<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 333-22895
---------------------------------------
BLUEFLY, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3612110
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
42 West 39th Street, New York, NY 10018
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 944-8000
---------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of November 4, 1999, the issuer had outstanding 4,920,206 of shares of Common
Stock, $.01 par value.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
BLUEFLY, INC.
TABLE OF CONTENTS
PAGE
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Operations for the nine months ended
September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Operations for the three months ended
September 30, 1999 and 1998 (unaudited) 5
Consolidated Statement of Changes in Shareholders' Equity for the
year ended December 31, 1998 and the nine months ended
September 30, 1999 (unaudited) 6
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (unaudited) 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis or Plan of Operation 12
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
BLUEFLY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 12,847,000 $ 2,830,000
Funds deposited with factor -- 2,264,000
Inventories 4,454,000 429,000
Prepaid expenses and other current assets 875,000 527,000
Deferred income taxes 50,000 50,000
Current assets of discontinued operations -- 553,000
------------ ------------
Total current assets 18,226,000 6,653,000
Property and equipment, net 892,000 497,000
Other assets 37,000 15,000
------------ ------------
$ 19,155,000 $ 7,165,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,639,000 $ 605,000
Accrued expenses and other current liabilities 303,000 104,000
------------ ------------
Total current liabilities 2,942,000 709,000
Deferred income taxes 64,000 64,000
------------ ------------
3,006,000 773,000
------------ ------------
Commitments and contingencies (Note 5)
Shareholders' equity
Preferred stock -$.01 par value; 2,000,000 authorized
and 500,000 and 0 shares issued and
outstanding, respectively 5,000 --
Common stock -$.01 par value; 15,000,000
authorized and 4,905,206 and 3,433,255 issued
and outstanding, respectively 49,000 34,000
Additional paid-in capital 27,637,000 10,395,000
Accumulated deficit (11,542,000) (4,037,000)
------------ ------------
16,149,000 6,392,000
------------ ------------
$ 19,155,000 $ 7,165,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BLUEFLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales $ 1,909,000 $ 4,000
Cost of sales 1,454,000 53,000
----------- -----------
Gross profit (loss) 455,000 (49,000)
Selling, marketing and fulfillment expenses 6,301,000 329,000
General and administrative expenses 2,016,000 676,000
Internet start up costs -- 327,000
----------- -----------
Total (8,317,000) (1,332,000)
Operating loss from continuing operations (7,862,000) (1,381,000)
Interest income 294,000 111,000
----------- -----------
Loss from continuing operations (7,568,000) (1,270,000)
----------- -----------
Discontinued operations - Note 4
Income (loss) from operations 63,000 (1,029,000)
Estimated loss on disposal, including provision
for operating losses through disposal
date, less applicable income tax benefit of $0 -- (120,000)
----------- -----------
Income (loss) from discontinued operations 63,000 (1,149,000)
----------- -----------
Net loss $(7,505,000) $(2,419,000)
----------- -----------
Preferred stock dividends (140,000) --
----------- -----------
Net loss available to common shareholders $(7,645,000) $(2,419,000)
=========== ===========
Basic and diluted (loss) income per common share
Continuing operations (1.62) (.47)
Discontinued operations .01 (.38)
Estimated loss on disposal -- (.04)
----------- -----------
Net loss per common share $ (1.61) $ (.89)
=========== ===========
Weighted average shares outstanding 4,763,074 2,705,994
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BLUEFLY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales $ 873,000 4,000
Cost of sales 656,000 53,000
----------- -----------
Gross profit (loss) 217,000 (49,000)
Selling, marketing and fulfillment expenses 2,674,000 203,000
General and administrative expenses 1,003,000 230,000
Internet start up costs -- 224,000
----------- -----------
Total (3,677,000) (657,000)
Operating loss from continuing operations (3,460,000) (706,000)
Interest income 111,000 30,000
----------- -----------
Loss from continuing operations (3,349,000) (676,000)
----------- -----------
Discontinued operations - Note 4
Income from operations -- 51,000
Estimated loss on disposal, including provision
for operating losses through disposal
date, less applicable income tax benefit of $0 -- --
----------- -----------
Income from discontinued operations -- 51,000
----------- -----------
Net loss $(3,349,000) $ (625,000)
----------- -----------
Preferred stock dividends (140,000) --
----------- -----------
Net loss available to common shareholders $(3,489,000) $ (625,000)
=========== ===========
Basic and diluted (loss) per common share
Continuing operations (.71) (.25)
Discontinued operations -- .02
Estimated loss on disposal -- --
----------- -----------
Net loss per common share $ (.71) $ (.23)
=========== ===========
Weighted average shares outstanding 4,901,749 2,717,788
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BLUEFLY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock, Common Stock,
$.01 par value $.01 par value
-------------------- -------------------------
Additional
Number of Number of Paid-in Accumulated
shares Amount shares Amount capital Deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 -- $ -- 2,700,000 $ 27,000 $ 6,404,000 $ (381,000) $ 6,050,000
Issuance of common stock for
research and development -- -- 24,755 -- 49,000 -- 49,000
Issuance of common stock for
exercise of warrants ($5.00 per
share) -- -- 573,250 6,000 2,861,000 -- 2,867,000
Issuance of common stock for
exercise of unit purchase
options ($8.00 per share) -- -- 135,250 1,000 1,081,000 -- 1,082,000
Net loss -- -- -- -- -- (3,656,000) (3,656,000)
--------- -------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 -- -- 3,433,255 34,000 10,395,000 (4,037,000) 6,392,000
Issuance of Series A Preferred
Stock, ($20.00 per share) net
of expenses of $57,000 500,000 5,000 -- -- 9,938,000 -- 9,943,000
Exercise of warrants and stock
options -- -- 1,471,951 15,000 7,304,000 -- 7,319,000
Net loss -- -- -- -- -- (7,505,000) (7,505,000)
--------- -------- ------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999 500,000 $ 5,000 4,905,206 $ 49,000 $ 27,637,000 $(11,542,000) $ 16,149,000
========= ======== ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BLUEFLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Loss from continuing operations $(7,568,000) $(1,270,000)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:
Depreciation and amortization 83,000 62,000
Common stock issued for research and development 7,000 49,000
Changes in operating assets and liabilities:
(Increase) decrease in
Inventories (4,025,000) (266,000)
Prepaid expenses and other current assets (348,000) (154,000)
Other assets (22,000) --
Increase (decrease) in
Accounts payable, accrued expenses
and other current liabilities 2,233,000 (648,000)
----------- -----------
Net cash used in operating activities - continuing operations (9,640,000) (2,227,000)
----------- -----------
Income (loss) from discontinued operations 63,000 (1,149,000)
Adjustments to reconcile income (loss) from discontinued operations
to net cash provided by operating activities:
Write-down of property and equipment -- 245,000
Write-down of prepaid expenses and other current assets -- 101,000
Write-down of other assets -- 119,000
Depreciation and amortization -- 44,000
Changes in operating assets and liabilities:
(Increase) decrease in
Inventories -- 1,293,000
Non-factored receivables 187,000 (31,000)
Prepaid expenses and other current assets -- 62,000
Increase (decrease) in --
Deferred tax asset -- 34,000
Income taxes receivable/payable 195,000 (4,000)
----------- -----------
Net cash provided by operating activities - discontinued operations 445,000 714,000
----------- -----------
Net cash used in operating activities (9,195,000) (1,513,000)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
BLUEFLY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from investing activities - continuing operations
Purchase of property and equipment (478,000) (82,000)
Trademark costs -- (8,000)
Funds deposited with factor 2,264,000 429,000
------------ ------------
Net cash provided by investing activities - continuing operations 1,786,000 339,000
------------ ------------
Cash flows from investing activities - discontinued operations
Purchase of property and equipment -- (22,000)
Trademark costs -- (1,000)
------------ ------------
Net cash used in investing activities - discontinued operations -- (23,000)
------------ ------------
Net cash provided by investing activities 1,786,000 316,000
------------ ------------
Cash flows from financing activities - continuing operations
Net proceeds from warrant redemption and unit purchase option 7,067,000 --
Net proceeds from option exercises 245,000 --
Net proceeds from issuance of Preferred Stock 9,943,000 --
------------ ------------
Net cash provided by financing activities - continuing operations 17,255,000 --
------------ ------------
Cash flows from financing activities - discontinued operations
Net change in due to/from factor 171,000 1,487,000
------------ ------------
Net cash provided by financing activities - discontinued operations 171,000 1,487,000
------------ ------------
Net cash provided by financing activities 17,426,000 1,487,000
------------ ------------
Net increase in cash 10,017,000 290,000
Cash balance - December 31 2,830,000 55,000
------------ ------------
Cash balance - September 30 $ 12,847,000 $ 345,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -- $ 32,000
============ ============
Income taxes $ 15,383 $ 3,000
============ ============
Non cash transactions:
Exchange of goods for services provided $ 19,000 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BLUEFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Bluefly, Inc. (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Rule 310 of Regulation S-B. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The results of operations of any interim
period are not necessarily indicative of the results of operations to be
expected for the fiscal year. For further information, refer to the consolidated
financial statements and accompanying footnotes included in the Company's Form
10-KSB for the year ended December 31, 1998.
NOTE 2 - THE COMPANY
The Company is a leading Internet retailer of designer fashions and home
accessories at outlet store prices. The full service Web store ("Bluefly.com" or
"Web Site") sells over 200 brands of designer apparel, accessories and house and
home products at discounts of up to 75%. Bluefly.com, which launched in
September 1998, also offers information on current fashion trends.
In June 1998, the Company's Board of Directors voted to sell its golf sportswear
brand and to devote all of the Company's energy and resources to building
Bluefly.com. See Note 4.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
1. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. INVENTORIES
Inventories, which consist of finished goods, are valued at the lower of cost or
market. Cost is determined by the first-in, first-out ("FIFO") method.
9
<PAGE>
BLUEFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
3. EARNINGS (LOSS) PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. ("SFAS")
128, "Earnings Per Share." Basic earnings (loss) per share excludes dilution and
is computed by dividing earnings (loss) available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings (loss) per share is computed by dividing earnings (loss)
available to common shareholders by the weighted average number of common shares
outstanding for the period, adjusted to reflect potentially dilutive securities.
Due to the loss from continuing operations, options to purchase 631,816 shares
and Preferred Stock convertible into 952,381 shares were not included in the
computation of diluted earnings per share because the result of the exercise of
such would be antidilutive.
4. RECLASSIFICATIONS
Certain amounts in the consolidated financial statements of the prior period
have been reclassified to conform to the current period presentation for
comparative purposes.
NOTE 4 - DISCONTINUED OPERATIONS
The disposal of the golf sportswear division has been accounted for as a
discontinued operation and, accordingly, its net assets have been segregated
from continuing operations in the accompanying consolidated balance sheet, and
its operating results have been segregated and reported as discontinued
operations in the accompanying consolidated statements of operations and cash
flows.
Information relating to the discontinued operations of the golf sportswear
division for the nine months ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ -- $ 3,696,000
Cost of sales -- 3,706,000
----------- -----------
Gross (loss) -- (10,000)
Income from adjustments to allowances
and accruals 67,000 --
Selling, marketing, design and administrative 8,000 1,017,000
Write down of property and equipment -- 364,000
----------- -----------
Operating income (loss) 59,000 (1,391,000)
Other income 4,000 396,000
----------- -----------
Income (loss) before provision for
income taxes 63,000 (995,000)
Provision for income taxes -- 34,000
----------- -----------
Income (loss) $ 63,000 $(1,029,000)
=========== ===========
</TABLE>
10
<PAGE>
BLUEFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 5 - COMMITMENTS AND CONTINGENCIES
MARKETING AND ADVERTISING COMMITMENTS
The Company has advertising and marketing commitments through December 31, 1999
of approximately $2.8 million. These amounts include payments due in connection
with the Company's online marketing relationships as well as print and radio
advertising commitments.
NOTE 6 - SHAREHOLDERS' EQUITY
1. SERIES A CONVERTIBLE PREFERRED STOCK
On July 27, 1999, the Company entered into an Investment Agreement with an
investor group led by affiliates of Soros Private Equity Partners, LLC (the
"Soros Investment Agreement") pursuant to which it issued 500,000 shares of
Series A Convertible Preferred Stock (the "Series A Preferred Stock") for an
aggregate purchase price of $10 million. The Series A Preferred Stock is
convertible into shares of Common Stock at a rate of $10.50 per share, and bears
a cumulative compounding dividend of 8% per annum, payable upon conversion at
the Company's option in cash or in Common Stock. The Series A Preferred Stock
has a liquidation preference equal to the face value of the Series A Preferred
plus accrued dividends and ranks senior to the Common Stock with respect to the
payment of distributions on liquidation, dissolution or winding up of the
Company and with respect to the payment of dividends.
The Series A Preferred Stock may be converted into Common Stock at any time by
the holders thereof and will automatically be converted into Common Stock if the
closing price of the Common Stock is $31.50 or higher for 30 consecutive trading
days, or immediately prior to the consummation of a merger or sale of all or
substantially all of the assets of the Company pursuant to which shareholders of
the Company are to receive cash, securities and/or other property worth at least
$31.50 per share of Common Stock of the Company. Excluding shares of Common
Stock that may be issued as payment for accrued dividends, the 500,000 shares of
Series A Preferred Stock are convertible into 952,381 shares of Common Stock,
subject to customary anti-dilution provisions. The holders of the Series A
Preferred Stock have certain rights to appoint a designee to the Company's Board
of Directors. Certain actions of the Company may not be taken without the
approval of such designee. In addition, holders of the Series A Preferred Stock
have certain registration rights with respect to the Common Stock issuable upon
conversion of the Series A Preferred Stock and certain pre-emptive rights with
respect to future issuances of capital stock by the Company.
2. UNIT PURCHASE OPTIONS
In May 1997, the Company sold to the underwriter of the IPO, for an aggregate
purchase price of $100, 150,000 Unit Purchase Options ("UPO's"). Each UPO
entitles the holder thereof to purchase one Unit. The UPO's were exercisable
initially at a price of $8.00 per Unit during the four-year period commencing on
May 15, 1998. During the fourth quarter of 1998, 135,250 UPO's were exercised
and during the first quarter of 1999, 900 UPO's were exercised. As of September
30, 1999, there were 13,850 UPO's outstanding.
3. WARRANTS
In May 1997, the Company completed an initial public offering ("IPO") of equity
securities. Pursuant to the IPO, the Company sold 1,500,000 units ("Units"),
with each Unit consisting of one share of common stock and one redeemable common
stock purchase warrant ("Warrant"). In the first quarter of 1999, 1,412,374
Warrants were exercised, resulting in proceeds of $7,062,000. These Warrants
entitled the holders to purchase one share of Common Stock at $5.00 per share
during the four-year period commencing May 15, 1998; all Warrants became
exercisable on such date. The Company had the right to redeem the Warrants at
any time after they became exercisable, at a price of $.01 per Warrant, provided
that the market price of the stock exceeded $8.25 for a specific period of time,
and upon specific notice provisions. On December 21, 1998, the Company provided
notice of its election to redeem the Warrants. Substantially all of the Warrants
included in the Units were exercised prior to the redemption.
11
<PAGE>
BLUEFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
OVERVIEW
Bluefly, Inc. (the "Company") is a leading Internet retailer of designer
fashions and home furnishings at outlet store prices. The Company sells over 200
brands of designer apparel, and home accessories at 25 to 75 percent off of
retail prices via its Web Site ("Bluefly.com" or "Web Site"). The Web Site also
offers information on current fashion trends.
The Company believes that it provides a higher level of service, convenience and
merchandising than traditional brick and mortar off-price retailers. The key
strategies that Bluefly.com is employing in its effort to offer this compelling
and enjoyable online shopping experience, include offering:
1. a broad and well merchandised selection of name brand products,
2. significant discounts to retail prices,
3. friendly and available customer service,
4. a liberal return policy,
5. an intuitive shopping experience,
6. a graphically rich and pleasing environment, and
7. sophisticated search technology features that allow customers to locate
quickly the items that interest them.
A significant portion of the Company's efforts during the third quarter were
focused on building the infrastructure of the business in order to better handle
high increased demand. These initiatives included both technological
enhancements to the Web Site as well operational improvements to the key
business processes.
On July 1st, the Company launched a redesigned Web Site that the Company
believes offers consumers a better experience, including significantly improved
navigation and search options, larger image sizes and faster check out. The new
Web store was designed to handle larger volumes of traffic and order flow.
During July and August, the Company implemented real time credit card
authorization and fraud screening software to increase the order fill rate and
reduce the fraudulent credit card charges. Throughout the third quarter the
Company added additional Web Servers to speed the Site's response time.
In July, the Company leased an additional 8,300 square feet of space for its
corporate headquarters. This additional space allowed the Company to hire more
employees and move its customer service function in house. As a result of these
changes, response times to customer inquiries have significantly improved. The
additional space also allowed the Company to expand its production studio space
in order to nearly triple the number of products it can style, photograph and
describe each week.
In August, the Company moved to a larger, more robust fulfillment center in
order to accommodate increased inventory levels and higher volumes of order
fulfillment. The new facility has over three times the amount of square footage
available than in the old warehouse.
For the second consecutive quarter, the Company has nearly doubled its inventory
levels, further expanding the breadth and depth of its product selections. As of
September 30, 1999 inventory was $4,454,000 compared to $2,308,000 as of June
30, 1999.
The Company believes that in its first thirteen months of operations,
Bluefly.com has become a leading retailer for name brand off-price apparel and
fashion accessories sold via the Internet. The Company's gross product sales for
the third quarter (prior to provisions for returns and credit card chargebacks
and excluding shipping and handling revenue) increased by over 17% to $1,216,000
for the three months ended September 30, 1999, from $1,035,000 for the three
months ended June 30, 1999. The number of registered users grew by approximately
123% to 190,355 at the end of September 1999 from 85,370 at the end of June
1999. Approximately 40% of its gross sales in the third quarter were to repeat
customers.
The Company believes that its strategic alliances with portals and leading Web
sites and its print advertising campaign are key factors in its sustained
growth. The Company has contractual relationships that provide highly targeted,
prominent positioning on many of the most visited Web sites and portals (i.e.
America Online, Excite, Go Network, Lycos, MSN, Netcenter, Tripod, Women.com and
Yahoo!). The Company's print advertising campaign which was launched in April
1999, has run in over 20
12
<PAGE>
major magazines, including Vogue, Elle, InStyle and Forbes. During the third
quarter the Company reduced its spending on print advertising by approximately
28% in order to prepare for the holiday season. The Company has ramped up
marketing and advertising efforts for the holiday season. Beginning in November
the Company launched a local radio campaign.
Traffic to the Company's Web Site decreased by approximately 27%, with average
monthly unique visitor sessions (based on Media Metrix information) for the
third quarter of 1999 totaling approximately 271,000, compared to 369,000 for
the second quarter of 1999. The Company believes that the reduced traffic was
partially the result of seasonal slowdown in online traffic growth and a planned
reduction of the Company's print advertising campaign. Revenue per unique
visitor increased approximately 60% as compared to the second quarter. The
Company also believes that the improvement in the conversion rate is largely a
result of the launch of the new Web Site.
In an effort to reflect more appropriately the results of its operations, the
Company has reclassified certain items in its Statement of Operations. As a
result, net sales, cost of sales and selling, marketing and fulfillment expenses
have been reclassified, and amounts for prior periods have been conformed to aid
in comparing previously reported periods. Net sales, which previously included
product sales and shipping and handling revenue, net of returns, net of
reserves, and net of revenue share expenses, now reflects product sales net of
returns, net of reserves, and net of revenue share expenses. Cost of sales,
which previously included the cost of the product, in-bound shipping costs,
inventory reserves, packing materials and out bound shipping costs, now reflects
the cost of the product, in bound shipping costs, inventory reserves and packing
materials. Selling, marketing and fulfillment expenses include online strategic
marketing relationships, print advertising, Web Site hosting, research and
development costs and inventory management including fulfillment and customer
service. It is management's opinion that these reclassifications better reflect
the economics of the Company's business and provide for easier comparison with
its peers in the industry. These changes have no effect on current or previously
reported income or loss. Reclassified amounts presented for prior periods are
summarized as follows, in thousands:
<TABLE>
<CAPTION>
Three Months Three Months Six Months
Year Ended Ended Ended Ended
December 31, 1998 March 31, 1999 June 30, 1999 June 30, 1999
----------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 215 $ 304 $ 732 $ 1,036
Cost of sales (266) (248) (546) (793)
Gross (loss) profit (51) 56 186 243
Gross margin (23.7%) 18.4% 25.4% 23.5%
Selling, marketing and fulfillment
expenses 1,121 1,107 2,731 3,636
General and administrative 1,166 254 551 1,009
Loss from continuing operations (2,478) (1,172) (2,984) (4,219)
</TABLE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
NET SALES: For the nine months ended September 30, 1999, gross sales (revenue
from product sales before any adjustment for reserves) totaled $2,669,000. The
Company recorded a provision for returns and credit card chargebacks of
$720,000, or approximately 27% of gross sales. The reserve allowance takes into
account the Company's 90-day return policy and actual experience to-date, which
may vary over time. After the necessary provisions for returns and credit card
chargebacks, the Company's net sales for the nine months ended September 30,
1999 were $1,909,000. Bluefly.com was launched September 1998, and therefore net
sales for the same period from inception to September 30, 1998 were $4,000.
In August, the Company moved to a larger more robust fulfillment center in order
to accommodate increased inventory levels and higher volumes of order
fulfillment. The new facility offers the Company over three times the amount of
square footage it previously occupied. The change in the Company's fulfillment
center caused some meaningful delays in shipping product in the third quarter.
In addition, some customers experienced partial shipments or cancellations of
their orders. This accounted for lost revenue of approximately $140,000.
Customers who experienced problems with their orders were given one time 10%
discounts on future orders. The Company believes that these difficulties are
largely behind it.
In July and August, the Company implemented real-time credit card authorization
and fraud screening software. The Company believes that the use of this licensed
software coupled with the knowledge gained in its first thirteen months of
operations, has
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enabled it to become more effective at distinguishing between legitimate orders
and fraudulent transactions. Of course, there can be no assurance that these
steps will be successful. During the three months ended September 30, 1999, the
Company approved approximately 80% of orders placed.
COST OF SALES: Cost of sales for the nine months ended September 30, 1999
totaled $1,454,000, resulting in a gross profit of 23.8%. Cost of sales consists
of the cost of product sold to customers, in-bound shipping costs, inventory
reserves and packing materials. Bluefly.com was launched in September 1998 and
therefore cost of sales for the same period ended September 30, 1998 were
approximately $53,000.
SELLING, MARKETING AND FULFILLMENT EXPENSES: Selling, marketing and fulfillment
expenses totaled $6,301,000 for the nine months ended September 30, 1999, and
represent costs associated with the online strategic marketing relationships,
print advertising, Web Site hosting, research and development costs and
inventory management including fulfillment and customer service. The Company
anticipates that it will incur additional research and development costs in the
future in its effort to improve its Web Site and enhance its market position.
In August, the Company moved to a larger more robust fulfillment center in order
to accommodate increased inventory levels and higher volumes of order
fulfillment. During the move, and through the end of the quarter, the Company
provided free second day shipping to all of its domestic customers in order to
partially offset the delays that were experienced by its customers. The move to
the new fulfillment center resulted in one time charges of approximately $65,000
associated with moving the inventory, setting up the center and the increased
cost of second day shipping.
In April 1999, the Company launched a national print advertising campaign, which
ran in approximately 20 major national publications and reflects the Company's
first significant effort towards building and marketing a lifestyle brand.
Marketing and advertising expenses for the same period from inception to
September 30, 1998 totaled $329,000 and primarily related to the launch of the
Web Site.
GENERAL AND ADMINISTRATIVE: General and administrative expenses were $2,016,000
for the nine months ended September 30, 1999 compared to $676,000 for the nine
months ended September 30, 1998. General and administrative expenses include
salaries and related expenses, recruiting fees, insurance costs, accounting and
legal fees, depreciation and other office related expenses. The increase in the
first nine months of 1999 in general and administrative expenses was largely the
result of an increase in staff fees paid to consultants and search firms and
legal expenses. The Company has increased its head count across all departments,
growing the Company from 12 people at December 31, 1998 to approximately 58
people as of September 30, 1999.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
NET SALES: For the three months ended September 30, 1999, gross product sales
totaled $1,216,000. This represented an increase of 17% compared to gross
product sales of $1,035,000 for the three months ended June 30, 1999. The
Company recorded a provision for returns and credit card chargebacks of $330,000
or approximately 27% of gross sales. The reserve allowance takes into account
the Company's 90-day return policy and actual experience to-date, which may vary
over time. After the necessary provisions for returns and credit card
chargebacks, the Company's net sales for the three months ended September 30,
1999 were $873,000. This represented an increase of 19% over net sales for the
three months ended June 30, 1999. Bluefly.com was launched September 1998, and
therefore net sales for the same period from inception to September 30, 1998 was
$4,000.
COST OF SALES: Cost of sales for the three months ended September 30, 1999
totaled $656,000. Cost of sales consists of the cost of product sold to
customers, in-bound shipping costs, inventory reserves and packing materials.
Gross profit margin decreased by 0.5% to 24.9% for the three months ended
September 30, 1999 from 25.4% for the three months ended June 30, 1999. The
decrease was primarily attributable to the fact that the Company increased its
inventory reserve by $25,000.
SELLING, MARKETING AND FULFILLMENT EXPENSES: Selling, marketing and fulfillment
expenses totaled $2,674,000 for the three months ended September 30, 1999. This
amount represents a decrease of 2% compared to $2,731,000 for the three months
ended June 30, 1999. Included in selling, marketing and fulfillment expenses are
costs associated with the online strategic marketing relationships, print
advertising, Web Site hosting, and research and development costs and costs
associated with inventory management including fulfillment and customer service.
Print advertising expenses decreased by approximately 28% in the three months
ended September 30, 1999 as compared to the three months ended June 30, 1999,
while the Company prepared for the holiday season. This reduction was largely
offset by the increased costs of the change in fulfillment center.
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Selling marketing and fulfillment expenses for the three months ended September
30, 1998 were approximately $203,000, and related primarily to the initial
launch of the Web Site.
GENERAL AND ADMINISTRATIVE: General and administrative expenses increased by
approximately 82% to $1,003,000 for the three months ended September 30, 1999
from $551,000 in the second quarter of 1999. General and administrative expenses
for the three months ended September 30, 1998 were $230,000. Included in general
and administrative expenses are salaries and related expenses, recruiting fees,
insurance costs, accounting and legal fees, depreciation and other office
related expenses. The increase in general and administrative expenses for the
three months ended September 30, 1999 was largely the result of an increase in
fees paid to consultants and search firms.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had $12,847,000 of liquid assets, consisting
entirely of cash and cash equivalents.
On July 27, 1999, the Company entered into an Investment Agreement with an
investor group led by affiliates of Soros Private Equity Partners, LLC (the
"Soros Investment Agreement") pursuant to which it issued 500,000 shares of
Series A Convertible Preferred Stock (the "Series A Preferred Stock") for an
aggregate purchase price of $10 million. The Series A Preferred Stock is
convertible into shares of Common Stock at a rate of $10.50 per share, and bears
a cumulative compounding dividend of 8% per annum, payable upon conversion in
cash or in Common Stock, at the Company's option. The Series A Preferred Stock
may be converted into Common Stock at any time by the holders thereof and will
automatically be converted into Common Stock if the closing price of the Common
Stock is $31.50 or higher for 30 consecutive trading days, or immediately prior
to the consummation of a merger or sale of all or substantially all of the
assets of the Company, pursuant to which shareholders of the Company are to
receive cash, securities and/or other property worth at least $31.50 per share
of Common Stock of the Company. Excluding shares of Common Stock that may be
issued as payment for accrued dividends, the 500,000 shares of Series A
Preferred Stock will be convertible into 952,381 shares of Common Stock subject
to customary anti-dilution provisions. The holders of the Series A Preferred
Stock have certain rights to appoint a designee to the Company's Board of
Directors. Certain actions of the Company may not be taken without the approval
of such designee. In addition, holders of the Series A Preferred Stock have
certain registration rights with respect to the Common Stock issuable upon
conversion of the Series A Preferred Stock and certain pre-emptive rights with
respect to future issuances of capital stock by the Company. The proceeds from
the issuance of the Series A Preferred Stock will be used for advertising,
marketing, and inventory purchases as well as general corporate and working
capital purposes.
In April 1999, the Company terminated its credit arrangement and Retail
Collection Factoring Agreement with its factor. All funds deposited with the
factor were transferred to the Company.
In May 1997, the Company completed an initial public offering (the "IPO") of
equity securities. Pursuant to the IPO, the Company sold 1,500,000 units
("Units"), with each Unit consisting of one share of common stock and one
redeemable common stock purchase warrant ("Warrant"). In the first quarter of
1999, 1,412,374 Warrants were exercised, resulting in proceeds of $7,062,000.
These Warrants entitled the holders to purchase one share of Common Stock at
$5.00 per share during the four-year period commencing May 15, 1998; all
Warrants became exercisable on such date. The Company had the right to redeem
the Warrants at any time after they became exercisable, at a price of $.01 per
Warrant, provided that the market price of the stock exceeded $8.25 for a
specific period of time, and upon specific notice provisions. On December 21,
1998, the Company provided notice of its election to redeem the Warrants.
Substantially all of the Warrants included in the Units were exercised prior to
the redemption.
In May 1997, the Company sold to the underwriter of the IPO, for an aggregate
purchase price of $100, 150,000 Unit Purchase Options ("UPO's"). Each UPO
entitles the holder thereof to purchase one Unit. The UPO's were exercisable
initially at a price of $8.00 per Unit during the four-year period commencing on
May 15, 1998. During the fourth quarter of 1998, 135,250 UPO's were exercised
and during the first quarter of 1999, 900 UPO's were exercised. As of September
30, 1999, there were 13,850 UPO's outstanding.
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PLAN OF OPERATIONS
The Company anticipates, based on current plans and assumptions relating to its
operations, that the proceeds from the Series A Preferred Stock financing
described above, the proceeds of the exercise of the Warrants and the UPO,
together with existing resources and cash generated from operations, should be
sufficient to satisfy the Company's current cash requirements for at least seven
months after the date of this report. The Company will seek additional debt
and/or equity financing through a public offering, private placement or
otherwise in order to achieve its objective of becoming the preeminent Internet
retailer of excess and end-of-season apparel, fashion accessories and home
products. Although the Company believes that the recent investment by an
investor group led by affiliates of Soros Private Equity Partners, LLC will
increase its access to capital, there can be no assurance that any additional
financing or other sources of capital will be available to the Company upon
acceptable terms, if at all. The Company is currently in discussion with several
nationally recognized investment banks related to future financing needs. The
inability to obtain additional financing, when needed, would have a material
adverse effect on the Company's business, financial condition and operating
results and significantly slow the pace of both customer and revenue growth.
The Company has marketing and advertising commitments through December 31, 1999
of approximately $2.8 million. In addition, the Company believes that, in order
to grow the business, it will need to incur significant marketing and
advertising expenses in the future. Furthermore it is the Company's intention to
increase its inventory levels in order to prepare for the fourth quarter of
1999.
In order to expand its customer base and establish its brand name, the Company
intends over at least the next nine months to expand its advertising and
commerce relationships with the major portals and national publications. In an
effort to promote customer satisfaction, effective July 1999, the Company has
brought the customer service function in house. In addition, in August 1999 the
Company changed its fulfillment center. The Company's marketing budget will be
subject to a number of factors, including its results of operations and ability
to raise additional capital. It is the Company's belief that these initiatives
will distinguish Bluefly as a world class customer service organization and a
preeminent e-commerce brand.
In order to expand its product offerings, the Company intends to seek to expand
its relationships with suppliers of discount, name brand apparel and fashion
accessories. The Company expects that its suppliers will include retail stores
and designers that sell excess inventory as well as third party end-of-season
apparel aggregators. To achieve its goal of offering a wide selection of top
name brand designer clothing and fashion accessories, the Company may acquire
certain goods on consignment and also may explore leasing or partnering select
departments such as fragrances, sunglasses and cosmetics with strategic partners
and distributors.
The Company expects to hire and train additional employees for the operations,
marketing and advertising and development of Bluefly.com. The Company's ability
to hire such employees is subject to a number of factors, including its results
of operations and its ability to raise additional capital.
YEAR 2000 ISSUES
The Company will be interacting with certain computer programs in connection
with credit card transactions, fulfillment operations, and programs used by the
Company's vendors and suppliers. These programs may refer to annual dates only
by the last two digits (e.g., "97" for "1997"), and could lose functionality in
the Year 2000. The Company believes that its significant business, accounting
and operations software are Year 2000 compliant ("Compliant"). The Company
expects the costs it incurs, if any, to achieve Year 2000 compliance will be
immaterial. Given that the Company believes that it is currently Compliant, the
Company has not prepared a contingency plan and does not currently believe that
a contingency plan is necessary. However, the Company cannot guarantee that all
of the other companies with which the Company interacts have taken the Year 2000
problem into account or have otherwise updated their programs. The costs of
assessing such compliance are expected to be minimal. The Company is seeking to
obtain certifications from material third party vendors as to whether such
vendors are compliant. There can be no assurance that the Company will be able
to find other companies with which to interact which are acceptable to the
Company. In addition, although the Company believes it is adequately addressing
its Year 2000 issues, there can be no assurance that unanticipated or
undiscovered compliance problems with regard to the Company or the companies
with which it interacts will not have a material adverse effect on the Company's
business prospects, financial condition and results of operations.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This report may include statements that constitute "forward-looking" statements,
usually containing the words "believe," "project," "expect," or similar
expressions. These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. The risks and
uncertainties are detailed from time to time in reports filed by the company
with the Securities and Exchange Commission, including Forms 8-A, 8-K, 10-QSB,
and 10-KSB. These risks and uncertainties include, but are not limited to, the
following: the competitive nature of the business and the potential for
competitors with greater resources to enter such business; risk of litigation
for sale of inauthentic or damaged goods and litigation risks related to sales
in foreign countries; consumer acceptance of the Internet as a medium for
purchasing apparel; the Company's limited working capital and need for
additional financing; recent losses and anticipated future losses; the startup
nature of the Internet business; the capital intensive nature of such business
(taking into account the need for advertising to promote such business); the
dependence on third parties and certain relationships for certain services; the
successful hiring and retention of personnel; the dependence on continued growth
of online commerce; rapid technological change; the success of the Company's
transition to a new fulfillment center; year 2000 issues; online commerce
security risks; governmental regulation and legal uncertainties; management of
potential growth; and unexpected changes in fashion trends.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in an action commenced by Tommy Hilfiger Licensing,
Inc. ("Hilfiger") on August 16, 1999 in the United States District Court for the
Southern District of New York. In its complaint, Hilfiger specifically alleges
that ten styles of Hilfiger product sold by the Company were not authentic
Hilfiger merchandise and also alleges, upon information and belief, that the
Company has sold other styles of Hilfiger merchandise that were not authentic.
The Company has received written assurances from its suppliers as to the
authenticity of the 10 styles specifically alleged to be inauthentic, but is
continuing to investigate the matter. The Company sold less than $5,000 of the
styles of product that Hilfiger has specifically alleged to be inauthentic.
Hilfiger is seeking injunctive relief and compensatory and statutory damages.
The Company intends to vigorously defend the lawsuit.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to the Soros Investment Agreement, the Company has issued 250,000
shares of Series A Preferred Stock on July 27, 1999 and 250,000 shares on August
26, 1999 for an aggregate of 500,000 shares of Series A Preferred Stock. The
shares of the Series A Preferred Stock were sold to an investor group led by
affiliates of Soros Private Equity Partners, LLC for an aggregate purchase price
of $10 million. The Series A Preferred Stock bears a cumulative compounding
dividend of 8% per annum, payable at the Company's option in cash or Common
Stock, at the Company's option and has a liquidation preference equal to the
face value of the Series A Preferred Stock, plus accumulated dividends. The
Series A Preferred Stock ranks senior to the Common Stock with respect to the
payment of distributions on liquidation, dissolution or winding up of the
Company and with respect to the payment of dividends. The issuance of the Series
A Preferred Stock was deemed to be exempt from registration under the Securities
Act of 1933, as amended (the "Act"), in reliance on Section 4(2) of the Act as a
transaction by an issuer not involving any public offering. The holders of the
Series A Preferred Stock represented their intentions to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates issued in connection therewith.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following is a list of exhibits filed as part of this Report:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.5 Amended and Restated Bylaws of the Company
+10.18 Service Agreement by and between the Company and Marketing
Out Of the Box, Inc. dated August 16, 1999
27 Financial Data Schedule.
+ Confidential treatment requested as to certain portions of this Exhibit. Such
portions have been redacted.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the period covered by this
report.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BLUEFLY, INC.
By: /s/ E. Kenneth Seiff
---------------------------
E. Kenneth Seiff
President
By: /s/ Patrick C. Barry
---------------------------
Patrick C. Barry
Chief Financial Officer
November 9, 1999
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Exhibit 3.5
AMENDED AND RESTATED
BY-LAWS
OF
BLUEFLY, INC.
--------------------------------------------
ARTICLE I - OFFICES
The principal office of the corporation shall be located in the City of
New York, County of New York, State of New York. The corporation may also have
offices at such other places within or without the State of New York as the
board may from time to time determine or the business of the corporation may
require.
ARTICLE II - SHAREHOLDERS
1. PLACE OF MEETINGS.
Meetings of shareholders shall be held at the principal office of the
corporation or at such other place within or without the State of New York as
the board shall authorize.
2. ANNUAL MEETING.
The annual meeting of the shareholders shall be held at such date and
time as shall be determined by the board or the president and stated in the
notice of meeting, at which time the shareholders shall elect a board and
transact such other business as may properly come before the meeting.
3. SPECIAL MEETINGS.
Special meetings of the shareholders may be called by the board or by
the president and shall be called by the president or the secretary at the
request in writing of a majority of the board or at the request in writing by
shareholders owning a majority in amount of the shares issued and outstanding.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at a special meeting shall be confined to the purposes
stated in the notice.
<PAGE>
4. FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
board shall fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed it shall be determined in
accordance with the provisions of law.
5. NOTICE OF MEETINGS OF SHAREHOLDERS.
Written notice of each meeting of shareholders shall state the purpose
or purposes for which the meeting is called, the place, date and hour of the
meeting and unless it is the annual meeting, shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice shall be given either personally or by mail to each shareholder entitled
to vote at such meeting, not less than ten or more than sixty days before the
date of the meeting. If action is proposed to be taken that might entitle
shareholders to payment for their shares, the notice shall include a statement
of that purpose and to that effect. If mailed, the notice shall be deemed given
when deposited in the United States mail, with postage thereon prepaid, directed
to the shareholder at his address as it appears on the record of shareholders,
or, if he shall have filed with the secretary a written request that notices to
him be mailed to some other address, then directed to him at such other address.
6. WAIVERS.
Notice of meeting need not be given to any shareholder who signs a
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
7. QUORUM OF SHAREHOLDERS.
Unless the certificate of incorporation provides otherwise, the holders
of a majority of the shares entitled to vote thereat shall constitute a quorum
at a meeting of shareholders for the transaction of any business, provided that
when a specified item of business is required to be voted on by a class or
series, the holders of a majority of the shares of such class or series shall
constitute a quorum for the transaction of such specified item of business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any shareholders.
The shareholders present may adjourn the meeting despite the absence of
a quorum.
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8. PROXIES.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy. Every proxy must be signed by the shareholder
or his attorney-in-fact. No proxy shall be valid after expiration of eleven
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the shareholder executing it, except as
otherwise provided by law.
9. QUALIFICATION OF VOTERS.
Every shareholder of record shall be entitled at every meeting of
shareholders to one vote for every share standing in his name on the record of
shareholders, unless otherwise provided in the certificate of incorporation.
10. VOTE OF SHAREHOLDERS.
Except as otherwise required by statute or by the certificate of
incorporation: (a) directors shall be elected by a plurality of the votes cast
at a meeting of shareholders by the holders of shares entitled to vote in the
election; and (b) all other corporate action shall be authorized by a majority
of the votes cast.
11. WRITTEN CONSENT OF SHAREHOLDERS.
Any action that may be taken by vote may be taken without a meeting on
written consent, setting forth the action so taken, signed by the holders of all
the outstanding shares entitled to vote thereon or signed by such lesser number
of holders as may be provided for in the certificate of incorporation.
12. SHAREHOLDER PROPOSALS.
No proposal for a shareholder vote on any matter shall be submitted by
a shareholder to the corporation's shareholders unless the shareholder
submitting such proposal has submitted to the secretary of the corporation a
written notice setting forth with particularity (i) the name and business
address of the shareholder submitting such proposal and all persons acting in
concert with such shareholder; (ii) the name and address of the persons
identified in clause (i), as they appear on the corporation's books (if they so
appear); (iii) the class and number of shares of the corporation beneficially
owned by the persons identified in clause (i); (iv) a description of the
proposal containing all material information relating thereto, including,
without limitation, the reasons for submitting such proposal; and (v) such other
information as the board reasonably determines is necessary or appropriate to
enable the board and shareholders of the corporation to consider such proposal.
The written notice of a shareholder proposal shall be delivered to the secretary
of the corporation, at the principal office of the corporation, not later than
(i) with
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respect to a shareholder proposal to be submitted at an annual meeting of
shareholders, ninety days prior to the date one year from the date of the
immediately preceding annual meeting of shareholders (and no earlier than one
hundred-twenty days prior to the date one year from the date of the immediately
preceding annual meeting of shareholders), and (ii) with respect to a
shareholder proposal to be submitted at a special meeting of shareholders, the
close of business on the tenth day following the date on which notice of such
meeting is first given to shareholders. The presiding officer at any
shareholders meeting may determine that any shareholder proposal was not
permissible under or was not made in accordance with the procedures prescribed
in this Section or is otherwise not in accordance with law, and if he should so
determine, he shall so declare at the meeting and the shareholder proposal shall
be disregarded.
ARTICLE III - DIRECTORS
1. BOARD OF DIRECTORS.
Subject to any provision in the certificate of incorporation, the
business of the corporation shall be managed by its board of directors, each of
whom shall be at least 18 years of age and may be shareholders.
2. NUMBER OF DIRECTORS.
The number of directors constituting the entire board shall be five.
The number of directors constituting the entire board may be increased or
decreased from time to time by resolution of the board of directors, provided
that (a) any amendment by the directors to effect such increase or decrease
shall require the vote of a majority of the entire board, (b) no decrease shall
shorten the term of any incumbent director, (c) the number of directors
constituting the entire board shall not be less than three, and (d) the number
of directors constituting the entire board shall not be more than seven. As used
in these by-laws, "entire board" means the total number of directors which the
corporation would have if there were no vacancies.
3. ELECTION AND TERM OF DIRECTORS.
Directors of the corporation shall be elected in such manner, and shall
hold office for such term, as shall be set forth in the certificate of
incorporation.
Unless otherwise prescribed in the certificate of incorporation,
directors of the corporation shall be elected, and shall serve, in the manner
and for the term set forth in this paragraph. So long as there are at least six
directors (including vacancies), the directors shall be divided into two
classes, designated Class 1 and Class 2. Each class shall consist as nearly as
may be possible, of one-half of the total number of directors constituting the
entire board; provided, however, that no class shall have less than three
directors, including vacancies. The term of the initial Class 1 directors shall
terminate on the date of the 1997 annual meeting of shareholders; and the term
of the initial Class 2 directors shall terminate on the date of the 1998 annual
meeting of shareholders. At each annual meeting of shareholders beginning in
1997,
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<PAGE>
successors to the class of directors whose term expires at that annual meeting
shall be elected for a two-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes, so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional directors of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
If there shall be less than six directors, then, at each annual meeting
of the shareholders, directors shall be elected to hold office until the next
annual meeting of the shareholders and until their respective successors have
been elected and qualified or until their respective earlier death, resignation,
retirement, disqualification or removal.
4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause may be filled by a vote of a majority of the
directors then in office, although less than a quorum exists, unless otherwise
provided in the certificate of incorporation. Vacancies occurring by reason of
the removal of directors without cause shall be filled by vote of the
shareholders unless otherwise provided in the certificate of incorporation. A
director elected to fill a vacancy caused by resignation, death or removal shall
be elected to hold office for the unexpired term of his predecessor.
5. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
shareholders or by action of the board. Directors may be removed without cause
only by vote of the shareholders.
6. RESIGNATION.
A director may resign at any time by giving written notice to the
board, the president or the secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
7. QUORUM OF DIRECTORS.
Unless otherwise provided in the certificate of incorporation, a
majority of the entire board shall constitute a quorum for the transaction of
business or of any specified item of business.
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8. ACTION OF THE BOARD.
Unless otherwise required by law, the vote of a majority of the
directors present at the time of the vote, if a quorum is present at such time,
shall be the act of the board. Each director present shall have one vote
regardless of the number of shares, if any, which he may hold.
9. PLACE AND TIME OF BOARD MEETINGS.
The board may hold its meetings at the office of the corporation or at
such other places, either within or without the State of New York, as it may
from time to time determine.
10. REGULAR ANNUAL MEETING.
A regular annual meeting of the board shall be held immediately
following the annual meeting of shareholders at the place of such annual meeting
of shareholders.
11. NOTICE OF MEETINGS OF THE BOARD, ADJOURNMENT.
(a) Regular meetings of the board may be held without notice at such
time and place as it shall from time to time determine. Special meetings of the
board shall be held upon notice to the directors and may be called by the
president upon three days notice to each director either personally or by mail
or by wire; special meetings shall be called by the president or by the
secretary in like manner on written request of two directors. Notice of a
meeting need not be given to any director who submits a waiver of notice whether
before or after the meeting or who attends the meeting without protesting prior
thereto or at its commencement, the lack of notice to him.
(b) A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given to all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
12. CHAIRMAN.
At all meetings of the board, the president, or in his absence, a
chairman chosen by the board, shall preside.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution adopted by a majority of the entire board, may
designate from among its members an executive committee and other committees,
each consisting of three or more directors. Each such committee shall serve at
the pleasure of the board.
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14. COMPENSATION.
Compensation to be paid to directors, if any, shall be fixed by
resolution of the board and all non employee directors shall receive the same
compensation. Employee directors shall receive no compensation for their
services as director.
15. ACTION WITHOUT A MEETING.
Any action required or permitted to be taken by the board or a
committee thereof may be taken without a meeting if all members of the board or
the committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents thereto by the members of the
board or committee shall be filed with the minutes of the proceedings of the
board or committee.
16. MEETING BY TELEPHONE CONFERENCE.
One or more of the members of the board or any committee thereof may
participate in a meeting of the board or such committee by means of a conference
telephone or similar communications equipment that allows all persons
participating in the meeting to hear each other at the same time. Such director
and/or committee member shall have theretofore been furnished with the meeting
agenda and copies of all documents and materials to be considered at such
meeting. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE IV - OFFICERS
1. OFFICES, ELECTION, TERM.
(a) Unless otherwise provided for in the certificate of incorporation,
the board may elect or appoint a president, one or more vice-presidents, a chief
financial officer, a secretary and a treasurer, and such other officers as it
may determine, who shall have such duties, powers and functions as hereinafter
provided.
(b) All officers shall be elected or appointed to hold office until the
meeting of the board following the annual meeting of shareholders.
(c) Each officer shall hold office for the term for which he is elected
or appointed and a until his successor has been elected or appointed and
qualified.
2. REMOVAL, RESIGNATION, SALARY, ETC.
(a) Any officer elected or appointed by the board may be removed by the
board with or without cause.
(b) In any event of the death, resignation or removal of an officer,
the board in its discretion may elect or appoint a successor to fill the
unexpired term.
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(c) Any two or more offices may be held by the same person, except the
offices of president and secretary. When all of the issued and outstanding stock
of the corporation is owned by one person, such person may hold all or any
combination of offices.
(d) The salaries of all officers shall be fixed by the board.
(e) The directors may require any officer to give security for the
faithful performance of his duties.
3. PRESIDENT.
The president shall be the chief executive officer of the corporation;
he shall preside at all meetings of the shareholders and of the board; he shall
have the management of the business of the corporation and shall see that all
orders and resolutions of the board are carried into effect.
4. VICE-PRESIDENTS.
During the absence or disability of the president, the vice-president,
or if there are more than one, the executive vice-president, shall have all the
powers and functions of the president. Each vice-president shall perform such
other duties as the board shall prescribe.
5. SECRETARY.
The secretary shall:
(a) attend all meetings of the board and of the shareholders;
(b) record all votes and minutes of all proceedings in a book to be
kept for that purpose;
(c) give or cause to be given notice of all meetings of shareholders
and of special meetings of the board;
(d) keep in safe custody the seal of the corporation and affix it to
any instrument when authorized by the board;
(e) when required, prepare or cause to be prepared and available at
each meeting of shareholders a certified list in alphabetical order of the names
of shareholders entitled to vote thereat, indicating the number of shares of
each respective class held by each;
(f) keep all the documents and records of the corporation as required
by law or otherwise in a proper and safe manner; and
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(g) perform such other duties as may be prescribed by the board.
6. ASSISTANT-SECRETARIES.
During the absence or disability of the secretary, the
assistant-secretary, or if there are more than one, then one so designated by
the secretary or by the board, shall have all the powers and functions of the
secretary.
7. TREASURER.
The treasurer shall:
(a) have the custody of the corporate funds and securities;
(b) keep full and accurate accounts of receipts and disbursements in
the corporate books;
(c) deposit all money and other valuables in the name and to the credit
of the corporation in such depositories as may be designated by the board;
(d) disburse the funds of the corporation as may be ordered or
authorized by the board and preserve proper vouchers for such disbursements;
(e) render to the president and board at the regular meetings of the
board, or whenever they require it, an account of all his transactions as
treasurer and of the financial condition of the corporation;
(f) render a full financial report at the annual meeting of the
shareholders if so requested;
(g) be furnished by all corporate officers and agents at his request,
with such reports and statements as he may require as to all financial
transactions of the corporation; and
(h) perform such other duties as are given to him by these by-laws or
as from time to time are assigned to him by the board or the president.
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8. ASSISTANT-TREASURER.
During the absence or disability of the treasurer, the
assistant-treasurer, or if there are more than one, the one so designated by the
treasurer or by the board, shall have all the powers and functions of the
treasurer.
9. SURETIES AND BONDS.
In case the board shall so require, any officer or agent of the
corporation shall execute to the corporation a bond in such sum and with such
surety or sureties as the board may direct, conditioned upon the faithful
performance of his duties to the corporation and including responsibility for
negligence and for the accounting for all property, funds or securities of the
corporation which may come into his hands.
ARTICLE V - CERTIFICATES FOR SHARES
1. CERTIFICATES.
The shares of the corporation shall be represented by certificates.
They shall be numbered and entered in the books of the corporation as they are
issued. They shall exhibit the holder's name and the number of shares and shall
be signed by the president or a vice-president and the treasurer or the
secretary.
2. LOST OR DESTROYED CERTIFICATES.
The board may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation,
alleged to have been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
give the corporation a bond in such sum and with such surety or sureties as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost or
destroyed.
3. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office. No transfer shall be made within ten days next preceding the annual
meeting of shareholders.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other
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claim to or interest in such share on the part of any other person whether or
not it shall have express or other notice thereof, except as expressly provided
by the laws of New York.
4. CLOSING TRANSFER BOOKS.
The board shall have the power to close the share transfer books of the
corporation for a period of not more than ten days during the thirty day period
immediately preceding (1) any shareholders' meeting, or (2) any date upon which
shareholders shall be called upon to or have a right to take action without a
meeting, or (3) any date fixed for the payment of a dividend or any other form
of distribution, and only those shareholders of record at the time the transfer
books are closed, shall be recognized as such for the purpose of (1) receiving
notice of or voting at such meeting, or (2) allowing them to take appropriate
action, or (3) entitling them to receive any dividend or other form of
distribution.
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The corporation shall, to the fullest extent permitted by applicable
law, as amended from time to time, indemnify any person who is made, or
threatened to be made, a party to any action or proceeding, whether civil or
criminal, including an action by or in the right of the corporation to procure a
judgment in its favor or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he, his testator or intestate, is or was a director or officer
of the corporation, or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement, and reasonable expenses,
including attorney's fees actually and necessarily incurred as a result of such
action or proceeding, or any appeal therein, if such director or officer acted,
in good faith, for a purpose which he reasonably believed to be in, or, in the
case of service for any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not opposed to, the best
interests of the corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his conduct was unlawful;
except that, in the case an action by or in the right of the corporation to
procure a judgment in its favor, no indemnification under this paragraph shall
be made in respect of (1) a threatened action, or a pending action which is
settled or otherwise disposed of, or (2) any claim, issue or matter as to which
such person shall have been adjudged to be liable to the corporation, unless and
only to the extent that the court on which the action was brought, or, if no
action was brought, any court of competent jurisdiction, determines upon
application that, in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such portion of the settlement
amount and expenses as the court deems proper.
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2. INDEMNIFICATION OF OTHERS.
The Corporation may indemnify any other person to whom the corporation
is permitted to provide indemnification or the advancement of expenses to the
fullest extent permitted by applicable law, whether pursuant to rights granted
pursuant to, or provided by, the New York Business Corporation Law or other
rights created by (i) a resolution of shareholders, (ii) a resolution of
directors, or (iii) an agreement provided for such indemnification, it being
expressly intended that this Article VI authorizes the creation of other rights
in any such manner.
3. REIMBURSEMENT AND ADVANCES.
The corporation may, from time to time, reimburse or advance to any
person referred to in Section 1 of this Article VI the funds necessary for
payment of expenses (including attorneys' fees, costs and charges) incurred in
connection with any action or proceeding referred to in Section 1 of this
Article VI, upon receipt of a written undertaking by or on behalf of such person
(i) to repay such amount(s) if such person is ultimately found, under the
procedures set forth in Article VII of the New York Business Corporation Law,
not to be entitled to indemnification or (ii) where indemnification is granted,
to repay any amount(s) received in excess of the amount of indemnification to
which such person is entitled. Nothing contained in this Section 3 shall limit
the right of the corporation, from time to time, to reimburse or advance funds
to any person referred to in Section 2 of this Article VI.
4. SERVING AT THE REQUEST OF THE CORPORATION.
Without limitation of any indemnification provided by Section 1 of this
Article VI, any director or officer of the corporation serving (i) another
corporation, partnership, joint venture or trust of which the majority of the
voting power or residual economic interest is held, directly or indirectly, by
the corporation, or (ii) any employee benefit plan of the corporation or any
entity referred to in clause (i) above, in any capacity, shall be deemed to be
doing so at the request of the corporation.
5. DETERMINATION OF ENTITLEMENT.
Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Article VI may
elect to have the right to indemnification (or advancement of expenses)
interpreted on the basis of the applicable law in effect at the time of the
occurrence of the event or events giving rise to the action or proceeding, to
the extent permitted by law, or on the basis of the applicable law in effect at
the time indemnification is sought.
6. CONTRACTUAL RIGHT.
The right to be indemnified or to the reimbursement or advancement of
expenses pursuant to Section 1 or 3 of this Article VI or a resolution
authorized pursuant to Section 2 of this Article VI (i) is a contract right
pursuant to which the person entitled thereto may bring suit as if the
provisions hereof (or of any such resolution) were set forth in a separate
written contract
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between the corporation and such person, (ii) is intended to be retroactive and
shall, to the extent permitted by law, be available with respect to events
occurring prior to the adoption hereof, and (iii) shall continue to exist after
the recision or restrictive modification hereof with respect to events occurring
prior thereto. The corporation shall not be obligated under this Article VI
(including any resolution or agreement authorized by Section 2 of this Article
VI) to make any payment hereunder (or under any such resolution or agreement) to
the extent the person seeking indemnification hereunder (or under any such
resolution or agreement) has actually received payment (under any such insurance
policy, resolution, agreement or otherwise) of the amounts otherwise
indemnifiable hereunder (or under any such resolution or agreement).
7. JUDICIAL CLAIMS.
If a request to be indemnified or for the reimbursement or advancement
of expenses pursuant to Section 1 or 3 of this Article VI is not paid in full by
the corporation within thirty days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled also to be paid the expenses of
prosecuting such claim. Neither the failure of the corporation (including its
board, independent legal counsel or shareholders) to have made a determination
prior to the commencement of such action that indemnification of or
reimbursement or advancement of expenses to the claimant is proper in the
circumstances, or an actual determination by the corporation (including its
board, independent legal counsel or shareholders) that the claimant is not
entitled to indemnification or to the reimbursement or advancement of expenses,
shall be a defense to the action or create a presumption that the claimant is
not so entitled.
8. SUCCESSOR CORPORATION.
For purposes of this Article VI, the term "the corporation" shall
include any legal successor to the corporation, including any corporation which
acquires all or substantially all of the assets of the corporation in one or
more transactions.
9. NONEXCLUSIVITY.
The rights granted pursuant to or provided by the foregoing provisions
of this Article VI shall be in addition to and shall not be exclusive of any
other rights to indemnification and expenses to which such person may otherwise
be entitled by law, contract or otherwise.
ARTICLE VII - DIVIDENDS
Subject to the provisions of the certificate of incorporation and to
applicable law, dividends on the outstanding shares of the corporation may be
declared in such amounts and at
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such time or times as the board may determine. Before payment of any dividend,
there may be set aside out of the net profits of the corporation available for
dividends such sum or sums as the board from time to time in its absolute
discretion deems proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the board shall think conducive to the
interests of the corporation, and the board may modify or abolish any such
reserve.
ARTICLE VIII - CORPORATE SEAL
The seal of the corporation shall be circular in form and bear the name
of the corporation, the year of its organization and the words "Corporate Seal,
New York." The seal may be used by causing it to be impressed directly on the
instrument or writing to be sealed, or upon adhesive substance affixed thereto.
The seal on any corporate obligation for the payment of money may be a
facsimile, engraved or printed.
ARTICLE IX - EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or
countersigned, executed, verified or acknowledged by such officer or officers or
other person or persons as the board may from time to time designate.
ARTICLE X - FISCAL YEAR
The fiscal year shall begin the first day of January in each year, or
otherwise as the board shall, from time to time, determine.
ARTICLE XI - REFERENCES TO CERTIFICATE OF INCORPORATION
Reference to the certificate of incorporation in these by-laws shall
include all amendments thereto or changes thereof unless specifically excepted.
ARTICLE XII - BY-LAW CHANGES
AMENDMENT, REPEAL, ADOPTION, ELECTION OF DIRECTORS.
(a) Except as otherwise provided in the certificate of incorporation,
the by-laws may be amended, repealed or adopted by vote of the holders of the
shares at the time entitled to vote in the election of any directors. By-laws
may also be amended, repealed or adopted by the board
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but any by-law adopted by the board may be amended by the shareholders entitled
to vote thereon as hereinabove provided.
(b) If any by-law regulating an impending election of directors is
adopted, amended or repealed by the board, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the
by-law so adopted, amended or repealed, together with a concise statement of the
changes made.
<PAGE>
Exhibit 10.18
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]", have been
separately filed with the Securities and Exchange Commission.
MARKETING OUT-OF-THE-BOX INCORPORATED
SERVICE AGREEMENT
This agreement (the "Agreement") is made as of the 16th day of August,
1999, by and between Bluefly, Inc., a New York corporation with offices at 42
West 39th Street, New York, New York 10018 ("Client") and Marketing
Out-of-the-Box Incorporated ("MOTB"), an Illinois corporation with offices at
7200 Oak Park Avenue, Niles, Illinois 60714.
RECITALS:
Client markets and sells clothing, fashion accessories, home
furnishings, and related items (collectively, the "Materials") over the Internet
to direct response customers from around the world.
MOTB's services include, but are not limited to, storage and
warehousing, order processing, fulfillment, data management, client account
maintenance, print, media, advertising specialty items, internet services, and
other aspects of marketing support. Because MOTB offers services that are
intended to be tailored to its clients, contracts with its clients must be
flexible so as to meet changing needs and requirements of said clients. MOTB's
services, whether specifically described herein or as required to service Client
and as otherwise agreed to in writing are referred to herein as "Services." A
list of the Services to be provided by MOTB to Client as of the commencement of
this Agreement is set forth on Exhibit A hereto.
Client desires to engage MOTB to perform Services in accordance with
the terms of this Agreement and MOTB desires to provide such Services to Client
in accordance with such terms.
Now, therefore, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES. MOTB hereby warrants and represents to
Client that it has the experience to perform the Services and MOTB hereby
covenants and agrees that it shall perform for Client the Services, in
accordance with generally accepted professional standards and in accordance with
such requirements or restrictions as may be lawfully imposed by any governmental
authority. MOTB further represents and warrants to Client that:
<PAGE>
(a) MOTB is a corporation duly formed and in good standing
under the laws of the State of Illinois, which is the only jurisdiction in which
it is required to qualify to do business.
(b) MOTB owns or has obtained the legal right to use all
computer hardware and software and all other equipment, facilities, forms,
supplies required for the performance of the Services, and such use does not and
shall not infringe the common law or statutory copyright, trademark, licensing
or any other right of any person or entity.
(c) In providing the Services under this Agreement, MOTB shall
conduct its business and maintain all premises, including the Center
(hereinafter defined), in compliance with all applicable federal, state, county
and municipal laws, rules and regulations in all material respects.
(d) All Services to be performed by MOTB hereunder,
(hereinafter defined), shall be rendered using sound, professional practices and
in a competent and professional manner by knowledgeable, trained and qualified
personnel.
(e) MOTB shall handle the Materials with due care and caution
consistent with the customs and practices of the industry and shall use its
reasonable best efforts to prevent loss, damage and theft of the Materials while
the Materials are in the custody of MOTB.
(f) To MOTB's knowledge, after due inquiry, all computer
hardware and software and all other equipment used by MOTB in the performance of
its duties and obligations hereunder is Year 2000 compliant such that, to the
extent that any such software records, stores, processes, calculates or presents
date or time sensitive data, no functionality is lost or otherwise adversely
affected upon the introduction of records containing dates falling on or after
January 1, 2000.
(g) This Agreement has been duly authorized, executed and
delivered by MOTB and constitutes the legal, valid binding obligation of MOTB,
enforceable in accordance with its terms.
(h) MOTB has the necessary experience and resources to perform
all of their duties and obligations hereunder and MOTB's execution, delivery and
performance of this Agreement do not and shall not contravene any contractual
obligation binding or affecting any of its property, certificate of
incorporation, bylaws, or any existing statute, rule, order, or judgement
applicable to it.
2. DESCRIPTION OF SERVICES:
2.1. General. MOTB agrees that in providing Services under this
Agreement, MOTB shall:
(i) inspect and count, all items contained in all
deliveries of the Materials, report all claims for damage to the delivering
carrier, prepare and deliver to Client
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receiving reports for all deliveries of Materials, report all claims for
nonconforming or otherwise unacceptable deliveries to Client;
(ii) provide safe, effective, and efficient packaging
for the Materials;
(iii) print UPC or style tickets or stickers and
apply them to individual items of Merchandise as per Client's instructions;
(iv) maintain clean, dry, sanitary, ventilated and
orderly storage conditions at the Center and any Alternative Space (as
hereinafter defined);
(v) promptly deposit all monies received by MOTB on
behalf of Client in consideration for Materials, in an account to be designated
in writing by Client, and provide Client a reconciliation, setting forth in
reasonable detail the deposits made by MOTB to such account;
(vi) implement such software and/or hardware changes
or modifications regarding MOTB's computer management information systems (the
"System") as shall be required in order for the System to receive data file
imports containing Client's customer's orders in a secure manner directly from
Client's data server as often as required by Client;
(vii) implement such software and/or hardware changes
or modifications regarding the System as shall be required in order for the
System (a) to process such information relating to returned Merchandise and
new Merchandise received as Client and MOTB shall agree and (b) to transmit in
a secure manner such information as is reasonably required by Client to
Client's data server as often as reasonably required by Client; and
2.2. Warehousing and Shipping. MOTB shall allocate sufficient warehouse
space at its principal pick, pack and ship facility (the "Center"), which shall
be located in, the Chicago metropolitan area or such other location
("Alternative Space") as may agreed upon in writing by the parties to store such
Merchandise as may be delivered to MOTB from time to time,. The equipment and
services to be provided by MOTB hereunder shall include but not be limited to
the following:
(i) all packaging materials (per Pricing Attachment
(as hereinafter defined)) and the facilities necessary for picking, packing and
shipping the Merchandise in a timely fashion;
(ii) all inventory, accounting and records systems
necessary for maintaining records regarding the Materials, including records
regarding the time and manner of shipping, returns, and levels of inventory
losses due to breakage, defects or spoilage;
(iii) any and all other equipment and services agreed
to in writing by Client and MOTB.
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Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]", have been
separately filed with the Securities and Exchange Commission.
2.3. Computer System and Retention of Records. MOTB, at its own
expense, shall supply all magnetic tapes, computer disks, and all other machine
and production supplies necessary to perform the Services. MOTB shall retain in
a readily accessible and, where possible, machine readable or hardcopy form all
processing records relating to the Services for a period of seven (7) years from
the date the record is created. Upon Client's request, MOTB shall transfer any
and all such records to Client or such person or entity as Client shall direct
in writing. All data relating to Client shall be backed-up on a nightly basis
and stored off-site in a secure fire proof facility.
2.4. Insurance. Notwithstanding the foregoing, MOTB shall secure and
maintain in full force and effect for the duration of this Agreement a general
liability insurance policy from a national, reputable and licensed insurance
company protecting MOTB and Client against any loss, liability or expense
whatsoever from property damage, personal injury, death or otherwise occurring
in connection with any of the services rendered by MOTB hereunder,. Such
insurance policy shall be primary and non-contributory with any insurance
carried by Client or MOTB, provide for a thirty (30) day prior written notice to
Client in the event of cancellation, and provide coverage in an amount at least
equal to [***]. Client shall be named as an additional insured on such policy
and MOTB shall be responsible for all costs incurred in connection with
obtaining and maintaining such policy. MOTB shall provide Client with reasonable
evidence from the insurance carrier of the terms and conditions of the policy
and payment of the premiums within thirty (30) days of the date of this
Agreement and shall provide such other evidence of the existence of such policy
and payment of premiums as Client may reasonably request from time to time.
3. PERFORMANCE STANDARDS
3.1. Pick, Pack and Ship. MOTB acknowledges that the success of
Client's business may depend on MOTB's ability to accurately and efficiently
pick, pack, and ship the Materials to Client's customers in a timely manner,
that the failure to do so could have a material adverse effect on Client's
business, and that therefore time and accuracy are of the essence. MOTB agrees
that it shall pick, pack and ship all orders within [***] hours of their receipt
by MOTB (provided inventory is on hand at MOTB's facility); provided, however,
that with respect to any order received by MOTB after 2:00 p.m. (e.s.t) on any
Friday, or scheduled holiday (list attached to this contract) MOTB cannot
guaranty that such order will be picked, packed and shipped until the
immediately following business day (provided inventory is on hand at MOTB's
facility). MOTB agrees that any order that is not picked, packed and shipped
within the time frame described above will be automatically upgraded to
overnight delivery, and that MOTB will be solely responsible for all shipping
costs in connection with such order. MOTB agrees that it shall use its
reasonable best efforts to fill all orders as accurately as possible and that in
any event it shall correctly fill at least [***] of all orders it receives in
any one (1) month.
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Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]", have been
separately filed with the Securities and Exchange Commission.
3.2. Shrinkage Guaranty. MOTB agrees that it shall be responsible for
maintaining and securing all Materials its receives and that any and all loss
due to shrinkage or damage shall be immediately credited to Client's account
based on the actual cost of such damaged, lost or stolen Material plus freight
and refurbishment costs (unless Materials are received damaged from Client or
Client's supplier). MOTB shall promptly notify Client in writing of any
Materials that are received damaged from Client or Client's supplier. MOTB shall
include in its monthly invoices reports of any and all shrinkage or damage.
3.3. Return Processing. MOTB acknowledges that the success of Client's
business may depend on MOTB' ability to process quickly and in a professional
manner the return of all Materials by customers of Client. MOTB agrees that it
shall inspect all returned Materials within [***] hours of their receipt by
MOTB. All returned Materials that MOTB reasonably determines do not need to be
refurbished shall be returned to stock within [***] hours of their receipt by
MOTB and such information shall be communicated to Client in the (at least)
daily upload of data to Client's data server. MOTB represents and warrants that
it is capable of applying UPC tickets or labels, refolding and re-bagging all
returned Materials in-house and that it will not require the assistance of a
third-party for such tasks. MOTB will work with the client to develop a steaming
capability (at Client's expense) for use in returns processing. All returned
Materials that MOTB reasonably determines require refurbishment shall be stored
by MOTB to be sold or disposed of at Client's direction.
4. PRICING. For the performance of the services identified on Exhibit A hereto,
Client shall pay to MOTB the amounts set forth on the schedule attached hereto
as Exhibit B (the "Pricing Attachment"). MOTB shall have the right to increase
rates quoted on the pricing attachment only on the commencement date of each
renewal term so long as it shall have provided Client with at least one hundred
and ten (110) days' prior written notice of such increase. If Client shall
request the expansion or addition of any service during a term, such expansion
or addition shall be provided to the extent that MOTB and Client can agree on a
reasonable adjustment to the rates quoted on the Pricing Attachment. Without
limiting the foregoing, Client and/or its authorized representatives shall have
the right upon ten (10) days' prior written notice to conduct a reasonable
inspection of the books and records of MOTB solely for the purpose of verifying
the accuracy of the billing information provided to Client. Such inspection
shall not be conducted more than once in any six (6) month period and shall be
conducted on MOTB's premises during normal business hours in such a manner as to
minimize disruption to MOTB's business. The cost and expense of such inspection
shall be borne by Client unless the inspection reveals an aggregate overcharge
in excess of five percent (5%) of the average monthly charges billed Client
during the immediately preceding six (6) months in which event MOTB shall pay
all reasonable costs incurred in connection with such inspection and credit
Client's account for the total of such undisputed overcharge. MOTB agrees that
it shall maintain books and records regarding Client's billing information,
together with all backup material, for so long as this Agreement shall remain
5
<PAGE>
in effect and for a period of one hundred and eighty (180) days thereafter or
until any billing dispute is finally resolved, whichever is longer.
5. LENGTH OF AGREEMENT; TERMINATION. The initial term of this contract shall be
for a term commencing on the date hereof and ending on March 31, 2001, and may
be extended by the written agreement of both parties. Unless either party gives
written notice to the other of its intent to terminate this Agreement or modify
its terms at least ninety (90) days prior to the end of the then-current term,
this Agreement shall be automatically renewed for successive one (1) year terms.
Notwithstanding anything else to the contrary contained herein:
(a) Client shall have the right to terminate this Agreement without
further liability upon any merger or sale of all or substantially all of the
assets of MOTB, any transaction or series of transaction resulting in the
transfer of over fifty percent (50%) of the voting or equity interests in MOTB
or any similar transaction or series of transactions pursuant to which control
of the operations of MOTB is transferred to a party or parties other than its
current majority shareholders.
(b) Client shall have the right to terminate this Agreement without
further liability upon ten (10) business days' prior written notice to MOTB in
the event that MOTB has consistently failed to perform its obligations in
accordance with the standards set forth hereunder; provided, however, that, in
the case of the first such notice sent to MOTB under the terms of this
subsection (b), at MOTB's option, the parties shall meet during such period in
order to discuss MOTB's failure to perform and, thereafter, MOTB shall be
provided with a thirty (30) day period within which to demonstrate that it will
be able to consistently perform up to the standards set forth hereunder.
Client's right to terminate this Agreement pursuant to this subsection (c) shall
be in addition to, and not in substitution of, any rights provided to Client
pursuant to subsection (d) hereof.
(c) Either party may terminate this Agreement without further liability
in the event that the other party has materially breached its obligations
hereunder upon ten (10) business days' prior written notice to the other, which
notice shall describe the alleged material breach; provided, however, that, to
the extent such breach is curable, the breaching party may notify the other
party within three (3) business days that it intends to cure such breach, in
which event it shall have ten (10) business days, or such other time period as
the parties may agree to in writing, to cure such breach, following the receipt
of such notice.
(d) In the event Client fails to pay any undisputed amount for which it
has been properly invoiced within forty-five (45) days of having received such
invoice, MOTB may terminate this Agreement without further liability upon thirty
(30) days' prior written notice to Client.
6. PROCEDURE UPON TERMINATION. In the event of termination by Client, Client
shall make all payments for services provided up to the date of cancellation.
Upon termination of this Agreement, MOTB agrees that it shall promptly deliver
to Client, or any other person designated by Client in writing, all records,
files, data, customer information and other property in its possession or under
its control relating to Client. MOTB acknowledges that the success of Client's
business may depend on MOTB's ability to pack and ship the Materials in a timely
6
<PAGE>
manner upon termination of this Agreement, that the failure to do so could have
a material adverse effect on Client's business, and that therefore time will be
of the essence. In the event of a termination of this Agreement, MOTB agrees to
use its reasonable best efforts to pack and ship (at Client's expense) all
Materials to Client, or such other person as Client shall direct in writing, as
quickly as practicable. All fees imposed by MOTB in connection with its duties
and obligations under this shall be based solely on the standard per hour charge
and bulk shipping rates set forth on the Pricing Attachment, including the cost
of shipping materials.
7. OWNERSHIP OF MATERIALS. MOTB acknowledges that, as between it and Client,
all of the Materials are owned by Client, and MOTB agrees that all Materials
shall be stored and identified in such a way that Client's ownership of the
Materials is readily apparent to third-parties.
8. PERFORMANCE REVIEWS. Each month during the first six (6) months of the
initial term and at the end of each quarter thereafter during the initial term
and any renewal term of this Agreement, the parties shall meet and
comprehensively review the services and operations being performed and shall
identify and jointly seek to implement any productivity and methods improvements
that can reasonably be expected to reduce costs to the Client and otherwise
improve the level of the services performed by MOTB hereunder.
9. RELATIONSHIP OF PARTIES. MOTB is and shall remain an independent contractor.
The acts, actions, past, present or future of MOTB and/or Client shall not be
construed as creating the relationship of a partnership or joint venture,.
Neither party shall hold itself out to third parties in any manner contrary to
this section.
10. PRIOR AGREEMENTS. This Agreement sets forth the entire agreement between
the parties hereto and supersedes any and all prior agreements, written or oral,
between MOTB and Client.
11. COUNTERPARTS. This Agreement may be separately executed in several
counterparts, all of which together shall constitute one Agreement;
notwithstanding that all signatories have not signed the same counterpart.
12. AMENDMENTS. This Agreement shall not be changed or modified in any respect
except by a written agreement signed by each of the parties hereto.
13. WAIVERS. Any waiver by either party of any breach of any kind or character
whatsoever by the other, whether such waiver is direct or implied, shall not be
construed as a continuing waiver of, or consent to, any subsequent breach of
this Agreement on the part of the other.
14. STANDARD TERMS AND CONDITIONS. The Standard Terms and conditions here
attached are incorporated by reference and hereby made part of this Agreement.
15. AUTHORIZED SIGNATORIES. This Agreement shall not be binding by either party
unless and until approved, signed and executed by authorized signatories of both
MOTB and Client.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this contract as of the
date shown above. BLUEFLY, INC.
By: /s/ Patrick C. Barry
----------------------------
Name: Patrick C. Barry
Title: Chief Financial Officer
MARKETING-OUT-OF-THE-BOX
INCORPORATED
By: /s/ Allison Haftl
----------------------------
Name: Allison Haftl
Title: Vice President
8
<PAGE>
STANDARD TERMS AND CONDITIONS
These Standard Terms and Conditions are made part of the "Contract," referring
to the certain Service Agreement made as of August 16, 1999 by and between
Bluefly, Inc. ("Client") and Marketing Out-of-the-Box Incorporated ("MOTB"). In
the event of conflict between any Standard Term and Condition, and language
contained elsewhere in the Contract, the latter shall govern.
1. BILLING: For the performance of the Services (as defined in the
Contract) MOTB shall invoice Client for the fees set forth in the
Pricing Attachment to the Contract on a monthly basis. Each invoice
shall be due in accordance with the terms of Net 30 from the date of
receipt of invoice, opened within three (3) business days and date
stamped.
2. LATE PAYMENT: Client's failure to pay any charge due under this
contract within forty-five (45) days of its receipt of this invoice
will result in interest charges of one percent (1%) monthly on the
unpaid balance, or the highest interest rate allowed by law, whichever
is lower.
3. ASSIGNMENT: MOTB may delegate any duties under this contract to another
vendor or subcontractor with the written consent of the Client.
Notwithstanding the foregoing and subject to Section 5 of the Contract,
MOTB shall have the right to assign this agreement to any party which
(by sale of assets, merger or otherwise) acquires all or substantially
all of MOTB's assets. Any such subcontract shall require that
subcontractors are subject to all terms and conditions set forth in
this contract and agreement and MOTB shall be fully responsible for the
works as if it had itself performed it. Client may sell, assign,
license, franchise, sublicense or otherwise convey its rights, duties
and obligations under this contract to another entity which (by sale of
assets, merger or otherwise) acquires all or substantially all of
Client's business with notice to MOTB, and may sell, assign, license,
franchise, sublicense or otherwise convey its rights, duties and
obligations under this contract to any other entity as long as Client
remains bound by the terms and conditions hereof.
4. FORCE MAJEURE: Neither party shall be liable to the other for a failure
or delay in the performance of its obligations under the Contract if
such failure or delay is caused in whole or in part by any act of God,
act of governmental authority, act of public enemy, war, riot, flood,
civil commotion, insurrection, severe weather conditions, or any other
cause beyond the reasonable control of the party delayed (a "Force
Majeure Event"); provided that the party delayed will provide the other
party notice of any such delay or interruption as soon as reasonably
practicable, and will use commercially reasonable efforts to minimize
any delays or interruptions resulting from the Force Majeure Event.
5. INDEMNIFICATION: Each party shall indemnify, defend and hold harmless
the other party, its officers, agents and employees from and against
any and all losses, liabilities, claims, suits, judgments, damages,
costs and expenses, including reasonable attorneys' fees and costs
associated therewith which may accrue against, be charged to, incurred
by or recoverable from, its officers, agents and employees as a result
of performance,
9
<PAGE>
non-performance, or improper performance under the Contract or which
arise out of or are relate to the goods or services of either party
under the Contract. To assert its rights of indemnification under this
Section 5, an indemnitee shall promptly notify the indemnifying party
in writing of any claim or legal proceeding which gives rise to such
right, afford the indemnifying party the opportunity to participate in,
or fully control, any proceeding and compromise, settlement, resolution
or other disposition of the claim or proceeding so long as the
settlement involves the payment of money damages only and the
indemnitee is provided with a general release from the claimant and
indemnifying party. Each party agrees to cooperate fully with the other
in any proceeding for which an indemnification claim is made.
6. NON-DISCLOSURE:
A. During the term of the Contract, each party may have access to
certain confidential information and materials of the other,
including but not limited to plans, specification, design,
client lists, customer lists, vendor lists, and other trade
secrets or proprietary confidential information, (collectively
"Confidential Information"). Each party agrees to maintain
procedures, equipment and facilities sufficient to preserve
the confidentiality of said information of the other and to
use such information during the term of this contract only for
the purposes set forth in and as permitted by this contract,
and to make no use of the Confidential Information following
the termination of this contract.
B. Confidential Information shall not include information that
(i) is contained in an issued patent or becomes published or
others becomes generally available to the public without
breach of this contract; (ii) was already known to either
party prior to disclosure by the other party; (iii) becomes
available to either party on a non-confidential basis from a
source other than a party to this contract, provided such
source is not bound by a confidentiality agreement with either
party; (iv) is independently developed by either party without
reliance on any confidential information supplied under this
contract; or (v) if in tangible form is not marked
confidential by the disclosing party.
C. All information concerning Client's customer list, vendor
lists, sales activity, costing model, past, present and future
business, fulfillment business activities and business and
promotion plans and methods, together with all names,
addresses and other customer information relating to Client or
Client's customers are the unique and valuable property of
Client. Unless compelled by law or directed by Client in
writing, MOTB shall not use such information for any purpose
other the performance of its duties and obligation under the
Agreement. MOTB shall take all reasonable and customary
precautions to ensure that such information, including
Client's customers' credit card information, is protected from
unauthorized disclosure to any party not required to have
access to such information. MOTB acknowledges that Client is a
publicly traded company and that the unauthorized disclosure
of Client's Confidential Information could have a material
adverse affect. MOTB shall take all appropriate precautions
necessary to
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<PAGE>
prevent its officers, directors, employees and agents from
directly or indirectly trading on any of Client's non-public
information. The terms contained in this Section 6 shall
survive the termination of the Agreement or this Contract.
7. EXCLUSIVITY: MOTB agrees that during the term of the Contract and for a
period of nine (9) months thereafter it shall not, nor shall any of its
affiliates, officers, directors, employees, or agents render any
fulfillment service to, or own any interest in, any Competitive
Business without the prior written consent of Client. For purposes of
this Agreement, a "Competitive Business" shall mean any person,
corporation, partnership or other entity which sells or plans to sell
via the Internet at a discount of the manufacturer's or designer's
suggested retail price apparel, fashion accessories or home
furnishings. Notwithstanding the foregoing, a "Competitive Business"
shall not include a company which sells only the product which it
designs. MOTB agrees that in the event of a breach or threatened breach
of this paragraph, Client shall have no adequate remedy in money
damages and, accordingly, shall be entitled to appropriate injunctive
relief against such breach or threatened breach. Notwithstanding the
foregoing, the ownership of less than five percent (5%) of any publicly
traded company engaged in a Competitive Business shall not constitute a
violation of this Section 7. Except as specifically provided in this
Section 7, MOTB shall not be restricted hereunder from furnishing any
type of service to any person or entity. In the event that the Contract
is properly terminated by MOTB pursuant to Section 5(c) thereof, MOTB
shall no longer have any ongoing obligations under this Section 7.
8. GOVERNING LAW: The Contract and any dispute arising thereunder shall be
governed by the internal laws of the State of New York, without regard
to conflicts of law principles.
9. COMPLETE AGREEMENT: The Contract contains the complete, final and
exclusive agreement between the parties with respect to the subject
matter thereof, and may not be modified, or amended, other than by
written instrument executed by both parties.
10. MOTB PERSONNEL: Client will have an assigned Account Manager, Project
Manager and Associate Project Manager. Any changes to the assigned MOTB
team will be communicated immediately to the Client contact.
11. FORECASTING: Under the terms of the Contract, MOTB shall procure Raw
Materials (i.e., packaging materials, labels, print paper, etc.) and
labor resources that are to be used in the completion of the Client
operations, from suppliers who appear on MOTB's Approved Vendor List.
MOTB will procure these goods and resources based on forecast
information provided by Client. It is understood that Client will make
all necessary and reasonable effort to accurately forecast work to
MOTB, realizing that the accuracy of the forecasting has a material and
practical effect on MOTB and Client's business objectives. On a monthly
basis, MOTB will review procurements made on behalf of Client and from
forecasts provided by Client. Excess, obsolete, inactive or otherwise
unnecessary resources that had been procured, will be reconciled to
MOTB by Client at that time, in full.
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<PAGE>
12. ARTWORK: All artwork camera-ready boards, dies, film, disk, or data via
electronic files that are provided by the Client to MOTB shall remain
the property of the Client. The Client shall be responsible for the
accuracy of the data supplied to MOTB, regardless of the method of
transfer (electronic or physical copy). MOTB will invoice the Client
for any artwork generated at Clients request. Additional charges will
apply for indirect costs associated with generating the artwork (such
as transportation charges and programming charges) as a pass through
cost.
13. INVENTORY REPORTING: Upon request, MOTB will provide the Client with
copies of priced inventory reports that will show Client's Raw Material
commitment and financial liability. The report will also show
allocation of such Raw Material items as it pertains to Client's
orders.
14. PACKAGING / ASSEMBLY SPECIFICATIONS: Client, with MOTB's assistance,
will be responsible for developing and submitting complete
specifications for the materials used in the delivery of goods to the
Client's customers. Boxes, labels, tape, placement of identifying marks
or logos, articles to be includes included in the box other than
customer ordered items, etc. and the specifications for uses thereof,
will be the responsibility of Client. Specifications are to be provided
in writing to MOTB. It is further acknowledged that changes to these
specifications can require variable times to implement, depending upon
their complexity, and that these changes to specification can have an
effect on the delivery of services from MOTB to Client.
15. RECEIVING: Client covenants and agrees not to ship goods to MOTB as the
named consignee. Client shall indemnify MOTB against any and all claims
for unpaid transportation charges, including undercharges, demurrage,
detention charges or against. MOTB therefore disclaims all liability
for non-receipt or misdescription of the Products. MOTB will handle
Client's Materials with frugality so as to prevent undue spoilage, but
MOTB does not accept responsibility for shortages, concealed damages,
mislabeled product, or spoilage. MOTB is only responsible for any
damage it does to Client's Materials due to gross negligence or willful
misconduct.
16. DELIVERY SCHEDULES: MOTB will process orders on a "first in, first out"
basis unless otherwise specified by Client. MOTB is not responsible for
fire, accidents, act of God, mechanical breakdown or other cause beyond
its immediate and direct control. Materials that are delivered late to
MOTB may affect the completion date of an order by a greater degree
than the actual elapsed time that the Material is late.
17. DELIVERY SCHEDULE CHANGES: Client may reschedule delivery of the
Materials upon reasonable prior notice to MOTB with MOTB's consent,
MOTB will use all reasonable efforts to accommodate these changes.
18. FINANCIAL AUDITS: MOTB acknowledges that Client's auditors shall from
time to time conduct audits of Client's business and MOTB agrees to
provide Client's auditors with reasonable assistance and access to its
facilities and personnel during normal business hours.
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19. NOTICE: All notices shall be in writing and deemed given if delivered
personally, by a reputable guaranteed overnight delivery service, by
facsimile or mailed by first class mail, postage prepaid, to the
parties at the address for such party set forth in this Agreement.
20. SALES AND USE TAXES: Client acknowledges that title to the Materials
never passes to MOTB and liability and responsibility to remit all
sales and use taxes relating to the Materials to the appropriate taxing
authorities remains with Client. Client shall indemnify and defend
MOTB, its officers, directors, shareholders, employees and agents from
and against any and all claims, suits or liabilities and expenses
(including costs and attorneys' fees) for the Client's failure to remit
to the appropriate authorities any such sales or use taxes relating to
the Materials as may be claimed as due and owing by reason of the
Client's sale of the Materials to its customers.
21. OBLIGATIONS AT TERMINATION OF AGREEMENT: Upon termination of the
Contract, MOTB the following provisions of the Contract and these
Standard Terms and Conditions shall survive indefinitely: Sections 1,
2.3, 4, 6, 7 and 9 through 15 of the Contract and 1, 2, 5, 6, 7, 8, 9
and 20 of these Standard Terms and Conditions.
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Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]", have been
separately filed with the Securities and Exchange Commission.
BLUEFLY.COM
eCOMMERCE FULFILLMENT CONTRACT
EXHIBIT A SERVICES
MOTB eCommerce Fulfillment Services include receipt of Bluefly products,
warehousing, detailed management of inventory, order retrieval and confirmation,
supply of packaging materials, and pick/pack/ship operations.
Account Set-Up
- --------------
MOTB will receive approximately [***] units of product being shipped from
Bluefly.com's prior fulfillment center managed by On-Demand Solutions in
Wilmington, Massachusetts. MOTB will use its best efforts to ensure that all
such product is processed and available for delivery to customers within one (1)
week of receipt.
Receiving
- ---------
MOTB will receive from Bluefly.com and/or its suppliers merchandise consisting
of apparel, fashion accessories, and home furnishings and accessories on a daily
basis. Upon receipt, unit counts will be verified, with receiving reports
transmitted to Bluefly.com.
MOTB will provide quality assurance (QA) inspection through its
Bluefly-dedicated staff.
Storage Specifications
- ----------------------
All incoming products and merchandise is to be shipped to MOTB in sealed cartons
and, where appropriate, on standard 40 x 48, 4-way entry pallets for rack
storage.
MOTB will provide secured storage of client materials and make infrastructure
improvements to optimize storage and flow of Bluefly merchandise, including
shelving and hanging racks.
Insurance
- ---------
MOTB will schedule Bluefly.com inventory on its blanket policy as "property of
others" at replacement values provided by Bluefly.com.
Inventory Control
- -----------------
MOTB will monitor all incoming product within our inventory system. Product and
merchandise SKUs will be depleted per outbound orders and replenished with
incoming receipts. MOTB will provide Bluefly.com with updated inventory reports
on a regular and frequent basis, as determined by Bluefly.com.
14
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Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]", have been
separately filed with the Securities and Exchange Commission.
(MOTB is developing with Oracle an online inventory reporting site. When this is
up-and-running within a few months, clients will be able to view inventory via
secured password to a dedicated MOTB website.)
Inventory will be subject to regularly scheduled cycle counts and annual or
bi-annual physicals to coincide with Bluefly's accounting requirements.
Promotional Insertions
- ----------------------
MOTB charges clients a Pick Fee based on the number of items pulled off the
shelves/racks for each order. Fees are scaled by volume of picks. For
promotional insertions (such as coupons and/or premiums) which are common to all
orders packed, there is a nominal insertion charge.
Order Transmission
- ------------------
Bluefly can transmit orders from the system that is currently utilized between
Bluefly and OnDemand. Alternatively, Bluefly.com can initially transmit orders
to MOTB via email in a tab delimited format (to be provided by MOTB), for order
processing. MOTB will generate mailing labels and packing list. Orders will be
shipped within 24 hours via carrier specified by Bluefly.com. Order for which
the customer has requested overnight deliver will be shipped the same day that
they are received, if received prior to 4:00 p.m., Central Time.
It is recommended that orders be batched. Some clients transmit orders as
frequently as 4-times daily. In order to accommodate requests for next day
delivery, the first transmission should be at the beginning of the day to
pick-up online orders received overnight.
Once the Oracle tech interface is implemented, a socket connection could be made
between Bluefly's website and MOTB, whereby when the customer submits the
shopping cart order, orders are simultaneously directed to MOTB, if such a
transmission method is preferred by Bluefly.com.
Shipping Method
- ---------------
To be determined by Bluefly.com. Recommended carriers are Fedex and UPS due to
their advanced online package tracking capabilities; eventually USPS will also
be viable. Typically, MOTB establishes a dedicated online account for each
client so that carriers may bill Bluefly.com directly with pick-up at MOTB. At
Bluefly.com's election, MOTB may prepay freight, with a [***]% surcharge added
to actual carrier freight invoices. For USPS shipments, Bluefly may deposit
postage funds with MOTB to avoid the surcharge.
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Shipping Cartons and Packing Materials
- --------------------------------------
MOTB will provide shipping cartons of varied sizes to handle different order
configurations. Currently stock kraft cartons are utilized, however at
Bluefly.com's election, these can be custom manufactured and imprinted with
Bluefly.com's graphics.
Bluefly.com has specified that its merchandise will be packed with a tissue
liner, that is sealed with custom-imprinted Bluefly graphics.
As warranted by ordered merchandise, filler material will be utilized.
Confirmation Report
- -------------------
MOTB will provide order confirmation reports showing order status and shipment
tracking numbers for Bluefly.com
Again, once the Oracle tech interface is implemented, this confirmation report
will be online and available real-time.
Packing List/Order Receipt
- --------------------------
MOTB will generate a customized Packing List/Order Receipt which is inserted
into the shipping carton. A custom printed document will be utilized and will be
imprinted with order data in fields predetermined fields. The order form also
features RMA shipping labels for returned merchandise. As this document is
generated directly off the Order Transmission form, it could also be customized
to include a message driven by the customer's ordering preference highlighting
complementary items for sale.
Gift Cards & Giftwrapping
- -------------------------
At Bluefly.com's election, MOTB will generate printed gift cards on
client-selected stock per copy submitted by customer. Hand-written cards would
also be available.
At Bluefly.com's election, MOTB provides giftwrapping services. Bluefly will
select stock giftwrap patterns for MOTB to utilize, or giftwrap may be custom
imprinted. Coordinated ribbons and bows will be utilized.
Order Returns
- -------------
Bluefly.com will provide customers with a Return Authorization Form. Returns
will be processed by MOTB in accordance with Section 3.3 of the Agreement.
Procurement Management
- ----------------------
Upon Bluefly.com's election, MOTB provides Procurement Management Services on an
hourly-fee basis to communicate and coordinate product and merchandise releases
from client warehouses or vendors in order to maintain adequate stock levels.
This service, outsourced by clients to MOTB, frees the client from having to
assign personnel for this purpose.
Procurement Management Services may also be expanded to include product and
merchandise sourcing and purchasing by experienced MOTB buyers either on behalf
of client, or for resale. For Bluefly.com, this might means the procurement of
premiums or promotional products and
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<PAGE>
Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]", have been
separately filed with the Securities and Exchange Commission.
merchandise that would be offered for sale online at the Bluefly.com site. Any
procurement management services to be provided by MOTB on an hourly fee basis
will be agreed to in writing by Bluefly.com and MOTB prior to MOTB commencing
the provision of such services.
Purchases made on behalf of Bluefly by MOTB-such as shipping cartons, tissue,
order packing lists/invoices, giftcard stock, giftwrap, ribbons and bows-will be
invoiced to Bluefly on a cost-plus basis. Bluefly will pay MOTB 115% of the cost
of any of these types of purchases.
Storage
- -------
MOTB will charge Bluefly $[***] per square foot per month for warehouse space.
Furthermore, MOTB offers freight consolidation services for remainder
liquidation whereas bulk merchandise is consolidated and forwarded to specified
client-specified locations.
Other Services
- --------------
MOTB can provide a variety of customized assembly and packing services,
including giftwrapping, as requested by Bluefly.com. From complex technology
assemblies to simple shrinkwrapped collations, MOTB offers Bluefly.com a variety
of production/finishing capabilities to flexibly respond to Bluefly.com new
product and/or new configuration offerings online.
Bluefly-Dedicated Services/Personnel
- ------------------------------------
MOTB will employ a dedicated staff to manage receipts, inventory database,
quality assurance, and returns. At present the number of employees specified is
four. Bluefly will contract dedicated staff with MOTB, paying employee salary
and benefits on a cost-plus basis. This dedicated staff will be integrated
within MOTB operations and provide leadership and training to MOTB employees,
either contracted or on payroll, for the aforementioned functional
responsibilities.
At the client's election, a Bluefly Project Coordinator will be in residence at
MOTB to coordinate operations with Bluefly headquarters. MOTB will provide
office space and resources for use by this Bluefly employee.
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Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]", have been
separately filed with the Securities and Exchange Commission.
BLUEFLY.COM
eCOMMERCE FULFILLMENT CONTRACT
EXHIBIT B FEES
MOTB charges a Monthly Maintenance Fee which includes the following:
(a) storage of Bluefly.com's merchandise; (b) inventory management, including
preparation and reporting of inventory; (c) processing of dataflow for incoming
receipts and outbound shipments; (d) account service communication and
coordination with client; (e) freight arrangements with carriers; and (f)
blanket insurance of client materials.
The Monthly Maintenance Fee has been discounted due to the dedicated staff that
will be contracted with Bluefly. This fee will be waived once volume exceeds
[***] orders per month.
Description Fee
- ----------- ---
Account Related Fees
- --------------------
Inventory Track Set-Up... [***]
----
Receiving... [***]
----
Monthly Maintenance... [***]
----
Quality Assurance [***]
----
Transactional Fees
- ------------------
Order Processing Charge... [***]
----
Pick Fee... [***]
----
Promotional Insertion Fee... [***]
----
Packing List/Receipt [***]
----
Optional Gift Card... [***]
----
[***]
----
Optional Giftwrapping... [***]
----
Other Fees
- ----------
Returns (RMA)... [***]
----
Shipping Carton/Materials... [***]
----
Freight... [***]
----
Customs Documentation: [***]
----
Storage: [***]
----
Procurement Management Services... [***]
----
Dedicated Staff [***]
----
Other Services... [***]
----
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<PAGE>
Terms
All invoices are due net 30 days with the exception of freight invoices which
are net 15 days. Inventory Track Set-Up Fee is invoiced upon contract execution.
Monthly Maintenance Fees are invoiced on the first of each month. Order
Transaction Fees are batched and invoiced weekly.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 12,847,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 4,454,000
<CURRENT-ASSETS> 18,226,000
<PP&E> 1,074,000
<DEPRECIATION> 182,000
<TOTAL-ASSETS> 19,155,000
<CURRENT-LIABILITIES> 2,942,000
<BONDS> 0
0
5,000
<COMMON> 49,000
<OTHER-SE> 16,095,000
<TOTAL-LIABILITY-AND-EQUITY> 19,155,000
<SALES> 1,909,000
<TOTAL-REVENUES> 1,909,000
<CGS> 1,454,000
<TOTAL-COSTS> 8,317,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,568,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,568,000)
<DISCONTINUED> 63,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,505,000)
<EPS-BASIC> (1.62)
<EPS-DILUTED> (1.62)
</TABLE>
