EXHIBIT 99.3
CERTIFICATE OF POWERS, DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED
STOCK OF BLUEFLY, INC.
BLUEFLY, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY THAT:
Pursuant to authority conferred upon the Board of Directors of the
Corporation (the "Board") by the Certificate of Incorporation of the Corporation
(the "Certificate of Incorporation"), and pursuant to the provisions of ss. 151
of the Delaware General Corporation Law (the "DGCL"), the Board, at a meeting
held on September 24, 2002, duly adopted the following resolution providing for
the voting powers, designations, preferences and rights, and the qualifications,
limitations and restrictions, of the Series C Convertible Preferred Stock.
WHEREAS, the Certificate of Incorporation provides for two classes of
shares known as common stock, $0.01 par value per share (the "Common Stock"),
and preferred stock, $0.01 par value per share (the "Preferred Stock"); and
WHEREAS, the Board is authorized by the Certificate of Incorporation to
provide for the issuance of the shares of Preferred Stock in one or more series,
and by filing a certificate pursuant to the DGCL, to establish from time to time
the number of shares to be included in any such series and to fix the voting
powers, designations, preferences and rights of the shares of any such series,
and the qualifications, limitations and restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable to, and
hereby does, designate a Series C Convertible Preferred Stock and fixes and
determines the voting powers, designations, preferences and rights, and the
qualifications, limitations and restrictions relating to the Series C
Convertible Preferred Stock as follows:
1. Designation/Ranking. There shall hereby be created and established a series
of Preferred Stock, and the shares of such series of Preferred Stock shall be
designated "Series C Convertible Preferred Stock" (referred to herein as the
"Series C Convertible Preferred Stock"). The Series C Convertible Preferred
Stock shall rank pari passu with the Corporation's Series A Convertible
Preferred Stock, $.01 par value per share (the "Series A Convertible Preferred
Stock"), the Corporation's Series B Convertible Preferred Stock, $.01 par value
per share (the "Series B Convertible Preferred Stock"), and the Corporation's
Series 2002 Convertible Preferred Stock, $.01 par value per share (the "Series
2002 Convertible Preferred Stock," and, together with the Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock, the "Convertible
Preferred Stock") and senior to the Corporation's Common Stock and all other
Preferred Stock of the Corporation ranking junior to the Convertible Preferred
Stock, with respect to the payment of distributions on liquidation, dissolution
or winding up of the Corporation and with respect to the payment of dividends.
2. Authorized Number. The number of shares constituting the Series C Convertible
Preferred Stock shall be three thousand, five hundred (3,500) shares.
3. Dividends.
3.1 The holders of the Series C Convertible Preferred Stock shall be
entitled to receive, out of funds legally available for such purpose, dividends
which shall accrue at the rate of 8% per annum of the Series C Face Value (as
defined in Section 4.1 hereof) of such stock and shall compound annually,
payable only upon: (i) the conversion of the Series C Convertible Preferred
Stock pursuant to Section 6 hereof; (ii) Liquidation (as defined in Section 4.1
hereof) of the Corporation under Section 4 hereof; or (iii) a redemption of the
Series C Convertible Preferred Stock under Section 7 hereof. Except in
connection with a Series C Liquidation Payment (as defined in Section 4.1
hereof) made under Section 4 hereof or a redemption payment made under Section 7
hereof (which in each case shall require payment in cash), the Corporation, in
its sole discretion, may elect to pay such dividends in shares of Common Stock,
in which case such Common Stock dividends shall be equal to the number of shares
of Common Stock obtained by dividing the cash value of such dividend by the
Current Market Price (as defined in Section 6.4(iv) hereof) on the business day
prior to the date of payment.
3.2 Dividends on each share of Series C Convertible Preferred Stock shall
be cumulative and shall accrue from the date of issuance of such share of Series
C Convertible Preferred Stock. The date on which the Corporation initially
issues any share of Series C Convertible Preferred Stock shall be its "Issue
Date," regardless of the number of times transfer of such shares is made on the
stock records maintained by or for the Corporation and regardless of the number
of certificates that may be issued to evidence such share.
3.3 In addition to the right to receive dividends pursuant to Section 3.1
above, each holder of a share of Series C Convertible Preferred Stock shall have
the right, at any time after the Issue Date, if the Board of Directors of the
Corporation shall declare a dividend or make any other distribution (including,
without limitation, in cash or other property or assets, but excluding any stock
split effected as a stock dividend), to holders of shares of Common Stock, to
receive, out of funds legally available therefor, a dividend or distribution in
an amount equal to the amount of such dividend or distribution receivable by a
holder of the number of shares of Common Stock into which such share of Series C
Convertible Preferred Stock is convertible on the record date for such dividend
or distribution. Any such amount shall be paid to the holders of shares of
Series C Convertible Preferred Stock at the same time such dividend or
distribution is made to the holders of Common Stock.
4. Liquidation
4.1 Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary (a "Liquidation"), each holder shall be paid
for each share of Series C Convertible Preferred Stock held by it, before any
distribution or payment is made upon any stock ranking junior to the Series C
Convertible Preferred Stock, an amount equal to the greater of: (i) $1,000 per
share (the "Series C Face Value") plus, in the case of each share, an amount
equal to all accrued but unpaid dividends thereon, through the date payment
thereof is made and (ii) the amount that the holder of such share of Series C
Convertible Preferred Stock would
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receive if it were to convert (without regard to any limitation or restriction
on conversion and without actually requiring such share to be so converted) such
share of Series C Convertible Preferred Stock into share(s) of Common Stock
immediately prior to such Liquidation. The holders of Series C Convertible
Preferred Stock shall not be entitled to any further payment. The amount payable
pursuant to the first sentence of this Section 4.1 with respect to one share of
Series C Convertible Preferred Stock is sometimes referred to as the "Series C
Liquidation Payment" (and, together with the Series A Liquidation Payment (as
defined in the Certificate of Incorporation), the Series B Liquidation Payment
(as defined in the Certificate of Incorporation) and any amounts payable upon a
Liquidation with respect to one share of Series 2002 Convertible Preferred
Stock, the "Liquidation Payment"), and the amounts so payable with respect to
all shares of Series C Convertible Preferred Stock are sometimes referred to as
the "Series C Liquidation Payments" (and, together with the Series A Liquidation
Payments (as defined in the Certificate of Incorporation), the Series B
Liquidation Payments (as defined in the Certificate of Incorporation) and the
amounts so payable with respect to all shares of Series 2002 Convertible
Preferred Stock, the "Liquidation Payments").
4.2 If upon such Liquidation, the assets to be distributed among the
holders of Convertible Preferred Stock shall be insufficient to permit payment
to the holders of Convertible Preferred Stock of the Liquidation Payments, then
the entire assets of the Corporation to be so distributed shall be distributed
ratably among the holders of Convertible Preferred Stock. Upon any such
Liquidation after the holders of Convertible Preferred Stock shall have been
paid in full the Liquidation Payments to which they shall be entitled, the
remaining net assets of the Corporation may be distributed to the holders of
securities ranking junior to the Convertible Preferred Stock.
4.3 Written notice of such Liquidation stating a payment date, the amount
of the Series C Liquidation Payments and the place where said Series C
Liquidation Payments shall be payable, shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, not less than 10 days prior to the payment date stated therein, to the
holders of record of Series C Convertible Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the records of the
Corporation.
4.4 The Series C Convertible Preferred Stock shall, with respect to
distribution of assets and rights upon Liquidation, rank senior to each class or
series of capital stock of the Corporation hereafter created which does not
expressly provide that it ranks on parity with or is senior to the Series C
Convertible Preferred Stock with respect to distribution of assets and rights
upon the liquidation, dissolution or winding up of the Corporation.
5. Voting Rights.
5.1 In addition to any other vote required by law, this Certificate or the
Certificate of Incorporation, so long as at least 40% of the shares of Series C
Convertible Preferred Stock issued on the Issue Date remain outstanding the
Corporation may take the following actions only with the approval of the holders
of a majority of the shares of Series C Convertible Preferred Stock voting
separately as a class:
(i) liquidate the Corporation or acquire another business entity;
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(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 Corporation 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 Corporation in excess of
$1,000,000 (other than a financing secured by inventory or a
financing required in connection with the optional redemption of
the Series C Convertible Preferred Stock in accordance with
Section 7 hereof);
(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 Corporation (excluding securities
issuable upon exercise of options authorized for issuance under
the stock option or employee incentive plans existing on the date
of the filing of this Certificate with the Secretary of State of
the State of Delaware or as a result of the conversion of the
Convertible Preferred Stock or any notes and warrants of the
Corporation outstanding as of the date of the filing of this
Certificate with the Secretary of State of the State of
Delaware);
(vii) declare dividends, repurchase or redeem securities of the
Corporation or debt, except to the extent such debt is due in
accordance with its terms and except for dividends, repurchases
or redemption applicable to the Convertible Preferred Stock or
any notes of the Corporation outstanding as of the effective date
of this Certificate;
(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 any
registration rights agreement of the Corporation outstanding as
of the effective date of this Certificate or registrations on
Form S-8 or similar forms;
(x) enter into any contract with an affiliate;
(xi) amend the Corporation's Certificate of Incorporation or Bylaws;
(xii) increase or decrease the number of members of the Corporation's
Board of Directors or the voting rights of directors;
(xiii) change the Corporation's independent public accountants;
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(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 Corporation officers and
senior executive managers with authority equivalent to that of
Executive Vice Presidents; or
(xvi) amend or alter the Series C Preferred Stock and Note Purchase
Agreement, dated as of the date hereof, by and among the
Corporation and the initial holders of the Series C Convertible
Preferred Stock (the "Series C Purchase Agreement").
5.2 Notwithstanding anything set forth herein, with the exception of any
action duly approved by the holders of Series C Convertible Preferred Stock
pursuant to Section 5.1 above, at any time when any shares of Series C
Convertible Preferred Stock are outstanding, except where the vote or written
consent of the holders of a greater number of shares of the Corporation is
required by law, this Certificate or the Certificate of Incorporation, and in
addition to any other vote required by law, this Certificate or the Certificate
of Incorporation, without the approval of the holders of at least two-thirds (66
2/3%) of the then outstanding shares of Series C Convertible Preferred Stock,
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a series, the Corporation will not (i) effect any transaction
or other action that would adversely affect the rights, preferences, powers
(including voting powers) and privileges of the Series C Convertible Preferred
Stock or (ii) merge or consolidate with another person or entity, sell all or
substantially all of the assets of the Corporation or enter into a transaction
which results in or take any action which facilitates a Change of Control (as
defined in the Certificate of Incorporation).
5.3 Holders of Series C Convertible Preferred Stock shall be entitled to
notice of any stockholders' meeting. Except as otherwise required by law, at any
annual or special meeting of the Corporation's stockholders, or in connection
with any written consent in lieu of any such meeting, the holders of each
outstanding share of Series C Convertible Preferred Stock shall be entitled to
cast, in respect of such share, the number of votes equal to the number of full
shares of Common Stock into which such share of Series C Convertible Preferred
Stock is then convertible (calculated by rounding any fractional share up to the
nearest whole number) on the date for determination of stockholders entitled to
vote at the meeting. Notwithstanding the foregoing, (a) holders of the Series C
Convertible Preferred Stock shall not be entitled to cast, in respect of such
shares, any votes with respect to the approval of the conversion rights of the
Series C Convertible Preferred Stock or the Series 2002 Convertible Preferred
Stock and (b) until such time as the Corporation's stockholders approve the
conversion rights of the Series C Convertible Preferred Stock, to the extent
such approval is required by the rules of the Nasdaq SmallCap Market or any
other national securities exchange or quotation system upon which the Common
Stock may be listed from time to time, the total number of votes cast with
respect to the then outstanding shares of Series C Convertible Preferred Stock
shall in no event exceed 2,077,341 (as such number may be adjusted to reflect
any stock split, stock dividend, reclassification or similar transaction
affecting the Common Stock), and to the extent that the total number of votes to
which the then outstanding shares of Series C Convertible Preferred Stock would
otherwise be entitled to cast is limited by the provisions of this clause (b),
the number of votes to which each
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share of Series C Convertible Preferred Stock shall be entitled to cast shall be
determined on a pro rata basis. Except as set forth herein or otherwise required
by law, the Series C Convertible Preferred Stock and the Common Stock shall vote
together as a single class on each matter submitted to the stockholders, and not
by separate class or series.
6. Conversions. The holders of shares of Series C Convertible Preferred Stock
shall have the following conversion rights.
6.1 Right to Convert. Subject to the terms and conditions of this Section
6.1, the holder of any share or shares of Series C Convertible Preferred Stock
shall have the right, at its option at any time and from time to time, to
convert any such shares (or fractions thereof) of Series C Convertible Preferred
Stock (except that upon any Liquidation, the right of conversion shall terminate
at the close of business on the business day immediately preceding the date
fixed for payment of the amount distributable on the Series C Convertible
Preferred Stock) into such number of fully paid and nonassessable shares of
Common Stock as is obtained by (x) multiplying the number of shares of Series C
Convertible Preferred Stock to be so converted by the Series C Face Value and
(y) dividing the result by the Series C Conversion Price (as defined below)
applicable to such share, determined as provided below, in effect on the date
the certificate is surrendered for conversion; plus, at the Company's option,
either a number of shares of Common Stock (valued at their Current Market Price
(as defined in Section 6.4(iv) hereof) on the business day prior to the date of
payment), or an amount in cash, as the case may be, equal to any accrued but
unpaid dividends on the shares of Series C Convertible Preferred Stock so
converted.
The initial Series C Conversion Price per share for shares of Series C
Convertible Preferred Stock shall be $0.93 per share, as adjusted pursuant to
the further provisions of this Section 6 (such price as last adjusted, being
referred to as the "Series C Conversion Price"). Such rights of conversion shall
be exercised by the holder thereof by giving written notice that the holder
elects to convert a stated number of shares of Series C Convertible Preferred
Stock into Common Stock and by surrender of a certificate or certificates for
the shares to be so converted to the Corporation at its principal office (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of the Series C Convertible Preferred Stock)
at any time during its usual business hours on the date set forth in such
notice, together with a statement of the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall be issued.
6.2 Issuance of Certificates; Time Conversion Effected. Promptly after the
surrender of the certificate or certificates for the shares of Series C
Convertible Preferred Stock to be converted as set forth above, the Corporation
shall issue and deliver, or cause to be issued and delivered, to the holders,
registered in such name or names as such holders may direct, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series C Convertible Preferred Stock.
6.3 Fractional Shares; Partial Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series C Convertible Preferred Stock
into Common Stock. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this Section 6.3, be delivered upon such
conversion, the Corporation, in lieu of delivering such
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fractional share, shall pay to the holder surrendering the Series C Convertible
Preferred Stock for conversion an amount in cash equal to the current market
price of such fractional share as determined in good faith by the Board of
Directors of the Corporation.
6.4 Anti-Dilution Adjustments. The Series C Conversion Price shall be
subject to adjustment as follows if any of the events listed below occur after
the Issue Date but, with respect to a share of Series C Convertible Preferred
Stock, prior to the conversion of such share of Series C Convertible Preferred
Stock into Common Stock.
(i) In case the Corporation shall (x) pay a dividend or make a
distribution on its Common Stock in shares of its Common Stock,
(y) subdivide or reclassify its outstanding Common Stock into a
greater number of shares, or (z) combine or reclassify its
outstanding Common Stock into a smaller number of shares, the
Series C Conversion Price in effect immediately prior to such
event shall be adjusted so that the holder of any share of the
Series C Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of
Common Stock which it would have owned or have been entitled to
receive after the happening of such event had the share of such
Series C Convertible Preferred Stock been converted immediately
prior to the happening of such event. An adjustment made pursuant
to this paragraph shall become effective immediately after the
record date in the case of a dividend or distribution and shall
become effective on the effective date in the case of
subdivision, combination or reclassification. If any dividend or
distribution is not paid or made, the Series C Conversion Price
then in effect shall be appropriately readjusted.
(ii) In case the Corporation shall pay, issue or distribute to its
holders of capital stock any shares of capital stock of the
Corporation or evidences of indebtedness or cash or other assets
(excluding (w) regular cash dividends payable out of earnings in
the ordinary course and distributed ratably to the holders of
Convertible Preferred Stock, (x) distributions paid from retained
earnings of the Corporation and distributed ratably to the
holders of Convertible Preferred Stock, (y) dividends or
distributions referred to in clause (i) ---------- above and (z)
dividends or distributions paid or made to holders of shares of
Convertible Preferred Stock in the manner provided in Section 3
above) or rights, options or warrants --------- to subscribe for
or purchase any of its securities then, in each such case, the
Series C Conversion Price shall be adjusted so that it shall
equal the price determined by multiplying the Series C Conversion
Price in effect immediately prior to the date of the distribution
by a fraction the numerator of which shall be the Series C
Conversion Price less the then fair market value (as determined
by the Board of Directors, whose determination, if made in good
faith, shall be conclusive) of the portion of the capital stock,
cash or assets or evidences of indebtedness so distributed, or of
the subscription rights, options or warrants so distributed or of
such convertible or exchangeable securities,
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with respect to one share of Common Stock, and the denominator of
which shall be the Series C Conversion Price in effect
immediately prior to the date of the distribution. Such
adjustment shall be made whenever any such distribution is made,
and shall become effective retroactive to the record date for the
determination of stockholders entitled to receive such
distribution. If any such distribution is not made or if any or
all of such rights, options or warrants expire or terminate
without having been exercised, the Series C Conversion Price then
in effect shall be appropriately readjusted.
(iii) Whenever the Series C Conversion Price is adjusted as herein
provided or as provided in Section 6.5(a), the Corporation shall
promptly file with the conversion agent (or, if there is no
conversion agent, the secretary of the Corporation) an officer's
certificate setting forth such Series C Conversion Price after
the adjustment and setting forth a brief statement of the facts
requiring the adjustment, which certificate shall be conclusive
evidence of the correctness of the adjustment. Promptly after
delivery of the certificate, the Corporation shall prepare a
notice of the adjustment of such Series C Conversion Price
setting forth such Series C Conversion Price and the date on
which the adjustment becomes effective and shall mail the notice
of such adjustment of the Series C Conversion Price (together
with a copy of the officer's certificate setting forth the facts
requiring such adjustment) to the holder of each share of the
Series C Convertible Preferred Stock at such holder's last
address as shown on the stock books of the Corporation.
(iv) For the purpose of any computation under any provision relating
to the Series C Convertible Preferred Stock, the "Current Market
Price" per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices per share of Common
Stock for the 30 consecutive trading days immediately preceding
such date. If on any such date the shares of Common Stock are not
listed or admitted for trading on any national securities
exchange or quoted by NASDAQ or a similar service, the Current
Market Price for the Common Stock shall be the fair market value
of the Common Stock on such date as determined in good faith by
the Board of Directors of the Corporation.
6.5 Additional Adjustment.
(a) In case the Corporation shall (i) sell or issue shares of its Common
Stock, (ii) issue rights, options or warrants to subscribe for or purchase
shares of Common Stock or (iii) issue or sell other rights for the purchase of
shares of Common Stock or securities convertible into or exchangeable into
shares of Common Stock, in the case of one or more of the events described in
the immediately preceding clauses (i), (ii) and (iii) (excluding those issuances
referred to in Section 6.5(b) hereof (collectively, the "Securities"), at a
price per share (the "New Issue Price") less than the Series C Conversion Price,
then in each such case the Series C Conversion Price in effect immediately prior
to the issuance of such Securities shall be adjusted
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to equal the New Issue Price. The adjustment provided for in this Section 6.5(a)
shall be made successively whenever any Securities are issued (provided,
however, that no further adjustments in the Series C Conversion Price shall be
made upon the subsequent exercise, conversion or exchange, as applicable of such
Securities pursuant to the original terms of such Securities) and shall become
effective immediately after such issuance. In determining whether any Securities
entitle the holders of the Common Stock to subscribe for or purchase shares of
Common Stock at less than the Series C Conversion Price, and in determining the
New Issue Price of the shares of Common Stock so offered, there shall be taken
into account any consideration received by the Corporation for such Securities,
any consideration required to be paid upon the exercise, conversion or exchange,
as applicable, of such Securities and the value of all such consideration (if
other than cash) shall be determined in good faith by the Board of Directors of
the Corporation.
(b) Notwithstanding the foregoing, the provisions of Section 6.5(a) shall
not apply to the issuance of: (x) any equity securities issued at then fair
market value pursuant to the Corporation's employee option or stock incentive
plans approved by the Board of Directors of the Corporation on or prior to the
date of the filing of this Certificate with the Secretary of State of the State
of Delaware, or (y) any equity securities issued at then fair market value as
consideration for services of non-employee third parties provided to the
Corporation (in an aggregate amount not to exceed 100,000 shares of Common Stock
in any fiscal year (as such number may be adjusted to reflect stock splits,
combinations and the like)).
6.6 Reorganization, Recapitalization or Reclassification. If any capital
reorganization, recapitalization or reclassification of the capital stock of the
Corporation (other than a merger or consolidation of the Corporation in which
the Corporation is the surviving corporation and which does not result in a
reclassification or change of outstanding shares of Common Stock) or a merger or
consolidation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets (other than cash dividends
payable out of earnings or surplus in the ordinary course of business) with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, recapitalization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Series C
Convertible Preferred Stock shall thereupon have the right to receive upon
conversion of such share or shares of Series C Convertible Preferred Stock, upon
the basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore receivable upon the conversion of
such share or shares of Series C Convertible Preferred Stock, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore receivable upon
such conversion had such reorganization or reclassification not taken place, and
in any such case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Series C Conversion Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights.
6.7 Other Notice. In case at any time:
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(i) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional --- ---- shares of
stock of any class or other rights;
(iii) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into another entity or
entities, or a sale, lease, abandonment, transfer or other
disposition of all or substantially all its assets; or
(iv) there shall be a voluntary or involuntary dissolution or winding
up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by
delivery in person, certified or registered mail, return receipt requested,
telecopier or telex, addressed to each holder of any shares of Series C
Convertible Preferred Stock at the address of such holder as shown on the books
of the Corporation, (i) at least 10 days' prior written notice of the date on
which the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, disposition, dissolution or winding up and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, disposition,
dissolution or winding up, at least 10 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto and such notice in accordance with the foregoing clause (ii)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
disposition, dissolution or winding up, as the case may be.
6.8 Limitation on Conversion Rights Pending Stockholder Approval; Stock to
be Reserved. Notwithstanding anything in this Certificate to the contrary: (a)
no share of Series C Convertible Preferred Stock may be converted into Common
Stock to the extent that, after giving effect to such conversion, the total
number of shares of Common Stock issued from and after the date of this
Certificate as a result of the conversion of shares of Series C Convertible
Preferred Stock would exceed 2,077,341 (as may be adjusted to reflect any stock
split, stock dividend, reclassification or other similar transaction), until
such time as the Corporation's stockholders approve the conversion rights
contained in this Section 6 to the extent such approval is required by the rules
of the Nasdaq SmallCap Market or any other national securities exchange or
quotation system upon which the Common Stock may be listed from time to time;
and (b) no share of Series C Convertible Preferred Stock may be converted into
Common Stock under any circumstances until such time as the Certificate of
Incorporation has been amended to increase the number of shares of Common Stock
authorized for issuance to 92,000,000 (the "Increase in Authorized Common
Stock"). The Corporation will, at all times after the Increase in Authorized
Common Stock, reserve and keep available out of its authorized shares of Common
Stock, solely
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for the purpose of issuance upon the conversion of the Series C Convertible
Preferred Stock as herein provided, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding shares of Series C
Convertible Preferred Stock. The Corporation covenants that all shares of Common
Stock which shall be so issued shall be duly authorized, validly issued, fully
paid and nonassessable by the Corporation and free from all taxes, liens and
charges with respect to the issue thereof, and, without limiting the generality
of the foregoing, the Corporation covenants that it will from time to time take
all such action as may be requisite to assure that the par value per share of
the Common Stock is at all times equal to or less than the Series C Conversion
Price in effect at the time. The Corporation will take all such action as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or regulation, or of any requirement of
any national securities exchange or quotation system upon which the Common Stock
may be listed. The Corporation will not take any action which results in any
adjustment of the Series C Conversion Price if the total number of shares of
Common Stock issued and issuable after such action upon conversion of the Series
C Convertible Preferred Stock would exceed the total number of shares of Common
Stock then authorized by the Certificate of Incorporation.
6.9 Reissuance of Preferred Stock. Shares of Series C Convertible Preferred
Stock that have been issued and reacquired in any manner, including shares
purchased or redeemed or exchanged or converted, shall not be reissued as shares
of Series C Convertible Preferred Stock and shall (upon compliance with any
applicable provisions of the General Corporation Law of the State of Delaware)
have the status of authorized but unissued shares of Preferred Stock of the
Corporation undesignated as to series and may be designated or redesignated and
issued or reissued, as the case may be, as part of any series of Preferred Stock
of the Corporation other than Series C Convertible Preferred Stock.
6.10 Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Series C Convertible Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series C Convertible
Preferred Stock which is being converted.
6.11 Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any Series C Convertible Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series C Convertible Preferred Stock in any manner which interferes with the
timely conversion of such Series C Convertible Preferred Stock, except as may
otherwise be required to comply with applicable laws.
6.12 Minimum Adjustment. No reduction of the Series C Conversion Price
shall be made if the amount of any such reduction would be an amount less than
$.025, but any such amount shall be carried forward and reduction with respect
thereof shall be made at the time of and together with any subsequent reduction
which, together with such amount and any other amount or amounts so carried
forward, shall aggregate $.025 or more.
7. Redemption. The Corporation may redeem (and shall redeem simultaneously with
a redemption of all of the Series A Convertible Preferred Stock and the Series B
Preferred Stock
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pursuant to Section 5.9 of the Certificate of Incorporation) for cash all but
not less than all of the Series C Convertible Preferred Stock on not less than
30 days written notice to the holders thereof, during the periods and at the
prices set forth below, plus all accrued but unpaid dividends thereon; provided
that no such redemption shall be permitted unless (x) at such time there exists
an effective registration statement filed by the Corporation under the
Securities Act of 1933, as amended, registering the resale of the shares of
Common Stock to be received upon conversion of the Series C Convertible
Preferred Stock and the Corporation is obligated to maintain the effectiveness
thereof for at least 120 days after the proposed date or redemption and (y) if
the redemption of Series C Convertible Preferred Stock does not meet the
requirements of either Section 302(b)(2) or 302(b)(3) of the Internal Revenue
Code of 1986, as amended, then to avoid such treatment, the Corporation shall
offer to effect a redemption of Common Stock from the holders of Series C
Convertible Preferred Stock or their designees, to the extent necessary to meet
the requirements of either one of such Sections, at a purchase price equal to
the Current Market Price on the date notice of redemption is given pursuant to
this Section 7.
Time Period Multiple of Conversion Price
----------- ----------------------------
November 13, 2002 through November 13, 2004 4x
November 13, 2004 through November 13, 2006 4.5x
On or after November 13, 2006 5x
8. Adjustment of Face Value. In case the Corporation shall subdivide or
reclassify its outstanding Series C Convertible Preferred Stock into a greater
number of shares or combine or reclassify its outstanding Series C Convertible
Preferred Stock into a smaller number of shares, the Series C Face Value in
effect immediately prior to such event shall be adjusted to reflect such
increase or decrease. An adjustment made pursuant to this Section 8 shall become
effective on the effective date of subdivision, combination or reclassification.
9. Future Issuance of Shares; Preemptive Rights.
9.1 Offering Notice. Except for (i) capital stock or options to purchase
capital stock of the Corporation which may be issued to employees, consultants
or directors of the Corporation pursuant to a stock incentive plan or other
employee benefit arrangement approved by the Board of Directors, (ii) a
subdivision of the outstanding shares of Common Stock into a larger number of
shares of Common Stock, (iii) capital stock issued as full or partial
consideration for a merger, acquisition, joint venture, strategic alliance,
license agreement or other similar non-financing transaction, (iv) capital stock
issued as full or partial consideration for services, (v) capital stock issued
in connection with a publicly registered offering, (vi) capital stock issued
upon exercise, conversion or exchange of any Preferred Stock, options or
warrants, or (vii) capital stock purchased by Quantum Industrial Partners LDC
and SFM Domestic Investments LLC or their affiliates in the public market or
from the Corporation, if the Corporation wishes to issue any shares of capital
stock or any other securities convertible into or exchangeable for capital stock
of the Corporation (collectively, "New Securities") to any Person (the "Subject
Purchaser"), then the Corporation shall send written notice (the "New Issuance
Notice") to the holders of the Series C Convertible Preferred Stock, which New
Issuance Notice shall state (x) the number of
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New Securities proposed to be issued and (y) the proposed purchase price per
share of the New Securities that the Corporation is willing to accept (the
"Proposed Price").
9.2 Preemptive Rights; Exercise.
(a) For a period of ten (10) days after the giving of the New Issuance
Notice as provided in Section 9.1, each initial holder of the Series C
Convertible Preferred Stock or their permitted assigns pursuant to the Series C
Purchase Agreement (each, a "Preemptive Rightholder") shall have the right to
purchase up to its Proportionate Percentage (as hereinafter defined) of the New
Securities at a purchase price equal to the Proposed Price and upon the terms
and conditions set forth in the New Issuance Notice. Each Preemptive Rightholder
shall have the right to purchase up to that percentage of the New Securities
determined by dividing (a) a number equal to the number of shares of Common
Stock into which the shares of Series C Convertible Preferred Stock then owned
by such Preemptive Rightholder are convertible by (b) the total of (x) the
number of shares of Common Stock then outstanding and (y) the number of shares
of Common Stock into which all outstanding shares of Preferred Stock are
convertible (the "Proportionate Percentage").
(b) The right of each Preemptive Rightholder to purchase the New Securities
under subsection (a) above shall be exercisable by delivering written notice of
its exercise, prior to the expiration of the 10-day period referred to in
subsection (a) above, to the Corporation, which notice shall state the amount of
New Securities that the Preemptive Rightholder elects to purchase as provided in
Section 9.2(a). The failure of a Preemptive Rightholder to respond within the
10-day period shall be deemed to be a waiver of the Preemptive Rightholder's
rights under Section 9.2(a); provided that each Preemptive Rightholder may waive
its, his or her rights under Section 9.2(a) prior to the expiration of the
10-day period by giving written notice to the Corporation.
(c) If, following the expiration of the 10-day period referred to above,
not all of the New Securities have been subscribed for by the Preemptive
Rightholders, each Preemptive Rightholder shall have the option to increase that
number of New Securities it has elected to purchase pursuant to Section 9.2(a)
by a proportionate amount.
9.3 Closing. The closing of the purchase of New Securities subscribed for
by the Preemptive Rightholders under this Section 9 shall be held at the same
time and place as the closing of the New Securities subscribed for by the
Subject Purchasers (the "Closing"). At the Closing, the Corporation shall
deliver certificates representing the New Securities, and the New Securities
shall be issued free and clear of all liens and the Corporation shall so
represent and warrant, and further represent and warrant that the New Securities
shall be, upon issuance of the New Securities to the Preemptive Rightholders and
after payment for the New Securities, duly authorized, validly issued, fully
paid and nonassessable by the Corporation. At the Closing, the Preemptive
Rightholders purchasing the New Securities shall deliver payment in full in
immediately available funds for the New Securities purchased by it, him or her.
At the Closing, all of the parties to the transaction shall execute any
additional documents that are otherwise necessary or appropriate.
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9.4 Sale to Subject Purchaser. The Corporation may sell to the Subject
Purchaser all of the New Securities not purchased by the Preemptive Rightholders
on terms and conditions that are no more favorable to the Subject Purchaser than
those set forth in the New Issuance Notice; provided, however, that the sale is
bona fide and made pursuant to a contract entered into within four (4) months of
the earlier to occur of (i) the waiver by the Preemptive Rightholders of their
option to purchase the New Securities as provided in Section 9.2 and (ii) the
expiration of the 10-day period referred to in Section 9.2. If such sale is not
consummated within such four (4) month period for any reason, then the
restrictions provided for in this Section 9 shall again become effective, and no
issuance and sale of New Securities may be made thereafter by the Corporation
without again offering the New Securities in accordance with this Section 9. The
closing of any issue and purchase contemplated by this Section 9.4 shall be held
at the time and place as the parties to the transaction may agree.
10. Transactions. In case of any merger or consolidation of the Corporation or
any capital reorganization, reclassification or other change of outstanding
shares of Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value) (each, a "Transaction"), the
Corporation shall execute and deliver to each holder of Series C Convertible
Preferred Stock at least twenty (20) business days prior to effecting such
Transaction a certificate stating that the holder of each share of Series C
Convertible Preferred Stock shall have the right to receive in such Transaction,
in exchange for each share of Series C Convertible Preferred Stock, a security
identical to (and not less favorable than) the Series C Convertible Preferred
Stock, and provision shall be made therefor in the agreement, if any, relating
to such Transaction. Any certificate delivered pursuant to this Section 10 shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 6 hereof. The provisions
of this Section 10 and any equivalent thereof in any such certificate similarly
shall apply to successive transactions.
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IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designations this 27th day of September, 2002.
BLUEFLY, INC.
By:/s/ Patrick C. Barry
--------------------
Name: Patrick C. Barry
Title: Chief Operating Officer and Chief Financial
Officer
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