Investment Agreement - Bluefly Inc., Quantum Industrial Partners LDC, SFM Domestic Investments LLC and Pilot Capital Corp.
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INVESTMENT AGREEMENT
among
BLUEFLY, INC.,
QUANTUM INDUSTRIAL PARTNERS LDC,
SFM DOMESTIC INVESTMENTS LLC
and
PILOT CAPITAL CORP.
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Dated: July 27, 1999
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TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS ....................................................1
1.1 Definitions.....................................................1
SECTION 2 PURCHASE AND SALE OF THE SHARES.................................7
2.1 First Closing...................................................7
2.2 Transactions at the First Closing...............................7
2.3 Second Closing..................................................8
2.4 Transactions at the Second Closing..............................8
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................9
3.1 Corporate Existence and Power...................................9
3.2 Power and Authority.............................................9
3.3 No Contravention, Conflict, Breach, Etc.........................9
3.4 Consents.......................................................10
3.5 Subsidiaries...................................................10
3.6 SEC Documents..................................................11
3.7 Financial Statements...........................................11
3.8 No Existing Violation, Default, Etc............................12
3.9 Licenses and Permits...........................................12
3.10 Title to Properties............................................12
3.11 Intellectual Property..........................................13
3.12 Environmental Matters..........................................14
3.13 Capitalization.................................................14
3.14 Employee Benefits..............................................15
3.15 Taxes..........................................................16
3.16 Litigation.....................................................17
3.17 Labor Relations................................................17
3.18 Inventory, Etc.................................................17
3.19 Receivables....................................................17
3.20 Investment Company.............................................18
3.21 Insurance......................................................18
3.22 Exemption from Registration; Restrictions on Offer and Sale
of Same or Similar Securities..................................18
3.23 Contracts......................................................18
3.24 No Material Adverse Change.....................................19
3.25 Trade Relations................................................19
3.26 Broker's, Finder's or Similar Fees.............................19
3.27 Disclosure; Agreement and Other Documents......................19
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SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE INITIAL PURCHASERS.......20
4.1 Existence and Power............................................20
4.2 Authorization; No Contravention................................20
4.3 Governmental Authorization; Third Party Consents...............20
4.4 Binding Effect.................................................20
4.5 Purchase for Own Account.......................................21
4.6 Accreditation; Sophistication; Other Securities Laws Matters...21
4.7 Broker's, Finder's or Similar Fees.............................21
4.8 Financial Resources............................................21
SECTION 5 CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE........22
5.1 Representations and Warranties.................................22
5.2 Compliance with this Agreement.................................22
5.3 Secretary's Certificate........................................22
5.4 Officers'Certificate...........................................22
5.5 Documents......................................................23
5.6 Filing of Certificate of Amendment to the
Certificate of Incorporation...................................23
5.7 Opinion of Counsel.............................................23
5.8 Approval of Counsel to the Initial Purchasers..................23
5.9 Shares.........................................................23
5.10 Consents and Approvals.........................................23
5.11 No Litigation..................................................23
5.12 No Material Judgment or Order..................................24
5.13 No Material Adverse Change.....................................24
SECTION 6 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE...........24
6.1 Representations and Warranties.................................24
6.2 Compliance with this Agreement.................................25
6.3 Consents and Approvals.........................................25
6.4 Payment of Purchase Price......................................25
6.5 No Material Judgment or Order..................................25
SECTION 7 AFFIRMATIVE COVENANTS..........................................25
7.1 SEC Filings....................................................25
7.2 Reservation of Shares..........................................26
7.3 Registration and Listing.......................................26
7.4 Director and Officer Liability Insurance.......................26
7.5 Second Closing26
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SECTION 8 INDEMNIFICATION................................................26
SECTION 9 REGISTRATION RIGHTS............................................27
9.1 Securities Subject to this Agreement...........................27
9.2 Demand Registration............................................27
9.3 Piggy-Back Registration........................................30
9.4 Holdback Agreements............................................31
9.5 Registration Procedures........................................32
9.6 Registration Expenses..........................................35
9.7 Indemnification; Contribution..................................35
9.8 Rule 144.......................................................37
SECTION 10 TERMINATION OF AGREEMENT.......................................38
10.1 Termination....................................................38
10.2 Survival.......................................................38
SECTION 11 MISCELLANEOUS..................................................39
11.1 Survival of Representations, Warranties and Covenants..........39
11.2 Notices........................................................39
11.3 Successors and Assigns.........................................41
11.4 Amendment and Waiver...........................................41
11.5 Counterparts...................................................41
11.6 Headings.......................................................41
11.7 GOVERNING LAW..................................................41
11.8 Severability...................................................42
11.9 Rules of Construction..........................................42
11.10 Entire Agreement...............................................42
11.11 Fees...........................................................42
11.12 Publicity; Confidentiality.....................................42
11.13 Further Assurances.............................................43
11.14 Schedules......................................................43
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EXHIBITS
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A Certificate of Amendment to the Certificate of Incorporation
B Form of Opinion
C Second Closing Purchasers' Certificate
SCHEDULES
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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
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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 1. 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.
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"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.
"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.
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"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.
"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.
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"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.
"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
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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.
"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.
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"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.
"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.
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"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 2. 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 Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York 10019-6064 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
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Closing") shall take place at the offices of Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York 10019-6064 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 3. 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
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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.
(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
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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.
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.
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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 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
<PAGE>
12
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.
3.9 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.
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,
<PAGE>
13
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 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
<PAGE>
14
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
contemplated hereby and for relevant state and federal securities laws, there
are no
<PAGE>
15
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.
<PAGE>
16
(d) No employee or former employee of the Company will become
entitled to any bonus, retirement, severance, job security or 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.
<PAGE>
17
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
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
<PAGE>
18
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"
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,
<PAGE>
19
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.
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 4. 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
<PAGE>
20
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
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
<PAGE>
21
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 5. 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.
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
<PAGE>
22
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
contemplated hereby, and all other related matters, shall have been acceptable
to Paul, Weiss,
<PAGE>
23
Rifkind, Wharton & Garrison, 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.
<PAGE>
24
SECTION 6. 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:
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.
<PAGE>
25
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.
SECTION 7. 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
<PAGE>
26
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 8. 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 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 a nd 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 9. REGISTRATION RIGHTS.
The Company hereby agrees to provide registration rights with respect
to the Registrable Securities as set forth below.
<PAGE>
27
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 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.
<PAGE>
28
(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 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
<PAGE>
29
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 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
<PAGE>
30
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
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.
<PAGE>
31
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 participate
in the preparation of such registration statement and each prospectus
included therein (and each amendment
<PAGE>
32
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
<PAGE>
33
seller or sellers of Registrable Securities to consummate the disposition
of such Registrable Securities;
(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
<PAGE>
34
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 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; (ii) 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
(xiii) 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
<PAGE>
35
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
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
<PAGE>
36
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 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
<PAGE>
37
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 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.
<PAGE>
38
SECTION 10. 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
(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
<PAGE>
39
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 11. 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.:
Kaya Flamboyan 9,
Villemstad
Curacao
Netherlands-Antilles
with a copy to:
Soros Fund Management LLC
888 Seventh Avenue
New York, NY 10016
Telecopy: (212) 664-0544
Attn: Michael Neus, Esq.
and a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
<PAGE>
40
(ii) if to SFM Domestic Investments LLC:
Soros Fund Management LLC
888 Seventh Avenue
New York, NY 10016
Telecopy: (212) 664-0544
Attn: Michael Neus, Esq.
and a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(iii) if to Pilot Capital Corp.:
Pilot Capital Corp.
444 Madison Avenue
Suite 3203
New York, New York 10022
Attention: George McCabe
Facsimile: (212) 888-3453
(iv) if to the Company:
Bluefly, Inc.
42 West 39th Street, 9th Floor
New York, New York 10018
Telecopy: (212) 354-3400
Attention: Jon Morris
with a copy to:
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, New York 10022
Telecopy: (212) 758-9526
Attention: Richard A. Goldberg, 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)
<PAGE>
41
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>
42
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 Soros 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
<PAGE>
43
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 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>
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: /s/ E. Kenneth Seiff
----------------------------------------
Name: E. Kenneth Seiff
Title: Chief Executive Officer
QUANTUM INDUSTRIAL PARTNERS LDC
By: /s/ Sean C. Warren
----------------------------------------
Name: Sean C. Warren
By: Attorney-In-Fact
SFM DOMESTIC INVESTMENTS LLC
By: /s/ Sean C. Warren
----------------------------------------
Name: Sean C. Warren
By: Attorney-In-Fact
PILOT CAPITAL CORP.
By: /s/ George McCabe
----------------------------------------
Name: George McCabe
By:
<PAGE>
Schedule 2.2
------------
SHARES AND PURCHASE PRICE
-------------------------
Shares of
Series A Preferred Stock
Purchased From
Purchaser the Company Purchase Price
-------------------------------------- ----------------------- ---------------
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