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Exhibit 10.19
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into as of July 1, 2006, by
and
between Bluefly, Inc., a Delaware corporation (the "Company"),
and Melissa
Payner-Gregor ("Payner").
RECITALS
WHEREAS, the Company desires to provide for the continued
retention of
the services of Payner as the Chief Executive Officer and a
member of the Board
of Directors of the Company in accordance with the terms and
conditions of this
Agreement.
WHEREAS, Payner desires to serve the Company as its Chief
Executive
Officer and a member 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
Payner agree as
follows:
1. TERM
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 commencing on the date hereof and ending July 1, 2009,
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.
2. DUTIES
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.
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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.
3. COMPENSATION
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, including changes in the "cost of
living index."
4. INCENTIVE COMPENSATION/EXCHANGE OF OPTIONS FOR RESTRICTED
STOCK
AND DEFERRED STOCK UNITS; NEW GRANT OF DEFERRED STOCK UNITS
a. Incentive Compensation. For each fiscal year during the
Term, Payner shall be eligible to receive a performance bonus as
follows:
provided that Payner remains employed with the Company through
the last day of
such fiscal year, Payner will be eligible to earn a performance
bonus on the
basis of the achievement of certain targets to be set for each
fiscal year by
the Compensation Committee of the Board of Directors in its sole
discretion.
b. Exchange of Certain Outstanding Options Held by Payner
for
Restricted Stock and Deferred Stock Units.
(i) Options Exchanged for Restricted Stock. Payner hereby
forfeits all
of her rights to the options listed on Exhibit A hereto to
purchase shares of
common stock of the Company ("Shares"), and in consideration for
such forfeiture
the Company is simultaneously with the execution of this
Agreement, (x) granting
to Payner a Restricted Stock Award under the Company's 2005
Stock Incentive Plan
(the "Plan") for 591,256 Shares in the form attached hereto as
Exhibit B and (y)
paying to Payner a cash bonus equal to $394,686. The cash bonus
is intended to
compensate Payner for the income taxes payable on the Restricted
Stock Award.
The shares subject to the Restricted Stock Award shall vest in
full on January
1, 2007.
(ii) Options Exchanged for Deferred Stock Unit Award. Payner
hereby
forfeits all of her rights to the options to purchase Shares
listed on Exhibit C
hereto, and in consideration for such
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<PAGE>
forfeiture, the Company is, simultaneously with the execution of
this Agreement,
granting to Payner under the Plan, a Deferred Stock Unit Award
for and
representing 126,904 underlying Shares under the Plan in the
form attached
hereto as Exhibit D.
(iii) Additional Deferred Stock Unit Award. Subject to the
approval by
the stockholders of the Company of an amendment to the Plan to
increase the
number of shares available for grant thereunder and the maximum
annual award to
any one participant under the Plan, Payner shall be granted
under the Plan an
additional Deferred Stock Unit Award (the "Supplementary DSUs")
for and
representing 4,201,832 underlying Shares in the form attached
hereto as Exhibit
E. The Deferred Stock Units making up the Deferred Stock Unit
Awards referred to
in subparagraphs 4(b)(ii) and 4(b)(iii) of this Agreement are
hereinafter
referred to as the "DSUs".
(iv) 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
Payner's behalf and will be distributable and subject to the
restrictions
contained in the Plan and in the applicable DSU Award.
(A) Vesting of DSUs. The DSUs shall vest as follows: (I)
one-third of the Supplementary DSUs shall vest in four equal
quarterly installments commencing on October 1, 2006 (e.g.,
the
first of four equal quarterly vesting periods will begin on
October 1, 2006 so that 25% of such DSUs shall have vested as
of
January 1, 2007) (the "One-Year DSUs"), (II) both (a)
one-third
of the Supplementary DSUs and (b) the 126,904 DSUs issued in
exchange for options with a vesting date prior to August 31,
2007, shall vest in eight equal quarterly installments
commencing
on October 1, 2006 (e.g., the first of eight equal quarterly
vesting periods will begin on October 1, 2006 so that 12.5%
of
such DSUs shall have vested as of January 1, 2007)
(collectively,
the "Two-Year DSUs"), and (III) one-third of the
Supplementary
DSUs shall vest in twelve equal quarterly installments
commencing
on October 1, 2006 (e.g., the first of twelve equal
quarterly
vesting periods will begin on October 1, 2006 so that
approximately 8.33% of such DSUs shall have vested as of
January
1, 2007) (collectively, the "Three-Year DSUs").
(B) Termination of Employment; Forfeiture. In the event that
Payner's employment is terminated prior to the vesting of any
of
such DSUs, unless such termination is a Constructive
Termination
or a termination without Cause as such terms are defined in
paragraph 7 below (in which case the vesting shall be
accelerated
as set forth therein), all unvested DSUs as of the date of
such
termination shall be forfeited immediately by Payner.
(C) Distribution of DSUs. Subject to paragraph 4(b)(iv)(B),
all
of the vested DSUs underlying a Deferred Stock Unit Award will
be
distributable in Shares on the date of distribution on the
earliest to occur of: (I) (a) with respect to the One-Year
DSUs
only, October 1, 2007, (b) with respect to the Two-Year DSUs
only, October 1, 2008, and (c) with respect to the
Three-Year
DSUs only, October 1, 2009, (II) death, (III) the date on
which
Payner is "disabled" (as such term is defined in Section
409A(a)(2)(C) of the Internal Revenue Code of 1986, as
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<PAGE>
amended ("Code") and the official guidance issued
thereunder),
(IV) subject to paragraph 7(c), the effective date of
Payner's
Constructive Termination or termination without Cause, 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. Payner 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 Payner. However, if
any
dividends are paid on the Shares underlying the DSUs, whether
in
cash or stock, Payner will be credited with "Dividend
Rights."
Such Dividend Rights shall be credited to Payner's DSU account
as
follows: Payner 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 Payner on the date the dividend is paid. The
Dividend
Rights credited to Payner will be subject to the same
restrictions applicable to the DSUs to which they relate as
initially credited to Payner under this paragraph 4(b).
(E) Tax Withholding. Payner shall be responsible to fulfill
any
withholding tax requirements on the DSUs as specified in the
Plan
and as required by applicable law. Payner shall notify the
Company no later than fifteen business days prior to a
distribution date, as to whether she intends to make a cash
payment to the Company for the withholding amount or would
like
the Company to make arrangements for such payment. If she
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 Payner 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 Payner who
can
then arrange to sell Shares for the purpose of satisfying
the
withholding tax requirement prior to the distribution of the
applicable Shares.
5. EXPENSE REIMBURSEMENT AND PERQUISITES
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.
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
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<PAGE>
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). The
housing allowance for the period ending April 30, 2007 has been
paid in a lump
sum prior to the date hereof.
6. NON-COMPETITION; NON-SOLICITATION
a. In consideration of the Incentive Award 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) 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.
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<PAGE>
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.
7. TERMINATION
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:
(i) her death;
(ii) her "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) month period (vacation time
excluded), during which time Payner is unable to attend to
her 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 Payner from her position
as Chief Executive Officer of the Company, (B) the material
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