EX-99.KK 8 0008.txt EXHIBIT KK - SUMMARY TERM SHEET Page 78 of 87 Pages SUMMARY TERM SHEET Issuer: BLUEFLY, INC. ("BLUEFLY" or the "Company"). Purchasers: Quantum Industrial Partners LDC and affiliates ("QIP"), a strategic equity fund advised by Soros Fund Management LLC and its affiliate Soros Private Equity Partners ("SPEP"), and any other party mutually acceptable to the Company and QIP (collectively, the "Purchasers"). Holders of Common Stock will be offered the right to purchase their pro rata share as a class of up to $20 Public Holders: million of Common Stock (the "Rights Offering"). Securities Offered: 8,673,720 shares of Series B Convertible Preferred Stock (the "Series B Stock") plus a number of shares of Series B Stock equal to the interest accrued and unpaid on (i) the Existing Notes (as defined below) from October 1, 2000 through the date of conversion and (ii) the Notes (as defined below) from the date of issuance through the date of conversion. (6,536,967 shares relating to the conversion of $15 million in currently existing debt ("Existing Notes") plus interest through September 30, 2000, and 2,136,752 shares relating to the conversion of the principal amount of the Notes). Up to 8,547,009 shares of Common Stock. Senior Convertible Notes in the aggregate principal amount of $5 million (the "Notes"). Page 79 of 87 Pages Purchase Price: $2.34 per share ("Per Share Price") for the Series B Stock, $20,000,000 in the aggregate (including $15 million of currently existing Senior Convertible Notes to be converted into Series B Stock in connection with the transaction). $2.34 per share for the Common Stock, up to $20 million in the aggregate. Uses of Proceeds: Working capital and general corporate purposes. DESCRIPTION OF THE SERIES B STOCK: Ranking of the Series B Stock: Senior to the Common Stock of the Company and pari passu with the Series A Stock. Dividends: The Series B Stock will bear a cumulative compounding dividend of 8% per annum payable upon conversion, at the Company's option, in cash or Common Stock, or upon liquidation, payable in cash. In addition, the Series B Stock will share pari passu with all other equity holders of the Company on an as- converted basis in cash dividends and other distributions, if any, other than stock splits effected as dividends. If the Company elects to pay the dividend in shares of Common Stock, such dividend will be the number of shares of Common Stock obtained by dividing the cash value of the dividend by the average closing price of the Company's Common Stock on NASDAQ for the thirty trading days immediately prior to such conversion. Conversion Price: The initial conversion price of the Series B Stock will be equal to the Per Share Price (the "Conversion Price"), subject to anti-dilution protection described below. Optional Conversion: Each share of the Series B Stock shall be convertible at any time after the date of issuance at the option of the holder into the number of shares of Common Stock obtained by dividing the Per Share Price by the Conversion Price. 2 Page 80 of 87 Pages Automatic Conversion: None for the Series B Stock. The Series A Stock will be automatically converted as set forth in the Certificate of Amendment, except that (i) the trigger price will be four times the Conversion Price; (ii) the conversion can only occur on or after October 12, 2001; (iii) the Company can convert only 25% of the outstanding Series A in any one calendar quarter; and (iv) the Common Stock into which the Series A is converted must be subject to a registration statement. Optional Redemption: The Company may redeem for cash all but not less than all of the Series A Stock and Series B Stock on not less than 30 days written notice to the holders thereof, during the periods and at a price set forth below, in each case, plus accrued but unpaid dividends; provided that if it is necessary -------- to redeem shares of Common Stock held by the Purchasers in order to ensure that the redemption is not treated as a dividend treatment under Section 302(b)(2) of the Internal Revenue Code for the redemption of the Series A Stock and Series B Stock, then to avoid such treatment the Company shall effect such redemption of Common Stock to the extent necessary; and provided further that there shall be a registration statement in effect for the Common Stock into which the Series A Stock and Series B Stock can be converted. Second anniversary of closing through the fourth anniversary - 4 times the Conversion Price; Fourth anniversary of closing through the sixth anniversary - 4.5 times the Conversion Price; After the sixth anniversary - 5 times the Conversion Price. The right of redemption may be exercised and a determination on how to fund the redemption may be made only by a vote of the majority of the directors not appointed by the Purchasers. 3 Page 81 of 87 Pages Voting Rights: The Series B Stock will have the right to vote on all matters that come before the common shareholders of the Company on an as converted basis. For so long as at least 60% in the aggregate of the shares of Series A Stock or at least 40% of the shares of Series B Stock, as the case may be, outstanding on the closing date remain outstanding, the approval of the holders of a majority of the shares of Series A Stock or Series B Stock, as the case may be, will be required for the Company to take any of the following actions: (i) merge, consolidate or liquidate the Company or acquire another business entity; (ii) create a joint venture, partnership or one or more non-wholly owned subsidiaries requiring an investment in cash or kind of more than $500,000; (iii) sell Company assets, which individually or in the aggregate exceed $2,000,000; (iv) incur indebtedness in excess of $1,000,000 or impose a lien against or encumber assets of the Company in excess of $1,000,000 (other than a financing secured by inventory); (v) enter into or amend any contract not contemplated by an approved budget or in excess of $250,000 in any one year or $1 million over the life of the contract in the aggregate; (vi) issue or sell securities of the Company (excluding securities issued upon exercise of options under the stock option or employee incentive plans existing on October 12, 2000 or contemplated by this term sheet or as a result of the conversion of the Series A Stock, any outstanding notes and warrants, the Series B Stock and the Notes); (vii) declare dividends, repurchase or redeem 4 Page 82 of 87 Pages securities of the Company or debt, except to the extent such debt is due in accordance with its terms and except for dividends, repurchases or redemption set forth in this term sheet or applicable to the Series A Stock, the Notes and the Series B Stock; (viii) make capital expenditures in excess of 110% of capital expenditures set forth in the annual budget; (ix) grant registration rights or register securities under the Securities Act of 1933, as amended, except pursuant to the registration rights agreement currently in effect and the registration rights granted pursuant to the transactions contemplated hereby or registrations on Form S-8 or similar forms; (x) enter into any contract with an Affiliate; (xi) amend the Company's Certificate of Incorporation or Bylaws; (xii) increase or decrease the number of members of the Company's Board of Directors or the voting rights of the directors; (xiii) change the Company's independent public accountants; (xiv) approve the annual budget, and any changes to the business plan and five year budget and any successor thereto; (xv) adopt or amend employment contracts with Company officers and senior executive managers with authority equivalent to that of Executive Vice Presidents; or (xvi) amend or alter the transaction documents. Board Representation: (a) The Board of Directors will be composed of seven (7) members (b) During such time as at least 20% of the shares of Series A Stock or at least 20% of the shares of Series B Stock as the case may be, held on the closing date remains outstanding, the holders of each such series, by the vote of a majority of the outstanding shares of each such series, will designate a director, and each such director will have one vote on all matters considered by the Board or any committee of the Board. (c) Notwithstanding clause (b), during such time as at least 60% of the shares of Series A Stock or 40% of the Series B Stock, as the case may be, held on the closing date remains outstanding, the director designated by the holders of a majority of the Series A Stock and the director designed by the holders of a majority of the Series B Stock will each be entitled to seven votes on all matters considered by the Board or any committee of the Board. 5 Page 83 of 87 Pages Pre-emptive Rights: The holders of Series B Stock will have the same pre-emptive rights as the Series A Stock. Liquidation Preference: Holders of the Series B Stock will have priority in liquidation over all holders of Common Stock. The liquidation preference per share will equal the greater of (i) the price that, when combined with the consideration received by the Purchasers for their Common stock, provides for the recovery of the entire investment made by the Purchasers pursuant to this Term Sheet (which shall include, without limitation, the purchase price of the Notes converted into Series B Stock and the purchase price for the shares of common stock purchased pursuant to this term sheet), plus any accrued but unpaid dividends thereon; and (ii) the amount that the holders of the Series B Stock would receive in a liquidation if they were to convert the Series B Stock into Common Stock immediately prior to such liquidation. To the extent necessary, the Certificate of Designation for the Series A Stock shall be amended to: (w) adjust the $20 referred to in Section 4(a) to take into account stock splits or similar adjustments to the number of outstanding shares of Series A Stock; (x) substitute "$2.34" for "$10.50" in Section 6(a)(ii) thereof; (y) provide that, upon a 6 Page 84 of 87 Pages liquidation as described herein, the holders of the Series A Stock shall be entitled to a liquidation preference per share equal to the greater of (i) the price that provides for the recovery of the entire investment made by the holders thereof in the Series A Stock, plus any accrued but unpaid dividends thereon; and (ii) the amount that the holders of the Series A Stock would receive in a liquidation if they were to convert the Series A Stock into Common Stock immediately prior to such liquidation; and (z) delete the optional redemption provision and references to change in control in Section 7 and Section 3(a)(iii), respectively. Protective Provisions: The affirmative vote of the holders of at least two-thirds (66 %) of the outstanding shares of Series B Stock will be required for the Company to (i) alter or change the rights, preferences or privileges of the shares of Series B Stock so as to affect adversely such shares or (ii) merge or consolidate with another Person or enter into a transaction which results in a Change of Control. "Change of Control" means any person or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act)", becoming the beneficial owner, directly or indirectly, of outstanding shares of stock of the Company entitling such Person or Persons to exercise 50% of more of the total votes entitled to be cast at a regular or special meeting, or by action by written consent, of the shareholders of the Company in the election of directors (the term "beneficial owner" shall be determined in accordance with Rule 13d-3 of the Exchange Act. 7 Page 85 of 87 Pages DESCRIPTION OF THE NOTES: Interest: The Notes will bear interest at a rate of 11% per annum, based on a 365- or 366-day year, as the case may be, and the actual number of days elapsed. Interest is payable only upon conversion or repayment of the principal. Maturity Date: April 1, 2001. The maturity date of the existing notes will be extended to April 1, 2001. Mandatory Prepayment: The Notes shall be repaid upon the occurrence of an event of default (as defined in the Senior Convertible Notes that are currently outstanding). The Purchasers will have the right to require the prepayment of the principal and all accrued interest on the Notes upon a Change of Control (other than a Change of Control as a result of the transactions contemplated by this Term Sheet). Optional Prepayment: The Company may not prepay the Notes or the existing notes. Automatic Conversion: Each Note automatically converts into the number of shares of Series B Stock obtained by dividing the outstanding principal amount of the Note and all accrued interest by the Conversion Price immediately upon the Company obtaining shareholder approval for the transactions contemplated hereby. Conversion Price: $2.34 Subordination: To $15,000,000 of inventory financing on terms reasonably acceptable to the Purchasers. Additional Provisions Applicable to the Series B Stock or the Notes: 8 Page 86 of 87 Pages Anti-Dilution Protection: The Series B Stock and the Notes will include customary anti-dilution provisions, in addition to a full ratchet adjustment to the Conversion Price in the event the Company issues new equity or convertible securities at an issue price or conversion price below the then applicable Conversion Price. The foregoing shall not apply to (i) any equity securities issued pursuant to the Company's employee option or stock incentive plan existing on October 10,2000 or as contemplated herein or (ii) in consideration for services of third parties, in an aggregate amount not to exceed 100,000 shares of Common Stock per year. Registration Rights: The holders of Series B Stock and Notes will have the same piggy-back rights as the Series A Stock and unlimited shelf registration demands where the aggregate anticipated proceeds to the selling holders would equal or exceed $3,000,000. Disclosure: The holders of Series B Stock and the Notes will have the same rights as the holders of Series A Stock. Conditions to Closing: The purchase of the Common Stock and the conversion of the Notes into shares of Series B Stock are conditioned on: (i) approval of the shareholders of the Company of the issuance of the Series B and the Common Stock; (ii) receipt of applicable Governmental approval (or the expiration of applicable waiting periods); (iii) conversion of Company into a Delaware corporation; (iv) the conclusion of a rights offering of the Common Stock; and (v) the absence of a material adverse change in the business, assets, liabilities, prospects, financial condition or results of operation of the Company. The purchase of the $5 million in Notes is conditioned on: (i) negotiation and execution of definitive documentation governing the 9 Page 87 of 87 Pages transactions contemplated by the letter of intent and term sheet, in form and substance satisfactory to the Company and the Purchasers by November 15, 2000, and (ii) the absence of a material adverse change in the business, assets, liabilities, prospects, financial condition or results of operation of the Company. Public Filings: The Purchasers will have the right to approve all filings made with U.S. Government agencies and any material provided to shareholders. Employee Options: The Company will set aside 2,519,862 shares of Common Stock to be reserved for officers, employees and consultants, as approved by the Board of Directors (the "New Stock Option Plan"). The New Stock Option Plan will be subject to shareholder approval. The options granted to existing employees of the Company will be priced at the fair market value on the date of this term sheet. Options granted under the existing stock option plans, including options that were granted subject to shareholder approval will remain in place. Miscellaneous: The Note Purchase Agreement will include a covenant that the Company shall not agree to or take any action to approve or otherwise facilitate any merger or consolidation or Change of Control (including granting approvals required under applicable anti-takeover statutes), unless provision has been made for the holders of Series A Stock and Series B Stock to receive as a result of and in connection with the transaction an amount equal to their respective aggregate liquidation preference for the shares of Series A Stock and Series B Stock held by them. The covenant will survive the conversion of the Notes and be enforceable by specific performance. 10