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EXHIBIT E
INVESTMENT AGREEMENT
among
BLUEFLY, INC.,
QUANTUM INDUSTRIAL PARTNERS LDC,
SFM DOMESTIC INVESTMENTS LLC
and
PILOT CAPITAL CORP.
Dated: July 27, 1999
Page 26 of 79 pages
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (the "Agreement"), dated as of July 27,
1999, by and among Bluefly, Inc., a New York corporation (the "Company"), and
the purchasers listed on Schedule 1 hereto (the "Initial Purchasers").
WHEREAS, at the First Closing, the Company wishes to sell to
each Initial Purchaser, and each Initial Purchaser wishes to purchase from the
Company, for the purchase price set forth opposite such Initial Purchaser's name
on Schedule 2.2 hereto, the number of shares of Series A Convertible Preferred
Stock, par value $.01 per share and liquidation value $20.00 per share, of the
Company (the "Series A Preferred Stock") set forth opposite such Initial
Purchaser's name on Schedule 2.2 hereto, for an aggregate of $5,000,000, upon
the terms and subject to the conditions set forth in this Agreement (the "First
Shares"); and
WHEREAS, at the Second Closing, the Company wishes to sell to
the Second Closing Purchasers (together with the Initial Purchasers, the
"Purchasers"), and the Second Closing Purchasers wish to purchase from the
Company, an aggregate of 250,000 shares of the Series A Preferred Stock for an
aggregate of $5,000,000, upon the terms and subject to the conditions set forth
in this Agreement (the "Second Shares," and together with the First Shares, the
"Shares").
NOW, THEREFORE, in consideration of the mutual terms and
conditions herein contained, and for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
SECTION I. DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following
definitions shall apply:
"1998 Form 10-KSB" has the meaning set forth in Section
3.1(a).
"Act" means the Securities Act of 1933, as amended, or any
superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such superseding Federal
statute.
"Action" means any action, complaint, petition, investigation,
suit or other proceeding, whether civil or criminal, in law or in equity, or
before any arbitrator or Governmental Entity.
"Affiliate" shall mean any Person who is an "affiliate" (as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act) of, and any Person controlling, controlled by, or under common control
with, any Purchaser. For the purposes of this Agreement, "control" includes the
ability to have investment discretion through contractual means or by operation
of law.
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"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Annual Reports" means the Company's Annual Reports on Form
10-KSB for the years ended December 31, 1998 and 1997, each as filed with the
SEC (including, in each case, all amendments thereto filed with the SEC prior to
the date of this Agreement, all exhibits and schedules thereto and documents
incorporated by reference therein, but excluding any amendments thereto made
subsequent to the date hereof).
"Approved Investors" has the meaning set forth in Section 2.4
of this Agreement.
"Audited Financials" has the meaning set forth in Section 3.7
of this Agreement.
"Board of Directors" means the Board of Directors of the
Company.
"Business" means the business of the Company and shall be
deemed to include any of the following incidents of such business: income,
operations, condition (financial or other), assets, properties and liabilities.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"By-Laws" means the amended and restated by-laws of the
Company, as the same may have been amended and as in effect on the First Closing
Date.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock.
"Certificate of Amendment to the Certificate of Incorporation"
means the amendment to the Certificate of Incorporation setting forth the
designation, number and relative rights, privileges and restrictions of the
Series A Preferred Stock adopted by the Board of Directors and filed with the
Secretary of State of the State of New York on or before the First Closing Date
substantially in the form attached hereto as Exhibit A.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Company, as the same has been amended and as in effect on
the First Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company and any other capital stock of the Company into which such
stock is reclassified or reconstituted.
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"Condition of the Company" means the assets, business,
properties, operations or financial condition of the Company and the
Subsidiaries, taken as a whole.
"Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Contractual Obligations" means as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"Encumbrance" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others,
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable United
States federal or state securities law.
"Environmental Laws" means federal, state and local laws,
principles of common law, regulations and codes, as well as orders, decrees,
judgments or injunctions issued, promulgated, approved or entered thereunder
relating to pollution, protection of the environment or public health and
safety.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended (or any successor statute thereto).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended (or any successor statute thereto), and the rules and regulations of the
Commission promulgated thereunder.
"Financials" has the meaning set forth in Section 3.7 of this
Agreement.
"First Closing" has the meaning set forth in Section 2.1 of
this Agreement.
"First Closing Date" has the meaning set forth in Section 2.1
of this Agreement.
"First Purchase Price" has the meaning set forth in Section
2.2 of this Agreement.
"First Shares" has the meaning assigned to such term in the
Recitals to this Agreement.
"GAAP" means generally accepted United States accounting
principles in effect from time to time.
"Governmental Authority" means the government of any state,
city, locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
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"Governmental Entity" means any government or any agency,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government of or within the United
States, whether federal, state or local.
"Initial Purchasers" has the meaning assigned to such term in
the Recitals to this Agreement.
"Knowledge of the Company" means the actual knowledge of the
executive officers of the Company without investigation.
"Law" means any constitutional provision, statute or other
law, rule, regulation, or interpretation of any Governmental Entity and any
Order.
"Licenses" means any certificates, permits, licenses,
franchises, consents, approvals, orders, authorizations and clearances from
appropriate Governmental Authorities.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock and equity related
preferences) including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, or any
financing lease having substantially the same economic effect as any of the
foregoing.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified Person.
"Material Adverse Effect" means a circumstance, fact, change,
development or effect (i) that could or could reasonably be expected to have a
materially adverse effect on the properties, results of operations, business,
domestic prospects or condition (financial or otherwise) of the Company taken as
a whole or (ii) that materially adversely effects the ability of the Company to
consummate the transaction contemplated by this Agreement in any material
respect or impairs or delays the ability of the Company to effect the First
Closing or the Second Closing.
"NASDAQ" means the NASDAQ Small Cap Market of the National
Association of Securities Dealers, Inc. Automated Quotation System.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ of any Governmental Entity.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
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"Proposed Investors" has the meaning set forth in Section 2.4
of this Agreement.
"Purchasers" has the meaning ascribed to such term in the
Recitals to this Agreement.
"Quarterly Reports" means the Company's Quarterly Reports on
Form 10-QSB for the quarters ended March 31, 1999, September 30, 1998, June 30,
1998 and March 31, 1998, each as filed with the SEC.
"Registrable Securities" means each of the following: (a) any
shares of Common Stock owned by a Purchaser issued or issuable upon conversion
of shares of Series A Preferred Stock, and (b) any shares of Common Stock issued
or issuable by the Company to any or all of the Purchasers during the time that
any of such Purchasers are holders of shares of Common Stock or shares of Series
A Preferred Stock.
"Requirements of Law" means as to any Person, any law, treaty,
rule, regulation, right, privilege, qualification, license or franchise or
determination of an arbitrator or a court or other Governmental Authority or a
stock exchange, in each case applicable or binding upon such Person or any of
its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" means the Annual Reports, the Quarterly
Reports and all other documents filed by the Company with the SEC on or after
January 1, 1998 and prior to the date hereof pursuant to Section 13 or 15(d) of
the Exchange Act (including all exhibits and schedules thereto and documents
incorporated by reference therein), but shall not include any portion of any
document which is not deemed to be filed under applicable SEC rules and
regulations.
"Second Closing" has the meaning set forth in Section 2.3 of
this Agreement.
"Second Closing Date" has the meaning set forth in Section 2.3
of this Agreement.
"Second Closing Notice" has the meaning set forth in Section
2.4 of this Agreement.
"Second Closing Purchasers" has the meaning assigned to such
term in Section 2.4 of this Agreement.
"Second Purchase Price" has the meaning set forth in Section
2.4 of this Agreement.
"Second Shares" has the meaning assigned to such term in the
Recitals to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended
(or any successor statute thereto), and the rules and regulations of the
Commission promulgated thereunder.
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"Series A Preferred Stock" has the meaning assigned to such
term in the Recitals to this Agreement.
"Shares" has the meaning assigned to such term in the Recitals
to this Agreement.
"Stockholder" has the meaning assigned to such term in Section
9.2(a) of this Agreement.
"Subsidiary" means, as of the relevant date of determination,
with respect to any Person, a corporation or other entity of which 50% or more
of the voting power of the outstanding voting equity securities or 50% or more
of the outstanding economic equity interest is held, directly or indirectly, by
such Person. Unless otherwise qualified, or the context otherwise requires, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Company.
"Transaction Documents" means collectively, this Agreement
(including the schedules attached hereto) and the Certificate of Amendment to
the Certificate of Incorporation.
"Unaudited Financials" has the meaning set forth in Section
3.7 of this Agreement.
SECTION II. PURCHASE AND SALE OF THE SHARES
-------------------------------
2.1 First Closing. Subject to the terms and conditions of this
--------------
Agreement, the closing of the sale and purchase of the First Shares (the "First
Closing") shall take place at the offices of ▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, 1285 Avenue of the Americas, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ on the date
hereof or on such other date and time as the Initial Purchasers and the Company
may mutually agree (the "First Closing Date").
2.2 Transactions at the First Closing. At the First Closing,
------------------------------------
subject to the terms and conditions of this Agreement, each of the Initial
Purchasers severally (and not jointly) shall purchase and acquire from the
Company, and the Company shall issue and sell to each Initial Purchaser, such
number of shares of Series A Preferred Stock as are set forth opposite such
Initial Purchaser's name on Schedule 2.2 for an aggregate purchase price of
-------------
$5,000,000 (the "First Purchase Price"). At the First Closing, the Company shall
deliver to each Initial Purchaser duly executed certificates representing the
number of shares of Series A Preferred Stock set forth opposite such Initial
Purchaser's name on Schedule 2.2 hereto, each registered in the name of such
------------
Initial Purchaser or its nominees, with appropriate issue stamps, if any,
affixed at the expense of the Company, free and clear of any Lien, against
payment by each Initial Purchaser of the portion of the First Purchase Price
payable in respect thereof as set forth opposite such Initial Purchaser's name
on Schedule 2.2 hereto by wire transfer of immediately available funds to an
------------
account designated in a notice delivered by the Company not later than one
Business Day prior to the First Closing Date.
2.3 Second Closing. Subject to the terms and conditions of this
---------------
Agreement, the closing of the sale and purchase of the Second Shares (the
"Second Closing") shall take place at the offices of ▇▇▇▇, Weiss, Rifkind,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Page 32 of 79 pages
on August 24, 1999, at 10:00 a.m., New York City time, or on such other date and
at such other time as the Second Closing Purchasers and the Company may mutually
agree (the "Second Closing Date").
2.4 Transactions at the Second Closing. Not later than five (5)
------------------------------------
Business Days prior to the Second Closing Date, subject to the terms and
conditions of this Agreement, the Initial Purchasers shall deliver a schedule
(the "Second Closing Notice") to the Company setting forth the allocation of the
Second Shares among one or more of the Initial Purchasers and the persons set
forth on the Second Closing Notice (the "Proposed Investors"). The Company shall
have the right to approve the Proposed Investors, which approval shall not be
unreasonably withheld or delayed, provided that any Second Closing Notice
submitted for approval by the Initial Purchasers and not reasonably disapproved
in writing by the Company within three (3) Days after receipt shall be deemed
approved. On the Second Closing Date such approved Proposed Investors (the
"Approved Investors," and together with the Initial Purchasers listed on the
Second Closing Notice, the "Second Closing Purchasers") severally (and not
jointly) shall purchase and acquire from the Company, and the Company shall
issue and sell to each such Second Closing Purchaser, such number of shares of
Series A Preferred Stock as are set forth opposite such Second Closing
Purchaser's name on the Second Closing Notice for an aggregate purchase price of
$5,000,000 (the "Second Purchase Price"). At the Second Closing, the Company
shall deliver to each Second Closing Purchaser duly executed certificates
representing the number of shares of Series A Preferred Stock set forth opposite
such Second Closing Purchaser's name, each registered in the name of such Second
Closing Purchaser or its nominees, with appropriate issue stamps, if any,
affixed at the expense of the Company, free and clear of any Lien, against
payment by each such Second Closing Purchaser of the portion of the Second
Purchase Price payable in respect thereof as set forth opposite such Second
Closing Purchaser's name on the Second Closing Notice by wire transfer of
immediately available funds to an account designated in a notice delivered by
the Company not later than one Business Day prior to the Second Closing Date.
SECTION III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to each Initial
Purchaser as follows:
3.1 Corporate Existence and Power.
-----------------------------
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York.
The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Company's annual report on Form 10-KSB for the year ended December 31,
1998 (the "1998 Form 10-KSB"). The Company is duly qualified to
transact business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership, leasing or operation of property requires such
qualification, other than any failure to be so qualified or in good
standing as would not singly or in the aggregate with all such other
failures reasonably be expected to have a Material Adverse Effect.
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(b) True, correct and complete copies of the Certificate
of Incorporation (other than the Certificate of Amendment to the
Certificate of Incorporation to be filed pursuant to the terms hereof)
and the By-Laws as in effect on the date hereof have been provided by
the Company to the Initial Purchasers.
3.2 Power and Authority. The Company has all requisite corporate
-------------------
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery and performance by the
Company of this Agreement and each of the Transaction Documents and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized and approved by the Board of Directors and no further corporate
action on the part of the Company (other than the filing of the Certificate of
Amendment to the Certificate of Designation) is necessary to authorize the
execution, delivery and performance by the Company of this Agreement or the
consummation by the Company of the transactions contemplated hereby. The Board
of Directors has duly adopted the Certificate of Amendment to the Certificate of
Designation. This Agreement has been duly executed and delivered by the Company
and is a valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
3.3 No Contravention, Conflict, Breach, Etc. The execution,
--------------------------------------------
delivery and performance of this Agreement and each Transaction Document by the
Company and the consummation of the transactions contemplated hereby and thereby
will not conflict with, contravene or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, or result in the
creation or imposition of any Encumbrance upon any assets or properties of the
Company or any of its Subsidiaries or cause the Company or any of its
Subsidiaries to be required to redeem, repurchase or offer to repurchase any of
their respective indebtedness under (i) the certificate of incorporation, the
by-laws or other organizational document of the Company or any of its
Subsidiaries, (ii) any material Law of any Governmental Authority having
jurisdiction over the Company or any of its Subsidiaries or any of their
respective assets, properties or operations or (iii) any indenture, mortgage,
loan agreement, note or other material agreement or instrument for borrowed
money, any guarantee of any agreement or instrument for borrowed money or any
material lease, permit, license or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound or to which any of the assets, properties or
operations of the Company or any of its Subsidiaries is subject.
3.4 Consents. Except as set forth on Schedule 3.4, no consent,
-------- -------------
approval, authorization, order, registration, filing or qualification of or with
any (i) Governmental Authority, (ii) stock exchange on which the securities of
the Company are traded or (iii) other Person (whether acting in an individual,
fiduciary or other capacity) is required to be made or obtained by the Company
or any of its Subsidiaries for the execution, delivery and performance by the
Company of this Agreement and each Transaction Document to which it is a party
and the consummation of the transactions contemplated hereby and thereby, except
consents which are not material to the business or operations of the Company and
its Subsidiaries, taken as a whole.
Page 34 of 79 pages
3.5 Subsidiaries. Schedule 3.5 sets forth a complete and accurate
------------ ------------
list of all of the Subsidiaries of the Company together with their respective
jurisdictions of incorporation or organization. Except for its Subsidiaries, the
Company holds no equity, partnership, joint venture or other interest in any
Person. True and complete copies of the certificate of incorporation, by-laws
and other organizational documents of the Subsidiaries as in effect on the date
hereof have been provided by the Company to the Purchasers. Each Subsidiary of
the Company has been duly incorporated or organized and is validly existing as a
corporation or other legal entity in good standing under the laws of the
jurisdiction of its incorporation or organization, has the corporate or other
organizational power and authority to own, lease and operate its properties and
to conduct its business as currently conducted and is duly qualified to transact
business as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which the conduct of its business or its ownership,
leasing or operation of property requires such qualification, other than any
failure to be so qualified or in good standing as would not singly or in the
aggregate with all such other failures reasonably be expected to have a Material
Adverse Effect. All of the outstanding capital stock of each Subsidiary of the
Company has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly or through other
Subsidiaries of the Company, free and clear of any Encumbrance, and there are no
rights granted to or in favor of any third party (whether acting in an
individual, fiduciary or other capacity), other than the Company or any
Subsidiary of the Company, to acquire any such capital stock, any additional
capital stock or any other securities of any such Subsidiary. There exists no
restriction, other than those pursuant to applicable law or regulation, on the
payment of cash dividends by any Subsidiary.
3.6 SEC Documents.
-------------
(a) The Company has made available to the Initial
Purchasers true and complete copies of all SEC Documents.
(b) As of its filing date, each SEC Document filed
pursuant to the Exchange Act (i) complied in all material respects
with the applicable requirements of the Exchange Act and (ii) did not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not
misleading.
(c) Each final registration statement filed with the SEC,
as amended or supplemented prior to the First Closing Date, if
applicable, pursuant to the Act, as of the date such statement or
amendment became or will become effective (i) complied or will comply
in all material respects with the applicable requirements of the Act
and (ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading (in
the case of any prospectus, in light of the circumstances under which
they were made).
3.7 Financial Statements. The audited financial statements and
---------------------
notes included in the SEC Documents (the "Audited Financials") comply in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the SEC thereunder, were prepared in accordance with GAAP
consistently applied throughout the period involved except as noted therein, and
Page 35 of 79 pages
fairly present in all material respects the financial condition, results of
operations, cash flows and changes in shareholders' equity of the Company and
its Subsidiaries at the dates and for the periods presented. Since December 31,
1998, except as disclosed in the SEC Documents or as previously disclosed to the
Initial Purchasers in writing, the Company has not incurred any material
liabilities other than in the ordinary course of business of the Company, and
there has been no change, and no development or event involving a prospective
change, which has had or could reasonably be expected to have, a Material
Adverse Effect. The unaudited quarterly consolidated financial statements and
the related notes included in the SEC Documents, previously delivered by the
Company to the Purchasers (the "Unaudited Financials" and together with the
Audited Financials, the "Financials"), fairly present in all material respects
the financial condition, results of operations and cash flows of the Company and
its Subsidiaries at the dates and for the periods to which they relate, subject
to normal year-end adjustments, and have been prepared in accordance with GAAP
applied on a consistent basis except as otherwise stated therein and have been
prepared on a basis consistent with that of the audited financial statements
referred to above subject to normal year-end adjustments except as otherwise
stated therein.
3.8 No Existing Violation, Default, Etc. The Company is not in
--------------------------------------
violation (i) of any provision of its Certificate of Incorporation, By-Laws or
other organizational documents or (ii) of any applicable Law or regulation,
which violation has or would reasonably be expected to have a Material Adverse
Effect. No breach, event of default or event that, but for the giving of notice
or the lapse of time or both, would constitute an event of default exists under
any indenture, mortgage, loan agreement, note or other agreement or instrument
for borrowed money, any guarantee of any agreement or instrument for borrowed
money or any lease, permit, license or other agreement to which the Company is a
party or by which the Company is bound or to which any of the properties, assets
or operations of the Company is subject, which breach, event of default, or
event that, but for the giving of notice or the lapse of time or both, would
constitute an event of default, has or would reasonably be expected to have a
Material Adverse Effect.
3.8 Licenses and Permits. The Company and its Subsidiaries have
--------------------
such Licenses as are necessary to own, lease or operate their properties and to
conduct their businesses in the manner described in the SEC Documents and as
currently owned or leased and conducted and all such Licenses are valid and in
full force and effect except such Licenses that the failure to have or to be in
full force and effect individually or in the aggregate have not had, and would
not reasonably be expected to have, a Material Adverse Effect. None of the
Company or any of its Subsidiaries has received any written notice that any
violations are being or have been alleged in respect of any such License and no
proceeding is pending or, to the Knowledge of the Company, threatened, to
suspend, revoke or limit any such License the effect of which would reasonably
be expected to have a Material Adverse Effect. The Company and its Subsidiaries
are in compliance with their respective obligations under such Licenses, with
such exceptions as individually or in the aggregate have not had, and would not
reasonably be expected to have, a Material Adverse Effect, and no event has
occurred that allows, or after notice or lapse of time would allow, revocation,
suspension, limitation or termination of such Licenses, except such events as
have not had, or would not reasonably be expected to have, a Material Adverse
Effect.
Page 36 of 79 pages
3.10 Title to Properties. The Company and its Subsidiaries have
--------------------
sufficient title to all material properties (real and personal) owned by the
Company and any such Subsidiary that are necessary for the conduct of the
business of the Company and any such Subsidiary as described in the SEC
Documents filed with the SEC prior to the date of this Agreement and as
currently conducted, free and clear of any Encumbrance that may materially
interfere with the conduct of its business, and all material properties held
under lease by the Company and the Subsidiaries are held under valid, subsisting
and enforceable leases.
3.11 Intellectual Property. There are no intellectual property
----------------------
rights or other intangible property rights (other than standard license
agreements and other related rights acquired by the Company or under which the
Company is the licensee in connection with the Company's use of administrative,
ministerial, accounting and financial office automation software and related
products) including, without limitation, (i) trademarks, service marks,
fictitious or assumed names, trade dress, trade names, brand names, Internet
domain names, designs, logos, or corporate names, whether registered or
unregistered, and all registrations and applications for registration thereof;
(ii) copyrights, including all renewals and extensions thereof, copyright
registrations and applications for registration thereof, and non-registered
copyrights; (iii) trade secrets, concepts, ideas, designs, research, processes,
procedures, techniques, methods, know-how, data, mask works, discoveries,
inventions, modifications, extensions, improvements, formulae and other
proprietary rights (whether or not patentable or subject to copyright, mask
work, or trade secret protection); and (iv) computer software programs,
including, without limitation, all source code, object code, and documentation
related thereto, patents, patent applications, and other patent rights
(including any divisions, continuations, continuations-in-part, substitutions,
or reissues thereof, whether or not patents are issued on any such applications
and whether or not any such applications are modified or resubmitted) owned or
licensed by the Company or any of its Subsidiaries ("Intellectual Property")
other than as previously disclosed in writing to the Initial Purchasers or as
disclosed in Schedule 3.11. Except as disclosed in Schedule 3.11 or as
-------------- --------------
previously disclosed to the Initial Purchasers in writing: (i) the Company owns
or possesses sufficient legal rights to all Intellectual Property necessary for
its business as presently conducted without any conflict or infringement of
rights of others; (ii) other than those contracts, agreements, and instruments
required to be filed as an exhibit to the 1998 Form 10-KSB, there are no
material outstanding options, licenses, or agreements of any kind relating to
the Intellectual Property nor is the Company bound by or a party to any material
options, licenses, or agreements of any kind with respect to the intellectual
property of any other person or entity; (iii) to the Knowledge of the Company,
the Company has not infringed upon or otherwise violated the intellectual
property rights of any third party; (iv) other than as previously disclosed to
the Initial Purchasers in writing or as set forth on Schedule 3.11, the Company
-------------
has not received any claim, charge, demand, notice or other communication
alleging that the Company has violated or, by conducting its business as
proposed, would violate any intellectual property rights of any other person or
entity; (v) other than as previously disclosed to the Initial Purchasers in
writing or as set forth on Schedule 3.11, the Company is unaware of any facts
--------------
that would form a reasonable basis for an action or claim by others alleging
infringement by the Company of Intellectual Property of others; and (vi) all of
the Company's Intellectual Property is owned by the Company, free and clear of
all liens and encumbrances and held in the Company's name. None of the execution
or delivery of any Transaction Documents, or the carrying on of the Company's
business by the employees of the Company, will conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default
Page 37 of 80 pages
under, any contract, covenant or instrument related to the Company's
Intellectual Property or Related Intellectual Property. The Company has taken
all action reasonably necessary and desirable to maintain and protect each item
of Intellectual Property owned by the Company. Each employee, officer and
director of the Company has executed an agreement regarding inventions and
confidentiality substantially in the form or forms delivered to the Initial
Purchasers. The Company is unaware of uncited prior art that is more pertinent
than the art already of record in the U.S. Patent and Trademark Office in
connection with the patents and patent applications of the Company's
Intellectual Property.
3.12 Environmental Matters. To the Company's Knowledge, the Company
---------------------
and its Subsidiaries and their operations and properties are and have been in
compliance in all material respects with all applicable Environmental Laws, and
no material expenditures are or, to the Company's Knowledge, will be required in
order to comply with any applicable Environmental Laws. There is no civil,
criminal or administrative judgment, action, suit, demand, claim, hearing,
notice of violation, investigation, proceeding, notice or demand letter pending
or to the Company's Knowledge, threatened against the Company or any of its
Subsidiaries pursuant to Environmental Laws which could reasonably be expected
to result in a material fine, penalty or other obligation, cost or expense.
There are no past or present events, conditions, circumstances, activities,
practices, incidents, agreements, actions or plans which may prevent compliance
by the Company or any of its Subsidiaries with, or which have given rise to, or,
to the Company's Knowledge, will give rise to, material liability to the Company
or any of its Subsidiaries under Environmental Laws.
3.13 Capitalization. As of the First Closing Date, after giving
--------------
effect to the transactions contemplated hereby, the authorized capital stock of
the Company will consist of 15,000,000 shares of Common Stock and 2,000,000
shares of Preferred Stock, $.01 par value, of which 500,000 shares have been
designated Series A Preferred Stock and, as of the First Closing Date after
giving effect to the transaction contemplated hereby, the issued and outstanding
capital stock of the Company shall consist of 4,894,706 shares of Common Stock
and 250,000 shares of Series A Preferred Stock. All such shares of Capital Stock
of the Company have been duly authorized and upon payment therefor as
contemplated by the Transaction Documents, all such shares shall be fully paid
and non-assessable. The First Shares to be issued at the First Closing are
convertible into 476,190 shares of Common Stock and the Second Shares to be
issued at the Second Closing are convertible into 476,190 shares of Common
Stock, subject to antidilution provisions set forth in the Certificate of
Amendment to the Certificate of Incorporation. Except as set forth in Schedule
3.13 and except as contemplated by this Agreement, there are no shares of
capital stock of the Company reserved for issuance. The First Shares when issued
upon payment therefor and the Second Shares when issued upon payment therefore
and the shares of Common Stock when issued upon conversion of the Shares, are
duly authorized and, when so issued, will be fully paid and non-assessable.
Except for the Shares and as set forth in Schedule 3.13, there are no options,
warrants or other rights to purchase shares of Capital Stock or other securities
of the Company or any of its Subsidiaries, or securities convertible into or
exchangeable for shares of Capital Stock or other securities of the Company or
any of its Subsidiaries, nor, except as required by the Transaction Documents or
as set forth in Schedule 3.13, is the Company or any Subsidiary obligated in any
manner to issue shares of its Capital Stock or other securities. Except as
Page 38 of 79 pages
contemplated hereby and for relevant state and federal securities laws, there
are no restrictions on the Purchaser's ability to transfer shares of Capital
Stock of the Company.
3.14 Employee Benefits.
(a) Except for the plans described in the SEC Documents
filed with the SEC prior to the date of this Agreement and those
listed in Schedule 3.14 (the "Benefit Plans"), there are no employee
-------------
benefit plans or arrangements of any type (including, without
limitation, plans described in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended and the regulations thereunder
("ERISA") under which the Company has or in the future could have
directly, or indirectly through a Commonly Controlled Entity (within
the meaning of Sections 414(b), (c), (m) and (o) of the Code), any
material liability with respect to any current or former employee of
the Company or any Commonly Controlled Entity. No such Benefit Plan is
a "multiemployer plan" (within the meaning of ERISA Section
4001(a)(3)) or subject to Title IV of ERISA and, the Company has never
contributed to, or had any obligation to contribute to, any such
multiemployer plan or any plan subject to Title IV of ERISA.
(b) With respect to each Benefit Plan: (i) such Benefit
Plan has been maintained and administered at all times in material
compliance with its terms and applicable law and regulation; (ii) no
event has occurred and to the Knowledge of the Company, there exists
no circumstance under which the Company could directly, or indirectly
through a Commonly Controlled Entity, incur any material liability
under ERISA, the Code or otherwise; (iii) there are no actions, suits
or claims pending or, to the Knowledge of the Company, threatened,
with respect to any Benefit Plan or against the assets of any Benefit
Plan with respect to which suits management of the Company reasonably
believes the Company could incur any material liability; (iv) all
contributions and premiums due and owing to any Benefit Plan have been
made or paid on a timely basis and no "accumulated funding
deficiency," as defined in Code Section 412, has been incurred,
whether or not waived; and (v) if such Benefit Plan is intended to be
qualified under Section 401(a) of the Code, such Benefit Plan has been
determined to be so qualified and each trust created under such
Benefit Plan has been determined to be exempt from tax under Section
501(a) of the Code and to the Knowledge of the Company, no event has
occurred since the date of such determinations, including effective
changes in laws or regulations or modifications to the Benefit Plans,
that would adversely affect such qualification or tax exempt status.
(c) The Company has no Postretirement Benefit Obligation
(as defined in Statement of Financial Accounting Standards No. 106) in
respect of post-retirement health and medical benefits for current and
former employees of the Company. No condition exists that would
prevent the Company from amending or terminating any plan providing
health or medical benefits in respect of current or former employees
of the Company.
(d) No employee or former employee of the Company will
become entitled to any bonus, retirement, severance, job security or
Page 39 of 79 pages
similar benefit or enhanced such benefit (including acceleration of
vesting or exercise of an incentive award, stock option or restricted
security) as a result of the transactions contemplated hereby.
(e) All persons classified by the Company as independent
contractors satisfy the requirements of applicable law to be so
classified and the Company has no obligation to provide benefits to
any such person under any Benefit Plan.
3.15 Taxes. The Company and its Subsidiaries have filed or caused
-----
to be filed, or have properly filed extensions for, all material Tax returns
that are required to be filed and have paid or caused to be paid all material
Taxes as shown on said returns and on all material assessments received by it to
the extent that such Taxes have become due, except Taxes the validity or amount
of which is being contested in good faith by appropriate proceedings and with
respect to which adequate reserves, in accordance with GAAP, have been set
aside. The Company and its Subsidiaries have paid or caused to be paid, or have
established reserves that the Company or such Subsidiaries reasonably believe to
be adequate in all material respects, for all Tax liabilities applicable to the
Company and its Subsidiaries for all fiscal years that have not been examined
and reported on by the taxing authorities (or closed by applicable statutes).
Schedule 3.15 sets forth the tax year through which United States Federal income
-------------
tax returns of the Company and its Subsidiaries have been examined and closed.
For purposes of this Section 3.15, "Tax" or "Taxes" means any federal, state,
county, local, foreign and other taxes (including, without limitation, income,
profits, premium, estimated, excise, sales, use, occupancy, gross receipts,
franchise, ad valorem, severance, capital levy, production, transfer,
withholding, employment, unemployment compensation, payroll and property taxes,
import duties and other governmental charges and assessments), whether or not
measured in whole or in part by net income, and including deficiencies,
interest, additions to tax or interest, and penalties with respect thereto, and
including expenses associated with contesting any proposed adjustments related
to any of the foregoing.
3.16 Litigation. Except as previously disclosed to the Initial
----------
Purchasers in writing or in SEC Documents filed with the SEC prior to the date
of this Agreement, there are no pending actions, suits, proceedings,
arbitrations or investigations, royalty or other audits, complaints, against or
affecting the Company or any of its Subsidiaries or any of their respective
properties, assets or operations, or with respect to which the Company or any
such Subsidiary is responsible by way of indemnity or otherwise (together
"Litigation Claims"), that are required under the Exchange Act to be described
in such SEC Documents or that could singly, or in the aggregate, with all such
other Litigation Claims, reasonably be expected to have a Material Adverse
Effect and, to the Knowledge of the Company, no such Litigation Claims are
threatened.
3.17 Labor Relations. Neither the Company nor any of its
-----------------
Subsidiaries is engaged in any unfair labor practice. Except as disclosed in the
SEC Documents filed with the SEC prior to the date of this Agreement or as set
forth on Schedule 3.17, (a) no grievance or arbitration proceeding arising out
of or under collective bargaining agreements is pending or, to the Knowledge of
the Company, threatened against the Company or any of its Subsidiaries; (b) no
strike, material labor dispute, slowdown or stoppage has occurred within the
past 36 months or is pending or, to the Knowledge of the Company, threatened
against the Company, any of its Subsidiaries or any material supplier of the
Company; (c) neither the Company nor any of its Subsidiaries is a party to any
Page 40 of 79 pages
collective bargaining agreement or contract; and (d) no union organizing
activities are taking place that affect the employees of the Company or any
Subsidiary.
3.18 Inventory, Etc. The inventory of the Company and its
----------------
Subsidiaries is in good and merchantable condition, and suitable and usable or
salable in the ordinary course of business for the purposes for which intended,
subject to a reasonable reserve for obsolescence and out-of-date inventory, and
is recorded in the Financials in accordance with GAAP and consistent with past
practice. The Company has in place reasonable procedures to ensure that it does
not purchase counterfeit articles and, to the Knowledge of the Company, the
inventory does not contain any counterfeit articles. The Company has good and
valid title to all of the inventory and other personal property reflected on the
March 31, 1999 Unaudited Financials as being owned by it (other than inventory
and other property that has been subsequently sold or otherwise disposed of in
the ordinary course of business). Neither the Company nor any of its
Subsidiaries knows of any existing fact or circumstance which would be
reasonably likely to adversely affect the supply of materials available to the
Company or any of its Subsidiaries.
3.19 Receivables. All accounts and notes receivable reflected on
-----------
the March 31, 1999 Unaudited Financials, and all accounts and notes receivable
arising subsequent to the March 31, 1999 Unaudited Financials, (i) have arisen
in the ordinary course of business of the Company or its Subsidiaries and (ii)
subject only to a reserve for bad debts and normal returns, credits, adjustments
and warranty coverage, in each case reflected in the March 31, 1999 Unaudited
Financials in accordance with GAAP and consistent with past practice, have been
collected or, subject to the occurrence of unforeseen events occurring after the
date hereof, are collectible in the ordinary course of business of the Company
and its Subsidiaries in the aggregate recorded amounts thereof in accordance
with their terms.
3.20 Investment Company. Neither the Company nor any Person
-------------------
controlling the Company is, and no such Person after giving effect to the
transactions contemplated hereby will be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
3.21 Insurance. The Company has in full force and effect (i)
---------
general liability, (ii) directors and officers, and (iii) media insurance
policies, in each case, with financially sound and responsible insurance
companies, with extended coverage, sufficient in amount (subject to reasonable
deductions) in respect of its properties that might be damaged or destroyed.
3.22 Exemption from Registration; Restrictions on Offer and Sale of
--------------------------------------------------------------
Same or Similar Securities. Assuming the representations and warranties of the
---------------------------
Initial Purchasers set forth in Section 4 hereof are true and correct in all
material respects, the offer and sale of the Shares made pursuant to this
Agreement will be exempt from the registration requirements of the Act. Neither
the Company nor any Person acting on its behalf has, in connection with the
offering of the Shares engaged in (i) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Act), (ii) any action involving a public offering within the meaning
of Section 4(2) of the Act, or (iii) any action that would require the
registration under the Act of the offering and sale of the Shares pursuant to
this Agreement or that would violate applicable state securities or "blue sky"
Page 41 of 79 pages
laws. The Company has not made and will not prior to the Second Closing make,
directly or indirectly, any offer or sale of shares of its Capital Stock, if as
a result the offer and sale of the securities contemplated hereby, or any of
them, could fail to be entitled to exemption from the registration requirements
of the Act. As used herein, the terms "offer" and "sale" have the meanings
specified in Section 2(3) of the Act.
3.23 Contracts. True and complete copies of all material contracts
---------
of the Company required to be filed as exhibits to SEC Documents have been made
available to the Initial Purchasers by the Company. Neither the Company nor any
of its Subsidiaries nor, to the Knowledge of the Company, any other party is in
breach of or in default under any such contract except for such breaches and
defaults as in the aggregate have not had, and would not reasonably be expected
to, have a Material Adverse Effect.
3.24 No Material Adverse Change. Since April 1, 1999: (a) the
-----------------------------
Company and its Subsidiaries have not incurred any material liability or
obligation (indirect, direct or contingent), or entered into any material oral
or written agreement or other transaction, that is not in the ordinary course of
business or that would reasonably be expected to result in a Material Adverse
Effect; (b) the Company and its Subsidiaries have not sustained any loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that has had or
that would reasonably be expected to have a Material Adverse Effect; (c) there
has been no material change in the indebtedness of the Company and its
Subsidiaries; (d) there has been no dividend or distribution of any kind
declared, paid or made by the Company or any of its Subsidiaries on any class of
its capital stock; (e) neither the Company nor any of its Subsidiaries has made
(nor does it propose to make) (i) any material change in its accounting methods
or practices or (ii) any material change in the depreciation or amortization
policies or rates adopted by it, in either case, except as may be required by
law or applicable accounting standards; and (f) there has been no event causing
a Material Adverse Effect, nor any development that would, singly or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.
3.25 Trade Relations. Except as set forth in Schedule 3.25 or as
----------------
previously disclosed in writing to the Initial Purchasers, there exists no
actual or, to the Company's Knowledge, threatened termination, cancellation or
limitation of, or any adverse modification or change in, the business
relationship of the Company or any of its Subsidiaries with, any customer or any
group of customers whose purchases are individually or in the aggregate material
to the business of the Company or any of its Subsidiaries, or with any material
supplier, and, to the Company's Knowledge, there exists no present condition or
state of fact or circumstances that would materially adversely affect the
Condition of the Company or, to the Company's Knowledge, prevent the Company
from conducting its business after the consummation of the transactions
contemplated by this Agreement and each of the other Transaction Documents, in
substantially the same manner in which such business has heretofore been
conducted and described in the SEC Documents.
3.26 Broker's, Finder's or Similar Fees. There are no brokerage
------------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Company or any of its Subsidiaries or any
action taken by any such entity.
Page 42 of 79 pages
3.27 Disclosure; Agreement and Other Documents. The Transaction
-------------------------------------------
Documents and each of the certificates furnished to the Initial Purchasers by
the Company in connection with the purchase and sale of the Shares at or prior
to the First Closing, taken as a whole, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which they were made, not misleading.
SECTION IV. REPRESENTATIONS AND WARRANTIES
OF THE INITIAL PURCHASERS
Each of the Initial Purchasers hereby represents and warrants
(severally as to itself and not jointly) to the Company as follows:
4.1 Existence and Power. Such Initial Purchaser (a) is duly
---------------------
organized and validly existing under the laws of the jurisdiction of its
formation and (b) has the requisite power and authority to execute, deliver and
perform its obligations under this Agreement and each of the other Transaction
Documents to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
--------------------------------
performance by such Initial Purchaser of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including, without limitation, the purchase of the First
Shares, (a) have been duly authorized by all necessary action, (b) do not
contravene the terms of such Initial Purchaser's organizational documents, or
any amendment thereof, and (c) do not violate, conflict with or result in any
breach or contravention of or the creation of any Lien under, any Contractual
Obligation of such Purchaser, or any Requirement of Law applicable to such
Initial Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under a Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the purchase of the First Shares) by, or enforcement against, such
Initial Purchaser of this Agreement, each of the other Transaction Documents to
which it is a party and the transactions contemplated hereby or thereby.
4.4 Binding Effect. This Agreement and each of the other
----------------
Transaction Documents to which it is a party have been duly executed and
delivered by such Initial Purchaser and constitute the legal, valid and binding
obligations of such Initial Purchaser, enforceable against it in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
4.5 Purchase for Own Account. The First Shares to be acquired by
-------------------------
such Initial Purchaser pursuant to this Agreement are being or will be acquired
for its own account and with no intention of distributing or reselling such
First Shares or any part thereof in any transaction that would be in violation
of the securities laws of the United States of America, or any state, without
prejudice, however, to the rights of such Initial Purchaser at all times to sell
Page 43 of 79 pages
or otherwise dispose of all or any part of such First Shares under an effective
registration statement under the Act, or under an exemption from such
registration available under the Act, and subject, nevertheless, to the
disposition of such Initial Purchaser's property being at all times within its
control. If such Initial Purchaser should in the future decide to dispose of any
of the First Shares, such Initial Purchaser understands and agrees that it may
do so only in compliance with the Act and applicable state securities laws, as
then in effect. Such Initial Purchaser agrees to the imprinting, so long as
required by law, of a legend on certificates representing the First Shares
substantially to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT."
4.6 Accreditation; Sophistication; Other Securities Laws Matters.
-------------------------------------------------------------
Each Initial Purchaser (a) is an "accredited investor" within the meaning of
Rule 501 under the Act; (b) has sufficient knowledge and experience in investing
in companies similar to the Company so as to be able to evaluate the risks and
merits of its investment in the Company and is able financially to bear the
risks thereof; (c) has had an opportunity to review the SEC Documents and
exhibits thereto and discuss the Company's business, management and financial
affairs with the Company's management; and (d) is a resident of the jurisdiction
listed next to its name on Schedule 2.2 hereto for purposes of state "blue sky"
securities law purposes.
4.7 Broker's, Finder's or Similar Fees. There are no brokerage
------------------------------------
commissions, finder's fees or similar fees or commissions payable by the Initial
Purchasers or any of them, in connection with the transactions contemplated
hereby based on any agreement, arrangement or understanding with such Initial
Purchaser or any action taken by such Initial Purchaser.
4.8 Financial Resources. Each of the Initial Purchasers has
--------------------
adequate financial resources to meet its payment obligations at the First
Closing and the Second Closing.
SECTION V. CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
The obligation of the Initial Purchasers to purchase the
Shares and to pay the First Purchase Price, and of the Second Closing Purchasers
to pay the Second Purchase Price, and to perform any obligations hereunder shall
be subject to the satisfaction as determined by, or waiver by, the Initial
Purchasers of the following conditions on or before the First Closing Date or in
the case of Sections 5.9 and 5.12, by the Second Closing Purchasers on or before
the Second Closing Date.
Page 44 of 79 pages
5.1 Representations and Warranties. The representations and
---------------------------------
warranties of the Company contained in Section 3 hereof shall be true and
correct in all material respects at and on the First Closing Date as if made at
and on such date, except to the extent that any representation and warranty
expressly speaks as of an earlier date, in which case such representation and
warranty is true and correct as of such date and except for any activities or
transactions which may have taken place after the date hereof which are
contemplated by this Agreement.
5.2 Compliance with this Agreement. The Company shall have
---------------------------------
performed and complied in all material respects with all of its agreements and
conditions set forth herein that are required to be performed or complied with
by the Company on or before the First Closing Date.
5.3 Secretary's Certificate. The Initial Purchasers shall have
------------------------
received a certificate from the Company, in form and substance Initial
Purchasers, dated the First Closing Date and signed by a secretary or an
assistant secretary of the Company, certifying (a) that the attached copies of
the Certificate of Incorporation, the By-Laws and resolutions of the Board of
Directors of the Company approving this Agreement, each of the other Transaction
Documents and the transactions contemplated hereby and thereby, are all true,
complete and correct and remain unamended and in full force and effect, and (b)
as to the incumbency and specimen signature of each officer of the Company
executing this Agreement, each of the other Transaction Documents and any other
document delivered in connection herewith on behalf of the Company.
5.4 Officers' Certificate. The Initial Purchasers shall have
----------------------
received a certificate from the Company, in form and substance satisfactory to
the Initial Purchasers, dated the First Closing Date and signed by the Company's
chief executive officer and its treasurer, certifying that (a) the
representations and warranties of the Company contained in Section 3 hereof are
true and correct in all material respects on the First Closing Date and (b) the
Company has performed and complied with in all material respects all of the
agreements and conditions set forth or contemplated herein that are required to
be performed or complied with by the Company on or before the First Closing
Date.
5.5 Documents. The Initial Purchasers shall have received true,
---------
complete and correct copies of such documents as they may reasonably request in
connection with or relating to the issue and sale of the Shares and the
transactions contemplated hereby, all in form and substance reasonably
satisfactory to the Initial Purchasers.
5.6 Filing of Certificate of Amendment to the Certificate of
--------------------------------------------------------------
Incorporation. The Certificate of Amendment to the Certificate of Incorporation
-------------
shall have been duly filed by the Company with the Secretary of State of the
State of New York in accordance with the General Corporation Law of the State of
New York.
5.7 Opinion of Counsel. The Initial Purchasers shall have received
------------------
an opinion of counsel to the Company, dated the First Closing Date, relating to
the transactions contemplated hereby or referred to herein, substantially in the
form attached hereto as Exhibit B.
---------
5.8 Approval of Counsel to the Initial Purchasers. All actions and
---------------------------------------------
proceedings hereunder and all documents required to be delivered by the Company
hereunder or in connection with the consummation of the transactions
Page 45 of 79 pages
contemplated hereby, and all other related matters, shall have been acceptable
to ▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to the Initial Purchasers,
in their reasonable judgment as to their form and substance.
5.9 Shares. At the First Closing and the Second Closing, as the
------
case may be, the Company shall have delivered to each of the Purchasers stock
certificates in definitive form representing the number of Shares set forth
opposite such Purchaser's name on Schedule 2.2 and/or the Second Closing Notice,
as the case may be, registered in the name of such Purchaser.
5.10 Consents and Approvals. All consents, exemptions,
---------------------------
authorizations, or other actions by, or notices to, or filings with Governmental
Authorities and other Persons in respect of all Requirements of Law and with
respect to those Contractual Obligations of the Company which are necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the issuance of the Shares and shares of Common Stock
issuable upon conversion of the Shares) by, or enforcement against, the Company
of this Agreement and each of the other Transaction Documents shall have been
obtained and be in full force and effect, except for consents, exceptions,
authorizations or other actions which would not have a Material Adverse Effect,
and each of the Initial Purchasers shall have been furnished with appropriate
evidence thereof.
5.11 No Litigation. As of the First Closing, no action, suit,
--------------
proceeding, claim or dispute shall have been brought or otherwise arisen on or
before the First Closing Date, at law, in equity, in arbitration or before any
Governmental Authority against the Company or any of its Subsidiaries which is
reasonably likely to (a) have a material adverse effect on the Condition of the
Company or (b) have a material adverse effect on the ability of the Company to
perform its obligations under this Agreement or any of the other Transaction
Documents.
5.12 No Material Judgment or Order. There shall not be on the First
-----------------------------
Closing Date or on the Second Closing Date any Order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirement of Law which would, in the reasonable judgment of
the Purchasers, (a) prohibit or restrict (i) the purchase of the Shares or (ii)
the consummation of the transactions contemplated by this Agreement, (b) subject
the Purchasers to any material penalty or other onerous condition under or
pursuant to any Requirement of Law if the Shares were to be purchased hereunder
or (c) restrict the operation of the business of the Company or any of the
Subsidiaries as conducted on the date hereof in a manner that would have a
material adverse effect on the Condition of the Company.
5.13 No Material Adverse Change. From the date hereof until the
----------------------------
First Closing Date, there shall have been no material adverse change in the
Condition of the Company.
SECTION VI. CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Shares
and to perform its other obligations hereunder, shall be subject to the
satisfaction as determined by, or waiver by, the Company of the following
conditions on or before the First Closing Date or the Second Closing Date, as
applicable:
Page 46 of 79 pages
6.1 Representations and Warranties. (i) The representations and
-------------------------------
warranties of the Initial Purchasers contained in Section 4 hereof shall be true
and correct at and on the First Closing Date as if made at and on such date,
except to the extent that any representation and warranty expressly speaks as of
an earlier date, in which case such representation and warranty is true and
correct as of such date and except for any activities or transactions which may
have taken place after the date hereof which are contemplated by this Agreement,
and (ii) to the extent that any Second Closing Purchaser is not also an Initial
Purchaser, such Second Closing Purchaser shall deliver at the Second Closing
Date, an instrument in the form of Exhibit C attached hereto, which instrument
will (x) affirm that the representations and warranties contained in Section 4
hereof were true and correct as to such Second Closing Purchaser at and on the
Second Closing Date as if made at and on such date, except to the extent that
any representation and warranty expressly speaks as of an earlier date, in which
case such representation and warranty is true and correct as of such date and
except for any activities or transactions which may have taken place after the
date hereof which are contemplated by this Agreement and (y) agree that the
Second Closing Purchasers shall be bound by this Agreement and shall have all
the obligations, rights and remedies owed by or available to the Initial
Purchasers hereunder.
6.2 Compliance with this Agreement. The Initial Purchasers shall
------------------------------
have performed and complied in all material respects with all of their
agreements and conditions set forth herein that are required to be performed or
complied with by the Purchasers on or before the First Closing Date.
6.3 Consents and Approvals. All consents, exemptions,
---------------------------
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
and with respect to those Contractual Obligations of the Purchasers which are
necessary or required in connection with the execution, delivery or performance
(including, without limitation, the purchase of the Shares and the shares of
Common Stock issuable upon conversion of the Shares) by, or enforcement against,
the Purchasers of this Agreement shall have been obtained and be in full force
and effect, and the Company shall have been furnished with appropriate evidence
thereof.
6.4 Payment of Purchase Price. At the First Closing and the Second
-------------------------
Closing, as the case may be, the Company shall have received the First Purchase
Price and the Second Purchase Price, as the case may be.
6.5 No Material Judgment or Order. There shall not be on the First
-----------------------------
Closing Date or on the Second Closing Date any Order of a court of competent
jurisdiction or any ruling of any Governmental Authority or any condition
imposed under any Requirement of Law which would, in the reasonable judgment of
the Company, (a) prohibit or restrict (i) the sale of the Shares or (ii) the
consummation of the transactions contemplated by this Agreement or (b) subject
the Company to any penalty or other onerous condition under or pursuant to any
Requirement of Law if the Shares were to be sold hereunder.
Page 47 of 79 pages
SECTION VII. AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees with the Purchasers
with respect to this Section 7, and the Initial Purchasers hereby covenant and
agree with the Company with respect to Section 7.5, so long as any shares of
Series A Preferred Stock or shares of Common Stock issuable upon the conversion
thereof are outstanding, except to the extent that a particular section of this
Section 7 provides for an earlier termination, as follows:
7.1 SEC Filings. From and after the date of this Agreement, the
-----------
Company agrees that it will use commercially reasonable efforts to file with the
SEC, within the time periods specified in the SEC's rules and regulations for as
long as they are applicable to the Company, (i) all quarterly and annual
financial information required to be filed with the SEC on Forms 10-QSB and
10-KSB, (ii) all current reports required to be filed with the SEC on Form 8-K
and (iii) any other information required to be filed with the SEC.
7.2 Reservation of Shares. The Company shall at all times reserve
---------------------
and keep available out of its authorized shares of Common Stock, solely for the
purpose of issue or delivery upon conversion of the Shares, as provided in the
Certificate of Amendment to the Certificate of Incorporation and the Certificate
of Incorporation, the number of shares of Common Stock that may be issuable or
deliverable upon such conversion or exercise. The Company shall issue such
shares of Common Stock in accordance with the terms of this Agreement, the
Certificate of Incorporation, the Certificate of Amendment to the Certificate of
Incorporation (in the case of the shares of Common Stock issuable upon
conversion of the Shares), and otherwise comply with the terms hereof and
thereof.
7.3 Registration and Listing. If any shares of Common Stock
--------------------------
required to be reserved for purposes of conversion of the Shares, as provided in
the Certificate of Amendment to the Certificate of Incorporation, require
registration with or approval of any Governmental Authority under any Federal or
state or other applicable law before such shares of Common Stock may be issued
or delivered upon conversion or exercise, the Company will in good faith and as
expeditiously as possible cause such shares of Common Stock to be duly
registered or approved, as the case may be. So long as the shares of Common
Stock are quoted on the NASDAQ or listed on any national securities exchange,
the Company will, if permitted by the rules of such system or exchange, quote or
list and keep quoted or listed on such system or exchange, upon official notice
of issuance, all shares of Common Stock issuable or deliverable upon conversion
of the Shares.
7.4 Director and Officer Liability Insurance. The Company will
-------------------------------------------
maintain director and officer liability insurance which is commercially standard
for a company similarly situated to the Company.
7.5 Second Closing. At the Second Closing, the Initial Purchasers
--------------
shall purchase any and all Second Shares not purchased by the Approved
Investors.
SECTION VIII. INDEMNIFICATION
(a) Except as otherwise provided in this Section 8, the
Company agrees to indemnify, defend and hold harmless each Initial
Purchaser and its Affiliates and their respective officers, directors,
agents, employees, subsidiaries, partners, members and controlling
Page 48 of 79 pages
persons to the fullest extent permitted by law from and against any and
all claims, losses, liabilities, damages, deficiencies, judgements,
assessments, fines, settlements, costs or expenses (including interest,
penalties and reasonable fees, disbursements and other charges of
counsel) (collectively, "Losses") based upon, arising out of or
otherwise in respect of any inaccuracy in or any breach of any
surviving representation, warranty, covenant or agreement of the
Company contained in any Transaction Document. Notwithstanding the
foregoing, the Company's liability pursuant to this Section 8 shall in
no event exceed $10,000,000.
(b) Except as otherwise provided in this Section 8, the
Purchasers, severally and not jointly, agree to indemnify, defend and
hold harmless the Company and its respective officers, directors,
agents, employees, subsidiaries, partners, members and controlling
persons to the fullest extent permitted by law from and against any and
all Losses based upon, arising out of or otherwise in respect of any
inaccuracy in or any breach of any surviving representation, warranty,
covenant or agreement of the Purchasers contained in any Transaction
Document. Notwithstanding the foregoing, the Purchasers' liability
pursuant to this Section 8 shall in no event exceed $10,000,000.
SECTION IX. REGISTRATION RIGHTS.
The Company hereby agrees to provide registration rights with
respect to the Registrable Securities as set forth below.
9.1 Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. For the purposes of this
-----------------------
Section 9, Registrable Securities will cease to be Registrable
Securities when such Registrable Securities are sold and otherwise
transferred pursuant to Rule 144 under the Act or a registration
statement covering such Registrable Securities has been declared
effective under the Act by the SEC and such Registrable Securities have
been disposed of pursuant to such effective registration statement.
(b) Holders of Registrable Securities. A Person is deemed
---------------------------------
to be a holder of Registrable Securities whenever such Person owns of
record Registrable Securities, or holds a warrant to purchase, or a
security convertible into or exercisable or exchangeable for,
Registrable Securities whether or not such acquisition or conversion
has actually been effected and disregarding any legal restrictions upon
the exercise of such rights. If the Company receives conflicting
instructions, notices or elections from two or more persons with
respect to the same Registrable Securities, the Company may act upon
the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities
issuable upon exercise of an option or upon conversion of another
security shall be deemed outstanding for the purposes of this Section
9.
9.2 Demand Registration.
-------------------
(a) Request for Demand Registration. At any time after the
-------------------------------
date hereof, so long as the Purchasers own Registrable Securities, on
an as-converted basis, equal to at least 1/3 of the Shares, then the
Page 49 of 79 pages
holders of 25.0% of the outstanding Registrable Securities (the
"Stockholders") may make a written request (the "Demand Notice") for
registration of Registrable Securities under the Act, and under the
securities or blue sky laws of any jurisdiction designated by such
holder or holders (a "Demand Registration"); provided, that the Company
--------
will not be required to effect more than three Demand Registrations in
the aggregate at the request of the holders of Registrable Securities
pursuant to this Section 9.2(a); provided, further, that the Company
-------- -------
shall not be required to effect more than one registration pursuant to
this section in any six-month period. Notwithstanding the foregoing,
the Company shall not be required to effect any Demand Registration
unless the anticipated aggregate proceeds to the selling holders would
equal or exceed $5,000,000. Upon a request for a Demand Registration,
the Company shall use its best efforts to prepare and file with the
SEC, as soon as reasonably practicable, a registration statement for an
offering to be made on a continuous basis pursuant to Rule 415 of the
Act (or any successor rule or similar provision then in effect) (a
"Shelf Registration Statement") registering the resale from time to
time by the Stockholders thereof of their Registrable Securities (the
"Demand Shelf Registration"). Within fifteen (15) days after the
receipt of the Demand Notice, the Company shall give written notice
thereof to all holders holding Registrable Securities and include in
such registration all Registrable Securities held by a holder thereof
with respect to which the Company has received written requests for
inclusion therein at least ten (10) days prior to the filing of the
Demand Shelf Registration.
(b) Effective Demand Registration. A registration shall
------------------------------
not constitute a Demand Registration until it has become effective
under the Act and remains effective until the earlier of the (i)
completion of any offering of securities thereunder and (ii) the date
nine months (plus any Blackout Period, as defined below) from the date
on which it first became effective under the Act (unless withdrawn upon
the written request of the holders). The Company shall use its best
efforts to cause any registration statement filed pursuant to Section
9.2(a) to be declared effective under the Act as soon as practicable
(and shall promptly notify in writing the Stockholders once any such
registration statement has been declared effective).
(c) Blackout Periods. If the Demand Shelf Registration (or
----------------
any Subsequent Shelf Registration, as defined below) is interfered with
by any stop order, injunction or other order or requirement of the SEC
or any other governmental agency or court, the Company shall use its
best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof (including, without limitation, amend the
registration statement concerned in a manner reasonably expected to
obtain the withdrawal of the order suspending the effectiveness
thereof), and such Demand Shelf Registration (or any Subsequent Shelf
Registration) will be deemed not to have been effective during the
period of such interference until the offering of Registrable
Securities pursuant to such Shelf Registration Statement (or Subsequent
Shelf Registration Statement) may legally resume (the "Blackout
Period").
(d) Subsequent Shelf Registration. Notwithstanding the
-------------------------------
foregoing paragraph, if prior to the date nine months (plus any
Blackout Period) from the date the Demand Shelf Registration covering
Page 50 of 79 pages
the Registrable Securities has been declared effective under the Act,
the Company has failed to obtain the withdrawal of any stop order,
injunction or other order suspending the effectiveness within 60 days
of such cessation of effectiveness, the Company shall file an
additional Shelf Registration covering the Registrable Securities (a
"Subsequent Shelf Registration"). If a Subsequent Shelf Registration is
filed, the Company shall use its best efforts to cause the Subsequent
Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously
effective until the earlier of the (i) completion of any offering of
securities thereunder; (ii) expiration of the nine month anniversary
(plus any Blackout Period, as defined below) from date on which it
first became effective under the Act (unless withdrawn upon the written
request of the holders); and (iii) date another Subsequent Shelf
Registration covering the Registrable Securities has been declared
effective under the Act. If the registration required under this
Section 9 is deemed not to have been effected then the Company shall
continue to be obligated to effect a registration statement pursuant to
this Section 9.
(e) Underwriting Procedures. If holders of a majority of
------------------------
the Registrable Securities included in the Demand Registration so
elect, the offering of such Registrable Securities pursuant to such
Demand Registration shall be in the form of a firm commitment
underwritten offering and the managing underwriter or underwriters
selected for such offering shall be a nationally recognized investment
banking firm selected by the Company with the consent of such holders,
which consent will not be unreasonably delayed or withheld (an
"Approved Underwriter"). In such event, if the Approved Underwriter
advises the Company in writing that in its opinion the aggregate amount
of such securities requested to be included in such offering is
sufficiently large to have a material adverse effect on the success of
such offering, the Company shall include in such registration only the
aggregate amount of securities that in the opinion of the Approved
Underwriter may be sold without any such material adverse effect and
shall first reduce (to zero, if necessary) the amount of securities
sought to be included therein by each holder who wishes to participate
in the Demand Registration through the exercise of piggy-back
registration rights as contemplated by Section 9.3 as a group, if any,
and then, if such reduction is not sufficient, as to the Stockholders
as a group, pro rata within each group (including other holders of
Common Stock who may have registration rights which are pari passu with
the Registrable Securities) based on the number of Registrable
Securities included in the request for Demand Registration, the amount
of Registrable Securities to be included by each Stockholder in such
registration. To the extent more than 10.0% of the Registrable
Securities so requested to be registered are excluded from the
offering, then the holders of such Registrable Securities shall have
the right to one additional Demand Registration under this Section 9.2
with respect to such Registrable Securities.
(f) Deferral of Registration. Notwithstanding the
----------------------------
foregoing, if, at any time prior to the effective date of the
registration statement with respect to a Demand Registration, the
Company is: (i) pursuing an underwritten offering of shares of its
Capital Stock for its own account, or engaged in or proposes to engage
in (A) financing, (B) acquisition of the capital stock or substantially
all the assets of any other person (other than in the ordinary course
Page 51 of 79 pages
of business) or (C) any disposition of material assets (other than in
the ordinary course of business), any tender offer or any merger,
consolidation, corporate reorganization or restructuring or other
similar transaction; and (ii) the Board of Directors, using good faith,
determines that it would be seriously detrimental to the Company for a
registration statement to be filed at such time, the Company may defer
the filing of a registration statement with respect to any Demand
Registration required by this Section 9.2 until a date not later than
120 days from the date of the Deferral Notice (as defined below) (the
"Deferral Period"). If the Board of Directors of the Company makes such
determination, the Company shall give written notice (the "Deferral
Notice") of such determination to the holders of Registrable
Securities; provided, that, the Company may exercise its right to delay
a Demand Registration hereunder only once in any twelve-month period.
The Company shall notify the holders of the expiration of the Deferral
Period and shall cause the registration statement with respect to the
Demand Registration to be filed on the fifth Business Day following the
expiration of the Deferral Period (the "Withdrawal Period") (or, if
registration on such date is not practicable, as promptly as possible
thereafter) unless, prior to the expiration of the Withdrawal Period,
the holders holding a majority of Registrable Securities to be included
in any such Demand Registration, by written notice to the Company,
withdraw the request made under this Section 9.2, in which case, such
request shall not count as one of the Demand Registrations permitted
hereunder and the Company shall pay all Registration Expenses in
connection with such registration.
9.3 Piggy-Back Registration. If the Company proposes to file a
------------------------
registration statement under the Securities Act with respect to an offering by
the Company for its own account or for the account of a Stockholder pursuant to
Section 9.2 of any class of security (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), then the Company shall give
written notice of such proposed filing to each of the holders of Registrable
Securities (other than any Stockholders), and such notice shall describe in
detail the proposed registration and distribution and shall offer such holders
(other than any Stockholders) the opportunity to register the number of
Registrable Securities as each such holder may request. The Company shall, and
shall use commercially reasonable efforts (within ten (10) days of the notice
provided for in the preceding sentence) to cause the managing underwriter or
underwriters of a proposed underwritten offering (the "Company Underwriter") to,
permit the holders of Registrable Securities who have requested in writing
(within ten (10) days of the giving of the notice of the proposed filing by the
Company) to participate in the registration for such offering (the "Requesting
Holders") to include such Registrable Securities in such offering on the same
terms and conditions as the securities of the Company included therein. In
connection with any offering under this Section 9.3 involving an underwriting,
the Company shall not be required to include any Registrable Securities in such
underwriting unless the holders thereof accept the terms of the underwriting as
agreed upon between the Company and the underwriters selected by it. If, in the
opinion of the Company Underwriter, the registration of all, or part, of the
Registrable Securities which the Requesting Holders have requested to be
included would materially and adversely affect such public offering, then the
Page 52 of 79 pages
Company shall be required to include in the underwriting only that number of
Registrable Securities, if any, which the Company Underwriter believes may be
sold without causing such adverse effect, and the amount of securities to be
offered in the underwriting shall be allocated first, to the Company based on
the number of shares it desires to sell in the underwritten offering for its own
account; and thereafter pro rata among the Stockholders based on the number of
shares otherwise proposed to be included therein by the Stockholders. If the
number of Registrable Securities to be included in the underwriting in
accordance with the foregoing is less than the total number of shares which the
Requesting Holders of Registrable Securities have requested to be included, then
such Requesting Holders shall participate in the underwriting pro rata based
upon their total ownership of the Registrable Securities and such other shares
of Common Stock as are requested to be included by other holders of shares of
Common Stock which have registration rights. If any Requesting Holder would thus
be entitled to include more shares than such holder requested to be registered,
the excess shall be allocated among other Requesting Holders pro rata based upon
their total ownership of Registrable Securities and such other shares of Common
Stock.
9.4 Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Holders of Registrable
------------------------------------------------------
Securities. To the extent not inconsistent with applicable law, the
----------
Purchasers agree that in connection with a registered public offering
of the Company's equity securities, they will not effect any public
sale or distribution of any Registrable Securities or of any securities
convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 under the Securities
Act, during the 10 days prior to, and during the 90 days beginning on,
the effective date of the Company's registration statement (except as
part of such registration), if and to the extent reasonably requested
by the Company in writing in the case of a non-underwritten public
offering or to the extent reasonably requested by the Underwriter in
writing in the case of an underwritten public offering.
(b) Restrictions on Public Sale by the Company. The
------------------------------------------------
Company agrees not to effect any public sale or distribution of any of
its equity securities, or any securities convertible into or
exchangeable or exercisable for such equity securities (except pursuant
to registrations on Forms S-4 or S-8 of the Act or any successor or
other forms not available for registering equity securities for sale to
the public) during the 10 Business Days prior to, and during the 30 day
period beginning on the effective date of any registration statement in
which the holders of Registrable Securities are participating unless
such registration statement also relates to securities being offered by
the Company.
9.5 Registration Procedures.
-----------------------
(a) Obligations of the Company. Whenever registration of
--------------------------
Registrable Securities has been requested pursuant to Section 9.2 of
this Agreement, the Company shall use reasonable efforts to effect the
registration and sale of such Registrable Securities in accordance with
the intended method of distribution thereof, and in connection with any
such request, the Company shall, as soon as reasonably practicable:
i. prepare and file with the SEC (in any event
not later than sixty (60) days, subject to Section 9.2(f),
after receipt of a request to file a registration statement
with respect to Registrable Securities) a registration
statement, and use its best efforts to cause such registration
statement to become effective under the Act; provided,
--------
however, that before filing a registration statement or
-------
prospectus or any amendments or supplements thereto, the
Company shall (A) provide counsel selected by the holders of a
majority of the Registrable Securities being registered in
such registration ("Holders' Counsel") with an opportunity to
Page 53 of 79 pages
participate in the preparation of such registration statement
and each prospectus included therein (and each amendment or
supplement thereto) to be filed with the SEC, which documents
shall be subject to the review of Holders' Counsel, and (B)
notify the Holders' Counsel and each seller of Registrable
Securities of any stop order issued or threatened by the SEC
and take all reasonable action required to prevent the entry
of such stop order or to remove it if entered;
ii. prepare and file with the SEC such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a
period which will terminate when all Registrable Securities
covered by such registration statement have been sold (but not
before the expiration of the ninety (90) day period referred
to in Section 4(3) of the Act and Rule 174 thereunder, if
applicable), and comply with the provisions of the Act with
respect to the disposition of all securities covered by such
registration statement during such period in accordance with
the intended methods of disposition by the sellers thereof set
forth in such registration statement;
iii. furnish to each seller of Registrable
Securities, prior to filing a registration statement, copies
of such registration statement as is proposed to be filed, and
thereafter such number of copies of such registration
statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in
such registration statement (including each preliminary
prospectus) and such other documents as each such seller may
reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such seller;
iv. use reasonable efforts to register or
qualify such Registrable Securities under such other
securities or blue sky laws of such jurisdictions as any
seller of Registrable Securities requests, and to continue
such qualification in effect in such jurisdiction for as long
as is permissible pursuant to the laws of such jurisdiction,
or for as long as any such seller requests or until all of
such Registrable Securities are sold, whichever is shortest,
and do any and all other acts and things which may be
reasonably necessary or advisable to enable any such seller to
consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided,
however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it would
not otherwise be required to qualify but for this Section
9.5(a)(iv), (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in
any such jurisdiction;
v. use reasonable efforts to cause the
Registrable Securities covered by such registration statement
to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or
sellers of Registrable Securities to consummate the
disposition of such Registrable Securities;
Page 54 of 79 pages
vi. notify each seller of Registrable Securities
at any time when a prospectus relating thereto is required to
be delivered under the Act, upon discovery that, or upon the
happening of any event as a result of which, the prospectus
included in such registration statement contains an untrue
statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances under which they were made, and the Company
shall promptly prepare a supplement or amendment to such
prospectus and furnish to each seller a reasonable number of
copies of a supplement to or an amendment of such prospectus
as may be necessary so that, after delivery to the purchasers
of such Registrable Securities, such prospectus shall not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances under which they were made;
vii. enter into and perform customary agreements
(including an underwriting agreement in customary form with
the Approved Underwriter, if any, selected as provided in
Section 9.2) and take such other actions as are reasonably
required in order to facilitate the disposition of such
Registrable Securities;
viii. make available for inspection by any seller
of Registrable Securities, any managing underwriter
participating in any disposition pursuant to such registration
statement, Holders' Counsel and any attorney, accountant or
other agent retained by any such seller or any managing
underwriter (each, an "Inspector" and collectively, the
"Inspectors"), during regular business hours and upon
reasonable advance notice, all financial and other records,
pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary
to enable them to exercise their due diligence responsibility,
and cause the Company's officers, directors and employees, and
the independent public accountants of the Company, to supply
all information reasonably requested by any such Inspector in
connection with such registration statement;
ix. if such sale is pursuant to an underwritten
offering, obtain a "cold comfort" letter from the Company's
independent public accountants in customary form and covering
such matters of the type customarily covered by "cold comfort"
letters as Holders' Counsel or the managing underwriter
reasonably requests;
x. furnish, at the request of any seller of
Registrable Securities on the date such securities are
delivered to the underwriters for sale pursuant to such
registration or, if such securities are not being sold through
underwriters, on the date the registration statement with
respect to such securities becomes effective, an opinion,
dated such date, of counsel representing the Company for the
Page 55 of 79 pages
purposes of such registration, addressed to the underwriters,
if any, and to the seller making such request, covering such
legal matters with respect to the registration in respect of
which such opinion is being given as such seller may
reasonably request and are customarily included in such
opinions;
xi. otherwise use reasonable efforts to comply
with all applicable rules and regulations of the SEC, and make
available to its security holders, as soon as reasonably
practicable but no later than fifteen (15) months after the
effective date of the registration statement, an earnings
statement covering a period of twelve (12) months beginning
after the effective date of the registration statement, in a
manner which satisfies the provisions of Section 11(a) of the
Act;
xii. cause all such Registrable Securities to be
listed on each securities exchange on which similar securities
issued by the Company are then listed (including NASDAQ),
provided, that the applicable listing requirements are
satisfied;
xiii. cooperate with each seller of Registrable
Securities and each underwriter participating in the
disposition of such Registrable Securities and their
respective counsel in connection with any filings required to
be made with the National Association of Securities Dealers,
Inc. (the "NASD"); and
xiv. use reasonable efforts to take all other
steps necessary to effect the registration of the Registrable
Securities contemplated hereby.
(b) Notice to Discontinue. Each holder of Registrable
Securities agrees that, upon receipt of any written notice from the
Company of the happening of any event of the kind described in Section
9.5(a)(vi), such holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering
such Registrable Securities until such holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section
9.5(a)(vi) and, if so directed by the Company, such holder shall
deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such holder's possession, of the
prospectus covering such Registrable Securities which is current at the
time of receipt of such notice. If the Company shall give any such
notice, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this
Agreement (including without limitation the period referred to in
Section 9.5(a)(ii)) by the number of days during the period from and
including the date of the giving of such notice pursuant to Section
9.5(a)(vi) to and including the date when the holder shall have
received the copies of the supplemented or amended prospectus
contemplated by and meeting the requirements of Section 9.5(a)(vi).
9.6 Registration Expenses. The Company shall pay all expenses
----------------------
(other than underwriting discounts and commissions) arising from or incident to
the Company's performance of, or compliance with, Section 9 of this Agreement,
including without limitation, (i) SEC, stock exchange, NASDAQ and NASD
registration and filing fees, (ii) all fees and expenses incurred by Company in
complying with securities or blue sky laws (including reasonable fees, charges
and disbursements of counsel in connection with blue sky qualifications of the
Page 56 of 79 pages
Registrable Securities), (iii) all printing, messenger and delivery expenses,
and (iv) the fees, charges and disbursements of counsel to the Company and of
its independent public accountants and any other accounting and legal fees,
charges and expenses incurred by the Company (including without limitation any
expenses arising from any special audits incident to or required by any
registration or qualification) in connection with any Demand Registration
pursuant to the terms of this Agreement, regardless of whether such registration
statement is declared effective. All of the expenses described in this Section
9.6 are referred to herein as "Registration Expenses."
9.7 Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify, to the fullest extent permitted by law, each holder of
Registrable Securities, its officers, directors, partners, employees,
advisors and agents and each Person who controls (within the meaning of
the Act or the Exchange Act) such holder from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation) arising out of or based upon any untrue, or
alleged untrue, statement of a material fact contained in any
registration statement, prospectus or preliminary prospectus or
notification or offering circular (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or
arising out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as the same
are caused by or contained in any information furnished in writing to
the Company by such holder expressly for use therein or a failure by
such holder to deliver an updated prospectus that has been filed with
the SEC. The Company shall also indemnify any underwriters of the
Registrable Securities, their officers, directors and employees and
each Person who controls such underwriters (within the meaning of the
Act and the Exchange Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable
Securities.
(b) Indemnification by Holders. In connection with any
---------------------------
registration statement in which a holder of Registrable Securities is
participating pursuant to Section 9.2 or 9.3 hereof, each such holder
shall furnish to the Company in writing such information with respect
to such holder as the Company may reasonably request in writing or as
may be required by law for use in connection with any such registration
statement or prospectus and each holder, by its participation in such
registration, agrees to indemnify, to the extent permitted by law, the
Company, any underwriter retained by the Company and their respective
directors, officers, employees and each Person who controls the Company
or such underwriter (within the meaning of the Act and the Exchange
Act) to the same extent as the foregoing indemnity from the Company to
the holders of Registrable Securities, but solely with respect to any
such information furnished in writing by or on behalf of such holder.
(c) Conduct of Indemnification Proceedings. Any Person
-----------------------------------------
entitled to indemnification hereunder (the "Registration Rights
Indemnified Party") agrees to give prompt written notice to the
indemnifying party (the "Registration Rights Indemnifying Party") after
the receipt by the Registration Rights Indemnified Party of any written
notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which the
Page 57 of 79 pages
Registration Rights Indemnified Party intends to claim indemnification
or contribution pursuant to this Agreement; provided, that the failure
--------
so to notify the Registration Rights Indemnifying Party shall not
relieve the Registration Rights Indemnifying Party of any liability
that it may have to the Registration Rights Indemnified Party hereunder
unless, and only to the extent that, such failure results in the
Registration Rights Indemnifying Party's forfeiture of substantial
rights or defenses. If notice of commencement of any such action is
given to the Registration Rights Indemnifying Party as above provided,
the Registration Rights Indemnifying Party shall be entitled to
participate in and, to the extent it may wish, jointly with any other
Registration Rights Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by
it and reasonably satisfactory to such Registration Rights Indemnified
Party. The Registration Rights Indemnified Party shall have the right
to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Registration
Rights Indemnified Party unless (i) the Registration Rights
Indemnifying Party agrees to pay the same, (ii) the Registration Rights
Indemnifying Party fails to assume the defense of such action with
counsel satisfactory to the Registration Rights Indemnified Party in
its reasonable judgment, (iii) the named parties to any such action
(including any impleaded parties) have been advised by such counsel
that either (A) representation of such Registration Rights Indemnified
Party and the Registration Rights Indemnifying Party by the same
counsel would be inappropriate under applicable standards of
professional conduct or (B) there may be one or more legal defenses
available to the Registration Rights Indemnified Party which are
different from or additional to those available to the Registration
Rights Indemnifying Party. No Registration Rights Indemnifying Party
shall, without the prior written consent of each Registration Rights
Indemnified Party, settle, compromise or consent to the entry of any
judgment unless such settlement, compromise or consent includes an
unconditional release of the Registration Rights Indemnified Party from
all liability relating thereto. In either of such cases the
Registration Rights Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Registration Rights
Indemnified Party. No Registration Rights Indemnifying Party shall be
liable for any settlement entered into without its written consent,
which consent shall not be unreasonably withheld, conditioned or
delayed.
(d) Contribution. If the indemnification provided for in
------------
this Section 9.7 from the Indemnifying Party is applicable by its terms
but unavailable to a Registration Rights Indemnified Party hereunder in
respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Registration Rights Indemnified Party, shall
contribute to the amount paid or payable by such Registration Rights
Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the Registration Rights Indemnifying Party and
Registration Rights Indemnified Party in connection with the actions
which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
Pages 58 of 79 pages
relative faults of such Registration Rights Indemnifying Party and
Registration Rights Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact, has been made by, or relates
to information supplied by, such Registration Rights Indemnifying Party
or Registration Rights Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result
of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth
in Sections 9.7(a), 9.7(b) and 9.7(c), any legal or other fees, charges
or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9.7(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person.
9.8 Rule 144. The Company covenants that for so long as it is a
--------
public company subject to the rules and regulations of the Exchange Act, it
shall take such action as each holder of Registrable Securities may reasonably
request (including providing any information necessary to comply with Rules 144
under the Act), all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Act within
the limitation of the exemptions provided by (a) Rule 144 under the Act, as such
rules may be amended from time to time, or (b) any similar rules or regulations
hereafter adopted by the SEC. The Company shall, upon the request of any holder
of Registrable Securities, deliver to such holder a written statement as to
whether the Company has complied with such requirements.
SECTION X. TERMINATION OF AGREEMENT
10.1 Termination. This Agreement may be terminated as follows:
(a) at any time on or prior to the First Closing Date, by
mutual written consent of the Company and the Initial Purchasers; or
(b) at the election of the Company or the Purchasers by
written notice to the other parties hereto after 5:00 p.m., New York
City time on August 24, 1999, if the First Closing and Second Closing
shall not have been consummated pursuant hereto, unless such date is
extended by the mutual written consent of the Company and the
Purchasers; provided, however, that any party that breaches its
obligations under this Agreement shall not be permitted to terminate
this Agreement pursuant to this Subparagraph 10.1(b); or
(c) at the election of the Company, if any one or more of
the conditions to its obligation to close set forth in Section 6 has
not been satisfied or waived and the First Closing shall not have
occurred on the scheduled First Closing Date; or
(d) at the election of the Initial Purchasers, if any one
or more of the conditions to its obligation to close set forth in
Section 5 has not been satisfied or waived and the First Closing shall
not have occurred on the scheduled First Closing Date; or
Page 59 of 79 pages
(e) at the election of the Company if there has been a
material breach of any representation, warranty, covenant or agreement
of the Initial Purchasers contained in this Agreement, which breach is
incurable or has not been cured by the Initial Purchasers within 10
days after written notice from the Company; or
(f) at the election of the Initial Purchasers if there has
been a material breach prior to the First Closing Date of any
representation, warranty, covenant or agreement of the Company
contained in this Agreement, which breach is incurable or has not been
cured by the Company within 10 days after written notice from the
Initial Purchasers.
10.2 Survival. If this Agreement is terminated and the transactions
--------
contemplated hereby are not consummated as described above, this Agreement shall
become void and of no further force and effect; provided, however, that (i) a
breaching party shall be liable to the non-breaching party for damages caused by
such breach; (ii) none of the parties hereto shall have any liability in respect
of a termination of this Agreement pursuant to Section 10.1(a) or Section
10.1(b); and provided further, that none of the parties hereto shall have any
liability for speculative or unforeseeable damages resulting from a termination
of this Agreement. In the event any of the Second Closing Purchasers fail to
purchase the Second Shares at the Second Closing, the Company may use any remedy
available to it at law or equity against the Initial Purchasers to enforce the
Initial Purchasers' obligations under Section 7.5.
SECTION XI. MISCELLANEOUS
11.1 Survival of Representations, Warranties and Covenants. The
--------------------------------------------------------
representations and warranties, covenants and agreements contained herein shall
survive for a period of eighteen months following the First Closing Date.
11.2 Notices. All notices, demands and other communications
-------
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
(i) if to Quantum Industrial Partners LDC.:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇,
▇▇▇▇▇▇▇▇▇▇
Curacao
Netherlands-Antilles
with a copy to:
▇▇▇▇▇ Fund Management LLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
and a copy to:
Page 60 of 79 pages
▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
1285 Avenue of the Americas
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
(ii) if to SFM Domestic Investments LLC:
▇▇▇▇▇ Fund Management LLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
and a copy to:
▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
1285 Avenue of the Americas
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
(iii) if to Pilot Capital Corp.:
Pilot Capital Corp.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(iv) if to the Company:
Bluefly, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇
Page 61 of 79 pages
with a copy to:
▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied.
11.3 Successors and Assigns. This Agreement shall inure to the
------------------------
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Subject to applicable securities laws, each of the Initial
Purchasers and Second Closing Purchasers may assign any of its rights under this
Agreement to any of its Affiliates but any such assignment shall not relieve any
Initial Purchaser or Second Closing Purchaser from its obligations hereunder.
The Company may not assign any of its rights under this Agreement and each of
the other Transaction Documents, except to a successor-in-interest to the
Company, without the written consent of all of the Purchasers.
11.4 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise
of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company or the
Purchasers from the terms of any provision of this Agreement, shall be
effective (i) only if it is made or given in writing and signed by the
Company and the Purchasers, and (ii) only in the specific instance and
for the specific purpose for which made or given. Except where notice
is specifically required by this Agreement, no notice to or demand on
the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
11.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
11.6 Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
11.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
Page 62 of 70 pages
11.8 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
11.9 Rules of Construction. Unless the context otherwise requires,
---------------------
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
11.10 Entire Agreement. This Agreement, together with the exhibits
----------------
and schedules hereto, and the other Transaction Documents, excluding the
Confidentiality Agreement by and between ▇▇▇▇▇ Private Equity Partners, L.L.C.
and the Company, dated June 10, 1999, are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein.
11.11 Fees. Upon the Second Closing, the Company shall reimburse the
----
Purchasers for their reasonable out-of-pocket expenses (including attorney's
fees, disbursements and other charges) incurred in connection with the
transactions contemplated by this Agreement; provided, however, that the Company
shall not be obligated to reimburse the Purchasers for any reasonable
out-of-pocket expenses in excess of $25,000 in the aggregate.
11.12 Publicity; Confidentiality.
--------------------------
(a) Except as may be required by applicable law or the
rules of any securities exchange or market on which shares of Common
Stock are traded, none of the parties hereto shall issue a publicity
release or public announcement or otherwise make any disclosure
concerning this Agreement, the transactions contemplated hereby or the
business and financial affairs of the Company, without prior approval
by the other parties hereto; provided, however, that nothing in this
-------- -------
Agreement shall restrict any Purchaser or the Company from disclosing
information (i) that is already publicly available, (ii) that was known
to such Purchaser or the Company on a non-confidential basis prior to
its disclosure by the Company or such Purchaser, as the case may be,
(iii) that may be required or appropriate in response to any summons or
subpoena or in connection with any litigation, provided that such
--------
Purchaser or the Company, as the case may be, will use reasonable
efforts to notify the Company or the Purchaser, as the case may be, in
advance of such disclosure so as to permit the Company or the
Purchaser, as the case may be, to seek a protective order or otherwise
contest such disclosure, and such Purchaser or the Company, as the case
may be, will use reasonable efforts to cooperate, at the expense of the
Company, with the Company or the Purchaser, as the case may be, in
pursuing any such protective order, (iv) to the extent that such
Purchaser or the Company as the case may be reasonably believes it
appropriate in order to protect its investment in the Shares in order
to comply with any Requirement of Law, (v) to such Purchaser's or the
Page 63 of 79 pages
Company's, as the case may be, officers, directors, agents, employees,
members, partners, controlling persons, auditors or counsel, (vi) to
Persons who are parties to similar confidentiality agreements or (vii)
to the prospective transferee who executes a confidentiality agreement
in connection with any contemplated transfer of any of the Shares. If
any announcement is required by law or the rules of any securities
exchange or market on which shares of Common Stock are traded to be
made by any party hereto, prior to making such announcement such party
will, to the extent practicable, deliver a draft of such announcement
to the other parties and shall give the other parties reasonable
opportunity to comment thereon.
(b) Unless substantially in the form previously disclosed,
the Purchasers shall have the opportunity to review and reasonably
modify any provision of any publicly release or public announcement or
document which is to be released to the public or filed with the SEC,
which provision mentions the Purchasers or any of their Affiliates,
prior to the release of such document to the public or the filing of
such document with the SEC.
11.13 Further Assurances. Each of the parties shall execute such
-------------------
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
11.14 Schedules. Anything disclosed on any schedule attached hereto
---------
or otherwise disclosed in writing to the Initial Purchasers shall be deemed
disclosed on all schedules attached hereto.
Page 64 of 79 pages
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers hereunto
duly authorized on the date first above written.
BLUEFLY, INC.
By: _______________________________
Name: _______________________________
Title: _______________________________
QUANTUM INDUSTRIAL PARTNERS LDC
By: _______________________________
Name: _______________________________
Title: _______________________________
SFM DOMESTIC INVESTMENTS LLC
By: _______________________________
Name: _______________________________
Title: _______________________________
PILOT CAPITAL CORP.
By: _______________________________
Name: _______________________________
Title: _______________________________
Page 65 of 79 pages
Schedule 2.2
------------
SHARES AND PURCHASE PRICE
-------------------------
Purchaser Shares of Purchase Price
Series A Preferred Stock
Purchased From
the Company
Quantum Industrial Partners LDC 232,388 $4,647,760
(principal place of business: Curacao)
SFM Domestic Investments LLC 7,612 $152,240
Pilot Capital Corp. 10,000 $200,000
Page 66 of 79 pages
EXHIBITS
--------
A Certificate of Amendment to the Certificate of Incorporation
B Form of Opinion
C Second Closing Purchasers' Certificate
SCHEDULES
---------
1 Purchasers
2.2 Shares and Purchase Price
3.4 Consents
3.5 Subsidiaries
3.11 Intellectual Property
3.13 Options and Warrants
3.14 Benefit Plans
3.15 Taxes
3.17 Labor Relations
3.25 Trade Relations