with the following information:

 

	
1.

	
The exact name that the Securities are to be registered in (this is the name that will appear on the stock certificate(s)).  You may use a nominee name if appropriate:

	 	  
	  	  	 	  
	
2.

	
The relationship between the Purchaser of the Securities and the Registered Holder listed in response to Item 1 above:

	 	  
	  	  	 	  
	
3.

	
The mailing address, telephone and telecopy number of the Registered Holder listed in response to Item 1 above:

	 	  
	  	  	 	  
	  	  	 	  
	  	  	 	  
	  	  	 	  
	  	  	 	  
	
4.

	
The Tax Identification Number (or, if an individual, the Social Security Number) of the Registered Holder listed in response to Item 1 above:

	 	  

  

Ex. A-2-1

  

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

  

Schedule 1

  

EXHIBIT C-1

 

FORM OF LOCK UP AGREEMENT – OFFICER AND DIRECTOR

 

Lock-Up Agreement

September [  ], 2011

Rho Ventures VI, L.P.

Carnegie Hall Tower

152 West 57th Street, 23rd Floor

New York, New York 10019

Quantum Industrial Partners LDC

c/o Soros Fund Management LLC

888 Seventh Avenue

New York, New York 10106

Prentice Consumer Partners, LP

623 Fifth Avenue, 32nd Floor

New York, New York 10022

Dear Sirs:

 

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

  

Ex. C-1-1

  

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

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

The Lock-Up Period will commence on the date of this Agreement and continue until the earlier of (a) the date on which the undersigned ceases to be an officer or director of the Company or (b) 365 days after the date hereof (including the 365th day).

 

Notwithstanding the foregoing, the undersigned may transfer the Undersigned’s Securities (i) as a bona fide gift or gifts and (ii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned; provided, in each case, that (x) such transfer shall not involve a disposition for value, (y) the transferee agrees in writing with each of the Purchasers to be bound by the terms of this Lock-Up Agreement, and (z) no filing by any party under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), shall be required or shall be made voluntarily in connection with such transfer.  For purposes of this Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, nor more remote than first cousin.

 

In addition, the foregoing restrictions shall not apply to (i) the exercise of stock options granted pursuant to the Company’s equity incentive plans; provided that such restrictions shall apply to any of the Undersigned’s Securities issued upon such exercise, (ii) the cashless exercise or net exercise of any equity compensation award granted pursuant to the Company’s equity incentive plans; provided that such restrictions shall apply to any of the Undersigned’s Securities issued upon such exercise, or (iii) the establishment of any contract, instruction or plan (a “Plan”) that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act; provided that no sales of the Undersigned’s Securities shall be made pursuant to such a Plan prior to the expiration of the Lock-Up Period, and such a Plan may only be established if no public announcement of the establishment or existence thereof and no filing with the Securities and Exchange Commission or other regulatory authority in respect thereof or transactions thereunder or contemplated thereby, by the undersigned, the Company or any other person, shall be required, and no such announcement or filing is made voluntarily, by the undersigned, the Company or any other person, prior to the expiration of the Lock-Up Period (as such may have been extended pursuant to the provisions hereof).

 

In furtherance of the foregoing, the Company and its transfer agent and registrar are hereby authorized to decline to make any transfer of shares of Common Stock if such transfer would constitute a violation or breach of this Agreement.

 

The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.

 

The undersigned understands that the Purchasers are entering into the Securities Purchase Agreement in reliance upon this Agreement.

 

This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

	  	
Very truly yours,

  

Ex. C-1-2

  

 

	  	  	  
	  	  	
Printed Name of Holder

	  	  	  
	  	
By:

	  
	  	  	
Signature

  

Ex. C-1-3

  

EXHIBIT C-2

 

FORM OF LOCK UP AGREEMENT – EXISTING SHAREHOLDER

LOCK UP AND SUPPORT AGREEMENT

 

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

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

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

NOW, THEREFORE, in consideration for the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

II.

Lock Up

 

(i)           Until the date that is 365 days from the date hereof (including the 365th day), the 2011 Purchasers will not, without the prior written consent of each other 2011 Purchaser and the Company, (1) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, any shares of capital stock of the Company, (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of capital stock of the Company, or any securities exchangeable for or any other rights to purchase any shares of capital stock of the Company or (3) publicly announce an intention to effect any transaction specified in clause (1) or (2).

 

(ii)          (A) Until the date that is 90 days from the date hereof (including the 90th day) (or such earlier date as one of the 2011 Purchasers is permitted to sell securities that are subject to the lock up set forth in clause (i)), the Maverick Parties will not, without the prior written consent of each 2011 Purchaser and the Company, (1) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, any shares of capital stock of the Company, (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of capital stock of the Company, or any securities exchangeable for or any other rights

  

Ex. C-2-1

  

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

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

Notwithstanding anything to the contrary contained herein, the Lock-Up Restrictions shall not apply to any sale or other transfer of Common Stock by each Stockholder to its respective affiliates, provided that the transferee agrees in writing to be bound by the terms of this Agreement as a condition to such sale or transfer.

 

For purposes of this Paragraph II, affiliates of Soros shall include (1) any of Soros Fund Management LLC or George Soros or any of their respective affiliates, (2) any person or entity that is managed (x) by Soros Fund Management LLC or (y) by any person or entity that is an affiliate of Soros Fund Management LLC or (3) any person or entity that is a charitable organization established by George Soros or any of the members of George Soros’ family.

III.

Support

 

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

  

Ex. C-2-2

  

 

Common Stock held by such Stockholder, less the number of 2011 Shares (as defined in the 2011 Securities Purchase Agreement) owned by such Stockholder.

 

IV.

Governing Law; Choice of Forum; Jury Waiver

 

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

 

V.

Counterparts; Facsimile Signatures

 

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

 

VI.

Independent Nature of Stockholders’ Obligations and Rights

 

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

  

Ex. C-2-3

  

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

 

VII.

Specific Performance

 

Each of the parties hereto, in addition to being entitled to exercise all of its rights hereunder, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement.  Each party agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

 

VIII.

No Violations

 

Each of the parties hereto agree that no party hereto shall be obligated to comply with any provisions of this Agreement relating to the voting of shares of capital stock of the Company if doing so would constitute a violation of law or public policy.

 

IX.

Enforcement Fees and Costs

 

In the event legal action is taken or commenced by any of the parties hereto against any other party hereto for the enforcement of any of the covenants, terms or conditions of this Agreement, the non-prevailing party shall be liable for all reasonable fees and costs (including legal fees and costs) incurred by the prevailing party in connection with such legal action.

[Signature pages follow]

  

Ex. C-2-4

  

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

 

	  	
BLUEFLY, INC.

	 	 
	  	
By:

	
  

	  	  	
Name:

	  	  	
Title:

	  	  	  
	  	
QUANTUM INDUSTRIAL PARTNERS LDC

	 	 
	  	
By:

	
  

	  	  	
Name:

	  	  	
Title:

  

Ex. C-2-5

  

 

	  	
MAVERICK FUND USA, LTD

	 	 
	  	
By: MAVERICK CAPITAL, LTD.,

	  	
as its Investment Manager

	 	 
	  	
By:

	
  

	  	  	
Name:

	  	  	
Title:

	 	 	 
	 	MAVERICK FUND L.D.C.
	 	 
	 	By: MAVERICK CAPITAL, LTD.,
	 	
as its Investment Manager

	 	 	 
	  	
By:

	
  

	  	  	
Name:

	  	  	
Title:

	  	  	  
	 	MAVERICK FUND II, LTD
	 	 
	 	By: MAVERICK CAPITAL, LTD.,
	 	
as its Investment Manager

	 	 
	  	
By:

	
  

	  	  	
Name:

	  	  	
Title:

	  	  	  

  

Ex. C-2-6

  

 

	  	
PRENTICE CONSUMER PARTNERS, LP

	  	
By:  Prentice Consumer Partners GP, LLC

	 	 
	  	
By:

	
  

	  	
  

	Name:
	  	
  

	Title:  

  

Ex. C-2-7

  

 

	  	
RHO VENTURES VI, L.P.

	  	  
	  	
By: RMV VI, L.L.C., its General Partner

	  	  
	  	
By: Rho Capital Partners LLC, its Managing

Member

	  	  	  
	  	
By:

	
  

	  	 	
Name:

	  	 	
Title:

 

  

Ex. C-2-8

  

Schedule 1

Purchasers

	
Name

	 	
Shares

Purchased

	 	 	
Purchase

Price Per

Share

	 	
Office Address

	 	
Type of

Entity

	 	
Jurisdiction of

Organization

	
Rho Ventures VI, L.P.

	 	2,777,777	 	 	$	1.80	 	
152 West 57th Street, 23rd Floor

New York, NY 10019

	 	
Limited partnership

	 	
Delaware

	
Quantum Industrial Partners LDC

	 	555,555	 	 	$	1.80	 	
888 Seventh Avenue

New York, NY

10106

	 	
Limited Duration Company

	 	
Cayman Islands

	
Prentice Consumer Partners, LP

	 	333,333	 	 	$	1.80	 	
623 Fifth Avenue, 32nd Floor, New York, NY 10022

	 	
Limited Partnership

	 	
Delaware

  

 

  

Schedule 2

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

Existing Shareholders:

	
Rho Ventures VI, L.P.

	
Quantum Industrial Partners LDC

	
Prentice Consumer Partners, LP

	
Maverick Fund USA, Ltd.

	
Maverick Fund, L.D.C.

	
Maverick Fund II, Ltd.

Officers and Directors of the Company:

	
Melissa Payner

	
Joseph Park

	
Kara Jenny

	
David Wassong

	
David Janke

	
Habib Kairouz

	
Mario Ciampi

	
Martin Miller

	
Anthony Plesner

	
Michael Helfand

	
Andy Russell

	
Denise Seegal

  

 

  

 

Execution Copy

 

LOCK UP AND SUPPORT AGREEMENT

 

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

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

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

NOW, THEREFORE, in consideration for the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

X.

Lock Up

 

(i)           Until the date that is 365 days from the date hereof (including the 365th day), the 2011 Purchasers will not, without the prior written consent of each other 2011 Purchaser and the Company, (1) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, any shares of capital stock of the Company, (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of capital stock of the Company, or any securities exchangeable for or any other rights to purchase any shares of capital stock of the Company or (3) publicly announce an intention to effect any transaction specified in clause (1) or (2).

 

(ii)           (A) Until the date that is 90 days from the date hereof (including the 90th day) (or such earlier date as one of the 2011 Purchasers is permitted to sell securities that are subject to the lock up set forth in clause (i)), the Maverick Parties will not, without the prior written consent of each 2011 Purchaser and the Company, (1) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, any shares of capital stock of the Company, (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of capital stock of the Company, or any securities exchangeable for or any other rights to purchase any shares of capital stock of the Company or (3) publicly announce an intention to effect any transaction specified in clause (ii)(A)(1) or (ii)(A)(2).

  

 

  

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

Notwithstanding anything to the contrary contained herein, the Lock-Up Restrictions shall not apply to any sale or other transfer of Common Stock by each Stockholder to its respective affiliates, provided that the transferee agrees in writing to be bound by the terms of this Agreement as a condition to such sale or transfer.

 

For purposes of this Paragraph II, affiliates of Soros shall include (1) any of Soros Fund Management LLC or George Soros or any of their respective affiliates, (2) any person or entity that is managed (x) by Soros Fund Management LLC or (y) by any person or entity that is an affiliate of Soros Fund Management LLC or (3) any person or entity that is a charitable organization established by George Soros or any of the members of George Soros’ family.

XI.

Support

 

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

  

 

  

XII.

Governing Law; Choice of Forum; Jury Waiver

 

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

 

XIII.

Counterparts; Facsimile Signatures

 

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

 

XIV.

Independent Nature of Stockholders’ Obligations and Rights

 

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

  

 

  

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

 

XV.

Specific Performance

 

Each of the parties hereto, in addition to being entitled to exercise all of its rights hereunder, including recovery of damages, shall be entitled to specific performance of its rights under this Agreement.  Each party agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

 

XVI.

No Violations

 

Each of the parties hereto agree that no party hereto shall be obligated to comply with any provisions of this Agreement relating to the voting of shares of capital stock of the Company if doing so would constitute a violation of law or public policy.

 

XVII.

Enforcement Fees and Costs

 

In the event legal action is taken or commenced by any of the parties hereto against any other party hereto for the enforcement of any of the covenants, terms or conditions of this Agreement, the non-prevailing party shall be liable for all reasonable fees and costs (including legal fees and costs) incurred by the prevailing party in connection with such legal action.

[Signature pages follow]

  

 

  

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

 

	 	
BLUEFLY, INC.

	 	 
	 	
By:

	
/s/ Kara B. Jenny

	 	  	
Name:

	
Kara B. Jenny

	 	  	
Title:

	
CFO

	 	  	  	  
	 	
QUANTUM INDUSTRIAL PARTNERS LDC

	 	 
	 	
By:

	
/s/ Jay A. Schoenfarber

	 	  	
Name:

	
Jay A. Schoenfarber

	 	  	
Title:

	
Attorney-in-Fact

  

 

  

	 	
MAVERICK FUND USA, LTD

	 	 
	 	
By: MAVERICK CAPITAL, LTD.,

	 	
as its Investment Manager

	 	 
	 	
By:

	
/s/ John T. McCafferty

	 	  	
Name:

	
John T. McCafferty

	 	  	
Title:

	
Limited Partner and General Counsel

	 	 
	 	
MAVERICK FUND L.D.C.

	 	 
	 	
By: MAVERICK CAPITAL, LTD.,

	 	
as its Investment Manager

	 	 
	 	
By:

	
/s/ John T. McCafferty

	 	  	
Name:

	
John T. McCafferty

	 	  	
Title:

	
Limited Partner and General Counsel

	 	  	  	  
	 	
MAVERICK FUND II, LTD

	 	 
	 	
By: MAVERICK CAPITAL, LTD.,

	 	
as its Investment Manager

	 	 
	 	
By:

	
/s/ John T. McCafferty

	 	  	
Name:

	
John T. McCafferty

	 	  	
Title:

	
Limited Partner and General Counsel

 

  

 

  

 

	 	
PRENTICE CONSUMER PARTNERS, LP

	 	
By:  Prentice Consumer Partners GP, LLC

	 	 
	 	
By:

	
/s/ Mario Ciampi

	 	
  

	
Name:

	Mario Ciampi
	 	
  

	
Title:

	Managing Partner

  

 

  

  

	 	
RHO VENTURES VI, L.P.

	 	 	 
	 	
By: RMV VI, L.L.C., its General Partner

	 	  
	 	
By: Rho Capital Partners LLC, its Managing

Member

	 	  	  	 
	 	
By:

	
/s/ Habib Kairouz

	 	
  

	

Name:

	
Habib Kairouz

	 	
  

	

Title:

	
Managing Member

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