EXHIBIT 10.60

                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT is entered into as of September 22, 2003, by
and between Bluefly, Inc., a Delaware corporation (the "Company"), and Melissa
Payner-Gregor ("Payner").

                                    RECITALS

         WHEREAS, the Company desires to retain the services of Payner as the
President and a member of the Board of Directors of the Company in accordance
with the terms and conditions of this Agreement.

         WHEREAS, Payner desires to serve the Company as its President and a
member of the Board of Directors in accordance with the terms and conditions of
this Agreement.

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

         1.       TERM

         The Company hereby agrees to employ Payner as the President of the
Company, and Payner hereby agrees to serve in such capacity, for a term
commencing on the date hereof and ending March 1, 2007, upon the terms and
subject to the conditions contained in this Agreement; provided, however, that
if the Company does not provide Payner with written notice of its desire not to
renew this Agreement at least 90 days prior to the end of the then current term
(including any one year renewal term that is created as a result of this
proviso), this Agreement shall automatically extend for one year from the end of
the then current term.

         2.       DUTIES

         During the term of this Agreement, Payner shall serve as the President
of the Company reporting directly to the Chief Executive Officer of the Company,
and she shall perform such duties, and have such powers, authority, functions,
duties and responsibilities for the Company as are reasonably assigned to her by
the Chief Executive Officer and/or the Board of Directors of the Company (the
"Board") and as are consistent with the duties, responsibilities, and activities
of a senior executive officer of the Company. To the extent that the Company
becomes a division or subsidiary of another entity, Payner shall report directly
to, and have such powers, authority, functions, duties and responsibilities as
are reasonably assigned to her by, the Chief Executive Officer or comparable
officer of such division or subsidiary.

         The Company will use best efforts to nominate Payner to the Board and
recommend that the Company's stockholders vote in favor of the election of
Payner to the Board at the next meeting of stockholders and every annual meeting
thereafter during the term of this Agreement. Payner will accept any such
nomination and serve as a member of the Board if and when elected.

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         The principal location of Payner's employment shall be at the Company's
principal office which shall be located in the New York City vicinity (i.e.
within a 20 mile radius of Manhattan), although Payner understands and agrees
that she will be required to travel from time to time for business reasons.
Payner shall devote substantially all of her business time to the performance of
her duties as the President of the Company during the term of this Agreement.
Payner shall not, directly or indirectly, render professional services to any
other person or entity, without the consent of the Company's Chief Executive
Officer; provided, however, that nothing contained herein shall prevent Payner
from rendering any service to any charitable organization or family business so
long as it does not interfere unreasonably with her duties and obligations
hereunder.

         3.       COMPENSATION

         For services rendered by Payner to the Company during the term of this
Agreement, the Company shall pay her a minimum base salary of $450,000 per year
("Base Salary"), payable in accordance with the standard payroll practices of
the Company, subject to increases in the sole discretion of the Compensation
Committee of the Board (the "Compensation Committee"), taking into account
merit, corporate and individual performance and general business conditions,
including changes in the "cost of living index."

         4.       PROFIT PARTICIPATION/INCENTIVE AWARD/OPTIONS

                  a. Profit Participation. For each fiscal year during the Term,
Payner shall be eligible to participate in the Bluefly, Inc. Key Executive
Profit Participation Plan (the "Profit Participation Plan") as follows:

                  (i)      For the Company's Fiscal Year 2004 (ending December
                           31, 2004), provided that Payner has relocated herself
                           and her family to the New York City vicinity by
                           August 31, 2004 and remains employed with the Company
                           through December 31, 2004, Payner will be entitled to
                           receive a bonus equal to the greater of (x) the
                           lesser of (A) 3.0% of the Company's yearly GAAP net
                           income, as reflected in its full-year audit, and (B)
                           200% of her Base Salary and (y) $100,000.

                  (ii)     For each of the Company's fiscal years during the
                           term of this Agreement after Fiscal Year 2004,
                           provided that Payner remains employed with the
                           Company through the last day of such fiscal year,
                           Payner will be entitled to receive a bonus equal to
                           the lesser of (A) 3.0% of the Company's yearly GAAP
                           net income for such fiscal year, as reflected in its
                           full-year audit, and (B) 200% of her Base Salary.

                  b. Incentive Award.

                  (i)      In consideration for Payner agreeing to the
                           non-competition and non-solicitation provisions of
                           paragraph 6 and the confidentially and invention
                           provisions of paragraph 9, and subject to the
                           conditions set forth in this paragraph 4(b), upon the
                           occurrence of a "Realization Event" (as defined in
                           paragraph 4(b)(iv)), Payner shall be entitled to
                           receive, in addition to

<PAGE>

                           whatever she may be entitled to by virtue of any
                           stock or options she may own and any other provisions
                           of this Agreement, a payment from the Company equal
                           to 1.0% of the "Aggregate Consideration" (as defined
                           in paragraph 4(b)(iii)), less applicable withholding
                           taxes ("Award"). Subject to paragraph 4(b)(ii)
                           hereof, the amount payable in respect of an Award
                           shall be payable in the same type or types of
                           consideration received by other shareholders of the
                           Company (and, if more than one type of consideration
                           is given, payment will be made in the same relative
                           percentages of each type of consideration received by
                           other shareholders), with one-half of the Award
                           payable as soon as is administratively practicable
                           after the occurrence of a Realization Event, and the
                           other one-half of the Award payable on the first
                           anniversary of the Realization Event, provided that
                           Payner remains employed with the Company at that
                           time, or, if earlier, upon the termination of
                           Payner's employment with the Company pursuant to
                           paragraph 7(a)(ii), 7(a)(iii) or 7(a)(iv) below;
                           provided that if Payner's employment with the Company
                           is terminated for any reason other than as described
                           above prior to the first anniversary after the date
                           of the Realization Event, then the second one-half of
                           the Award shall be permanently forfeited.
                           Notwithstanding anything to the contrary herein, the
                           consideration received by Payner will be subject to
                           any hold-back, escrow, indemnity or similar
                           arrangement to the same extent to which the
                           consideration to be received by other shareholders in
                           the Company is subject.

                  (ii)     Payner shall be entitled to a payment of the Award in
                           accordance with paragraph 4(b)(i) hereof if (A) a
                           Realization Event occurs while Payner is employed by
                           the Company or (B) Payner's employment is terminated
                           without "Cause" (as defined in paragraph 7(a)(iv)
                           hereof) or Payner terminates her employment on
                           account of a "Constructive Termination" (as defined
                           in paragraph 7(a)(iii) hereof) and within 180 days
                           following such termination a Realization Event is
                           consummated. Except as provided in the preceding
                           sentence, Payner shall have no right to the Award if
                           a Realization Event is consummated following the
                           termination of Payner's employment with the Company.

                  (iii)    For purposes of this Agreement, "Aggregate
                           Consideration" shall mean the total fair market value
                           (as reasonably determined by the Compensation
                           Committee at the time of the closing of the
                           Realization Event) of the cash, securities and other
                           consideration paid or payable, or otherwise to be
                           distributed directly to the Company's stockholders in
                           connection with a Realization Event.

                  (iv)     For purposes of this Agreement, "Realization Event"
                           means a "Change of Control" (as defined in paragraph
                           8) in which cash, securities or other consideration
                           is paid or payable, or otherwise to be distributed
                           directly to the Company's stockholders.

<PAGE>

                  (v)      Notwithstanding any provision of this Agreement to
                           the contrary, in the event Payner materially breaches
                           the provisions of paragraphs 6 or 9 hereof, Payner
                           hereby agrees that the Company may, in addition to
                           any other remedies it may have, reclaim any amount
                           paid to Payner pursuant to this paragraph 4(b).

                  c. Options. Upon the effectiveness of this Agreement, Payner
will, pursuant to a Stock Option Agreement receive options to purchase 1,200,000
shares of common stock of the Company, exercisable at the Fair Market Value (as
defined in the Company's 1997 Stock Option Plan) of the Company's common shares,
provided that the grant of the option with respect to 200,000 shares will be
subject to approval by the Company's stockholders. In addition, in the event
that Payner has relocated herself and her family to the New York City vicinity
on or before August 31, 2004 and Payner is still employed by the Company on such
relocation date, Payner will, pursuant to a Stock Option Agreement receive
options (the "Relocation Options") to purchase 100,000 shares of common stock of
the Company, exercisable at the price exercise price set forth in Payner's
initial option grant. The Relocation Options will vest over a 36-month period in
equal monthly installments beginning on the date of relocation, be subject to
stockholder approval, and otherwise be on substantially similar terms as those
contained in Payner's initial stock option agreement. The Company will use its
best efforts to obtain the approval of the Company's stockholders for such
grant. All future grants, if any, will be made as deemed appropriate by the
Compensation Committee.

         5.       EXPENSE REIMBURSEMENT AND PERQUISITES

                  a. During the term of this Agreement, Payner shall be entitled
to reimbursement of all reasonable and actual out-of-pocket expenses incurred by
her in the performance of her services to the Company consistent with corporate
policies, provided that the expenses are properly accounted for.

                  b. During each calendar year of the term of this Agreement,
Payner shall be entitled to reasonable vacation with full pay; provided,
however, that Payner shall schedule such vacations at times convenient to the
Company.

                  c. During the term of this Agreement, the Company shall, as
soon as reasonably practical after the commencement of the term, provide Payner
with a minimum of $500,000 worth of term life insurance, subject to availability
on commercially reasonable terms, major medical insurance coverage, and Payner
shall be entitled to participate in all dental insurance and disability plans
and other medical, insurance, and employee benefit plans instituted by the
Company from time to time on the same terms and conditions as those offered to
other senior executive officers of the Company, to the extent permitted by law.

                  d. In the event that Payner has relocated herself and her
family to the New York City vicinity on or before August 31, 2004, the Company
will promptly pay Payner $75,000 in cash. In the event that Payner's employment
with the Company terminates prior to December 31, 2004 other than pursuant to
paragraph 7(a)(iii) or 7(a)(iv), Payner shall within 30 days of her termination
date pay the Company $75,000. The parties agree that the foregoing is not
intended

<PAGE>

as a liquidated damages clause and shall not limit any of the other rights or
remedies of the parties.

                  e. During the term of this Agreement, for the months from
September 2003 up to August 31, 2004, the Company will pay for appropriate
monthly temporary housing (estimated to be $2,500 per month), as reasonably
determined by the Company, and two monthly round-trip coach flights from New
York to Chicago. It is essential that Payner submit receipts directly to the
Company on a monthly basis to be reimbursed.

         6.       NON-COMPETITION; NON-SOLICITATION

                  a. In consideration of the offer of employment and severance
benefits hereunder, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, during the term of this
Agreement and during the "Non-Competition Period" (as defined in paragraph 6(c)
below) Payner 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" (as defined below); (ii)
engage in any Competitive Business for her 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 Payner 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: (a) any person,
corporation, partnership, firm or other entity whose primary business is the
sale or consignment of off-price apparel and/or off-price fashion accessories;
(b) any division of a person, corporation, partnership, firm or other entity
(but not the person, corporation, partnership, firm or other entity itself)
whose primary business is internet based selling or consignment of 10 or more
brands of off-price apparel and/or off-price fashion accessories; or (c) the
off-price divisions of Nordstrom, Saks Fifth Avenue, Neiman Marcus or the
off-price division of another retailer of 10 or more brands of apparel and/or
fashion accessories. However, nothing in this Agreement shall preclude Payner
from investing her 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 her beneficially owning, at any time, more
than 3% of the publicly-traded equity securities of such Competitive Business.

                  b. Payner 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. Payner agrees that any breach of the covenants
contained in this paragraph 6 would irreparably injure the Company. Accordingly,
Payner agrees that the Company, in addition to pursuing any other remedies it
may

<PAGE>

have in law or in equity, may obtain an injunction against Payner from any court
having jurisdiction over the matter, restraining any further violation of this
paragraph 6.

                  c. The "Non-Competition Period" shall extend for a period of
two years following the end of the term of this Agreement; provided, however
that, in the event that the Agreement is terminated by the Company without
"Cause" (as defined in paragraph 7(a)(iv)), or by Payner pursuant to a
"Constructive Termination" (as defined in paragraph 7(a)(iii)), the
Non-Competition Period shall expire on the first anniversary of the termination
of this Agreement (the "Modified Non-Competition Period"); and further provided
that in the event that during the Non-Competition Period or the Modified
Non-Competition Period, as the case may be, Payner receives notice in writing
from the Company of any material breach of any of the covenants contained in
this paragraph 6 by her and Payner cures such material breach within 21 days of
the date she receives such notice, then the Company will continue the Severance
Benefits provided pursuant to paragraph 7(b) below; provided, that Payner shall
not be entitled to Severance Benefits for periods during which she was in
material breach of such covenants.

         7.       TERMINATION

                  a. This Agreement (other than as specifically stated herein),
the employment of Payner, and Payner's position as President of the Company
shall terminate upon the first to occur of:

                  (i)      her death;

                  (ii)     her "permanent disability," due to injury or sickness
                           for a continuous period of 4 months, or a total of
                           eight months in a 12-month period (vacation time
                           excluded), during which time Payner is unable to
                           attend to her ordinary and regular duties;

                  (iii)    a "Constructive Termination" by the Company, which,
                           for purposes of this Agreement, shall be deemed to
                           have occurred upon (A) the removal of Payner from her
                           position as President of the Company, (B) the
                           material breach by the Company of this Agreement,
                           including any material diminution in the nature or
                           scope of the authorities, powers, functions, duties
                           or responsibilities of Payner as President and a
                           senior executive officer of the Company (or to the
                           extent that the Company becomes a division or
                           subsidiary of another entity, the authorities,
                           powers, functions, duties or responsibilities of an
                           President or senior executive officer of such
                           division or subsidiary); provided that no such breach
                           shall be considered a Constructive Termination unless
                           Payner has provided the Company with written notice
                           of such breach and the Company has failed to cure
                           such breach within the 30 day period following her
                           receipt of such notice;

                  (iv)     the termination of this Agreement at any time without
                           Cause (as defined below) by the Company;

<PAGE>

                  (v)      subject to compliance with the notice provisions
                           contained in paragraph 1 of this Agreement, the
                           non-renewal of this Agreement by the Company and/or
                           the Board of Directors;

                  (vi)     the termination of this Agreement for "Cause", which,
                           for purposes of this Agreement, shall mean that (1)
                           Payner 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 her duties
                           hereunder, (2) Payner has willfully and materially
                           failed to perform her duties hereunder, (3) Payner
                           has breached the terms and provisions of this
                           Agreement in any material respect, or(4) Payner has
                           failed to comply in any material respect with the
                           Company's written policies of conduct of which she
                           had actual notice, including with respect to trading
                           in securities; provided that the Company shall not
                           have any right to terminate this Agreement for Cause
                           pursuant to clauses (2), (3) or (4) of this
                           sub-paragraph (vi) as a result of a breach unless the
                           Company has provided Payner with written notice of
                           such breach and Payner has failed to cure such breach
                           within the 10 day period following her receipt of
                           such notice; or

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

                  b. In the event that this Agreement is terminated, other than
as a result of a Constructive Termination or by the Company without Cause, the
Company shall pay Payner her accrued but unpaid Base Salary and unreimbursed
business expenses and bonuses that have been earned and awarded but not yet paid
as of the date of her termination of employment and shall make no other payments
or provide any other benefits under this Agreement. In the event that this
Agreement is terminated by the Company without Cause pursuant to paragraph
7(a)(iv) or through a Constructive Termination pursuant to paragraph 7(a)(iii),
and subject to Payner's execution of a mutual release reasonably acceptable to
the Company and Payner, the Company shall pay Payner her Base Salary through the
date of termination, plus unreimbursed business expenses and bonuses that have
been earned and awarded but not yet paid, as well as the following severance and
noncompetition payments set forth below (the "Severance Benefits"):

                  (i)      the then-current Base Salary for a period of six
                           months from the date of termination;

                  (ii)     any unvested stock options that have been granted to
                           Payner which are outstanding as of the date of such
                           termination shall be deemed to be fully vested as of
                           that date;

                  (iii)    the Company shall maintain in effect, or reimburse
                           Payner for the cost of maintaining, the medical and
                           dental insurance and disability and hospitalization
                           plans of the Company as well as any Company sponsored
                           life insurance policy in which Payner participates as
                           of the date of such termination for a period of one
                           year from the date of termination.

<PAGE>

The Severance Benefits shall be payable in periodic installments in accordance
with the Company's standard payroll practices.

         8.       CHANGE OF CONTROL

                  a. In the event that a Change of Control (as defined below)
occurs during the term of this Agreement, any stock options granted to Payner
which are outstanding as of the date of that Change in Control shall be deemed
to be fully vested as of that date. For purposes of this Agreement, "Change of
Control" shall be deemed to occur upon:

                           (1)      the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more (on a fully diluted basis) of either (A) the then
outstanding shares of common stock of the Company, taking into account as
outstanding for this purpose such common stock issuable upon the exercise of
options or warrants, the conversion of convertible stock or debt, and the
exercise of any similar right to acquire such common stock (the "Outstanding
Company Common Stock") or (B) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this Agreement, the following acquisitions shall not constitute
a Change of Control: (I) any acquisition by the Company or any "Affiliate" (as
defined below), (II) any acquisition by any employee benefit plan sponsored or
maintained by the Company or any Affiliate, (III) any acquisition by Quantum
Industrial Partners LDC, Soros Fund Management LLC and/or SFM Domestic
Investments LLC and/or any of their affiliates (collectively, "Soros"), or (IV)
any acquisition which complies with clauses (A), (B) and (C) of sub-paragraph
(a)(5) hereof;

                           (2)      Individuals who, on the date hereof,
constitute the Board (the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board, provided that any person becoming a
director subsequent to the date hereof, whose election or nomination for
election was approved by a vote of at least two-thirds of the Incumbent
Directors then on the Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected or nominated
as a director of the Company as a result of an actual or threatened election
contest with respect to directors or as a result of any other actual or
threatened solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be an Incumbent Director;

                           (3)      the dissolution or liquidation of the
Company;

                           (4)      the sale of all or substantially all of the
business or assets of the Company; or

                           (5)      the consummation of a merger, consolidation,
statutory share exchange or similar form of corporate transaction involving the
Company that requires the approval of the Company's stockholders, whether for
such transaction or the issuance of

<PAGE>

securities in the transaction (a "Business Combination"), unless immediately
following such Business Combination: (A) more than 50% of the total voting power
of (x) the corporation resulting from such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of sufficient voting securities
eligible to elect a majority of the directors of the Surviving Corporation (the
"Parent Corporation"), is represented by the Outstanding Company Voting
Securities that were outstanding immediately prior to such Business Combination
(or, if applicable, is represented by shares into which the Outstanding Company
Voting Securities were converted pursuant to such Business Combination), and
such voting power among the holders thereof is in substantially the same
proportion as the voting power of the Company's Voting Securities among the
holders thereof immediately prior to the Business Combination, (B) no Person
(other than Soros or any employee benefit plan sponsored or maintained by the
Surviving Corporation or the Parent Corporation), is or becomes the beneficial
owner, directly or indirectly, of 30% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
and (C) at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business Combination were Board
members at the time of the Board's approval of the execution of the initial
agreement providing for such Business Combination.

                  b. For purposes of this paragraph 8, the term "Affiliate"
shall mean any entity that directly or indirectly is controlled by, controls or
is under common control with the Company.

                  c. Notwithstanding any provision of this Agreement to the
contrary, in the event of any of the following:

                  (1)      the Company is merged or consolidated with another
corporation or entity and, in connection therewith, consideration is received by
stockholders of the Company in a form other than stock or other equity interests
of the surviving entity;

                  (2)      all or substantially all of the assets of the Company
are acquired by another person;

                  (3)      the reorganization or liquidation of the Company; or

                  (4)      the Company shall enter into a written agreement to
undergo an event described in clauses (1), (2) or (3) above:

then the Compensation Committee may, in its sole and reasonable discretion and
upon at least 10 business days advance notice to Payner, cancel any outstanding
stock options and pay to Payner, in cash or stock, or any combination thereof,
the value of such stock options based upon the price per share of stock received
or to be received by other stockholders of the Company in the event. The terms
of this sub-paragraph 8(c) may be varied by the Compensation Committee in any
particular stock option award agreement to which Payner is a party.

                  d. Reduction of Payments in Certain Cases.

<PAGE>

                  (i)      For purposes of this paragraph 8(d) (A) a "Payment"
                           shall mean any payment or distribution in the nature
                           of compensation to or for the benefit of Payner,
                           whether paid or payable pursuant to this Agreement or
                           otherwise; (B) "Agreement Payment" shall mean a
                           Payment paid or payable pursuant to this Agreement
                           (disregarding this paragraph); (C) "Net After Tax
                           Receipt" shall mean the "Present Value" (as defined
                           below) of a Payment net all of federal, state and
                           local taxes imposed on Payner with respect thereto
                           (including without limitation under Section 4999 of
                           the Internal Revenue Code of 1986, as amended
                           ("Code")), determined by applying the highest
                           marginal rates of such taxes that applied to Payner's
                           taxable income for the immediately preceding taxable
                           year, or such other rate(s) as Payner shall in her
                           sole discretion certify as likely to apply to Payner
                           in the relevant tax year(s); (D) "Present Value"
                           shall mean such value determined in accordance with
                           Section 280G(d)(4) of the Code; and (E) "Reduced
                           Amount" shall mean the smallest aggregate amount of
                           Agreement Payments which (I) is less than the sum of
                           all Agreement Payments and (II) results in aggregate
                           Net After Tax Receipts which are equal to or greater
                           than the Net After Tax Receipts which would result if
                           the aggregate Agreement Payments were any other
                           amount less than the sum of all Agreement Payments.

                  (ii)     Anything in this Agreement to the contrary
                           notwithstanding, in the event that a nationally
                           recognized certified public accounting firm
                           designated by the Company (the "Accounting Firm")
                           shall determine that receipt of all Payments would
                           subject Payner to tax under Section 4999 of the Code,
                           it shall determine whether some amount of Agreement
                           Payments would meet the definition of a "Reduced
                           Amount." If said firm reasonably determines that
                           there is a Reduced Amount, the aggregate Agreement
                           Payments shall be reduced to such Reduced Amount.

                  (iii)    If the Accounting Firm reasonably determines that
                           aggregate Agreement Payments should be reduced to the
                           Reduced Amount, the Company shall promptly give
                           Payner notice to that effect and a copy of the
                           detailed calculation thereof, and Payner may then
                           elect, in her sole discretion, which and how much of
                           the Agreement Payments shall be eliminated or reduced
                           (as long as after such election the present value of
                           the aggregate Agreement Payments equals the Reduced
                           Amount), and shall advise the Company in writing of
                           her election within ten business days of her receipt
                           of notice. If no such election is made by Payner
                           within such ten-day period, the Company may elect
                           which of such Agreement Payments shall be eliminated
                           or reduced (as long as after such election the
                           present value of the aggregate Agreement Payments
                           equals the Reduced Amount) and shall notify Payner
                           promptly of such election. All reasonable
                           determinations made by the Accounting Firm under this
                           paragraph 8(d) shall be binding upon the Company and
                           Payner. As promptly as practicable following such
                           determination, the Company shall pay to or

<PAGE>

                           distribute for the benefit of Payner such Agreement
                           Payments as are then due to Payner under this
                           Agreement and shall promptly pay to or distribute for
                           the benefit of Payner in the future such Agreement
                           Payments as become due to Payner under this
                           Agreement.

                  (iv)     While it is the intention of the Company and Payner
                           to reduce the amounts payable or distributable to
                           Payner hereunder only if the aggregate Net After Tax
                           Receipts to Payner would thereby be increased, as a
                           result of the uncertainty in the application of
                           Section 4999 of the Code at the time of the initial
                           determination by the Accounting Firm hereunder, it is
                           possible that amounts will have been paid or
                           distributed by the Company to or for the benefit of
                           Payner pursuant to this Agreement which should not
                           have been so paid or distributed ("Overpayment") or
                           that additional amounts which will have not been paid
                           or distributed by the Company to or for the benefit
                           of Payner pursuant to this Agreement could have been
                           so paid or distributed ("Underpayment"), in each
                           case, consistent with the calculation of the Reduced
                           Amount hereunder. In the event that the Accounting
                           Firm, based upon the assertion of a deficiency by the
                           Internal Revenue Service against either the Company
                           or Payner which the Accounting Firm reasonably
                           believes has a high probability of success determines
                           that an Overpayment has been made, then Payner shall
                           repay to the any such Overpayment to the Company
                           within ten business days of her receipt of notice of
                           such Overpayment. In the event that the Accounting
                           Firm, based upon controlling precedent or substantial
                           authority, reasonably determines that an Underpayment
                           has occurred, any such underpayment shall be promptly
                           paid by the Company to or for the benefit of Payner.

                  (v)      All fees and expenses of the Accounting Firm in
                           implementing the provisions of this paragraph 8(d)
                           shall be borne by the Company.

         9.       CONFIDENTIALITY; INVENTIONS

                  a. Payner recognizes that the services to be performed by her
are special, unique and extraordinary in that, by reason of her employment under
this Agreement, she 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, Payner covenants
and agrees with the Company that she will not, directly or indirectly, at any
time during the term of this Agreement or thereafter, except in the performance
of her 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 she may learn or has learned by reason of her association with
the Company. If Payner shall be required to make such disclosure pursuant to
court order, subpoena or other government process, she shall notify the Company
of the same, by personal delivery or electronic means, confirmed by mail, within
24 hours of learning of such court order, subpoena

<PAGE>

or other government process and, at the Company's expense, shall (i) take all
reasonably necessary and lawful steps 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, studies, surveys, analyses, sketches, drawings, notes, records,
software, computer-stored or disk-stored information, processes, techniques,
research data, marketing and sales information, personnel data, trade secrets
and other intellectual property, designs, design concepts, manuals, confidential
reports, supplier names and pricing, customer names and prices paid, financial
information or business plans.

                  b. Payner 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 Payner relating to the business of the Company shall be and will remain
the sole and exclusive property of the Company and shall be promptly delivered
and returned to the Company immediately upon the termination of her employment
with the Company.

                  c. Payner 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 Payner for the Company during her services with the Company, whether
or not during normal working hours or on the premises 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 Payner hereby
assigns to the Company, without further compensation, all of her rights, title
and interests in and to the Developments and any and all related patents, patent
applications, copyrights, copyright applications, trademarks and tradenames in
the United States and elsewhere.

                  d. Payner 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, Payner
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. Payner agrees that any breach of this paragraph 9 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. Payner understands and agrees that the rights and
obligations set forth in paragraph 9 shall survive the termination or expiration
of this Agreement.

<PAGE>

         10.      REPRESENTATIONS AND WARRANTIES

                  a. Payner represents and warrants to the Company that she was
advised to consult with an attorney of Payner's own choosing concerning this
Agreement and that Payner has done so.

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

                  c. Payner represents and warrants to the Company that: (i) in
her capacity as an employee of Spiegel Catalog, Inc. and/or employee or board
member of the Spiegel Group, she complied in all material respects with all
laws, rules, regulations, and orders of any governmental department, commission,
board, agency or instrumentality to which she was subject and; (ii) to the best
of her knowledge, as of the date hereof, there are no legal, administrative,
arbitration or other proceedings, or claims, actions, disputes or investigations
pending or threatened against her.

         11.      GOVERNING LAW; ARBITRATION

         This Agreement shall be deemed a contract made under, and for all
purposes shall be construed in accordance with, the 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 to Payner (but not the Company) if he or she
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 Payner of the covenants
contained in paragraphs 6 and 9 of this Agreement.

         12.      INDEMNIFICATION

                  a. The Company agrees that it shall to the fullest extent
permitted by law indemnify and hold Payner harmless and shall pay and reimburse
Payner for any loss, cost, damage, injury or other expense (including without
limitation reasonable attorneys' fees) which Payner incurs by reason of being or
having been an officer or director of the Company or by reason of the fact that
Payner is or was serving at the request of the Company as a director, officer,
employee, fiduciary or other representative of the Company. All indemnification
shall be paid by the Company in advance of the final disposition of the matter
(as incurred by Payner) provided that Payner executes and deliver to the Company
an undertaking to repay any amounts so advanced in the event that it shall be
determined that Payner is not entitled to indemnification

<PAGE>

hereunder. This indemnification obligation is in addition to any other
indemnification provision contained in the Company's By-laws or pursuant to any
other document, instrument or agreement and shall survive the term of Payner's
employment hereunder.

                  b. In the event that Payner asserts her right of
indemnification under paragraph 12(a) above, the Company shall have the right to
select Payner's counsel provided that there is no material conflict of interest
between the Company and Payner and provided such counsel is reasonably
acceptable to Payner. Notwithstanding the foregoing, the Company shall have the
right to participate in, or fully control, any proceeding, compromise,
settlement, resolution or other disposition of the claim or proceeding so long
as Payner is provided with a general release from the Company and the claimant
in form and substance reasonably satisfactory to Payner and no restrictions are
imposed on Payner as a result of the settlement.

         13.      ENTIRE AGREEMENT

         This Agreement together with any stock option agreements to which
Payner and the Company are a party contain all of the understandings between
Payner and the Company pertaining to Payner's employment with the Company and
supersedes all undertakings and agreements, whether oral or in writing,
previously entered into between them.

         14.      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 Payner 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.

         15.      NOTICES

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

         If to the Company, to:

                  Bluefly, Inc.
                  42 West 39th Street, 9th Floor
                  New York, NY 10018
                  Attn: E. Kenneth Seiff

         With a copies to:

                  Swidler Berlin Shereff Friedman, LLP
                  The Chrysler Building

<PAGE>

                  405 Lexington Avenue
                  12th Floor
                  New York, New York 10174
                  Attention:  Richard Goldberg

         If to Payner, to:

                  Melissa Payner-Gregor
                  [to the address that the company has on file]

                  And

                  Howard J. Rubin, Esq.
                  Davis & Gilbert LLP
                  1740 Broadway
                  New York, New York  10019

         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 paragraph.

         18.      DUTY TO MITIGATE

         Payner shall not be obligated to seek other employment by way of
mitigation of the amounts payable to her under any provision of this Agreement.

         19.      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.

<PAGE>

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

                                            BLUEFLY, INC.

                                            By:  /s/ E. Kenneth Seiff
                                                 ---------------------------
                                                 E. Kenneth Seiff
                                                 Chief Executive Officer

                                                 /s/ Melissa Payner-Gregor
                                                 ---------------------------
                                                 Melissa Payner-Gregor