Reimbursement Agreement - Bluefly Inc. and Quantum Industrial Partners LDC
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT (this "Agreement") dated as of March
30, 2001 BLUEFLY, INC., a corporation duly organized and presently existing in
good standing under the laws of the State of Delaware with chief executive
offices at 42 West 39th Street, New York, New York 10018 ("Borrower") and Quantum
Industrial Partners LDC, a Cayman Islands limited duration company ("QIP" or
"Account Party").
W I T N E S S E T H :
WHEREAS, Borrower has entered into a Financing Agreement (the
"Financing Agreement") with Rosenthal & Rosenthal, Inc. ("Lender"), dated the
date hereof, pursuant to which Lender has agreed to make certain credit
accommodations as described therein ("Credit Accommodations") to Borrower;
WHEREAS, QIP has an ownership interest in Borrower and Lender
has required as a condition to making the Credit Accommodations that QIP provide
to Lender two standby letters of credit (collectively, the "Standby Letter of
Credit") to secure in part Borrower's obligations under the Financing Agreement;
WHEREAS, QIP has agreed to obtain the Standby Letter of Credit
for the benefit of Lender provided Borrower agree to reimburse QIP, as the
account party under the Standby Letter of Credit, for all draws made under the
Standby Letter of Credit by Lender;
NOW, THEREFORE, for good and valuable consideration, receipt
of which has been acknowledged, the parties hereto agree as follows:
1. Issuance of Standby Letter of Credit. QIP hereby agrees to
procure and maintain a Standby Letter of Credit throughout the term of the
Financing Agreement, as Account Party, for the benefit of Lender, in an amount
equal to $2,500,000, for delivery on the Closing Date (as defined in the
Financing Agreement). In addition, at the request of Borrower, QIP shall procure
and maintain another Standby Letter of Credit throughout the term of the
Financing Agreement, as Account Party for the benefit of Lender, in an amount
equal to $1,500,000. Each Standby Letter of Credit shall provide that it can
only be drawn by Lender, as beneficiary thereof, upon written certification to
the issuer of the Standby Letter of Credit and to QIP that (a) the amount
requested to be drawn under the Letter of Credit equals the amount of
Obligations under the Financing Agreement which Borrower has failed to pay in
accordance with the terms of the Financing Agreement, (b) a Default under the
Financing Agreement has occurred and is continuing and (c) except in the
circumstances described in Section 7.5 of the Financing Agreement, at least 120
days have passed from the date of the occurrence of such Default.
2. Reimbursement Obligation. Borrower shall be irrevocably and
unconditionally obligated without presentment, demand, protest or other
formalities of any kind, to reimburse QIP for any amounts, and on the date, paid
or incurred by QIP with respect to the Standby Letter of Credit, including all
fees, costs and expenses paid or incurred by QIP to any bank that issues the
Standby Letter of Credit. All amounts paid or incurred by QIP with respect to
the Standby Letter of Credit (each such amount referred to as a "Loan" and
collectively, as the "Loans") shall be due and payable by Borrower immediately
on the day the Standby Letter of Credit has been drawn. If a Loan is repaid on
the same day that it is made, one (1) day's interest shall be charged. Interest
on all Loans is payable on demand.
3. Expenses and Attorneys Fees. Borrower agrees to promptly
pay all reasonable fees, costs and expenses (including reasonable fees of
attorneys) incurred by QIP in connection
<PAGE>
with any matters arising out of the Financing Agreement and this Agreement,
including, without limitation, any action to enforce any obligation under this
Agreement or collect any payments due from Borrower hereunder.
4. Payments. All payments by Borrower of the obligations hereunder
shall be made in same day funds and delivered to QIP by wire transfer to the
following account or such other place as QIP may from time to time designate:
The Bank of New York
ABA No. 021-000018
Account Number 8540-90-5100
Account Name: Arnhold and S. Bleischroeder
Attention: Jonathan Shannon
Borrower shall receive credit on the day of receipt for funds received
by QIP by 5:00 p.m. New York time. In the absence of timely receipt, such funds
shall be deemed to have been paid on the next Business Day (as defined in the
Financing Agreement). Whenever any payment to be made hereunder shall be stated
to be due on a day that is not a Business Day, the payment may be made on the
next succeeding Business Day and such extension of time shall be included in the
computation of the amount of interest and fees due hereunder.
5. Borrower Covenants.
(a) Borrower shall comply with all laws, rules, regulations
and governmental orders imposed on its business in effect now or in the future
except those the noncompliance with which could not be reasonably expected to
have either individually or in the aggregate a material adverse effect on
Borrower.
(b) Borrower shall maintain its corporate existence and all
licenses required for its business.
(c) At the request of QIP, Borrower shall execute and deliver
to [ QIP such financing statements, documents, security agreements and reports
as QIP may reasonably request to evidence, perfect or otherwise implement the
agreements set forth herein.
(d) Borrower shall provide QIP copies of all notices and
reports required under the Financing Agreement at the same time such notices and
reports are provided to Lender.
(e) In the event that the issuance of any shares of Common
Stock (as defined in Section 6(a)) upon exercise of any Contingent Warrant (as
defined in Section 6(b)) would require stockholder approval pursuant to the
marketplace rules of the Nasdaq Stock Market, Borrower shall use its best
efforts to obtain such approval at the next annual or special meeting of the
Company's stockholders (including without limitation, including in the next
proxy statement mailed to Borrower's stockholders the recommendations of the
Board of Directors of Borrower and the special committee of independent
directors of Borrower that Borrower's stockholders vote in favor of such
issuance).
(f) Notwithstanding anything herein or in the Financing
Agreement to the contrary, Borrower covenants and agrees that it shall notify
QIP via email at least three (3) business days prior to any request for a Funded
Credit Accommodation under the Financing Agreement.
<PAGE>
6. Warrants.
(a) As partial consideration for and a condition to its
obtaining the Standby Letter of Credit, QIP and SFM Domestic Investments LLC
("SFM Domestic" and, together with QIP, the "Soros Entities") shall each receive
from Borrower a warrant in the form attached as Exhibit A hereto to purchase
that number of shares of the Common Stock, par value $.01 per share, of Borrower
("Common Stock") obtained by multiplying 100,000 by such Soros Entity's
Percentage Interest (as defined in Section 6(c) below).
(b) On each occasion that QIP is required to make a Loan
pursuant to Section 2 hereof, Borrower shall issue to each of QIP and SFM
Domestic a warrant in the form attached hereto as Exhibit B (each a "Contingent
Warrant") to purchase that number of shares of Common Stock equal to the product
of (i) such Soros Entity's Percentage Interest multiplied by (ii) a fraction,
the numerator of which shall be the aggregate principal amount drawn under the
Standby Letter of Credit and the denominator of which shall be 75% of the
Current Market Price (as defined in such Contingent Warrant) at such time (as
determined in the Contingent Warrant); provided that, the number of shares
issuable to the Soros Entities under any Contingent Warrant shall not exceed
19.9% of the total outstanding shares of Common Stock (on a fully-diluted basis)
unless and until any such additional issuance of shares has been approved by
Borrower's stockholders; provided, further, that the Company shall not be
required to issue any Contingent Warrants in the event that any amount under the
Standby Letter of Credit is drawn other than during the continuance of a Default
or on or after a Trigger Event (as defined in the Financing Agreement) has
occurred and so long as such Trigger Event has not been cured under the terms of
the Financing Agreements.
(c) For the purposes of this Section 6, the "Percentage
Interest" for QIP and SFM Domestic shall be 0.9683 and 0.0317 respectively.
7. Definitions. Unless otherwise defined herein, all terms not defined
herein shall have the meaning given them in the Financing Agreement.
8. Security Interest in Collateral.
8.1 To secure repayment of the Loans and any other obligations
of Borrower hereunder (collectively, the "Obligations") with interest in
accordance with the terms hereof, and the performance and observance by Borrower
of each term, covenant or agreement contained herein, Borrower hereby grants to
QIP a security interest in all property of Borrower, whether now owned or
hereafter acquired by Borrower, wherever located and whether now existing or
hereafter arising or created (the "Collateral"), including, without limitation,
the following:
(a) all Receivables and all deposits, or other security for
the obligation of any person under or relating to Receivables and all of
Borrower's rights and remedies of whatever kind or nature it may hold or acquire
for the purpose of securing or enforcing Receivables and all rights of stoppage
in transit, replevin, repossession and reclamation and all other rights and
remedies of an unpaid vendor or lienor, and all proceeds of any Letter of Credit
naming Borrower as beneficiary and which provides for guarantees or assures the
payment of any Receivable;
(b) all general intangibles whether or not arising out of the
sale of goods or rendition of services, and including, without limitation,
choses in action, causes of action, tax refunds (and claims) and reversions from
terminated pension plans;
(c) all Inventory;
(d) all equipment, machinery and fixtures of Borrower,
including, without limitation, all accessories and additions thereto, tools,
parts, accessories and attachments used in connection therewith, all spare parts
relating thereto and all tangible personal property;
<PAGE>
(e) all copyrights, whether statutory or common law,
registered or unregistered, all letters patent and applications for letters
patent throughout the world, all trademarks, trade names, service marks,
business names and other sources of business identifiers, whether or not
registered and all common law and statutory trade secrets and all other
confidential or proprietary information and know how;
(f) all books and records (including, without limitation,
computer programs, tapes and related electronic data processing software)
relating to any of the foregoing; and
(g) all cash and non-cash proceeds and products of any of the
foregoing, including, without limitation, all insurance proceeds payable under
insurance policies relating to any of the foregoing; provided, however, that the
Collateral shall not include any agreement, license or contract (or any right
therein) or any data or information protected by consumer privacy laws (i) the
grant of a security interest in which or assignment of which would violate such
agreement, license or contract or consumer privacy laws (ii) to the extent that
the pledge or assignment of such agreement, license or contract (or any right
therein) requires the consent of a third party unless such third party has
consented thereto, except, in the case of clauses (i) and (ii), to the extent
provided under Section 9-318(4) of the UCC.
provided, however, that the Collateral shall not include any agreement, license
or contract (or any right therein) or any data or information protected by
consumer privacy laws (i) the grant of a security interest in which or
assignment of which would violate such agreement, license or contract or
consumer privacy laws (ii) to the extent that the pledge or assignment of such
agreement, license or contract (or any right therein) requires the consent of a
third party unless such third party has consented thereto, except, in the case
of clauses (i) and (ii), to the extent provided under Section 9-318(4) of the
UCC.
8.2 Borrower will take any and all steps and observe such formalities
as QIP may reasonably request from time to time to create and maintain in QIP'S
favor a valid and lien upon, security interest in and pledge of all of the
Collateral (subject to Permitted Liens), including, without limitation, by way
of filing financing statements and other notices, including, without limitation,
notices with the United States Patent and Trademark Office and the United States
Copyright Office and amendments and renewals thereof that may be requested by
QIP to maintain such security interest in and pledge of the Collateral.
9. Subordination. The parties hereto acknowledge that the provisions of
this Agreement are subject to the terms of a Subordination and Intercreditor
Agreement executed as of the date hereof between Lender and QIP.
10. Lender's Remedies upon Borrower's Default.
10.1 a) All Obligations shall be, at QIP'S option, due and
payable
(i) without notice or demand upon:
(A) if any representation or warranty or statement of
fact made by Borrower in any Transaction Document to QIP is fraudulent; or
(B) if Borrower shall become insolvent, is generally
unable to pay its debts as they mature or files a petition in bankruptcy
liquidation or reorganization or if Borrower discontinues doing business for any
reason.
(C) if Borrower shall fail to pay to QIP when any
amounts owing to QIP under any Obligations; or
(D) if a judgment against Borrower in excess of
$100,000 remains unpaid, unstayed or undismissed for a period of more than
thirty (30) days, or if a custodian, receiver or trustee of any kind is
appointed for it or any of its property;
(E) if the Services Agreement ceases to be in full
force and effect in any material respect.
(ii) thirty (30) days after written notice of the
occurrence of the following event:
<PAGE>
if Borrower shall breach in any material respect any of the
terms, covenants, conditions or provisions of this Agreement (other than those
relating to failure to pay to QIP when due any amounts owing to QIP under any
Obligations).
(b) Upon the occurrence of any one or more
of the events specified in subsection (a) above (each a "Default") (i) Borrower
shall pay to QIP, as liquidated damages and as part of the Obligations, interest
at the rate of three percent (3%) per annum above the Prime Rate upon the unpaid
balance of the Loans from the date of Default until the date of full payment of
the Obligations, (ii) Borrower shall pay to QIP all reasonable costs,
disbursements, charges and expenses for the collection and enforcement of the
Obligations, and for the protection and enforcement of QIP'S security interest,
including attorneys' fees (both in-house and outside) all of which shall be
added to and deemed part of the Obligations, and (iii) QIP shall have the right
(in addition to any other rights QIP may have under this Agreement or otherwise)
without further notice to Borrower, to enforce payment of the Receivables, to
settle, compromise or release (in whole or in part) any amounts owing on the
Receivables, to prosecute any action, suit or proceeding with respect to the
Receivables, to extend the time of payment of any and all Receivables, to make
allowances and adjustments with respect thereto, to issue credits in QIP'S or
Borrower's name, to sell, assign and deliver the Receivable (or any part
thereof) or the Inventory (or any part thereof) or any other of the Collateral
and any returned, reclaimed or repossessed merchandise or other property held by
QIP or by Borrower for QIP'S account, at public or private sale, at broker's
board, for cash, upon credit or otherwise, at QIP'S sole option and discretion,
and QIP may bid or become purchaser at any such sale if public, free from any
right of redemption which is hereby expressly waived. Borrower agrees that the
giving of ten (10) days' notice by QIP, sent by certified mail return receipt
requested, postage prepaid, to the mailing address of Borrower set forth in this
Agreement, designating the place and time of any public sale or the time after
which any private sale or other intended disposition of the Receivables, the
Inventory or any other Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrower waives any other notice with respect
thereto. The net cash proceeds resulting from the exercise of any of the
foregoing rights or remedies shall be applied by QIP to the payment of the
Obligations in such order as QIP may elect, and Borrower shall remain liable to
QIP for any deficiency. Upon the occurrence of any Default, Borrower shall
assemble all or any part of the Inventory and make it available to QIP at a
place to be designated by QIP, which is reasonably convenient to both parties.
In addition, QIP may peaceably, by its own means or with judicial assistance,
enter Borrower's or any other premises and take possession of the Inventory and
remove or dispose of it on Borrower's premises and Borrower agrees that Borrower
will not resist or interfere with any such action. To the full extent permitted
by law, Borrower hereby expressly waives demand, notice of sale (except as
herein provided), advertisement of sale and redemption before sale.
(c) Upon the occurrence and during the
continuance of any Default, (i) QIP may send a notice of assignment and/or
notice of QIP'S security interest to any Account Debtors and thereafter QIP
shall have the sole right to collect the Receivables; (ii) Borrower hereby
constitutes QIP or QIP'S designee as Borrower's attorney-in-fact with power to
endorse Borrower's name upon any notes acceptances, checks, drafts, money orders
or other evidences of payment or Collateral that may come into its possession;
to sign Borrower's name on any invoice or bill of lading relating to any
Receivables, drafts against Customers, assignments and verifications of
Receivables and notices to any Account Debtor; to send verifications of
Receivables; to notify Borrower to such address as the QIP may designate; and to
do all other acts and things necessary to carry out this Agreement. Said
attorney or designee shall not be liable for any acts of omission or commission,
for any error of judgment or for any mistake of fact or law, provided that QIP
or its designee shall not be relieved of liability to the extent that its act,
error mistake constituted gross negligence or willful misconduct. This power of
attorney being coupled with an interest is irrevocable until all of the
Obligations then due and payable are paid in full; and (iii) QIP, without notice
to or consent of Borrower , (A) may sue upon or otherwise collect, extend the
time of payment of, or compromise or settle for cash, credit or otherwise upon
any terms, any of the Receivables or any securities, instruments or insurance
applicable thereto and/or release the Account Debtor thereon; (B) is authorized
and empowered to accept the return of goods represented by any of the
Receivables; and (C) shall have the right to receive, endorse, assign and/or
deliver in its name or the name of Borrower any
<PAGE>
and all checks, drafts and other instruments for the payment of money relating
to the Receivables, and Borrower hereby waives notice of presentment, protest
and non-payment of any instrument so endorsed.
(d) Borrower shall reimburse QIP on demand
for all costs of collection incurred by QIP during the continuance of a Default
in efforts to enforce recovery of or realization upon the Receivables, the
Inventory and any other Collateral, including, without limitation, attorneys'
fees (both in-house and outside). All and any reasonable fees, costs and
expenses, of whatever kind and nature, including taxes of any kind, which QIP
may incur in filing public notices (including, without limitation, appraisal
fees and advertising costs), and the reasonable charges of any attorney whom QIP
may engage in preparing and filing documents, making title or lien examinations
and rendering opinion letters, as well as reasonable expenses incurred by QIP
(including, without limitation, (i) all reasonable attorneys' fees (both
in-house and outside) and (ii) QIP'S out of pocket expenses in conducting
periodic field examinations of Borrower and the Receivables, the Inventory and
any other Collateral, plus QIP'S prevailing per diem charge for each of its
examiners in the field and office, now $750 per person per day (provided that
unless a Default is continuing, Borrower shall not be liable for the expense of
more than three field examinations in any year) plus all of QIP'S reasonable
costs, in protecting, maintaining, preserving, enforcing or foreclosing the
pledge, lien and security interest granted to QIP hereunder, whether through
judicial proceedings or otherwise, or recovery of or realization upon the
Inventory or any other Collateral, or in defending or prosecuting any actions or
proceedings arising out of or related to QIP'S transactions with Borrower,
including, without limitation, actions or proceedings which may involve any
Person asserting a priority or claim with respect to the Inventory or any other
Collateral, shall be borne and paid for by Borrower on demand, shall constitute
part of the Obligations.
(e) Upon QIP'S reasonable request, Borrower
will, at any time and from time to time, at Borrower's expense, deliver to QIP
documents of title representing the Inventory or otherwise evidence QIP'S
security interest in such manner as QIP may reasonably require. Any and all
assessments, taxes or other charges that may be assessed upon or payable with
respect to the Inventory or any part thereof shall forthwith be paid by
Borrower, and Borrower agrees that QIP, in its discretion, may effect such
payment and charge the amount thereof to Borrower. Borrower further agrees that
except for the pledge, lien and security interest granted to Rosenthal and QIP
by Borrower hereby, Borrower shall not permit the Inventory or any part thereof
to otherwise become liened or encumbered nor shall Borrower grant any security
interest therein to any other Person. Borrower shall not, without QIP'S written
consent first obtained, remove or dispose of any of the Inventory except to bona
fide purchasers thereof or for shipments to Borrower at its place of business in
the ordinary course of Borrower's business or as otherwise provided in this
Agreement or the Financing Agreement. Borrower shall make all Inventory and all
of Borrower's records pertaining thereto available to QIP for inspection during
normal business hours upon reasonable prior written notice by QIP. QIP shall
have the right, in QIP'S discretion, after a demand is made on Borrower to pay
any liens or claims upon any of the Inventory, including, without limitation,
warehouse charges, dyeing, finishing and processing charges, landlords' claims,
etc. and the amount of any such payment shall be obligations hereunder. QIP
shall not be liable for the safekeeping of any of the Inventory or for any loss,
damage or diminution in the value thereof or for any act or default of any
warehouseman, carrier or other person dealing in and with said Inventory,
whether as QIP'S agent or otherwise, or for the collection of any proceeds
thereof but the same shall at all times be at Borrower's sole risk. Prior to its
sale to a bona fide purchaser or shipment to Borrower at its place of business
in the ordinary course of business, Inventory shall at all times remain at the
addresses specified in the Financing Agreement hereof and shall not be removed
therefrom without QIP'S prior written consent.
(f) Nothing contained in this Section 10 or
elsewhere in this Agreement shall be construed to constitute Borrower as agent
of QIP for any purpose whatsoever and QIP shall not be responsible or liable for
any shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause thereof
(except to the extent it is determined by a final judicial decision that the
QIP'S act or omission constituted gross negligence or willful misconduct). QIP
shall not, under any circumstances or in any event whatsoever, have any
liability for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any of the Receivables or any instrument
received in payment thereof or for any damage resulting therefrom (except to the
extent that QIP'S error, omission or delay constituted gross negligence or
willful
<PAGE>
misconduct). QIP does not, by anything herein or in any assignment or otherwise,
assume Borrower's obligations under any contract or agreement assigned to QIP,
and QIP shall not be responsible in any way for the performance by Borrower of
any of the terms and conditions thereof.
10.2 The enumeration of the foregoing rights and
remedies is not intended to be exhaustive, and such rights and remedies are in
addition to and not by way of limitation of any other rights or remedies QIP may
have under the New York Uniform Commercial Code or other applicable law. QIP
shall have the right, in its sole discretion, to determine which rights and
remedies, and in which order any of the same, are to be exercised, and to
determine which Receivables are to be proceeded against and in which order, and
the exercise of any right or remedy shall not preclude the exercise of any
others, all of which shall be cumulative. No act, failure or delay by QIP shall
constitute a waiver of any of its rights and remedies. No single or partial
waiver by QIP of any provision of this Agreement, or breach or default
thereunder, or of any right or remedy which QIP may have shall operate as a
waiver of any other provision, breach, default, right or remedy or of the same
provision, breach, default, right or remedy on a future occasion. Borrower
waives presentment, notice of dishonor, protest and notice of protest of all
instruments included in or evidencing any of the Obligations or the Receivables
and any and all notices or demands whatsoever (except as expressly provided
herein).
10.3 EACH PARTY HEREBY WAIVES ALL RIGHTS TO A TRIAL
BY JURY IN THE EVENT OF ANY LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH
THIS AGREEMENT, THE OBLIGATIONS OR THE RECEIVABLES AND HEREBY IRREVOCABLY
CONSENTS TO THE 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 AGREEMENT, OR THE OBLIGATIONS.
11. Miscellaneous. This Agreement shall be governed by and
shall be construed and enforced in accordance with the internal laws of the
State of New York, without regard to conflicts of law principles. This Agreement
constitutes the entire agreement of the parties hereto and supersedes all prior
commitments, agreements, representations, and understandings, whether oral or
written, relating to the subject matter hereof. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument. This Agreement shall be binding upon and inure to the benefit of all
the parties hereto and their successors and assigns except that Borrower may not
assign its rights or obligations hereunder without the prior written consent of
QIP.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
BLUEFLY, INC.
By:
Name:
Title:
QUANTUM INDUSTRIAL PARTNERS LDC
By:
Name:
Title:
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SUCH ACT OR LAWS AND NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. [__]
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF
BLUEFLY, INC.
THIS IS TO CERTIFY THAT [__________________] or its registered
assigns (the "Holder"), is the owner of the right to subscribe for and to
purchase from BLUEFLY, INC., a Delaware corporation (the "Company"),
[___________________] [(_____)] (the "Number Issuable"), fully paid, duly
authorized and non-assessable shares of Common Stock at a price per share equal
to the Current Market Price as of September 15, 2001 (the "Exercise Price"), at
any time, in whole or in part, on or after September 16, 2001 (the "Effective
Date") through 5:00 PM New York City time, on September 16, 2011 (the
"Expiration Date") all on the terms and subject to the conditions hereinafter
set forth (the "Warrants").
The Number Issuable and the Exercise Price are subject to
further adjustment from time to time pursuant to the provisions of Section 2 of
this Warrant Certificate.
Capitalized terms used herein but not otherwise defined shall
have the meanings given to them in Section 12 hereof.
<PAGE>
Exercise of Warrants.
--------------------
(a) Subject to the last paragraph of this Section 1, the
Warrants evidenced hereby may be exercised, in whole or in part, by the Holder
hereof at any time or from time to time, on or after the Effective Date and on
or prior to the Expiration Date upon delivery to the Company at the principal
executive office of the Company in the United States of America, of (A) this
Warrant Certificate, (B) a written notice stating that such Holder elects to
exercise the Warrants evidenced hereby in accordance with the provisions of this
Section 1 and specifying the number of Warrants being exercised and the name or
names in which the Holder wishes the certificate or certificates for shares of
Common Stock to be issued and (C) payment of the Exercise Price for such
Warrants, which shall be payable by any one or any combination of the following:
(i) cash; (ii) certified or official bank check payable to the order of the
Company; (iii) by the surrender (which surrender shall be evidenced by
cancellation of the number of Warrants represented by any Warrant Certificate
presented in connection with a Cashless Exercise (as defined below)) of a
Warrant or Warrants (represented by one or more relevant Warrant Certificates),
and without the payment of the Exercise Price in cash, in return for the
delivery to the surrendering Holder of such number of shares of Common Stock
equal to the number of shares of the Common Stock for which such Warrant is
exercisable as of the date of exercise (if the Exercise Price were being paid in
cash or certified or official bank check) reduced by that number of shares of
Common Stock equal to the quotient obtained by dividing (x) the aggregate
Exercise Price (assuming no Cashless Exercise) to be paid by (y) the Market
Price of one Share of Common Stock on the Business Day which immediately
precedes the day of exercise of the Warrant; or (iv) by the delivery of shares
of the Common Stock having a value (as defined by the next sentence) equal to
the aggregate Exercise Price to be paid, that are either held by the Holder or
are acquired in connection with such exercise, and without payment of the
Exercise Price in cash. Any share of Common Stock delivered as payment for the
Exercise Price in connection with an In-Kind Exercise (as defined below) shall
be deemed to have a value equal to the Market Price of one Share of Common Stock
on the Business Day which immediately precedes the day of exercise of the
Warrants. An exercise of a Warrant in accordance with clause (iii) is herein
referred to as a "Cashless Exercise" and an exercise of a Warrant in accordance
with clause (iv) is herein referred to as an "In-Kind Exercise." The
documentation and consideration, if any, delivered in accordance with
subsections (A), (B) and (C) are collectively referred to herein as the "Warrant
Exercise Documentation."
(b) As promptly as practicable, and in any event within five
(5) Business Days after receipt of the Warrant Exercise Documentation, the
Company shall deliver or cause to be delivered (A) certificates representing the
number of validly issued, fully paid and nonassessable shares of Common Stock
specified in the Warrant Exercise Documentation, (B) if applicable, cash in lieu
of any fraction of a share, as hereinafter provided, and (C) if less than the
full number of Warrants evidenced hereby are being exercised or used in a
Cashless Exercise, a new Warrant Certificate or Certificates, of like tenor, for
the number of Warrants evidenced by this Warrant Certificate, less the number of
Warrants then being exercised and/or used in a Cashless Exercise. Such exercise
shall be deemed to have been made at the close of business on the date of
delivery of the
2
<PAGE>
Warrant Exercise Documentation so that the Person entitled to receive shares of
Common Stock upon such exercise shall be treated for all purposes as having
become the record holder of such shares of Common Stock at such time.
(c) The Company shall pay all expenses incurred by the Company
in connection with and taxes and other governmental charges (other than income
taxes of the Holder) that may be imposed in respect of, the issue or delivery of
any shares of Common Stock issuable upon the exercise of the Warrants evidenced
hereby. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any
certificate for shares of Common Stock, as the case may be, in any name other
than that of the registered holder of the Warrant evidenced hereby.
(d) In connection with the exercise of any Warrants evidenced
hereby, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest multiplied by the Market
Price for one Share of Common Stock on the Business Day which immediately
precedes the day of exercise. If more than one (1) such Warrant shall be
exercised by the holder thereof at the same time, the number of full shares of
Common Stock issuable on such exercise shall be computed on the basis of the
total number of Warrants so exercised.
Section 2. Certain Adjustments.
-------------------
(a) The number of shares of Common Stock purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(i) Stock Dividends, Subdivision, Combination or
Reclassification of Common Stock. If at any time after the date of the issuance
of this Warrant the Company shall (i) pay a dividend on Common Stock in shares
of its capital stock, (ii) combine its outstanding shares of Common Stock into a
smaller number of shares, (iii) subdivide its outstanding shares of Common Stock
as the case may be, or (iv) issue by reclassification of its shares of Common
Stock any shares of capital stock of the Company, then, on the record date for
such dividend or the effective date of such subdivision or split-up, combination
or reclassification, as the case may be, the number and kind of shares to be
delivered upon exercise of this Warrant will be adjusted so that the Holder will
be entitled to receive the number and kind of shares of capital stock that such
Holder would have owned or been entitled to receive upon or by reason of such
event had this Warrant been exercised immediately prior thereto, and the
Exercise Price will be adjusted as provided below in paragraph 2(a)(v).
(ii) Extraordinary Distributions. If at any time after the
date of issuance of this Warrant, the Company shall distribute to all holders of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation and Common Stock is not changed or exchanged) cash, evidences of
indebtedness, securities or other assets
3
<PAGE>
(excluding (A) ordinary course cash dividends to the extent such dividends do
not exceed the Company's retained earnings and (B) dividends payable in shares
of capital stock for which adjustment is made under Section 2(a)(i), or rights,
options or warrants to subscribe for or purchase securities of the Company),
then in each such case the number of shares of Common Stock to be delivered to
such Holder upon exercise of this Warrant shall be increased so that the Holder
thereafter shall be entitled to receive the number of shares of Common Stock
determined by multiplying the number of shares such Holder would have been
entitled to receive immediately before such record date by a fraction, the
denominator of which shall be the Exercise Price on such record date minus the
then fair market value (as reasonably determined by the Board of Directors of
the Company in good faith) of the portion of the cash, evidences of
indebtedness, securities or other assets so distributed or of such rights or
warrants applicable to one share of the Common Stock (provided that such
denominator shall in no event be less than $.01) and the numerator of which
shall be the Exercise Price.
(iii) Reorganization, etc. If at any time after the date of
issuance of this Warrant any consolidation of the Company with or merger of the
Company with or into any other Person (other than a merger or consolidation in
which the Company is the surviving or continuing corporation and which does not
result in any reclassification of, or change (other than a change in par value
or from par value to no par value or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of either Common
Stock) or any sale, lease or other transfer of all or substantially all of the
assets of the Company to any other person (each, a "Reorganization Event"),
shall be effected in such a way that the holders of the Common Stock shall be
entitled to receive cash, stock, other securities or assets (whether such cash,
stock, other securities or assets are issued or distributed by the Company or
another Person) with respect to or in exchange for the Common Stock, then, upon
exercise of this Warrant, the Holder shall have the right to receive the kind
and amount of cash, stock, other securities or assets receivable upon such
Reorganization Event by a holder of the number of shares of the Common Stock
that such holder would have been entitled to receive upon exercise of this
Warrant had this Warrant been exercised immediately before such Reorganization
Event, subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 2(a). The Company
shall not enter into any of the transactions referred to in this Section
2(a)(iii) unless effective provision shall be made so as to give effect to the
provisions set forth in this Section 2(a)(iii).
(iv) Carryover. Notwithstanding any other provision of this
Section 2(a), no adjustment shall be made to the number of shares of either
Common Stock to be delivered to the Holder (or to the Exercise Price) if such
adjustment represents less than .05% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to .05% or more of the number of
shares to be so delivered.
(v) Exercise Price Adjustment. Whenever the Number Issuable
upon the exercise of the Warrant is adjusted as provided pursuant to this
4
<PAGE>
Section 2(a), the Exercise Price per share payable upon the exercise of this
Warrant shall be adjusted by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, of which the numerator shall be the Number
Issuable upon the exercise of the Warrant immediately prior to such adjustment,
and of which the denominator shall be the Number Issuable immediately
thereafter; provided, however, that the Exercise Price for each Share of the
Common Stock shall in no event be less than the par value of a share of such
Common Stock.
(b) Notice of Adjustment. Whenever the Number Issuable or the
Exercise Price is adjusted as herein provided, the Company shall promptly mail
by first class mail, postage prepaid, to the Holder, notice of such adjustment
or adjustments setting forth the Number Issuable and the Exercise Price after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
Section 3. No Redemption. The Company shall not have any right
to redeem any of the Warrants evidenced hereby.
Section 4. Notice of Certain Events. In case at any time or
from time to time (i) the Company shall declare any dividend or any other
distribution to all holders of Common Stock, (ii) the Company shall authorize
the granting to the holders of Common Stock of rights or warrants to subscribe
for or purchase any additional shares of stock of any class or any other right,
(iii) the Company shall authorize the issuance or sale of any other shares or
rights which would result in an adjustment to the Number Issuable pursuant to
Section 2(a)(i), (ii) or (iii), (iv) there shall be any capital reorganization
or reclassification of Common Stock of the Company or consolidation or merger of
the Company with or into another Person, or any sale or other disposition of all
or substantially all the assets of the Company, or (v) there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, in any one or more of such cases the Company shall mail to the Holder at
such Holder's address as it appears on the transfer books of the Company, as
promptly as practicable but in any event at least 10 days prior to the date on
which the transactions contemplated in Section 2(a)(i), (ii) or (iii) a notice
stating (a) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights or warrants or, if a record is not to be taken,
the date as of which the holders of record of either Common Stock to be entitled
to such dividend, distribution, rights or warrants are to be determined, or (b)
the date on which such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding up is expected to become
effective. Such notice also shall specify the date as of which it is expected
that the holders of record of the Common Stock shall be entitled to exchange the
Common Stock for shares of stock or other securities or property or cash
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding up.
Section 5. Certain Covenants. The Company covenants and agrees
that all shares of Capital Stock of the Company which may be issued upon the
exercise of the Warrants evidenced hereby will be duly authorized, validly
issued and fully paid and nonassessable. The Company shall at all times reserve
and keep available for issuance
5
<PAGE>
upon the exercise of the Warrants, such number of its authorized but unissued
shares of Common Stock as will from time to time be sufficient to permit the
exercise of all outstanding Warrants, and shall take all action required to
increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the exercise of all outstanding Warrants.
Section 6. Registered Holder. The persons in whose names this Warrant
Certificate is registered shall be deemed the owner hereof and of the Warrants
evidenced hereby for all purposes. The registered Holder of this Warrant
Certificate, in their capacity as such, shall not be entitled to any rights
whatsoever as a stockholder of the Company, except as herein provided.
Section 7. Transfer of Warrants. Any transfer of the rights represented
by this Warrant Certificate shall be effected by the surrender of this Warrant
Certificate, along with the form of assignment attached hereto, properly
completed and executed by the registered Holder hereof, at the principal
executive office of the Company in the United States of America, together with
an appropriate investment letter and opinion of counsel, if deemed reasonably
necessary by counsel to the Company to assure compliance with applicable
securities laws. Thereupon, the Company shall issue in the name or names
specified by the registered Holder hereof and, in the event of a partial
transfer, in the name of the registered Holder hereof, a new Warrant Certificate
or Certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
Section 8. Denominations. The Company covenants that it will, at its
expense, promptly upon surrender of this Warrant Certificate at the principal
executive office of the Company in the United States of America, execute and
deliver to the registered Holder hereof a new Warrant Certificate or
Certificates in denominations specified by such Holder for an aggregate number
of Warrants equal to the number of Warrants evidenced by this Warrant
Certificate.
Section 9. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant Certificate of like tenor for a number of Warrants equal to
the number of Warrants evidenced by this Warrant Certificate.
Section 10. Governing Law. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE.
6
<PAGE>
Section 11. Rights Inure to Registered Holder. The Warrants evidenced
by this Warrant Certificate will inure to the benefit of and be binding upon the
registered Holder thereof and the Company and their respective successors and
permitted assigns. Nothing in this Warrant Certificate shall be construed to
give to any Person other than the Company and the registered Holder thereof any
legal or equitable right, remedy or claim under this Warrant Certificate, and
this Warrant Certificate shall be for the sole and exclusive benefit of the
Company and such registered Holder. Nothing in this Warrant Certificate shall be
construed to give the registered Holder hereof any rights as a Holder of shares
of either Common Stock until such time, if any, as the Warrants evidenced by
this Warrant Certificate are exercised in accordance with the provisions hereof.
Section 12. Definitions. For the purposes of this Warrant Certificate,
the following terms shall have the meanings indicated below:
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in the City of New York, New York are authorized or
required by law or executive order to close.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, any
rights, warrants or options to purchase such Person's capital stock.
"Common Stock" shall mean the common stock of the Company.
"Common Stock Equivalent" means any security or obligation which is by
its terms convertible into or exercisable for shares of Common Stock, including,
without limitation, any option, warrant or other subscription or purchase right
with respect to Common Stock.
"Current Market Price" per share shall mean, as of the date of
determination, (a) the average of the daily Market Prices under clause (a), (b)
or (c) of the definition thereof, as applicable, of the Common Stock during the
immediately preceding ten (10) trading days ending on such date, and (b) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, then the Market
Price under clause (d) of the definition thereof on such date.
"Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) if the Common Stock is listed on a national securities
exchange, the Closing Price per share of Common Stock on such date published in
The Wall Street Journal (National Edition) or, if no such closing price on such
date is published in The Wall Street Journal (National Edition), the average of
the closing bid and asked prices on such date, as officially reported on the
principal national securities exchange on which the Common Stock is then listed
or admitted to trading; or (b) if the Common Stock is
7
<PAGE>
not then listed or admitted to trading on any national securities exchange, but
is designated as a national market system security, the last trading price of
the Common Stock on such date; or (c) if there shall have been no trading on
such date or if the Common Stock is not so designated, the average of the
reported closing bid and asked price of the Common Stock, on such date as shown
by NASDAQ and reported by any member firm of the NYSE selected by the Company;
or (d) if none of (a), (b) or (c) is applicable, a market price per share
determined in good faith by the Board of Directors of the Company, which shall
be deemed to be "Fair Market Value" unless holders of at least 15% of Common
Stock issued or issuable upon exercise of the Warrants request that the Company
obtain an opinion of a nationally recognized investment banking firm chosen by
the Company (who shall bear the expense) and reasonably acceptable to such
requesting holders of the Warrants, in which event the Fair Market Value shall
be as determined by such investment banking firm.
"NASDAQ" means the National Market System of the National Association
of Securities Dealers, Inc. Automated Quotations System.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Person" shall mean any individual, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
Section 13. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services or personal delivery, (a) if to the Holder of a Warrant, at such
Holder's last known address appearing on the books of the Company; and (b) if to
the Company, at its principal executive office in the United States, or such
other address as shall have been furnished to the party given or making such
notice, demand or other communication. All such notices and communications shall
be deemed to have been duly given: (i) when delivered by hand, if personally
delivered; (ii) when delivered to a courier if delivered by commercial overnight
courier service; and (iii) five (5) Business Days after being deposited in the
mail, postage prepaid, if mailed.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed as of this 30th day of March, 2001.
BLUEFLY, INC.
By:
Name:
Title:
9
<PAGE>
[Form of Assignment Form]
[To be executed upon assignment of Warrants]
The undersigned hereby assigns and transfers this Warrant
Certificate to ___________________ whose Social Security Number or Tax ID Number
is _________________ and whose record address is
_____________________________________, and irrevocably appoints ________________
as agent to transfer this security on the books of the Company. Such agent may
substitute another to act for such agent.
Signature:
-------------------------------
Signature Guarantee:
--------------------------------
Date: ___________________________
10
<PAGE>
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SUCH ACT OR LAWS AND NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY
AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. [__]
FORM OF
WARRANT
TO PURCHASE SHARES OF COMMON STOCK
OF
BLUEFLY, INC.
THIS IS TO CERTIFY THAT [Quantum Industrial Partners LDC
("QIP")]/[SFM Domestic Investments LLC ("SFM Domestic")] or its registered
assigns (the "Holder"), is the owner of the right to subscribe for and to
purchase from BLUEFLY, INC., a Delaware corporation (the "Company"), that number
(the "Number Issuable") of fully paid, duly authorized and non-assessable shares
of Common Stock (the "Subject Shares") equal to the product of (i) [0.9683]
[0.0317](1) multiplied by (ii) a fraction, the numerator of which shall be
$[__________](2) and the denominator of which shall be 75% of the Current Market
Price as of the date of issuance of this Warrant Certificate (the "Issue Date").
The exercise price to acquire the Subject Shares is a dollar amount per share
equal to 75% of the Current Market Price as of the later of (i) ten (10) trading
days after the Issue Date or (ii) September 15, 2001 (the "Exercise Price").
This
--------
1 If QIP is the Holder, use 0.9683. If SPM Domestic is the Holder,
use 0.0317.
2 Insert the aggregate principal amount drawn by the beneficiary under the
Standby Letter of Credit (as defined in the Reimbursement Agreement, dated
March __, 2001, among the Company, QIP and SFM Domestic) made on the date
of issuance of the Warrant Certificate.
<PAGE>
Warrant Certificate may be exercised at any time, in whole or in part, on
or after determination of the Exercise Price (the "Effective Date") through 5:00
PM New York City time, on the tenth anniversary of the Effective Date (the
"Expiration Date") all on the terms and subject to the conditions hereinafter
set forth (the "Warrants").
The Number Issuable and the Exercise Price are subject to
further adjustment from time to time pursuant to the provisions of Section 2 of
this Warrant Certificate.
Capitalized terms used herein but not otherwise defined shall
have the meanings given to them in Section 12 hereof.
Section 1. Exercise of Warrants.
(a) Subject to the last paragraph of this Section 1, the
Warrants evidenced hereby may be exercised, in whole or in part, by the Holder
hereof at any time or from time to time, on or after the Effective Date and on
or prior to the Expiration Date upon delivery to the Company at the principal
executive office of the Company in the United States of America, of (A) this
Warrant Certificate, (B) a written notice stating that such Holder elects to
exercise the Warrants evidenced hereby in accordance with the provisions of this
Section 1 and specifying the number of Warrants being exercised and the name or
names in which the Holder wishes the certificate or certificates for shares of
Common Stock to be issued and (C) payment of the Exercise Price for such
Warrants, which shall be payable by any one or any combination of the following:
(i) cash; (ii) certified or official bank check payable to the order of the
Company; (iii) by the surrender (which surrender shall be evidenced by
cancellation of the number of Warrants represented by any Warrant Certificate
presented in connection with a Cashless Exercise (as defined below)) of a
Warrant or Warrants (represented by one or more relevant Warrant Certificates),
and without the payment of the Exercise Price in cash, in return for the
delivery to the surrendering Holder of such number of shares of Common Stock
equal to the number of shares of the Common Stock for which such Warrant is
exercisable as of the date of exercise (if the Exercise Price were being paid in
cash or certified or official bank check) reduced by that number of shares of
Common Stock equal to the quotient obtained by dividing (x) the aggregate
Exercise Price (assuming no Cashless Exercise) to be paid by (y) the Market
Price of one Share of Common Stock on the Business Day which immediately
precedes the day of exercise of the Warrant; or (iv) by the delivery of shares
of the Common Stock having a value (as defined by the next sentence) equal to
the aggregate Exercise Price to be paid, that are either held by the Holder or
are acquired in connection with such exercise, and without payment of the
Exercise Price in cash. Any share of Common Stock delivered as payment for the
Exercise Price in connection with an In-Kind Exercise (as defined below) shall
be deemed to have a value equal to the Market Price of one Share of Common Stock
on the Business Day which immediately precedes the day of exercise of the
Warrants. An exercise of a Warrant in accordance with clause (iii) is herein
referred to as a "Cashless Exercise" and an exercise of a Warrant in accordance
with clause (iv) is herein referred to as an "In-Kind Exercise." The
documentation and consideration, if any, delivered in accordance with
2
<PAGE>
subsections (A), (B) and (C) are collectively referred to herein as the "Warrant
Exercise Documentation."
(b) As promptly as practicable, and in any event within five
(5) Business Days after receipt of the Warrant Exercise Documentation, the
Company shall deliver or cause to be delivered (A) certificates representing the
number of validly issued, fully paid and nonassessable shares of Common Stock
specified in the Warrant Exercise Documentation, (B) if applicable, cash in lieu
of any fraction of a share, as hereinafter provided, and (C) if less than the
full number of Warrants evidenced hereby are being exercised or used in a
Cashless Exercise, a new Warrant Certificate or Certificates, of like tenor, for
the number of Warrants evidenced by this Warrant Certificate, less the number of
Warrants then being exercised and/or used in a Cashless Exercise. Such exercise
shall be deemed to have been made at the close of business on the date of
delivery of the Warrant Exercise Documentation so that the Person entitled to
receive shares of Common Stock upon such exercise shall be treated for all
purposes as having become the record holder of such shares of Common Stock at
such time.
(c) The Company shall pay all expenses incurred by the Company
in connection with and taxes and other governmental charges (other than income
taxes of the Holder) that may be imposed in respect of, the issue or delivery of
any shares of Common Stock issuable upon the exercise of the Warrants evidenced
hereby. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any
certificate for shares of Common Stock, as the case may be, in any name other
than that of the registered holder of the Warrant evidenced hereby.
(d) In connection with the exercise of any Warrants evidenced
hereby, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest multiplied by the Market
Price for one Share of Common Stock on the Business Day which immediately
precedes the day of exercise. If more than one (1) such Warrant shall be
exercised by the holder thereof at the same time, the number of full shares of
Common Stock issuable on such exercise shall be computed on the basis of the
total number of Warrants so exercised.
Section 2. Certain Adjustments.
(a) The number of shares of Common Stock purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(i) Stock Dividends, Subdivision, Combination or
Reclassification of Common Stock. If at any time after the Issue Date the
Company shall (i) pay a dividend on Common Stock in shares of its capital stock,
(ii) combine its outstanding shares of Common Stock into a smaller number of
shares, (iii) subdivide its outstanding shares of Common Stock as the case may
be, or (iv) issue by reclassification of its shares of Common Stock any shares
of capital stock of the Company, then, on the
3
<PAGE>
record date for such dividend or the effective date of such subdivision or
split-up, combination or reclassification, as the case may be, the number and
kind of shares to be delivered upon exercise of this Warrant will be adjusted so
that the Holder will be entitled to receive the number and kind of shares of
capital stock that such Holder would have owned or been entitled to receive upon
or by reason of such event had this Warrant been exercised immediately prior
thereto, and the Exercise Price will be adjusted as provided below in paragraph
2(a)(v).
(ii) Extraordinary Distributions. If at any time after the
Issue Date, the Company shall distribute to all holders of Common Stock
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation and
Common Stock is not changed or exchanged) cash, evidences of indebtedness,
securities or other assets (excluding (A) ordinary course cash dividends to the
extent such dividends do not exceed the Company's retained earnings and (B)
dividends payable in shares of capital stock for which adjustment is made under
Section 2(a)(i), or rights, options or warrants to subscribe for or purchase
securities of the Company), then in each such case the number of shares of
Common Stock to be delivered to such Holder upon exercise of this Warrant shall
be increased so that the Holder thereafter shall be entitled to receive the
number of shares of Common Stock determined by multiplying the number of shares
such Holder would have been entitled to receive immediately before such record
date by a fraction, the denominator of which shall be the Exercise Price on such
record date minus the then fair market value (as reasonably determined by the
Board of Directors of the Company in good faith) of the portion of the cash,
evidences of indebtedness, securities or other assets so distributed or of such
rights or warrants applicable to one share of the Common Stock (provided that
such denominator shall in no event be less than $.01) and the numerator of which
shall be the Exercise Price.
(iii) Reorganization, etc. If at any time after the Issue Date
any consolidation of the Company with or merger of the Company with or into any
other Person (other than a merger or consolidation in which the Company is the
surviving or continuing corporation and which does not result in any
reclassification of, or change (other than a change in par value or from par
value to no par value or from no par value to par value, or as a result of a
subdivision or combination) in, outstanding shares of either Common Stock) or
any sale, lease or other transfer of all or substantially all of the assets of
the Company to any other person (each, a "Reorganization Event"), shall be
effected in such a way that the holders of the Common Stock shall be entitled to
receive cash, stock, other securities or assets (whether such cash, stock, other
securities or assets are issued or distributed by the Company or another Person)
with respect to or in exchange for the Common Stock, then, upon exercise of this
Warrant, the Holder shall have the right to receive the kind and amount of cash,
stock, other securities or assets receivable upon such Reorganization Event by a
holder of the number of shares of the Common Stock that such holder would have
been entitled to receive upon exercise of this Warrant had this Warrant been
exercised immediately before such Reorganization Event, subject to adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 2(a). The Company shall not enter into any of
4
<PAGE>
the transactions referred to in this Section 2(a)(iii) unless effective
provision shall be made so as to give effect to the provisions set forth in this
Section 2(a)(iii).
(iv) Carryover. Notwithstanding any other provision of this
Section 2(a), no adjustment shall be made to the number of shares of either
Common Stock to be delivered to the Holder (or to the Exercise Price) if such
adjustment represents less than .05% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to .05% or more of the number of
shares to be so delivered.
(v) Exercise Price Adjustment. Whenever the Number Issuable
upon the exercise of the Warrant is adjusted as provided pursuant to this
Section 2(a), the Exercise Price per share payable upon the exercise of this
Warrant shall be adjusted by multiplying such Exercise Price immediately prior
to such adjustment by a fraction, of which the numerator shall be the Number
Issuable upon the exercise of the Warrant immediately prior to such adjustment,
and of which the denominator shall be the Number Issuable immediately
thereafter; provided, however, that the Exercise Price for each Share of the
Common Stock shall in no event be less than the par value of a share of such
Common Stock.
(vi) Issuance of Common Stock or Common Stock Equivalents
Below Exercise Price.
A. If the Company shall at any time or from time to time,
after the Issue Date but prior to the exercise hereof, issue or sell (such
issuance or sale, a "New Issuance") any shares of Common Stock or Common Stock
Equivalents at a price per share of Common Stock (the "New Issue Price") that is
less than the Exercise Price then in effect as of the New Issuance Date (as
defined below), as the case may be (the "Relevant Date") (treating the price per
share of Common Stock, in the case of the issuance of any Common Stock
Equivalent, as equal to (x) the sum of the price for such Common Stock
Equivalent plus any additional consideration payable (without regard to any
anti-dilution adjustments) upon the conversion, exchange or exercise of such
Common Stock Equivalent divided by (y) the number of shares of Common Stock
initially underlying such Common Stock Equivalent, other than (i) issuances or
sales for which an adjustment is made pursuant to another subsection of this
Section 2 and (ii) issuances in connection with an Excluded Transaction, then,
and in each such case, (A) the Exercise Price then in effect shall be adjusted
to equal the New Issue Price and (B) the Number Issuable shall be increased to
equal the product of (i) the Number Issuable upon the exercise of this Warrant
immediately prior to the New Issuance multiplied by (ii) a fraction, the
numerator of which shall be the Exercise Price in effect on the day immediately
prior to the Relevant Date and the denominator of which shall be the Exercise
Price in effect immediately after such adjustment; provided, however, that the
Exercise Price for each Share of the Common Stock shall in no event be less than
the par value of a share of such Common Stock.
5
<PAGE>
Such adjustment shall be made whenever such shares of Common
Stock or Common Stock Equivalents are issued, and shall become effective
retroactively on the date (the "New Issuance Date") of such issuance; provided,
however, that the determination as to whether an adjustment is required to be
made pursuant to this Section 2(a)(vi) shall be made only upon the issuance of
such shares of Common Stock or Common Stock Equivalents, and not upon the
issuance of any security into which the Common Stock Equivalents convert,
exchange or may be exercised.
B. In case at any time any shares of Common Stock or
Common Stock Equivalents or any rights or options to purchase any shares of
Common Stock or Common Stock Equivalents shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Company therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith, as determined in good faith by the Board of
Directors.
C. If any Common Stock Equivalents (or any portions
thereof) which shall have given rise to an adjustment pursuant to this Section
2(a)(vi) shall have expired or terminated without the exercise thereof and/or if
by reason of the terms of such Common Stock Equivalents there shall have been an
increase or increases, with the passage of time or otherwise, in the price
payable upon the exercise or conversion thereof, then the Exercise Price
hereunder shall be readjusted (but to no greater extent than originally
adjusted) in order to (i) eliminate from the computation any additional shares
of Common Stock corresponding to such Common Stock Equivalents as shall have
expired or terminated, (ii) treat the additional shares of Common Stock, if any,
actually issued or issuable pursuant to the previous exercise of such Common
Stock Equivalents as having been issued for the consideration actually received
and receivable therefor and (iii) treat any of such Common Stock Equivalents
which remain outstanding as being subject to exercise or conversion on the basis
of such exercise or conversion price as shall be in effect at the time.
(b) Notice of Adjustment. Whenever the Number Issuable or the
Exercise Price is adjusted as herein provided, the Company shall promptly mail
by first class mail, postage prepaid, to the Holder, notice of such adjustment
or adjustments setting forth the Number Issuable and the Exercise Price after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
Section 3. No Redemption. The Company shall not have any right
to redeem any of the Warrants evidenced hereby.
Section 4. Notice of Certain Events. In case at any time or
from time to time (i) the Company shall declare any dividend or any other
distribution to all holders of Common Stock, (ii) the Company shall authorize
the granting to the holders of Common Stock of rights or warrants to subscribe
for or purchase any additional shares of stock of any class or any other right,
(iii) the Company shall authorize the issuance or sale of any other shares or
rights which would result in an adjustment to the Number
6
<PAGE>
Issuable pursuant to Section 2(a)(i), (ii) or (iii), (iv) there shall be any
capital reorganization or reclassification of Common Stock of the Company or
consolidation or merger of the Company with or into another Person, or any sale
or other disposition of all or substantially all the assets of the Company, or
(v) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then, in any one or more of such cases the Company
shall mail to the Holder at such Holder's address as it appears on the transfer
books of the Company, as promptly as practicable but in any event at least 10
days prior to the date on which the transactions contemplated in Section
2(a)(i), (ii) or (iii), a notice stating (a) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights or warrants or, if
a record is not to be taken, the date as of which the holders of record of
either Common Stock to be entitled to such dividend, distribution, rights or
warrants are to be determined, or (b) the date on which such reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective. Such notice also shall specify the date as of
which it is expected that the holders of record of the Common Stock shall be
entitled to exchange the Common Stock for shares of stock or other securities or
property or cash deliverable upon such reorganization, reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up.
Section 5. Certain Covenants. The Company covenants and agrees
that all shares of Capital Stock of the Company which may be issued upon the
exercise of the Warrants evidenced hereby will be duly authorized, validly
issued and fully paid and nonassessable. The Company shall at all times reserve
and keep available for issuance upon the exercise of the Warrants, such number
of its authorized but unissued shares of Common Stock as will from time to time
be sufficient to permit the exercise of all outstanding Warrants, and shall take
all action required to increase the authorized number of shares of Common Stock
if at any time there shall be insufficient authorized but unissued shares of
Common Stock to permit such reservation or to permit the exercise of all
outstanding Warrants.
Section 6. Registered Holder. The persons in whose names this
Warrant Certificate is registered shall be deemed the owner hereof and of the
Warrants evidenced hereby for all purposes. The registered Holder of this
Warrant Certificate, in their capacity as such, shall not be entitled to any
rights whatsoever as a stockholder of the Company, except as herein provided.
Section 7. Transfer of Warrants. Any transfer of the rights
represented by this Warrant Certificate shall be effected by the surrender of
this Warrant Certificate, along with the form of assignment attached hereto,
properly completed and executed by the registered Holder hereof, at the
principal executive office of the Company in the United States of America,
together with an appropriate investment letter and opinion of counsel, if deemed
reasonably necessary by counsel to the Company to assure compliance with
applicable securities laws. Thereupon, the Company shall issue in the name or
names specified by the registered Holder hereof and, in the event of a partial
transfer, in the name of the registered Holder hereof, a new Warrant Certificate
or Certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
7
<PAGE>
Section 8. Denominations. The Company covenants that it will,
at its expense, promptly upon surrender of this Warrant Certificate at the
principal executive office of the Company in the United States of America,
execute and deliver to the registered Holder hereof a new Warrant Certificate or
Certificates in denominations specified by such Holder for an aggregate number
of Warrants equal to the number of Warrants evidenced by this Warrant
Certificate.
Section 9. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant Certificate of like tenor for a number of Warrants equal to
the number of Warrants evidenced by this Warrant Certificate.
Section 10. Governing Law. THIS WARRANT CERTIFICATE SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 11. Rights Inure to Registered Holder. The Warrants
evidenced by this Warrant Certificate will inure to the benefit of and be
binding upon the registered Holder thereof and the Company and their respective
successors and permitted assigns. Nothing in this Warrant Certificate shall be
construed to give to any Person other than the Company and the registered Holder
thereof any legal or equitable right, remedy or claim under this Warrant
Certificate, and this Warrant Certificate shall be for the sole and exclusive
benefit of the Company and such registered Holder. Nothing in this Warrant
Certificate shall be construed to give the registered Holder hereof any rights
as a Holder of shares of either Common Stock until such time, if any, as the
Warrants evidenced by this Warrant Certificate are exercised in accordance with
the provisions hereof.
Section 12. Definitions. For the purposes of this Warrant
Certificate, the following terms shall have the meanings indicated below:
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York, New York are
authorized or required by law or executive order to close.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock (or equivalent ownership interests in a Person not a
corporation) whether now outstanding or hereafter issued, including, without
limitation, any rights, warrants or options to purchase such Person's capital
stock.
8
<PAGE>
"Common Stock" shall mean the common stock of the Company.
"Common Stock Equivalent" means any security or obligation
which is by its terms convertible into or exercisable for shares of Common
Stock, including, without limitation, any option, warrant or other subscription
or purchase right with respect to Common Stock.
"Current Market Price" per share shall mean, as of the date of
determination, (a) the average of the daily Market Prices under clause (a), (b)
or (c) of the definition thereof, as applicable, of the Common Stock during the
immediately preceding ten (10) trading days ending on such date, and (b) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, then the Market
Price under clause (d) of the definition thereof on such date.
"Excluded Transaction" means any issuance of: (x) any equity
securities issued at then fair market value pursuant to the Company's employee
option or stock inventive plan approved by the Board of Directors of the Company
on or prior to October 12, 2000, or (y) any equity securities issued at then
fair market value as consideration for services of non-employee third parties
provided to the Company (in an aggregate amount not to exceed 100,000 shares of
Common Stock in any fiscal year (as such number may be adjusted to reflect stock
splits, continuations and the like)).
"Market Price" shall mean, per share of Common Stock, on any
date specified herein: (a) if the Common Stock is listed on a national
securities exchange, the Closing Price per share of Common Stock on such date
published in The Wall Street Journal (National Edition) or, if no such closing
price on such date is published in The Wall Street Journal (National Edition),
the average of the closing bid and asked prices on such date, as officially
reported on the principal national securities exchange on which the Common Stock
is then listed or admitted to trading; or (b) if the Common Stock is not then
listed or admitted to trading on any national securities exchange, but is
designated as a national market system security, the last trading price of the
Common Stock on such date; or (c) if there shall have been no trading on such
date or if the Common Stock is not so designated, the average of the reported
closing bid and asked price of the Common Stock, on such date as shown by NASDAQ
and reported by any member firm of the NYSE selected by the Company; or (d) if
none of (a), (b) or (c) is applicable, a market price per share determined in
good faith by the Board of Directors of the Company, which shall be deemed to be
"Fair Market Value" unless holders of at least 15% of Common Stock issued or
issuable upon exercise of the Warrants request that the Company obtain an
opinion of a nationally recognized investment banking firm chosen by the Company
(who shall bear the expense) and reasonably acceptable to such requesting
holders of the Warrants, in which event the Fair Market Value shall be as
determined by such investment banking firm.
"NASDAQ" means the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System.
9
<PAGE>
"NYSE" shall mean the New York Stock Exchange, Inc.
"Person" shall mean any individual, corporation, limited
liability company, partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
Section 13. Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
courier services or personal delivery, (a) if to the Holder of a Warrant, at
such Holder's last known address appearing on the books of the Company; and (b)
if to the Company, at its principal executive office in the United States, or
such other address as shall have been furnished to the party given or making
such notice, demand or other communication. All such notices and communications
shall be deemed to have been duly given: (i) when delivered by hand, if
personally delivered; (ii) when delivered to a courier if delivered by
commercial overnight courier service; and (iii) five (5) Business Days after
being deposited in the mail, postage prepaid, if mailed.
10
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed as of this ___ day of [________], 200[_].
BLUEFLY, INC.
By:
--------------------------------
Name:
Title:
11
<PAGE>
[Form of Assignment Form]
[To be executed upon assignment of Warrants]
The undersigned hereby assigns and transfers this Warrant
Certificate to ___________________ whose Social Security Number or Tax ID Number
is _________________ and whose record address is
_____________________________________, and irrevocably appoints ________________
as agent to transfer this security on the books of the Company. Such agent may
substitute another to act for such agent.
Signature:
-------------------------------
Signature Guarantee:
--------------------------------
Date: ___________________________
12