EXHIBIT 10.5
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AND INTERCREDITOR
AGREEMENT, DATED MARCH 26, 2008, BETWEEN XXXXX FARGO RETAIL FINANCE, LLC, A
DELAWARE LIMITED LIABILITY COMPANY, QUANTUM INDUSTRIAL PARTNERS LDC, A CAYMAN
ISLANDS LIMITED DURATION COMPANY, SFM DOMESTIC INVESTMENTS LLC, A DELAWARE
LIMITED LIABILITY COMPANY, MAVERICK FUND USA, LTD., A TEXAS LIMITED PARTNERSHIP,
MAVERICK FUND, L.D.C., A CAYMAN ISLANDS EXEMPTED LIMITED DURATION COMPANY AND
MAVERICK FUND II, LTD., A CAYMAN ISLANDS EXEMPTED COMPANY. PAYOR SHALL FURNISH A
COPY OF SUCH SUBORDINATION AND INTERCREDITOR AGREEMENT UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
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 PROMISSORY NOTE
$489,000.00
New York, New York July 23, 2008
FOR VALUE RECEIVED, the undersigned, BLUEFLY, INC., a Delaware
corporation (the "Payor" or the "Company"), promises to pay to the order of
Maverick Fund, L.D.C. or its registered assign (the "Payee"), the principal sum
of Four Hundred and Eighty-Nine Thousand Dollars ($489,000.00) and interest on
the outstanding principal balance as set forth herein.
1. Interest Rate; Payment.
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(a) The outstanding principal balance of this Convertible
Promissory Note (this "Note") shall bear interest at an annual rate equal to 8%
per annum, with interest accruing, from and including the date hereof, on a
cumulative, compounding basis. Interest shall be computed on the basis of a 365-
or 366-day year, as the case may be, and the actual number of days elapsed, and,
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 2.0% 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 July 23, 2011 (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 Conversion
Securities (as defined below) pursuant to Section 5 on or 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.
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(a) Mandatory Prepayment.
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(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 holders of a Majority of Notes Outstanding
shall, at their 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 with or
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/or its
affiliates and
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one or more of Quantum Industrial Partners, LDC, SFM Domestic Investments, LLC,
Maverick Capital, Ltd., Prentice Capital Management, LP and/or their affiliates
or any group that includes any such Person, 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 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;
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(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
$125,000 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. Reserved.
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5. Conversion.
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(a) Right to Convert.
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(i) 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, upon or following the consummation of any Subsequent Round of
Financing (as defined below), to convert all or any portion of the principal
amount of this Note (the "Principal Obligations") into a number of fully paid
and nonassessable Subsequent Round Securities (with the most favorable terms
received by any investor in such Subsequent Round of Financing) equal to the
quotient obtained by dividing the aggregate amount of Principal Obligations to
be converted by the lowest price per Subsequent Round Security paid by any
investor in such Subsequent Round of Financing. Written notice of a Subsequent
Round of Financing stating the date on which such Subsequent Round of Financing
is expected to become effective and describing the terms and conditions of such
Subsequent Round of Financing shall be delivered by the Company to, and received
by, the Payee not less than 10 days prior to the consummation of such Subsequent
Round of Financing.
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(ii) 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 Obligations into a
number of fully paid and nonassessable shares of Common Stock, $0.01 par value
per share (the "Common Stock"), equal to the quotient obtained by dividing the
aggregate amount of Principal Obligations to be converted by $3.65.
(b) Procedure for Conversion. In order to convert all or any
portion of the Principal 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 Principal Obligations, which notice shall specify the amount of
Principal Obligations to be so converted, and whether such conversion is for
Common Stock or Subsequent Round Securities. 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 Conversion Securities issuable upon
conversion of the applicable Principal Obligations, along with a new promissory
note, in the same form as this Note, reflecting any Principal Obligations that
have not been so converted and any obligations in respect of accrued and unpaid
interest on converted Principal Obligations; provided that the Payee shall be
treated for all purposes as the record holder of such Conversion Securities as
of the Conversion Date. The issuance of Conversion Securities upon conversion of
any Principal 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 Principal Obligations such number of
shares of Conversion Securities as will from time to time be sufficient to
permit the conversion of all outstanding Principal Obligations, and, if
applicable, shall take all action to increase the authorized number of
Conversion Securities if at any time there shall be insufficient authorized but
unissued Conversion Securities to permit such reservation or permit the
conversion of all outstanding Principal 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 Common Stock may be listed.
(d) Certain Definitions. For purposes of this Note, the following
terms shall have the following meanings (with terms defined in the singular
having comparable meanings when used in the plural and vice versa):
"Conversion Securities" means Common Stock or Subsequent Round
Securities, as applicable.
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"Majority of Notes Outstanding" means a majority of the aggregate
outstanding principal amount of notes issued pursuant to the Note Purchase
Agreement dated as of July 23, 2008 by and between the Payor and the Investors
party thereto.
"Subsequent Round of Financing" means the offer and sale for cash by
the Company of its equity securities.
"Subsequent Round Securities" means the equity securities sold in the
Subsequent Round of Financing; provided that, to the extent that two or more
types or classes of equity securities are sold as a unit in the Subsequent Round
of Financing, "Subsequent Round Securities" shall mean a unit consisting of the
same types or classes of equity securities, in the same proportion, as the units
sold in the Subsequent Round of Financing.
6. Suits for Enforcement.
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(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 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.
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(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
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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 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.
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
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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.
IN WITNESS WHEREOF, the Payor has executed and delivered this
Convertible Promissory Note on the date first above written.
BLUEFLY, INC.
By: /s/ Xxxx X. Xxxxx
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Name: Xxxx X. Xxxxx
Title: Chief Financial Officer
Agreed to and accepted as of the date
first written above:
MAVERICK FUND, L.D.C.
BY: MAVERICK CAPITAL, LTD., ITS INVESTMENT MANAGER
By: /s/ Xxxx X. XxXxxxxxxx
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Name: Xxxx X. XxXxxxxxxx
Title: Limited Partner and General Counsel
