Exhibit 10.1
EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT is entered into as of August 31, 2009, by and between
Bluefly, Inc., a Delaware corporation (the “Company”), and Bradford Matson
(“Matson”).

RECITALS

1.           The Company desires to retain the services of Matson as Chief
Marketing Officer of the Company in accordance with the terms and conditions of
this Agreement.

2.           Matson will serve the Company as Chief Marketing Officer in
accordance with the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Matson agree as
follows:

 
1.
TERM

The Company hereby agrees to employ Matson as Chief Marketing Officer of the
Company, and Matson hereby agrees to serve in such capacity, for a term
commencing on  August 31, 2009 (the “Starting Date”) and ending on September 30,
2012 (as the same may be earlier terminated pursuant to the terms of this
Agreement, the “Employment Term”), upon the terms and subject to the conditions
contained in this Agreement.

 
2.
DUTIES

During the Employment Term, Matson shall serve as Chief Marketing Officer of the
Company, and shall be responsible for the duties attendant to such office and
such other managerial duties and responsibilities with the Company consistent
with such office as may be reasonably assigned from time to time by the Chief
Executive Officer and/or President of the Company.

The principal location of Matson’s employment shall be in the New York City
vicinity (i.e., within a 20 mile radius), although Matson understands and agrees
that he will be required to travel from time to time for business
reasons.  Matson shall diligently and faithfully perform his obligations under
the Agreement and shall devote his full professional and business time to the
performance of his duties as Chief Marketing Officer of the Company during the
Employment Term.  Matson shall not, directly or indirectly, render business
services to any other person or entity, without the consent of the Company's
Chief Executive Officer.

 
3.
BASE SALARY

 
 

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For services rendered by Matson to the Company during the Employment Term, the
Company shall pay him a base salary of $350,000 per year, payable in accordance
with the standard payroll practices of the Company, subject to annual increases
in the sole discretion of the Chief Executive Officer and the Company's Board of
Directors, taking into account the financial and operating performance of the
Company's business and divisions and a qualitative assessment of Matson’s
performance during such year.

 
4.
BONUS/OPTIONS

a.           During the Employment Term, Matson shall be eligible to receive a
bonus set by the Company’s Board of Directors in its sole discretion and based
on such factors as the Board of Directors deems appropriate, provided that any
bonus for the 2009 calendar year will be pro-rated based upon the number of
months that Matson served as an employee of the Company.  All bonuses shall be
paid in accordance with the Company’s standard payroll practices, net of any
applicable withholding.  No bonus will be payable under this Section unless
Matson is employed as of the date such bonus is awarded.

b.           The Company hereby agrees to cause, on the Starting Date, the
issuance to Matson of options (“Options”) to purchase 10,000 shares of the
Company's common stock, $.01 par value (“Common Stock”).  The Options shall be
issued pursuant to, and in accordance with, the Company's 2005 Stock Incentive
Plan (the “Plan”).  The Options shall be Incentive Stock Options (as defined in
the Plan) to the extent allowed by law, and shall be exercisable at a price
equal to the Fair Market Value (as defined in the Plan) of the Common Stock on
the date hereof.  The Options shall vest in (36) equal monthly installments,
with the first such installment vesting on the one month anniversary of the date
of grant; provided, that in the event that Matson’s employment with the Company
is terminated without cause or as a result of a Constructive Termination at any
time during the Employment Term, all such options shall be immediately
vested.  The Term of each Option shall be 10 years from the date of grant.  In
the event of the termination of Matson's employment for any reason, he shall
have 90 days within which to exercise any vested Options and any unvested
Options shall be forfeited.  During the Term of this Agreement, Matson shall be
eligible to participate in the Company's future stock option grants as
determined appropriate by the Committee in its sole discretion.

c.           For purposes of this Agreement, “Change of Control” shall be deemed
to occur upon:

(1)           the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 50%
(on a fully diluted basis) of either (A) the then outstanding shares of common
stock of the Company, taking into account as outstanding for this purpose such
common stock issuable upon the exercise of options or warrants, the conversion
of convertible stock or debt, and the exercise of any similar right to acquire
such common stock
 

 
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(the “Outstanding Company Common Stock”) or (B) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the “Outstanding Company Voting Securities”);
provided, however, that for purposes of this Agreement, the following
acquisitions shall not constitute a Change of Control:  (I) any acquisition by
the Company or any “Affiliate” (as defined below), (II) any acquisition by any
employee benefit plan sponsored or maintained by the Company or any Affiliate,
(III) any acquisition by Quantum Industrial Partners LDC, Soros Fund Management
LLC, SFM Domestic Investments LLC, Prentice Capital Offshore, Ltd., Prentice
Capital Management, LP, S.A.C. Capital Associates, LLC, Maverick Fund, L.D.C.,
Maverick Fund II, Ltd., Maverick Fund USA, Ltd.  and/or any of their respective
affiliates (collectively, the “Existing Stockholders”), or (IV) any acquisition
which complies with clauses (A), (B) and (C) of sub-paragraph (c)(5) hereof;
 
(2)           Individuals who, on the date hereof, constitute the Board (the
“Incumbent Directors”) cease for any reason to constitute at least a majority of
the Board, provided that any person becoming a director subsequent to the date
hereof, whose election or nomination for election was approved by a vote of at
least two-thirds of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided, however, that no
individual initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to directors or
as a result of any other actual or threatened solicitation of proxies or
consents by or on behalf of any person other than the Board shall be deemed to
be an Incumbent Director;
 
(3)           the dissolution or liquidation of the Company;
 
(4)           the sale of all or substantially all of the business or assets of
the Company; or
 
(5)           the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the Company that
requires the approval of the Company’s stockholders, whether for such
transaction or the issuance of securities in the transaction (a “Business
Combination”), unless immediately following such Business Combination:  (A) more
than 50% of the total voting power of (x) the corporation resulting from such
Business Combination (the “Surviving Corporation”), or (y) if applicable, the
ultimate parent corporation that directly or indirectly has beneficial ownership
of sufficient voting securities eligible to elect a majority of the directors of
the Surviving Corporation (the “Parent Corporation”), is represented by the
Outstanding Company Voting Securities that were outstanding immediately prior to
such Business Combination (or, if applicable, is represented by shares into
which the Outstanding Company Voting Securities were converted pursuant to such
Business Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of the Company’s Voting
Securities among the holders thereof immediately prior to the Business
Combination, (B) no Person (other than the Existing Stockholders or any employee
benefit plan sponsored or maintained by the Surviving
 

 
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Corporation or the Parent Corporation), is or becomes the beneficial owner,
directly or indirectly, of 30% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
and (C) at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business Combination were Board
members at the time of the Board’s approval of the execution of the initial
agreement providing for such Business Combination.

 
For purposes of Agreement, the term “Affiliate” shall mean any entity that
directly or indirectly is controlled by, controls or is under common control
with the Company.

 
5.
EXPENSE REIMBURSEMENT AND PERQUISITES

a.           During the Term of this Agreement, Matson shall be entitled to
reimbursement of all reasonable and actual out-of­-pocket expenses incurred by
him in the performance of him services to the Company consistent with corporate
policies, if any, provided that the expenses are properly accounted for.
 
b.    During each calendar year of the Employment Term, Matson shall be entitled
to reasonable vacation with full pay in accordance with they Company’s
then-current vacation policies; provided, however, that Matson shall schedule
such vacations at times convenient to the Company.

c.           Matson shall be entitled to participate in all health insurance
(National Oxford), dental insurance, long-term disability insurance and other
employee benefit plans instituted by the Company from time to time on the same
terms and conditions as other similarly situated employees of the Company, to
the extent permitted by law.  In addition, Matson shall be a covered officer
under the Company’s now existing and any future Directors and Officers liability
policy.

 
6.
NON-COMPETITION; NON-SOLICITATION

a.           In consideration of the offer of employment, severance benefits and
Options to be granted to Matson hereunder, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
during the Non-Competition Term, Matson shall not, without the prior written
consent of the Company, anywhere in the world, directly or indirectly, (i) enter
into the employ of or render any services to any Competitive Business; (ii)
engage in any Competitive Business for his own account; (iii) become associated
with or interested in any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent, employee, trustee,
consultant, advisor or in any other relationship or capacity; (iv) employ or
retain, or have or cause any other person or entity to

 
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employ or retain, any person who was employed or retained by the Company while
Matson was employed by the Company; or (v) solicit, interfere with, or endeavor
to entice away from the Company, for the benefit of a Competitive Business, any
of its customers or other persons with whom the Company has a contractual
relationship.  For purposes of this Agreement, a “Competitive Business” shall
mean any person, corporation, partnership, firm or other entity which sells or
has plans to sell ten (10) or more brands of luxury or high-end designer apparel
and/or fashion accessories at prices that are consistently discounted to
manufacturer’s suggested retail prices.   However, nothing in this Agreement
shall preclude Matson from investing his personal assets in the securities of
any corporation or other business entity which is engaged in a Competitive
Business if such securities are traded on a national stock exchange or in the
over-the-counter market and if such investment does not result in him
beneficially owning, at any time, more than three percent (3%) of the
publicly-traded equity securities of such Competitive Business.  For purposes of
this agreement, the “Non-Competition Term” shall mean a period beginning upon
the commencement of the Employment Term and ending on the two (2) year
anniversary of the end of the Employment Term.

b.           Matson and the Company agree that the covenants of non-competition
and non-solicitation contained in this paragraph 6 are reasonable covenants
under the circumstances, and further agree that if, in the opinion of any court
of competent jurisdiction, such covenants are not reasonable in any respect,
such court shall have the right, power and authority to excise or modify such
provision or provisions of these covenants as to the court shall appear not
reasonable and to enforce the remainder of these covenants as so
amended.  Matson agrees that any breach of the covenants contained in this
paragraph 6 would irreparably injure the Company.  Accordingly, Matson agrees
that the Company, in addition to pursuing any other remedies it may have in law
or in equity, may obtain an injunction against Matson from any court having
jurisdiction over the matter, restraining any further violation of this
paragraph 6.

 
7.
TERMINATION

a.           This Agreement, the employment of Matson, and Matson’s position as
Chief Marketing Officer of the Company shall terminate upon the first to occur
of:

(i)           his death;

 
(ii)
his "permanent disability," due to injury or sickness for a continuous period of
four (4) months, or a total of eight months in a twenty-four month period
(vacation time excluded), during which time Matson is unable in substantial part
to attend to his ordinary and regular duties, provided that the Company shall
give Matson thirty (30) days’ written notice prior to any such termination;

 
(iii)
a "Constructive Termination" by the Company during the Employment Term, which,
for purposes of this Agreement, shall be deemed to have

 
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occurred upon (A) the removal of Matson without his consent from his position as
Chief Marketing Officer of the Company, or (B) the material breach by the
Company of this Agreement; provided that a Constructive Termination shall not be
deemed to have occurred unless: (1) Matson gives the Company notice within
ninety (90) days after an event or occurrence which Matson believes constitutes
a Constructive Termination, specifying the event or occurrence which Matson
believes constitutes a Constructive Termination; and (2) the Company fails to
cure such act or failure to act within thirty (30) days after receipt of such
notice.

 
(iv)
the termination of this Agreement at any time without cause by the Company;

 
(v)
the termination of this Agreement for cause, which, for purposes of this
Agreement, shall mean that (1) Matson has been convicted of a felony or any
serious crime involving moral turpitude, or engaged in materially fraudulent or
materially dishonest actions in connection with the performance of his duties
hereunder, or (2) Matson has willfully and materially failed to perform his
duties hereunder, or (3) Matson has willfully or negligently breached the terms
and provisions of this Agreement in any material respect, or (4) Matson has
failed to comply in any material respect with the Company's policies of conduct
that have been communicated to her, including with respect to trading in
securities, provided that the Company shall provide Matson with at least five
(5) business days’ prior written notice of any such failure to comply and an
opportunity to cure such failure, to the extent curable; or

 
(vi)
the termination of this Agreement by Matson, which shall occur on not less than
30 days prior written notice from Matson.

b.           In the event that this Agreement is terminated during the
Employment Term pursuant to paragraphs 7(a)(i), 7(a)(ii), 7(a)(v) or 7(a)(vi),
the Company shall pay Matson his base salary only through the date of
termination.  In the event that this Agreement is terminated during the
Employment Term pursuant to paragraphs 7(a)(iii) or 7(a)(iv), the Company shall
pay Matson, in lieu of all salary, compensation payments and perquisites set
forth in paragraphs 3, 4 and 5 (including bonus payments and unvested option
grants, but excluding vested option grants) and contingent upon his continued
performance of his obligations under Section 6, the then-current base salary for
a period of one-hundred eighty (180) days (the “Severance Payments”), if Matson
is terminated prior to the end of the Employment Term.  The Severance Payments
shall be payable in periodic installments in accordance with the Company's
standard payroll practices and will be subject to any applicable withholding,
and shall be conditioned upon Matson executing a full release of any claims
against the Company, in a form reasonably satisfactory to the Company.

 
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8.
CONFIDENTIALITY

a.           Matson recognizes that the services to be performed by him are
special, unique and extraordinary in that, by reason of his employment under
this Agreement, he may acquire or has acquired confidential information and
trade secrets concerning the operation of the Company, its  predecessors, and/or
its affiliates, the use or disclosure of which could cause the Company, or its
affiliates substantial loss and damages which could not be readily calculated
and for which no  remedy at law would be adequate.  Accordingly, Matson
covenants and agrees with the Company that he will not at any time during the
Term of this Agreement or thereafter, except in the performance of his
obligations to the Company or with the prior written consent of the Board of
Directors or as otherwise required by court order, subpoena or other government
process, directly or indirectly, disclose any secret or confidential information
that he may learn or has learned by reason of his association with the
Company.  If Matson shall be required to make such disclosure pursuant to court
order, subpoena or other government process, he shall notify the Company of the
same, by personal delivery or electronic means, confirmed by mail, within
twenty-four (24) hours of learning of such court order, subpoena or other
government process and, at the Company's expense (such expenses to be advanced
by the Company as reasonably required by Matson), shall (i) take all necessary
and lawful steps reasonably required by the Company to defend against the
enforcement of such subpoena, court order or government process, and (ii) permit
the Company to intervene and participate with counsel of its choice in any
proceeding relating to the enforcement thereof.   The term "confidential
information" includes, without limitation, information not in the public domain
and not previously disclosed to the public or to the trade by the Company's
management with respect to the Company's or its affiliates' facilities and
methods, trade secrets and other intellectual property, designs, manuals,
confidential reports, supplier names and pricing, customer names and prices
paid, financial information or business plans.

b.           Matson confirms that all confidential information is and shall
remain the exclusive property of the Company.  All memoranda, notes, reports,
software, sketches, photographs, drawings, plans, business records, papers or
other documents or computer-stored or disk-stored information kept or made by
Matson relating to the business of the Company shall be and will remain the sole
and exclusive property of the Company and all such materials containing
confidential information shall be promptly delivered and returned to the Company
immediately upon the termination of his employment with the Company.

c.           Matson shall make full and prompt disclosure to the Company of all
inventions, improvements, ideas, concepts, discoveries, methods, developments,
software and works of authorship, whether or not copyrightable, trademarkable or
licensable, which are created, made, conceived or reduced to practice by Matson
while performing his services hereunder to the Company, whether or not during
normal working hours or on the premises of the Company and which relate in any
manner to the business of the Company (all of which are collectively referred to
in this Agreement as "Developments").  All Developments shall be the

 
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sole property of the Company, and Matson hereby assigns to the Company, without
further compensation, all of his rights, title and interests in and to the
Developments and any and all related patents, patent applications, copyrights,
copyright applications, trademarks and trade names in the United States and
elsewhere.

d.           Matson shall assist the Company in obtaining, maintaining and
enforcing patent, copyright and other forms of legal protection for intellectual
property in any country. Upon the request of the Company, Matson shall sign all
applications, assignments, instruments and papers and perform all acts necessary
or desired by the Company in order to protect its rights and interests in any
Developments.

e.           Matson agrees that any breach of this paragraph 8 will cause
irreparable damage to the Company and that, in the event of such breach, the
Company will have, in addition to any and all remedies of law, including rights
which the Company may have to damages, the right to equitable relief including,
as appropriate, all injunctive relief or specific performance or other equitable
relief.  Matson understands and agrees that the rights and obligations set forth
in paragraph 8 shall survive the termination or expiration of this Agreement.

 
9.
REPRESENTATIONS AND WARRANTIES

a.           Matson represents and warrants to the Company that he was advised
to consult with an attorney of Matson's own choosing concerning this Agreement.

b.           Matson represents and warrants to the Company that, to the best of
his knowledge, the execution, delivery and performance of this Agreement by
Matson complies with all laws applicable to Matson or to which his properties
are subject and does not violate, breach or conflict with any agreement by which
he or his assets are bound or affected.

 
10.
INDEMNIFICATION

The Company shall indemnify and hold Matson harmless to the fullest extent
permitted by law from and against any and all claims, losses, liabilities,
damages and expenses including, but not limited to, reasonable attorneys’ fees
incurred by, imposed upon or asserted against Matson as a result of or arising
out of any acts or omission by Matson in his capacity as an officer, director,
employee or consultant of the Company.

 
11.
GOVERNING LAW; ARBITRATION

This Agreement shall be deemed a contract made under, and for all purposes shall
be construed in accordance with, the internal laws of the State of New York,
without giving effect to its conflict of law provisions.  Except as set forth
below, any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be resolved by arbitration in

 
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accordance with the rules of the American Arbitration Association (the “AAA”)
then pertaining in the City of New York, New York, by a single arbitrator to be
mutual agreed upon by the parties or, if they are unable to so agree, by an
arbitrator selected by the AAA.  The parties shall be entitled to a minimal
level of discovery as determined by the arbitrator.  The arbitrator shall be
empowered to award attorney’s fees and costs if he or he deems such award
appropriate.  Judgment upon any award rendered by the arbitrator may be entered
in any court having jurisdiction thereof.  Nothing contained in this paragraph
11 or the remainder of this Agreement shall be construed so as to deny the
Company the right and power to seek and obtain injunctive relief in a court of
equity for any breach or threatened breach by Matson of the covenants contained
in paragraphs 6 and 8 of this Agreement.

 
12.
ENTIRE AGREEMENT

This Agreement contains all of the understandings between Matson and the Company
pertaining to Matson’s employment with the Company, and it supersedes all
undertakings and agreements, whether oral or in writing, previously entered into
between them.

 
13.
AMENDMENT OR MODIFICATION; WAIVER

No provision of this Agreement may be amended or modified unless such amendment
or modification is agreed to in writing, signed by Matson and by an officer of
the Company duly authorized to do so.  Except as otherwise specifically provided
in this Agreement, no waiver by either party of any breach by the other party of
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar provision or condition at
the same or any prior or subsequent time.

 
14.
NOTICES

Any notice to be given hereunder shall be in writing and delivered personally or
sent by overnight delivery or certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such other address as such party may subsequently designate by like notice:

If to the Company, to:

Bluefly, Inc.
42 West 39th Street
New York, NY 10018
Attn: Chief Executive Officer

If to Matson, to:

 
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at the address then on file in the Company’s payroll system

Any such notice shall be deemed given upon receipt.

 
16.
SEVERABILITY

In the event that any provision or portion of this Agreement shall be determined
to be invalid or unenforceable for any reason, the remaining provisions or
portions of this Agreement shall be unaffected thereby and shall remain in full
force and effect to the fullest extent permitted by law.

 
17.
TITLES

Titles of the paragraphs of this Agreement are intended solely for convenience
of reference and no provision of this Agreement is to be construed by reference
to the title of any paragraphs.

 
18.
COUNTERPARTS

This Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument.

 
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.

              BLUEFLY, INC.          
 
By:
/s/ Melissa Payner-Gregor      
Melissa Payner-Gregor
Chief Executive Officer
                 

  EMPLOYEE          
 
/s/ Bradford Matson     Bradford Matson                           

 
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