Exhibit 10.39


                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT is entered into as of July 31, 2002, by and
between Bluefly, Inc., a Delaware corporation (the "Company"), and Patrick Barry
("Barry").

                                    RECITALS

         WHEREAS, Barry and the Company entered into an Employment Agreement
dated July 1, 1998 that provides, among other things, that Barry shall be the
Company's Executive Vice President until July 31, 2002;

         WHEREAS, Barry received a promotion in title from Executive Vice
President to Chief Operating Officer and Chief Financial Officer in October,
2000;

         WHEREAS, the Company desires to continue to retain the services of
Barry as the Chief Operating Officer and Chief Financial Officer of the Company
in accordance with the terms and conditions of this Agreement.

         WHEREAS, Barry desires to continue to serve the Company as its Chief
Operating Officer and Chief Financial Officer in accordance with the terms and
conditions of this Agreement.

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

          1.   TERM

         The Company hereby agrees to continue to employ Barry as the Chief
Operating Officer and Chief Financial Officer of the Company, and Barry hereby
agrees to serve in such capacity, for a term commencing on the date hereof and
ending June 30, 2005 upon the terms and subject to the conditions contained in
this Agreement; provided, however, that if the Company does not provide Barry
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, Barry shall serve as the Chief
Operating Officer and Chief Financial Officer of the Company reporting directly
to the Chief Executive Officer or the President of the Company, and he shall
perform such duties, and have such powers, authority, functions, duties and
responsibilities for the Company as are reasonably assigned to him by the Chief
Executive Officer, the President 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

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subsidiary of another entity, Barry shall report directly to, and have such
powers, authority, functions, duties and responsibilities as are reasonably
assigned to him by, the Chief Executive Officer, President or comparable officer
of such division or subsidiary.

         The principal location of Barry' 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 Barry understands and agrees
that he will be required to travel from time to time for business reasons. Barry
shall devote substantially all of his business time to the performance of his
duties as the Chief Operating Officer and Chief Financial Officer of the Company
during the term of this Agreement. Barry 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 Barry from rendering any service to any
charitable organization or family business so long as it does not interfere
unreasonably with his duties and obligations hereunder.

          3.   COMPENSATION

         For services rendered by Barry to the Company during the term of this
Agreement, the Company shall pay him a minimum base salary of Two Hundred and
Twenty-Five Thousand Dollars ($225,000) 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,
Barry shall be eligible to participate in the Bluefly, Inc. Key Executive Profit
Participation Plan.

               b. Incentive Award.

               (i)  In consideration for Barry 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)), Barry shall be entitled to receive a
                    payment from the Company equal to 1.2% 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


                                       2
<PAGE>

                    Event, provided that Barry remains employed with the Company
                    at that time, or, if earlier, upon the termination of Barry'
                    employment with the Company (A) by the Company without
                    "Cause" (as defined below), (B) by way of a "Constructive
                    Termination" (as defined below) or (C) on account of death
                    or "permanent disability" (as described in paragraph
                    7(a)(ii) below); provided that if Barry' 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 Barry
                    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) Barry shall be entitled to a payment of the Award in
                    accordance with paragraph 4(b)(i) hereof if (A) a
                    Realization Event occurs while Barry is employed by the
                    Company or (B) Barry' employment is terminated without
                    "Cause" (as defined in paragraph 7(a)(iv) hereof) or Barry
                    terminates his 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, Barry shall have no right to the Award if a
                    Realization Event is consummated following the termination
                    of Barry' 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

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

               (vi) It is understood that the Company intends to allocate an
                    aggregate of 5% of the Aggregate Consideration, less
                    applicable withholding taxes, to senior executives of the
                    Company. Currently 4% of the Aggregate Consideration has
                    been allocated amongst Barry, E. Kenneth Seiff and


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<PAGE>

                    Jonathan Morris, and 1% of the Aggregate Consideration may,
                    in the Company's discretion, be allocated to one or more
                    additional senior executive[s]. Notwithstanding paragraph
                    4(b)(i), if any portion of such 1% has not been allocated at
                    the time of a Realization Event (such unallocated portion,
                    the "Unallocated Award"), Barry' Award shall be increased by
                    30% of the Unallocated Award, less applicable withholding
                    taxes.

               c. Options. Barry shall be eligible to participate in grants of
stock options as is deemed appropriate by the Compensation Committee.

          5.   EXPENSE REIMBURSEMENT AND PERQUISITES

               a. During the term of this Agreement, Barry shall be entitled to
reimbursement of all reasonable and actual out-of-pocket expenses incurred by
him in the performance of his 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, Barry
shall be entitled to reasonable vacation with full pay; provided, however, that
Barry shall schedule such vacations at times convenient to the Company.

               c. During the term of this Agreement, the Company shall provide
Barry with a minimum of $500,000 worth of term life insurance, subject to
availability on commercially reasonable terms, major medical insurance coverage,
and Barry 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.

          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) Barry 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 his own account; (iii) become associated
with or interested in any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent, employee, trustee,
consultant, advisor or in any other relationship or capacity; (iv) employ or
retain, or have or cause any other person or entity to employ or retain, any
person who was employed or retained by the Company while Barry 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


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<PAGE>

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 ten (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 ten (10) or more brands of apparel and/or fashion accessories.
However, nothing in this Agreement shall preclude Barry from investing his
personal assets in the securities of any corporation or other business entity
which is engaged in a Competitive Business if such securities are traded on a
national stock exchange or in the over-the-counter market and if such investment
does not result in his beneficially owning, at any time, more than three percent
(3%) of the publicly-traded equity securities of such Competitive Business.

               b. Barry 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. Barry agrees that any breach of the covenants contained
in this paragraph 6 would irreparably injure the Company. Accordingly, Barry
agrees that the Company, in addition to pursuing any other remedies it may have
in law or in equity, may obtain an injunction against Barry 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
(2) 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 Barry 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, Barry receives notice in writing
from the Company of any material breach of any of the covenants contained in
this paragraph 6 by him and Barry cures such material breach within twenty-one
(21) days of the date he receives such notice, then the Company will continue
the Severance Benefits provided pursuant to paragraph 7(b) below; provided, that
Barry shall not be entitled to Severance Benefits for periods during which he
was in material breach of such covenants.

          7.   TERMINATION

               a. This Agreement (other than as specifically stated herein), the
employment of Barry, and Barry' position as Chief Operating Officer and Chief
Financial Officer of the Company shall terminate upon the first to occur of:

               (i)  his death;

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


                                       5
<PAGE>

              (iii) a "Constructive Termination" by the Company, which, for
                    purposes of this Agreement, shall be deemed to have occurred
                    upon (A) the removal of Barry from his position as Chief
                    Operating Officer and Chief Financial Officer, (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 Barry as Chief Operating Officer and Chief Financial
                    Officer 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 a Chief Operating Officer and
                    Chief Financial Officer or senior executive officer of such
                    division or subsidiary); provided that no such breach shall
                    be considered a Constructive Termination unless Barry has
                    provided the Company with written notice of such breach and
                    the Company has failed to cure such breach within the thirty
                    (30) day period following his receipt of such notice;

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

               (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) Barry has
                    been convicted of a felony or any serious crime involving
                    moral turpitude, or engaged in materially fraudulent or
                    materially dishonest actions in connection with the
                    performance of his duties hereunder, (2) Barry has willfully
                    and materially failed to perform his duties hereunder, (3)
                    Barry has breached the terms and provisions of this
                    Agreement in any material respect, or (4) Barry has failed
                    to comply in any material respect with the Company's written
                    policies of conduct of which he 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 that can be cured
                    unless the Company has provided Barry with written notice of
                    such breach and Barry has failed to cure such breach within
                    the ten (10) day period following his receipt of such
                    notice; or

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

               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 Barry his 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 his termination of employment and shall make no other payments
or provide any other benefits under this Agreement. In the event that


                                       6
<PAGE>

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 Barry's execution of a mutual release reasonably acceptable to
the Company and Barry, the Company shall pay Barry his 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 Barry
                    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 Barry
                    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 Barry participates as of the date of such
                    termination for a period of one year from the date of
                    termination.

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 Barry
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;


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<PAGE>

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

                  (3) the dissolution or liquidation of the Company;

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

                  (5) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the Company
that requires the approval of the Company's stockholders, whether for such
transaction or the issuance of securities in the transaction (a "Business
Combination"), unless immediately following such Business Combination: (A) more
than 50% of the total voting power of (x) the corporation resulting from such
Business Combination (the "Surviving Corporation"), or (y) if applicable, the
ultimate parent corporation that directly or indirectly has beneficial ownership
of sufficient voting securities eligible to elect a majority of the directors of
the Surviving Corporation (the "Parent Corporation"), is represented by the
Outstanding Company Voting Securities that were outstanding immediately prior to
such Business Combination (or, if applicable, is represented by shares into
which the Outstanding Company Voting Securities were converted pursuant to such
Business Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of the Company's Voting
Securities among the holders thereof immediately prior to the Business
Combination, (B) no Person (other than 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:


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<PAGE>

                  (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 Barry, cancel any outstanding
stock options and pay to Barry, 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 Barry is a party.

                    d.   Reduction of Payments in Certain Cases.

                    (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 Barry, 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 Barry 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 Barry's taxable income for the
                         immediately preceding taxable year, or such other
                         rate(s) as Barry shall in his sole discretion certify
                         as likely to apply to Barry 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 Barry to tax
                         under Section 4999 of the Code, it shall determine
                         whether some amount of Agreement Payments would


                                       9
<PAGE>

                         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 Barry
                         notice to that effect and a copy of the detailed
                         calculation thereof, and Barry may then elect, in his
                         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 his or her
                         election within ten business days of his receipt of
                         notice. If no such election is made by Barry 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 Barry promptly of such
                         election. All reasonable determinations made by the
                         Accounting Firm under this paragraph 8(d) shall be
                         binding upon the Company and Barry. As promptly as
                         practicable following such determination, the Company
                         shall pay to or distribute for the benefit of Barry
                         such Agreement Payments as are then due to Barry under
                         this Agreement and shall promptly pay to or distribute
                         for the benefit of Barry in the future such Agreement
                         Payments as become due to Barry under this Agreement.

                    (iv) While it is the intention of the Company and Barry to
                         reduce the amounts payable or distributable to Barry
                         hereunder only if the aggregate Net After Tax Receipts
                         to Barry 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 Barry 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 Barry 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 Barry which the
                         Accounting Firm reasonably believes has a high
                         probability of success determines that an Overpayment
                         has been made, then Barry shall repay to the any such
                         Overpayment to the Company within ten business days of
                         his 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 Barry.


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<PAGE>

                    (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. Barry recognizes that the services to be performed by him are
special, unique and extraordinary in that, by reason of his employment under
this Agreement, he may acquire or has acquired confidential information and
trade secrets concerning the operation of the Company, its predecessors, and/or
its affiliates, the use or disclosure of which could cause the Company, or its
affiliates substantial loss and damages which could not be readily calculated
and for which no remedy at law would be adequate. Accordingly, Barry covenants
and agrees with the Company that he will not, directly or indirectly, at any
time during the term of this Agreement or thereafter, except in the performance
of his obligations to the Company or with the prior written consent of the Board
of Directors or as otherwise required by court order, subpoena or other
government process, directly or indirectly, disclose any secret or confidential
information that he may learn or has learned by reason of his association with
the Company. If Barry shall be required to make such disclosure pursuant to
court order, subpoena or other government process, he shall notify the Company
of the same, by personal delivery or electronic means, confirmed by mail, within
twenty-four (24) hours of learning of such court order, subpoena or other
government process and, at the Company's expense, 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. Barry 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
Barry 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 his employment with
the Company.

               c. Barry 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 Barry for the Company during his 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


                                       11
<PAGE>

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

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

          10.  REPRESENTATIONS AND WARRANTIES

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

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

          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 Barry (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 Barry of the covenants
contained in paragraphs 6 and 9 of this Agreement.


                                       12
<PAGE>

          12.  INDEMNIFICATION

               a. The Company agrees that it shall to the fullest extent
permitted by law indemnify and hold Barry harmless and shall pay and reimburse
Barry for any loss, cost, damage, injury or other expense (including without
limitation reasonable attorneys' fees) which Barry incurs by reason of being or
having been an officer or director of the Company or by reason of the fact that
Barry 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 Barry) provided that Barry executes and deliver to the Company
an undertaking to repay any amounts so advanced in the event that it shall be
determined that Barry is not entitled to indemnification 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 Barry' employment hereunder.

               b. In the event that Barry asserts his right of indemnification
under paragraph 12(a) above, the Company shall have the right to select Barry'
counsel provided that there is no material conflict of interest between the
Company and Barry and provided such counsel is reasonably acceptable to Barry.
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 Barry is provided with a
general release from the Company and the claimant in form and substance
reasonably satisfactory to Barry and no restrictions are imposed on Barry as a
result of the settlement.

          13.  ENTIRE AGREEMENT

         This Agreement together with any stock option agreements to which Barry
and the Company are a party contain all of the understandings between Barry and
the Company pertaining to Barry' 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 Barry 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:


                                       13
<PAGE>

         If to the Company, to:

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

         With a copy to:

                  Paul, Weiss, Rifkind, Wharton & Garrison|
                  1285 Avenue of the Americas
                  New York, New York 10019-6064
                  Attn: Michael J. Segal, Esq.

         If to Barry, to:

                  Patrick Barry
                  Address on file at Company.


          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

         Barry shall not be obligated to seek other employment by way of
mitigation of the amounts payable to him 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.


                                       14
<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/ Patrick Barry
                                       -----------------------------
                                             Patrick Barry


                                       15