As filed with the Securities and Exchange Commission on February 7, 2001
Registration No. 333-50336
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO.1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
BLUEFLY, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3612110
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
42 West 39th Street
New York, New York 10018
(212) 944-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
E. Kenneth Seiff
President and Chief Executive Officer
Bluefly, Inc.
42 West 39th Street
New York, New York 10018
(212) 944-8000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------
Copies to:
Richard A. Goldberg, Esq.
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
(212) 973-0111
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file an amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
[sidebar]
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not solicitating an offer to buy these
securities in any state where the offer or sale is not permitted.
[end sidebar]
Subject to Completion, dated February 7, 2001
Preliminary Prospectus
BLUEFLY, INC.
OFFERING
of
RIGHTS TO PURCHASE 8,547,009 SHARES OF COMMON STOCK
You will receive 1.735 subscription rights for each share of common stock
that you owned on February 7, 2001, the record date. Your subscription rights
will be aggregated for all the shares that you owned on the record date and then
rounded down to the nearest whole number, so you will not receive fractional
rights. Each subscription right entitles you to purchase one share of common
stock for a subscription price of $2.34 per share. If you fully exercise your
rights and other shareholders do not fully exercise their rights, you may elect
to purchase additional shares on a pro rata basis with other shareholders. This
is your oversubscription privilege.
Our common stock is traded on the NASDAQ SmallCap Market System under the
symbol "BFLY" and on the Boston Stock Exchange under the symbol "BFL". On
February 6, 2001, the last reported sale price for the common stock as reported
by NASDAQ was $1.78 per share.
The rights are exercisable beginning on the date of this prospectus and
continuing until March 26, 2001, at 5:00 p.m., New York City time. We have the
option of extending the expiration date.
The rights are transferrable and we anticipate that they will be listed for
trading on the NASDAQ SmallCap Market System under the symbol "BFLYR".
We will use the net cash proceeds from this offering for working capital
and other general corporate purposes.
Quantum Industrial Partners LDC and SFM Domestic Investments LLC,
affiliates of Soros Private Equity Partners LLC, who beneficially own an
aggregate of 72.8% our outstanding common stock, have agreed, subject to certain
conditions, to act as standby purchasers in this offering. The total dollar
amount of shares of common stock to be purchased by Quantum Industrial Partners
LDC and SFM Domestic Investments LLC at $2.34 per share will be equal to the
difference between $20,000,000 and the amount purchased by our shareholders
pursuant to this offering, but in no event will Quantum Industrial Partners LDC
and SFM Domestic Investments LLC purchase more than $10,000,000 in the
aggregate.
WE URGE YOU TO CAREFULLY READ THE "RISK FACTORS" SECTION BEGINNING ON PAGE
12 WHERE WE DESCRIBE SPECIFIC RISKS ASSOCIATED WITH AN INVESTMENT IN OUR COMPANY
AND THESE SECURITIES BEFORE YOU MAKE YOUR INVESTMENT DECISION.
Subscription Price Discount and Commissions Our Proceeds
------------------ ------------------------ ------------
Per Share Total.. $2.34 None $2.34
Total............ $20,000,000 None $20,000,000
Subscription Agent: American Stock Transfer & Trust Company
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
WE ARE NOT OFFERING OR SELLING, OR SOLICITING ANY PURCHASE OF, SHARES IN
CALIFORNIA, GEORGIA OR OHIO.
The date of this Prospectus is February 7, 2001.
TABLE OF CONTENTS
Page
----
EXPLANATORY NOTE.............................................................iii
WHERE YOU CAN FIND MORE INFORMATION...........................................iv
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS...............................vi
PROSPECTUS SUMMARY.............................................................1
SUMMARY HISTORICAL FINANCIAL DATA.............................................10
RISK FACTORS..................................................................11
We Are Making A Substantial Investment In Our Business And May
Need to Raise Additional Funds......................................11
Our Limited Operating History Makes Forecasting Our Revenues
Difficult...........................................................11
We Have a History of Losses and Expect that Losses will Continue
in the Future.......................................................12
We Are Dependent on Indirect Supply Sources Which Increases Our
Risk of Litigation..................................................12
Brand Owners Could Establish Procedures to Limit Our Ability to
Purchase Products Indirectly........................................12
Our Growth May Place a Significant Strain On Our Management And
Administrative Resources and Cause Disruptions In Our Business......12
We Are Heavily Dependent on Third Party Relationships...................13
We Are in Competition with Companies a lot Larger than Ourselves........13
We Do Not Have Long Term Contracts With Our Vendors And Therefore
The Availability Of Merchandise Is At Risk..........................14
We Are New To The Industry And Need To Establish Brand Name
Recognition.........................................................14
Due to Our Use Of the Internet and Web Servers As Presentation
Vehicles, Our Success Depends On Continued Development And
Maintenance Of These Technologies By Other Companies................15
There Can Be No Assurance That Our Technology Systems Will Be
Able To Handle Increased Traffic....................................15
We Operate In A Rapidly Changing, Highly Competitive Market and
We May Not Have Adequate Resources to Compete Successfully..........16
Our Business Will Suffer If Online Apparel Commerce Is Not Widely
Accepted............................................................17
Unexpected Changes in Fashion Trends Can Affect Our Business............17
We Will Be Subject To Cyclical Variations In The Apparel Market.........17
We May Be Subject to Higher Return Rates................................17
Our Success Is Largely Dependent Upon Our Executive Personnel...........17
Our Success Is Dependent Upon Our Ability To Attract New Key
Personnel...........................................................18
i
There Are Inherent Risks Involved in Expanding Our Operations...........18
We May Be Unable To Protect Our Intellectual Property Rights
And We May Be Liable For Infringing The Intellectual
Property Rights Of Others...........................................18
We Cannot Guarantee The Protection of Our Intellectual Property.........18
Unauthorized Security Breaches To Our Service Could Harm Our
Business............................................................19
Our Business Could Be Harmed By Consumers' Concerns About The
Security of Transactions Over the Internet..........................19
We Face Legal Uncertainties Relating To the Internet In General
and To Our Industry In Particular And May Become Subject to
Costly Government Regulation........................................19
We Face Uncertainties Relating To Sales And Other Taxes.................20
Standby Commitment By Principal Stockholders Is Conditional.............20
The Price of Our Common Stock May Decline Before or after the
Subscription Rights Expire..........................................20
Once You Exercise Your Subscription Rights, You May Not Revoke
the Exercise........................................................21
The Subscription Price Is Not an Indication of Our Value................21
Quantum Industrial Partners LDC and SFM Domestic Investments LLC
Will Own a Majority of Our Stock....................................21
We Have a Large Amount of Shares Eligible For Future Sale...............22
Certain Events Could Result In A Dilution Of Your Ownership Of
Our Common Stock....................................................22
Change of Control Covenant and Liquidation Preference of Series
A Preferred Stock And Series B Preferred Stock......................23
The Holders Of Our Common Stock May Be Adversely Affected By The
Rights Of Holders of Preferred Stock That May Be Issued In
the Future..........................................................23
There Is No Assurance That We Will Remain Listed On An Active
Trading Market......................................................23
THE OFFERING..................................................................24
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.......................................33
RECENT DEVELOPMENTS...........................................................35
USE OF PROCEEDS...............................................................36
DETERMINATION OF SUBSCRIPTION PRICE...........................................36
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY...............................37
CAPITALIZATION................................................................38
PLAN OF DISTRIBUTION..........................................................40
LEGAL MATTERS.................................................................40
ii
EXPERTS .....................................................................40
iii
WHERE YOU CAN FIND MORE INFORMATION
This prospectus constitutes part of a registration statement on Form
S-3 filed by us with the Securities and Exchange Commission under the U.S.
Securities Act of 1933 with respect to this offering. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto, certain portions of which have been omitted in
accordance with the rules and regulations of the SEC. You should refer to the
registration statement and the exhibits relating thereto for further information
with respect to us and this offering. Statements made in this prospectus as to
any contract, agreement or other document are summaries of the material terms of
such contracts, agreements or other documents and are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the registration statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement is
qualified in its entirety by such reference.
We are subject to the informational requirements of the U.S. Securities
Exchange Act of 1934, and in accordance with these requirements we file annual,
quarterly and special reports and other information with the SEC. These filings
are available to the public from commercial document retrieval services and at
the SEC's web site at http://www.sec.gov. You may also read and copy any
document we file at the SEC's public reference facilities at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's
regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials also may be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities.
The SEC allows us to "incorporate by reference" the information we file
with it. This permits us to disclose important information to you by referencing
these filed documents. We incorporate by reference in this prospectus the
following documents which have been filed with the SEC:
o Our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999, filed with the SEC on March 30, 2000, as
amended on May 15, 2000;
o Our Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2000, filed with the SEC on November 14,
2000;
o Our Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2000, filed with the SEC on August 14, 2000;
o The Amendment to our Quarterly Report on Form 10-QSB/A
amending our Quarterly Report on Form 10-QSB filed with the
SEC on November 9, 1999, filed with the SEC on May 15, 2000;
iv
o Our Current Report on Form 8-K, concerning the second closing
of the investment agreement between us and affiliates of Soros
Private Equity Partners, filed with the SEC on February 6,
2001;
o Our Current Report on Form 8-K, concerning a report of our
independent accountants updated for subsequent events, filed
with the SEC on November 20, 2000; and
o Our Current Report on Form 8-K, concerning a non-binding
letter of intent relating to a proposed investment in us by
affiliates of Soros Private Equity Partners, filed with the
SEC on October 17, 2000.
We incorporate by reference all documents filed pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date
of this prospectus and prior to the termination of this offering.
We will provide promptly without charge to you, upon written or oral
request, a copy of any document incorporated by reference in this prospectus,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. Requests should be directed as
follows:
Bluefly, Inc.
42 West 39th Street
New York, New York 10018
Telephone: (212) 944-8000
Attention: Investor Relations
You should request any such information at least 5 days in advance of
the date on which you expect to make your decision with respect to this offer.
In any event, you must request such information prior to March 19, 2001.
v
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This prospectus includes or incorporates by reference forward looking
statements as they are defined in the U.S. Securities Act of 1933 and the U.S.
Securities Exchange Act of 1934, including statements regarding our expected
financial position and business and financing plans. The occurrence of the
events described, and the achievement of the intended results, depend on many
events, some or all of which are not predictable or within our control. Actual
results may differ materially from those anticipated in any forward looking
statements. Many risks and uncertainties are inherent in our industry. Others
are more specific to our operations. Many of the significant risks related to
our business are described in this prospectus. These include, among other
things:
o Our business is capital intensive and we may need additional
financing;
o Our limited operating history;
o Our history of losses;
o Our dependence on indirect supply sources and third party
relationships;
o We operate in a rapidly changing, highly competitive market
and may not have adequate resources to compete successfully;
o We are new to the industry and need to establish general name
recognition;
o Our competitors are much larger than we are;
o Our business will suffer if online apparel commerce is not
widely accepted;
o Unexpected changes in fashion trends can affect our business;
o We may be unable to protect our intellectual property rights
and we may be liable for infringing the intellectual property
rights of others; and
o Our business could be harmed by consumer's concerns about the
security of transactions over the Internet.
We undertake no obligation to publicly update or revise any forward
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward
looking events discussed or incorporated by reference into this prospectus might
not occur. For additional risks related to our business, see the section
entitled "Risk Factors" on page 12.
vi
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus. The
summary is not complete and may not provide all information you should consider
before deciding whether or not to exercise the rights. Therefore, we urge you to
read the entire prospectus carefully. We also encourage you to review the
financial statements and other information provided in reports and other
documents that we file with the SEC, as described under "Where You Can Find More
Information" on the inside front cover of this prospectus.
QUESTIONS AND ANSWERS ABOUT THIS OFFERING
WHAT IS A RIGHT?
Each right enables you to purchase one share of our common stock for
$2.34 per share. On February 6, 2001, the last reported sales price for
our common stock on the NASDAQ SmallCap Market System was $1.78 per
share.
You will receive 1.735 rights for every share of common stock you own
as of 5:00 p.m. on February 7, 2001. Your subscription rights will be
aggregated for all the shares that you owned on that date and then
rounded down to the nearest whole number, so that you will not receive
fractional rights. For example, if you owned 100 shares on February 7,
2001, you have the right to purchase 173 shares of common stock for
$2.34 per share.
WHY IS BLUEFLY OFFERING THE RIGHTS?
Our largest shareholders in the aggregate, Quantum Industrial Partners
LDC and SFM Domestic Investments LLC, have agreed to make another
investment in us, subject to certain conditions outlined in the
Investment Agreement described under "Recent Developments" on page 36.
As part of that investment:
o their $20,0000,000 in loans to us were converted, at a rate of
$2.34 per share, into shares of Series B Preferred Stock,
which is convertible into shares of common stock, initially on
a one-for-one basis;
o the conversion price of their existing Class A Preferred Stock
was reduced to $2.34 per share; and
o they have committed to purchase up to $10,000,000 of the
common stock offered in this offering through their standby
purchase commitment.
This investment is more fully described under "Recent Developments" on
page 36. After review by our management and an independent committee of
the Board of Directors, we determined that it would be appropriate to
offer you the right to purchase common stock at the same price of $2.34
per
1
share. We believe this is fair to you, and also an excellent way for us
to raise additional equity capital.
WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE?
You may purchase one newly-issued share of common stock for every right
held by you, at the subscription price of $2.34 per share. This is your
basic subscription privilege.
WHAT IS THE OVERSUBSCRIPTION PRIVILEGE?
If you fully exercise your basic subscription privilege, the
oversubscription privilege entitles you to subscribe for additional
shares of our common stock at the same subscription price of $2.34 per
share that applies to your basic subscription privilege.
WHAT ARE THE LIMITATIONS ON THE OVERSUBSCRIPTION PRIVILEGE?
We will be able to satisfy your exercise of the oversubscription
privilege only if our other shareholders receiving rights do not elect
to purchase all of the shares offered to them under their basic
subscription privilege. We will honor oversubscription requests in full
to the extent sufficient shares are available following the exercise of
rights under the basic subscription privilege. If oversubscription
requests exceed shares available, we will allocate the available shares
pro rata among our shareholders who exercised their oversubscription
privilege.
WHAT IS THE ROLE OF THE STANDBY PURCHASERS IN THIS OFFERING?
As standby purchasers, Quantum Industrial Partners LDC will purchase up
to 4,138,034 shares of common stock and SFM Domestic Investments LLC
will purchase up to 135,470 shares of common stock, at $2.34 per share,
subject to certain conditions outlined in the Investment Agreement
described under "Recent Developments" on page 36. The total dollar
amount of shares of common stock to be purchased by Quantum Industrial
Partners LDC and SFM Domestic Investments LLC at $2.34 per share will
be equal to the difference between $20,000,000 and the amount purchased
by our shareholders pursuant to this offering, but in no event will
Quantum Industrial Partners LDC and SFM Domestic Investments LLC
purchase more than $10,000,000 in the aggregate. Quantum Industrial
Partners LDC will purchase 96.83% of such amount and SFM Domestic
Investments LLC will purchase 3.17% of such amount. We refer to the
commitment of Quantum Industrial Partners LDC and SFM Domestic
Investments LLC to purchase shares of common stock as described in this
paragraph as the Standby Commitment.
HAS THE BOARD OF DIRECTORS MADE A RECOMMENDATION REGARDING THIS OFFERING?
Our Board of Directors makes no recommendation to you about whether you
should exercise any rights.
2
HOW SOON MUST SHAREHOLDERS ACT?
The rights expire on March 26, 2001, at 5:00 p.m., New York City time.
The subscription agent must actually receive all required documents and
payments before that date and time. Although we have the option of
extending the expiration date, we currently do not intend to do so.
MAY I SELL OR GIVE AWAY MY RIGHTS?
Yes. The rights are transferable and we anticipate that they will trade
on the NASDAQ SmallCap Market System and may be purchased and sold
through brokers in the same manner as our common stock until the close
of business on the last trading day prior to the end of the
subscription period, that trading day being March 26, 2001, unless we
extend the date. We cannot guarantee, however, that any market for the
rights will develop or, if a market does develop, that the market will
remain available throughout the period in which the subscription rights
may be exercised.
AM I REQUIRED TO SUBSCRIBE IN THIS OFFERING?
No. You are not required to exercise any rights, purchase any new
shares, or otherwise take any action in response to this offering.
WHAT WILL HAPPEN IF I DO NOT EXERCISE MY RIGHTS?
If you do not exercise any rights, the number of shares you own will
not change, but your percentage ownership in us will decline following
this offering.
MAY I CHANGE OR CANCEL MY EXERCISE OF RIGHTS AFTER I SEND IN THE REQUIRED FORMS?
No. Once you send in your subscription certificate and payment, you
cannot revoke the exercise of your rights, even if you later learn
information about us that you consider to be unfavorable. You should
not exercise your rights unless you are certain that you wish to
purchase additional shares of common stock at a price of $2.34 per
share.
WILL MY MONEY BE RETURNED IF THIS OFFERING IS CANCELLED?
We may cancel or terminate this offering at any time and for any reason
prior to the expiration date. If certain conditions required by the
Standby Commitment are not satisfied and shares required to be
purchased by Quantum Industrial Partners LDC and SFM Domestic
Investments LLC under the Standby Commitment are not purchased, we will
terminate this offering. If we terminate or cancel this offering, we
will return your subscription price, but without any payment of
interest.
WHAT SHOULD I DO IF I WANT TO PARTICIPATE IN THIS OFFERING, BUT MY SHARES ARE
HELD IN THE NAME OF MY BROKER, DEALER OR OTHER NOMINEE?
If you hold your shares of our common stock through a broker, dealer or
other nominee, for example, through a custodian bank, then your broker,
dealer or other nominee is the record holder of the shares
3
you own. This record holder must exercise the rights on your behalf for
any shares you wish to purchase. Therefore, you will need to have your
record holder act for you.
If you wish to participate in this offering, please promptly contact
the record holder of your shares. To indicate your decision with
respect to your rights, you should complete and return to your record
holder the form entitled "Beneficial Owner Election Form." You should
receive this form from your record holder with the other offering
materials.
WHAT FEES OR CHARGES APPLY IF I PURCHASE SHARES?
We are not charging any fee or sales commission to issue rights to you
or to issue shares of common stock to you if you exercise rights. If
you exercise rights through a record holder of your shares, you are
responsible for paying any fees that person may charge.
HOW DO I EXERCISE MY RIGHTS? WHAT FORMS AND PAYMENT ARE REQUIRED TO PURCHASE
SHARES?
As a record holder of our common stock on February 7, 2001, you are
receiving this prospectus, a subscription warrant evidencing your
subscription rights and instructions on how to purchase shares. If you
wish to participate in this offering, then before your rights expire,
you must:
o deliver the subscription price by wire transfer of immediately
available funds, certified or cashier's check drawn on a U.S.
bank, or personal check that clears before expiration of the
rights; and
o deliver a properly completed subscription warrant. The
instructions also describe an alternate procedure called
"Notice of Guarantee Delivery," which allows an extra 3 days
to deliver the subscription warrant if full payment is
received before the expiration date and a securities broker or
qualified financial institution signs the "Notice of
Guaranteed Delivery" form to guaranty that your properly
completed subscription warrant will be timely delivered.
TO WHOM SHOULD I SEND FORMS AND PAYMENTS?
You should send your subscription documents and payment by hand, first
class mail or overnight courier service to:
American Stock Transfer & Trust Company
Attn: Reorganization Dept.
59 Maiden Lane
New York, New York 10038
Telephone: (718) 921-8200/Toll Free (800) 937-5449
For instructions on how your subscription payment should be sent to
American Stock Transfer & Trust Co., see "The Offering - Required Forms
of Payment of Subscription Price" on page 30.
4
Securities brokers and other qualified financial institutions can use
an alternate procedure called "Notice of Guaranteed Delivery." See "The
Offering - Special Procedure under "Notice of Guaranteed Delivery"
Form" on page 31.
WHAT SHOULD I DO IF I HAVE OTHER QUESTIONS?
If you have questions, need additional copies of offering documents or
otherwise need assistance, please contact the information agent for
this offering:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Telephone: (888) 242-8148
To ask other questions or to receive copies of our recent SEC filings,
you can also contact us by mail or telephone, or refer to the other
sources described under "Where You Can Find More Information" on the
inside front cover of this prospectus.
OUR COMPANY
We are a leading Internet retailer of designer apparel, fashion
accessories and home products at outlet store prices. We sell over 350 brands of
designer apparel and home accessories at 25% to 75% off of retail prices through
our Web Site, Bluefly.com.
BUSINESS STRATEGY
Our goal is to become the pre-eminent direct marketer of excess and
end-of-season apparel, fashion accessories and home products by creating a
superior marketplace for these products. We intend to do this by addressing what
we believe are inherent deficiencies in the traditional market for off-price
products, which limit its appeal to both customers and designers. We believe
that the economic advantages provided by Internet retailing, including inventory
management efficiencies resulting from centralized warehousing and distribution
and the ability to more easily maintain an upscale atmosphere through the design
of a single online storefront, provide a unique opportunity to address these
deficiencies. Our goal is to utilize these economic advantages to create a new
retail paradigm that combines the best practices of a number of successful
retail and fashion companies, combining the service and selection found at
high-end retailers such as Saks Fifth Avenue and Nordstroms with the savings
found at off-price retailers such as T.J. Maxx and Ross, and the convenience of
catalogs such as Lands' End and L.L. Bean.
We do not believe that this could be accomplished without using the
Internet as a platform. The direct marketing of excess and end-of-season
apparel, fashion accessories and home products requires a cost- effective medium
that can display a large number of products, many of which are in limited
supply, and some of which are neither available in all sizes nor easily
replenished. We believe print catalogs are not well suited to this task. The
paper, printing, mailing and other production costs of a print catalog can be
significant. To support these costs, a traditional cataloger typically requires
products that are replenishable, available in a full range of sizes and in
substantial quantities. Similarly, television is a costly medium that
5
requires substantial quantities of products that are available in all sizes in
order for it to be an economical medium. In addition, the number of items that
can be displayed on television is limited, and television cannot permit viewers
to search for products that interest them.
The Internet, however, can be a far less expensive and, in many ways,
more effective medium. By using the Internet as our platform, the number of
items that we offer is not limited by the high costs of printing and mailing.
With the Internet, we can automatically update product images as new products
arrive and other items sellout. By integrating real-time databases containing
information about both inventory and customers' preferences and sizes, we can
create a personalized shopping environment and allow our customers to search for
the products that specifically interest them. In addition, we are able to
maintain an upscale environment through the design of a single online
storefront.
We believe we have created a customer experience that is fundamentally
better than that offered by traditional off-price retailers. Similarly, we
believe that our upscale atmosphere, fashion content and premium brand selection
create a superior distribution channel for designers who wish to liquidate their
end-of-season and excess merchandise without suffering the brand dilution
inherent in traditional off-price channels.
MARKETING
We have implemented an aggressive advertising and marketing campaign to
increase awareness of our brand and acquire new customers. We are seeking to
position ourselves as the world's first full service outlet store, combining the
service and selection found at high-end retailers with savings typically
available only at off-price stores or company-owned outlet stores. We seek to
incorporate this branding effort into all aspects of our operations, including
advertising, customer service, site experience, packaging and delivery. We
acquire new customers through multiple channels, including traditional and
online advertising, direct marketing and strategic online relationships. We have
established strategic marketing alliances with many of the most visited Web
Sites and portals, including AOL, Excite, MSN, Netcenter, Women.com and Yahoo!.
MERCHANDISING
Our merchandising efforts are led by a team of buyers who hail from
such venerable retailers as Saks Fifth Avenue, Bergdorf Goodman and Henri
Bendel. We buy merchandise directly from designers as well as from retailers and
other third party, indirect resources. Currently, we offer products from more
than 350 top, name brand designers, which we believe to be the widest selection
of designers available from any online store. We have established direct supply
relationships with over 200 such designers. We believe that we have been
successful in opening up over 200 direct supply relationships, in part, because
we have devoted substantial resources to establishing Bluefly.com as a high-end
retail environment. In this regard, we are committed to displaying all of our
merchandise in an attractive manner, offering superior customer service and
gearing all aspects of our business towards creating a better channel for top
designers to liquidate their excess inventory.
6
For a number of reasons, we believe that our inventory risk can be
lower than that of traditional retailers:
o By centralizing our inventory, we believe that we will be able
to optimize inventory turns because we will not be forced to
anticipate sales by region or allocate merchandise between
multiple locations.
o Our Web Site captures a tremendous amount of customer data
that we can use to optimize our purchase of inventory.
o Unlike traditional brick-and-mortar retailers and catalogs, we
can change the pricing of our products almost instantaneously
and can price products based on supply and demand.
o Unlike traditional brick-and-mortar retailers, which have a
limited amount of shelf space, significant rent payments and
attendant sales personnel costs, we hold inventory in a
warehouse with a lower per square foot rental charge, lower
personnel costs and more shelf space. These factors create
lower inventory carrying costs.
STATE AND DATE OF INCORPORATION AND ADDRESS
We were incorporated under the laws of the State of New York in 1991 as
Pivot Corporation. In 1994, we changed our name to Pivot Rules, Inc., and, in
October 1998, changed our name to Bluefly, Inc. Bluefly.com was publicly
launched in September 1998. In June 1998, prior to the launch of Bluefly.com, we
discontinued our Pivot Rules division, which marketed a collection of golf
sportswear, in order to devote all of our energy and resources to building
Bluefly.com. On February 2, 2001, we reincorporated in Delaware through a merger
which was approved by our shareholders at the annual meeting of our shareholders
held on February 1, 2001. Our executive offices are located at 42 West 39th
Street, New York, New York 10018 and our telephone number is (212) 944-8000. Our
Internet address is www.bluefly.com.
7
SUMMARY OF THE TERMS OF THIS OFFERING
Further details concerning this part of the summary are set forth under
"The Offering" beginning on page 25. Only holders of record of common stock at
the close of business on the record date stated below may exercise rights.
Securities Offered................... We are offering up to 8,547,009 shares of
common stock to be issued upon exercise
of the rights.
Subscription Ratio; Basic
Subscription Privilege............... 1.735 rights for every share of common
stock owned as of the record date. Each
right entitles you to purchase one share
of common stock for the subscription
price. We are not issuing any fractional
rights or fractional shares. If the
number of shares of common stock you held
of record on the record date would result
in your receipt of fractional rights, the
number of rights issued to you is being
rounded down to the nearest whole number.
So, for example, if you were the record
holder of 100 shares of common stock on
the record date, you are receiving rights
to subscribe for 173 shares instead of
173.5 shares.
You may not purchase fractional shares.
You may, however, subscribe for any whole
number of shares by exercising less than
all of your rights.
Subscription Price................... $2.34 per share, payable in cash. All
payments must be cleared on or before the
expiration date.
Oversubscription Privilege........... If you fully exercise your basic
subscription privilege, you may also
purchase additional shares of common
stock that are not purchased by other
shareholders. The same subscription price
of $2.34 per share applies to this
purchase. If there are not enough shares
available to fill all subscriptions for
additional shares, the available shares
will be allocated pro rata based on the
number of shares each subscriber for
additional shares has purchased under the
basic subscription privilege.
Record Date.......................... February 7, 2001 at 5:00 p.m., New York
City time. Only our shareholders of
record as of the record date will receive
rights to subscribe for new shares of
common stock.
Expiration Date...................... The rights expire on March 26, 2001 at
5:00 p.m., New York City time. Rights not
exercised by the expiration date will be
null and void. We have the option of
extending the expiration date for any
reason.
Use of Proceeds...................... We will use the net proceeds of this
offering for working capital and other
general corporate purposes.
8
Transferability of Rights............ The rights are transferable and it is
anticipated that they will trade on the
NASDAQ SmallCap Market System and may be
purchased or sold through brokers in the
same manner as our common stock until the
close of business on the last trading day
prior to the end of the subscription
period, that trading day being March 26,
2001, unless we extend the date. We
cannot assure you, however, that any
market for the rights will develop or, if
a market does develop, that the market
will remain available throughout the
period in which the rights may be
exercised.
No Board Recommendation.............. Our Board of Directors does not make any
recommendation to shareholders regarding
the exercise of rights in this offering.
Shareholders who do exercise the right to
purchase shares of common stock risk
losing the new money invested. We cannot
assure you that the subscription price
will be at or below the trading price for
our common stock or that, if the trading
price is above the subscription price,
that it will not decline to the
subscription price during or after this
offering. For more information regarding
some of the risks inherent in this
offering, please see "Risk Factors"
beginning on page 12.
Standby Purchasers................... Quantum Industrial Partners LDC and SFM
Domestic Investments LLC, affiliates of
Soros Private Equity Partners LLC, who
beneficially own an aggregate of 72.8% of
our outstanding common stock, have
agreed, subject to certain conditions, to
act as standby purchasers in this
offering. The total dollar amount of
shares of common stock to be purchased by
Quantum Industrial Partners LDC and SFM
Domestic Investments LLC will be equal to
the difference between $20,000,000 and
the amount purchased by our shareholders
pursuant to this offering, but in no
event will Quantum Industrial Partners
LDC and SFM Domestic Investments LLC
purchase more than $10,000,000 in the
aggregate.
No Revocation........................ If you exercise any rights, you are not
allowed to revoke or change your exercise
or request a refund of monies paid.
Certain Federal Income Tax
Consequences......................... For United States federal income tax
purposes, we believe that a shareholder
will not recognize taxable income upon
the receipt or exercise of rights. See
"Certain Federal Income Tax Consequences"
beginning on page 34. Each shareholder
should consult his or her own tax adviser
concerning the tax consequences of this
offering under his or her own tax
situation. This prospectus does not
summarize tax consequences arising under
state tax laws, non-U.S. tax law, or any
tax laws relating to special tax
circumstances or particular types of
taxpayers.
9
Extension, Withdrawal and
Amendment............................ We have the option of extending this
offering and the subscription period,
although we presently do not intend to do
so. We also reserve the right to
withdraw, terminate or amend this
offering at any time for any reason. In
the event that such conditions required
by the Standby Commitment and outlined in
the Investment Agreement described under
"Recent Developments" on page 36 are not
satisfied and shares required to be
purchased by Quantum Industrial Partners
LDC and SFM Domestic Investments LLC
under the Standby Commitment are not
purchased, we will terminate this
offering. If this offering is withdrawn
or terminated, or any submitted
subscriptions no longer comply with the
amended terms of this offering, we will
return all refunds received from such
subscriptions (without interest).
Procedure of Exercising Rights....... To exercise rights, you must complete the
subscription warrant and deliver it to
the subscription agent, American Stock
Transfer & Trust Co., with full payment
for all the rights you elect to exercise.
American Stock Transfer & Trust Co. must
receive the proper forms and payments on
or before the expiration date.
You may deliver your subscription
documents and payments by mail or
commercial courier. If regular mail is
used for this purpose, we recommend using
insured, registered mail. You may use an
alternative "Notice of Guaranteed
Delivery" procedure if you are unable to
deliver the subscription warrant before
the expiration date, subject to the
requirements of this procedure described
under "The Offering - Special Procedure"
under "Notice of Guaranteed Delivery
Form" on page 31.
Shares of Common Stock Outstanding
Before the Rights Offering........... 4,924,906.
Shares of Common Stock Outstanding
Upon Completion of Rights Offering... Between 9,198,410 and 13,471,915,
depending on the participation level of
existing shareholders.
RISK FACTORS
See the section entitled "Risk Factors" immediately following this
summary for a discussion of certain factors you should consider in connection
with exercising your right to purchase our common stock.
10
SUMMARY HISTORICAL FINANCIAL DATA
All data in thousands except share data
Nine Months Ended
Year Ended December 31, September 30,
----------------------- -------------
1999 1998 1997 2000 1999
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
----------- -----------
Statement of Operations Data:
Net sales $ 4,951 $ 215 $ - $ 11,100 $ 1,909
Cost of sales 3,766 266 - 8,603 1,455
Gross profit (Loss) 1,185 (51) - 2,497 454
Selling, marketing and fulfillment expenses 11,424 1,121 - 14,310 6,267
General and administrative expenses 3,460 1,166 819 3,765 2,038
Internet business start up costs - 332 - - -
Total operating expenses 14,884 2,619 819 (18,075) (8,305)
Loss from continuing operations (13,699) (2,670) (819) (15,578) (7,851)
Net loss from continuing (13,257) (2,478) (469) (15,749) (7,568)
operations
Net loss (13,194) (3,656) (381) (15,749) (7,505)
Basic and diluted (loss) income per share: $(2.82) $(1.32) $(.18) $(3.32) $(1.61)
Continuing Operations (2.83) (.89) (.22) (3.32) (1.62)
Discontinued Operations .01 (.43) .04 - .01
Basic and diluted weighted average shares 4,802,249 2,770,869 2,149,315 4,924,906 4,763,074
outstanding available to common stock-
holders
As of December 31, 1999 As of September 30, 2000
----------------------- ------------------------
Balance Sheet Data:
Cash $ 7,934 $ 906
Inventories, net 7,020 7,934
Other current assets 1,080 1,785
Total current liabilities 6,523 5,048
Notes Payable, net - 11,679
Redeemable Preferred Stock 10,285 10,886
Shareholders' equity (deficit) 301 (15,544)
11
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before deciding to purchase shares in this
offering. Our shares are subject to significant investment risks. Many factors,
including the risks described below and other risks we have not recognized,
could cause our operating results to differ from our expectations and plans.
THERE ARE RISKS RELATED TO OUR BUSINESS THAT COULD RESULT IN SUBSTANTIAL LOSSES
FOR INVESTORS WHO EXERCISE THEIR RIGHTS.
WE ARE MAKING A SUBSTANTIAL INVESTMENT IN OUR BUSINESS AND MAY NEED TO RAISE
ADDITIONAL FUNDS.
Our business is capital intensive and we may need additional financing
to effect our business plan. We anticipate, based on current plans and
assumptions relating to our operations, that the proceeds from prior financings
and this offering, inclusive of the Standby Commitment, and together with
existing resources and cash generated from operations, should be sufficient to
satisfy our current cash requirements through the end of 2001. However, we
intend to seek additional debt and/or equity financing in order to maximize the
growth of our business. We are currently exploring a secured inventory line of
credit. However, the environment for raising investment capital by companies in
the Internet industry has been difficult and there can be no assurance that
additional financing or other capital will be available upon terms acceptable to
us, or at all. The inability to obtain additional financing, when needed, would
have a material adverse effect on our business, financial condition and results
of operations.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING OUR REVENUES DIFFICULT.
We launched Bluefly.com in September 1998. As a result of our limited
operating history, it is difficult for us to forecast our revenues accurately.
We base our current and future expense levels and operating plans on expected
revenues, but in the short term a significant portion of our expenses are fixed.
Accordingly, we may be unable to adjust our spending in a timely manner to
compensate for any unexpected revenue shortfall. This inability could cause our
net loss in a given quarter to be greater than expected and could also cause our
operating results in some future quarter to fall below the expectations of
securities analysts and investors. In that event, the trading price of our
common stock could decline significantly.
WE HAVE A HISTORY OF LOSSES AND EXPECT THAT LOSSES WILL CONTINUE IN THE FUTURE.
As of September 30, 2000, we had an accumulated deficit of $32,980,000.
We incurred net losses from continuing operations of $15,749,000 for the nine
months ended September 30, 2000 and $13,257,000 and $2,478,000 for the years
ended December 31, 1999 and 1998, respectively. We anticipate that losses will
continue for the foreseeable future as we incur expenses related to the growth
of our business and expend substantial amounts on the development of Bluefly.com
and marketing and advertising to build recognition and market share for
Bluefly.com.
WE ARE DEPENDENT ON INDIRECT SUPPLY SOURCES WHICH INCREASES OUR RISK OF
LITIGATION.
We purchase merchandise both directly from brand owners and indirectly
from retailers and third party distributors. The purchase of merchandise from
parties other than the brand owners increases the risk
12
that we will mistakenly purchase and sell non-authentic or damaged goods. We
have taken steps to ensure that we sell only authentic, high quality name brand
products and to avoid selling any non-authentic or damaged goods. While we
believe that our procedures are effective, the possibility for error exists and
therefore we face potential liability under applicable laws, regulations,
agreements and orders for the sale of non-authentic or damaged goods. Moreover,
any claims by a brand owner, with or without merit, could be time consuming,
result in costly litigation and generate bad publicity for us.
BRAND OWNERS COULD ESTABLISH PROCEDURES TO LIMIT OUR ABILITY TO PURCHASE
PRODUCTS INDIRECTLY.
Brand owners could establish procedures to limit or control our ability
to purchase products indirectly. In addition, several brand owners in the U.S.
have distinctive legal rights rendering them the only legal importer of their
respective brands into the U.S. If we acquire such product indirectly from
distributors and other third parties who may not have complied with applicable
customs laws and regulations, such goods could be subject to seizure from our
inventory by U.S. customs, and the importer may have a civil action for damages
against us.
OUR GROWTH MAY PLACE A SIGNIFICANT STRAIN ON OUR MANAGEMENT AND ADMINISTRATIVE
RESOURCES AND CAUSE DISRUPTIONS IN OUR BUSINESS.
Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our management and administrative
resources. Any failure to manage growth effectively could have a material
adverse effect on our business, financial condition and results of operations.
We have grown from twelve employees in January 1999 to 90 employees in February
2001. To be successful, we must continue to implement management information
systems and improve our operating, administrative, financial and accounting
systems and controls. We will also need to train new employees and maintain
close coordination among our executive, accounting, finance, marketing,
merchandising, operations and technology functions. Moreover, our business is
dependent upon our ability to expand our third party fulfillment operations,
customer service operations, technology infrastructure, and inventory levels to
accommodate increases in demand, particularly during the peak holiday selling
season. Our planned expansion efforts in these areas could cause disruptions in
our business. Any failure to expand our third party fulfillment operations,
customer service operations, technology infrastructure and inventory levels at
the pace needed to support customer demand could have a material adverse effect
on our business, financial condition and results of operations.
WE ARE HEAVILY DEPENDENT ON THIRD PARTY RELATIONSHIPS.
We are heavily dependent upon our relationships with our fulfillment
operations provider and Web hosting provider, as well as delivery companies like
UPS and the United States Postal Service to service our customers' needs. We
began using a new fulfillment operations provider in August 2000 and have a
limited operating history with it. The failure of our fulfillment operations
provider, Web hosting provider or delivery companies to properly perform their
services for us could have a material adverse effect on our business, prospects,
financial condition and results of operations. Our business is also generally
dependent upon our ability to obtain the services of other persons and entities
necessary for the development and maintenance of our business. If we fail to
obtain the services of any such person or entities upon which we are dependent
on satisfactory terms, or we are unable to replace such relationship, it would
have a material adverse impact on our business, prospects, financial condition
and results of operations.
13
WE ARE IN COMPETITION WITH COMPANIES MUCH LARGER THAN OURSELVES.
Electronic commerce generally and, in particular, the online retail
apparel and fashion accessories market, is a new, dynamic, high growth market
and is rapidly changing and intensely competitive. Our competition for online
customers comes from a variety of sources including:
o existing land-based, full price retailers such as The Gap,
Nordstrom, Saks Fifth Avenue and Macy's, which are using the
Internet to expand their channels of distribution;
o less established companies such as Ashford, which are building
their brands online;
o traditional direct marketers such as L.L. Bean, Lands' End, J.
Crew and Spiegel's;
o television direct marketers such as QVC; and
o traditional off-price retail stores such as T.J. Maxx,
Marshalls, Ross, Filene's Basement and Loehmanns, which may or
may not use the Internet to grow their customer base.
We expect our competition to intensify, and believe that the list of
competitors will grow. Many of our competitors and potential competitors have
longer operating histories, significantly greater resources, greater brand name
recognition and more firmly established supply relationships. We believe that
the principal competitive factors in our market include:
o brand recognition;
o merchandise selection;
o price;
o convenience;
o order delivery performance;
o customer service;
o site features; and
o content.
Although we believe we compare favorably with our competitors, we recognize that
this market is relatively new and is evolving rapidly. There can be no assurance
that we will be able to compete successfully against competitors and future
competitors, and competitive pressures faced by us may have a material adverse
effect on our business, prospects, financial condition and results of
operations.
14
WE DO NOT HAVE LONG TERM CONTRACTS WITH OUR VENDORS AND THEREFORE THE
AVAILABILITY OF MERCHANDISE IS AT RISK.
Although we believe we can establish and maintain relationships with
brand owners and third party distributors of merchandise who will offer
competitive sources of merchandise, there can be no assurance that we will be
able to obtain the quantity, selection or brand quality of items that we believe
is necessary. We have no agreements controlling the long term availability of
merchandise or the continuation of particular pricing practices. Our contracts
with suppliers typically do not restrict such suppliers from selling products to
other buyers. There can be no assurance that our current suppliers will continue
to sell products to us on current terms or that we will be able to establish new
or otherwise extend current supply relationships to ensure acquisitions in a
timely and efficient manner and on acceptable commercial terms. Our ability to
develop and maintain relationships with reputable suppliers and obtain high
quality merchandise is critical to our success. If we are unable to develop and
maintain relationships with suppliers that would allow us to obtain a sufficient
amount and variety of quality merchandise on acceptable commercial terms, our
business, prospects, financial condition and results of operation would be
materially, adversely affected.
WE ARE NEW TO THE INDUSTRY AND NEED TO ESTABLISH BRAND NAME RECOGNITION.
We believe that establishing, maintaining and enhancing our brand is a
critical aspect of our efforts to attract and expand our online traffic. The
number of Internet sites that offer competing services, many of which already
have well established brands in online services or the retail apparel industry
generally, increases the importance of establishing and maintaining brand name
recognition. Promotion of Bluefly.com will depend largely on our success in
providing a high quality online experience supported by a high level of customer
service, which cannot be assured. In addition, to attract and retain online
users, and to promote and maintain Bluefly.com in response to competitive
pressures, we may find it necessary to increase substantially our advertising
and marketing expenditures. If we are unable to provide high quality online
services or customer support, or otherwise fail to promote and maintain
Bluefly.com, or if we incur excessive expenses in an attempt to promote and
maintain Bluefly.com, our business, prospects, financial condition and results
of operations would be materially adversely affected.
WE MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH STRATEGY.
Our future success, and in particular our revenues and operating
results, depend upon our ability to successfully execute several key aspects of
our business plan. We must continually increase the dollar volume of
transactions booked through Bluefly.com, either by generating significantly
higher and continuously increasing levels of traffic to Bluefly.com or by
increasing the percentage of visitors to our online sites who purchase products,
or through some combination thereof. We must also achieve a high level of repeat
purchasers. In addition, we must deliver a high level of customer service and
compelling content. There can be no assurance that we will be effective in
increasing:
o the dollar volume of products purchased through Bluefly.com;
o traffic to Bluefly.com;
o the percentage of visitors who purchase products; or
15
o the number of repeat purchasers.
The failure to do one or more of the foregoing would likely have a
material adverse effect on our business, prospects, financial condition and
results of operations.
DUE TO OUR USE OF THE INTERNET AND WEB SERVERS AS PRESENTATION VEHICLES, OUR
SUCCESS DEPENDS ON CONTINUED DEVELOPMENT AND MAINTENANCE OF THESE TECHNOLOGIES
BY OTHER COMPANIES.
The Internet and other online services may not be accepted as a viable
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
technologies that provide access to the Internet and improve the performance of
Internet services. To the extent that the Internet and other online services,
such as AOL, continue to experience significant growth in their number of users,
their frequency of use or an increase in their bandwidth requirements, there can
be no assurance that the infrastructure for the Internet and other online
services will have sufficient bandwidth or other technical features to support
the increased demands placed upon them. In addition, the Internet or other
online services could lose their viability due to delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet or other online service activity, or due to increased governmental
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet or other online services also could result in
slower response times and adversely affect usage of the Internet and other
online services generally and Bluefly.com in particular. If use of the Internet
and other online services does not continue to grow or grows more slowly than
expected or if the infrastructure for the Internet and other online services
does not effectively support growth that may occur, our business prospects,
financial condition and results of operations would be materially adversely
affected.
THERE CAN BE NO ASSURANCE THAT OUR TECHNOLOGY SYSTEMS WILL BE ABLE TO HANDLE
INCREASED TRAFFIC.
A key element of our strategy is to generate a high volume of traffic
on, and use of, Bluefly.com. Accordingly, the satisfactory performance,
reliability and availability of Bluefly.com, transaction processing systems and
network infrastructure are critical to our reputation and our ability to attract
and retain customers, as well as maintain adequate customer service levels. Our
revenues will depend on the number of visitors who shop on Bluefly.com and the
volume of orders we can handle. Unavailability of our Web Site or reduced order
fulfillment performance would reduce the volume of goods sold and the
attractiveness of our merchandise and could also adversely affect consumer
perception of our brand name. We may experience periodic system interruptions
from time to time. If there is a substantial increase in the volume of traffic
on Bluefly.com or the number of orders placed by customers, we will be required
to expand and upgrade further our technology, transaction processing systems and
network infrastructure. There can be no assurance that we will be able to
accurately project the rate or timing of increases, if any, in the use of
Bluefly.com or expand and upgrade our systems and infrastructure to accommodate
such increases on a timely basis.
WE OPERATE IN A RAPIDLY CHANGING, HIGHLY COMPETITIVE MARKET AND WE MAY NOT HAVE
ADEQUATE RESOURCES TO COMPETE SUCCESSFULLY.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of Bluefly.com. The online commerce
industry is characterized by:
16
o rapid technological change;
o evolving user and customer requirements and preferences;
o frequent new product, service and technology introductions;
and
o the emergence of new industry standards and practices.
Each of these characteristics could render the technology we use obsolete. Our
future success will depend, in part, on our ability to:
o license leading technologies useful in our business;
o enhance our Web Site;
o develop new services and technologies that address the
increasingly sophisticated and varied needs of our prospective
customers; and
o respond to technological advances and emerging industry
standards and practices on a cost effective and timely basis.
If we are unable, for technical, legal, financial or other reasons, to adapt in
a timely manner in response to changing market conditions or customer
requirements, our business prospects, financial condition and results of
operations would be materially adversely affected.
OUR BUSINESS WILL SUFFER IF ONLINE APPAREL COMMERCE IS NOT WIDELY ACCEPTED.
Our future revenues and any future profits are dependent upon the
widespread acceptance and use of the Internet and other online services as an
effective medium of commerce by consumers. Rapid growth in the use of and
interest in the Web, the Internet and other online services is a recent
phenomenon, and there can be no assurance that acceptance and use will continue
to develop or that a sufficiently broad base of consumers will adopt, and
continue to use, the Internet and other online services as a medium of commerce
and, in particular, online apparel commerce. Demand and market acceptance for
recently introduced services and products over the Internet are subject to a
high level of uncertainty and there exist few proven services and products. We
rely, and will continue to rely, on consumers who have historically used
traditional means of commerce to purchase merchandise. Our success depends on
consumer acceptance and utilization of the Internet as a place to shop for
apparel.
UNEXPECTED CHANGES IN FASHION TRENDS CAN AFFECT OUR BUSINESS.
Fashion trends can change rapidly, and our business is sensitive to
such changes. There can be no assurance that we will accurately anticipate
shifts in fashion trends and adjust our merchandise mix to appeal to changing
consumer tastes in a timely manner. If we misjudge the market for our products
or are unsuccessful in responding to changes in fashion trends or in market
demand, we could experience insufficient or excess inventory levels or higher
markdowns, either of which would have a material adverse effect on our business,
financial condition and results of operations.
17
WE WILL BE SUBJECT TO CYCLICAL VARIATIONS IN THE APPAREL MARKET.
The apparel industry historically has been subject to substantial
cyclical variations and Internet usage slows down in the summer months. We and
other apparel vendors rely on the expenditure of discretionary income for most,
if not all, sales. Recently, the retail apparel market has suffered a downturn
in sales requiring many retailers to significantly reduce prices and discount
merchandise. The current downturn and any future downturn, whether real or
perceived, in economic conditions or prospects could adversely affect consumer
spending habits and, therefore, have a material adverse effect on our business,
financial condition and operating results.
WE MAY BE SUBJECT TO HIGHER RETURN RATES
We recognize that purchases of apparel and fashion accessories over the
Internet may be subject to higher return rates than traditional store bought
merchandise. We have established a liberal return policy in order to accommodate
our customers and overcome any hesitancy they may have with Internet shopping.
If return rates are higher than expected, our business, prospects, financial
condition and results of operations could be materially adversely affected.
OUR SUCCESS IS LARGELY DEPENDENT UPON OUR EXECUTIVE PERSONNEL.
We believe our success will depend to a significant extent on the
efforts and abilities of our executive personnel. We have entered into
employment agreements with each of our executive officers, with expiration dates
ranging from July 2002 to November 2003. We maintain a $1,200,000 key person
life insurance policy on our Chief Executive Officer. The loss of the services
of any of our executive officers could have a material adverse effect on our
business, prospects, financial condition and results of operations.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO ATTRACT NEW KEY PERSONNEL.
Our operations will also depend to a great extent on our ability to
attract new key personnel with Internet experience and retain existing key
personnel in the future. The market for personnel with Internet experience is
extremely competitive. Our failure to attract additional qualified employees
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
THERE ARE INHERENT RISKS INVOLVED IN EXPANDING OUR OPERATIONS.
We may choose to expand our operations by developing new Web Sites,
promoting new or complementary products or sales formats, expanding the breadth
and depth of products and services offered, expanding our market presence
through relationships with third parties, adopting non-Internet based channels
for distributing our products, or consummating acquisitions or investments.
Expansion of our operations in this manner would require significant additional
expenses and development, operations and editorial resources and would strain
our management, financial and operational resources. There can be no assurance
that we would be able to expand our efforts and operations in a cost-effective
or timely manner or that any such efforts would increase overall market
acceptance. Furthermore, any new business or Web Site, including Bluefly.com,
that is not favorably received by consumer or trade customers could damage our
reputation.
18
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Third parties may infringe or misappropriate our trademarks or other
proprietary rights, which could have a material adverse effect on our business,
results of operations or financial condition. While we enter into
confidentiality agreements with our employees, consultants and strategic
partners and generally control access to and distribution of our proprietary
information, the steps we have taken to protect our proprietary rights may not
prevent misappropriation. Third parties may assert infringement claims against
us. From time to time in the ordinary course of business we have been and we
expect to continue to be, subject to claims alleging infringement of the
trademarks and other intellectual property rights of third parties. These claims
and any resulting litigation, if it occurs, could subject us to significant
liability for damages. In addition, even if we prevail, litigation could be
time-consuming and expensive and could result in the diversion of our time and
attention. Any claims from third parties may also result in limitations on our
ability to use the intellectual property subject to these claims unless we are
able to enter into agreements with the third parties making these claims. We
could also incur substantial costs in asserting our intellectual property or
proprietary rights.
WE CANNOT GUARANTEE THE PROTECTION OF OUR INTELLECTUAL PROPERTY.
Our intellectual property is critical to our success, and we rely on
trademark, copyright, and trade secret protection to protect our proprietary
rights. We are pursuing registration service marks in the United States and
abroad. Effective trademark, copyright and trade secret protection may not be
available in every country in which our products will be available. We intend to
effect appropriate registrations internationally and domestically as we expand
our operations. There can be no assurance that the United States or foreign
jurisdictions will afford us any protection for our intellectual property. There
also can be no assurance that any of our intellectual property rights will not
be challenged, invalidated or circumvented. In addition, we do not know whether
we will be able to defend our proprietary rights since the validity,
enforceability and scope of protection of proprietary rights in Internet-related
industries is uncertain and still evolving.
UNAUTHORIZED SECURITY BREACHES TO OUR SERVICE COULD HARM OUR BUSINESS.
A fundamental requirement for online commerce and communications is the
secure transmission of confidential information over public networks. We rely on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to effect secure transmission of
confidential information, such as customer credit card numbers. In addition, we
maintain an extensive confidential database of customer profiles and transaction
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography, or other events or developments
will not result in a compromise or breach of the algorithms we use to protect
customer transaction and personal data contained in our customer database. If
any such compromise of our security were to occur, it could have a material
adverse effect on our reputation, business, operating results and financial
condition. A party who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our operations.
We may be required to expend significant capital and other resources to protect
against such security breaches or to alleviate problems caused by such breaches.
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OUR BUSINESS COULD BE HARMED BY CONSUMERS' CONCERNS ABOUT THE SECURITY OF
TRANSACTIONS OVER THE INTERNET.
Concerns over the security of transactions conducted on the Internet
and commercial online services and the privacy of users may also inhibit the
growth of the Internet and commercial online services, especially as a means of
conducting commercial transactions.
WE FACE LEGAL UNCERTAINTIES RELATING TO THE INTERNET IN GENERAL AND TO OUR
INDUSTRY IN PARTICULAR AND MAY BECOME SUBJECT TO COSTLY GOVERNMENT REGULATION.
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to online commerce.
However, it is possible that laws and regulations may be adopted that would
apply to the Internet and other online services. Furthermore, the growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for our products and services and
increase our cost of doing business, or otherwise have a material adverse effect
on our business, prospects, financial condition and results of operations.
The applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
Any such new legislation or regulation, the application of laws and regulations
from jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and online commerce
could have a material adverse effect on our business, prospects, financial
condition and results of operations. If we were alleged to have violated
federal, state or foreign, civil or criminal law, even if we could successfully
defend such claims, it could have a material adverse effect on our business,
prospects, financial condition and results of operations.
WE FACE UNCERTAINTIES RELATING TO SALES AND OTHER TAXES.
We are not currently required to pay sales or other similar taxes in
respect of shipments of goods into states other than Virginia and New York.
However, one or more states may seek to impose sales tax collection obligations
on out-of-state companies such as our company which engage in online commerce.
In addition, any new operation in states outside Virginia and New York could
subject shipments into such states to state sales taxes under current or future
laws. A successful assertion by one or more states or any foreign country that
the sale of merchandise by us is subject to sales or other taxes, could have a
material adverse effect on our business, prospects, financial condition and
results of operations.
THERE ARE RISKS RELATED TO THIS OFFERING THAT COULD RESULT IN SUBSTANTIAL LOSSES
FOR INVESTORS WHO EXERCISE THEIR RIGHTS.
IF YOU DO NOT EXERCISE YOUR RIGHTS, YOUR OWNERSHIP INTEREST WILL BE DILUTED.
If you do not exercise all of your rights, you may suffer significant
dilution of your percentage ownership in us relative to stockholders who
exercise their rights.
20
STANDBY COMMITMENT BY PRINCIPAL STOCKHOLDERS IS CONDITIONAL.
Quantum Industrial Partners LDC and SFM Domestic Investments LLC,
affiliates of Soros Private Equity Partners LLC, who beneficially own an
aggregate of 72.8% of our outstanding common stock, have agreed to act as
standby purchasers in this offering. However, this commitment is subject to
certain conditions set forth in the Investment Agreement described under "Recent
Developments" starting on page 36, including that there must not have been a
material adverse change in our business, properties, liabilities, results of
operations, financial condition, assets or prospects. We can not assure you that
all of these conditions will be satisfied and that Quantum Industrial Partners
LDC and SFM Domestic Investments LLC will complete the agreed upon purchases. If
Quantum Industrial Partners LDC and SFM Domestic Investments LLC fail to fund
the Standby Commitment for any reason, we will cancel this offering.
THE PRICE OF OUR COMMON STOCK MAY DECLINE BEFORE OR AFTER THE SUBSCRIPTION
RIGHTS EXPIRE.
We cannot assure you that the public trading market price of our common
stock will not decline after you exercise your subscription rights. If that
occurs, you will have committed to buy shares of common stock at a price above
the prevailing market price and you will have an immediate unrealized loss.
Moreover, we cannot assure you that following the exercise of subscription
rights you will be able to sell your shares of common stock at a price equal to
or greater than the subscription price. Until certificates are delivered upon
expiration of this offering, you may not be able to sell the shares of our
common stock you purchase in this offering. Certificates representing shares of
our common stock purchased will be delivered as soon as practicable after
expiration of this offering. We will not pay you interest on funds delivered to
the subscription agent pursuant to the exercise of rights.
ONCE YOU EXERCISE YOUR SUBSCRIPTION RIGHTS, YOU MAY NOT REVOKE THE EXERCISE.
Once you exercise your subscription rights, you may not revoke the
exercise. If we elect to withdraw or terminate the rights offering, neither we
nor the subscription agent will have any obligation with respect to the
subscription rights except to return, without interest, any subscription
payments.
THE SUBSCRIPTION PRICE IS NOT AN INDICATION OF OUR VALUE.
The subscription price was set by an independent committee of the Board
of Directors after considering a variety of factors, including the desire to
encourage full shareholder participation in this offering by setting an exercise
price below the current market price of the common stock. The subscription price
does not necessarily bear any relationship to the book value of our assets,
which is negative, past operations, cash flows, losses, financial condition or
any other established criteria for value. You should not consider the
subscription price as an indication of our present or future value. We have
neither sought nor obtained a valuation opinion from an outside financial
consultant or investment banker.
QUANTUM INDUSTRIAL PARTNERS LDC AND SFM DOMESTIC INVESTMENTS LLC WILL OWN A
MAJORITY OF OUR STOCK.
Quantum Industrial Partners LDC and SFM Domestic Investments LLC
beneficially own, in the aggregate, Preferred Stock and warrants convertible
into 72.8% of our common stock. The holders of Preferred Stock vote on an
"as-converted" basis with the holders of the common stock. By virtue of their
21
ownership of Preferred Stock, Quantum Industrial Partners LDC and SFM Domestic
Investments LLC have the right to appoint two designees to our Board of
Directors, each of whom has seven votes on any matter voted upon by our Board of
Directors. Collectively, these two designees have 14 out of 19 possible votes on
each matter voted upon by our Board of Directors. In addition, we are required
to obtain the approval of such designees prior to taking certain actions. The
holders of the Preferred Stock have certain pre- emptive rights to participate
in future equity financings and certain anti-dilution rights which could result
in the issuance of additional securities to such holders. In view of their large
percentage of ownership and rights as the holders of Preferred Stock, Quantum
Industrial Partners LDC and SFM Domestic Investments LLC, effectively control
our management and policies, such as the election of our directors, the
appointment of new management and the approval of any other action requiring the
approval of our shareholders, including any amendments to our certificate of
incorporation, a sale of all or substantially all of our assets or a merger.
WE HAVE A LARGE AMOUNT OF SHARES ELIGIBLE FOR FUTURE SALE.
As of the commencement of this offering, we have 4,924,906 shares of
common stock outstanding and, upon the completion of this offering, will have
between 9,198,410 and 13,471,915 shares of common stock outstanding depending on
the number of shares subscribed for in this Offering. All such shares, other
than shares which may be held by our "affiliates," will be freely tradeable
without restriction or further registration under the Securities Act. At least
13,184,286 shares of common stock are issuable upon conversion of the Series A
Preferred Stock and Series B Preferred Stock owned by Quantum Industrial
Partners LDC and SFM Domestic Investments LLC and other investors, all of which
are "restricted securities" as that term is defined under Rule 144 promulgated
under the Securities Act ("Rule 144"), and may only be sold pursuant to a
registration statement under the Securities Act or an applicable exemption from
the registration requirements of the Securities Act, including Rule 144
thereunder. Quantum Industrial Partners LDC and SFM Domestic Investments LLC and
the other holders of Preferred Stock have demand and piggy-back registration
rights that require the filing of a registration statement with respect to the
shares underlying their options. Such registration statement will permit Quantum
Industrial Partners LDC and SFM Domestic Investments LLC and the other holders
of Preferred Stock to sell such shares from time to time notwithstanding the
limitations imposed by Rule 144. No predictions can be made as to the effect, if
any, that market sales of shares by existing stockholders (including shares
issuable upon the exercise of such warrants and options) or the availability of
such shares for future sale will have on the market price of shares of common
stock prevailing from time to time. The prevailing market price of the common
stock after this offering could be adversely affected by future sales of
substantial amounts of common stock by existing stockholders.
CERTAIN EVENTS COULD RESULT IN A DILUTION OF YOUR OWNERSHIP OF OUR COMMON STOCK.
As of the commencement of this offering, there were outstanding options
to purchase 4,844,135 shares of common stock issued under our 1997 and 2000
Stock Option Plan, warrants to purchase 375,000 shares issued to Soros, and
additional warrants and options to purchase an aggregate of 73,000 shares of
common stock. The exercise of our outstanding options and warrants would dilute
the then existing shareholders' percentage ownership of our stock, and any sales
in the public market of common stock underlying such securities could adversely
affect prevailing market prices for the common stock. The 500,000 shares of
Series A Preferred Stock outstanding are convertible into 4,273,504 shares of
common stock (plus any shares of common stock issued upon conversion in payment
of any unpaid dividends on the
22
Series A Preferred Stock). As of the commencement of this offering, 8,910,782
shares of Series B Preferred Stock are outstanding, which shares are convertible
into an aggregate of 8,910,782 shares of common stock (plus any shares of common
stock issued upon conversion in payment of any unpaid dividends on the Series B
Preferred Stock). The Series B Preferred Stock contain antidilution provisions
which, subject to certain exceptions, would reduce the conversion price of the
Series B Preferred Stock to the price at which we issue or sell new securities
in the future, should those new securities be issued or sold for less than $2.34
per share. Moreover, the terms upon which we would be able to obtain additional
equity capital could be adversely affected since the holders of shares of Series
A and Series B Preferred Stock can be expected to convert those shares at a time
when we would, in all likelihood, be able to issue new securities on terms more
favorable than those of the Series A and Series B Preferred Stock.
CHANGE OF CONTROL COVENANT AND LIQUIDATION PREFERENCE OF SERIES A PREFERRED
STOCK AND SERIES B PREFERRED STOCK.
We have agreed in our Investment Agreement with Quantum Industrial
Partners LDC and SFM Domestic Investments LLC, that for so long as any shares of
Series A Preferred Stock or Series B Preferred Stock are outstanding, we will
not take any action to approve or otherwise facilitate any merger, consolidation
or change of control, unless provisions have been made for the holders of Series
A Preferred Stock and Series B Preferred Stock to receive from the acquiror an
amount in cash equal to their respective aggregate liquidation preference of the
Series A Preferred Stock and Series B Preferred Stock. The Series A liquidation
preference is $10,000,000 (plus any accrued and unpaid dividends) and the Series
B liquidation preference is at least $20,000,000 (plus any accrued and unpaid
dividends) and will be increased by an amount equal to the amount purchased by
Quantum Industrial Partners LDC and SFM Domestic Investments LLC, pursuant to
their Standby Commitment.
THE HOLDERS OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY THE RIGHTS OF
HOLDERS OF PREFERRED STOCK THAT MAY BE ISSUED IN THE FUTURE.
Our Restated Certificate of Incorporation and by-laws, as amended and
restated, contain certain provisions that may delay, defer or prevent a
takeover. Our Board of Directors has the authority to issue up to 14,000,000
shares of Preferred Stock, and to determine the price, rights, preferences and
restrictions, including voting rights, of those shares, without any further vote
or action by the shareholders. Accordingly, our Board of Directors is empowered,
without approval of the holders of common stock, to issue Preferred Stock, for
any reason and at any time, with such rates of dividends, redemption provisions,
liquidation preferences, voting rights, conversion privileges and other
characteristics as they may deem necessary. The rights of holders of common
stock will be subject to, and may be adversely affected by, the rights of
holders of any Preferred Stock that may be issued in the future.
THERE IS NO ASSURANCE THAT WE WILL REMAIN LISTED ON AN ACTIVE TRADING MARKET.
Although our common stock is quoted on the NASDAQ SmallCap Market and
the Boston Stock Exchange, there can be no assurance that we will, in the
future, be able to meet all requirements for continued quotation thereon. In the
absence of an active trading market or if our common stock cannot be traded on
the NASDAQ SmallCap Market or the Boston Stock Exchange, our common stock could
instead be traded on the Electronic Bulletin Board or in the Pink Sheets. In
such event, the liquidity and stock price in the secondary market may be
adversely affected. In addition, in the event our common stock was delisted,
23
broker-dealers have certain regulatory burdens imposed upon them which may
discourage broker-dealers from effecting transactions in our common stock,
further limiting the liquidity thereof.
It is anticipated that the rights will be traded as a separate security
on the NASDAQ SmallCap Market during this offering. NASDAQ's rules required for
continued listing of the rights throughout the offering period are that at least
three market makers make a market in the rights. There can be no assurance that
this requirement will be met.
24
THE OFFERING
BEFORE EXERCISING OR SELLING ANY RIGHTS, YOU SHOULD READ CAREFULLY THE
INFORMATION SET FORTH UNDER THE "RISK FACTORS" BEGINNING ON PAGE 12.
THE RIGHTS
As soon as practicable after the date of this prospectus, we are
distributing to holders of our common stock as of 5:00 p.m., New York City time,
on the record date of February 7, 2001, 1.735 transferable subscription rights
for every share of common stock owned at that time to purchase additional shares
of common stock. Each right entitles you to purchase one share of our common
stock for the subscription price. On February 6, 2001, the last reported sales
price for our common stock on the NASDAQ SmallCap Market was $1.78 per share.
We will not issue fractional rights. If the number of shares of common
stock you held on the record date would have resulted in your receipt of
fractional rights, the number of rights issued to you will be rounded down to
the nearest whole right.
SUBSCRIPTION PRICE.
The subscription price is $2.34 per share, payable in cash. All
payments must be cleared on or before the expiration date.
BASIC AND OVERSUBSCRIPTION PRIVILEGES.
Basic Subscription Privilege. You are entitled to purchase one share of
common stock at the subscription price for every right exercised.
Oversubscription Privilege. If you exercise your basic subscription
privilege in full, you may also subscribe for additional shares that other
shareholders have not purchased under their basic subscription privilege. If
there are not enough shares available to fill all such subscriptions for
additional shares, the available shares will be allocated pro rata based on the
number of shares each subscriber for additional shares has purchased under the
basic subscription privilege. We will not allocate to you more than the number
of shares you have actually subscribed and paid for.
You are not entitled to exercise the oversubscription privilege unless
you have fully exercised your basic subscription privilege. For this purpose,
you would only count the shares you own in your own name, and not other shares
that might, for example, be jointly held with a spouse, held as a custodian for
someone else, or held in an individual retirement account.
You can elect to exercise the oversubscription privilege only at the
same time you exercise your basic subscription privilege in full.
In exercising the oversubscription privilege, you must pay the full
subscription price for all the shares you are electing to purchase. If we do not
allocate to you all of the shares you have subscribed for under the
oversubscription privilege, we will refund by mail to you any payment you have
made for shares which are
25
not available to issue to you, as soon as practicable after completion of this
offering. Interest will not be payable on amounts refunded.
Banks, brokers and other nominees who exercise the oversubscription
privilege on behalf of beneficial owners of shares must report certain
information to the American Stock Transfer & Trust Co. and us and record certain
other information received from each beneficial owner exercising rights.
Generally, banks, brokers and other nominees must report (1) the number of
shares held on the record date on behalf of each beneficial owner, (2) the
number of rights as to which the basic subscription privilege has been exercised
on behalf of each beneficial owner, (3) that each beneficial owner's basic
subscription privilege held in the same capacity has been exercised in full, and
(4) the number of shares subscribed for under the oversubscription privilege by
each beneficial owner.
If you complete the portion of the subscription warrant to exercise the
oversubscription privilege, you will be representing and certifying that you
have fully exercised your basic subscription privilege as described above. You
must exercise your oversubscription privilege at the same time you exercise your
basic subscription privilege.
REASON FOR THE RIGHTS OFFERING.
Our largest shareholders in the aggregate, Quantum Industrial Partners
LDC and SFM Domestic Investments LLC, have agreed to make another investment in
us, subject to certain conditions outlined in the Investment Agreement described
under "Recent Developments" on page 36. As part of that investment:
o their $20,000,000 in loans to us were converted, at the rate
of $2.34 per share, into shares of Series B Preferred Stock,
which is convertible into common stock, initially on a
one-for-one basis;
o the conversion price of their existing Class A Preferred Stock
was reduced to $2.34 per share; and
o through their Standby Commitment, they have committed to
purchase up to $10,000,000 of the common stock offered in this
offering.
This investment is more fully described under "Recent Developments" on page 36.
After review by our management and an independent committee of the Board of
Directors, we determined that it would be appropriate to offer our common
shareholders the right to purchase common stock at the same $2.34 per share
price. We believe this is not only fair to our common shareholders, but also an
excellent way for us to raise additional equity capital.
THE BOARD MAKES NO INVESTMENT RECOMMENDATION TO SHAREHOLDERS.
Our Board of Directors, based upon the unanimous recommendation of the
independent directors, has approved but does not make any recommendation to you
about whether you should exercise any rights. In making the decision to exercise
or not exercise your rights, you must consider your own best interests.
If you choose not to exercise your subscription rights in full, your
relative ownership interest in us
26
will be diluted. If you exercise rights, you risk investment loss on new money
invested. The trading price of our common stock may decline below the
subscription price. We cannot assure you that the subscription price will be at
or below the trading price for our common stock or that, if the trading price is
above the subscription price, that it will not decline to the subscription price
during or after this offering. For a summary of some of the risks a new
investment would entail, see "Risk Factors" beginning on page 12.
EXPIRATION TIME AND DATE.
The rights expire on March 26, 2001, at 5:00 p.m., New York City time.
We have the option of extending the expiration date for any reason, although
presently we do not intend to do so. Rights not exercised by the expiration date
will be null and void.
In order to exercise rights in a timely manner, you must assure that
American Stock Transfer& Trust Co. receives, prior to expiration of the rights,
the properly executed and completed subscription warrant, or "Form of Notice of
Guaranteed Delivery", together with full payment for all shares you wish to
purchase.
NO REVOCATION.
You are not allowed to revoke or change your exercise of rights after
you send in your subscription forms and payment.
METHOD OF TRANSFERRING RIGHTS.
We anticipate that the rights will trade on the NASDAQ SmallCap Market
under the symbol "BFLYR" and may be purchased and sold through usual investment
channels until the close of business on the last trading day prior to the
expiration date.
You may transfer all of the rights evidenced by a single subscription
warrant by endorsing the subscription warrant for transfer in accordance with
the accompanying instructions. You may transfer a portion of the rights
evidenced by a single subscription warrant, but not fractional rights, by
delivering to the subscription agent a subscription warrant properly endorsed
for transfer, with instructions to register that portion of the rights indicated
in the name of the transferee and to issue to it a new subscription warrant
evidencing the transferred rights. In that event, a new subscription warrant
evidencing the balance of the rights will be issued to you or, if you so
instruct, to an additional transferee, or will be sold by the subscription agent
in the manner described below upon your instructions.
You should take into account that transfers, particularly those
requiring the issuance of new subscription warrants, can take several business
days. Neither we nor the subscription agent will have any liability if
subscription warrants or any other required documents are not received in time
for exercise or sale prior to the expiration date.
You will be issued a new subscription warrant upon the partial exercise
or sale of rights only if the subscription agent receives a properly endorsed
subscription warrant before 5:00 p.m., New York City time, on the third trading
day before the expiration date. Unless you make other arrangements with the
subscription agent, a new subscription warrant issued after 5:00 p.m., New York
City time, on the fifth business day before the expiration of this offering will
be held for pick-up at the subscription agent's hand
27
delivery address. You assume all risk associated with the delivery of newly
issued subscription warrants.
You are responsible for all commissions, fees and other expenses,
including brokerage commissions and transfer taxes, incurred in connection with
the purchase, sale or exercise of rights.
EXTENSION, WITHDRAWAL AND AMENDMENT.
We have the option of extending the period for exercising your rights,
although we presently do not intend to do so.
We also reserve the right to withdraw or terminate this offering at any
time for any reason. In the event that such conditions required by the Standby
Commitment and outlined in the Investment Agreement described under "Recent
Developments" on page 36, are not satisfied and funds required to be purchased
by Quantum Industrial Partners LDC and SFM Domestic Investments LLC under the
Standby Commitment are not made, we will terminate this offering. In the event
that this offering is withdrawn or terminated, all funds received from
subscriptions by rights holders will be returned. Interest will not be payable
on any returned funds.
We reserve the right to amend the terms of this offering. If we make an
amendment that we consider significant, we will (1) mail notice of the amendment
to all shareholders of record as of the record date, (2) extend the expiration
date by at least 10 days and (3) offer all subscribers no less than 10 days to
revoke any subscription already submitted. The extension of the expiration date
will not, in and of itself, be treated as a significant amendment for these
purposes.
STANDBY COMMITMENT OF QUANTUM INDUSTRIAL PARTNERS LDC AND SFM DOMESTIC
INVESTMENTS LLC TO ACT AS STANDBY PURCHASERS.
Quantum Industrial Partners LDC, which we refer to as QIP, is a Cayman
Islands limited duration company. The sole general partner of QIP is QIH
Management Investor L.P., a Delaware limited partnership, which we refer to as
QIHMI and that 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, Inc., a Delaware corporation. Mr. George Soros, the sole shareholder
of QIH Management, Inc. has entered into an agreement with Soros Fund Management
LLC, a Delaware limited liability company that we refer to SFM LLC, pursuant to
which Mr. Soros has agreed to use his best efforts to cause QIH Management, Inc.
to act at the direction of SFM LLC. Mr. Soros, as Chairman of SFM LLC, may be
deemed to have sole voting power and sole investment power with respect to
shares of our stock owned by QIP. Accordingly, each of QIHMI, QIH Management,
Inc., SFM LLC and Mr. Soros may be deemed to be the beneficial owners of shares
of our stock owned by QIP.
Quantum Industrial Partners LDC and SFM Domestic Investments LLC,
affiliates of Soros Private Equity Partners LLC, who beneficially own an
aggregate of 72.8% of our outstanding common stock, have agreed to act as
standby purchasers in this offering subject to certain conditions under the
Investment Agreement described under "Recent Developments" on page 36. Quantum
Industrial Partners LDC will purchase up to 4,138,034 shares of common stock and
SFM Domestic Investments LLC will purchase up to 135,470 shares of common stock
at $2.34 per share. The total dollar amount of shares of common stock
28
to be purchased by Quantum Industrial Partners LDC and SFM Domestic Investments
LLC at $2.34 per share will be equal to the difference between $20,000,000 and
the amount purchased by our shareholders pursuant to this offering but in no
event will Quantum Industrial Partners LDC and SFM Domestic Investments LLC
purchase more than $10,000,000 in the aggregate. Quantum Industrial Partners LDC
will purchase 96.83% of such amount and SFM Domestic Investments LLC will
purchase 3.17% of such amount.
MAILING OF WARRANTS AND RECORD HOLDERS.
We are sending a subscription warrant to each record holder along with
this prospectus and related instructions to evidence the rights. In order to
exercise rights, you must fill out and sign the subscription warrant and timely
deliver it with full payment for the shares to be purchased. Only the holders of
record of our common stock as of the close of business as of the record date may
exercise rights. You are a record holder for this purpose only if your name is
registered as a shareholder with our transfer agent, American Stock Transfer &
Trust Company, as of the record date.
A depository bank, trust company or securities broker or dealer which
is a record holder for more than one beneficial owner of shares may divide or
consolidate subscription warrants to represent shares held as of the record date
by their beneficial owners, upon proper showing to American Stock Transfer &
Trust Company.
If you own shares held in a brokerage, bank or other custodial or
nominee account, in order to exercise your rights you must promptly send the
proper instruction form to the person holding your shares. Your broker, dealer,
depository or custodian bank or other person holding your shares is the record
holder of your shares and will have to act on your behalf in order for you to
exercise your rights. We have asked your broker, dealer or other nominee holders
of our stock to contact the beneficial owners to obtain instructions concerning
rights the beneficial owners it represents are entitled to exercise.
FOREIGN AND UNKNOWN ADDRESSES.
We are not mailing subscription warrants to shareholders whose
addresses are outside the United States or who have an APO or FPO address. In
those cases, the subscription warrants will be held by American Stock Transfer &
Trust Co. for those shareholders. To exercise their rights, these shareholders
must notify American Stock Transfer & Trust Co. prior to 11:00 a.m., New York
City time, on the third business day prior to the expiration date.
RIGHT TO BLOCK EXERCISE DUE TO REGULATORY ISSUES.
We reserve the right to refuse the exercise of rights by any holder of
rights who would, in our opinion, be required to obtain prior clearance or
approval from any state, federal or foreign regulatory authorities for the
exercise of rights or ownership of additional shares if, at the expiration date,
this clearance or approval has not been obtained. We are not undertaking to pay
any expenses incurred in seeking such clearance or approval.
We are not offering or selling, or soliciting any purchase of, shares
in any state or other jurisdiction in which this offering is not permitted or in
which we have not qualified, including California, Georgia and Ohio. We
reserve the right to delay the commencement of this offering in certain states
or other jurisdictions if necessary to comply with local laws. However, we may
elect not to
29
offer rights to residents of any state or other jurisdiction whose law would
require a change in this offering in order to carry out this offering in such
state or jurisdiction.
PROCEDURES TO EXERCISE RIGHTS.
Please do not send subscription warrants or related forms to us. Please
send the properly completed and executed form of subscription warrant with full
payment to the subscription agent for this offering, American Stock Transfer &
Trust Co.
You should read carefully the subscription warrant and related
instructions and forms which accompany this prospectus. You should call D.F.
King & Co., Inc., the information agent for this offering, at the address and
telephone number listed below under the caption "The Offering - Questions and
Assistance Concerning the Rights" promptly with any questions you may have.
You may exercise your rights by delivering to American Stock Transfer &
Trust Co., at the address specified below and in the instructions accompanying
this prospectus, on or prior to the expiration date:
o Properly completed and executed subscription warrant(s) which
evidence your rights. See "The Offering - Delivery of
Subscription Warrant" below for instructions on where to send
these.
o Payment in full of the subscription price for each newly
issued share of our common stock you wish to purchase under
the basic subscription privilege and the oversubscription
privilege. See "The Offering - Required Forms of Payment of
Subscription Price" below for payment instructions.
REQUIRED FORMS OF PAYMENT OF SUBSCRIPTION PRICE.
The subscription price is $2.34 per share subscribed for, payable in
cash. All payments must be cleared on or before the expiration date.
If you exercise any rights, you must deliver to American Stock Transfer
& Trust Co. full payment in the form of:
o a personal check, certified or cashier's check or bank draft
drawn upon a U.S. bank, or a U.S. postal money order, payable
to American Stock Transfer & Trust Co., subscription agent, or
o a wire transfer of immediately available funds to the account
maintained by the American Stock Transfer & Trust Co. for this
offering. If you desire to make payment by wire transfer, you
must contact American Stock Transfer & Trust Co. to receive a
Wire Authorization Form.
In order for you to timely exercise your rights, American Stock
Transfer & Trust Co. must actually receive the subscription price before the
expiration date.
Funds paid by uncertified personal check may take at least 5 business
days to clear. Accordingly,
30
if you pay the subscription price by means of uncertified personal check, you
should make payment sufficiently in advance of the expiration date to ensure
that your check actually clears and the payment is received before such date. We
are not responsible for any delay in payment by you and suggest that you
consider payment by means of certified or cashier's check, money order or wire
transfer of funds.
DELIVERY OF SUBSCRIPTION WARRANT.
All subscription warrants, payments of the subscription price, nominee
holder certifications, notices of guaranteed delivery and DTC participant
oversubscription exercise forms, to the extent applicable to your exercise of
rights, must be delivered to American Stock Transfer & Trust Co. as follows:
American Stock Transfer & Trust Company
Attn: Reorganization Dept.
59 Maiden Lane
New York, New York 10038
Telephone: (718) 921-8200/Toll Free (800) 937-5449
Eligible institutions may deliver "Notice of Guaranteed Delivery" forms
by facsimile transmission. American Stock Transfer & Trust Co.'s facsimile
number is (718) 234-5001. You should confirm receipt of all facsimiles by
calling American Stock Transfer & Trust Co.
SPECIAL PROCEDURE UNDER "NOTICE OF GUARANTEED DELIVERY" FORM.
If you wish to exercise rights but cannot ensure that American Stock
Transfer & Trust Co. will actually receive the executed subscription warrant
before the expiration date, you may alternatively exercise rights by causing all
of the following to occur within the time prescribed:
o Full payment must be received by American Stock Transfer &
Trust Co. prior to the expiration date for all of the
newly-issued shares of our common stock you desire to purchase
pursuant to the basic subscription privilege and the
oversubscription privilege.
o A properly executed "Notice of Guaranteed Delivery"
substantially in the form distributed by us with your
subscription warrant and accompanied by a Medallion Guaranty
must be received by American Stock Transfer & Trust Co. at or
prior to the expiration date.
o The "Notice of Guaranteed Delivery" form must be executed by
both you and one of the following: (1) a member firm of a
registered national securities exchange, (2) a member of the
National Association of Securities Dealers, Inc., (3) a
commercial bank or trust company having an office or
correspondent in the United States, or (4) other eligible
guarantor institution qualified under a guarantee program
acceptable to American Stock Transfer & Trust Co.. The
co-signing institution must provide a Medallion Guaranty on
the "Notice of Guaranteed Delivery" guaranteeing that the
subscription warrant will be delivered to American Stock
Transfer & Trust Co. within 3 business days after the date of
the form. Your "Notice of Guaranteed Delivery" form must also
provide other relevant details concerning the intended
exercise of your rights.
31
o The properly completed subscription warrant(s) with any
required signature guarantee must be received by American
Stock Transfer & Trust Co. within 3 business days following
the date of the related Notice of Guaranteed Delivery.
o If you are a nominee holder of rights, the "Nominee Holder
Certification" must also accompany the Notice of Guaranteed
Delivery.
A Notice of Guaranteed Delivery may be delivered to American Stock
Transfer & Trust Co. in the same manner as subscription warrants at the
addresses set forth above under the caption "The Offering - Delivery of
Subscription Warrant" or by telegram or facsimile transmission.
American Stock Transfer & Trust Co.'s facsimile number is (718)
234-5001. You should confirm facsimile deliveries by calling American Stock
Transfer & Trust Co.
Additional copies of the form of Notice of Guaranteed Delivery are
available upon request from American Stock Transfer & Trust Co., whose address
and telephone number are set forth below under the caption "Questions and
Assistance Concerning the Rights."
INCOMPLETE FORMS; INSUFFICIENT PAYMENT.
If you do not indicate on your subscription warrant the number of
rights being exercised, or do not forward sufficient payment for the number of
rights that you indicate are being exercised, then we will accept the
subscription forms and payment only for the maximum number of rights that may be
exercised based on the actual payment delivered. We will make this determination
as follows: (1) you will be deemed to have exercised your basic subscription
privilege to the full extent of the payment received, and (2) if any funds
remain, you will be deemed to have exercised your oversubscription privilege to
the extent of the remaining funds. We will return any payment not applied to the
purchase of shares under this offering as soon as practicable by mail. Interest
will not be payable on amounts refunded.
PROHIBITION ON FRACTIONAL SHARES.
Each right entitles you to purchase one share of common stock at the
subscription price per share. We will accept any inadvertent subscription
indicating a purchase of fractional shares by rounding down to the nearest whole
share and, as soon as practicable, refunding without interest any payment
received for a fractional share.
INSTRUCTIONS TO NOMINEE HOLDERS.
If you are a broker, trustee or depository for securities or other
nominee holder for beneficial owners of our common stock, we are requesting that
you contact such beneficial owners as soon as possible to obtain instructions
and related certifications concerning their rights. Our request to you is
further explained in the suggested form of letter of instructions from nominee
holders to beneficial owners accompanying this prospectus.
To the extent so instructed, nominee holders should complete
appropriate subscription warrants on behalf of beneficial owners and, in the
case of any exercise of the oversubscription privilege, the related
32
form of "Nominee Holder Certification," and submit them on a timely basis to
American Stock Transfer & Trust Co. with the proper payment.
RISK OF LOSS ON DELIVERY OF SUBSCRIPTION WARRANT FORMS AND PAYMENTS.
Each holder of rights bears all risk of the method of delivery to
American Stock Transfer & Trust Co. of subscription warrants and payments of the
subscription price.
If subscription warrants and payments are sent by mail, you are urged
to send these by registered mail, properly insured, with return receipt
requested, and to allow a sufficient number of days to ensure delivery to
American Stock Transfer & Trust Co. and clearance of payment prior to the
expiration date.
Because uncertified personal checks may take at least five business
days to clear, you are strongly urged to pay, or arrange for payment, by means
of certified or cashier's check, money order or wire transfer of funds.
HOW PROCEDURAL AND OTHER QUESTIONS ARE RESOLVED.
We are entitled to resolve all questions concerning the timeliness,
validity, form and eligibility of any exercise of rights. Our determination of
such questions will be final and binding. We, in our sole discretion, may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as we may determine, or reject the purported exercise of any
right because of any defect or irregularity.
Subscription warrants will not be considered received or accepted until
all irregularities have been waived or cured within such time as we determine in
our sole discretion. Neither we nor American Stock Transfer & Trust Co. have any
duty to give notification of any defect or irregularity in connection with the
submission of subscription warrants or any other required document. Neither we
nor American Stock Transfer & Trust Co. will incur any liability for failure to
give such notification.
We reserve the right to reject any exercise of rights if the exercise
does not comply with the terms of this offering or is not in proper form or if
the exercise of rights would be unlawful or materially burdensome.
ISSUANCE OF STOCK CERTIFICATES.
Stock certificates for shares purchased in this offering will be issued
as soon as practicable after the expiration date. American Stock Transfer &
Trust Co. will deliver subscription payments to us only after consummation of
this offering and the issuance of stock certificates to our shareholders that
exercised rights. Unless you instruct otherwise in your subscription warrant
form, shares purchased by the exercise of rights will be registered in the name
of the person exercising the rights.
QUESTIONS AND ASSISTANCE CONCERNING THE RIGHTS.
You should direct any questions, requests for assistance concerning the
rights or requests for additional copies of this prospectus, forms of
instructions or the Notice of Guaranteed Delivery to:
33
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Telephone: (888) 242-8148
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
We have summarized below material United States income tax consequences
of this offering to the holders of our common stock upon the distribution of the
subscription rights, which for the purposes of this tax discussion includes
oversubscription rights, and to the holders of the subscription rights upon
their exercise. The summary is based on the Internal Revenue Code of 1986, as
amended, which we refer to as the Code, the Treasury regulations promulgated
thereunder, judicial authority and current administrative rules and practice,
all of which are subject to change on a prospective or retroactive basis. The
tax consequences of this offering under state, local and foreign law are not
discussed. The consequences of this offering with respect to any taxes other
than income taxes are not discussed. Moreover, special considerations not
described in this summary may apply to certain taxpayers or certain types of
taxpayers, such as financial institutions, broker-dealers, nominee holders of
our stock, life insurance companies, tax- exempt organizations and foreign
taxpayers. The discussion is limited to those who have held the common stock,
and will hold the rights and any shares acquired upon the exercise of the
rights, as capital assets (generally, property held for investment) within the
meaning of Section 1221 of the Code.
WE URGE STOCKHOLDERS TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE PARTICULAR FEDERAL INCOME OR OTHER TAX CONSEQUENCES TO THEM OF THE OFFERING,
AS WELL AS THE TAX CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN LAW AND THE
POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.
ISSUANCE OF RIGHTS
You will not recognize taxable income for federal income tax purposes upon
distribution of the rights.
STOCKHOLDER BASIS AND HOLDING PERIOD OF THE RIGHTS
Except as provided in the following sentence, the basis of the
subscription rights you receive as a distribution with respect to your common
stock will be zero. If, however, either (i) the fair market value of the
subscription rights on the date of issuance is 15% or more of the fair market
value, on the date of issuance of the rights, of the common stock with respect
to which they are received or (ii) you properly elect, in your federal income
tax return for the taxable year in which the subscription rights are received,
to allocate part of your basis in your common stock to the subscription rights,
then upon exercise or transfer of the rights, your basis in the common stock
will be allocated between the common stock and the rights in proportion to the
fair market values of each on the date the rights are issued. Your holding
period with respect to the subscription rights received as a distribution on
your common stock will include your holding period for the common stock with
respect to which the rights were distributed. In the case of a purchaser of
subscription rights, who we will call a "Purchaser," the tax basis of the
purchased rights will be equal to the purchase price paid for the rights, and
the holding period for the rights will commence on the day following the date of
the purchase.
34
TRANSFER OF THE RIGHTS.
If you or a Purchaser sell the subscription rights received in this
offering prior to exercise, you or the Purchaser will recognize gain or loss
equal to the difference between the sale proceeds and the basis, if any, in the
rights sold. The gain or loss will be capital gain or loss if gain or loss from
a sale of the common stock held by the seller would be characterized as capital
gain or loss at the time of the sale. Any gain or loss recognized on a sale of
rights by a Purchaser will be capital gain or loss if the common stock would be
a capital asset in the hands of the Purchaser.
LAPSE OF THE RIGHTS.
If you allow subscription rights received to lapse, no gain or loss
will be recognized and no adjustment will be made to the basis of the common
stock, if any, owned by the holder of the lapsed rights. Purchasers of the
subscription rights will recognize a loss equal to their tax basis in the
rights, if the rights expire unexercised. Any loss recognized on the expiration
of the rights acquired by a Purchaser will be a capital loss if the common stock
would be a capital asset in the hands of the Purchaser.
EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF THE COMMON STOCK.
Neither you nor a Purchaser will recognize any gain or loss upon the
exercise of rights. The basis of the shares acquired through exercise of the
rights will be equal to the sum of the subscription price paid for the shares
acquired through exercise of the rights and the holder's basis in the rights, if
any. The holding period for the shares acquired through exercise of the rights
will begin on the date the rights are exercised.
SALE OF SHARES.
The sale of shares acquired through the exercise of the rights will
result in the recognition of gain or loss to the seller in an amount equal to
the difference between the amount realized and the seller's basis in the shares.
If the seller holds the shares as a capital asset, gain or loss on the sale of
the shares will be long-term or short-term capital gain or loss, depending on
whether the shares have been held for more than one year.
RECENT DEVELOPMENTS
In order to provide for our immediate working capital needs and to
reorganize our capital structure to better position us to compete in the
marketplace, on November 13, 2000 we entered into an agreement, which we refer
to as the Investment Agreement, with Quantum Industrial Partners LDC and SFM
Domestic Investments LLC, affiliates of Soros Private Equity Partners LLC
(collectively referred to as Soros). The Investment Agreement provides for
Soros, on the terms and subject to the conditions set forth in the Investment
Agreement, to convert $20,000,000 of our indebtedness into an equity interest in
us and to make an additional equity investment in us of up to $10,000,000. The
conversion of indebtedness and additional investment are referred to as the
Soros Investment. As contemplated by the Investment Agreement, the up to
$10,000,000 additional equity investment would be accomplished through the
Standby Commitment.
35
The Investment Agreement was unanimously approved by our Board of
Directors on October 30, 2000. It was not necessary for us to obtain the
approval of our shareholders in order to enter into the Investment Agreement and
our shareholders have not been asked to ratify the Investment Agreement.
However, the consummation of the Soros Investment as contemplated by the
Investment Agreement required us to change the terms of the Series A Preferred
Stock, which, under New York State law, required the approval of our
shareholders. In addition, we agreed with Soros that we should reincorporate in
Delaware (which we refer to as the Reincorporation), an action that also
requires shareholder approval. Additionally, the issuance of shares of Series B
Preferred Stock to Soros upon conversion of our outstanding debt to Soros and
the purchase by Soros of common stock, if any, pursuant to the Standby
Commitment in this offering was submitted to the approval of, and approved by,
our shareholders on February 1, 2001 in order to comply with the listing
requirements of the NASDAQ SmallCap Market. The principal terms and conditions
of the Investment Agreement are summarized below.
The Investment Agreement provides for the Soros Investment to be
consummated at three closings, the first of which occurred simultaneously with
the signing of the Investment Agreement on November 13, 2000. At the first
closing, Soros purchased subordinated convertible promissory notes, referred to
as the New Notes, in the aggregate principal amount of $5,000,000 from us, for
cash, and exchanged our senior convertible promissory notes in the aggregate
principal amount of $15,000,000, which had been issued to Soros pursuant to the
Note and Warrant Purchase Agreement, dated as of March 28, 2000, by and between
Soros and us, for subordinated convertible promissory notes (referred to as
Amended Notes, and together with the New Notes, as the Notes) of equal principal
amount. The Notes were convertible into shares of Series B Preferred Stock at
the rate of $2.34 per share. The Amended Notes bore interest at the rate of 8%
per annum and the New Notes bore interest at the rate of 11% per annum, in each
case, subject to adjustment. The Notes were to mature on May 1, 2001 (the
Maturity Date). We were not entitled to prepay the principal amount of or any
interest accrued on the Notes before the Maturity Date. However, upon the
occurrence of certain Events of Default (as defined in the Notes), the principal
amount of and all interest accrued on the Notes was to accelerate and become
immediately due and payable. Also, upon the occurrence of certain other Events
of Default or certain transactions which would constitute a change of control
for us, Soros was entitled to require us to immediately prepay the principal
amount of and all interest accrued on the Notes. Any payment of the principal
amount of and all interest accrued on the Notes, whether at maturity or
otherwise, was to be made in cash.
The principal amount of and all interest accrued on the Notes was
automatically converted at the second closing under the Investment Agreement
into shares of Series B Preferred Stock at the rate of $2.34 per share. The
second closing, which occurred on February 5, 2001, was subject to the
satisfaction of certain conditions, including the approval by our shareholders
of the Reincorporation and of the Soros Issuance, regulatory approvals, the
absence of litigation which is reasonably likely to have a material adverse
effect on us and the absence of a material adverse change in our business,
financial condition or prospects.
Pursuant to the Investment Agreement, upon the effectiveness of the
Reincorporation, which occurred on February 2, 2001, the terms of the Series A
Preferred Stock were amended to reduce the conversion price to $2.34 a share and
delete the provision which provides for adjustment to the conversion price if we
issue shares of common stock at a price below the then effective conversion
price. In addition, the terms of the Series A Preferred Stock were amended to
give the director nominated by the holders of Series A Preferred Stock seven
votes on matters that come before the Board of Directors. The director nominated
by the holders of Series B Stock is also be entitled to seven votes on matters
that come before the Board of Directors.
The Investment Agreement provides that, as soon as practicable
following the effective date of the
36
registration statement of which this prospectus is a part, we will distribute
the rights offered hereby to all holders of our common stock on the record date
set forth herein. At the third closing under the Investment Agreement, which
will occur as soon as practicable after the expiration of this offering, Soros
will purchase a portion of those shares of common stock which are not purchased
by our shareholders pursuant to this offering. The total dollar amount of shares
of common stock to be purchased by Quantum Industrial Partners LDC and SFM
Domestic Investments LLC at $2.34 per share will be equal to the difference
between $20,000,000 and the amount purchased by our shareholders pursuant to
this offering, but in no event will Quantum Industrial Partners LDC and SFM
Domestic Investments LLC purchase more than $10,000,000 in the aggregate.
The Investment Agreement may be terminated at our election, under
certain circumstances, including if there has been a material breach of the
agreement by Soros or if the third closing does not occur by August 1, 2001,
other than as a result of a breach by us. The Investment Agreement may be
terminated at the election of Soros, under certain circumstances, including if
there has been a material breach of the agreement by us or if the third closing
does not occur by May 1, 2001, other than as a result of a breach by Soros.
USE OF PROCEEDS
We estimate that the net proceeds of this offering will be between
approximately $9,450,000 and approximately $19,450,000. We will use these
proceeds for working capital and other general corporate purposes.
DETERMINATION OF SUBSCRIPTION PRICE
Our Board of Directors determined to set a $2.34 per share subscription
price based upon the price which had been negotiated by Quantum Industrial
Partners LDC and SFM Domestic Investments LLC, with a special committee
consisting of independent members of our Board of Directors and its independent
advisors, including Credit Suisse First Boston, who acted as its financial
advisor. Such negotiations were conducted on an arms length basis. The special
committee took into account a number of factors including:
o the historic and current market price of our common stock;
o the difficult market conditions prevailing for the raising of
equity capital;
o our business prospects;
o our operating history;
o general conditions in the securities market;
o our need for capital;
o alternatives available to us for raising capital;
o the amount of proceeds desired;
o the liquidity of our common stock;
37
o the level of risk to our investors;
o the need to offer shares at a price that would be attractive
to our investors relative to the current trading price of our
common stock; and
o the desire to maintain the listing of the common stock on the
NASDAQ SmallCap Market.
The $2.34 per share price should not be considered an indication of the actual
value of our common stock. We cannot assure you that you will be able to sell
shares of purchased during this offering at a price equal to or greater than
$2.34 per share. We have neither sought, nor obtained, any valuation opinion
from outside financial advisors or investment bankers.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded in the NASDAQ SmallCap Market System under
the symbol "BFLY" and on the Boston Stock Exchange under the symbol "BFL." As of
December 15, 2000, there were approximately 5,636 record holders of the common
stock. The last reported sales price of our common stock on NASDAQ on February
6, 2001 was $1.78. The following table sets forth the high and low sales prices
of our common stock on NASDAQ for each quarterly period within our three most
recent fiscal years.
38
Fiscal 1998 HIGH Low
----------- ---- ---
First Quarter $ 2.13 $1.94
Second Quarter $ 6.59 $1.50
Third Quarter $ 4.67 $1.94
Fourth Quarter $24.19 $2.00
Fiscal 1999 HIGH Low
----------- ---- ---
First Quarter $17.88 $8.69
Second Quarter $12.88 $7.50
Third Quarter $14.00 $8.00
Fourth Quarter $16.69 $8.50
Fiscal 2000 HIGH Low
----------- ---- ---
First Quarter $15.98 $7.50
Second Quarter $ 9.50 $1.78
Third Quarter $ 4.75 $1.84
Fourth Quarter $2.94 $0.44
We have never declared or paid cash dividends to the holders of our
common stock. We intend to retain earnings for use in the operation of our
business.
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
2000, on the following bases: (i) on an unaudited actual basis; (ii) on a pro
forma basis giving effect to the items described in footnotes 1 through 6 below,
and (iii) on a pro forma as adjusted basis to reflect the estimated net proceeds
from this offering on a fully and partially subscribed basis. You should read
this table in conjunction with our financial statements that are incorporated by
reference into this prospectus, as well as the "Recent Developments" section on
page 36.
December 31, 2000
-----------------
(In Thousands - except share data)
Pro Forma Pro Forma
--------- ---------
Pro Forma As Adjusted As Adjusted
--------- ----------- -----------
Actual Adjustments Pro Forma Fully Partially
------ ----------- --------- Subscribed(7) Subscribed(8)
(Unaudited) Unaudited (Unaudited) (Unaudited) (Unaudited)
----------- --------- ----------- ----------- -----------
Notes Payable, net - Amended Notes $14,698 $(14,698)(1) -- -- --
New Notes 5,000 (5,000)(1) -- -- --
Redeemable Preferred Stock - Series A 11,088 (11,088)(3) -- -- --
$.01 par value, 500,000 shares authorized
and 500,000 shares issued and outstanding;
actual
Shareholders' (deficit) equity:
Convertible Preferred Stock Series A, -- 5 (3) 5 5 5
$.01 par value, 0, 500,000 and 500,000 actual,
proforma and proforma as adjusted,
respectively shares authorized and 0, 500,000
39
December 31, 2000
-----------------
(In Thousands - except share data)
Pro Forma Pro Forma
--------- ---------
Pro Forma As Adjusted As Adjusted
--------- ----------- -----------
Actual Adjustments Pro Forma Fully Partially
------ ----------- --------- Subscribed(7) Subscribed(8)
(Unaudited) Unaudited (Unaudited) (Unaudited) (Unaudited)
----------- --------- ----------- ----------- -----------
and 500,000 shares issued and
outstanding actual, proforma and proforma as
asjusted, respectively(3);
Convertible Preferred Stock Series B, $.01 -- 89(1) 89 89 89
par value, 0, 9,000,000 and 9,000,000
shares authorized actual, pro forma and pro
forma as adjusted respectively; 0, 8,910,782,
and 8,910,782 shares issued and outstanding
actual, pro forma and pro forma as adjusted,
respectively(2)(6);
Common Stock - $.01 par value, 15,000,000, 49 -- 49 134 92
40,000,000 and 40,000,000 shares authorized
actual, pro forma and pro forma as
adjusted respectively; 4,924,906, 13,471,915
and 9,198,410 shares issued and outstanding
actual, pro forma and pro forma as adjusted,
fully subscribed and partially subscribed,
respectively;(5)
Additional Paid In Capital 17,242 19,911(1) 62,112 81,477 71,519
(302)(1)
851(6)
5,556(2)
11,083(3)
7,771(4)
Accumulated Deficit (38,340) (5,556)(2) (51,667) (51,667) (51,667)
------- (5,000)(4) -------- -------- --------
(2,149)(4)
(622)(4)
Total Shareholders' (Deficit) Equity (21,049) 10,588 30,038 20,038
------- -------- -------- --------
Total Capitalization $(9,737) $ 10,588 $ 30,038 $ 20,038
------- -------- -------- --------
(1) The pro forma adjustment reflects the conversion of the Amended Notes
and the New Notes into Series B Preferred Stock at a price of $2.34 per
share, after giving effect to the remaining unamortized discount of
$302,000.
(2) In connection with the conversion of the Amended Notes into Series B
Preferred Stock, we recorded a beneficial conversion feature of
approximately $5,556,000. This amount is charged to additional paid in
capital and offset against accumulated deficit in accordance with EITF
98-5.
(3) As a result of certain changes made to the Certificate of Designations
for the Series A Preferred Stock in connection with the second closing
of the Investment Agreement, the pro forma adjustment also reflects the
reclassification of the Series A Preferred Stock from redeemable
Preferred Stock into permanent equity at a new conversion price of
$2.34.
(4) In connection with the conversion of the Series A Preferred Stock into
permanent equity and the reduction of the conversion price from $10.50
to $2.34, we recorded a charge of approximately $7,771,000 to
additional paid in capital.
40
The corresponding charge to accumulated deficit was broken out as
follows: $5,000,000 was classified a debt discount on the New Note,
$2,149,000 was classified as interest expense and $822,000 was assigned
to dividends.
(5) The number of shares of common stock outstanding as of December 31,
2000 excludes: 6,900,000 shares of common stock reserved for issuance
under out stock option plans; 375,000 shares of common stock reserved
for issuance in connection with warrants issued to Soros; 50,000 shares
of common stock reserved for issuance in connection with warrants
issued to a supplier; and 23,000 shares of common stock reserved for
issuance in connection with warrants and options issued in connection
with our initial public offering.
(6) Represents accrued interest on both the Amended Notes and New Notes of
$851,000 through February 5, 2001 that was converted into shares of
Series B Preferred Stock.
(7) Pro forma As Adjusted "Fully Subscribed" gives effect to the net
proceeds of the sale of the entire 8,547,009 shares of common stock
resulting in estimated net proceeds of $19,450,000.
(8) Pro forma As Adjusted "Partially Subscribed" assumes that no rights are
subscribed in this offering and that 4,273,504 shares of common stock
are sold pursuant to the Standby Commitment resulting in net proceeds
of $9,450,000 to the Company.
PLAN OF DISTRIBUTION
We are offering shares of our common stock directly to you pursuant to
this offering. We have not employed any brokers, dealers or underwriters in
connection with the solicitation or exercise of subscription privileges in this
offering and no commissions, fees or discounts will be paid in connection with
it. Certain of our officers and other employees may solicit responses from you,
but such officers and other employees will not receive any commissions or
compensation for such services other than their normal employment compensation.
We will pay the fees and expenses of American Stock Transfer & Trust
Co., as subscription agent, and D.F. King & Co., Inc., as information agent, and
also have agreed to indemnify the subscription agent and the information agent
from any liability they may incur in connection with this offering.
On or about February 8, 2001, we will distribute the rights and copies
of this prospectus to shareholders of our common stock on the record date,
February 7, 2001. If you wish to exercise your rights and subscribe for
newly-issued shares of our common stock, you should follow the procedures
described under "The Offering - Procedures to Exercise Rights." The subscription
rights are transferable.
Shares of our common stock received through the exercise of
subscription rights will be traded on the NASDAQ SmallCap Market under the
symbol "BFLY" and on the Boston Stock Exchange under the symbol "BFL" as our
currently outstanding shares of common stock now trade.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby has been
passed upon for us by Swidler Berlin Shereff Friedman, LLP, New York, New York.
41
EXPERTS
The consolidated financial statements as of December 31, 1999 and for
the year then ended incorporated in this Prospectus by reference to the Current
Report on Form 8-K dated November 20, 2000 of Bluefly, Inc., have been so
incorporated in reliance on the report (which contains an explanatory paragraph
relating to increases in the levels of operating expenses and operating cash
outflows beyond those previously contemplated in anticipation of receipt of
additional financing and an explanatory paragraph relating to the revision of
Bluefly, Inc.'s financial statements for the redeemable preferred stock) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements as of December 31, 1998 and for
the year then ended incorporated in this Prospectus by reference to the Current
Report on Form 8-K dated November 20, 2000 of Bluefly, Inc., have been so
incorporated in reliance on the report of M.R. Weiser & Co. LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
42
Rights to Subscribe
to
8,547,009 Shares
---------------------------------
[Logo BLUEFLY]
Common Stock
----------------------------------
PROSPECTUS
---------------------------------
February 7, 2001
Preliminary Prospectus, dated
February 7, 2001
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission Registration Fee.................. $5,280
Subscription Agent Fee............................................... 10,000
Information Agent Fee................................................ 12,000
Printing and Engraving Costs......................................... 25,000
Legal Fees and Expenses.............................................. 150,000
Accounting Fees and Expenses......................................... 55,000
Miscellaneous........................................................ 10,720
-------
Total ...................................................... 268,000
All of the above items, except the registration fee, are estimated. All
expenses incurred in connection with this offering will be borne by Bluefly,
Inc.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The indemnification of officers and directors of the Registrant
following the reincorporation described in the Prospectus will be governed by
Section 145 of the General Corporation Law of the State of Delaware (the "DGCL")
and the Restated Certificate of Incorporation (the "Charter") and By-Laws (the
"By-laws") of the Registrant. Subsection (a) of DGCL Section 145 empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
Subsection (b) of DGCL Section 145 empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in
44
connection with the defense or settlement of such action or suit if the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
DGCL Section 145 further provides that to the extent that a present or
former director or officer is successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of Section 145, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. In all cases in
which indemnification is permitted under subsections (a) and (b) of Section 145
(unless ordered by a court), it shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because the applicable standard of conduct has been met by the
party to be indemnified. Such determination must be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
The statute authorizes the corporation to pay expenses incurred by an officer or
director in advance of the final disposition of a proceeding upon receipt of an
undertaking by or on behalf of the person to whom the advance will be made, to
repay the advances if it shall ultimately be determined that he was not entitled
to indemnification. DGCL Section 145 also provides that indemnification and
advancement of expenses permitted thereunder are not to be exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any By-law, agreement, vote of stockholders or
disinterested directors, or otherwise. DGCL Section 145 also authorizes the
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees and agents regardless of whether the corporation
would have the statutory power to indemnify such persons against the liabilities
insured.
The Charter provides that no director of the Registrant shall be
personally liable to the Registrant or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that this provision shall not
eliminate or limit the liability of a director (a) for any breach of such
person's duty of loyalty to the Registrant or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under section 174 of the DGCL or (d) for any transaction
from which the director derived any improper personal benefits.
The Charter and By-laws also provide that, to the extent not prohibited
by law, the Registrant shall indemnify any person who is or was made, or
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Registrant to
procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Registrant, or, at the request of the Registrant, is or was
serving as a director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise, against any judgments, fines,
penalties, excise taxes, amounts paid in settlement and costs, charges and
expenses (including attorneys' fees, disbursements and other charges).
Additionally, the Charter and By-laws provide that the Registrant shall
reimburse or
45
advance to any director or officer entitled to indemnification the funds
necessary for payment of expenses, including attorneys' fees and disbursements,
incurred in connection with any Proceeding, in advance of the final disposition
of such Proceeding and that such any such advancement shall, if required by the
DGCL, by paid by the Registrant only upon receipt by the Registrant of an
undertaking, by or on behalf of such director or officer to repay any amount so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right of appeal that such director or officer is not
entitled to be indemnified for such expenses.
The Charter and By-laws authorize the Registrant to purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Registrant, or is or was serving at the request of the Registrant as a
director or officer of any other entity, against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Registrant would have the power
to indemnify such person against such liability under applicable provisions of
the Restated Certificate of Incorporation, the by-laws of the Registrant or
under Section 145 of the DGCL or any other provision of law.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration
Statement:
Exhibit Description
------- -----------
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of M.R. Weiser & Co. LLP
23.3 Consent of Swidler Berlin Shereff Friedman, LLP*
(included in Exhibit 5.1)
99.1 Form of Subscription Certificate*
99.2 Instructions to Stockholders*
99.3 Notice of Guaranteed Delivery*
99.4 Form of Letter to Shareholders*
99.5 Form of Letter to Brokers*
*previously filed
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
46
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would
not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b)
promulgated under the Securities Act of 1933 if, in the
aggregate, the changes in volume and price represent no
more than a twenty percent (20%) change in the maximum
aggregate offering price set forth in the "Calculation
of Registration Fee" table in this Registration
Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (ii) shall not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by Bluefly, Inc.
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered herein, and this offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of this offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the
securities offered herein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
47
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, hereunto duly
authorized, in the City of New York, State of New York, on this 2nd day of
February, 2001.
BLUEFLY, INC.
By: /s/ E. Kenneth Seiff
---------------------------------
Name: E. Kenneth Seiff
Title: President, Chief Executive
Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose
signature appears below constitutes and appoints E. Kenneth Seiff and Patrick C.
Barry and each of them (with full power of each of them to act alone), his true
and lawful attorneys-in-fact, with full power of substitution and resubstitution
for him and on his behalf, and in his name, place and stead, in any and all
capacities to execute and sign any and all amendments or post-effective
amendments to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or any of them or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof and the Registrant hereby
confers like authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ E. Kenneth Seiff President, Chief Executive February 2, 2001
---------------------------- Officer and Director (Principal
E. Kenneth Seiff Executive Officer)
* Chief Financial Officer and February 2, 2001
---------------------------- Chief Operating Officer
Patrick C. Barry (Principal Financial and
Accounting Officer)
* Director February 2, 2001
----------------------------
Red Burns
* Director February 2, 2001
----------------------------
Martin Miller
* Director February 2, 2001
----------------------------
Robert G. Stevens
* Director February 2, 2001
----------------------------
Neal Moszkowski
* Director February 2, 2001
----------------------------
Mark H. Goldstein
Director February 2, 2001
----------------------------
Lorne Weil
*by E. Kenneth Seiff as attorney-in-fact
48