Employment Agreement - Bluefly Inc. and E. Kenneth Seiff
EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is entered into as of December 31, 2002, by and between Bluefly, Inc., a Delaware corporation (the "Company"), and E. Kenneth Seiff ("Seiff"). RECITALS WHEREAS, Seiff and the Company entered into an Employment Agreement dated as of December 29, 1999, that provides, among other things, that Seiff shall be the Company's Chief Executive Officer and Chairman of the Board of Directors until December 31, 2002; WHEREAS, the Company desires to continue to retain the services of Seiff as the Chief Executive Officer and Chairman of the Board of Directors of the Company in accordance with the terms and conditions of this Agreement. WHEREAS, Seiff desires to continue to serve the Company as its Chief Executive Officer and Chairman of the Board of Directors in accordance with the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Seiff agree as follows: 1. TERM The Company hereby agrees to continue to employ Seiff as the Chief Executive Officer and Chairman of the Board of Directors of the Company, and Seiff hereby agrees to serve in such capacity, for a term commencing on the date hereof and ending June 30, 2005 upon the terms and subject to the conditions contained in this Agreement; provided, however, that if the Company does not provide Seiff with written notice of its desire not to renew this Agreement at least 90 days prior to the end of the then current term (including any one year renewal term that is created as a result of this proviso), this Agreement shall automatically extend for one year from the end of the then current term. 2. DUTIES During the term of this Agreement, Seiff shall serve as the Chief Executive Officer and Chairman of the Board of Directors of the Company reporting directly to the Board of Directors of the Company (the "Board"), and he shall perform such duties, and have such powers, authority, functions, duties and responsibilities for the Company as are reasonably assigned to him by the the Board and as are consistent with the duties, responsibilities, and activities of the most senior executive officer of the Company. To the extent that the Company becomes a division or subsidiary of another entity, Seiff shall report directly to, and have such powers, authority, functions, duties and responsibilities as are reasonably assigned to him by, the Chief <PAGE> Executive Officer, President or comparable officer of the parent company or the company, as the case may be. The principal location of Seiff's employment shall be at the Company's principal office which shall be located in the New York City vicinity (i.e. within a 20 mile radius of Manhattan), although Seiff understands and agrees that he will be required to travel from time to time for business reasons. Seiff shall devote substantially all of his business time to the performance of his duties as the Chief Executive Officer and Chairman of the Board of Directors of the Company during the term of this Agreement. Seiff shall not, directly or indirectly, render professional services to any other person or entity, without the consent of the Board; provided, however, that nothing contained herein shall prevent Seiff from rendering any service to any charitable organization or family business so long as it does not interfere unreasonably with his duties and obligations hereunder. 3. COMPENSATION For services rendered by Seiff to the Company during the term of this Agreement, the Company shall pay him a minimum base salary of Two Hundred and Seventy-Five Thousand Dollars ($275,000) per year ("Base Salary"), payable in accordance with the standard payroll practices of the Company, subject to increases in the sole discretion of the Compensation Committee of the Board (the "Compensation Committee"), taking into account merit, corporate and individual performance and general business conditions, including changes in the "cost of living index." 4. PROFIT PARTICIPATION/INCENTIVE AWARD/OPTIONS a. Profit Participation. For each fiscal year during the Term, Seiff shall be eligible to participate in the Bluefly, Inc. Key Executive Profit Participation Plan. b. Incentive Award. (i) In consideration for Seiff agreeing to the non-competition and non-solicitation provisions of paragraph 6 and the confidentially and invention provisions of paragraph 9, and subject to the conditions set forth in this paragraph 4(b), upon the occurrence of a "Realization Event" (as defined in paragraph 4(b)(iv)), Seiff shall be entitled to receive a payment from the Company equal to 1.6% of the "Aggregate Consideration" (as defined in paragraph 4(b)(iii)), less applicable withholding taxes ("Award"). Subject to paragraph 4(b)(ii) hereof, the amount payable in respect of an Award shall be payable in the same type or types of consideration received by other shareholders of the Company (and, if more than one type of consideration is given, payment will be made in the same relative percentages of each type of consideration received by other shareholders), with one-half of the Award payable as soon as is administratively practicable after the occurrence of a Realization Event, and the other one-half of the Award payable on the first anniversary of the Realization Event, provided that Seiff remains employed with the Company at that 2 <PAGE> time, or, if earlier, upon the termination of Seiff's employment with the Company (A) by the Company without "Cause" (as defined below), (B) by way of a "Constructive Termination" (as defined below) or (C) on account of death or "permanent disability" (as described in paragraph 7(a)(ii) below); provided that if Seiff's employment with the Company is terminated for any reason other than as described above prior to the first anniversary after the date of the Realization Event, then the second one-half of the Award shall be permanently forfeited. Notwithstanding anything to the contrary herein, the consideration received by Seiff will be subject to any hold-back, escrow, indemnity or similar arrangement to the same extent to which the consideration to be received by other shareholders in the Company is subject. (ii) Seiff shall be entitled to a payment of the Award in accordance with paragraph 4(b)(i) hereof if (A) a Realization Event occurs while Seiff is employed by the Company or (B) Seiff's employment is terminated without "Cause" (as defined in paragraph 7(a)(iv) hereof) or Seiff terminates his employment on account of a "Constructive Termination" (as defined in paragraph 7(a)(iii) hereof) and within 180 days following such termination a Realization Event is consummated. Except as provided in the preceding sentence, Seiff shall have no right to the Award if a Realization Event is consummated following the termination of Seiff's employment with the Company. (iii) For purposes of this Agreement, "Aggregate Consideration" shall mean the total fair market value (as reasonably determined by the Compensation Committee at the time of the closing of the Realization Event) of the cash, securities and other consideration paid or payable, or otherwise to be distributed directly to the Company's stockholders in connection with a Realization Event. (iv) For purposes of this Agreement, "Realization Event" means a "Change of Control" (as defined in paragraph 8) in which cash, securities or other consideration is paid or payable, or otherwise to be distributed directly to the Company's stockholders (v) Notwithstanding any provision of this Agreement to the contrary, in the event Seiff materially breaches the provisions of paragraphs 6 or 9 hereof, Seiff hereby agrees that the Company may, in addition to any other remedies it may have, reclaim any amount paid to Seiff pursuant to this paragraph 4(b). (vi) It is understood that the Company intends to allocate an aggregate of 5% of the Aggregate Consideration, less applicable withholding taxes, to senior executives of the Company. Currently 4% of the Aggregate Consideration has been allocated amongst Seiff, Jonathan Morris and Patrick Barry, and 1% of the Aggregate Consideration may, in the 3 <PAGE> Company's discretion, be allocated to one or more additional senior executive(s). Notwithstanding paragraph 4(b)(i), if any portion of such 1% has not been allocated at the time of a Realization Event (such unallocated portion, the "Unallocated Award"), Seiff's Award shall be increased by 40% of the Unallocated Award, less applicable withholding taxes. c. Options. Seiff shall be eligible to participate in grants of stock options as is deemed appropriate by the Compensation Committee. 5. EXPENSE REIMBURSEMENT AND PERQUISITES a. During the term of this Agreement, Seiff shall be entitled to reimbursement of all reasonable and actual out-of-pocket expenses incurred by him in the performance of his services to the Company consistent with corporate policies, provided that the expenses are properly accounted for. b. During each calendar year of the term of this Agreement, Seiff shall be entitled to reasonable vacation with full pay; provided, however, that Seiff shall schedule such vacations at times convenient to the Company. c. During the term of this Agreement, the Company shall provide Seiff with a minimum of $1,000,000 worth of term life insurance, subject to availability on commercially reasonable terms, major medical insurance coverage, and Seiff shall be entitled to participate in all dental insurance and disability plans and other medical, insurance, and employee benefit plans instituted by the Company from time to time on the same terms and conditions as those offered to other senior executive officers of the Company, to the extent permitted by law. 6. NON-COMPETITION; NON-SOLICITATION a. In consideration of the offer of employment and severance benefits hereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, during the term of this Agreement and during the "Non-Competition Period" (as defined in paragraph 6(c) below) Seiff shall not, without the prior written consent of the Company, anywhere in the world, directly or indirectly, (i) enter into the employ of or render any services to any "Competitive Business" (as defined below); (ii) engage in any Competitive Business for his own account; (iii) become associated with or interested in any Competitive Business as an individual, partner, shareholder, creditor, director, officer, principal, agent, employee, trustee, consultant, advisor or in any other relationship or capacity; (iv) employ or retain, or have or cause any other person or entity to employ or retain, any person who was employed or retained by the Company while Seiff was employed by the Company; or (v) solicit, interfere with, or endeavor to entice away from the Company, for the benefit of a Competitive Business, any of its customers or other persons with whom the Company has a contractual relationship. For purposes of this Agreement, a "Competitive Business" shall mean: (a) any person, corporation, partnership, firm or other entity whose primary business is the sale or consignment of off-price apparel and/or off-price fashion accessories; (b) any division of a person, corporation, partnership, firm or other entity (but not the person, corporation, 4 <PAGE> partnership, firm or other entity itself) whose primary business is internet based selling or consignment of ten (10) or more brands of off-price apparel and/or off-price fashion accessories; or (c) the off-price divisions of Nordstrom, Saks Fifth Avenue, Neiman Marcus or the off-price division of another retailer of ten (10) or more brands of apparel and/or fashion accessories. However, nothing in this Agreement shall preclude Seiff from investing his personal assets in the securities of any corporation or other business entity which is engaged in a Competitive Business if such securities are traded on a national stock exchange or in the over-the-counter market and if such investment does not result in his beneficially owning, at any time, more than three percent (3%) of the publicly-traded equity securities of such Competitive Business. b. Seiff and the Company agree that the covenants of non-competition and non-solicitation contained in this paragraph 6 are reasonable covenants under the circumstances, and further agree that if, in the opinion of any court of competent jurisdiction, such covenants are not reasonable in any respect, such court shall have the right, power and authority to excise or modify such provision or provisions of these covenants as to the court shall appear not reasonable and to enforce the remainder of these covenants as so amended. Seiff agrees that any breach of the covenants contained in this paragraph 6 would irreparably injure the Company. Accordingly, Seiff agrees that the Company, in addition to pursuing any other remedies it may have in law or in equity, may obtain an injunction against Seiff from any court having jurisdiction over the matter, restraining any further violation of this paragraph 6. c. The "Non-Competition Period" shall extend for a period of two (2) years following the end of the term of this Agreement; provided, however that, in the event that the Agreement is terminated by the Company without "Cause" (as defined in paragraph 7(a)(iv)), or by Seiff pursuant to a "Constructive Termination" (as defined in paragraph 7(a)(iii)), the Non-Competition Period shall expire on the first anniversary of the termination of this Agreement (the "Modified Non-Competition Period"); and further provided that in the event that during the Non-Competition Period or the Modified Non-Competition Period, as the case may be, Seiff receives notice in writing from the Company of any material breach of any of the covenants contained in this paragraph 6 by him and Seiff cures such material breach within twenty-one (21) days of the date he receives such notice, then the Company will continue the Severance Benefits provided pursuant to paragraph 7(b) below; provided, that Seiff shall not be entitled to Severance Benefits for periods during which he was in material breach of such covenants. 7. TERMINATION a. This Agreement (other than as specifically stated herein), the employment of Seiff, and Seiff's position as Chief Executive Officer and Chairman of the Board of Directors of the Company shall terminate upon the first to occur of: (i) his death; (ii) his "permanent disability," due to injury or sickness for a continuous period of four (4) months, or a total of eight months in a 12-month period (vacation time excluded), during which time Seiff is unable to attend to his ordinary and regular duties; 5 <PAGE> (iii) a "Constructive Termination" by the Company, which, for purposes of this Agreement, shall be deemed to have occurred upon (A) the removal of Seiff from his position as Chief Executive Officer and Chairman of the Board of Directors of the Company, (B) the material breach by the Company of this Agreement, including any material diminution in the nature or scope of the authorities, powers, functions, duties or responsibilities of Seiff as Chief Executive Officer and Chairman of the Board of Directors and a senior executive officer of the Company (or to the extent that the Company becomes a division or subsidiary of another entity, the authorities, powers, functions, duties or responsibilities of a chief executive officer or senior executive officer of such division or subsidiary); provided that no such breach shall be considered a Constructive Termination unless Seiff has provided the Company with written notice of such breach and the Company has failed to cure such breach within the thirty (30) day period following his receipt of such notice; (iv) the termination of this Agreement at any time without Cause (as defined below) by the Company; (v) subject to compliance with the notice provisions contained in paragraph 1 of this Agreement, the non-renewal of this Agreement by the Company and/or the Board of Directors; (vi) the termination of this Agreement for "Cause", which, for purposes of this Agreement, shall mean that (1) Seiff has been convicted of a felony or any serious crime involving moral turpitude, or engaged in materially fraudulent or materially dishonest actions in connection with the performance of his duties hereunder, (2) Seiff has willfully and materially failed to perform his duties hereunder, (3) Seiff has breached the terms and provisions of this Agreement in any material respect, or (4) Seiff has failed to comply in any material respect with the Company's written policies of conduct of which he had actual notice, including with respect to trading in securities; provided that the Company shall not have any right to terminate this Agreement for Cause pursuant to clauses (2), (3) or (4) of this sub-paragraph (vi) as a result of a breach that can be cured unless the Company has provided Seiff with written notice of such breach and Seiff has failed to cure such breach within the ten (10) day period following his receipt of such notice; or (vii) the termination of this Agreement by Seiff, which shall occur on not less than thirty (30) days prior written notice from Seiff. b. In the event that this Agreement is terminated, other than as a result of a Constructive Termination or by the Company without Cause, the Company shall pay Seiff his accrued but unpaid Base Salary and unreimbursed business expenses and bonuses that have been earned and awarded but not yet paid as of the date of his termination of employment and shall 6 <PAGE> make no other payments or provide any other benefits under this Agreement. In the event that this Agreement is terminated by the Company without Cause pursuant to paragraph 7(a)(iv) or through a Constructive Termination pursuant to paragraph 7(a)(iii), and subject to Seiff's execution of a mutual release reasonably acceptable to the Company and Seiff, the Company shall pay Seiff his Base Salary through the date of termination, plus unreimbursed business expenses and bonuses that have been earned and awarded but not yet paid, as well as the following severance and noncompetition payments set forth below (the "Severance Benefits"): (i) the then-current Base Salary for a period of six months from the date of termination; (ii) any unvested stock options that have been granted to Seiff which are outstanding as of the date of such termination shall be deemed to be fully vested as of that date; (iii) the Company shall maintain in effect, or reimburse Seiff for the cost of maintaining, the medical and dental insurance and disability and hospitalization plans of the Company as well as any Company sponsored life insurance policy in which Seiff participates as of the date of such termination for a period of one year from the date of termination. The Severance Benefits shall be payable in periodic installments in accordance with the Company's standard payroll practices. 8. CHANGE OF CONTROL a. In the event that a Change of Control (as defined below) occurs during the term of this Agreement, any stock options granted to Seiff which are outstanding as of the date of that Change in Control shall be deemed to be fully vested as of that date. For purposes of this Agreement, "Change of Control" shall be deemed to occur upon: (1) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more (on a fully diluted basis) of either (A) the then outstanding shares of common stock of the Company, taking into account as outstanding for this purpose such common stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such common stock (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this Agreement, the following acquisitions shall not constitute a Change of Control: (I) any acquisition by the Company or any "Affiliate" (as defined below), (II) any acquisition by any employee benefit plan sponsored or maintained by the Company or any Affiliate, (III) any acquisition by Quantum Industrial Partners LDC, Soros Fund Management LLC and/or SFM Domestic Investments LLC and/or any of their affiliates (collectively, "Soros"), or (IV) any acquisition which complies with clauses (A), (B) and (C) of sub-paragraph (a)(5) hereof; 7 <PAGE> (2) Individuals who, on the date hereof, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; (3) the dissolution or liquidation of the Company; (4) the sale of all or substantially all of the business or assets of the Company; or (5) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Business Combination"), unless immediately following such Business Combination: (A) more than 50% of the total voting power of (x) the corporation resulting from such Business Combination (the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the directors of the Surviving Corporation (the "Parent Corporation"), is represented by the Outstanding Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which the Outstanding Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of the Company's Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no Person (other than Soros or any employee benefit plan sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 30% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Board members at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination. b. For purposes of this paragraph 8, the term "Affiliate" shall mean any entity that directly or indirectly is controlled by, controls or is under common control with the Company. c. Notwithstanding any provision of this Agreement to the contrary, in the event of any of the following: 8 <PAGE> (1) the Company is merged or consolidated with another corporation or entity and, in connection therewith, consideration is received by stockholders of the Company in a form other than stock or other equity interests of the surviving entity; (2) all or substantially all of the assets of the Company are acquired by another person; (3) the reorganization or liquidation of the Company; or (4) the Company shall enter into a written agreement to undergo an event described in clauses (1), (2) or (3) above: then the Compensation Committee may, in its sole and reasonable discretion and upon at least 10 business days advance notice to Seiff, cancel any outstanding stock options and pay to Seiff, in cash or stock, or any combination thereof, the value of such stock options based upon the price per share of stock received or to be received by other stockholders of the Company in the event. The terms of this sub-paragraph 8(c) may be varied by the Compensation Committee in any particular stock option award agreement to which Seiff is a party. d. Reduction of Payments in Certain Cases. (i) For purposes of this paragraph 8(d) (A) a "Payment" shall mean any payment or distribution in the nature of compensation to or for the benefit of Seiff, whether paid or payable pursuant to this Agreement or otherwise; (B) "Agreement Payment" shall mean a Payment paid or payable pursuant to this Agreement (disregarding this paragraph); (C) "Net After Tax Receipt" shall mean the "Present Value" (as defined below) of a Payment net all of federal, state and local taxes imposed on Seiff with respect thereto (including without limitation under Section 4999 of the Internal Revenue Code of 1986, as amended ("Code")), determined by applying the highest marginal rates of such taxes that applied to Seiff's taxable income for the immediately preceding taxable year, or such other rate(s) as Seiff shall in his sole discretion certify as likely to apply to Seiff in the relevant tax year(s); (D) "Present Value" shall mean such value determined in accordance with Section 280G(d)(4) of the Code; and (E) "Reduced Amount" shall mean the smallest aggregate amount of Agreement Payments which (I) is less than the sum of all Agreement Payments and (II) results in aggregate Net After Tax Receipts which are equal to or greater than the Net After Tax Receipts which would result if the aggregate Agreement Payments were any other amount less than the sum of all Agreement Payments. (ii) Anything in this Agreement to the contrary notwithstanding, in the event that a nationally recognized certified public accounting firm designated by the Company (the "Accounting Firm") shall determine that receipt of all Payments would subject Seiff to tax under Section 4999 of the Code, it shall determine whether some amount of Agreement Payments would 9 <PAGE> meet the definition of a "Reduced Amount." If said firm reasonably determines that there is a Reduced Amount, the aggregate Agreement Payments shall be reduced to such Reduced Amount. (iii) If the Accounting Firm reasonably determines that aggregate Agreement Payments should be reduced to the Reduced Amount, the Company shall promptly give Seiff notice to that effect and a copy of the detailed calculation thereof, and Seiff may then elect, in his sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of his or her election within ten business days of his receipt of notice. If no such election is made by Seiff within such ten-day period, the Company may elect which of such Agreement Payments shall be eliminated or reduced (as long as after such election the present value of the aggregate Agreement Payments equals the Reduced Amount) and shall notify Seiff promptly of such election. All reasonable determinations made by the Accounting Firm under this paragraph 8(d) shall be binding upon the Company and Seiff. As promptly as practicable following such determination, the Company shall pay to or distribute for the benefit of Seiff such Agreement Payments as are then due to Seiff under this Agreement and shall promptly pay to or distribute for the benefit of Seiff in the future such Agreement Payments as become due to Seiff under this Agreement. (iv) While it is the intention of the Company and Seiff to reduce the amounts payable or distributable to Seiff hereunder only if the aggregate Net After Tax Receipts to Seiff would thereby be increased, as a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of Seiff pursuant to this Agreement which should not have been so paid or distributed ("Overpayment") or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of Seiff pursuant to this Agreement could have been so paid or distributed ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Company or Seiff which the Accounting Firm reasonably believes has a high probability of success determines that an Overpayment has been made, then Seiff shall repay to the any such Overpayment to the Company within ten business days of his receipt of notice of such Overpayment. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, reasonably determines that an Underpayment has occurred, any such underpayment shall be promptly paid by the Company to or for the benefit of Seiff. 10 <PAGE> (v) All fees and expenses of the Accounting Firm in implementing the provisions of this paragraph 8(d) shall be borne by the Company. 9. CONFIDENTIALITY; INVENTIONS a. Seiff recognizes that the services to be performed by him are special, unique and extraordinary in that, by reason of his employment under this Agreement, he may acquire or has acquired confidential information and trade secrets concerning the operation of the Company, its predecessors, and/or its affiliates, the use or disclosure of which could cause the Company, or its affiliates substantial loss and damages which could not be readily calculated and for which no remedy at law would be adequate. Accordingly, Seiff covenants and agrees with the Company that he will not, directly or indirectly, at any time during the term of this Agreement or thereafter, except in the performance of his obligations to the Company or with the prior written consent of the Board of Directors or as otherwise required by court order, subpoena or other government process, directly or indirectly, disclose any secret or confidential information that he may learn or has learned by reason of his association with the Company. If Seiff shall be required to make such disclosure pursuant to court order, subpoena or other government process, he shall notify the Company of the same, by personal delivery or electronic means, confirmed by mail, within twenty-four (24) hours of learning of such court order, subpoena or other government process and, at the Company's expense, shall (i) take all reasonably necessary and lawful steps required by the Company to defend against the enforcement of such subpoena, court order or government process, and (ii) permit the Company to intervene and participate with counsel of its choice in any proceeding relating to the enforcement thereof. The term "confidential information" includes, without limitation, information not in the public domain and not previously disclosed to the public or to the trade by the Company's management with respect to the Company's or its affiliates' facilities and methods, studies, surveys, analyses, sketches, drawings, notes, records, software, computer-stored or disk-stored information, processes, techniques, research data, marketing and sales information, personnel data, trade secrets and other intellectual property, designs, design concepts, manuals, confidential reports, supplier names and pricing, customer names and prices paid, financial information or business plans. b. Seiff confirms that all confidential information is and shall remain the exclusive property of the Company. All memoranda, notes, reports, software, sketches, photographs, drawings, plans, business records, papers or other documents or computer-stored or disk-stored information kept or made by Seiff relating to the business of the Company shall be and will remain the sole and exclusive property of the Company and shall be promptly delivered and returned to the Company immediately upon the termination of his employment with the Company. c. Seiff shall make full and prompt disclosure to the Company of all inventions, improvements, ideas, concepts, discoveries, methods, developments, software and works of authorship, whether or not copyrightable, trademarkable or licensable, which are created, made, conceived or reduced to practice by Seiff for the Company during his services with the Company, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "Developments"). All 11 <PAGE> Developments shall be the sole property of the Company, and Seiff hereby assigns to the Company, without further compensation, all of his rights, title and interests in and to the Developments and any and all related patents, patent applications, copyrights, copyright applications, trademarks and tradenames in the United States and elsewhere. d. Seiff shall assist the Company in obtaining, maintaining and enforcing patent, copyright and other forms of legal protection for intellectual property in any country. Upon the request of the Company, Seiff shall sign all applications, assignments, instruments and papers and perform all acts necessary or desired by the Company in order to protect its rights and interests in any Developments. e. Seiff agrees that any breach of this paragraph 9 will cause irreparable damage to the Company and that, in the event of such breach, the Company will have, in addition to any and all remedies of law, including rights which the Company may have to damages, the right to equitable relief including, as appropriate, all injunctive relief or specific performance or other equitable relief. Seiff understands and agrees that the rights and obligations set forth in paragraph 9 shall survive the termination or expiration of this Agreement. 10. REPRESENTATIONS AND WARRANTIES a. Seiff represents and warrants to the Company that he was advised to consult with an attorney of Seiff's own choosing concerning this Agreement and that Seiff has done so. b. Seiff represents and warrants to the Company that the execution, delivery and performance of this Agreement by Seiff complies with all laws applicable to Seiff or to which his properties are subject and does not violate, breach or conflict with any agreement by which he or his assets are bound or affected. 11. GOVERNING LAW; ARBITRATION This Agreement shall be deemed a contract made under, and for all purposes shall be construed in accordance with, the laws of the State of New York, without giving effect to its conflict of law provisions. Except as set forth below, any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be resolved by arbitration in accordance with the rules of the American Arbitration Association (the "AAA") then pertaining in the City of New York, New York, by a single arbitrator to be mutual agreed upon by the parties or, if they are unable to so agree, by an arbitrator selected by the AAA. The parties shall be entitled to a minimal level of discovery as determined by the arbitrator. The arbitrator shall be empowered to award attorney's fees and costs to Seiff (but not the Company) if he or she deems such award appropriate. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Nothing contained in this paragraph 11 or the remainder of this Agreement shall be construed so as to deny the Company the right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach by Seiff of the covenants contained in paragraphs 6 and 9 of this Agreement. 12 <PAGE> 12. INDEMNIFICATION a. The Company agrees that it shall to the fullest extent permitted by law indemnify and hold Seiff harmless and shall pay and reimburse Seiff for any loss, cost, damage, injury or other expense (including without limitation reasonable attorneys' fees) which Seiff incurs by reason of being or having been an officer or director of the Company or by reason of the fact that Seiff is or was serving at the request of the Company as a director, officer, employee, fiduciary or other representative of the Company. All indemnification shall be paid by the Company in advance of the final disposition of the matter (as incurred by Seiff) provided that Seiff executes and deliver to the Company an undertaking to repay any amounts so advanced in the event that it shall be determined that Seiff is not entitled to indemnification hereunder. This indemnification obligation is in addition to any other indemnification provision contained in the Company's By-laws or pursuant to any other document, instrument or agreement and shall survive the term of Seiff's employment hereunder. b. In the event that Seiff asserts his right of indemnification under paragraph 12(a) above, the Company shall have the right to select Seiff's counsel provided that there is no material conflict of interest between the Company and Seiff and provided such counsel is reasonably acceptable to Seiff. Notwithstanding the foregoing, the Company shall have the right to participate in, or fully control, any proceeding, compromise, settlement, resolution or other disposition of the claim or proceeding so long as Seiff is provided with a general release from the Company and the claimant in form and substance reasonably satisfactory to Seiff and no restrictions are imposed on Seiff as a result of the settlement. 13. ENTIRE AGREEMENT This Agreement together with any stock option agreements to which Seiff and the Company are a party contain all of the understandings between Seiff and the Company pertaining to Seiff's employment with the Company and supersedes all undertakings and agreements, whether oral or in writing, previously entered into between them. 14. AMENDMENT OR MODIFICATION; WAIVER No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing, signed by Seiff and by an officer of the Company duly authorized to do so. Except as otherwise specifically provided in this Agreement, no waiver by either party of any breach by the other party of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar provision or condition at the same or any prior or subsequent time. 15. NOTICES Any notice to be given hereunder shall be in writing and delivered personally or sent by certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently designate by like notice: 13 <PAGE> If to the Company, to: Bluefly, Inc. 42 West 39th Street, 9th Floor New York, NY 10018 Attn: E. Kenneth Seiff With a copy to: Paul, Weiss, Rifkind, Wharton & Garrison| 1285 Avenue of the Americas New York, New York 10019-6064 Attn: Michael J. Segal, Esq. If to Seiff, to: E. Kenneth Seiff 350 East 72 Street Apt. 15B New York, New York 10021 With a copy to: Eric Seiff Seiff and Kretz 645 Madison Avenue New York, New York 10022 16. SEVERABILITY In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 17. TITLES Titles of the paragraphs of this Agreement are intended solely for convenience of reference and no provision of this Agreement is to be construed by reference to the title of any paragraph. 18. DUTY TO MITIGATE Seiff shall not be obligated to seek other employment by way of mitigation of the amounts payable to him under any provision of this Agreement. 14 <PAGE> 19. COUNTERPARTS This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. BLUEFLY, INC. By: /S/ Neal Moszkowski --------------------------------------- Neal Moszkowski Member of the Board of Directors /S/ E. Kenneth Seiff ------------------------------------------ E. Kenneth Seiff 15