EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into on January 28, 2008, by and
between Bluefly, Inc., a Delaware corporation (the "Company"), and Barry Erdos
("Erdos").
RECITALS
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WHEREAS, the Company desires to provide for the retention of the services of
Erdos as the President, Chief Operating Officer and acting Chief Financial
Officer of the Company in accordance with the terms and conditions of this
Agreement.
WHEREAS, Erdos desires to serve the Company as its President, Chief
Operating Officer and acting Chief Financial Officer 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 Erdos agree as
follows:
1. TERM
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The Company hereby agrees to employ Erdos as the President and Chief
Operating Officer of the Company, and Erdos hereby agrees to serve in such
capacity, for a term commencing on the date hereof and ending January 28, 2011,
upon the terms and subject to the conditions contained in this Agreement.
2. DUTIES
------
During the term of this Agreement, Erdos shall serve as the President, Chief
Operating Officer and acting Chief Financial Officer of the Company reporting
directly to the Chief Executive Officer of the Company, 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 Chief
Executive Officer and the Board of Directors of the Company (the "Board") and as
are consistent with the duties, responsibilities, and activities of a senior
executive officer of the Company. Notwithstanding the foregoing, the parties
agree that Erdos' title as acting Chief Financial Officer of the Company and the
duties, powers, authority, functions and responsibilities associated with the
title of acting Chief Financial Officer of the Company may be terminated by the
Company at any time at the discretion of the Board. To the extent that the
Company becomes a division or subsidiary of another entity, Erdos shall report
directly to, and have such powers, authority, functions, duties and
responsibilities as are reasonably assigned to him by, the Chief Executive
Officer of the division or subsidiary that currently comprises the Company or to
a senior executive officer of such other entity. It is understood that the
duties of Erdos, should the Company become a division or subsidiary of another
entity, shall be generally consistent with his duties prior to such event, but
shall take into account the changes associated with running a division or
subsidiary, rather than an entire entity.
The Company will use best efforts, subject to the approval of the Board and
the Nominating and Corporate Governance Committee of the Board, to nominate
Erdos to the Board and recommend that the Company's stockholders vote in favor
of the election of Erdos to the Board at the next meeting of stockholders and
every annual meeting thereafter during the term of this Agreement. Erdos will
accept any such nomination and continue to serve as a member of the Board if and
when elected.
The principal location of Erdos's employment shall be at the Company's
principal office which shall be located in the New York City vicinity (i.e.
within a twenty (20) mile radius of Manhattan), although Erdos understands and
agrees that he will be required to travel from time to time for business
reasons. Erdos shall devote substantially all of his business time to the
performance of his duties as the President, Chief Operating Officer and, for as
long as he retains such title, acting Chief Financial Officer of the Company
during the term of this Agreement. Erdos shall not, directly or indirectly,
render professional services to any other person or entity, without the consent
of the Company's Board; provided, however, that nothing contained herein shall
prevent Erdos 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 Erdos to the Company during the term of this
Agreement, the Company shall pay him a minimum base salary of four hundred
twenty-five thousand dollars ($425,000) 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. INCENTIVE COMPENSATION AND GRANT OF DEFERRED STOCK UNITS
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a. Incentive Compensation. For each fiscal year during the Term,
Erdos shall be eligible to receive a performance bonus as follows: provided that
Erdos remains employed with the Company through the last day of such fiscal
year, Erdos will be eligible to earn a performance target bonus of 50% of Base
Salary, on the basis of the achievement of certain targets to be set for each
fiscal year by the Compensation Committee in its sole discretion.
b. Deferred Stock Units.
(i) Award of DSUs. On the date hereof, Erdos shall be granted
under the Plan a Deferred Stock Unit Award (the "DSUs") for
and representing 2,500,000 underlying Shares in the form
attached hereto as Exhibit A.
(ii) Terms of the DSUs. The DSUs are not Shares, but rather a
promise to deliver actual Shares in the future. The DSUs
awarded hereunder will be credited to an unfunded, bookkeeping
account of the Company maintained on Erdos's behalf and will
be distributable and subject to the restrictions contained in
the Plan and in the applicable DSU Award.
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(A) Vesting of DSUs. The DSUs shall vest in twelve equal quarterly
installments on the last day of the calendar quarter commencing on
March 31, 2008 (e.g., the first of the twelve equal quarterly
vesting periods will begin on March 31, 2008 so that one-third of
the DSUs shall have vested as of December 31, 2008).
(B) Termination of Employment; Forfeiture. In the event that
Erdos's employment is terminated for any reason prior to the
vesting of any of such DSUs, all unvested DSUs as of the date of
such termination shall be forfeited immediately by Erdos.
(C) Distribution of DSUs. Subject to paragraph 4(b)(ii)(B), all of
the vested DSUs will be distributed in Shares on the date of
distribution on the earliest to occur of: (I) (a) January 1, 2011,
(II) death of Erdos, (III) the date on which Erdos is "disabled"
(as such term is defined in Section 409A(a)(2)(C) of the Internal
Revenue Code of 1986, as amended ("Code") and the official guidance
issued thereunder), (IV) subject to paragraph 7(c), the date of
Erdos's "separation of service" as defined in Section 7(c), or (V)
to the extent provided in paragraph 8, immediately following a
Change of Control (as defined below) and thereafter.
(D) No Rights as Shareholders. Erdos shall not have any rights of a
Shareholder with respect to the DSUs, including the right to vote
such shares or the right to receive dividends or other
distributions made with respect to the shares, until the Shares
underlying the DSUs are distributed to Erdos. However, if any
dividends are paid on the Shares underlying the DSUs, whether in
cash or stock, Erdos will be credited with "Dividend Rights." Such
Dividend Rights shall be credited to Erdos's DSU account as
follows: Erdos shall be credited with additional DSUs equal to the
value of such dividend on the date such dividend is paid divided by
the Fair Market Value (as determined under the Plan) on the date
the dividend is paid multiplied by the number of DSUs credited to
Erdos on the date the dividend is paid. The Dividend Rights
credited to Erdos will be subject to the same restrictions
applicable to the DSUs to which they relate as initially credited
to Erdos under this paragraph 4(b).
(E) Tax Withholding. Erdos shall be responsible to fulfill any
withholding tax requirements on the DSUs as specified in the Plan
and as required by applicable law. With respect to any tax due
under federal or state law, Erdos shall notify the Company no later
than fifteen business days prior to a distribution date, as to
whether he intends to make a cash payment to the Company for such
withholding amount or would like the Company to make arrangements
for such payment. If he elects to have the Company make the
arrangements or fails to provide the required notice, the Company
shall satisfy such withholding tax requirements, through
withholding distribution of a portion of the DSUs equal to the
withholding obligation based on the Fair Market Value of the Shares
already owned by Erdos on the date of distribution; provided that
if the Company's Board of Directors determines that it would not be
prudent to use the Company's cash flow for such purpose, the
Company shall advise Erdos who can then arrange to
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sell Shares for the purpose of satisfying such withholding tax
requirement prior to the distribution of the applicable Shares.
Notwithstanding the foregoing, Erdos shall receive a cash bonus
from the Company equal to any FICA taxes (or other applicable
employment taxes) due solely on account of the vesting of such DSUs
as set forth in paragraph 4(b)(A).
5. EXPENSE REIMBURSEMENT AND PERQUISITES
-------------------------------------
a. During the term of this Agreement, Erdos 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, Erdos
shall be entitled to reasonable vacation with full pay; provided, however, that
Erdos shall schedule such vacations at times convenient to the Company.
c. During the term of this Agreement, the Company shall provide an
annual allowance of twenty thousand dollars ($20,000) for the purchase of term
life insurance by the Company for the benefit of Erdos (which shall be in lieu
of any other life insurance benefit) and the purchase of a supplemental
disability insurance policy. During the term of this Agreement, Erdos shall be
entitled to participate in all dental insurance and disability plans, major
medical insurance 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 grant of the DSUs and severance benefits
provided 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) Erdos 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 on the date of termination of
this Agreement or who had been employed by the Company within the nine month
period prior to the date of termination of this Agreement, except if, at the
time of such employment or retention, such person had not been employed by the
Company during the nine month period immediately preceding such employment or
retention; 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
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accessories; (b) any division of a person, corporation, partnership, firm or
other entity (but not the person, corporation, partnership, firm or other entity
itself) whose primary business is internet based selling or consignment, and, in
either such case, consists 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 Erdos 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 3% of the
publicly-traded equity securities of such Competitive Business.
b. Erdos 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. Erdos
agrees that any breach of the covenants contained in this paragraph 6 would
irreparably injure the Company. Accordingly, Erdos agrees that the Company, in
addition to pursuing any other remedies it may have in law or in equity, may
obtain an injunction against Erdos 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
eighteen months 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 Erdos 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, Erdos receives notice in writing
from the Company of any material breach of any of the covenants contained in
this paragraph 6 by him and Erdos cures such material breach within 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 Erdos shall
not be entitled to Severance Benefits for periods during which he was in
material breach of such covenants.
7. TERMINATION
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a. This Agreement (other than as specifically stated herein), the
employment of Erdos, and Erdos's position as the President, Chief Operating
Officer and, if the Executive maintains such position at the time of such
termination, acting Chief Financial Officer 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 twelve (12)
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month period (vacation time excluded), during which time
Erdos is unable to attend to his ordinary and regular duties;
(iii) a "Constructive Termination" by the Company, which, for
purposes of this Agreement, shall be deemed to have occurred
upon (A) the removal of Erdos from his position as the
President and Chief Operating Officer 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
Erdos as the President, Chief Operating Officer 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 the President, Chief Operating Officer or
senior executive officer of such division or subsidiary);
provided that no such breach shall be considered a
Constructive Termination unless Erdos 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 its receipt of such notice;
(iv) the termination of this Agreement at any time without Cause
(as defined below) by the Company;
(v) the expiration of the term under this Agreement;
(vi) the termination of this Agreement for "Cause", which, for
purposes of this Agreement, shall mean that (1) Erdos 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) Erdos has willfully
and materially failed to perform his reasonably assigned
duties hereunder, (3) Erdos has breached the terms and
provisions of this Agreement in any material respect, or (4)
Erdos 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
unless the Company has provided Erdos with written notice of
such breach and Erdos has failed to cure such breach within
the twenty day period following his receipt of such notice; or
(vii) the termination of this Agreement by Erdos, which shall occur
on not less than thirty (30) days prior written notice from
Erdos.
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 Erdos 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
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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 Erdos's execution of a mutual release
reasonably acceptable to the Company and Erdos, the Company shall pay Erdos 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) Erdos' then-current Base Salary commencing on the date of
termination and continuing through the Severance Period (as
defined below). The "Severance Period" shall mean the period
equal to 1/2 month for each month Erdos worked for the Company
prior to the date of termination up to a maximum Severance
Period of nine (9) months, notwithstanding the foregoing, the
Severance Period shall be the maximum period of 9 months if
Erdos is terminated pursuant to paragraph 7(a)(iii) or
paragraph 7(a)(iv) either (1) after the 15 month anniversary
hereof or (2) after the occurrence of a Change of Control;
(ii) Provided that any termination under this Section 7(b)(ii)
occurs on or after the one year anniversary of the date
hereof, the Company shall maintain in effect the medical and
dental insurance and hospitalization plans of the Company as
well as any Company sponsored life insurance policy in which
Erdos participates as of the date of such termination for the
Severance period.
The Severance Benefits shall be payable in periodic installments in accordance
with the Company's standard payroll practices.
c. Notwithstanding anything herein to the contrary, if any payments
due under this Agreement (including, but not limited to the distribution of the
DSUs hereunder) would subject Erdos to any tax imposed under Section 409A of the
Code if such payments were made at the time otherwise provided herein, then the
payments that cause such taxation shall be payable in a single lump sum on the
first day which is at least six (6) months after the date of Erdos's "separation
from service" as set forth in Code Section 409A(2)(A)(i) and the official
guidance issued thereunder.
8. CHANGE OF CONTROL
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a. In the event that a Change of Control (as defined below) occurs
during the term of this Agreement, one half of any DSUs granted to Erdos which
are outstanding as of the date of that Change of Control and have not yet vested
("COC Unvested DSUs") shall be deemed to be fully vested as of that date.
Subject to paragraph 7(c), the remaining one half of the COC Unvested DSUs shall
vest on the earliest to occur of (x) the scheduled vesting date and (y) twelve
(12) months from the date of such Change of Control, subject, in each case, to
Erdos's continued employment with the Company on such dates and (z) Erdos's
Constructive Termination or termination without Cause following such Change of
Control. The DSUs that
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become vested due to the application of this paragraph 8 shall be distributable
upon the date that they become vested.
b. 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 fifty
percent (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 ;
(2) Individuals who, at the commencement of any twelve (12)
month period 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 start of any such twelve (12) month
period, whose election or nomination for election was approved by a vote of at
least a majority 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 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 within any such twelve month period
shall be deemed to be an Incumbent Director during such twelve (12) month
period;
(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 fifty percent (50%) of the total voting power of (x) the
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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 thirty percent (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.
c. 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.
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 Erdos, 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 Erdos with respect thereto (including
without limitation under Section 4999 of the Code, determined
by applying the highest marginal rates of such taxes that
applied to Erdos's taxable income for the immediately
preceding taxable year, or such other rate(s) as Erdos shall
in his sole discretion certify as likely to apply to Erdos 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.
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(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 Erdos to tax under Section 4999 of the Code, it shall
determine whether some amount of Agreement Payments would 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 Erdos notice to that effect
and a copy of the detailed calculation thereof, and Erdos 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 election within ten
business days of his receipt of notice. If no such election is
made by Erdos 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 Erdos promptly of such election. All
reasonable determinations made by the Accounting Firm under
this paragraph 8(d) shall be binding upon the Company and
Erdos. As promptly as practicable following such
determination, the Company shall pay to or distribute for the
benefit of Erdos such Agreement Payments as are then due to
Erdos under this Agreement and shall promptly pay to or
distribute for the benefit of Erdos in the future such
Agreement Payments as become due to Erdos under this Agreement.
(iv) While it is the intention of the Company and Erdos to reduce
the amounts payable or distributable to Erdos hereunder only
if the aggregate Net After Tax Receipts to Erdos 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 Erdos 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 Erdos 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 Erdos which the Accounting Firm reasonably believes
has a high probability of success determines that an
Overpayment has been made, then Erdos shall repay to the any
such
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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 Erdos.
(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. Erdos 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, Erdos 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
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 Erdos
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 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. Erdos 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
Erdos 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. Erdos shall make full and prompt disclosure to the Company of all
inventions, improvements, ideas, concepts, discoveries, methods, developments,
software and works of
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authorship, whether or not copyrightable, trademarkable or licensable, which are
created, made, conceived or reduced to practice by Erdos 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 Developments shall be the sole property of the
Company, and Erdos 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. Erdos 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, Erdos 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. Erdos 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. Erdos 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. Erdos represents and warrants to the Company that he was advised
to consult with an attorney of Erdos's own choosing concerning this Agreement
and that Erdos has done so.
b. Erdos represents and warrants to the Company that the execution,
delivery and performance of this Agreement by Erdos complies with all laws
applicable to Erdos 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 Erdos (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
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injunctive relief in a court of equity for any breach or threatened breach by
Erdos of the covenants contained in paragraphs 6 and 9 of this Agreement.
12. INDEMNIFICATION
---------------
a. The Company agrees that it shall to the fullest extent permitted
by law indemnify and hold Erdos harmless and shall pay and reimburse Erdos for
any loss, cost, damage, injury or other expense (including without limitation
reasonable attorneys' fees) which Erdos incurs by reason of being or having been
an officer or director of the Company or by reason of the fact that Erdos 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 Erdos) provided that Erdos executes and deliver to the Company an
undertaking to repay any amounts so advanced in the event that it shall be
determined that Erdos 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 Erdos's employment hereunder.
b. In the event that Erdos asserts his right of indemnification under
paragraph 12(a) above, the Company shall have the right to select Erdos's
counsel provided that there is no material conflict of interest between the
Company and Erdos and provided such counsel is reasonably acceptable to Erdos.
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 Erdos is provided with a
general release from the Company and the claimant in form and substance
reasonably satisfactory to Erdos and no restrictions are imposed on Erdos as a
result of the settlement.
13. ENTIRE AGREEMENT
----------------
This Agreement together with any equity agreements to which Erdos and the
Company are a party contain all of the understandings between Erdos and the
Company pertaining to Erdos'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 Erdos 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
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address indicated below or to such other address as such party may subsequently
designate by like notice:
If to the Company, to:
Bluefly, Inc.
42 West 39th Street, 9th Floor
New York, NY 10018
Attn: Chairman of Compensation Committee
With a copy to:
Dechert LLP
30 Rockefeller Plaza
23rd Floor
New York, New York 10112
Attention: Richard Goldberg
If to Erdos, to: at the address on file in the Company's records.
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
----------------
Erdos shall not be obligated to seek other employment by way of mitigation
of the amounts payable to him under any provision of this Agreement.
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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date written below.
BLUEFLY, INC.
By: /s/ Melissa Payner
--------------------------
Melissa Payner
/s/ Barry Edros
--------------------------
Barry Erdos
DATED: January 28, 2008
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