Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14C INFORMATION
Information
Statement Pursuant to Section 14(c)
of
the Securities Exchange Act of 1934
Check
the appropriate box:
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Preliminary
Information Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
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Definitive
Information Statement
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BLUEFLY,
INC.
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(Name of Registrant
As Specified In Its Charter)
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Payment
of Filing Fee (Check the appropriate box):
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No
fee required
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Fee
computed on table below per Exchange Act Rules 14c-5(g) and
0-11
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed 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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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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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.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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BLUEFLY,
INC.
42 West
39th Street
New York,
NY 10018
NOTICE
OF STOCKHOLDER ACTION TAKEN BY WRITTEN CONSENT
Important
Notice Regarding the Availability of the Information Statement: The accompanying
Information Statement is available at www.bluefly.com.
WE
ARE NOT ASKING YOU FOR A PROXY
AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
To our
stockholders:
NOTICE IS
HEREBY GIVEN that the board of directors of Bluefly, Inc., a Delaware
corporation (which we refer to in this Notice as the Company, we, us or our),
has approved, and the holders of a majority of the outstanding shares of our
common stock, par value $0.01 per share (which we refer to in this Notice as the
Common Stock), have executed an Action by Written Consent of Stockholders in
Lieu of a Special Meeting approving the following actions (which we refer to in
this Notice as the Actions):
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(1)
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The
issuance and sale by us to Rho Ventures VI, L.P. (which we refer to in
this Notice as Rho) of (a) 6,037,192 shares of Common Stock (which we
refer to in this Notice as the Second Closing Shares) in the second
closing of a private placement transaction pursuant to the Securities
Purchase Agreement which we entered into with Rho on December 21, 2009,
(b) warrants to purchase shares of Common Stock (which we refer to in this
Notice as the Warrants), if any, as may be required to be issued to Rho
pursuant to the Registration Rights Agreement which we entered into with
Rho and certain of our other major stockholders in connection with the
private placement transaction and (c) shares of Common Stock issuable to
Rho upon exercise of the Warrants (which we refer to in this Notice as the
Warrant Shares);
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(2)
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An
amendment to our certificate of incorporation, as amended (which we refer
to in this Notice as the Certificate of Incorporation), to provide for a
classified board of directors consisting of three classes of directors
with staggered terms (which amendment we refer to in this Notice as the
Board Restructuring Amendment);
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(3)
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An
amendment to our Certificate of Incorporation to (a) decrease the number
of authorized shares of Common Stock from 200,000,000 shares to 50,000,000
shares and (b) decrease the number of authorized shares of Preferred Stock
from 25,000,000 shares to 1,000,000 shares (which amendment we refer to in
this Notice as the Share Reduction Amendment);
and
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(4)
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An
amendment to the Amended and Restated Bluefly, Inc. 2005 Stock Incentive
Plan (which we refer to in this Notice as the Plan) to increase the
aggregate number of shares of Common Stock that may be the subject of
stock-based awards granted pursuant to the Plan by 1,500,000 shares (which
we refer to in this notice as the Plan
Amendment).
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The
accompanying information statement (which we refer to in this Notice as the
Information Statement) is being furnished to our stockholders for informational
purposes only, pursuant to Section 14(c) of the Securities Exchange Act of 1934,
as amended (which we refer to in this Information Statement as the Exchange
Act), and the rules and regulations promulgated thereunder. Under the
Delaware General Corporation Law and our by-laws, stockholder action may be
taken by written consent without a meeting of stockholders. The
affirmative vote of the holders of at least a majority of the total votes cast
is necessary to approve the Plan Amendment and the issuance of the Second
Closing Shares, the Warrants and the Warrant Shares. The affirmative
vote of at least a majority of the outstanding shares of Common Stock is
necessary to approve the Board Restructuring Amendment and the Share Reduction
Amendment. Pursuant to Rule 14c-2(b) promulgated under the Exchange
Act, the Actions will not be effected until at least 20 calendar days following
the mailing of the accompanying Information Statement to our
stockholders.
Your
consent to the Actions is not required and is not being
solicited. The accompanying Information Statement will serve as
notice pursuant to the Exchange Act and Section 228(e) of the Delaware General
Corporation Law of the approval of the Actions by less than the unanimous
written consent of our stockholders.
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By
Order of the Board,
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/s/ David
Wassong
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New
York, New York
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David
Wassong,
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, 2010
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Interim
Chairman of the Board
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BLUEFLY,
INC.
42 West
39th Street
New York,
NY 10018
INFORMATION
STATEMENT
Pursuant
to Section 14(c) of the Securities Exchange Act of 1934
THIS
INFORMATION STATEMENT IS BEING SENT TO YOU FOR INFORMATION PURPOSES ONLY AND NO
VOTE OR OTHER ACTION OF THE COMPANY’S STOCKHOLDERS IS REQUIRED IN CONNECTION
WITH THIS INFORMATION STATEMENT.
WE
ARE NOT ASKING YOU FOR A PROXY
AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
THIS
INFORMATION STATEMENT IS BEING MAILED ON OR
ABOUT ,
2010
TO
STOCKHOLDERS OF RECORD ON JANUARY 20, 2010.
Bluefly,
Inc., a Delaware corporation (which we refer to in this Information Statement as
the Company, we, us or our), is sending you this Information Statement for the
purpose of informing you, as one of our stockholders, in the manner required
under Regulation 14(c) promulgated under the Securities Exchange Act of 1934, as
amended (which we refer to in this Information Statement as the Exchange Act),
that our board of directors (which we refer to in this Information Statement as
the Board) has previously approved, and the holders of a majority of the
outstanding shares of our common stock, par value $0.01 per share (which we
refer to in this Information Statement as the Common Stock), as permitted by our
by-laws and Section 228 of the Delaware General Corporation Law, have previously
executed an Action by Written Consent of Stockholders in Lieu of a Special
Meeting approving the following actions (which we refer to in this Information
Statement as, collectively, the Actions):
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(1)
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The
issuance and sale by us to Rho Ventures VI, L.P. (which we refer to in
this Information Statement as Rho) of (a) 6,037,192 shares of Common Stock
(which we refer to in this Information Statement as the Second Closing
Shares) in the second closing of a private placement transaction pursuant
to the Securities Purchase Agreement which we entered into with Rho on
December 21, 2009, (b) warrants to purchase shares of Common Stock (which
we refer to in this Information Statement as the Warrants), if any, as may
be required to be issued to Rho pursuant to the Registration Rights
Agreement which we entered into with Rho and certain of our other major
stockholders in connection with the private placement transaction and (c)
shares of Common Stock issuable to Rho upon exercise of the Warrants
(which we refer to in this Information Statement as the Warrant
Shares);
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(2)
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An
amendment to our certificate of incorporation, as amended (which we refer
to in this Information Statement as the Certificate of Incorporation), to
provide for a classified Board consisting of three classes of directors
with staggered terms (which amendment we refer to in this Information
Statement as the Board Restructuring
Amendment);
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(3)
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An
amendment to our Certificate of Incorporation to (a) decrease the number
of authorized shares of Common Stock from 200,000,000 shares to 50,000,000
shares and (b) decrease the number of authorized shares of Preferred Stock
from 25,000,000 shares to 1,000,000 shares (which amendment we refer to in
this Information Statement as the Share Reduction Amendment);
and
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(4)
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An
amendment to the Amended and Restated Bluefly, Inc. 2005 Stock Incentive
Plan (which we refer to in this Information Statement as the Plan) to
increase the aggregate number of shares of Common Stock that may be the
subject of stock-based awards granted pursuant to the Plan by 1,500,000
shares.
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As a
result of the issuance of the Second Closing Shares, Rho will own approximately
33% of our outstanding Common Stock, on a fully diluted basis after giving
effect to the issuance of stock options to management as described below under
the caption “APPROVAL OF PRIVATE
PLACEMENT – Reasons for
Stockholder Approval” (or approximately 36% of our outstanding Common Stock on a
non-diluted basis), and will
become
our largest stockholder. As a result, and for the other reasons more
fully described below under the caption “APPROVAL OF PRIVATE
PLACEMENT – Reasons for
Stockholder Approval”, under Nasdaq Marketplace Rules
5635(b) and 5635(d)(2), the affirmative vote of the holders of at least a majority of the total votes cast is required to approve
the issuance to Rho by the Company of (a) the Second Closing Shares, (b) the
Warrants and (c) the Warrant Shares. Under Section 242 of the
Delaware General Corporation Law, the affirmative vote of the holders of at
least a majority of the outstanding stock entitled to vote thereon is required
to approve the Board Restructuring Amendment and the Share Reduction
Amendment. The affirmative vote of the holders of at least a majority
of the total votes cast is necessary to approve the Plan
Amendment. As of January 20, 2010, the record date for the written
consent (which we refer to in this Information Statement as the Record Date),
18,552,737 shares of Common Stock were issued and outstanding. Each
share of Common Stock entitles the holder thereof to one vote on the
Actions. The holders of 12,861,155 shares, representing approximately
69.3% of the shares of Common Stock entitled to vote on the Actions, executed
the Action by Written Consent of the Stockholders in Lieu of a Special Meeting
(subject to the right of the
stockholders to revoke their votes with respect to some of their shares of
Common Stock, as more fully described below under the caption “APPROVAL OF PRIVATE
PLACEMENT – Summary of the
Private Placement – Agreement
to Vote
Shares in Favor of the Actions”). Consequently,
assuming our stockholders do not revoke such number of votes as would result in
the Actions not being approved by the requisite vote described above, no
additional votes or consents of our stockholders are required to approve any of
the Actions. The Delaware General Corporation Law does not provide
for dissenter’s rights with respect to any of the Actions.
APPROVAL
OF PRIVATE PLACEMENT
Summary
of the Private Placement
On
December 21, 2009, we entered into a Securities Purchase Agreement with Rho
(which we refer to in this Information Statement as the Securities Purchase
Agreement) pursuant to which we agreed to issue and sell to Rho up to 8,823,529
newly issued shares of our Common Stock for an aggregate purchase price of $15,000,000, or
$1.70 per share, in a private placement transaction (which we refer to in
this Information Statement as the Private Placement). We issued
and sold 2,786,337 of such shares of Common Stock to Rho at an initial closing
held on December 21, 2009
(which we refer to in this Information Statement as the Initial Closing) for an aggregate
purchase price of $4,736,772.90. Due to the applicability of
Nasdaq Market Place Rules 5635(b) and 5635(d)(2), as more fully described
below under the caption
“– Reasons for
Stockholder Approval”, we will issue and sell to Rho the
remaining 6,037,192 shares of Common Stock issuable to Rho under the Securities
Purchase Agreement (which we refer to in this Information Statement as
the Second Closing Shares) in a
second closing (which we refer to in this Information Statement as the
Second Closing) to be held
20 calendar days following the mailing of this Information Statement to
the Company’s stockholders. The consummation of the
Second Closing is
conditioned on (1) our receipt of stockholder approval for the Actions, which
approval has been obtained as of the date hereof (subject to the right of the
stockholders to revoke their votes with respect to some of their shares of
Common Stock, as more fully described below under the caption
“–Agreement to Vote
Shares in Favor of the Actions”), and (2) the restructuring of
the Board into a Board of no more than ten members consisting of three classes
of directors with staggered terms (which we refer to in this Information
Statement as the Board Restructuring), effective as of the Second Closing
date.
At the
Initial Closing, and as a condition thereto, Quantum Industrial Partners LDC
(which we refer to in this Information Statement as QIP), SFM Domestic
Investments LLC (which we refer to in this Information Statement as SFM and,
together with QIP, as the Soros Parties), Maverick Fund USA, Ltd. (which we
refer to in this Information Statement as Maverick USA), Maverick Fund, L.D.C.
(which we refer to in this Information Statement as Maverick Fund), and Maverick
Fund II, Ltd. (which we refer to in this Information Statement as Maverick Fund
II and, together with Maverick USA and Maverick Fund, as the Maverick Parties)
converted the $3,000,000 aggregate principal amount outstanding pursuant to the
terms of the convertible promissory notes (which we refer to in this Information
Statement as the Notes) issued to each of the Soros Parties and each of the
Maverick Parties by the Company on July 23, 2008 into an aggregate of 1,764,706
shares of Common Stock at a conversion rate of $1.70 per share. The
accrued and unpaid interest under the Notes was paid by us in cash at the
Initial Closing. The conversion provisions of the Notes were
previously approved by our stockholders at our 2008 Annual Meeting of
Stockholders held on May 29, 2008.
In
negotiating a transaction with us, Rho required that, as a condition to their
investment in us, we commit to reserve for issuance to management an aggregate
number of additional stock options that, together with the shares of Common
Stock, stock options and other equity incentives currently held by management,
would equal 10% of our outstanding Common Stock, on a diluted basis (taking into
consideration all stock options with an exercise price of $4.00 or less,
assuming that all deferred stock units will be granted net of approximately 25%
in withholding taxes and after giving effect to the Private Placement, which we
refer to in this Information Statement as the Agreed Upon Dilution
Formula). Our Board and the Compensation Committee concurred
with this request and have reserved for issuance under the Plan, subject to the
approval of the Plan Amendment as more fully described below under the caption
“APPROVAL OF PLAN
AMENDMENT”, options to purchase an aggregate of 2,245,100 shares of
Common Stock (which we refer to in this Information Statement as the Management
Option Pool). The Management Option Pool represents 8.3% of the
outstanding Common Stock, on a diluted basis (based upon the Agreed Upon
Dilution Formula). It is the intention of the Compensation Committee
that, following the Second Closing, and as part of the year-end compensation
review for fiscal year 2009, the Compensation Committee will grant to management
such portion of the Management Option Pool as the Committee determines to be
appropriate. The balance of the Management Option Pool will be
reserved for future issuance to management, including new hires. The
options issued in respect of the Management Option Pool will have an exercise
price equal to the fair market value of the Common Stock on the effective date
of each applicable grant.
After
giving effect to the conversion of the Notes, the shares of Common Stock issued
to Rho at the Initial Closing represent approximately 15% of our outstanding
Common Stock on the date of the Initial Closing (after giving effect to such
issuance). Upon the completion of the Second Closing, Rho will own
approximately 33% of our outstanding Common Stock, on a fully diluted basis
after giving effect to the issuance of the Management Option Pool (or
approximately 36% of our outstanding Common Stock on a non-diluted basis), and
will become our largest stockholder.
Registration
Rights and Warrants Issuance
At the
Initial Closing, and as a condition thereto, we entered into a Registration
Rights Agreement (which we refer to in this Information Statement as the
Registration Rights Agreement) with the Soros Parties, the Maverick Parties,
Prentice Capital Partners, LP (which we refer to in this Information Statement
as PCP), Prentice Capital Partners QP, LP (which we refer to in this Information
Statement as PCP QP), Prentice Capital Offshore, Ltd. (which we refer to in this
Information Statement as PC Offshore), S.A.C. Capital Associates, LLC (which we
refer to in this Information Statement as SAC), GPC XLIII, LLC (which we refer
to in this Information Statement as GCP) and PEC I, LLC (which we refer to in
this Information Statement as PEC and, together with PCP, PCP QP, PC Offshore,
SAC and GCP, as the Prentice Parties) (in this Information Statement, we refer
to the Soros Parties, the Maverick Parties and the Prentice Parties
collectively, as the Existing Stockholders) and Rho. Under the terms
of the Registration Rights Agreement, we agreed to (i) file a registration
statement with respect to the shares of Common Stock issued to Rho in the
Private Placement (which we refer to in this Information Statement as the Rho
Shelf Registration Statement), (ii) grant Rho piggy-back registration rights
applicable in certain circumstances upon an underwritten offering by the Company
and the right to two demand registrations, (iii) maintain the existing resale
registration statement covering shares of Common Stock held by the Existing
Stockholders until the Existing Stockholders have sold all their shares covered
by such registration statement, all such shares can be resold by the Existing
Stockholders under Rule 144 under the Securities Act of 1933, as amended (which
we refer to in this Information Statement as the Securities Act), without volume
limitation or the Company is no longer subject to the rules and regulations
under the Exchange Act and (iv) terminate all registration rights previously
granted by us to the Existing Stockholders and replace such registration rights
with piggy-back registration rights applicable in certain circumstances upon an
underwritten offering by the Company and, in the case of the Soros Parties, the
right to two demand registrations in addition to such piggy-back registration
rights.
We also
agreed in the Registration Rights Agreement to issue Warrants to Rho
if:
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we
fail to file the Rho Shelf Registration Statement within 30 days following
the first to occur of (x) the Second Closing or (y) the date on which we
receive a notice from Rho stating that it will not consummate the Second
Closing because our stockholders did not approve the Actions (or 45 days
following such date in (x) or (y) if such 30 day deadline falls within the
period during which
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we
are preparing our audited financial statements) (which we refer to in this
Information Statement as the Filing Deadline);
or
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the
Rho Shelf Registration Statement is not declared effective by the
Securities and Exchange Commission (which we refer to in this Information
Statement as the SEC) within 180 days following the first to occur of (x)
the Second Closing or (y) the date on which we receive a notice from Rho
stating that it will not consummate the Second Closing because our
stockholders did not approve the Actions (which we refer to in this
Information Statement as the Effectiveness
Deadline).
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In
accordance with the terms of the Registration Rights Agreement, we would be
required to grant Rho Warrants representing the right to purchase shares of
Common Stock equal to 1% of the fully diluted outstanding shares of Common Stock
for each full 30-day period following the Filing Deadline (if the Registration
Statement has not been filed) or the Required Effectiveness Deadline (if the
Registration Statement has not been declared effective). We would not
be required under the Registration Rights Agreement to issue Warrants to Rho
representing an aggregate number of shares greater than 10% of the fully diluted
outstanding shares of Common Stock. The Warrants, if issued under the
Registration Rights Agreement, would have a 5-year term, an exercise price of
$1.70 per share of Common Stock and would include customary provisions requiring
adjustments of the number of shares of Common Stock issuable thereunder
following a stock dividend, stock split or other similar adjustment to our
capital structure. The Registration Rights Agreement further provides
that we shall not be liable for failing to register shares of Common Stock in
certain specified conditions.
Assuming
that we do not issue any shares of Common Stock, or securities convertible into
or exercisable for shares of Common Stock (other than the Management Option
Pool), prior to Rho’s exercise of the Warrants, if any, issued to it under the
Registration Rights Agreement, the maximum number of shares of Common Stock
issuable to Rho upon exercise of the Warrants would be 2,713,010 shares of
Common Stock. The maximum proceeds to the Company upon the exercise
of the Warrants under such circumstances would be $4,612,117, which proceeds
would be used for general corporate purposes as more fully described under the
caption “APPROVAL OF
PRIVATE
PLACEMENT – Use of
Proceeds.” If we issue additional
shares of Common Stock or securities convertible into or exercisable for shares
of Common Stock before we are required to issue Warrants to Rho under the
Registration Rights Agreement, if at all, we would be required to issue to Rho
Warrants to purchase such larger number of shares of Common Stock as would equal
10% of the fully diluted outstanding shares of Common Stock as of the date of
the issuance of the Warrants.
If the
issuance of the Warrants and the Warrant Shares is not approved by our
stockholders, then, in the event of a Filing Default or an Effectiveness
Default, Rho will be entitled to receive, in lieu of any Warrants issuable to it
as described above, an amount in cash equal to 1% of the aggregate amount
invested by Rho in the Company for each full 30-day period following the Filing
Deadline (if the Registration Statement has not been filed) or the Required
Effectiveness Deadline (if the Registration Statement has not been declared
effective), up to a maximum of 10% of such invested amount.
Board
Representation
At the
Initial Closing, and as a condition thereto, we entered into an Amended and
Restated Voting Agreement (which we refer to in this Information Statement as
the Voting Agreement) with the Existing Stockholders and Rho. The
Voting Agreement amends and restates that certain Voting Agreement which we
entered into with the Existing Stockholders on June 15,
2006. Pursuant to the terms of the Voting Agreement, Rho and the
Soros Parties were each granted the right to nominate two members to the Board
and the Maverick Parties and the Prentice Parties (other than SAC) were each
granted the right to nominate one member to the Board. The rights of
Rho, the Soros Parties, the Maverick Parties and the Prentice Parties to
designate directors to the Board are subject to applicable rules of The Nasdaq
Stock Market LLC requiring Board representation to be proportional to stock
ownership as well as the following minimum ownership thresholds:
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If
Rho disposes of shares of Common Stock so that it no longer owns greater
than 28% of the number of shares of Common Stock held by it as of
immediately after the Initial Closing (or, if the Second Closing shall
have occurred, the Second Closing), then Rho must cause one of its
two
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director
designees to resign from the Board, and if Rho disposes of shares of
Common Stock so that it no longer owns greater than 14% of the number of
shares of Common Stock held by it as of immediately after the Initial
Closing (or, if the Second Closing shall have occurred, the Second
Closing), then Rho must cause its second director designee to resign from
the Board;
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If
the Soros Parties dispose of shares of Common Stock so that they no longer
own greater than 50% of the number of shares of Common Stock held by them
as of immediately after the Initial Closing, then the Soros Parties must
cause one of their two director designees to resign from the Board, and if
the Soros Parties dispose of shares of Common Stock so that they no longer
own greater than 25% of the number of shares of Common Stock held by them
as of immediately after the Initial Closing, then the Soros Parties must
cause their second director designee to resign from the
Board;
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If
either the Prentice Parties or the Maverick Parties, as applicable,
dispose of shares of Common Stock so that they no longer own greater than
50% of the number of shares of Common Stock that they held as of immediately following the closing
of the transactions
contemplated by the Stock Purchase Agreement, dated as of June 5, 2006, by
and among the Company, the Soros Parties, the Maverick Parties and the
Prentice Parties, then the Prentice Parties or the Maverick Parties, as
applicable, must cause their director designee to resign from
the Board.
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Pursuant to the Voting Agreement, if any
designee of the Prentice Parties or the Maverick Parties resigns from the Board
for the foregoing reasons, the Board shall be reduced by the number of
directors resigning from the Board and, for so long as Rho and/or the Soros
Parties respectively owns 10% or more of the outstanding Common Stock, the size
of the Board may not be increased to larger than an eight member Board without
the prior written consent of Rho and/or the Soros Parties.
Each of
Rho, the Soros Parties, the Prentice Parties (other than SAC) and the Maverick
Parties are also entitled under the Voting Agreement to have one director
designated by them serve on any committee of the Board, subject to applicable
law, rules and regulations (including stock exchange regulations), and to have
each of their director designees under the Voting Agreement serve on any
executive committee of the Board. The Voting Agreement further
provides that the Board Restructuring will be completed on the Second Closing
date, subject to the amendment to the Company’s Certificate of Incorporation as
described under the caption “APPROVAL OF AMENDMENT TO CERTIFICATE
OF INCORPORATION.”
Rho has
nominated Habib Kairouz to serve as its designee to the Board, and Mr. Kairouz
was elected to the Board effective as of immediately after the Initial
Closing. Rho is entitled to designate one additional director to the
Board but has not yet done so.
Agreement to Vote Shares in Favor of the
Actions
The
Existing Stockholders also agreed in the Voting Agreement that, in any
circumstances upon which a vote, consent or other approval (including by written
consent) of our stockholders is sought, each Existing Stockholder will vote such
number of shares held by it in favor of the approval of (1) the issuance of the
Second Closing Shares to Rho and (2) the Board Restructuring as, when aggregated
with the shares held by the other Existing Stockholders and Rho, equals 40%
(which we refer to in this Information Statement as the Specified Portion) of
our outstanding Common Stock. Under the terms of the Voting
Agreement, the Specified Portion is allocated among the Existing Stockholders on
a pro rata basis in proportion to their respective share ownership as of the
date on which such vote is taken. Under applicable Nasdaq rules, Rho
is not permitted to, and Rho will not, vote the shares of Common Stock it
acquired in the Initial Closing for the approval of the issuance of shares of
Common Stock in the Second Closing, the issuance of the Warrants or the issuance
of the Warrant Shares.
In
accordance with the Voting Agreement, the Existing Stockholders were obligated
to vote the Specified Portion of our outstanding Common Stock in favor of the
approval of the issuance of the Second Closing Shares and the Board
Restructuring in connection with the Action by Written Consent of Stockholders
in Lieu of a Special Meeting described in this Information
Statement. While the Existing Stockholders each voted 100% of the
outstanding shares of Common Stock held by them in favor of the Actions, each of
the Existing Stockholders
explicitly
reserved the right therein to revoke its vote contained therein with respect to
each of the Actions other than the approval of the Share Reduction Amendment, in
its sole discretion, with respect to any shares of Common Stock in excess of the
Specified Portion in the event that the Board effects an Adverse Recommendation
Change and/or enters into an Acquisition Agreement in accordance with the
procedures more fully described under the caption “APPROVAL OF PRIVATE PLACEMENT –
Summary of Private Placement – Non-Solicitation and Fiduciary
Out.” If the Existing Stockholders revoke their votes such
that a majority of the votes cast with respect to the issuance of the Second
Closing Shares, the Warrants and the Warrant Shares are not voted in favor of
such issuances, then such issuances will not be approved in accordance with
applicable Nasdaq Rules. If the Existing Stockholders revoke their
votes such that less than a majority of the outstanding shares of Common Stock
are voted in favor of the Board Restructuring Amendment and/or the Share
Reduction Amendment, then such amendment(s) will not be approved in accordance
with the applicable provisions of the Delaware General Corporation
Law. If the Existing Stockholders revoke their votes such that a
majority of the votes cast with respect to the amendment to the Plan are not
voted in favor of such amendment, then the amendment to the Plan will not be
approved.
Lock-Up
The
Maverick Parties and the Prentice Parties have agreed in the Voting Agreement
that, subject to certain exceptions (including without limitation transfers to
affiliates), they will not, for a period of 90 days from the date of the Initial
Closing, among other things, sell, offer to sell, solicit offers to buy, dispose
of, loan, pledge or grant any right with respect to, any shares of our capital
stock (which restrictions we refer to in this Information Statement as the
Lock-Up Restrictions, irrespective of the party or person to which they apply)
without the prior written consent of the Soros Parties, Rho and the
Company. If, during the initial 90-day lock-up period, Rho or a Rho
co-investor makes a written offer to purchase 50% or more of the shares of
Common Stock held by the Maverick Parties on the date of the Initial Closing,
and/or 100% of the shares of Common Stock held by the Prentice Parties (other
than SAC) on the date of the Initial Closing, in each case on pricing terms no
less favorable than the terms of the Securities Purchase Agreement and otherwise
satisfying certain other specified conditions (any such purchase being referred
to in this Information Statement as a Secondary Purchase), and the Maverick
Parties and/or the Prentice Parties (other than SAC), as applicable, do not
accept such offer, then the Maverick Parties and/or the Prentice Parties (other
than SAC), as applicable, will continue to be bound by the Lock-Up Restrictions,
subject to certain exceptions, until the one-year anniversary of the Initial
Closing or such earlier date as Soros or Rho is released from its Lock-Up
Restrictions.
Pursuant
to the Voting Agreement, the Soros Parties and Rho have agreed that, subject to
certain exceptions (including without limitation transfers to affiliates), until
the one-year anniversary of the Initial Closing, neither the Soros Parties nor
Rho will, without the prior written consent of the other party, engage in any
transactions with respect to shares of our capital stock owned by them that
would be prohibited pursuant to the Lock-Up Restrictions.
In
addition, at the Initial Closing and as a condition thereto, each of our
directors and executive officers entered into lock-up agreements with Rho
pursuant to which they agreed that, subject to certain exceptions, until the
earlier of the one-year anniversary of the Initial Closing or the date on which
such person ceases to be an employee or director of the Company, they will not,
without Rho’s prior written consent, engage in any transactions with respect to
shares of our Common Stock owned by them that would be prohibited pursuant to
the Lock-Up Restrictions.
Non-Solicitation
and Fiduciary Out
We agreed
in the Securities Purchase Agreement that we shall not, and that we shall cause
our directors, officers, employees and agents and the Existing Stockholders
(which we refer to in this Information Statement, collectively, as the
Representatives) not to, directly or indirectly,
|
(i)
|
initiate,
solicit, or knowingly encourage or knowingly facilitate the submission of
any inquiry, indication of interest, proposal or offer that constitutes,
or would reasonably be expected to lead
to;
|
|
(ii)
|
participate
in any discussions or negotiations regarding, or furnish any non-public
information to any person (other than the Rho) in connection
with;
|
|
(iii)
|
enter
into any letter of intent or agreement related to (other than a
confidentiality agreement in certain circumstances);
or
|
|
(iv)
|
approve
or recommend,
|
any
inquiry, indication of interest, proposal or offer for any transaction or series
of related transactions involving:
|
(a)
|
a
merger, tender offer, recapitalization, reorganization, liquidation,
dissolution, business combination or consolidation, or any similar
transaction, involving the Company;
|
|
(b)
|
a
sale, lease, license, exchange, mortgage, pledge, transfer or other
acquisition of assets that constitute at least 15% of the assets of the
Company; or
|
|
(c)
|
a
purchase, tender offer or other acquisition (including by way of merger,
consolidation, stock exchange or otherwise) of beneficial ownership (as
defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of securities representing 15% or more of the
voting power of the Company (which inquiry, indication of interest,
proposal or offer described in (a) – (c) we refer to in this Information
Statement as an Acquisition
Proposal).
|
However,
if, prior to the effective date of the stockholder approval for the Actions we
or any of our Representatives receive an unsolicited bona fide written
Acquisition Proposal that the Board determines in good faith, after consultation
with its outside legal counsel and financial advisors, constitutes, or is
reasonably likely to lead to, a Superior Proposal (as defined below) and the
Board determines in good faith, after consultation with our outside legal
counsel and financial advisors, that failure to do so would result in a breach
of its fiduciary obligations under applicable law, we may:
|
(i)
|
furnish
information to the third party making such Acquisition Proposal (which we
refer to in this Information Statement as a Qualified Bidder), provided we
receive from the Qualified Bidder an executed confidentiality agreement
(the terms of which are no less favorable to the Company than those
contained in the confidentiality agreement between the Company and Rho);
and
|
|
(ii)
|
engage
in discussions or negotiations with the Qualified Bidder and its
Representatives with respect to the Acquisition Proposal. We
are obligated under the Securities Purchase Agreement to notify Rho within
one business day of its receipt of any inquiries, discussions,
negotiations, proposals or expressions of interest with respect to an
Acquisition Proposal (including a summary of the material terms and
conditions thereof).
|
A
Superior Proposal is any written Acquisition Proposal relating to all or
substantially all of the assets or voting power of the Company that is made by a
third party that the Board determines in good faith, after consultation with its
outside legal counsel and financial advisors, is fully financed or has committed
financing, is reasonably capable of being consummated, and if consummated would
be more favorable from a financial point of view to our stockholders than the
transactions contemplated by the Securities Purchase Agreement, taking into
account all financial, regulatory, legal and other aspects of such Acquisition
Proposal, including, without limitation, the likelihood of
consummation.
The Board
generally is not permitted to withdraw or change in a manner adverse to Rho its
recommendation that our stockholders vote to approve the Private Placement or
propose publicly to approve, adopt or recommend any Acquisition Proposal (which
actions we refer to in this Information Statement as an Adverse Recommendation
Change), provided, however, that, at any time prior to the effective date of the
stockholder approval for the Actions, the Board may in response to a Superior
Proposal that did not result from a breach by the Company of the
non-solicitation provisions summarized above (i) effect an Adverse
Recommendation Change, and/or (ii) enter into a definitive agreement with
respect to such Superior Proposal (which we refer to in this Information
Statement as an Acquisition Agreement) if the Board determines in good faith,
after consultation with our outside legal counsel and financial advisors, that
failure to do so would result in a breach of its fiduciary obligations under
applicable law.
The Board
may only effect an Adverse Recommendation Change or enter into an Acquisition
Agreement with respect to a Superior Proposal as described above if, prior to
doing so:
|
(i)
|
the
Board provides Rho with five days written notice specifying the material
terms of such Acquisition Proposal and identifying the person making such
proposal (during which five day time period Rho is entitled to deliver to
us one or more counterproposals to such Acquisition Proposal and to meet
and negotiate with us and our Representatives);
and
|
|
(ii)
|
at
the end of such five day period, the Board determines in good faith, after
taking into account all amendments or revisions irrevocably committed to
by Rho and after consultation with its outside legal counsel and financial
advisors, that such Acquisition Proposal remains a Superior
Proposal.
|
If the
Board effects an Adverse Recommendation Change or enters into an Acquisition
Agreement, the Existing Stockholders will be entitled to revoke their votes with respect to some of their
shares of Common Stock, as more fully described above under the caption
“–Agreement to
Vote
Shares in Favor of the Actions.”
Termination
If the
Board effects an Adverse Recommendation Change, Rho is entitled to terminate the
Securities Purchase Agreement upon two business days prior written notice to the
Company delivered subsequent to such Adverse Recommendation Change.
In
addition, either Rho or the Company may terminate the parties’ obligation to
effect the Second Closing under the Securities Purchase Agreement upon two
business days prior written notice to the other party if stockholder approval
for (1) the issuance of the Second Closing Shares, the Warrants and the Warrant
Shares and (2) the Board Restructuring Amendment is not effective prior to April
30, 2010.
Indemnification
We have
agreed in the Securities Purchase Agreement to indemnify Rho and its directors,
officers, stockholders, members, partners, employees and agents as well as Rho’s
control persons (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and their directors, officers,
stockholders, agents, members, partners or employees from any losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses
arising from or relating to any of the representations, warranties, covenants or
agreements made by us in the Securities Purchase Agreement, the Voting
Agreement, the Registration Rights Agreement and the other agreements entered
into in connection therewith (which agreements we refer to in this Information
Statement, collectively, as the Transaction Documents), except to the extent
that any such losses, liabilities, obligations, claims, contingencies, damages,
costs or expenses are attributable to Rho’s breach of any of the
representations, warranties, covenants or agreements made by it in any of the
Transaction Documents.
Rho has
agreed in the Securities Purchase Agreement to indemnify us, and our directors,
officers, stockholders, members, partners, employees and agents as well as our
control persons (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and their directors, officers,
stockholders, agents, members, partners or employees from any losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses
arising from or relating to (i) any of the representations and warranties made
by Rho in the Securities Purchase Agreement or (ii) any failure by Rho to comply
with the covenants and agreements contained in Section 4.1 thereof respecting
transfers of the shares of Common Stock issued to it under the Private
Placement.
In
addition, we have agreed in the Registration Rights Agreement to indemnify Rho
and the Existing Stockholders against certain liabilities arising from any
alleged material omission or untrue statement contained in a registration
statement required to be filed by us thereunder. This indemnification
obligation will not apply to the extent any such liabilities arise from an
alleged untrue statement or omission which is based upon written information
regarding, and provided to us by, any such stockholder for use in such
registration statement, in which case the stockholders have each severally
agreed to indemnify us in an amount not to exceed the proceeds to each such
stockholder in connection with any sale of Common Stock pursuant to such
registration statement.
Section
203 Waiver
In
connection with the Initial Closing, and as a condition thereto, the Board
approved the Private Placement, the Securities Purchase Agreement (including
without limitation the issuance of shares of our Common Stock to Rho pursuant
thereto), the Registration Rights Agreement and the Voting Agreement, as a
result of which transactions and agreements Rho and, to the extent applicable,
any affiliates or associates thereof, became an “interested stockholder” for
purposes of Section 203 of the Delaware General Corporation Law and rendered the
restrictions on “business combinations” set forth in Section 203 inapplicable to
Rho and, to the extent applicable, any affiliates or associates thereof (which
approval we refer to in this Information Statement as the Section 203
Waiver).
Management
Rights Letter
At the
Initial Closing, and as a condition thereto, we entered into a Management Rights
Letter with Rho, pursuant to which we granted to Rho certain management rights
including without limitation the right to: (i) consult with and provide advice
to our management, directors and employees with regard to certain specified
matters; (ii) submit business proposals or suggestions to, and discuss such
proposals or suggestions with, our senior management, (iii) visit our premises
and receive certain financial and other information with respect to the Company
and (iv) appoint a non-voting observer to the Board and the boards of directors
of our subsidiaries.
Indemnification
Agreements with Directors
In
connection with the Private Placement, Rho required us to agree to enter into
indemnification agreements (which agreements we refer to in this Information
Statement as the Indemnification Agreements) with each of its director designees
pursuant to which we agree to grant certain indemnification rights to such
directors in addition to any indemnification rights provided for in our
Certificate of Incorporation and by-laws. In considering the
Indemnification Agreements with respect to Rho’s director designees, the Board
determined that each of our directors should have the benefit of a comparable
Indemnification Agreement, and we intend to enter into Indemnification
Agreements with each of the directors serving on the Board as of the date
hereof.
Fees
and Expenses
We have
agreed to reimburse Rho up to an aggregate of $100,000 for its reasonable legal
fees in connection with the transactions contemplated by the Transaction
Documents.
Interests
of Certain Persons
Some of
our directors, officers and significant stockholders may be deemed to have
material interests in the Actions. These interests are described
below under the caption “INTERESTS OF CERTAIN PERSONS IN OR
OPPOSITION TO MATTERS TO BE ACTED UPON.”
Reasons
for Stockholder Approval
Our
Common Stock is listed on the Nasdaq Capital Market and, therefore, we are
subject to the Nasdaq Marketplace Rules (which we refer to in this Information
Statement as the Nasdaq Rules). Under Nasdaq Marketplace Rule 5635(b)
(which we refer to in this Information Statement as the Change in Control Rule),
stockholder approval is required for an issuance of securities when, as a result
of the issuance, an investor or a group would own, or have the right to acquire,
20% or more of the outstanding shares of our Common Stock or voting power and
such ownership or voting power would constitute the largest ownership
position. Furthermore, under Nasdaq Marketplace Rule 5635(d)(2)
(which we refer to in this Information Statement as the 20% Rule), stockholder
approval is required for an issuance or potential issuance of our Common Stock
(or securities convertible into or exercisable for Common Stock) equal to 20% or
more of the Common Stock outstanding or 20% or more of the voting power
outstanding before such issuance for a price less than the greater of book or
market value of the Common Stock at the time of such issuance.
The
Change in Control Rule and the 20% Rule apply to the issuance and sale of the
Second Closing Shares because, as a result of the issuance of the Second Closing
Shares to Rho:
|
·
|
Rho
will own more than 20% of the outstanding shares of the Common Stock and
will become our largest stockholder;
and
|
|
·
|
Rho
will acquire greater than 20% of the outstanding shares of the Common
Stock at a price of $1.70 per share, which purchase price is less than the
greater of book or market value of the Common
Stock.
|
In
addition, the Change in Control Rule and the 20% Rule apply to the issuance of
the Warrants because:
|
·
|
the
Warrants are convertible into such number of shares of Common Stock that,
when aggregated with the Common Stock issued to Rho at the first closing,
exceed 20% of the shares of Common Stock outstanding before the issuance;
and
|
|
·
|
the
Warrants may be exercisable for shares of Common Stock at a price per share
lower than the
greater of the book or market value of the Common Stock on the date of
issuance.
|
As a
result, in order to comply with the Change in Control Rule and the 20% Rule, (1)
the Private Placement is being completed in two closings and (2) the Warrants
may not be issued under the Registration Rights Agreement absent the receipt of
stockholder approval. In the Initial Closing, which occurred on
December 21, 2009, the Company issued and sold to Rho an aggregate of 2,786,337
shares of Common Stock at a purchase price of $1.70 per
share. Stockholder approval was not required for the Initial Closing
under the Change of Control Rule or the 20% Rule because the shares of Common
Stock issued in the Initial Closing represented approximately 19.9% of the
Company’s outstanding Common Stock as of immediately prior to the Initial
Closing. Stockholder approval is required for the Second Closing
under the Change in Control Rule and the 20% Rule for the reasons stated above
and because the Company agreed in the Securities Purchase Agreement to seek
stockholder approval for the issuance of the Second Closing Shares, the Warrants
and the Warrant Shares, and the receipt of such approval is a condition to the
consummation of the Second Closing. As described above under the
caption “APPROVAL OF PRIVATE
PLACEMENT – Summary of Private Placement – Agreement to Vote
Shares in Favor of the Actions,” the Existing Stockholders have approved
the issuance of the Second Closing Shares, the Warrants and the Warrant Shares,
subject to the right of the stockholders to revoke
their votes with respect to some of their shares of Common Stock, as more fully
described above.
Reasons
for the Private Placement
Since
September 2008, we have been operating under a streamlined business plan which
calls for, among other things, reductions in marketing and capital expenditures,
delaying new hires and making selective inventory purchases. Over
that period, we explored a number of strategic alternatives, including a
possible sale of our business and raising equity capital in the private and
public equity markets. The Board concluded that the issuance of
shares to Rho in the Private Placement was the most attractive alternative
available to the Company taking into account our need for capital, the size of
the capital raise, the certainty of consummation and the potential value that
Rho will add as a major investor in the Company. While the Board
recognized that the consummation of the Private Placement would make the Company
more vulnerable to an “ownership change” for purposes of Section 382 of the
Internal Revenue Code of 1986, as amended (which we refer to in this Information
Statement as the Code), the occurrence of which would subject us to certain
limits on our ability to deduct existing net operating losses in the future (as
further described below under the caption “– Effects of the Private
Placement”), the Board concluded that our need for capital overrode
concerns regarding any such limitations. We believe that the proceeds
of the Private Placement will enable us to return to a more normalized business
plan which will facilitate the growth of our business.
Effects
of the Private Placement
The
Private Placement will result in a significant increase in the number of shares
of our Common Stock outstanding and, as a result, current stockholders who are
not participating in the Private Placement will own a
smaller
percentage of the outstanding Common Stock and, accordingly, a smaller
percentage interest in the voting power, liquidation value and aggregate book
value of the Company. Additionally, the sale or any resale of the
Common Stock issued in the Private Placement could cause the market price of our
Common Stock to decline.
Our
stockholders will incur dilution of their percentage ownership in the Company as
a result of the Private Placement. Immediately following the first
closing of the Private Placement on December 21, 2009, 18,552,737 shares of our
Common Stock were outstanding, after giving effect to the issuance of 2,786,337
shares of Common Stock at the Initial Closing and 1,764,706 shares of Common
Stock in connection with the conversion of the Notes. Following the
Second Closing, 27,130,101 shares of Common Stock will be outstanding, on a
fully diluted basis, after giving effect to the issuance of the Management
Option Pool (assuming no issuance of any shares of Common Stock between the
first closing and the second closing). Following the consummation of
the Second Closing, Rho will own approximately 33% of our outstanding Common
Stock (on a fully diluted basis, after giving effect to the issuance of the
Management Option Pool, as described above), will become our largest stockholder
and will be entitled to nominate two of ten directors to our
Board. As a result, Rho may have considerable influence in
determining the outcome of any corporate transaction or other matter submitted
to our stockholders for approval, including, but not limited to the election of
directors and the approval of corporate transactions. Assuming that
we do not issue any shares of Common Stock, or securities convertible into or
exercisable for shares of Common Stock (other than the Management Option Pool),
we may be obligated to issue to Rho under the Registration Rights Agreement
Warrants convertible into a maximum of 2,713,010 shares of Common
Stock. If we issue additional shares of Common Stock or securities
convertible into or exercisable for shares of Common Stock before we are
required to issue Warrants to Rho under the Registration Rights Agreement, if at
all, we would be required to issue to Rho Warrants to purchase such larger
number of shares of Common Stock as would equal 10% of the fully diluted
outstanding shares of Common Stock as of the date of the issuance of the
Warrants. If Rho exercises the Warrants for shares of Common Stock,
Rho’s ownership of, and influence over, the Company will increase and the
Company’s stockholders will be further diluted.
Under
Section 382 of the Code, a corporation’s deduction of net operating losses and
certain other tax attributes is limited once the corporation has undergone an
“ownership change.” The annual amount of that limitation is generally
equal to the fair market value of the corporation’s equity multiplied by the
long-term tax-exempt rate. In general, an “ownership change” occurs
when, within a span of 36 months (or, if shorter, the period beginning the day
after the most recent ownership change), there is an increase in the stock
ownership by one or more stockholders of more than 50 percentage
points.
Following
the consummation of the Second Closing, Rho will have increased its percentage
ownership of the Company’s outstanding Common Stock (on a non-diluted basis) by
more than 30 percentage points (including the shares of Common Stock purchased
by Rho in the initial closing of the Private Placement). The Company
does not believe that the consummation of the Second Closing will result in an
ownership change so as to result in the application of Section 382 of the
Code. However, the issuance of additional shares of Common Stock,
including pursuant to Warrants, the Management Option Pool or pursuant to the
conversion or exercise of securities convertible into or exercisable for shares
of Common Stock, might result in an increase in the percentage ownership of one
or more of our stockholders. Furthermore, no contractual restrictions
exist that prohibit any of our stockholders from buying additional shares of our
Common Stock (in open market transactions or otherwise) so as to preclude an
increase in their stock ownership or from transferring their shares to
affiliated entities, any of which could have the effect of causing an ownership
change. As a consequence, upon the consummation of the Second
Closing, a heightened risk exists of an ownership change of the Company so as to
result in the application of Section 382 of the Code.
Furthermore,
as Rho is not bound by any contractual restriction prohibiting it from buying
shares of our Common Stock and the Board has approved the Section 203 Waiver,
Rho could potentially acquire additional shares of our Common Stock (in open
market transactions or otherwise) such that it would own greater than 50% of our
outstanding Common Stock, in which case Rho will be able to control the outcome
of any corporate transaction or other matter submitted to the Company’s
stockholders for approval, including but not limited to the election of
directors (subject to the Board designation rights of the Existing Stockholders
as described above under the caption “– Summary of the Private Placement
–Board Representation,” to the extent they remain applicable) and the
approval of corporate transactions.
Use
of Proceeds
We intend
to use the proceeds from the Private Placement for general corporate purposes,
including without limitation the payment of accrued and unpaid interest
outstanding under the Notes in an aggregate amount of $346,994.04 (which amount
was paid by us at the Initial Closing).
APPROVAL
OF THE BOARD RESTRUCTURING AMENDMENT
Summary
of the Board Restructuring Amendment
The Board
has recommended, and a majority of our stockholders have approved (subject to the right of the
stockholders to revoke their votes with respect to some of their shares of
Common Stock, as more fully described below under the caption “APPROVAL OF PRIVATE
PLACEMENT – Summary of Private
Placement – Agreement to Vote
Shares in Favor of the Actions”) the Board Restructuring
Amendment to our Certificate of Incorporation, pursuant to which our Board will
be restructured as a classified Board divided into three classes, designated
Class 1, Class 2 and Class 3, as nearly equal in number as the then total number
of directors constituting the whole Board permits, with the term of office of
one class expiring each year. Unless our stockholders revoke their
votes with respect thereto such that the Board Restructuring Amendment will fail
to be approved, the Board Restructuring Amendment will be effective upon the
filing of a Certificate of Amendment (or a restatement of our Certificate of
Incorporation filed in accordance with Section 245 of the Delaware General
Corporation Law) with the Secretary of State of the State of Delaware on or
about the 20th day
following the mailing of this Information Statement. Subject to the
immediately following sentence, pursuant to the Board Restructuring Amendment,
and upon the effective date thereof, the Board shall assign members of the Board
already in office to serve on such classes as the Board sees fit effective as of
immediately subsequent to the effective time of the Board Restructuring
Amendment. Pursuant to the Voting Agreement, the current directors of
the Board are required to be designated to certain classes, as set forth below
under the caption “– Directors
of the Company.” Following the effective date of the Board
Restructuring Amendment, the term of the directors of Class 1 shall expire at
the first election of directors after the effective date of the Board
Restructuring Amendment, the term of the directors of Class 2 shall expire at
the second election of directors after the effective date of the Board
Restructuring Amendment and the term of the directors of Class 3 shall expire at
the third election of directors after the effective date of the Board
Restructuring Amendment. At each annual meeting of stockholders following the
effective date of the Board Restructuring Amendment, the successors to the class
of directors whose term shall then expire shall be elected to hold office for a
term expiring at the third succeeding annual meeting and each director so
elected shall hold office until his or her successor is elected and qualified,
or until his or her earlier death, resignation or removal. If the
number of directors is changed, any increase or decrease in the number of
directors shall be apportioned among the three classes so as to make all classes
as nearly equal in number as possible, and the Board shall decide which class
shall contain an unequal number of directors. Pursuant to our
by-laws, vacancies occurring in the Board for any reason, including the removal
of directors without cause, may be filled by the affirmative votes of a majority
of the entire Board, although less than a quorum, or by a sole remaining
director, or may be elected by a plurality of the votes cast by the holders of
shares of capital stock entitled to vote in the election at a special meeting of
stockholders called for that purpose. A director elected to fill a
vacancy shall be elected to hold office until a successor is elected and
qualified, or until the director’s earlier death, resignation or
removal.
Reasons
for the Board Restructuring Amendment
We are
seeking approval for the Board Restructuring Amendment because we are required
to do so pursuant to the terms of the Securities Purchase Agreement and because
the approval of the Board Restructuring Amendment (and the subsequent completion
of the Board Restructuring) is a condition to the consummation of the Second
Closing.
Effects
of the Board Restructuring Amendment
By
classifying the Board into three classes, the Board Restructuring Amendment may
discourage some takeover bids, including those that a majority of our
independent stockholders believe would be in their best interests to accept or
where the reason for the desired change is inadequate performance of the
directors or management. Following the effective time of the Board
Restructuring Amendment, it will take at least two annual
meetings
to effect a change in control of the Board. Because of the additional
time required to change control of the Board, the classification of the Board
pursuant to the Board Restructuring Amendment may also make it more difficult
for a potential acquiror to obtain control of the Company without first
obtaining the approval of the Board. Currently, a change in control
of the Board can be made by stockholders holding a plurality of the votes cast
at a single annual meeting. Even if the potential acquiror were to
acquire a majority of our outstanding voting stock, a classified board of
directors will tend to discourage certain takeover bids, perhaps including some
takeover bids that would otherwise allow stockholders the opportunity to realize
a premium over the market price of their stock. A classified board
may also increase the cost of attempting a takeover or change of control or
removal or replacement of existing directors, which may further discourage
attempted takeovers or changes of control.
Directors
of the Company
The
following is a list of the current members of the Board. Pursuant to
the terms of the Voting Agreement, following the effective time of the Board
Restructuring Amendment, the size of the Board shall be reduced to 10 members,
divided into three classes. Class 1 shall consist of four directors,
including two outside directors, one designee of the Maverick Parties, and one
designee of the Prentice Parties (other than SAC); Class 2 shall consist of
three directors, including one designee of the Soros Parties, one designee of
Rho, and the Company’s Chief Executive Officer; and Class 3 shall consist of
three directors, including one designee of the Soros Parties, one designee of
Rho, and one outside independent director. In order to effectuate the
Board Restructuring, Barry Erdos and Anne Jackson resigned from the Board
effective January 19, 2010 and January 18, 2010, respectively.
Name
of Director
|
Age
|
Director
of the Company Since
|
|
|
|
Mario
Ciampi
|
49
|
2008
to present
|
|
|
|
Michael
Helfand
|
50
|
2009
to present
|
|
|
|
David
Janke
|
36
|
2009
to present
|
|
|
|
Habib
Kairouz
|
43
|
2009
to present
|
|
|
|
Martin
Miller
|
79
|
1991
to present
|
|
|
|
Neal
Moszkowski
|
44
|
1999
to present
|
|
|
|
Melissa
Payner-Gregor
|
51
|
2003
to present
|
|
|
|
Anthony
Plesner
|
51
|
2008
to present
|
|
|
|
David
Wassong
|
39
|
2001
to
present
|
Mario Ciampi has served as a
director since August 2008. Mr. Ciampi has served as co-head of
Private Special Capital Investments of Prentice Capital Management, L.P. (which
we refer to in this Information Statement as Prentice), an investment manager,
since 2007. Mr. Ciampi initially joined Prentice as a retail and
consumer products consultant working on business improvements, management
oversight, and due diligence for the firm’s special situation
investments. Prior to joining Prentice, he had a 10-year career with
The Children’s Place organization; during that period, he held various
positions: Vice President – Store Development, Sr. Vice President – Operations,
and President of Disney Store – North America. Previously, Mr. Ciampi
was the Founder and Partner
of DJM
Asset Management, a consulting company focused on retail real estate
repositioning, financial turn-arounds, and strategic growth
initiatives.
Michael Helfand was appointed
to the Board in February 2009. Since 2009, Mr. Helfand has served as
the Senior Vice President, Finance and Chief Accounting Officer of Fuel Systems
Solutions, Inc., a leading designer, manufacturer and supplier of proven
cost-effective alternative fuel components and systems for light-duty
transportation and industrial markets. From 2007 to 2008, Mr. Helfand
served as the Interim Chief Financial Officer of Rothschild North America, Inc.,
a global investment bank. From 2006 to 2007, Mr. Helfand was the
Executive Vice President of Finance at WRC Media, Inc., a publishing
company. From 2003 to 2008, Mr. Helfand was a consultant for
Resources Connection, Inc., a project-based professional services
firm.
David Janke was appointed to
the Board in August 2009. Mr. Janke is a Managing Partner and
Co-Founder of BlackSwan Partners, LP, an investment firm focused on private
equity and real estate opportunities. From 2003 to 2006, Mr. Janke
was a Vice President at Starwood Capital Group, a global real estate private
equity fund. From 2000 to 2001, Mr. Janke was Director of Finance and
Strategic Planning for Tyco International. From 1998 to 2000, Mr.
Janke was an investment professional at Soros Fund Management LLC (which we
refer to in this Information Statement as Soros) focusing on private equity
investments. From 1996 to 1998, he was an investment banker with
Alex, Brown & Sons in the Restructuring Group. Mr. Janke holds a
Masters in Business Administration from Harvard Business School and is a
graduate of Middlebury College. He is also a director of SonomaWest
Holdings, Inc., a publicly-traded real estate management company and Ali Wing,
Inc. d/b/a giggle.
Habib Kairouz has served as a
director since 2009. Mr. Kairouz is a Managing Partner of Rho Capital
Partners, Inc., an investment and venture capital management company, which he
joined in 1993. Prior to joining Rho Capital Partners, Inc., Mr.
Kairouz worked for five years in investment banking and leverage buyouts with
Reich & Co. and Jesup & Lamont. Mr. Kairouz holds a Bachelor
of Science degree in engineering from Cornell University and a Master of
Business Administration in Finance from Columbia University. Mr. Kairouz also
serves on the board of directors of a number of private companies.
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 was 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. (which
we refer to in this Information Statement as 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, 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 WellCare
Health Plans, Inc. and Integra Life Sciences Holdings Corporation.
Melissa Payner-Gregor was
appointed as the Company’s President in 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. (which we refer to in this
Information Statement as 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 has served as
a director since 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
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.
CORPORATE
GOVERNANCE
The Board
reviewed the independence of each of our directors 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 affirmatively
determined that each of our 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, 2009, the Board met nine times and acted by
unanimous written consent one time. Each of the directors
participated in 75% or more of the aggregate number of meetings and/or written
consents of the Board and committee(s) on which he or she served during the 2009
fiscal year, except for Mr. Moszkowski, who participated in approximately 71% of
the total meetings and actions by written consent. The Company does
not have a policy with regard to the attendance by directors at our annual
meeting of stockholders. Ms. Payner and Mr. Wassong attended last
year’s annual meeting of stockholders.
The Board
has established an Audit Committee (which we refer to in this Information
Statement as the Audit Committee) in accordance with Section 3(a)(58)(A) of the
Exchange Act. The Audit Committee is comprised of Anthony Plesner,
Michael Helfand and Martin Miller. Mr. Plesner acts as Chairman of
the Audit Committee. The Audit Committee is responsible for the
appointment of the Company’s independent registered public 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 available on our website. 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
Rules. During the fiscal year ended December 31, 2009, the Audit
Committee met five times and acted by unanimous written consent one
time.
The
Compensation Committee has three members, consisting of Neal Moszkowski, David
Janke and Mario Ciampi, and met five times and acted by unanimous written
consent four times in fiscal 2009. The Compensation Committee is
comprised solely of non-employee directors, all of whom the Board has determined
are independent in accordance with the Nasdaq Rules. The Compensation
Committee does not have a written charter.
The
Compensation Committee’s responsibilities include, among other duties, the
responsibility to:
|
·
|
establish
the base salary, incentive compensation and any other compensation for the
officers of the Company;
|
|
·
|
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
|
|
·
|
perform
other functions or duties deemed appropriate by the
Board.
|
The
agenda for meetings of the Compensation Committee is determined by its
Chairman. The Compensation Committee reports directly to the
Board. 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.
The Board
also established a Nominating and Governance Committee (which we refer to in
this Information Statement as the Nominating Committee), consisting of David
Wassong and Anthony Plesner. The purposes of the Nominating Committee
are to assist the Board by identifying individuals qualified to become
directors, 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;
recommend to the Board nominees for each committee of the Board; advise the
Board about appropriate composition of the Board and its committees; advise the
Board about and recommend to the Board appropriate corporate governance
practices and to assist the Board in implementing those practices; lead the
Board in its annual review of the performance of the Board and its committees;
and perform such other functions as the Board 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 is available on our
website at www.bluefly.com. The Nominating Committee met three times
during 2009 and did not act by unanimous written consent during fiscal
2009.
The
Nominating Committee will consider many factors when evaluating candidates for
the nomination to the Board, with the goal of fostering a Board 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, 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 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 themselves, rather than recommending
a candidate to the Nominating Committee for potential nomination by the Board,
must comply with applicable law.
Communication
by stockholders may be made to any or all of the members of the Board 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.
We have
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 we maintain procedures for the confidential, anonymous
submission by employees of complaints regarding our accounting, internal
accounting controls, auditing matters and other issues. A copy of our
code of ethics is available on our website at www.bluefly.com. Any
amendment to or waiver of a provision of the code of ethics that applies to our
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 SEC will be posted on the
website.
SHARE
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table sets forth certain information with respect to the beneficial
ownership of our Common Stock 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.
Name(1)
|
Number
of Shares
Beneficially
Owned
|
|
Percentage(2)
|
Mario
Ciampi
|
1,875
|
(29)
|
|
*
|
|
Barry
Erdos
|
42,938
|
(4)
|
|
*
|
|
Michael
Helfand
|
1,875
|
(30)
|
|
*
|
|
Ann
Jackson
|
4,250
|
(5)
|
|
*
|
|
David
Janke
|
3,125
|
(3)
|
|
*
|
|
Kara
B. Jenny
|
62,257
|
(11)
|
|
*
|
|
Habib
Kairouz
|
--
|
(31)
|
|
--
|
|
Bradford
Matson
|
35,393
|
(6)
|
|
*
|
|
Martin
Miller
|
6,317
|
(7)(8)
|
|
*
|
|
Neal
Moszkowski(9)
|
5,875
|
(10)
|
|
*
|
|
Melissa
Payner-Gregor
|
361,203
|
(12)
|
|
1.9
|
%
|
Anthony
Plesner
|
2,437
|
(13)
|
|
*
|
|
David
Wassong(14)
|
8,000
|
(15)
|
|
*
|
|
SFM
Domestic Investments LLC
|
195,341
|
(16)
|
|
1.1
|
%
|
Quantum
Industrial Partners LDC
|
5,968,283
|
(17)(18)
|
|
32.1
|
%
|
George
Soros
|
6,163,624
|
(19)
|
|
33.2
|
%
|
Prentice
Capital Offshore, Ltd.(20)
|
905,147
|
(21)
|
|
4.9
|
%
|
S.A.C.
Capital Associates, LLC(20)
|
1,143,862
|
(22)
|
|
6.2
|
%
|
Prentice
Capital Management, LP(20)
|
3,038,630
|
(23)
|
|
16.4
|
%
|
Michael
Zimmerman(20)
|
3,038,630
|
(23)
|
|
16.4
|
%
|
Maverick
Fund, L.D.C.(24)
|
1,609,670
|
(26)
|
|
8.7
|
%
|
Maverick
Fund II, Ltd.(24)
|
1,404,638
|
(27)
|
|
7.6
|
%
|
Maverick
Fund USA, Ltd.(24)
|
709,589
|
(28)
|
|
3.8
|
%
|
Funds
Affiliated with Rho Ventures(31)
|
2,786,337
|
(31)
|
|
15.0
|
%
|
All
directors and Named Executive Officers as a group (13
persons)
|
535,545
|
(25)
|
|
2.9
|
%
|
|
(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 SEC 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
of January 20, 2010 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
1,125 shares of Restricted Stock granted under our 1997 Stock Plan, 2000
Stock Plan and 2005 Stock Incentive Plan (which we refer to in this
Information Statement, collectively, as the
Plans).
|
|
(4)
|
Includes
4,500 shares of Common Stock issuable upon exercise of
options.
|
|
(5)
|
Includes
1,000 shares of Common Stock issuable upon exercise of options and 750
shares of Restricted Stock granted under the
Plans.
|
|
(6)
|
Includes
1,944 shares of Common Stock issuable upon exercise of
options. Excludes 5,607 shares underlying deferred stock units,
which are vested, or will vest and be delivered, within 60 days of the
Record Date.
|
|
(7)
|
Includes
300 shares of Common Stock held by Madge Miller, the wife of Martin
Miller, as to which Mr. Miller disclaims beneficial
ownership.
|
|
(8)
|
Includes
3,125 shares of Common Stock issuable upon exercise of options and 750
shares of Restricted Stock granted under the
Plans.
|
|
(9)
|
Mr.
Moszkowski’s address is c/o, TowerBrook Capital Partners, L.P., 430 Park
Avenue New York, New York, 10022.
|
|
(10)
|
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.
|
|
(11)
|
Includes
37,611 shares of Common Stock issuable upon exercise of
options. Excludes 695 shares underlying deferred stock units,
which are vested, or will vest and be delivered, within 60 days of the
Record Date.
|
|
(12)
|
Includes
45,000 shares of Common Stock issuable upon exercise of options granted
under the Plans.
|
|
(13)
|
Includes
937 shares of Restricted Stock granted under the
Plans.
|
|
(14)
|
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, SFM and QIP and none of such shares are included in the
table above as being beneficially owned by
him.
|
|
(15)
|
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.
|
|
(16)
|
Represents
193,909 shares of Common Stock and 1,432 shares of Common Stock issuable
upon the exercise of warrants (which we refer to in this Information
Statement, collectively, as the SFM Shares) held in the name of
SFM. SFM is a Delaware limited liability
company. George Soros may also be deemed the beneficial owner
of the SFM Shares. The principal address of SFM 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
SEC.
|
|
(17)
|
Represents
5,924,515 shares of Common Stock and 43,768 shares of Common Stock
issuable upon the exercise of warrants (which we refer to in this
Information Statement as, collectively, the QIP
Shares)
|
held in
the name of 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 (10) and (15).
|
(18)
|
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.
(which we refer to in this Information Statement as 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 (which we refer to in this Information Statement as QIH
Management). Soros Fund Management LLC, a Delaware limited
liability company, 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, Soros
Fund Management LLC 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
SEC.
|
|
(19)
|
See
notes (16), (17) and (18) 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 (10) and (15).
|
|
(20)
|
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.
|
|
(21)
|
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 managing 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.
|
|
(22)
|
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 (which we refer to in this Information Statement as 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),
SAC 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.
|
|
(23)
|
Consists
of: (a) 81,678 shares held by PCP; (b) 403,773 shares held by
PCP QP; (c) 905,147 shares held by PC Offshore (see note (21) above); (d)
1,143,862 shares held by SAC (see note (22) above); (e) 200,307 shares
held by GPC; and (f) 303,863 shares held by PEC. 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.
|
|
(24)
|
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 USA, Maverick Fund and Maverick Fund II
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,
Maverick Fund II and Maverick USA is c/o Maverick Capital, Ltd., 300
Crescent Court, 18th Floor, Dallas, TX
75201.
|
|
(25)
|
Includes
99,805 shares of Common Stock issuable upon exercise of options and 8,437
shares of Restricted Stock granted under the Plans. Excludes
6,302 shares underlying deferred stock units, which are vested, or will
vest and be delivered, within 60 days of the Record
Date.
|
|
(26)
|
Represents
1,601,113 shares of Common Stock, 8,557 shares of Common Stock issuable
upon the exercise of warrants held by Maverick
Fund.
|
|
(27)
|
Represents
1,397,171 shares of Common Stock, 7,467 shares of Common Stock issuable
upon the exercise of warrants held by Maverick Fund
II.
|
|
(28)
|
Represents
705,817 shares of Common Stock and 3,772 shares of Common Stock issuable
upon the exercise of warrants held by Maverick
USA.
|
|
(29)
|
Includes
750 shares of Restricted Stock granted under the
Plans.
|
|
(30)
|
Includes
1,875 shares of Restricted Stock granted under the
Plans.
|
|
(31)
|
Rho
Capital Partners LLC and RMV VI, LLC (which we refer to in this
Information Statement as RMV) are Delaware limited liability
companies. Rho is a Delaware limited
partnership. Rho is a private investment fund engaged in the
business of acquiring, holding and disposing of investments in various
companies. RMV is the general partner of Rho. Rho
Capital Partners LLC is the managing member of RMV. Mr. Habib
Kairouz is one of the managing members of Rho Capital Partners
LLC. Mr. Kairouz disclaims beneficial ownership of any of these
securities held by Rho Capital Partners LLC, RMV and Rho. The
address of Rho Capital Partners LLC, RMV and Rho is 152 West 57th
Street, 23rd
Floor, New York, NY 10019. The foregoing information was
derived, in part, from certain publicly available reports, statements and
schedules filed with the SEC.
|
EXECUTIVE
OFFICERS OF THE COMPANY
The
following table sets forth the names, ages and all positions and offices with
the Company held by our present executive officers.
Name
|
Age
|
Positions
and Offices Presently Held
|
|
|
|
Melissa
Payner-Gregor
|
51
|
Chief
Executive Officer
|
|
|
|
Kara
B. Jenny
|
40
|
Chief
Financial Officer
|
|
|
|
Bradford
Matson
|
52
|
Chief
Marketing Officer
|
|
|
|
Martin
Keane
|
45
|
Sr.
VP of eCommerce
|
Following
is information with respect to our executive officers who are not also directors
of the Company:
Kara B. Jenny has served as
our Chief Financial Officer since March 2008. Ms. Jenny was Vice
President of Finance from May 1999 to March 2008. Prior to that, she
was an Audit Manager at Andersen LLP. She is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants.
Bradford Matson rejoined the
Company as Chief Marketing Officer in August 2009. Mr. Matson
previously served as a consultant to the Company from December 2008 to August
2009. Prior to that, Mr. Matson served as our Chief Marketing Officer
from September 2005 to December 2008. 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 our
Vice President of Product Development and E-Commerce from January 1999 through
September 2004, when he assumed the role of Senior Vice President of
eCommerce. From 1997 to 1999, Mr. Keane was the Design Director for
Music Boulevard, an eCommerce site owned by N2K, Inc. From 1990 to
1997, Mr. Keane served as Regional Manager for APCO Graphics, an architectural
graphics company.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth information for the fiscal years ended December 31,
2009 and 2008 concerning compensation of (1) all individuals serving as our
principal executive officer during the fiscal year ended December 31, 2009 and
(2) the two other most highly compensated executive officers of the Company who
were serving as executive officers as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
Compensation
|
|
|
|
|
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Awards
($)
|
|
|
Options
($)
|
|
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
(1)
|
|
|
|
|
|
|
|
|
Melissa
Payner – Gregor
Chief Executive
Officer
|
|
2009
|
|
|
$
|
500,000
|
|
|
$
|
202,224
|
(2)
|
|
$
|
--
|
|
|
$
|
--
|
|
$
|
67,625
|
(4)
|
|
$
|
769,849
|
|
|
|
2008
|
|
|
$
|
500,000
|
|
|
$
|
223,421
|
(3)
|
|
$
|
--
|
|
|
$
|
--
|
|
$
|
67,625
|
(4)
|
|
$
|
791,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kara
B. Jenny
Chief Financial
Officer
|
|
2009
|
|
|
$
|
250,000
|
|
|
$
|
33,000
|
(5)
|
|
$
|
--
|
|
|
$
|
--
|
|
$
|
9,309
|
(6)
|
|
$
|
292,309
|
|
|
|
2008
|
|
|
$
|
239,000
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
59,900
|
(7)
|
$
|
7,236
|
(6)
|
|
$
|
306,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradford
Matson(8)
Chief Marketing
Officer
|
|
2009
|
|
|
$
|
126,538
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
11,400
|
(9)
|
$
|
4,522
|
(6)
|
|
$
|
142,460
|
|
|
|
2008
|
|
|
$
|
350,000
|
|
|
$
|
227,038
|
(10)
|
|
$
|
--
|
|
|
$
|
--
|
|
$
|
8,231
|
(6)
|
|
$
|
585,269
|
|
|
(1)
|
For
a discussion of the assumptions made in the valuation of the Stock and
Option Awards, see the Notes to Financial Statements, included in our
annual report on Form 10-K for the fiscal year ended December 31,
2009.
|
|
(2)
|
Represents
(a) a cash bonus of $200,000 for the fiscal year ended December 31, 2009
pursuant to the cash bonus plan approved by the Compensation Committee of
the Board and (b) a bonus of $2,224 in order to cover taxes incurred in
connection with the vesting of deferred stock units. This
amount does not include an additional bonus of between $0 and $600,000
which may be earned by Ms. Payner if we achieve specified adjusted EBITDA
target levels for fiscal year 2009 (see “- Bonus Plan”
below).
|
|
(3)
|
Represents
(a) a bonus of $200,000 for the fiscal year ended December 31, 2008 and
(b) a bonus of $23,421 in order to cover taxes incurred in connection with
the vesting of deferred stock
units.
|
|
(4)
|
Includes
$48,000 paid in 2009 and 2008 in connection with a housing allowance and
$19,625 paid in 2009 and 2008, respectively, in connection with life
insurance premiums.
|
|
(5)
|
Represents
a cash bonus of $33,000 for the fiscal year ended December 31, 2009
pursuant to the cash bonus plan approved by the Compensation Committee of
the Board. This amount does not include an additional bonus
which may be earned by Ms. Jenny if we achieve specified adjusted EBITDA
target levels for fiscal year 2009 (see “- Bonus Plan”
below).
|
|
(6)
|
Represents
amounts paid in connection with life insurance
premiums.
|
|
(7)
|
Represents
the value of stock option awards granted to Ms. Jenny in March
2008.
|
|
(8)
|
Mr.
Matson resigned as Chief Marketing Officer in January 2009 and rejoined
the Company as Chief Marketing Officer in August
2009.
|
|
(9)
|
Represents
the value of stock option awards granted to Mr. Matson in August
2009.
|
|
(10)
|
Represents
(a) a bonus of $115,000 paid in March 2009 for the fiscal year ended
December 31, 2008 in connection with Mr. Matson’s termination agreement
and (b) $112,038 in connection with a housing
allowance.
|
Based on
the fair value of equity awards granted to named executive officers in 2009 and
2008, and the base salary of the named executive officers: (a) “Salary”
accounted for approximately 73% and 60% of the total compensation of the named
executive officers in 2009 and 2008, respectively; (b) incentive compensation
accounted for approximately 20% and 36% of the total compensation of the named
executive officers in 2009 and 2008, respectively; and (c) other benefits
accounted for approximately 7% and 4% of the total compensation of named
executive officers in 2009 and 2008, respectively. Because the value
of certain equity awards included below is based on the provisions of FASB
guidance now codified as FASB ASC Topic 718, Compensation – Stock Compensation
(formerly Statement of Financial Accounting Standards No. 123 (revised
2004), Share-based
Payment), rather than the fair value, these percentages cannot be derived
using the amounts reflected in the applicable table above.
Bonus
Plan
On
October 5, 2009, the Compensation Committee approved the adoption of a cash
bonus plan for fiscal year 2009 (which we refer to in this Information Statement
as the Bonus Plan) for Ms. Payner and Ms. Jenny. The Bonus Plan
provided for the payment of a cash bonus to Ms. Payner in the amount of
$125,000, which amount was paid to Ms. Payner in October 2009, and cash bonuses
of $75,000 to Ms. Payner and $33,000 to Ms. Jenny, which amounts were paid to
Ms. Payner and Ms. Jenny, respectively, in January 2010. The Bonus
Plan also provides for contingent bonus payments to Ms. Payner and Ms. Jenny if
we achieve specified adjusted EBITDA target levels for fiscal year
2009. The range of the contingent bonuses which may become payable
under the Bonus Plan was originally between zero and $180,000 for Ms. Payner and
between zero and $60,000 for Ms. Jenny. The Bonus Plan was not in
limitation of additional discretionary bonuses for performance above the
specified target levels. In January 2010, the Compensation Committee
modified the plan regarding the contingent bonuses to increase the bonus levels
which could be earned by Ms. Payner and Ms. Jenny if we exceeded the previously
established adjusted EBITDA target levels for fiscal year 2009 by certain
specified amounts. As amended, the range of contingent bonuses which
may become payable to Ms. Payner under the Bonus Plan is between zero and
$600,000. The amount of the contingent bonus payable to Ms. Jenny,
based upon the same formula, is generally between 27% and 30% of the amount
payable to Ms. Payner, but is not subject to a cap. The contingent
bonus payments, if any, are payable as soon as practicable following the
availability of our audited financial statements (but in no event later than
March 15, 2010).
Employment
Agreements
Melissa
Payner-Gregor
On
November 14, 2006, we entered into a 36 month employment agreement (which we
refer to in this Information Statement as the Payner Agreement) with Melissa
Payner-Gregor providing for her continued service as our Chief Executive Officer
and a member of our Board. 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. If we do not provide Ms. Payner with
written notice of our desire to renew the Payner Agreement at least 90 days
prior to the end of the then-current term (including any one year renewal term),
the Payner Agreement shall automatically extend for one year from the end of the
then-current term (which we refer to in this Information Statement as an
Evergreen Extension). We did not provide such notice to Ms. Payner at
least 90 days prior to July 1, 2009 and, therefore, the Payner Agreement
automatically extended for a one year period following July 1,
2009. 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 terms applicable to Ms. Payner’s annual
performance bonus for fiscal 2009 are more fully described above under the
caption “– Bonus
Plan.”
If Ms.
Payner’s employment is terminated without cause (as defined in the Payner
Agreement) or as a result of 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 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 (which we refer to in this Information
Statement as 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) 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 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.
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 18 months
thereafter.
In
January 2010, the Compensation Committee agreed to amend the Payner Agreement to
provide for:
|
·
|
a
term of 36 months beginning on January 1, 2010 and subject to an Evergreen
Extension;
|
|
·
|
annual
cost of living adjustments to Ms. Payner’s annual base salary thereunder,
based on adjustments to the United States Consumer Price Index, beginning
on January 1, 2011;
|
|
·
|
payment
of an annual performance bonus equal to 60% of Ms. Payner’s annual base
salary thereunder based upon the achievement of one or more targets to be
set for each fiscal year by the Compensation Committee in its sole
discretion, which bonus amount shall be paid on an adjusted basis for
achievement of 75% to 125% of such targets, provided that such bonus shall
not be in limitation of additional discretionary bonuses;
and
|
|
·
|
the
immediate vesting of one-half of any unvested stock options granted to Ms.
Payner which are outstanding as of the date of a change of control (as
defined in the Payner Agreement) and have not yet vested, with the
remaining one-half of such unvested stock options vesting on the earliest
to occur of: (a) the scheduled vesting date and (b) 12 months from the
date of the change of control.
|
Kara
B. Jenny
On March
19, 2008, we entered into an amended and restated employment agreement (which we
refer to in this Information Statement as the Jenny Agreement) with Kara Jenny
providing for her service as our Chief Financial Officer. The Jenny
Agreement amends and restates the earlier employment agreement between us and
Ms. Jenny, which covered her service as our Vice President of Finance and was
set to expire in June 2008. The Jenny Agreement has a term ending on
March 31, 2011.
Pursuant
to the Jenny Agreement, Ms. Jenny is entitled to an annual base salary of
$250,000, subject to increases in the sole discretion of the Compensation
Committee. Ms. Jenny is eligible to receive an annual performance
bonus in an amount determined by the Compensation Committee in its sole
discretion. The terms applicable to Ms. Jenny’s annual performance
bonus for fiscal 2009 are more fully described above under the caption “– Bonus
Plan.” During the term of the Jenny Agreement, Ms. Jenny shall
be eligible to participate in all of our medical and other employee benefit
plans on the same terms and conditions as those offered to our other senior
executive officers; additionally, we shall provide Ms. Jenny with an annual
allowance of $10,000 for the purchase of life insurance and disability
insurance. The Jenny Agreement provided for a one-time grant to Ms.
Jenny of incentive stock options under our 2005 Stock Incentive Plan to purchase
20,000 shares of Common Stock at an exercise price equal to the fair market
value on the date of grant. Such options vest in 36 equal monthly
installments, subject to accelerated vesting in the event that her employment is
terminated following a Change of Control (as defined in the Jenny
Agreement).
Pursuant
to the Jenny Agreement, if Ms. Jenny’s employment is terminated without cause
(as defined in the Jenny Agreement) or as a result of a constructive termination
(as defined in the Jenny Agreement), 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 180 days from the date of
termination. In addition, if Ms. Jenny’s employment is terminated
without cause or as a result of a constructive termination, we shall maintain in
effect any of our medical and dental insurance and hospitalization plans as well
as any Company sponsored life insurance policy in which Ms. Jenny participates
as of the date of such termination for one year from the date of
termination.
In the
event that Ms. Jenny would be subject to tax under Section 4999 of the Code, the
payments to her under the Jenny Agreement will be reduced to the maximum amount
that she could receive without being subject to such tax. Ms. Jenny
is subject to certain covenants under the Jenny Agreement, including a
non-competition and non-solicitation covenant covering the term of her
employment and an additional period of two years thereafter.
In
January 2010, the Compensation Committee agreed to amend the Jenny Agreement to
provide for:
|
·
|
a
term of 36 months beginning on January 1, 2010 and subject to an Evergreen
Extension;
|
|
·
|
an
increase to Ms. Jenny’s annual base salary from $250,000 to
$300,000;
|
|
·
|
the
immediate vesting of one-half of any unvested stock options granted to Ms.
Jenny which are outstanding as of the date of a change of control (as
defined in the Jenny Agreement) and have not yet vested, with the
remaining one-half of such unvested stock options vesting on the earliest
to occur of: (a) the scheduled vesting date and (b) 12 months from the
date of the change of control.
|
Bradford
Matson
On August
31, 2009, we entered into an employment agreement (which we refer to in this
Information Statement as the Matson Agreement) with Bradford Matson providing
for his service as our Chief Marketing Officer. The Matson Agreement
has a term ending on September 30, 2012.
Pursuant
to the Matson Agreement, Mr. Matson is entitled to an annual base salary of
$350,000, subject to increases in the sole discretion of the Compensation
Committee. Mr. Matson is eligible to receive an annual performance
bonus in an amount determined by the Compensation Committee in its sole
discretion. During the term of the Matson Agreement, Mr. Matson shall
be eligible to participate in all of our medical and other employee benefit
plans on the same terms and conditions as those offered to other senior
executive officers of the Company. The Matson Agreement provided for
a one-time grant to Mr. Matson of incentive stock options under the Company’s
2005 Stock Incentive Plan to purchase 10,000 shares of Common Stock at an
exercise price equal to the fair market value on the date of
grant. Such options vest in 36 equal monthly installments, subject to
accelerated vesting in the event that his employment is terminated without cause
or as a result of a constructive termination (as each such term is defined in
the Matson Agreement).
Pursuant
to the Matson Agreement, if Mr. Matson’s employment is terminated without cause
(as defined in the Matson Agreement) or as a result of a constructive
termination (as defined in the Matson Agreement), he would be entitled to
receive his 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 his then-current base salary for 180 days from the date of
termination. In addition, if Mr. Matson’s employment is terminated
without cause or as a result of a constructive termination, we shall maintain in
effect our medical and dental insurance and hospitalization plans as well as any
Company sponsored life insurance policy in which Mr. Matson participates as of
the date of such termination for one year from the date of
termination.
In the
event that Mr. Matson would be subject to tax under Section 4999 of the Code,
the payments to him under the Matson Agreement will be reduced to the maximum
amount that he could receive without being subject to such tax. Mr.
Matson is subject to certain covenants under the Matson Agreement, including a
non-competition and non-solicitation covenant covering the term of his
employment and an additional period of two years thereafter.
Outstanding
Equity Awards at Fiscal Year End
The
following table sets forth information concerning exercisable and unexercised
stock options and unvested stock awards as of December 31, 2009 for each of the
Named Executive Officers:
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END — DECEMBER 31, 2009
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
Number
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
Number
|
|
Market
|
|
|
|
|
of
|
|
|
of
|
|
|
|
|
|
|
|
|
|
of
Shares
|
|
Value
of
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
or
Units of
|
|
Shares
or
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Units
of
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
|
Option
|
|
|
|
|
|
that
|
|
Stock
that
|
|
|
|
|
Options
|
|
|
Options
|
|
|
|
Exercise
|
|
|
Option
|
|
|
have
not
|
|
have
not
|
|
|
|
|
(#)
|
|
|
(#)
|
|
|
|
Price
|
|
|
Expiration
|
|
|
Vested
|
|
Vested
|
|
Name |
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
($)
|
|
|
Date
|
|
|
(#)
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melissa
Payner-Gregor
|
|
|
20,000
|
|
|
--
|
|
|
$
|
12.60
|
|
|
3/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kara
B. Jenny
|
|
|
24,000
|
|
|
--
|
|
|
$
|
9.10
|
|
|
12/26/2012
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
$ |
12.00
|
|
|
12/27/2015
|
|
|
|
|
|
|
|
|
|
2,500
|
|
|
--
|
|
|
$
|
12.60
|
|
|
3/23/2015
|
|
|
|
|
|
|
|
|
|
11,111
|
|
|
8,889
|
(1)
|
|
$
|
4.60
|
|
|
3/31/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
$143.84
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradford
Matson
|
|
|
1,944
|
(3)
|
|
8,056
|
|
|
$
|
1.52
|
|
|
8/31/2019
|
|
|
|
|
|
|
|
(1)
|
The
option vests at a rate of 2.778% per month for 36 months beginning March
31, 2008 after six months.
|
|
(2)
|
Represents
58 shares underlying unvested deferred stock units valued using the
closing price $2.48 of our Common Stock as of December 31,
2009.
|
|
(3)
|
The
option vests at a rate of 2.778% per month for 36 months beginning August
31, 2009 after one month.
|
Compensation
of Directors
The
following table sets forth information concerning the compensation of our
directors for the fiscal year ended December 31, 2009:
DIRECTOR
COMPENSATION — YEAR ENDED DECEMBER 31, 2009
|
|
Fees
Earned
or
Paid in
Cash
|
|
Restricted
Stock
Awards
|
|
Total
|
Name
(1)
|
|
($)
|
|
($)
(2)
|
|
($)
|
Riad
Abrahams(3)
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Mario
Ciampi
|
|
|
--
|
|
|
|
548
|
|
|
|
548
|
|
Barry
Erdos
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Michael
Helfand
|
|
|
16,000
|
|
|
|
1,369
|
|
|
|
17,369
|
|
Ann
Jackson
|
|
|
16,000
|
(6)
|
|
|
548
|
|
|
|
16,548
|
|
David
Janke(4)
|
|
|
--
|
|
|
|
2,441
|
|
|
|
2,441
|
|
Habib
Kairouz(5)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Martin
Miller
|
|
|
16,000
|
(6)
|
|
|
548
|
|
|
|
16,548
|
|
Neal
Moszkowski
|
|
|
--
|
|
|
|
548
|
|
|
|
548
|
|
Anthony
Plesner
|
|
|
18,000
|
(6)
|
|
|
684
|
|
|
|
18,684
|
|
David
Wassong
|
|
|
--
|
|
|
|
1,095
|
|
|
|
1,095
|
|
|
(1)
|
Ms.
Payner is not included in the table as she is also included as a Named
Executive Officer in the Summary Compensation Table. Ms. Payner
receives no additional compensation for her service as a director of the
Company.
|
|
(2)
|
Represents
the grant date fair value of the following Restricted Stock Awards all of
which were issued pursuant to the terms of the 2005 Stock Incentive Plan:
750 shares of Restricted Stock issued to Mr. Ciampi; 1,875 shares of
Restricted Stock issued to Mr. Helfand; 750 shares of Restricted Stock
issued to Ms. Jackson; 1,125 shares of Restricted Stock issued to Mr.
Janke; 750 shares of Restricted Stock
|
issued to
Mr. Miller; 750 shares of Restricted Stock issued to Mr. Moszkowski; 937 shares
of Restricted Stock issued to Mr. Plesner; and 1,500 shares of Restricted Stock
issued to Mr. Wassong.
|
(3)
|
Mr.
Abrahams resigned from the Board in August
2009.
|
|
(4)
|
Mr.
Janke was appointed to the Board in August
2009.
|
|
(5)
|
Mr.
Kairouz was appointed to the Board in December
2009.
|
|
(6)
|
Includes
a one-time bonus of $10,000 approved by the Compensation Committee in
January 2010, as described below.
|
Our
independent, outside non-employee directors (other than Messrs. Ciampi, Janke,
Kairouz, Moszkowski and Wassong who are designated under the Voting Agreement
and Mr. Erdos who is a former employee of the Company) are paid a cash stipend
of $1,500 for each board or committee meeting attended in person (and, in the
case of the Audit Committee Chairman, $2,000 per audit committee meeting) and
are reimbursed for expenses incurred on behalf of the Company. In
addition, each such director is paid an annual retainer of $10,000 at the first
regularly scheduled Board meeting of each fiscal year. The maximum
aggregate stipend and retainer paid to any such director in a year is $16,000
(or, in the case of the Audit Committee Chairman, $18,000). In March
2009, in order to assist our efforts to maintain the best liquidity position
possible, the Board unanimously agreed that annual retainers would be suspended
(other than the retainer paid to Mr. Helfand for 2009) until such time as the
Board deems appropriate. In January 2010, the Compensation Committee
approved the payment of a one-time bonus of $10,000 to each of our independent
directors that did not receive an annual retainer for 2009 (i.e., Ms. Jackson
and Messrs. Miller and Plesner).
Under the
terms of the 2005 Stock Incentive Plan, each non-employee director (including
Messrs. Ciampi, Janke, Kairouz, Moszkowski and Wassong but excluding Mr. Erdos,
who is a former employee of the Company) receives a one-time grant of 1,125
shares of Restricted 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 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 Exchange Act 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
SEC. Officers, directors and greater than ten-percent stockholders
are required by SEC regulation to furnish us with copies of all Section 16(a)
reports they file. Based solely on a review of the copies of such
reports furnished to us during or with respect to fiscal 2009, or written
representations that no Forms 5 were required, we believe that during the fiscal
year ended December 31, 2009 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 our counsel. Members of the Board
who have any personal interest in a transaction upon which the Board 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, consisting of independent
directors has previously reviewed such transaction.
Related
Person Transactions
Except as
described below, we are not aware of any transactions since the beginning of our
last fiscal year or any proposed transactions in which the Company was or is a
party, in which the amount involved exceeded $120,000, and in which a director,
director nominee, executive officer, holder of more than 5% of our Common Stock
or any member of the immediate family of any of the foregoing persons had or
will have a direct or indirect material interest.
Private Placement
Transaction
Habib
Kairouz, one of the managing members of Rho Capital Partners LLC, the managing
member of RMV which is the general partner of Rho, is a member of our
Board. In December 2009, Rho entered into the Securities Purchase
Agreement pursuant to which Rho purchased 2,786,337 shares of our Common Stock
from us at the Initial Closing for an aggregate purchase price of
$4,736,772.90. Pursuant to the terms of the Securities Purchase
Agreement, we propose to sell an additional 6,037,192 shares of our Common Stock
to Rho at the Second Closing of the Private Placement for an aggregate purchase
price of $10,263,226.40. The Review and Approval procedures relating
to Related Person Transactions do not apply to the approval of the issuance of
securities to Rho in the Private Placement transactions as such issuances were
approved by the Board prior to Rho becoming a 5% stockholder and Mr. Kairouz’s
election to the Board.
Conversion of
Notes
In March
2008, we entered into an agreement (which we refer to in this Information
Statement as the Commitment) with the Soros Parties and the Maverick Parties
pursuant to which they agreed to provide up to $3 million of debt financing to
us, on a standby basis, during fiscal 2008, provided that the commitment amount
would be reduced by the gross proceeds of any equity financing consummated by us
during that year. We drew down the Commitment in July 2008, which was
evidenced by the issuance of the Notes. As more fully described under
the caption “APPROVAL OF
PRIVATE PLACEMENT – Summary of Private Placement,” the Notes were
converted into an aggregate of 1,764,706 shares of Common Stock at the Initial
Closing and as a condition thereto. Pursuant to the conversion of the
Notes, the Soros Parties converted Notes with an aggregate principal amount of
$1,868,700 into 1,099,235 shares of Common Stock and the Maverick Parties
converted Notes with an aggregate principal amount of $1,131,300 into 665,471
shares of Common Stock. The Soros Parties beneficially owned
approximately 38% of the outstanding Common Stock prior to the Initial Closing
and currently own approximately 33.2% of the outstanding Common
Stock. The Maverick Parties beneficially owned approximately 24% of
the outstanding Common Stock prior to the Initial Closing and currently own
approximately 20.1% of the outstanding Common Stock. The Soros
Parties have designated two members of the Board and the Maverick Parties have
designated one member of the Board. The Soros Parties and the
Maverick Parties will continue to have Board designation rights following the
Second Closing, subject to certain conditions, as more fully described above
under the caption “APPROVAL OF
PRIVATE PLACEMENT – Summary of Private Placement – Board
Representation.” The issuance of the Notes to the Soros
Parties and the Maverick Parties, and the conversion provisions thereof, were
previously approved by the independent directors of the Board.
Indemnification
Agreements
In
connection with the Initial Closing, the Board authorized us to enter into
indemnification agreements with each member of the Board pursuant to which we
will agree to grant certain indemnification rights to each such director in
addition to any indemnification rights provided for in our Certificate of
Incorporation and by-laws. If we
are
required to indemnify any of our directors pursuant to such an Indemnification
Agreement, the amount of our indemnification obligation may exceed $120,000 in a
given fiscal year.
APPROVAL
OF THE SHARE REDUCTION AMENDMENT
As of the
Record Date, our Board of Directors recommended, and the holders of a majority
of our outstanding Common Stock approved the Share Reduction Amendment to our
Certificate of Incorporation, pursuant to which amendment (1) the total number
of authorized shares of our Common Stock will be decreased from 200,000,000
shares to 50,000,000 shares and (2) the total number of authorized shares of our
Preferred Stock will be decreased from 25,000,000 shares to 1,000,000
shares. The reduction in the number of authorized shares will become
effective upon the filing of a Certificate of Amendment (or a restatement of our
Certificate of Incorporation filed in accordance with Section 245 of the
Delaware General Corporation Law) with the Secretary of State of the State of
Delaware. The Certificate of Amendment will be filed promptly
following the effective date of the stockholder approval for the Share Reduction
Amendment on or about the 20th day
following the mailing of this Information Statement to our
stockholders.
Currently,
we are authorized to issue (1) up to 200,000,000 shares of Common Stock, of
which 18,552,737 shares were issued and outstanding as of the Record Date, and
(2) up to 25,000,000 shares of Preferred Stock, none of which were issued and
outstanding as of the Record Date. At our 2007 Annual Meeting of
stockholders, our stockholders voted to approve an amendment to our Certificate
of Incorporation to approve a reverse split of our Common Stock, at its
discretion, at any ratio within a range of 2:1 to 15:1, provided that such stock
split was effected prior to our 2008 annual meeting of
stockholders. We effected a 10:1 reverse stock split on April 3,
2008, but did not reduce our number of authorized shares of Common Stock at that
time. The primary reason for decreasing the number of shares of our
authorized Common Stock and Preferred Stock is to significantly reduce the
amount of Delaware franchise tax payable by us, which amount is determined, in
part, by the number of our authorized shares of capital stock. The
reduction in the number of authorized shares of Common Stock and Preferred Stock
will save us more than $90,000 in franchise taxes on an annual
basis.
Following
the effectiveness of the Share Reduction Amendment, we will be authorized to
issue 50,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock. We believe this number of authorized shares provides
sufficient flexibility to allow us to raise additional capital, if the need
arises, and to allow for the future issuance of stock options, DSUs and
restricted stock to our employees and directors.
APPROVAL
OF THE PLAN AMENDMENT
On
January , 2010, the Board approved an amendment to the
Plan, subject to stockholder approval, which would increase the aggregate number
of shares of Common Stock that may be the subject of stock-based awards granted
pursuant to the Plan (which shares are authorized as the Authorized Equity Award
Shares) by an additional 1,500,000 shares (which amendment we refer to in this
Information Statement as the Plan Amendment). The Board recommended
that the Plan Amendment be presented to our stockholders for approval, and the
Plan Amendment was approved by our stockholders
on ,
2010. The Board adopted the Plan Amendment to ensure that there are
sufficient Authorized Equity Award Shares available under the Plan to allow for
the issuance of the Management Option Pool while maintaining flexibility to
allow us to make future issuances of equity awards under the Plan (in addition
to the Management Option Pool). A copy of the Plan Amendment, which
will be effective on the effective date of the stockholder approval therefore
(which is expected to be on or about the 20th day
following the mailing of this Information Statement to our stockholders) is
attached hereto as Annex A.
Summary
of the Plan
The
following is a summary of the material provisions of the Plan.
Administration; Eligibility; Shares
Available for Issuance; Limitations on Issuance. The Plan is
administered by the Compensation Committee. The Compensation
Committee is authorized from time to time to select and to grant awards under
the Plan to such key employees, non-employee directors, contractors and
consultants of the Company and its subsidiaries as the Compensation Committee,
in its discretion, selects. We currently have 31 officers and key
employees, and 9 non-employee directors participating in the
Plan. The
Compensation
Committee is authorized to delegate any of its authority under the Plan
(including the authority to grant awards) to such executive officers of the
Company as it thinks appropriate and is permitted by Rule 16b-3 of the Exchange
Act and Section 162(m) of the Code.
Shares
granted under the Plan will be made available from unissued Common Stock or from
Common Stock held in treasury. The aggregate number of shares of
Common Stock currently issuable under the Plan is equal to 931,103 shares of
Common Stock, plus any shares that became available after February 17, 2005
under the Prior Plans as a result of awards that lapsed or were
terminated. The Plan, as currently in effect, also imposes the
following limitations on awards issued under the Plan: (i) the maximum number of
shares of Common Stock that may be granted as awards granted to any participant
in any fiscal year shall not exceed 5,000,000 shares; (ii) the maximum amount of
cash or cash payments that may be granted as awards in any fiscal year shall not
exceed $2,000,000; and (iii) the maximum number of dividend rights that may be
granted as awards to any participant in any fiscal year shall not exceed
dividend rights with respect to 5,000,000 shares. The shares of
Common Stock subject to the Plan and each limit are subject to adjustment in the
event of certain changes of capitalization as set forth in Section 8(a) of the
Plan.
Options. The Plan
authorizes the Compensation Committee to grant to participants options to
purchase Common Stock, which may be in the form of a non-statutory stock option
or, if granted to an employee, in the form of an Incentive Stock Option (which
we refer to in this Information Statement as ISOs). The terms of all
ISOs issued under the Plan will comply with the requirements of Section 422 of
the Code. The exercise price of options granted under the Plan may
not be less than 100% of the fair market value of the Common Stock at the time
the option is granted. The Compensation Committee will determine the
time an option may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable, method of delivery and
whether a stock appreciation right will be granted in tandem with other
awards. Under the Plan, each non-employee director receives a
one-time grant of 1,125 shares of Restricted 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 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). The Plan also permits the Compensation
Committee to substitute an award of equivalent fair market value for any stock
option that a non-employee director would otherwise receive pursuant to the
formula grants described above.
Stock Appreciation
Rights. The Plan authorizes the Compensation Committee to
grant to participants stock appreciation rights. A stock appreciation
right entitles the grantee to receive upon exercise the excess of (a) the fair
market value of a specified number of shares of Common Stock at the time of
exercise over (b) the fair market value of the Common Stock at the time the
stock appreciation right was granted. The Compensation Committee will
determine the time a stock appreciation right may be exercised in whole or in
part, the method of exercise, method of settlement, form of consideration
payable, method of delivery and whether a stock appreciation right will be
granted in tandem with other awards.
Deferred Stock
Units. The Plan authorizes the Compensation Committee to grant
to participants deferred stock units. A deferred stock unit is an
award that entitles a participant to elect, at the discretion of the
Compensation Committee, to defer receipt of all or a portion of a bonus, or a
stock-based award or cash payment made pursuant to the Plan. No
Common Stock will be issued at the time a deferred stock unit is
granted. Rather, the Company will establish an account for the
participant and will record in such account the number of deferred stock units
granted to such participant (which units will be valued initially based upon the
then-fair market value of the Common Stock). The Compensation
Committee will also determine whether and to what extent to credit to the
account of, or to pay currently to, each recipient of a deferred stock unit, an
amount equal to any dividends paid by the Company during the period of deferral
with respect to the corresponding number of shares of Common Stock.
Restricted
Stock. The Plan authorizes the Compensation Committee to grant
to participants restricted Common Stock with such restriction periods,
restrictions on transferability, and performance goals as the Compensation
Committee may designate at the time of grant. Restricted stock may
not be sold, assigned, transferred, pledged or otherwise encumbered during the
restriction period. Other than the restrictions on transfer, a
participant will have all the rights of a holder of the shares of Common Stock,
representing the restricted stock, including the rights to all distributions
(including regular cash dividends) made or declared with respect to
the
restricted
stock. If any such dividends are distributions are paid in stock, the
stock will be subject to restrictions and a risk of forfeiture to the same
extent as the restricted stock with respect to which the stock has been
distributed. Restricted stock will be forfeitable to the Company upon
a participant’s termination of employment during the applicable restricted
period. The Compensation Committee, in its discretion, may accelerate
the time at which restrictions or forfeiture conditions will lapse, or may
remove any performance goal requirement upon the death, disability, retirement
or otherwise of a participant.
Cash Payments. The
Plan authorizes the Compensation Committee, subject to limitations under
applicable law, to grant cash payments to participants. These may be
granted separately or as a supplement to any stock-based award.
Dividend
Rights. The Plan authorizes the Compensation Committee to
grant dividend rights to participants, which rights entitle a participant to
receive the dividends on Common Stock to which the participant would be entitled
if the participant owned the number of shares of Common Stock represented by the
dividend rights. Dividend rights may be granted separately or in
tandem with any other awards. If a dividend right is granted in
tandem with another award, it will lapse, expire or be forfeited simultaneously
with the lapse, expiration or forfeiture of the tandemed award. If
the dividend right is granted separately, it will lapse, expire or be forfeited
as the Compensation Committee determines.
Other Stock-Based
Awards. To permit the Compensation Committee the flexibility
to respond to future changes in compensation arrangements, the Plan authorizes
the Compensation Committee, subject to limitations under applicable law, to
grant to participants such other stock-based awards as deemed by the
Compensation Committee to be consistent with the purposes of the
Plan. The Compensation Committee may determine the terms and
conditions of such stock-based awards.
Loans. Subject at
all times to laws and regulations and other binding obligations or provisions
applicable to the Company, including but not limited to the Sarbanes-Oxley Act
of 2002, the Plan authorizes the Compensation Committee, on behalf of the
Company, to make, guarantee or arrange for a loan or loans to participants with
respect to the exercise of any option or other payment in connection with any
award, including the payment by a participant of any or all federal, state or
local income or other taxes due in connection with any award. The
terms and conditions of each loan, including the interest rates, maturity date
and whether the loan will be secured or unsecured will be established by the
Compensation Committee.
Terms of
Awards. The term of each award will be determined by the
Compensation Committee at the time each award is granted, provided that the
terms of options, stock appreciation rights and dividend rights may not exceed
ten years. Awards granted under the Plan generally will not be
transferable, except by will and the laws of descent and
distribution. However, the Compensation Committee may grant awards to
participants (other than ISOs) that may be transferable without consideration to
immediate family members (i.e., children, grandchildren or spouse), to trusts
for the benefit of such immediate family members and to partnerships in which
such family members are the only partners.
Award
Agreements. All awards granted under the Plan will be
evidenced by a written agreement that may include such additional terms and
conditions not inconsistent with the Plan as the Compensation Committee may
specify. Award agreements are not required to contain uniform terms
or provisions.
Term of the Plan; Amendment and
Adjustment. No awards may be granted under the Plan after
February 16, 2015. The Plan may be terminated by the Board of
Directors at any time, but the termination of the Plan will not adversely affect
awards that have previously been granted. In addition, the Board of
Directors may amend, alter, suspend, discontinue or terminate the Plan or the
Compensation Committee’s authority to grant awards under the Plan without the
consent of the Company’s stockholders or participants, except that any such
amendment, alteration, suspension, discontinuation or termination shall be
subject to the approval of the Company’s stockholders within one year after such
Board action if such stockholder approval is required by any federal or state
law or regulation or the rules of any stock exchange or automated quotation
system on which the Common Stock may then be listed or quoted.
New
Plan Benefits
The
benefits to be received by or allocated to our executive officers, non-employee
directors and key employees as a result of the increase in the number of
Authorized Benefit Shares are not determinable since the Compensation Committee
has made no decisions regarding the allocation of the Management Option Pool or
the issuance of any other awards from such increase.
Equity
Compensation Plan Information
The
following table reflects information for our equity compensation plans as of
December 31, 2009.
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plan
|
Equity
compensation plans approved by security holders
|
204,064
(1)
|
$
8.53 (2)
|
1,184,752
|
Equity
compensation plans not approved by security holders
|
16,010
|
$
9.24
|
--
|
Total
|
220,074
(1)
|
$
8.58 (2)
|
1,184,752
|
|
(1)
|
Includes
191,750 options to purchase shares of Common Stock and 12,314 Deferred
Stock Units.
|
|
(2)
|
Weighted
average exercise price includes options to purchase shares of Common Stock
and Deferred Stock Units referred to in Note (1)
above.
|
Federal
Income Tax Consequences
The
following discussion is intended to provide only a general outline of the
federal income tax consequences of participation in the Plan and the receipt of
equity awards or payments thereunder to participants subject to U.S. income
taxes. It does not address any other taxes imposed by the United
States, taxes imposed by any state or political subdivision thereof or foreign
jurisdiction, or the tax consequences applicable to participants who are not
subject to U.S. income taxes. As a consequence, the discussion does
not purport to be a complete analysis of all potential tax consequences relevant
to participants and the Company, and is based on federal income tax law and
interpretational authorities as of the date of this Information Statement, which
are subject to change at any time.
Options. The grant
of an option to purchase Common Stock will have no tax consequences for the
participant or the Company. A participant will have no taxable income
upon exercise of an ISO, except that the alternative minimum tax may
apply. Upon the exercise of a non-statutory stock option, a
participant generally must recognize ordinary income equal to the fair market
value of the Common Stock acquired upon exercise of the option minus the
exercise price.
Gain
realized upon a disposition of the Common Stock acquired pursuant to the
exercise of an ISO will be taxed as long-term capital gain if the participant
holds the shares of Common Stock for at least two years after the date the ISO
was granted and for one year after the date of the ISO was
exercised. Upon a disposition of Common Stock acquired by exercise of
an ISO before the end of the applicable ISO holding periods, the participant
generally must recognize ordinary income equal to the lesser of (1) the fair
market value of the Common Stock at the date of exercise of the ISO minus the
exercise price or (2) the amount realized upon the disposition of the Common
Stock acquired upon exercise of the ISO minus the exercise price.
The
Company will not be entitled to any tax deduction with respect to an ISO if the
participant holds the Common Stock acquired pursuant to the exercise of the ISO
for the ISO holding periods.
Stock Appreciation
Rights. As with an option, the grant of a stock appreciation
right will have no tax consequences for the participant or the
Company. Upon exercise of a stock appreciation right, a participant
generally must recognize ordinary income equal to the fair market value of the
Common Stock acquired over the grant price of the stock appreciation right at
the time the stock appreciation right was granted.
Deferred Stock
Units. A participant who is granted a deferred stock unit will
not recognize any compensation income upon the grant or the vesting of the
deferred stock unit, although if the deferred stock unit vests prior to delivery
of such award, the deferred stock unit will be subject to employment tax, but
not federal income tax, on the applicable vesting dates. The
participant will recognize ordinary income equal to the amount of cash and the
fair market value of the Common Stock delivered to the participant in settlement
of the deferred stock units.
Restricted Stock. A
participant normally will not recognize taxable income and the Company will not
be entitled to a deduction upon the grant of restricted Common
Stock. When the Common Stock vests, the participant will recognize
ordinary income in an amount equal to the fair market value of the Common Stock
that vests at that time less the amount, if any, paid for the Common
Stock. However, a participant may elect to recognize ordinary income
in the year the Common Stock is granted in an amount equal to the excess of the
fair market value of the Common Stock at the grant date, determined without
regard to certain restrictions, over the amount, if any, paid for the Common
Stock. Any gain or loss recognized by the participant upon the
subsequent disposition of the Common Stock will be taxed as short-term or
long-term capital gain but will not result in any further deduction for the
Company.
Cash and Dividend
Payments. A participant will recognize ordinary income upon
receipt of any cash pursuant to any award, including as a dividend
right.
Generally, and except as noted above
with respect to ISOs, the Company should be able to claim an income tax
deduction at the time the participant recognizes the income attributable
to an award in an amount equal to the income recognized by the participant,
subject to Section 162(m) of the Code applicable to awards payable to covered
employees and awards which vest or become payable to a participant who is
a “disqualified individual” and that constitute an “excess parachute payment”
within the meaning of Section 280G of the Code by reason of a change of
control.
INTERESTS
OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE ACTED UPON
Interests
of the Prentice Parties and the Maverick Parties
We have
agreed to include in this Information Statement or on a Proxy Statement relating
to the approval of the Actions a vote on or approval of (as applicable) a
potential Secondary Purchase of shares of our Common Stock from the Prentice
Parties and the Maverick Parties. The Prentice Parties beneficially
owned approximately 22% of the outstanding Common Stock prior to the Initial
Closing and currently own approximately 16.4% of the outstanding Common
Stock. The Maverick Parties beneficially owned approximately 24% of
the outstanding Common Stock prior to the Initial Closing and currently own
approximately 20.1% of the outstanding Common Stock. The Prentice
Parties and the Maverick Parties have each designated one member of the Board
and will continue to have Board designation rights following the Second Closing,
subject to certain conditions, as more fully described above under the caption
“APPROVAL OF PRIVATE PLACEMENT
– Summary of Private Placement – Board Representation.”
Interests
of Management and Non-Employee Directors
As
described above under the caption “APPROVAL OF PRIVATE PLACEMENT –
Summary of Private Placement,” the Compensation Committee intends that,
following the Second Closing, the Compensation Committee will grant a portion of
the Management Option Pool to certain members of management. These
members of management (which will include, without limitation, Ms. Payner, Ms.
Jenny, Mr. Keane and Mr. Matson) have an interest in the approval of the Second
Closing as the issuance of the Management Option Pool is conditioned on the
consummation of the Second Closing. Such members of management also
have an interest in the
approval
of the Plan Amendment as the issuance of the Management Option Pool is
conditioned on the approval of the Plan Amendment by our
stockholders.
In
addition, although we cannot currently determine the number of shares subject to
awards that may be granted in the future to executive officers or non-employee
directors in addition to the Management Option Pool, each of the executive
officers and non-employee directors of the Company has an interest in the
approval of the Plan Amendment insofar as they are eligible to receive any such
additional future stock-based awards thereunder.
EXPENSE
OF INFORMATION STATEMENT
The
expenses of mailing this Information Statement will be borne by us, including
expenses in connection with the preparation and mailing of this Information
Statement and all related materials. It is contemplated that
brokerage houses, custodians, nominees, and fiduciaries will be requested to
forward this Information Statement to the beneficial owners of our Common Stock
held of record by such person and that we will reimburse them for their
reasonable expenses incurred in connection therewith. Additional
copies of this Information Statement may be obtained at no charge by writing us
at: 42 West 39th Street,
New York, NY 10018 Attn: Corporate Secretary.
MISCELLANEOUS
Only one
Information Statement is being delivered to multiple stockholders sharing an
address unless we have received contrary instructions from one or more of the
stockholders sharing such address. We undertake to deliver promptly
upon request a separate copy of this Information Statement to any stockholder at
a shared address to which a single copy of this Information Statement was
delivered and provide instructions as to how the stockholder can notify us that
the stockholder wishes to receive a separate copy of this Information Statement
or other communications to the stockholder in the future. In the
event a stockholder desires to provide us with such a request, it may be given
verbally by telephoning our offices at (212) 944-8000 or by mail to our address
at 42 West 39th Street, New York, NY 10018, Attn: Corporate
Secretary. In addition, stockholders sharing an address can request
delivery of a single copy of annual reports or proxy statements if you are
receiving multiple copies upon written or oral request to the Corporate
Secretary at the address and telephone number stated above.
A copy of
this Information Statement is available online at
www.bluefly.com. You can also request copies of these materials and a
copy of the proxy statement, annual report or proxy card relating to any of our
future security holder meetings by contacting us via toll-free telephone
at ,
via email
at or
on our website www.bluelfy.com.
We file
annual, quarterly and current reports, proxy statements and registration
statements with the SEC. These filings are available to the public
over the Internet at the SEC’s website at http://www.sec.gov. You may
also read and copy any document we file with the SEC without charge at the
public reference facility maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of
the SEC at 100 F Street, N.E., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference
facilities.
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By
Order of the Board,
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/s/ David
Wassong
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New
York, New York
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David
Wassong,
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, 2010
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Interim
Chairman of the Board
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Appendix
A
AMENDMENT
NO. 1
TO
THE
AMENDED
AND RESTATED
BLUEFLY,
INC. 2005 STOCK INCENTIVE PLAN
Bluefly,
Inc., having previously established the Amended and Restated Bluefly, Inc. 2005
Stock Incentive Plan (the “Plan”), and having
obtained stockholder approval for the amendment to the Plan set forth herein,
does hereby amend the Plan by deleting paragraph (a) of Section 5 of the Plan in
its entirety and replacing it with the following:
“(a)
Subject to the provisions of Section 8 hereof, the aggregate number of shares of
Stock available for issuance as Awards under the Plan shall not exceed 2,431,103
shares, increased for shares of Stock that are represented by awards outstanding
under the Prior Plans on the original effective date of this Plan (prior to any
amendments) that, subsequent to such date, have been or are in the future
forfeited, cancelled or expire unexercised under the Prior Plans.”
[Remainder of Page Intentionally Left
Blank.]
IN
WITNESS WHEREOF, the undersigned has executed this Amendment No. 1 to the
Amended and Restated Bluefly, Inc. 2005 Stock Incentive Plan as of the _____ day
of ___________, 2010.
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BLUEFLY,
INC.
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By:
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Name:
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Title:
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