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As filed with the Securities and Exchange Commission on April 12, 1999
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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BLUEFLY, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-3612110
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
42 WEST 39TH STREET
NEW YORK, NEW YORK 10018
(Address of Principal Executive (Zip Code)
Offices)
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BLUEFLY, INC. 1997 STOCK OPTION PLAN
COMMON STOCK ISSUED OR ISSUABLE PURSUANT TO EMPLOYEE BENEFIT PLANS
(Full title of the plans)
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E. KENNETH SEIFF RICHARD A. GOLDBERG, ESQ.
PRESIDENT AND CHIEF EXECUTIVE OFFICER SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
BLUEFLY, INC. 919 THIRD AVENUE
42 WEST 39TH STREET NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10018 (212) 758-9500
(212) 944-8000
(Name, address and telephone number, including area code, of agents for service)
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED TO BE REGISTERED PER SHARE (3) PRICE (3) FEE
(1)(2)
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<S> <C> <C> <C> <C>
Common Stock, par 977,157 shares $10.02 $9,786,297.75 $2,720.59
value $.01 per share
============================== ======================== =================== ======================= ====================
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(1) Pursuant to Rule 416, this Registration Statement also covers such
additional securities as may become issuable to prevent dilution resulting
from stock splits, stock dividends or similar transactions.
(2) The number of shares available for issuance under the 1997 Stock Option
Plan has been increased from 500,000 to 950,000, subject to stockholder
approval.
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(3) Estimated in accordance with Rule 457(c) and (h) of the Securities Act of
1933, as amended (the "Act"), solely for the purpose of calculation of the
registration fee. The fee was based on the fact that options for 528,375
shares have been granted at a weighted average exercise price of $8.86 and
the remaining 448,782 shares are based on the average of the high and low
price for shares of common stock, par value $.01 per share, of the
Registrant on the Nasdaq SmallCap Market on April 8, 1999 ($11.375).
EXPLANATORY NOTES
We have prepared this Registration Statement in accordance with the
requirements of Form S-8 under the Act, to register shares of our common stock,
$.01 par value per share ("Common Stock"), issued or issuable pursuant to our
1997 Stock Option Plan (the "Plan") and certain other "employee benefit plans"
(as such term is defined in Rule 405 under the Act).
This Form S-8 includes a Reoffer Prospectus prepared in accordance with
Part I of Form S-3 under the Act. The Reoffer Prospectus may be utilized for
reofferings and resales of up to 27,157 shares of Common Stock acquired by
Selling Stockholders pursuant to "employee benefit plans."
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PROSPECTUS
BLUEFLY, INC.
27,157 Shares
Common Stock
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This Prospectus relates to the offer and sale by certain of our consultants (the
"Selling Stockholders") of an aggregate of 27,157 shares of our common stock,
par value $.01 per share (the "Common Stock"), which are outstanding. The shares
of Common Stock were issued to such consultants in connection with services they
performed for us. See "Selling Stockholders" and "Plan of Distribution." The
shares of Common Stock offered hereby are sometimes referred to herein as the
"Shares."
-----------------------------------
Our Common Stock is quoted on:
The NASDAQ SmallCap Market ("NASDAQ") under the symbol "BFLY" and
The Boston Stock Exchange (the "BSE") under the symbol "BFL."
On April 8, 1999, the closing price of the Common Stock as reported by NASDAQ
was $11.625 per share.
Our address is 42 West 39th Street, New York, New York 10018, and our telephone
number is (212) 944- 8000.
We will not receive any of the proceeds from the sale of the Shares offered
hereby (this "Offering"). We will pay the expenses of this Offering, estimated
at $7,500. The aggregate proceeds to the Selling Stockholders from the sale of
the Shares will be the purchase price of the Shares sold, less the aggregate
underwriting or brokerage fees, discounts and commissions and similar selling
expenses, if any.
The Selling Stockholders and any intermediaries that sell the Shares may be
deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Act"), with respect to the Shares, and any profits realized or
commissions received may be deemed underwriting compensation.
Investing in the Shares involves a high degree of risk. See "Risk Factors"
beginning on page 7.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Shares or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is April 12, 1999.
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TABLE OF CONTENTS
PAGE
Where You Can Find More Information..........................................2
Incorporation of Certain Documents
by Reference.........................................................3
Cautionary Statement Regarding Forward-Looking Statements....................3
About this Prospectus........................................................4
Prospectus Summary...........................................................5
Risk Factors.................................................................7
The Company.................................................................17
Use of Proceeds ............................................................17
Dividend Policy ............................................................18
Selling Stockholders .......................................................18
Plan of Distribution .......................................................18
Legal Matters ..............................................................19
Experts ....................................................................20
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and file reports, proxy
statements, information statements and other information with the Securities and
Exchange Commission (the "Commission"). You may inspect such reports, proxy
statements, information statements and other information that we file without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, NW, Room 1024, Washington, D.C. 20549; and at the Commission's
regional offices located at Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661-2511, and at Suite 1300, Seven World
Trade Center, New York, New York 10048. You can obtain copies of such material
from the Public Reference Section of the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549 at prescribed rates. The Commission also has a web site
that contains reports, proxy statements, information statements and other
information for companies that file electronically with the Commission. The
address of such site is (http://www.sec.gov). Our Common Stock is traded on
NASDAQ and the BSE and our reports and other information may be inspected at the
offices of NASDAQ at 1735 K Street, N.W., Washington, D.C. 20006-1500 and at the
BSE at One Boston Place, Boston, MA 02108..
We have filed a registration statement on Form S-8 (herein together with
all amendments thereto, if any, called the "Registration Statement") with the
Commission under the Act, with respect to the Shares. This Prospectus does not
contain all the information set forth or incorporated by reference in the
Registration Statement and the exhibits and schedules relating thereto. The
omitted portions are not included as permitted by the rules and regulations of
the Commission. For further information on our company and the Shares, you
should read the Registration Statement and the exhibits and schedules thereto
which may be obtained or examined as described above. Statements in this
Prospectus or incorporated by reference as to the contents of any contract or
other documents are not necessarily complete and may not contain all information
that is important to you, and you should review the referenced material in such
instances.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have previously filed the following documents with the Commission. We
are incorporating these documents in this Prospectus, and they are a part of
this Prospectus. We are allowed to "incorporate by reference" the information we
file with the Commission, which means that we can disclose important information
to you by referring you to another document we filed with the Commission. The
information incorporated by reference in this Prospectus is an important part of
this Prospectus, and information we file later with the Commission will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until the Selling
Stockholders sell all of the Shares.
1. Our Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998.
2. The description of the Common Stock contained in the our Registration
Statement on Form 8-A filed with the Commission under the Exchange Act,
including any amendment or report filed for the purpose of updating such
description.
We will provide a copy of the documents referred to above without charge if
you request the information from us. However, we may charge you for the cost of
providing any exhibits to any of these documents unless we specifically
incorporate the exhibits in this Prospectus. You should contact our Chief
Financial Officer at Bluefly, Inc., 42 West 39th Street, New York, New York
10018, or by calling such person at (212) 944-8000.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including any documents that are incorporated by reference
as set forth in "Incorporation of Certain Documents by Reference, " contains
"forward-looking statements" within the meaning of Section 27A of the Act and
Section 21E of the Exchange Act. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate, or imply future
results, performance, or achievements, and may contain the words "believe,"
"anticipate," "expect," "estimate," "project," "will be," "will continue", "will
likely result," or words or phrases of similar meaning. Forward-looking
statements involve risks and uncertainties that may cause actual results to
differ materially from the forward-looking statements. The risks and
uncertainties include, among others, the following: These risks and
uncertainties include, but are not limited to the following: the competitive
nature of the business and the potential for competitors with greater resources
to enter such business; consumer acceptance of the Internet as a medium for
purchasing apparel; recent losses and anticipated future losses; the startup
nature of the Internet business; the capital intensive nature of such business
(taking into account the need for advertising to promote such business); our
limited working capital and need for additional financing; risk of litigation
for sale of unauthentic or damaged goods; the successful hiring and retaining of
personnel; the dependence on third parties and certain relationships for certain
services; the dependence on continued growth of online commerce; rapid
technological change; year 2000 issues; online commerce security risks;
governmental regulation and legal uncertainties; management of potential growth;
and unexpected changes in fashion trends.
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See "Risk Factors" and the discussion of our business and description of
the various factors that could materially affect our ability to achieve the
anticipated results which are included in our periodic reports which are
incorporated herein by reference.
ABOUT THIS PROSPECTUS
This Prospectus is part of a Registration Statement we filed with the
Commission. You should rely only on the information provided or incorporated by
reference in this Prospectus. We have not authorized anyone else to provide you
with different information. The Selling Stockholders will not make an offer of
these Shares in any State where the offer is not permitted. You should not
assume that the information in this Prospectus or any supplement is accurate as
of any other date other than the date on the front of such documents.
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PROSPECTUS SUMMARY
This summary highlights selected information from this Prospectus and may
not contain all of the information that is important to you. To understand the
terms of the offering, you should read carefully this entire document. You
should also read the documents we have referred you to in the sections entitled
"Where You Can Find Additional Information" and "Incorporation of Certain
Documents by Reference" for information on our company and our financial
statements.
THE COMPANY
On September 8, 1998, we launched Bluefly.com, an Internet retail store
("Bluefly.com") that sells a wide array of men's, women's, and children's name
brand apparel and accessories at 25 to 75% off of retail prices. The e-commerce
store also provides information on current trends and other fashion related
content. This online outlet store is designed to combine the best traditional
retailing practices with innovative and convenient features made possible by the
Internet. Our objective is to become the preeminent Internet retailer of excess
end-of-season apparel, fashion accessories and home products. To date, we are
not aware of any business that has devoted substantial time and resources to
developing and promoting the direct-to-consumer market for off-price name brand
apparel and accessories. This could be because, until recently, no medium
existed that could accommodate both a high volume of traffic and the logistical
infrastructure necessary to sell end-of-season and excess apparel inventory
directly to customers in an efficient and economical manner.
We believe that Bluefly.com differentiates itself from traditional brick
and mortar off-price retailers by providing what it believes is a higher level
of service, convenience and merchandising. The key strategies which we are
implementing in our effort to offer this compelling and enjoyable online
shopping experience, include:
1. offering a broad and well merchandised selection of name brand products,
2. significant discounts to retail prices,
3. an intuitive shopping experience,
4. friendly and available customer service,
5. a graphically rich and pleasing environment,
6. a liberal return policy, and
7. sophisticated search technology features which allow customers to locate
quickly the items which interest them.
We believe that in our first seven months of operations, Bluefly.com has
become a leader on the Internet for name brand off-price apparel and fashion
accessories. The Web site now offers approximately 3,400 styles of products from
over 90 different top, name brand designers. We have entered into strategic
marketing relationships which provides us with a highly targeted, prominent
position on seven of the top twelve most visited Web sites or portals (America
Online, Excite, Go Network, Lycos, Netcenter, Tripod and Yahoo!), and have been
featured in numerous national publications and several television reports.
In June 1998, we determined to discontinue the operations of our golf
sportswear division and devote all of our energy and resources to building
Bluefly.com. Until September 1998, we designed, sourced and marketed a full
collection of golf sportswear for men under the Pivot Rules brand name. See
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"The Company."
Pivot Rules, Inc., a New York corporation, was incorporated under the laws
of the State of New York in 1991 as Pivot Corporation and in 1994 changed its
name to Pivot Rules, Inc. In October 1998, we changed our name to Bluefly, Inc.
Our executive office is located at 42 West 39th Street, New York, New York 10018
and our telephone number is (212) 944-8000. Our Internet address is
www.bluefly.com.
THE OFFERING
Common Stock offered: 27,157 Shares
Use of Proceeds: We will not receive any of the proceeds from the sale of the
Shares hereunder. All proceeds will be received by the Selling
Stockholders.
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RISK FACTORS
An investment in the Shares offered hereby is speculative and involves a
high degree of risk, including the risk factors described below. You should
carefully consider the following risk factors inherent in and affecting our
business before making a decision to purchase the Shares being offered hereby.
LACK OF OPERATING HISTORY OF INTERNET BUSINESS. We initiated the planning
of Bluefly.com in March 1998 and launched Bluefly.com on September 8, 1998.
Accordingly, we have less than one year of operating history upon which to base
an evaluation of our Internet business and our prospects.
START-UP RISKS. We have incurred and expect to continue to incur
significant expenditures in connection with the establishment, expansion and
maintenance of Bluefly.com. These expenses include advertising and marketing
expenses which are necessary to attract a high volume of traffic to Bluefly.com.
We believe that Bluefly.com's success will depend in large part on our ability
to:
o attract customers to Bluefly.com,
o provide our customers with outstanding value and a superior
shopping experience,
o achieve sufficient sales volume to realize
economies of scale, and
o successfully coordinate the fulfillment and service of customer
orders.
There can be no assurance that we can achieve any of these objectives.
LIMITED WORKING CAPITAL; NEED FOR ADDITIONAL FINANCING. To date, we have
obtained working capital through our initial public offering, proceeds from the
exercise of outstanding warrants and underwriter unit purchase options, cash
flow from operations, and a letter of credit agreement ("Letter of Credit
Agreement") and Retail Collection Factoring Agreement ("Factoring Agreement"),
each dated April 28, 1992 and amended November 14, 1997 with Heller Financial,
Inc. ("Heller"), to whom we have granted a senior security interest in
substantially all of our assets. We anticipate that we will terminate our
current credit agreement with Heller in the second quarter of 1999. We
anticipate, based on our current plans and assumptions relating to our
operations, that the proceeds from the exercise of outstanding warrants,
together with existing resources and cash generated from operations, should be
sufficient to satisfy our contemplated cash requirements for approximately 12
months after the date of this Prospectus. However, there can be no assurance
that we will not require additional financing during such 12-month period.
We intend to seek additional debt and/or equity financing through a public
offering, private placement or otherwise. There can be no assurance that any
additional financing or other sources of capital will be available to us upon
acceptable terms, if at all. The inability to obtain additional financing when
needed would have a material adverse effect on our business, financial condition
and operating results.
RECENT LOSSES; ANTICIPATED FUTURE LOSSES. We incurred a net loss from
continuing operations of $2,478,000 in 1998 and a net loss from continuing
operations of approximately $469,000 in 1997. We anticipate that losses will
continue for the foreseeable future as we incur expenses related to the growth
of our business and expend substantial amounts on the development of Bluefly.com
and marketing and advertising to build recognition and market share for
Bluefly.com.
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COMPETITION. Electronic commerce generally and, in particular, the online
retail apparel and fashion accessories market, is a new, dynamic, high growth
market and is rapidly changing and intensely competitive. Our competition for
online customers comes from a variety of sources including:
o existing land-based retailers such as The Gap, Nordstrom and Macy's,
which are using the Internet to expand their channels of
distribution,
o less established companies such as Cybershop, Inc.,
Designeroutlet.com and Outletmall.com, which are building their
brands online,
o traditional direct marketers such as Delia's, L.L. Bean, Lands' End,
J.Crew and Spiegel's,
o television direct marketers such as QVC and The Home Shopping
Network, and
o land-based off-price retail stores such as T.J. Maxx, Marshalls and
Loehmanns, Inc. which may or may not use the Internet to grow their
customer base.
We expect our competition to intensify, and believe that the list of
competitors will grow as apparel and fashion accessory designers begin to use
the Internet as a medium to sell directly to customers. Many of our competitors
and potential competitors have longer operating histories, larger customer
bases, greater brand name recognition and significantly greater financial,
marketing and other resources than us. Certain of our competitors may be able to
secure merchandise from vendors on more favorable terms, devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
or inventory availability policies and devote substantially more resources to
Web site and systems development than us. There can be no assurance that we will
be able to compete successfully against competitors and future competitors, and
competitive pressures faced by us may have a material adverse effect on our
business, prospects, financial condition and results of operations.
RISK OF LITIGATION. We sell only authentic, high quality name brand
products and have instituted procedures to insure that no counterfeit or damaged
goods be sold through Bluefly.com. While we believe that these procedures will
be effective, the possibility for error exists and therefore we face potential
liability for the sale of unauthentic or damaged goods.
DEPENDENCE ON THIRD PARTIES AND CERTAIN RELATIONSHIPS. We will be heavily
dependent upon our relationships with our fulfillment and call center customer
service operations as well as delivery companies like United Parcel Service of
America, Inc. to service our customers needs. Our business is also generally
dependent upon our ability to obtain the services of programmers and Web site
designers and other persons and entities necessary for the development and
maintenance of Bluefly.com. We are presently negotiating with our fulfillment
center to renew our contract which is set to expire on July 15, 1999. If we fail
to obtain the services of any such person or entities on satisfactory terms, or
at all, or we lose any such relationship, it would have a material adverse
impact on our business, prospects, financial condition and results of
operations.
AVAILABILITY OF MERCHANDISE. Although we believe we can establish and
maintain relationships with vendors which will offer competitive sources of name
brand apparel and fashion accessories for Bluefly.com, there can be no assurance
that we will be able to obtain the quantity, selection or brand quality of items
which our management believes is necessary. We have no long-term contracts or
arrangements with any of our suppliers that guarantee the availability of
merchandise or the continuation of particular pricing practices. Our contracts
with suppliers typically do not restrict such suppliers from selling products to
other buyers. There can be no assurance that our current suppliers will continue
to sell products to us on current terms or that we will be able to establish new
or otherwise extend current supply
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relationships to ensure acquisitions of product in a timely and efficient manner
and on acceptable commercial terms. Our ability to partner with reputable
suppliers, obtain high quality merchandise from those suppliers and the ability
of the suppliers to produce, stock and deliver high quality products to our
customers is critical to our success. If we are unable to satisfy any of these
elements or are unable to develop and maintain relationships with suppliers that
would allow us to obtain a sufficient variety and quantity of quality
merchandise on acceptable commercial terms, our business, prospects, financial
condition and results of operation would be materially, adversely affected.
UNCERTAIN ACCEPTANCE OF BRAND. We believe that establishing, maintaining
and enhancing our brand is a critical aspect of our efforts to attract and
expand our online traffic. The number of Internet sites that offer competing
services, many of which already have well-established brands in online services
or the retail apparel industry generally, increase the importance of
establishing and maintaining brand name recognition. Promotion of Bluefly.com
will depend largely on our success in providing a high-quality online experience
supported by a high level of customer service, which cannot be assured. In
addition, to attract and retain online users, and to promote and maintain
Bluefly.com in response to competitive pressures, we may find it necessary to
increase substantially our financial commitment to creating and maintaining a
strong brand loyalty among customers. This will require significant advertising
and marketing expenditures. If we are unable to provide high-quality online
services or customer support, or otherwise fail to promote and maintain
Bluefly.com, or if we incur excessive expenses in an attempt to promote and
maintain Bluefly.com, our business, prospects, financial condition and results
of operations would be materially adversely affected.
Our future success, and in particular our revenues and operating results,
depend upon our ability to successfully execute several key aspects of our
business plan. We must continually increase the dollar volume of transactions
booked through Bluefly.com, either by generating significantly higher and
continuously increasing levels of traffic to Bluefly.com or by increasing the
percentage of visitors to our online sites who purchase products, or through
some combination thereof. We must also achieve a high level of repeat
purchasers. In addition, we must deliver a high level of customer service and
compelling content. Although we have established relationships with portal
companies such as Go Network, America Online, AtHome Networks, Excite, Lycos,
and Yahoo!, there can be no assurance that these relationships can be maintained
or that they will be effective in increasing:
o the dollar volume of products purchased through Bluefly.com,
o traffic to Bluefly.com,
o the percentage of visitors who purchase products, or
o the number of repeat purchasers.
The failure to do one or more of the foregoing would likely have a material
adverse effect on our business, prospects, financial condition and results of
operations.
RISK OF CAPACITY CONSTRAINTS; RELIANCE ON INTERNALLY DEVELOPED SYSTEMS;
SYSTEM DEVELOPMENT RISKS. A key element of our strategy is to generate a high
volume of traffic on, and use of, Bluefly.com. Accordingly, the satisfactory
performance, reliability and availability of Bluefly.com, transaction-processing
systems and network infrastructure are critical to our reputation and our
ability to attract and retain customers, as well as maintain adequate customer
service levels. Our revenues will depend on the number of visitors who shop on
Bluefly.com and the volume of orders it will fulfill. Any system interruptions
that result in the unavailability of Bluefly.com or reduced order fulfillment
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performance would reduce the volume of goods sold and the attractiveness of our
product and service offerings and could also adversely affect consumer
perception of our brand name. We may experience periodic system interruptions
from time to time. If there is a substantial increase in the volume of traffic
on Bluefly.com or the number of orders placed by customers, we will be required
to expand and upgrade further our technology, transaction-processing systems and
network infrastructure. There can be no assurance that we will be able to
accurately project the rate or timing of increases, if any, in the use of
Bluefly.com or expand and upgrade our systems and infrastructure to accommodate
such increases on a timely basis.
INFRASTRUCTURE NECESSARY TO SUPPORT EXPLOSIVE GROWTH OF INTERNET. The
Internet and other online services may not be accepted as a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that the
Internet and other online services continue to experience significant growth in
the number of users, their frequency of use or an increase in their bandwidth
requirements, there can be no assurance that the infrastructure for the Internet
and other online services will be able to support the demands placed upon them.
In addition, the Internet or other online services could lose their viability
due to delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet or other online service
activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services to support the Internet
or other online services also could result in slower response times and
adversely affect usage of the Internet and other online services generally and
Bluefly.com in particular. If use of the Internet and other online services does
not continue to grow or grows more slowly than expected, if the infrastructure
for the Internet and other online services does not effectively support growth
that may occur, or if the Internet and other online services do not become a
viable commercial marketplace, our business, prospects, financial condition and
results of operations would be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE. To remain competitive, we must continue to
enhance and improve the responsiveness, functionality and features of
Bluefly.com. The online commerce industry is characterized by:
o rapid technological change,
o changes in user and customer requirements and preferences,
o frequent new product and service introductions embodying new
technologies, and
o the emergence of new industry standards and practices.
Each of these characteristics could render Bluefly.com and proprietary
technology and systems obsolete. Our future success will depend, in part, on our
ability to license leading technologies useful in our business, enhance our
existing services, develop new services and technologies that address the
increasingly sophisticated and varied needs of our prospective customers, and
respond to technological advances and emerging industry standards and practices
on a cost-effective and timely basis. The development of a Web site and other
proprietary technology entails significant technical and business risks. There
can be no assurance that we will successfully use new technologies effectively
or adapt Bluefly.com, proprietary technology and transaction-processing systems
to customer requirements or emerging industry standards. If we are unable, for
technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions or customer requirements, our business,
prospects, financial condition and results of operations would be materially
adversely affected.
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DEPENDENCE ON CONTINUED GROWTH OF ONLINE COMMERCE. Our future revenues and
any future profits will be dependent upon the widespread acceptance and use of
the Internet and other online services as an effective medium of commerce by
consumers. Rapid growth in the use of and interest in the Web, the Internet and
other online services is a recent phenomenon, and there can be no assurance that
acceptance and use will continue to develop or that a sufficiently broad base of
consumers will adopt, and continue to use, the Internet and other online
services as a medium of commerce and, in particular, online apparel commerce.
Demand and market acceptance for recently introduced services and products over
the Internet are subject to a high level of uncertainty and there exist few
proven services and products. We rely, and will continue to rely, on consumers
who have historically used traditional means of commerce to purchase
merchandise. Our success depends on consumer acceptance and utilization of novel
ways of conducting business and exchanging information.
UNCERTAIN ABILITY TO OBTAIN AND PROTECT PROPRIETARY INFORMATION. Our
intellectual property is critical to our success, and we rely on trademark,
copyright, and trade secret protection to protect our proprietary rights. We are
pursuing the registration of the "Bluefly," "The Outlet Store in Your Home," and
"MyCatelog" service marks in the United States and abroad and are considering
the possibility of patenting our "MyCatelog" proprietary technology. Effective
trademark, copyright and trade secret protection may not be available in every
country in which our products will be available. We intend to effect appropriate
registrations internationally and domestically as we expand our operations.
There can be no assurance that the United States or foreign jurisdictions will
afford us any protection for our intellectual property. There also can be no
assurance that any of our intellectual property rights will not be challenged,
invalidated or circumvented, or that our intellectual property rights will
provide us with any competitive advantage. We could also incur substantial costs
in asserting our intellectual property or proprietary rights against others,
including any such rights obtained from third parties, and/or defending any
infringement suits brought against us.
Although we have entered into confidentiality and invention agreements with
many of our employees and consultants, there can be no assurance that these
agreements will be honored or that the we will be able to protect our rights to
our unpatented trade secrets and know-how effectively. Moreover, there can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets and know-how. In addition, we may be required to obtain licenses to
certain intellectual property or other proprietary rights from third parties.
There can be no assurance that any such licenses or proprietary rights would be
made available to us under acceptable terms, if at all. If we do not obtain
required licenses or proprietary rights, we could encounter delays in product
development or find that we cannot develop or sell products requiring such
licenses.
YEAR 2000 ISSUES. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field and
cannot distinguish 21st century dates from 20th century dates. These date code
fields will need to distinguish 21st century dates from 20th century dates and,
as a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements. We
will be interacting with certain computer programs in connection with credit
card transactions, fulfillment operations, and programs used by our vendors and
suppliers which could lose functionality in the Year 2000. We believe that our
significant business, accounting and operations software are Year 2000 compliant
("Compliant"). We expect the costs we incur, if any, to achieve Year 2000
compliance will be immaterial. Given that we believe that
11
<PAGE>
we are currently Compliant, we have not prepared a contingency plan and do not
currently believe that a contingency plan is necessary. However, we cannot
guarantee that all of the other companies with which we interact have taken the
Year 2000 problem into account or have otherwise updated their programs. The
costs of assessing such compliance are expected to be minimal. In the event that
the companies with which we interact are unable to certify that they will be
Compliant by early 1999 or if such companies are unable to certify that their
failure to be Year 2000 compliant will not adversely affect us, we will be
reviewing our alternatives with respect to other companies. There can be no
assurance that we will be able to find other companies with which to interact
which are acceptable to us. In addition, although we believe we are adequately
addressing our Year 2000 issues, there can be no assurance that unanticipated or
undiscovered compliance problems with regard to us or the companies with which
we interact will not have a material adverse effect on our business, prospects,
financial condition and results of operations.
ONLINE COMMERCE SECURITY RISKS. A fundamental requirement for online
commerce and communications is the secure transmission of confidential
information over public networks. We rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information, such as customer credit card numbers. In addition, we intend to
maintain an extensive confidential database of customer profiles and transaction
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography, or other events or developments
will not result in a compromise or breach of the algorithms we use to protect
customer transaction and personal data contained in our customer database. If
any such compromise of our security were to occur, it could have a material
adverse effect on our reputation, business, operating results and financial
condition. A party who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our operations.
We may be required to expend significant capital and other resources to protect
against such security breaches or to alleviate problems caused by such breaches.
Concerns over the security of transactions conducted on the Internet and
commercial online services and the privacy of users may also inhibit the growth
of the Internet and commercial online services, especially as a means of
conducting commercial transactions. To the extent that our activities or
activities of third-party contractors involve the storage and transmission of
proprietary information, such as credit card numbers or other personal
information, security breaches could expose us to a risk of loss or litigation
and possible liability. There can be no assurance that our security measures
will prevent security breaches or that failure to prevent such security breaches
will not have a material adverse effect on our business, operating results and
financial condition.
UNCERTAINTIES IN APPAREL MARKET; UNEXPECTED CHANGES IN FASHION TRENDS. The
apparel industry historically has been subject to substantial cyclical
variations. We and other apparel vendors rely on the expenditure of
discretionary income for most, if not all, sales. Any downturn, whether real or
perceived, in economic conditions or prospects could adversely affect consumer
spending habits and our business, financial condition and operating results.
Fashion trends can change rapidly, and our business is sensitive to such
changes. There can be no assurance that we will accurately anticipate shifts in
fashion trends and adjust our merchandise mix to appeal to changing consumer
tastes in a timely manner. If we misjudge the market for our products or are
unsuccessful in responding to changes in fashion trends or in market demand, we
could experience insufficient or excess inventory levels or higher markdowns,
either of which would have a material adverse effect on our business, financial
condition and results of operations.
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RISKS ASSOCIATED WITH ENTRY INTO NEW BUSINESS AREAS. We may choose to
expand our operations by:
o developing new Web sites,
o promoting new or complementary products or sales formats,
o expanding the breadth and depth of products and services
offered,
o expanding our market presence through relationships with third
parties, or
o adopting non-Internet based channels for distributing our products.
Expansion of our operations in this manner would require significant
additional expenses and development, operations and editorial resources and
would strain our management, financial and operational resources. Although we
have no present understanding, commitments or agreements with respect to any
material acquisitions or investments, we may pursue the acquisition of new or
complementary businesses, products or technologies. There can be no assurance
that we would be able to expand our efforts and operations in a cost-effective
or timely manner or that any such efforts would increase overall market
acceptance. Furthermore, any new business or Web site (including Bluefly.com) we
launch that is not favorably received by consumer or trade customers could
damage our reputation. The lack of market acceptance of such efforts or our
inability to generate satisfactory revenues from such expanded services or
products could have a material adverse effect on our business, prospects,
financial condition and results of operations.
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES. We are not currently
subject to direct regulation by any domestic or foreign governmental agency,
other than regulations applicable to businesses generally, and laws or
regulations directly applicable to online commerce. However, it is possible that
a number of laws and regulations may be adopted that would apply to the Internet
and other online services. Furthermore, the growth and development of the market
for online commerce may prompt calls for more stringent consumer protection laws
that may impose additional burdens on those companies conducting business
online. The adoption of any additional laws or regulations may decrease the
growth of the Internet or other online services, which could, in turn, decrease
the demand for our products and services and increase our cost of doing
business, or otherwise have a material adverse effect on our business,
prospects, financial condition and results of operations.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sale and other taxes,
libel and personal privacy is uncertain and may take years to resolve. For
example, tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in online commerce, and new state
tax regulations may subject us to additional state sales and income taxes. Any
such new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and online commerce
could have a material adverse effect on our business, prospects, financial
condition and results of operations. For example, major U.S.-based online
services (and personnel) have been challenged by German authorities for making
certain content accessible in Germany. If we were alleged to have violated
federal, state or foreign, civil or criminal law, even if we could successfully
defend such claims, it could have a material adverse effect on our business,
prospects, financial condition and results of operations.
SALES AND OTHER TAXES. We do not currently collect sales or other similar
taxes in respect of shipments of goods into states other than Massachusetts and
New York. However, one or more states may seek to impose sales tax collection
obligations on out-of-state companies such as our company
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<PAGE>
which engage in online commerce. In addition, any new operation in states
outside Massachusetts and New York could subject shipments into such states to
state sales taxes under current or future laws. A successful assertion by one or
more states or any foreign country that we should collect sales or other taxes
on the sale of merchandise could have a material adverse effect on our business,
prospects, financial condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS. International
sales are subject to inherent risks, including:
o unexpected changes in regulatory requirements and tariffs,
o difficulties in staffing and managing foreign operations,
o longer payment cycles,
o greater difficulty in accounts receivable collection,
o potentially adverse tax consequences,
o price controls, or
o other restrictions on foreign currency and difficulties in obtaining
export and import licenses.
To the extent we develop significant revenues from international sales, gains
and losses on the conversion of foreign payments into U.S. dollars may
contribute to fluctuations in our results of operations and fluctuating exchange
rates could cause reduced gross revenues and/or gross margins from
dollar-denominated international sales. Although we have not experienced any
material adverse impact to date from fluctuations in foreign currencies, there
can be no assurance that we will not experience a material adverse impact on our
financial condition and results of operations from fluctuations in foreign
currencies in the future.
SEASONALITY AND QUARTERLY FLUCTUATIONS; COST OF RETURNS. Historically, our
sales and operating results in our retail division fluctuated by quarter, with
most sales occurring in our second and fourth quarters. We expect to experience
significant fluctuations in future quarterly operating results due to the
establishment of Bluefly.com. We expect that our Internet business will be
subject to seasonal fluctuations affecting apparel vendors generally as well as
to the slowdown of Internet usage during the summer months. We recognize that
remote purchases of apparel and fashion accessories may be subject to higher
return rates than traditional store bought merchandise. We have established a
liberal return policy in order to accommodate our customers and overcome any
hesitancy they may have with remote purchasing. If return rates are higher than
expected, our business, prospects, financial condition and results of operations
could be materially adversely affected.
MANAGEMENT OF POTENTIAL GROWTH. We intend to expand our Internet operations
substantially. This expansion may place a significant strain on our management,
operations and financial resources. To manage the expected growth of our
operations and personnel, we will be required to improve existing, and implement
new, transaction-processing, operational and financial systems, procedures and
controls. We may also be required to expand our finance, marketing,
administrative and operations staff. Further, our management will be required to
maintain and expand our relationships with:
o various manufacturers,
o distributors,
o freight companies,
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o fulfillment and customer service entities,
o other Web sites, and
o other third parties necessary to our operations.
There can be no assurance that our current and planned personnel, systems,
procedures and controls will be adequate to support our future operations, that
management will be able to hire, train, retain, motivate and manage required
personnel or that our management will be able to successfully identify, manage
and exploit existing and potential market opportunities. If we are unable to
manage growth effectively, our business, prospects, financial condition and
results of operations would be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL. We believe our success will depend to a
significant extent on the efforts and abilities of our executive officers. We
have entered into employment agreements with Mr. Seiff, Mr. Barry, and Mr.
Morris which expire on January 1, 2000. July 13, 2002 and July 31, 2002,
respectively. The loss of the services of Mr. Seiff, Mr. Barry or Mr. Morris
could have a material adverse effect on our business, prospects, financial
condition and results of operations. We maintain a $1.2 million key person life
insurance policy on the life of Mr. Seiff. Our operations will also depend to a
great extent on our ability to attract new key personnel with Internet
experience and retain existing key personnel in the future. The market for
personnel with Internet experience is extremely competitive. Our failure to
attract additional qualified employees or to retain the services of key
personnel could have a material adverse effect on our business, prospects,
financial condition and results of operations.
LIABILITY FOR INTERNET CONTENT. As a distributor of Internet content, we
face potential liability for negligence, copyright, patent, trademark,
defamation, indecency and other claims based on the nature and content of the
materials that we broadcast. Such claims have been brought, and sometimes
successfully pressed, against Internet content distributors. In addition, we
could be exposed to liability for content or unauthorized duplication or
broadcast of content. Although we maintain general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed. In addition, although we
intend to generally require our content providers to indemnify us for such
liability, such indemnification may be inadequate. Any imposition of liability
that is not covered by our insurance, is in excess of our insurance coverage or
is not covered by an indemnification by a content provider could have a material
adverse effect on our business, financial condition and results of operations.
DIVIDENDS UNLIKELY. We have never declared or paid cash dividends on the
Common Stock and do not intend to pay such dividends in the foreseeable future.
The payment of dividends in the future will be at the discretion of our Board of
Directors.
NO ASSURANCE OF PUBLIC MARKET. Although the Common Stock is quoted on the
NASDAQ and the BSE, there can be no assurance that we will, in the future, be
able to meet all requirements for continued quotation thereon. In the absence of
an active trading market or if the Common Stock cannot be traded on the NASDAQ
or the BSE, the Common Stock could instead be traded on the Electronic Bulletin
Board or in the "Pink Sheets." In such event, the liquidity and stock price in
the secondary market may be adversely affected. In addition, in the event the
Common Stock was delisted, broker-dealers have certain regulatory burdens
imposed upon them which may discourage broker-dealers from effecting
transactions in the Common Stock, further limiting the liquidity thereof.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE. As of March 31, 1999, we had
4,848,831 shares of Common Stock outstanding, of which 729,897 shares are
"Restricted Securities" as that term is defined under Rule 144 promulgated under
the Act. We are unable to predict the effect that sales made under Rule 144 or
otherwise may have on the market price of the Common Stock prevailing at the
time of any such sales.
EFFECT OF OUTSTANDING WARRANTS AND OPTIONS. As of March 31, 1999, there
were outstanding options to purchase 528,375 shares of Common Stock issued under
the Plan and a purchase option issued to one of the underwriters of our initial
public offering, which entitles certain holders to purchase 13,850 warrants and
13,850 shares of Common Stock (the "Purchase Option"). The exercise of such
outstanding options and the Purchase Option (and the warrants included therein)
will dilute the then-existing shareholders' percentage ownership of our stock,
and any sales in the public market of Common Stock underlying such securities
could adversely affect prevailing market prices for the Common Stock. Moreover,
the terms upon which we would be able to obtain additional equity capital could
be adversely affected since the holders of such securities can be expected to
exercise them at a time when we would, in all likelihood, be able to obtain any
needed capital on more favorable terms than those provided by such securities.
In addition, we have granted certain demand and piggyback registration rights to
the underwriters of our initial public offering with respect to the securities
issuable upon exercise of the Purchase Option.
ANTI-TAKEOVER MATTERS; POTENTIAL ADVERSE EFFECT OF FUTURE ISSUANCES OF
AUTHORIZED PREFERRED STOCK. Our Restated Certificate of Incorporation ("Restated
Certificate") and by-laws, as amended and restated ("Restated By-Laws"), contain
certain provisions that may delay, defer or prevent a takeover. Our Board of
Directors has the authority to issue up to 2,000,000 shares of preferred stock,
par value $.01 per share ("Preferred Stock"), and to determine the price,
rights, preferences and restrictions, including voting rights, of those shares,
without any further vote or action by the shareholders. Accordingly, our Board
of Directors is empowered, without shareholder approval, to issue Preferred
Stock, for any reason and at any time, with such rates of dividends, redemption
provisions, liquidation preferences, voting rights, conversion privileges and
other characteristics as they may deem necessary. The rights of holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
holders of any Preferred Stock that may be issued in the future. In addition,
the Restated Certificate and Restated By-Laws include provisions establishing a
classified Board of Directors.
LIMITED LIABILITY OF DIRECTORS. As permitted by the New York Business
Corporation Law (the "BCL"), the Restated Certificate limits the personal
liability of a director to us and our shareholders for monetary damages for
breach of duty as a director except in certain circumstances. Accordingly,
except in such circumstances, our directors will not be liable to us or our
shareholders for breach of such duty.
16
<PAGE>
THE COMPANY
On September 8, 1998, we launched Bluefly.com, an Internet retail store
that sells a wide array of men's, women's, and children's name brand apparel and
accessories at 25 to 75% off of retail prices. The e-commerce store also
provides information on current trends and other fashion related content. This
online outlet store is designed to combine the best traditional retailing
practices with innovative and convenient features made possible by the Internet.
Our objective is to become the preeminent Internet retailer of excess
end-of-season apparel, fashion accessories and home products. To date, we are
not aware of any business that has devoted substantial time and resources to
developing and promoting the direct-to-consumer market for off-price name brand
apparel and accessories. This could be because, until recently, no medium
existed that could accommodate both a high volume of traffic and the logistical
infrastructure necessary to sell end-of-season and excess apparel inventory
directly to customers in an efficient and economical manner.
We believe that Bluefly.com differentiates itself from traditional brick
and mortar off-price retailers by providing what it believes is a higher level
of service, convenience and merchandising. The key strategies which we are
implementing in our effort to offer this compelling and enjoyable online
shopping experience, include:
1. offering a broad and well merchandised selection of name brand products,
2. significant discounts to retail prices,
3. an intuitive shopping experience,
4. friendly and available customer service,
5. a graphically rich and pleasing environment,
6. a liberal return policy, and
7. sophisticated search technology features which allow customers to
locate quickly the items which interest them.
We believe that in our first seven months of operations, Bluefly.com has
become a leader on the Internet for name brand off-price apparel and fashion
accessories. The Web site now offers approximately 3,400 styles of products from
over 90 different top, name brand designers. We have entered into strategic
marketing relationships which provides us with a highly targeted, prominent
position on seven of the top twelve most visited Web sites or portals (America
Online, Excite, Go Network, Lycos, Netcenter, Tripod and Yahoo!), and have been
featured in numerous national publications and several television reports.
In June 1998, we determined to discontinue the operations of our golf
sportswear division and devote all of our energy and resources to building
Bluefly.com. Until September 1998, we designed, sourced and marketed a full
collection of golf sportswear for men under the Pivot Rules brand name.
Pivot Rules, Inc., a New York corporation, was incorporated under the laws
of the State of New York in 1991 as Pivot Corporation and in 1994 changed its
name to Pivot Rules, Inc. In October 1998, we changed our name to Bluefly, Inc.
Our executive office is located at 42 West 39th Street, New York, New York 10018
and our telephone number is (212) 944-8000. Our Internet address is
www.bluefly.com.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the Shares
hereunder. All proceeds will be received by the Selling Stockholders.
17
<PAGE>
DIVIDEND POLICY
We have not historically declared cash dividends on the Common Stock. We
intend to retain earnings to finance the development and growth of our business.
Accordingly, we do not anticipate that any cash dividends will be declared on
the Common Stock for the foreseeable future. Future payment of cash dividends,
if any, will depend upon our financial condition, results of operations,
business conditions, capital requirements, restrictions contained in agreements,
future prospects and other factors deemed relevant by our Board of Directors.
SELLING STOCKHOLDERS
This Prospectus covers the resale of up to 27,157 Shares that have been, or
may be, acquired by Selling Stockholders pursuant to certain "employee benefit
plans."
The Shares offered hereby are being sold by the Selling Stockholders. The
table below sets forth, as of March 31, 1999 and as adjusted to reflect the sale
of the Shares, certain information regarding the ownership of the Common Stock
by the Selling Stockholders. Except as otherwise indicated, the number of shares
of Common Stock reflected in the table below has been determined in accordance
with Rule 13d-3 promulgated under the Exchange Act. Under such Rule, each
Selling Stockholder is deemed to beneficially own the number of shares of Common
Stock issuable upon, among other things, the exercise of options, if such
options are exercisable within sixty days.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SELLLING STOCKHOLDER BENEFICIAL BENEFICIAL NUMBER OF BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP SHARES TO OWNERSHIP OWNERSHIP
OF COMMON OF COMMON BE SOLD IN OF COMMON OF COMMON
STOCK PRIOR STOCK PRIOR THE STOCK AFTER STOCK AFTER
TO OFFERING TO OFFERING OFFERING OFFERING OFFERING
(NUMBER) (PERCENT) (NUMBER) (PERCENT)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kaufman Patricof 24,755 * 24,755 0 0
Enterprises, Inc. (1)
- --------------------------------------------------------------------------------------------------------------------
Evolution On-Line 2,402 * 2,402 0 0
Systems, Inc.(2)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------
1. Kaufman Patricof Enterprises, Inc. ("KPE") provided certain services to us
as a consultant in the development of Bluefly.com. Mark Patricof, our
former director, is a shareholder and principal of KPE.
2. Evolution On-Line Systems, Inc. provided certain services to us as a
consultant in the development of Bluefly.com.
PLAN OF DISTRIBUTION
We are registering the Shares on behalf of the Selling Stockholders. The
Selling Stockholders who hold their Shares may sell their Shares from time to
time.
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<PAGE>
As used herein, "Selling Stockholders" includes donees and pledgees selling
Shares received from a named Selling Stockholder after the date of this
Prospectus. All costs, expenses and fees in connection with the registration of
the Shares offered hereby will be borne by us. Underwriting or brokerage
commissions and similar selling expenses, if any, attributable to the sale of
Shares will be borne by the Selling Stockholders. Sales of Shares may be
effected by Selling Stockholders from time to time in one or more types of
transactions (which may include block transactions) on NASDAQ, the BSE, in the
over-the-counter market, in negotiated transactions, through put or call options
transactions relating to the Shares, through short sales of Shares, or a
combination of such methods of sale, at market prices prevailing at the time of
sale, or at negotiated prices. Usual and customary or specifically negotiated
underwriting or brokerage fees, discounts and commissions may be paid by the
Selling Stockholders in connection with such sales of Shares. Such transactions
may or may not involve brokers or dealers. We are not aware of any Selling
Stockholders which have entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
Shares, nor are we aware of any underwriter or coordinating broker acting in
connection with the proposed sale of Shares by the Selling Stockholders.
The Selling Stockholders may effect such transactions by selling Shares
directly to purchasers or to or through broker-dealers, which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the Selling Stockholders and/or the
purchasers of Shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
We have not registered or qualified offers and sales of Shares under the
laws of any country, other than the United States. To comply with certain
states' securities laws, if applicable, the Selling Stockholders will offer and
sell their Shares in such jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states the Selling Stockholders may
not offer or sell Shares unless we have registered or qualified such Shares for
sale in such states or we have complied with an available exemption from
registration or qualification.
The certificates representing the Shares offered hereby contain legends as
to their restricted transferability. Upon the effectiveness of the Registration
Statement, of which this Prospectus forms a part, and the transfer of the Shares
pursuant thereto, such legends will no longer be necessary, and accordingly, new
certificates representing such Shares will be issued to the transferee without
any such legends unless otherwise required by law.
Selling Stockholders also may resell all or a portion of the Shares in open
market transactions in reliance upon Rule 144 under the Act, provided they meet
the criteria and conform to the requirements of such Rule.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon by Swidler
Berlin Shereff Friedman, LLP, New York, New York, our outside legal counsel.
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EXPERTS
The financial statements of Bluefly, Inc. as at and for the year ended
December 31, 1998 incorporated by reference herein and in the Registration
Statement have been audited by M.R. Weiser & Co. LLP, independent certified
public accountants. The report of M.R. Weiser & Co. LLP is incorporated by
reference herein upon the authority of said firm as experts in accounting and
auditing.
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PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
----------------------------------------
The following documents which have been filed by Bluefly, Inc., a New York
corporation (the "Registrant"), with the Securities and Exchange Commission
("Commission") pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), are incorporated herein by reference:
(a) The Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, which is the Registrant's latest Annual Report on
Form 10-KSB filed pursuant to Section 13(a) or 15(d) of the Exchange
Act and which contains audited financial statements for the
Registrant's latest fiscal year for which a Form 10-KSB was required to
have been filed.
(b) The description of the Registrant's common stock, par value $.01 per
share, which is contained in a registration statement filed under
Section 12 of the Exchange Act, including any amendment or report filed
for the purpose of updating such description.
In addition, all documents subsequently filed by the Registrant pursuant to
Section 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment which indicates that all securities offered have been
sold or which deregisters all securities then remaining unsold, shall be deemed
to be incorporated by reference in this registration statement and to be a part
hereof from the date of filing of such documents. Any statement contained in the
documents incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this registration statement
to the extent that a statement contained herein or in any other subsequently
filed document which is also incorporated or deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this registration statement.
Item 4. Description of Securities.
--------------------------
Not applicable.
Item 5. Interests of Named Experts and Counsel.
---------------------------------------
Not Applicable.
Item 6. Indemnification of Directors and Officers.
------------------------------------------
Sections 722 and 726 of the New York Business Corporation Law (the "BCL")
grant the Registrant broad powers to indemnify and insure its directors and
officers against liabilities they may incur in such capacities. In accordance
therewith, the Registrant's Restated Certificate of Incorporation (the
"Charter"), and Amended and Restated By-Laws, as amended, provide for the
fullest indemnification of an officer or a director of the Registrant under the
BCL. The Charter also eliminates personal liability for any breach of directors'
duty to the Registrant and its shareholders, provided that such breach does not
result from (a)(i) an act or omission in bad faith, (ii) intentional misconduct
or (iii) a knowing violation of law, (b) a transaction from which a director
personally gained, in fact, a financial profit or other advantage to which
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the director was not entitled, (c) acts of the director in violation of Section
719 of the BCL or (d) an act or omission prior to the adoption of such provision
in the Charter.
The Registrant has entered into agreements with an officer that requires
the Registrant to indemnify such person against any loss, cost, damage, injury
or other expense, including attorneys' fees, incurred by reason of the fact that
such person served as a director or officer of the Registrant, provided that
such indemnification is consistent with the BCL.
Item 7. Exemption from Registration Claimed.
------------------------------------
Not applicable.
Item 8. Exhibits.
---------
The following exhibits are filed as part of this Registration Statement:
Exhibit Number. Description.
- --------------- ------------
4.1 Bluefly, Inc. 1997 Stock Option Plan, as amended to date
(incorporated by reference to the Registrant's Form SB-2
registration statement and amendments thereto (File No.
333-22895).
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP.
10.1 Service Agreement, dated as of November 30, 1998, by and
between Evolution Online Systems, Inc. and Bluefly, Inc.
10.2 Agreement, dated as of May 13, 1998, by and between Pivot
Rules, Inc. and Kaufman Patricof Enterprises, Inc.
(incorporated by reference to the Registrant's Quarterly
report filed on Form 10-QSB for the quarterly period ended
September 30, 1998).
10.3 Amendment to Agreement dated as of August 17, 1998 between
Pivot Rules, Inc. and Kaufman Patricof Enterprises, Inc.
(incorporated by reference to the Registrant's Quarterly
report filed on Form 10-QSB for the quarterly period ended
September 30, 1998).
23.1 Consent of M.R.Weiser&Co.LLP.
23.2 Consent of Swidler Berlin Shereff Friedman, LLP (contained
in Exhibit 5.1).
Item 9. Undertakings.
-------------
The undersigned small business issuer hereby undertakes that it will:
(1) file, during any period in which it offers or sell securities,
a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information set forth in the
registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities
offered (if the total dollar value of securities
offered would not exceed that which was registered)
and any deviation from the low or high end of the
estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and
22
<PAGE>
price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) include any additional or changed material information on
the plan of distribution;
Note: Small business issuers do not need to give the statements
in paragraphs (1)(i) and (1)(ii) of this Item if the
registration statement is on Form S-3 or S-8, and the
information required in a post-effective amendment is
incorporated by reference from periodic reports filed by the
small business issuer under the Exchange Act.
(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering;
(3) file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the
offering;
(4) for determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the small
business issuer under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as of
the time the Commission declared it effective; and
(5) for determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of
those securities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on this 9th day of April,
1999.
BLUEFLY, INC.
By: /s/ E. Kenneth Seiff
-----------------------------
E. Kenneth Seiff
President, Chief Executive
Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints E. Kenneth Seiff and Jonathan
Morris and each of them (with full power of each of them to act alone), his true
and lawful attorneys-in-fact, with full power of substitution and resubstitution
for him and on his behalf, and in his name, place and stead, in any and all
capacities to execute and sign any and all amendments or post-effective
amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or any of them or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof and the Registrant hereby
confers like authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Titles Date
- --------- ------ ----
<S> <C> <C>
/s/ E. Kenneth Seiff President, Chief Executive Officer and April 9, 1999
- ----------------------------------- Director (Principal Executive Officer)
E. Kenneth Seiff
/s/ Patrick C. Barry Executive Vice President of Operations April 9, 1999
- ----------------------------------- and Chief Financial Officer (Principal
Patrick C. Barry Financial & Accounting Officer)
/s/ Goldie Burns Director April 9, 1999
- -----------------------------------
Goldie Burns
/s/ Martin Miller Director April 9, 1999
- -----------------------------------
Martin Miller
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Signature Titles Date
- --------- ------ ----
<S> <C> <C>
/s/ Robert G. Stevens Director April 9, 1999
- -----------------------------------
Robert G. Stevens
</TABLE>
25
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
4.1 Bluefly, Inc. 1997 Stock Option Plan, as amended to date
(incorporated by reference to the Registrant's Form SB-2
registration statement and amendments thereto (File No.
333-22895).
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP.
10.1 Service Agreement, dated as of November 30, 1998, by and
between Evolution Online Systems, Inc. and Bluefly, Inc.
10.2 Agreement, dated as of May 13, 1998, by and between Pivot
Rules, Inc. and Kaufman Patricof Enterprises, Inc.
(incorporated by reference to the Registrant's Quarterly
report filed on Form 10-QSB for the quarterly period ended
September 30, 1998).
10.3 Amendment to Agreement dated as of August 17, 1998 between
Pivot Rules, Inc. and Kaufman Patricof Enterprises, Inc.
(incorporated by reference to the Registrant's Quarterly
report filed on Form 10-QSB for the quarterly period ended
September 30, 1998).
23.1 Consent of M.R.Weiser&Co.LLP.
23.2 Consent of Swidler Berlin Shereff Friedman, LLP (contained
in Exhibit 5.1).
26
<PAGE>
April 9, 1999
Bluefly, Inc.
42 West 39th Street
New York, NY 10018
Ladies and Gentlemen:
On the date hereof, Bluefly, Inc., a New York corporation (the "Company"),
intends to transmit for filing with the Securities and Exchange Commission, a
Registration Statement on Form S-8 (the "Registration Statement"), relating to
977,157 shares (the "Shares") of common stock, $.01 par value per share (the
"Common Stock"), of the Company of which (i) 2,402 have been issued to
Evolution On-Line Systems, Inc. ("Evolution") under the terms of that certain
Service Agreement, dated as of November 30, 1998, by and between the Company
and Evolution (the "Evolution Agreement"), (ii) 24,755 have been issued to
Kaufman Patricof Enterprises, Inc. ("KPE") under the terms of that certain
agreement, dated as of May 13, 1998, by and between the Company and KPE and the
amendment thereto, dated August 17, 1998 (collectively, the "KPE Agreement")
and (iii) 950,000 are issuable pursuant to the terms of the Company's stock
option plan, as amended (the "Stock Option Plan"). This opinion is an exhibit
to the Registration Statement.
We have at times acted as counsel to the Company with respect to certain
corporate and securities matters, and in such capacity we are familiar with
certain corporate and other proceedings taken by or on behalf of the Company in
connection with the proposed offer and sale of the Shares as contemplated by
the Registration Statement. However, we are not general counsel to the Company
and would not ordinarily be familiar with or aware of matters relating to the
Company unless they are brought to our attention by representatives of the
Company. We have examined copies (in each case signed, certified or otherwise
proven to our satisfaction to be genuine) of the Company's Certificate of
Incorporation and all amendments thereto, its By-Laws as presently in effect,
minutes and other instruments evidencing actions taken by the Company's
directors and shareholders, the Evolution Agreement, the KPE
<PAGE>
Bluefly, Inc.
April 9, 1999
Page 2
Agreement, the Stock Option Plan and such other documents and instruments
relating to the Company and the proposed offering as we have deemed necessary
under the circumstances. In our examination of all such agreements, documents,
certificates and instruments, we have assumed the genuineness of all signatures
and the authenticity of all agreements, documents, certificates and instruments
submitted to us as originals and the conformity with the originals of all
agreements, instruments, documents and certificates submitted to us as copies.
Insofar as this opinion relates to securities to be issued in the future, we
have assumed that all applicable laws, rules and regulations in effect at the
time of such issuance are the same as such laws, rules and regulations in
effect as of the date hereof.
Based on the foregoing, and subject to and in reliance on the accuracy and
completeness of the information relevant thereto provided to us, it is our
opinion that, subject to shareholder approval of the increase in the number of
shares available for issuance under the Stock Option Plan, the Shares have been
duly authorized and, subject to the effectiveness of the Registration Statement
and compliance with applicable state securities laws, (i) the Shares issued
pursuant to the Evolution Agreement and KPE Agreement have been legally and
validly issued, fully paid and nonassessable and (ii) when issued in accordance
with the terms set forth in the Stock Option Plan and options issued
thereunder, the Shares to be issued in accordance with the terms of the Stock
Option Plan will be legally and validly issued, fully paid and nonassessable.
It should be understood that nothing in this opinion is intended to apply to
any disposition of the Shares which the purchaser thereof might propose to
make.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as an exhibit to any filing made by the Company
under the securities or "Blue Sky" laws of any state.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose, except as expressly provided in the
preceding paragraph, without our express written consent, and no party other
than you is entitled to rely on it. This opinion is rendered to you as of the
date hereof and we undertake no obligation to advise you of any change, whether
legal or factual, after the date hereof.
Very truly yours,
/s/ SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
------------------------------------------
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
SBSF, LLP:RAG:JSH:AKL
<PAGE>
Service Agreement
This service agreement (the "Agreement") is made and entered into as of
November 30, 1998, by and between Evolution Online Systems, Inc. ("Evolution"),
a New York corporation, and Bluefly, Inc., a New York corporation ("Client").
WHEREAS Evolution provides services including technology consulting, analysis,
design, production, programming, management, and maintenance of online systems,
including network devices, web sites, and application software, site hosting
and network services, and the integration and resale of third party hardware
and software; and
WHEREAS Client desires to retain Evolution as an independent contractor to
perform certain services on terms set forth more fully below;
NOW THEREFORE in consideration of the mutual promises contained herein, the
parties agree as follows:
1. SERVICE SPECIFICATIONS
a. The services, compensations, and particulars of work to be performed by
Evolution for Client are attached as a Service Specification (the
"Specification") executed on even date herewith. The Specification may also
provide additional or modified terms of agreement which supersede the terms in
this Agreement, within the scope of that Specification.
b. The terms of this Agreement shall also apply to future Service
Specifications ("Future Specifications") which may be agreed upon and executed
in writing, except as specifically provided in any Future Specification
executed by both parties or otherwise agreed in writing executed by both
parties subsequent to the execution of this Agreement. Each such executed
Specification and/or Future Specification shall be considered attached and
incorporated into this Agreement.
1
<PAGE>
2. OWNERSHIP
a. Except for the Developer Software (herinafter defined), all materials,
products, and modifications developed or prepared by Evolution under this
Agreement, the Specification, and any Future Specifications, including without
limitation forms, images and text viewable on the Internet, any HTML elements
relating thereto, and software, including the deliverables and any upgrades
thereto, are the property of Client and all right, title and interest therein
shall vest in Client and shall be deemed to be a "work made for hire" under
United States copyright law (17 U.S.C. ss. 101 et seq.) and made in the course
of this Agreement. To the extent that title to any such works may not, by
operation of law, vest in Client or such works may not be considered to be work
made for hire, all right, title and interest therein are hereby irrevocably
assigned to Client. All such materials shall belong exclusively to Client with
Client having the right to obtain and to hold in its own name, copyrights,
registrations or such other protection as may be appropriate to the subject
matter, and any extensions and renewals thereof. Evolution agrees to give
Client and any person designated by Client, any reasonable assistance required
to perfect and enforce the rights defined in this Section 2.a. at no additional
cost to Client.
b. As used herein, the term "Developer Software" shall mean all software
existing and owned or licensed by Evolution at the time this Agreement is
executed, except for software developed or obtained specifically in connection
with the Client's Web site, and which is employed by Evolution in connection
with Client's Web site. Evolution shall retain all rights to use the Developer
Software as well as any general-purpose algorithms, know-how, development
techniques, utility routines, computing discoveries and concepts.
Notwithstanding the foregoing, Evolution grants to Client a perpetual,
irrevocable, non-exclusive, royalty-free license (or, in the case of
third-party software, sublicense) for Client or its agents or assigns to use,
modify, copy, transfer and maintain the Developer Software in conjunction with
the operation, maintenance, and updating of the Client Site.
3. CONFIDENTIALITY
a. Each party agrees to treat as confidential any information disclosed by
the other party which is not otherwise public knowledge including, without
limitation, the business affairs, current and planned products or services,
trade secrets, finances, and methods of operation of the parties. While the
existence of this Agreement and general nature of the services to be performed
are not, the details of the services and this Agreement shall also be
considered confidential. The confidentiality requirements of this Agreement
shall not be annulled by the completion of or termination of this Agreement.
b. The parties agree to hold all confidential information in trust and
confidence with no less a degree of care than each uses to protect its own
confidential information of a like nature. Neither party shall disclose any
confidential information to any third party without informing such third party
of the obligation to keep such information confidential.
c. The confidentiality provision of this Agreement will not apply to
disclosures of information that: is or subsequently becomes publicly available
except through a breach of the confidentiality provisions of this Agreement;
was or becomes known to the disclosing party from a source other than the
non-disclosing party; the disclosure of which is required by law; or is
disclosed pursuant to judicial process or by order of any court or governmental
entity.
d. Evolution acknowledges that Client is a publicly traded company and that
the unauthorized disclosure of Client's Confidential Information could have a
material adverse affect. Evolution shall take all appropriate precautions
necessary to prevent its officers, directors, employees and agents from
directly or indirectly trading on or otherwise releasing any of Client's
Confidential Information. The terms of this Section 3 shall survive the
termination of this agreement.
2
<PAGE>
4. INDEPENDENT CONTRACTOR
a. Evolution shall perform its obligations under this Agreement as an
independent contractor. Nothing in this Agreement shall be construed to create
a joint venture, partnership, agency, or other joint relationship between the
parties. Neither Evolution nor Client shall act or represent itself, directly
or by implication, as an agent of the other, or in any manner assume or create
any obligation on behalf of, or in the name of, the other, nor shall they
attempt to direct or control the day-to-day activities of the other.
b. In consideration of the remuneration that Evolution shall receive
hereunder and for certain other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Evolution agrees that during
the term of this agreement and for a period of nine (9) months thereafter,
Evolution (together with its successor and assigns) shall not, and shall cause
its employees, directors, officers, agents, and affiliates not to directly or
indirectly: engage in, be employed by, hold any interest in, provide advice,
act as a consultant, render any service to, or solicit a business relationship
with, any person, corporation, partnership or other entity (other than Client)
which is engaged in or has plans to engage in a Competitive Business. For
purposes of this agreement, a "Competitive Business" shall mean any person,
corporation, partnership or other entity which sells or has plans to sell name
brand apparel, fashion accessories, or home furnishings via the Internet;
provided, however, that a Competitive Business shall not include a business
which sells the product of only one designer or manufacturer, or a web site,
the principal focus of which is not the sale of name brand apparel. Evolution
agrees that in the event of a breach or threatened breach of this Section 4.b.,
Client shall have no adequate remedy in money damages and, accordingly, shall
be entitled to appropriate injunctive relief against such breach or threatened
breach.
5. CLIENT'S RESPONSIBILITIES
a. Client shall fully cooperate with and assist Evolution in the performance
of its services under this Agreement. Failure of Client, its agents, vendors,
or other parties to supply information, documents, approvals, payments, or
other materials in a timely fashion, and as may be agreed upon, may result in
delays in services provided by Evolution of lesser or greater duration, which
Client agrees shall not be considered a breach of this agreement.
b. Client will make available to Evolution a qualified project manager or
primary contact or, subject to Evolution's reasonable prior approval, Client
will appoint such a person promptly following execution of this Agreement who
will be authorized to make binding decisions for the Client regarding this
Agreement and will promptly: i. advise Evolution of Client's requirements; ii.
review all specifications, technical materials and other documentation or
correspondence submitted by Evolution, request necessary corrections, and
approve such documents; and iii. provide requested Client information and data
and assume responsibility for the accuracy of the same.
3
<PAGE>
6. PAYMENT TERMS
a. Evolution shall issue detailed invoices on a weekly, bi-weekly, or
monthly basis depending on the type of service and length of project, or as
agreed upon with Client, and on request shall provide relevant supporting
documentation for all charges. Unless otherwise provided in a Service
Specification, routine monthly fees such as network services or pre-arranged
site maintenance shall be billed in advance, while consulting and development
services shall be billed in arrears. In addition to fees and expenses specified
as described above, Evolution shall also invoice Client for reasonable and
necessary business and travel expenses, provided that each such expenses in
excess of fifty dollars must be approved in advance by Client.
b. Client shall make full payment for all invoices within thirty days of
invoice. Accounts which are unpaid and undisputed sixty days after the date of
invoice shall be considered in default and may have their service or use of
materials produced by Evolution interrupted, or Evolution at their exclusive
option may terminate this Agreement. If payment is returned unpaid, Client is
subject to a returned check charge of twenty five dollars.
c. Accounts in default are subject to an interest charge of one-and-one-half
percent per month on the outstanding balance, or the maximum rate allowable by
state and federal law at the time of default. In case of default, Client agrees
to pay Evolution its reasonable expense, including attorney and collection
agency fees, incurred in enforcing its rights under this Agreement.
d. Evolution reserves the right to change its rates by notifying Client no
less than sixty days in advance of the effective date of the change, provided
that at least ninety days have passed from the date of execution. If Evolution
and Client are unable to agree on the new fee arrangement, Client shall have
the right to terminate this agreement with sixty days written notice, for which
period Client shall pay the previous, unchanged rate.
4
<PAGE>
7. TERMINATION
a. This Agreement shall remain in effect until all obligations under the
various agreed upon Specifications have been properly completed or canceled at
which time either party can terminate the Agreement without notice.
b. If either party breaches any of the provisions of this Agreement and such
failure is not cured within 15 days after written notice thereof by the other
party, or either party becomes insolvent, ceases operations, goes into
liquidation, or files or has filed against it a petition in bankruptcy (which,
in the case of a petition filed against it, is not dismissed within 30 days) or
otherwise seeks protection under any bankruptcy, insolvency or other law
affecting creditors' rights, the other party may, at their option, either
suspend performance of their obligations under this Agreement, or terminate
this Agreement by written notice, which notice will be effective when given.
Evolution shall not be considered in breach for circumstances due to Client's
actions or other causes beyond its control. Cancellation of this agreement
shall not free Client of its obligation to pay any charges incurred prior to
the date of termination, or Evolution of its obligation to deliver all services
paid for prior to the date of termination.
c. Evolution agrees to cooperate with Client and its agents to ensure an
orderly transfer of Client's information and service arrangements in the event
of termination of this agreement other than by Client default. Client shall pay
Evolution for such assistance at Evolution's prevailing rate for such work at
that time.
8. INDEMNIFICATION
Each party hereto shall indemnify, defend, and hold harmless the other
party, its directors, officers, employees and agents with respect to any claim,
demand, cause of action, debt or liability, including reasonable attorneys'
fees, to the extent that it is based upon a claim that: (i) if true, would
constitute a breach of any of the indemnifying party's representations,
warranties, or agreements hereunder; or (ii) arises out of the gross
negligence, willful misconduct, or abandonment of the indemnifying party.
Notwithstanding the foregoing, neither Party shall be obligated to indemnify
the other or its directors, officers, employees or agents with respect to any
claim, demand, cause of action, debt or liability arising out of the gross
negligence or willful misconduct of the other Party. In claiming any
indemnification hereunder, the party claiming indemnification (the "Claimant")
shall provide the other party with written notice of any claim which the
Claimant believes falls within the scope of the foregoing sections. The
Claimant may, at its own expense, assist in the defense if it so chooses,
provided that the other party shall control such defense and all negotiations
relative to the settlement of any such claim and further provided that any
settlement intended to bind the Claimant shall not be final without the
Claimant's written consent.
5
<PAGE>
9. REPRESENTATIONS AND WARRANTIES
a. Evolution represents, warrants and covenants that: i. Evolution has full
authority to enter into this Agreement; ii. Evolution will comply with all
applicable federal, state and local laws and regulations in the performance of
its obligations hereunder; iii. Evolution has such knowledge and experience in
financial, tax and business matters so as to enable it to evaluate the merits
and risks of the Common Stock (defined in that certain Service Specification of
even date) and to make an informed decision with respect thereto; iv. Evolution
is acquiring the Common Stock for its own account for investment and not with a
view to the distribution thereof or with any present intention of distribution
or selling any of the Common Stock except in compliance with all applicable
securities laws. Evolution understands and agrees that the Common Stock has not
been registered under the Securities Act of 1933, as amended, and the Common
Stock may be sold only if registered pursuant to the provisions thereunder or
if an exemption from registration is available.
b. Except as may be explicitly provided by a Service Specification or
herein, Evolution provides these services to Client as is and without warranty
of any kind, whether express or implied, including those of merchantability and
fitness for a particular purpose.
c. In regards to the services and delivered materials, Evolution warrants
that: i. all of the services, whether rendered by Evolution or a subcontractor
thereof, will be rendered using sound, professional practices and in a
competent and professional manner by knowledgeable, trained and qualified
personnel; ii. all deliverables provided by Evolution hereunder will be
designed and will operate fully and successfully on Client's hardware as then
configured; iii. Evolution is the owner of or otherwise has the right to use
and distribute all materials and methodologies used in connection with
providing the services hereunder; iv. the software and other materials used by
Evolution in fulfilling its obligations hereunder (except materials provided by
Client) and the deliverables provided hereunder do not now and will not
infringe upon any copyright, patent, trade secret, contract right or other
third party right; v. the deliverables shall not contain any Trojan horses,
worms or viruses or other disabling devices; vi. the deliverables will record,
store, process, calculate and present calendar dates falling on and after (and
if applicable, spans of time including) January 1, 2000, and will calculate any
information dependent on or relating to such dates in the same manner, and with
the same functionality, data integrity and performance as the deliverables
record, store, process, calculate and present calendar dates on or before
December 31, 1999, or calculates any information dependent on or relating to
such dates.
d. In the event of any failure of the services or deliverables to conform to
the provisions of Section 9.c., Evolution shall use its best efforts to correct
the same, and upon correction thereof the same shall be Client's sole remedy
with respect to such failure. In no event shall Evolution be liable for costs
of procurement of substitute services, or for any loss of data, service
interruptions, interruption of business, lost profits, or any other
consequential, incidental, indirect, or special damages, however caused and on
any theory of liability, arising out of or relating to the services, even if
Evolution has been advised of the possibility of such damages.
6
<PAGE>
10. INTERPRETATION OF AGREEMENT
a. This Agreement constitutes the entire understanding of the parties, and
no representations or conditions are made by either party except as expressly
contained in this Agreement and any current or future executed Service
Specifications.
b. This Agreement may not be cancelled or modified, nor may any of their
provisions be waived, except in writing and signed by both parties. The failure
of either party to exercise in any respect any right provided for herein shall
not be deemed a waiver of any right hereunder.
c. This Agreement shall be binding on the parties and their respective
successors and permitted assigns. Neither party may assign this Agreement or
any rights or obligations thereunder without the prior written consent of the
other, except that the foregoing shall not prevent either party from assigning
this Agreement to any purchaser of or successor to all or a substantial portion
of its business or assets, or to any present or future parent, subsidiary, or
affiliate.
d. If any provision of these terms and conditions is held to be
unenforceable it shall be severed and shall not affect the enforceability of
the remaining provisions.
e. All written notices required or permitted to be given under this
agreement shall be deemed given immediately if in person, or on the next
business day if picked up by or delivered to a commercial next-business-day
delivery service and addressed to the signatories of this agreement, or as the
parties may from time to time designate.
f. This agreement and its validity, construction and effect shall be
governed by the laws of New York State, without reference to the principles of
conflicts of laws thereof. Any dispute arising out of or relating to this
agreement, the specifications, or their subject matter not settled by the
parties may be resolved only by the courts of the State of New York or, if
subject matter jurisdiction exists, by the United States federal courts, with
venue in the County of New York (in the case of state court) or in the Southern
District of New York (in the case of federal court). Each of the parties hereby
consents to the jurisdiction of such courts over it in any action involving any
such dispute. Each of the parties agrees not to commence or maintain a legal
proceeding involving any such dispute in any forum except a court of the State
of New York located in New York County or the United States District Court for
the Southern District of New York (other than to enforce a judgment obtained in
such courts) and agrees not to contest the venue of any action involving any
such dispute in the County of New York or the Southern District of New York, as
the case may be, nor to assert in any such court the doctrine of forum non
conveniens or the like. Service of process in any action involving any such
dispute in any such court may be served, at the option of the serving party, by
certified or registered mail, return receipt requested, or as provided in any
applicable statute or rule or as ordered by the court.
g. The captions of the various sections of this Agreement have been inserted
only for the purpose of convenience and shall not be deemed in any manner to
modify, enlarge, restrict, or explain any of the provisions of this Agreement.
AGREED AND ACCEPTED
The undersigned accept the terms of this Agreement.
EVOLUTION ONLINE SYSTEMS, INC. BLUEFLY, INC.
- ------------------------------ ------------------------------
Date: /s/ M. Simon Cavalletto Date: /s/ Jonathan Morris
------------------------ -------------------------
M. Simon Cavalletto Jonathan Morris
President Executive Vice President
7
<PAGE>
Service Specification
This service specification (the "Specification") is made and entered into as of
November 30, 1998, by and between Evolution Online Systems, Inc. ("Evolution"),
a New York corporation, and Bluefly, Inc., a New York corporation ("Client").
1. SERVICES
a. During the period of August 10, 1998 through October 25, 1998 Evolution
has provided an average full-time equivalent effort of between one and two
qualified persons to develop, improve, and support the Bluefly site, including
delivery of the site features described in Schedule A attached hereto to
Client, the receipt and sufficiency of which Client hereby acknowledges.
b. Starting on October 26, 1998, Evolution began providing and will continue
to provide such ongoing consulting, design, development, network,
documentation, and support services as may be requested by Client and mutually
agreed upon. Evolution and Client will periodically decide on a desirable
target level of activity, to be initially set at average full-time equivalent
effort of two qualified persons.
2. COMPENSATION
a. In consideration of performance and delivery of the services described in
section 1.a. above, Client has made the following payments to Evolution, the
receipt of which Evolution hereby acknowledges: i. $20,000 invoiced on launch
of the site; ii. $20,000 invoiced on October 16, 1998; and iii. $20,000
invoiced on October 26, 1998.
b. As further consideration for the services described in 1.a. above, Client
agrees to issue to Evolution Two Thousand Two Hundred Twenty-two (2,222) shares
of Bluefly, Inc. Common Stock, par value $0.01 ("Common Stock").
c. In consideration of performance and delivery of the services described in
section 1.b. above, Client agrees to pay Evolution $5,000 per full-time
equivalent week of effort, invoiced in arrears. The following invoices are
scheduled for services performed during 1998: i. $20,000 invoiced on November
9, 1998, payment of which has been received; ii. $20,000 invoiced on November
23; and iii. negotiated amounts invoiced on December 7, December 21, and
January 4, 1999.
d. Evolution agrees that it shall accept five percent (5%) of the fees owed
to it pursuant to section 2.c.iii. in the form of Common Stock, in lieu of
cash, based on a per share value of Thirteen Dollars and Five Sixteenths
($13.3125). The Common Stock deliverable hereunder shall be issued in arrears
on January 29, 1999.
1
<PAGE>
3. REPRESENTATIONS AND WARRANTIES
The parties agree that the representations and warranties contained in the
Service Agreement between the parties of even date, including without
limitation the representations and warranties contained in section 9.a.iii. and
9.a.iv. thereof, are hereby incorporated by reference and made a part hereof.
AGREED AND ACCEPTED
The undersigned accept the terms of this Specification.
EVOLUTION ONLINE SYSTEMS, INC. BLUEFLY, INC.
- ------------------------------ ------------------------------
Date: /s/ M. Simon Cavalletto Date: /s/ Jonathan Morris
------------------------ -------------------------
M. Simon Cavalletto Jonathan Morris
President Executive Vice President
2
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Schedule A
o Referring URL tracked, saved to profile and order
o Make product display queries sort by style descending
o Smallflies Age Groupings on Department pages and Quick Search
o Split Mens and Womens Accesories on Department pages and Quick Search
o Specialized labels for Womens' Quick Search
o Don't show inactive products to users
o No inventory expected for House & Home at launch
o Add search by style number
o Add "You Save" calculations
o My Catalog Sizes (Mens/Womens)
o Add functionality to delete catalog button
o Add category navigation within My Catalog departments
o Fix caching proble in right product frame of My Catalog
o Make sure that my catalog SQL is saved, and present before viewing
o Resolve query-timout problems in My Catalog
o Add support for All Brands and All Categories within My Catalog
o Advanced Search (w/ option to save as personal catalog)
o My Catalog, Advanced Search: Add price criteria
o Add ability to change password and registration information
o Internationalized registration/check-out based on Amazon
o Add longer international phone field to registration and checkout
o Apply stricter U.S. matching to current phone fields
o Replace popups with entry fields for career/magazine/hobby/music
o Add choices to "income" pull-down: $75-100K, $100K+
o Shipping addr defaults to billing in register, check-out
o Allow user to register for e-mail notifications
o E-mail me my password
o Shipping/billing addrs defaults to registration data, if any
o Customer may place items on hold and call to order
o Mask all but trailing 5 digits of charge card # in order forms
o Look into what other e-commerce sites are doing re: charge card encryption.
o Add fulfillment IDs to commit order pages, flyrep list view
o Carry fulfillment id throughout (key on shopper_id, but never display)
o Add "You Save" calculations (on commit order and on commit phone order)
o Order Tracking
o Phone service interface to allow completion of orders
o Log notes to customer account
o Add member and inventory screens to flyrep.
o Manager: Add distinction between financial and production user permissions
o Debug generation of order batch files for fulfillment
o Initial support for processing of incoming data from fulfillment
o Initial support for inventory transaction history features
o Debug current admin interface on Production server
o Pat-only financials page for products (first_cost, handling, list_price)
o Limit add_inventory ability to Pat's account
o Active/inactive switch for use by Pat
o Add vendor style number to product admin edit/display/new
o Answer questions for PR staff updating inventory and size data
o Activate all styles where list_price > 0 and retail_price > 0
o Correct numbers on inventory count from latest ODS report
o Update sizes and size mappings.
o Update flybuys data from e-mail
o Update g-schock brand; complete DKNY->Donna Karan conversion
o cust_serv and comp_info HTML edits & link fixes
o Confirm inventory levels in synch with actual goods on hand
o Wipe out all test transactions, bogus profiles, etc.
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CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Bluefly, Inc. 1997 Stock Option Plan and common stock
issued or issuable pursuant to employee benefit plans of our report dated March
26, 1999, with respect to the consolidated financial statements of Bluefly, Inc.
for the year ended December 31, 1998 included in its Annual Report on Form
(10-KSB) for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.
/s/ M.R.Weiser&Co.LLP
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M.R.Weiser&Co.LLP
New York, New York
April 8, 1999
