Page 1 of 62 Pages
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. 2)*
BLUEFLY, INC.
-------------
(Name of Issuer)
Common Stock, Par Value $0.01 Per Share
---------------------------------------
(Title of Class of Securities)
096227103
---------
(CUSIP Number)
James M. Dubin, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-7000
----------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 28, 2000
--------------
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
[ ].
Note. Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
Continued on following page(s)
Page 1 of 62 Pages
Exhibit Index: Page 15
<PAGE>
Page 2 of 62 Pages
CUSIP NO. 096227103
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
QUANTUM INDUSTRIAL PARTNERS LDC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[X]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
7 SOLE VOTING POWER
NUMBER OF 848,400**
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
848,400**
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
848,400**
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.70%**
14 TYPE OF REPORTING PERSON
OO; IV
**As explained in Item 6, the exact number of shares and percent of class is not
determinable at this time. Another amendment to this Schedule 13D will be filed
when the number of Shares and ownership percentage are determined.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 3 of 62 Pages
CUSIP NO. 096227103
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
QIH MANAGEMENT INVESTOR, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[X]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF 848,400**
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
848,400**
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
848,400**
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.70%**
14 TYPE OF REPORTING PERSON
PN; IA
**As explained in Item 6, the exact number of shares and percent of class is not
determinable at this time. Another amendment to this Schedule 13D will be filed
when the number of Shares and ownership percentage are determined.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 4 of 62 Pages
CUSIP NO. 096227103
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
QIH MANAGEMENT, INC.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[X]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF 848,400**
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
848,400**
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
848,400**
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.70%**
14 TYPE OF REPORTING PERSON
CO
**As explained in Item 6, the exact number of shares and percent of class is not
determinable at this time. Another amendment to this Schedule 13D will be filed
when the number of Shares and ownership percentage are determined.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 5 of 62 Pages
CUSIP NO. 096227103
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
SOROS FUND MANAGEMENT LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[X]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF 848,400**
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
848,400**
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
848,400**
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.70%**
14 TYPE OF REPORTING PERSON
OO; IA
**As explained in Item 6, the exact number of shares and percent of class is not
determinable at this time. Another amendment to this Schedule 13D will be filed
when the number of Shares and ownership percentage are determined.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 6 of 62 Pages
CUSIP NO. 096227103
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
GEORGE SOROS (in the capacity described herein)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[X]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
7 SOLE VOTING POWER
NUMBER OF 27,790**
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 848,400**
WITH
9 SOLE DISPOSITIVE POWER
27,790**
10 SHARED DISPOSITIVE POWER
848,400**
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
876,190**
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.10%**
14 TYPE OF REPORTING PERSON
IA
**As explained in Item 6, the exact number of shares and percent of class is not
determinable at this time. Another amendment to this Schedule 13D will be filed
when the number of Shares and ownership percentage are determined.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 7 of 62 Pages
CUSIP NO. 096227103
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
STANLEY F. DRUCKENMILLER (in the capacity described herein)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[X]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
7 SOLE VOTING POWER
NUMBER OF 848,400**
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON 0
WITH
9 SOLE DISPOSITIVE POWER
848,400**
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
848,400**
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
14.70%**
14 TYPE OF REPORTING PERSON
IA
**As explained in Item 6, the exact number of shares and percent of class is not
determinable at this time. Another amendment to this Schedule 13D will be filed
when the number of Shares and ownership percentage are determined.
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Page 8 of 62 Pages
CUSIP NO. 096227103
This Amendment No. 2 to Schedule 13D relates to shares of
Common Stock, $0.01 par value per share (the "Shares"), of Bluefly,
Inc. (the "Issuer"). This Amendment No. 2 supplementally amends the
initial statement on Schedule 13D, dated August 6, 1999, and Amendment
No. 1 thereto, dated August 26, 1999 (together, the "Initial
Statement"), filed by the Reporting persons (as defined herein). This
Amendment No. 2 is being filed by the Reporting Persons to report that
the Reporting Persons have entered into a Note and Warrant Purchase
Agreement with the Issuer. Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Initial
Statement. The Initial Statement is supplementally amended as follows.
Item 2. Identity and Background
This Statement is being filed on behalf of each of the following
persons (collectively, the "Reporting Persons"):
(i) Quantum Industrial Partners LDC ("QIP"):
(ii) QIH Management Investor, L.P. ("QIHMI");
(iii) QIH Management, Inc. ("QIH Management");
(iv) Soros Fund Management LLC ("SFM LLC");
(v) Mr. George Soros ("Mr. Soros"); and
(iv) Mr. Stanley F. Druckenmiller ("Mr. Druckenmiller").
This Statement relates to the Shares held for the accounts of QIP
and SFM Domestic Investments LLC ("SFM Domestic Investments").
Updated information concerning the identity and background of each
of the directors and officers of QIP and QIH Management is set forth in Annex A
hereto. Updated information concerning the Managing Directors of SFM LLC is
attached as Annex B hereto.
Item 3. Source and Amount of Funds or Other Consideration
Item 3 is amended to add the following.
QIP expended approximately $2,904,900 of its working capital to
purchase the securities reported herein as being acquired in the last 60 days.
SFM Domestic Investments expended approximately $95,100 of its working capital
to purchase the securities reported herein as being acquired in the last 60
days.
<PAGE>
Page 9 of 62 Pages
CUSIP NO. 096227103
Item 5. Interest in Securities of the Issuer
Item 5 is amended to add the following.
As explained in Item 6 below, it is not possible to determine at
this time the precise number of shares that may be deemed to be beneficially
owned by each of the Reporting Persons because the particular number of Shares
of which each of the Reporting Persons may be deemed to be the beneficial owner
by virtue of the Securities Purchase Agreement (defined below) is not finally
determined. Accordingly, the Reporting Persons will further amend this Schedule
13D when the number of Shares and ownership percentages are determined.
Except as set forth in Item 6 hereto, there have been no
transactions affected with respect to securities of the Issuer since February 1,
2000 (60 days prior to the date hereof).
Item 6. Contracts, Arrangements, Understandings or Relationships
with Respect to Securities of the Issuer
Item 6 is amended to add the following.
On March 28, 2000 QIP and SFM Domestic Investments entered into a
Note and Warrant Purchase Agreement (the "Securities Purchase Agreement") with
the Issuer (a copy of which is attached hereto as Exhibit G and incorporated
herein by reference in response to this Item 6) pursuant to which QIP and SFM
Domestic Investments purchased Senior Convertible Notes and Warrants (as defined
in the Securities Purchase Agreement) for an aggregate purchase price of
$3,000,000.
Pursuant to Warrant No. 1 (a copy of which is attached hereto as
Exhibit H and incorporated herein by reference in response to this Item 6), QIP
has the right to subscribe for and to purchase up to 169,452.5 Shares depending
upon whether the Issuer closes the Next Round Financing (as defined in the
Securities Purchase Agreement) and the timing of such Financing.
Pursuant to Warrant No. 2 (a copy of which is attached hereto as
Exhibit I and incorporated herein by reference in response to this Item 6), SFM
Domestic Investments has the right to subscribe for and to purchase between up
to 5,547.5 Shares depending upon whether the Issuer closes the Next Round
Financing and the timing of such Financing.
Pursuant to the Senior Convertible Note in the amount of $2,904,900
(a copy of which is attached hereto as Exhibit J and incorporated herein by
reference in response to this Item 6), QIP is entitled to receive automatically
and simultaneously with the Next Round Financing that number of fully paid and
non-assessable Next Round Securities obtained by dividing the
<PAGE>
Page 10 of 62 Pages
CUSIP NO. 096227103
outstanding principal and accrued and unpaid interest on the Note to the date of
conversion by the price per share of the Next Round Security (as defined in the
Securities Purchase Agreement) paid in the Next Round Financing.
Pursuant to the Senior Convertible Note in the amount of $95,100 (a
copy of which is attached hereto as Exhibit K and incorporated herein by
reference in response to this Item 6), SFM Domestic Investments is entitled to
receive automatically and simultaneously with the Next Round Financing that
number of fully paid and non-assessable Next Round Securities obtained by
dividing the outstanding principal and accrued and unpaid interest on the Note
to the date of conversion by the price per share of the Next Round Security paid
in the Next Round Financing.
The foregoing description of the Securities Purchase Agreement, the
Warrants, and the Senior Convertible Notes does not purport to be complete and
is qualified in its entirety by the terms of each such document which are
incorporated herein by reference.
Item 7. Material to be Filed as Exhibits.
Item 7 is amended to add the following.
G. Note and Warrant Purchase Agreement among Bluefly, Inc., Quantum
Industrial Partners LDC and SFM Domestic Investments LLC dated March 28, 2000.
H. Warrant No. 1 dated March 28, 2000.
I. Warrant No. 2 dated March 28, 2000.
J. Bluefly Senior Convertible Note in the amount of $2,904,900 in
favor of QIP dated March 28, 2000.
K. Bluefly Senior Convertible Note in the amount of $95,100 in favor
of SFM Domestic Investments dated March 28, 2000.
<PAGE>
Page 11 of 62 Pages
CUSIP NO. 096227103
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief,
the undersigned certifies that the information set forth in this Statement is
true, complete and correct.
Date: March 31, 2000
QUANTUM INDUSTRIAL PARTNERS
LDC
By: /s/ Michael C. Neus
-----------------------
Michael C. Neus
Attorney-in-Fact
QIH MANAGEMENT INVESTOR, L.P.
By: QIH Management, Inc.,
its General Partner
By: /s/ Michael C. Neus
-----------------------
Michael C. Neus
Vice President
QIH MANAGEMENT, INC.
By: /s/ Michael C. Neus
-----------------------
Michael C. Neus
Vice President
SOROS FUND MANAGEMENT LLC
By: /s/ Michael C. Neus
-----------------------
Michael C. Neus
Deputy General Counsel
GEORGE SOROS
By: /s/ Michael C. Neus
-----------------------
Michael C. Neus
Attorney-in-Fact
STANLEY F. DRUCKENMILLER
By: /s/ Michael C. Neus
-----------------------
Michael C. Neus
Attorney-in-Fact
<PAGE>
Page 12 of 62 Pages
CUSIP NO. 096227103
ANNEX A
<TABLE>
<CAPTION>
Directors and Officers of Quantum Industrial Partners LDC
Name/Title/Citizenship Principal Occupation Business Address
- ---------------------- -------------------- ----------------
<S> <C> <C>
Curacao Corporation Managing Director of Kaya Flamboyan 9
Company N.V. Netherlands Antilles Willemstad
Managing Director corporations Curacao,
(Netherlands Antilles) Netherlands Antilles
Inter Caribbean Services Administrative services Citco Building
Limited Wickhams Cay
Secretary Road Town
(British Virgin Islands) Tortola
British Virgin Islands
<CAPTION>
Directors and Officers of QIH Management, Inc.
Name/Title/Citizenship Principal Occupation Business Address
- ---------------------- -------------------- ----------------
<S> <C> <C>
Duncan P. Hennes Chief Executive Officer of 888 Seventh Avenue
Director and President SFM LLC 33rd Floor
(United States) New York, NY 10106
Michael C. Neus Deputy General Counsel of 888 Seventh Avenue
Director and Vice President SFM LLC 33rd Floor
(United States) New York, NY 10106
Peter Streinger Chief Financial Officer of 888 Seventh Avenue
Director and Treasurer SFM LLC 33rd Floor
(United States) New York, NY 10106
Richard D. Holahan, Jr. Assistant General Counsel 888 Seventh Avenue
Secretary of 33rd Floor
(United States) SFM LLC New York, NY 10106
</TABLE>
To the best of the Reporting Persons' knowledge /1/:
(a) None of the above persons hold any Shares. /1/
(b) None of the above persons has any contracts, arrangements,
understandings or relationships with respect to the Shares. /1/
- ----------
/1/ Certain persons may have an interest in SFM Domestic Investments.
<PAGE>
Page 13 of 62 Pages
CUSIP NO. 096227103
ANNEX B
The following is a list of all of the persons (other than Stanley
Druckenmiller) who serve as Managing Directors of SFM LLC. 1
Scott K.H. Bessent
Walter Burlock
L. Kevin Dann
Duncan Hennes
Ron Hiram
Michael Karsh
Sheldon Kasowitz
David N. Kowitz
Carson Levit
Alexander C. McAree
Steven Okin
Michael Pendy
Frank Sica
Each of the above-listed persons is a United States citizen whose
principal occupation is serving as Managing Director of SFM LLC, and each has a
business address c/o Soros Fund Management LLC; 888 Seventh Avenue, 33rd Floor,
New York, New York 10106.
To the best of the Reporting Persons' knowledge:
(a) None of the above persons hold any Shares. 1
(b) None of the above persons has any contracts, arrangements,
understandings or relationships with respect to the Shares. 1
- ----------
1 Certain persons may have an interest in SFM Domestic Investments.
<PAGE>
Page 14 of 62 Pages
ANNEX C
RECENT TRANSACTIONS IN THE SECURITIES OF
BLUEFLY, INC.
Date of Nature of Number of
For the Account of Transaction Transaction Securities Price
- ------------------ ----------- ----------- ---------- -----
QIP 7/27/99 PURCHASE 232,388 /1/ /2/
SFM Domestic Investments 7/27/99 PURCHASE 7,612 /1/ /3/
- --------------------
/1/ Shares of Series A Preferred Stock.
/2/ Total consideration of $4,647,760 was paid for the securities
purchased by QIP.
/3/ Total consideration of $152,240 was paid for the securities
purchased by SFM Domestic Investments.
<PAGE>
Page 15 of 62 Pages
CUSIP NO. 096227103
EXHIBIT INDEX
Page No.
--------
G. Note and Warrant Purchase Agreement among Bluefly, Inc., Quantum
Industrial Partners LDC and SFM Domestic Investments LLC dated
March 28, 2000. 16
H. Warrant No. 1 dated March 28, 2000. 33
I. Warrant No. 2 dated March 28, 2000. 42
J. Bluefly Senior Convertible Note in the amount of $2,904,900 in
favor of QIP dated March 28, 2000. 51
K. Bluefly Senior Convertible Note in the amount of $95,100 in favor
of SFM Domestic Investments dated March 28, 2000. 57
Page 16 of 62 Pages
CUSIP NO. 096227103
NOTE AND WARRANT PURCHASE AGREEMENT
among
BLUEFLY, INC.,
QUANTUM INDUSTRIAL PARTNERS LDC
and
SFM DOMESTIC INVESTMENTS LLC
Dated: March 28, 2000
<PAGE>
Page 17 of 62 Pages
CUSIP NO. 096227103
TABLE OF CONTENTS
Page
----
Section 1. DEFINITIONS...............................................1
1.1 Definitions...............................................1
1.2 Investment Agreement......................................2
1.3 Other Definitions.........................................2
Section 2. PURCHASE AND SALE OF THE SECURITIES.......................3
2.1 Closing...................................................3
2.2 Transactions at the Closing...............................3
2.3 Standby Commitment........................................3
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............4
3.1 Representations and Warranties............................4
3.2 Compliance with Terms and Conditions of Investment
Agreement.................................................5
3.3 Representations and Warranties in Connection with the
Transactions Contemplated Herein..........................5
Section 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..........7
Section 5. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO
CLOSE.....................................................8
5.1 Representations and Warranties............................8
5.2 Compliance with this Agreement............................8
5.3 Securities................................................9
5.4 Consents and Approvals....................................9
Section 6. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE......9
6.1 Representations and Warranties............................9
6.2 Compliance with this Agreement............................9
6.3 Consents and Approvals....................................9
6.4 Payment of Purchase Price.................................10
Section 7. COVENANTS.................................................10
7.1 Covenants of the Company..................................10
7.2 Mutual Covenants..........................................11
Section 8. INDEMNIFICATION...........................................11
Section 9. REGISTRATION RIGHTS.......................................11
Section 10. TERMINATION OF AGREEMENT..................................12
10.1 Termination...............................................12
10.2 Survival..................................................12
Section 11. MISCELLANEOUS.............................................12
11.1 Survival of Representations, Warranties and Covenants.....12
11.2 Notices...................................................12
11.3 Successors and Assigns....................................12
11.4 Amendment and Waiver......................................12
11.5 Counterparts..............................................13
11.6 Headings..................................................13
11.7 GOVERNING LAW.............................................13
11.8 Severability..............................................13
i
<PAGE>
Page 18 of 62 Pages
CUSIP NO. 096227103
11.9 Rules of Construction.....................................13
11.10 Entire Agreement..........................................13
11.11 Fees......................................................13
11.12 Publicity; Confidentiality................................14
11.13 Further Assurances........................................14
EXHIBITS
A-1 Form of Warrant
A-2 Form of Senior Convertible Note
SCHEDULES
2.2 Shares and Purchase Price
ii
<PAGE>
Page 19 of 62 Pages
CUSIP NO. 096227103
NOTE AND WARRANT PURCHASE AGREEMENT
NOTE AND WARRANT PURCHASE AGREEMENT (the "Agreement"), dated as of
March 28, 2000, by and among Bluefly, Inc., a New York corporation (the
"Company"), and the purchasers listed on Schedule 1 hereto (the "Purchasers").
WHEREAS, pursuant to an Investment Agreement dated as of July 27,
1999, by and among the Company, the Purchasers and Pilot Capital Corp. (the
"Investment Agreement"), each of the Purchasers has invested in shares of the
Company's Series A Preferred Stock;
WHEREAS, the Company anticipates concluding during 2000 a
Next Round Financing (as defined below);
WHEREAS, prior to the Next Round Financing the Company wishes to
sell to each Purchaser, and each Purchaser wishes to purchase from the Company:
(i) a senior convertible promissory note, in the aggregate principal amount set
forth opposite such Purchaser's name on Schedule 2.2 hereto, having the terms
and conditions set forth in the form of Note attached hereto as Exhibit A-1 (the
"Senior Convertible Notes") and (ii) a warrant (the "Warrants" and, together
with the Senior Convertible Notes, the "Securities") having the terms and
conditions set forth in the form of Warrant attached hereto as Exhibit A-2; and
WHEREAS, the Purchasers are willing to commit to provide the Company
with additional financing at the option of the Company.
NOW, THEREFORE, in consideration of the mutual terms and conditions
herein contained, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Definitions. As used in this Agreement, the following
definitions shall apply:
"By-Laws" means the amended and restated By-Laws of the Company, as
in effect on the date hereof and on the Closing Date.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Company, as the same was amended pursuant to Section 5.6 of
the Investment Agreement and as in effect on the Closing Date.
"Financials" means the Audited Financials and the Unaudited
Financials.
"Material Adverse Effect" means a circumstance, fact, change,
development or effect (i) that could or could reasonably be expected to have a
materially adverse effect on the properties, results of operations, business,
domestic prospects or condition (financial or otherwise) of the Company taken as
a
<PAGE>
Page 20 of 62 Pages
CUSIP NO. 096227103
whole, or (ii) that adversely effects the ability of the Company to consummate
the transactions contemplated by this Agreement in any material respect or
impairs or delays the ability of the Company to effect the Closing.
"Next Round Financing" means the closing of a private placement of
Next Round Securities which results in gross proceeds to the Company of $10
million in one or more tranches.
"Next Round Securities" means the Company's Common Stock or
securities convertible into or exercisable for the Company's Common Stock in the
Next Round Financing.
"Quarterly Reports" means the Company's Quarterly Reports on Form
10-QSB for the quarters ended September 30, 1999, June 30, 1999, March 31, 1999,
and September 30, 1998, each as filed with the SEC.
"SEC Documents" means the Annual Reports, the Quarterly Reports and
all other documents filed by the Company with the SEC on or after January 1,
1998 and prior to the date hereof pursuant to Section 13 or 15(d) of the
Exchange Act (including all exhibits and schedules thereto and documents
incorporated by reference therein), but shall not include any portion of any
document which is not deemed to be filed under applicable SEC rules and
regulations.
"Transaction Documents" means collectively, this Agreement
(including the schedules attached hereto), the Senior Convertible Notes and the
Warrants.
"Unaudited Financials" means the unaudited quarterly consolidated
financial statements and the related notes included in the SEC Documents, and
the unaudited financial statements and notes for the year ended December 31,
1999, all of which have previously been delivered by the Company to the
Purchasers.
Investment Agreement. Capitalized terms not otherwise defined herein
shall have the meanings set forth for such terms in the Investment Agreement.
Other Definitions. The following terms are defined in the section
referred to opposite such term.
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Term Section
- ----- -------
Agreement Recitals
Closing 2.1
Closing Date 2.1
Investment Agreement Recitals
Purchase Price 2.2
Purchasers Recitals
Securities Recitals
Senior Convertible Notes Recitals
Standby Commitment 2.3
Warrants Recitals
SECTION 2. PURCHASE AND SALE OF THE SECURITIES
2.1 Closing. Subject to the terms and conditions of this Agreement,
the closing of the sale and purchase of the Securities (the "Closing") shall
take place at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285
Avenue of the Americas, New York, New York 10019-6064 on the date hereof or on
such other date and time as the Purchasers and the Company may mutually agree
(the "Closing Date").
2.2 Transactions at the Closing. At the Closing, subject to the
terms and conditions of this Agreement, each of the Purchasers severally (and
not jointly) shall purchase and acquire from the Company, and the Company shall
issue and sell to the Purchasers, Senior Convertible Notes and Warrants for an
aggregate purchase price of $3,000,000 (the "Purchase Price"). At the Closing,
the Company shall deliver to each Purchaser a duly executed Senior Convertible
Note, in the aggregate principal amount set forth opposite such Purchaser's name
on Schedule 2.2 hereto, and a duly executed Warrant to purchase the amount of
shares of Next Round Securities as set forth in the Warrant, each registered in
the name of such Purchaser or its nominees, with appropriate issue stamps, if
any, affixed at the expense of the Company, free and clear of any Lien, against
payment by each Purchaser of the portion of the Purchase Price payable in
respect thereof as set forth opposite such Purchaser's name on Schedule 2.2
hereto by wire transfer of immediately available funds to an account designated
by the Company.
2.3 Standby Commitment.
(a) The Purchasers hereby commit, jointly but not severally,
(the "Standby Commitment") that, in addition to the payment of the Purchase
Price, they shall provide the Company (on a pro rata basis based on the
allocation of the Purchase Price as set forth in Section 2.2 hereof), at the
Company's option up to an aggregate of $12 million (the "Commitment Amount") at
any time prior to January 1, 2001 in one or more tranches as requested by the
Company; provided, however, that the Commitment Amount shall be reduced by the
gross proceeds received by the Company or any of its Subsidiaries from the
issuance after the date hereof of any equity or convertible securities,
(excluding financing provided by the Purchasers pursuant to this Agreement and
any trade payables and other financing arrangements entered into in the ordinary
course of business, but including, for purposes of clarification, the Next
Round). The Standby Commitment shall be provided on terms that are consistent
with those in the market at the time the Standby Commitment is drawn for similar
investments by investors similar to the Purchasers in companies similar to the
Company.
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(b) The Company shall notify the Purchasers in writing within
two Business Days of the receipt of any funds that would reduce the Commitment
Amount; provided that the Commitment Amount shall automatically be reduced
whether or not the Company provides such notice.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser as
follows:
3.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 3 of the Investment Agreement
(including, except as otherwise noted below, the schedules referenced in such
representations and warranties and any updates attached hereto), except for
Sections 3.2, 3.3, 3.4, 3.13 and 3.27, are true and correct in all material
respects as of the date hereof and as of the Closing Date as if made at and on
such dates, except that in reaffirming any such representation or warranty that:
(a) refers to the term "Material Adverse Effect", the Company
reaffirms such representation or warranty as if such term were defined pursuant
to Section 2.1 hereof;
(b) refers to the term "SEC Documents" the Company reaffirms
such representation or warranty as if the term "SEC Documents" were defined
pursuant to Section 2.1 hereof;
(c) references SEC Documents or other statements or documents
filed with the SEC as of a certain date, the Company reaffirms such
representation or warranty as if any such references referred to filings through
the date hereof;
(d) refers to the term "Financials" or "Unaudited Financials"
the Company reaffirms such representation or warranty as if such terms were
defined pursuant to Section 2.1 hereof; and
(e) refers to the term "Certificate of Incorporation" or
"By-Laws", the Company reaffirms such representation or warranty as if such
terms were defined pursuant to Section 2.1 hereof.
3.2 Compliance with Terms and Conditions of Investment Agreement.
The Company has performed and complied in all material respects with all of its
agreements and conditions set forth in the Investment Agreement and the other
Transaction Documents (as such term was defined in the Investment Agreement).
3.3 Representations and Warranties in Connection with the
Transactions Contemplated Herein.
(a) Power and Authority. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and to
perform its obligations under this Agreement. The execution, delivery and
performance by the Company of this Agreement and each of the other Transaction
Documents and the consummation by the Company of the transactions contemplated
hereby have been duly authorized and approved by the Board of Directors and no
further corporate action on the part of the Company (including, but not limited
to, any shareholder approvals, but excluding corporate actions necessary to
authorize any amendment of the Certificate of Incorporation necessary to create
and establish the terms of the Next Round Securities and shareholder approvals
necessary to issue the Next
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CUSIP NO. 096227103
Round Securities) is necessary to authorize the execution, delivery and
performance by the Company of this Agreement or the consummation by the Company
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Company and is a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability (regardless of whether considered in a
proceeding at law or in equity).
(b) No Contravention, Conflict, Breach, Etc. The execution,
delivery and performance of this Agreement and each Transaction Document by the
Company and the consummation of the transactions contemplated hereby and thereby
will not conflict with, contravene or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, or result in the
creation or imposition of any Encumbrance upon any assets or properties of the
Company or any of its Subsidiaries or cause the Company or any of its
Subsidiaries to be required to redeem, repurchase or offer to repurchase any of
their respective indebtedness under (i) the Certificate of Incorporation, the
By-Laws, or any other organizational document of the Company or the certificate
of incorporation, the by-laws or other organizational document of any of its
Subsidiaries, (ii) any material Law of any Governmental Authority having
jurisdiction over the Company or any of its Subsidiaries or any of their
respective assets, properties or operations or (iii) any indenture, mortgage,
loan agreement, note or other material agreement or instrument for borrowed
money, any guarantee of any agreement or instrument for borrowed money or any
material lease, permit, license or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound or to which any of the assets, properties or
operations of the Company or any of its Subsidiaries is subject.
(c) Consents. No consent, approval, authorization, order,
registration, filing or qualification ("Consents") of or with any (i)
Governmental Authority, (ii) stock exchange on which the securities of the
Company are traded or (iii) other Person (whether acting in an individual,
fiduciary or other capacity) is required to be made or obtained by the Company
or any of its Subsidiaries for the execution, delivery and performance by the
Company of this Agreement and each of the other Transaction Documents and the
consummation of the transactions contemplated hereby (other than the Next Round
Financing or the drawdown of the Standby Commitment), except Consents which are
not material to the business or operations of the Company and its Subsidiaries,
taken as a whole, or to the consummation of the transactions contemplated by
this Agreement or Consents required for the listing of the shares of Common
Stock underlying the Warrants on the NASDAQ and the Boston Stock Exchange.
(d) Capitalization. As of the date hereof, the issued and
outstanding capital stock of the Company consists of 4,924,906 shares of Common
Stock and 500,000 shares of Series A Preferred Stock. As of the Closing Date,
the authorized capital stock of the Company will consist of 15,000,000 shares of
Common Stock (of which 175,000 shares shall have been reserved for the
Purchasers in connection with the transactions contemplated hereby) and
2,000,000 shares of Preferred Stock, $.01 par value, of which 500,000 shares
shall have been designated Series A Preferred Stock. As of the first closing of
the Next Round, sufficient numbers of shares of Next Round Securities and, as
appropriate, of shares of Common Stock into which such shares of Next Round
Securities are convertible or for which they are exercisable, shall be
authorized and reserved as required by the documents to be negotiated in
connection with the Next Round and as necessary to permit conversion of the
maximum amount then potentially payable by the Company under the Senior
Convertible Notes into Next Round Securities.
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CUSIP NO. 096227103
All such shares of Capital Stock of the Company are or shall have
been duly authorized and: (a) in the case of shares of Common Stock or Next
Round Securities issued upon conversion of the Senior Convertible Notes or
exercise of the Warrants, shall be fully paid and non-assessable upon such
conversion, and (b) in the case of shares of Common Stock issued upon
conversion, exchange, and/or exercise of such Next Round Securities, shall be
fully paid and non-assessable upon the conversion, exchange, or payment of the
exercise price contemplated by the Next Round Securities.
Except as set forth in Schedule 3.4 of this Agreement, as
contemplated by the Investment Agreement, or as contemplated by this Agreement,
there are no shares of capital stock of the Company reserved for issuance.
Except for: (a) the Warrants, (b) the Senior Convertible Notes, (c) the Next
Round Securities (including those into which the Senior Convertible Notes are
convertible), (d) the Series A Preferred, and (e) as set forth in Schedule 3.4
of this Agreement, there are no options, warrants or other rights to purchase
shares of Capital Stock or other securities of the Company or any of its
Subsidiaries, or securities convertible into or exercisable for shares of
Capital Stock or other securities of the Company or any of its Subsidiaries.
Except as set forth in Schedule 3.4 to this Agreement, as required by the
Transaction Documents (as such term is defined in the Investment Agreement), or
as required by the Transaction Documents (as such term is defined in this
Agreement), neither the Company nor any Subsidiary is obligated in any manner to
issue shares of its Capital Stock or other securities. Except as contemplated
hereby and for relevant state and federal securities laws, there are no
restrictions on each Purchaser's ability to transfer shares of Capital Stock of
the Company.
(e) Exemption from Registration; Restrictions on Offer and
Sale of Same or Similar Securities. Assuming the representations and warranties
of the Purchasers set forth in Section 4 hereof are true and correct in all
material respects, the offer and sale of the Securities made pursuant to this
Agreement will be exempt from the registration requirements of the Act. Neither
the Company nor any Person acting on its behalf has, in connection with the
offering of the Securities, engaged in (i) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Act), (ii) any action involving a public offering within the meaning
of Section 4(2) of the Act, or (iii) any action that would require the
registration under the Act of the offering and sale of the Securities pursuant
to this Agreement or that would violate applicable state securities or "blue
sky" laws. The Company has not made, any offer or sale of shares of its Capital
Stock, if as a result the offer and sale of the securities contemplated hereby,
or any of them, could fail to be entitled to exemption from the registration
requirements of the Act. As used herein, the terms "offer" and "sale" have the
meanings specified in Section 2(3) of the Act.
(f) Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Company or any of its Subsidiaries or any
action taken by any such entity other than fees that may be due to Credit Suisse
First Boston in connection with the Next Round Financing, as placement agent for
such financing.
(g) Disclosure; Agreement and Other Documents. This Agreement
(including, but not limited to, the provisions incorporating language contained
in the Investment Agreement), the other Transaction Documents and each of the
certificates furnished to the Purchasers by the Company in connection with the
purchase and sale of the Securities, taken as a whole, do not contain
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CUSIP NO. 096227103
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which they were made, not misleading.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers hereby represents and warrants (severally as
to itself and not jointly) to the Company that the representations and
warranties of such Purchaser contained in Section 4 of the Investment Agreement
are true and correct in all material respects as of the date hereof and as of
the Closing Date as if made at and on such dates, except that in reaffirming any
representation or warranty of the Company contained in Section 4 of the
Investment Agreement that refers to:
(a) the term "this Agreement" or the "other Transaction
Documents" each Purchaser reaffirms such representation or warranty as if such
terms were defined pursuant to Section 2.1 hereof;
(b) transactions contemplated by "this Agreement" or the
"Transaction Documents", each Purchaser reaffirms such representation or
warranty as if such terms were deferred pursuant to Section 2.1 hereof;
(c) "SEC Documents," each Purchaser reaffirms such
representation or warranty as if the term "SEC Documents" were defined pursuant
to Section 2.1 hereof;
(d) to the term "First Shares," each Purchaser reaffirms such
representation or warranty as if it referred to the term "Securities;" and
(e) to the terms "First Closing" or "Second Closing," each
Purchaser reaffirms such representation or warranty as if they referred to the
"Closing," or as such terms are defined pursuant to Section 2.1. hereof.
SECTION 5. CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE
The obligation of the Purchasers to purchase the Securities and to
pay the Purchase Price, and to perform any obligations hereunder shall be
subject to the satisfaction as determined by, or waiver by, the Purchasers of
the following conditions on or before the Closing Date:
5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 3 hereof shall be true and
correct in all material respects at and on the Closing Date as if made at and on
such date, except to the extent that any representation and warranty expressly
speaks as of an earlier date, in which case such representation and warranty is
true and correct as of such date and any variance in such representation and
warranty following such date may only be the result of activities or
transactions which have taken place after the date hereof and which are
contemplated by this Agreement.
5.2 Compliance with this Agreement. The Company shall have performed
and complied in all material respects with all of its agreements and conditions
set forth herein that are required to be performed or complied with by the
Company as of the Closing Date.
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CUSIP NO. 096227103
5.3 Securities. At the Closing, the Company shall have delivered
to each of the Purchasers a Senior Convertible Note and a Warrant pursuant to
Section 2.2 hereof.
5.4 Consents and Approvals. All consents, exemptions,
authorizations, or other actions by, or notices to, or filings with Governmental
Authorities and other Persons in respect of all Requirements of Law and with
respect to those Contractual Obligations of the Company which are necessary or
required in connection with the execution, delivery or performance (including
the issuance of the Senior Convertible Notes, and any Shares of Common Stock
issuable upon exercise of the Warrants) by, or enforcement against, the Company
of this Agreement (other than the Next Round Financing or the drawdown of the
Standby Commitment) and each of the other Transaction Documents shall have been
obtained and be in full force and effect, except for consents, exceptions,
authorizations or other actions which would not have a Material Adverse Effect
and would not prevent the consummation of the transactions contemplated by this
Agreement, and each of the Purchasers shall have been furnished with appropriate
evidence thereof.
CHAPTER 6. CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Senior
Convertible Notes and the Warrants and to perform its other obligations
hereunder, shall be subject to the satisfaction as determined by, or waiver by,
the Company of the following conditions on or before the Closing Date:
6.1 Representations and Warranties. The representations and
warranties of the Purchasers contained in Section 4 hereof shall be true and
correct at and on the Closing Date as if made at and on such date, except to the
extent that any representation and warranty expressly speaks as of an earlier
date, in which case such representation and warranty is true and correct as of
such date and any variance in such representation and warranty following such
date may only be the result of activities or transactions which have taken place
after the date hereof and which are contemplated by this Agreement.
6.2 Compliance with this Agreement. The Purchasers shall have
performed and complied in all material respects with all of their agreements and
conditions set forth herein that are required to be performed or complied with
by the Purchasers on or before the Closing Date.
6.3 Consents and Approvals. All consents, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
and with respect to those Contractual Obligations of the Purchasers which are
necessary or required in connection with the execution, delivery or performance
(including the purchase of the Senior Convertible Notes and the Warrants, but
excluding the conversion of the Senior Convertible Notes, the exercise of the
Warrants, and the conversion or exercise of the Next Round Securities) by, or
enforcement against, the Purchasers of this Agreement shall have been obtained
and be in full force and effect, and the Company shall have been furnished with
appropriate evidence thereof.
6.4 Payment of Purchase Price. The Company shall have received the
Purchase Price.
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CUSIP NO. 096227103
SECTION 7. COVENANTS
7.1 Covenants of the Company. The Company hereby covenants and
agrees with the Purchasers with respect to this Section 7, so long as they hold
any capital stock of the Company -- except to the extent that a particular
section of this Section 7 provides for an earlier termination, as follows:
(a) SEC Filings. From and after the date of this Agreement,
the Company agrees that it will use commercially reasonable efforts to file with
the SEC, within the time periods specified in the SEC's rules and regulations
for as long as they are applicable to the Company, (i) all quarterly and annual
financial information required to be filed with the SEC on Forms 10-QSB and
10-KSB, (ii) all current reports required to be filed with the SEC on Form 8-K
and (iii) any other information required to be filed with the SEC.
(b) Reservation of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Capital Stock, solely
for the purpose of issue or delivery upon conversion or exercise of the
Securities and of the conversion or exercise of shares of Capital Stock issued
upon such conversion or exercise, the number of shares of each class of Capital
Stock that are required to be issued upon such conversion or exercise. The
Company shall issue such shares of Capital Stock in accordance with the terms of
this Agreement, the other Transaction Documents and the Certificate of
Incorporation, and otherwise comply with the terms hereof and thereof.
(c) Registration and Listing. To the extent the reservation of
any shares of Capital Stock required to be reserved pursuant to Section 7.2 of
this Agreement requires registration with or approval of any Governmental
Authority under any Federal or state or other applicable law before such shares
of Capital Stock may be issued or delivered upon conversion or exercise, the
Company will in good faith and as expeditiously as possible cause such shares of
Capital Stock to be duly registered or approved, as the case may be. So long as
the shares of Common Stock are quoted on the NASDAQ or listed on any national
securities exchange, the Company will, if permitted by the rules of such system
or exchange, quote or list and keep quoted or listed on such system or exchange,
upon official notice of issuance, all shares of Common Stock issuable or
deliverable upon exercise of the Warrants or the conversion or exchange of Next
Round Securities into which the Senior Convertible Notes are convertible.
(d) Mutual Covenants. The parties agree that the anti-dilution
provision of Section 6(e)(ii) of the Certificate of Amendment of the Certificate
of Incorporation shall not apply as a result of the issuance of the Warrants.
SECTION 8. INDEMNIFICATION.
(a) Except as otherwise provided in this Section 8, the
Company agrees to indemnify, defend and hold harmless each Purchaser and its
Affiliates and their respective officers, directors, agents, employees,
subsidiaries, partners, members and controlling persons to the fullest extent
permitted by law from and against any and all claims, losses, liabilities,
damages, deficiencies, judgements, assessments, fines, settlements, costs or
expenses (including interest, penalties and reasonable fees, disbursements and
other charges of counsel) (collectively, "Losses") based upon, arising out of or
otherwise in respect of any inaccuracy in or any breach of any surviving
representation, warranty, covenant or agreement of the Company contained in any
Transaction Document. Notwithstanding the foregoing, the Company's liability
pursuant to this Section 8 shall in no event exceed $15,000,000.
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CUSIP NO. 096227103
(b) Except as otherwise provided in this Section 8, the
Purchasers, severally and not jointly, agree to indemnify, defend and hold
harmless the Company and its respective officers, directors, agents, employees,
subsidiaries, partners, members and controlling persons to the fullest extent
permitted by law from and against any and all Losses based upon, arising out of
or otherwise in respect of any inaccuracy in or any breach of any surviving
representation, warranty, covenant or agreement (excluding the Standby
Commitment) of the Purchasers contained in any Transaction Document.
Notwithstanding the foregoing, the Purchasers' liability pursuant to this
Section 8 shall in no event exceed $3,000,000.
SECTION 9. REGISTRATION RIGHTS.
(a) The Company and each of the Purchasers hereby agree and
acknowledge that the shares of Common Stock for which the Warrants are
exercisable and any Common Stock issuable upon the conversion or exchange of the
Next Round Securities are Registrable Securities, as such term is defined in the
Investment Agreement, and that, until the closing of the Next Round, the
provisions of Section 9 of the Investment Agreement shall apply to all Persons
of record holding the Senior Convertible Notes or the Warrants (or any shares of
Registrable Securities issued, directly or indirectly, as a result of a
conversion under a Senior Convertible Note or as a result of an exercise of a
Warrant).
(b) Upon completion of the Next Round, the Purchasers shall
have the option to decide whether the registration rights and related provisions
set forth in Section 9 of the Investment Agreement shall apply to the Warrants
or whether the registration rights and related provisions agreed to in the final
documentation negotiated in connection with the Next Round Financing shall
apply.
SECTION 10. TERMINATION OF AGREEMENT
10.1 Termination. For purposes of clarification: (1) the Company
shall have no obligation to issue securities pursuant to the Standby Commitment
and (2) the Purchasers shall have no obligations to fund the Standby Commitment
after the earlier of (i) that date on which the Company has received financing
proceeds aggregating $15 million and (ii) December 31, 2000.
10.2 Survival. If this Agreement is terminated and the transactions
contemplated hereby are not consummated as described above, this Agreement shall
become void and of no further force and effect; provided, however, that (i) a
breaching party shall be liable to the non-breaching party for damages caused by
such breach; (ii) none of the non-breaching parties hereto shall have any
liability in respect of a termination of this Agreement pursuant to Section
10.1(a) or Section 10.1(b); and provided further, that none of the parties
hereto shall have any liability for speculative or unforeseeable damages
resulting from a termination of this Agreement.
SECTION 11. MISCELLANEOUS
11.1 Survival of Representations, Warranties and Covenants. The
representations and warranties, covenants and agreements contained herein shall
survive for a period of eighteen months following the Closing Date.
11.2 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in the manner set forth in the
Investment Agreement.
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CUSIP NO. 096227103
11.3 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Subject to applicable securities laws, each of the Purchasers
may assign any of its rights under this Agreement to any of its Affiliates but
any such assignment shall not relieve any Purchaser from its obligations
hereunder. The Company may not assign any of its rights under this Agreement and
each of the other Transaction Documents, except to a successor-in-interest to
the Company, without the written consent of all of the Purchasers.
11.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchasers from the terms of
any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company and the Purchasers, and (ii) only in
the specific instance and for the specific purpose for which made or given.
Except where notice is specifically required by this Agreement, no notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
11.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
11.6 Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
11.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
11.8 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
11.9 Rules of Construction. Unless the context otherwise requires,
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Agreement.
11.10 Entire Agreement. This Agreement, together with the exhibits
and schedules hereto, and the other Transaction Documents, are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions,
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CUSIP NO. 096227103
promises, warranties or undertakings, other than those set forth or referred to
herein or therein, except those set forth in the Transaction Documents (as such
term is defined in the Investment Agreement).
11.11 Fees. Upon the Closing, the Company shall reimburse the
Purchasers for their reasonable out-of-pocket expenses (including attorney's
fees, disbursements and other charges) incurred in connection with the
transactions contemplated by this Agreement; provided, however, that the Company
shall not be obligated to reimburse the Purchasers for any reasonable
out-of-pocket expenses in excess of $25,000 in the aggregate.
11.12 Publicity; Confidentiality.
(a) Except as may be required by applicable law or the rules
of any securities exchange or market on which shares of Common Stock are traded,
none of the parties hereto shall issue a publicity release or public
announcement or otherwise make any disclosure concerning this Agreement, the
transactions contemplated hereby without prior approval by the other parties
hereto; provided, however, that nothing in this Agreement shall restrict any
Purchaser or the Company from disclosing information (i) that is already
publicly available, (ii) that was known to such Purchaser or the Company on a
non-confidential basis prior to its disclosure by the Company or such Purchaser,
as the case may be, (iii) that may be required or appropriate in response to any
summons or subpoena or in connection with any litigation, provided that such
Purchaser or the Company, as the case may be, will use reasonable efforts to
notify the Company or the Purchaser, as the case may be, in advance of such
disclosure so as to permit the Company or the Purchaser, as the case may be, to
seek a protective order or otherwise contest such disclosure, and such Purchaser
or the Company, as the case may be, will use reasonable efforts to cooperate, at
the expense of the Company, with the Company or the Purchaser, as the case may
be, in pursuing any such protective order, (iv) to the extent that such
Purchaser or the Company as the case may be reasonably believes it appropriate
in order to protect its investment in the Shares in order to comply with any
Requirement of Law, (v) to such Purchaser's or the Company's, as the case may
be, officers, directors, agents, employees, members, partners, controlling
persons, auditors or counsel, (vi) to Persons who are parties to similar
confidentiality agreements or (vii) to the prospective transferee who executes a
confidentiality agreement in connection with any contemplated transfer of any of
the Shares. If any announcement is required by law or the rules of any
securities exchange or market on which shares of Common Stock are traded to be
made by any party hereto, prior to making such announcement such party will, to
the extent practicable, deliver a draft of such announcement to the other
parties and shall give the other parties reasonable opportunity to comment
thereon.
(b) Unless substantially in the form previously disclosed, the
Purchasers shall have the opportunity to review and reasonably modify any
provision of any publicly release or public announcement or document which is to
be released to the public or filed with the SEC, which provision mentions the
Purchasers or any of their Affiliates, prior to the release of such document to
the public or the filing of such document with the SEC.
11.13 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
<PAGE>
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CUSIP NO. 096227103
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers hereunto duly authorized
on the date first above written.
BLUEFLY, INC.
By: /s/ E. Kenneth Seff
-------------------
Name: E. Kenneth Seff
Title: Chief Executive Officer
QUANTUM INDUSTRIAL PARTNERS LDC
By: /s/ Michael C. Neus
-----------------------
Name: Michael C. Neus
Title: Attorney-in-Fact
SFM DOMESTIC INVESTMENTS LLC
By: /s/ Michael C. Neus
-----------------------
Name: Michael C. Neus
Title: Attorney-in-Fact
<PAGE>
Page 32 of 62 Pages
CUSIP NO. 096227103
Schedule 2.2
SHARES AND PURCHASE PRICE
Purchase Price and
Aggregate Principal
Amount of Senior
Purchaser Convertible Note
--------- ----------------
Quantum Industrial Partners LDC $ 2,904,900
SFM Domestic Investments LLC $ 95,100
TOTAL $ 3,000,000.00
Page 33 of 62 Pages
CUSIP NO. 096227103
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SUCH ACT OR LAWS AND NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. 1
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF
BLUEFLY, INC.
THIS IS TO CERTIFY THAT QUANTUM INDUSTRIAL PARTNERS LDC or its
registered assigns (the "Holder"), is the owner of the right to subscribe for
and to purchase from BLUEFLY, INC., a New York corporation (the "Company"),
ninety-six thousand eight hundred and thirty (96,830) (the "Number Issuable"),
fully paid, duly authorized and nonassessable shares of Common Stock at a price
equal to the price at which the Next Round Securities are convertible into or
exchangeable for shares of Common Stock (the "Exercise Price"), at any time, in
whole or in part, from and after the closing of the Next Round Financing and
prior to 5:00 PM New York City time, on March 28, 2005 (the "Expiration Date")
all on the terms and subject to the conditions hereinafter set forth (the
"Warrants"); provided that the Number Issuable shall increase to (i) one hundred
twenty-one thousand thirty-seven and a half (121,037.5) if the Next Round
Financing does not close by April 26, 2000; (ii) one hundred forty-five thousand
two hundred forty-five (145,245) if the Next Round Financing does not close by
May 26, 2000; and (iii) one hundred sixty-nine thousand four hundred fifty-two
and a half (169,452.5) if the Next Round Financing does not close by June 25,
2000; and provided further that (i) if the Company draws any funds pursuant to
the Standby Commitment, the Number Issuable shall increase immediately to an
aggregate of one hundred sixty-nine thousand four hundred fifty-two and a half
(169,452.5), and (ii) if the Next Round Financing includes less than Ten Million
Dollars ($10,000,000) of financing provided by parties other than the
Purchasers, the Number Issuable shall increase immediately to an aggregate of
one hundred sixty-nine thousand four hundred fifty-two and a half (169,452.5).
For the avoidance of doubt, the maximum Number Issuable is one hundred
sixty-nine thousand four hundred fifty-two and a half (69,452.5). For purposes
of the Warrants represented by this Certificate only, if the Next Round
Financing is structured to close in more than one tranche as a result of any
regulatory requirement (including, without limitation, any shareholder vote
required by NASDAQ rules or any filing required by the Hart-Scott-Rodino Act),
the Next Round Financing shall be considered "closed" upon the funding of the
first such tranche.
The Number Issuable is subject to further adjustment from time to
time pursuant to the provisions of Section 2 of this Warrant Certificate.
Capitalized terms used herein but not otherwise defined shall have
the meanings given to them in Section 12 hereof.
<PAGE>
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CUSIP NO. 096227103
Section 1. Exercise of Warrants.
(a) Subject to the last paragraph of this Section 1, the
Warrants evidenced hereby may be exercised, in whole or in part, by the Holder
hereof at any time or from time to time, on or after the date hereof and prior
to the Expiration Date upon delivery to the Company at the principal executive
office of the Company in the United States of America, of (A) this Warrant
Certificate, (B) a written notice stating that such Holder elects to exercise
the Warrants evidenced hereby in accordance with the provisions of this Section
1 and specifying the number of Warrants being exercised and the name or names in
which the Holder wishes the certificate or certificates for shares of Common
Stock to be issued and (C) payment of the Exercise Price for such Warrants,
which shall be payable by any one or any combination of the following: (i) cash;
(ii) certified or official bank check payable to the order of the Company; (iii)
by the surrender (which surrender shall be evidenced by cancellation of the
number of Warrants represented by any Warrant Certificate presented in
connection with a Cashless Exercise (as defined below)) of a Warrant or Warrants
(represented by one or more relevant Warrant Certificates), and without the
payment of the Exercise Price in cash, in return for the delivery to the
surrendering Holder of such number of shares of Common Stock equal to the number
of shares of the Common Stock for which such Warrant is exercisable as of the
date of exercise (if the Exercise Price were being paid in cash or certified or
official bank check) reduced by that number of shares of Common Stock equal to
the quotient obtained by dividing (x) the aggregate Exercise Price (assuming no
Cashless Exercise) to be paid by (y) the Market Price of one Share of Common
Stock on the Business Day which immediately precedes the day of exercise of the
Warrant; or (iv) by the delivery of shares of the Common Stock having a value
(as defined by the next sentence) equal to the aggregate Exercise Price to be
paid, that are either held by the Holder or are acquired in connection with such
exercise, and without payment of the Exercise Price in cash. Any share of Common
Stock delivered as payment for the Exercise Price in connection with an In-Kind
Exercise (as defined below) shall be deemed to have a value equal to the Market
Price of one Share of Common Stock on the Business Day which immediately
precedes the day of exercise of the Warrants. An exercise of a Warrant in
accordance with clause (iii) is herein referred to as a "Cashless Exercise" and
an exercise of a Warrant in accordance with clause (iv) is herein referred to as
an "In-Kind Exercise." The documentation and consideration, if any, delivered in
accordance with subsections (A), (B) and (C) are collectively referred to herein
as the "Warrant Exercise Documentation."
(b) As promptly as practicable, and in any event within five
(5) Business Days after receipt of the Warrant Exercise Documentation, the
Company shall deliver or cause to be delivered (A) certificates representing the
number of validly issued, fully paid and nonassessable shares of Common Stock
specified in the Warrant Exercise Documentation, (B) if applicable, cash in lieu
of any fraction of a share, as hereinafter provided, and (C) if less than the
full number of Warrants evidenced hereby are being exercised or used in a
Cashless Exercise, a new Warrant Certificate or Certificates, of like tenor, for
the number of Warrants evidenced by this Warrant Certificate, less the number of
Warrants then being exercised and/or used in a Cashless Exercise. Such exercise
shall be deemed to have been made at the close of business on the date of
delivery of the Warrant Exercise Documentation so that the Person entitled to
receive shares of Common Stock upon such exercise shall be treated for all
purposes as having become the record holder of such shares of Common Stock at
such time.
(c) The Company shall pay all expenses incurred by the Company
in connection with and taxes and other governmental charges (other than income
taxes of the Holder) that
<PAGE>
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CUSIP NO. 096227103
may be imposed in respect of, the issue or delivery of any shares of Common
Stock issuable upon the exercise of the Warrants evidenced hereby. The Company
shall not be required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any certificate for shares
of Common Stock, as the case may be, in any name other than that of the
registered holder of the Warrant evidenced hereby.
(d) In connection with the exercise of any Warrants evidenced
hereby, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest multiplied by the Market
Price for one Share of Common Stock on the Business Day which immediately
precedes the day of exercise. If more than one (1) such Warrant shall be
exercised by the holder thereof at the same time, the number of full shares of
Common Stock issuable on such exercise shall be computed on the basis of the
total number of Warrants so exercised.
Section 2. Certain Adjustments.
(a) The number of shares of Common Stock purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(i) Stock Dividends, Subdivision, Combination or
Reclassification of Common Stock. If at any time after the date of the issuance
of this Warrant the Company shall (i) pay a dividend on Common Stock in shares
of its capital stock, (ii) combine its outstanding shares of Common Stock into a
smaller number of shares, (iii) subdivide its outstanding shares of Common Stock
as the case may be, or (iv) issue by reclassification of its shares of Common
Stock any shares of capital stock of the Company, then, on the record date for
such dividend or the effective date of such subdivision or split-up, combination
or reclassification, as the case may be, the number and kind of shares to be
delivered upon exercise of this Warrant will be adjusted so that the Holder will
be entitled to receive the number and kind of shares of capital stock that such
Holder would have owned or been entitled to receive upon or by reason of such
event had this Warrant been exercised immediately prior thereto, and the
Exercise Price will be adjusted as provided below in paragraph 2(a)(v).
(ii) Extraordinary Distributions. If at any time after
the date of issuance of this Warrant, the Company shall distribute to all
holders of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Company is the continuing or surviving
corporation and Common Stock is not changed or exchanged) cash, evidences of
indebtedness, securities or other assets (excluding (i) ordinary course cash
dividends to the extent such dividends do not exceed the Company's retained
earnings and (ii) dividends payable in shares of capital stock for which
adjustment is made under Section 2(a)(i) or rights, options or warrants to
subscribe for or purchase securities of the Company), then in each such case the
number of shares of Common Stock to be delivered to such Holder upon exercise of
this Warrant shall be increased so that the Holder thereafter shall be entitled
to receive the number of shares of Common Stock determined by multiplying the
number of shares such Holder would have been entitled to receive immediately
before such record date by a fraction, the denominator of which shall be the
Exercise Price on such record date minus the then fair market value (as
reasonably determined by the Board of Directors of the Company in good faith) of
the portion of the cash, evidences of indebtedness, securities or other assets
so distributed or of such rights or warrants applicable
<PAGE>
Page 36 of 62 Pages
CUSIP NO. 096227103
to one share of the Common Stock (provided that such denominator shall in no
event be less than $.01) and the numerator of which shall be the Exercise Price.
(iii) Reorganization, etc. If at any time after the date
of issuance of this Warrant any consolidation of the Company with or merger of
the Company with or into any other Person (other than a merger or consolidation
in which the Company is the surviving or continuing corporation and which does
not result in any reclassification of, or change (other than a change in par
value or from par value to no par value or from no par value to par value, or as
a result of a subdivision or combination) in, outstanding shares of either
Common Stock) or any sale, lease or other transfer of all or substantially all
of the assets of the Company to any other person (each, a "Reorganization
Event"), shall be effected in such a way that the holders of the Common Stock
shall be entitled to receive cash, stock, other securities or assets (whether
such cash, stock, other securities or assets are issued or distributed by the
Company or another Person) with respect to or in exchange for the Common Stock,
then, upon exercise of this Warrant, the Holder shall have the right to receive
the kind and amount of cash, stock, other securities or assets receivable upon
such Reorganization Event by a holder of the number of shares of the Common
Stock that such holder would have been entitled to receive upon exercise of this
Warrant had this Warrant been exercised immediately before such Reorganization
Event, subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 2(a). The Company
shall not enter into any of the transactions referred to in this Section
2(a)(iii) unless effective provision shall be made so as to give effect to the
provisions set forth in this Section 2(a)(iii).
(iv) Carryover. Notwithstanding any other provision of
this Section 2(a), no adjustment shall be made to the number of shares of either
Common Stock to be delivered to the Holder (or to the Exercise Price) if such
adjustment represents less than .05% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to .05% or more of the number of
shares to be so delivered.
(v) Exercise Price Adjustment.
(i) Whenever the Number Issuable upon the exercise
of the Warrant is adjusted as provided pursuant to this Section 2(a), the
Exercise Price per share payable upon the exercise of this Warrant shall be
adjusted by multiplying such Exercise Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the Number Issuable upon the
exercise of the Warrant immediately prior to such adjustment, and of which the
denominator shall be the Number Issuable immediately thereafter; provided,
however, that the Exercise Price for each Share of the Common Stock shall in no
event be less than the par value of a share of such Common Stock.
(ii) If the price at which the Next Round
Securities are convertible into shares of Common Stock is adjusted pursuant to
documents that create and define the Next Round Securities, then the Exercise
Price of the Warrants shall be adjusted accordingly provided that there should
be no duplication of adjustments.
(b) Notice of Adjustment. Whenever the Number Issuable or the
Exercise Price is adjusted, as herein provided, the Company shall promptly mail
by first class mail, postage prepaid,
<PAGE>
Page 37 of 62 Pages
CUSIP NO. 096227103
to the Holder, notice of such adjustment or adjustments setting forth the Number
Issuable and the Exercise Price after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
Section 3. No Redemption. The Company shall not have any right to
redeem any of the Warrants evidenced hereby.
Section 4. Notice of Certain Events. In case at any time or from
time to time (i) the Company shall declare any dividend or any other
distribution to the holders of Common Stock, (ii) the Company shall authorize
the granting to the holders of Common Stock of rights or warrants to subscribe
for or purchase any additional shares of stock of any class or any other right,
(iii) the Company shall authorize the issuance or sale of any other shares or
rights which would result in an adjustment to the Number Issuable pursuant to
Sections 2(a)(i), (ii), or (iii), or (iv) there shall be any capital
reorganization or reclassification of Common Stock of the Company or
consolidation or merger of the Company with or into another Person, or any sale
or other disposition of all or substantially all the assets of the Company, or
(v) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then, in any one or more of such cases the Company
shall mail to the Holder at such Holder's address as it appears on the transfer
books of the Company, as promptly as practicable but in any event at least 10
days prior to the date on which the transactions contemplated in Sections
2(a)(i), (ii), or (iii), a notice stating (a) the date on which a record is to
be taken for the purpose of such dividend, distribution, rights or warrants or,
if a record is not to be taken, the date as of which the holders of record of
either Common Stock to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (b) the date on which such reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective. Such notice also shall specify the date as of
which it is expected that the holders of record of the Common Stock shall be
entitled to exchange the Common Stock for shares of stock or other securities or
property or cash deliverable upon such reorganization, reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up.
Section 5. Certain Covenants. The Company covenants and agrees that
all shares of Capital Stock of the Company which may be issued upon the exercise
of the Warrants evidenced hereby will be duly authorized, validly issued and
fully paid and nonassessable. The Company shall at all times reserve and keep
available for issuance upon the exercise of the Warrants, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the exercise of all outstanding Warrants, and shall take
all action required to increase the authorized number of shares of Common Stock
if at any time there shall be insufficient authorized but unissued shares of
Common Stock to permit such reservation or to permit the exercise of all
outstanding Warrants.
Section 6. Registered Holder. The persons in whose names this
Warrant Certificate is registered shall be deemed the owner hereof and of the
Warrants evidenced hereby for all purposes. The registered Holder of this
Warrant Certificate, in their capacity as such, shall not be entitled to any
rights whatsoever as a stockholder of the Company, except as herein provided.
Section 7. Transfer of Warrants. Any transfer of the rights
represented by this Warrant Certificate shall be effected by the surrender of
this Warrant Certificate, along with the form of assignment attached hereto,
properly completed and executed by the registered Holder hereof, at the
<PAGE>
Page 38 of 62 Pages
CUSIP NO. 096227103
principal executive office of the Company in the United States of America,
together with an appropriate investment letter and opinion of counsel, if deemed
reasonably necessary by counsel to the Company to assure compliance with
applicable securities laws. Thereupon, the Company shall issue in the name or
names specified by the registered Holder hereof and, in the event of a partial
transfer, in the name of the registered Holder hereof, a new Warrant Certificate
or Certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
Section 8. Denominations. The Company covenants that it will, at its
expense, promptly upon surrender of this Warrant Certificate at the principal
executive office of the Company in the United States of America, execute and
deliver to the registered Holder hereof a new Warrant Certificate or
Certificates in denominations specified by such Holder for an aggregate number
of Warrants equal to the number of Warrants evidenced by this Warrant
Certificate.
Section 9. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant Certificate of like tenor for a number of Warrants equal to
the number of Warrants evidenced by this Warrant Certificate.
Section 10. Governing Law. THIS WARRANT CERTIFICATE SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 11. Rights Inure to Registered Holder. The Warrants
evidenced by this Warrant Certificate will inure to the benefit of and be
binding upon the registered Holder thereof and the Company and their respective
successors and permitted assigns. Nothing in this Warrant Certificate shall be
construed to give to any Person other than the Company and the registered Holder
thereof any legal or equitable right, remedy or claim under this Warrant
Certificate, and this Warrant Certificate shall be for the sole and exclusive
benefit of the Company and such registered Holder. Nothing in this Warrant
Certificate shall be construed to give the registered Holder hereof any rights
as a Holder of shares of either Common Stock until such time, if any, as the
Warrants evidenced by this Warrant Certificate are exercised in accordance with
the provisions hereof.
Section 12. Definitions. For the purposes of this Warrant
Certificate, the following terms shall have the meanings indicated below:
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York, New York are authorized
or required by law or executive order to close.
<PAGE>
Page 39 of 62 Pages
CUSIP NO. 096227103
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
Next Round Securities or Series A Preferred Shares and any rights, warrants or
options to purchase such Person's capital stock.
"Common Stock" shall mean the common stock of the Company.
"Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) if the Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security, the average of the closing bid and ask price of the
Common Stock on such date; or (b) if there shall have been no trading on such
date or if the Common Stock is not so designated, the average of the reported
closing bid and asked price of the Common Stock, on such date as shown by NASDAQ
and reported by any member firm of the NYSE selected by the Company; or (c) if
neither (a) nor (b) is applicable, the Fair Market Value per share determined in
good faith by the Board of Directors of the Company which shall be deemed to be
Fair Market Value unless holders of at least 15% of Common Stock issued or
issuable upon exercise of the Warrants request that the Company obtain an
opinion of a nationally recognized investment banking firm chosen by the Company
(who shall bear the expense) and reasonably acceptable to such requesting
holders of the Warrants, in which event the Fair Market Value shall be as
determined by such investment banking firm.
"Next Round Financing" shall have the meaning given it in the Note
and Warrant Purchase Agreement.
"Next Round Securities" shall have the meaning given it in the Note
and Warrant Purchase Agreement.
"Note and Warrant Purchase Agreement" shall mean that certain note
and warrant purchase agreement between the Company, the Holder and SFM Domestic
Investments LLC dated March 28, 2000 as the same may be amended from time to
time in accordance with its terms.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Person" shall mean any individual, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
Section 10. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services or personal delivery, (a) if to the Holder of a Warrant, at such
Holder's last known address appearing on the books of the Company; and (b) if to
the Company, at its principal executive office in the United States located at
the address designated for notices in the Note and Warrant Purchase Agreement,
or such other address as shall have been furnished to the party given or making
such notice, demand or other communication. All such notices and communications
shall be deemed to have been duly given: (i) when delivered by hand, if
personally delivered; (ii) when delivered to
<PAGE>
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CUSIP NO. 096227103
a courier if delivered by commercial overnight courier service; and (iii) five
(5) Business Days after being deposited in the mail, postage prepaid, if mailed.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed as of the Issue Date.
BLUEFLY, INC.
By: /s/ E. Kenneth Seff
-------------------
Name: E. Kenneth Seff
Title: Chief Executive Officer
<PAGE>
Page 41 of 62 Pages
CUSIP NO. 096227103
[Form of Assignment Form]
[To be executed upon assignment of Warrants]
The undersigned hereby assigns and transfers this Warrant
Certificate to ____________________ whose Social Security Number or Tax ID
Number is _________________ and whose record address is _______________________,
and irrevocably appoints ________________ as agent to transfer this security on
the books of the Company. Such agent may substitute another to act for such
agent.
Signature:
-------------------------------
Signature Guarantee:
--------------------------------
Date: ___________________________
Page 42 of 62 Pages
CUSIP NO. 096227103
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SUCH ACT OR LAWS AND NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. 2
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF
BLUEFLY, INC.
THIS IS TO CERTIFY THAT SFM DOMESTIC INVESTMENTS LLC or its
registered assigns (the "Holder"), is the owner of the right to subscribe for
and to purchase from BLUEFLY, INC., a New York corporation (the "Company"),
three thousand one hundred seventy (3,170), (the "Number Issuable"), fully paid,
duly authorized and nonassessable shares of Common Stock at a price equal to the
price at which the Next Round Securities are convertible into or exchangeable
for shares of Common Stock (the "Exercise Price"), at any time, in whole or in
part, from and after the closing of the Next Round Financing and prior to 5:00
PM New York City time, on March 28, 2005 (the "Expiration Date") all on the
terms and subject to the conditions hereinafter set forth (the "Warrants");
provided that the Number Issuable shall increase to (i) three thousand nine
hundred sixty-two and a half (3,962.5) if the Next Round Financing does not
close by April 26, 2000; (ii) four thousand seven hundred fifty-five (4,755) if
the Next Round Financing does not close by May 26, 2000; and (iii) five thousand
five hundred forty-seven and a half (5,547.5) if the Next Round Financing does
not close by June 25, 2000; and provided further that (i) if the Company draws
any funds pursuant to the Standby Commitment, the Number Issuable shall increase
immediately to an aggregate of five thousand five hundred forty-seven and a half
(5,547.5), and (ii) if the Next Round Financing includes less than Ten Million
Dollars ($10,000,000) of financing provided by parties other than the
Purchasers, the Number Issuable shall increase immediately to an aggregate of
five thousand five hundred and forty-seven and a half (5,547.5). For the
avoidance of doubt, the maximum Number Issuable is five thousand five hundred
and forty-seven and a half (5,547.5). For purposes of the Warrants represented
by this Certificate only, if the Next Round Financing is structured to close in
more than one tranche as a result of any regulatory requirement (including,
without limitation, any shareholder vote required by NASDAQ rules or any filing
required by the Hart-Scott-Rodino Act), the Next Round Financing shall be
considered "closed" upon the funding of the first such tranche.
The Number Issuable is subject to further adjustment from time to
time pursuant to the provisions of Section 2 of this Warrant Certificate.
Capitalized terms used herein but not otherwise defined shall have
the meanings given to them in Section 12 hereof.
<PAGE>
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CUSIP NO. 096227103
Section 1. Exercise of Warrants.
(a) Subject to the last paragraph of this Section 1, the
Warrants evidenced hereby may be exercised, in whole or in part, by the Holder
hereof at any time or from time to time, on or after the date hereof and prior
to the Expiration Date upon delivery to the Company at the principal executive
office of the Company in the United States of America, of (A) this Warrant
Certificate, (B) a written notice stating that such Holder elects to exercise
the Warrants evidenced hereby in accordance with the provisions of this Section
1 and specifying the number of Warrants being exercised and the name or names in
which the Holder wishes the certificate or certificates for shares of Common
Stock to be issued and (C) payment of the Exercise Price for such Warrants,
which shall be payable by any one or any combination of the following: (i) cash;
(ii) certified or official bank check payable to the order of the Company; (iii)
by the surrender (which surrender shall be evidenced by cancellation of the
number of Warrants represented by any Warrant Certificate presented in
connection with a Cashless Exercise (as defined below)) of a Warrant or Warrants
(represented by one or more relevant Warrant Certificates), and without the
payment of the Exercise Price in cash, in return for the delivery to the
surrendering Holder of such number of shares of Common Stock equal to the number
of shares of the Common Stock for which such Warrant is exercisable as of the
date of exercise (if the Exercise Price were being paid in cash or certified or
official bank check) reduced by that number of shares of Common Stock equal to
the quotient obtained by dividing (x) the aggregate Exercise Price (assuming no
Cashless Exercise) to be paid by (y) the Market Price of one Share of Common
Stock on the Business Day which immediately precedes the day of exercise of the
Warrant; or (iv) by the delivery of shares of the Common Stock having a value
(as defined by the next sentence) equal to the aggregate Exercise Price to be
paid, that are either held by the Holder or are acquired in connection with such
exercise, and without payment of the Exercise Price in cash. Any share of Common
Stock delivered as payment for the Exercise Price in connection with an In-Kind
Exercise (as defined below) shall be deemed to have a value equal to the Market
Price of one Share of Common Stock on the Business Day which immediately
precedes the day of exercise of the Warrants. An exercise of a Warrant in
accordance with clause (iii) is herein referred to as a "Cashless Exercise" and
an exercise of a Warrant in accordance with clause (iv) is herein referred to as
an "In-Kind Exercise." The documentation and consideration, if any, delivered in
accordance with subsections (A), (B) and (C) are collectively referred to herein
as the "Warrant Exercise Documentation."
(b) As promptly as practicable, and in any event within five
(5) Business Days after receipt of the Warrant Exercise Documentation, the
Company shall deliver or cause to be delivered (A) certificates representing the
number of validly issued, fully paid and nonassessable shares of Common Stock
specified in the Warrant Exercise Documentation, (B) if applicable, cash in lieu
of any fraction of a share, as hereinafter provided, and (C) if less than the
full number of Warrants evidenced hereby are being exercised or used in a
Cashless Exercise, a new Warrant Certificate or Certificates, of like tenor, for
the number of Warrants evidenced by this Warrant Certificate, less the number of
Warrants then being exercised and/or used in a Cashless Exercise. Such exercise
shall be deemed to have been made at the close of business on the date of
delivery of the Warrant Exercise Documentation so that the Person entitled to
receive shares of Common Stock upon such exercise shall be treated for all
purposes as having become the record holder of such shares of Common Stock at
such time.
(c) The Company shall pay all expenses incurred by the Company
in connection with and taxes and other governmental charges (other than income
taxes of the Holder) that
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may be imposed in respect of, the issue or delivery of any shares of Common
Stock issuable upon the exercise of the Warrants evidenced hereby. The Company
shall not be required, however, to pay any tax or other charge imposed in
connection with any transfer involved in the issue of any certificate for shares
of Common Stock, as the case may be, in any name other than that of the
registered holder of the Warrant evidenced hereby.
(d) In connection with the exercise of any Warrants evidenced
hereby, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest multiplied by the Market
Price for one Share of Common Stock on the Business Day which immediately
precedes the day of exercise. If more than one (1) such Warrant shall be
exercised by the holder thereof at the same time, the number of full shares of
Common Stock issuable on such exercise shall be computed on the basis of the
total number of Warrants so exercised.
Section 2. Certain Adjustments.
(a) The number of shares of Common Stock purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(i) Stock Dividends, Subdivision, Combination or
Reclassification of Common Stock. If at any time after the date of the issuance
of this Warrant the Company shall (i) pay a dividend on Common Stock in shares
of its capital stock, (ii) combine its outstanding shares of Common Stock into a
smaller number of shares, (iii) subdivide its outstanding shares of Common Stock
as the case may be, or (iv) issue by reclassification of its shares of Common
Stock any shares of capital stock of the Company, then, on the record date for
such dividend or the effective date of such subdivision or split-up, combination
or reclassification, as the case may be, the number and kind of shares to be
delivered upon exercise of this Warrant will be adjusted so that the Holder will
be entitled to receive the number and kind of shares of capital stock that such
Holder would have owned or been entitled to receive upon or by reason of such
event had this Warrant been exercised immediately prior thereto, and the
Exercise Price will be adjusted as provided below in paragraph 2(a)(v).
(ii) Extraordinary Distributions. If at any time after
the date of issuance of this Warrant, the Company shall distribute to all
holders of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Company is the continuing or surviving
corporation and Common Stock is not changed or exchanged) cash, evidences of
indebtedness, securities or other assets (excluding (i) ordinary course cash
dividends to the extent such dividends do not exceed the Company's retained
earnings and (ii) dividends payable in shares of capital stock for which
adjustment is made under Section 2(a)(i) or rights, options or warrants to
subscribe for or purchase securities of the Company), then in each such case the
number of shares of Common Stock to be delivered to such Holder upon exercise of
this Warrant shall be increased so that the Holder thereafter shall be entitled
to receive the number of shares of Common Stock determined by multiplying the
number of shares such Holder would have been entitled to receive immediately
before such record date by a fraction, the denominator of which shall be the
Exercise Price on such record date minus the then fair market value (as
reasonably determined by the Board of Directors of the Company in good faith) of
the portion of the cash, evidences of indebtedness, securities or other assets
so distributed or of such rights or warrants applicable
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to one share of the Common Stock (provided that such denominator shall in no
event be less than $.01) and the numerator of which shall be the Exercise Price.
(iii) Reorganization, etc. If at any time after the date
of issuance of this Warrant any consolidation of the Company with or merger of
the Company with or into any other Person (other than a merger or consolidation
in which the Company is the surviving or continuing corporation and which does
not result in any reclassification of, or change (other than a change in par
value or from par value to no par value or from no par value to par value, or as
a result of a subdivision or combination) in, outstanding shares of either
Common Stock) or any sale, lease or other transfer of all or substantially all
of the assets of the Company to any other person (each, a "Reorganization
Event"), shall be effected in such a way that the holders of the Common Stock
shall be entitled to receive cash, stock, other securities or assets (whether
such cash, stock, other securities or assets are issued or distributed by the
Company or another Person) with respect to or in exchange for the Common Stock,
then, upon exercise of this Warrant, the Holder shall have the right to receive
the kind and amount of cash, stock, other securities or assets receivable upon
such Reorganization Event by a holder of the number of shares of the Common
Stock that such holder would have been entitled to receive upon exercise of this
Warrant had this Warrant been exercised immediately before such Reorganization
Event, subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 2(a). The Company
shall not enter into any of the transactions referred to in this Section
2(a)(iii) unless effective provision shall be made so as to give effect to the
provisions set forth in this Section 2(a)(iii).
(iv) Carryover. Notwithstanding any other provision of
this Section 2(a), no adjustment shall be made to the number of shares of either
Common Stock to be delivered to the Holder (or to the Exercise Price) if such
adjustment represents less than .05% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to .05% or more of the number of
shares to be so delivered.
(v) Exercise Price Adjustment.
(i) Whenever the Number Issuable upon the exercise
of the Warrant is adjusted as provided pursuant to this Section 2(a), the
Exercise Price per share payable upon the exercise of this Warrant shall be
adjusted by multiplying such Exercise Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the Number Issuable upon the
exercise of the Warrant immediately prior to such adjustment, and of which the
denominator shall be the Number Issuable immediately thereafter; provided,
however, that the Exercise Price for each Share of the Common Stock shall in no
event be less than the par value of a share of such Common Stock.
(ii) If the price at which the Next Round
Securities are convertible into shares of Common Stock is adjusted pursuant to
documents that create and define the Next Round Securities, then the Exercise
Price of the Warrants shall be adjusted accordingly provided that there should
be no duplication of adjustments.
(b) Notice of Adjustment. Whenever the Number Issuable or the
Exercise Price is adjusted, as herein provided, the Company shall promptly mail
by first class mail, postage prepaid,
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to the Holder, notice of such adjustment or adjustments setting forth the Number
Issuable and the Exercise Price after such adjustment, setting forth a brief
statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
Section 3. No Redemption. The Company shall not have any right to
redeem any of the Warrants evidenced hereby.
Section 4. Notice of Certain Events. In case at any time or from
time to time (i) the Company shall declare any dividend or any other
distribution to the holders of Common Stock, (ii) the Company shall authorize
the granting to the holders of Common Stock of rights or warrants to subscribe
for or purchase any additional shares of stock of any class or any other right,
(iii) the Company shall authorize the issuance or sale of any other shares or
rights which would result in an adjustment to the Number Issuable pursuant to
Section 2(a)(i), (ii), or (iii), or (iv) there shall be any capital
reorganization or reclassification of Common Stock of the Company or
consolidation or merger of the Company with or into another Person, or any sale
or other disposition of all or substantially all the assets of the Company, or
(v) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then, in any one or more of such cases the Company
shall mail to the Holder at such Holder's address as it appears on the transfer
books of the Company, as promptly as practicable but in any event at least 10
days prior to the date on which the transactions contemplated in Sec-tion
2(a)(i), (ii), or (iii), a notice stating (a) the date on which a record is to
be taken for the purpose of such dividend, distribution, rights or warrants or,
if a record is not to be taken, the date as of which the holders of record of
either Common Stock to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (b) the date on which such reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective. Such notice also shall specify the date as of
which it is expected that the holders of record of the Common Stock shall be
entitled to exchange the Common Stock for shares of stock or other securities or
property or cash deliverable upon such reorganization, reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up.
Section 5. Certain Covenants. The Company covenants and agrees that
all shares of Capital Stock of the Company which may be issued upon the exercise
of the Warrants evidenced hereby will be duly authorized, validly issued and
fully paid and nonassessable. The Company shall at all times reserve and keep
available for issuance upon the exercise of the Warrants, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the exercise of all outstanding Warrants, and shall take
all action required to increase the authorized number of shares of Common Stock
if at any time there shall be insufficient authorized but unissued shares of
Common Stock to permit such reservation or to permit the exercise of all
outstanding Warrants.
Section 6. Registered Holder. The persons in whose names this
Warrant Certificate is registered shall be deemed the owner hereof and of the
Warrants evidenced hereby for all purposes. The registered Holder of this
Warrant Certificate, in their capacity as such, shall not be entitled to any
rights whatsoever as a stockholder of the Company, except as herein provided.
Section 7. Transfer of Warrants. Any transfer of the rights
represented by this Warrant Certificate shall be effected by the surrender of
this Warrant Certificate, along with the form of assignment attached hereto,
properly completed and executed by the registered Holder hereof, at the
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CUSIP NO. 096227103
principal executive office of the Company in the United States of America,
together with an appropriate investment letter and opinion of counsel, if deemed
reasonably necessary by counsel to the Company to assure compliance with
applicable securities laws. Thereupon, the Company shall issue in the name or
names specified by the registered Holder hereof and, in the event of a partial
transfer, in the name of the registered Holder hereof, a new Warrant Certificate
or Certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
Section 8. Denominations. The Company covenants that it will, at its
expense, promptly upon surrender of this Warrant Certificate at the principal
executive office of the Company in the United States of America, execute and
deliver to the registered Holder hereof a new Warrant Certificate or
Certificates in denominations specified by such Holder for an aggregate number
of Warrants equal to the number of Warrants evidenced by this Warrant
Certificate.
Section 9. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant Certificate of like tenor for a number of Warrants equal to
the number of Warrants evidenced by this Warrant Certificate.
Section 10. Governing Law. THIS WARRANT CERTIFICATE SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 11. Rights Inure to Registered Holder. The Warrants
evidenced by this Warrant Certificate will inure to the benefit of and be
binding upon the registered Holder thereof and the Company and their respective
successors and permitted assigns. Nothing in this Warrant Certificate shall be
construed to give to any Person other than the Company and the registered Holder
thereof any legal or equitable right, remedy or claim under this Warrant
Certificate, and this Warrant Certificate shall be for the sole and exclusive
benefit of the Company and such registered Holder. Nothing in this Warrant
Certificate shall be construed to give the registered Holder hereof any rights
as a Holder of shares of either Common Stock until such time, if any, as the
Warrants evidenced by this Warrant Certificate are exercised in accordance with
the provisions hereof.
Section 12. Definitions. For the purposes of this Warrant
Certificate, the following terms shall have the meanings indicated below:
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York, New York are authorized
or required by law or executive order to close.
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"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, all
Next Round Securities or Series A Preferred Shares and any rights, warrants or
options to purchase such Person's capital stock.
"Common Stock" shall mean the common stock of the Company.
"Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) if the Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security, the average of the closing bid and ask price of the
Common Stock on such date; or (b) if there shall have been no trading on such
date or if the Common Stock is not so designated, the average of the reported
closing bid and asked price of the Common Stock, on such date as shown by NASDAQ
and reported by any member firm of the NYSE selected by the Company; or (c) if
neither (a) nor (b) is applicable, the Fair Market Value per share determined in
good faith by the Board of Directors of the Company which shall be deemed to be
Fair Market Value unless holders of at least 15% of Common Stock issued or
issuable upon exercise of the Warrants request that the Company obtain an
opinion of a nationally recognized investment banking firm chosen by the Company
(who shall bear the expense) and reasonably acceptable to such requesting
holders of the Warrants, in which event the Fair Market Value shall be as
determined by such investment banking firm.
"Next Round Financing" shall have the meaning given it in the Note
and Warrant Purchase Agreement.
"Next Round Securities" shall have the meaning given it in the Note
and Warrant Purchase Agreement.
"Note and Warrant Purchase Agreement" shall mean that certain note
and warrant purchase agreement between the Company, the Holder and Quantum
Industrial Partners LDC dated March 28, 2000 as the same may be amended from
time to time in accordance with its terms.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Person" shall mean any individual, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
Section 10. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services or personal delivery, (a) if to the Holder of a Warrant, at such
Holder's last known address appearing on the books of the Company; and (b) if to
the Company, at its principal executive office in the United States located at
the address designated for notices in the Note and Warrant Purchase Agreement,
or such other address as shall have been furnished to the party given or making
such notice, demand or other communication. All such notices and communications
shall be deemed to have been duly given: (i) when delivered by hand, if
personally delivered; (ii) when delivered to
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a courier if delivered by commercial overnight courier service; and (iii) five
(5) Business Days after being deposited in the mail, postage prepaid, if mailed.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed as of the Issue Date.
BLUEFLY, INC.
By: /s/ E. Kenneth Seff
-------------------
Name: E. Kenneth Seff
Title: Chief Executive Officer
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CUSIP NO. 096227103
[Form of Assignment Form]
[To be executed upon assignment of Warrants]
The undersigned hereby assigns and transfers this Warrant Certificate to
____________________ whose Social Security Number or Tax ID Number is
_________________ and whose record address is _______________________, and
irrevocably appoints ________________ as agent to transfer this security on the
books of the Company. Such agent may substitute another to act for such agent.
Signature:
-------------------------------
Signature Guarantee:
--------------------------------
Date: ___________________________
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CUSIP NO. 096227103
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
BLUEFLY, INC.
SENIOR CONVERTIBLE NOTE
$2,904,900
New York, New York March 28, 2000
FOR VALUE RECEIVED, the undersigned, BLUEFLY, INC., a New York
corporation (the "Payor" or the "Company"), promises to pay to the order of
QUANTUM INDUSTRIAL PARTNERS LDC or its registered assign (the "Payee"), the
principal sum of TWO MILLION NINE HUNDRED FOUR THOUSAND NINE HUNDRED DOLLARS
($2,904,900) and interest on the outstanding principal balance as set forth
herein.
1. Securities Purchase Agreement. This Senior Convertible Note is
the Senior Convertible Note issued pursuant to the Note and Warrant Purchase
Agreement, dated as of March 28, 2000, among the Payor, the Payee and SFM
Domestic Investments LLC (the "Securities Purchase Agreement"). The Payee is
entitled to the benefits of (and subject to the obligations expressly contained
in) this Senior Convertible Note and the Securities Purchase Agreement and may
enforce the agreements of the Payor contained herein and therein and exercise
the remedies provided for hereby and thereby or otherwise available in respect
hereto and thereto. Capitalized terms used herein without definition shall have
the meaning ascribed to such terms in the Securities Purchase Agreement.
2. Interest Rate; Payment.
(a) The outstanding principal balance of this Senior
Convertible Note shall bear interest at an annual rate equal to 8% per annum,
with interest accruing, from and including the date hereof, on a cumulative,
compounding basis. Interest shall be computed on the basis of a 365- or 366-day
year, as the case may be, and the actual number of days elapsed, and shall be
payable only upon repayment of the principal on any Repayment Date (as defined
below).
(b) The outstanding balance of any amount owed under this
Senior Convertible Note which is not paid when due shall bear interest at the
rate of 2% per annum (the "Default Interest") above the rate that would
otherwise be in effect under this Senior Convertible Note with the Default
Interest accruing, from and including such due date, on a cumulative,
compounding basis.
(c) The outstanding principal and all accrued and unpaid
interest shall be paid in full no later than January 2, 2002 (the "Maturity
Date"), unless repaid earlier pursuant to the provisions of Section 3 (the date
of any payment pursuant to Section 3 and the Maturity Date, collectively
referred to as a "Repayment Date"). On a Repayment Date, the Payor shall pay the
applicable amount of
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CUSIP NO. 096227103
principal and interest in lawful money of the United States of America by wire
or bank transfer of immediately available funds to an account designated by the
Payee in writing from time to time.
3. Prepayment.
(a) Mandatory Prepayment.
(i) Upon the occurrence of an Event of Default (as
defined in Section 5), the outstanding principal of and all accrued interest on
this Senior Convertible Note shall be accelerated and shall automatically become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are expressly waived by the Payor, notwithstanding
anything contained herein to the contrary.
(ii) The Payee shall, at its sole option, have the right
to require the Payor to pay the outstanding principal of and all accrued
interest on this Senior Convertible Note upon the occurrence of any of the
following events: (1) Payor entering into an agreement to effectuate any sale or
other disposition of all or substantially all of its assets, in one transaction
or in a series of transactions, (2) the Company entering into an agreement to
effectuate any consolidation or merger into another entity, or (3) any sale of a
majority of the outstanding equity of the Company (or any other event that
constitutes a Change of Control of the Payor), in one transaction or in a series
of transactions. Immediately upon the occurrence of either of the events set
forth in clauses (1) or (2) above, or immediately upon obtaining knowledge that
any person has entered into an agreement to effectuate, the event set forth in
clause (3) above, the Payor shall give written notice of such event to the
Payee. Change of Control means any Person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) other than a Principal Shareholder,
becoming the beneficial owner, directly or indirectly, of outstanding shares of
stock of the Company entitling such Person or Persons to exercise 50% or more of
the total votes entitled to be cast at a regular or special meeting, or by
action by written consent, of the stockholders of the Company in the election of
directors (the term "beneficial owner" shall be determined in accordance with
Rule 13d-3 of the Exchange Act).
(iii) Any mandatory prepayment under this Section 3(a)
shall include payment of reasonable costs and expenses, if any, associated with
such prepayment.
(b) Optional Prepayment. The Payor may prepay all or any
portion of this Senior Convertible Note, at any time, by paying an amount equal
to the outstanding principal amount of this Senior Convertible Note, or the
portion of this Senior Convertible Note called for prepayment, together with
interest accrued and unpaid thereon to the date of prepayment and any other
amounts due under this Senior Convertible Note and the Securities Purchase
Agreement, without penalty or premium.
4. Mandatory Conversion.
(a) This Senior Convertible Note plus interest accrued and
unpaid thereon shall be automatically converted simultaneously with the Next
Round Financing (the "Triggering Event') into that number of fully paid and
non-assessable Next Round Securities which is equal to the quotient obtained by
dividing the then outstanding principal amount of this Senior Convertible Note
plus interest
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CUSIP NO. 096227103
accrued and unpaid thereon to the date of conversion by the price per Next Round
Security paid in the Next Round Financing.
(b) Promptly after the Triggering Event the Company shall
deliver or cause to be delivered to the holder of this Senior Convertible Note a
certificate or certificates representing the number of fully paid and
non-assessable shares of Next Round Securities into which this Senior
Convertible Note may be converted. Such conversion shall be deemed to have been
made simultaneously with the conclusion of the Next Round Financing, so that the
rights of the holder as a holder of this Senior Convertible Note shall cease
with respect to this Senior Convertible Note at such time (including, without
limitation, the right to receive the principal of this Senior Convertible Note
other than in the form of Next Round Securities), interest shall cease to accrue
hereon and the person or persons entitled to receive the Next Round Securities
deliverable upon conversion of this Senior Convertible Note shall be treated for
all purposes as having become the record holders of such Next Round Securities
at such time, and such conversion shall be at the conversion rate in effect at
such time.
(c) The Company covenants that it will at all times reserve
and keep available out of its authorized Next Round Securities (at such time as
such Securities are authorized) solely for the purpose of issue or delivery upon
conversion of this Senior Convertible Note as herein provided, such number of
Next Round Securities as shall then be issuable or deliverable upon the
conversion of this Senior Convertible Note. The Company covenants that all Next
Round Securities which shall be so issuable or deliverable shall, when issued or
delivered, be duly and validly issued and fully paid and non-assessable.
5. Events of Default. An "Event of Default" shall occur if:
(a) the Payor shall default in the payment of the principal of
or interest payable on this Senior Convertible Note, when and as the same shall
become due and payable, whether at maturity or at a date fixed for prepayment or
by acceleration or otherwise and such default with respect to the payment of
interest shall continue unremedied for two days;
(b) the Payor shall fail to observe or perform any covenant or
agreement contained in this Senior Convertible Note, the Securities Purchase
Agreement or the Warrants and such failure shall continue for five business days
after Payor receives notice of such failure;
(c) any representation, warranty, certification or statement
made by or on behalf of the Payor in this Senior Convertible Note or the
Securities Purchase Agreement or in any certificate, writing or other document
delivered pursuant hereto shall prove to have been incorrect in any material
respect when made;
(d) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(A) relief in respect of Payor or of a substantial part of Payor's respective
property or assets, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law (any such law, a "Bankruptcy Law"), (B) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for a substantial part of the property or assets of any Payor,
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CUSIP NO. 096227103
(C) the winding up or liquidation of any Payor; and such proceeding or petition
shall continue undismissed for 60 days, or an order or decree approving or
ordering any of the foregoing shall be entered;
(e) the Payor shall (A) voluntarily commence any proceeding or
file any petition seeking relief under a Bankruptcy Law, (B) consent to the
institution of or the entry of an order for relief against it, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in clause d, (C) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
a substantial part of the property or assets of the Payor, (D) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (E) make a general assignment for the benefit of creditors, (F)
become unable, admit in writing its inability or fail generally to pay its debts
as they become due or (G) take any action for the purpose of effecting any of
the foregoing;
(f) one or more judgments or orders for the payment of money
in excess of $250,000 in the aggregate shall be rendered against the Payor and
such judgment(s) or order(s) shall continue unsatisfied and unstayed for a
period of 30 days;
(g) the Payor shall default in the payment of any principal,
interest or premium, or any observance or performance of any covenants or
agreements, with respect to indebtedness (excluding trade payables and other
indebtedness entered into in the ordinary course of business) in excess of
$50,000 in the aggregate for borrowed money or any obligation which is the
substantive equivalent thereof and such default shall continue for more than the
period of grace, if any, or of any such Indebtedness or obligation shall be
declared due and payable prior to the stated maturity thereof;
(h) the Payor shall incur any indebtedness senior to this
Senior Convertible Note; or
(i) any material provisions of this Senior Convertible Note,
the Securities Purchase Agreement, or the Warrants shall terminate or become
void or unenforceable or the Payor shall so assert in writing.
6. Senior Status. The indebtedness evidenced by this Senior
Convertible Note is senior in right of payment to all other indebtedness of the
Payor and Payor agrees not to incur any indebtedness, which by its terms is
senior in right of payment to this Senior Convertible Note.
7. Suits for Enforcement.
(a) Upon the occurrence of any one or more Events of Default,
the holder of this Senior Convertible Note may proceed to protect and enforce
its rights by suit in equity, action at law or by other appropriate proceeding,
whether for the specific performance of any covenant or agreement contained in
the Securities Purchase Agreement or in aid of the exercise of any power granted
in this Senior Convertible Note, or may proceed to enforce the payment of this
Senior Convertible Note, or to enforce any other legal or equitable right it may
have as a holder of this Senior Convertible Note.
(b) The holder of this Senior Convertible Note may direct the
time, method and place of conducting any proceeding for any remedy available to
itself.
<PAGE>
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CUSIP NO. 096227103
(c) In case of any Event of Default under the Securities
Purchase Agreement, the Payor will pay to the holder of this Senior Convertible
Note such amounts as shall be sufficient to cover the reasonable costs and
expenses of such holder due to such Event of Default, including without
limitation, costs of collection and reasonable fees, disbursements and other
charges of counsel incurred in connection with any action in which the holder
prevails.
8. Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in the manner and to the addresses set
forth in Section 11.2 of the Securities Purchase Agreement.
9. Successors and Assigns. This Senior Convertible Note shall inure
to the benefit of and be binding upon the successors and permitted assigns of
the parties hereto. The Payor may not assign any of its rights under this Senior
Convertible Note without the prior written consent of Payee. The Payee may
assign all or a portion of their rights or obligations under this Senior
Convertible Note to an Affiliate without the prior written consent of the Payor.
10. Amendment and Waiver.
(a) No failure or delay on the part of the Payor or Payee in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Payor or
Payee at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Senior Convertible Note, any waiver of any provision of this
Senior Convertible Note and any consent to any departure by the Payor from the
terms of any provision of this Senior Convertible Note, shall be effective (i)
only if it is made or given in writing and signed by the Payor and the Payee and
(ii) only in the specific instance and for the specific purpose for which made
or given.
11. Headings. The headings in this Senior Convertible Note are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
12. GOVERNING LAW. THIS SENIOR CONVERTIBLE NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
13. Costs and Expenses. The Payor hereby agrees to pay on demand all
reasonable out-of-pocket costs, fees, expenses, disbursements and other charges
(including but not limited to the fees, expenses, disbursements and other
charges of Paul, Weiss, Rifkind, Wharton & Garrison, special counsel to the
Payee) of the Payee arising in connection with any consent or waiver granted or
requested hereunder or in connection herewith, and any renegotiation, amendment,
work-out or settlements of this Senior Convertible Note or the indebtedness
arising hereunder.
14. Waiver of Jury Trial and Setoff. The Payor hereby waives trial
by jury in any litigation in any court with respect to, in connection with, or
arising out of this Senior Convertible Note or
<PAGE>
Page 56 of 62 Pages
CUSIP NO. 096227103
any instrument or document delivered pursuant to this Senior Convertible Note,
or the validity, protection, interpretation, collection or enforcement thereof,
or any other claim or dispute howsoever arising, between any Payor and the
Payee; and the Payor hereby waives the right to interpose any setoff or
counterclaim or cross-claim in connection with any such litigation, irrespective
of the nature of such setoff, counterclaim or cross-claim except to the extent
that the failure so to assert any such setoff, counterclaim or cross-claim would
permanently preclude the prosecution of the same.
15. Consent to Jurisdiction. The Payor hereby irrevocably consents
to the nonexclusive jurisdiction of the courts of the State of New York and of
any federal court located in such State in connection with any action or
proceeding arising out of or relating to this Senior Convertible Note or any
document or instrument delivered pursuant to this Agreement.
16. Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
17. Entire Agreement. This Senior Convertible Note, the Warrants and
the Securities Purchase Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Senior
Convertible Note supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
18. Further Assurances. The Payor shall execute such documents and
perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations or other actions by, or giving any notices
to, or making any filings with, any governmental authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Senior Convertible Note.
BLUEFLY, INC.
By: /s/ E. Kenneth Seff
-------------------
Name: E. Kenneth Seff
Title: Chief Executive Officer
Page 57 of 62 Pages
CUSIP NO. 096227103
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
BLUEFLY, INC.
SENIOR CONVERTIBLE NOTE
$95,100
New York, New York March 28, 2000
FOR VALUE RECEIVED, the undersigned, BLUEFLY, INC., a New York
corporation (the "Payor" or the "Company"), promises to pay to the order of SFM
DOMESTIC INVESTMENTS LLC or its registered assign (the "Payee"), the principal
sum of NINETY FIVE THOUSAND ONE HUNDRED DOLLARS ($95,100) and interest on the
outstanding principal balance as set forth herein.
1. Securities Purchase Agreement. This Senior Convertible Note is
the Senior Convertible Note issued pursuant to the Note and Warrant Purchase
Agreement, dated as of March 28, 2000, among the Payor, the Payee and Quantum
Industrial Partners LDC (the "Securities Purchase Agreement"). The Payee is
entitled to the benefits of (and subject to the obligations expressly contained
in) this Senior Convertible Note and the Securities Purchase Agreement and may
enforce the agreements of the Payor contained herein and therein and exercise
the remedies provided for hereby and thereby or otherwise available in respect
hereto and thereto. Capitalized terms used herein without definition shall have
the meaning ascribed to such terms in the Securities Purchase Agreement.
2. Interest Rate; Payment.
(a) The outstanding principal balance of this Senior
Convertible Note shall bear interest at an annual rate equal to 8% per annum,
with interest accruing, from and including the date hereof, on a cumulative,
compounding basis. Interest shall be computed on the basis of a 365- or 366-day
year, as the case may be, and the actual number of days elapsed, and shall be
payable only upon repayment of the principal on any Repayment Date (as defined
below).
(b) The outstanding balance of any amount owed under this
Senior Convertible Note which is not paid when due shall bear interest at the
rate of 2% per annum (the "Default Interest") above the rate that would
otherwise be in effect under this Senior Convertible Note with the Default
Interest accruing, from and including such due date, on a cumulative,
compounding basis.
(c) The outstanding principal and all accrued and unpaid
interest shall be paid in full no later than January 2, 2002 (the "Maturity
Date"), unless repaid earlier pursuant to the provisions of Section 3 (the date
of any payment pursuant to Section 3 and the Maturity Date, collectively
referred to as a "Repayment Date"). On a Repayment Date, the Payor shall pay the
applicable amount of
<PAGE>
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CUSIP NO. 096227103
principal and interest in lawful money of the United States of America by wire
or bank transfer of immediately available funds to an account designated by the
Payee in writing from time to time.
3. Prepayment.
(a) Mandatory Prepayment.
(i) Upon the occurrence of an Event of Default (as
defined in Section 5), the outstanding principal of and all accrued interest on
this Senior Convertible Note shall be accelerated and shall automatically become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are expressly waived by the Payor, notwithstanding
anything contained herein to the contrary.
(ii) The Payee shall, at its sole option, have the right
to require the Payor to pay the outstanding principal of and all accrued
interest on this Senior Convertible Note upon the occurrence of any of the
following events: (1) Payor entering into an agreement to effectuate any sale or
other disposition of all or substantially all of its assets, in one transaction
or in a series of transactions, (2) the Company entering into an agreement to
effectuate any consolidation or merger into another entity, or (3) any sale of a
majority of the outstanding equity of the Company (or any other event that
constitutes a Change of Control of the Payor), in one transaction or in a series
of transactions. Immediately upon the occurrence of either of the events set
forth in clauses (1) or (2) above, or immediately upon obtaining knowledge that
any person has entered into an agreement to effectuate, the event set forth in
clause (3) above, the Payor shall give written notice of such event to the
Payee. Change of Control means any Person or "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) other than a Principal Shareholder,
becoming the beneficial owner, directly or indirectly, of outstanding shares of
stock of the Company entitling such Person or Persons to exercise 50% or more of
the total votes entitled to be cast at a regular or special meeting, or by
action by written consent, of the stockholders of the Company in the election of
directors (the term "beneficial owner" shall be determined in accordance with
Rule 13d-3 of the Exchange Act).
(iii) Any mandatory prepayment under this Section 3(a)
shall include payment of reasonable costs and expenses, if any, associated with
such prepayment.
(b) Optional Prepayment. The Payor may prepay all or any
portion of this Senior Convertible Note, at any time, by paying an amount equal
to the outstanding principal amount of this Senior Convertible Note, or the
portion of this Senior Convertible Note called for prepayment, together with
interest accrued and unpaid thereon to the date of prepayment and any other
amounts due under this Senior Convertible Note and the Securities Purchase
Agreement, without penalty or premium.
4. Mandatory Conversion.
(a) This Senior Convertible Note plus interest accrued and
unpaid thereon shall be automatically converted simultaneously with the Next
Round Financing (the "Triggering Event') into that number of fully paid and
non-assessable Next Round Securities which is equal to the quotient obtained by
dividing the then outstanding principal amount of this Senior Convertible Note
plus interest
<PAGE>
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CUSIP NO. 096227103
accrued and unpaid thereon to the date of conversion by the price per Next Round
Security paid in the Next Round Financing.
(b) Promptly after the Triggering Event the Company shall
deliver or cause to be delivered to the holder of this Senior Convertible Note a
certificate or certificates representing the number of fully paid and
non-assessable shares of Next Round Securities into which this Senior
Convertible Note may be converted. Such conversion shall be deemed to have been
made simultaneously with the conclusion of the Next Round Financing, so that the
rights of the holder as a holder of this Senior Convertible Note shall cease
with respect to this Senior Convertible Note at such time (including, without
limitation, the right to receive the principal of this Senior Convertible Note
other than in the form of Next Round Securities), interest shall cease to accrue
hereon and the person or persons entitled to receive the Next Round Securities
deliverable upon conversion of this Senior Convertible Note shall be treated for
all purposes as having become the record holders of such Next Round Securities
at such time, and such conversion shall be at the conversion rate in effect at
such time.
(c) The Company covenants that it will at all times reserve
and keep available out of its authorized Next Round Securities (at such time as
such Securities are authorized) solely for the purpose of issue or delivery upon
conversion of this Senior Convertible Note as herein provided, such number of
Next Round Securities as shall then be issuable or deliverable upon the
conversion of this Senior Convertible Note. The Company covenants that all Next
Round Securities which shall be so issuable or deliverable shall, when issued or
delivered, be duly and validly issued and fully paid and non-assessable.
5. Events of Default. An "Event of Default" shall occur if:
(a) the Payor shall default in the payment of the principal of
or interest payable on this Senior Convertible Note, when and as the same shall
become due and payable, whether at maturity or at a date fixed for prepayment or
by acceleration or otherwise and such default with respect to the payment of
interest shall continue unremedied for two days;
(b) the Payor shall fail to observe or perform any covenant or
agreement contained in this Senior Convertible Note, the Securities Purchase
Agreement or the Warrants and such failure shall continue for five business days
after Payor receives notice of such failure;
(c) any representation, warranty, certification or statement
made by or on behalf of the Payor in this Senior Convertible Note or the
Securities Purchase Agreement or in any certificate, writing or other document
delivered pursuant hereto shall prove to have been incorrect in any material
respect when made;
(d) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction seeking
(A) relief in respect of Payor or of a substantial part of Payor's respective
property or assets, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law (any such law, a "Bankruptcy Law"), (B) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for a substantial part of the property or assets of any Payor,
<PAGE>
Page 60 of 62 Pages
CUSIP NO. 096227103
(C) the winding up or liquidation of any Payor; and such proceeding or petition
shall continue undismissed for 60 days, or an order or decree approving or
ordering any of the foregoing shall be entered;
(e) the Payor shall (A) voluntarily commence any proceeding or
file any petition seeking relief under a Bankruptcy Law, (B) consent to the
institution of or the entry of an order for relief against it, or fail to
contest in a timely and appropriate manner, any proceeding or the filing of any
petition described in clause d, (C) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
a substantial part of the property or assets of the Payor, (D) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (E) make a general assignment for the benefit of creditors, (F)
become unable, admit in writing its inability or fail generally to pay its debts
as they become due or (G) take any action for the purpose of effecting any of
the foregoing;
(f) one or more judgments or orders for the payment of money
in excess of $250,000 in the aggregate shall be rendered against the Payor and
such judgment(s) or order(s) shall continue unsatisfied and unstayed for a
period of 30 days;
(g) the Payor shall default in the payment of any principal,
interest or premium, or any observance or performance of any covenants or
agreements, with respect to indebtedness (excluding trade payables and other
indebtedness entered into in the ordinary course of business) in excess of
$50,000 in the aggregate for borrowed money or any obligation which is the
substantive equivalent thereof and such default shall continue for more than the
period of grace, if any, or of any such Indebtedness or obligation shall be
declared due and payable prior to the stated maturity thereof;
(h) the Payor shall incur any indebtedness senior to this
Senior Convertible Note; or
(i) any material provisions of this Senior Convertible Note,
the Securities Purchase Agreement, or the Warrants shall terminate or become
void or unenforceable or the Payor shall so assert in writing.
6. Senior Status. The indebtedness evidenced by this Senior
Convertible Note is senior in right of payment to all other indebtedness of the
Payor and Payor agrees not to incur any indebtedness, which by its terms is
senior in right of payment to this Senior Convertible Note.
7. Suits for Enforcement.
(a) Upon the occurrence of any one or more Events of Default,
the holder of this Senior Convertible Note may proceed to protect and enforce
its rights by suit in equity, action at law or by other appropriate proceeding,
whether for the specific performance of any covenant or agreement contained in
the Securities Purchase Agreement or in aid of the exercise of any power granted
in this Senior Convertible Note, or may proceed to enforce the payment of this
Senior Convertible Note, or to enforce any other legal or equitable right it may
have as a holder of this Senior Convertible Note.
(b) The holder of this Senior Convertible Note may direct the
time, method and place of conducting any proceeding for any remedy available to
itself.
<PAGE>
Page 61 of 62 Pages
CUSIP NO. 096227103
(c) In case of any Event of Default under the Securities
Purchase Agreement, the Payor will pay to the holder of this Senior Convertible
Note such amounts as shall be sufficient to cover the reasonable costs and
expenses of such holder due to such Event of Default, including without
limitation, costs of collection and reasonable fees, disbursements and other
charges of counsel incurred in connection with any action in which the holder
prevails.
8. Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in the manner and to the addresses set
forth in Section 11.2 of the Securities Purchase Agreement.
9. Successors and Assigns. This Senior Convertible Note shall inure
to the benefit of and be binding upon the successors and permitted assigns of
the parties hereto. The Payor may not assign any of its rights under this Senior
Convertible Note without the prior written consent of Payee. The Payee may
assign all or a portion of their rights or obligations under this Senior
Convertible Note to an Affiliate without the prior written consent of the Payor.
10. Amendment and Waiver.
(a) No failure or delay on the part of the Payor or Payee in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Payor or
Payee at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Senior Convertible Note, any waiver of any provision of this
Senior Convertible Note and any consent to any departure by the Payor from the
terms of any provision of this Senior Convertible Note, shall be effective (i)
only if it is made or given in writing and signed by the Payor and the Payee and
(ii) only in the specific instance and for the specific purpose for which made
or given.
11. Headings. The headings in this Senior Convertible Note are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
12. GOVERNING LAW. THIS SENIOR CONVERTIBLE NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
13. Costs and Expenses. The Payor hereby agrees to pay on demand
all reasonable out-of-pocket costs, fees, expenses, disbursements and other
charges (including but not limited to the fees, expenses, disbursements and
other charges of Paul, Weiss, Rifkind, Wharton & Garrison, special counsel to
the Payee) of the Payee arising in connection with any consent or waiver granted
or requested hereunder or in connection herewith, and any renegotiation,
amendment, work-out or settlements of this Senior Convertible Note or the
indebtedness arising hereunder.
14. Waiver of Jury Trial and Setoff. The Payor hereby waives trial
by jury in any litigation in any court with respect to, in connection with, or
arising out of this Senior Convertible Note or
<PAGE>
Page 62 of 62 Pages
CUSIP NO. 096227103
any instrument or document delivered pursuant to this Senior Convertible Note,
or the validity, protection, interpretation, collection or enforcement thereof,
or any other claim or dispute howsoever arising, between any Payor and the
Payee; and the Payor hereby waives the right to interpose any setoff or
counterclaim or cross-claim in connection with any such litigation, irrespective
of the nature of such setoff, counterclaim or cross-claim except to the extent
that the failure so to assert any such setoff, counterclaim or cross-claim would
permanently preclude the prosecution of the same.
15. Consent to Jurisdiction. The Payor hereby irrevocably consents
to the nonexclusive jurisdiction of the courts of the State of New York and of
any federal court located in such State in connection with any action or
proceeding arising out of or relating to this Senior Convertible Note or any
document or instrument delivered pursuant to this Agreement.
16. Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
17. Entire Agreement. This Senior Convertible Note, the Warrants
and the Securities Purchase Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Senior
Convertible Note supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
18. Further Assurances. The Payor shall execute such documents and
perform such further acts (including, without limitation, obtaining any
consents, exemptions, authorizations or other actions by, or giving any notices
to, or making any filings with, any governmental authority or any other Person)
as may be reasonably required or desirable to carry out or to perform the
provisions of this Senior Convertible Note.
BLUEFLY, INC.
By: /s/ E. Kenneth Seff
-------------------
Name: E. Kenneth Seff
Title: Chief Executive Officer
