Exhibit
10.38
  AMENDED
AND RESTATED EMPLOYMENT AGREEMENT
  This
AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is entered into as
of December 31, 2010, by and between Bluefly, Inc., a Delaware corporation (the
“Company”), and Bradford Matson (“Matson”).
 
 RECITALS
 
 1.           Matson
currently serves as Chief Marketing Officer of the Company pursuant to an
Employment Agreement between the parties dated August 31, 2009 (the “Original
Agreement”).
 
 2.           The
Company and Matson desire to amend and restate the Original Agreement in its
entirety in order to effect certain amendments that the parties deem advisable
in light of recent interpretations promulgated under Section 409A of the
Code.
 
 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
continuing through 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
 
 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.  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 paid.
 
 b.           Pursuant
to the Original Agreement, the Company has previously issued to Matson options
(“Options”) to purchase 10,000 shares of the Company's common stock, $.01 par
value (“Common Stock”).  The Options were issued pursuant to, and in
accordance with, the Company's 2005 Stock Incentive Plan (the
“Plan”).  The Options are Incentive Stock Options (as defined in the
Plan) to the extent allowed by law, and are exercisable at a price equal to the
Fair Market Value (as defined in the Plan) of the Common Stock on the date of
grant.  The Options 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 (as defined in Section 7(v)) 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 is 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.
 
 
 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.  Any
such reimbursement will be made to Matson
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  as soon
as administratively feasible following submission of such documentation of such
expense, but shall be made no later than the calendar year following the
calendar year in which such expense is incurred by Matson.  In the
event that any such reimbursement is taxable to Matson, such reimbursement shall
be made as soon practical upon Matson’s submission of a request to be
reimbursed, but in all events such reimbursement will be made prior to the end
of the calendar year next following the calendar year in which the applicable
expense was incurred.
 
 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 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
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  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 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.
 
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  (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 him, 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, 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”).  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 an effective release of any claims against the Company, in a
form reasonably satisfactory to the Company, which becomes effective within 60
days of such termination.  The Severance Payments will commence when
such release becomes effective; notwithstanding the foregoing, if such 60 day
period begins in one calendar year and ends in a subsequent calendar year, the
Severance Payments will not commence until the second calendar
year.  Except as provided in this paragraph, upon any termination of
employment, all other rights Matson may have to base salary, perquisites or
other compensation as set forth in paragraphs 3, 4, and/or 5, including, without
limitation, bonus payments and unvested Option grants, but excluding any vested
Option or any option grant that vests upon such termination pursuant to Section
4(b), shall be forfeited.
 
 c.           Notwithstanding
anything herein to the contrary, if any payments due under this Agreement
(including, but not limited to any payments related to the Options) would
subject Matson to any tax imposed under Section 409A of the Code if such
payments were made
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  at the
time otherwise provided herein, then the payments that cause such taxation shall
be payable in a single lump sum on the first day which is at least six (6)
months after the date of Matson’s "separation from service" as set forth in Code
Section 409A(2)(A)(i) and the official guidance issued
thereunder.
 
 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.
 
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  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 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.
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 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 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, including (without limitation) the Original
Agreement.
 
 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:
 
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  If to the
Company, to:
 
 Bluefly,
Inc.
 42 West
39th Street
 New York,
NY 10018
 Attn:
Chief Executive Officer
 
 If to
Matson, to:
 
 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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