UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 21)*
BLUEFLY, INC.
-------------
(Name of Issuer)
Common Stock, Par Value $0.01 Per Share
---------------------------------------
(Title of Class of Securities)
096227103
---------
(CUSIP Number)
Stephen M. Vine, Esq.
Akin Gump Strauss Hauer & Feld LLP
590 Madison Avenue
New York, New York 10022
(212) 872-1000
--------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 17, 2003
----------------
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box .
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See ss.240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Continued on following pages
Page 1 of 44 Pages
Exhibit Index: Page 12
SCHEDULE 13D
CUSIP No.: 096227103 Page 2 of 44 Pages
1 Names of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only).
QUANTUM INDUSTRIAL PARTNERS LDC
2 Check the Appropriate Box if a Member of a Group (See Instructions)
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
WC
5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e)
[ ]
6 Citizenship or Place of Organization
Cayman Islands
7 Sole Voting Power
Number of 48,188,318
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 48,188,318
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
48,188,318
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions)
[X]
13 Percent of Class Represented By Amount in Row (11)
89.2%
14 Type of Reporting Person (See Instructions)
OO; IV
SCHEDULE 13D
CUSIP No.: 096227103 Page 3 of 44 Pages
1 Names of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only).
QIH MANAGEMENT INVESTOR, L.P.
2 Check the Appropriate Box if a Member of a Group (See Instructions)
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
AF
5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e)
[ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
Number of 48,188,318
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 48,188,318
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
48,188,318
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions)
[X]
13 Percent of Class Represented By Amount in Row (11)
89.2%
14 Type of Reporting Person (See Instructions)
PN; IA
SCHEDULE 13D
CUSIP No.: 096227103 Page 4 of 44 Pages
1 Names of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only).
QIH MANAGEMENT LLC
2 Check the Appropriate Box if a Member of a Group (See Instructions)
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
AF
5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e)
[ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
Number of 48,188,318
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 48,188,318
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
48,188,318
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions)
[X]
13 Percent of Class Represented By Amount in Row (11)
89.2%
14 Type of Reporting Person (See Instructions)
OO
SCHEDULE 13D
CUSIP No.: 096227103 Page 5 of 44 Pages
1 Names of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only).
SOROS FUND MANAGEMENT LLC
2 Check the Appropriate Box if a Member of a Group (See Instructions)
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
AF
5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e)
[ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
Number of 48,188,318
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 48,188,318
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
48,188,318
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions)
[X]
13 Percent of Class Represented By Amount in Row (11)
89.2%
14 Type of Reporting Person (See Instructions)
OO; IA
SCHEDULE 13D
CUSIP No.: 096227103 Page 6 of 44 Pages
1 Names of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only).
SFM DOMESTIC INVESTMENTS LLC
2 Check the Appropriate Box if a Member of a Group (See Instructions)
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
WC
5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e)
[ ]
6 Citizenship or Place of Organization
Delaware
7 Sole Voting Power
Number of 1,576,833
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 1,576,833
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,576,833
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions)
[X]
13 Percent of Class Represented By Amount in Row (11)
12.6%
14 Type of Reporting Person (See Instructions)
OO
SCHEDULE 13D
CUSIP No.: 096227103 Page 7 of 44 Pages
1 Names of Reporting Persons
I.R.S. Identification Nos. of above persons (entities only).
GEORGE SOROS (in the capacity described herein)
2 Check the Appropriate Box if a Member of a Group (See Instructions)
a. [ ]
b. [X]
3 SEC Use Only
4 Source of Funds (See Instructions)
AF
5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items
2(d) or 2(e)
[ ]
6 Citizenship or Place of Organization
United States
7 Sole Voting Power
Number of 49,765,151
Shares
Beneficially 8 Shared Voting Power
Owned By 0
Each
Reporting 9 Sole Dispositive Power
Person 49,765,151
With
10 Shared Dispositive Power
0
11 Aggregate Amount Beneficially Owned by Each Reporting Person
49,765,151
12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares
(See Instructions)
[ ]
13 Percent of Class Represented By Amount in Row (11)
89.8%
14 Type of Reporting Person (See Instructions)
IA
Page 8 of 44 Pages
This Amendment No. 21 to Schedule 13D relates to shares of
Common Stock, $0.01 par value per share (the "Shares"), of Bluefly, Inc. (the
"Issuer"). This Amendment No. 21 supplementally amends the initial statement on
Schedule 13D, dated August 6, 1999, and all amendments thereto (collectively,
the "Initial Statement"), filed by the Reporting Persons (as defined herein).
This Amendment No. 21 is being filed by the Reporting Persons to report that QIP
(as defined herein) and SFM Domestic Investments (as defined herein) have
entered into an agreement with the Issuer as described herein, whereby QIP and
SFM Domestic Investments each purchased from the Issuer notes that are
convertible, at the option of the holder, into securities issued in the future
by the Issuer for cash, as more fully described in Item 6 herein. Capitalized
terms used but not defined herein shall have the meanings ascribed to them in
the Initial Statement. The Initial Statement is supplementally amended as
follows.
Item 2. Identity and Background
This Statement is being filed on behalf of each of the
following persons (collectively, the "Reporting Persons"):
(i) Quantum Industrial Partners LDC ("QIP");
(ii) QIH Management Investor, L.P. ("QIHMI");
(iii) QIH Management LLC ("QIH Management");
(iv) Soros Fund Management LLC ("SFM LLC");
(v) SFM Domestic Investments LLC ("SFM Domestic Investments");
and
(vi) Mr. George Soros ("Mr. Soros").
This Statement relates to the Shares held for the accounts of
QIP and SFM Domestic Investments.
Item 3. Source and Amount of Funds or Other Consideration
The information set forth in Item 6 hereof is hereby
incorporated by reference into this Item 3.
QIP expended $1,936,564 of its working capital to purchase the
securities reported herein as being acquired since August 21, 2003 (60 days
prior to the date hereof). This number consists of certain convertible
promissory notes (the "QIP Note") in an aggregate principal amount of $1,936,564
pursuant to the Note Purchase Agreement dated as of October 17, 2003 between the
Issuer, QIP and SFM Domestic Investments (the "Note Purchase Agreement"). SFM
Domestic Investments expended $63,436 of its working capital to purchase the
securities reported herein as being acquired since August 21, 2003 (60 days
prior to the date hereof). This number consists of certain convertible
promissory notes (the "SFM Domestic Note", and, together with the QIP Note, the
"Notes") in an aggregate principal amount of $63,436 pursuant to the Note
Purchase Agreement.
Item 4. Purpose of Transaction
The information set forth in Item 6 hereof is hereby
incorporated by reference into this Item 4.
Page 9 of 44 Pages
The Reporting Persons reserve the right to acquire, or cause
to be acquired, additional securities of the Issuer, to dispose of, or cause to
be disposed, such securities at any time or to formulate other purposes, plans
or proposals regarding the Issuer or any of its securities, to the extent deemed
advisable in light of general investment and trading policies of the Reporting
Persons, market conditions or other factors.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
Note Purchase Agreement, QIP Note and SFM Domestic Note
-------------------------------------------------------
On October 17, 2003, the Issuer entered into the Note Purchase
Agreement (the form of which is incorporated by reference hereto as Exhibit AAAA
and is incorporated herein by reference in response to this Item 6). Pursuant to
the terms of the Note Purchase Agreement, QIP and SFM Domestic Investments
purchased Notes from the Issuer in an aggregate principal amount of $2,000,000.
Of this amount, QIP purchased the QIP Note in an aggregate principal amount of
$1,936,564 (the form of which is incorporated by reference hereto as Exhibit
BBBB and is incorporated herein by reference in response to this Item 6) and SFM
Domestic Investments purchased the SFM Domestic Note in an aggregate principal
amount of $63,436 (the form of which is incorporated hereto as Exhibit CCCC and
is incorporated herein by reference in response to this Item 6). The Notes are
convertible (to the extent stockholder approval is not required by the rules of
the Nasdaq SmallCap Market or any other national securities exchange or
quotation system upon which the Shares may be listed from time to time), at the
option of the holders, into any equity securities sold by the Issuer in
subsequent rounds of financing for cash ("Subsequent Round Securities") at a
conversion price based upon the lowest price per share paid by any investor in
such subsequent round of financing.
The foregoing descriptions of the Note Purchase Agreement, the
QIP Note and the SFM Domestic Note does not purport to be complete and are
qualified in its entirety by the terms of each such document which are
incorporated herein by reference in response to this Item 6.
Waiver and Consent of the Holders of Series A Preferred Stock, Series B
--------------------------------------------------------------------------------
Preferred Stock, Series C Preferred Stock, Series D Preferred
--------------------------------------------------------------------------------
Stock and Series E Preferred Stock
----------------------------------
On October 17, 2003, QIP and SFM Domestic Investments, as the
sole holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock executed
the Waiver and Consent of the Holders of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock (the "Waiver and Consent") (the
form of which is incorporated by reference hereto as Exhibit DDDD and
incorporated herein by reference in response to this Item 6). Pursuant to the
Waiver and Consent, (i) the issuance and sale of the Notes pursuant to the Note
Purchase Agreement, (ii) the issuance of Subsequent Round Securities upon
conversion of the Notes, and (iii) the issuance of Shares or other securities of
the Issuer upon conversion of any Subsequent Round Securities were approved in
all respects.
Page 10 of 44 Pages
The foregoing description of the Waiver and Consent does not
purport to be complete and is qualified in its entirety by the terms of the
Waiver and Consent, which is incorporated herein by reference in response to
this Item 6.
Except as set forth herein, the Reporting Persons do not have
any contracts, arrangements, understandings or relationships with respect to any
securities of the Issuer.
Item 7. Material to be Filed as Exhibits
The Exhibit Index is incorporated herein by reference.
Page 11 of 44 Pages
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
Date: October 20, 2003 QUANTUM INDUSTRIAL PARTNERS LDC
By:/s/ John F. Brown
---------------------------------
John F. Brown
Attorney-in-Fact
QIH MANAGEMENT INVESTOR, L.P.
By: QIH Management LLC,
its General Partner
By: Soros Private Funds Management LLC,
its Managing Member
By: George Soros
its Sole Member
By:/s/ John F. Brown
--------------------------
John F. Brown
Attorney-in-Fact
QIH MANAGEMENT LLC
By: Soros Private Funds Management LLC,
its Managing Member
By: George Soros
its Sole Member
By:/s/ John F. Brown
--------------------------
John F. Brown
Attorney-in-Fact
SOROS FUND MANAGEMENT LLC
By:/s/ John F. Brown
--------------------------
John F. Brown
Assistant Counsel
SFM DOMESTIC INVESTMENTS LLC
By: George Soros
Its Managing Member
By:/s/ John F. Brown
--------------------------
John F. Brown
Attorney-in-Fact
GEORGE SOROS
By:/s/ John F. Brown
--------------------------
John F. Brown
Attorney-in-Fact
Page 12 of 44 Pages
EXHIBIT INDEX
Ex. Page No.
-- --------
AAAA. Form of the Note Purchase Agreement, dated as of October 17,
2003, by and between Bluefly, Inc. and the investors listed
on Schedule I thereto.................................... 13
BBBB. Form of the Convertible Promissory Note, dated as of October
17, 2003, by and between Bluefly, Inc. and Quantum Industrial
Partners LDC.................................................. 24
CCCC. Form of the Convertible Promissory Note, dated as of October
17, 2003, by and between Bluefly, Inc. and SFM Domestic
Investments LLC............................................... 33
DDDD. Form of the Waiver and Consent of the Holders of Series A
Convertible Preferred Stock, Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock, Series D
Convertible Preferred Stock and Series E Convertible Preferred
Stock of Bluefly, Inc......................................... 42
Page 13 of 44 Pages
EXHIBIT AAAA
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT, dated as of October 17, 2003 (this
"Agreement"), is entered into by and between BLUEFLY, INC., a Delaware
corporation (the "Company"), and the investors listed on Schedule 1 hereto
(each, an "Investor" and, collectively, the "Investors").
RECITALS
WHEREAS, the Investors desire to purchase from the Company, and the
Company desires to issue and sell to the Investors, convertible promissory notes
in the aggregate principal amount of two million dollars ($2,000,000), in the
form attached hereto as Exhibit A (the "Notes"), on the terms, and subject to
the conditions, contained herein.
AGREEMENT
NOW, THEREFORE, in consideration for the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE I
PURCHASE AND SALE OF NOTES
SECTION 1.1 Notes. Subject to the terms and conditions hereof, the
Company hereby issues and sells to the Investors, and each Investor hereby
purchases from the Company, a Note in the aggregate principal amount set forth
opposite such Investor's name in Schedule 1.
SECTION 1.2 Purchase Price. The aggregate purchase price for the Notes
to be purchased by each Investor is the amount set forth opposite such
Investor's name in Schedule 1.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors as follows:
SECTION 2.1 Organization, etc. The Company and its Subsidiary (as
defined in Section 2.4(b)) have each been duly formed, and are each validly
existing as a corporation in good standing under the laws of their respective
States of incorporation, and are each qualified to do business as a foreign
corporation in each jurisdiction in which the failure to be so qualified could
reasonably be expected to have a material adverse effect on the assets,
liabilities, condition (financial or other), business or results of operations
of the Company and its Subsidiary taken as a whole (a "Material Adverse
Effect"). The Company and its Subsidiary each have the requisite corporate power
and authority to own, lease and operate their respective properties and to
conduct their respective businesses as presently conducted. The Company has the
requisite corporate power and authority to enter into, execute, deliver and
perform all of its duties and obligations under this Agreement and to consummate
the transactions contemplated hereby.
Page 14 of 44 Pages
SECTION 2.2 Authorization. The execution, delivery and performance of
this Agreement and the issuance of the Notes have been duly authorized by all
necessary corporate action on the part of the Company, including, without
limitation, the due authorization by the affirmative votes of a majority of the
disinterested directors of the Company's Board of Directors.
SECTION 2.3 Validity; Enforceability. This Agreement and the Notes
have each been duly executed and delivered by the Company, and constitute the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by, or subject to, any bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and subject to general principles of equity.
SECTION 2.4 Capitalization.
(a) As of the date hereof, the authorized capital stock of the
Company consists of 92,000,000 shares of common stock, $0.01 par value per share
(the "Common Stock"), and 25,000,000 shares of preferred stock, $0.01 par value
per share, of which 500,000 shares have been designated Series A Convertible
Preferred Stock, 9,000,000 shares have been designated Series B Convertible
Preferred Stock, 3,500 shares have been designated Series C Convertible
Preferred Stock, 7,150 shares have been designated Series D Convertible
Preferred Stock and 1,000 shares have been designated Series E Convertible
Preferred Stock. The issued and outstanding capital stock of the Company
consists of (i) 11,107,948 shares of Common Stock, (ii) 460,000 shares of Series
A Convertible Preferred Stock, (iii) 8,889,414 shares of Series B Convertible
Preferred Stock, (iv) 1,000 shares of Series C Convertible Preferred Stock, (v)
7,136.548 shares of Series D Convertible Preferred Stock and (vi) 1,000 shares
of Series E Convertible Preferred Stock. All such shares of the Company have
been duly authorized and are fully paid and non-assessable. Except as set forth
on Schedule 2.4 hereto or as otherwise contemplated by this Agreement, there are
no outstanding options, warrants or other equity securities that are convertible
into, or exercisable for, shares of the Company's capital stock.
(b) The only Subsidiary of the Company is Clothesline
Corporation. The Company owns all of the issued and outstanding capital stock of
its Subsidiary, free and clear of all liens and encumbrances. All of such shares
of capital stock are duly authorized, validly issued, fully paid and
non-assessable, and were issued in compliance with the registration and
qualification requirements of all applicable federal, state and foreign
securities laws. There are no options, warrants, conversion privileges,
subscription or purchase rights or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued, unauthorized or
treasury shares of capital stock or other securities of, or any proprietary
interest in, the Company's Subsidiary, and there is no outstanding security of
any kind convertible into or exchangeable for such shares or proprietary
interest. "Subsidiary" means, with respect to the Company, a corporation or
other entity of which 50% or more of the voting power of the outstanding voting
equity securities or 50% or more of the outstanding economic equity interest is
held, directly or indirectly, by the Company.
SECTION 2.5 Governmental Consents. The execution and delivery by the
Company of this Agreement, and the performance by the Company of the
transactions contemplated hereby, do not and will not require the Company to
effectuate or obtain any registration with, consent or approval of, or notice to
any federal, state or other governmental authority or regulatory body, other
than periodic and other filings under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The parties hereto agree and acknowledge that, in
making the representations and warranties in the foregoing sentence of this
Section 2.5, the Company is relying on the representations and warranties made
by the Investors in Section 3.4.
Page 15 of 44 Pages
SECTION 2.6 No Violation. The execution and delivery of this Agreement
and the performance by the Company of the transactions contemplated hereby will
not (i) conflict with or result in a breach of any provision of the articles of
incorporation or by-laws of the Company, (ii) result in a default or breach of,
or, except for the approval of the holders of the Company's Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series C Preferred Stock,
Series D Convertible Preferred Stock and Series E Convertible Preferred Stock,
require any consent, approval, authorization or permit of, or filing or
notification to, any person, company or entity under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, loan, factoring
arrangement, license, agreement, lease or other instrument or obligation to
which the Company or its Subsidiary is a party or by which the Company or its
Subsidiary or any of their respective assets may be bound or (iii) violate any
law, judgment, order, writ, injunction, decree, statute, rule or regulation of
any court, administrative agency, bureau, board, commission, office, authority,
department or other governmental entity applicable to the Company or its
Subsidiary, except, in the case of clause (ii) or (iii) above, any such event
that could not reasonably be expected to have a Material Adverse Effect or
materially impair the transactions contemplated hereby.
SECTION 2.7 Issuance of Notes. The Notes have been validly issued,
and, upon payment therefor, will be fully paid and non-assessable. The offering,
issuance, sale and delivery of the Notes as contemplated by this Agreement is
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"), are being made in
compliance with all applicable federal and (except for any violation or
non-compliance that could not reasonably be expected to have a Material Adverse
Effect) state laws and regulations concerning the offer, issuance and sale of
securities, and are not being issued in violation of any preemptive or other
rights of any stockholder of the Company. The parties hereto agree and
acknowledge that, in making the representations and warranties in the foregoing
sentence of this Section 2.7, the Company is relying on the representations and
warranties made by the Investors in Section 3.4.
SECTION 2.8 Absence of Certain Developments. Since June 30, 2003,
except as disclosed in the Company's public filings, there has not been any: (i)
material adverse change in the condition, financial or otherwise, of the Company
and its Subsidiary (taken as a whole) or in the assets, liabilities, properties
or business of the Company and its Subsidiary (taken as a whole); (ii)
declaration, setting aside or payment of any dividend or other distribution with
respect to, or any direct or indirect redemption or acquisition of, any capital
stock of the Company; (iii) waiver of any valuable right of the Company or its
Subsidiary or cancellation of any material debt or claim held by the Company or
its Subsidiary; (iv) material loss, destruction or damage to any property of the
Company or its Subsidiary, whether or not insured; (v) acquisition or
disposition of any material assets (or any contract or arrangement therefor) or
any other material transaction by the Company or its Subsidiary otherwise than
for fair value in the ordinary course of business consistent with past practice;
or (vi) other agreement or understanding, whether in writing or otherwise, for
the Company or its Subsidiary to take any action of the type, or any action that
would result in an event of the type, specified in clauses (i) through (v).
SECTION 2.9 Commission Filings. The Company has filed all required
forms, reports and other documents with the Securities and Exchange Commission
(the "Commission") for periods from and after January 1, 2003 (collectively, the
"Commission Filings"), each of which has complied in all material respects with
all applicable requirements of the Securities Act and/or the Exchange Act (as
applicable). The Company has heretofore made available to the Investors all of
the Commission Filings, including the Company's Annual Report on Form 10-K for
Page 16 of 44 Pages
the year ended December 31, 2002 and the Company's Quarterly Reports on Form
10-Q for the quarterly periods ended March 31, 2003 and June 30, 2003. As of
their respective dates, the Commission Filings did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements of the Company included or
incorporated by reference in such Commission Filings have been prepared in
accordance with generally accepted accounting principles, consistently applied
("GAAP") (except as may be indicated in the notes thereto or, in the case of the
unaudited consolidated statements, as permitted by Form 10-Q), complied as of
their respective dates in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, and fairly present, in all material respects, the consolidated
financial position of the Company and its Subsidiary as of the dates thereof and
the results of operations for the periods then ended (subject, in the case of
any unaudited consolidated interim financial statements, to the absence of
footnotes required by GAAP and normal year-end adjustments).
SECTION 2.10 Brokers. Neither the Company, nor any of its officers,
directors or employees, has employed any broker or finder, or incurred any
liability for any brokerage fees, commissions, finder's or other similar fees or
expenses in connection with the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor represents and warrants to the Company, severally but not
jointly, as follows:
SECTION 3.1 Organization, etc. Such Investor has been duly formed and
is validly existing and in good standing under the laws of its jurisdiction of
organization. Such Investor has the requisite organizational power and authority
to enter into, execute, deliver and perform all of its duties and obligations
under this Agreement and to consummate the transactions contemplated hereby.
SECTION 3.2 Authority. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary organizational or other
action on the part of such Investor.
SECTION 3.3 Validity; Enforceability. This Agreement has been duly
executed and delivered by such Investor, and constitutes the legal, valid and
binding obligation of such Investor, enforceable against such Investor in
accordance with its terms, except as such enforceability may be limited by, or
subject to, any bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity.
SECTION 3.4 Investment Representations. Such Investor acknowledges
that the offer and sale of the Notes to such Investor have not been registered
under the Securities Act, or the securities laws of any state or regulatory
body, are being offered and sold in reliance upon exemptions from the
registration requirements of the Securities Act and such laws and may not be
transferred or resold without registration under such laws unless an exemption
is available.
(a) Such Investor is acquiring the Notes for investment, and not
with a view to the resale or distribution thereof, and is acquiring the Notes
for its own account.
(b) Such Investor is an "accredited investor" (as that term is
defined in Rule 501 of Regulation D promulgated under the Securities Act), is
sophisticated in financial matters and is familiar with the business of the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
Such Investor has had the opportunity to investigate on its own the Company's
business, management and financial affairs and has had the opportunity to review
the Company's operations and facilities and to ask questions and obtain whatever
other information concerning the Company as such Investor has deemed relevant in
making its investment decision.
Page 17 of 44 Pages
(c) Such Investor is in compliance with the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001. Neither such Investor, nor any of its principal
owners, partners, members, directors or officers is included on: (i) the Office
of Foreign Assets Control list of foreign nations, organizations and individuals
subject to economic and trade sanctions, based on U.S. foreign policy and
national security goals; (ii) Executive Order 13224, which sets forth a list of
individuals and groups with whom U.S. persons are prohibited from doing business
because such persons have been identified as terrorists or persons who support
terrorism or (iii) any other watch list issued by any governmental authority,
including the Commission.
(d) No representations or warranties have been made to such
Investor by the Company or any director, officer, employee, agent or affiliate
of the Company, other than the representations and warranties of the Company set
forth herein, and the decision of such Investor to purchase the Notes is based
on the information contained herein, the Commission Filings and such Investor's
own independent investigation of the Company.
SECTION 3.5 Governmental Consents. The execution and delivery by such
Investor of this Agreement, and the performance by such Investor of the
transactions contemplated hereby, do not and will not require such Investor to
effectuate or obtain any registration with, consent or approval of, or notice to
any federal state or other governmental authority or regulatory body, except for
the filing with the Commission of a Form 4 and an amendment to such Investor's
Schedule 13D under the Exchange Act with respect to its acquisition of the
Notes.
SECTION 3.6 No Violation. The execution and delivery of this Agreement
and the performance by such Investor of the transactions contemplated hereby,
will not (i) conflict with or result in a breach of any provision of the
articles of incorporation, by-laws or similar organizational documents of such
Investor or (ii) violate any law, judgment, order, writ, injunction, decree,
statute, rule or regulation of any court, administrative agency, bureau, board,
commission, office, authority, department or other governmental entity
applicable to such Investor, except, in the case of clause (ii) above, any such
violation that could not reasonably be expected to materially impair the
transactions contemplated hereby. SECTION 3.7 Brokers. Neither such Investor,
nor any of its officers, directors or employees, has employed any broker or
finder, or incurred any liability for any brokerage fees, commissions, finder's
or other similar fees or expenses in connection with the transactions
contemplated hereby.
ARTICLE IV
SURVIVAL; INDEMNIFICATION
SECTION 4.1 Survival. The representations and warranties contained in
Articles II and III hereof shall survive until the first anniversary of the date
hereof.
SECTION 4.2 Indemnification. Each party (including its officers,
directors, employees, affiliates, agents, successors and assigns (each an
"Indemnified Party")) shall be indemnified and held harmless by the other
parties hereto (each an "Indemnifying Party") for any and all liabilities,
losses, damages, claims, costs and expenses, interest, awards, judgments and
penalties (including, without limitation, reasonable attorneys' fees and
expenses) actually suffered or incurred by them (collectively, "Losses"),
Page 18 of 44 Pages
arising out of or resulting from the breach of any representation or warranty
made by an Indemnifying Party contained in this Agreement. Notwithstanding the
foregoing, the aggregate liability of any Investor under this Article IV shall
in no event exceed fifty percent (50%) of the purchase price paid by such
Investor for the Notes purchased by it and the aggregate liability of the
Company under this Article IV shall in no event exceed fifty percent (50%) of
the purchase price paid by the Investors for the Notes, except that the
Company's liability for a violation of any of the representations and warranties
contained in the first two sentences of Section 2.7 may exceed such limitation,
but shall in no event exceed one hundred percent (100%) of the purchase price
paid by the Investors for the Notes.
SECTION 4.3 Indemnification Procedure. The obligations and liabilities
of the Indemnifying Party under this Article IV with respect to Losses arising
from claims of any third party that are subject to the indemnification provided
for in this Article IV ("Third Party Claims") shall be governed by and
contingent upon the following additional terms and conditions: if an Indemnified
Party shall receive notice of any Third Party Claim, the Indemnified Party shall
give the Indemnifying Party notice of such Third Party Claim promptly after the
receipt by the Indemnified Party of such notice (which notice shall include the
amount of the Loss, if known, and method of computation thereof, and containing
a reference to the provisions of this Agreement in respect of which such right
of indemnification is claimed or arises); provided, however, that the failure to
provide such notice shall not release the Indemnifying Party from any of its
obligations under this Article IV except to the extent the Indemnifying Party is
materially prejudiced by such failure and shall not relieve the Indemnifying
Party from any other obligation or liability that it may have to any Indemnified
Party otherwise than under this Article IV. Upon written notice to the
Indemnified Party within five (5) days of the receipt of such notice, the
Indemnifying Party shall be entitled to assume and control the defense of such
Third Party Claim at its or his expense and through counsel of its or his choice
(which counsel shall be reasonably satisfactory to the Indemnified Party);
provided, however, that, if there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate in the reasonable judgment
of counsel to the Indemnified Party for the same counsel to represent both the
Indemnified Party and the Indemnifying Party, then the Indemnified Party shall
be entitled to retain its or his own counsel in each jurisdiction for which the
Indemnified Party reasonably determines counsel is required, at the expense of
the Indemnifying Party. In the event the Indemnifying Party exercises the right
to undertake any such defense against any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to such Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party. Similarly,
in the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense and make available to the
Indemnified Party, at the Indemnifying Party's expense, all such witnesses
(including himself), records, materials and information in the Indemnifying
Party's possession or under the Indemnifying Party's control relating thereto as
is reasonably required by the Indemnified Party. No such Third Party Claim may
be settled by the Indemnifying Party on behalf of the Indemnified Party without
the prior written consent of the Indemnified Party (which consent shall not be
unreasonably withheld); provided, however, in the event that the Indemnified
Page 19 of 44 Pages
Party does not consent to any such settlement that would provide it with a full
release from indemnified Loss and would not require it to take, or refrain from
taking, any action, the Indemnifying Party's liability for indemnification shall
not exceed the amount of such proposed settlement. The Indemnified Party will
refrain from any act or omission that is inconsistent with the position taken by
the Indemnifying Party in the defense of a Third Party Claim unless the
Indemnified Party determines that such act or omission is reasonably necessary
to protect its own interest.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Publicity. Except as may be required by applicable law or
the rules of any securities exchange or market on which securities of the
Company are traded, no party hereto shall issue a press release or public
announcement or otherwise make any disclosure concerning this Agreement and the
transactions contemplated hereby, without prior approval of the others;
provided, however, that nothing in this Agreement shall restrict the Company or
any Investor from disclosing such information (a) that is already publicly
available, (b) that may be required or appropriate in response to any summons or
subpoena (provided that the disclosing party will use commercially reasonable
efforts to notify the other parties in advance of such disclosure under this
clause (b) so as to permit the non-disclosing parties to seek a protective order
or otherwise contest such disclosure, and the disclosing party will use
commercially reasonable efforts to cooperate, at the expense of the
non-disclosing parties, in pursuing any such protective order) or (c) in
connection with any litigation involving disputes as to the parties' respective
rights and obligations hereunder.
SECTION 5.2 Entire Agreement. This Agreement and any other agreement
or instrument to be delivered expressly pursuant to the terms hereof constitute
the entire Agreement between the parties hereto with respect to the subject
matter hereof and supersede all previous negotiations, commitments and writings
with respect to such subject matter.
SECTION 5.3 Assignments; Parties in Interest. Neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing herein,
express or implied, is intended to or shall confer upon any person not a party
hereto any right, benefit or remedy of any nature whatsoever under or by reason
hereof, except as otherwise provided herein.
SECTION 5.4 Amendments. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, the parties
against whom such amendment or modification is sought to be enforced.
SECTION 5.5 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.
SECTION 5.6 Notices and Addresses. Any notice, demand, request,
waiver, or other communication under this Agreement shall be in writing and
shall be deemed to have been duly given on the date of service, if personally
served or sent by facsimile; on the business day after notice is delivered to a
courier or mailed by express mail, if sent by courier delivery service or
express mail for next day delivery; and on the fifth business day after mailing,
if mailed to the party to whom notice is to be given, by first class mail,
registered, return receipt requested, postage prepaid and addressed as follows:
Page 20 of 44 Pages
To Company: Bluefly, Inc.
42 West 39th Street, 9th Floor
New York, New York 10018
Fax: (212) 840-1903
Attn: Jonathan B. Morris
With a copy to:
Swidler Berlin Shereff Friedman, LLP
405 Lexington Avenue
New York, New York 10174
Fax: (212) 891-9598
Attn: Richard A. Goldberg, Esq.
To the Investors: To the address set forth on Schedule 1.
----------
SECTION 5.7 Severability. In the event that any provision of this
Agreement becomes or is declared by a ------------ court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
SECTION 5.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to conflicts of law principles. The parties agree that the federal and
state courts located in New York, New York shall have exclusive jurisdiction
over any dispute involving this Agreement or the transactions contemplated
hereby, and each party hereby irrevocably submits to the jurisdiction of, and
waives any objection to the laying of venue in, such courts.
SECTION 5.9 Counterparts; Facsimile Signatures. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart. This Agreement
may be executed by facsimile, and a facsimile signature shall have the same
force and effect as an original signature on this Agreement.
SECTION 5.10 Expenses. The Company shall reimburse the Investors for
their reasonable legal fees and expenses incurred in connection with the
negotiation of this Agreement and the transactions contemplated hereby. Except
as provided above, all costs and expenses, including, without limitation, fees
and disbursements of counsel, incurred in connection with the negotiation,
execution and delivery of this Agreement and its related documents shall be paid
by the party incurring such costs and expenses, whether or not the closing shall
have occurred.
Page 21 of 44 Pages
IN WITNESS WHEREOF, this Agreement has been duly executed on the date
first set forth above.
BLUEFLY, INC.
By:
------------------------------
Name:
Title:
QUANTUM INDUSTRIAL PARTNERS LDC
By:
------------------------------
Name:
Title:
SFM DOMESTIC INVESTMENTS LLC
By:
------------------------------
Name:
Title:
Page 22 of 44 Pages
SCHEDULE 1
INVESTORS AND SHARE AND NOTE ALLOCATIONS
------------------------------------- -------------------- ---------------------
Aggregate Principal Aggregate Purchase
Name and Address of Investor Amount of Note Price
---------------------------- -------------- ------
------------------------------------- -------------------- ---------------------
------------------------------------- -------------------- ---------------------
Quantum Industrial Partners LDC $1,936,564 $1,936,564
Kaya Flamboyan 9
Villemstad
Curacao
Netherlands-Antilles
with a copy to:
Soros Fund Management LLC
888 Fifth Avenue
New York, New York 10106
Facsimile: (212) 664-0544
Attn: John F. Brown, Esq.
------------------------------------- -------------------- ---------------------
------------------------------------- -------------------- ---------------------
SFM Domestic Investments LLC $63,436 $63,436
c/o Soros Fund Management LLC
888 Fifth Avenue
New York, New York 10106
Facsimile: (212) 664-0544
Attn: John F. Brown, Esq.
------------------------------------- -------------------- ---------------------
------------------------------------- -------------------- ---------------------
TOTAL $2,000,000 $2,000,000
------------------------------------- -------------------- ---------------------
Page 23 of 44 Pages
SCHEDULE 2.4
CAPITALIZATION
As of the date hereof (except as otherwise provided below), but without
giving effect to the transactions contemplated by this Agreement, the following
equity securities are outstanding and convertible into, or exercisable for
shares of Common Stock:
1. 460,000 shares of Series A Convertible Preferred Stock (the
"Series A Stock") are issued and outstanding. The Series A
Stock is convertible into 3,931,623 shares of Common Stock.
2. 8,889,414 shares of Series B Convertible Preferred Stock (the
"Series B Stock") are issued and outstanding. The Series B
Stock is convertible into 27,370,037 shares of Common Stock.
3. Warrants to purchase an aggregate of 1,119,144 shares of
Common Stock are issued and outstanding.
4. Options issued to purchase 10,370,912 shares of Common Stock
are issued and outstanding under the Company's 1997 Stock
Option Plan, as amended, and 2000 Stock Option Plan, as
amended.
5. 1,000 shares of Series C Convertible Preferred Stock (the
"Series C Stock") are issued and outstanding. The Series C
Stock is convertible into 1,315,788 shares of Common Stock.
6. 7,136.548 shares of Series D Convertible Preferred Stock (the
"Series D Stock") are issued and outstanding. The Series D
Stock is convertible into 9,390,194 shares of Common Stock.
7. 1,000 shares of Series E Convertible Preferred Stock (the
"Series E Stock") are issued and outstanding. The Series E
Stock is convertible into 1,315,788 shares of Common Stock.
Page 24 of 44 Pages
EXHIBIT BBBB
THE OFFER AND SALE OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE
AND ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. CERTIFICATES REPRESENTING
ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE SHALL INCLUDE A LEGEND TO
SIMILAR EFFECT AS THE FOREGOING.
BLUEFLY, INC.
CONVERTIBLE PROMISSORY NOTE
$1,936,564
New York, New York October 17, 2003
FOR VALUE RECEIVED, the undersigned, BLUEFLY, INC., a Delaware corporation
(the "Payor" or the "Company"), promises to pay to the order of QUANTUM
INDUSTRIAL PARTNERS LDC or its registered assign (the "Payee"), the principal
sum of One Million, Nine Hundred Thirty-Six Thousand Five Hundred and Sixty-Four
Dollars ($1,936,564) and interest on the outstanding principal balance as set
forth herein.
1. Interest Rate; Payment.
(a) The outstanding principal balance of this Convertible
Promissory Note (this "Note") shall bear interest at an annual rate equal to 12%
per annum, with interest accruing, from and including the date hereof, on a
cumulative, compounding basis. Interest shall be computed on the basis of a 365-
or 366-day year, as the case may be, and the actual number of days elapsed, and,
subject to Section 5, shall be payable only upon repayment of the principal on
any Repayment Date (as defined below) in cash.
(b) The outstanding balance of any amount owed under this Note
which is not paid when due shall bear interest at the rate of 2.0% per annum
(the "Default Interest") above the rate that would otherwise be in effect under
this Note with the Default Interest accruing, from and including such due date,
on a cumulative, compounding basis.
(c) The outstanding principal and all accrued and unpaid interest
shall be paid in full no later than April 14, 2004 (the "Maturity Date"), unless
repaid earlier pursuant to the provisions of Section 2 (the date of any payment
pursuant to Section 2 and the Maturity Date, collectively referred to as a
"Repayment Date") or unless converted into Subsequent Round Securities (as
defined below) pursuant to Section 5 on or prior to the Maturity Date. On a
Repayment Date, the Payor shall pay the applicable amount of principal and
interest in lawful money of the United States of America by wire or bank
transfer of immediately available funds to an account designated by the Payee in
writing from time to time.
Page 25 of 44 Pages
2. Prepayment.
(a) Mandatory Prepayment.
(i) Upon the occurrence of an Event of Default (under
Section 3(d) or (e)), the outstanding principal of and all accrued interest on
this Note shall be accelerated and shall automatically become immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived by the Payor, notwithstanding anything contained
herein to the contrary.
(ii) The Payee shall, at its sole option, have the right to
require the Payor to pay the outstanding principal of and all accrued interest
on this Note upon the occurrence of any of the following events: (1) an Event of
Default under Section 3(a), (b), (c), (f), (g) or (h), (2) the Company entering
into an agreement to effectuate any sale or other disposition of all or
substantially all of its assets, in one transaction or in a series of
transactions, (3) the Company entering into an agreement to effectuate any
consolidation or merger into another entity, or (4) any sale of a majority of
the outstanding equity of the Company (or any other event that constitutes a
Change of Control (as defined below) of the Company), in one transaction or in a
series of transactions. Immediately upon the occurrence of either of the events
set forth in clauses (1), (2) or (3) above, or immediately upon obtaining
knowledge that any person has entered into an agreement to effectuate the event
set forth in clause (4) above, the Company shall give written notice of such
event to the Payee. "Change of Control" means any "Person" (as defined in
Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or "group" (as defined in Rule 13d-5, promulgated under the
Exchange Act) other than Payee and its affiliates or any group that includes
Payee and/or its affiliates, becoming the beneficial owner (as determined by
Rule 13d-3, promulgated under the Exchange Act), directly or indirectly, of
outstanding shares of stock of the Company entitling such Person or Persons to
exercise 50% or more of the total votes entitled to be cast at a regular or
special meeting, or by action by written consent, of the stockholders of the
Company in the election of directors.
(iii) Any mandatory prepayment under this Section 2(a) shall
include payment of reasonable costs and expenses, if any, of the Payee
associated with such prepayment.
(b) Optional Prepayment. The Company may, at its option, without
premium or penalty, upon five (5) days' prior written notice to the Payee, repay
the unpaid principal amount of this Note, at any time in whole or from time to
time in part, together with interest accrued thereon to the date of prepayment.
Any such prepayment shall be applied first to the payment of accrued interest
and then to repayment of principal. Upon any partial prepayment of the unpaid
principal amount of this Note, the Holder shall make notation on this Note of
the portion of the principal so prepaid. No notice of prepayment shall in any
way prohibit the Payee from converting this Note pursuant to Section 5.
3. Events of Default. An "Event of Default" shall occur if:
(a) the Payor shall default in the payment of the principal of or
interest payable on this Note, when and as the same shall become due and
payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise and such default with respect to the payment of
interest shall continue unremedied for two days;
Page 26 of 44 Pages
(b) the Payor shall fail to observe or perform any covenant or
agreement contained in this Note, and such failure shall continue for five
business days after Payor receives notice of such failure;
(c) any representation, warranty, certification or statement made
by or on behalf of the Payor in this Note or in any certificate, writing or
other document delivered pursuant hereto shall prove to have been incorrect in
any material respect when made;
(d) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(A) relief in respect of Payor or of a substantial part of Payor's respective
property or assets, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law (any such law, a "Bankruptcy Law"), (B) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for a substantial part of the property or assets of any Payor,
(C) the winding up or liquidation of any Payor; and such proceeding or petition
shall continue undismissed for 60 days, or an order or decree approving or
ordering any of the foregoing shall be entered;
(e) the Payor shall (A) voluntarily commence any proceeding or
file any petition seeking relief under a Bankruptcy Law, (B) consent to the
institution of or the entry of an order for relief against it, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in clause (d), (C) apply for or consent to the appointment of
a receiver, trustee, custodian, sequestrator, conservator or similar official
for a substantial part of the property or assets of the Payor, (D) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (E) make a general assignment for the benefit of creditors, (F)
become unable, admit in writing its inability or fail generally to pay its debts
as they become due or (G) take any action for the purpose of effecting any of
the foregoing;
(f) one or more judgments or orders for the payment of money in
excess of $250,000 in the aggregate shall be rendered against the Payor and such
judgment(s) or order(s) shall continue unsatisfied and unstayed for a period of
30 days;
(g) the Payor shall default in the payment of any principal,
interest or premium, or any observance or performance of any covenants or
agreements, with respect to indebtedness (excluding trade payables and other
indebtedness entered into in the ordinary course of business) in excess of
$50,000 in the aggregate for borrowed money or any obligation which is the
substantive equivalent thereof and such default shall continue for more than the
period of grace, if any, or of any such indebtedness or obligation shall be
declared due and payable prior to the stated maturity thereof;
(h) any material provisions of this Note shall terminate or
become void or unenforceable or the Payor shall so assert in writing.
4. Subordination.
(a) Agreement of Subordination. The Payor covenants and agrees,
and the Payee likewise covenants and agrees, that (i) to the extent and in the
manner hereinafter set forth in this Section 4, the obligations of the Company
Page 27 of 44 Pages
to pay the principal of and accrued interest on this Note (the "Obligations")
are hereby expressly made subordinate and junior in right of payment to the
prior payment in full of all amounts owing to, under the Financing Agreement,
dated March 30, 2001, as amended (the "Financing Agreement"), by and between the
Payor and Rosenthal & Rosenthal, Inc., a New York Corporation, whether
outstanding at the date hereof or hereinafter incurred (such indebtedness being
hereinafter referred to as the "Senior Indebtedness"); (ii) the subordination is
solely for the benefit of any holders of Senior Indebtedness; and (iii) each
holder of Senior Indebtedness whether now outstanding or hereinafter created,
incurred, assumed or guaranteed shall be deemed to have extended or acquired
such Senior Indebtedness in reliance upon the covenants and provisions contained
herein.
(b) Subordination Upon Certain Events. Upon the occurrence of any
Event of Default under Sections 3(d) or (e) of this Note:
(i) Upon any payment or distribution of assets of the Payor
to creditors of the Company, holders of Senior Indebtedness shall be entitled to
receive indefeasible payment in full of all obligations with respect to the
Senior Indebtedness before the holder of this Note shall be entitled to receive
any payment in respect of the Obligations.
(ii) Until all Senior Indebtedness is paid in full, any
distribution to which the Payee would be entitled but for this Section 4 shall
be made to holders of Senior Indebtedness, as their interests may appear, except
that the Payee may receive securities that are subordinate to the Senior
Indebtedness to at least the same extent as this Note.
(iii) For purposes of this Section 4, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
(iv) Notwithstanding the foregoing provisions of this
Section 4(b), if payment or delivery by the Company of cash, securities or other
property to the Payee is authorized by an order or decree giving effect, and
stating in such order or decree that effect is given, to the subordination of
this Note to the Senior Indebtedness, and made by a court of competent
jurisdiction in a proceeding under any applicable bankruptcy or reorganization
law, payment or delivery by the Company of such cash, securities or other
property shall be made to the Payee in accordance with such order or decree.
(c) Limitation on Payment.
(i) Upon receipt by the Company and the Payee of a Blockage
Notice (as defined below), then unless and until (A) all defaults in the payment
of any Senior Indebtedness (the "Senior Defaults") that gave rise to the
Blockage Notice shall have been remedied or effectively waived or shall have
ceased to exist or (B) the Senior Indebtedness in respect of which such Senior
Defaults shall have occurred shall have been paid in full or (C) a notice of
acceleration of the maturity of such Senior Indebtedness shall have been
transmitted to the Company in respect of such Senior Defaults, no direct or
indirect payment (in cash, property, securities or by set-off or otherwise) of
or on account of the principal of or interest on this Note or in respect of any
redemption, retirement, purchase or other acquisition of this Note shall be made
during any period prior to the expiration of the Blockage Period (as defined
below); provided, however, that in no event shall the foregoing prevent the
Payee from converting this Note into shares of Subsequent Round Securities.
(ii) For purposes of this Section 4, a "Blockage Notice" is
a notice of a Senior Default that in fact has occurred and is continuing, given
to the Company and the Payee by any holders of Senior Indebtedness then
outstanding (or their authorized agent); provided, however, that no such notice
shall be effective as a Blockage Notice if an effective Blockage Notice shall
have been given within 360 days prior thereto.
Page 28 of 44 Pages
(iii) For purposes of this Section 4, a "Blockage Period"
with respect to a Blockage Notice is the period commencing upon the Company's
receipt of such Blockage Notice and having the duration set forth in the
particular agreement establishing the Senior Indebtedness to which the Company
is a party; provided, that, such Blockage Period is no more than 90 days.
Notwithstanding the foregoing, the Blockage Period shall be
inapplicable or cease to be effective if an Event of Default pursuant to Section
3(d) or (e) shall have occurred. In addition, any Blockage Period shall cease to
be effective if at any time during such period (i) substantial assets of the
Company are sold or otherwise disposed of outside of the ordinary course of
business for less than fair value or (ii) payment or any distribution of any
character, whether in cash, securities or other property of the Company shall be
made to or received by any creditor on any indebtedness which is on the same
level of priority with or junior and subordinate in right of payment to this
Note.
Upon the expiration or termination of any Blockage Period, the Payee
shall be entitled to exercise any of its rights with respect to this Note other
than any right to accelerate the maturity date of this Note based upon the
occurrence of any Event of Default in respect thereto which has been cured or
otherwise remedied during the Blockage Period.
(d) Payments and Distributions Received. If the Payee shall have
received any payment from or distribution of assets of the Company in respect of
Obligations in contravention of the terms of this Section 4 before all Senior
Indebtedness is paid in full, then and in such event such payment or
distribution shall be received and held in trust for and shall be paid over or
delivered to the holders of Senior Indebtedness to the extent necessary to pay
all such Senior Indebtedness in full.
(e) Proofs of Claim. If, while any Senior Indebtedness is
outstanding, any Event of Default under Section 3(d) or (e) of this Note occurs,
the Payee shall duly and promptly take such action as any holder of Senior
Indebtedness may reasonably request to collect any payment with respect to this
Note for the account of the holders of the Senior Indebtedness and to file
appropriate claims or proofs of claim in respect of this Note. Upon the failure
of the Payee to take any such action, each holder of Senior Indebtedness is
hereby irrevocably authorized and empowered (in its own name or otherwise), but
shall have no obligation, to demand, sue for, collect and receive every payment
or distribution referred to in respect of this Note and to file claims and
proofs of claim and take such other action as it may deem necessary or advisable
for the exercise or enforcement of any of the rights or interests of the Holder
with respect to this Note.
(f) Subrogation. After all amounts payable under or in respect of
Senior Indebtedness are paid in full in cash, the Payee shall be subrogated to
the rights of holders of Senior Indebtedness to receive payments or
distributions applicable to Senior Indebtedness to the extent that distributions
otherwise payable to the Payee have been applied to the payment of Senior
Indebtedness. A distribution made under this Section 4 to a holder of Senior
Indebtedness which otherwise would have been made to the Payee is not, as
between the Company and the Payee, a payment by the Company on Senior
Indebtedness.
(g) Relative Rights. This Section 4 defines the relative rights
of the Payee and the holders of Senior Indebtedness. Nothing in this Section 4
Page 29 of 44 Pages
shall (i) impair, as between the Company and the Payee, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
(including Default Interest) on this Note in accordance with its terms; (ii)
effect the relative rights of the Payee and creditors of the Company other than
holders of Senior Indebtedness; (iii) prevent the Payee from exercising its
available remedies upon an Event of Default, subject to the rights, if any,
under this Section 4 of holders of Senior Indebtedness or (iv) prevent the Payee
from exercising its conversion rights under Section 5.
(h) Subordination May Not Be Impaired by the Company. No right of
any holder of any Senior Indebtedness to enforce the subordination of the
Obligations evidenced by this Note shall be impaired by any failure by the
Company or such holder of Senior Indebtedness to act or by the failure of the
Company or such holder to comply with this Note. The provisions of this Section
4 shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by any holder of Senior Indebtedness as a result of the
insolvency, bankruptcy or reorganization of the Company or otherwise, all as
though such payment had not been made.
(i) Payments. A payment with respect to principal of or interest
on the Obligations shall include, without limitation, payment of principal of
and interest on this Note, and any payment on account of mandatory prepayment
provisions.
(j) Section Not to Prevent Events of Default. The failure to make
a payment on account of principal of or interest on or other amounts
constituting the Obligations by reason of any provision of this Section 4 shall
not be construed as preventing the occurrence of an Event of Default under
Section 3.
5. Conversion.
(a) Right to Convert. Subject to the terms and conditions of this
Section 5 and to stockholder approval (to the extent, and only to the extent,
required by the rules of the Nasdaq SmallCap Market or any other national
securities exchange or quotation system upon which the Payor's common stock, par
value $0.01 per share ("Common Stock"), may be listed from time to time (for the
avoidance of doubt, it being understood that, prior to conversion of this Note,
such approval need only be obtained as to the portion or portions, if any, of
Subsequent Round Securities that the holder would acquire upon conversion that
exceeds the amount that could be acquired without such approval under the rules
of the Nasdaq SmallCap Market or any other national securities exchange or
quotation system upon which the Common Stock may be listed from time to time)),
the Payee shall have the right, at its option, at any time and from time to
time, upon the consummation of any Subsequent Round of Financing (as defined
below), to convert all or any portion of the principal amount of this Note and
any accrued and unpaid interest thereon (collectively, "Note Obligations") into
a number of fully paid and nonassessable Subsequent Round Securities (with the
most favorable terms received by any investor in such Subsequent Round of
Financing) equal to the quotient obtained by dividing the aggregate amount of
Note Obligations to be converted by the lowest price per Subsequent Round
Security paid by any investor in such Subsequent Round of Financing. Written
notice of a Subsequent Round of Financing stating the date on which such
Subsequent Round of Financing is expected to become effective and describing the
terms and conditions of such Subsequent Round of Financing shall be delivered by
the Company to, and received by, the Payee not less than 10 days prior to the
consummation of such Subsequent Round of Financing.
(b) Procedure for Conversion. In order to convert all or any
portion of the Note Obligations, the Payee shall (i) surrender this Note, duly
Page 30 of 44 Pages
endorsed, at the office of the Payor and (ii) simultaneously with such
surrender, notify the Payor in writing of its election to convert all or a
portion of the Note Obligations, which notice shall specify the amount of
principal and interest included in the Note Obligations to be so converted. The
date on which the Note is surrendered for conversion is referred to herein as
the "Conversion Date." As soon as practicable after the Conversion Date, the
Payee shall be entitled to receive a certificate or certificates, registered in
such name or names as the Payee may direct, representing the Subsequent Round
Securities issuable upon conversion of the applicable Note Obligations, along
with a new promissory note, in the same form as this Note, reflecting any Note
Obligations that have not been so converted; provided that the Payee shall be
treated for all purposes as the record holder of such Subsequent Round
Securities as of the Conversion Date. The issuance of Subsequent Round
Securities upon conversion of any Note Obligations shall be made without charge
to the Payee for any issuance tax in respect thereof, provided that the Payor
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the Payee.
(c) Reservation of Shares. Payor shall reserve and keep available
solely for issuance upon the conversion of Note Obligations such number of
shares of Subsequent Round Securities as will from time to time be sufficient to
permit the conversion of all outstanding Note Obligations (collectively, the
"Conversion Securities"), and, if applicable, shall take all action to increase
the authorized number of Subsequent Round Securities if at any time there shall
be insufficient authorized but unissued Subsequent Round Securities to permit
such reservation or permit the conversion of all outstanding Note Obligations
and Subsequent Round Securities. The Payor covenants that all Conversion
Securities that shall be so issued shall be duly authorized, validly issued,
fully paid and non-assessable by the Payor, not subject to any preemptive
rights, and free from any taxes, liens and charges with respect to the issue
thereof. The Payor will take all such action as may be necessary to ensure that
all such Conversion Securities may be so issued without violation of any
applicable law or regulation, or any requirement of any national securities
exchange or quotation system upon which the Common Stock may be listed.
(d) Certain Definitions. For purposes of this Note, the following
terms shall have the following meanings (with terms defined in the singular
having comparable meanings when used in the plural and vice versa):
"Subsequent Round of Financing" means the offer and sale for cash by
the Company of its equity securities.
"Subsequent Round Securities" means the equity securities sold in the
Subsequent Round of Financing; provided that, to the extent that two or more
types or classes of equity securities are sold as a unit in the Subsequent Round
of Financing, "Subsequent Round Securities" shall mean a unit consisting of the
same types or classes of equity securities, in the same proportion, as the units
sold in the Subsequent Round of Financing.
6. Suits for Enforcement.
(a) Upon the occurrence of any one or more Events of Default, the
holder of this Note may proceed to protect and enforce its rights by suit in
equity, action at law or by other appropriate proceeding in aid of the exercise
of any power granted in this Note, or may proceed to enforce the payment of this
Note, or to enforce any other legal or equitable right it may have as a holder
of this Note.
Page 31 of 44 Pages
(b) The holder of this Note may direct the time, method and place
of conducting any proceeding for any remedy available to itself.
(c) In case of any Event of Default, the Payor will pay to the
holder of this Note such amounts as shall be sufficient to cover the reasonable
costs and expenses of such holder due to such Event of Default, including
without limitation, costs of collection and reasonable fees, disbursements and
other charges of counsel incurred in connection with any action in which the
holder prevails.
7. Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in accordance with the provisions of the
Note Purchase Agreement, dated as of the date hereof, by and among the Payor and
the investors listed on Schedule 1 thereto.
8. Successors and Assigns. This Note shall inure to the benefit of and
be binding upon the successors and permitted assigns of the parties hereto. The
Payor may not assign any of its rights or obligations under this Note without
the prior written consent of Payee. The Payee may assign all or a portion of
their rights or obligations under this Note to an affiliate without the prior
written consent of the Payor.
9. Amendment and Waiver.
(a) No failure or delay on the part of the Payor or Payee in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Payor or
Payee at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note and any consent
to any departure by the Payor from the terms of any provision of this Note,
shall be effective (i) only if it is made or given in writing and signed by the
Payor and the Payee and (ii) only in the specific instance and for the specific
purpose for which made or given.
10. Headings. The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
11. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
12. Costs and Expenses. The Payor hereby agrees to pay on demand all
reasonable out-of-pocket costs, fees, expenses, disbursements and other charges
(including but not limited to the fees, expenses, disbursements and other
charges of counsel to the Payee) of the Payee arising in connection with any
consent or waiver granted or requested hereunder or in connection herewith, and
any renegotiation, amendment, work-out or settlement of this Note or the
indebtedness arising hereunder.
13. Waiver of Jury Trial and Setoff. The Payor hereby waives trial by
jury in any litigation in any court with respect to, in connection with, or
arising out of this Note or any instrument or document delivered pursuant to
this Note, or the validity, protection, interpretation, collection or
enforcement thereof, or any other claim or dispute howsoever arising, between
any Payor and the Payee; and the Payor hereby waives the right to interpose any
setoff or counterclaim or cross-claim in connection with any such litigation,
irrespective of the nature of such setoff, counterclaim or cross-claim except to
the extent that the failure so to assert any such setoff, counterclaim or
cross-claim would permanently preclude the prosecution of the same.
Page 32 of 44 Pages
14. Consent to Jurisdiction. The Payor hereby irrevocably consents to
the nonexclusive jurisdiction of the courts of the State of New York and of any
federal court located in such State in connection with any action or proceeding
arising out of or relating to this Note or any document or instrument delivered
pursuant to this Agreement.
15. Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
16. Entire Agreement. This Note is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Note
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
17. Further Assurances. The Payor shall execute such documents and
perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations or other actions by, or giving any notices
to, or making any filings with, any governmental authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Note.
BLUEFLY, INC.
By: ____________________________
Name:
Title:
Page 33 of 44 Pages
EXHIBIT CCCC
THE OFFER AND SALE OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE
AND ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. CERTIFICATES REPRESENTING
ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE SHALL INCLUDE A LEGEND TO
SIMILAR EFFECT AS THE FOREGOING.
BLUEFLY, INC.
CONVERTIBLE PROMISSORY NOTE
$63,436
New York, New York October 17, 2003
FOR VALUE RECEIVED, the undersigned, BLUEFLY, INC., a Delaware
corporation (the "Payor" or the "Company"), promises to pay to the order of SFM
DOMESTIC INVESTMENTS LLC or its registered assign (the "Payee"), the principal
sum of Sixty-Three Thousand Four Hundred and Thirty-Six Dollars ($63,436) and
interest on the outstanding principal balance as set forth herein.
1. Interest Rate; Payment.
(a) The outstanding principal balance of this Convertible
Promissory Note (this "Note") shall bear interest at an annual rate equal to 12%
per annum, with interest accruing, from and including the date hereof, on a
cumulative, compounding basis. Interest shall be computed on the basis of a 365-
or 366-day year, as the case may be, and the actual number of days elapsed, and,
subject to Section 5, shall be payable only upon repayment of the principal on
any Repayment Date (as defined below) in cash.
(b) The outstanding balance of any amount owed under this Note
which is not paid when due shall bear interest at the rate of 2.0% per annum
(the "Default Interest") above the rate that would otherwise be in effect under
this Note with the Default Interest accruing, from and including such due date,
on a cumulative, compounding basis.
(c) The outstanding principal and all accrued and unpaid interest
shall be paid in full no later than April 14, 2004 (the "Maturity Date"), unless
repaid earlier pursuant to the provisions of Section 2 (the date of any payment
pursuant to Section 2 and the Maturity Date, collectively referred to as a
"Repayment Date") or unless converted into Subsequent Round Securities (as
defined below) pursuant to Section 5 on or prior to the Maturity Date. On a
Repayment Date, the Payor shall pay the applicable amount of principal and
interest in lawful money of the United States of America by wire or bank
transfer of immediately available funds to an account designated by the Payee in
writing from time to time.
Page 34 of 44 Pages
2. Prepayment.
(a) Mandatory Prepayment.
(i) Upon the occurrence of an Event of Default (under
Section 3(d) or (e)), the outstanding principal of and all accrued interest on
this Note shall be accelerated and shall automatically become immediately due
and payable, without presentment, demand, protest or notice of any kind, all of
which are expressly waived by the Payor, notwithstanding anything contained
herein to the contrary.
(ii) The Payee shall, at its sole option, have the right to
require the Payor to pay the outstanding principal of and all accrued interest
on this Note upon the occurrence of any of the following events: (1) an Event of
Default under Section 3(a), (b), (c), (f), (g) or (h), (2) the Company entering
into an agreement to effectuate any sale or other disposition of all or
substantially all of its assets, in one transaction or in a series of
transactions, (3) the Company entering into an agreement to effectuate any
consolidation or merger into another entity, or (4) any sale of a majority of
the outstanding equity of the Company (or any other event that constitutes a
Change of Control (as defined below) of the Company), in one transaction or in a
series of transactions. Immediately upon the occurrence of either of the events
set forth in clauses (1), (2) or (3) above, or immediately upon obtaining
knowledge that any person has entered into an agreement to effectuate the event
set forth in clause (4) above, the Company shall give written notice of such
event to the Payee. "Change of Control" means any "Person" (as defined in
Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or "group" (as defined in Rule 13d-5, promulgated under the
Exchange Act) other than Payee and its affiliates or any group that includes
Payee and/or its affiliates, becoming the beneficial owner (as determined by
Rule 13d-3, promulgated under the Exchange Act), directly or indirectly, of
outstanding shares of stock of the Company entitling such Person or Persons to
exercise 50% or more of the total votes entitled to be cast at a regular or
special meeting, or by action by written consent, of the stockholders of the
Company in the election of directors.
(iii) Any mandatory prepayment under this Section 2(a) shall
include payment of reasonable costs and expenses, if any, of the Payee
associated with such prepayment.
(b) Optional Prepayment. The Company may, at its option, without
premium or penalty, upon five (5) days' prior written notice to the Payee, repay
the unpaid principal amount of this Note, at any time in whole or from time to
time in part, together with interest accrued thereon to the date of prepayment.
Any such prepayment shall be applied first to the payment of accrued interest
and then to repayment of principal. Upon any partial prepayment of the unpaid
principal amount of this Note, the Holder shall make notation on this Note of
the portion of the principal so prepaid. No notice of prepayment shall in any
way prohibit the Payee from converting this Note pursuant to Section 5.
3. Events of Default. An "Event of Default" shall occur if:
(a) the Payor shall default in the payment of the principal of or
interest payable on this Note, when and as the same shall become due and
payable, whether at maturity or at a date fixed for prepayment or by
acceleration or otherwise and such default with respect to the payment of
interest shall continue unremedied for two days;
Page 35 of 44 Pages
(b) the Payor shall fail to observe or perform any covenant or
agreement contained in this Note, and such failure shall continue for five
business days after Payor receives notice of such failure;
(c) any representation, warranty, certification or statement made
by or on behalf of the Payor in this Note or in any certificate, writing or
other document delivered pursuant hereto shall prove to have been incorrect in
any material respect when made;
(d) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(A) relief in respect of Payor or of a substantial part of Payor's respective
property or assets, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law (any such law, a "Bankruptcy Law"), (B) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for a substantial part of the property or assets of any Payor,
(C) the winding up or liquidation of any Payor; and such proceeding or petition
shall continue undismissed for 60 days, or an order or decree approving or
ordering any of the foregoing shall be entered;
(e) the Payor shall (A) voluntarily commence any proceeding or
file any petition seeking relief under a Bankruptcy Law, (B) consent to the
institution of or the entry of an order for relief against it, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in clause (d), (C) apply for or consent to the appointment of
a receiver, trustee, custodian, sequestrator, conservator or similar official
for a substantial part of the property or assets of the Payor, (D) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (E) make a general assignment for the benefit of creditors, (F)
become unable, admit in writing its inability or fail generally to pay its debts
as they become due or (G) take any action for the purpose of effecting any of
the foregoing;
(f) one or more judgments or orders for the payment of money in
excess of $250,000 in the aggregate shall be rendered against the Payor and such
judgment(s) or order(s) shall continue unsatisfied and unstayed for a period of
30 days;
(g) the Payor shall default in the payment of any principal,
interest or premium, or any observance or performance of any covenants or
agreements, with respect to indebtedness (excluding trade payables and other
indebtedness entered into in the ordinary course of business) in excess of
$50,000 in the aggregate for borrowed money or any obligation which is the
substantive equivalent thereof and such default shall continue for more than the
period of grace, if any, or of any such indebtedness or obligation shall be
declared due and payable prior to the stated maturity thereof;
(h) any material provisions of this Note shall terminate or
become void or unenforceable or the Payor shall so assert in writing.
4. Subordination.
(a) Agreement of Subordination. The Payor covenants and agrees,
and the Payee likewise covenants and agrees, that (i) to the extent and in the
manner hereinafter set forth in this Section 4, the obligations of the Company
to pay the principal of and accrued interest on this Note (the "Obligations")
are hereby expressly made subordinate and junior in right of payment to the
prior payment in full of all amounts owing to, under the Financing Agreement,
dated March 30, 2001, as amended (the "Financing Agreement"), by and between the
Page 36 of 44 Pages
Payor and Rosenthal & Rosenthal, Inc., a New York Corporation, whether
outstanding at the date hereof or hereinafter incurred (such indebtedness being
hereinafter referred to as the "Senior Indebtedness"); (ii) the subordination is
solely for the benefit of any holders of Senior Indebtedness; and (iii) each
holder of Senior Indebtedness whether now outstanding or hereinafter created,
incurred, assumed or guaranteed shall be deemed to have extended or acquired
such Senior Indebtedness in reliance upon the covenants and provisions contained
herein.
(b) Subordination Upon Certain Events. Upon the occurrence of any
Event of Default under Sections 3(d) or (e) of this Note:
(i) Upon any payment or distribution of assets of the Payor
to creditors of the Company, holders of Senior Indebtedness shall be entitled to
receive indefeasible payment in full of all obligations with respect to the
Senior Indebtedness before the holder of this Note shall be entitled to receive
any payment in respect of the Obligations.
(ii) Until all Senior Indebtedness is paid in full, any
distribution to which the Payee would be entitled but for this Section 4 shall
be made to holders of Senior Indebtedness, as their interests may appear, except
that the Payee may receive securities that are subordinate to the Senior
Indebtedness to at least the same extent as this Note.
(iii) For purposes of this Section 4, a distribution may
consist of cash, securities or other property, by set-off or otherwise.
(iv) Notwithstanding the foregoing provisions of this
Section 4(b), if payment or delivery by the Company of cash, securities or other
property to the Payee is authorized by an order or decree giving effect, and
stating in such order or decree that effect is given, to the subordination of
this Note to the Senior Indebtedness, and made by a court of competent
jurisdiction in a proceeding under any applicable bankruptcy or reorganization
law, payment or delivery by the Company of such cash, securities or other
property shall be made to the Payee in accordance with such order or decree.
(c) Limitation on Payment.
(i) Upon receipt by the Company and the Payee of a Blockage
Notice (as defined below), then unless and until (A) all defaults in the payment
of any Senior Indebtedness (the "Senior Defaults") that gave rise to the
Blockage Notice shall have been remedied or effectively waived or shall have
ceased to exist or (B) the Senior Indebtedness in respect of which such Senior
Defaults shall have occurred shall have been paid in full or (C) a notice of
acceleration of the maturity of such Senior Indebtedness shall have been
transmitted to the Company in respect of such Senior Defaults, no direct or
indirect payment (in cash, property, securities or by set-off or otherwise) of
or on account of the principal of or interest on this Note or in respect of any
redemption, retirement, purchase or other acquisition of this Note shall be made
during any period prior to the expiration of the Blockage Period (as defined
below); provided, however, that in no event shall the foregoing prevent the
Payee from converting this Note into shares of Subsequent Round Securities.
(ii) For purposes of this Section 4, a "Blockage Notice" is
a notice of a Senior Default that in fact has occurred and is continuing, given
to the Company and the Payee by any holders of Senior Indebtedness then
outstanding (or their authorized agent); provided, however, that no such notice
shall be effective as a Blockage Notice if an effective Blockage Notice shall
have been given within 360 days prior thereto.
Page 37 of 44 Pages
(iii) For purposes of this Section 4, a "Blockage Period"
with respect to a Blockage Notice is the period commencing upon the Company's
receipt of such Blockage Notice and having the duration set forth in the
particular agreement establishing the Senior Indebtedness to which the Company
is a party; provided, that, such Blockage Period is no more than 90 days.
Notwithstanding the foregoing, the Blockage Period shall be
inapplicable or cease to be effective if an Event of Default pursuant to Section
3(d) or (e) shall have occurred. In addition, any Blockage Period shall cease to
be effective if at any time during such period (i) substantial assets of the
Company are sold or otherwise disposed of outside of the ordinary course of
business for less than fair value or (ii) payment or any distribution of any
character, whether in cash, securities or other property of the Company shall be
made to or received by any creditor on any indebtedness which is on the same
level of priority with or junior and subordinate in right of payment to this
Note.
Upon the expiration or termination of any Blockage Period, the Payee
shall be entitled to exercise any of its rights with respect to this Note other
than any right to accelerate the maturity date of this Note based upon the
occurrence of any Event of Default in respect thereto which has been cured or
otherwise remedied during the Blockage Period.
(d) Payments and Distributions Received. If the Payee shall have
received any payment from or distribution of assets of the Company in respect of
Obligations in contravention of the terms of this Section 4 before all Senior
Indebtedness is paid in full, then and in such event such payment or
distribution shall be received and held in trust for and shall be paid over or
delivered to the holders of Senior Indebtedness to the extent necessary to pay
all such Senior Indebtedness in full.
(e) Proofs of Claim. If, while any Senior Indebtedness is
outstanding, any Event of Default under Section 3(d) or (e) of this Note occurs,
the Payee shall duly and promptly take such action as any holder of Senior
Indebtedness may reasonably request to collect any payment with respect to this
Note for the account of the holders of the Senior Indebtedness and to file
appropriate claims or proofs of claim in respect of this Note. Upon the failure
of the Payee to take any such action, each holder of Senior Indebtedness is
hereby irrevocably authorized and empowered (in its own name or otherwise), but
shall have no obligation, to demand, sue for, collect and receive every payment
or distribution referred to in respect of this Note and to file claims and
proofs of claim and take such other action as it may deem necessary or advisable
for the exercise or enforcement of any of the rights or interests of the Holder
with respect to this Note.
(f) Subrogation. After all amounts payable under or in respect of
Senior Indebtedness are paid in full in cash, the Payee shall be subrogated to
the rights of holders of Senior Indebtedness to receive payments or
distributions applicable to Senior Indebtedness to the extent that distributions
otherwise payable to the Payee have been applied to the payment of Senior
Indebtedness. A distribution made under this Section 4 to a holder of Senior
Indebtedness which otherwise would have been made to the Payee is not, as
between the Company and the Payee, a payment by the Company on Senior
Indebtedness.
(g) Relative Rights. This Section 4 defines the relative rights
of the Payee and the holders of Senior Indebtedness. Nothing in this Section 4
shall (i) impair, as between the Company and the Payee, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
(including Default Interest) on this Note in accordance with its terms; (ii)
effect the relative rights of the Payee and creditors of the Company other than
holders of Senior Indebtedness; (iii) prevent the Payee from exercising its
available remedies upon an Event of Default, subject to the rights, if any,
under this Section 4 of holders of Senior Indebtedness or (iv) prevent the Payee
from exercising its conversion rights under Section 5.
Page 38 of 44 Pages
(h) Subordination May Not Be Impaired by the Company. No right of
any holder of any Senior Indebtedness to enforce the subordination of the
Obligations evidenced by this Note shall be impaired by any failure by the
Company or such holder of Senior Indebtedness to act or by the failure of the
Company or such holder to comply with this Note. The provisions of this Section
4 shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by any holder of Senior Indebtedness as a result of the
insolvency, bankruptcy or reorganization of the Company or otherwise, all as
though such payment had not been made.
(i) Payments. A payment with respect to principal of or interest
on the Obligations shall include, without limitation, payment of principal of
and interest on this Note, and any payment on account of mandatory prepayment
provisions.
(j) Section Not to Prevent Events of Default. The failure to make
a payment on account of principal of or interest on or other amounts
constituting the Obligations by reason of any provision of this Section 4 shall
not be construed as preventing the occurrence of an Event of Default under
Section 3.
5. Conversion.
(a) Right to Convert. Subject to the terms and conditions of this
Section 5 and to stockholder approval (to the extent, and only to the extent,
required by the rules of the Nasdaq SmallCap Market or any other national
securities exchange or quotation system upon which the Payor's common stock, par
value $0.01 per share ("Common Stock"), may be listed from time to time (for the
avoidance of doubt, it being understood that, prior to conversion of this Note,
such approval need only be obtained as to the portion or portions, if any, of
Subsequent Round Securities that the holder would acquire upon conversion that
exceeds the amount that could be acquired without such approval under the rules
of the Nasdaq SmallCap Market or any other national securities exchange or
quotation system upon which the Common Stock may be listed from time to time)),
the Payee shall have the right, at its option, at any time and from time to
time, upon the consummation of any Subsequent Round of Financing (as defined
below), to convert all or any portion of the principal amount of this Note and
any accrued and unpaid interest thereon (collectively, "Note Obligations") into
a number of fully paid and nonassessable Subsequent Round Securities (with the
most favorable terms received by any investor in such Subsequent Round of
Financing) equal to the quotient obtained by dividing the aggregate amount of
Note Obligations to be converted by the lowest price per Subsequent Round
Security paid by any investor in such Subsequent Round of Financing. Written
notice of a Subsequent Round of Financing stating the date on which such
Subsequent Round of Financing is expected to become effective and describing the
terms and conditions of such Subsequent Round of Financing shall be delivered by
the Company to, and received by, the Payee not less than 10 days prior to the
consummation of such Subsequent Round of Financing.
(b) Procedure for Conversion. In order to convert all or any
portion of the Note Obligations, the Payee shall (i) surrender this Note, duly
endorsed, at the office of the Payor and (ii) simultaneously with such
surrender, notify the Payor in writing of its election to convert all or a
portion of the Note Obligations, which notice shall specify the amount of
principal and interest included in the Note Obligations to be so converted. The
Page 39 of 44 Pages
date on which the Note is surrendered for conversion is referred to herein as
the "Conversion Date." As soon as practicable after the Conversion Date, the
Payee shall be entitled to receive a certificate or certificates, registered in
such name or names as the Payee may direct, representing the Subsequent Round
Securities issuable upon conversion of the applicable Note Obligations, along
with a new promissory note, in the same form as this Note, reflecting any Note
Obligations that have not been so converted; provided that the Payee shall be
treated for all purposes as the record holder of such Subsequent Round
Securities as of the Conversion Date. The issuance of Subsequent Round
Securities upon conversion of any Note Obligations shall be made without charge
to the Payee for any issuance tax in respect thereof, provided that the Payor
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the Payee.
(c) Reservation of Shares. Payor shall reserve and keep available
solely for issuance upon the conversion of Note Obligations such number of
shares of Subsequent Round Securities as will from time to time be sufficient to
permit the conversion of all outstanding Note Obligations (collectively, the
"Conversion Securities"), and, if applicable, shall take all action to increase
the authorized number of Subsequent Round Securities if at any time there shall
be insufficient authorized but unissued Subsequent Round Securities to permit
such reservation or permit the conversion of all outstanding Note Obligations
and Subsequent Round Securities. The Payor covenants that all Conversion
Securities that shall be so issued shall be duly authorized, validly issued,
fully paid and non-assessable by the Payor, not subject to any preemptive
rights, and free from any taxes, liens and charges with respect to the issue
thereof. The Payor will take all such action as may be necessary to ensure that
all such Conversion Securities may be so issued without violation of any
applicable law or regulation, or any requirement of any national securities
exchange or quotation system upon which the Common Stock may be listed.
(d) Certain Definitions. For purposes of this Note, the following
terms shall have the following meanings (with terms defined in the singular
having comparable meanings when used in the plural and vice versa):
"Subsequent Round of Financing" means the offer and sale for cash by
the Company of its equity securities.
"Subsequent Round Securities" means the equity securities sold in the
Subsequent Round of Financing; provided that, to the extent that two or more
types or classes of equity securities are sold as a unit in the Subsequent Round
of Financing, "Subsequent Round Securities" shall mean a unit consisting of the
same types or classes of equity securities, in the same proportion, as the units
sold in the Subsequent Round of Financing.
6. Suits for Enforcement.
(a) Upon the occurrence of any one or more Events of Default, the
holder of this Note may proceed to protect and enforce its rights by suit in
equity, action at law or by other appropriate proceeding in aid of the exercise
of any power granted in this Note, or may proceed to enforce the payment of this
Note, or to enforce any other legal or equitable right it may have as a holder
of this Note.
(b) The holder of this Note may direct the time, method and place
of conducting any proceeding for any remedy available to itself.
Page 40 of 44 Pages
(c) In case of any Event of Default, the Payor will pay to the
holder of this Note such amounts as shall be sufficient to cover the reasonable
costs and expenses of such holder due to such Event of Default, including
without limitation, costs of collection and reasonable fees, disbursements and
other charges of counsel incurred in connection with any action in which the
holder prevails.
7. Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in accordance with the provisions of the
Note Purchase Agreement, dated as of the date hereof, by and among the Payor and
the investors listed on Schedule 1 thereto.
8. Successors and Assigns. This Note shall inure to the benefit of and
be binding upon the successors and permitted assigns of the parties hereto. The
Payor may not assign any of its rights or obligations under this Note without
the prior written consent of Payee. The Payee may assign all or a portion of
their rights or obligations under this Note to an affiliate without the prior
written consent of the Payor.
9. Amendment and Waiver.
(a) No failure or delay on the part of the Payor or Payee in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Payor or
Payee at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Note, any waiver of any provision of this Note and any consent
to any departure by the Payor from the terms of any provision of this Note,
shall be effective (i) only if it is made or given in writing and signed by the
Payor and the Payee and (ii) only in the specific instance and for the specific
purpose for which made or given.
10. Headings. The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
11. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
12. Costs and Expenses. The Payor hereby agrees to pay on demand all
reasonable out-of-pocket costs, fees, expenses, disbursements and other charges
(including but not limited to the fees, expenses, disbursements and other
charges of counsel to the Payee) of the Payee arising in connection with any
consent or waiver granted or requested hereunder or in connection herewith, and
any renegotiation, amendment, work-out or settlement of this Note or the
indebtedness arising hereunder.
13. Waiver of Jury Trial and Setoff. The Payor hereby waives trial by
jury in any litigation in any court with respect to, in connection with, or
arising out of this Note or any instrument or document delivered pursuant to
this Note, or the validity, protection, interpretation, collection or
enforcement thereof, or any other claim or dispute howsoever arising, between
any Payor and the Payee; and the Payor hereby waives the right to interpose any
setoff or counterclaim or cross-claim in connection with any such litigation,
irrespective of the nature of such setoff, counterclaim or cross-claim except to
the extent that the failure so to assert any such setoff, counterclaim or
cross-claim would permanently preclude the prosecution of the same.
Page 41 of 44 Pages
14. Consent to Jurisdiction. The Payor hereby irrevocably consents to
the nonexclusive jurisdiction of the courts of the State of New York and of any
federal court located in such State in connection with any action or proceeding
arising out of or relating to this Note or any document or instrument delivered
pursuant to this Agreement.
15. Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
16. Entire Agreement. This Note is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Note
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
17. Further Assurances. The Payor shall execute such documents and
perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations or other actions by, or giving any notices
to, or making any filings with, any governmental authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Note.
BLUEFLY, INC.
By: ____________________________
Name:
Title:
Page 42 of 44 Pages
EXHIBIT DDDD
WAIVER AND CONSENT
OF THE HOLDERS OF
SERIES A CONVERTIBLE PREFERRED STOCK,
SERIES B CONVERTIBLE PREFERRED STOCK,
SERIES C CONVERTIBLE PREFERRED STOCK,
SERIES D CONVERTIBLE PREFERRED STOCK
AND
SERIES E CONVERTIBLE PREFERRED STOCK
OF BLUEFLY, INC.
The undersigned, constituting the holders of all of the issued and
outstanding shares of the Series A Convertible Preferred Stock (the "Series A
Preferred Stock"), the Series B Convertible Preferred Stock (the "Series B
Preferred Stock"), the Series C Convertible Preferred Stock (the "Series C
Preferred Stock"), the Series D Convertible Preferred Stock (the "Series D
Preferred Stock") and the Series E Convertible Preferred Stock (the "Series E
Preferred Stock") of Bluefly, Inc., a Delaware corporation (the "Corporation"),
hereby covenant and agree as follows and adopt the following resolutions
pursuant to Section 228 of the General Corporation Law of the State of Delaware
in lieu of holding meetings of the holders of Series A Preferred Stock (the
"Series A Preferred Stockholders"), the holders of Series B Preferred Stock (the
"Series B Preferred Stockholders"), the holders of the Series C Preferred Stock
(the "Series C Preferred Stockholders"), the holders of the Series D Preferred
Stock (the "Series D Preferred Stockholders") and the holders of the Series E
Preferred Stock (the "Series E Preferred Stockholders"), and direct that this
waiver and consent be filed with the minutes of the Corporation:
WHEREAS, the Corporation desires to issue and sell to Quantum
Industrial Partners LDC and SFM Domestic Investments LLC (collectively, the
"Investors"), pursuant to a Note and Warrant Purchase Agreement substantially in
the form attached hereto as Exhibit A (the "Note and Warrant Purchase
Agreement"), for an aggregate purchase price of $2,000,000, convertible
promissory notes, in the form attached as Exhibit A to the Note Purchase
Agreement, in the aggregate principal amount of $2,000,000 (the "Notes");
WHEREAS, the Notes are convertible into equity securities of the
Corporation sold for cash in a subsequent round of financing ("Subsequent Round
Securities"); and
WHEREAS, Sections 5.5.1 and 5.6.1 of the Corporation's certificate of
incorporation and Section 5.1 of the certificate of powers, designations,
preferences and rights of each of the Series C Preferred Stock, the Series D
Preferred Stock and the Series E Preferred Stock provide, respectively, that,
without the approval of the holders of a majority of each of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, each voting separately as a class,
the Corporation shall not, among other things, issue or sell securities of the
Corporation or incur indebtedness in excess of $1,000,000.
Page 43 of 44 Pages
NOW, THEREFORE, BE IT:
RESOLVED, that (1) the issuance and sale to the Investors, pursuant to
the Note Purchase Agreement, of the Notes, (2) the issuance of Subsequent Round
Securities upon the conversion of the Notes and (3) the issuance of shares of
Common Stock or other securities of the Company upon the conversion of any
Subsequent Round Securities are each hereby approved in all respects; and it is
further
RESOLVED, that this waiver and consent may be executed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall be deemed one and the same instrument.
[Remainder of Page Intentionally Left Blank]
Page 44 of 44 Pages
IN WITNESS WHEREOF, the undersigned have caused this waiver and
consent to be executed as of this 17th day of October, 2003.
QUANTUM INDUSTRIAL PARTNERS LDC
By: ____________________________
Name:
Title:
SFM DOMESTIC INVESTMENTS LLC
By: ____________________________
Name:
Title: