SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Bluefly, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
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BLUEFLY, INC.
42 WEST 39TH STREET
NEW YORK, NY 10018
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
of Bluefly, Inc. (the "Company"), which will be held on April 29, 2005 at 4:00
p.m., at the Company's offices at 42 West 39th Street, 9th Floor, New York, New
York. The formal Notice of Annual Meeting and Proxy Statement, fully describing
the matters to be acted upon at the meeting, appear on the following pages.
The matters scheduled to be considered at the meeting are the election
of directors and the approval of our 2005 Stock Incentive Plan.
The Board of Directors recommends a vote FOR all the proposals being
presented at the meeting as being in the best interest of the Company and its
stockholders. We urge you to read the Proxy Statement and give these proposals
your careful attention before completing the enclosed proxy card.
Your vote is important regardless of the number of shares you own.
Please be sure you are represented at the meeting, whether or not you plan to
attend, by signing, dating and mailing the proxy card promptly. A postage-paid
return envelope is enclosed for your convenience.
If you would like additional copies of the proxy material, or if you
would like to ask questions about the proposals, you should contact our Investor
Relations Department by telephone at (212) 944-8000.
Sincerely,
ALAN KANE
Chairman of the Board
BLUEFLY, INC.
42 WEST 39TH STREET
NEW YORK, NEW YORK 10018
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 29, 2005
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NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of
Bluefly, Inc. (the "Company") will be held at 4:00 p.m., local time, on April
29, 2005 at the Company's offices at 42 West 39th Street, 9th Floor, New York,
New York, for the following purposes:
1. To elect five directors of the Company to hold office until the next
annual meeting of stockholders.
2. To approve the Bluefly, Inc. 2005 Stock Incentive Plan.
3. To transact such other business as may properly come before the meeting.
Only holders of record of the Company's Common Stock and the Company's
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock,
Series C Convertible Preferred Stock, Series D Convertible Preferred Stock and
Series E Convertible Preferred Stock at the close of business on March 24, 2005
are entitled to notice of, and to vote at, the meeting and any adjournment
thereof. Such stockholders may vote in person or by proxy.
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE FILL IN, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE THAT
YOUR SHARES ARE REPRESENTED AT THE MEETING. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
By Order of the Board of Directors,
ALAN KANE
Chairman of the Board
March 29, 2005
BLUEFLY, INC.
42 WEST 39TH STREET
NEW YORK, NEW YORK 10018
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PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
by the board of directors (the "Board of Directors") of Bluefly, Inc., a
Delaware corporation (the "Company"), of proxies to be used at the annual
meeting of stockholders of the Company to be held at 4:00 p.m., local time, on
April 29, 2005, at the Company's offices at 42 West 39th Street, 9th Floor, New
York, New York, and at any adjournment thereof. The purposes of the meeting are:
1. To elect five directors of the Company to hold office until the next
annual meeting of stockholders;
2. To approve the Bluefly, Inc. 2005 Stock Incentive Plan (the "Plan"); and
3. To transact such other business as may properly come before the meeting.
If proxy cards in the accompanying form are properly executed and
returned, the shares of the Company's Common Stock, $.01 par value per share
(the "Common Stock"), shares of the Company's Series A Convertible Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock"), shares of the
Company's Series B Convertible Preferred Stock, par value $.01 per share (the
"Series B Preferred Stock"), shares of the Company's Series C Convertible
Preferred Stock, par value $.01 per share (the "Series C Preferred Stock"),
shares of the Company's Series D Preferred Stock, par value $.01 per share (the
"Series D Preferred Stock"), and shares of the Company's Series E Preferred
Stock, par value $.01 per share (the "Series E Preferred Stock," and, together
with the Common Stock, the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock and the Series D Preferred Stock, the
"Voting Stock"), represented thereby will be voted as instructed on the proxy.
If no instructions are given, such shares will be voted (i) for the election as
directors of the nominees of the Board of Directors named below; (ii) for the
approval of the Plan; and (iii) in the discretion of the proxies named in the
proxy card on any other proposals to properly come before the meeting or any
adjournment thereof. Any proxy may be revoked by a stockholder of record prior
to its exercise upon written notice to the Secretary of the Company, or by the
vote of such stockholder cast in person at the meeting. The approximate date of
mailing of this Proxy Statement and accompanying form of proxy is March 29,
2005.
VOTING
Holders of record Voting Stock as of the close of business on March 24,
2005 (the "Record Date") will be entitled to vote at the meeting or any
adjournment thereof. Each share of Common Stock entitles the holder thereof to
one vote on all matters to come before the stockholders at the meeting. Each
share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock entitles the holder
thereof to the number of votes equal to the number of shares of Common Stock
(rounded up to the nearest whole number) into which such share is convertible as
of the Record Date. As of the Record Date: (a) each share of Series A Preferred
Stock was convertible into approximately 8.6 shares of Common Stock, and
therefore, entitles the holder thereof to nine votes on all matters to come
before the meeting; (b) each share of Series B Preferred Stock was convertible
into approximately 3.1 shares of Common Stock and, therefore, entitles the
holder thereof to four votes on all matters to come before the meeting; and (c)
each share of Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock was convertible into approximately 1,315.79 shares of Common
Stock and, therefore, entitles the holder thereof to 1,316 votes on all matters
to come before the meeting. None of the Voting Stock is entitled to cumulative
voting.
Holders of a majority of the votes entitled to be cast at the meeting
will constitute a quorum for the transaction of business. As of the Record Date,
there were 15,340,182 shares of Common Stock outstanding, each entitled to one
vote, 460,000 shares of Series A Preferred Stock outstanding, each entitled to
nine votes, 8,889,414 shares of Series B Preferred Stock, each entitled to four
votes, 1,000 shares of Series C Preferred Stock, each entitled to 1,316 votes,
7,136.548 shares of Series D Preferred Stock, each entitled to 1,316 votes and
1,000 shares
of Series E Preferred Stock, each entitled to 1,316 votes. The total number of
votes entitled to be cast at the meeting is, therefore, 67,061,535. Abstentions
and so-called "broker non-votes" (instances in which brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned a
proxy) are counted for purposes of determining the presence or absence of a
quorum for the transaction of business.
The favorable vote of a majority of the votes cast by holders of shares
of Voting Stock, present in person or represented by proxy at the meeting,
voting together as a class, is necessary to approve the Plan; and the favorable
vote of a plurality of the votes cast by holders of shares of Voting Stock,
present in person or represented by proxy at the meeting, voting together as a
class, is necessary to elect the nominees for the directors of the Company.
Abstentions and broker non-votes will not be counted as votes cast with respect
to, and therefore will have no effect on, the election of directors and the
approval of the Plan. The Board of Directors recommends a vote FOR each of the
proposals set forth above.
ITEM 1. ELECTION OF DIRECTORS
Five directors are to be elected at the meeting to serve until the next
annual meeting of stockholders. The Board of Directors has recommended the
persons named in the table below as nominees for election as directors. All such
persons are presently directors of the Company. Unless otherwise specified in
the accompanying proxy, the shares voted pursuant to it will be voted for the
persons named below as nominees for election as directors. If, for any reason,
at the time of the election, any of the nominees should be unable or unwilling
to accept election, such proxy will be voted for the election, in such nominee's
place, of a substitute nominee recommended by the Board of Directors. However,
the Board of Directors has no reason to believe that any nominee will be unable
or unwilling to serve as a director.
The Board of Directors also includes two members who are not elected by
the holders of the Common Stock, and whose election is, therefore, not to be
considered at the meeting. One of these directors (the "Series A Preferred
Designee") is elected by the holders of the Series A Preferred Stock, voting
separately as a class, and the other (the "Series B Preferred Designee," and,
together with the Series A Preferred Designee, the "Preferred Designees") is
elected by the holders of the Series B Preferred Stock.
The following information is supplied with respect to the nominees for
election as directors of the Company and the Preferred Designees:
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NOMINEES FOR DIRECTOR; PREFERRED DESIGNEES
DIRECTOR OF THE
NAME OF DIRECTOR AGE COMPANY SINCE
--------------------------------------------- --- ---------------
Alan Kane 63 2002 to present
Melissa Payner-Gregor 45 2003 to present
Barry Erdos 60 2005 to present
Christopher G. McCann 44 2005 to present
Martin Miller 74 1991 to present
Neal Moszkowski (Series A Preferred Designee) 39 1999 to present
David Wassong (Series B Preferred Designee) 34 2001 to present
Alan Kane has served as a director of the Company since August 2002 and became
Chairman of the Board in August 2004. Since September 1997, Mr. Kane has been
the professor of retailing at the Columbia University Graduate School of
Business. Before joining the Columbia Business School, Mr. Kane spent 28 years
in the retailing industry. His experience in the retailing industry includes the
following: President and Chief Executive Officer of Grossman's Eastern Division,
a building materials retailer, from 1993 to 1994, President and Chief Executive
Officer of Pergament Home Centers, a home center retailer, from 1991 to 1993,
Private Consultant in the retailing industry from 1987 to 1991, and President
and Chief Executive Officer of Hahne & Company, a department store chain and
division of May Company, from 1979 to 1987. He has also served as a member of
the Board of Directors of Circuit City Stores, Inc. an electronics retailer,
since 2003.
Melissa Payner-Gregor, has served as the Company's President since September
2003 and became Chief Executive Officer in August 2004. From December 2000 to
March 2003, Ms. Payner-Gregor served as CEO and President of Spiegel Catalog.
She was also a board member of The Spiegel Group, Inc. ("Spiegel") from December
2000 to March 2003. From 1997 to 2000, Ms. Payner-Gregor was the Senior Vice
President of Merchandising and Advertising of Spiegel. Spiegel filed a plan of
reorganization under Chapter 11 of the Federal Bankruptcy code in March 2003.
From 1995 to 1997, Ms. Payner-Gregor was President and a board member of Chico
FAS, Inc. Ms. Payner-Gregor has also held senior executive positions with
Guess?, Inc., Pastille (a Division of Neiman Marcus) and Henri Bendel.
Barry Erdos has served as a director of the Company since February 2005. Since
April 2004, Mr. Erdos has served as President and Chief Operating Officer of
Build a Bear Workshop, Inc., a specialty retailer of plush animals and related
products. Mr. Erdos was the Chief Operating Officer and a director of Ann Taylor
Stores Corporation and Ann Taylor Inc., a women's apparel retailer, from
November 2001 to April 2004. He was Executive Vice President, Chief Financial
Officer and Treasurer of Ann Taylor Stores Corporation and Ann Taylor Inc. from
1999 to 2001. Prior to that, he was Chief Operating Officer of J. Crew Group,
Inc., a specialty retailer of apparel, shoes and accessories, from 1998 to 1999.
Christopher G. McCann has served as a director since February 2005. Since
September 2000, Mr. McCann has been the President of 1-800-flowers, a leading
retailer of floral products and other gifts, and prior to that was that
company's Senior Vice President. Mr. McCann has been a Director of 1-800-flowers
since inception. Mr. McCann serves on the board of directors of Neoware, Inc., a
provider of software, services and solutions to enable thin client appliance
computing, and is a member of the Board of Trustees of the Marist College.
3
Martin Miller has served as a director since July 1991. Since July 1999, Mr.
Miller has served as the President of The Terbell Group, Inc., a consulting
company. From October 1997 to April 2003, Mr. Miller has been a partner in the
Belvedere Fund, L.P., a fund of hedge funds.
Neal Moszkowski has served as a director since August 1999 and is the Series A
Preferred Stock designee. Mr. Moszkowski is the co-head of Soros Private Equity,
the private equity investment business of Soros Fund Management LLC ("Soros
Private Equity"), and has been a partner of Soros Private Equity since August
1998. Prior to joining Soros Private Equity, Mr. Moszkowski was an Executive
Director of Goldman Sachs International and a Vice President of Goldman, Sachs &
Co., an investment banking firm, in its Principal Investment Area. He joined
Goldman, Sachs & Co. in August 1993. Mr. Moszkowski is also a Director of
Integra LifeSciences Holdings, Inc., a medical products company, WellCare Health
Plans, Inc., a managed care services provider and JetBlue Airways Corporation, a
low fare airline.
David Wassong has served as a director since February 2001 and is the Series B
Preferred Stock designee. Mr. Wassong has been a partner of Soros Private Equity
since June 1998. Prior to joining Soros Private Equity, from July 1997 to June
1998, Mr. Wassong was Vice President, and previously Associate, at Lauder Gaspar
Ventures, LLC, a media, entertainment and telecommunications-focused venture
capital fund.
CORPORATE GOVERNANCE
The Board of Directors reviewed the independence of each of the
Company's directors in February 2005 on the basis of the standards adopted by
Nasdaq. In this review, the Board considered transactions and relationships
between the Company, on the one hand, and each director, members of his or her
immediate family, and other entities with which he or she is affiliated, on the
other hand. The purpose of this review was to determine which of such
transactions or relationships were inconsistent with a determination that the
director is independent under the Nasdaq rules. As a result of this review, the
Board of Directors affirmatively determined that Messrs. Kane, Erdos, McCann and
Miller are each "independent directors" within the meaning of the Nasdaq rules.
Although four of the seven directors are independent, the two Preferred
Designees (who are not independent) are each entitled to seven votes on any
matter that comes before the Board of Directors, and, accordingly, these
directors control 14 of the 19 possible votes on the Board. It is unclear
whether this voting structure provides the Company with a majority of
independent directors within the meaning of the Nasdaq rules. However, because a
majority of the voting power of the Company's capital stock is owned by
affiliates of Soros Private Equity ("Soros"), the Board has determined that it
is appropriate for the Company to rely upon the "Controlled Company" exemption
provided by Nasdaq rules. Accordingly, Nasdaq rules do not require that a
majority of the Company's Board of Directors be independent, and, similarly, do
not require that all of the members of the Nominating Committee (as defined
below) be independent.
During the fiscal year ended December 31, 2004, the Board of Directors
met, or acted by unanimous written consent, on nine occasions. Each of the
directors attended 75% or more of the aggregate number of meetings of the Board
of Directors and committee(s) on which he or she served during the 2004 fiscal
year. The Company does not have a policy with regard to the attendance by
directors at the Company's annual meeting of stockholders. Mr. Kane and Ms.
Payner-Gregor (along with our then-current Chairman of the Board and Chief
Executive Officer) attended last year's annual meeting of stockholders.
So long as at least 60% of the shares of Series A Preferred Stock
issued and outstanding as of August 26, 1999 remain issued and outstanding, the
Series A Preferred Designee is entitled to seven votes on any matter to come
before the Board of Directors. So long as 60% of the Series B Preferred Stock
issued and outstanding as of February 5, 2001 remains issued and outstanding,
the Series B Preferred Designee is entitled to seven votes on any matter to come
before the Board of Directors. As of the date of this Proxy Statement, such
minimum amounts of Series A Preferred Stock and Series B Preferred Stock remain
issued and outstanding and, therefore, the Preferred Designees are entitled to
cast 14 out of 19 votes to be cast by Board of Directors on any matter to come
before the Board of Directors.
The Board of Directors has established an Audit Committee ("Audit
Committee") in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Audit Committee is comprised
of Barry Erdos, Alan Kane, Chris McCann and Martin Miller. Mr. Erdos acts as
Chairman of the Audit Committee. The Audit Committee is responsible for the
appointment of the Company's outside
4
accountants, examining the results of audits, reviewing internal accounting
controls and reviewing related party transactions. The duties of the Audit
Committee are fully set forth in the charter adopted by that committee, a copy
of which was filed as an annex to the Company's proxy statement for its 2003
annual meeting. The Board has determined that Mr. Erdos is an "audit committee
financial expert" within the meaning of the Securities and Exchange
Commission's rules and that each member of the Audit Committee is "independent,"
as that term is used in Item 7(d)(3)(iv) of Schedule 14A promulgated under the
Exchange Act. During the fiscal year ended December 31, 2004, the Audit
Committee, met, or acted by unanimous written consent, on six occasions. The
information contained in this paragraph (other than the first sentence hereof)
shall not be deemed incorporated by reference by any general statement
incorporating by reference the Proxy Statement into any filing under the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
and shall not otherwise be deemed filed under such Acts.
The Board of Directors also has established an Option Plan/Compensation
Committee ("Option Plan/Compensation Committee") consisting of Neal Moszkowski
and Martin Miller. The Option Plan/Compensation Committee administers the Plan,
as well as the Company's 1997 and 2000 Stock Option Plans, establishes the
compensation levels for executive officers and key personnel and oversees the
Company's bonus plans. During the fiscal year ended December 31, 2004, the
Option Plan/Compensation Committee, met, or acted by unanimous written consent,
on 17 occasions.
The Board of Directors also established a Nominating and Governance
Committee ("Nominating Committee"), consisting of Alan Kane and David Wassong.
Mr. Kane is an independent director under Nasdaq rules. While Mr. Wassong is not
an independent director under Nasdaq rules, he is permitted to sit on the
Nominating Committee pursuant to the "Controlled Company" exemption discussed
above. The purposes of the Nominating Committee are to assist the Board of
Directors by identifying individuals qualified to become directors, and setting
criteria for, and evaluating, candidates for director nominees, and to recommend
to the Board of Directors the director nominees for election at the annual
meetings of stockholders or for appointments to fill vacancies; recommend to the
Board of Directors nominees for each committee of the Board; advise the Board of
Directors about appropriate composition of the Board and its committees; advise
the Board of Directors about and recommend to the Board of Directors appropriate
corporate governance practices and to assist the Board of Directors in
implementing those practices; lead the Board of Directors in its annual review
of the performance of the Board and its committees; and perform such other
functions as the Board of Directors may assign to it from time to time. The
duties of the Nominating Committee are fully set forth in the charter adopted by
that committee, a copy of which was included as an annex to the proxy statement
for the Company's 2004 annual meeting. The Nominating Committee had one formal
meeting during 2004, although it also met on a less formal basis a number of
times throughout the year.
The Nominating Committee will consider many factors when evaluating
candidates for the nomination to the Board of Directors, with the goal of
fostering a Board of Directors comprised of directors with a variety of
experience and backgrounds. Important factors that will be considered as part of
the Nominating Committee's evaluation include (without limitation) diversity,
skill, specialized expertise, experience, business acumen, understanding of
strategy and policy-setting. Depending upon the Company's then-current needs,
certain factors may be weighed more or less heavily. In considering candidates
for the Board of Directors, the Nominating Committee will consider the entirety
of each candidate's credentials and does not have any specific minimum
qualifications that must be met. However, the Nominating Committee does believe
that all members of the Board of Directors should have the highest character and
integrity and sufficient time to devote to Company matters.
The Nominating Committee will consider persons recommended by
stockholders as candidates for nomination as a director. Recommendations should
be submitted to the Secretary of the Company. Each recommendation should include
a personal biography of the suggested candidate, an indication of the background
or experience that qualifies such person for consideration, and a statement that
such person has agreed to serve if nominated and elected. Stockholders who wish
to nominate a person for election to the Board of Directors themselves, rather
than recommending a candidate to the Nominating Committee for potential
nomination by the Board of Directors, must comply with applicable law.
Communication by stockholders may be made to any or all of the members
of the Board of Directors by writing directly to them c/o Bluefly, Inc., 42 West
39th Street, New York, New York 10018.
5
The Company has adopted a Code of Ethics applicable to all directors,
officers and employees, which meets the requirements of a "code of ethics" as
defined in Item 406 of Regulation S-K, and maintains procedures for the
confidential, anonymous submission by employees of complaints regarding the
Company's accounting, internal accounting controls, auditing matters and other
issues. A copy of the Company's code of ethics is available on the Company's Web
site at www.bluefly.com. Any amendment to or waiver of a provision of the code
of ethics that applies to the Company's principal executive officer, principal
financial officer, principal accounting officer, controller or persons
performing similar functions and relates to elements of the code specified in
the rules of the Securities and Exchange Commission will be posted on the Web
site.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee met and held discussions with management and
PricewaterhouseCoopers LLP ("PwC"). The Audit Committee reviewed and discussed
the audited consolidated financial statements for fiscal 2004 with management
and has discussed with the independent public accountants the matters required
to be discussed by Statement on Auditing Standards No. 61, "Communication with
Audit Committees."
The Company's independent public accountants also provided to the Audit
Committee certain written communications and the letter required by Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees." The Audit Committee also discussed with the independent public
accountants their independence from the Company.
Based on the Audit Committee's review and discussions described above,
the Audit Committee recommended to the Board that the Company's audited
consolidated financial statements for fiscal 2004 be included in the Company's
Annual Report on Form 10-K for fiscal 2004 filed with the Securities and
Exchange Commission.
AUDIT COMMITTEE
BARRY ERDOS
ALAN KANE
CHRIS MCCANN
MARTIN MILLER
6
SHARE OWNERSHIP
COMMON STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company as of the Record Date,
for (i) each person who is known by the Company to own beneficially more than 5%
of the Common Stock, (ii) each of the Company's directors, (iii) the Named
Executives (as defined below) and (iv) all directors and executive officers as a
group.
NUMBER OF SHARES
NAME (1) BENEFICIALLY OWNED PERCENTAGE (2)
------------------------------------------------------------ ------------------ --------------
Patrick C. Barry 1,558,149/(3)/ 9.22%
Barry Erdos -- *
Alan Kane 11,250/(4)/ *
Martin Keane 333,580/(5)/ 2.13%
Martin Miller 35,000/(6)//(7)/ *
Neal Moszkowski /(8)/ 22,500/(9)/ *
Christopher G. McCann -- *
Melissa Payner-Gregor 853,636/(10)/ 5.27%
E. Kenneth Seiff/(11)/ 2,096,800/(12)//(13)/ 12.20%
David Wassong /(8)/ 15,000/(14)/ *
SFM Domestic Investments LLC 1,576,833/(15)/ 9.42%
Quantum Industrial Partners LDC 48,188,318/(16)/ 82.74%
George Soros 49,765,151/(17)/ 83.44%
All directors and executive officers as a group (10 persons) 3,132,104/(18)/ 16.99%
----------
*Less than 1%.
(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise
of options or warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Includes 1,553,149 shares of Common Stock issuable upon exercise of
options granted under the Plan.
(4) Includes 11,250 shares of Common Stock issuable upon exercise of options
granted under the Plan.
(5) Includes 333,580 shares of Common Stock issuable upon exercise of
options granted under the Plan.
(6) Includes 32,000 shares of Common Stock issuable upon exercise of options
granted under the Plan.
(7) Includes 3,000 shares of Common Stock held by Madge Miller, the wife of
Martin Miller, as to which Mr. Miller disclaims beneficial ownership.
(8) Messrs. Moszkowski and Wassong's address is c/o Soros Fund Management
LLC, 888 Seventh Avenue, 28th floor, New York, New York 10106. Messrs.
Moszkowski and Wassong are the designees of the holders of the Series A
and B Preferred Stock, respectively. Messrs. Moszkowski and Wassong
disclaim beneficial ownership of the shares of Common Stock beneficially
owned by George Soros, SFMDI and QIP (as defined in notes (15) and (16)
below) and none of such shares are included in the table above as being
beneficially owned by them.
(9) Includes 22,500 shares of Common Stock issuable upon exercise of options
granted under the Plan.
7
(10) Includes 853,636 shares of Common Stock issuable upon exercise of
options granted under the Plan.
(11) Mr. Seiff resigned as an executive officer of the Company in August
2004. Mr. Seiff's address is c/o Seiff Ventures, LLC, 645 Madison
Avenue, 20th Floor, New York, New York 10022.
(12) Includes 3,000 shares of Common Stock held by Nicole Seiff, the wife of
E. Kenneth Seiff, as to which Mr. Seiff disclaims beneficial ownership.
(13) Includes 1,848,377 shares of Common Stock issuable upon exercise of
options.
(14) Includes 15,000 shares of Common Stock issuable upon exercise of
options.
(15) Represents: 124,700 shares of Common Stock issuable upon conversion of
14,590 shares of Series A Preferred Stock; 866,942 shares of Common
Stock issuable upon conversion of 281,571 shares of Series B Preferred
Stock; 41,710 shares of Common Stock issuable upon conversion of 31.7
shares of Series C Preferred Stock; 297,669 shares of Common Stock
issuable upon conversion of 226.229 shares of Series D Preferred Stock;
41,710 shares of Common Stock issuable upon conversion of 31.7 shares of
Series E Preferred Stock; 172,995 shares of Common Stock; 31,107 shares
of Common Stock issuable upon exercise of warrants (collectively, the
"SFMDI Shares") held in the name of SFM Domestic Investments LLC
("SFMDI"). SFMDI is a Delaware limited liability company. As sole
managing member of SFMDI, George Soros ("Mr. Soros") may also be deemed
the beneficial owner of the SFMDI Shares. The principal address of SFMDI
is at 888 Seventh Avenue, 33rd Floor, New York, New York 10106. The
foregoing information was derived, in part, from certain publicly
available reports, statements and schedules filed with the Commission.
(16) Represents: 3,806,923 shares of Common Stock issuable upon conversion of
445,410 shares Series A Preferred Stock; 26,503,095 shares of Common
Stock issuable upon conversion of 8,607,843 shares of Series B Preferred
Stock; 1,274,078 shares of Common Stock issuable upon conversion of
968.3 shares of Series C Preferred Stock; 9,092,525 shares of Common
Stock issuable upon conversion of 6,910.319 shares of Series D Preferred
Stock; 1,274,078 shares of Common Stock issuable upon conversion of
968.3 shares of Series E Preferred Stock; 5,287,082 shares of Common
Stock; 950,537 shares of Common Stock issuable upon exercise of warrants
(collectively, the "QIP Shares") held in the name of Quantum Industrial
Partners LDC ("QIP"). QIP is an exempted limited duration company formed
under the laws of the Cayman Islands with its principal address at Kaya
Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. QIH Management
Investor, L.P. ("QIHMI"), an investment advisory firm organized as a
Delaware limited partnership, is a minority shareholder of, and is
vested with investment discretion with respect to portfolio assets held
for the account of QIP. The sole general partner of QIHMI is QIH
Management LLC, a Delaware limited liability company ("QIH Management").
Soros Fund Management LLC, a Delaware limited liability company ("SFM"),
is the sole managing member of QIH Management. Mr. Soros, as Chairman of
SFM, may be deemed to have voting and dispositive power over securities
held for the account of QIP. Accordingly, each of QIP, QIHMI, QIH
Management, SFM and Mr. Soros may be deemed to be the beneficial owners
of the QIP Shares. Each has their principal office at 888 Seventh
Avenue, 33rd Floor, New York, New York 10106. The foregoing information
was derived, in part, from certain publicly available reports,
statements and schedules filed with the Commission.
(17) See (15) and (16) above
(18) Includes 3,091,165 shares of Common Stock issuable upon exercise of
options.
8
SERIES A PREFERRED STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the Series A Preferred Stock of the Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series A Preferred Stock of the Company, (ii) each of the
Company's directors, (iii) the Named Executives, and (iv) all directors and
executive officers as a group.
NUMBER OF SHARES
NAME (1) BENEFICIALLY OWNED PERCENTAGE (2)
------------------------------------------------------------ ------------------ --------------
Patrick C. Barry - -
Barry Erdos - -
Alan Kane - -
Martin Keane - -
Martin Miller - -
Neal Moszkowski /(3)/ - -
Christopher G. McCann - -
Melissa Payner-Gregor - -
E. Kenneth Seiff/(6)/ - -
David Wassong /(3)/ - -
Quantum Industrial Partners LDC 445,410(4) 96.8%
George Soros 460,000(5) 100.0%
All directors and executive officers as a group (10 persons) - -
----------
*Less than 1%.
(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise
of options or warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Messrs. Moszkowski's and Wassong's address is c/o Soros Fund Management
LLC, 888 Seventh Avenue, 28th Floor, New York, New York 10106. Messrs.
Moszkowski and Wassong are the designees of the holders of the Series A
and B Preferred Stock. Messrs. Moszkowski and Wassong disclaim
beneficial ownership of the Series A Preferred Stock that may be deemed
to be beneficially owned by George Soros and QIP and none of such shares
are included in the table above as being beneficially owned by them.
(4) Represents the shares of Series A Preferred Stock held in the name of
QIP (the "QIP A Shares"). QIP is an exempted limited duration company
formed under the laws of the Cayman Islands, with its principal address
at Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. QIHMI,
an investment advisory firm organized as a Delaware limited partnership,
is a minority shareholder of, and is vested with investment discretion
with respect to portfolio assets held for the account of QIP. The sole
general partner of QIHMI is QIH Management. SFM is the sole managing
member of QIH Management. Mr. Soros, as Chairman of SFM, may be deemed
to have voting and dispositive power over securities held for the
account of QIP. Accordingly, each of QIHMI, QIH Management, SFM and Mr.
Soros may be deemed to be beneficial owners of the QIP Shares. Each has
their principal office at 888 Seventh Avenue, 33rd Floor, New York, New
York 10106. The foregoing information was derived, in part, from certain
publicly available reports, statements and schedules filed with the
Commission.
(5) Represents both (i) 14,590 shares of Series A Preferred Stock held in
the name of SFMDI (the "SFMDI A Shares") and (ii) the QIP A Shares
referenced in Note 4 above. As sole managing member of SFMDI,
9
Mr. Soros also may be deemed the beneficial owner of the SFMDI A Shares.
The principal office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New
York, New York 10106.
(6) Mr. Seiff resigned as an executive officer of the Company in August
2004. Mr. Seiff's address is c/o Seiff Ventures, LLC, 645 Madison
Avenue, 20th Floor, New York, New York 10022.
SERIES B PREFERRED STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the Series B Preferred Stock of the Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series B Preferred Stock of the Company, (ii) each of the
Company's directors, (iii) the Named Executives, and (iv) all directors and
executive officers as a group.
NUMBER OF SHARES
NAME (1) BENEFICIALLY OWNED PERCENTAGE (2)
------------------------------------------------------------ ------------------ --------------
Patrick C. Barry - -
Barry Erdos - -
Alan Kane - -
Martin Keane - -
Martin Miller - -
Neal Moszkowski /(3)/ - -
Christopher G. McCann - -
Melissa Payner-Gregor - -
E. Kenneth Seiff/(6)/ - -
David Wassong /(3)/ - -
Quantum Industrial Partners LDC 8,607,843(4) 96.8%
George Soros 8,889,414(5) 100.0%
All directors and executive officers as a group (10 persons) - -
----------------
*Less than 1%.
(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise
of options or warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Messrs. Moszkowski's and Wassong's address is c/o Soros Fund Management
LLC, 888 Seventh Avenue, 28th Floor, New York, New York 10106. Messrs.
Moszkowski and Wassong are the designees of the holders of the Series A
and B Preferred Stock. Messrs. Moszkowski and Wassong disclaim
beneficial ownership of the shares of Series B Preferred Stock that may
be deemed to be beneficially owned by George Soros and QIP and none of
such shares are included in the table above as being beneficially owned
by them.
(4) Represents the shares of Series B Preferred Stock held in the name of
QIP (the "QIP B Shares").QIP is an exempted limited duration company
formed under the laws of the Cayman Islands, with its principal address
at Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. QIHMI,
an investment advisory firm organized as a Delaware limited partnership,
is a minority shareholder of, and is vested with investment discretion
with respect to portfolio assets held for the account of QIP. The sole
general partner of QIHMI is QIH Management. SFM is the sole managing
member of QIH Management. Mr. Soros, as Chairman of SFM, may be deemed
to have voting and dispositive power over securities held for the
account of QIP. Accordingly, each of QIHMI, QIH Management, SFM and Mr.
Soros may be deemed to be beneficial owners of the QIP Shares. Each has
their principal office at 888 Seventh Avenue, 33rd Floor, New York,
10
New York 10106. The foregoing information was derived, in part, from
certain publicly available reports, statements and schedules filed with
the Commission.
(5) Represents both (i) 281,571 shares of Series B Preferred Stock held in
the name of SFMDI (the "SFMDI B Shares") and (ii) the QIP B Shares
referenced in Note 4 above. As managing member of SFMDI, Mr. Soros also
may be deemed the beneficial owner of the SFMDI Shares. The principal
office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
10106.
(6) Mr. Seiff resigned as an executive officer of the Company in August
2004. Mr. Seiff's address is c/o Seiff Ventures, LLC, 645 Madison
Avenue, 20th Floor, New York, New York 10022.
SERIES C PREFERRED STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the Series C Preferred Stock of the Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series C Preferred Stock of the Company, (ii) each of the
Company's directors, (iii) the Named Executives, and (iv) all directors and
executive officers as a group.
NUMBER OF SHARES
NAME (1) BENEFICIALLY OWNED PERCENTAGE (2)
------------------------------------------------------------ ------------------ --------------
Patrick C. Barry - -
Barry Erdos - -
Alan Kane - -
Martin Keane - -
Martin Miller - -
Neal Moszkowski /(3)/ - -
Christopher G. McCann - -
Melissa Payner-Gregor - -
E. Kenneth Seiff/(6)/ - -
David Wassong /(3)/ - -
Quantum Industrial Partners LDC 968.3/(4)/ 96.8%
George Soros 1,000.0/(5)/ 100.0%
All directors and executive officers as a group (10 persons) - -
----------
*Less than 1%.
(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise
of options or warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Messrs. Moszkowski's and Wassong's address is c/o Soros Fund Management
LLC, 888 Seventh Avenue, 28th Floor, New York, New York 10106. Messrs.
Moszkowski and Wassong are the designees of the holders of the Series A
and B Preferred Stock. Messrs. Moszkowski and Wassong disclaim
beneficial ownership of the shares of Series C Preferred Stock that may
be deemed to be beneficially owned by George Soros and QIP and none of
such shares are included in the table above as being beneficially owned
by them.
11
(4) Represents the shares of Series C Preferred Stock held in the name of
QIP (the "QIP C Shares").QIP is an exempted limited duration company
formed under the laws of the Cayman Islands, with its principal address
at Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. QIHMI,
an investment advisory firm organized as a Delaware limited partnership,
is a minority shareholder of, and is vested with investment discretion
with respect to portfolio assets held for the account of QIP. The sole
general partner of QIHMI is QIH Management. SFM is the sole managing
member of QIH Management. Mr. Soros, as Chairman of SFM, may be deemed
to have voting and dispositive power over securities held for the
account of QIP. Accordingly, each of QIHMI, QIH Management, SFM and Mr.
Soros may be deemed to be beneficial owners of the QIP Shares. Each has
their principal office at 888 Seventh Avenue, 33rd Floor, New York, New
York 10106. The foregoing information was derived, in part, from certain
publicly available reports, statements and schedules filed with the
Commission.
(5) Represents both (i) 31.7 shares of Series C Preferred Stock held in the
name of SFMDI (the "SFMDI C Shares") and (ii) the QIP C Shares
referenced in Note 4 above. As managing member of SFMDI, Mr. Soros also
may be deemed the beneficial owner of the SFMDI C Shares. The principal
office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
10106.
(6) Mr. Seiff resigned as an executive officer of the Company in August
2004. Mr. Seiff's address is c/o Seiff Ventures, LLC, 645 Madison
Avenue, 20th Floor, New York, New York 10022.
SERIES D PREFERRED STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the Series D Preferred Stock of the Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series D Preferred Stock of the Company, (ii) each of the
Company's directors, (iii) the Named Executives, and (iv) all directors and
executive officers as a group.
NUMBER OF SHARES
NAME (1) BENEFICIALLY OWNED PERCENTAGE (2)
------------------------------------------------------------ ------------------ --------------
Patrick C. Barry - -
Barry Erdos - -
Alan Kane - -
Martin Keane - -
Martin Miller - -
Neal Moszkowski /(3)/ - -
Christopher G. McCann - -
Melissa Payner-Gregor - -
E. Kenneth Seiff/(6)/ - -
David Wassong /(3)/ - -
Quantum Industrial Partners LDC 6,910.319/(4)/ 96.8%
George Soros 7,136.548/(5)/ 100.0%
All directors and executive officers as a group (10 persons) - -
----------
*Less than 1%.
(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise
of options or warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing
12
the percentage ownership of the person holding such options or warrants
but are not deemed outstanding for computing the percentage ownership of
any other person.
(3) Messrs. Moszkowski's and Wassong's address is c/o Soros Fund Management
LLC, 888 Seventh Avenue, 28th Floor, New York, New York 10106. Messrs.
Moszkowski and Wassong are the designees of the holders of the Series A
and B Preferred Stock. Messrs. Moszkowski and Wassong disclaim
beneficial ownership of the shares of Series D Preferred Stock that may
be deemed to be beneficially owned by George Soros and QIP and none of
such shares are included in the table above as being beneficially owned
by them.
(4) Represents the shares of Series D Preferred Stock held in the name of
QIP (the "QIP D Shares").QIP is an exempted limited duration company
formed under the laws of the Cayman Islands, with its principal address
at Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. QIHMI,
an investment advisory firm organized as a Delaware limited partnership,
is a minority shareholder of, and is vested with investment discretion
with respect to portfolio assets held for the account of QIP. The sole
general partner of QIHMI is QIH Management. SFM is the sole managing
member of QIH Management. Mr. Soros, as Chairman of SFM, may be deemed
to have voting and dispositive power over securities held for the
account of QIP. Accordingly, each of QIHMI, QIH Management, SFM and Mr.
Soros may be deemed to be beneficial owners of the QIP Shares. Each has
their principal office at 888 Seventh Avenue, 33rd Floor, New York, New
York 10106. The foregoing information was derived, in part, from certain
publicly available reports, statements and schedules filed with the
Commission.
(5) Represents both (i) 226.229 shares of Series D Preferred Stock held in
the name of SFMDI (the "SFMDI D Shares") and (ii) the QIP D Shares
referenced in Note 4 above. As managing member of SFMDI, Mr. Soros also
may be deemed the beneficial owner of the SFMDI D Shares. The principal
office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
10106.
(6) Mr. Seiff resigned as an executive officer of the Company in August
2004. Mr. Seiff's address is c/o Seiff Ventures, LLC, 645 Madison
Avenue, 20th Floor, New York, New York 10022.
13
SERIES E PREFERRED STOCK
The following table sets forth certain information with respect to the
beneficial ownership of the Series E Preferred Stock of the Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series E Preferred Stock of the Company, (ii) each of the
Company's directors, (iii) the Named Executives, and (iv) all directors and
executive officers as a group.
NUMBER OF SHARES
NAME (1) BENEFICIALLY OWNED PERCENTAGE (2)
------------------------------------------------------------ ------------------ -------------
Patrick C. Barry - -
Barry Erdos - -
Alan Kane - -
Martin Keane - -
Martin Miller - -
Neal Moszkowski /(3)/ - -
Christopher G. McCann - -
Melissa Payner-Gregor - -
E. Kenneth Seiff/(7)/ - -
David Wassong /(3)/ - -
Quantum Industrial Partners LDC 968.3/(4)//(6)/ 96.8%
George Soros 1,000/(5)//(6)/ 100.0%
All directors and executive officers as a group (10 persons) - -
----------
*Less than 1%.
(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the exercise
of options or warrants currently exercisable or exercisable within 60
days are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants but are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Messrs. Moszkowski's and Wassong's address is c/o Soros Fund Management
LLC, 888 Seventh Avenue, 28th Floor, New York, New York 10106. Messrs.
Moszkowski and Wassong are the designees of the holders of the Series A
and B Preferred Stock. Messrs. Moszkowski and Wassong disclaim
beneficial ownership of the shares of Series E Preferred Stock that may
be deemed to be beneficially owned by George Soros and QIP and none of
such shares are included in the table above as being beneficially owned
by them.
(4) Represents the shares of Series E Preferred Stock held in the name of
QIP (the "QIP E Shares").QIP is an exempted limited duration company
formed under the laws of the Cayman Islands, with its principal address
at Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles. QIHMI,
an investment advisory firm organized as a Delaware limited partnership,
is a minority shareholder of, and is vested with investment discretion
with respect to portfolio assets held for the account of QIP. The sole
general partner of QIHMI is QIH Management. SFM is the sole managing
member of QIH Management. Mr. Soros, as Chairman of SFM, may be deemed
to have voting and dispositive power over securities held for the
account of QIP. Accordingly, each of QIHMI, QIH Management, SFM and Mr.
Soros may be deemed to be beneficial owners of the QIP Shares. Each has
their principal office at 888 Seventh Avenue, 33rd Floor, New York, New
York 10106. The foregoing information was derived, in part, from certain
publicly available reports, statements and schedules filed with the
Commission.
14
(5) Represents both (i) 31.7 shares of Series E Preferred Stock held in the
name of SFMDI (the "SFMDI E Shares") and (ii) the QIP E Shares
referenced in Note 4 above. As managing member of SFMDI, Mr. Soros also
may be deemed the beneficial owner of the SFMDI E Shares. The principal
office of SFMDI is at 888 Seventh Avenue, 33rd Floor, New York, New York
10106.
(6) Mr. Seiff resigned as an executive officer of the Company in August
2004. Mr. Seiff's address is c/o Seiff Ventures, LLC, 645 Madison
Avenue, 20th Floor, New York, New York 10022.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and all positions and
offices with the Company held by the Company's present executive officers.
Name Age Positions and Offices Presently Held
------------------------ ----- ------------------------------------
Melissa Payner-Gregor 46 Chief Executive Officer and President
Patrick C. Barry 42 Chief Financial Officer and Chief Operating
Officer
Monica Halpert 45 Chief Marketing Officer
Martin Keane 40 Senior Vice President of E-Commerce
----------
Following is information with respect to the Company's executive
officers who are not also directors of the Company:
Patrick C. Barry served as an Executive Vice President of the Company from July
1998 to September 2000 and has been the Company's Chief Financial Officer since
August 1998. In September 2000, Mr. Barry assumed the role of Chief Operating
Officer and has served the Company in that capacity since such time. From June
1996 to July 1998, Mr. Barry served as the Chief Financial Officer and the Vice
President of Operations of Audible, Inc., an Internet commerce and content
provider. From March 1995 to June 1996, Mr. Barry was the Chief Financial
Officer of Warner Music Enterprises, a direct marketing subsidiary of Time
Warner, Inc. From July 1993 to March 1995, Mr. Barry served as Controller of
Book-of-the-Month Club, a direct marketing subsidiary of Time Warner, Inc.
Monica Halpert has served as the Company's Chief Marketing Officer since October
2004. Ms. Halpert has over 20 years of experience in marketing and brand
building. From September 2001 to October 2004, she worked as an independent
branding and marketing consultant for a number of clients, including AOL, ABC
Family, USA cable and News Corporation. From October 1998 to September 2001, Ms.
Halpert was a Senior Vice President and Creative Director of VH1.
Martin Keane served as the Company's Vice President of Product Development and
E-Commerce from January 1999 through September 2004 when he assumed the role of
Senior Vice President of E-Commerce. From 1997 to 1999, Mr. Keane was the Design
Director for Music Boulevard, an E-Commerce site owned by N2K, Inc. From 1990 to
1997, Mr. Keane served as Regional Manager for APCO Graphics, an architectural
graphics company.
15
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Objective and Philosophy. The Option Plan/Compensation Committee works
closely with management to design an executive compensation program to assist
the Company in attracting and retaining outstanding executives and senior
management personnel. The design and implementation of such program continually
evolves as the Company grows, but is based primarily on two elements: (i)
providing compensation opportunities that are competitive with competing
companies of similar size; and (ii) linking executives' compensation with the
Company's financial performance by rewarding the achievement of short-term and
long-term objectives of the Company.
Compensation Program Components. Currently, the three principal
components of the Company's executive compensation program are: (i) annual base
salary, (ii) short-term incentive compensation in the form of performance
bonuses payable in cash each year, and (iii) long-term incentive compensation in
the form of stock options. These programs are structured in accordance with the
Option Plan/Compensation Committee's objectives and philosophy.
Base Salary. Base salary levels for the Company's executives are
designed to be reflective of competitive conditions in the marketplace for
executives of comparable talent and experience and are based on responsibility
and performance. Base salaries for executives are generally recommended by
executive management for the review and approval of the Option Plan/Compensation
Committee and the Board (subject to applicable employment agreements).
Short-Term Incentive Compensation. The short-term incentive compensation
component consists of performance bonuses. The amount of any bonus is
determined, in part, based on individual and corporate goals that are set
annually and, in some instances, every six months. Bonuses paid to each
executive are based in part on measuring which of these goals have been realized
(subject to applicable employment agreements).
Long-Term Incentive Compensation. The long-term incentive compensation
component consists of stock option plans under which executives may be granted
stock options exercisable to purchase shares of Common Stock. The exercise price
of stock options represents the fair market value of the Common Stock on the
date of grant, which is the closing sale price of the Common Stock on the Nasdaq
SmallCap Market for the business day preceding the date of grant. Generally, the
stock options become exercisable in equal monthly increments over three or four
years (often subject to a six month "cliff" provision) and expire ten years from
the date of grant. The deferred vesting provisions of the stock options are
designed to reward long-term contributions and create an incentive for
executives to remain with the Company. The Option Plan/Compensation Committee
believes that granting stock options creates an incentive to promote the
long-term interests of the Company and aligns the economic benefit to be derived
therefrom by the Company's executives with those of the Company's outside
shareholders. Stock options are granted by the Option Plan/Compensation
Committee to key employees based on management's recommendation, and levels of
participation in the plan generally vary based on the employee's position with
the Company.
CEO Compensation. Ms. Payner-Gregor's employment agreement provides for
an annual base salary of $450,000, subject to increase by the Board of
Directors, and an annual bonus to be determined by the Board of Directors. In
March 2005, Ms. Payner-Gregor's annual base salary was raised to $500,000. Her
annual bonus for each fiscal year during her agreement cannot be less than 3% of
our net income for such fiscal year (or $100,000, if greater), and is subject to
a cap equal to 200% of her base salary. Subject to the provisions of her
employment agreement, her compensation is determined annually by the Option
Plan/Compensation Committee based on his compensation in prior years and the
compensation of CEO's of similarly sized companies in the internet retailing
industry.
Base Salary. During fiscal 2004, Ms. Payner-Gregor received an annual
base salary of $450,000.
Short-term Incentive Compensation. Ms. Payner-Gregor received a
performance bonus of $180,000 for fiscal 2004, which was awarded and paid in
2005. In addition, during 2004 she received a $75,000 relocation bonus in
accordance with the terms of her employment agreement and a $40,000 bonus in
connection with a financing consummated by the Company in January 2004.
16
Long-term Incentive Compensation. During fiscal 2004, Ms. Payner-Gregor
was granted 700,000 options to purchase Common Stock.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction for compensation over $1.0 million
paid to a Company's chief executive officer and certain other highly compensated
executive officers. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. The long-term incentive
compensation plan adopted by the Company has been structured to comply with the
requirements under Code Section 162(m) regarding qualifying performance-based
compensation to provide for the deductibility of compensation payable
thereunder. The Option Plan/Compensation Committee does not expect that the
total cash and non-cash compensation received by any executive of the Company in
fiscal 2004 will exceed $1.0 million.
OPTION PLAN/COMPENSATION COMMITTEE
NEAL MOSZKOWSKI
MARTIN MILLER
The foregoing report of the Option Plan/Compensation Committee shall not
be deemed incorporated by reference by any general statement incorporating by
reference the Proxy Statement into any filing under the Securities Act or the
Exchange Act, and shall not otherwise be deemed filed under such Acts.
17
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid by us during the fiscal years ended December 31, 2004, 2003 and 2002 to our
Chief Executive Officer, our former Chief Executive Officer and our two other
executive officers who received total compensation from us in excess of $100,000
in the year 2004 (the "Named Executive Officers").
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------ ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
------------------------------------- ------ --------- ---------- ------------- -----------
Melissa Payner-Gregor 2004 $ 466,960 $ 115,000 $ 655 700,000/(3)/
Chief Executive Officer and President 2003 $ 112,500 -- $ -- 1,200,000/(2)/
E. Kenneth Seiff/(1)/ 2004 $ 222,116/(6)/ -- $ 2,926 400,000/(2)/
Former Chief Executive Officer 2003 $ 274,999 $ 75,000 $ 2,926 1,000,000/(2)/
2002 $ 274,999 $ 50,000/(4)/ $ 3,782 1,000,000/(2)/
Patrick C. Barry 2004 $ 260,429 $ 80,000 $ 590 300,000/(2)/
Chief Financial Officer and Chief 2003 $ 225,000 -- $ 590 --
Operating Officer 2002 $ 224,999 $ 35,000/(4)/ $ 590 1,000,000/(2)/
Martin Keane 2004 $ 171,538 $ 20,000/(5)/ $ -- --
Senior Vice President of E-Commerce 2003 $ 152,308 $ 30,500 $ -- --
2002 $ 150,000 $ 12,500 $ -- 300,000/(2)/
(1) Mr. Seiff resigned as an executive officer of the Company in August
2004.
(2) Options granted at an exercise price equal to 100% of the fair market
value on the date of grant.
(3) Options granted at an exercise price equal to 100% of the fair market
value on the date of grant, except for 100,000 options that, pursuant to
Ms. Payner-Gregor's employment agreement, were granted at an exercise
price of $1.56 (the fair market value of the Common Stock on the date of
Ms. Payner-Gregor's employment agreement). The fair market value of the
common stock on the date of grant of such options was $2.49 per share.
(4) Represents amounts earned in 2002, but paid in fiscal 2003.
(5) Represents amounts earned in 2003, but paid in fiscal 2004.
(6) Includes $31,731 related to severance and excludes $63,462 related to
services provided as a consultant
EMPLOYMENT AGREEMENTS
The Company currently has employment agreements with Ms. Payner-Gregor
and Mr. Barry. Each such employment agreement provides for a base salary,
subject to increase by the Compensation Committee, and an annual bonus to be
determined by the Compensation Committee. Ms. Payner-Gregor's annual bonus for
each fiscal year during her agreement cannot be less than 3% of the Company's
net income for such fiscal year, subject to a cap equal to 200% of her base
salary. Her bonus is subject to a minimum floor of $100,000. Ms. Payner-Gregor's
annual base salary is $500,000, and Mr. Barry's annual base salary is $300,000.
The employment agreement for Mr. Barry terminates on June 30, 2005, and Ms.
Payner-Gregor's terminates on March 1, 2007 (unless both parties fail to provide
notice of their desire not to renew such agreement at least 90 days prior to the
end of the then-current term of such agreement in which case the employment
agreement shall automatically renew for successive one-year terms). Each of
these employment agreements obligates the Company to make severance payments
equal to six months' salary in connection with a termination by the Company of
such Named Executive Officer's employment, other than for cause, and also
provides for the immediate vesting of any stock options held by them under such
circumstances. Ms. Payner-Gregor's and Mr. Barry's employment agreements also
provide for the immediate vesting of any stock options held by such Named
Executive Officer upon the occurrence of certain events classified as a "Change
In Control". In addition, Ms. Payner-Gregor's and Mr. Barry's employment
agreements provide that
18
upon the occurrence of certain events classified as a "Change of Control" in
which cash, securities or other consideration is paid or payable, or otherwise
to be distributed directly to the Company's stockholders, each such Named
Executive shall receive a bonus equal to a percentage of the proceeds received
by the Company's stockholders.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options to the Named Executives Officers during the fiscal year ended December
31, 2004:
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
OPTIONS TO EMPLOYEES IN BASE EXPIRATION --------------------------
NAME GRANTED (#) FISCAL YEAR (%) PRICE ($) DATE 5% 10%
------------------------ ----------- --------------- ------------ ----------- ----------- ------------
Melissa Payner-Gregor 100,000 /(1)/ 3.88% $ 1.56 5/24/2014 $ 180,590 $ 207,636
100,000 3.88% $ 2.49 5/24/2014 $ 288,249 $ 331,419
500,000 19.41% $ 2.08 8/26/2014 $ 1,203,930 $ 1,384,240
E. Kenneth Seiff/(2)/ 300,000 11.65% $ 3.95 11/30/2005 $ 1,371,786 $ 1,577,235
100,000 3.88% $ 2.08 11/30/2005 $ 240,786 $ 276,848
Patrick C. Barry 300,000 11.65% $ 2.08 8/26/2014 $ 722,358 $ 830,544
(1) Pursuant to Ms. Payner-Gregor's employment agreement this option was
granted at an exercise price equal to the fair market value of the
Common Stock on the date of the employment agreement. The fair market
value of the Common Stock on the date of grant was $2.49 per share. The
aggregate potential realizable value of this option, assuming a 0%
annual rate of stock price appreciation, is $93,000.
(2) Mr. Seiff resigned as an executive officer of the Company in August
2004.
The Company does not currently grant stock appreciation rights.
19
OPTION HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the number and value of unexercised options held
at December 31, 2004.
VALUE OF UNEXERCISED IN-THE-
SECURITIES UNDERLYING MONEY
SHARES UNEXERCISED OPTIONS AT OPTIONS AT DECEMBER 31, 2004
ACQUIRED VALUE DECEMBER 31, 2004 (#) ($)/(1)/
ON REALIZED --------------------------------- -----------------------------
NAME EXERCISE # $ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------------- ------------- ------------- ------------- ------------- ------------- -------------
E. Kenneth Seiff/(2)/ 551,623 $ 779,553 2,953,377/(3)/ -- $ 2,023,020 --
Melissa Payner-Gregor -- -- 609,040 1,290,960 $ 411,956 $ 696,044
Patrick C. Barry -- -- 1,436,496 250,081 $ 1,057,937 $ 352,614
Martin Keane -- -- 300,200 99,780 $ 282,310 $ 140,690
(1) Represents the value of unexercised, in-the-money stock options at
December 31, 2004, using the $2.32 closing price of the Common Stock on
that date.
(2) Mr. Seiff resigned as an executive officer of the Company in
August 2004.
(3) On January 11, 2005, 1,105,000 of these options expired.
DIRECTORS' COMPENSATION
The Company's independent, outside non-employee directors are paid a
cash stipend of $1,500 for each board or committee meeting attended in person
(and, in the case of the Audit Committee Chairman, $2,000 per audit committee
meeting) and are reimbursed for expenses incurred on behalf of the Company. In
addition, each such director is paid an annual retainer of $10,000 at the first
regularly scheduled Board meeting of each fiscal year. The maximum aggregate
stipend and retainer paid to any such director in a year is $16,000 (or, in the
case of the Audit Committee Chairman, $18,000).
Each non-employee director receives an option to purchase 15,000 shares
of Common Stock (25,000 shares in the case of the Chairman of the Board and
20,000 shares in the case of the Chairman of the Audit Committee) at the time of
the first regularly scheduled Board meeting after such director is appointed to
the Board and an annual grant of an option to purchase 10,000 shares of Common
Stock (20,000 shares in the case of the Chairman of the Board and 12,500 shares
in the case of the Chairman of the Audit Committee) at the first regularly
scheduled Board meeting of each fiscal year (even if such director is receiving
an option in connection with his or her appointment at such meeting).
20
STOCK PERFORMANCE GRAPH
The following is a comparison of the cumulative total stockholder return
of Common Stock with the cumulative total return of the NASDAQ National Stock
Market Index and the CRSP Total Return Industry for Retail Trade Stocks for the
period from December 31, 1999 though December 31, 2004. Cumulative total return
values were calculated assuming an investment of $100 on December 31, 1999 and
reinvestment of dividends.
Bluefly, Inc.,
Comparison of Cumulative Total Return
December 31, 2004
[Performance Graph Appears Hear]
NASDAQ NASDAQ
Measurement Date Bluefly, Inc. Market Index Retail Index
----------------- ------------- ------------ ------------
December 31, 1999 100.0 100.0 100.0
December 31, 2000 5.5 60.3 61.4
December 31, 2001 18.4 47.8 84.8
December 31, 2002 15.9 33.1 72.1
December 31, 2003 39.3 49.4 100.4
December 31, 2004 22.5 53.8 127.3
This comparison shall not be deemed to be incorporated by reference by
any general statement incorporating by reference this Proxy Statement into any
filing of the Company pursuant to the Securities Act or the Exchange Act except
to the extent the Company specifically incorporates this comparison by reference
therein. This comparison shall not be deemed soliciting material or otherwise
deemed filed under either such act.
21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EXTENSION OF MATURITY DATES OF NOTES
In February 2005, the Company extended the maturity dates on the
Convertible Promissory Notes issued to Soros in July and October 2003. The
maturity dates of the Notes, which were originally January and April 2004,
respectively, were each extended for one year, from May 1, 2005 to May 1, 2006.
TRANSACTIONS WITH SOROS RELATING TO THE LOAN FACILITY
The Company's credit facility with Rosenthal & Rosenthal, Inc. (the
"Loan Facility") was amended in April 2004 to, among other things, substitute
$1.25 million of cash collateral pledged by the Company for the $2.0 million
standby letter of credit previously provided by Soros as collateral security for
our obligations under the Loan Facility. Because the requirement that Soros
provide a standby letter of credit to secure the Loan Facility was removed, the
Company is no longer subject to an agreement with Soros that previously required
it to issue additional warrants to Soros with an exercise price equal to 75% of
market price in the event that Rosenthal were to draw on Soros' letter of
credit.
REPAYMENT OF NOTES TO SOROS
In December 2004, promissory notes that the Company issued to Soros in
December 2001 became due and were paid. The notes, which had a face value of
$182,000, were repaid with accrued interest of $54,000 for a total of $236,000.
OTHER RELATED PARTY TRANSACTIONS
In August 2004, the Company entered into a Separation Agreement with E.
Kenneth Seiff in connection with his resignation as the Company's Chief
Executive Officer. Under the terms of the agreement, Mr. Seiff agreed to remain
employed by the Company in a non-executive capacity through November 30, 2004
(the "Termination Date") at his then-current salary and to extend the period of
the non-competition and non-solicitation covenants contained in his employment
agreement from one year to two years after the Termination Date. In
consideration for these agreements, the Company, among other things, agreed (i)
to make salary continuation payments equal to Mr. Seiff's salary until June 30,
2005, (ii) to continue to provide Mr. Seiff's then-current employee benefits for
a period of one year following the Termination Date, (iii) to issue Mr. Seiff an
option to purchase 100,000 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date of grant; and (iv) that
all outstanding stock options held by Mr. Seiff would vest upon the Termination
Date. The Company and Mr. Seiff also exchanged releases in connection with the
Separation Agreement.
In December 2003, Jonathan Morris, a former Executive Vice President of
the Company, was retained as a consultant. Mr. Morris terminated his consulting
agreement with the Company effective March 2004. For the year ended December 31,
2004, payments made to Mr. Morris for consulting services provided totaled
approximately $58,000.
The Company believes that each of the transactions described above was
on terms fair to it and its stockholders, and at least as favorable to the
Company as those available from unaffiliated third parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who beneficially own more than ten percent of the
Company's Common Stock (collectively, the "Reporting Persons") to file with the
Securities and Exchange Commission initial reports of beneficial ownership and
reports of changes in beneficial ownership of the Common Stock. Reporting
Persons are required to furnish us with copies of
22
all such reports. E. Kenneth Seiff, the Company's former Chief Executive
Officer, was late in filing two Form 4's in 2004. Both Form 4's were filed five
business days after the first transaction included therein. To the Company's
knowledge, based solely on a review of copies of such reports furnished to us,
we believe that during the 2004 fiscal year all Reporting Persons complied with
all applicable Section 16(a) reporting requirements except as noted above.
ITEM 2. 2005 STOCK INCENTIVE PLAN
On February 17, 2005, the Board of Directors adopted, subject to
stockholder approval, the Plan to allow the Company to continue making
stock-based awards as part of its compensation. The Plan is intended to succeed
the existing Bluefly, Inc. 1997 Stock Option Plan (as amended to date, the "1997
Plan") and the Bluefly, Inc. 2000 Stock Option Plan (as amended to date, the
"2000 Plan," and, together with the 1997 Plan, the "Existing Plans"). As of
February 17, 2005, there were an aggregate of 4,311,036 shares of Common Stock
available for issuance pursuant to awards under the Existing Plans. In adopting
the Plan, the Board of Directors determined that it was not necessary to make
additional shares of Common Stock available for issuance pursuant to stock-based
awards. Thus, the Plan provides for the issuance of the same number of shares of
Common stock that have already been previously authorized by the Board of
Directors and the stockholders under the Existing Plans, and the Board of
Directors has resolved that, subject to stockholder approval of the Plan, no
further awards will be granted under the Existing Plans. ACCORDINGLY, THE
APPROVAL OF THE PLAN WILL NOT RESULT IN ANY INCREASE IN THE NUMBER OF SHARES OF
COMMON STOCK OTHERWISE AVAILABLE FOR ISSUANCE PURSUANT TO STOCK-BASED AWARDS.
THE PLAN
The Board of Directors adopted the Plan, rather than continuing to issue
stock-based awards under the Existing Plans for primarily three reasons: (i)
while the Existing Plans only provided for the issuance of stock options, the
Plan also provides for the issuance of restricted stock awards, stock
appreciation rights, dividend rights, deferred stock units and other types of
awards; (ii) the Existing Plan will expire in 2015, while the 1997 Plan is set
to expire in 2007 and the 2000 Plan is set to expire in 2010; and (iii) the Plan
increases the formula stock option awards granted to non-employee directors of
the Company beyond the levels of those provided under the 1997 Plan. The Board
of Directors believes that, like the Existing Plans, the Plan will further the
interests of the Company and its stockholders by providing long-term performance
incentives to those employees, non-employee directors, contractors and
consultants of the Company who are largely responsible for the management,
growth and protection of the its business. The favorable vote of a majority of
the votes cast at the meeting, in person or by proxy, is necessary for the
approval of the Plan. Unless such vote is received, the Plan will not become
effective. The complete text of the Plan is set forth in Appendix A hereto. The
following description of the Plan is qualified in its entirety by reference to
Appendix A:
Administration; Eligibility; Shares Available for Issuance; Limitations
on Issuance. The Plan will be administered by the Compensation Committee. The
Committee is authorized from time to time to select and to grant awards under
the Plan to such key employees, non-employee directors, contractors and
consultants of the Company and its subsidiaries as the Compensation Committee,
in its discretion, selects. The Compensation Committee is authorized to delegate
any of its authority under the Plan (including the authority to grant awards) to
such executive officers of the Company as it thinks appropriate and is permitted
by Rule 16B-3 of the Exchange Act and Section 162(m) of the Code.
Shares granted under the Plan will be made available from unissued
Common Stock or from Common Stock held in treasury. The Existing Plans
authorized the Company to issue a total of 14,719,700. As of February 17, 2005
(the date that the Plan was approved by the Board of Directors), 4,311,036
shares of Common Stock were available for issuance under the Existing Plans. The
aggregate number of shares of Common Stock issuable under the Plan is equal to
that same 4,311,036 shares of Common Stock, plus any shares that become
available after February 17, 2005 under the Existing Plans that lapse or are
terminated. The Plan also imposes the following limitations on awards issued
under the Plan: (i) the maximum number of shares of Common Stock that may be
granted as awards granted to any participant in any fiscal year shall not exceed
2,000,000 shares; (ii) the maximum amount of cash or cash payments that may be
granted as awards in any fiscal year shall not exceed $2,000,000; and (iii) the
maximum number of dividend rights that may be granted as awards to any
participant in any fiscal year shall not exceed dividend rights with respect to
2,000,000 shares. The shares of Common Stock subject to the Plan and
23
each limit are subject to adjustment in the event of certain changes of
capitalization as set forth in Section 8(a) of the Plan.
Options. The Plan authorizes the Compensation Committee to grant to
participants options to purchase Common Stock, which may be in the form of a
non-statutory stock option or, if granted to an employee, in the form of an
Incentive Stock Option (an "ISO"). The terms of all ISOs issued under the Plan
will comply with the requirements of Section 422 of the Code. The exercise price
of options granted under the Plan may not be less than 100% of the fair market
value of the Common Stock at the time the option is granted. The Compensation
Committee will determine the time an option may be exercised in whole or in
part, the method of exercise, method of settlement, form of consideration
payable, method of delivery and whether a stock appreciation right will be
granted in tandem with other awards. The Plan also provides for formula grants
of options to non-employee directors as described below. Each non-employee
director receives an option to purchase 15,000 shares of Common Stock (25,000
shares in the case of the Chairman of the Board and 20,000 shares in the case of
the Chairman of the Audit Committee) at the time of the first regularly
scheduled Board meeting after such director is appointed to the Board and an
annual grant of an option to purchase 10,000 shares of Common Stock (20,000
shares in the case of the Chairman of the Board and 12,500 shares in the case of
the Chairman of the Audit Committee) at the first regularly scheduled Board
meeting of each fiscal year (even if such director is receiving an option in
connection with his or her appointment at such meeting). The Plan also permits
the Committee to substitute an award of equivalent fair market value for any s
tock option that a non-employee director would otherwise receive pursuant to the
formula grants described above.
Stock Appreciation Rights. The Plan authorizes the Compensation
Committee to grant to participants stock appreciation rights. A stock
appreciation right entitles the grantee to receive upon exercise, the excess of
(a) the fair market value of a specified number of shares of Common Stock at the
time of exercise over (b) the fair market value of the Common Stock at the time
the stock appreciation right was granted, The Compensation Committee will
determine the time a stock appreciation right may be exercised in whole or in
part, the method of exercise, method of settlement, form of consideration
payable, method of delivery and whether a stock appreciation right will be
granted in tandem with other awards.
Deferred Stock Units. The Plan authorizes the Compensation Committee to
grant to participants deferred stock units. A deferred stock unit is an award
that entitles a participant to elect, at the discretion of the Compensation
Committee, to defer receipt of all or a portion of a bonus, or a stock-based
award or cash payment made pursuant to the Plan. No Common Stock will be issued
at the time a deferred stock unit is granted. Rather, the Company will establish
an account for the participant and will record in such account the number of
deferred stock units granted to such participant (which units will be valued
initially based upon the then-fair market value of the Common Stock). The
Compensation Committee will also determine whether and to what extent to credit
to the account of, or to pay currently to, each recipient of a deferred stock
unit, an amount equal to any dividends paid by the Company during the period of
deferral with respect to the corresponding number of shares of Common Stock.
Restricted Stock. The Plan authorizes the Compensation Committee to
grant to participants restricted Common Stock with such restriction periods,
restrictions on transferability, and performance goals as the Compensation
Committee may designate at the time of grant. Restricted stock may not be sold,
assigned, transferred, pledged or otherwise encumbered during the restriction
period. Other than the restrictions on transfer, a participant will have all the
rights of a holder of the shares of Common Stock, representing the restricted
stock, including the rights to all distributions (including regular cash
dividends) made or declared with respect to the restricted stock. If any such
dividends are distributions are paid in stock, the stock will be subject to
restrictions and a risk of forfeiture to the same extent as the restricted stock
with respect to which the stock has been distributed. Restricted stock will be
forfeitable to the Company upon a participant's termination of employment during
the applicable restricted period. The Compensation Committee, in its discretion,
may accelerate the time at which restrictions or forfeiture conditions will
lapse, or may remove any performance goal requirement upon the death,
disability, retirement or otherwise of a participant.
Cash Payments. The Plan authorizes the Compensation Committee, subject
to limitations under applicable law, to grant cash payments to participants.
These may be granted separately or as a supplement to any stock-based award.
24
Dividend Rights. The Plan authorizes the Compensation Committee to grant
dividend rights to participants, which rights entitle a participant to receive
the dividends on Common Stock to which the participant would be entitled if the
participant owned the number of shares of Common Stock represented by the
dividend rights. Dividend rights may be granted separately or in tandem with any
other awards. If a dividend right is granted in tandem with another award, it
will lapse, expire or be forfeited simultaneously with the lapse, expiration or
forfeiture of the tandemed award. If the dividend right is granted separately,
it will lapse, expire or be forfeited as the Compensation Committee determines.
Other Stock-Based Awards. To permit the Compensation Committee the
flexibility to respond to future changes in compensation arrangements, the Plan
authorizes the Compensation Committee, subject to limitations under applicable
law, to grant to participants such other stock-based awards as deemed by the
Compensation Committee to be consistent with the purposes of the Plan. The
Compensation committee may determine the terms and conditions of such
stock-based awards.
Loans. Subject at all times to laws and regulations and other binding
obligations or provisions applicable to the Company, including but not limited
to the Sarbanes-Oxley Act of 2002, the Plan authorizes the Compensation
Committee, on behalf of the Company, to make, guarantee or arrange for a loan or
loans to participants with respect to the exercise of any option or other
payment in connection with any award, including the payment by a participant of
any or all federal, state or local income or other taxes due in connection with
any award. The terms and conditions of each loan, including the interest rates,
maturity date and whether the loan will be secured or unsecured will be
established by the Compensation Committee.
Terms of Awards. The term of each award will be determined by the
Compensation Committee at the time each award is granted, provided that the
terms of options, stock appreciation rights and dividend rights may not exceed
ten years. Awards granted under the Plan generally will not be transferable,
except by will and the laws of descent and distribution. However, the
Compensation Committee may grant awards to participants (other than ISOs) that
may be transferable without consideration to immediate family members (i.e.,
,children, grandchildren or spouse), to truss for the benefit of such immediate
family members and to partnerships in which such family members are the only
partners.
Award Agreements. All awards granted under the Plan will be evidenced by
a written agreement that may include such additional terms and conditions not
inconsistent with the Plan as the Compensation Committee may specify. Award
agreements are not required to contain uniform terms or provisions.
Term of the Plan; Amendment and Adjustment. No awards may be granted
under the Plan after February 16, 2015. The Plan may be terminated by the Board
of Directors at any time, but the termination of the Plan will not adversely
affect awards that have previously been granted. In addition, the Board of
Directors may amend, alter, suspend, discontinue or terminate the Plan or the
Compensation Committee's authority to grant awards under the Plan without the
consent of the Company's stockholders or participants, except that any such
amendment, alteration, suspension, discontinuation or termination shall be
subject to the approval of the Company's stockholders within one year after such
Board action if such stockholder approval is required by any federal or state
law or regulation or the rules of any stock exchange or automated quotation
system on which the Common Stock may then be listed or quoted. The Plan may be
considered to be a "nonqualified deferred compensation plan" under newly enacted
Section 409A of the Code. Therefore, it is expected that the Board of Directors
will exercise its authority to amend the Plan to comply with forthcoming rules
implementing Section 409A of the Code, and those amendments are not likely to
require approval by the Company's stockholders.
As of March 23, 2005, the following individuals and groups had been
granted Options under the Plan to purchase shares in the amounts indicated (all
of which are currently outstanding): Melissa Payner-Gregor (Chief Executive
Officer and President): 200,000 shares; Patrick C. Barry (Chief Operating
Officer and Chief Financial Officer): 100,000 shares; Martin Keane (Senior Vice
President of E-Commerce): 50,000 shares; Alan Kane (Chairman of the Board):
20,000 shares; Barry Erdos (Chairman of the Audit Committee): 32,500 shares;
Chris McCann (non-employee Director): 25,000 shares; Martin Miller (non-employee
Director): 10,000 shares; Neal Moszkowski (non-employee Director): 10,000
shares; David Wassong (non-employee Director): 10,000 shares; all current
executive officers as a group: 350,000 shares; all current non-employee
Directors as a group: 107,500 shares; and all employees, including officers
other than executive officers as a group: 220,000 shares. As of March 23, 2005,
25
the market value of the Common Stock underlying outstanding Options granted
under the Plan was approximately $850,000.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Although the Company cannot currently determine the number of shares
subject to awards that may be granted in the future to executive officers or
non-employee directors, each of the executive officers and non-employee
directors of the Company has an interest in the approval of the Plan in so far
as they are likely to be recipients of future awards. In addition, options to
purchase 457,500 shares of Common Stock, which were issued to executive officers
and non-employee directors of the Company in February and March 2005 in
accordance with the terms of the Plan, are subject to the stockholder approval
of the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a brief summary of the
federal income tax rules relevant to stock options, stock appreciation rights,
deferred stock units, restricted stock, cash payments and dividend payments.
These rules are highly technical and subject to change. The following discussion
is limited to the federal income tax rules relevant to the Company and to the
individuals who are citizens or residents of the United States. The discussion
does not address the state, local or foreign income tax rules relevant to stock
options, stock appreciation rights, deferred stock units, restricted stock, cash
payments and dividend payments.
ISOs. A participant who is granted an ISO will not recognize any
compensation income upon the grant or exercise of the ISO. However, upon
exercise of the ISO, the excess of the fair market value of the shares of the
Common Stock on the date of exercise over the option exercise price will be an
item includible in the optionee's alternative minimum taxable income. An
optionee may be required to pay an alternative minimum tax even though the
optionee receives no cash upon exercise of the ISO with which to pay such tax.
If an optionee holds the Common Stock acquired upon the exercise of an ISO for
at least two years from the date of grant of the ISO and at least one year
following exercise, the optionee's gain, if any, upon a subsequent disposition
of such Common Stock will be taxed as capital gain. If the optionee disposes of
the Common Stock acquired pursuant to the exercise of an ISO before satisfying
these holding periods (a so-called "disqualifying disposition"), the optionee
may recognize both compensation income and capital gain in the year of
disposition. The amount of the compensation income recognized on a disqualifying
disposition generally will equal the amount by which the fair market value of
the Common Stock on the exercise date or the amount realized on the sale of the
Common Stock (whichever is less) exceeds the exercise price. The balance of any
gain (or any loss) realized upon a disqualifying disposition will be long-term
or short-term capital gain (or loss), depending upon whether the Common Stock
has been held for more than one year following the exercise of the ISO. If an
optionee (with the authorization of the Compensation Committee) pays the
exercise price of an ISO in whole or in part with previously-owned shares of
Common Stock that have been held for the requisite holding periods, the optionee
will not recognize any compensation income, or gain or loss upon the delivery of
shares of Common Stock in payment of the exercise price. The optionee will have
a carryover basis and a carryover holding period with respect to the number of
shares of Common Stock received in exchange for the previously-owned shares
delivered to the Company. The basis in the number of shares of Common Stock
received in excess of the number of shares delivered to the Company will be
equal to the amount of cash (or other property), if any, paid on the exercise.
The holding period of any shares received in excess of the number of shares
delivered to the Company will begin on the date the ISO is exercised. Where an
optionee pays the exercise price of an ISO with previously-owned shares of
Common Stock that have not been held for the requisite holding periods, the
optionee will recognize compensation income (but not capital gain) when the
optionee delivers the previously-owned shares in payment of the exercise price
under the rules applicable to disqualifying dispositions. The optionee's basis
in the shares received in exchange for the previously-owned shares delivered
will be equal to the optionee's basis in the previously-owned shares delivered,
increased by the amount included in gross income as compensation income, if any.
The optionee will have a carryover holding period with respect to the number of
shares of Common Stock received in exchange for the previously-owned shares
delivered. The optionee's tax basis for the number of new shares received will
be zero, increased by the amount of cash (or other property) paid, if any, on
the exercise. The holding period of the new shares received will begin on the
date the ISO is exercised. For purposes of the special holding periods relating
to ISOs, the holding periods will begin on the date the ISO is exercised. The
Company will not be entitled to any tax deduction upon the grant or exercise of
an ISO or upon the subsequent disposition by the optionee of the shares acquired
upon exercise of the ISO after the requisite holding
26
period. However, if the disposition is a disqualifying disposition, the Company
generally will be entitled to a tax deduction in the year the optionee disposes
of the Common Stock in an amount equal to the compensation income recognized by
the optionee.
Non-statutory Stock Options. A participant who is granted a
non-statutory stock option will not recognize any compensation income upon the
grant of the option. However, upon exercise of the option, the difference
between the amount paid upon exercise of the option (which would not include the
value of any previously-owned shares delivered in payment of the exercise price)
and the fair market value of the number of shares of Common Stock received on
the date of exercise of the option (in excess of that number, if any, of the
previously-owned shares delivered in payment of the exercise price) will be
compensation income to the optionee. The shares of Common Stock received upon
exercise of the option which are equal in number to the optionee's
previously-owned shares delivered will have the same tax basis as the
previously-owned shares delivered to the Company, and will have a holding period
that will include the holding period of the shares delivered. The new shares of
Common Stock acquired upon exercise will have a tax basis equal to their fair
market value on the date of exercise, and will have a holding period that will
begin on the day the option is exercised. In the case of an optionee who is or
was an employee, this compensation income will be subject to income and
employment tax withholding. The Company generally will be entitled to a tax
deduction in the year the option is exercised in an amount equal to the
compensation income recognized by the optionee. Upon a subsequent disposition by
an optionee of the Common Stock acquired upon the exercise of a non-statutory
stock option, the optionee will recognize capital gain or loss equal to the
difference between the sales proceeds received and the optionee's tax basis in
the Common Stock sold, which will be long-term or short-term, depending on the
period for which the Common Stock was held.
Stock Appreciation Rights. A participant who is granted a stock
appreciation right will not recognize any compensation income upon grant. At the
time the stock appreciation right is exercised, however, the participant will
recognize compensation income equal to the amount of cash and the fair market
value of any Common Stock received. In the case of a participant who is or was
an employee, this compensation income will be subject to income and employment
tax withholding. The Company will generally be entitled to a tax deduction in
the year the stock appreciation right is exercised in an amount equal to the
compensation income recognized by the participant.
Deferred Stock Units. A participant who is granted a deferred stock unit
will not recognize any compensation income upon grant. The participant will
recognize compensation income equal to the amount of cash and the fair market
value of the Common Stock delivered to the participant in settlement of the
deferred stock units. In the case of a participant who is or was an employee,
this compensation income will be subject to income and employment tax
withholding. The Company will generally be entitled to a tax deduction in the
year the deferred stock unit is settled in an amount equal to the compensation
income recognized by the participant.
Restricted Stock. A participant who is granted restricted stock which is
"nontransferable" and subject to a "substantial risk of forfeiture" within the
meaning of Section 83 of the Code, will not, unless the participant makes the
election described below, recognize any income upon the receipt of the Common
Stock. However, at the times at which Common Stock is first transferable or the
risk of forfeiture expires, the participant will recognize compensation income
on the then fair market value of Common Stock. Furthermore, while the Common
Stock remains restricted, any dividends paid on the Common Stock will be treated
as compensation income to the participant and will be deductible by the Company
as a compensation expense. A participant who is granted restricted stock may
make an election under Section 83(b) of the Code (a "Section 83(b) Election") to
have the Common Stock received taxed as compensation income on the date granted,
with the result that any future appreciation (or depreciation) in the value of
the shares of Common Stock granted will be taxed as capital gain or loss upon a
subsequent sale or exchange of the shares. A Section 83(b) Election must be made
within 30 days of the date the restricted stock is granted. Any compensation
income a participant recognizes from a grant of restricted stock will be subject
to income and employment tax withholding. The Company will be entitled to a
deduction in the same amount and in the same year as the compensation income
recognized by the participant.
Cash and Dividend Payments. A participant will recognize compensation
income upon receipt of any cash pursuant to any award, including as a dividend
right. If the participant is an employee of the Company, the cash payment will
be subject to income and employment tax withholding. The Company will generally
be entitled to a tax deduction for the payment in an amount equal to the
compensation income recognized by the participant.
27
Parachute Payments. All or part of an award which becomes payable or
which vests by reason of a change of control may constitute an "excess parachute
payment" within the meaning of Section 280G of the Code. The amount of the award
received by a participant constituting an excess parachute payment would be
subject to a 20% non-deductible excise tax, and that amount of compensation
income would not be deductible by the Company.
Certain Limitations on Deductibility of Executive Compensation. Section
162(m) of the Code generally disallows a tax deduction for the annual
compensation in excess of $1 million paid to each of the chief executive officer
and the other four most highly compensated officers of a Company. Compensation
which qualifies as performance-based compensation is not included in applying
this limitation. Under the Plan, the Compensation Committee may, but is not
required to, grant awards that satisfy the requirements to constitute
performance-based compensation.
The Board of Directors recommends a vote FOR approval of the Plan.
EQUITY COMPENSATION PLAN INFORMATION (AS OF DECEMBER 31, 2004)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION PLANS
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING (EXCLUDING SECURITIES
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND REFLECTED IN COLUMN (a))
PLAN CATEGORY WARRANTS AND RIGHTS(a) RIGHTS (b) (c)
----------------------------- -------------------------- ------------------------- -------------------------
Equity compensation plans
approved by security holders 8,911,789 $ 2.35 2,877,431
Equity compensation plans not
approved by security holders 901,590 $ 1.60 294,922
Total 9,813,379 $ 2.28 3,172,353
The following is a summary of the material provisions of the Bluefly,
Inc. 2000 Plan Stock Option Plan (the "2000 Plan"), the Company's only equity
compensation plan that has not been approved by our stockholders.
Eligibility. Key employees of the Company, who are not officers or
directors of the Company and its affiliates, and consultants to the Company are
eligible to be granted options.
Administration of the 2000 Plan. The Option Plan/Compensation Committee
administers the 2000 Plan. The Option Plan/Compensation Committee has the full
power and authority, subject to the provisions of the 2000 Plan, to designate
participants, grant options and determine the terms of all options. The 2000
Plan provides that no participant may be granted options to purchase more than
1,000,000 shares of Common Stock in a fiscal year. The Option Plan/Compensation
Committee is required to make adjustments with respect to options granted under
the 2000 Plan in order to prevent dilution or expansion of the rights of any
holder. The 2000 Plan requires that the Option Plan/Compensation Committee be
composed of at least two directors.
Amendment. The 2000 Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the Board
of Directors, but no amendment without the approval of our stockholders shall be
made if stockholder approval would be required under any law or rule of any
governmental authority, stock exchange or other self-regulatory organization to
which we are subject. Neither the amendment, suspension or termination of the
2000 Plan shall, without the consent of the holder of an option under the 2000
Plan, alter or impair any rights or obligations under any option theretofore
granted.
28
Options Issued Under 2000 Plan. The Option Plan/Compensation Committee
determines the term and exercise price of each option under the 2000 Plan and
the time or times at which such option may be exercised in whole or in part, and
the method or methods by which, and the form or forms in which, payment of the
exercise price may be paid.
Upon the exercise of an option under the 2000 Plan, the option holder
shall pay us the exercise price plus the amount of the required federal and
state withholding taxes, if any. The 2000 Plan also allows participants to elect
to have shares withheld upon exercise for the payment of withholding taxes.
The unexercised portion of any option granted to a key employee under
the 2000 Plan generally will be terminated (i) 30 days after the date on which
the optionee's employment is terminated for any reason other than (a) Cause (as
defined in the 2000 Plan), (b) retirement or mental or physical disability, or
(c) death; (ii) immediately upon the termination of the optionee's employment
for Cause; (iii) three months after the date on which the optionee's employment
is terminated by reason of retirement or mental or physical disability; or (iv)
(A) 12 months after the date on which the optionee's employment is terminated by
reason of his death or (B) three months after the date on which the optionee
shall die if such death occurs during the three-month period following the
termination of the optionee's employment by reason of retirement or mental or
physical disability. The Option Plan/Compensation Committee has in the past, and
may in the future, extend the period of time during which an optionee may
exercise options following the termination of his or her employment.
Under the 2000 Plan, an option generally may not be transferred by the
optionee other than by will or by the laws of descent and distribution. During
the lifetime of an optionee, an option under the 2000 Plan may be exercised only
by the optionee or, in certain instances, by the optionee's guardian or legal
representative, if any.
29
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP ("PwC") as independent accountants for the fiscal
year ending December 31, 2005. The Company's financial statements for the 2004
fiscal year were examined and reported upon by PwC.
A representative of PwC will be present at the meeting, will be provided
the opportunity to make a statement if he or she desires to do so, and will be
available to respond to appropriate questions from stockholders.
AUDIT FEES
The aggregate fees billed for professional services rendered by PwC for
the audit of the Company's consolidated financial statements, including the
reviews of the Company's condensed consolidated financial statements included in
its quarterly reports on Form 10-Q, for fiscal 2004 and 2003 were approximately
$148,500 and $100,000, respectively. In addition the Company paid PwC
approximately $59,000 in connection with professional services rendered to the
Company in connection with the filing of a Registration Statement on Form S-3
during 2004.
AUDIT RELATED FEES
Other than the fees described under the caption "Audit Fees" above, PwC
did not bill any fees for services rendered to the Company during fiscal 2004
and 2003 for assurance and related services in connection with the audit or
review of the Company consolidated financial statements.
TAX FEES
PwC did not bill the Company for any professional services rendered to
the Company during fiscal 2004 and 2003 for tax compliance, tax advice or tax
planning.
OTHER FEES
PwC did not bill the Company for any other professional services
rendered during fiscal 2004 and 2003 other than those described under the
caption "Audit Fees."
AUDIT COMMITTEE PRE-APPROVAL POLICIES
The Company's policy is that, before PwC is engaged by the Company to
render audit or non-audit services, the engagement is approved by the Audit
Committee.
OTHER BUSINESS
The Board of Directors currently knows of no other matters to be
presented at the meeting. However, if any other matters properly come before the
meeting, or any adjournment thereof, it is intended that proxies in the
accompanying form will be voted in accordance with the judgment of the persons
named therein.
STOCKHOLDER PROPOSALS
The Company's bylaws provide that a stockholder who intends to present a
proposal for stockholder vote at the Company's next annual meeting must give
written notice to the Secretary of the Company not less than 90 days prior to
the date that is one year from the date of this annual meeting. Accordingly, any
such proposal must be received by the Company before January 29, 2006. The
notice must contain specified information about the proposed business and the
stockholder making the proposal. If a stockholder gives notice of a proposal
after the deadline, the Company's proxy holders will have discretionary
authority to vote on this proposal when and if raised at the next annual
meeting. In addition, in order to include a stockholder proposal in the
Company's proxy statement and form of proxy for the next annual meeting, such
proposal must be received by the Company at its principal executive offices no
later than the close of business on November 29, 2005 and must otherwise comply
with the rules of the Commission for inclusion in the proxy materials.
COST OF SOLICITATION
The cost of soliciting proxies in the accompanying form has been or will
be borne by the Company. Directors, officers and employees of the Company may
solicit proxies personally or by telephone or other means of
30
communications. Although there is no formal agreement to do so, arrangements may
be made with brokerage houses and other custodians, nominees and fiduciaries to
send proxies and proxy material to their principals, and the Company may
reimburse them for any attendant expenses.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED
PROXY AND RETURN IT IN THE ENCLOSED STAMPED AND ADDRESSED ENVELOPE AS PROMPTLY
AS POSSIBLE.
By Order of the Board of Directors,
ALAN KANE
Chairman of the Board
Dated: March 29, 2005
31
ANNEX A
BLUEFLY, INC.
2005 STOCK INCENTIVE PLAN
Section 1. PURPOSE OF THE PLAN
The purpose of the 2005 Stock Incentive Plan (the "Plan") is to
further the interests of Bluefly, Inc. (the "Company") and its stockholders by
providing long-term performance incentives to those employees, Non-Employee
Directors, contractors and consultants of the Company and its Subsidiaries who
are largely responsible for the management, growth and protection of the
business of the Company and its Subsidiaries.
Section 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined
as set forth below:
(a) "Award" means any Option, SAR, Restricted Stock, Dividend Right,
Deferred Stock Unit and other Stock-Based Awards, or other cash payments granted
to a Participant under the Plan.
(b) "Award Agreement" shall mean the written agreement, instrument
or document evidencing an Award.
(c) "Cause" shall have the meaning given such term in any employment
agreement between the Participant and the Company or any Subsidiary, but if
there is no employment agreement or such term is not defined in the
Participant's employment agreement, as defined in the Award Agreement, or in the
event such term is not defined in the Award Agreement, then "Cause" shall mean:
(i) an act of dishonesty causing harm to the Company or any Subsidiary; (ii) the
knowing disclosure of confidential information relating to the Company's or any
Subsidiary's business; (iii) impairment in the Participant's ability to perform
the duties assigned to the Participant due to habitual drunkenness or narcotic
drug addiction; (iv) the Participant being charged with a felony (other than
charges that are subsequently dismissed or as to which the Participant is found
not guilty); (v) the willful refusal to perform, or the gross neglect of, the
duties assigned to the Participant; (vi) the Participant's willful breach of any
law that, directly or indirectly, affects the Company or any Subsidiary; (vii)
the Participant's material breach of his or her duties (other than as a result
of incapacity due to physical or mental illness), which is demonstrably willful
and deliberate on the Participant's part, which is committed in bad faith or
without reasonable belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period after receipt of
written notice from the Company or any Subsidiary specifying such breach.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Deferred Stock Unit" means an Award that shall be valued in
reference to the market value of a share of Stock (plus any distributions on
such Stock that shall be deemed to be
re-invested when made) and may be payable in cash or Stock at a specified date
as elected by a Participant.
(f) "Director Cause" shall mean (i) a final conviction of a felony
involving moral turpitude or (ii) willful misconduct that is materially and
demonstrably injurious economically to the Corporation.
(g) "Dividend Rights" means the right to receive in cash or shares
of Stock, or have credited to an account maintained under the Plan for later
payment in cash or shares of Stock, an amount equal to the dividends paid with
respect to a specified number of shares of Stock (other than a Stock dividend
that results in adjustments pursuant to Section 8(a)).
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(i) "Fair Market Value" means, with respect to Stock, (i) the
closing price per share of the Stock on the principal exchange on which the
Stock is then trading, if any, on such date, or, if the Stock was not traded on
such date, then on the next preceding trading day during which a sale occurred;
or (ii) if the Stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (1) the last sales price (if the Stock then listed
as a National Market Issue under the NASDAQ National Market System) or (2) the
mean between the closing representative bid and ask prices (in all other cases)
for the Stock on such date as reported by NASDAQ or such successor quotation
system; or (iii) if the Stock is not publicly traded on an exchange and not
quoted on NASDAQ or a successor quotation system, the mean between the closing
bid and ask prices for the Stock on such date as determined in good faith by the
Committee; or (iv) if the provisions of clauses (i), (ii) and (iii) shall not be
applicable, the fair market value established by the Committee acting in good
faith. With respect to Awards or other property, "Fair Market Value" means the
fair market value of such Awards or other property established by the Committee
acting in good faith.
(j) "ISO" means any Option designated as an incentive stock option
within the meaning of Section 422 of the Code.
(k) "Non-Employee Director" means a member of the Board of Directors
of the Company who is not an employee of the Company.
(l) "Option" means a right granted to a Participant pursuant to
Sections 6(b) or 6(c) to purchase Stock at a specified price during specified
time periods. An Option granted to a Participant pursuant to Section 6(b) may be
either an ISO or a nonstatutory Option (an Option not designated as an ISO), but
an Option granted pursuant to Section 6(c) may not be an ISO.
(m) "Participant" shall have the meaning specified in Section 3
hereof.
(n) "Performance Goal" means a goal, expressed in terms of profits
or revenue targets on an absolute or per share basis (including, but not limited
to, EBIT, EBITDA, operating income, EPS), market share targets, profitability
targets as measured through return ratios, stockholder returns, qualitative
milestones, or any other financial or other measurement deemed appropriate by
the Committee, as it relates to the results of operations or other measurable
2
progress of either the Company as a whole or the Participant's Subsidiary,
division, or department.
(o) "Performance Cycle" means the period selected by the Committee
during which the performance of the Company or any Subsidiary, or any department
thereof, or any individual is measured for the purpose of determining the extent
to which a Performance Goal has been achieved.
(p) "Prior Plans" means the Bluefly, Inc. 1997 Stock Option Plan and
the Bluefly, Inc. 2000 Stock Option Plan.
(q) "Restricted Stock" means Stock awarded to a Participant pursuant
to Section 6(e) that may be subject to certain restrictions and to a risk of
forfeiture.
(r) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3 as in effect from time to time.
(s) "SAR" or "Stock Appreciation Right" means the right granted to a
Participant pursuant to Section 6(f) to be paid an amount measured by the
appreciation in the Fair Market Value of Stock from the date of grant to the
date of exercise of the right, with payment to be made in cash, Stock or as
specified in the Award, as determined by the Committee.
(t) "Stock" means the common stock, $0.01 par value, of the Company.
(u) "Stock-Based Award" means a right that may be denominated or
payable in, or valued in whole or in part by reference to, the market value of
Stock, including but not limited to any Option, SAR, Restricted Stock or Stock
granted as a bonus or Awards in lieu of cash obligations.
(v) "Subsidiary" shall mean any corporation, partnership, joint
venture or other business entity of which more than 50% of the outstanding
voting power is beneficially owned, directly or indirectly, by the Company.
Section 3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee of
the Board of Directors of the Company (the "Committee"). Any action of the
Committee in administering the Plan shall be final, conclusive and binding on
all persons, including the Company, its Subsidiaries, their employees,
Participants, consultants, contractors, persons claiming rights from or through
Participants and stockholders of the Company.
Subject to the provisions of the Plan, the Committee shall have
full and final authority in its discretion (a) to select the employees,
Non-Employee Directors, contractors and consultants who will receive Awards
pursuant to the Plan ("Participants"), (b) to determine the type or types of
Awards to be granted to each Participant, (c) to determine the number of shares
of Stock to which an Award will relate, the terms and conditions of any Award
granted under the Plan (including, but not limited to, restrictions as to
transferability or forfeiture, exercisability or settlement of an Award and
waivers or accelerations thereof, and waivers of or modifications to
3
performance conditions relating to an Award, based in each case on such
considerations as the Committee shall determine) and all other matters to be
determined in connection with an Award; (d) to determine whether, to what
extent, and under what circumstances an Award may be settled, or the exercise
price of an Award may be paid, in cash, Stock, other Awards or other property,
or an Award may be canceled, forfeited, or surrendered; (e) to determine
whether, and to certify that, Performance Goals to which the settlement of an
Award is subject are satisfied; (f) to correct any defect or supply any omission
or reconcile any inconsistency in the Plan, and to adopt, amend and rescind such
rules and regulations as, in its opinion, may be advisable in the administration
of the Plan; and (g) to make all other determinations as it may deem necessary
or advisable for the administration of the Plan. The Committee may delegate to
executive officers of the Company the authority, subject to such terms as the
Committee shall determine, to exercise such authority and perform such
functions, including, without limitation, the selection of Participants and the
grant of Awards, as the Committee may determine, to the extent permitted under
Rule 16b-3, Section 162(m) of the Code and applicable law; provided, however,
that the Committee may not delegate the authority to grant Awards, perform such
functions or make any determination affecting or relating to the executive
officers of the Company.
Section 4. PARTICIPATION IN THE PLAN
Participants in the Plan shall be employees, Non-Employee
Directors, contractors and consultants of the Company and its Subsidiaries;
provided, however, that only persons who are key employees of the Company or any
subsidiary corporation (within the meaning of Section 424(f) of the Code) may be
granted Options which are intended to qualify as ISOs.
Section 5. PLAN LIMITATIONS; SHARES SUBJECT TO THE PLAN
(a) Subject to the provisions of Section 8 hereof, the aggregate
number of shares of Stock available for issuance as Awards under the Plan shall
not exceed 4,311,036 shares, increased for shares of Stock that are represented
by awards outstanding under the Prior Plans on the effective date of this Plan
that are subsequently forfeited, canceled or expire unexercised under the Prior
Plans.
(b) No Award may be granted if the number of shares to which such
Award relates, when added to the number of shares previously issued under the
Plan and the number of shares which may then be acquired pursuant to other
outstanding, unexercised Awards, exceeds the number of shares available for
issuance pursuant to the Plan. If any shares subject to an Award are forfeited
or such Award (or an outstanding award under the Prior Plans) is settled in cash
or otherwise terminates or is settled for any reason whatsoever without an
actual distribution of shares to the Participant, any shares counted against the
number of shares available for issuance pursuant to the Plan with respect to
such Award shall, to the extent of any such forfeiture, settlement, or
termination, again be available for Awards under the Plan; provided, however,
that the Committee may adopt procedures for the counting of shares relating to
any Award (or an outstanding award under the Prior Plans) to ensure appropriate
counting, avoid double counting, and provide for adjustments in any case in
which the number of shares actually distributed differs from the number of
shares previously counted in connection with such Award. If a Participant
tenders shares (either actually, by attestation or otherwise) to pay all or any
part of the exercise price on any Option (or an outstanding option under the
Prior Plans) or if any shares
4
payable with respect to any Award (or an outstanding award under the Prior
Plans) are retained by the Company in satisfaction of the Participant's
obligation for taxes, the number of shares tendered or retained shall again be
available for Awards under the Plan. Shares issued under the Plan through the
settlement, assumption or substitution of outstanding awards to grant future
awards as a commitment of the Company or any Subsidiary in connection with the
acquisition of another entity shall not reduce the maximum number of shares
available for delivery under the Plan.
(c) Subject to the provisions of Section 8(a) hereof, the following
additional maximums are imposed under the Plan with respect to each fiscal year
of the Company: (i) the maximum number of shares of Stock that may be granted as
Awards to any Participant in any fiscal year shall not exceed, in the case of
any Stock-Based Awards, 2,000,000 shares of Stock, (ii) the maximum amount of
cash or cash payments that may be granted as Awards to any Participant in any
fiscal year shall not exceed $2,000,000 and (iii) the maximum number of Dividend
Rights that may be granted as Awards to any Participant in any fiscal year shall
not exceed Dividend Rights with respect to more than 2,000,000 shares of Stock.
Section 6. AWARDS
(a) General. Awards may be granted on the terms and conditions set
forth in this Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject to Section
9(a)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of the termination of employment or
other relationship with the Company or any Subsidiary by the Participant;
provided, however, that the Committee shall retain full power to accelerate or
waive any such additional term or condition as it may have previously imposed.
All Awards shall be evidenced by an Award Agreement.
(b) Options. The Committee may grant Options to Participants on the
following terms and conditions:
(i) The exercise price of each Option shall be determined by
the Committee at the time the Option is granted, but in
the case of ISOs the exercise price of any Option shall
not be less than the Fair Market Value of the shares
covered thereby at the time the Option is granted.
(ii) The Committee shall determine the time or times at which
an Option may be exercised in whole or in part, whether
the exercise price for an Option shall be paid in cash,
by the surrender at Fair Market Value of Stock, by any
combination of cash and shares of Stock, including,
without limitation, cash, Stock, other Awards, or other
property (including notes or other contractual
obligations of Participants to make payment on a
deferred basis), the means or methods of payment,
including by "attestation" and through "cashless
exercise" arrangements, to the extent permitted by
applicable law, and the methods by which, or the time or
times at which, Stock will be delivered or deemed to be
delivered to Participants upon the exercise of such
Option.
5
(iii) The terms of any Option granted under the Plan as an ISO
shall comply in all respects with the provisions of
Section 422 of the Code, including, but not limited to,
the requirement that no ISO shall be granted more than
ten years after the effective date of the Plan.
(c) Director Options.
(i) Each person who is elected for the first time to be a
Non-Employee Director by the Board of Directors of the
Company or by the stockholders of the Company shall
receive, on the date of the first regularly scheduled
meeting of the Board of Directors following his or her
initial election, an automatic grant of an Option to
purchase 15,000 shares of Stock; provided that, if such
Non-Employee Director has been elected Chairman of the
Board, such Option shall be for 25,000 shares of Stock
and if such Non-Employee Director has been elected
Chairman of the Audit Committee of the Board of
Directors (but not Chairman of the Board of Directors),
such Option shall be for 20,000 shares of Stock. The
date on which an Option is granted under this Section
and Section 6(c)(ii) to a specified Non-Employee
Director shall constitute the date of grant of such
Option (the "Date of Grant").
(ii) Each Non-Employee Director shall also receive an
automatic annual grant of an Option to purchase 10,000
shares of Stock on the date of the first regularly
scheduled meeting of the Board of Directors of each year
(regardless of whether or not he or she is otherwise
receiving a grant pursuant to clause (i) above on such
date); provided that, if such Non-Employee Director is
then serving as Chairman of the Board, such Option shall
be for 20,000 shares of Stock and if such Non-Employee
Director is then serving as Chairman of the Audit
Committee of the Board of Directors (but not Chairman of
the Board of Directors), such Option shall be for 12,500
shares of Stock. The Options granted pursuant to Section
6(c)(i) and this Section 6(c)(ii) shall be referred to
herein as "Director Options."
(iii) The exercise price per share of all Director Options
shall be the Fair Market Value per share of Stock on the
Date of Grant. Each Director Option, to the extent
vested, may be exercised in whole or in part, the
exercise price may be paid in cash or (if specifically
approved by the Committee) by the surrender at Fair
Market Value of Stock (either actually, by attestation
or otherwise), or (if specifically approved by the
Committee) by any combination of cash and shares of
Stock, and shall be subject to such other terms and
provisions as the Committee shall determine.
(iv) Director Options shall vest on the first anniversary of
the Date of Grant.
6
(v) If a Non-Employee Director shall voluntarily or
involuntarily cease to serve as a director of the
Company or if a Non-Employee Director's service shall
terminate on account of death or disability, the
unvested Director Options of such Non-Employee Director
shall terminate immediately and the vested Director
Options of such Non-Employee Director shall terminate
one year following the first day that the Non-Employee
Director is no longer such a director; provided that if
such Non-Employee Director is removed for Cause, the
Director Options shall terminate immediately. In no
event may the Non-Employee Director, or his or her
guardian, conservator, executor or administrator, as the
case may be, exercise a Director Option of such
Non-Employee Director after the end of the original term
of such option.
(vi) At its discretion, the Committee may issue any other
type of Award in lieu of a Director's Option, provided
that the Fair Market Value of such Award (as determined
by the Committee in its sole discretion) is equal to the
Fair Market Value of the Director's Option that would
otherwise be granted pursuant to this Section 6(c).
(d) Deferred Stock Units. The Committee is authorized to award
Deferred Stock Units to Participants in lieu of payment of a bonus or a
Stock-Based Award or cash payment granted under the Plan if so elected by a
Participant under such terms and conditions as the Committee shall determine.
Settlement of any Deferred Stock Units shall be made in cash or shares of Stock.
(e) Restricted Stock. The Committee is authorized to grant
Restricted Stock to Participants on the following terms and conditions:
(i) Restricted Stock awarded to a Participant shall be
subject to a "substantial risk of forfeiture" within the
meaning of Section 83 of the Code, and such restrictions
on transferability and other restrictions and
Performance Goals for such periods as the Committee may
establish. Additionally, the Committee shall establish
at the time of such Award, which restrictions may lapse
separately or in combination at such times, under such
circumstances, or otherwise, as the Committee may
determine.
(ii) Restricted Stock shall be forfeitable to the Company by
the Participant upon termination of employment during
the applicable restricted periods. The Committee, in its
discretion, whether in an Award Agreement or anytime
after an Award is made, may accelerate the time at which
restrictions or forfeiture conditions will lapse, or may
remove any Performance Goal requirement upon the death,
disability, retirement or otherwise of a Participant,
whenever the Committee determines that such action is in
the best interests of the Company.
(iii) Restricted Stock granted under the Plan may be
evidenced in such manner as the Committee shall
determine. If certificates representing
7
Restricted Stock are registered in the name of the
Participant, such certificates may bear an appropriate
legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock.
(iv) Subject to the terms and conditions of the Award
Agreement, the Participant shall have all the rights of
a stockholder with respect to shares of Restricted Stock
awarded to him or her, including, without limitation,
the right to vote such shares and the right to receive
all dividends or other distributions made with respect
to such shares. If any such dividends or distributions
are paid in Stock, the Stock shall be subject to
restrictions and a risk of forfeiture to the same extent
as the Restricted Stock with respect to which the Stock
has been distributed.
(f) Stock Appreciation Rights. The Committee is authorized to grant
SARs to Participants on the following terms and conditions:
(i) A SAR shall confer on the Participant to whom it is
granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value of one share of
Stock on the date of exercise over (B) the grant price
of the SAR as determined by the Committee as of the date
of grant of the SAR.
(ii) The Committee shall determine the time or times at
which a SAR may be exercised in whole or in part, the
method of exercise, method of settlement, form of
consideration payable in settlement, method by which
Stock will be delivered or deemed to be delivered to
Participants, whether or not a SAR shall be in tandem
with any other Award, and any other terms and conditions
of any SAR.
(g) Cash Payments. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants cash payments,
whether awarded separately or as a supplement to any Stock-Based Award. The
Committee shall determine the terms and conditions of such Awards.
(h) Dividend Rights. The Committee is authorized to grant Dividend
Rights to Participants on the following terms and conditions:
(i) Dividend Rights may be granted either separately or in
tandem with any other Award. If any Dividend Rights are
granted in tandem with any other Award, such Dividend
Rights shall lapse, expire or be forfeited
simultaneously with the lapse, expiration, forfeiture,
payment or exercise of the Award to which the Dividend
Rights are tandemed. If Dividend Rights are granted
separately, such Dividend Rights shall lapse, expire or
be terminated at such times or under such conditions as
the Committee shall establish.
(ii) The Committee may provide that the dividends
attributable to Dividend Rights may be paid currently or
the amount thereof may be credited to a Participant's
Plan account. The dividends credited to a
8
Participant's account may be credited with interest, or
treated as used to purchase at Fair Market Value Stock
or other property in accordance with such methods or
procedures as the Committee shall determine and shall be
set forth in the Award Agreement evidencing such
Dividend Rights. Any crediting of Dividends Rights may
be subject to restrictions and conditions as the
Committee may establish, including reinvestment in
additional shares of Stock or Stock equivalents. The
Committee may provide that the payment of any Dividend
Rights shall be made, or once made, may be forfeited
under such conditions as the Committee, in its sole
discretion, may determine.
(i) Other Stock-Based Awards. The Committee is authorized, subject
to limitations under applicable law, to grant to Participants such other
Stock-Based Awards, in addition to those provided in Sections 6(b), (c), (d),
(e) and (f) hereof, as deemed by the Committee to be consistent with the
purposes of the Plan. The Committee shall determine the terms and conditions of
such Awards. Stock delivered pursuant to an Award in the nature of a purchase
right granted under this Section 6(i) shall be purchased for such consideration
and paid for at such times, by such methods, and in such forms, including,
without limitation, cash, Stock, other Awards, or other property, as the
Committee shall determine.
Section 7. ADDITIONAL PROVISIONS APPLICABLE TO AWARDS
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for, any
other Award granted under the Plan or any award granted under any other plan of
the Company or any Subsidiary, or any business entity acquired by the Company or
any Subsidiary, or any other right of a Participant to receive payment from the
Company or any Subsidiary. If an Award is granted in substitution for another
Award or award, the Committee shall require the surrender of such other Award or
award in consideration for the grant of the new Award. Awards granted in
addition to, or in tandem with other Awards or awards may be granted either as
of the same time as, or a different time from, the grant of such other Awards or
awards. The per share exercise price of any Option, grant price of any SAR or
the purchase price of any Award conferring a right to purchase Stock:
(i) granted in substitution for an outstanding Award or
award, shall be not less than the lesser of (A) the Fair
Market Value of a share of Stock at the date such
substitute Award is granted or (B) such Fair Market
Value at that date, reduced to reflect the Fair Market
Value at that date of the Award or award required to be
surrendered by the Participant as a condition to receipt
of the substitute Award; or
(ii) retroactively granted in tandem with an outstanding
Award or award, shall not be less than the lesser of the
Fair Market Value of a share of Stock at the date of
grant of the later Award or at the date of grant of the
earlier Award or award.
9
(b) Exchange and Buy Out Provisions. The Committee may at any time
offer to exchange or buy out any previously granted Award for a payment in cash,
Stock, other Awards (subject to Section 7(a)), or other property based on such
terms and conditions as the Committee shall determine and communicate to a
Participant at the time that such offer is made.
(c) Performance Goals. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such Performance Goals as may be specified by the Committee.
(d) Term of Awards. The term of each Award shall, except as provided
herein, be for such period as may be determined by the Committee; provided,
however, that in no event shall the term of any Option (other than a Director
Option), SAR or Dividend Right exceed a period of ten years from the date of its
grant; provided that in the case of any ISO, the term of the Option shall be
such shorter period as may be applicable under Section 422 of the Code.
(e) Form of Payment. Subject to the terms of the Plan and any
applicable Award Agreement, payments or transfers to be made by the Company or a
Subsidiary upon the grant or exercise of an Award may be made in such forms as
the Committee shall determine, including, without limitation, cash, Stock, other
Awards, or other property, and may be made in a single payment or transfer, or
on a deferred basis. The Committee may, whether at the time of grant or at any
time thereafter prior to payment or settlement, permit (subject to any
conditions as the Committee may from time to time establish) a Participant to
elect to defer receipt of all or any portion of any payment of cash or Stock
that would otherwise be due to such Participant in payment or settlement of an
Award under the Plan. (Such payments may include, without limitation, provisions
for the payment or crediting of reasonable interest in respect of deferred
payments credited in cash, and the payment or crediting of Dividend Rights in
respect of deferred amounts credited in Stock equivalents.) The Committee, in
its discretion, may accelerate any payment or transfer upon a change of control
as defined by the Committee. The Committee may also authorize payment upon the
exercise of an Option by net issuance or other cashless exercise methods.
(f) Loan Provisions. With the consent of the Committee, and subject
at all times to laws and regulations and other binding obligations or provisions
applicable to the Company, including but not limited to the Sarbanes-Oxley Act
of 2002, the Company may make, guarantee, or arrange for a loan or loans to a
Participant with respect to the exercise of any Option or other payment in
connection with any Award, including the payment by a Participant of any or all
federal, state, or local income or other taxes due in connection with any Award.
Subject to such limitations, the Committee shall have full authority to decide
whether to make a loan or loans hereunder and to determine the amount, terms,
and provisions of any such loan or loans, including the interest rate to be
charged in respect of any such loan or loans, whether the loan or loans are to
be with or without recourse against the borrower, the terms on which the loan is
to be repaid and the conditions, if any, under which the loan or loans may be
forgiven.
(g) Awards to Comply with Section 162(m). The Committee may (but is
not required to) grant an Award pursuant to the Plan to a Participant that is
intended to qualify as "performance-based compensation" under Section 162(m) of
the Code (a "Performance-Based Award"). The right to receive a Performance-Based
Award, other than Options and SARs
10
granted at not less than Fair Market Value, may vary from Participant to
Participant and Performance-Based Award to Performance-Based Award, and shall be
conditional upon the achievement of Performance Goals that have been established
by the Committee in writing not later than the earlier of (i) 90 days after the
beginning of the Performance Cycle and (ii) the date by which no more than 25%
of a Performance Cycle has elapsed. Before any compensation pursuant to a
Performance-Based Award (other than Options and SARs granted at not less than
Fair Market Value) is paid, the Committee shall certify in writing that the
Performance Goals applicable to the Performance-Based Award were in fact
satisfied.
Section 8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
(a) In the event that the Committee shall determine that any stock
dividend, recapitalization, forward split or reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase or share exchange, or
other similar corporate transaction or event, affects the Stock or the book
value of the Company such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock which may thereafter be issued in
connection with Awards, (ii) the number and kind of shares of Stock issuable in
respect of outstanding Awards, (iii) the aggregate number and kind of shares of
Stock available under the Plan, and (iv) the exercise price, grant price, or
purchase price relating to any Award or, if deemed appropriate, make provision
for a cash payment with respect to any outstanding Award; provided, however, in
each case, that no adjustment shall be made that would cause the Plan to violate
Section 422(b)(1) of the Code with respect to ISOs or that would adversely
affect the status of a Performance-Based Award as "performance-based
compensation" under Section 162(m) of the Code.
(b) In addition, the Committee is authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards, including any
Performance Goals, in recognition of unusual or nonrecurring events (including,
without limitation, events described in the preceding paragraph) affecting the
Company or any Subsidiary, or in response to changes in applicable laws,
regulations, or accounting principles. Notwithstanding the foregoing, no
adjustment shall be made in any outstanding Performance-Based Awards to the
extent that such adjustment would adversely affect the status of the
Performance-Based Award as "performance-based compensation" under Section 162(m)
of the Code.
Section 9. GENERAL PROVISIONS
(a) Changes to the Plan and Awards. The Board of Directors of the
Company may amend, alter, suspend, discontinue, or terminate the Plan or the
Committee's authority to grant Awards under the Plan without the consent of the
Company's stockholders or Participants, except that any such amendment,
alteration, suspension, discontinuation, or termination shall be subject to the
approval of the Company's stockholders within one year after such Board action
if such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Stock may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit other such changes to the Plan to the
stockholders for approval; provided, however, that without the consent of an
affected Participant, no amendment, alteration, suspension, discontinuation, or
termination of the Plan
11
may materially and adversely affect the rights of such Participant under any
Award theretofore granted and any Award Agreement relating thereto. The
Committee may waive any conditions or rights under, or amend, alter, suspend,
discontinue, or terminate, any Award theretofore granted and any Award Agreement
relating thereto; provided, however, that without the consent of an affected
Participant, no such amendment, alteration, suspension, discontinuation, or
termination of any Award may materially and adversely affect the rights of such
Participant under such Award.
The foregoing notwithstanding, any Performance Goal or other
performance condition specified in connection with an Award shall not be deemed
a fixed contractual term, but shall remain subject to adjustment by the
Committee, in its discretion at any time in view of the Committee's assessment
of the Company's strategy, performance of comparable companies, and other
circumstances, except to the extent that any such adjustment to a performance
condition would adversely affect the status of a Performance-Based Award as
"performance-based compensation" under Section 162(m) of the Code.
(b) No Right to Award or Employment. Except as provided in Section
6(c), no employee, Non-Employee Director, contractor or consultant or other
person shall have any claim or right to receive an Award under the Plan. Neither
the Plan nor any action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the Company or any Subsidiary
or be viewed as requiring the Company or Subsidiary to continue the services of
any contractor or consultant for any period. There is no obligation for
uniformity of treatment among Participants. Except as set forth in Section
6(e)(iv), no Award shall confer on any Participant any of the rights of a
stockholder of the Company unless and until Stock is duly issued or transferred
to the Participant in accordance with the terms of the Award.
(c) Taxes. The Company or any Subsidiary is authorized to withhold
from any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Stock or any payroll or other payment to a
Participant amounts of withholding and other taxes due in connection with any
transaction involving an Award, and to take such other action as the Committee
may deem advisable to enable the Company and Participants to satisfy obligations
for the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock or
other property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations. Withholding of taxes in the form of shares of
Stock from the profit attributable to the exercise of any Option shall not occur
at a rate that exceeds the minimum required statutory federal and state
withholding rates.
(d) Limits on Transferability; Beneficiaries. No Award or other
right or interest of a Participant under the Plan shall be pledged, encumbered,
or hypothecated to, or in favor of, or subject to any lien, obligation, or
liability of such Participants to, any party, other than the Company or any
Subsidiary, or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution, and such Awards and rights shall
be exercisable during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative. Notwithstanding the foregoing, the
Committee may, in its discretion, provide that Awards or other rights or
interests of a Participant granted pursuant to the Plan (other than an ISO) be
transferable, without consideration, to immediate family members (i.e.,
children,
12
grandchildren or spouse), to trusts for the benefit of such immediate family
members and to partnerships in which such family members are the only partners.
The Committee may attach to such transferability feature such terms and
conditions as it deems advisable. In addition, a Participant may, in the manner
established by the Committee, designate a beneficiary (which may be a person or
a trust) to exercise the rights of the Participant, and to receive any
distribution, with respect to any Award upon the death of the Participant. A
beneficiary, guardian, legal representative or other person claiming any rights
under the Plan from or through any Participant shall be subject to all terms and
conditions of the Plan and any Award Agreement applicable to such Participant,
except as otherwise determined by the Committee, and to any additional
restrictions deemed necessary or appropriate by the Committee.
(e) Securities Law Requirements.
(i) No Award granted hereunder shall be exercisable if the
Company shall at any time determine that (a) the listing
upon any securities exchange, registration or
qualification under any state or federal law of any
Stock otherwise deliverable upon such exercise, or (b)
the consent or approval of any regulatory body or the
satisfaction of withholding tax or other withholding
liabilities, is necessary or appropriate in connection
with such exercise. In any of the events referred to in
clause (a) or clause (b) above, the exercisability of
such Awards shall be suspended and shall not be
effective unless and until such withholding, listing,
registration, qualifications or approval shall have been
effected or obtained free of any conditions not
acceptable to the Company in its sole discretion,
notwithstanding any termination of any Award or any
portion of any Award during the period when
exercisability has been suspended.
(ii) The Committee may require, as a condition to the right
to exercise any Award that the Company receive from the
Participant, at the time any such Award is exercised,
vests or any applicable restrictions lapse,
representations, warranties and agreements to the effect
that the shares are being purchased or acquired by the
Participant for investment only and without any present
intention to sell or otherwise distribute such shares
and that the Participant will not dispose of such shares
in transactions which, in the opinion of counsel to the
Company, would violate the registration provisions of
the Securities Act of 1933, as then amended, and the
rules and regulations thereunder. The certificates
issued to evidence such shares shall bear appropriate
legends summarizing such restrictions on the disposition
thereof.
(f) Termination. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on February 16, 2015, and no Options under
the Plan shall thereafter be granted.
(g) Fractional Shares. The Company will not be required to issue any
fractional common shares pursuant to the Plan. The Committee may provide for the
elimination of fractions and for the settlement of fractions in cash.
13
(h) Discretion. In exercising, or declining to exercise, any grant
of authority or discretion hereunder, the Committee may consider or ignore such
factors or circumstances and may accord such weight to such factors and
circumstances as the Committee alone and in its sole judgment deems appropriate
and without regard to the effect such exercise, or declining to exercise such
grant of authority or discretion, would have upon the affected Participant, any
other Participant, any employee, the Company, any Subsidiary, any stockholder or
any other person.
(i) Adoption of the Plan and Effective Date. The Plan shall be
adopted by the Board of Directors of the Company and shall be effective as of
such date.
14
[FRONT]
BLUEFLY, INC.
PROXY
Annual Meeting, April 29, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints MELISSA PAYNER-GREGOR AND PATRICK C.
BARRY as Proxies, each with full power to appoint his substitute, and hereby
authorizes them to appear and vote as designated on the reverse side, all shares
of Voting Stock of Bluefly, Inc. held on record by the undersigned on March 24,
2005 at the Annual Meeting of Stockholders to be held on April 29, 2005, and any
adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 and 2.
(Continued and to be signed on the reverse side.)
[X] Please mark your votes as in this example.
VOTE FOR
all nominees VOTE WITHHELD
listed at right AUTHORITY
except as marked to from all
1.ELECTION the contrary below nominees FOR AGAINST ABSTAIN
OF DIRECTORS [ ] [ ] Nominees: 2. PROPOSAL TO APPROVE [ ] [ ] [ ]
Alan Kane PLAN
FOR, EXCEPT ___________________ Melissa Payner-
VOTE Gregor 3. IN THEIR DISCRETION,
WITHHELD AS ___________________ Barry Erdos THE NAMED PROXIES MAY
TO THE Chris McCann VOTE ON SUCH OTHER
FOLLOWING ___________________ Martin Miller BUSINESS AS MAY PROPERLY
NOMINEES (IF COME BEFORE THE ANNUAL
ANY): ___________________ MEETING, OR ANY
ADJOURNMENTS OR
___________________ POSTPONEMENTS THEREOF.
___________________
The undersigned acknowledges receipt of the accompanying Proxy Statement dated
March 29, 2005.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE ANNUAL MEETING IN
ACCORDANCE WITH THE STOCKHOLDER'S SPECIFICATIONS ABOVE. THE PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS TO THE
UNDERSIGNED.
---------------------------- ---------------------------- DATE_______________
SIGNATURE OF STOCKHOLDER SIGNATURE IF HELD JOINTLY
NOTE: Please mark, date, sign and return this Proxy promptly using the enclosed
envelope. When shares are held by joint tenants, both should sign. If signing as
an attorney, executor, administrator, trustee or guardian, please give full
title. If a corporation or partnership, please sign in corporate or partnership
name by an authorized person.