EXHIBIT 99.2
SERIES C PREFERRED STOCK AND NOTE PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK AND NOTE PURCHASE AGREEMENT, dated as of
September 27, 2002 (this "Agreement"), is entered into by and between BLUEFLY,
INC., a Delaware corporation (the "Company"), and the investors listed on
Schedule 1 hereto (each, an "Investor" and, collectively, the "Investors").
RECITALS
WHEREAS, the Investors desire to purchase from the Company, and the
Company desires to issue and sell to the Investors, (a) one thousand (1,000)
shares (the "Shares") of Series C Convertible Preferred Stock, par value $.01
per share (the "Series C Preferred Stock"), of the Company and (b) convertible
demand promissory notes in the aggregate principal amount of two million dollars
($2,000,000), in the form attached hereto as Exhibit A (the "Notes," and,
together with the Shares, the "Securities"), on the terms, and subject to the
conditions, contained herein.
AGREEMENT
NOW, THEREFORE, in consideration for the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
SECTION 1.1 Shares. Subject to the terms and conditions hereof, the Company
hereby issues and sells to the Investors, and each Investor hereby purchases
from the Company, the number of Shares set forth opposite such Investor's name
in Schedule 1, for a purchase price of one thousand dollars ($1,000) per share,
resulting in an aggregate purchase price for all Shares sold pursuant to the
terms hereof of One Million Dollars ($1,000,000).
SECTION 1.2 Notes. Subject to the terms and conditions hereof, the Company
hereby issues and sells to the Investors, and each Investor hereby purchases
from the Company, a Note in the aggregate principal amount set forth opposite
such Investor's name in Schedule 1. The purchase price for each Note shall be
equal to its aggregate principal amount.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors as follows:
SECTION 2.1 Organization, etc. The Company and its Subsidiary (as defined
in Section 2.4(b)) have each been duly formed, and are each validly existing as
a corporation in good standing under the laws of their respective States of
incorporation, and are each qualified to do business as a foreign corporation in
each jurisdiction in which the failure to be so qualified could reasonably be
expected to have a material adverse effect on the assets, liabilities, condition
(financial or other), business or results of operations of the Company and its
Subsidiary taken as a whole (a "Material Adverse Effect"). The Company and its
Subsidiary each have the requisite corporate power and authority to own, lease
and operate their respective properties and to conduct their respective
businesses as presently conducted. The Company has the requisite corporate power
and authority to enter into, execute, deliver and perform all of its duties and
obligations under this Agreement and to consummate the transactions contemplated
hereby.
SECTION 2.2 Authorization. The execution, delivery and performance of this
Agreement and the issuance of the Securities have been duly authorized by all
necessary corporate action on the part of the Company, including, without
limitation, the due authorization by the affirmative votes of a majority of the
disinterested directors of the Company's Board of Directors.
SECTION 2.3 Validity; Enforceability. This Agreement and the Notes have
each been duly executed and delivered by the Company, and constitute the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by, or subject to, any bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and subject to general principles of equity.
SECTION 2.4 Capitalization.
(a) As of the date hereof, the authorized capital stock of the Company
consists of 40,000,000 shares of common stock, $0.01 par value per share
(the "Common Stock"), and 25,000,000 shares of preferred stock, $0.01 par
value per share, of which 500,000 shares have been designated Series A
Convertible Preferred Stock, 9,000,000 shares have been designated Series B
Convertible Preferred Stock, 2,100 shares have been designated Series 2002
Convertible Preferred Stock and 3,500 shares have been designated Series C
Convertible Preferred Stock. Without giving effect to the transactions
contemplated by this Agreement, the issued and outstanding capital stock of
the Company consists of (i) 10,391,904 shares of Common Stock, (ii) 500,000
shares of Series A Convertible Preferred Stock, (iii) 8,910,782 shares of
Series B Convertible Preferred Stock and (iv) 2,100 shares of Series 2002
Convertible Preferred Stock. All such shares of the Company have been duly
authorized and are fully paid and non-assessable. Except as set forth on
Schedule 2.4 hereto or as otherwise contemplated by this Agreement, there
are no outstanding options, warrants or other equity securities that are
convertible into, or exercisable for, shares of the Company's capital
stock.
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(b) The only Subsidiary of the Company is Clothesline Corporation. The
Company owns all of the issued and outstanding capital stock of its
Subsidiary, free and clear of all liens and encumbrances. All of such
shares of capital stock are duly authorized, validly issued, fully paid and
non-assessable, and were issued in compliance with the registration and
qualification requirements of all applicable federal, state and foreign
securities laws. There are no options, warrants, conversion privileges,
subscription or purchase rights or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued, unauthorized or
treasury shares of capital stock or other securities of, or any proprietary
interest in, the Company's Subsidiary, and there is no outstanding security
of any kind convertible into or exchangeable for such shares or proprietary
interest. "Subsidiary" means, with respect to the Company, a corporation or
other entity of which 50% or more of the voting power of the outstanding
voting equity securities or 50% or more of the outstanding economic equity
interest is held, directly or indirectly, by the Company.
SECTION 2.5 Governmental Consents. The execution and delivery by the
Company of this Agreement, and the performance by the Company of the
transactions contemplated hereby, do not and will not require the Company to
effectuate or obtain any registration with, consent or approval of, or notice to
any federal, state or other governmental authority or regulatory body, other
than periodic and other filings under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and listing applications and/or notifications to
The Nasdaq SmallCap Market and The Boston Stock Exchange with respect to the
issuance of the Shares and/or the shares of Common Stock issuable upon
conversion of the Shares. The parties hereto agree and acknowledge that, in
making the representations and warranties in the foregoing sentence of this
Section 2.5, the Company is relying on the representations and warranties made
by the Investors in Section 3.4.
SECTION 2.6 No Violation. The execution and delivery of this Agreement and
the performance by the Company of the transactions contemplated hereby will not
(i) conflict with or result in a breach of any provision of the articles of
incorporation or by-laws of the Company, (ii) result in a default or breach of,
or, except for the approval of the holders of the Company's Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock and the Series 2002
Convertible Preferred Stock, require any consent, approval, authorization or
permit of, or filing or notification to, any person, company or entity under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
loan, factoring arrangement, license, agreement, lease or other instrument or
obligation to which the Company or its Subsidiary is a party or by which the
Company or its Subsidiary or any of their respective assets may be bound or
(iii) violate any law, judgment, order, writ, injunction, decree, statute, rule
or regulation of any court, administrative agency, bureau, board, commission,
office, authority, department or other governmental entity applicable to the
Company or its Subsidiary, except, in the case of clause (ii) or (iii) above,
any such event that could not reasonably be expected to have a Material Adverse
Effect or materially impair the transactions contemplated hereby.
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SECTION 2.7 Issuances of Securities. The Securities have been validly
issued, and, upon payment therefor, will be fully paid and non-assessable. The
offering, issuance, sale and delivery of the Securities as contemplated by this
Agreement are exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act"), are being made
in compliance with all applicable federal and (except for any violation or
non-compliance that could not reasonably be expected to have a Material Adverse
Effect) state laws and regulations concerning the offer, issuance and sale of
securities, and are not being issued in violation of any preemptive or other
rights of any stockholder of the Company. The parties hereto agree and
acknowledge that, in making the representations and warranties in the foregoing
sentence of this Section 2.7, the Company is relying on the representations and
warranties made by the Investors in Section 3.4.
SECTION 2.8 Absence of Certain Developments. Since December 31, 2001, there
has not been any: (i) material adverse change in the condition, financial or
otherwise, of the Company and its Subsidiary (taken as a whole) or in the
assets, liabilities, properties or business of the Company and its Subsidiary
(taken as a whole); (ii) declaration, setting aside or payment of any dividend
or other distribution with respect to, or any direct or indirect redemption or
acquisition of, any capital stock of the Company; (iii) waiver of any valuable
right of the Company or its Subsidiary or cancellation of any material debt or
claim held by the Company or its Subsidiary; (iv) material loss, destruction or
damage to any property of the Company or its Subsidiary, whether or not insured;
(v) acquisition or disposition of any material assets (or any contract or
arrangement therefor) or any other material transaction by the Company or its
Subsidiary otherwise than for fair value in the ordinary course of business
consistent with past practice; or (vi) other agreement or understanding, whether
in writing or otherwise, for the Company or its Subsidiary to take any action of
the type, or any action that would result in an event of the type, specified in
clauses (i) through (v).
SECTION 2.9 Commission Filings. The Company has filed all required forms,
reports and other documents with the Securities and Exchange Commission (the
"Commission") for periods from and after January 1, 2001 (collectively, the
"Commission Filings"), each of which has complied in all material respects with
all applicable requirements of the Securities Act and/or the Exchange Act (as
applicable). The Company has heretofore made available to the Investors all of
the Commission Filings, including the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 and the Company's Quarterly Reports on Form
10-Q for the quarterly periods ended March 31, 2002 and June 30, 2002. As of
their respective dates, the Commission Filings did not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements of the Company included or
incorporated by reference in such Commission Filings have been prepared in
accordance with generally accepted accounting principles, consistently applied
("GAAP") (except as may be indicated in the notes thereto or, in the case of the
unaudited consolidated statements, as permitted by Form 10-Q), complied as of
their respective dates in all material respects with applicable accounting
requirements and the published rules and
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regulations of the Commission with respect thereto, and fairly present, in all
material respects, the consolidated financial position of the Company and its
Subsidiary as of the dates thereof and the results of operations for the periods
then ended (subject, in the case of any unaudited consolidated interim financial
statements, to the absence of footnotes required by GAAP and normal year-end
adjustments).
SECTION 2.10 Brokers. Neither the Company, nor any of its officers,
directors or employees, has employed any broker or finder, or incurred any
liability for any brokerage fees, commissions, finder's or other similar fees or
expenses in connection with the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each Investor represents and warrants to the Company, severally but not
jointly, as follows:
SECTION 3.1 Organization, etc. Such Investor has been duly formed and is
validly existing and in good standing under the laws of its jurisdiction of
organization. Such Investor has the requisite organizational power and authority
to enter into, execute, deliver and perform all of its duties and obligations
under this Agreement and to consummate the transactions contemplated hereby.
SECTION 3.2 Authority. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary organizational or other
action on the part of such Investor.
SECTION 3.3 Validity; Enforceability. This Agreement has been duly executed
and delivered by such Investor, and constitutes the legal, valid and binding
obligation of such Investor, enforceable against such Investor in accordance
with its terms, except as such enforceability may be limited by, or subject to,
any bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and subject to general principles
of equity.
SECTION 3.4 Investment Representations.
(a) Such Investor acknowledges that the offer and sale of the
Securities to such Investor have not been registered under the Securities
Act, or the securities laws of any state or regulatory body, are being
offered and sold in reliance upon exemptions from the registration
requirements of the Securities Act and such laws and may not be transferred
or resold without registration under such laws unless an exemption is
available. The certificates representing the Shares will be imprinted with
a legend in substantially the following form:
"THE OFFER AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
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ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT AND UNDER ANY APPLICABLE STATE SECURITIES
LAWS UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY, AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND STATE SECURITIES LAWS IS AVAILABLE."
(b) Such Investor is acquiring the Securities for investment, and not
with a view to the resale or distribution thereof, and is acquiring such
securities for its own account.
(c) Such Investor is an "accredited investor" (as that term is defined
in Rule 501 of Regulation D promulgated under the Securities Act), is
sophisticated in financial matters and is familiar with the business of the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own
interests. Such Investor has had the opportunity to investigate on its own
the Company's business, management and financial affairs and has had the
opportunity to review the Company's operations and facilities and to ask
questions and obtain whatever other information concerning the Company as
such Investor has deemed relevant in making its investment decision.
(d) Such Investor is in compliance with the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001. Neither such Investor, nor any of its principal
owners, partners, members, directors or officers is included on: (i) the
Office of Foreign Assets Control list of foreign nations, organizations and
individuals subject to economic and trade sanctions, based on U.S. foreign
policy and national security goals; (ii) Executive Order 13224, which sets
forth a list of individuals and groups with whom U.S. persons are
prohibited from doing business because such persons have been identified as
terrorists or persons who support terrorism or (iii) any other watch list
issued by any governmental authority, including the Commission.
(e) No representations or warranties have been made to such Investor
by the Company or any director, officer, employee, agent or affiliate of
the Company, other than the representations and warranties of the Company
set forth herein, and the decision of such Investor to purchase the
Securities is based on the information contained herein, the Commission
Filings and such Investor's own independent investigation of the Company.
SECTION 3.5 Governmental Consents. The execution and delivery by such
Investor of this Agreement, and the performance by such Investor of the
transactions contemplated hereby, do not and will not require such Investor to
effectuate or obtain any registration with, consent or approval
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of, or notice to any federal state or other governmental authority or regulatory
body, except for the filing with the Commission of a Form 4 and an amendment to
such Investor's Schedule 13D under the Exchange Act with respect to its
acquisition of the Securities.
SECTION 3.6 No Violation. The execution and delivery of this Agreement and
the performance by such Investor of the transactions contemplated hereby, will
not (i) conflict with or result in a breach of any provision of the articles of
incorporation, by-laws or similar organizational documents of such Investor or
(ii) violate any law, judgment, order, writ, injunction, decree, statute, rule
or regulation of any court, administrative agency, bureau, board, commission,
office, authority, department or other governmental entity applicable to such
Investor, except, in the case of clause (ii) above, any such violation that
could not reasonably be expected to materially impair the transactions
contemplated hereby.
SECTION 3.7 Brokers. Neither such Investor, nor any of its officers,
directors or employees, has employed any broker or finder, or incurred any
liability for any brokerage fees, commissions, finder's or other similar fees or
expenses in connection with the transactions contemplated hereby.
ARTICLE IV
SURVIVAL; INDEMNIFICATION
SECTION 4.1 Survival. The representations and warranties contained in
Articles II and III hereof shall survive until the first anniversary of the date
hereof.
SECTION 4.2 Indemnification. Each party (including its officers, directors,
employees, affiliates, agents, successors and assigns (each an "Indemnified
Party")) shall be indemnified and held harmless by the other parties hereto
(each an "Indemnifying Party") for any and all liabilities, losses, damages,
claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, reasonable attorneys' fees and expenses)
actually suffered or incurred by them (collectively, "Losses"), arising out of
or resulting from the breach of any representation or warranty made by an
Indemnifying Party contained in this Agreement. Notwithstanding the foregoing,
the aggregate liability of any Investor under this Article IV shall in no event
exceed fifty percent (50%) of the purchase price paid by such Investor for the
Securities purchased by it and the aggregate liability of the Company under this
Article IV shall in no event exceed fifty percent (50%) of the purchase price
paid by the Investors for the Securities, except that the Company's liability
for a violation of any of the representations and warranties contained in the
first two sentences of Section 2.7 may exceed such limitation, but shall in no
event exceed one hundred percent (100%) of the purchase price paid by the
Investors for the Securities.
SECTION 4.3 Indemnification Procedure. The obligations and liabilities of
the Indemnifying Party under this Article IV with respect to Losses arising from
claims of any third party that are subject to the indemnification provided for
in this Article IV ("Third Party Claims")
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shall be governed by and contingent upon the following additional terms and
conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Indemnifying Party notice of such
Third Party Claim promptly after the receipt by the Indemnified Party of such
notice (which notice shall include the amount of the Loss, if known, and method
of computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises); provided, however, that the failure to provide such notice shall not
release the Indemnifying Party from any of its obligations under this Article IV
except to the extent the Indemnifying Party is materially prejudiced by such
failure and shall not relieve the Indemnifying Party from any other obligation
or liability that it may have to any Indemnified Party otherwise than under this
Article IV. Upon written notice to the Indemnified Party within five (5) days of
the receipt of such notice, the Indemnifying Party shall be entitled to assume
and control the defense of such Third Party Claim at its or his expense and
through counsel of its or his choice (which counsel shall be reasonably
satisfactory to the Indemnified Party); provided, however, that, if there exists
or is reasonably likely to exist a conflict of interest that would make it
inappropriate in the reasonable judgment of counsel to the Indemnified Party for
the same counsel to represent both the Indemnified Party and the Indemnifying
Party, then the Indemnified Party shall be entitled to retain its or his own
counsel in each jurisdiction for which the Indemnified Party reasonably
determines counsel is required, at the expense of the Indemnifying Party. In the
event the Indemnifying Party exercises the right to undertake any such defense
against any such Third Party Claim as provided above, the Indemnified Party
shall cooperate with the Indemnifying Party in such defense and make available
to such Indemnifying Party, at the Indemnifying Party's expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by the Indemnifying Party. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Party in such defense and make available to the Indemnified Party,
at the Indemnifying Party's expense, all such witnesses (including himself),
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Indemnifying Party on behalf of the Indemnified Party without the prior
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld); provided, however, in the event that the Indemnified
Party does not consent to any such settlement that would provide it with a full
release from indemnified Loss and would not require it to take, or refrain from
taking, any action, the Indemnifying Party's liability for indemnification shall
not exceed the amount of such proposed settlement. The Indemnified Party will
refrain from any act or omission that is inconsistent with the position taken by
the Indemnifying Party in the defense of a Third Party Claim unless the
Indemnified Party determines that such act or omission is reasonably necessary
to protect its own interest.
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ARTICLE V
MISCELLANEOUS
SECTION 5.1 Change of Control Provision. For so long as any of the Shares
are owned by the Investors or their affiliates, the Company will not agree to,
or take any action to approve or otherwise facilitate any, merger or
consolidation or Change of Control (including granting approvals required under
applicable anti-takeover statutes), unless provision has been made for the
holders of the Shares to receive from the acquiror or any other person or entity
(other than the Company) as a result of and in connection with the transaction
an amount in cash equal to the aggregate liquidation preference for the Shares
held by them, as set forth in the Certificate of Powers, Designations,
Preferences and Rights of the Series C Preferred Stock. The parties hereto agree
that irreparable damage would occur in the event that the provisions of this
Section 5.1 were not performed in accordance with their terms and the Investors
shall be entitled to specific performance of the terms of this Section 5.1 in
addition to any other remedies at law or in equity. For purposes of this Section
5.1: a "Change of Control" shall mean any of the following (i) any person or
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) becoming
the beneficial owner, directly or indirectly, of outstanding shares of Capital
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 shareholders of the Company in the election of
directors (the term "beneficial owner" shall be determined in accordance with
Rule 13d-3 of the Exchange Act), (ii) a majority of the Board of Directors of
the Company shall consist of Persons other than Continuing Directors, (iii) a
recapitalization, reorganization, merger, consolidation or similar transaction,
in each case with respect to which all or substantially all the Persons who are
the respective beneficial owners, directly or indirectly, of the outstanding
shares of Capital Stock of the Company immediately prior to such
recapitalization, reorganization, merger, consolidation or similar transaction,
will own less than 50% of the combined voting power of the then outstanding
shares of Capital Stock of the Company resulting from such recapitalization,
reorganization, merger, consolidation or similar transaction, (iv) the sale or
other disposition of all or substantially all the assets of the Company in one
transaction or in a series of related transactions, (v) any transaction occurs
(other than one described in (iv) or (v))), the result of which is that the
Common Stock is not required to be registered under Section 12 of the Exchange
Act and in which the holders of Common Stock of the Company do not receive
common stock of the Person surviving such transaction which is required to be
registered under Section 12 of the Exchange Act, or (vi) immediately after any
merger, consolidation, recapitalization or similar transaction, a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act), other than a group
that includes the Investors and/or their affiliates, shall be the beneficial
owners, directly or indirectly, of outstanding shares of Capital Stock of the
Company (or any Person surviving such transaction) entitling them collectively
to exercise 50% or more of the total voting power of shares of Capital Stock of
the Company (or the surviving Person in such transaction) and in connection with
or as a result of such transaction, the Company (or such surviving Person) shall
have incurred or issued additional indebtedness such that the total indebtedness
so incurred or issued equals at least 50% of the consideration payable in such
transaction; "Capital Stock" shall mean, with respect to the
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Company, any and all shares, interests, participations, rights in, or other
equivalents (however designated and whether voting or non-voting) of, the
Company's capital stock; and "Person" shall mean any individual, firm,
corporation, partnership, limited liability company, trust, incorporated or
unincorporated association, joint venture, joint stock company, governmental
authority or other entity of any kind, and shall include any successor (by
merger or otherwise) of such entity; and "Continuing Directors" shall mean any
member of the Board of Directors on the date hereof and any other member of the
Board of Directors who shall be recommended or elected to succeed or become a
Continuing Director by a majority of the Continuing Directors who are then
members of the Board of Directors.
SECTION 5.2 Registrable Securities. The shares of Common Stock issuable
upon the conversion of the Series C Convertible Preferred Stock, as well as any
shares of Common Stock that may be issued upon the conversion of the Series 2002
Convertible Preferred Stock or upon the exercise or conversion of any security
issued upon the conversion of the Series 2002 Convertible Preferred Stock
(collectively, the "New Registrable Securities"), shall be deemed "Registrable
Securities" under the terms of the Investment Agreement by and among the
Company, the Company's predecessor and the Investors, dated November 13, 2000
(the "Series B Investment Agreement") (subject to the provisions of Section
13.1(a) of the Series B Investment Agreement), and the parties hereto (who also
constitute all of the parties to the Series B Investment Agreement) hereby amend
the definition of "Registrable Securities" contained in the Series B Investment
Agreement so that such definition includes the New Registrable Securities, along
with any other securities already included within the definition thereof.
SECTION 5.3 Stockholder Approval. The Company shall put forth proposals at
the Company's next annual or special meeting of stockholders seeking: (a)
approval of the conversion rights of the Series C Convertible Preferred Stock
and (b) an increase in the number of authorized shares of Common Stock to
92,000,000. The Company shall take all reasonable action to convene a meeting of
stockholders of the Company to be held on or before December 30, 2002 to approve
the foregoing matters.
SECTION 5.4 Publicity. Except as may be required by applicable law or the
rules of any securities exchange or market on which securities of the Company
are traded, no party hereto shall issue a press release or public announcement
or otherwise make any disclosure concerning this Agreement and the transactions
contemplated hereby, without prior approval of the others; provided, however,
that nothing in this Agreement shall restrict the Company or any Investor from
disclosing such information (a) that is already publicly available, (b) that may
be required or appropriate in response to any summons or subpoena (provided that
the disclosing party will use commercially reasonable efforts to notify the
other parties in advance of such disclosure under this clause (b) so as to
permit the non-disclosing parties to seek a protective order or otherwise
contest such disclosure, and the disclosing party will use commercially
reasonable efforts to cooperate, at the expense of the non-disclosing parties,
in pursuing any such protective order) or (c) in
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connection with any litigation involving disputes as to the parties' respective
rights and obligations hereunder.
SECTION 5.5 Entire Agreement. This Agreement and any other agreement or
instrument to be delivered expressly pursuant to the terms hereof constitute the
entire Agreement between the parties hereto with respect to the subject matter
hereof and supersede all previous negotiations, commitments and writings with
respect to such subject matter.
SECTION 5.6 Assignments; Parties in Interest. Neither this Agreement nor
any of the rights, interests or obligations hereunder may be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing herein, express or
implied, is intended to or shall confer upon any person not a party hereto any
right, benefit or remedy of any nature whatsoever under or by reason hereof,
except as otherwise provided herein.
SECTION 5.7 Amendments. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, the parties
against whom such amendment or modification is sought to be enforced.
SECTION 5.8 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.
SECTION 5.9 Notices and Addresses. Any notice, demand, request, waiver, or
other communication under this Agreement shall be in writing and shall be deemed
to have been duly given on the date of service, if personally served or sent by
facsimile; on the business day after notice is delivered to a courier or mailed
by express mail, if sent by courier delivery service or express mail for next
day delivery; and on the fifth business day after mailing, if mailed to the
party to whom notice is to be given, by first class mail, registered, return
receipt requested, postage prepaid and addressed as follows:
To Company: Bluefly, Inc.
00 Xxxx 00xx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attn: Xxxxxxxx X. Xxxxxx
With a copy to:
00
Xxxxxxx Xxxxxx Shereff Xxxxxxxx, LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxxx, Esq.
To the Investors: To the address set forth on Schedule 1.
SECTION 5.10 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
SECTION 5.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to conflicts of law principles. The parties agree that the federal and
state courts located in New York, New York shall have exclusive jurisdiction
over any dispute involving this Agreement or the transactions contemplated
hereby, and each party hereby irrevocably submits to the jurisdiction of, and
waives any objection to the laying of venue in, such courts.
SECTION 5.12 Counterparts; Facsimile Signatures. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart. This Agreement
may be executed by facsimile, and a facsimile signature shall have the same
force and effect as an original signature on this Agreement.
SECTION 5.13 Expenses. The Company shall reimburse the Investors for their
reasonable legal fees and expenses incurred in connection with the negotiation
of this Agreement and the transactions contemplated hereby. Except as provided
above, all costs and expenses, including, without limitation, fees and
disbursements of counsel, incurred in connection with the negotiation, execution
and delivery of this Agreement and its related documents shall be paid by the
party incurring such costs and expenses, whether or not the closing shall have
occurred.
12
IN WITNESS WHEREOF, this Agreement has been duly executed on the date first
set forth above.
BLUEFLY, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Financial Officer and
Chief Operating Officer
QUANTUM INDUSTRIAL PARTNERS LDC
By: /s/ Xxxxxxx X. Xxxxxxx, Xx
--------------------------------
Name: Xxxxxxx X. Xxxxxxx, Xx
Title: Attorney-in-fact
SFM DOMESTIC INVESTMENTS LLC
By: /s/ Xxxxxxx X. Xxxxxxx, Xx
--------------------------------
Name: Xxxxxxx X. Xxxxxxx, Xx
Title: Attorney-in-fact
13
SCHEDULE 1
INVESTORS AND SHARE AND NOTE ALLOCATIONS
--------------------------------------------------------------------------------------------------------------------------------
Aggregate Purchase Aggregate Principal
Name and Address of Investor Shares Purchased Price for Shares Amount of Note
Purchased
--------------------------------------------------------------------------------------------------------------------------------
Quantum Industrial Partners LDC 968.3 $968,300 $1,936,600
Xxxx Xxxxxxxxx 0
Xxxxxxxxxx
Xxxxxxx
Xxxxxxxxxxx-Xxxxxxxx
with a copy to:
Xxxxx Fund Management LLC
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxxxxx Xxxxxxx, Esq.
--------------------------------------------------------------------------------------------------------------------------------
SFM Domestic Investments LLC 31.7 $31,700 $63,400
c/x Xxxxx Fund Management LLC
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxxxxx Xxxxxxx, Esq.
--------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,000 $1,000,000 $2,000,000
--------------------------------------------------------------------------------------------------------------------------------
14
SCHEDULE 2.4
CAPITALIZATION
As of the date hereof, but without giving effect to the transactions
contemplated by this Agreement, the following equity securities are outstanding
and convertible into, or exercisable for shares of Common Stock:
1. 500,000 shares of Series A Convertible Preferred Stock (the "Series A
Stock") are issued and outstanding. The Series A Stock is convertible
into 4,273,504 shares of Common Stock.
2. 8,910,782 shares of Series B Convertible Preferred Stock (the "Series
B Stock") are issued and outstanding. The Series B Stock is
convertible into 13,281,038 shares of Common Stock.
3. Warrants to purchase an aggregate of 1,069,144 shares of Common Stock
are issued and outstanding.
4. Options issued to purchase 3,931,622 shares of Common Stock are issued
and outstanding under the Company's 1997 Stock Option Plan, as
amended, and 2000 Stock Option Plan, as amended.
5. 2,100 shares of Series 2002 Convertible Preferred Stock (the "Series
2002 Stock") are issued and outstanding. The Series 2002 Stock is
convertible into Subsequent Round Securities (as defined in the
Certificate of Designations relating to the Series 2002 Stock), and
such Subsequent Round Securities may include Common Stock or
securities convertible into Common Stock.
15
EXHIBIT A
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
$[INSERT AMOUNT]
New York, New York September __, 2002
FOR VALUE RECEIVED, the undersigned, BLUEFLY, INC., a Delaware corporation
(the "Payor" or the "Company"), promises to pay to the order of _____________ or
its registered assign (the "Payee"), upon demand the principal sum of
________________________________ ($__________) 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 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.
2
(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 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,
3
(F) become unable, admit in writing its inabil-ity 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 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 Xxxxxxxxx & Xxxxxxxxx, 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,
4
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.
(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,
5
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, xxx 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 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;
6
(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, representing the shares of Series C
7
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.
8
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.
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 modifica-tion 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 Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx, 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,
9
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.
15. Severability. If any one or more of the provisions contained herein, or
the application thereof in any circum-stance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforce-ability 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:
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