<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (section) 240.14a-11(c) or
(section) 240.14a-12
Bluefly, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
3) Filing Party:
----------------------------------------------------------------------
4) Date Filed:
----------------------------------------------------------------------
<PAGE>
BLUEFLY, INC.
42 WEST 39TH STREET
NEW YORK, NEW YORK 10018
----------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 9, 1999
----------------------------
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of Bluefly,
Inc. (the "Corporation") will be held at 5:00 P.M., local time, on December 9,
1999, at the Millennium Broadway Hotel, 145 West 44th Street, New York, New
York, for the following purposes:
1. To elect three Class 1 directors of the Corporation to hold office until
the next annual meeting of shareholders and to elect three Class 2
directors of the Corporation to hold office until the annual meeting of
shareholders in 2001;
2. To approve amendments to the Bluefly, Inc. 1997 Stock Option Plan, as
amended (the "Plan"), to (i) increase the aggregate number of shares of the
Corporation's common stock (the "Common Stock") which may be the subject of
options granted pursuant to the Plan from 500,000 shares to 1,500,000
shares; (ii) decrease the number of options initially granted pursuant to
the Plan to each non-employee director upon election or appointment as a
director from 5,000 shares to 3,750 shares of Common Stock; and (iii)
increase the size of the annual option grant made pursuant to the Plan to
each non-employee director who is a member of the Board of Directors on
April 30 of each year during the term of the Plan from 2,500 shares to
3,750 shares of Common Stock; and
3. To transact such other business as may properly come before the meeting.
Only holders of record of the Common Stock and the Corporation's Series A
Convertible Preferred Stock at the close of business on October 28, 1999 are
entitled to notice of, and to vote at, the meeting and any adjournment thereof.
Such Shareholders may vote in person or by proxy.
In September 1999, the Board of Directors of the Corporation amended the
Corporation's Amended and Restated By-laws (the "By-Laws") to bring them into
conformity with certain provisions of the New York Business Corporation Law
enacted since the By-laws were originally adopted. Specifically, the Board of
Directors approved amendments that (i) change from fifty to sixty days the
maximum number of days allowed between the date of the annual meeting of the
Corporation's shareholders and the record date for determining shareholders
entitled to vote at such a meeting and (ii) change from fifty to sixty days the
maximum number of days allowed between the date of the annual meeting of the
Corporation's shareholders and the date on which notice of such a meeting must
be provided to shareholders entitled to vote at such a meeting.
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE FILL IN, SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE THAT YOUR
SHARES ARE REPRESENTED AT THE MEETING. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES.
By Order of the Board of Directors,
/s/ E. KENNETH SEIFF
E. KENNETH SEIFF
President and Chief Executive Officer
November 5, 1999
<PAGE>
BLUEFLY, INC.
42 WEST 39TH STREET
NEW YORK, NEW YORK 10018
----------------------------
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the board of directors (the "Board of Directors") of Bluefly, Inc., a New York
corporation (the "Corporation"), of proxies to be used at the annual meeting of
shareholders of the Corporation to be held at 5:00 P.M., local time, on December
9, 1999, at the Millennium Broadway Hotel, 145 West 44th Street, New York, New
York, and at any adjournment thereof. The purposes of the meeting are:
1. To elect three Class 1 directors of the Corporation to hold office until
the next annual meeting of shareholders and to elect three Class 2
directors of the Corporation to hold office until the annual meeting of
shareholders in 2001;
2. To approve amendments (the "Plan Amendments") to the Bluefly, Inc. 1997
Stock Option Plan, as amended (the "Plan"), to (i) increase the aggregate
number of shares of the Corporation's common stock (the "Common Stock")
which may be the subject of options granted pursuant to the Plan from
500,000 shares to 1,500,000 shares; (ii) decrease the number of options
initially granted pursuant to the Plan to each non-employee director upon
election or appointment as a director from 5,000 shares to 3,750 shares of
Common Stock; and (iii) increase the size of the annual option grant made
pursuant to the Plan to each non-employee director who is a member of the
Board of Directors on April 30 of each year during the term of the Plan
from 2,500 shares to 3,750 shares of Common Stock; and
3. To transact such other business as may properly come before the meeting.
If proxy cards in the accompanying form are properly executed and returned,
the shares of Common Stock and shares of the Corporation's Series A Convertible
Preferred Stock (the "Series A Preferred Stock") represented thereby will be
voted as instructed on the proxy. If no instructions are given, such shares will
be voted (i) for the election as directors of the nominees of the Board of
Directors named below; (ii) in favor of the proposal to approve the Plan
Amendments; and (iii) in the discretion of the Proxies named in the proxy card
on any other proposals to properly come before the meeting or any adjournment
thereof. Any proxy may be revoked by a shareholder prior to its exercise upon
written notice to the Chief Executive Officer of the Corporation, or by the vote
of a shareholder cast in person at the meeting. The approximate date of mailing
of this Proxy Statement and accompanying form of proxy is November 8, 1999.
VOTING
Holders of record of the Common Stock and the Series A Preferred Stock as
of the close of business on October 28, 1999 (the "Record Date") will be
entitled to vote at the meeting or any adjournment thereof. Each share of Common
Stock entitles the holder thereof to one vote on all matters to come before the
shareholders at the meeting, except the election of the one member of the Board
of Directors who is elected by the holders of Series A Preferred Stock voting
separately as a class (the "Series A Preferred Designee"). The initial Series A
Preferred Designee was elected by vote of the holders of Series A Preferred
Stock on August 26, 1999. Each share of Series A Preferred Stock entitles the
holder thereof to the number of votes equal to the number of shares of Common
Stock (rounded up to the nearest whole number) into which such share is
convertible as of the Record Date. As of that date, each share of Series A
Preferred Stock is convertible into approximately 1.9 shares of Common Stock.
Each share of Series A Preferred Stock, therefore, entitles the holder thereof
to two votes on all matters to come before the meeting. Neither the Common Stock
nor the Series A Preferred Stock is entitled to cumulative voting.
<PAGE>
Holders of a majority of the votes entitled to be cast at the meeting will
constitute a quorum for the transaction of business. As of October 28, 1999,
there were 4,920,206 shares of Common Stock outstanding, each entitled to one
vote, and 500,000 shares of Series A Preferred Stock outstanding, each entitled
to two votes. The total number of votes entitled to be cast at the meeting is,
therefore, 5,920,206. Abstentions and broker non-votes are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business.
The favorable vote of a plurality of the votes cast by holders of Common
Stock and Series A Preferred Stock present in person or represented by proxy at
the meeting is necessary to elect the nominees for the directors of the
Corporation; and the favorable vote of a majority of the votes cast by holders
of shares of Common Stock and Series A Preferred Stock present in person or
represented by proxy at the meeting is necessary to approve the Plan Amendments.
Abstentions are not counted as votes cast and, therefore, abstentions will have
no effect on the proposals being considered. In instances where brokers are
prohibited from exercising discretionary authority for beneficial owners who
have not returned a proxy (so-called "broker non-votes"), those shares of Common
Stock and Series A Preferred Stock will not be included in the vote totals and,
therefore, will have no effect on the vote. The Board of Directors recommends a
vote FOR each of the proposals set forth above.
ITEM 1. ELECTION OF DIRECTORS
In October 1999, the directors of the Corporation increased the number of
directors constituting the entire Board of Directors to seven . The
Corporation's Amended and Restated By-laws provide that when the Corporation has
six or more directors, the Board of Directors will be divided into two classes
(Class 1 and Class 2), with members of each class serving for staggered two-year
terms. Class 1 will consist of four directors and Class 2 will consist of three
directors. The Board of Directors has made the initial designation of directors
to each of the two classes, as indicated in the table below. The Series A
Preferred Designee elected to the board on August 26, 1999 has been designated a
Class 1 director. The initial Class 1 directors will serve until the next annual
meeting of the shareholders and Class 1 directors elected thereafter will serve
a two-year term. The initial Class 2 directors will serve until the annual
meeting of the shareholders in 2001 and Class 2 directors elected thereafter
will likewise serve a two-year term.
Three Class 1 directors and three Class 2 directors are to be elected at
the meeting. The Board of Directors has recommended the persons named in the
table below as nominees for election as directors. With the exception of Mr.
Goldstein and Ms. Saltzman, all such persons are presently directors of the
Corporation. Unless otherwise specified in the accompanying proxy, the shares
voted pursuant to it will be voted for the persons named below as nominees for
election as directors. If, for any reason, at the time of the election, any of
the nominees should be unable or unwilling to accept election, it is intended
that such proxy will be voted for the election, in such nominee's place, of a
substitute nominee recommended by the Board of Directors. However, the Board of
Directors has no reason to believe that any nominee will be unable or unwilling
to serve as a director.
The following information is supplied with respect to the nominees for
election as directors of the Corporation:
NOMINEES FOR CLASS 1 DIRECTOR AND SERIES A PREFERRED DESIGNEE
DIRECTOR OF THE
NAME OF DIRECTOR AGE CORPORATION SINCE
- ---------------- --- -----------------
Red Burns 74 1998 to present
Martin Miller 69 1991 to present
Robert G. Stevens 46 1996 to present
Neal Moszkowski (Series A Preferred Designee) 33 1999 to present
GOLDIE BURNS (AKA RED BURNS) has served as a director of the Corporation
since August 1998. Since September 1983, she has been a faculty member of New
York University, where she is currently Chairman and Professor of the
Interactive Telecommunications Program and has been named the Tokyo Broadcasting
System Chair.
2
<PAGE>
MARTIN MILLER has served as a director of the Corporation since July 1991.
Since October 1997, Mr. Miller has been a partner in the Belvedere Fund, L.P., a
fund of hedge funds. From September 1986 to October 1997, Mr. Miller was the
President and a director of Baxter International, Inc., a New York based apparel
wholesaler. From January 1990 to April 1996, Mr. Miller was the Chairman of
Ocean Apparel, Inc., a Florida based sportswear firm.
NEAL MOSZKOWSKI has served as director of the Corporation since August
1999. Since August 1998, Mr. Moszkowski has been a partner of Soros Private
Equity Partners LLC ("Soros"). Prior to joining Soros, Mr. Moszkowski was an
Executive Director of Goldman Sachs International and a Vice President of
Goldman Sachs & Co., an investment banking firm, in its Principal Investment
Area. He joined Goldman Sachs & Co. in August 1993. Mr. Moszkowski is also a
director of Integra Life Sciences Holdings Corporation, a biotechnology company.
He received a B.A. from Amherst College and an M.B.A. from Stanford University.
ROBERT G. STEVENS has served as a director of the Corporation since
December 1996. Since December 1994, Mr. Stevens has been a Vice President of
Mercer Management Consulting, Inc., a management consulting firm. From November
1992 to December 1994, Mr. Stevens was a Principal at Mercer. Effective November
3, 1999, Mr. Stevens has agreed to act as a consultant to the Corporation and to
begin to serve, on or before January 1, 2000, as the Corporation's Executive
Vice President. For details on the terms of Mr. Stevens' employment agreement
with the Corporation, please refer to the paragraph titled "Certain
Relationships and Related Transactions" on page 11 of this proxy statement.
NOMINEES FOR CLASS 2 DIRECTOR
DIRECTOR OF THE
NAME OF DIRECTOR AGE CORPORATION SINCE
- ---------------- --- -----------------
E. Kenneth Seiff 34 1991 to present
Mark H. Goldstein 38
Ellin J. Saltzman 62
E. KENNETH SEIFF, the founder of the Corporation, has served as the
Corporation's Chairman of the Board, Chief Executive Officer and Treasurer since
its inception in April 1991. He became the President of the Corporation in
October 1996.
MARK H. GOLDSTEIN has served as an Internet Executive at Softbank Holdings,
a venture capital fund that specializes in investments in Internet companies,
since August 1999. From September 1997 to July 1999, Mr. Goldstein served as the
Chief Executive Officer of Impulse Buy Network, a developer of direct marketing
applications for the Internet, that was acquired by Inktomi Corporation in April
1999. From September 1995 to March 1997, Mr. Goldstein served as Executive Vice
President of Firefly Networks, a software development subsidiary of Microsoft
Corporation.
ELLIN J. SALTZMAN served as Vice President and Corporate Fashion Director
of The Limited, Inc. from 1994 to 1997. From 1992 to 1994, Ms. Saltzman served
as Senior Vice President and Fashion Director for Bergdorf Goodman. From 1989 to
1992, she served as Senior Vice President and Corporate Fashion Director for
R.H. Macy & Co., and from 1974 to 1989, she held the same position with Saks
Fifth Avenue. Since 1997, Ms. Saltzman has been an independent consultant to
various companies in the fashion industry. Ms. Saltzman received a B.A. from
Smith College.
MEETINGS OF THE BOARD
During the fiscal year ended December 31, 1998, the Board of Directors met,
or acted by unanimous written consent, on eleven occasions. Each of the
directors attended 75% or more of the aggregate number of meetings of the Board
of Directors and committee(s) on which he or she served during the 1998 fiscal
year.
3
<PAGE>
The Board of Directors has established an Audit Committee ("Audit
Committee") comprised of Neal Moszkowski and Martin Miller. The Audit Committee
is responsible for recommending to the Board of Directors the appointment of the
Corporation's outside auditors, examining the results of audits, reviewing
internal accounting controls and reviewing related party transactions. During
the fiscal year ended December 31, 1998, the Audit Committee, then comprised of
Mr. Miller and Robert G. Stevens, met, or acted by unanimous written consent, on
three occasions.
The Board of Directors also has established an Option Plan/Compensation
Committee ("Option Plan/Compensation Committee") consisting of Neal Moszkowski
and Martin Miller. The Option Plan/Compensation Committee administers the Plan,
establishes the compensation levels for executive officers and key personnel and
oversees the Corporation's bonus plans. During the fiscal year ended December
31, 1998, the Option Plan/Compensation Committee, then comprised of Mr. Miller
and Robert G. Stevens, met, or acted by unanimous written consent, on nine
occasions.
The Board of Directors has no standing nominating committee.
4
<PAGE>
SHARE OWNERSHIP
COMMON STOCK
The following table and notes set forth certain information regarding the
beneficial ownership of the Common Stock as of October 28, 1999 by all person(s)
known by the Corporation to be the beneficial owner of more than 5% of the
Common Stock, by each director and nominee for director of the Corporation, by
each of the Named Executives (as defined herein) and by all directors and
executive officers of the Corporation as a group. Except as otherwise indicated,
the Corporation believes that each beneficial owner has the sole power to vote,
as applicable, and to dispose of all shares of Common Stock owned by such
beneficial owner.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME (1) BENEFICIALLY OWNED COMMON STOCK(2)
- -------- ------------------ ---------------
<S> <C> <C>
E. Kenneth Seiff.................................................. 534,449(3)(4) 10.8%
Red Burns......................................................... 5,000(5) *
Mark H. Goldstein................................................. - -
Martin Miller..................................................... 20,750(6)(7) *
Neal Moszkowski (8)............................................... - -
Ellin J. Saltzman................................................. - -
Robert G. Stevens................................................. 30,439(9) *
Quantum Industrial Partners LDC................................... 848,400(10) 14.7
George Soros ..................................................... 876,190(11) 15.1
All directors and executive officers as a group (6 persons)....... 650,659(12) 11.7
</TABLE>
- -------------
* Less than 1%.
(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York 10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("Commission") and generally includes
voting or investment power with respect to securities. Shares of Common
Stock issuable upon the exercise or conversion of options, warrants or
preferred stock currently exercisable or convertible, or exercisable or
convertible within 60 days of the Record Date, are deemed outstanding for
computing the percentage ownership of the person holding such options,
warrants or preferred stock but are not deemed outstanding for computing
the percentage ownership of any other person.
(3) Includes 3,000 shares of Common Stock held by Nicole Seiff, the wife of E.
Kenneth Seiff, as to which Mr. Seiff disclaims beneficial ownership.
(4) Includes 32,292 shares of Common Stock issuable upon exercise of options
granted under the Plan.
(5) Includes 5,000 shares of Common Stock issuable upon exercise of options
granted under the Plan.
(6) Includes 3,000 shares of Common Stock held by Madge Miller, the wife of
Martin Miller, as to which Mr. Miller disclaims beneficial ownership.
(7) Includes 7,500 shares of Common Stock issuable upon exercise of options
granted under the Plan.
(8) Mr. Moszkowski's address is c/o Soros Private Equity Partners LLC, 888
Seventh Avenue, 33rd Floor, New York, New York 10106.
(9) Includes 7,500 shares of Common Stock issuable upon exercise of options
granted under the Plan.
5
<PAGE>
(10) Represents 848,400 shares of Common Stock issuable upon conversion of
445,410 shares of Series A Preferred Stock (the "QIP Shares") held in the
name of Quantum Industrial Partners LDC ("QIP"). QIP is a Cayman Islands
limited duration company with its principal address at Kaya Flamboyan 9,
Willemstad, Curacao, Netherlands Antilles. The sole general partner of QIP
is QIH Management Investor L.P., a Delaware limited partnership ("QIHMI"),
which is vested with investment discretion with respect to portfolio assets
held for the account of QIP. The sole general partner of QIHMI is QIH
Management, Inc., a Delaware corporation ("QIH Management"). Mr. George
Soros ("Mr. Soros"), the sole shareholder of QIH Management, has entered
into an agreement with Soros Fund Management LLC, a Delaware limited
liability company ("SFM LLC"), pursuant to which Mr. Soros has agreed to
use his best efforts to cause QIH Management to act at the direction of SFM
LLC. Mr. Soros, as Chairman of SFM LLC, and Mr. Stanley F. Druckenmiller,
as Lead Portfolio Manager of SFM LLC, may each be deemed to have shared
voting power and shared investment power with respect to the QIP Shares.
Accordingly, each of QIHMI, QIH Management, SFM LLC and Messrs. Soros and
Druckenmiller may be deemed to be the beneficial owners of the QIP Shares.
Each has their principal office at 888 Seventh Avenue, 33rd Floor, New
York, New York 10106. The foregoing information was derived, in part, from
certain publicly available reports, statements and schedules filed with the
Commission.
(11) Represents both (i) 27,790 shares of Common Stock issuable upon conversion
of 14,590 shares of Series A Preferred Stock (the "SFMDI Shares") held in
the name of SFM Domestic Investments LLC, a Delaware limited liability
company ("SFMDI"), and (ii) the QIP Shares referenced in Note 8 above. As
managing member of SFMDI, Mr. Soros also may be deemed the beneficial owner
of the SFMDI Shares. The principal address of SFMDI is at 888 Seventh
Avenue, 33rd Floor, New York, New York 10106. The foregoing information was
derived, in part, from certain publicly available reports, statements and
schedules filed with the Commission.
(12) Includes 109,700 shares of Common Stock issuable upon exercise of options
granted under the Plan.
SERIES A PREFERRED STOCK
The following table and notes set forth certain information regarding the
beneficial ownership of the Series A Preferred Stock as of October 28, 1999 by
all person(s) known by the Corporation to be the beneficial owner of more than
5% of the Series A Preferred Stock, by each director and nominee for director of
the Corporation, by each of the Named Executives (as defined herein) and by all
directors and executive officers of the Corporation as a group. Except as
otherwise indicated, the Corporation believes that each beneficial owner has the
sole power to vote, as applicable, and to dispose of all shares of Series A
Preferred Stock owned by such beneficial owner.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME (1) BENEFICIALLY OWNED PREFERRED STOCK(2)
- -------- ------------------ ------------------
<S> <C> <C>
Quantum Industrial Partners LDC................................... 445,410(3) 89.1%
George Soros ..................................................... 473,200(4) 94.6
E. Kenneth Seiff ................................................. - -
Red Burns......................................................... - -
Mark H. Goldstein................................................. - -
Martin Miller..................................................... - -
Neal Moszkowski (5)............................................... - -
Ellin J. Saltzman................................................. - -
Robert G. Stevens................................................. - -
All directors and executive officers as a group (6 persons)....... - -
</TABLE>
6
<PAGE>
- -------------
(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York 10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of Series A Preferred Stock issuable upon the
exercise of options or warrants currently exercisable or exercisable within
60 days of the Record Date are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants but are
not deemed outstanding for computing the percentage ownership of any other
person.
(3) Represents the QIP Shares held in the name of QIP. QIP is a Cayman Islands
limited duration company with its principal address at Kaya Flamboyan 9,
Willemstad, Curacao, Netherlands Antilles. The sole general partner of QIP
is QIHMI, which is vested with investment discretion with respect to
portfolio assets held for the account of QIP. The sole general partner of
QIHMI is QIH Management. Mr. Soros, the sole shareholder of QIH Management,
has entered into an agreement with SFM LLC, pursuant to which Mr. Soros has
agreed to use his best efforts to cause QIH Management to act at the
direction of SFM LLC. Mr. Soros, as Chairman of SFM LLC, and Mr. Stanley F.
Druckenmiller, as Lead Portfolio Manager of SFM LLC, may each be deemed to
have shared voting power and shared investment power with respect to the
QIP Shares. Accordingly, each of QIHMI, QIH Management, SFM LLC and Messrs.
Soros and Druckenmiller may be deemed to be the beneficial owners of the
QIP Shares. Each has their principal office at 888 Seventh Avenue, 33rd
Floor, New York, New York 10106. The foregoing information was derived, in
part, from certain publicly available reports, statements and schedules
filed with the Commission.
(4) Represents both (i) the SFMDI Shares held in the name of SFMDI, and (ii)
the QIP Shares referenced in Note 3 above. As managing member of SFMDI, Mr.
Soros also may be deemed the beneficial owner of the SFMDI Shares. The
principal address of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York,
New York 10106. The foregoing information was derived, in part, from
certain publicly available reports, statements and schedules filed with the
Commission.
(5) Mr. Moszkowski's address is c/o Soros Private Equity Partners LLC, 888
Seventh Avenue, 33rd Floor, New York, New York 10106.
7
<PAGE>
EXECUTIVE OFFICERS OF THE CORPORATION
The following table sets forth the names, ages and all positions and
offices with the Corporation held by the Corporation's present executive
officers.
NAME AGE POSITIONS AND OFFICES PRESENTLY HELD
- ---- --- ------------------------------------
E. Kenneth Seiff ................ 34 Chairman of the Board, Chief Executive
Officer, President and Treasurer
Patrick C. Barry.................. 36 Executive Vice President of Operations
and Chief Financial Officer
Jonathan B. Morris................ 31 Executive Vice President and Secretary
- ----------------
Following is information with respect to the Corporation's executive
officers who are not also directors of the Corporation:
PATRICK C. BARRY has served as the Executive Vice President of Operations
of the Corporation since July 1998 and as the Chief Financial Officer of the
Corporation since August 1998. From June 1996 until July 1998, Mr. Barry served
as the Chief Financial Officer and Vice President of Operations at Audible,
Inc., an Internet commerce and content provider. From March 1995 to June 1996,
Mr. Barry was the Chief Financial Officer of Warner Music Enterprises, Inc., a
direct marketing subsidiary of Time Warner, Inc. From July 1993 until March
1995, Mr. Barry served as the Controller of Book-of-the-Month Club, Inc., a
direct marketing subsidiary of Time Warner, Inc.
JONATHAN B. MORRIS has served as the Executive Vice President and Secretary
of the Corporation since June 1998. From November 1995 until June 1998, Mr.
Morris was an attorney at Brown Raysman Millstein Felder & Steiner, LLP, a law
firm. From September 1993 until November 1995, Mr. Morris was an attorney at
Mudge Rose Guthrie Alexander & Ferndon, a New York based law firm.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Chief Executive
Officer of the Corporation for the Corporation's fiscal years ended December 31,
1998, December 31, 1997 and December 31, 1996 (each person appearing in the
table is referred to as a "Named Executive"). No other executive officer of the
Corporation received total annual compensation from the Corporation in excess of
$100,000 during these years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------- ---------------------------- ----------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION STOCK OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) AWARDS($) (#) ($) ($)
- ----------------------- ------- --------- --------- -------------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. Kenneth Seiff 1998 165,000 25,000 1,235 -- 25,000(1) -- --
Chairman of the 1997 164,461 -- 1,235 -- -- -- --
Board, Chief 1996 89,115 144,759 -- -- -- -- --
Executive
Officer, President
and Treasurer
</TABLE>
- ---------
(1) Options granted at an exercise price equal to the fair market value on the
date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options to the Named Executives during the fiscal year ended December 31, 1998.
All of such stock options were granted under the Plan.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE OR BASE
NAME GRANTED (#) IN FISCAL YEAR (%) PRICE ($) EXPIRATION DATE
- ------------------- ------------------------------- ------------------------------- ------------------------ -----------------
<S> <C> <C> <C> <C>
E. Kenneth Seiff(1) 25,000 11.3 2.17 02/26/08
</TABLE>
- ---------
(1) Options granted at an exercise price equal to the fair market value on the
date of grant and may be exercised until the earlier of (i) the tenth
anniversary of the date of grant; (ii) 30 days after the date on which the
optionee's employment is terminated for any reason other than (a) Cause,
(b) retirement or mental or physical disability, or (c) death; (iii)
immediately upon the termination of the optionee's employment for Cause;
(iv) three months after the date on which the optionee's employment is
terminated by reason of retirement or one year after the optionee's
employment is terminated by reason of mental or physical disability or (v)
(a) 12 months after the date on which the optionee's employment is
terminated by reason of the death or (b) three months after the date on
which the optionee shall die if such death occurs during the three-month
period following the termination of the optionee's employment by reason of
retirement or mental or physical disability. Options are transferable only
by will and by the laws of descent and distribution. However, the optionee
may, with the permission of the Compensation Committee, designate one or
more beneficiaries to exercise his rights under, and to receive any
property distributable pursuant to, the option upon the optionee's death.
On January 22, 1999, the Board of Directors awarded Mr. Seiff a bonus for
the fiscal year ended December 31, 1998 consisting of an option to purchase
50,000 shares of Common Stock at $15.09 per share (which represents 110% of the
fair market value on the date of grant). The option vests monthly over a four
year period as follows: 12.5% of the option vests on the six-month anniversary
of the date of grant and 2.0833% of the option vests each month thereafter until
it has completely vested.
The Corporation does not currently grant stock appreciation rights.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during the last fiscal year and
the unexercised options held at December 31, 1998. None of the Named Executives
exercised any outstanding options during the fiscal year ended December 31,
1998.
<TABLE>
<CAPTION>
ECURITIES UNDERLYING UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 (#) AT DECEMBER 31, 1998 ($)(1)
- --------------------- ------------------------------------------------------ --------------------------------------------------
NAME EXERCISABLE UNEXERCISEABLE EXERCISABLE UNEXERCISEABLE
- --------------------- ------------------------- --------------------------- --------------------- ---------------------------
<S> <C> <C> <C> <C>
E. Kenneth Seiff n/a 25,000 n/a 199,000
</TABLE>
- ---------
(1) Represents the value of unexercised, in-the-money stock options at December
31, 1998, using the $10.125 closing price of the Common Stock on that date.
EMPLOYMENT AGREEMENTS
The Corporation has an employment agreement, which was amended on May 21,
1997, with E. Kenneth Seiff, its Chief Executive Officer. The amended employment
agreement, which expires on January 1, 2000, provides for a base salary of
$250,000 subject to increase by the Board of Directors, and an annual bonus to
be determined by the Board of Directors but not to exceed Mr. Seiff's annual
salary for the year in question. At the discretion of the Board of Directors,
all or part of such bonus may be paid through the issuance to Mr. Seiff of
capital stock of the Corporation or stock options issued pursuant to the Plan,
provided that, at the request of Mr. Seiff, a portion of such bonus sufficient
to pay any income taxes arising from such bonus will be paid in cash rather than
in capital stock of the Corporation. If the employment agreement is terminated
by the Corporation other than for cause, the Corporation would be obligated to
pay Mr. Seiff, in installments, an amount equal to the total salary due him over
the remaining term of the agreement. In addition, the Corporation maintains a
$1.2 million key person life insurance policy on the life of Mr. Seiff. The
Corporation and Mr. Seiff expect to extend Mr. Seiff's employment agreement
prior to its expiration on January 1, 2000.
DIRECTORS' COMPENSATION
The Corporation's directors are entitled to a cash stipend of $500 for each
board or committee meeting attended in person and are reimbursed for expenses
incurred on behalf of the Corporation. They do not otherwise receive any cash
compensation for their services as members of the Board of Directors.
In accordance with the Plan, each non-employee director who was a member of
the Board of Directors on the closing of the Corporation's initial public
offering on May 21, 1997 was granted on such date an option to purchase 5,000
shares of Common Stock. Under the current terms of the Plan, each person who
subsequently becomes a non-employee director automatically will be granted an
option to purchase 5,000 shares of Common Stock on the date such person becomes
a non-employee director. In addition, each non-employee director who is a member
of the Board of Directors on April 30 of a year automatically will be granted an
option to purchase 2,500 shares of Common Stock on May 1 of the following year.
However, upon approval of the Plan Amendments, the number of shares subject to
options granted to non-employee directors, on becoming members of the Board of
Directors and subsequently on April 30 of each year, will be decreased to 3,750
shares and increased to 3,750 shares, respectively, as described below. The
Corporation's directors received a one-time option grant to purchase 2,000
shares of Common Stock each on January 27, 1999. All options issued to
non-employee directors have an exercise price equal to the fair market value of
the shares of Common Stock on the date of grant and have a term of 10 years.
10
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 3, 1999, the Corporation entered into an employment agreement
with Robert G. Stevens, a director of the Corporation. Mr Stevens has agreed to
serve as the Corporations's Executive Vice President for a term of four years,
which will begin on or before January 1, 2000. In compensation for his services,
Mr. Stevens will receive an annual base salary of $175,000 subject to increase
by the Board of Directors and an annual bonus to be determined by the Board of
Directors. Mr. Stevens has also been granted an option to purchase 100,000
shares of Common Stock, subject to shareholder approval of the Plan Amendments
discussed below. Mr. Stevens' option is exercisable at the fair market value of
the Common Stock on the date of the grant and vests monthly over a four year
period according to the following schedule: 12.5% of the option vests on the
six-month anniversary of the date of grant and 2.0833% of the option vests each
month thereafter until the option has completely vested. Mr. Stevens has agreed
to act as a consultant to the Corporation until the term of his service as
Executive Vice President begins.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Corporation's directors and executive officers and persons who
beneficially own more than 10% of the Common Stock (collectively, the "Reporting
Persons") to file with the Commission initial reports of beneficial ownership
and reports of changes in beneficial ownership of the Common Stock. Reporting
Persons are required to furnish the Corporation with copies of all such reports.
To the Corporation's knowledge, based solely on a review of copies of such
reports furnished to the Corporation and certain representations of the
Reporting Persons, the Corporation believes that during the 1998 fiscal year all
Reporting Persons complied with all applicable Section 16(a) reporting
requirements, except that (i) Jonathan Morris' initial statement of beneficial
ownership on Form 3 upon his appointment as an Executive Vice President of the
Corporation was inadvertently filed late but was filed on July 15, 1998 and (ii)
Martin Miller's annual statement of beneficial ownership on Form 5 was
inadvertently filed late but was filed on October 13, 1999.
11
<PAGE>
ITEM 2. APPROVAL OF THE PLAN AMENDMENTS
On March 5, 1997, the Board of Directors adopted, and the shareholders
approved, the Bluefly, Inc. 1997 Stock Option Plan. The Plan originally provided
for the issuance of options (each an "Option") to purchase up to an aggregate of
200,000 shares of Common Stock. At the 1998 annual meeting, the shareholders
approved an amendment to the Plan which increased the aggregate number of shares
of Common Stock which may be the subject of Options granted pursuant to the Plan
to 500,000 shares. These shares are issuable under the Plan pursuant to either
Incentive Stock Options ("ISOs") qualifying under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), granted to officers and key
employees of the Corporation, or Non-Qualified Stock Options ("NQSOs") granted
to officers, key employees, consultants and non-employee directors. The
Corporation currently has sixty-three officers and key employees, five
consultants and four non-employee directors. The Plan is designed to provide an
incentive to officers, key employees, consultants and non-employee directors of
the Corporation by making available to them an opportunity to acquire a
proprietary interest or to increase their proprietary interest in the growth and
performance of the Corporation. As of October 28, 1999, Options to purchase
631,816 shares of Common Stock have been granted and remain outstanding under
the Plan, of which 131,816 of the Options were granted subject to shareholder
approval of the Plan Amendments set forth below.
Proposed Amendments
The Board of Directors believes that certain amendments to the Plan would
assist the Corporation in attracting, motivating and retaining experienced
officers, employees, consultants and directors. Accordingly, on January 27, 1999
and October 26, 1999, the Board of Directors approved amendments to the Plan,
subject to shareholder approval, which would (i) increase the aggregate number
of shares of Common Stock which may be the subject of options granted pursuant
to the Plan from 500,000 shares to 1,500,000 shares; (ii) decrease the number of
shares subject to the initial option grant made pursuant to the Plan to each
non-employee director upon election or appointment as a director from 5,000
shares to 3,750 shares of Common Stock; and (iii) increase the size of the
annual option grant made pursuant to the Plan to each non-employee director who
is a member of the Board of Directors on April 30 of each year during the term
of the Plan from 2,500 shares to 3,750 shares of Common Stock.
The Board of Directors recommended that the Plan Amendments be presented to
the Corporation's shareholders for approval. The Board of Directors adopted the
amendments relating to an increase in the number of shares of Common Stock
issuable under the Plan to ensure that the Plan has sufficient shares reserved
to allow for future grants under the Plan necessary for the Corporation to
remain competitive in its recruiting efforts, particularly given the high rate
of growth in the number of the Corporation's employees, and for the Corporation
to retain existing executives and other key employees. In determining the
appropriate size of the increase, the Board of Directors took into account the
size of the option programs of a number of similar companies as well as the
Corporation's future hiring plans. The amendments decreasing the number of
shares subject to Options initially granted to an incoming non-employee director
and increasing the number of Options granted annually to such a director were
adopted to provide the Corporation's directors with a total compensation package
that is competitive with the compensation provided to directors of similar
companies.
If the shareholders fail to approve the Plan Amendments, the Corporation
would likely be severely constrained in its ability to attract and retain
executives, other key employees, consultants and directors, and in motivating
and retaining skilled management personnel and directors necessary for the
Corporation's success. In addition, the Corporation would be required to provide
additional cash compensation to employees who have been granted Options subject
to shareholder approval.
The following is a summary of the material provisions of the Plan.
Administration of the Plan. The Option Plan/Compensation Committee
administers the Plan. The Option Plan/Compensation Committee has the full power
and authority, subject to the provisions of the Plan, to designate participants,
grant Options and determine the terms of all Options, except that non-employee
directors are, in addition to discretionary grants, automatically granted
Options both upon becoming members of the Board of Directors and
12
<PAGE>
annually pursuant to the formula described below. In addition, the Plan provides
that no participant may be granted Options to purchase more than 100,000 shares
of Common Stock in any one fiscal year. The Option Plan/Compensation Committee
is required to make adjustments with respect to Options granted under the Plan
in order to prevent dilution or expansion of the rights of any holder. The Plan
requires that the Option Plan/Compensation Committee be composed of at least two
directors, each of whom is an "outside director" as that term is defined for
purposes of Section 162(m) of the Code. The Plan also requires that the Option
Plan/Compensation Committee members be "Non-Employee Directors" within the
meaning of Rule 16b-3 under the Exchange Act. Each member of the Option
Plan/Compensation Committee is an "outside director" as that term is defined for
purposes of Section 162(m) of the Code and is a "Non- Employee Director" within
the meaning of Rule 16b-3 under the Exchange Act.
Amendment. The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the Board
of Directors, but no amendment without the approval of the shareholders of the
Corporation shall be made if shareholder approval would be required under
Section 162(m) of the Code, Section 422 of the Code, Rule 16b-3 under the
Exchange Act or any other law or rule of any governmental authority, stock
exchange or other self-regulatory organization to which the Corporation is
subject. Neither the amendment, suspension or termination of the Plan shall,
without the consent of the holder of such Option, alter or impair any rights or
obligations under any Option theretofore granted.
Options Issued Under Stock Option Plan. The terms of specific Options are
determined by the Option Plan/Compensation Committee. The per share exercise
price of the Common Stock subject to an ISO shall not be less than 100% of the
fair market value of the shares of Common Stock on the date of grant. However,
in the case of an ISO granted to a holder of shares representing more than 10%
of the total combined voting power of the Corporation (a "10% Shareholder"), the
per share exercise price shall not be less than 110% of the fair market value of
the Common Stock on the date of the grant. The per share exercise price of the
Common Stock subject to a NQSO will be the price determined by the Option
Plan/Compensation Committee. The term of each NQSO will be specified by the
Option Plan/Compensation Committee, which will generally not exceed 10 years
from the date of grant. However, the term of ISOs must not exceed 10 years after
the date of the grant (five years, if granted to a 10% Shareholder). In
addition, the fair market value of shares of Common Stock subject to ISOs
(determined as of the date such ISOs are granted) exercisable for the first time
by any individual during any calendar year may in no event exceed $100,000.
Upon the exercise of an Option, the Option holder shall pay the Corporation
the exercise price plus the amount of the required federal and state withholding
taxes, if any. At the Option Plan/Compensation Committee's discretion, the Plan
allows the participant to pay the exercise price (i) in cash, shares of Common
Stock, outstanding Options or other consideration or any combination thereof or
(ii) pursuant to a broker-assisted cashless exercise program, provided in each
case that such methods avoid "short-swing" trading profits to the participant
under Section 16(b) of the Exchange Act. The Plan also allows participants to
elect to have shares withheld upon exercise for the payment of withholding
taxes.
The unexercised portion of any Option granted to an officer or key employee
under the Plan generally will be terminated (i) 30 days after the date on which
the optionee's employment is terminated for any reason other than (A) Cause (as
defined in the Plan), (B) retirement or mental or physical disability, or (C)
death; (ii) immediately upon the termination of the optionee's employment for
Cause; (iii) (A) in the case of any ISO, three months after the date on which
the optionee's employment is terminated by reason of retirement or one year
after the optionee's employment is terminated by reason of mental or physical
disability and (B) in the case of any NQSO, three months after the date on which
the optionee's employment is terminated by reason of retirement or mental or
physical disability which period may be extended in the discretion of the Option
Plan/Compensation Committee up to one year after the date on which the
optionee's employment is terminated by reason of retirement or mental or
physical disability; or (iv) (A) 12 months after the date on which the
optionee's employment is terminated by reason of his death or (B) three months
after the date on which the optionee shall die if such death occurs during the
three-month period following the termination of the optionee's employment by
reason of retirement or mental or physical disability.
13
<PAGE>
Under the Plan, an Option generally may not be transferred by the optionee
other than by will or by the laws of descent and distribution. During the
lifetime of an optionee, an Option may be exercised only by the optionee or, in
certain instances, by the optionee's guardian or legal representative, if any.
Directors' Options. The Plan provides that each non-employee director, who
has not previously received a grant of NQSOs, automatically will be granted a
NQSO to purchase 5,000 shares of Common Stock on the date of appointment or
election, subject to the provisions of the Plan. The Plan further provides that
each non-employee director who is serving on the Board of Directors on April 30
of a year during the term of the Plan beginning in calendar year 1998
automatically will receive a NQSO to purchase 2,500 shares of Common Stock on
May 1 of the following year. Upon approval of the Plan Amendments, the number of
shares subject to Options granted to non-employee directors, on becoming members
of the Board of Directors and subsequently on April 30 of each year, will be
decreased to 3,750 and increased to 3,750, respectively, as described above. The
exercise price of the shares of Common Stock subject to Options granted
automatically to each non-employee director shall be 100% of the fair market
value of the shares of Common Stock on the date of grant. In addition to Options
which may be automatically granted to non-employee directors, the Plan provides
that non-employee directors generally may be granted Options at the discretion
of the Option Plan/Compensation Committee. Options granted to non-employee
directors only may be exercised within ten years of the date of grant. Options
granted to non-employee directors terminate (i) 30 days after termination of the
director's service as a director of the Corporation for any reason other than
retirement or mental or physical disability or death, (ii) three months after
the date the director ceases to serve as a director of the Corporation due to
retirement or physical or mental disability, which period may be extended at the
discretion of the Option Plan/Compensation Committee up to one year after the
date on which the director ceases to serve as a director of the Corporation due
to retirement physical or mental disability or (iii) (A) 12 months after the
date the director ceases to serve as a director due to his death or (B) three
months after the death of the director if such death shall occur during the
three-month period following the date the director ceased to serve as a director
of the Corporation due to physical or mental disability. Except as discussed
herein, Options granted to non-employee directors are on the same terms and
conditions as all other NQSOs granted pursuant to the Plan.
As of October 28, 1999, the following individuals and groups had been
granted Options under the Plan to purchase shares in the amounts indicated: E.
Kenneth Seiff (Chairman of the Board, Chief Executive Officer, President and
Treasurer): 75,000 shares; Patrick C. Barry (Executive Vice President of
Operations and Chief Financial Officer): 105,000 shares; Jonathan B. Morris
(Executive Vice President and Secretary): 105,000 shares; Martin Miller
(Director): 13,250 shares; Robert G. Stevens (Director): 13,250 shares; Red
Burns (Director): 10,750 shares; Neal Moszkowski (Director): 3,750 shares; all
current executive officers as a group: 285,000 shares; all current non-executive
officer directors as a group: 41,000 shares; and all employees, including
officers other than executive officers, as a group: 305,816 shares. As of
October 28, 1999, the market value of the Common Stock underlying outstanding
Options was approximately $5.7 million.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Although the Corporation cannot currently determine the number of shares
subject to Options that may be granted in the future to executive officers, each
of the executive officers of the Corporation has an interest in the approval of
the Plan Amendments in so far as they are likely to be recipients of future
Options.
Mr. Stevens has a direct interest in the approval of the Plan Amendments as
he has been granted, pursuant to the terms of his employment agreement with the
Corporation, an Option to purchase 100,000 shares of Common Stock subject to
shareholder approval of the Plan Amendments.
As non-employee directors of the Corporation, each of Ms. Burns, Ms.
Saltzman and Messrs. Miller, Goldstein and Moszkowski has a direct interest in
the approval of the Plan Amendments, which would increase the size of the annual
Option grant made pursuant to the Plan to each non-employee director who is a
member of the Board of Directors on April 30 of each year during the term of the
Plan from 2,500 shares to 3,750 shares of Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
14
<PAGE>
Set forth below is a description of the federal income tax consequences
under the Code of the grant and exercise of the benefits awarded under the Plan.
There will be no federal income tax consequences to employees, directors,
consultants or the Corporation on the grant of a NQSO. On the exercise of a
NQSO, the employee, director or consultant generally will have taxable ordinary
income, subject, in the case of an employee, to withholding, in an amount equal
to the excess of the fair market value of the shares of Common Stock received on
the exercise date over the option price of the shares. The Corporation will be
entitled to a tax deduction in an amount equal to such excess, provided the
Corporation complies with applicable reporting and/or withholding rules. Any
ordinary income realized by an employee, director or consultant upon exercise of
a NQSO will increase his tax basis in the Common Stock thereby acquired. Upon
the sale of Common Stock acquired by exercise of a NQSO, employees, directors
and consultants will realize capital gain or loss, which capital gain may be
subject to reduced rates of tax if such stock was held for more than one year
prior to the sale.
An employee, director or consultant who surrenders shares of Common Stock
in payment of the exercise price of a NQSO will not recognize gain or loss on
his surrender of such shares, but will recognize ordinary income on the exercise
of the NQSO as described above. Of the shares received in such an exchange, that
number of shares equal to the number of shares surrendered will have the same
tax basis and capital gains holding period as the shares surrendered. The
balance of the shares received will have a tax basis equal to their fair market
value on the date of exercise, and the capital gains holding period will begin
on the date of exercise.
With respect to ISOs, no compensation income is recognized by an optionee,
and no deduction is available to the Corporation upon either the grant or
exercise of an ISO. However, the difference between the exercise price of an ISO
and the market price of the Common Stock acquired on the exercise date will be
included in alternative minimum taxable income of the optionee for the purposes
of the "alternative minimum tax." Generally, if an optionee holds the shares
acquired upon exercise of ISOs until the later of (i) two years from the grant
of the ISOs and (ii) one year from the date of acquisition of the shares upon
exercise of an ISO, any gain recognized by the optionee on a sale of such shares
will be treated as capital gain. The gain recognized upon the sale is the
difference between the Option price and the sale price of the underlying Common
Stock. The net federal income tax effect on the holder of ISOs is to defer,
other than for alternative minimum tax purposes, until the shares are sold,
taxation of any increase in the value of the Common Stock from the time of grant
to the time of exercise. If the optionee sells the shares prior to the
expiration of the holding period set forth above, the optionee will realize
ordinary compensation income in the amount equal to the difference between the
exercise price and the fair market value on the date of exercise. The
compensation income will be added to the optionee's basis for purposes of
determining the gain on the sale of the shares. Such gain will be capital gain
if the shares are held as capital assets. If the application of the
above-described rule would result in a loss to the optionee, the compensation
income required to be recognized thereby would be limited to the excess, if any,
of the amount realized on the sale over the basis of the shares sold. If an
optionee disposes of shares obtained upon exercise of an ISO prior to the
expiration of the holding period described above, the Corporation will be
entitled to a deduction in the amount of the compensation income that the
optionee recognizes as a result of the disposition, subject to the Corporation
satisfying its withholding and/or reporting obligations.
If an optionee is permitted to, and does, make the required payment of the
Option price by delivering shares of Common Stock, the optionee generally will
not recognize any gain as a result of such delivery, but the amount of gain, if
any, which is not so recognized will be excluded from his basis in the new
shares received. However, the use by an optionee of shares previously acquired
pursuant to the exercise of an ISO to exercise an Option will be treated as a
taxable disposition if the transferred shares have not been held by the optionee
for the requisite holding period described above.
If the Corporation delivers cash, in lieu of fractional shares, or shares
of Common Stock to an employee pursuant to a cashless exercise program, the
employee will recognize ordinary income equal to the cash paid and the fair
market value of any shares issued as of the date of exercise. An amount equal to
any such ordinary income will be deductible by the Corporation, provided it
complies with applicable reporting and/or withholding requirements.
15
<PAGE>
If an optionee is permitted to, and does, exercise an ISO later than three
months (one year in the event of the optionee's disability, as defined in Code
Section 22(e)(3)) of the optionee's termination of employment (other than by
reason of death), the optionee will recognize income, and the Corporation
generally will be entitled to a deduction, upon exercise of the Option in
accordance with the rules for NQSOs described above, provided it complies with
applicable reporting and/or withholding requirements.
Section 162(m) of the Code, which generally disallows a tax deduction for
compensation over $1,000,000 paid to the Chief Executive Officer and certain
other highly compensated employees ("covered employees") of publicly held
corporations, provides that "performance-based" compensation will not be subject
to the $1,000,000 deduction limitation. Because an employer is not, except in
the case of a disqualifying disposition, entitled to a deduction upon the grant
or exercise of an ISO in any event, this provision generally does not affect the
Corporation's tax treatment with regard to ISOs. The compensation element of
NQSOs granted by "outside directors" under a plan approved by shareholders with
an exercise price equal to the fair market value of the underlying stock as of
the date of grant is considered performance-based compensation, if certain
requirements are met. The Plan meets such requirements and, accordingly, the
compensation element of NQSOs will not be subject to the deduction limitation of
Section 162(m).
The Plan is not subject to any provisions of the Employee Retirement Income
Security Act of 1974 and is not required to be qualified under Section 401(a) of
the Code.
The Board of Directors recommends a vote FOR approval of the Plan
Amendments.
OTHER BUSINESS
The Board of Directors currently knows of no other matters to be presented
at the meeting. However, if any other matters properly come before the meeting,
or any adjournment thereof, it is intended that proxies in the accompanying form
will be voted in accordance with the judgment of the persons named therein.
SHAREHOLDER PROPOSALS
The Corporation's Amended and Restated By-laws, as amended, provide that a
shareholder who intends to present a proposal for shareholder vote at the
Corporation's 2000 Annual Meeting must give written notice to the Secretary of
the Corporation not less than 90 days nor more than 120 days prior to the date
that is one year from the date of the Corporation's 1999 Annual Meeting.
Accordingly, any such proposal must be received by the Corporation between
August 11, 2000 and September 10, 2000. The notice must contain specified
information about the proposed business and the shareholder making the proposal.
If a shareholder gives notice of a proposal after the deadline, the
Corporation's proxy holders will have discretionary authority to vote on this
proposal when and if raised at the 2000 Annual Meeting. In addition, in order to
include a shareholder proposal in the Corporation's proxy statement and form of
proxy for the 2000 Annual Meeting, such proposal must be received by the
Corporation at its principal executive offices no later than the close of
business on July 5, 2000 and must otherwise comply with the rules of the
Commission for inclusion in the proxy materials.
COST OF SOLICITATION
The cost of soliciting proxies in the accompanying form has been or will be
borne by the Corporation. Directors, officers and employees of the Corporation
may solicit proxies personally or by telephone or other means of communications.
Although there is no formal agreement to do so, arrangements may be made with
brokerage houses and other custodians, nominees and fiduciaries to send proxies
and proxy material to their principals, and the Corporation may reimburse them
for any attendant expenses.
16
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE RESPECTFULLY
REQUESTED TO SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED STAMPED AND
ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE.
By Order of the Board of Directors,
/s/ E. KENNETH SEIFF
E. KENNETH SEIFF
President and Chief Executive Officer
Dated: November 5, 1999
17
<PAGE>
[FRONT]
BLUEFLY, INC.
PROXY
Annual Meeting, December 9, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints E. KENNETH SEIFF and JONATHAN MORRIS as
Proxies, each with full power to appoint his substitute, and hereby authorizes
them to appear and vote as designated on the reverse side, all shares of Common
Stock and Series A Preferred Stock of Bluefly, Inc. held on record by the
undersigned on October 28, 1999, at the Annual Meeting of Shareholders to be
held on December 9, 1999, and any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 and 2.
(Continued and to be signed on the reverse side.)
<PAGE>
A |X| Please mark your votes as in this example.
VOTE FOR
all nominees listed at VOTE WITHHELD
right except as marked to the AUTHORITY
contrary below from all nominees
1. ELECTION [ ] [ ]
OF
DIRECTORS
FOR, EXCEPT VOTE Nominees: Class 1
WITHHELD AS TO Red Burns
THE FOLLOWING Martin Miller
NOMINEES (IF ANY): Robert G. Stevens
Class 2
E. Kenneth Seiff
Mark H. Goldstein
Ellin J. Saltzman
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE THE
PLAN AMENDMENTS. [ ] [ ] [ ]
3. IN THEIR DISCRETION, THE NAMED PROXIES MAY VOTE ON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE ANNUAL MEETING, OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.
- -------------------
The undersigned acknowledges receipt of the accompanying Proxy Statement dated
November 5, 1999.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE ANNUAL MEETING IN
ACCORDANCE WITH THE SHAREHOLDER'S SPECIFICATIONS ABOVE. THE PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
DATE
-------------------------
- -----------------------------------
SIGNATURE OF SHAREHOLDER
- -----------------------------------
SIGNATURE IF HELD JOINTLY
NOTE: Please mark, date, sign and return this Proxy promptly using the enclosed
envelope. When shares are held by joint tenants, both should sign. If
signing as a attorney, executor, administrator, trustee or guardian,
please give full title. If a corporation or partnership, please sign in
corporate or partnership name by an authorized person.
<PAGE>
APPENDIX 1
BLUEFLY, INC.
1997 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purposes of this Bluefly, Inc. 1997 Stock Option Plan (the "Plan")
are to encourage selected employees, consultants and directors of Bluefly, Inc.
(together with any successor thereto, the "Company") and its Affiliates (as
defined below) to acquire a proprietary interest in the growth and performance
of the Company, to generate an increased incentive to contribute to the
Company's future success and prosperity, thus enhancing the value of the Company
for the benefit of its shareholders, and to enhance the ability of the Company
and its Affiliates to attract and retain qualified individuals upon whom, in
large measure, the sustained progress, growth, and profitability of the Company
depend.
SECTION 2. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean any entity that, directly or through one or
more intermediaries, is controlled by, controls or is under common control with
the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Committee" shall mean a committee of the Board designated by the
Board to administer the Plan and composed of not less than two directors, each
of whom is both a non-employee director within the meaning of Rule 16b-3 and an
"outside director" as that term is defined for purposes of Section 162(m) of the
Code.
(e) "Consultant" shall mean any Person who contracts to provide
services to the Company as an independent contractor.
(f) "Fair Market Value" shall mean, with respect to Shares or other
securities (i) the closing price per Share of the Shares on the principal
exchange on which the Shares are then trading, if any, on such date, or, if the
Shares were not traded on such date, then on the next preceding trading day
during which a sale occurred; or (ii) if the Shares are not traded on an
exchange but are quoted on NASDAQ or a successor quotation system, (1) the last
sales price (if the Shares are then listed as a National Market Issue under the
NASDAQ National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Shares on such
date as reported by NASDAQ or such successor quotation system; or (iii) if the
Shares are not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the Shares on such date as determined in good faith by the Committee; or
(iv) if the provisions of clauses (i), (ii) and (iii) shall not be applicable,
the fair market value established by the Committee acting in good faith.
(g) "Incentive Stock Option" shall mean an option granted under Section
6 of the Plan that meets the requirements of Section 422 of the Code or any
successor provision thereto.
(h) "Key Employee" shall mean any officer, director or other employee
who is a regular full-time employee of the Company or its present and future
Affiliates.
(i) "Non-Employee Director" shall mean each member of the Board who is
not an employee of the Company or any Affiliate.
1
<PAGE>
(j) "Non-Qualified Stock Option" shall mean an option granted under the
Plan that is not an Incentive Stock Option.
(k) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(1) "Option Agreement" shall mean a written agreement, contract, or
other instrument or document evidencing an Option granted under the Plan.
(m) "Participant" shall mean a Key Employee, Consultant or Non-Employee
Director who has been granted an Option under the Plan.
(n) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(o) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation thereto.
(p) "Shares" shall mean the common stock of the Company, $.01 par
value, and such other securities or property as may become the subject of
Options pursuant to an adjustment made under Section 4(b) of the Plan.
(q) "Ten Percent Shareholder" shall mean a Person, who together with
his or her spouse, children and trusts and custodial accounts for their benefit,
immediately at the time of the grant of an Option and assuming its immediate
exercise, would beneficially own, within the meaning of Section 424(d) of the
Code, Shares possessing more than ten percent (10%) of the total combined voting
power of all of the outstanding capital stock of the Company.
SECTION 3. ADMINISTRATION
(a) Generally. The Plan shall be administered by the Committee. Unless
otherwise expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the Plan or any
Option shall be within the sole discretion of the Committee, may be made at any
time, and shall be final, conclusive, and binding upon all Persons, including
the Company, any Affiliate, any Participant, any holder or beneficiary of any
Option, any shareholder of the Company or any Affiliate, and any employee of the
Company or of any Affiliate.
(b) Powers. Subject to the terms of the Plan and applicable law and
except as provided in Section 7 hereof, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Options to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by Options; (iv) determine the terms and
conditions of any Option; (v) determine whether, to what extent, and under what
circumstances Options may be settled or exercised in cash, Shares, other
Options, or other property, or canceled, forfeited, or suspended, and the method
or methods by which Options may be settled, exercised, canceled, forfeited, or
suspended; (vi) interpret and administer the Plan and any instruments or
agreements relating to, or Options granted under, the Plan; (vii) establish,
amend, suspend, or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan; and (viii)
make any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan.
(c) Reliance, Indemnification. The Committee may employ attorneys,
consultants, accountants or other persons and the Committee, the Company and its
officers and directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. No member of the Committee shall be personally
liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan, or Options granted
2
<PAGE>
thereunder and all members of the Committee shall be fully indemnified and
protected by the Company in respect of any such action, determination or
interpretation.
SECTION 4. SHARES AVAILABLE FOR OPTIONS
(a) Shares Available. Subject to adjustment as provided in Section
4(b):
(i) Limitation on Number of Shares. Options issuable under the
Plan are limited such that the maximum aggregate number of Shares which
may issued to Key Employees, Consultants and Non- Employee Directors
pursuant to, or by reason of, Options is 500,000. No Participant shall
be granted in any one fiscal year Options to purchase more than 100,000
Shares. To the extent that an Option granted to a Participant ceases to
remain outstanding by reason of termination of rights granted
thereunder, forfeiture or otherwise, the Shares subject to such Option
shall again become available for award under the Plan; provided,
however, that in the case of the cancellation or termination of an
Option in the same fiscal year that such Option was granted, both the
canceled Option and the newly granted Option shall be counted in
determining whether the recipient has received the maximum number of
such Options under the Plan for such fiscal year.
(ii) Accounting for Awards. For purposes of this Section 4,
the number of Shares covered by an Option to (A) a Key Employee or
Consultant or (B) a Non-Employee Director shall be counted on the date
of grant of such Option against the aggregate number of Shares
available for granting Options under the Plan to (x) Key Employees and
Consultants or (y) Non-Employee Directors, respectively.
(iii) Sources of Shares Deliverable Under Options. Any Shares
delivered pursuant to an Option may consist, in whole or in part, of
authorized and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall determine that
any (i) subdivision or consolidation of Shares, (ii) dividend or other
distribution (in the form of Shares), (iii) recapitalization or other capital
adjustment of the Company or (iv) merger, consolidation or other reorganization
of the Company or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event (of a type described in
Treasury Regulation Section 1.162-27(e)(2)(iii)(C)), affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem necessary to prevent dilution or enlargement of the benefits or
potential benefits intended to be made under the Plan, adjust any or all of (x)
the number and type of Shares which thereafter may be made the subject of
Options, (y) the number and type of Shares subject to outstanding Options, and
(z) the grant, purchase, or exercise price with respect to an Option or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Option, provided, however, in each case, that (i) with respect to
Incentive Stock Options no such adjustment shall be authorized to the extent
that such adjustment would cause the Plan to violate Section 422 of the Code or
any successor provision thereto; (ii) each such adjustment shall be made in such
manner as not to constitute a cancellation and reissuance of a Non-Qualified
Stock Option for purposes of Section 162(m) of the Code, or the regulations
promulgated thereunder, to the extent that such reissuance would result in the
grant of such Options in excess of the maximum permitted to be granted to any
Participant in any fiscal year; and (iii) the number of Shares subject to any
Option denominated in Shares shall always be a whole number.
SECTION 5. ELIGIBILITY
Options may be granted only to Key Employees, Consultants and
Non-Employee Directors; provided, however, that Incentive Stock Options may be
granted only to Key Employees. In determining the Persons to whom Options shall
be granted and the number of Shares to be covered by each Option, the Committee
shall take into account the nature of the Person's duties, such Person's present
and potential contributions to the success of the Company and such other factors
as it shall deem relevant in connection with accomplishing the purposes of the
3
<PAGE>
Plan. A Key Employee or Consultant who has been granted an Option or Options
under the Plan may be granted an additional Option or Options, subject to such
limitations as may be imposed by the Code on the grant of incentive Stock
Options.
SECTION 6. OPTION
The Committee is hereby authorized to grant Options to Participants
upon the following terms and the conditions (except to the extent otherwise
provided in Section 7) and with such additional terms and conditions, in either
case not inconsistent with the provisions of the Plan, as the Committee shall
determine:
(a) Exercise Price. The purchase price per Share purchasable
under Incentive Stock Options shall not be less than 100% of the Fair
Market Value of a Share on the date of grant; provided that the
purchase price per Share purchasable under Incentive Stock Options
granted to Ten Percent Shareholders shall be not less than 110% of the
Fair Market Value of a Share on the date of grant. The purchase price
per Share purchasable under Non-Qualified Stock Options shall be the
price determined by the Committee.
(b) Option Term. The term of each Non-Qualified Stock Option
shall be fixed by the Committee. The term of each Incentive Stock
Option shall in no event be more than 10 years from the date of grant,
or in the case of an Incentive Stock Option granted to a Ten Percent
Shareholder, 5 years from the date of grant.
(c) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in
part, and the method or methods by which, and the form or forms in
which, payment of the option price with respect thereto may be made or
deemed to have been made (including, without limitation, (i) cash,
Shares, outstanding Options or other consideration, or any combination
thereof, having a Fair Market Value on the exercise date equal to the
relevant option price and (ii) a broker-assisted cashless exercise
program established by the Committee), provided in each case that such
methods avoid "short-swing" profits to the Participant under Section
16(b) of the Securities Exchange Act of 1934, as amended. The payment
of the exercise price of an Option may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee.
(d) Early Termination. The unexercised portion of any Option
granted to a Key Employee or Consultant under the Plan will generally
be terminated (i) thirty (30) days after the date on which the Key
Employee's employment is terminated or the period of the Consultant's
services ceases, as the case may be, for any reason other than (A)
Cause (as defined below), (B) retirement or mental or physical
disability, or (C) death; (ii) immediately upon the termination of the
Key Employee's employment for Cause; (iii) in the case of any Incentive
Stock Option, three months after the date on which the Key Employee's
employment is terminated by reason of retirement or one year after the
Key Employee's employment is terminated by reason of mental or physical
disability, or in the case of any Non-Qualified Stock Option, three
months after the date on which the Key Employee's employment is
terminated or the period of the Consultant's services ceases, as the
case may be, by reason of retirement or mental or physical disability,
or in the discretion of the Committee up to one year after the date on
which the Key Employee's employment is terminated or the period of the
Consultant's services ceases, as the case may be, by reason of
retirement or mental or physical disability; or (iv)(A) 12 months
after the date on which the Key Employee's employment is terminated or
the period of the Consultant's services ceases, as the case may be, by
reason of the death of the Key Employee or the Consultant, as the case
may be, or (B) three months after the date on which the Key Employee
or the Consultant, as the case may be, shall die if such death shall
occur during the three-month period following the termination of the
Key Employee's employment or the cessation of the Consultant's
services, as the case may be, by reason of retirement or mental or
physical disability. The term "Cause," as used herein, shall mean (w)
the Key Employee's willful misconduct or fraud in the performance of
his duties under such Key Employee's employment arrangement with the
Company, (x) the
4
<PAGE>
continued failure or refusal of the Key Employee (following written
notice thereof) to carry out any reasonable request of the Board for
the provision of services under such Key Employee's employment
arrangement with the Company, (y) the material breach by the Key
Employee of his employment arrangement with the Company or (z) the
entering of a plea of guilty or nolo contendere to or the conviction of
the Key Employee for a felony or any other criminal act involving moral
turpitude, dishonesty, theft or unethical business conduct. For
purposes of this paragraph (d), no act shall be considered willful
unless done or omitted to be done not in good faith and without
reasonable belief that such action or omission was in the best interest
of the Company.
(e) Incentive Stock Options. All terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision
thereto, and any regulations promulgated thereunder.
(f) No Cash Consideration for Awards. Awards shall be granted
for no cash consideration or such minimal cash consideration as may be
required by applicable law.
(g) Limits on Transfer of Options. Subject to Code Section
422, no Option and no right under any such Option, shall be assignable,
alienable, saleable, or transferable by a Participant otherwise than by
will or by the laws of descent and distribution; provided, however,
that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, designate a beneficiary or
beneficiaries to exercise the rights of the Participant, and to receive
any property distributable, with respect to any Option upon the death
of the Participant. Each Option, and each right under any such Option,
shall be exercisable during the Participant's lifetime, only by the
Participant or, if permissible under applicable law with respect to any
Option that is not an Incentive Stock Option, by the Participant's
guardian or legal representative. No Option and no right under any such
Option, may be pledged, alienated, attached, or otherwise encumbered,
and any purported pledge, alienation, attachment, or encumbrance
thereof shall be void and unenforceable against the Company or any
Affiliate.
(h) Term of Options. Except as set forth in Section 6(b) and
Section 7, the term of each Option shall be for such period as may be
determined by the Committee.
(i) Share Certificates. All certificates for Shares or other
securities of the Company delivered under the Plan pursuant to any
Option or the exercise thereof shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under
the Plan or the rules, regulations, and other restrictions of the
Securities and Exchange Commission, any stock exchange upon which such
Shares or other securities are then listed, and any applicable Federal
or state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
SECTION 7. OPTIONS AWARDED TO NON-EMPLOYEE DIRECTORS
Each Non-Employee Director who was a member of the Board on the
Effective Date (defined hereafter) shall automatically be granted on such date a
Non-Qualified Stock Option to purchase 5,000 Shares, subject to all of the
provisions of the Plan. Each person who is either elected or appointed a
Non-Employee Director, and who has not previously received a grant of
Non-Qualified Stock Options pursuant to the Plan, shall automatically be granted
a Non-Qualified Stock Option to purchase 5,000 Shares on the date of their
appointment or election, subject to the provisions of the Plan. In addition,
each Non-Employee Director who is a member of the Board on April 30 of a year
during the term of the Plan beginning in calendar year 1998 shall automatically
be granted a Non-Qualified Stock Option to purchase 2,500 Shares on May 1of the
following year. All Options granted to Non-Employee Directors pursuant to the
Plan shall (a) be (in the case of a grant under this Section 7) at an exercise
price per Share equal to 100% of the Fair Market Value of a Share on the date of
the grant; (b) have (in the case of a grant under this Section 7) a term of 10
years; (c) terminate (i) thirty (30) days after termination of a Non-Employee
Director's
5
<PAGE>
service as a director of the Company for any reason other than retirement or
mental or physical disability or death, (ii) thirty (30) days after the date the
Non-Employee Director ceases to serve as a director of the Company due to
retirement or physical or mental disability, or in the discretion of the
Committee up to one year after the date the Non-Employee Director ceases to
serve as a director of the Company due to retirement or physical or mental
disability or (iii)(A) 12 months after the date the Non-Employee Director ceases
to serve as a director due to the death of the Non-Employee Director or (B)
three months after the death of the Non-Employee Director if such death shall
occur during the three month period following the date the Non-Employee Director
ceased to serve as a director of the Company due to physical or mental
disability; and (d) be otherwise on the same terms and conditions as all other
Options granted pursuant to the Plan.
SECTION 8. AMENDMENT AND TERMINATION
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Option Agreement or in the Plan:
(a) Amendments to the Plan. The Plan may be wholly or partially amended
or otherwise modified, suspended or terminated at any time or from time to time
by the Board, but no amendment without the approval of the shareholders of the
Company shall be made if shareholder approval would be required under Section
162(m) of the Code, Section 422 of the Code, Rule 16b-3 or any other law or rule
of any governmental authority, stock exchange or other self-regulatory
organization to which the Company is subject. Neither the amendment, suspension
or termination of the Plan shall, without the consent of the holder of such
Option, alter or impair any rights or obligations under any Option theretofore
granted.
(b) Adjustments of Options Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee shall be authorized to make adjustments in
the terms and conditions of, and the criteria included in, Options in
recognition of unusual or nonrecurring events (including, without limitation,
the events described in Section 4(b) hereof) affecting the Company, any
Affiliate, or the financial statements of the Company or any Affiliate or of
changes in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to prevent
enlargement of the benefits or potential benefits to be made available under the
Plan.
(c) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
SECTION 9. ELECTION TO HAVE SHARES WITHHELD
(a) In combination with or in substitution for cash withholding or any
other legal method of satisfying federal and state withholding tax liability, a
Participant may elect to have Shares withheld by the Company or to have Shares
sold in a broker-assisted transaction in order to satisfy federal and state
withholding tax liability (a "share withholding election"), provided (i) the
Committee shall have adopted procedures providing for a withholding election;
and (ii) the share withholding election is made on or prior to the date on which
the amount of withholding tax liability is determined (the "Tax Date"). If a
Participant elects within thirty (30) days of the date of exercise to be subject
to withholding tax on the exercise date pursuant to the provisions of Section
83(b) of the Code, then the share withholding election may be made during such
thirty (30) day period. Notwithstanding the foregoing, a holder whose
transactions in Common Stock are subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended, may make a share withholding election only if
the following additional conditions are met: (i) the share withholding election
is made no sooner than six (6) months after the date of grant of the Option,
except, however, such six (6) month condition shall not apply if the
Participant's death or disability (as shall be determined by the Committee)
occurs within such six (6) month period; and (ii) the share withholding election
is made (x) at least six (6) months prior to the Tax Date, or (y) during the
period beginning on the third business day
6
<PAGE>
following the date of release of the Company's quarterly or annual financial
results and ending on the twelfth business day following such date.
(b) A share withholding election shall be deemed made when written
notice of such election, signed by the Participant, has been hand delivered or
transmitted by registered or certified mail to the Secretary of the Company at
its then principal office. Delivery of said notice shall constitute an
irrevocable election to have Shares withheld.
(c) If a Participant has made a share withholding election pursuant to
this Section 9, and (i) within thirty (30) days of the date of exercise of the
Option, the Participant elects pursuant to the provisions of Section 83(b) of
the Code to be subject to withholding tax on the date of exercise of the Option,
then such Participant will be unconditionally obligated to immediately tender
back to the Company the number of Shares having an aggregate fair market value
(as determined in good faith by the Committee), equal to the amount of tax
required to be withheld plus cash for any fractional amount, together with
written notice to the Company informing the Company of the Participant's
election pursuant to Section 83(b) of the Code; or (ii) if the Participant has
not made an election pursuant to the provisions of Section 83(b) of the Code,
then on the Tax Date, such Participant will be unconditionally obligated to
tender back to the Company the number of Shares having an aggregate fair market
value (as determined in good faith by the Committee), equal to the amount of tax
required to be withheld plus cash for any fractional amount.
SECTION 10. VESTING LIMITATION ON INCENTIVE STOCK OPTIONS
The Fair Market Value of Shares subject to Incentive Stock Options
(determined as of the date such Incentive Stock Options are granted) exercisable
for the first time by any individual during any calendar year shall in no event
exceed $100,000.
SECTION 11. GENERAL PROVISIONS
(a) No Rights to Awards. No Key Employee or Consultant shall have any
claim to be granted any Option under the Plan, and there is no obligation for
uniformity of treatment of Key Employees or Consultants or holders or
beneficiaries of Options under the Plan. The terms and conditions of Options
need not be the same with respect to each recipient.
(b) No Limit on Other Plans. Nothing contained in the Plan shall
prevent the Company or any Affiliate from adopting or continuing in effect other
or additional compensation arrangements and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) No Right to Employment. The grant of an Option shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability, or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Option
Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of New York and applicable Federal law.
(e) Severability. If any provision of the Plan or any Option is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or would disqualify the Plan or any Option under any law deemed
applicable by the Committee, such provision shall be construed or deemed amended
to conform to applicable laws, or if it cannot be construed or deemed amended
without, in the determination of the Committee, materially altering the intent
of the Plan, such provision shall be deemed void, stricken and the remainder of
the Plan and any such Option shall remain in full force and effect.
7
<PAGE>
(f) No Trust or Fund Created. Neither the Plan nor any Option shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Option, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(g) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(h) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision hereof.
SECTION 12. DEDUCTIBILITY OF COMPENSATION
Prior to the end of the "reliance period" as defined in Treasury
Regulation Section 1.162-27(f)(2), the Committee shall take such actions, if
any, that it deems necessary or appropriate so that the compensation element of
Non-Qualified Stock Options will qualify as "qualified performance-based
compensation," within the meaning of Treasury Regulation Section 1.162-27(e).
SECTION 13. EFFECTIVE DATE OF THE PLAN
The Plan is effective as of the closing of the Company's initial public
offering (the "Effective Date").
SECTION 14. TERM OF THE PLAN
The Plan shall continue until the earlier of (i) the date on which all
Options issuable hereunder have been issued, (ii) the termination of the Plan by
the Board or (iii) March 4, 2007. However, unless otherwise expressly provided
in the Plan or in an applicable Option Agreement, any Option theretofore granted
may extend beyond such date and the authority of the Committee to amend, alter,
adjust, suspend, discontinue, or terminate any such Option or to waive any
conditions or rights under any such Option, and the authority of the Board to
amend the Plan, shall extend beyond such date.
8
