UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement.
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to [SEC]240.14a-12
Bluefly, Inc.
-------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
BLUEFLY, INC.
42 West 39th Street
New York, NY 10018
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Bluefly, Inc. (the "Company"), which will be held on May 29, 2008 at 9:00 a.m.,
local time, at the Company's offices at 42 West 39th Street, 9th Floor, New
York, New York. The formal Notice of Annual Meeting and Proxy Statement, fully
describing the matters to be acted upon at the meeting, appear on the following
pages.
The matters scheduled to be considered at the meeting are the election of
directors and the approval of the conversion provisions of certain convertible
promissory notes.
The Board of Directors recommends a vote FOR all the proposals being
presented at the meeting as being in the best interest of the Company and its
stockholders. We urge you to read the Proxy Statement and give these proposals
your careful attention before completing the enclosed proxy card.
Your vote is important regardless of the number of shares you own. Please be
sure you are represented at the meeting, whether or not you plan to attend in
person, by signing, dating and mailing the proxy card promptly. A postage-paid
return envelope is enclosed for your convenience.
If you would like additional copies of the proxy material, or if you would
like to ask questions about the proposals, you should contact our Investor
Relations Department by telephone at (212) 944-8000.
Sincerely,
/s/ DAVID WASSONG
DAVID WASSONG
Interim Chairman of the Board
BLUEFLY, INC.
42 West 39th Street
New York, New York 10018
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 29, 2008
----------------------------
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Bluefly,
Inc. (the "Company") will be held at 9:00 a.m., local time, on May 29, 2008 at
the Company's offices at 42 West 39th Street, 9th Floor, New York, New York, for
the following purposes:
1. To elect ten directors of the Company to hold office until the next annual
meeting of stockholders.
2. To approve the conversion provisions of certain convertible promissory
notes.
3. To transact such other business as may properly come before the meeting.
Only holders of record of the Company's Common Stock and the Company's
Series F Convertible Preferred Stock at the close of business on April 25, 2008
are entitled to notice of, and to vote at, the meeting and any adjournment
thereof. Such stockholders may vote in person or by proxy.
WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, PLEASE FILL IN, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE
THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
By Order of the Board of Directors,
/s/ DAVID WASSONG
DAVID WASSONG
Interim Chairman of the Board
April 29, 2008
BLUEFLY, INC.
42 West 39th Street
New York, New York 10018
----------------------------
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by the
board of directors (the "Board of Directors") of Bluefly, Inc., a Delaware
corporation (the "Company"), of proxies to be used at the annual meeting of
stockholders of the Company to be held at 9:00 a.m., local time, on May 29, 2008
at the Company's offices at 42 West 39th Street, 9th Floor, New York, New York,
and at any adjournment thereof. The purposes of the meeting are:
1. To elect ten directors of the Company to hold office until the next annual
meeting of stockholders.
2. To approve the conversion provisions of certain convertible promissory
notes (the "Note Conversion Provisions").
3. To transact such other business as may properly come before the meeting.
If proxy cards in the accompanying form are properly executed and returned,
the shares of the Company's Common Stock, $.01 par value per share (the "Common
Stock"), and shares of the Company's Series F Preferred Stock, par value $.01
per share (the "Series F Preferred Stock," and, together with the Common Stock,
the "Voting Stock"), represented thereby will be voted as instructed on the
proxy card. If no instructions are given, such shares will be voted (i) for the
election as directors of the nominees of the Board of Directors named below;
(ii) for the approval of the Note Conversion Provisions; and (iii) in the
discretion of the proxies named in the proxy card on any other proposals to
properly come before the meeting or any adjournment thereof. Any proxy may be
revoked by a stockholder of record prior to its exercise upon written notice to
the Secretary of the Company, or by the vote of such stockholder cast in person
at the meeting. The approximate date of mailing of this Proxy Statement and
accompanying form of proxy card is April 29, 2008.
The Company effected a 1-for-10 reverse stock split of its Common Stock on
April 3, 2008. All share numbers in this Proxy Statement are presented after
giving effect to the reverse stock split, despite the fact that such split did
not occur until after the end of the 2007 fiscal year.
VOTING
Holders of record of Voting Stock as of the close of business on April 25,
2008 (the "Record Date") will be entitled to vote at the meeting or any
adjournment thereof. Each share of Common Stock entitles the holder thereof to
one vote on all matters to come before the stockholders at the meeting. Each
share of Series F Preferred Stock entitles the holder thereof to the number of
votes equal to the number of shares of Common Stock (rounded up to the nearest
whole number) into which such share is convertible as of the Record Date. As of
the Record Date, each share of Series F Preferred Stock was convertible into
approximately 121.95 shares of Common Stock and, therefore, entitles the holder
thereof to 122 votes on all matters to come before the meeting. None of the
Voting Stock is entitled to cumulative voting.
Holders of a majority of the votes entitled to be cast at the meeting will
constitute a quorum for the transaction of business. As of the Record Date,
there were 13,276,998 shares of Common Stock outstanding, each entitled to one
vote and 571 shares of Series F Preferred Stock, each entitled to 122 votes. The
total number of votes entitled to be cast at the meeting is, therefore,
13,346,660. Abstentions and so-called "broker non-votes" (instances in which
brokers are prohibited from exercising discretionary authority for beneficial
owners who have not returned a proxy) are counted for purposes of determining
the presence or absence of a quorum for the transaction of business.
The favorable vote of a plurality of the votes cast by holders of shares of
Voting Stock, present in person or represented by proxy at the meeting, voting
together as a class, is necessary to elect the nominees for the directors of the
Company. The favorable vote of a majority of the votes cast by holders of shares
of Voting Stock, present in person or represented by proxy at the meeting,
voting together as a class, is necessary to approve the Note Conversion
Provisions.
Abstentions and broker non-votes will not be counted as votes cast with respect
to, and therefore will have no effect on, any of the matters. The Board of
Directors recommends a vote FOR each of the proposals set forth above.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Ten directors are to be elected at the meeting to serve until the next
annual meeting of stockholders. The Board of Directors has recommended the
persons named in the table below as nominees for election as directors. All such
persons are presently directors of the Company. Unless otherwise specified in
the accompanying proxy, the shares voted pursuant to it will be voted for the
persons named below as nominees for election as directors. If, for any reason,
at the time of the election, any of the nominees should be unable or unwilling
to accept election, such proxy will be voted for the election, in such nominee's
place, of a substitute nominee recommended by the Board of Directors. However,
the Board of Directors has no reason to believe that any nominee will be unable
or unwilling to serve as a director.
NOMINEES FOR DIRECTOR; PREFERRED DESIGNEES
Name of Director Age Director of the
Company Since
Riad Abrahams 30 2007 to present
Barry Erdos 64 2005 to present
Ann Jackson 56 2005 to present
Martin Miller 78 1991 to present
Neal Moszkowski 42 1999 to present
Christopher G. McCann 47 2005 to present
Melissa Payner 49 2003 to present
Anthony Plesner 49 2008 to present
David Wassong 37 2001 to present
Lawrence J. Zigerelli 49 2008 to present
Riad Abrahams has served as a director since August 2007. Mr. Abrahams
previously served as a director of the Company from August 2006 to October 2006.
He has served as a Managing Partner and co-founder of BlackSwan Partners, a
private equity firm, since October 2006. Prior thereto, from 2001 to 2006, Mr.
Abrahams was a Managing Director at Maverick Capital, working in the retail
sector. From 1999-2001, Mr. Abrahams worked in the Principal Investment Area at
The Blackstone Group. Mr. Abrahams is a graduate of Harvard Business School and
Harvard College. He also serves on the board of Ali Wing, Inc. d/b/a giggle.
Barry Erdos has served as the Company's President and Chief Operating Officer
since January 2008 and as a director since February 2005. From April 2004 to
January 2007, Mr. Erdos was President and Chief Operating Officer of Build a
Bear Workshop, Inc., a specialty retailer of plush animals and related products.
Mr. Erdos was a director of Build a Bear Workshop, Inc. from July 2005 until
January 2007. Mr. Erdos was the Chief Operating Officer and a director of Ann
Taylor Stores Corporation and Ann Taylor Inc., a women's apparel retailer, from
November 2001 to April 2004. He was Executive Vice President, Chief Financial
Officer and Treasurer of Ann Taylor Stores Corporation and Ann Taylor Inc. from
1999 to 2001. Prior to that, he was Chief Operating Officer of J. Crew Group,
Inc., a specialty retailer of apparel, shoes and accessories, from 1998 to 1999.
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Ann Jackson has served as a director since August 2005. Since February 2007, Ms.
Jackson has served as the EVP, Global Director of Business Development of
Sotheby's. From 2005 to 2007, Ms. Jackson was the Chief Executive Officer of WRC
Media, Inc. From 2003 to 2005, Ms. Jackson was a partner at Ripplewood Holdings,
a private equity fund. From 1980 to 2003, Ms. Jackson worked in various
departments and publications at Time, Inc. From 2002 to 2003, she served as
Group President of InStyle, Real Simple, Parenting and Essence Magazines. She is
the founding publisher of InStyle, which launched in 1994. During her tenure at
Time, Inc., Ms. Jackson also held positions in corporate finance, direct mail
for Time-Life Books Europe, served as business manager for Money Magazine and
general manager for Sports Illustrated and People.
Martin Miller has served as a director since July 1991. Since July 1999, Mr.
Miller has served as the President of The Terbell Group, Inc., a consulting
company. From October 1997 to April 2003, Mr. Miller had been a partner in the
Belvedere Fund, L.P., a fund of hedge funds.
Neal Moszkowski has served as a director since August 1999. Since April 2005,
Mr. Moszkowski has served as co-Chief Executive Officer of TowerBrook Capital
Partners L.P. ("TowerBrook"), a private equity investment company. Prior to the
formation of TowerBrook, Mr. Moszkowski was Co-Head of Soros Private Equity, the
private equity investment business of Soros Fund Management LLC, where he served
since August 1998. From August 1993 to August 1998, Mr. Moszkowski worked for
Goldman, Sachs & Co., where he served as a Vice President and Executive Director
in the Principal Investment Area. Mr. Moszkowski currently serves as a director
of JetBlue Airways Corporation, WellCare Health Plans, Inc., Integra Life
Sciences Holdings Corporation and Spheris, Inc.
Christopher G. McCann has served as a director since February 2005. Since
September 2000, Mr. McCann has been the President of 1-800-flowers, a leading
retailer of floral products and other gifts, and prior to that was that
company's Senior Vice President. Mr. McCann has been a director of 1-800-flowers
since its inception. Mr. McCann serves on the board of directors of Neoware,
Inc., a provider of software, services and solutions to enable thin client
appliance computing, and is a member of the Board of Trustees of the Marist
College.
Melissa Payner, has served as the Company's President since September 2003 and
became Chief Executive Officer in August 2004. From December 2000 to March 2003,
Ms. Payner served as CEO and President of Spiegel Catalog. She was also a board
member of The Spiegel Group, Inc. ("Spiegel") from December 2000 to March 2003.
From 1997 to 2000, Ms. Payner was the Senior Vice President of Merchandising and
Advertising of Spiegel. From 1995 to 1997, Ms. Payner was President and a board
member of Chico FAS, Inc. Ms. Payner has also held senior executive positions
with Guess?, Inc., Pastille (a Division of Neiman Marcus) and Henri Bendel.
Anthony Plesner was appointed to the board in February 2008. Mr. Plesner has
served as Chief Financial Officer and Chief Administrative Officer of
Intralinks, Inc., a provider of online workspaces for secure document exchange,
since April 2005. From August 2004 to March 2005 he worked as an independent
consultant through Snap Solutions. From January 2003 to July 2004 he served as
Chief Financial Officer and Chief Operating Officer of The NewsMarket, an online
video archive and delivery platform. From January 2000 to December 2002 he
served as President and Chief Operating Officer of 24/7 Real Media, Inc., a
NASDAQ-listed provider of interactive marketing and technology services. Prior
to that, he served as Senior Vice President of Finance and Business Development
at Medscape, Inc. Mr. Plesner holds a Bachelor of Arts in Economics from the
University of Manchester in England, and a Master of Business Administration
from the University of Pittsburgh.
David Wassong has served as a director since February 2001 and became Interim
Chairman of the Board in February 2007. Mr. Wassong is currently a managing
director at Soros Fund Management LLC ("SFM") and previously was a partner of
Soros Private Equity which he joined in June 1998. Prior to joining Soros
Private Equity, from July 1997 to June 1998, Mr. Wassong was Vice President, and
previously Associate, at Lauder Gaspar Ventures, LLC, a media, entertainment and
telecommunications-focused venture capital fund.
Lawrence J. Zigerelli was appointed to the board in March 2008. From January
2007 to January 2008 he acted as Chairman of the Board and Chief Executive
Officer of Levitz Furniture, which filed for Chapter 11 bankruptcy protection in
November 2007. Prior thereto, Mr. Zigerelli served as a retail consultant to
Prentice Capital Management, L.P. ("Prentice"). He began his career with
Procter & Gamble in 1980 and rose to the position of Vice President and General
Manager of Puerto Rico/Caribbean, food and beverage for Latin America. In 1999,
he joined drug store CVS Corp. as
3
Executive Vice President of Corporate Development and eventually added the role
of Executive Vice President of Marketing. In September 2002, he joined
supercenter retailer Meijer Inc. as Senior Vice President of Marketing and
Merchandising. He became President and a member of the Board of Directors of
Meijer in April 2005 and served in that capacity until November 2006. He also
serves on the Board of Directors of True Value Company, a hardware retailer. Mr.
Zigerelli holds a Bachelor of Science degree in administrative science from Yale
University.
CORPORATE GOVERNANCE
The Board of Directors reviewed the independence of each of the Company's
directors in March 2008 on the basis of the standards adopted by Nasdaq. During
this review, the Board considered transactions and relationships between the
Company, on the one hand, and each director, members of his or her immediate
family, and other entities with which he or she is affiliated, on the other
hand. The purpose of this review was to determine which of such transactions or
relationships were inconsistent with a determination that the director is
independent under the Nasdaq rules. As a result of this review, the Board of
Directors affirmatively determined that each of the Company's directors other
than Ms. Payner and Mr. Erdos are "independent directors" within the meaning of
the Nasdaq rules.
During the fiscal year ended December 31, 2007, the Board of Directors met 5
times and acted by unanimous written consent 4 times. Each of the director
attended 75% or more of the aggregate number of meetings of the Board of
Directors and committee(s) on which he or she served during the 2007 fiscal year
except for Ms. Jackson, who only attended 67% of the total meetings. The Company
does not have a policy with regard to the attendance by directors at the
Company's annual meeting of stockholders. Ms. Payner and Mr. Wassong attended
last year's annual meeting of stockholders.
The Board of Directors has established an Audit Committee ("Audit
Committee") in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Audit Committee is comprised
of Anthony Plesner, Chris McCann and Martin Miller. Mr. Plesner acts as Chairman
of the Audit Committee. The Audit Committee is responsible for the appointment
of the Company's outside accountants, examining the results of audits, reviewing
internal accounting controls and reviewing related party transactions. The
duties of the Audit Committee are fully set forth in the charter adopted by that
committee, a copy of which is filed as Annex A to this Proxy Statement. The
Board has determined that Mr. Plesner is an "audit committee financial expert,"
as defined by Item 407(d) of Regulation S-K of the Exchange Act, and that each
member of the Audit Committee is "independent," as required by the Exchange Act
and the Nasdaq Marketplace Rules (the "Nasdaq Rules"). During the fiscal year
ended December 31, 2007, the Audit Committee met 4 times and did not act by
unanimous written consent.
The Compensation Committee has three members, consisting of Neal Moszkowski,
Lawrence Zigerelli and Riad Abrahams, and met 1 time and acted by unanimous
written consent 5 times in fiscal 2007. The Compensation Committee is comprised
solely of non-employee Directors, all of whom the Board has determined are
independent pursuant to the Nasdaq Rules. The Compensation Committee does not
have a written charter.
The Compensation Committee's responsibilities include, among other duties, the
responsibility to:
o establish the base salary, incentive compensation and any other compensation
for the officers of the Company;
o monitor the Company's management incentive and stock based compensation plans,
retirement and welfare plans and discharge the duties imposed on the
Compensation Committee by the terms of those plans; and
o perform other functions or duties deemed appropriate by the Board of
Directors.
The agenda for meetings of the Compensation Committee is determined by its
Chairman. The Compensation Committee reports directly to the Board of Directors.
The Compensation Committee has the authority to engage and from time to time has
engaged independent consultants to advise on particular aspects of compensation.
The Compensation Committee has authority to retain, terminate and approve
fees for advisors, consultants and agents as it deems necessary to assist in the
fulfillment of its responsibilities. The Compensation Committee reviews the
total fees paid to outside consultants by the Company to ensure that the
consultant maintains its objectivity and independence when rendering advice to
the Compensation Committee.
4
The Board of Directors also established a Nominating and Governance
Committee ("Nominating Committee"), consisting of Barry Erdos and Anthony
Plesner. The purposes of the Nominating Committee are to assist the Board of
Directors by identifying individuals qualified to become directors, and setting
criteria for, and evaluating, candidates for director nominees, and to recommend
to the Board of Directors the director nominees for election at the annual
meetings of stockholders or for appointments to fill vacancies; recommend to the
Board of Directors nominees for each committee of the Board; advise the Board of
Directors about appropriate composition of the Board and its committees; advise
the Board of Directors about and recommend to the Board of Directors appropriate
corporate governance practices and to assist the Board of Directors in
implementing those practices; lead the Board of Directors in its annual review
of the performance of the Board of Directors and its committees; and perform
such other functions as the Board of Directors may assign to it from time to
time. The duties of the Nominating Committee are fully set forth in the charter
adopted by that committee, a copy of which was included as Annex B to this Proxy
Statement. The Nominating Committee met one time during 2007 and did not act by
unanimous written consent during 2007.
The Nominating Committee will consider many factors when evaluating
candidates for the nomination to the Board of Directors, with the goal of
fostering a Board of Directors comprised of directors with a variety of
experience and backgrounds. Important factors that will be considered as part of
the Nominating Committee's evaluation include (without limitation) diversity,
skill, specialized expertise, experience, business acumen, understanding of
strategy and policy-setting. Depending upon the Company's then-current needs,
certain factors may be weighed more or less heavily. In considering candidates
for the Board of Directors, the Nominating Committee will consider the entirety
of each candidate's credentials and does not have any specific minimum
qualifications that must be met. However, the Nominating Committee does believe
that all members of the Board of Directors should have the highest character and
integrity and sufficient time to devote to Company matters.
The Nominating Committee will consider persons recommended by stockholders
as candidates for nomination as a director. In evaluating such nominations, the
Nominating Committee will use the same selection criteria the Nominating
Committee uses to evaluate other potential nominees. Recommendations should be
submitted to the Secretary of the Company. Each recommendation should include a
personal biography of the suggested candidate, an indication of the background
or experience that qualifies such person for consideration, and a statement that
such person has agreed to serve if nominated and elected. Stockholders who wish
to nominate a person for election to the Board of Directors themselves, rather
than recommending a candidate to the Nominating Committee for potential
nomination by the Board of Directors, must comply with applicable law.
Communication by stockholders may be made to any or all of the members of
the Board of Directors by writing directly to them c/o Bluefly, Inc., 42 West
39th Street, New York, New York 10018. All such communications will be relayed
to the appropriate members of the Board of Directors.
The Company has adopted a Code of Ethics applicable to all directors,
officers and employees, which meets the requirements of a "code of ethics" as
defined in Item 406 of Regulation S-K, and maintains procedures for the
confidential, anonymous submission by employees of complaints regarding the
Company's accounting, internal accounting controls, auditing matters and other
issues. A copy of the Company's code of ethics is available on the Company's Web
site at www.bluefly.com. Any amendment to or waiver of a provision of the code
of ethics that applies to the Company's principal executive officer, principal
financial officer, principal accounting officer, controller or persons
performing similar functions and relates to elements of the code specified in
the rules of the Securities and Exchange Commission will be posted on the Web
site.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee met and held discussions with management and
PricewaterhouseCoopers LLP ("PwC"). The Audit Committee reviewed and discussed
the audited financial statements for fiscal 2007 with management and has
discussed with the independent registered public accounting firm the matters
required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees."
The Company's independent registered public accounting firm also provided to
the Audit Committee certain written communications and the letter required by
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." The Audit Committee also discussed with the independent
registered public accounting firm their independence from the Company.
5
Based on the Audit Committee's review and discussions described above, the
Audit Committee recommended to the Board that the Company's audited financial
statements for fiscal 2007 be included in the Company's Annual Report on Form
10-K for fiscal 2007 filed with the Securities and Exchange Commission.
AUDIT COMMITTEE
ANTHONY PLESNER
CHRISTOPHER G. MCCANN
MARTIN MILLER
6
SHARE OWNERSHIP
Common Stock
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock of the Company as of the Record Date
for (i) each person who is known by the Company to own beneficially more than 5%
of the Common Stock, (ii) each of the Company's directors, (iii) each of the
Named Executive Officers, (as defined under the caption "Executive Compensation"
below) and (iv) all directors and Named Executive Officers as a group.
Number of Shares Percentage
Name (1) Beneficially Owned (2)
-------- ------------------ ---
Riad Abrahams 1,875(3) *
Patrick C. Barry (27) 229,803(4) 1.7%
Barry Erdos 5,437(5) *
Ann Jackson 3,500(6) *
Bradford Matson 22,241(7) *
Martin Miller 5,866(8)(9) +
Neal Moszkowski (10) 5,125(11) *
Christopher G. McCann 5,000(12) *
Melissa Payner 169,296(13) 1.3%
Anthony Plesner 1,500(14) *
David Wassong (15) 6,500(16) *
Lawrence Zigerelli - *
SFM Domestic Investments LLC 160,506(17) 1.2%
Quantum Industrial Partners LDC 4,903,883(18)(19) 36.8%
George Soros 5,064,389(20) 38.0%
Prentice Capital Offshore, Ltd. (21) 905,147(22) 6.8%
S.A.C. Capital Associates, LLC (21) 1,143,861(23) 8.6%
Prentice Capital Management, LP (21) 3,038,629(23) 22.9%
Michael Zimmerman (24) 3,038,629(23) 22.9%
Maverick Fund, L.D.C. (25) 1,322,023(28) 10.0%
Maverick Fund II, Ltd. (25) 1,153,626(29) 8.7%
Maverick Fund USA, Ltd. (25) 582,777(30) 4.4%
All directors and Named Executive Officers as a group (12 persons) 455,843(26) 3.4%
--------------
*Less than 1%.
(1) Except as otherwise indicated, the address of each of the individuals
listed is c/o Bluefly, Inc., 42 West 39th Street, New York, New York
10018.
(2) Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable upon the
exercise of options or warrants currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage
ownership of the person holding such options or warrants but are not
deemed outstanding for computing the percentage ownership of any
other person.
(3) Includes 1,875 shares of Restricted Stock granted under the Company's
1997, 2000 and 2005 Stock Incentive Plans (collectively the
"Plans").
7
(4) Includes 124,236 shares of Common Stock issuable upon exercise of
options granted under the Plans. Excludes 172,716 shares underlying
deferred stock units, which are vested or will vest within 60 days of
the Record Date, but are not deliverable within such time.
(5) Includes 4,500 shares of Common Stock issuable upon exercise of
options. Excludes 250,000 shares underlying deferred stock units,
which are vested or will vest within 60 days of the Record Date, but
are not deliverable within such time.
(6) Includes 1,000 shares of Common Stock issuable upon exercise of
options and 750 shares of Restricted Stock granted under the Plans.
(7) Includes 8,055 shares of Common Stock issuable upon exercise of
options. Excludes 25,189 shares underlying deferred stock units,
which are vested or will vest within 60 days of the Record Date, but
are not deliverable within such time.
(8) Includes 300 shares of Common Stock held by Madge Miller, the wife of
Martin Miller, as to which Mr. Miller disclaims beneficial ownership.
(9) Includes 3,125 shares of Common Stock issuable upon exercise of
options and 750 shares of Restricted Stock granted under the Plans.
(10) Mr. Moszkowski's address is c/o, TowerBrook Capital Partners, L.P.,
430 Park Avenue New York, New York, 10022.
(11) Includes 3,125 shares of Common Stock issuable upon exercise of
options and 750 shares of Restricted Stock granted under the Plans.
Certain of the options are held for the benefit of QIP.
(12) Includes 3,500 shares of Common Stock issuable upon exercise of
options and 750 shares of Restricted Stock granted under the Plans.
(13) Includes 36,149 shares of Common Stock issuable upon exercise of
options granted under the Plans. Excludes 184,593 shares underlying
deferred stock units, which are vested or will vest within 60 days of
the Record Date, but are not deliverable within such time.
(14) Includes 1,500 shares of Restricted Stock granted under the Plans.
(15) Mr. Wassong's address is c/o Soros Fund Management LLC, 888 Seventh
Avenue, 33rd floor, New York, New York 10106. Mr. Wassong disclaims
beneficial ownership of the shares of Common Stock beneficially owned
by George Soros, SFMDI and QIP (as defined in notes (17) and (18)
below) and none of such shares are included in the table above as
being beneficially owned by him.
(16) Includes 3,500 shares of Common Stock issuable upon exercise of
options and 1,500 shares of Restricted Stock granted under the Plans.
Certain of the options are held for the benefit of QIP.
(17) Represents 159,074 shares of Common Stock and 1,432 shares of Common
Stock issuable upon exercise of warrants (collectively, the "SFMDI
Shares") held in the name of SFM Domestic Investments LLC ("SFMDI").
SFMDI is a Delaware limited liability company. George Soros ("Mr.
Soros") may also be deemed the beneficial owner of the SFMDI Shares.
The principal address of SFMDI is at 888 Seventh Avenue, 33rd Floor,
New York, New York 10106. The foregoing information was derived, in
part, from certain publicly available reports, statements and
schedules filed with the Commission.
(18) Represents 4,860,115 shares of Common Stock and 43,768 shares of
Common Stock issuable upon exercise of warrants (collectively, the
"QIP Shares") held in the name of Quantum Industrial Partners LDC
("QIP"). The number of shares beneficially owned by QIP does not
include the options held by Messrs. Moszkowski and Wassong held for
the benefit of QIP. See notes (11) and (16).
(19) QIP is an exempted limited duration company formed under the laws of
the Cayman Islands with its principal address at Kaya Flamboyan 9,
Willemstad, Curacao, Netherlands Antilles. QIH Management Investor,
L.P. ("QIHMI"), an investment advisory firm organized as a Delaware
limited partnership, is a minority shareholder of, and is vested with
investment discretion with respect to portfolio assets held for the
account of QIP. The sole general partner of QIHMI is QIH Management
LLC, a Delaware limited liability company ("QIH Management"). Soros
Fund Management LLC, a Delaware limited liability company ("SFM"), is
the sole managing member of QIH Management Mr. Soros may be deemed to
have shared voting power and sole investment power with respect to
the QIP Shares. Accordingly, each of QIP, QIHMI, QIH Management, SFM
and Mr. Soros may be deemed to be the beneficial owners of the QIP
Shares. Each has their principal office at 888 Seventh Avenue, 33rd
Floor, New York, New York 10106. The foregoing information was
derived, in part, from certain publicly available reports, statements
and schedules filed with the Commission.
(20) See (18) and (19) above. The number of shares beneficially owned by
Mr. Soros does not include the options held by Messrs. Moszkowski and
Wassong held for the benefit of QIP. See notes (11) and (16).
8
(21) The address of S.A.C. Capital Associates, LLC, is 72 Cummings Point
Road, Stamford, CT 06902. The address of each of Prentice Capital
Offshore, Ltd., Prentice Capital Management, LP and Michael Zimmerman
is 623 Fifth Avenue, 32nd Floor, New York, New York 10022.
(22) Prentice Capital Management, LP has investment and voting power with
respect to the securities held by Prentice Capital Offshore, Ltd. Mr.
Michael Zimmerman is the member of the general partner of Prentice
Capital Management, LP. Each of Prentice Capital Management, LP and
Mr. Zimmerman disclaim beneficial ownership of any of these
securities.
(23) Pursuant to an investment management agreement among S.A.C. Capital
Advisors, LLC, Prentice Capital Management, LP and Mr. Zimmerman,
Prentice Capital Management, LP manages an investment account that
contains certain securities, including those referenced herein, held
by S.A.C. Capital Associates, LLC (the "Managed Account"). The
securities in the Managed Account are held in the name of S.A.C.
Capital Associates, LLC. Prentice Capital Management, LP has, except
in limited circumstances, the power to vote or to direct the vote and
to dispose or to direct the disposition of the securities in the
Managed Account, including the securities referenced herein. Each of
S.A.C. Capital Advisors, LLC, S.A.C. Capital Management, LLC
(investment managers to S.A.C. Capital Associates, LLC), S.A.C
Capital Associates, LLC and Mr. Steven A. Cohen, who controls each of
S.A.C. Capital Advisors, LLC and S.A.C. Capital Management, LLC,
disclaim beneficial ownership of any of the securities held in the
Managed Account, and each disclaims group ownership with Prentice
Capital Management, LP as to the securities held in the Managed
Account and as to any other securities that are beneficially owned by
Prentice Capital Management, LP or its affiliates. Each of Prentice
Capital Management, LP and Mr. Zimmerman disclaim beneficial
ownership of any securities held in the Managed Account except to the
extent of their pecuniary interest.
(24) Consists of: (a) 81,678 shares held by Prentice Capital Partners, LP;
(b) 403,773 shares held by Prentice Capital Partners QP, LP; (c)
905,147 shares held by Prentice Capital Offshore, Ltd. (see note (22)
above); (d) 1,143,861 shares held by S.A.C. Capital Associates, LLC
(see note (23) above); (e) 200,306 shares held by GPC XLIII, LLC; and
(f) 303,862 shares held by PEC I, LLC. Prentice Capital Management,
LP and Mr. Zimmerman control the investing and trading in securities
held by each of these entities. Each of Prentice Capital Management,
LP and Mr. Zimmerman disclaim beneficial ownership of any of these
securities.
(25) Maverick Capital, Ltd. is an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940 and, as such, has
beneficial ownership of the shares held by Maverick Fund USA, Ltd.,
Maverick Fund, L.D.C. and Maverick Fund II, Ltd. through the
investment discretion it exercises over these accounts. Maverick
Capital Management, LLC is the General Partner of Maverick Capital,
Ltd. Lee S. Ainslie III is the manager of Maverick Capital
Management, LLC who possesses sole investment discretion pursuant to
Maverick Capital Management, LLC's regulations. The address of
Maverick Capital, Ltd. and Maverick Capital Management, LLC is 300
Crescent Court, 18th Floor, Dallas, TX 75201; and the address of each
of Lee S. Ainslie III, Maverick Fund, L.D.C., Maverick Fund II, Ltd.
and Maverick Fund USA, Ltd. is c/o Maverick Capital, Ltd., 300
Crescent Court, 18th Floor, Dallas, TX 75201.
(26) Includes 260,777 shares of Common Stock issuable upon exercise of
options and Restricted Stock. Excludes 382,499 shares underlying
deferred stock units, which are vested or will vest within 60 days of
the Record Date, but are not deliverable within such time.
(27) Mr. Barry resigned as an executive officer of the Company in January
2008.
(28) Represents 1,313,466 shares of Common Stock and 8,557 shares of
Common Stock issuable upon the exercise of warrants held by Maverick
Fund, L.D.C.
(29) Represents 1,146,158 shares of Common Stock and 7,467 shares of
Common Stock issuable upon the exercise of warrants held by Maverick
Fund II, Ltd.
(30) Represents 579,004 shares of Common Stock and 3,772 shares of Common
Stock issuable upon the exercise of Warrants held by Maverick Fund
USA, Ltd.
9
Series F Preferred Stock
The following table sets forth certain information with respect to the
beneficial ownership of the Series F Preferred Stock of the Company as of the
Record Date, for (i) each person who is known by the Company to own beneficially
more than 5% of the Series F Preferred Stock of the Company, (ii) each of the
Company's directors, (iii) the Named Executive Officers, and (iv) all directors
and Named Executive Officers as a group.
Number of Shares
Name Beneficially Owned Percentage (1)
---- ------------------ --------------
Riad Abrahams - -
Patrick C. Barry (3) - -
Barry Erdos - -
Ann Jackson - -
Bradford Matson - -
Martin Miller - -
Neal Moszkowski - -
Christopher G. McCann - -
Melissa Payner - -
Anthony Plesner - -
David Wassong - -
Lawrence Zigerelli - -
Portside Growth Opportunity Fund (2) 571 100%
All directors and executive officers as a group (12 persons) - -
--------------
*Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock issuable upon the exercise of options or
warrants currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants but are not deemed outstanding for computing the
percentage ownership of any other person.
(2) Ramius Capital Group, LLC ("Ramius Capital") is the investment advisor of
Portside Growth and Opportunity Fund ("Portside") and consequently has
voting and investment power over securities held by Portside. Ramius Capital
disclaims beneficial ownership of the shares held by Portside. Peter A.
Cohen, Morgan B. Stark, Thomas W. Strauss and Jeffrey M. Solomon are the
sole managing members of C4S & Co., LLC, the sole managing member of Ramius
Capital. As a result, Messrs. Cohen, Stark, Strauss and Solomon may be
considered beneficial owners of any shares deemed to be beneficially owned
by Ramius Capital. Messrs. Cohen, Stark, Strauss and Solomon disclaim
beneficial ownership of these shares.
(3) Mr. Barry resigned as an executive officer of the Company in January 2008.
10
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and all positions and offices
with the Company held by the Company's present executive officers.
Name Age Positions and Offices Presently Held
---- --- ------------------------------------
Melissa Payner 48 Chief Executive Officer
Barry Erdos 64 President and Chief Operating Officer
Bradford Matson 49 Chief Marketing Officer
Martin Keane 42 Senior Vice President of E-Commerce
Kara B. Jenny 39 Chief Financial Officer
---------------
Following is information with respect to the Company's executive officers
who are not also directors of the Company:
Bradford Matson has served as our Chief Marketing Officer since September 2005.
Mr. Matson was a marketing executive at Spiegel Catalog from 1981 to 2003, where
he held various senior level positions, including Senior Vice President of
Advertising and Brand Communications from 2001 to 2003, Vice President of
Advertising from 2000 to 2001 and Vice President of Advertising and Marketing
for Portfolio SBUs from 1997 to 1999. From 2004 to 2005, Mr. Matson served as
Director of Marketing and Communications for the Steppenwolf Theatre Co.
Martin Keane served as the Company's Vice President of Product Development and
E-Commerce from January 1999 through September 2004 when he assumed the role of
Senior Vice President of E-Commerce. From 1997 to 1999, Mr. Keane was the
Design Director for Music Boulevard, an E-Commerce site owned by N2K, Inc. From
1990 to 1997, Mr. Keane served as Regional Manager for APCO Graphics, an
architectural graphics company.
Kara B. Jenny has served as the Company's Vice President of Finance from May
1999 until March 2008, when she assumed the role of Chief Financial Officer.
Prior to that, she was an Audit Manager at Arthur Andersen LLP. She is a
Certified Public Accountant and a member of the American Institute of Certified
Public Accountants.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information for the fiscal years ended
December 31, 2007 and 2006 concerning compensation of (1) all individuals
serving as our principal executive officer during the fiscal year ended December
31, 2007 and (2) the two other most highly compensated executive officers of the
Company who were serving as executive officers as of December 31, 2007
(collectively, the "Named Executive Officers"):
11
SUMMARY COMPENSATION TABLE
Stock All Other
Salary Bonus Awards Compensation Total
Name and Principal Position Year ($) ($) ($)(1) ($) ($)
Melissa Payner, President 2007 $500,000 $166,804(2) -- $62,471(3) $729,275
and Chief Executive Officer 2006 $500,000 $944,686(4) $4,673,992(5) $48,655(3) $6,167,333
Patrick C. Barry, 2007 $350,000 $131,379(6) -- $10,896(7) $492,275
Chief Operating Officer and 2006 $325,000(8) $395,204(9) $4,159,569(10) $ 590 (7) $4,905,363
Chief Financial Officer (15)
Bradford Matson, Chief 2007 $350,000 $120,000(11) $208,478(12) $12,129(7) $482,129
Marketing Officer 2006 $350,000 $60,000(13) $330,000(14) $ -- $740,000
(1) For a discussion of the assumptions made in the valuation of the Stock
Awards and Option Awards, see Note 9 of the Notes to Financial
Statements, included in our annual report on Form 10-K for the fiscal
year ended December 31, 2007, which accompanies this proxy statement.
(2) Represents: (a) a bonus of $66,804 in order to cover taxes incurred in
connection with the vesting of deferred stock units and (b) a bonus of
$100,000 bonus awarded in March 2008 for the fiscal year ended
December 31, 2007.
(3) Includes $48,000 in connection with a housing allowance and $14,471 and
$655 paid in 2007 and 2006 respectively, in connection with life
insurance premiums.
(4) Represents: (a) a bonus of $400,000 awarded in June 2006 in connection
with the consummation of an equity financing; (b) a bonus of $150,000
awarded in March 2007 for the fiscal year ended December 31, 2006 and
(c) a bonus of $394,686 awarded in November 2006 in order to cover taxes
incurred in connection with the grant of restricted stock referred to in
note (5) below.
(5) Represents the value of the following awards granted during the year
ended December 31, 2006: (a) 59,125 shares of Restricted Stock granted
in November 2006 in exchange for Ms. Payner forfeiting her rights to
certain fully vested stock options that would have been exercisable to
purchase an aggregate of 166,522 shares of Common Stock; (b) 12,690
Deferred Stock Units granted in November 2006 in exchange for Ms. Payner
forfeiting her rights to certain unvested options that would have been
exercisable to purchase an aggregate of 23,478 shares of Common Stock;
and (c) 420,183 additional Deferred Stock Units granted in November 2006.
(6) Represents: (a) a bonus of a bonus of $59,379 in order to cover taxes
incurred in connection with the vesting of deferred stock units; and (b)
a bonus of $72,000 awarded in March 2008 for the fiscal year ended
December 31, 2007.
(7) Represents amounts paid in connection with life insurance premiums.
(8) Mr. Barry's annual salary was increased from $300,000 to $350,000 in
July 2006.
(9) Represents: (a) a bonus of $200,000 awarded in June 2006 in connection
with the consummation of an equity financing; (b) a bonus of $72,000
awarded in March 2007 for the fiscal year ended December 31, 2006; and
(c) a bonus of $123,204 awarded in November 2006 in order to cover taxes
incurred in connection with the grant of restricted stock referred to in
note (10) below.
(10) Represents the value of the following awards granted during the year
ended December 31, 2006: (a) 26,996 shares of Restricted Stock granted
in November 2006 in exchange for Mr. Barry forfeiting his rights to
certain fully vested stock options that would have been exercisable to
purchase an aggregate of 85,323 shares of Common Stock; (b) 4,583
Deferred Stock Units granted in November 2006 in exchange for Mr. Barry
forfeiting his rights to certain unvested options that would have been
exercisable to purchase an aggregate of 9,167 shares of Common Stock;
and (c) 406,269 additional Deferred Stock Units granted in November 2006.
(11) Represents: (a) a bonus of $70,000 awarded in March 2008 for the fiscal
year ended December 31, 2007 and (b) a relocation bonus of $50,000.
(12) Represents the value of the following awards granted during the year
ended December 31, 2007: (a) 5,186 shares of Restricted Stock granted to
Mr. Matson in February 2007 pursuant to the Company's Offer to Exchange,
in exchange for Mr. Matson forfeiting his rights to certain fully vested
stock options that would have been
12
exercisable to purchase an aggregate of 12,240 shares of Common Stock;
and (b) 18,506 Deferred Stock Units granted in February 2007 pursuant to
the Company's Offer to Exchange, in exchange for Mr. Matson forfeiting
his rights to certain unvested options that would have been exercisable
to purchase an aggregate of 27,760 shares of Common Stock;
(13) Represents a bonus of $60,000 awarded in March 2007 for the year ended
December 31, 2006.
(14) Represents the value of 37,500 Deferred Stock Units granted in November
2006.
(15) Mr. Barry resigned as an executive officer of the Company in 2008.
Based on the fair value of equity awards granted to named executive officers in
2007 and 2006, and the base salary of the named executive officers: (a) "Salary"
accounted for approximately 70% and 11% of the total compensation of the named
executive officers in 2007 and 2006, respectively; (b) incentive compensation
accounted for approximately 12% and 88% of the total compensation of the named
executive officers in 2007 and 2006, respectively; and (c) benefits accounted
for approximately 1% and 1% of the total compensation of named executive
officers in 2007 and 2006, respectively. Because the value of certain equity
awards included below is based on the FAS 123(R) value rather than the fair
value, these percentages cannot be derived using the amounts reflected in the
applicable table above.
Employment Agreements
Melissa Payner
On November 14, 2006, the Company entered into a thirty-six (36) month
employment agreement (the "Payner Agreement") with Melissa Payner providing for
her continued service as its Chief Executive Officer and a member of our Board
of Directors. The Payner Agreement was effective as of July 1, 2006 and replaced
Ms. Payner's prior employment agreement, which would have expired on March 1,
2007. Under the Payner Agreement, Ms. Payner is entitled to an annual base
salary of $500,000, subject to increases in the sole discretion of the
Compensation Committee. She is also eligible to receive an annual performance
bonus based upon the achievement of certain targets to be set for each fiscal
year by the Compensation Committee in its sole discretion. The Payner Agreement
provided for the grant to Ms. Payner of: (i) a restricted stock award under the
Plan for 59,125 shares of Common Stock, plus a cash bonus of approximately
$394,686 intended to compensate her for the income taxes payable on such
restricted stock award, in exchange for Ms. Payner forfeiting her right to
certain fully vested and out-of-the-money stock options that would have been
exercisable to purchase an aggregate of 166,522 shares of Common Stock, (ii) a
deferred stock unit award under the Plan for and representing 12,690 underlying
shares of Common Stock, in exchange for Ms. Payner forfeiting her right to
certain unvested and out-of-the-money stock options that would have been
exercisable to purchase an aggregate of 23,478 shares of Common Stock, and (iii)
a deferred stock unit award under the Plan for and representing 420,183 shares
of Common Stock. The foregoing equity awards, together with stock options
previously granted to Ms. Payner, represent approximately 3% of the Company's
equity, inclusive of management equity awards and stock options. The restricted
stock award referred to in the foregoing clause (i) vested in full on January 1,
2007. A portion of the deferred stock unit awards referred to in the foregoing
clauses (ii) and (iii) vest over a one-year period, with the remainder vesting
over either a two or three year period. If Ms. Payner's employment is terminated
without cause (as defined in the Payner Agreement) or through a constructive
termination (as defined in the Payner Agreement), all equity benefits previously
granted, including stock options, restricted stock awards and deferred stock
unit awards shall be deemed fully vested as of the date of termination, and she
would be entitled to receive her base salary through the date of termination,
plus unreimbursed business expenses and bonuses that have been earned and
awarded but not yet paid, as well as her then-current base salary for a period
of twelve (12) months from the date of termination and the reimbursement of the
cost of maintaining (or the Company shall maintain) in effect the medical and
dental insurance, disability and hospitalization plans, and life insurance
policies in which Ms. Payner participates for a period of one-year from the date
of termination.
In the event of a change of control (as defined in the Payner Agreement),
any unvested stock options, restricted stock awards and one-half of any deferred
stock unit awards granted to Ms. Payner which are outstanding as of the date of
the change of control and have not yet vested (the "Payner COC Unvested DSUs")
shall be deemed fully vested as of the date of the change of control. The
remaining one-half of the Payner COC Unvested DSUs shall vest on the earliest to
occur of: (a) the scheduled vesting date and (b) twelve (12) months from the
date of the change of control. In the event that Ms. Payner would be subject to
tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the payments to her under the Payner Agreement will be reduced to the
maximum amount that she could receive without being subject to such tax.
13
The Payner Agreement provides Ms. Payner with a monthly housing allowance of
$4,000 and an annual allowance of approximately $27,500 for life insurance and
supplemental disability insurance. Ms. Payner is subject to certain covenants
under the Payner Agreement, including a non-competition covenant covering the
term of her employment and an additional period of eighteen (18) months
thereafter.
Patrick C. Barry
On January 28, 2008 (the "Effective Date"), Mr. Barry resigned from his
position as an executive officer of the Company. In connection therewith, the
Company and Mr. Barry terminated his previous employment agreement and entered
into an employment agreement (the "Barry Agreement") with Mr. Patrick Barry
providing for Mr. Barry's continued service with the Company as a non-executive
employee. The term of the Barry Agreement commences on the Effective Date and
ends on May 2, 2008, unless both parties agree to extend the term. Pursuant to
the Barry Agreement, Mr. Barry is entitled to continuation of his current salary
of $350,000 per year through May 2, 2008. During the term of the Barry
Agreement, Mr. Barry is also entitled to benefits (other than equity grants)
comparable in the aggregate to the benefits which Mr. Barry received from the
Company as of the Effective Date, including an appropriately prorated portion of
the life and disability insurance allowance of $1,458.33 per month. Provided
that (a) Mr. Barry does not voluntary terminate employment prior to May 2, 2008
or (b) the Company does not terminate Mr. Barry employment for Cause (as defined
in the Barry Agreement) then upon his termination of employment with the
Company, Mr. Barry will receive a severance payment equal to nine (9) months
salary. Mr. Barry shall also receive an insurance allowance of $17,500 which
shall be payable over a twelve (12) month period. In addition, the Company shall
maintain in effect, or reimburse Mr. Barry for the cost of maintaining, the
medical and dental insurance and disability and hospitalization plans of the
Company as well as any Company sponsored life insurance policy in which Mr.
Barry participates as of the date of termination for a period of one year from
the date of termination. Mr. Barry's unvested stock options that have been
granted to Mr. Barry which are outstanding as of the date of termination shall
be deemed fully vested as of the date of termination and such stock options
shall be exercisable for a period equal to the lesser of (i) one year from the
date of Mr. Barry's termination or (ii) the remaining term of the applicable
vested stock option. The shares underlying any deferred stock units that have
vested through the termination date, shall be delivered to Mr. Barry six (6)
months and one day thereafter and any deferred stock units that have not yet
vested as of the date of termination shall be forfeited by Mr. Barry.
Bradford Matson
In September 2005, the Company entered into an Employment Agreement with
Bradford Matson (the "Matson Agreement"). Pursuant to the terms of the Matson
Agreement, the Company retained the services of Mr. Matson as the Chief
Marketing Officer of the Company for a term of approximately three years and
agreed to pay him a base salary of $350,000 per year (subject to discretionary
annual increases). The Matson Agreement provided that Mr. Matson was entitled to
receive a minimum bonus of $50,000 for the year ended December 31, 2006, and a
discretionary bonus for all other years of the agreement. Mr. Matson's actual
bonus for the year ended December 31, 2006 was $60,000. Pursuant to the
Employment Agreement, the Company also paid for certain relocation expenses and
allowances in 2005. In addition, pursuant to the terms of the Matson Agreement,
Mr. Matson was issued options to purchase 40,000 shares of the Company's Common
Stock (the "Options") under the Plan. In February 2007, Mr. Matson exchanged the
Options for 5,168 shares of restricted stock (which vested in full in February
2008) and 18,506 deferred stock units (a portion of which vest in quarterly
installments over two years, and a portion of which vest in quarterly
installments over three years) pursuant to the terms of the Company's Offer to
Exchange, dated January 25, 2007. Under the terms of the Employment Agreement,
if Mr. Matson is terminated without cause or constructively terminated, he is
entitled to severance payments equal to six months of his base salary.
In April 2008, the Matson Agreement was amended and restated, extending the
term through March 31, 2011. Pursuant to the amended and restated agreement,
the Company agreed that, in the event that, prior to December 31, 2008, Mr.
Matson opts to terminate his employment by providing the Company with 30 days'
written notice and an effective termination date occurring after December 31,
2008, he shall receive a bonus of $116,555 as part of the first regularly
scheduled payroll of 2009 in lieu of any other bonuses that would have been paid
for the 2008 year. In the event that Matson does not so terminate his employment
he will be eligible to receive a bonus for the 2008 year as determined by the
Compensation Committee. In addition, for the months from May 2008 through
December 2008, the Company will pay up to $9,500 per month for appropriate
monthly temporary housing, and will pay Matson a monthly "gross-up" bonus to
compensate for any taxes due on such housing allowance.
14
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information concerning exercisable and
unexercised options and stock that has not vested for each of the Named
Executive Officers that is outstanding as of December 31, 2007:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END -- DECEMBER 31, 2007
Option Awards Stock Awards
------------------------------------------------------------ ---------------------------------
Market
Number of Number of Number of Value of
Securities Securities Shares or Shares or
Underlying Underlying Units of Units of
Unexercised Unexercised Option Stock That Stock That
Options Options Exercise Option Have Not Have Not
(#) (#) Price Expiration Vested Vested
Name Exercisable Unexercisable ($) Date (#) ($)
Melissa Payner 13,749 6,250(1) $12.60 3/23/2015 -- --
16,666 8,333(2) $12.00 12/27/2015 -- --
12,690 $162,437
280,122 $5,378,346
Patrick C. Barry
(5) 100,000 --(3) $9.10 12/26/2012 -- --
6,874 3,125(1) $12.60 3/23/2015 -- --
13,333 6,668(2) $12.00 12/27/2015 -- --
4,583 $58,671
270,846 $3,466,831
Bradford Matson 6,666 3,333(4) $16.90 9/19/2015 -- --
25,000 $225,000
18,506 $233,184
(1) The options vested at a rate of 2.778% per month for 36 months beginning
3/23/2003.
(2) The options vested at a rate of 2.778% per month for 36 months beginning
12/27/2005.
(3) The options vested at a rate of 2.778% per month for 36 months beginning
12/26/2002.
(4) The options vested at a rate of 2.778% per month for 36 months, beginning
9/19/2005 after six months.
(5) Mr. Barry resigned as an executive officer of the Company in January
2008.
15
Potential Payments Upon Termination or Change-in-Control
We have entered into agreements that will require us to provide compensation
to the Named Executive Officers in the event of a termination of employment or a
change in control of us. See "Employment Agreements" for a description of such
agreements. The amount of compensation payable to each Named Executive Officer
in each situation is listed in the tables below, if their employment were to
have been terminated as of December 31, 2007.
The following table describes and quantifies the estimated payments and
benefits that would have been provided upon termination or a change in control
of the Company as of December 31, 2007 for Melissa Payner, our President and
Chief Executive Officer:
Termination
---------------------------------------------------------
Employment Employment
Agreement Agreement
Severance No Change in
Benefits and Payments (1) Severance(2) Death Disability Control(3)
Base Salary $ 500,000 $ -- $ -- $ -- $ --
Stock Options (Accelerated Vesting)(4) -- -- -- -- --
Restricted Stock (Accelerated Vesting)(4) -- -- -- -- --
Deferred Stock Units (Accelerated Vesting)(4) 2,196,093 -- -- -- 1,098,047
Insurance Proceeds(5) -- -- 3,000,000 90,000 --
Insurance Premiums (Life, Health and Disability)(6) 30,563 -- -- -- --
------------- ------------ ---------- ------- ----------
Total $ 2,726,656 $ -- $3,000,000 $90,000 $1,098,047
---------
(1) Ms. Payner's employment agreement provides her with the severance
payments upon (1) termination of employment by the Company without
"Cause" and (2) termination of employment by Ms. Payner as a result of a
"Constructive Termination."
Under the Payner Agreement: (a) "Cause" shall be deemed to occur if Ms.
Payner (i) has been convicted of a felony or any serious crime involving
moral turpitude, or engaged in materially fraudulent or materially
dishonest actions in connection with the performance of her duties under
the Payner Agreement, (ii) has willfully and materially failed to perform
her reasonably assigned duties under the Payner Agreement, (iii) has
breached the terms and provisions of the Payner Agreement in any material
respect or (iv) has failed to comply in any material respect with the
Company's written policies of conduct of which she had actual notice,
including with respect to trading in securities (subject to a 20-day
notice period and opportunity to cure in the case of an event of the type
described in clauses (ii)-(iv)); and (b) a "Constructive Termination"
shall be deemed to have occurred upon (i) the removal of Ms. Payner from
her position as Chief Executive Officer of the Company, (ii) the material
breach by the Company of the Payner Agreement, including any material
diminution in the nature or scope of the authorities, powers, functions
duties or responsibilities of Ms. Payner as Chief Executive Officer and a
senior executive officer of the Company (or to the extent that the
Company becomes a division or subsidiary of another entity, the
authorities, powers, functions, duties or responsibilities of the Chief
Executive Officer or senior executive officer of such division or
subsidiary (subject to a 30-day notice period and opportunity to cure).
Receipt of severance benefits is subject to Ms. Payner's execution of a
mutual release reasonably acceptable to the Company and Ms. Payner.
(2) This column covers termination of Ms. Payner's employment under her
employment agreement under any circumstances not described in note (1)
above.
16
(3) Under the Payner Agreement, a "Change in Control" shall be deemed to
occur upon:
(1) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of fifty percent (50%)
or more (on a fully diluted basis) of either (A) the then
outstanding shares of common stock of the Company, taking into
account as outstanding for this purpose such common stock
issuable upon the exercise of options or warrants, the
conversion of convertible stock or debt, and the exercise of any
similar right to acquire such common stock (the "Outstanding
Company Common Stock") or (B) the combined voting power of the
then outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding
Company Voting Securities"), provided, however, that for
purposes of the Payner Agreement, the following acquisitions
shall not constitute a Change of Control: (I) any acquisition by
the Company or any affiliate, (ii) any acquisition by any
employee benefit plan sponsored or maintained by the Company or
any affiliate, (III) any acquisition by Soros or (IV) any
acquisition which complies with clauses (A), (B) and (C) of
clause (5) below;
(2) individuals who, on the date of the Payner Agreement, constitute
the Board (the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board, provided that any
person becoming a director subsequent to such date, whose
election or nomination for election was approved by a vote of at
least two-thirds of the Incumbent Directors then on the Board
(either by a specific vote or by approval of the proxy statement
of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be
an Incumbent Director, provided, however, that no individual
initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect
to directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any
person other than the Board shall be deemed to be an Incumbent
Director;
(3) the dissolution or liquidation of the Company; or
(4) the sale of all or substantially all of the business or assets
of the Company;
(5) the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the
Company that requires the approval of the Company's
stockholders, whether for such transaction or the issuance of
securities in the transaction (a "Business Combination"), unless
immediately following such Business Combination: (A) more than
fifty percent (50%) of the total voting power of (x) the
corporation resulting from such Business Combination (the
"Surviving Corporation"), or (y) if applicable, the ultimate
parent corporation that directly or indirectly has beneficial
ownership of sufficient voting securities eligible to elect a
majority of the directors of the Surviving Corporation (the
"Parent Corporation"), is represented by the Outstanding Company
Voting Securities that were outstanding immediately prior to
such Business Combination (or, if applicable, is represented by
shares into which the Outstanding Company Voting Securities were
converted pursuant to such Business Combination), and such
voting power among the holders thereof is in substantially the
same proportion as the voting power of the Company's Voting
Securities among the holders thereof immediately prior to the
Business Combination, (B) no person or entity (other than Soros
or any employee benefit plan sponsored or maintained by the
Surviving Corporation or the Parent Corporation), is or becomes
the beneficial owner, directly or indirectly, of thirty percent
(30%) or more of the total voting power of the outstanding
voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) following the consummation of the
Business Combination were Board members at the time of the
Board's approval of the execution of the initial agreement
providing for such Business Combination.
(4) Pursuant to the Payner Agreement: (a) all unvested stock options,
deferred stock units and shares of restricted stock granted to Ms.
Payner vest upon a termination without "Cause" or a "Constructive
Termination; and (b) all stock options, restricted stock and one half of
any deferred stock units and granted to Payner which are outstanding as
of the date of a Change of Control and have not yet vested ("COC
Unvested Awards") shall be deemed to be fully vested as of that date,
and (subject to certain tax limitations) the remaining one half of the
17
COC Unvested Awards shall vest on the earliest to occur of (x) the
scheduled vesting date and (y) twelve (12) months from the date of such
Change of Control, subject, in each case, to Ms. Payner's continued
employment with the Company on such dates and (z) Ms. Payner's
Constructive Termination or termination without Cause following such
Change of Control.
The dollar values in the table assume that the benefit of acceleration of
the deferred stock units equals the closing sale price of the Common
Stock on December 31, 2007 ($7.50 after giving effect to the reverse
stock split) multiplied by the number of shares of Common Stock subject
to unvested deferred stock units held by Ms. Payner at December 31,
2007. Options were excluded as they were out of the money, and as of
December 31, 2007, all Restricted Stock awards had previously vested.
(5) The life insurance proceeds represent the aggregate face value of life
insurance policies for which we pay the premiums and Ms. Payner
designates the beneficiary. The payments are actually paid by the life
insurance company in a lump sum.
The disability insurance proceeds represent the annual payout of
disability policies for which we pay the premiums.
(6) These premiums are paid by us when due for one year after termination.
The numbers in the table are based on the premiums paid in fiscal 2007.
The following table describes and quantifies the estimated payments and
benefits that would have been provided upon termination or a change in control
of the Company as of December 31, 2007 for Patrick C. Barry, who was then our
Chief Operating Officer and Chief Financial Officer (Mr. Barry resigned as an
executive officer of the Company in January 2008):
Termination
----------------------------------------------------
Employment Employment
Agreement Agreement Change
Severance No Severance In Control
Benefits and Payments (1) (2) Death Disability (3)
Base Salary $ 350,000 $ -- $ -- $ -- $ --
Stock Options (Accelerated Vesting) (4) -- -- -- -- --
Restricted Stock (Accelerated Vesting) (4) -- -- -- -- --
Deferred Stock Units (Accelerated Vesting) (4) 2,065,724 -- -- -- 1,032,862
Insurance Proceeds (5) -- -- 4,000,000 215,400 --
Insurance Premiums (Life, Health and Disability) (6) 26,293 -- -- -- --
------------ ----------- ------------ ---------- ------------
Total $ 2,442,017 $ -- $ 4,000,000 $ 215,400 $ 1,032,862
(1) Mr. Barry's employment agreement provides him with the severance payments
upon (1) termination of employment by the Company without "Cause" and (2)
termination of employment by Mr. Barry as a result of a "Constructive
Termination."
Under the Barry Agreement: (a) "Cause" shall be deemed to occur if Mr.
Barry (i) has been convicted of a felony or any serious crime involving
moral turpitude, or engaged in materially fraudulent or materially
dishonest actions in connection with the performance of his duties under
the Barry Agreement, (ii) has willfully and materially failed to perform
his reasonably assigned duties under the Barry Agreement, (iii) has
breached the terms and provisions of the Barry Agreement in any material
respect or (iv) has failed to comply in any material respect with the
Company's written policies of conduct of which he had actual notice,
including with respect to trading in securities (subject to a 20-day notice
period and opportunity to cure in the case of an event of the type
described in clauses (ii)-(iv)); and (b) a "Constructive Termination" shall
be deemed to have occurred upon (i) the removal of Mr. Barry from his
positions as Chief Operating Officer and Chief Financial Officer of the
Company (it being understood that the removal of Mr. Barry from either such
position shall not be deemed a "Constructive Termination"), (ii) the
material breach by the Company of the Barry Agreement,
18
including any material diminution in the nature or scope of the
authorities, powers, functions duties or responsibilities of Mr. Barry as
Chief Operating Officer and Chief Financial Officer and a senior
executive officer of the Company (or to the extent that the Company
becomes a division or subsidiary of another entity, the authorities,
powers, functions, duties or responsibilities of the Chief Operating
Officer and Chief Financial Officer or senior executive officer of such
division or subsidiary (subject to a 30-day notice period and opportunity
to cure).
Receipt of severance benefits is subject to Mr. Barry's execution of a
mutual release reasonably acceptable to the Company and Mr. Barry.
(2) This column covers termination of Mr. Barry's employment under his
employment agreement under any circumstances not described in note (1)
above.
(3) The definition of "Change of Control" under the Barry Agreement is
substantially the same as the definition of such term under the Payner
Agreement.
(4) Pursuant to the Barry Agreement: (a) all unvested stock options,
restricted stock and deferred stock units granted to Mr. Barry vest upon
a termination without "Cause" or a "Constructive Termination; and (b) all
unvested stock options and all restricted stock and one half of any
deferred stock units granted to Barry which are outstanding as of the
date of a Change of Control and have not yet vested ("COC Unvested DSUs")
shall be deemed to be fully vested as of that date, and (subject to
certain tax limitations) the remaining one half of the COC Unvested DSUs
shall vest on the earliest to occur of (x) the scheduled vesting date and
(y) twelve (12) months from the date of such Change of Control, subject,
in each case, to Mr. Barry's continued employment with the Company on
such dates and (z) Mr. Barry's Constructive Termination or termination
without Cause following such Change of Control.
The dollar values in the table assume that the benefit of acceleration of
the deferred stock units equals the closing sale price of the Common
Stock on December 31, 2007 ($7.50 after giving effect to the reverse
stock split) multiplied by the number of shares of Common Stock subject
to unvested deferred stock units held by Mr. Barry at December 31, 2007.
Options were excluded as they were out of the money, and as of December
31, 2007, all Restricted Stock awards had previously vested.
(5) The life insurance proceeds represent the aggregate face value of life
insurance policies for which we pay the premiums and Mr. Barry designates
the beneficiary. The payments are actually paid by the life insurance
company in a lump sum.
The disability insurance proceeds represent the annual payout of
disability policies for which we pay the premiums.
(6) These premiums are paid by us when due for one year after termination.
The numbers in the table are based on the premiums paid in fiscal 2007.
The following table describes and quantifies the estimated payments
and benefits that would have been provided upon termination or a change in
control of us as of December 31, 2007 for Bradford Matson, our Chief Marketing
Officer:
Termination
-------------------------------------------------------
Employment Employment
Agreement Agreement Change
Severance No Severance In Control
Benefits and Payments (1) (2) Death Disability (3)
Base Salary $ 350,000 $ -- $ -- $ -- $ --
19
Insurance Premiums 27,527 -- -- -- --
Insurance Proceeds (3) -- -- 1,534,677 102,000 --
----------- ----------- ------------ ----------- ----------
Total $ 377,527 $ -- $ 1,534,677 $ 102,000 $ --
(1) Mr. Matson's employment agreement provides him with the severance
payments upon (1) termination of employment by the Company without
"Cause" and (2) termination of employment by Mr. Matson as a result of a
"Constructive Termination."
Under the Matson Agreement: (a) "Cause" shall be deemed to occur if Mr.
Matson (i) has been convicted of a felony or any serious crime involving
moral turpitude, or engaged in materially fraudulent or materially
dishonest actions in connection with the performance of his duties under
the Matson Agreement, (ii) has willfully and materially failed to perform
his duties under the Matson Agreement, (iii) has willfully or negligently
breached the terms and provisions of the Matson Agreement in any material
respect or (iv) has failed to comply in any material respect with the
Company's written policies of conduct that have been communicated to him,
including with respect to trading in securities; and (b) a "Constructive
Termination" shall be deemed to have occurred upon (i) the removal of Mr.
Matson without his consent from his position as Chief Marketing Officer
of the Company or (ii) the material breach by the Company of the Matson
Agreement (subject to a 30-day notice period and opportunity to cure).
Receipt of severance benefits is subject to Mr. Matson's execution of a
full release in favor of the company in a form reasonably satisfactory to
the Company.
(2) This column covers termination of Mr. Matson's employment under his
employment agreement under any circumstances not described in note (1)
above.
(3) The life insurance proceeds represent the aggregate face value of life
insurance policies for which we pay the premiums and Mr. Matson
designates the beneficiary. The payments are actually paid by the life
insurance company in a lump sum.
The disability insurance proceeds represent the annual payout of
disability policies for which we pay the premiums.
20
Compensation of Directors
The following table sets forth information concerning the compensation of our
directors for the fiscal year ended December 31, 2007:
DIRECTOR COMPENSATION -- YEAR ENDED DECEMBER 31, 2007
Fees
Earned
or Paid Restricted Stock
in Cash Awards Total
Name (1) ($) ($) (2) ($)
Riad Abrahams (3) $ -- $ 9,450 $ 9,450
Barry Erdos (4) $18,000 $11,813 $29,813
Michael Gross (5) $ -- $ 9,450 $ 9,450
Ann Jackson $11,500 $22,050 $33,550
Christopher G. McCann $14,500 $ 9,450 $23,950
Martin Miller $13,000 $21,315 $34,315
Neal Moszkowski $ -- $15,750 $15,750
Alex Rafal (3) $ -- $ -- $ --
David Wassong $ -- $18,900 $18,900
---------
(1) Melissa Payner is not included in the table because she is also a Named
Executive Officer in the Summary Compensation Table above. She receives
no additional compensation for her service as one of our directors.
Messrs. Plesner and Zigerelli were appointed to the Board of Directors
during 2008 and therefore are not included in the table.
(2) Represents the grant date fair values of the following Restricted Stock
Awards all of which were issued in accordance with the terms of the 2005
Plan: 1,125 shares of Restricted Stock issued to Mr. Abrahams on August
6, 2007; 937 shares of Restricted Stock issued to Mr. Erdos on February
23, 2007; 750 shares of Restricted Stock issued to Mr. Gross on February
23, 2007; 750 shares of Restricted Stock issued to Ms. Jackson on
February 23, 2007; 1,000 shares of Restricted Stock issued to Ms. Jackson
in exchange for stock options pursuant to the Offer to Exchange on
February 26, 2007; 750 shares of Restricted Stock issued to Mr. McCann on
February 23, 2007; 750 shares of Restricted Stock issued to Mr. Miller on
February 23, 2007; 941 shares of Restricted Stock issued to Mr. Miller in
exchange for stock options pursuant to the Offer to Exchange on February
26, 2007; 750 shares of Restricted Stock issued to Mr. Moszkowski on
February 23, 2007; 500 shares of Restricted Stock issued to Mr.
Moszkowski in exchange for stock options pursuant to the Offer to
Exchange on February 26, 2007; and 1,500 shares of Restricted Stock
issued to Mr. Wassong on February 23, 2007.
(3) Mr. Rafal resigned as a director in August 2007 and was replaced by Mr.
Abrahams.
(4) Mr. Erdos was appointed as the Company's President and Chief Operating
Officer in January 2008 and accordingly no longer receives separate
compensation for his service as a director. However, Mr. Erdos did not
hold such positions during 2007, and therefore received compensation for
his service as a director during 2007.
(5) Mr. Gross resigned as a director of the Company in March 2008.
The Company's independent, outside non-employee directors (other than
the directors who are designated under the Company's Voting Agreement with
Soros, Maverick and Prentice) are paid a cash stipend of $1,500 for each board
or committee meeting attended in person (and, in the case of the Audit Committee
Chairman, $2,000 per audit committee meeting) and are reimbursed for expenses
incurred on behalf of the Company. In addition, each such director is paid an
annual retainer of $10,000 at the first regularly scheduled Board meeting of
each fiscal year. The maximum
21
aggregate stipend and retainer paid to any such director in a year is $16,000
(or, in the case of the Audit Committee Chairman, $18,000).
Under the terms of the Plan, each non-employee director (including
the directors designated under the Voting Agreement by Soros, Maverick and
Prentice) receives a restricted stock grant of 1,125 shares of Common Stock
(1,875 shares in the case of the Chairman of the Board and 1,500 shares in the
case of the Chairman of the Audit Committee) at the time of the first regularly
scheduled Board meeting after such director is appointed to the Board of
Directors and an annual restricted stock grant of 750 shares of Common Stock
(1,500 shares in the case of the Chairman of the Board and 937 shares in the
case of the Chairman of the Audit Committee) at the first regularly scheduled
Board meeting of each fiscal year (even if such director is receiving a
restricted stock grant in connection with his or her appointment at such
meeting). All such restricted stock grants vest on the one year anniversary of
the date of grant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent shareholders are required by Securities
and Exchange Commission regulation to furnish us with copies of all Section
16(a) reports they file. Based solely on review of the copies of such reports
furnished to us during or with respect to fiscal 2007, or written
representations that no Forms 5 were required, we believe that during the fiscal
year ended December 31, 2007 all Section 16(a) filing requirements applicable to
our officers, directors and greater than ten-percent beneficial owners were
complied with.
Certain Relationships and Related Transactions
Review and Approval of Related Person Transactions
Our Code of Ethics and Standards of Business Conduct applies to all
directors and employees (including our named executive officers). Under the
Code of Ethics and Standards of Business Conduct, all employees are required to
take all reasonable efforts to identify actual or potential conflicts of
interest between Company interests and their personal or professional
relationships and to bring such conflicts to the attention of the Company's
counsel. Members of the Board of Directors who have any personal interest in a
transaction upon which the Board of Directors passes are required to disclose
such interest to the other directors and to recuse themselves from participation
in any decision in which there is a conflict between their personal interests
and our interests.
Our Audit Committee reviews any related party transaction and
transactions involving conflicts of interest with officers and directors
whenever possible in advance of the creation of such transaction or conflict,
unless either the Compensation Committee or a another committee of the Board of
Directors, consisting of independent directors has previously reviewed such
transaction.
Related Person Transactions
Subordinated Debt Financing Commitment
--------------------------------------
In March 2008, we entered into an agreement (the "Commitment") with
affiliates of Soros Fund Management LLC ("Soros") and private funds associated
with Maverick Capital, Ltd. ("Maverick") pursuant to which they agreed to
provide up to $3 million of debt financing to us, on a standby basis, during the
next year, provided that the commitment amount will be reduced by the gross
proceeds of any equity financing consummated during the year. As of the Record
Date, Soros and Maverick owned 38% and 23%, respectively, of our issued and
outstanding shares of Common Stock. We can draw down debt in one or more
tranches, provided that our cash balances are less than $1 million at the time
of any draw down. The draw downs will be evidenced by subordinated convertible
notes (the "Subordinated Notes") that have a term expiring on the later of June
26, 2011 and three years from the date of issuance of the Subordinated Notes and
bear interest at the rate of 8% per annum, compounded annually. Interest is
payable upon maturity or conversion. The Subordinated Notes are convertible
(subject to approval of the Note Conversion Provisions as described in Proposal
No. 2), at the holder's option (a) into equity securities that the Company
might issue in any subsequent round of financing at a
22
price that was equal to the lowest price per share paid by any investor in such
subsequent round of financing or (b) into Common Stock at a price per share
equal to the trailing 20-day average stock price on the date of issuance of the
note. In connection with the Commitment, we issued warrants to Soros and
Maverick to purchase an aggregate of 52,497 of Common Stock at an exercise price
equal to $5.10. Stockholder approval of the Note Conversion Provisions is being
sought pursuant to this Proxy Statement. See Proposal No. 2 below.
In connection with the Commitment, Soros and Maverick entered into a
Subordination and Intercreditor Agreement with us and our Wells Fargo Retail
Finance, LLC ("Wells Fargo") pursuant to which they have the right to purchase
all of our obligations from Wells Fargo at any time if we are then in default
under our credit facility with Wells Fargo.
Offer to Exchange
-----------------
In January 2007, the Company commenced an exchange offer (the
"Exchange Offer") pursuant to which it offered eligible employees and non
-employee directors the opportunity to exchange, on a grant-by-grant basis: (a)
their outstanding eligible stock options that were vested as of August 31, 2006
for restricted stock awards consisting of the right to receive restricted common
stock of the Company (the "Restricted Stock Awards"); and (b) their outstanding
eligible stock options that were not vested as of August 31, 2006 for deferred
restricted stock unit awards consisting of rights to receive common stock of the
Company on specified dates subsequent to vesting (the "Deferred Stock Unit
Awards," and, together with the Restricted Stock Awards, the "Replacement
Awards").
In order to be eligible to participate in the Exchange Offer, an
option holder was required to (a) have been an employee or non-employee director
of the Company on the date of the Exchange Offer, (b) have neither ceased to be
an employee or non-employee director, nor have submitted or received a notice of
termination of employment or resignation, prior to the expiration of the
Exchange Offer and (c) owned eligible options. Options eligible for exchange in
the Exchange Offer were outstanding options granted under the Plans that, in
each case, had an exercise price per share that is greater than $1.50.
The number of Replacement Awards an eligible participant was eligible
to receive in exchange for an eligible option was determined by a specific
exchange ratio applicable to that option, as set forth in the Offer to Exchange
included as an exhibit to the Schedule TO filed by the Company with the
Securities and Exchange Commission in connection with the Exchange Offer (the
"Offer to Exchange").
Restricted Stock Awards granted pursuant to the Exchange Offer vested
and became free from restriction one year from the date of the exchange, except
if the grantee made an election under Section 83(b) of the Internal Revenue Code
of 1986, as amended, then the restrictions on such Restricted Stock Award lapsed
with respect only to the number of shares needed to satisfy any applicable tax
withholding as of the date that the Company received such election, as more
fully described in the Offer to Exchange. The minimum period for full vesting of
Deferred Stock Unit Awards is two years from the date of exchange. The length of
the vesting schedule applicable to each Deferred Stock Unit Award was based on
the final vesting date of the option as of the date it was canceled in exchange
for those deferred stock units, as follows:
Deferred Stock Unit Awards Vesting Schedule
Final Vesting Date of Eligible
Stock Option as of Date of Total Vesting Period of Deferred Percentage of Deferred Stock Unit
Cancellation Stock Unit Awards Awards Vested Quarterly*
------------------------------ -------------------------------- ---------------------------------
Prior to August 31, 2007 2 years 12 1/2%
On or after August 31, 2007 3 years 8 1/3%
*Deferred Stock Unit Awards vest in substantially equal quarterly installments
over the applicable vesting period, subject to the participant's continue
employment with (or service on the Board of Directors of) the Company.
23
The shares of common stock underlying the Deferred Stock Unit Award
will be delivered on the Delivery Date. The Delivery Date is the date on which
the earliest to occur of the following occurs:
Delivery Date
------------------------------------------------------------------------
o 2 years from the date of grant (with respect to Deferred Stock
Units exchanged for eligible options with a vesting date prior to
August 31, 2007)
OR
3 years from the date of grant (with respect to Deferred Stock
Units exchanged for eligible options with a vesting date on or
after August 31, 2007)
------------------------------------------------------------------------
o Death
------------------------------------------------------------------------
o The date on which the employee is "disabled" (as such term is
defined in Section 409A(a)(2)(C) of the Internal Revenue of
1986, as amended (referred to as the "Code") and the official
guidance issued thereunder)
------------------------------------------------------------------------
Melissa Payner-Gregor, the Company's chief executive officer, and
Patrick C. Barry, the Company's chief financial officer, were not eligible to
participate in the Exchange Offer, but previously participated in an exchange
through each of their employment agreements, which are described in the Offer to
Exchange. However, other executive officers of the Company, as well as
non-employee directors, were eligible to participate in the Exchange Officer,
and therefore may be deemed to have a material interest in the terms thereof.
Pursuant to the Exchange Offer options to purchase an aggregate of
1,562,000 shares of Common Stock were exchanged in return for an aggregate of
47,247 Restricted Stock Awards and an aggregate of 39,440 Deferred Stock Unit
Awards.
The Exchange Offer was approved by the Board upon the recommendation
of the Compensation Committee.
June 2006 Private Placement
In June 2006, the Company entered into a Stock Purchase Agreement
(the "Purchase Agreement") with Soros, Maverick and investment entities and
accounts managed and advised by Prentice Capital Management, LP ("Prentice" and,
together with Maverick, the "Investors"), pursuant to which, among other things,
the Company agreed to sell to Maverick and Prentice an aggregate of 6,097,561
shares of Common Stock at a price of $8.20 per share, in a private placement
(the "Private Placement") for an aggregate of $50 million, half of which was
agreed to be purchased by each Investor. The purchase price represented an 11%
premium over the closing price of the Company's Common Stock as of the date that
the definitive agreement was signed and announced. The Private Placement was
consummated on June 15, 2006. At the closing, 20,301 shares were purchased by a
holder of the Company's then-outstanding Series D Convertible Preferred Stock in
connection with the exercise of its preemptive rights. This amount reduced on a
pro rata basis the amount of shares Maverick and Prentice otherwise would have
been entitled to purchase under the Purchase Agreement.
In connection with the Private Placement, Soros converted all of its
outstanding Series A, Series B, Series C, Series D, Series E and Series F
Convertible Preferred Stock into 4,472,996 shares of the Company's Common Stock
in accordance with the terms of such Preferred Stock. Approximately 566 shares
of the Series D Convertible Preferred Stock, which were held by investors other
than Soros, automatically converted into an aggregate of 107,393 shares of
Common Stock in accordance with the terms of the Series D Convertible Preferred
Stock. As a result of the Private Placement, and in accordance with the terms of
the anti-dilution provisions contained in the Certificate of Powers,
Designations, Preferences and Rights of Series F Convertible Preferred Stock,
the conversion price of the Series F Convertible Preferred Stock was adjusted to
$8.20 per share.
On the date of the closing of the Private Placement, the Company paid
Soros $25 million in cash, which represented $4,000,000 of the principal and
$1,488,375 of accrued but unpaid interest on the outstanding convertible notes
24
held by Soros (the "Convertible Notes") and substantially all of the accrued but
unpaid dividends on the shares of Preferred Stock that were converted by Soros
in connection with the Private Placement.
The Company agreed with Soros, Maverick and Prentice that it would
use commercially reasonable best efforts to register the resale of the shares of
Common Stock sold in the Private Placement within 120 days of the Closing Date,
and to cause a registration statement covering such shares to be declared
effective within 180 days of the Closing Date. Such registration statement has
since been filed and declared effective. The Company agreed to pay such selling
stockholders' expenses in connection therewith (exclusive of any selling
commissions or similar fees). In addition, the Company agreed to indemnify
Soros, Maverick and Prentice for any and all liabilities, losses, damages,
claims, costs and expenses, interest, awards, judgments, penalties (including,
without limitation, reasonable attorneys' fees and expenses) actually suffered
or incurred by them, arising out of or resulting from any breach of the
Company's representations and warranties in the Purchase Agreement.
Notwithstanding the foregoing, the Company has no obligation to compensate any
of such parties for punitive damages and the Company's liability to each party
under such indemnification provision cannot exceed 100% of the purchase price
for the shares purchased by such party in the Private Placement. In addition,
the Company agreed to indemnify Soros, Maverick and Prentice for certain
liabilities arising under the registration statement referred to above.
In connection with the Private Placement, the Company, Soros,
Maverick and Prentice entered into a voting agreement (the "Voting Agreement"),
pursuant to which Soros has the right to designate three designees to the
Company's Board of Directors and each of Maverick and Prentice have the right to
designate one designee, subject to minimum ownership thresholds and subject to
compliance with applicable Nasdaq rules. The Voting Agreement also provides that
one designee of Soros and the designee of each of Maverick and Prentice will
have the right to serve on the Compensation Committee and the Governance and
Nominating Committee of the Board of Directors, subject to compliance with
Nasdaq's rules regarding independent directors serving on such committees, or
Nasdaq's transitional rules, to the extent applicable. If the Board of Directors
establishes an Executive Committee, the designees of Soros, Maverick and
Prentice will be entitled to serve on such committee.
Pursuant to the terms of the Purchase Agreement, Soros, Maverick and
Prentice each agreed that it will not, without the approval of a majority of the
independent directors of the Company (i) for a period of three years from the
Closing Date, purchase or acquire, or agree to purchase or acquire, any shares
of the Company's capital stock, subject to certain exceptions, including
exceptions for (x) the purchase of shares pursuant to the Right of First Refusal
(defined below) and, (y) after eighteen months from the Closing Date, a purchase
by any Investor of shares of capital stock up to a level which does not equal or
exceed the lesser of (A) 30% of the outstanding shares of our Common Stock at
the time of such purchase, or (B) the ownership of Soros at the time of such
purchase; or a purchase by Soros of shares of capital stock in an amount up to
15% of the outstanding shares of Common Stock on the Closing Date, (ii) for a
period of five years from the Closing Date, except as provided in the Voting
Agreement or the Purchase Agreement, join a partnership, limited partnership,
syndicate or other group within the meaning of Section 13(d) of the Exchange
Act, including a group consisting of other Investors for the purpose of
acquiring, holding or voting any shares of capital stock of the Company, or
(iii) for a period of three years from the Closing Date, seek to commence a
proxy contest or other proxy solicitation for the purposes of modifying the
composition of the Board of Directors.
The Purchase Agreement further provided that, subject to certain
limited exceptions, Soros, Maverick and Prentice would not, for a period of six
(6) months after the Closing Date, sell, offer to sell, solicit offers to buy,
dispose of, loan, pledge or grant any right with respect to, any shares of
capital stock of the Company.
The Purchase Agreement also provided a right of first refusal (the
"Right of First Refusal") to Soros, Maverick and Prentice to provide the
financing in any private placement of the Company's Common Stock that it sought
to consummate within one year of the Closing Date. The Right of First Refusal
was subject to certain maximum ownership restrictions and certain other
exceptions set forth in the Purchase Agreement.
The Private Placement was approved by the Board upon the
recommendation of a special committee comprised solely of independent directors.
Extension of Maturity Dates of Convertible Notes
In February 2006, the maturity dates on the Convertible Notes issued
to Soros in July and October 2003 was extended. The maturity dates of the Notes,
which were originally due in January and April 2004, respectively, were each
25
extended for one year, from May 1, 2006 to May 1, 2007. The Convertible Notes
were repaid in full with the proceeds of the Private Placement, as more fully
discussed above.
The extension of the maturity dates on the Convertible Notes was
approved by the Board with the Soros designees on the Board abstaining.
Transactions with Soros Relating to the Credit Facility
Historically, the Company's credit facility was secured, in part, by
a $2 million letter of credit issued by Soros in favor of the lender. The
Company paid Soros an annual fee in connection with the issuance of such letter
of credit, and granted Soros a lien on all of the Company's assets as security
to Soros in the event that the lender was to draw down on the letter of credit.
In July 2006, the lender agreed to release the Soros letter of credit.
26
PROPOSAL NO. 2 NOTE CONVERSION PROVISIONS
As discussed above under the caption "Certain Relationships and
Related Transactions," in March 2008, the Company entered into an agreement with
Soros and Maverick pursuant to which they agreed to provide up to $3.0 million
of financing to be evidenced by the issuance of the Subordinated Notes. As of
the Record Date, Soros and Maverick owned 38% and 23%, respectively, of our
issued and outstanding shares of Common Stock. The terms of the Subordinated
Notes provide that, subject to stockholder approval of this Proposal No. 2, they
will be convertible at the holder's option (a) into equity securities that the
Company might issue in any subsequent round of financing at a price that will
equal to the lowest price per share paid by any investor in such subsequent
round of financing or (b) into common stock at a price per share equal to the
trailing 20-day average stock price on the date of issuance of the Subordinated
Notes (the "20-Day Average").
Pursuant to the Nasdaq Rules, stockholder approval is required for
any transaction involving the sale, issuance or potential issuance by a listed
company of common stock (or securities convertible into or excercisable for
common stock) equal to 20% or more of the presently outstanding stock or 20% or
more of the voting power outstanding before the issuance for less than the
greater of book or market value of the common stock. When the number of shares
of common stock to be issued in a transaction is indeterminable, the Nasdaq
staff will look to the maximum potential issuance of shares of common stock to
determine whether there will be an issuance of 20% or more of the outstanding
common stock. In the case of securities referred to in the Nasdaq Rules as
"future priced securities" for which the actual conversion price of the
securities depends on the market price of the underlying security or other
factors, such as, in the case of the conversion of the Subordinated Notes, the
lowest price per share paid by any investor in any subsequent round of
financing, so that the number of shares of common stock that will be issued is
uncertain until conversion, the Nasdaq staff looks to the maximum potential
issuance at the time such securities are issued. As a result, the Nasdaq Rules
require stockholder approval prior to the issuance of "future priced
securities."
In addition, pursuant to the Nasdaq Rules, stockholder approval is
required when an equity compensation arrangement is made pursuant to which stock
may be acquired by officers, directors, employees or consultants. Nasdaq
guidance interpreting this rule provides that the issuance of securities
convertible into common stock by a company to its officers, directors,
employees, or consultants, or an affiliated entity (which, for these purposes,
Nasdaq may deem to include Soros and Maverick) of such person, in a private
placement at a price less than the market value of the stock is considered a
form of "equity compensation" and requires stockholder approval.
Since the Subordinated Notes (i) are "future priced securities" and
(ii) may be converted at the 20-Day Average, which may be less than the fair
market vale of the common stock on the date of the issuance of the Subordinated
Notes, the Board of Directors has determined that it is advisable to submit the
Note Conversion Provisions to the Company's stockholders for their approval.
Pending such approval, the Subordinated Notes are not convertible. Since Soros
and Maverick collectively own over a majority of the outstanding shares of
common stock, the requisite majority approval of the Note Conversion Provisions
is assured.
Given their substantial holdings of the issued and outstanding Voting
Stock, Soros and Maverick each have substantial influence over whether, and the
terms upon which, the Company may consummate any subsequent round of financing.
Moreover, they have historically provided the Company with much of its needed
capital. Although there can be no assurance that the Company will be able to
raise additional capital, the Board of Directors believes that it will be
substantially more difficult to raise additional, either from Soros, Maverick or
a third party, in the event that the Note Conversion Provisions are not
approved.
The Board of Directors recommends a vote FOR approval of the Note
Conversion Provisions.
27
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP ("PwC") as independent registered public accounting
firm for the fiscal year ending December 31, 2008. The Company's financial
statements for the 2007 fiscal year were audited by PwC.
A representative of PwC will be present at the meeting, will be
provided the opportunity to make a statement if he or she desires to do so, and
will be available to respond to appropriate questions from stockholders.
Audit Fees
The aggregate fees billed for professional services rendered by PwC
for the audit of the Company's consolidated financial statements, including the
reviews of the Company's condensed consolidated financial statements included in
its quarterly reports on Form 10-Q, for fiscal 2007 and 2006 were approximately
$264,000 and $210,000, respectively. In addition, the Company paid PwC
approximately $8,000 in 2006 in connection with professional services rendered
to the Company in connection with the Offer to Exchange filed on Schedule T/O.
All of the foregoing services rendered by PwC were pre-approved by the Audit
Committee.
Audit Related Fees
Other than the fees described under the caption "Audit Fees" above,
PwC did not bill any fees for services rendered to the Company during fiscal
2007 and 2006 for assurance and related services in connection with the audit or
review of the Company consolidated financial statements.
Tax Fees
PwC did not bill the Company for any professional services rendered
to the Company during fiscal 2007 and 2006 for tax compliance, tax advice or tax
planning.
Other Fees
PwC did not bill the Company for any other professional services
rendered during fiscal 2007 and 2006 other than those described under the
caption "Audit Fees."
Audit Committee Pre-Approval Policies
The Company's policy is that, before PwC is engaged by the Company to
render audit or non-audit services, the engagement is approved by the Audit
Committee.
OTHER BUSINESS
The Board of Directors currently knows of no other matters to be
presented at the meeting. However, if any other matters properly come before the
meeting, or any adjournment thereof, it is intended that proxies in the
accompanying form will be voted in accordance with the judgment of the persons
named therein.
STOCKHOLDER PROPOSALS
The Company's bylaws provide that a stockholder who intends to
present a proposal for stockholder vote at the Company's next annual meeting
must give written notice to the Secretary of the Company not less than 90 days
prior to the date that is one year from the date of this annual meeting.
Accordingly, any such proposal must be received by the Company before February
28, 2009. The notice must contain specified information about the proposed
business and the stockholder making the proposal. If a stockholder gives notice
of a proposal after the deadline, the Company's proxy holders will have
discretionary authority to vote on this proposal when and if raised at the next
annual meeting. In addition, in order to include a stockholder proposal in the
Company's proxy statement and form of proxy for the next annual meeting, such
proposal must be received by the Company at its principal executive offices no
later than the close of business on December 30, 2008 and must otherwise comply
with the rules of the Commission for inclusion in the proxy materials.
28
COST OF SOLICITATION
The cost of soliciting proxies in the accompanying form has been or
will be borne by the Company. Directors, officers and employees of the Company
may solicit proxies personally or by telephone or other means of communications.
Although there is no formal agreement to do so, arrangements may be made with
brokerage houses and other custodians, nominees and fiduciaries to send proxies
and proxy material to their principals, and the Company may reimburse them for
any attendant expenses.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE SIGN
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED STAMPED AND ADDRESSED
ENVELOPE AS PROMPTLY AS POSSIBLE.
By Order of the Board of Directors,
DAVID WASSONG
Interim Chairman of the Board
Dated: April 29, 2008
29
ANNEX A
CHARTER OF THE AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
BLUEFLY, INC.
I. AUDIT COMMITTEE PURPOSE
The Audit Committee of the Board of Directors of Bluefly, Inc. (the
"Company") is appointed by the Board of Directors to assist the Board of
Directors in fulfilling its oversight responsibilities. The Audit
Committee's primary duties and responsibilities are to:
(o) Monitor and review the processes pursuant to which the Company's
financial statements are prepared and audited, the fairness of
those financial statements and monitor and ensure the adequacy of
the Company's systems of internalm controls regarding finance,
accounting, and legal compliance.
(o) Appoint and monitor the independence and performance of the
Company's independent auditors.
(o) Provide an avenue of communication between the independent
auditors, management and the Board of Directors.
The Audit Committee has the authority to conduct or authorize investigations
into any matter within the scope of its responsibilities, and it shall have
direct access to the independent auditors as well as anyone in the
organization.The Audit Committee has the ability to retain, at the Company's
expense, special legal, accounting, or other financial consultants or experts
it deems necessary in the performance of its duties or to assist in the
conduct of any investigation.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
The Audit Committee shall be comprised of directors determined by the Board
of Directors to meet the listing standards of The Nasdaq Stock Market, or
such other market or exchange on which the Company's securities may be
primarily traded at any time in the future. All members of the Audit
Committee shall have a basic understanding of finance and accounting and be
able to read and understand fundamental financial statements, and at least
one member of the Audit Committee shall have accounting or related financial
management expertise.Members of the Audit Committee may enhance their
familiarity with finance and accounting by participating in educational
programs.
30
Audit Committee members shall be appointed by the Board of Directors. If an
audit committee Chair is not designated or present, the members of the Audit
Committee may designate a Chair by majority vote of the Audit Committee
membership.
The Audit Committee will have regular meetings at least four times per year
(which should coincide with, and precede, the Company's public announcement
of its quarterly and annual results) or more frequently as circumstances
dictate. The Audit Committee should meet privately and separately, on a
regular basis, with management and with the independent auditors, to discuss
any matters that the Audit Committee or each of these groups believes should
be discussed.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
Section 1. Review Procedures
-----------------
1. Review and reassess the adequacy of this Charter at least
annually.
2. Review the Company's annual audited financial statements, related
disclosures, including the MD&A portion of the Company's filings,
and discuss with the independent accountants the matters required
to be discussed by Statement on Auditing Standards No. 61, as
amended, including (a) significant issues and disagreements
regarding accounting principles, practices and judgments, (b) any
significant difficulties encountered during the course of the
audit, including any restrictions on the scope of work or access
to required information and (c) the effect of using different
accounting principles, practices and judgments.
3. Review and discuss with management and with the independent
auditors the Company's quarterly earnings releases and reports
prior to public distribution.
4. Review any reports or other documents filed with the Securities
and Exchange Commission that include public financial disclosures
prior to filing or distribution and discuss with management, if
appropriate, whether the information contained in these documents
is consistent with the information contained in the Company's
financial statements.
5. In consultation with management and the independent auditors,
consider the integrity of the Company's financial reporting
processes and adequacy of controls. Discuss significant financial
risk exposures and the steps management has taken to monitor,
control and report such exposures. Review significant findings
prepared by the independent auditors together with management's
responses including the status of previous recommendations.
6. Review written reports and significant findings prepared by the
independent auditors, if any, and if appropriate, discuss the
information contained in the reports with the independent
auditors. Review management's responses, if any, to such reports
and findings, including the status of previous recommendations.
7. Receive copies of reports to management prepared by the
independent auditors and management's responses to any such
reports. Obtain confirmation from the independent auditors that
the Company is in compliance with its financial reporting
requirements.
31
8. Review, annually, the procedures, structure, and qualifications of
the Company's financial reporting personnel. Discuss with the
independent auditors the performance of the financial reporting
personnel and any recommendations the independent auditors may
have.
9. Review and approve the partners or managers of the independent
auditors who were engaged on the Company's audit.
10. To the extent that they have not been reviewed by the Compensation
Committee of the Board of Directors or another committee of the
Board of Directors composed of independent directors, review
related party transactions and transactions involving conflicts of
interest with officers and directors, whenever possible in advance
of the creation of such transaction or conflict. Cause to be
reviewed compensation, expenses, perquisites and related party
transactions with officers and directors to verify that they are
in accordance with corporate policies and with any agreements or
arrangements approved by the Board of Directors.
11. Review and approve the disclosures required to be included in the
Form 10-K relating to management's establishment of adequate
internal controls and management's assessment of the effectiveness
of such controls.
12. Review disclosures made to the Audit Committee by the Company's
chief executive officer and chief financial officer during their
certification process for the periodic reports filed with the
Commission about any significant deficiencies or material
weaknesses in the design or operation of internal controls over
financial reporting and any fraud involving management or other
employees who have a significant role in the Company's internal
control function.
13. Review with the independent auditor and management the internal
and disclosure control functions required to comply with the rules
of the Commission including the responsibilities, budget,
qualifications and staffing and any recommended changes in the
planned scope of the personnel responsible for implementing and
maintaining the Company's internal controls.
Section 2. Independent Auditors
--------------------
14. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors, and the Audit Committee has
the ultimate authority and responsibility to select, evaluate and,
where appropriate, replace the independent auditors. The Audit
Committee shall review the independence and performance of the
independent auditors and the experience and qualifications of the
senior members of the independent auditor team. The Audit
Committee shall annually appoint the independent auditors or
approve any discharge of the independent auditors when
circumstances warrant.
15. Approve the audit fees and other significant compensation to be
paid to the independent auditors.
32
16. Approve the retention and related fees of the independent auditors
for any significant non- audit services and consider whether the
provision of these other services is compatible with maintaining
the auditors' independence consistent with applicable standards.
17. On an annual basis, the Audit Committee should receive from the
independent auditors a formal written statement delineating all
relationships between the independent auditors and the Company and
representing to the Company the independent auditors' independence
consistent with applicable standards. The Audit Committee should
discuss with the independent auditors the disclosed relationships
or services that may impact the objectivity and independence of
the auditors, and take, or recommend that the Board of Directors
take, appropriate action to ensure the independence of the
auditors.
18. Review the independent auditors' audit plan - discuss scope,
staffing, reliance upon management and audit approach.
19. Discuss certain matters required to be communicated to audit
committees in accordance with the American Institute of Certified
Public Accountants: A Statement of Auditing Standards No. 61
including such matters as (i) the consistency of application of
the Company's accounting policies; (ii) the completeness of
information contained in the financial statements and related
disclosures; (iii) the selection of new or changes to the
Company's accounting policies; (iv) estimates, judgments and
uncertainties; (v) unusual transactions and (vi) accounting
policies relating to significant financial statements items,
including the timing of transactions and the period in which they
are recorded.
20. Obtain and consider the independent auditors' judgments about the
quality and appropriateness of the Company's accounting principles
as applied in its financial reporting; the discussion should
include such issues as the degree of aggressiveness or
conservatism of the Company's accounting principles and underlying
estimates the clarity of the Company's financial disclosures and
other significant decisions made by management in preparing the
financial disclosures.
Section 3. Legal Compliance
----------------
21. On at least an annual basis, review, with the Company's counsel,
any legal matters that could have a significant impact on the
Company's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies.
Section 4. Other Audit Committee Responsibilities
--------------------------------------
22. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included
in the Company's annual proxy statement.
23. Report Audit Committee actions to the Board of Directors on a
regular basis including any recommendations the Audit Committee
deems appropriate.
33
24. Perform any other activities consistent with this Charter, the
Company's By-laws and governing law, as the Audit Committee or the
Board of Directors deems necessary or appropriate.
25. Maintain minutes of meetings and periodically report to the Board
of Directors on significant results of the foregoing activities.
26. Review financial and accounting personnel succession planning
within the Company.
27. The Audit Committee will engage in an annual self-assessment with
the goal of continuing improvement, and will annually review and
reassess the adequacy of its charter, and recommend any changes to
the full Board.
34
ANNEX B
BLUEFLY, INC.
NOMINATING & GOVERNANCE COMMITTEE CHARTER
(Adopted as of June 16, 2004)
The board of directors of Bluefly, Inc. (the "Company") has
established the Nominating & Governance Committee of the Board of Directors of
the Company (the "Board").
(a) Purposes
The purposes of the Nominating and Governance Committee are:
o To assist the Board by identifying individuals qualified to
become Board members, and setting criteria for, and
evaluating, candidates for director nominees, and to recommend
to the Board the director nominees for election at the annual
meetings of stockholders or for appointments to fill
vacancies;
o To recommend to the Board director nominees for each
committee of the Board;
o To advise the Board about appropriate composition of the
Board and its committees;
o To advise the Board about and recommend to the Board
appropriate corporate governance practices and to assist the
Board in implementing those practices;
o To lead the Board in its annual review of the performance of
the Board and its committees; and
o To perform such other functions as the Board may assign to
the Nominating & Governance Committee from time to time.
(b) Composition
The Nominating & Governance Committee shall consist of at least
two members of the Board. The Board shall appoint the members of the Nominating
& Governance Committee. The Board may remove or replace any member of the
Nominating & Governance Committee at any time. The composition of the Nominating
& Governance Committee shall, at all times, be in compliance with all applicable
listing standards of The Nasdaq Stock Market, or such other market or exchange
on which the Company's securities may be primarily traded at any time in the
future.
(c) Authority and Responsibilities
The Nominating & Governance Committee is delegated all the
authority of the Board as may be required or advisable to fulfill the purposes
of the Nominating & Governance Committee. The Nominating & Governance Committee
may form and delegate some or all of its authority to subcommittees when it
deems appropriate. Without limiting the generality of the preceding statements,
the Nominating & Governance Committee shall have authority, and is entrusted
with the responsibility, to do the following actions:
1. The Nominating & Governance Committee shall prepare and recommend
to the Board for adoption corporate governance guidelines.
2. The Nominating & Governance Committee shall assess individuals
qualified to become directors for recommendation to the Board. The
Nominating & Governance Committee's assessment as to the
qualifications
35
of director candidates shall include, without limitation,
consideration of diversity, skill, specialized expertise,
experience, business acumen, understanding of strategy and
policy-setting. Depending upon the Company's then-current needs,
certain factors may be weighed more or less heavily.
3. The Nominating & Governance Committee shall establish, review and
modify as appropriate policies and procedures for submission of
recommendations for director candidates by stockholders to the
Nominating & Governance Committee and evaluating nominees for
director recommended by stockholders.
4. Each year, the Nominating & Governance Committee shall:
o review the advisability or need for any changes in the
number and composition of the Board;
o review the advisability or need for any changes in the
number, charters or titles of committees of the Board;
o recommend to the Board the composition of each committee of
the Board and the individual director to serve as
chairperson of each committee;
o ensure that the chairperson of each committee report to the
Board about the committee's annual evaluation of its
performance, to be discussed with the full Board following
the end of each fiscal year; and
o review and reassess the adequacy of the corporate
governance guidelines of the Company and recommend any
proposed changes to the Board for approval.
5. The Nominating & Governance Committee shall have the authority to
obtain advice and assistance from internal or external legal,
accounting or other advisors, to approve the fees and expenses of
such outside advisors, and to cause the Company to pay the fees
and expenses of such outside advisors.
(d) Procedures
1. Meetings. The Nominating & Governance Committee shall meet at the
call of its chairperson, two or more members of the Nominating
and Governance Committee, or the Chairman of the Board. Meetings
may, at the discretion of the Nominating & Governing Committee,
include members of the Company's management, independent
consultants, and such other persons as the Nominating &
Governance Committee or its chairperson may determine. The
Nominating & Governance Committee may meet in person, by
telephone conference call, or in any other manner in which the
Board is permitted to meet under law or the Company's bylaws. The
Nominating & Governance Committee shall keep a written record of
its meetings and actions and shall file a copy of such record of
its meetings and actions and shall file a copy of such record in
the corporate minutes of the Company.
2. Quorum and Approval. A majority of members of the Nominating &
Governance Committee shall constitute a quorum. The Nominating &
Governance Committee shall act on the affirmative vote of a
majority of members present at a meeting at which a quorum is
present. The Nominating & Governance Committee may also act by
unanimous written consent in lieu of a meeting.
3. Rules. The Nominating & Governance Committee may determine
additional rules and procedures, including designation of a
chairperson pro tempore in the absence of the chairperson and
designation of a secretary of the Nominating & Governance
Committee, at any meeting thereof.
4. Reports. The Nominating & Governance Committee shall make regular
reports to the Board, directly or through the chairperson.
5. Review of Charter. Each year the Nominating & Governance
Committee shall review the need for changes in this Charter and
recommend any proposed changes to the Board for approval.
6. Performance Review. Each year the Nominating & Governance
Committee shall review and evaluate its own performance and shall
submit itself to the review and evaluation of the Board.
36
[FRONT]
BLUEFLY, INC.
-------------
PROXY
-----
Annual Meeting, May 29, 2008
------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints MELISSA PAYNER AND BARRY ERDOS as
Proxies, each with full power to appoint his substitute, and hereby authorizes
them to appear and vote as designated on the reverse side, all shares of Voting
Stock of Bluefly, Inc. held on record by the undersigned on April 25, 2008 at
the Annual Meeting of Stockholders to be held on May 29, 2008, and any
adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
(Continued and to be signed on the reverse side.)
Please mark your
votes as in this
example.
VOTE FOR VOTE FOR VOTE WITHHELD
ALL NOMINEES ALL NOMINEES, except AUTHORITY
as marked to the contrary FROM ALL NOMINEES
1.ELECTION below FOR AGAINST ABSTAIN
OF DIRECTORS 2. PROPOSAL TO APPROVE
THE NOTE CONVERSION
Nominees: [ ] [ ] [ ] PROVISIONS.
Riad Abrahams
Barry Erdos
Ann Jackson
Christopher G.
McCann
Martin Miller
Neal Moszkowski
Melissa Payner
Anthony Plesner
David Wassong
Lawrence Zigerelli
The undersigned acknowledges receipt of the accompanying Proxy Statement dated April 29, 2008.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE ANNUAL MEETING IN
ACCORDANCE WITH THE STOCKHOLDER'S SPECIFICATIONS ABOVE. THE PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS TO THE
UNDERSIGNED.
DATE
SIGNATURE IF HELD JOINTLY
SIGNATURE OF STOCKHOLDER
NOTE: Please mark, date, sign and return this Proxy promptly using the enclosed
envelope. When shares are held by joint tenants, both should sign. If signing as
an attorney, executor, administrator, trustee or guardian, please give full
title. If a corporation or partnership, please sign in corporate or partnership
name by an authorized person.
2