**Exhibit 10.5**

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATEHAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIESACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVEREGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM THE REGISTRATIONREQUIREMENTS UNDER SUCH ACT OR LAWS AND NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORYAUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.

 

WARRANT NO. 2

 

WARRANT

 

TO PURCHASE SHARES OF COMMON STOCK

 

OF

 

BLUEFLY, INC.

 

THIS IS TO CERTIFY THATRHO VENTURES VI, L.P., a Delaware limited partnership, or its registered assigns (the “Holder”), is the ownerof the right to subscribe for and to purchase from BLUEFLY, INC., a Delaware corporation (the “Company”), FourHundred Seventy Six Thousand One Hundred Ninety (476,190) (the “Number Issuable”), fully paid, duly authorizedand non-assessable shares of Common Stock at a price per share of $1.05 (the “Exercise Price”), at any time,in whole or in part, on or after August 13, 2012 (the “Effective Date”) through 5:00 PM New York City time, on August13, 2019 (the “Expiration Date”) all on the terms and subject to the conditions hereinafter set forth (the “Warrants”).

 

The Number Issuable andthe Exercise Price are subject to further adjustment from time to time pursuant to the provisions of Section 2 of this WarrantCertificate.

 

Capitalized terms usedherein but not otherwise defined shall have the meanings given to them in Section 12 hereof.

 

**Section 1.         Exerciseof Warrants.**

 

(a)         Subjectto paragraphs (d) and (e) of this Section 1, the Warrants evidenced hereby may be exercised, in whole or in part, by the Holderhereof at any time or from time to time, on or after the Effective Date and on or prior to the Expiration Date upon delivery tothe Company at the principal executive office of the Company in the United States of America, of (A) this Warrant Certificate,(B) a written notice stating that such Holder elects to exercise the Warrants evidenced hereby in accordance with the provisionsof this Section 1 and specifying the number of Warrants being exercised and the name or names in which the Holder wishes the certificateor

 

 

certificatesfor shares of Common Stock to be issued and (C) payment of the Exercise Price for such Warrants, which shall be payable by anyone or any combination of the following: (i) cash; (ii) certified or official bank check payable to the order of the Company;(iii) by the surrender (which surrender shall be evidenced by cancellation of the number of Warrants represented by any WarrantCertificate presented in connection with a Cashless Exercise (as defined below)) of a Warrant or Warrants (represented by oneor more relevant Warrant Certificates), and without the payment of the Exercise Price in cash, in return for the delivery to thesurrendering Holder of such number of shares of Common Stock equal to the number of shares of the Common Stock for which suchWarrant is exercisable as of the date of exercise (if the Exercise Price were being paid in cash or certified or official bankcheck) reduced by that number of shares of Common Stock equal to the quotient obtained by dividing (x) the aggregate ExercisePrice (assuming no Cashless Exercise) to be paid by (y) the Market Price of one Share of Common Stock on the Business Day whichimmediately precedes the day of exercise of the Warrant; or (iv) by the delivery of shares of the Common Stock having a value(as defined by the next sentence) equal to the aggregate Exercise Price to be paid, that are either held by the Holder or areacquired in connection with such exercise, and without payment of the Exercise Price in cash. Any share of Common Stock deliveredas payment for the Exercise Price in connection with an In-Kind Exercise (as defined below) shall be deemed to have a value equalto the Market Price of one Share of Common Stock on the Business Day that immediately precedes the day of exercise of the Warrants.An exercise of a Warrant in accordance with clause (iii) is herein referred to as a “Cashless Exercise” andan exercise of a Warrant in accordance with clause (iv) is herein referred to as an “In-Kind Exercise.” Thedocumentation and consideration, if any, delivered in accordance with subsections (A), (B) and (C) are collectively referred toherein as the “Warrant Exercise Documentation.”

 

(b)         Aspromptly as practicable, and in any event within five (5) Business Days after receipt of the Warrant Exercise Documentation, theCompany shall deliver or cause to be delivered (A) certificates representing the number of validly issued, fully paid and nonassessableshares of Common Stock specified in the Warrant Exercise Documentation, (B) if applicable, cash in lieu of any fraction of a share,as hereinafter provided, and (C) if less than the full number of Warrants evidenced hereby are being exercised or used in a CashlessExercise, a new Warrant Certificate or Certificates, of like tenor, for the number of Warrants evidenced by this Warrant Certificate,less the number of Warrants then being exercised and/or used in a Cashless Exercise. Such exercise shall be deemed to have beenmade at the close of business on the date of delivery of the Warrant Exercise Documentation so that the Person entitled to receiveshares of Common Stock upon such exercise shall be treated for all purposes as having become the record holder of such shares ofCommon Stock at such time.

 

(c)         TheCompany shall pay all expenses incurred by the Company in connection with and taxes and other governmental charges (other thanincome taxes of the Holder) that may be imposed in respect of, the issue or delivery of any shares of Common Stock issuable uponthe exercise of the Warrants evidenced hereby. The Company shall not be required, however, to pay any tax or other charge imposedin

 

 

connectionwith any transfer involved in the issue of any certificate for shares of Common Stock, as the case may be, in any name other thanthat of the registered holder of the Warrant evidenced hereby.

 

(d)         Inconnection with the exercise of any Warrants evidenced hereby, no fractions of shares of Common Stock shall be issued, but in lieuthereof the Company shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interestmultiplied by the Market Price for one Share of Common Stock on the Business Day which immediately precedes the day of exercise.If more than one (1) such Warrant shall be exercised by the holder thereof at the same time, the number of full shares of CommonStock issuable on such exercise shall be computed on the basis of the total number of Warrants so exercised.

 

(e)         Notwithstandinganything to the contrary contained herein, the Holder and the Company acknowledge and agree that these Warrants shall not becomeexercisable until the Stockholder Approval has been obtained. The Company shall take such actions as are reasonably necessary toobtain the Stockholder Approval through an action by majority written consent of the stockholders in accordance with Section1.3 of that certain Note and Warrant Purchase Agreement, dated as of the date hereof, by and among the Company, the Holder andPrentice Consumer Partners, LP. “Stockholder Approval” means such approval of thestockholders of the Company as may be necessary under the rules of the NASDAQ Capital Market or any other national securities exchangeor quotation system upon which the Common Stock may be listed from time to time, in order to permit the exercise in full of theWarrants.

 

**Section 2.         CertainAdjustments.**

 

(a)         Thenumber of shares of Common Stock purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustmentas follows:

 

(i)         StockDividends, Subdivision, Combination or Reclassification of Common Stock.If at any time after the date of the issuance of this Warrant the Company shall (i) pay a dividend on Common Stock in shares ofits capital stock, (ii) combine its outstanding shares of Common Stock into a smaller number of shares, (iii) subdivide its outstandingshares of Common Stock as the case may be, or (iv) issue by reclassification of its shares of Common Stock any shares of capitalstock of the Company, then, on the record date for such dividend or the effective date of such subdivision or split-up, combinationor reclassification, as the case may be, the number and kind of shares to be delivered upon exercise of this Warrant will be adjustedso that the Holder will be entitled to receive the number and kind of shares of capital stock that such Holder would have ownedor been entitled to receive upon or by reason of such event had this Warrant been exercised immediately prior thereto, and theExercise Price will be adjusted as provided below in paragraph 2(a)(v).

 

(ii)         ExtraordinaryDistributions. If at any time after the date of issuance of this Warrant, the Company shall distribute to all holders of CommonStock

 

 

(includingany such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporationand Common Stock is not changed or exchanged) cash, evidences of indebtedness, securities or other assets (excluding (A) ordinarycourse cash dividends to the extent such dividends do not exceed the Company’s retained earnings and (B) dividends payablein shares of capital stock for which adjustment is made under Section 2(a)(i)), or rights, options or warrants to subscribe foror purchase securities of the Company, then in each such case the number of shares of Common Stock to be delivered to such Holderupon exercise of this Warrant shall be increased so that the Holder thereafter shall be entitled to receive the number of sharesof Common Stock determined by multiplying the number of shares such Holder would have been entitled to receive immediately beforesuch record date by a fraction, the denominator of which shall be the Exercise Price on such record date minus the then fair marketvalue (as reasonably determined by the Board of Directors of the Company in good faith) of the portion of the cash, evidencesof indebtedness, securities or other assets so distributed or of such rights or warrants applicable to one share of the CommonStock (provided that such denominator shall in no event be less than $.01) and the numerator of which shall be the Exercise Price.

 

(iii)         Reorganization,etc. If at any time after the date of issuance of this Warrant any consolidation of the Company with or merger of the Companywith or into any other Person (other than a merger or consolidation in which the Company is the surviving or continuing corporationand which does not result in any reclassification of, or change (other than a change in par value or from par value to no par valueor from no par value to par value, or as a result of a subdivision or combination) in, outstanding shares of Common Stock) or anysale, lease or other transfer of all or substantially all of the assets of the Company to any other person (each, a “ReorganizationEvent”), shall be effected in such a way that the holders of the Common Stock shall be entitled to receive cash, stock,other securities or assets (whether such cash, stock, other securities or assets are issued or distributed by the Company or anotherPerson) with respect to or in exchange for the Common Stock, then this Warrant shall automatically become exercisable only forthe kind and amount of cash, stock, other securities or assets receivable upon such Reorganization Event by a holder of the numberof shares of the Common Stock that such holder would have been entitled to receive upon exercise of this Warrant had this Warrantbeen exercised immediately before such Reorganization Event, subject to adjustments that shall be as nearly equivalent as may bepracticable to the adjustments provided for in this Section 2(a). The Company shall not enter into any of the transactions referredto in this Section 2(a)(iii) unless effective provision shall be made so as to give effect to the provisions set forth in thisSection 2(a)(iii).

 

(iv)         Carryover.Notwithstanding any other provision of this Section 2(a), no adjustment shall be made to the number of shares of either CommonStock to be delivered to the Holder (or to the Exercise Price) if such adjustment represents less than .05% of the number of sharesto be so delivered, but any lesser adjustment shall be carried forward and shall be made at the time and together with the nextsubsequent adjustment that together with any adjustments so carried forward shall amount to .05% or more of the number of sharesto be so delivered.

 

 

(v)         ExercisePrice Adjustment. Whenever the Number Issuable upon the exercise of the Warrant is adjusted as provided pursuant to this Section2(a), the Exercise Price per share payable upon the exercise of this Warrant shall be adjusted by multiplying such Exercise Priceimmediately prior to such adjustment by a fraction, of which the numerator shall be the Number Issuable upon the exercise of theWarrant immediately prior to such adjustment, and of which the denominator shall be the Number Issuable immediately thereafter;provided, however, that the Exercise Price for each Share of the Common Stock shall in no event be less than the par value of ashare of such Common Stock.

 

(b)         Noticeof Adjustment. Whenever the Number Issuable or the Exercise Price is adjusted as herein provided, the Company shall promptlymail by first class mail, postage prepaid, to the Holder, notice of such adjustment or adjustments setting forth the Number Issuableand the Exercise Price after such adjustment, setting forth a brief statement of the facts requiringsuch adjustment and setting forth the computation by which such adjustment was made.

 

**Section 3.         NoRedemption.** The Company shall not have any right to redeem any of the Warrants evidenced hereby.

 

**Section 4.         Noticeof Certain Events.** In case at any time or from time to time (i) the Company shall declareany dividend or any other distribution to all holders of Common Stock, (ii) the Company shall authorize the granting to the holdersof Common Stock of rights or warrants to subscribe for or purchase any additional shares of stock of any class or any other right,(iii) the Company shall authorize the issuance or sale of any other shares or rights which would result in an adjustment to theNumber Issuable pursuant to Section 2(a)(i), (ii) or (iii), (iv) there shall be any capital reorganization or reclassificationof Common Stock of the Company or consolidation or merger of the Company with or into another Person, or any sale or other dispositionof all or substantially all the assets of the Company, or (v) there shall be a voluntary or involuntary dissolution, liquidationor winding up of the Company, then, in any one or more of such cases the Company shall mail to the Holder at such Holder’saddress as it appears on the transfer books of the Company, as promptly as practicable but in any event at least 10 days priorto the date on which the transactions contemplated in Section 2(a)(i), (ii) or (iii) a notice stating (a) the date on which a recordis to be taken for the purpose of such dividend, distribution, rights or warrants or, if a record is not to be taken, the dateas of which the holders of record of either Common Stock to be entitled to such dividend, distribution, rights or warrants areto be determined, or (b) the date on which such reclassification, consolidation, merger, sale, conveyance, dissolution, liquidationor winding up is expected to become effective. Such notice also shall specify the date as of which it is expected that the holdersof record of the Common Stock shall be entitled to exchange the Common Stock for shares of stock or other securities or propertyor cash deliverable upon such reorganization, reclassification, consolidation, merger, sale, conveyance, dissolution, liquidationor winding up.

 

 

**Section 5.         CertainCovenants.**The Company covenants and agrees that all shares of Common Stock ofthe Company which may be issued upon the exercise of the Warrants evidenced hereby will be duly authorized, validly issued andfully paid and nonassessable. The Company shall at all times reserve and keep available for issuance upon the exercise of the Warrants,such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the exerciseof all outstanding Warrants, and shall take all action required to increase the authorized number of shares of Common Stock ifat any time there shall be insufficient authorized but unissued shares of Common Stock to permit such reservation or to permitthe exercise of all outstanding Warrants.

 

**Section 6.         RegisteredHolder.** The persons in whose names this Warrant Certificate is registered shall be deemedthe owner hereof and of the Warrants evidenced hereby for all purposes. The registered Holder of this Warrant Certificate, in theircapacity as such, shall not be entitled to any rights whatsoever as a stockholder of the Company, except as herein provided.

 

**Section 7.         Transferof Warrants.** Any transfer of the rights represented by this Warrant Certificate shall be effected by the surrender of thisWarrant Certificate, along with the form of assignment attached hereto, properly completed and executed by the registered Holderhereof, at the principal executive office of the Company in the United States of America, together with an appropriate investmentletter and opinion of counsel, if deemed reasonably necessary by counsel to the Company to assure compliance with applicable securitieslaws. Thereupon, the Company shall issue in the name or names specified by the registered Holder hereof and, in the event of apartial transfer, in the name of the registered Holder hereof, a new Warrant Certificate or Certificates evidencing the right topurchase such number of shares of Common Stock as shall be equal to the number of shares of Common Stock then purchasable hereunder.

 

**Section 8.         Denominations.**The Company covenants that it will, at its expense, promptly upon surrender of this Warrant Certificate at the principal executiveoffice of the Company in the United States of America, execute and deliver to the registered Holder hereof a new Warrant Certificateor Certificates in denominations specified by such Holder for an aggregate number of Warrants equal to the number of Warrants evidencedby this Warrant Certificate.

 

**Section 9.         Replacementof Warrants.** Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of thisWarrant Certificate and, in the case of loss, theft or destruction, upon delivery of an indemnity reasonably satisfactory to theCompany (in the case of an insurance company or other institutional investor, its own unsecured indemnity agreement shall be deemedto be reasonably satisfactory), or, in the case of mutilation, upon surrender and cancellation thereof, the Company will issuea new Warrant Certificate of like tenor for a number of Warrants equal to the number of Warrants evidenced by this Warrant Certificate.

 

 

**Section 10.         GoverningLaw.****THIS WARRANT CERTIFICATE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALLBE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.**

 

**Section 11.         RightsInure to Registered Holder.** The Warrants evidenced by this Warrant Certificate will inure to the benefit of and be bindingupon the registered Holder thereof and the Company and their respective successors and permitted assigns. Nothing in this WarrantCertificate shall be construed to give to any Person other than the Company and the registered Holder thereof any legal or equitableright, remedy or claim under this Warrant Certificate, and this Warrant Certificate shall be for the sole and exclusive benefitof the Company and such registered Holder. Nothing in this Warrant Certificate shall be construed to give the registered Holderhereof any rights as a Holder of shares of either Common Stock until such time, if any, as the Warrants evidenced by this WarrantCertificate are exercised in accordance with the provisions hereof.

 

**Section 12.         Definitions.**For the purposes of this Warrant Certificate, the following terms shall have the meanings indicated below:

 

“BusinessDay” means any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York, NewYork are authorized or required by law or executive order to close.

 

“Capital Stock”of any Person means any and all shares, interests, participations or other equivalents (however designated) of such Person’scapital stock (or equivalent ownership interests in a Person not a corporation) whether now outstanding or hereafter issued, including,without limitation, any rights, warrants or options to purchase such Person’s capital stock.

 

“Common Stock”shall mean the common stock of the Company.

 

“Market Price”shall mean, per share of Common Stock, on any date specified herein: (i) if the shares of Common Stock are traded on the NASDAQCapital Market, the last bid price reported on that date; (ii) if the shares of Common Stock are no longer quoted on NASDAQ CapitalMarket and are listed on any other national securities exchange, the last sale price of the Common Stock reported by such exchangeon that date; (iii) if the shares of Common Stock are not quoted on a any such market or listed on any such exchange and the sharesof Common Stock are traded in the over-the-counter market, the last price reported on such day by the OTC Bulletin Board; (iv)if the shares of Common Stock are not quoted on any such market, listed on any such exchange or quoted on the OTC Bulletin Board,then the last price quoted on such day in the over-the-counter market as reported by the National Quotation Bureau Incorporated(or any similar organization or agency succeeding its functions of

 

 

reportingprices); or (v) if none of clauses (i)-(iv) are applicable, then as determined, in good faith, by the Board of Directors of theCompany.

 

“Person”shall mean any individual, corporation, limited liability company, partnership, trust, incorporated or unincorporated association,joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.

 

**Section13.         ****Notices.** All notices, demands and other communicationsprovided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receiptrequested, courier services or personal delivery, (a) if to the Holder of a Warrant, at such Holder’s last known addressappearing on the books of the Company; and (b) if to the Company, at its principal executive office in the United States, or suchother address as shall have been furnished to the party given or making such notice, demand or other communication. All such noticesand communications shall be deemed to have been duly given: (i) when delivered by hand, if personallydelivered; (ii) when delivered to a courier if delivered by commercial overnight courier service; and (iii) five (5) Business Daysafter being deposited in the mail, postage prepaid, if mailed.

 

*[Signature Page Follows]*

 

 

IN WITNESS WHEREOF,the Company has caused this Warrant Certificate to be duly executed as of this 13th day of August 2012.

  

 

ACCEPTED AND AGREED TO

AS OF AUGUST 13, 2012:

 

 

 

[Form of Assignment Form]

 

[To be executed upon assignment of Warrants]

 

The undersigned herebyassigns and transfers this Warrant Certificate to _______________ whose Social Security Number or Tax ID Number is ____________________________andwhose record address is

	, and irrevocably appoints ____________________________

 

as agent to transfer this security on thebooks of the Company. Such agent may substitute another to act for such agent.

 

 

Date: _________________