-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KLIns3bRoKGWfZsVdGI2ZNR2ZLoq8uPE8WCFnMMpbgZPv5FYlBKd18eeQWBd687b 2QS247XoZJD/Q+VA+tBBrw== 0000921530-02-000528.txt : 20021004 0000921530-02-000528.hdr.sgml : 20021004 20021004171726 ACCESSION NUMBER: 0000921530-02-000528 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20021004 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BLUEFLY INC CENTRAL INDEX KEY: 0001030896 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 133612110 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-52401 FILM NUMBER: 02782402 BUSINESS ADDRESS: STREET 1: 42 WEST 39TH ST CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2129448000 MAIL ADDRESS: STREET 1: 42 WEST 39TH ST CITY: NEW YORK STATE: NY ZIP: 10018 FORMER COMPANY: FORMER CONFORMED NAME: PIVOT RULES INC DATE OF NAME CHANGE: 19970305 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SOROS FUND MANAGEMENT LLC CENTRAL INDEX KEY: 0001029160 IRS NUMBER: 133914976 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 888 SEVENTH AVENUE 33RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10106 BUSINESS PHONE: 2128721054 MAIL ADDRESS: STREET 1: C/O AKIN, GUMP, STRAUSS,HAUER,FELD, STREET 2: 399 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 SC 13D/A 1 bluefly_13d15.txt SCHEDULE 13D, AMENDMENT NO. 15 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. 15)* BLUEFLY, INC. ---------------------------- (Name of Issuer) Common Stock, Par Value $0.01 Per Share ------------------------------------------- (Title of Class of Securities) 096227103 ---------------------- (CUSIP Number) Stephen M. Vine, Esq. Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, New York 10022 (212) 872-1000 ---------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) September 27, 2002 -------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of ss.ss.240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. [ ] Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See ss.240.13d-7 for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Continued on following pages Page 1 of 38 Pages Exhibit Index: Page 16 SCHEDULE 13D CUSIP NO. 096227103 Page 2 of 38 Pages 1 Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only). QUANTUM INDUSTRIAL PARTNERS LDC 2 Check the Appropriate Box if a Member of a Group (See Instructions) a. [ ] b. [ X ] 3 SEC Use Only 4 Source of Funds (See Instructions) WC 5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Cayman Islands 7 Sole Voting Power Number of 34,778,119 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 34,778,119 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 34,778,119** 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ X ] 13 Percent of Class Represented By Amount in Row (11) 87.2% 14 Type of Reporting Person (See Instructions) OO; IV - ---------- ** See Item 6 of Amendment No. 14 to Schedule 13D. SCHEDULE 13D CUSIP NO. 096227103 Page 3 of 38 Pages 1 Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only). QIH MANAGEMENT INVESTOR, L.P. 2 Check the Appropriate Box if a Member of a Group (See Instructions) a. [ ] b. [ X ] 3 SEC Use Only 4 Source of Funds (See Instructions) AF 5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 34,778,119 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 34,778,119 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 34,778,119** 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ X ] 13 Percent of Class Represented By Amount in Row (11) 87.2% 14 Type of Reporting Person (See Instructions) PN; IA - ---------- ** See Item 6 of Amendment No. 14 to Schedule 13D. SCHEDULE 13D CUSIP NO. 096227103 Page 4 of 38 Pages 1 Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only). QIH MANAGEMENT, INC. 2 Check the Appropriate Box if a Member of a Group (See Instructions) a. [ ] b. [ X ] 3 SEC Use Only 4 Source of Funds (See Instructions) AF 5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 34,778,119 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 34,778,119 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 34,778,119** 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ X ] 13 Percent of Class Represented By Amount in Row (11) 87.2% 14 Type of Reporting Person (See Instructions) CO - ---------- ** See Item 6 of Amendment No. 14 to Schedule 13D. SCHEDULE 13D CUSIP NO. 096227103 Page 5 of 38 Pages 1 Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only). SOROS FUND MANAGEMENT LLC 2 Check the Appropriate Box if a Member of a Group (See Instructions) a. [ ] b. [ X ] 3 SEC Use Only 4 Source of Funds (See Instructions) AF 5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 34,778,119 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 34,778,119 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 34,778,119** 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] 13 Percent of Class Represented By Amount in Row (11) 87.2% 14 Type of Reporting Person (See Instructions) OO; IA - ---------- ** See Item 6 of Amendment No. 14 to Schedule 13D. SCHEDULE 13D CUSIP NO. 096227103 Page 6 of 38 Pages 1 Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only). SFM DOMESTIC INVESTMENTS LLC 2 Check the Appropriate Box if a Member of a Group (See Instructions) a. [ ] b. [ X ] 3 SEC Use Only 4 Source of Funds (See Instructions) WC 5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization Delaware 7 Sole Voting Power Number of 1,137,946 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 1,137,946 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 1,137,946** 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] 13 Percent of Class Represented By Amount in Row (11) 10.0% 14 Type of Reporting Person (See Instructions) OO - ---------- ** See Item 6 of Amendment No. 14 to Schedule 13D. SCHEDULE 13D CUSIP NO. 096227103 Page 7 of 38 Pages 1 Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only). GEORGE SOROS (in the capacity described herein) 2 Check the Appropriate Box if a Member of a Group (See Instructions) a. [ ] b. [ X ] 3 SEC Use Only 4 Source of Funds (See Instructions) AF 5 Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) [ ] 6 Citizenship or Place of Organization United States 7 Sole Voting Power Number of 35,916,065 Shares Beneficially 8 Shared Voting Power Owned By 0 Each Reporting 9 Sole Dispositive Power Person 35,916,065 With 10 Shared Dispositive Power 0 11 Aggregate Amount Beneficially Owned by Each Reporting Person 35,916,065** 12 Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) [ ] 13 Percent of Class Represented By Amount in Row (11) 87.9% 14 Type of Reporting Person (See Instructions) IA - ---------- ** See Item 6 of Amendment No. 14 to Schedule 13D. Page 8 of 38 Pages This Amendment No. 15 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. 15 supplementally amends the initial statement on Schedule 13D, dated August 6, 1999, and all amendments thereto (collectively, the "Initial Statement"), filed by the Reporting Persons (as defined herein). This Amendment No. 15 is being filed by the Reporting Persons to report that QIP (as defined herein) and SFM Domestic Investments (as defined herein) have entered into agreements with the Issuer as described herein, whereby QIP and SFM Domestic Investments each: A) purchased from the Issuer shares of preferred stock convertible into Shares; and B) received convertible demand promissory notes (collectively, the "Notes") of the Issuer pursuant to which each of QIP and SFM Domestic Investments acquired the right, at their option, to convert all or any portion of the principal amount of such Notes, including any accrued and unpaid interest thereon, into shares of preferred stock convertible into Shares, as described herein. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Initial Statement. The Initial Statement is supplementally amended as follows. Item 2. Identity and Background This Statement is being filed on behalf of each of the following persons (collectively, the "Reporting Persons"): (i) Quantum Industrial Partners LDC ("QIP"); (ii) QIH Management Investor, L.P. ("QIHMI"); (iii) QIH Management, Inc. ("QIH Management"); (iv) Soros Fund Management LLC ("SFM LLC"); (v) SFM Domestic Investments LLC ("SFM Domestic Investments"); and (vi) Mr. George Soros ("Mr. Soros"). This Statement relates to the Shares held for the accounts of QIP and SFM Domestic Investments. Item 3. Source and Amount of Funds or Other Consideration The information set forth in Item 6 hereof is hereby incorporated by reference into this Item 3. QIP expended $2,904,900 of its working capital to purchase the securities reported herein as being acquired since August 20, 2002 (the date of the last filing on Schedule 13D). This number consists of A) $968,300 to purchase shares of the Issuer's Series C Convertible Preferred Stock, $.01 par value per share ("Series C Preferred Stock") pursuant to the Series C Preferred Stock and Note Purchase Agreement dated as of September 27, 2002 between the Issuer, QIP and SFM Domestic Investments (the "Purchase Agreement"), and B) $1,936,600 as the principal amount of the convertible demand promissory note dated September 27, 2002, provided by the Issuer to QIP (the "QIP Note"). SFM Domestic Investments expended $95,100 of its working capital to purchase the securities reported herein as being acquired since August 20, 2002 (the date of the last filing on Schedule 13D). This number consists of A) $31,700 to purchase shares of the Series C Preferred Stock pursuant to the Purchase Agreement, and B) $63,400 as the principal amount of the convertible demand promissory note dated September 27, 2002 provided by the Issuer to SFM Domestic Investments (the "SFM Domestic Note"). Page 9 of 38 Pages Item 4. Purpose of Transaction The information set forth in Item 6 hereof is hereby incorporated by reference into this Item 4. The Reporting Persons reserve the right to acquire, or cause to be acquired, additional securities of the Issuer, to dispose of, or cause to be disposed, such securities at any time or to formulate other purposes, plans or proposals regarding the Issuer or any of its securities, to the extent deemed advisable in light of general investment and trading policies of the Reporting Persons, market conditions or other factors. Item 5. Interest in Securities of the Issuer The information set forth in Item 6 hereof is hereby incorporated by reference into this Item 5. (a) (i) Each of QIP, QIHMI, QIH Management and SFM LLC may be deemed the beneficial owner of 34,778,119 Shares (approximately 87.2% of the total number of Shares outstanding assuming the exercise and conversion of all of the securities (excluding the Series 2002 Preferred Stock) held for the account of QIP). This number consists of A) 5,287,082 Shares, B) 3,806,923 Shares issuable upon the conversion of 445,410 shares of Series A Preferred Stock, C) 21,658,444 Shares issuable upon the conversion of 8,607,843 shares of Series B Preferred Stock, D) 363,113 Shares issuable upon the exercise of warrants held for the account of QIP, E) 96,830 Shares issuable upon the exercise of Warrant No. 11 held for the account of QIP, F) 58,098 Shares issuable upon the exercise of Warrant No. 13 held for the account of QIP, G) 96,830 Shares issuable upon the exercise of Warrant No. 15 held for the account of QIP, H) 287,250 Shares issuable upon the exercise of Warrant No. 17 held for the account of QIP, I) 1,041,183 Shares currently issuable upon the conversion of 968.3 shares of Series C Preferred Stock, and J) 2,082,366 Shares issuable upon the conversion of the shares of Series C Preferred Stock currently obtainable upon the conversion of the QIP Note. (ii) SFM Domestic Investments may be deemed the beneficial owner of 1,137,946 Shares (approximately 10.0% of the total number of Shares outstanding assuming the exercise and conversion of all the securities (excluding the Series 2002 Preferred Stock) held for its account). This number consists of A) 172,995 Shares, B) 124,701 Shares issuable upon the conversion of 14,590 shares of Series A Preferred Stock held for its account, C) 708,469 Shares issuable upon the conversion of 281,571 shares of Series B Preferred Stock held for its account, D) 11,887 Shares issuable upon the exercise of warrants held for its account, E) 3,170 Shares issuable upon the exercise of Warrant No. 12 held for its account, F) 1,902 Shares issuable upon the exercise of Warrant No. 14 held for its account, G) 3,170 Shares issuable upon the exercise of Warrant No. 16 held for its account, H) 9,394 Shares issuable upon the exercise of Warrant No. 18 held for its account, I) 34,086 Shares currently issuable upon the conversion of 31.7 shares of Series C Preferred Stock held for its account, and J) 68,172 Shares issuable upon the conversion of the shares of Series C Preferred Stock currently obtainable upon the conversion of the SFM Domestic Note. (iii) Mr. Soros may be deemed the beneficial owner of 35,916,065 Shares (approximately 87.9% of the total number of Shares outstanding assuming the exercise and conversion of all of the securities (excluding the Series 2002 Preferred Stock) held for the accounts of QIP and SFM Domestic Investments). This number consists of A) 34,778,119 Shares which may be deemed to be beneficially owned by QIP as described above and B) 1,137,946 Shares which may be deemed to be beneficially owned by SFM Dometic Investments as described above. Page 10 of 38 Pages (b) (i) Each of QIP, QIHMI, QIH Management and SFM LLC (by virtue of the QIP contract) may be deemed to have the sole power to direct the voting and disposition of the 34,778,119 Shares which may be deemed to be beneficially owned by QIP as described above. (ii) SFM Domestic Investments may be deemed to have the sole power to direct the voting and disposition of the 1,137,946 Shares which may be deemed to be beneficially owned by SFM Domestic Investments as described above. (iii) Mr. Soros (as a result of his position with SFM LLC and in his capacity as the sole managing member of SFM Domestic Investments) may be deemed to have the sole power to direct the voting and disposition of the 35,916,065 Shares which may be deemed to be beneficially owned by QIP and SFM Domestic Investments as described above. (c) Except for the transactions described in Item 6 below, which were effected in a privately negotiated transaction, there have been no transactions effected with respect to the Shares since August 20, 2002 (the date of the last filing on Schedule 13D) by any of the Reporting Persons. (d) (i) The shareholders of QIP, including Quantum Industrial Holdings, Ltd., a British Virgin Islands international business company, have the right to participate in the receipt of dividends from, or proceeds from the sales of, the securities held for the account of QIP in accordance with their ownership interests in QIP. (ii) Certain members of SFM Domestic Investments have the right to participate in the receipt of dividends from, or proceeds from the sale of, the securities held for the account of SFM Domestic Investments. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. Series C Preferred Stock and Note Purchase Agreement - ---------------------------------------------------- On September 27, 2002, the Issuer entered into the Purchase Agreement (a copy of which is incorporated by reference hereto as Exhibit III and is incorporated herein by reference in response to this Item 6) with QIP and SFM Domestic Investments. Pursuant to the terms of the Purchase Agreement, QIP purchased 968.3 shares of Series C Preferred Stock for an aggregate purchase price of $968,300 and SFM Domestic Investments purchased 31.7 shares of Series C Preferred Stock for an aggregate purchase price of $31,700. The Issuer and QIP also entered into the QIP Note (a copy of which is incorporated by reference hereto as Exhibit JJJ and is incorporated herein by reference in response to this Item 6) in the aggregate principal amount of $1,936,600 and the Issuer and SFM Domestic Investments entered into the SFM Domestic Note (a copy of which is incorporated by reference hereto as Exhibit KKK and is incorporated herein by reference in response to this Item 6) in the aggregate principal amount of $63,400. Page 11 of 38 Pages So long as any shares of Series C Preferred Stock are owned by QIP, SFM Domestic Investments or their respective affiliates, the Issuer has agreed not to take any action to approve or otherwise facilitate certain change of control transactions, including, but not limited to, a merger or consolidation of the Issuer resulting in a change of control or a sale of substantially all the assets of the Issuer, unless provision has been made for the holders of the Shares to receive in connection with such transaction an amount in cash equal to the greater of (i) $1,000 per share of Series C Preferred Stock plus any accrued and unpaid dividends and (ii) the amount that the holder of such Series C Preferred Stock would receive if it were to convert their share or shares of Series C Preferred Stock (without regard to any limitation on conversion and without actually requiring to be so converted) into Shares (the "Series C Liquidation Preference"). The Issuer, QIP and SFM Domestic Investments amended the definition of "Registrable Securities" under the Investment Agreement (the "Investment Agreement"), dated November 13, 2000 (a copy of which was previously filed as Exhibit LL to Schedule 13D Amendment No. 7 and is incorporated herein by reference in response to this Item 6) in order that certain securities related to the Series C Preferred Stock and Series 2002 Preferred Stock were covered by the registration rights set forth in the Investment Agreement. The amended definition of "Registrable Securities" includes, along with any other securities already included in such definition, the Shares issuable upon conversion of the Series C Preferred Stock and the Series 2002 Preferred Stock (or upon the exercise or conversion of any security issued upon conversion of the Series 2002 Preferred Stock). The foregoing description of the Investment Agreement does not purport to be complete and is qualified in its entirety by the terms of the Investment Agreement. The Issuer has agreed to put forth proposals seeking stockholder approval of (i) the conversion rights of the Series C Preferred Stock at the Company's next annual or special meeting of stockholders and (ii) the increase in the number of authorized Shares to 92,000,000. The Issuer has agreed to take all reasonable action to convene a meeting of the Issuer's stockholders on or before December 30, 2002. The foregoing descriptions of the Purchase Agreement, the QIP Note and the SFM Domestic Note do not purport to be complete and are qualified in their entirety by the terms of each such document which are incorporated herein by reference in response to this Item 6. Certificate of Powers, Designations, Preferences and Rights of - -------------------------------------------------------------- Series C Preferred Stock - ------------------------ Pursuant to the terms of the Certificate of Powers, Designations, Preferences and Rights of Series C Convertible Preferred Stock (the "Series C Preferred Certificate of Designations") (a copy of which is incorporated by reference hereto as Exhibit LLL and is incorporated herein by reference in response to this Item 6) filed by the Issuer with the Delaware Secretary of the State on September 27, 2002, the shares of Series C Preferred Stock are entitled to cumulative dividends at a rate of 8% per annum, compounding annually. The dividends are payable only upon a conversion of the Series C Preferred Stock into Shares, a liquidation, dissolution or winding up of the Issuer or a redemption of the Series C Preferred Stock. Series C Preferred Stockholders are entitled to a preference on a liquidation, dissolution or winding up of the Issuer in an amount per share equal to the Series C Liquidation Preference. Page 12 of 38 Pages Holders of Series C Preferred Stock are entitled to vote on all matters submitted to a vote of the Issuer's stockholders, voting as a single class with the holders of Shares, on an as-converted basis. Notwithstanding the foregoing, (i) holders of Series C Preferred Stock are not entitled to vote with respect to the approval of the conversion rights of the Series C Preferred Stock or the Series 2002 Preferred Stock and (ii) until the Issuer's stockholders approve the conversion rights of the Series C Preferred Stock (to the extent such approval is required by the rules of the Nasdaq SmallCap Market or any other national securities exchange or quotation system upon which the Shares may be listed from time to time), the total number of votes cast with respect to the then outstanding shares of Series C Preferred Stock may not exceed 2,077,341 (subject to adjustment to reflect any stock split, stock dividend, reclassification or similar transaction). So long as at least 40% of the shares of Series C Preferred Stock remain outstanding, the Issuer may take the actions enumerated in Section 5.1 of the Series C Preferred Certificate of Designations only with the approval of a majority of the shares of Series C Preferred Stock, voting separately as a class. In addition, so long as any shares of Series C Preferred Stock are outstanding, the approval of the holders of at least 66-2/3% of such shares, voting separately as a class, must be obtained (i) to effect any transaction that would adversely affect the rights, preferences, powers and privileges of the shares of Series C Preferred Stock or (ii) to merge or consolidate with another entity, sell all or substantially all of the Issuer's assets or enter into a transaction resulting in, or facilitating, a change of control. Each share of Series C Preferred Stock is convertible, at the option of the holder thereof, into a number of fully paid and nonassessable Shares obtained by dividing (i) $1,000 by (ii) $0.93 (as adjusted, the "Series C Conversion Price"). The Series C Conversion Price may be adjusted upon the occurrence of certain events described in the Series C Preferred Certificate of Designations, including, but not limited to, the issuance by the Issuer of securities at a price per share (the "New Issue Price") less than the Series C Conversion Price in which case the Series C Conversion Price will be adjusted to equal the New Issue Price. Upon conversion, the accrued and unpaid dividends on each share of Series C Preferred Stock are paid, at the option of the Issuer, in cash or in Shares. Notwithstanding the foregoing, (i) until the Issuer's stockholders approve the conversion rights of the Series C Preferred Stock (to the extent such approval is required by the rules of the Nasdaq SmallCap Market or any other national securities exchange or quotation system upon which the Shares may be listed from time to time), no share of Series C Preferred Stock may be converted into Shares to the extent that, after giving effect to such conversion, the total number of Shares issued from and after September 27, 2002 as a result of the conversion of shares of Series C Preferred Stock would exceed 2,077,341 (subject to adjustment to reflect any stock split, stock dividend, reclassification or similar transaction) and (ii) no shares of Series C Preferred Stock are convertible into Shares until the Issuer's stockholders approve the increase in the number of authorized Shares to 92,000,000. Holders of Series C Preferred Stock are entitled to certain preemptive rights in instances where the Issuer issues any Shares or securities convertible or exchangeable into Shares, subject to certain excluded issuances. Subject to the fulfillment of certain requirements, the Issuer may redeem for cash all the shares of Series C Preferred Stock at redemption prices equal to multiples of the Series C Conversion Price, as set forth in Section 7 of the Series C Preferred Certificate of Designations. The foregoing description of the Series C Preferred Certificate of Designations does not purport to be complete and is qualified in its entirety by the terms of the Series C Preferred Certificate of Designations, which is incorporated herein by reference in response to this Item 6. Page 13 of 38 Pages Convertible Demand Promissory Notes - ----------------------------------- Each Note bears interest at a rate of 3% per annum, on a cumulative, compounding basis. The outstanding principal balance and accrued and unpaid interest on each Note is payable upon the demand of the holder, but in no event later than March 26, 2003. All or any portion of the Notes are convertible, at the option of the holders thereof, into a number of fully paid and nonassessable shares of Series C Preferred Stock obtained by dividing (i) the aggregate principal amount to be converted plus any accrued and unpaid interest on such principal amount by (ii) $1,000. The foregoing description of the Notes does not purport to be complete and is qualified in its entirety by the terms of the Notes, which are incorporated herein by reference in response to this Item 6. Waiver and Consent of the Holders of Series A Preferred Stock, - -------------------------------------------------------------------- Series B Preferred Stock and Series 2002 Preferred Stock - --------------------------------------------------------- On September 27, 2002, QIP and SFM Domestic Investments, along with the other holders, if applicable, of Series A Preferred Stock, Series B Preferred Stock and Series 2002 Preferred Stock executed the Waiver and Consent of the Holders of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series 2002 Convertible Preferred Stock (the "Waiver and Consent") (a copy of which is incorporated by reference hereto as Exhibit MMM and incorporated herein by reference in response to this Item 6). Pursuant to the Waiver and Consent, (i) the holders of Series A Preferred Stock and Series B Preferred Stock waived their preemptive rights with respect to the issuance of the Series C Preferred Stock and the Notes, (ii) the holders of Series B Preferred Stock waived the breach by the Issuer of Section 5.8.9 of the Certificate of Incorporation (a copy of which was previously filed as Exhibit RR to Schedule 13D Amendment No. 8 and is incorporated herein by reference in response to this Item 6), and agreed not to convert any shares of Series B Preferred Stock to the extent that, after giving effect to such conversion, the total number of Shares issued from and after September 27, 2002 as a result of the conversion of shares of Series B Preferred Stock would exceed 13,281,038 (subject to adjustment to reflect any stock split, stock dividend, reclassification or similar transaction) and (iii) the holders of Series 2002 Preferred Stock agreed to waive their rights to convert the Series 2002 Preferred Stock into shares of Series C Preferred Stock in connection with the issuance of the shares of Series C Preferred Stock. The foregoing description of the Waiver and Consent does not purport to be complete and is qualified in its entirety by the terms of the Waiver and Consent, which is incorporated herein by reference in response to this Item 6. Conversion Price of Series B Preferred Stock - -------------------------------------------- In connection with the issuance of the Series C Preferred Stock, the conversion price of the Series B Preferred Stock was reduced to $0.93 per share pursuant to Section 5.8.6 of the Issuer's Certificate of Incorporation. The foregoing description of the Certificate of Incorporation does not purport to be complete and is qualified in it entirety by the terms of the Certificate of Incorporation. Except as set forth herein, the Reporting Persons do no have any contracts, arrangements, understandings or relationships with respect to any securities of the Issuer. Page 14 of 38 Pages Item 7. Material to be Filed as Exhibits The Exhibit Index is incorporated herein by reference. Page 15 of 38 Pages SIGNATURES After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this Statement is true, complete and correct. Date: October 4, 2002 QUANTUM INDUSTRIAL PARTNERS LDC By: /s/ Richard D. Holahan, Jr. ----------------------------------- Richard D. Holahan, Jr. Attorney-in-Fact QIH MANAGEMENT INVESTOR, L.P. By: QIH Management, Inc., its General Partner By: /s/ Richard D. Holahan, Jr. ----------------------------------- Richard D. Holahan, Jr. Vice President QIH MANAGEMENT, INC. By: /s/ Richard D. Holahan, Jr. ----------------------------------- Richard D. Holahan, Jr. Vice President SOROS FUND MANAGEMENT LLC By: /s/ Richard D. Holahan, Jr. ----------------------------------- Richard D. Holahan, Jr. Assistant General Counsel SFM DOMESTIC INVESTMENTS LLC By: George Soros Its Managing Member By: /s/ Richard D. Holahan, Jr. ----------------------------------- Richard D. Holahan, Jr. Attorney-in-Fact GEORGE SOROS By: /s/ Richard D. Holahan, Jr. ----------------------------------- Richard D. Holahan, Jr. Attorney-in-Fact Page 16 of 38 Pages EXHIBIT INDEX III. Series C Preferred Stock and Note Purchase Agreement, dated as of September 27, 2002, by and between Bluefly, Inc. and the investors listed on Schedule I thereto(1) JJJ. Form of the Convertible Demand Promissory Note, dated as of September 27, 2002, by and between Bluefly, Inc. and Quantum Industrial Partners LDC in the principal amount of $1,936,600.................................................. 17 KKK. Form of the Convertible Demand Promissory Note, dated as of September 27, 2002, by and between Bluefly, Inc. and SFM Domestic Investments LLC in the principal amount of $63,400..................................................... 26 LLL. Certificate of Powers, Designations, Preferences and Rights of Series C Convertible Preferred Stock of Bluefly, Inc.(2) MMM. Form of the Waiver and Consent of the Holders of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series 2002 Convertible Preferred Stock of Bluefly, Inc................................................ 35 - ---------- (1) Filed on September 30, 2002 as Exhibit 99.2 to the Issuer's current report on Form 8-K (commission File Number 001-14498). (2) Filed on September 30, 2002 as Exhibit 99.3 to the Issuer's current report on Form 8-K (Commission File Number 001-14498). EX-99 3 bluefly_13d-15exhjjj.txt CONVERTIBLE DEMAND PROMISSORY NOTE Page 17 of 38 Pages EXHIBIT JJJ THE OFFER AND SALE OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE AND ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. CERTIFICATES REPRESENTING ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE SHALL INCLUDE A LEGEND TO SIMILAR EFFECT AS THE FOREGOING. BLUEFLY, INC. CONVERTIBLE DEMAND PROMISSORY NOTE $1,936,600 New York, New York September 27, 2002 FOR VALUE RECEIVED, the undersigned, BLUEFLY, INC., a Delaware corporation (the "Payor" or the "Company"), promises to pay to the order of Quantum Industrial Partners LDC or its registered assign (the "Payee"), upon demand the principal sum of One Million, Nine Hundred and Thirty-Six Thousand, Six Hundred Dollars ($1,936,600) and interest on the outstanding principal balance as set forth herein. 1. Interest Rate; Payment. (a) The outstanding principal balance of this Convertible Demand Promissory Note (this "Note") shall bear interest at an annual rate equal to 3% per annum, with interest accruing, from and including the date hereof, on a cumulative, compounding basis. Interest shall be computed on the basis of a 365- or 366-day year, as the case may be, and the actual number of days elapsed, and, subject to Section 5, shall be payable only upon repayment of the principal on any Repayment Date (as defined below) in cash. (b) The outstanding balance of any amount owed under this Note which is not paid when due shall bear interest at the rate of 2% per annum (the "Default Interest") above the rate that would otherwise be in effect under this Note with the Default Interest accruing, from and including such due date, on a cumulative, compounding basis. (c) The outstanding principal and all accrued and unpaid interest shall be paid in full no later than March 26, 2003 (the "Maturity Date"), unless repaid earlier pursuant to the provisions of Section 2 (the date of any payment pursuant to Section 2 and the Maturity Date, collectively Page 18 of 38 Pages referred to as a "Repayment Date") or unless converted into shares of Series C Preferred Stock (as defined below) pursuant to Section 5 prior to the Maturity Date. On a Repayment Date, the Payor shall pay the applicable amount of principal and interest in lawful money of the United States of America by wire or bank transfer of immediately available funds to an account designated by the Payee in writing from time to time. 2. Prepayment. (a) Mandatory Prepayment. (i) Upon the occurrence of an Event of Default (under Section 3(d) or (e)), the outstanding principal of and all accrued interest on this Note shall be accelerated and shall automatically become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are expressly waived by the Payor, notwithstanding anything contained herein to the contrary. (ii) The Payee shall, at its sole option, have the right to require the Payor to pay the outstanding principal of and all accrued interest on this Note upon the occurrence of any of the following events: (1) an Event of Default under Section 3(a), (b), (c), (f), (g) or (h), (2) the Company entering into an agreement to effectuate any sale or other disposition of all or substantially all of its assets, in one transaction or in a series of transactions, (3) the Company entering into an agreement to effectuate any consolidation or merger into another entity, or (4) any sale of a majority of the outstanding equity of the Company (or any other event that constitutes a Change of Control (as defined below) of the Company), in one transaction or in a series of transactions. Immediately upon the occurrence of either of the events set forth in clauses (1), (2) or (3) above, or immediately upon obtaining knowledge that any person has entered into an agreement to effectuate the event set forth in clause (4) above, the Company shall give written notice of such event to the Payee. "Change of Control" means any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or "group" (as defined in Rule 13d-5, promulgated under the Exchange Act) other than Payee and its affiliates or any group that includes Payee and/or its affiliates, becoming the beneficial owner (as determined by Rule 13d-3, promulgated under the Exchange Act), directly or indirectly, of outstanding shares of stock of the Company entitling such Person or Persons to exercise 50% or more of the total votes entitled to be cast at a regular or special meeting, or by action by written consent, of the stockholders of the Company in the election of directors. (iii) Any mandatory prepayment under this Section 2(a) shall include payment of reasonable costs and expenses, if any, of the Payee associated with such prepayment. (b) Optional Prepayment. The Company may, at its option, without premium or penalty, upon five (5) days' prior written notice to the Payee, repay the unpaid principal amount of this Note, at any time in whole or from time to time in part, together with interest accrued thereon to the date of prepayment. Any such prepayment shall be applied first to the payment of accrued interest and then to repayment of principal. Upon any partial prepayment of the unpaid principal amount of this Note, the Holder shall make notation on this Note of the portion of the principal so prepaid. No notice of prepayment shall in any way prohibit the Payee from converting this Note pursuant to Section 5. Page 19 of 38 Pages 3. Events of Default. An "Event of Default" shall occur if: (a) the Payor shall default in the payment of the principal of or interest payable on this Note, when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise and such default with respect to the payment of interest shall continue unremedied for two days; (b) the Payor shall fail to observe or perform any covenant or agreement contained in this Note, and such failure shall continue for five business days after Payor receives notice of such failure; (c) any representation, warranty, certification or statement made by or on behalf of the Payor in this Note or in any certificate, writing or other document delivered pursuant hereto shall prove to have been incorrect in any material respect when made; (d) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (A) relief in respect of Payor or of a substantial part of Payor's respective property or assets, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law (any such law, a "Bankruptcy Law"), (B) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for a substantial part of the property or assets of any Payor, (C) the winding up or liquidation of any Payor; and such proceeding or petition shall continue undismissed for 60 days, or an order or decree approving or ordering any of the foregoing shall be entered; (e) the Payor shall (A) voluntarily commence any proceeding or file any petition seeking relief under a Bankruptcy Law, (B) consent to the institution of or the entry of an order for relief against it, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (d), (C) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for a substantial part of the property or assets of the Payor, (D) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (E) make a general assignment for the benefit of creditors, (F) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (G) take any action for the purpose of effecting any of the foregoing; (f) one or more judgments or orders for the payment of money in excess of $250,000 in the aggregate shall be rendered against the Payor and such judgment(s) or order(s) shall continue unsatisfied and unstayed for a period of 30 days; (g) the Payor shall default in the payment of any principal, interest or premium, or any observance or performance of any covenants or agreements, with respect to indebtedness (excluding trade payables and other indebtedness entered into in the ordinary course of business) in excess of $50,000 in the aggregate for borrowed money or any obligation which is the substantive equivalent thereof and such default shall continue for more than the period of grace, if any, or of any such indebtedness or obligation shall be declared due and payable prior to the stated maturity thereof; (h) any material provisions of this Note shall terminate or become void or unenforceable or the Payor shall so assert in writing. Page 20 of 38 Pages 4. Subordination. A. Agreement of Subordination. The Payor covenants and agrees, and the Payee likewise covenants and agrees, that (i) to the extent and in the manner hereinafter set forth in this Section 4, the obligations of the Company to pay the principal of and accrued interest on this Note (the "Obligations") are hereby expressly made subordinate and junior in right of payment to the prior payment in full of all amounts owing to, under the Financing Agreement, dated March 30, 2001, as amended (the "Financing Agreement"), by and between the Payor and Rosenthal & Rosenthal, Inc., a New York Corporation, whether outstanding at the date hereof or hereinafter incurred (such indebtedness being hereinafter referred to as the "Senior Indebtedness"); (ii) the subordination is solely for the benefit of any holders of Senior Indebtedness; and (iii) each holder of Senior Indebtedness whether now outstanding or hereinafter created, incurred, assumed or guaranteed shall be deemed to have extended or acquired such Senior Indebtedness in reliance upon the covenants and provisions contained herein. (b) Subordination Upon Certain Events. Upon the occurrence of any Event of Default under Sections 3(d) or (e) of this Note: (i) Upon any payment or distribution of assets of the Payor to creditors of the Company, holders of Senior Indebtedness shall be entitled to receive indefeasible payment in full of all obligations with respect to the Senior Indebtedness before the holder of this Note shall be entitled to receive any payment in respect of the Obligations. (ii) Until all Senior Indebtedness is paid in full, any distribution to which the Payee would be entitled but for this Section 4 shall be made to holders of Senior Indebtedness, as their interests may appear, except that the Payee may receive securities that are subordinate to the Senior Indebtedness to at least the same extent as this Note. (iii) For purposes of this Section 4, a distribution may consist of cash, securities or other property, by set-off or otherwise. (iv) Notwithstanding the foregoing provisions of this Section 4(b), if payment or delivery by the Company of cash, securities or other property to the Payee is authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of this Note to the Senior Indebtedness, and made by a court of competent jurisdiction in a proceeding under any applicable bankruptcy or reorganization law, payment or delivery by the Company of such cash, securities or other property shall be made to the Payee in accordance with such order or decree. (c) Limitation on Payment. (i) Upon receipt by the Company and the Payee of a Blockage Notice (as defined below), then unless and until (A) all defaults in the payment of any Senior Indebtedness (the "Senior Defaults") that gave rise to the Blockage Notice shall have been remedied or effectively waived or shall have ceased to exist or (B) the Senior Indebtedness in respect of which such Senior Defaults shall have occurred shall have been paid in full or (C) a notice of acceleration of the maturity of such Senior Indebtedness shall have been transmitted to the Company in respect of such Senior Defaults, no direct or indirect payment (in cash, property, securities or by set-off or otherwise) of or on account of the principal of or interest on this Note or in respect of any redemption, retirement, purchase or other acquisition of this Note shall be made during any period prior to the expiration or Page 21 of 38 Pages the Blockage Period (as defined below); provided, however, that in no event shall the foregoing prevent the Payee from converting this Note into shares of Series C Preferred Stock. (ii) For purposes of this Section 4, a "Blockage Notice" is a notice of a Senior Default that in fact has occurred and is continuing, given to the Company and the Payee by any holders of Senior Indebtedness then outstanding (or their authorized agent); provided, however, that no such notice shall be effective as a Blockage Notice if an effective Blockage Notice shall have been given within 360 days prior thereto. (iii) For purposes of this Section 4, a "Blockage Period" with respect to a Blockage Notice is the period commencing upon the Company's receipt of such Blockage Notice and having the duration set forth in the particular agreement establishing the Senior Indebtedness to which the Company is a party; provided, that, such Blockage Period is no more than 90 days. Notwithstanding the foregoing, the Blockage Period shall be inapplicable or cease to be effective if an Event of Default pursuant to Section 3(d) or (e) shall have occurred. In addition, any Blockage Period shall cease to be effective if at any time during such period (i) substantial assets of the Company are sold or otherwise disposed of outside of the ordinary course of business for less than fair value or (ii) payment or any distribution of any character, whether in cash, securities or other property of the Company shall be made to or received by any creditor on any indebtedness which is on the same level of priority with or junior and subordinate in right of payment to this Note. Upon the expiration or termination of any Blockage Period, the Payee shall be entitled to exercise any of its rights with respect to this Note other than any right to accelerate the maturity date of this Note based upon the occurrence of any Event of Default in respect thereto which has been cured or otherwise remedied during the Blockage Period. (d) Payments and Distributions Received. If the Payee shall have received any payment from or distribution of assets of the Company in respect of Obligations in contravention of the terms of this Section 4 before all Senior Indebtedness is paid in full, then and in such event such payment or distribution shall be received and held in trust for and shall be paid over or delivered to the holders of Senior Indebtedness to the extent necessary to pay all such Senior Indebtedness in full. (e) Proofs of Claim. If, while any Senior Indebtedness is outstanding, any Event of Default under Section 3(d) or (e) of this Note occurs, the Payee shall duly and promptly take such action as any holder of Senior Indebtedness may reasonably request to collect any payment with respect to this Note for the account of the holders of the Senior Indebtedness and to file appropriate claims or proofs of claim in respect of this Note. Upon the failure of the Payee to take any such action, each holder of Senior Indebtedness is hereby irrevocably authorized and empowered (in its own name or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution referred to in respect of this Note and to file claims and proofs of claim and take such other action as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Holder with respect to this Note. (f) Subrogation. After all amounts payable under or in respect of Senior Indebtedness are paid in full in cash, the Payee shall be subrogated to the rights of holders of Senior Page 22 of 38 Pages Indebtedness to receive payments or distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Payee have been applied to the payment of Senior Indebtedness. A distribution made under this Section 4 to a holder of Senior Indebtedness which otherwise would have been made to the Payee is not, as between the Company and the Payee, a payment by the Company on Senior Indebtedness. (g) Relative Rights. This Section 4 defines the relative rights of the Payee and the holders of Senior Indebtedness. Nothing in this Section 4 shall (i) impair, as between the Company and the Payee, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest (including Default Interest) on this Note in accordance with its terms; (ii) effect the relative rights of the Payee and creditors of the Company other than holders of Senior Indebtedness; (iii) prevent the Payee from exercising its available remedies upon an Event of Default, subject to the rights, if any, under this Section 4 of holders of Senior Indebtedness or (iv) prevent the Payee from exercising its conversion rights under Section 5. (h) Subordination May Not Be Impaired by the Company. No right of any holder of any Senior Indebtedness to enforce the subordination of the Obligations evidenced by this Note shall be impaired by any failure by the Company or such holder of Senior Indebtedness to act or by the failure of the Company or such holder to comply with this Note. The provisions of this Section 4 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by any holder of Senior Indebtedness as a result of the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. (i) Payments. A payment with respect to principal of or interest on the Obligations shall include, without limitation, payment of principal of and interest on this Note, and any payment on account of mandatory prepayment provisions. (j) Section Not to Prevent Events of Default. The failure to make a payment on account of principal of or interest on or other amounts constituting the Obligations by reason of any provision of this Section 4 shall not be construed as preventing the occurrence of an Event of Default under Section 3. 5. Conversion. (a) Right to Convert. Subject to the terms and conditions of this Section 5, the Payee shall have the right, at its option, at any time and from time to time, to convert all or any portion of the principal amount of this Note and any accrued and unpaid interest thereon (collectively, "Note Obligations") into a number of fully paid and nonassessable shares of the Payor's Series C Convertible Preferred Stock, $.01 par value per share (the "Series C Preferred Stock"), equal to the quotient obtained by dividing the aggregate amount of the Note Obligations to be so converted by the Series C Face Value (as defined in the Certificate of Designations relating to the Series C Preferred Stock). (b) Procedure for Conversion. In order to convert all or any portion of the Note Obligations, the Payee shall (i) surrender this Note, duly endorsed, at the office of the Payor and (ii) simultaneously with such surrender, notify the Payor in writing of its election to convert all or a portion of the Note Obligations, which notice shall specify the amount of principal and interest included in the Note Page 23 of 38 Pages Obligations to be so converted. The date on which the Note is surrendered for conversion is referred to herein as the "Conversion Date." As soon as practicable after the Conversion Date, the Payee shall be entitled to receive a certificate or certificates, registered in such name or names as the Payee may direct, representing the shares of Series C Preferred Stock issuable upon conversion of the applicable Note Obligations, along with a new promissory note, in the same form as this Note, reflecting any Note Obligations that have not been so converted; provided that the Payee shall be treated for all purposes as the record holder of such shares of Series C Preferred Stock as of the Conversion Date. The issuance of shares of Series C Preferred Stock upon conversion of any Note Obligations shall be made without charge to the Payee for any issuance tax in respect thereof, provided that the Payor shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the Payee. (c) Reservation of Shares. Payor shall reserve and keep available solely for issuance upon the conversion of Note Obligations such number of shares of Series C Preferred Stock as will from time to time be sufficient to permit the conversion of all outstanding Note Obligations and such number of shares of Common Stock as will from time to time be sufficient to permit the conversion of all such shares of Series C Preferred Stock (collectively, the "Conversion Securities"), and, if applicable, shall take all action to increase the authorized number of shares of Series C Preferred Stock and/or Common Stock if at any time there shall be insufficient authorized but unissued Series C Preferred Stock and/or Common Stock to permit such reservation or permit the conversion of all outstanding Note Obligations and/or Series C Preferred Stock issuable upon conversion of such Note Obligations. The Payor covenants that all Conversion Securities that shall be so issued shall be duly authorized, validly issued, fully paid and non-assessable by the Payor, not subject to any preemptive rights, and free from any taxes, liens and charges with respect to the issue thereof. The Payor will take all such action as may be necessary to ensure that all such Conversion Securities may be so issued without violation of any applicable law or regulation, or any requirement of any national securities exchange or quotation system upon which the Payor's Common Stock may be listed. 6. Suits for Enforcement. (a) Upon the occurrence of any one or more Events of Default, the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law or by other appropriate proceeding in aid of the exercise of any power granted in this Note, or may proceed to enforce the payment of this Note, or to enforce any other legal or equitable right it may have as a holder of this Note. (b) The holder of this Note may direct the time, method and place of conducting any proceeding for any remedy available to itself. (c) In case of any Event of Default, the Payor will pay to the holder of this Note such amounts as shall be sufficient to cover the reasonable costs and expenses of such holder due to such Event of Default, including without limitation, costs of collection and reasonable fees, disbursements and other charges of counsel incurred in connection with any action in which the holder prevails. 7. Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in accordance with the provisions of the Series C Preferred Stock and Page 24 of 38 Pages Note Purchase Agreement, dated as of the date hereof, by and among the Payor and the investors listed on Schedule 1 thereto. 8. Successors and Assigns. This Note shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. The Payor may not assign any of its rights or obligations under this Note without the prior written consent of Payee. The Payee may assign all or a portion of their rights or obligations under this Note to an affiliate without the prior written consent of the Payor. 9. Amendment and Waiver. (a) No failure or delay on the part of the Payor or Payee in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Payor or Payee at law, in equity or otherwise. (b) Any amendment, supplement or modification of or to any provision of this Note, any waiver of any provision of this Note and any consent to any departure by the Payor from the terms of any provision of this Note, shall be effective (i) only if it is made or given in writing and signed by the Payor and the Payee and (ii) only in the specific instance and for the specific purpose for which made or given. 10. Headings. The headings in this Note are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 11. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 12. Costs and Expenses. The Payor hereby agrees to pay on demand all reasonable out-of-pocket costs, fees, expenses, disbursements and other charges (including but not limited to the fees, expenses, disbursements and other charges of 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 settlement of this Note or the indebtedness arising hereunder. 13. Waiver of Jury Trial and Setoff. The Payor hereby waives trial by jury in any litigation in any court with respect to, in connection with, or arising out of this Note or any instrument or document delivered pursuant to this Note, or the validity, protection, interpretation, collection or enforcement thereof, or any other claim or dispute howsoever arising, between any Payor and the Payee; and the Payor hereby waives the right to interpose any setoff or counterclaim or cross-claim in connection with any such litigation, irrespective of the nature of such setoff, counterclaim or cross-claim except to the extent that the failure so to assert any such setoff, counterclaim or cross-claim would permanently preclude the prosecution of the same. 14. Consent to Jurisdiction. The Payor hereby irrevocably consents to the nonexclusive jurisdiction of the courts of the State of New York and of any federal court located in such Page 25 of 38 Pages State in connection with any action or proceeding arising out of or relating to this Note or any document or instrument delivered pursuant to this Agreement. 15. Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 16. Entire Agreement. This Note is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Note supersedes all prior agreements and understandings between the parties with respect to such subject matter. 17. Further Assurances. The Payor shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any governmental authority or any other Person) as may be reasonably required or desirable to carry out or to perform the provisions of this Note. BLUEFLY, INC. By: ________________________________ Name: Title: EX-99 4 bluefly_13d-15exhkkk.txt CONVERTIBLE DEMAND PROMISSORY NOTE Page 26 of 38 Pages EXHIBIT KKK THE OFFER AND SALE OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE AND ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. CERTIFICATES REPRESENTING ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE SHALL INCLUDE A LEGEND TO SIMILAR EFFECT AS THE FOREGOING. BLUEFLY, INC. CONVERTIBLE DEMAND PROMISSORY NOTE $63,400 New York, New York September 27, 2002 FOR VALUE RECEIVED, the undersigned, BLUEFLY, INC., a Delaware corporation (the "Payor" or the "Company"), promises to pay to the order of SFM Domestic Investments LLC or its registered assign (the "Payee"), upon demand the principal sum of Sixty-Three Thousand, Four Hundred Dollars ($63,400) and interest on the outstanding principal balance as set forth herein. 1. Interest Rate; Payment. (a) The outstanding principal balance of this Convertible Demand Promissory Note (this "Note") shall bear interest at an annual rate equal to 3% per annum, with interest accruing, from and including the date hereof, on a cumulative, compounding basis. Interest shall be computed on the basis of a 365- or 366-day year, as the case may be, and the actual number of days elapsed, and, subject to Section 5, shall be payable only upon repayment of the principal on any Repayment Date (as defined below) in cash. (b) The outstanding balance of any amount owed under this Note which is not paid when due shall bear interest at the rate of 2% per annum (the "Default Interest") above the rate that would otherwise be in effect under this Note with the Default Interest accruing, from and including such due date, on a cumulative, compounding basis. (c) The outstanding principal and all accrued and unpaid interest shall be paid in full no later than March 26, 2003 (the "Maturity Date"), unless repaid earlier pursuant to the provisions of Section 2 (the date of any payment pursuant to Section 2 and the Maturity Date, collectively referred to as a "Repayment Date") or unless converted into shares of Series C Preferred Stock (as defined below) pursuant to Section 5 prior to the Maturity Date. On a Repayment Date, the Payor shall Page 27 of 38 Pages pay the applicable amount of principal and interest in lawful money of the United States of America by wire or bank transfer of immediately available funds to an account designated by the Payee in writing from time to time. 2. Prepayment. (a) Mandatory Prepayment. (i) Upon the occurrence of an Event of Default (under Section 3(d) or (e)), the outstanding principal of and all accrued interest on this Note shall be accelerated and shall automatically become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are expressly waived by the Payor, notwithstanding anything contained herein to the contrary. (ii) The Payee shall, at its sole option, have the right to require the Payor to pay the outstanding principal of and all accrued interest on this Note upon the occurrence of any of the following events: (1) an Event of Default under Section 3(a), (b), (c), (f), (g) or (h), (2) the Company entering into an agreement to effectuate any sale or other disposition of all or substantially all of its assets, in one transaction or in a series of transactions, (3) the Company entering into an agreement to effectuate any consolidation or merger into another entity, or (4) any sale of a majority of the outstanding equity of the Company (or any other event that constitutes a Change of Control (as defined below) of the Company), in one transaction or in a series of transactions. Immediately upon the occurrence of either of the events set forth in clauses (1), (2) or (3) above, or immediately upon obtaining knowledge that any person has entered into an agreement to effectuate the event set forth in clause (4) above, the Company shall give written notice of such event to the Payee. "Change of Control" means any "Person" (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) or "group" (as defined in Rule 13d-5, promulgated under the Exchange Act) other than Payee and its affiliates or any group that includes Payee and/or its affiliates, becoming the beneficial owner (as determined by Rule 13d-3, promulgated under the Exchange Act), directly or indirectly, of outstanding shares of stock of the Company entitling such Person or Persons to exercise 50% or more of the total votes entitled to be cast at a regular or special meeting, or by action by written consent, of the stockholders of the Company in the election of directors. (iii) Any mandatory prepayment under this Section 2(a) shall include payment of reasonable costs and expenses, if any, of the Payee associated with such prepayment. (b) Optional Prepayment. The Company may, at its option, without premium or penalty, upon five (5) days' prior written notice to the Payee, repay the unpaid principal amount of this Note, at any time in whole or from time to time in part, together with interest accrued thereon to the date of prepayment. Any such prepayment shall be applied first to the payment of accrued interest and then to repayment of principal. Upon any partial prepayment of the unpaid principal amount of this Note, the Holder shall make notation on this Note of the portion of the principal so prepaid. No notice of prepayment shall in any way prohibit the Payee from converting this Note pursuant to Section 5. 3. Events of Default. An "Event of Default" shall occur if: (a) the Payor shall default in the payment of the principal of or interest payable on this Note, when and as the same shall become due and payable, whether at maturity or at a Page 28 of 38 Pages 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 Note, and such failure shall continue for five business days after Payor receives notice of such failure; (c) any representation, warranty, certification or statement made by or on behalf of the Payor in this Note or in any certificate, writing or other document delivered pursuant hereto shall prove to have been incorrect in any material respect when made; (d) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (A) relief in respect of Payor or of a substantial part of Payor's respective property or assets, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law (any such law, a "Bankruptcy Law"), (B) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for a substantial part of the property or assets of any Payor, (C) the winding up or liquidation of any Payor; and such proceeding or petition shall continue undismissed for 60 days, or an order or decree approving or ordering any of the foregoing shall be entered; (e) the Payor shall (A) voluntarily commence any proceeding or file any petition seeking relief under a Bankruptcy Law, (B) consent to the institution of or the entry of an order for relief against it, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (d), (C) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for a substantial part of the property or assets of the Payor, (D) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (E) make a general assignment for the benefit of creditors, (F) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (G) take any action for the purpose of effecting any of the foregoing; (f) one or more judgments or orders for the payment of money in excess of $250,000 in the aggregate shall be rendered against the Payor and such judgment(s) or order(s) shall continue unsatisfied and unstayed for a period of 30 days; (g) the Payor shall default in the payment of any principal, interest or premium, or any observance or performance of any covenants or agreements, with respect to indebtedness (excluding trade payables and other indebtedness entered into in the ordinary course of business) in excess of $50,000 in the aggregate for borrowed money or any obligation which is the substantive equivalent thereof and such default shall continue for more than the period of grace, if any, or of any such indebtedness or obligation shall be declared due and payable prior to the stated maturity thereof; (h) any material provisions of this Note shall terminate or become void or unenforceable or the Payor shall so assert in writing. 4. Subordination. A. Agreement of Subordination. The Payor covenants and agrees, and the Payee likewise covenants and agrees, that (i) to the extent and in the manner hereinafter set forth in this Page 29 of 38 Pages Section 4, the obligations of the Company to pay the principal of and accrued interest on this Note (the "Obligations") are hereby expressly made subordinate and junior in right of payment to the prior payment in full of all amounts owing to, under the Financing Agreement, dated March 30, 2001, as amended (the "Financing Agreement"), by and between the Payor and Rosenthal & Rosenthal, Inc., a New York Corporation, whether outstanding at the date hereof or hereinafter incurred (such indebtedness being hereinafter referred to as the "Senior Indebtedness"); (ii) the subordination is solely for the benefit of any holders of Senior Indebtedness; and (iii) each holder of Senior Indebtedness whether now outstanding or hereinafter created, incurred, assumed or guaranteed shall be deemed to have extended or acquired such Senior Indebtedness in reliance upon the covenants and provisions contained herein. (b) Subordination Upon Certain Events. Upon the occurrence of any Event of Default under Sections 3(d) or (e) of this Note: (i) Upon any payment or distribution of assets of the Payor to creditors of the Company, holders of Senior Indebtedness shall be entitled to receive indefeasible payment in full of all obligations with respect to the Senior Indebtedness before the holder of this Note shall be entitled to receive any payment in respect of the Obligations. (ii) Until all Senior Indebtedness is paid in full, any distribution to which the Payee would be entitled but for this Section 4 shall be made to holders of Senior Indebtedness, as their interests may appear, except that the Payee may receive securities that are subordinate to the Senior Indebtedness to at least the same extent as this Note. (iii) For purposes of this Section 4, a distribution may consist of cash, securities or other property, by set-off or otherwise. (iv) Notwithstanding the foregoing provisions of this Section 4(b), if payment or delivery by the Company of cash, securities or other property to the Payee is authorized by an order or decree giving effect, and stating in such order or decree that effect is given, to the subordination of this Note to the Senior Indebtedness, and made by a court of competent jurisdiction in a proceeding under any applicable bankruptcy or reorganization law, payment or delivery by the Company of such cash, securities or other property shall be made to the Payee in accordance with such order or decree. (c) Limitation on Payment. (i) Upon receipt by the Company and the Payee of a Blockage Notice (as defined below), then unless and until (A) all defaults in the payment of any Senior Indebtedness (the "Senior Defaults") that gave rise to the Blockage Notice shall have been remedied or effectively waived or shall have ceased to exist or (B) the Senior Indebtedness in respect of which such Senior Defaults shall have occurred shall have been paid in full or (C) a notice of acceleration of the maturity of such Senior Indebtedness shall have been transmitted to the Company in respect of such Senior Defaults, no direct or indirect payment (in cash, property, securities or by set-off or otherwise) of or on account of the principal of or interest on this Note or in respect of any redemption, retirement, purchase or other acquisition of this Note shall be made during any period prior to the expiration of the Blockage Period (as defined below); provided, however, that in no event shall the foregoing prevent the Payee from converting this Note into shares of Series C Preferred Stock. Page 30 of 38 Pages (ii) For purposes of this Section 4, a "Blockage Notice" is a notice of a Senior Default that in fact has occurred and is continuing, given to the Company and the Payee by any holders of Senior Indebtedness then outstanding (or their authorized agent); provided, however, that no such notice shall be effective as a Blockage Notice if an effective Blockage Notice shall have been given within 360 days prior thereto. (iii) For purposes of this Section 4, a "Blockage Period" with respect to a Blockage Notice is the period commencing upon the Company's receipt of such Blockage Notice and having the duration set forth in the particular agreement establishing the Senior Indebtedness to which the Company is a party; provided, that, such Blockage Period is no more than 90 days. Notwithstanding the foregoing, the Blockage Period shall be inapplicable or cease to be effective if an Event of Default pursuant to Section 3(d) or (e) shall have occurred. In addition, any Blockage Period shall cease to be effective if at any time during such period (i) substantial assets of the Company are sold or otherwise disposed of outside of the ordinary course of business for less than fair value or (ii) payment or any distribution of any character, whether in cash, securities or other property of the Company shall be made to or received by any creditor on any indebtedness which is on the same level of priority with or junior and subordinate in right of payment to this Note. Upon the expiration or termination of any Blockage Period, the Payee shall be entitled to exercise any of its rights with respect to this Note other than any right to accelerate the maturity date of this Note based upon the occurrence of any Event of Default in respect thereto which has been cured or otherwise remedied during the Blockage Period. (d) Payments and Distributions Received. If the Payee shall have received any payment from or distribution of assets of the Company in respect of Obligations in contravention of the terms of this Section 4 before all Senior Indebtedness is paid in full, then and in such event such payment or distribution shall be received and held in trust for and shall be paid over or delivered to the holders of Senior Indebtedness to the extent necessary to pay all such Senior Indebtedness in full. (e) Proofs of Claim. If, while any Senior Indebtedness is outstanding, any Event of Default under Section 3(d) or (e) of this Note occurs, the Payee shall duly and promptly take such action as any holder of Senior Indebtedness may reasonably request to collect any payment with respect to this Note for the account of the holders of the Senior Indebtedness and to file appropriate claims or proofs of claim in respect of this Note. Upon the failure of the Payee to take any such action, each holder of Senior Indebtedness is hereby irrevocably authorized and empowered (in its own name or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution referred to in respect of this Note and to file claims and proofs of claim and take such other action as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Holder with respect to this Note. (f) Subrogation. After all amounts payable under or in respect of Senior Indebtedness are paid in full in cash, the Payee shall be subrogated to the rights of holders of Senior Indebtedness to receive payments or distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Payee have been applied to the payment of Senior Indebtedness. A distribution made under this Section 4 to a holder of Senior Indebtedness which otherwise would have Page 31 of 38 Pages been made to the Payee is not, as between the Company and the Payee, a payment by the Company on Senior Indebtedness. (g) Relative Rights. This Section 4 defines the relative rights of the Payee and the holders of Senior Indebtedness. Nothing in this Section 4 shall (i) impair, as between the Company and the Payee, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest (including Default Interest) on this Note in accordance with its terms; (ii) effect the relative rights of the Payee and creditors of the Company other than holders of Senior Indebtedness; (iii) prevent the Payee from exercising its available remedies upon an Event of Default, subject to the rights, if any, under this Section 4 of holders of Senior Indebtedness or (iv) prevent the Payee from exercising its conversion rights under Section 5. (h) Subordination May Not Be Impaired by the Company. No right of any holder of any Senior Indebtedness to enforce the subordination of the Obligations evidenced by this Note shall be impaired by any failure by the Company or such holder of Senior Indebtedness to act or by the failure of the Company or such holder to comply with this Note. The provisions of this Section 4 shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by any holder of Senior Indebtedness as a result of the insolvency, bankruptcy or reorganization of the Company or otherwise, all as though such payment had not been made. (i) Payments. A payment with respect to principal of or interest on the Obligations shall include, without limitation, payment of principal of and interest on this Note, and any payment on account of mandatory prepayment provisions. (j) Section Not to Prevent Events of Default. The failure to make a payment on account of principal of or interest on or other amounts constituting the Obligations by reason of any provision of this Section 4 shall not be construed as preventing the occurrence of an Event of Default under Section 3. 5. Conversion. (a) Right to Convert. Subject to the terms and conditions of this Section 5, the Payee shall have the right, at its option, at any time and from time to time, to convert all or any portion of the principal amount of this Note and any accrued and unpaid interest thereon (collectively, "Note Obligations") into a number of fully paid and nonassessable shares of the Payor's Series C Convertible Preferred Stock, $.01 par value per share (the "Series C Preferred Stock"), equal to the quotient obtained by dividing the aggregate amount of the Note Obligations to be so converted by the Series C Face Value (as defined in the Certificate of Designations relating to the Series C Preferred Stock). (b) Procedure for Conversion. In order to convert all or any portion of the Note Obligations, the Payee shall (i) surrender this Note, duly endorsed, at the office of the Payor and (ii) simultaneously with such surrender, notify the Payor in writing of its election to convert all or a portion of the Note Obligations, which notice shall specify the amount of principal and interest included in the Note Obligations to be so converted. The date on which the Note is surrendered for conversion is referred to herein as the "Conversion Date." As soon as practicable after the Conversion Date, the Payee shall be entitled to receive a certificate or certificates, registered in such name or names as the Payee may direct, Page 32 of 38 Pages representing the shares of Series C Preferred Stock issuable upon conversion of the applicable Note Obligations, along with a new promissory note, in the same form as this Note, reflecting any Note Obligations that have not been so converted; provided that the Payee shall be treated for all purposes as the record holder of such shares of Series C Preferred Stock as of the Conversion Date. The issuance of shares of Series C Preferred Stock upon conversion of any Note Obligations shall be made without charge to the Payee for any issuance tax in respect thereof, provided that the Payor shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the Payee. (c) Reservation of Shares. Payor shall reserve and keep available solely for issuance upon the conversion of Note Obligations such number of shares of Series C Preferred Stock as will from time to time be sufficient to permit the conversion of all outstanding Note Obligations and such number of shares of Common Stock as will from time to time be sufficient to permit the conversion of all such shares of Series C Preferred Stock (collectively, the "Conversion Securities"), and, if applicable, shall take all action to increase the authorized number of shares of Series C Preferred Stock and/or Common Stock if at any time there shall be insufficient authorized but unissued Series C Preferred Stock and/or Common Stock to permit such reservation or permit the conversion of all outstanding Note Obligations and/or Series C Preferred Stock issuable upon conversion of such Note Obligations. The Payor covenants that all Conversion Securities that shall be so issued shall be duly authorized, validly issued, fully paid and non-assessable by the Payor, not subject to any preemptive rights, and free from any taxes, liens and charges with respect to the issue thereof. The Payor will take all such action as may be necessary to ensure that all such Conversion Securities may be so issued without violation of any applicable law or regulation, or any requirement of any national securities exchange or quotation system upon which the Payor's Common Stock may be listed. 6. Suits for Enforcement. (a) Upon the occurrence of any one or more Events of Default, the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law or by other appropriate proceeding in aid of the exercise of any power granted in this Note, or may proceed to enforce the payment of this Note, or to enforce any other legal or equitable right it may have as a holder of this Note. (b) The holder of this Note may direct the time, method and place of conducting any proceeding for any remedy available to itself. (c) In case of any Event of Default, the Payor will pay to the holder of this Note such amounts as shall be sufficient to cover the reasonable costs and expenses of such holder due to such Event of Default, including without limitation, costs of collection and reasonable fees, disbursements and other charges of counsel incurred in connection with any action in which the holder prevails. 7. Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in accordance with the provisions of the Series C Preferred Stock and Note Purchase Agreement, dated as of the date hereof, by and among the Payor and the investors listed on Schedule 1 thereto. Page 33 of 38 Pages 8. Successors and Assigns. This Note shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. The Payor may not assign any of its rights or obligations under this Note without the prior written consent of Payee. The Payee may assign all or a portion of their rights or obligations under this Note to an affiliate without the prior written consent of the Payor. 9. Amendment and Waiver. (a) No failure or delay on the part of the Payor or Payee in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Payor or Payee at law, in equity or otherwise. (b) Any amendment, supplement or modification of or to any provision of this Note, any waiver of any provision of this Note and any consent to any departure by the Payor from the terms of any provision of this Note, shall be effective (i) only if it is made or given in writing and signed by the Payor and the Payee and (ii) only in the specific instance and for the specific purpose for which made or given. 10. Headings. The headings in this Note are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 11. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 12. Costs and Expenses. The Payor hereby agrees to pay on demand all reasonable out-of-pocket costs, fees, expenses, disbursements and other charges (including but not limited to the fees, expenses, disbursements and other charges of 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 settlement of this Note or the indebtedness arising hereunder. 13. Waiver of Jury Trial and Setoff. The Payor hereby waives trial by jury in any litigation in any court with respect to, in connection with, or arising out of this Note or any instrument or document delivered pursuant to this Note, or the validity, protection, interpretation, collection or enforcement thereof, or any other claim or dispute howsoever arising, between any Payor and the Payee; and the Payor hereby waives the right to interpose any setoff or counterclaim or cross-claim in connection with any such litigation, irrespective of the nature of such setoff, counterclaim or cross-claim except to the extent that the failure so to assert any such setoff, counterclaim or cross-claim would permanently preclude the prosecution of the same. 14. Consent to Jurisdiction. The Payor hereby irrevocably consents to the nonexclusive jurisdiction of the courts of the State of New York and of any federal court located in such State in connection with any action or proceeding arising out of or relating to this Note or any document or instrument delivered pursuant to this Agreement. Page 34 of 38 Pages 15. Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 16. Entire Agreement. This Note is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Note supersedes all prior agreements and understandings between the parties with respect to such subject matter. 17. Further Assurances. The Payor shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any governmental authority or any other Person) as may be reasonably required or desirable to carry out or to perform the provisions of this Note. BLUEFLY, INC. By: ________________________________ Name: Title: EX-99 5 bluefly_13d-15exhmmm.txt WAIVER AND CONSENT OF THE HOLDERS Page 35 of 38 Pages EXHIBIT MMM WAIVER AND CONSENT OF THE HOLDERS OF SERIES A CONVERTIBLE PREFERRED STOCK, SERIES B CONVERTIBLE PREFERRED STOCK AND SERIES 2002 CONVERTIBLE PREFERRED STOCK OF BLUEFLY, INC. The undersigned, constituting the holders of all of the issued and outstanding shares of the Series A Convertible Preferred Stock (the "Series A Preferred Stock"), the Series B Convertible Preferred Stock (the "Series B Preferred Stock") and the Series 2002 Convertible Preferred Stock (the "Series 2002 Preferred Stock") of Bluefly, Inc., a Delaware corporation (the "Corporation"), hereby covenant and agree as follows and adopt the following resolutions pursuant to Section 228 of the General Corporation Law of the State of Delaware in lieu of holding meetings of the holders of Series A Preferred Stock (the "Series A Preferred Stockholders"), the holders of Series B Preferred Stock (the "Series B Preferred Stockholders") and the holders of the Series 2002 Preferred Stock (the "Series 2002 Preferred Stockholders"), and direct that this waiver and consent be filed with the minutes of the Corporation: WHEREAS, the Corporation desires to issue and sell to Quantum Industrial Partners LDC and SFM Domestic Investments LLC (collectively, the "Investors"), pursuant to a Series C Preferred Stock and Note Purchase Agreement substantially in the form attached hereto as Exhibit A (the "Series C Preferred Stock and Note Purchase Agreement"): (a) for an aggregate purchase price of $1,000,000, an aggregate of 1,000 shares (the "Series C Shares") of newly-designated Series C Convertible Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock"), having the rights and preferences set forth in the Certificate of Designations of Series C Preferred Stock attached hereto as Exhibit B; and (b) for an aggregate purchase price of $2,000,000, convertible demand promissory notes, in the form attached as Exhibit A to the Series C Preferred Stock and Note Purchase Agreement, in the aggregate principal amount of $2,000,000 (the "Notes," and, together with the Series C Shares, the "Securities"); WHEREAS, Sections 5.5.1 and 5.6.1 of the Corporation's certificate of incorporation (the "Certificate of Incorporation") provide that, without the approval of the holders of a majority of each of the Series A Preferred Stock and Series B Preferred Stock, voting separately as a class, the Corporation shall not, among other things, issue or sell securities of the Corporation or incur indebtedness in excess of $1,000,000; WHEREAS, Section 5.11 of the Certificate of Incorporation provides certain preemptive rights to the Series A Preferred Stockholders and Series B Preferred Stockholders with respect to certain proposed issuances of securities of the Corporation; WHEREAS, Section 7 of the Certificate of Designations relating to the Series 2002 Preferred Stock (the "Series 2002 Certificate of Designations") provides that, without the prior approval of the holders of a majority of the shares of the Series 2002 Preferred Stock, the Corporation shall not designate Page 36 of 38 Pages or issue any shares of capital stock of the Corporation, or any rights, warrants or options exchangeable for or convertible into capital stock of the Corporation, ranking pari passu with or senior to the Series 2002 Preferred Stock in the event of a liquidation, dissolution or winding up of the Corporation, and the Series C Preferred Stock would rank pari passu with the Series 2002 Preferred Stock with respect to such matters; WHEREAS, the issuance of the Series C Preferred Stock will result in an adjustment to the Series B Conversion Price (as defined in the Certificate of Incorporation) pursuant to Section 5.8.6 of the Certificate of Incorporation (the "Series B Adjustment"); WHEREAS, Section 5.8.9 of the Certificate of Incorporation prohibits the Corporation from taking any action that results in any adjustment to the Series B Conversion Price if the total number of shares of Common Stock (as defined in the Certificate of Incorporation) issued and issuable after such action upon conversion of the Convertible Preferred Stock (as defined in the Certificate of Incorporation) would exceed the total number of shares of Common Stock then authorized by the Certificate of Incorporation (the "Stock Reservation Provision"), and following the Series B Adjustment, the total number of shares of Common Stock issued and issuable upon conversion of the Convertible Preferred Stock would exceed the total number of shares of Common Stock currently authorized by the Certificate of Incorporation; WHEREAS, the Board of Directors of the Corporation has approved an amendment to the Certificate of Incorporation that would increase the total number of shares of Common Stock authorized for issuance to 92,000,000 (the "Increase in Authorized Capital"), and has directed that the Increase in Authorized Capital be submitted to the Corporation's stockholders for their approval; WHEREAS, following the Increase in Authorized Capital, the total number of shares of Common Stock authorized by the Certificate of Incorporation would exceed the total number of shares of Common Stock issued and issuable upon conversion of the Convertible Preferred Stock (taking into account the issuance of the Securities and the Series B Adjustment); and WHEREAS, pursuant to Section 5 of the Series 2002 Certificate of Designations, the Series 2002 Preferred Stockholders have the right to convert their shares of Series 2002 Preferred Stock into Series C Preferred Stock. NOW, THEREFORE, BE IT: RESOLVED, that (1) the designation of the Series C Preferred Stock, (2) the issuance and sale to the Investors, pursuant to the Series C Preferred Stock and Note Purchase Agreement, of the Securities, (3) the issuance of shares of Series C Preferred Stock upon the conversion of the Notes and (4) the issuance of shares of Common Stock upon the conversion of any shares of Series C Preferred Stock are each hereby approved in all respects; and it is further Page 37 of 38 Pages RESOLVED, that the preemptive rights granted to the Series A Preferred Stockholders and Series B Preferred Stockholders pursuant to Section 5.11 of the Certificate of Incorporation are hereby waived with respect to (1) the issuance and sale of the Securities to the Investors pursuant to the Series C Preferred Stock and Note Purchase Agreement, (2) the issuance of shares of Series C Preferred Stock upon the conversion of the Notes, and (3) the issuance of shares of Common Stock upon the conversion of any shares of Series C Preferred Stock; and it is further RESOLVED, that the Series B Preferred Stockholders hereby waive any breach of the Stock Reservation Provision resulting from the issuance and sale of the Securities and the Series B Adjustment, and agree not to convert any shares of Series B Preferred Stock to the extent that, after giving effect to such conversion, the total number of shares of Common Stock issued from and after the date hereof as a result of the conversion of shares of Series B Preferred Stock would exceed 13,281,038 (subject to adjustment for any stock split, stock dividend, reclassification or similar transaction) until the Increase in Authorized Capital has been approved by the Corporation's stockholders; and it is further RESOLVED, that the Series 2002 Preferred Stockholders hereby waive their rights to convert the Series 2002 Preferred Stock into Series C Preferred Stock in connection with the issuance and sale of the Series C Shares; and it is further RESOLVED, that this waiver and consent may be executed in one or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall be deemed one and the same instrument. [Remainder of Page Intentionally Left Blank] Page 38 of 38 Pages IN WITNESS WHEREOF, the undersigned have caused this waiver and consent to be executed as of this 27th day of September 2002. QUANTUM INDUSTRIAL PARTNERS LDC By: ____________________________ Name: Title: SFM DOMESTIC INVESTMENTS LLC By: ____________________________ Name: Title: PILOT DOMESTIC TRUST By: ____________________________ Name: Title: THE LYNCH FOUNDATION By: ____________________________ Name: Title: ________________________________ Peter Lynch ________________________________ Carolyn Lynch -----END PRIVACY-ENHANCED MESSAGE-----