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    <title>Unassociated Document</title>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">UNITED
STATES</font><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">SECURITIES
AND EXCHANGE COMMISSION</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">WASHINGTON,
D.C. 20549</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">______________</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 14pt; FONT-FAMILY: Times New Roman">FORM
8-K</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">______________</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: center" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
</font><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Current
Report</font></div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: center" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
</font><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
to Section 13 or 15(d) of</font></div>
    </div>
    <div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: center" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
</font><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
Securities Exchange Act of 1934</font></div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div>
      <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt; TEXT-ALIGN: center" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
</font><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Date
of Report (Date of earliest event reported):&#160;&#160;December 21,
2009</font></div>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 14pt; FONT-FAMILY: Times New Roman">BLUEFLY,
INC.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">DELAWARE</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(State or
other jurisdiction of incorporation)</font></div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div>
      <div align="center">
        <table cellpadding="0" cellspacing="0" width="100%">
            <tr>
              <td valign="bottom" width="38%" style="BORDER-BOTTOM: #000000 2px solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">001-14498</font></div>
              </td>
              <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
              <td valign="bottom" width="40%" style="BORDER-BOTTOM: #000000 2px solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">13-3612110</font></div>
              </td>
            </tr>
            <tr>
              <td valign="bottom" width="38%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(Commission
      File Number)</font></div>
              </td>
              <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
              <td valign="bottom" width="40%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(I.R.S.
      Employer Identification Number)</font></div>
              </td>
            </tr>
            <tr>
              <td valign="bottom" width="38%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
              <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
              <td valign="bottom" width="40%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
            </tr>
            <tr>
              <td valign="bottom" width="38%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
              <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
              <td valign="bottom" width="40%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
            </tr>
            <tr>
              <td valign="bottom" width="38%" style="BORDER-BOTTOM: #000000 2px solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">42
      West 39<font style="DISPLAY: inline; FONT-SIZE: 70%; VERTICAL-ALIGN: super">th</font>
      Street, New York, New York</font></div>
              </td>
              <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
              <td valign="bottom" width="40%" style="BORDER-BOTTOM: #000000 2px solid">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">10018</font></div>
              </td>
            </tr>
            <tr>
              <td valign="bottom" width="38%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(Address
      of principal executive offices)</font></div>
              </td>
              <td valign="bottom" width="2%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;
      </font></td>
              <td valign="bottom" width="40%">
                <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">(Zip
      Code)</font></div>
              </td>
            </tr>
        </table>
      </div>
    </div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Registrant&#8217;s
telephone number, including area code: <font style="DISPLAY: inline; TEXT-DECORATION: underline">(212)
944-8000</font></font></div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div>
      <table cellpadding="0" cellspacing="0" width="100%">
          <tr>
            <td valign="top" width="80%" style="BORDER-BOTTOM: #000000 2px solid">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Not
      Applicable</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="80%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="center"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">(Former
      name or former address, if changed since last
  report)</font></div>
            </td>
          </tr>
      </table>
    </div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000">Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions:</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000"><font style="DISPLAY: inline;" face="Wingdings">o</font> Written communications
pursuant to Rule 425 under the Securities Act (17 CFR
230.425)</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000"><font style="DISPLAY: inline;" face="Wingdings">o</font> Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000"><font style="DISPLAY: inline;" face="Wingdings">o</font>&#160;Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000"><font style="DISPLAY: inline;" face="Wingdings">o</font> Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))</font></font></div><br>
    <div id="PGBRK" style="MARGIN-LEFT: 0pt; WIDTH: 100%; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt">
      <div id="FTR">
        <div id="GLFTR" style="WIDTH: 100%" align="left"><font style="DISPLAY: inline; FONT-SIZE: 8pt; COLOR: #000000; FONT-FAMILY: Times New Roman">&#160;
</font></div>
      </div>
      <div id="PN" style="PAGE-BREAK-AFTER: always">
        <div style="WIDTH: 100%; TEXT-ALIGN: center"><font style="DISPLAY: inline; FONT-SIZE: 8pt; FONT-FAMILY: Times New Roman">&#160;
</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-SIZE: 8pt; COLOR: #000000; FONT-FAMILY: Times New Roman">&#160;
</font></div>
      </div>
    </div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000">Item 1.01 Entry Into a Material
Definitive Agreement.</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Securities
Purchase Agreement</font><font style="DISPLAY: inline; COLOR: #000000">.</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000">On December 21, 2009, Bluefly, Inc. (the
&#8220;</font><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Company</font><font style="DISPLAY: inline; COLOR: #000000">&#8221;) entered into a Securities Purchase
Agreement (the &#8220;</font><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Purchase
Agreement</font><font style="DISPLAY: inline; COLOR: #000000">&#8221;) with Rho
Ventures VI, L.P. (&#8220;</font><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Rho</font><font style="DISPLAY: inline; COLOR: #000000">&#8221;) pursuant to which the Company agreed
to issue and sell to Rho up to 8,823,529 newly issued shares (the &#8220;</font><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Private
Placement Shares</font><font style="DISPLAY: inline; COLOR: #000000">&#8221;) of its
common stock, par value $.01 per share (the &#8220;</font><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Common
Stock</font><font style="DISPLAY: inline; COLOR: #000000">&#8221;), for an aggregate
purchase price of $15,000,000, or $1.70 per share, in a private placement
transaction (the &#8220;</font><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Private
Placement</font><font style="DISPLAY: inline; COLOR: #000000">&#8221;).&#160;&#160;The
Company issued and sold 2,786,337 of the Private Placement Shares to Rho at an
initial closing (the &#8220;</font><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Initial
Closing</font><font style="DISPLAY: inline; COLOR: #000000">&#8221;) held on December
21, 2009 for an aggregate purchase price of $</font>4,736,772.90<font style="DISPLAY: inline; COLOR: #000000">.&#160;&#160;The remaining 6,037,192
Private Placement Shares (the &#8220;</font><font style="DISPLAY: inline; TEXT-DECORATION: underline">Second Closing
Shares</font>&#8221;<font style="DISPLAY: inline; COLOR: #000000">) will be issued and
sold to Rho by the Company in a second closing (the &#8220;</font><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Second
Closing</font><font style="DISPLAY: inline; COLOR: #000000">&#8221;) to be held no
later than three trading days after, and conditioned on, the receipt by the
Company of stockholder approval for: (i) </font>a proposal to approve the
issuance and sale of the Second Closing Shares to Rho in the Second Closing,
(ii) <font style="DISPLAY: inline; COLOR: #000000">an amendment to the Company&#8217;s
certificate of incorporation, as amended, </font>to provide for a classified
board consisting of three classes of directors with staggered terms and (iii)
the issuance by the Company of any warrants required to be issued by it to Rho
under certain circumstances relating to the unavailability of a registration
statement pursuant to the terms of the Registration Rights Agreement described
below (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Stockholder Approval
Condition</font>&#8221;).&#160;&#160;The Second Closing is also conditioned on the
restructuring of the Company&#8217;s board of directors (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Board</font>&#8221;) into a Board
of no more than ten members consisting of three classes of directors with
staggered terms, effective as of the Second Closing date, in accordance with the
terms of the Voting Agreement described below (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Board
Restructuring</font>&#8221;).</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
Company has agreed to file a proxy statement or information statement (the
&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Proxy/Information
Statement</font>&#8221;) relating to the Stockholder Approval Condition within thirty
days of the Initial Closing and to recommend to the Company&#8217;s stockholders that
the Stockholder Approval Condition be satisfied by the stockholders of the
Company entitled to vote thereon (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Company
Recommendation</font>&#8221;).&#160;&#160;Under the terms of the Purchase Agreement,
the Company is restricted from directly or indirectly soliciting, negotiating,
facilitating, entering into an agreement in respect of or approving or
recommending&#160;&#160;an alternative acquisition proposal with a
third-party.&#160;&#160;However, the Company may enter into an agreement with
respect to a &#8220;Superior Proposal&#8221; or change the Company Recommendation under
certain circumstances, as more fully described in the Purchase
Agreement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Rho has
advised the Company that, prior to the Second Closing, it may explore purchasing
or finding a co-investor to purchase as many shares held by Prentice Capital
Partners, LP (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">PCP</font>&#8221;), Prentice
Capital Partners QP, LP (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">PCP QP</font>&#8221;), Prentice
Capital Offshore, Ltd. (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">PC Offshore</font>&#8221;), S.A.C.
Capital Associates, LLC (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">SAC</font>&#8221;), GPC XLIII, LLC
(&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">GCP</font>&#8221;), PEC I,
LLC (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">PEC</font>&#8221; and,
together with PCP, PCP QP, PC Offshore, SAC and GCP, the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Prentice Parties</font>&#8221;),
Maverick Fund USA, Ltd. (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Maverick USA</font>&#8221;),
Maverick Fund, L.D.C. (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Maverick Fund</font>&#8221;), and
Maverick Fund II, Ltd. (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Maverick Fund II</font>&#8221;
and, together with Maverick USA and Maverick Fund, the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Maverick Parties</font>&#8221;) as
they are willing to sell (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Secondary
Purchase</font>&#8221;).&#160;&#160;The Company has agreed to include in the
Proxy/Information Statement prepared in connection with the satisfaction of the
Stockholder Approval Condition a vote on the approval by the
Company&#8217;s</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">stockholders
of any such Secondary Purchase which may be agreed to by Rho and the Prentice
Parties and/or the Maverick Parties and on material terms (including without
limitation the identity of the purchaser) approved by the Company prior to the
filing of the Proxy/Information Statement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">It is
anticipated that, concurrently with and subject to the completion of the Second
Closing, the Company will grant to management options to purchase such number of
shares of Common Stock that, in the aggregate, will equal 8.3% of the
outstanding Common Stock, on a fully diluted basis, after giving effect to the
Second Closing.&#160;&#160;The options will have an exercise price equal to the
fair market value of the Common Stock on the effective date of the
grant.&#160;&#160;If the Second Closing is completed in accordance with the
terms of the Purchase Agreement, Rho will own approximately 33% of the Company&#8217;s
outstanding Common Stock, on a fully diluted basis (after giving effect to the
stock option issuance described in the preceding sentence), and will become the
Company&#8217;s largest stockholder.&#160;&#160;The issuance and sale of the Second
Closing Shares to Rho in the Second Closing could be considered a change in
control of the Company.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">At the
Initial Closing, and as a condition thereto, Quantum Industrial Partners LDC
(&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">QIP</font>&#8221;), SFM
Domestic Investments, LLC (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">SFM</font>&#8221; and, together
with QIP, the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Soros
Parties</font>&#8221;), and the Maverick Parties converted into an aggregate of
1,764,706 shares of Common Stock the $3,000,000 aggregate principal amount
outstanding pursuant to the terms of the convertible promissory notes (the
&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Notes</font>&#8221;), each
dated as of July 23, 2008, issued by the Company to each of the Soros Parties
and each of the Maverick Parties for shares of Common Stock at a conversion rate
of $1.70 per share.&#160;&#160;The accrued and unpaid interest under the Notes
was paid by the Company in cash at the Initial Closing.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
Company intends to use the proceeds from this transaction 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).&#160;&#160;The issuance of the Private Placement Shares is deemed
exempt from the registration provisions of the Securities Act of 1933, as
amended (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Securities Act</font>&#8221;), by
reason of the provisions of Section 4(2) of the Securities Act.&#160;&#160;In
determining that the Private Placement is exempt under Section 4(2) of the
Securities Act, the Company relied, among other things, on representations and
warranties of Rho to the effect that it is an accredited investor (as such term
is defined under Rule 501 promulgated under the Securities Act) and that it is
acquiring the Private Placement Shares for investment purposes and not with a
current view to distribution thereof, except as such distribution may be
permissible under applicable law.&#160;&#160;The certificates representing the
Private Placement Shares shall contain a legend to the effect that such shares
are not registered under the Securities Act and may not be transferred except
pursuant to an effective registration statement under the Securities Act or
pursuant to an exemption from the registration requirements under the Securities
Act.&#160;&#160;In connection with the Initial Closing, the Company will file a
Notice of Exempt Offering of Securities on Form D in accordance with the
requirements of Regulation D under the Securities Act.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Amended and
Restated Voting Agreement</font><font style="DISPLAY: inline; COLOR: #000000">.</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
connection with the Purchase Agreement, on December 21, 2009, the Company
entered into an Amended and Restated Voting Agreement (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Voting Agreement</font>&#8221;)
with the Soros Parties, the Maverick Parties, the Prentice Parties
(collectively, the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Existing</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div><br>
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      </div>
    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Stockholders</font>&#8221;) and
Rho.&#160;&#160;The Voting Agreement amends and restates that certain Voting
Agreement, dated as of June 15, 2006, among the Company and the Existing
Stockholders.&#160;&#160;Pursuant to the terms of the Voting Agreement, Rho and
the Soros Parties will each have the right to nominate two members to the Board
and the Maverick Parties and the Prentice Parties (other than SAC) will each
have the right to nominate one member to the Board, in each case subject to
minimum ownership thresholds and compliance with applicable rules of The Nasdaq
Stock Market LLC requiring Board representation to be proportional to stock
ownership.&#160;&#160;Each of Rho, the Soros Parties, the Prentice Parties
(other than SAC) and the Maverick Parties will be entitled 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.&#160;&#160;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 the Company&#8217;s
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% (the
&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Specified
Portion</font>&#8221;) of the Company&#8217;s outstanding Common Stock.&#160;&#160;The
Specified Portion shall be 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.&#160;&#160;In addition, pursuant to the Voting
Agreement, the Board Restructuring will be completed at the Second Closing
(subject to stockholder approval, as described above).</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
Maverick Parties and the Prentice Parties have agreed in the Voting Agreement
that, subject to certain exceptions, 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 capital stock of the Company (such restrictions being referred
to herein as the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Lock-Up
Restrictions</font>&#8221;).&#160;&#160;Furthermore, if Rho or a Rho Co-Investor makes
an offer to the Maverick Parties and/or the Prentice Parties (other than SAC)
with respect to a Secondary Purchase of 50%, or, in the case of the Prentice
Parties (other than SAC), 100%, of the shares of Common Stock held by the
Maverick Parties and/or the Prentice Parties (other than SAC), respectively, on
the date of the Initial Closing on pricing terms no less favorable than the
terms of the Purchase Agreement, and otherwise satisfying certain other
specified conditions, 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 subject to the Lock-Up Restrictions until the one-year
anniversary of the Initial Closing.&#160;&#160;Pursuant to the Voting Agreement,
the Soros Parties and Rho have also agreed to be subject to the Lock-Up
Restrictions until the one-year anniversary of the Initial Closing.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Registration Rights
Agreement</font>.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">In
connection with the Purchase Agreement, on December 21, 2009, the Company
entered into a Registration Rights Agreement (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Registration Rights
Agreement</font>&#8221;) with Rho and the Existing Stockholders.&#160;&#160;Under the
terms of the Registration Rights Agreement, the Company agreed to (i) file a
registration statement with respect to the shares of Common Stock issued to Rho
in the Private Placement, (ii) grant Rho piggy-back registration rights
applicable in certain circumstances upon an underwritten offering by the Company
and the right to two</font></div>
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      </div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">demand
registrations, (iii) terminate all registration rights previously granted by the
Company 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, and (iv) subject to the receipt of stockholder approval therefor, issue
warrants to Rho under certain circumstances relating to the unavailability of a
registration statement.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Consent and Seventh
Amendment to Loan and Security Agreement</font>.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">On
December 21, 2009, the Company entered into a Consent and Seventh Amendment to
Loan and Security Agreement (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Consent and
Amendment</font>&#8221;) with respect to the Loan and Security Agreement, dated as of
July 26, 2005, between the Company and Wells Fargo Retail Finance, LLC (&#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Wells</font>&#8221;), as amended
to date (the &#8220;<font style="DISPLAY: inline; TEXT-DECORATION: underline">Loan
Agreement</font>&#8221;).&#160;&#160;Pursuant to the terms of the Consent and
Amendment, Wells consented to the conversion of the Notes and the transactions
contemplated by the Purchase Agreement and, in consideration thereof, the
Company agreed to (i) pay a $20,000 fee to Wells upon the consummation of the
Initial Closing and (ii) increase the unused line fee under the Loan Agreement
from 0.5% to 0.75%.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 36pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; TEXT-DECORATION: underline">Material Relationships Among
the Parties</font>.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">As of
immediately prior to the Initial Closing, the Soros Parties beneficially owned
approximately 38% of the outstanding Common Stock, the Prentice Parties
beneficially owned approximately 22% of the outstanding Common Stock and the
Maverick Parties beneficially owned approximately 24% of the outstanding Common
Stock.&#160;&#160;In addition, as of immediately prior to the Initial Closing,
the Soros Parties and the Maverick Parties were the holders of $3,000,000
aggregate principal amount of Notes issued by the Company, which Notes were
converted into shares of Common Stock at, and as a condition to, the Initial
Closing as described above.&#160;&#160;As of immediately after the Initial
Closing, and after giving effect to the conversion of the Notes, the Soros
Parties beneficially owned approximately 33% of the outstanding Common Stock,
the Prentice Parties beneficially owned approximately 16% of the outstanding
Common Stock and the Maverick Parties beneficially owned approximately 20% of
the outstanding Common Stock.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Item
3.02 Unregistered Sale of Equity Securities.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">The
information called for by this item is contained in Item 1.01, which is
incorporated herein by reference.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000">Item 5.02 Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000">(c) On December 21, 2009, the Board
expanded the size of the Board to eleven members and appointed Habib Kairouz to
serve as a member of the Board.&#160;&#160;Mr. Kairouz was designated to the
Board by Rho in accordance with the provisions of the Purchase Agreement and the
Voting Agreement.&#160;&#160;Mr. Kairouz is expected to be appointed to the
Compensation Committee and the Nominating and Governance Committee of the Board
at the next regularly scheduled meeting of the Board.&#160;&#160;Other than the
transactions reported herein, Mr. Kairouz nor any immediate family member of Mr.
Kairouz has engaged in any transaction with the Company since the beginning of
the Company&#8217;s last fiscal year, and no such transaction is currently
contemplated, in which the</font></font></div>
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      </div>
    </div><br>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000">Company is or was to be a participant
and the amount involved exceeded or will exceed $120,000 and in which any
related person had or will have a direct or indirect material
interest.</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000">Mr. Kairouz is currently </font>a
Managing Partner of Rho Capital Partners and Rho Ventures and serves on the
investment committees of Rho Fund Investors and Rho Canada, which are entities
affiliated with Rho.</font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000">Item 9.01 Financial Statements and
Exhibits.</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman"><font style="DISPLAY: inline; COLOR: #000000">(d) </font><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Exhibits</font><font style="DISPLAY: inline; COLOR: #000000">.</font></font></div>
    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify">&#160;</div>
    <div>
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                      <td align="left" valign="top" width="10%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Exhibit
      No.</font></font></div>
                      </td>
                      <td align="left" valign="top" width="90%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-WEIGHT: bold; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000; TEXT-DECORATION: underline">Description</font></font></div>
                      </td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman">&#160;</font></td>
                      <td valign="top" width="90%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman">&#160;</font></td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">10.1</font></font></div>
                      </td>
                      <td valign="top" width="90%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">Securities Purchase Agreement,
      dated as of December 21, 2009, between Bluefly, Inc. and Rho Ventures VI,
      L.P.</font></font></div>
                      </td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman">&#160;</font></td>
                      <td valign="top" width="90%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman">&#160;</font></td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">10.2</font></font></div>
                      </td>
                      <td valign="top" width="90%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">Amended and Restated Voting
      Agreement, dated as of December 21, 2009, among </font>Bluefly, Inc.,
      Quantum Industrial Partners LDC, SFM Domestic Investments, LLC, Maverick
      Fund USA, Ltd., Maverick Fund, L.D.C., Maverick Fund II, Ltd., Prentice
      Capital Partners, LP, Prentice Capital Partners QP, LP, Prentice Capital
      Offshore, Ltd., S.A.C. Capital Associates, LLC, GPC XLIII, LLC, PEC I, LLC
      and Rho Ventures VI, LP.</font></div>
                      </td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman">&#160;</font></td>
                      <td valign="top" width="90%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">10.3</font></font></div>
                      </td>
                      <td valign="top" width="90%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">Registration Rights Agreement,
      dated as of December 21, 2009, among </font>Bluefly, Inc., Quantum
      Industrial Partners LDC, SFM Domestic Investments, LLC, Maverick Fund USA,
      Ltd., Maverick Fund, L.D.C., Maverick Fund II, Ltd., Prentice Capital
      Partners, LP, Prentice Capital Partners QP, LP, Prentice Capital Offshore,
      Ltd., S.A.C. Capital Associates, LLC, GPC XLIII, LLC, PEC I, LLC and Rho
      Ventures VI, LP.</font></div>
                      </td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman">&#160;</font></td>
                      <td valign="top" width="90%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: times new roman">&#160;</font></td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">10.4</font></font></div>
                      </td>
                      <td valign="top" width="90%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">Consent and Seventh Amendment to
      Loan and Security Agreement, dated as of December 21, 2009, between the
      Company and Wells Fargo Retail Finance, LLC.</font></font></div>
                      </td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman">&#160;</font></td>
                      <td valign="top" width="90%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman">&#160;</font></td>
                    </tr>
                    <tr>
                      <td align="left" valign="top" width="10%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="left"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">99.1</font></font></div>
                      </td>
                      <td valign="top" width="90%">
                        <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; COLOR: #000000; FONT-FAMILY: times new roman"><font style="DISPLAY: inline; COLOR: #000000">Press release issued by Bluefly,
      Inc. on December 21,
2009.</font></font></div>
                      </td>
                    </tr>
                </table>
              </div>
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          <hr style="COLOR: black" noshade size="2">
        </div>
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      <div id="HDR">
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</font></div>
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    <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 36pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Pursuant
to the requirements of the Securities Exchange Act 1934, Bluefly, Inc. has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.</font></div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
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      24, 2009</font></div>
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      INC.</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="57%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
      </font></td>
            <td valign="top" width="43%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
      </font></td>
          </tr>
          <tr>
            <td valign="top" width="57%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
      </font></td>
            <td valign="top" width="43%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
      </font></td>
          </tr>
          <tr>
            <td valign="top" width="57%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
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            <td valign="top" width="43%" style="BORDER-BOTTOM: #000000 2px solid">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">By:&#160;&#160;/s/
      Kara B. Jenny</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="57%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
      </font></td>
            <td valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Name:&#160;&#160;Kara
      B. Jenny</font></div>
            </td>
          </tr>
          <tr>
            <td valign="top" width="57%"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">&#160;
      </font></td>
            <td valign="top" width="43%">
              <div style="DISPLAY: block; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; MARGIN-RIGHT: 0pt" align="justify"><font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman">Title:&#160;&#160;&#160;&#160;Chief
      Financial Officer</font></div>
            </td>
          </tr>
      </table>
    </div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div>
    <div style="DISPLAY: block; TEXT-INDENT: 0pt"><br></div><br>
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      </div>
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</font></div>
        <div style="WIDTH: 100%; TEXT-ALIGN: center">
          <hr style="COLOR: black" noshade size="2">
        </div>
      </div>
      <div id="HDR">
        <div id="GLHDR" style="WIDTH: 100%" align="right"><font style="DISPLAY: inline; FONT-SIZE: 8pt; COLOR: #000000; FONT-FAMILY: Times New Roman">&#160;
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{"company-data": {"conformed-name": "BLUEFLY INC", "cik": "0001030896", "assigned-sic": "5961", "irs-number": "133612110", "state-of-incorporation": "DE", "fiscal-year-end": "0403"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "001-14498", "film-number": "091260351"}, "business-address": {"street1": "42 WEST 39TH ST", "city": "NEW YORK", "state": "NY", "zip": "10018", "phone": "2129448000"}, "mail-address": {"street1": "42 WEST 39TH ST", "city": "NEW YORK", "state": "NY", "zip": "10018"}, "former-company": {"former-conformed-name": "PIVOT RULES INC", "date-changed": "19970305"}}
Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
______________
FORM
8-K
______________
Current
Report
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported):  December 21,
2009
BLUEFLY,
INC.
(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(State or
other jurisdiction of incorporation)
001-14498
13-3612110
(Commission
      File Number)
(I.R.S.
      Employer Identification Number)
42
      West 39
th
Street, New York, New York
10018
(Address
      of principal executive offices)
(Zip
      Code)
Registrant's
telephone number, including area code:
(212)
944-8000
Not
      Applicable
(Former
      name or former address, if changed since last
  report)
Check the appropriate box below if the
Form 8-K filing is intended to simultaneously satisfy the filing obligation of
the registrant under any of the following provisions:
o
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 1.01 Entry Into a Material
Definitive Agreement.
Securities
Purchase Agreement
.
On December 21, 2009, Bluefly, Inc. (the
"
Company
") entered into a Securities Purchase
Agreement (the "
Purchase
Agreement
") with Rho
Ventures VI, L.P. ("
Rho
") pursuant to which the Company agreed
to issue and sell to Rho up to 8,823,529 newly issued shares (the "
Private
Placement Shares
") of its
common stock, par value $.01 per share (the "
Common
Stock
"), for an aggregate
purchase price of $15,000,000, or $1.70 per share, in a private placement
transaction (the "
Private
Placement
").  The
Company issued and sold 2,786,337 of the Private Placement Shares to Rho at an
initial closing (the "
Initial
Closing
") held on December
21, 2009 for an aggregate purchase price of $
4,736,772.90
.  The remaining 6,037,192
Private Placement Shares (the "
Second Closing
Shares
"
) will be issued and
sold to Rho by the Company in a second closing (the "
Second
Closing
") to be held no
later than three trading days after, and conditioned on, the receipt by the
Company of stockholder approval for: (i)
a proposal to approve the
issuance and sale of the Second Closing Shares to Rho in the Second Closing,
(ii)
an amendment to the Company's
certificate of incorporation, as amended,
to provide for a classified
board consisting of three classes of directors with staggered terms and (iii)
the issuance by the Company of any warrants required to be issued by it to Rho
under certain circumstances relating to the unavailability of a registration
statement pursuant to the terms of the Registration Rights Agreement described
below (the "
Stockholder Approval
Condition
").  The Second Closing is also conditioned on the
restructuring of the Company's board of directors (the "
Board
") into a Board
of no more than ten members consisting of three classes of directors with
staggered terms, effective as of the Second Closing date, in accordance with the
terms of the Voting Agreement described below (the "
Board
Restructuring
").
The
Company has agreed to file a proxy statement or information statement (the
"
Proxy/Information
Statement
") relating to the Stockholder Approval Condition within thirty
days of the Initial Closing and to recommend to the Company's stockholders that
the Stockholder Approval Condition be satisfied by the stockholders of the
Company entitled to vote thereon (the "
Company
Recommendation
").  Under the terms of the Purchase Agreement,
the Company is restricted from directly or indirectly soliciting, negotiating,
facilitating, entering into an agreement in respect of or approving or
recommending  an alternative acquisition proposal with a
third-party.  However, the Company may enter into an agreement with
respect to a "Superior Proposal" or change the Company Recommendation under
certain circumstances, as more fully described in the Purchase
Agreement.
Rho has
advised the Company that, prior to the Second Closing, it may explore purchasing
or finding a co-investor to purchase as many shares held by Prentice Capital
Partners, LP ("
PCP
"), Prentice
Capital Partners QP, LP ("
PCP QP
"), Prentice
Capital Offshore, Ltd. ("
PC Offshore
"), S.A.C.
Capital Associates, LLC ("
SAC
"), GPC XLIII, LLC
("
GCP
"), PEC I,
LLC ("
PEC
" and,
together with PCP, PCP QP, PC Offshore, SAC and GCP, the "
Prentice Parties
"),
Maverick Fund USA, Ltd. ("
Maverick USA
"),
Maverick Fund, L.D.C. ("
Maverick Fund
"), and
Maverick Fund II, Ltd. ("
Maverick Fund II
"
and, together with Maverick USA and Maverick Fund, the "
Maverick Parties
") as
they are willing to sell (the "
Secondary
Purchase
").  The Company has agreed to include in the
Proxy/Information Statement prepared in connection with the satisfaction of the
Stockholder Approval Condition a vote on the approval by the
Company's
stockholders
of any such Secondary Purchase which may be agreed to by Rho and the Prentice
Parties and/or the Maverick Parties and on material terms (including without
limitation the identity of the purchaser) approved by the Company prior to the
filing of the Proxy/Information Statement.
It is
anticipated that, concurrently with and subject to the completion of the Second
Closing, the Company will grant to management options to purchase such number of
shares of Common Stock that, in the aggregate, will equal 8.3% of the
outstanding Common Stock, on a fully diluted basis, after giving effect to the
Second Closing.  The options will have an exercise price equal to the
fair market value of the Common Stock on the effective date of the
grant.  If the Second Closing is completed in accordance with the
terms of the Purchase Agreement, Rho will own approximately 33% of the Company's
outstanding Common Stock, on a fully diluted basis (after giving effect to the
stock option issuance described in the preceding sentence), and will become the
Company's largest stockholder.  The issuance and sale of the Second
Closing Shares to Rho in the Second Closing could be considered a change in
control of the Company.
At the
Initial Closing, and as a condition thereto, Quantum Industrial Partners LDC
("
QIP
"), SFM
Domestic Investments, LLC ("
SFM
" and, together
with QIP, the "
Soros
Parties
"), and the Maverick Parties converted into an aggregate of
1,764,706 shares of Common Stock the $3,000,000 aggregate principal amount
outstanding pursuant to the terms of the convertible promissory notes (the
"
Notes
"), each
dated as of July 23, 2008, issued by the Company to each of the Soros Parties
and each of the Maverick Parties for shares of Common Stock at a conversion rate
of $1.70 per share.  The accrued and unpaid interest under the Notes
was paid by the Company in cash at the Initial Closing.
The
Company intends to use the proceeds from this transaction 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).  The issuance of the Private Placement Shares is deemed
exempt from the registration provisions of the Securities Act of 1933, as
amended (the "
Securities Act
"), by
reason of the provisions of Section 4(2) of the Securities Act.  In
determining that the Private Placement is exempt under Section 4(2) of the
Securities Act, the Company relied, among other things, on representations and
warranties of Rho to the effect that it is an accredited investor (as such term
is defined under Rule 501 promulgated under the Securities Act) and that it is
acquiring the Private Placement Shares for investment purposes and not with a
current view to distribution thereof, except as such distribution may be
permissible under applicable law.  The certificates representing the
Private Placement Shares shall contain a legend to the effect that such shares
are not registered under the Securities Act and may not be transferred except
pursuant to an effective registration statement under the Securities Act or
pursuant to an exemption from the registration requirements under the Securities
Act.  In connection with the Initial Closing, the Company will file a
Notice of Exempt Offering of Securities on Form D in accordance with the
requirements of Regulation D under the Securities Act.
Amended and
Restated Voting Agreement
.
In
connection with the Purchase Agreement, on December 21, 2009, the Company
entered into an Amended and Restated Voting Agreement (the "
Voting Agreement
")
with the Soros Parties, the Maverick Parties, the Prentice Parties
(collectively, the "
Existing
2
Stockholders
") and
Rho.  The Voting Agreement amends and restates that certain Voting
Agreement, dated as of June 15, 2006, among the Company and the Existing
Stockholders.  Pursuant to the terms of the Voting Agreement, Rho and
the Soros Parties will each have the right to nominate two members to the Board
and the Maverick Parties and the Prentice Parties (other than SAC) will each
have the right to nominate one member to the Board, in each case subject to
minimum ownership thresholds and compliance with applicable rules of The Nasdaq
Stock Market LLC requiring Board representation to be proportional to stock
ownership.  Each of Rho, the Soros Parties, the Prentice Parties
(other than SAC) and the Maverick Parties will be entitled 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 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 the Company's
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% (the
"
Specified
Portion
") of the Company's outstanding Common Stock.  The
Specified Portion shall be 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.  In addition, pursuant to the Voting
Agreement, the Board Restructuring will be completed at the Second Closing
(subject to stockholder approval, as described above).
The
Maverick Parties and the Prentice Parties have agreed in the Voting Agreement
that, subject to certain exceptions, 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 capital stock of the Company (such restrictions being referred
to herein as the "
Lock-Up
Restrictions
").  Furthermore, if Rho or a Rho Co-Investor makes
an offer to the Maverick Parties and/or the Prentice Parties (other than SAC)
with respect to a Secondary Purchase of 50%, or, in the case of the Prentice
Parties (other than SAC), 100%, of the shares of Common Stock held by the
Maverick Parties and/or the Prentice Parties (other than SAC), respectively, on
the date of the Initial Closing on pricing terms no less favorable than the
terms of the Purchase Agreement, and otherwise satisfying certain other
specified conditions, 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 subject to the Lock-Up Restrictions until the one-year
anniversary of the Initial Closing.  Pursuant to the Voting Agreement,
the Soros Parties and Rho have also agreed to be subject to the Lock-Up
Restrictions until the one-year anniversary of the Initial Closing.
Registration Rights
Agreement
.
In
connection with the Purchase Agreement, on December 21, 2009, the Company
entered into a Registration Rights Agreement (the "
Registration Rights
Agreement
") with Rho and the Existing Stockholders.  Under the
terms of the Registration Rights Agreement, the Company agreed to (i) file a
registration statement with respect to the shares of Common Stock issued to Rho
in the Private Placement, (ii) grant Rho piggy-back registration rights
applicable in certain circumstances upon an underwritten offering by the Company
and the right to two
3
demand
registrations, (iii) terminate all registration rights previously granted by the
Company 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, and (iv) subject to the receipt of stockholder approval therefor, issue
warrants to Rho under certain circumstances relating to the unavailability of a
registration statement.
Consent and Seventh
Amendment to Loan and Security Agreement
.
On
December 21, 2009, the Company entered into a Consent and Seventh Amendment to
Loan and Security Agreement (the "
Consent and
Amendment
") with respect to the Loan and Security Agreement, dated as of
July 26, 2005, between the Company and Wells Fargo Retail Finance, LLC ("
Wells
"), as amended
to date (the "
Loan
Agreement
").  Pursuant to the terms of the Consent and
Amendment, Wells consented to the conversion of the Notes and the transactions
contemplated by the Purchase Agreement and, in consideration thereof, the
Company agreed to (i) pay a $20,000 fee to Wells upon the consummation of the
Initial Closing and (ii) increase the unused line fee under the Loan Agreement
from 0.5% to 0.75%.
Material Relationships Among
the Parties
.
As of
immediately prior to the Initial Closing, the Soros Parties beneficially owned
approximately 38% of the outstanding Common Stock, the Prentice Parties
beneficially owned approximately 22% of the outstanding Common Stock and the
Maverick Parties beneficially owned approximately 24% of the outstanding Common
Stock.  In addition, as of immediately prior to the Initial Closing,
the Soros Parties and the Maverick Parties were the holders of $3,000,000
aggregate principal amount of Notes issued by the Company, which Notes were
converted into shares of Common Stock at, and as a condition to, the Initial
Closing as described above.  As of immediately after the Initial
Closing, and after giving effect to the conversion of the Notes, the Soros
Parties beneficially owned approximately 33% of the outstanding Common Stock,
the Prentice Parties beneficially owned approximately 16% of the outstanding
Common Stock and the Maverick Parties beneficially owned approximately 20% of
the outstanding Common Stock.
Item
3.02 Unregistered Sale of Equity Securities.
The
information called for by this item is contained in Item 1.01, which is
incorporated herein by reference.
Item 5.02 Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers.
(c) On December 21, 2009, the Board
expanded the size of the Board to eleven members and appointed Habib Kairouz to
serve as a member of the Board.  Mr. Kairouz was designated to the
Board by Rho in accordance with the provisions of the Purchase Agreement and the
Voting Agreement.  Mr. Kairouz is expected to be appointed to the
Compensation Committee and the Nominating and Governance Committee of the Board
at the next regularly scheduled meeting of the Board.  Other than the
transactions reported herein, Mr. Kairouz nor any immediate family member of Mr.
Kairouz has engaged in any transaction with the Company since the beginning of
the Company's last fiscal year, and no such transaction is currently
contemplated, in which the
4
Company is or was to be a participant
and the amount involved exceeded or will exceed $120,000 and in which any
related person had or will have a direct or indirect material
interest.
Mr. Kairouz is currently
a
Managing Partner of Rho Capital Partners and Rho Ventures and serves on the
investment committees of Rho Fund Investors and Rho Canada, which are entities
affiliated with Rho.
Item 9.01 Financial Statements and
Exhibits.
(d)
Exhibits
.
Exhibit
      No.
Description
10.1
Securities Purchase Agreement,
      dated as of December 21, 2009, between Bluefly, Inc. and Rho Ventures VI,
      L.P.
10.2
Amended and Restated Voting
      Agreement, dated as of December 21, 2009, among
Bluefly, Inc.,
      Quantum Industrial Partners LDC, SFM Domestic Investments, LLC, Maverick
      Fund USA, Ltd., Maverick Fund, L.D.C., Maverick Fund II, Ltd., Prentice
      Capital Partners, LP, Prentice Capital Partners QP, LP, Prentice Capital
      Offshore, Ltd., S.A.C. Capital Associates, LLC, GPC XLIII, LLC, PEC I, LLC
      and Rho Ventures VI, LP.
10.3
Registration Rights Agreement,
      dated as of December 21, 2009, among
Bluefly, Inc., Quantum
      Industrial Partners LDC, SFM Domestic Investments, LLC, Maverick Fund USA,
      Ltd., Maverick Fund, L.D.C., Maverick Fund II, Ltd., Prentice Capital
      Partners, LP, Prentice Capital Partners QP, LP, Prentice Capital Offshore,
      Ltd., S.A.C. Capital Associates, LLC, GPC XLIII, LLC, PEC I, LLC and Rho
      Ventures VI, LP.
10.4
Consent and Seventh Amendment to
      Loan and Security Agreement, dated as of December 21, 2009, between the
      Company and Wells Fargo Retail Finance, LLC.
99.1
Press release issued by Bluefly,
      Inc. on December 21,
2009.
5
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act 1934, Bluefly, Inc. has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated:  December
      24, 2009
BLUEFLY,
      INC.
By:  /s/
      Kara B. Jenny
Name:  Kara
      B. Jenny
Title:    Chief
      Financial Officer