AMENDEDAND RESTATED EMPLOYMENT AGREEMENT

This AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into as of April 27, 2010, by and between Bluefly, Inc., a Delaware corporation (the “Company”), and Melissa Payner-Gregor (“Payner”).

WHEREAS, the Company currently employs Payner as Chief Executive Officer pursuant to an Employment Agreement dated as of July 1, 2006 (as amended to date, the “Previous Agreement”).

WHEREAS, The parties wish to amend and restate the Previous Agreement in its entirety pursuant to the terms hereof.

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 Payner agree as follows:

The Company hereby agrees to employ Payner as the Chief Executive Officer of the Company, and Payner hereby agrees to serve in such capacity, for a term ending on December 31, 2012, upon the terms and subject to the conditions contained in this Agreement; provided, however, that if the Company does not provide Payner 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.

During the term of this Agreement, Payner shall serve as the Chief Executive Officer of the Company reporting directly to the Board of Directors of the Company, and she shall perform such duties, and have such powers, authority, functions, duties and responsibilities for the Company as are reasonably assigned to her by 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.  To the extent that the Company becomes a division or subsidiary of another entity, Payner shall report directly to, and have such powers, authority, functions, duties and responsibilities as are reasonably assigned to her by, the Chief Executive Officer or comparable officer of such other entity.  It is understood that the duties of Payner, should the Company become a division or subsidiary of another entity, shall be generally consistent with her 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 to nominate Payner to the Board and recommend that the Company’s stockholders vote in favor of the election of Payner to the Board at the next

 

 

meeting of stockholders and every annual meeting thereafter during the term of this Agreement.  Payner will accept any such nomination and continue to serve as a member of the Board if and when elected.

The principal location of Payner’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 Payner understands and agrees that she will be required to travel from time to time for business reasons.  Payner shall devote substantially all of her business time to the performance of her duties as the Chief Executive Officer of the Company during the term of this Agreement.  Payner shall not, directly or indirectly, render professional services to any other person or entity, without the consent of the Company’s Board of Directors; provided, however, that nothing contained herein shall prevent Payner from rendering any service to any charitable organization or family business so long as it does not interfere unreasonably with her duties and obligations hereunder.

  For services rendered by Payner to the Company during the term of this Agreement, the Company shall pay her a minimum base salary of five hundred thousand dollars ($500,000) 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.  In addition, commencing on January 1, 2011, the Base Salary shall be subject to an annual cost of living adjustment based on adjustments to the United States Consumer Price Index.

For each fiscal year during the Term, provided that Payner remains employed with the Company as of December 31 of such fiscal year, Payner will be eligible to earn the following bonuses:  (i) a performance bonus based upon the achievement of one or more targets to be set for each fiscal year by the Compensation Committee in its sole discretion, and subject to a pro rata adjustment for underachievement or overachievement of the targets within limits determined by the Committee in its sole discretion; and (ii) such additional performance bonus for each fiscal year as may be determined by the Compensation Committee in its sole discretion.  Any bonus payable under this section, shall be paid no later than March 15th of the fiscal year following the fiscal year to which such bonus relates.

a.   During the term of this Agreement, Payner shall be entitled to reimbursement of all reasonable and actual out-of-pocket expenses incurred by her in the performance of her services to the Company consistent with corporate policies, provided that the expenses are properly accounted for.  In the event that any such reimbursement is taxable to Payner, such reimbursement shall be made as soon practical upon Payner’s submission of a request to be reimbursed, but in all events such reimbursement will be made prior to the end of the calendar year next following the calendar year in which the applicable expense was incurred.

 

 

b.     During each calendar year of the term of this Agreement, Payner shall be entitled to reasonable vacation with full pay; provided, however, that Payner 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 seven thousand five hundred dollars ($27,500) for the purchase of term life insurance by the Company for the benefit of Payner (which shall be in lieu of any other life  insurance benefit) and the purchase of a supplemental disability insurance policy, which together with any other group coverage offered by the Company, provide for coverage of the maximum allowable disability benefit.  Payner 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.

d.     During the term of this Agreement, the Company will provide Payner with a monthly housing allowance of four thousand dollars ($4,000).

a.     In consideration of all equity or equity derivative awards received or to be received from the Company by Payner and the 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) Payner 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 her 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 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 Payner from investing her 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 her beneficially owning, at any time, more than 3% of the publicly-traded equity securities of such Competitive Business.

b.     Payner 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.  Payner agrees that any breach of the covenants contained in this paragraph 6 would irreparably injure the Company.  Accordingly, Payner agrees that the Company, in addition to pursuing any other remedies it may have in law or in equity, may obtain an injunction against Payner 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 Payner 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, Payner receives notice in writing from the Company of any material breach of any of the covenants contained in this paragraph 6 by her and Payner cures such material breach within 21 days of the date she receives such notice, then the Company will continue the Severance Benefits provided pursuant to paragraph 7(b) below; provided, that Payner shall not be entitled to Severance Benefits for periods during which she was in material breach of such covenants.

a.     This Agreement (other than as specifically stated herein), the employment of Payner, and Payner’s position as Chief Executive Officer of the Company shall terminate upon the first to occur of:

 

 

Constructive Termination shall not be deemed to have occurred unless: (1) Payner gives the Company notice within ninety (90) days after an event or occurrence which Payner believes constitutes a Constructive Termination, specifying the event or occurrence which Payner believes constitutes a Constructive Termination; and (2) the Company fails to cure such act or failure to act within thirty (30) days after receipt of such notice;

 

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 Payner her 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 her termination of employment and shall make no other payments or provide any other benefits under this Agreement except that, unless this Agreement is terminated for Cause, any other vested stock options shall be exercisable for a period equal to the lesser of (x) one year from the date this Agreement is terminated or (y) the remaining term of the applicable vested stock option.  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 Payner’s execution of a mutual release reasonably acceptable to the Company and Payner within 60 days of any such termination, the Company shall pay Payner her 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”):

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 would subject Payner 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 Payner’s "separation from service" as set forth in Code Section 409A(2)(A)(i) and the official guidance issued thereunder

a.     In the event that a Change of Control (as defined below) occurs during the term of this Agreement, one half of any unvested stock options granted to Payner which are outstanding as of the date of that Change of Control and have not yet vested (“Unvested Options”) shall be deemed to be fully vested as of that date.  Subject to paragraph 7(c), the remaining one half of the Unvested Options 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 Payner’s continued employment with the Company on such dates.

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”), (IV) any acquisition by Rho Ventures VI, L.P. or any of its affiliates (collectively, “Rho”), or (V) any acquisition which complies with clauses (A), (B) and (C) of sub-paragraph (a)(5) hereof ;

(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 fifty percent (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, Rho 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.

 

 

zero), then to current cash payments and benefits (if necessary, to zero) and then to non-cash payments and benefits.

 

 

 

a.     Payner recognizes that the services to be performed by her are special, unique and extraordinary in that, by reason of her employment under this Agreement, she 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, Payner covenants and agrees with the Company that she will not, directly or indirectly, at any time during the term of this Agreement or thereafter, except in the performance of her 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 she may learn or has learned by reason of her association with the Company.  If Payner shall be required to make such disclosure pursuant to court order, subpoena or other government process, she 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.     Payner 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 Payner 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 her employment with the Company.

c.     Payner 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 Payner for the Company during her 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 Payner hereby assigns to the Company, without further compensation, all of her 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.     Payner 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, Payner 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.     Payner 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.  Payner understands and agrees that the rights and obligations set forth in paragraph 9 shall survive the termination or expiration of this Agreement.

a.     Payner represents and warrants to the Company that she was advised to consult with an attorney of Payner’s own choosing concerning this Agreement and that Payner has done so.

b.     Payner represents and warrants to the Company that the execution, delivery and performance of this Agreement by Payner complies with all laws applicable to Payner or to which her properties are subject and does not violate, breach or conflict with any agreement by which she or her assets are bound or affected.

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 Payner (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 Payner of the covenants contained in paragraphs 6 and 9 of this Agreement.

 

 

a.     The Company agrees that it shall to the fullest extent permitted by law indemnify and hold Payner harmless and shall pay and reimburse Payner for any loss, cost, damage, injury or other expense (including without limitation reasonable attorneys’ fees) which Payner incurs by reason of being or having been an officer or director of the Company or by reason of the fact that Payner 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 Payner) provided that Payner executes and deliver to the Company an undertaking to repay any amounts so advanced in the event that it shall be determined that Payner 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 Payner’s employment hereunder.

b.     In the event that Payner asserts her right of indemnification under paragraph 12(a) above, the Company shall have the right to select Payner’s counsel provided that there is no material conflict of interest between the Company and Payner and provided such counsel is reasonably acceptable to Payner.  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 Payner is provided with a general release from the Company and the claimant in form and substance reasonably satisfactory to Payner and no restrictions are imposed on Payner as a result of the settlement.

This Agreement together with any stock option agreements to which Payner and the Company are a party contain all of the understandings between Payner and the Company pertaining to Payner’s employment with the Company and supersedes all undertakings and agreements, whether oral or in writing, previously entered into between them, including (without limitation), the Previous Agreement.

No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing, signed by Payner 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.

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:

 

 

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 Payner, to:

Melissa Payner-Gregor

c/o Bluefly, Inc.

42 West 39th Street, 9th Floor

New York, NY 10018

With a copy to:

Howard J. Rubin, Esq.

Davis & Gilbert LLP

1740 Broadway

New York, New York  10019

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.

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.

 

 

Payner shall not be obligated to seek other employment by way of mitigation of the amounts payable to her under any provision of this Agreement.

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 written below.

	BLUEFLY, INC.
	By:	/ s / David Wassong
		David Wassong – Chairman of the Board
		/ s / Melissa Payner-Gregor
		Melissa Payner-Gregor